Financial Data and Key Metrics Changes - The company reported strong bookings of $57 million in Q1 2021, at the top end of the guided range of $40 million to $60 million, indicating a positive outlook for the remainder of the year [3][4] - The company achieved close to $11 million in free cash flow in Q1, exceeding the target of a 5% free cash flow margin [35][36] Business Line Data and Key Metrics Changes - Downhole tools revenue doubled quarter-on-quarter, marking the highest quarterly revenue since the acquisition in Q4 2016, with strong performance expected to continue in regions like Saudi Arabia and Latin America [5][14] - The subsea business faced challenges due to project delays and slower recovery in parts of Europe and Asia, but Q1 bookings were strong, indicating potential future revenue growth [6][7] Market Data and Key Metrics Changes - The company noted strong activity in Norway and Latin America, with expectations for growth in Brazil and Australia, while the Gulf of Mexico showed some weakness due to regulatory uncertainties [38][39] - The subsea market has seen aggressive pricing strategies from competitors, particularly for large tenders, but the company remains focused on maintaining margins rather than cutting prices to secure work [25] Company Strategy and Development Direction - The company is focusing on broadening its customer base and collaborating with peers to enhance its subsea wellhead products, aiming to be a Tier 1 provider in the market [11][12] - The company is investing in technology to reduce customers' carbon footprints, with initiatives like the e-Series products designed to provide cost savings and efficiency [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in the oil and gas sector as economies reopen post-pandemic, with expectations for improved demand and pricing in the second half of 2021 [4][39] - The company is preparing for a shift towards energy sources outside traditional oil and gas, focusing on geothermal and carbon capture technologies [29][30] Other Important Information - The company successfully resolved litigation involving FMC, which is expected to positively impact its marketing efforts moving forward [9][10] - The company is exploring both organic and inorganic growth opportunities, with a focus on technology that can accelerate its R&D roadmap [32] Q&A Session Summary Question: What is the outlook for quarterly orders for the remainder of the year? - Management expects orders to remain in the $40 million to $60 million range for 2021, with potential strength in the back half of the year as the economy recovers [4] Question: How is the downhole tools business expected to trend for the rest of the year? - The company anticipates some lumpiness in revenue but expects meaningful year-over-year growth, particularly in key markets [5][16] Question: What are the challenges in achieving productivity targets for 2021? - Initial productivity gains were mostly fixed in nature, with expectations for more variable gains as the company transitions to a third-party supply chain model [23][24] Question: How is the company preparing for the shift towards energy sources outside traditional oil and gas? - The company is focusing on reducing carbon footprints and exploring opportunities in geothermal and carbon capture technologies [29][30]

PART I—FINANCIAL INFORMATION Dril-Quip, Inc.'s unaudited condensed consolidated financial statements and management's discussion for Q1 2021 [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) Presents Dril-Quip, Inc.'s unaudited Q1 2021 financial statements, including balance sheets, income, cash flows, equity, and key notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Snapshot of the company's financial position at March 31, 2021, and December 31, 2020 ASSETS (In thousands) | ASSETS (In thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $362,213 | $345,955 | | Total current assets | $844,721 | $863,193 | | Total assets | $1,126,831 | $1,151,172 | | LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands) | March 31, 2021 | December 31, 2020 | | :-------------------------------------------------- | :------------- | :---------------- | | Total current liabilities | $95,307 | $85,512 | | Total liabilities | $118,565 | $109,644 | | Total stockholders' equity | $1,008,266 | $1,041,528 | | Total liabilities and stockholders' equity | $1,126,831 | $1,151,172 | - Total assets decreased by approximately **$24.3 million** from December 31, 2020, to March 31, 2021, primarily driven by a decrease in current assets, including trade receivables, unbilled receivables, and inventories[8](index=8&type=chunk) - Total stockholders' equity decreased by approximately **$33.3 million**, mainly due to the net loss incurred during the period and foreign currency translation adjustments[8](index=8&type=chunk)[19](index=19&type=chunk)[27](index=27&type=chunk) [Condensed Consolidated Statements of Income (Loss)](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME%20(LOSS)) Details Q1 2021 and 2020 financial performance, including revenues, expenses, and net loss (In thousands, except per share data) | (In thousands, except per share data) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues | $81,239 | $95,998 | | Total costs and expenses | $112,821 | $138,320 | | Operating loss | $(31,582) | $(42,322) | | Loss before income taxes | $(31,972) | $(41,307) | | Income tax provision (benefit) | $2,386 | $(21,609) | | Net loss | $(34,358) | $(19,698) | | Basic loss per common share | $(0.97) | $(0.55) | | Diluted loss per common share | $(0.97) | $(0.55) | - Total revenues decreased by **15.4%** year-over-year, from **$96.0 million** in Q1 2020 to **$81.2 million** in Q1 2021[13](index=13&type=chunk)[99](index=99&type=chunk) - Net loss increased significantly from **$(19.7) million** in Q1 2020 to **$(34.4) million** in Q1 2021, primarily due to higher restructuring charges and a shift from income tax benefit to provision[13](index=13&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) Presents Q1 2021 and Q1 2020 comprehensive income (loss), including net loss and other items (In thousands) | (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(34,358) | $(19,698) | | Foreign currency translation adjustments | $(2,090) | $(24,979) | | Total comprehensive loss | $(36,448) | $(44,677) | - Total comprehensive loss decreased from **$(44.7) million** in Q1 2020 to **$(36.4) million** in Q1 2021, mainly driven by a smaller negative impact from foreign currency translation adjustments[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Outlines cash inflows and outflows from operating, investing, and financing activities for Q1 2021 and Q1 2020 (In thousands) | (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $13,072 | $(21,237) | | Investing activities | $3,431 | $(3,500) | | Financing activities | $(40) | $(25,085) | | Increase (decrease) in cash and cash equivalents | $16,258 | $(55,474) | | Cash and cash equivalents at end of period | $362,213 | $343,472 | - Net cash provided by operating activities was **$13.1 million** in Q1 2021, a significant improvement from net cash used of **$21.2 million** in Q1 2020, primarily due to changes in operating assets and liabilities[25](index=25&type=chunk)[107](index=107&type=chunk) - Net cash provided by investing activities was **$3.4 million** in Q1 2021, compared to net cash used of **$3.5 million** in Q1 2020, mainly driven by proceeds from the sale of two buildings in Singapore[25](index=25&type=chunk)[107](index=107&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) Details changes in stockholders' equity from January 1, 2021, to March 31, 2021 (In thousands, except shares) | (In thousands, except shares) | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Losses | Total | | :---------------------------- | :----------- | :------------------------- | :---------------- | :------------------------------------- | :---- | | Balance at January 1, 2021 | $363 | $65,613 | $1,125,263 | $(149,711) | $1,041,528 | | Foreign currency translation adjustment | - | - | - | $(2,090) | $(2,090) | | Net loss | - | - | $(34,358) | - | $(34,358) | | Stock option expense | - | $3,186 | - | - | $3,186 | | Balance at March 31, 2021 | $363 | $68,799 | $1,090,905 | $(151,801) | $1,008,266 | - Total stockholders' equity decreased from **$1,041.5 million** at January 1, 2021, to **$1,008.3 million** at March 31, 2021, primarily due to the net loss of **$34.4 million** and foreign currency translation adjustments of **$2.1 million**[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Detailed explanations of accounting policies, estimates, and specific financial statement line items [1. Organization and Basis of Presentation](index=8&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) Describes Dril-Quip, Inc.'s business, segments, and impact of winter storm and COVID-19 - Dril-Quip, Inc. designs, manufactures, sells, and services highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications, with operations organized into three geographic segments: Western Hemisphere, Eastern Hemisphere, and Asia-Pacific[35](index=35&type=chunk) - The company's Houston manufacturing facilities were shut down for a week in February 2021 due to a severe winter storm, incurring additional costs, while the COVID-19 pandemic continues to impact business, reducing global oil and gas demand[35](index=35&type=chunk) [2. Significant Accounting Policies](index=9&type=section&id=2.%20Significant%20Accounting%20Policies) Outlines key accounting estimates and policies, including revenue recognition, impairment, inventories, and restructuring - Key accounting estimates include revenue recognition, impairment of goodwill and asset recoverability, and inventories[38](index=38&type=chunk) - Leasing revenues for Q1 2021 totaled **$7.5 million** from running tools and **$0.5 million** from facility rental[40](index=40&type=chunk) - Restructuring charges in Q1 2021, part of the 2018 global strategic plan, included **$19.3 million** in non-cash inventory write-downs, **$2.7 million** in severance, and **$3.0 million** in other charges, related to shifting from in-house manufacturing to vendor sourcing for downhole tools[43](index=43&type=chunk) [3. New Accounting Standards](index=10&type=section&id=3.%20New%20Accounting%20Standards) Discusses ASU 2019-12 adoption and its immaterial impact on financial statements - The adoption of ASU 2019-12 'Income Taxes (Topic 740)' in Q1 2021 did not have a material impact on the company's financial position, results of operations, or cash flows[48](index=48&type=chunk) [4. Revenue Recognition](index=11&type=section&id=4.%20Revenue%20Recognition) Details revenue streams from customer contracts, including product and service revenues, and contract balances Revenues from contracts with customers (In thousands) | Revenues from contracts with customers (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Product Revenues | $55,583 | $67,558 | | Service Revenues | $17,667 | $18,814 | | Total (excluding leasing) | $73,250 | $86,372 | Contract Balances (In thousands) | Contract Balances (In thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------- | :------------- | :---------------- | | Contract Assets | $135,159 | $135,973 | | Contract Liabilities | $13,711 | $10,815 | - The aggregate amount of the transaction price allocated to remaining performance obligations from over-time product lines was **$69.4 million** as of March 31, 2021, with approximately **49.5%** expected to be recognized over the next 12 months[53](index=53&type=chunk) [5. Stock-Based Compensation and Stock Awards](index=11&type=section&id=5.%20Stock-Based%20Compensation%20and%20Stock%20Awards) Reports stock-based compensation expense recognized for Q1 2021 and Q1 2020 - The company recognized approximately **$3.2 million** in stock-based compensation expense for both the three months ended March 31, 2021, and March 31, 2020[54](index=54&type=chunk) [6. Inventories, net](index=12&type=section&id=6.%20Inventories%2C%20net) Breakdown of inventory components and allowance for slow-moving and excess inventory as of March 31, 2021 Inventories (In thousands) | Inventories (In thousands) | March 31, 2021 | December 31, 2020 | | :------------------------- | :------------- | :---------------- | | Raw materials and supplies | $30,991 | $32,833 | | Work in progress | $42,593 | $44,924 | | Finished goods | $221,588 | $216,928 | | Total gross inventory | $295,172 | $294,685 | | Less: allowance for slow moving and excess inventory | $(100,261) | $(82,149) | | Total inventory | $194,911 | $212,536 | - Total net inventory decreased by **$17.6 million** from December 31, 2020, to March 31, 2021, primarily due to an increase in the allowance for slow-moving and excess inventory by **$18.1 million**[56](index=56&type=chunk) [7. Impairment, Restructuring and Other Charges](index=12&type=section&id=7.%20Impairment%2C%20Restructuring%20and%20Other%20Charges) Details restructuring and other charges, including inventory write-downs and severance, for Q1 2021 and Q1 2020 Components of Restructuring and Other Charges (In thousands) | Components of Restructuring and Other Charges (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :----------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Inventory write-down | $19,251 | $17,272 | | Severance | $2,746 | $8,399 | | Long-lived asset write-down | - | $6,912 | | Other | $3,023 | $130 | | Total | $25,020 | $32,713 | - Restructuring and other charges decreased from **$32.7 million** in Q1 2020 to **$25.0 million** in Q1 2021, with a notable decrease in severance and long-lived asset write-downs, partially offset by an increase in inventory write-downs[57](index=57&type=chunk) - In Q1 2020, the company recorded a full impairment of its Goodwill balance of **$7.7 million** in the Eastern Hemisphere reporting unit; no goodwill impairment was recorded in Q1 2021[59](index=59&type=chunk) [8. Intangible Assets](index=13&type=section&id=8.%20Intangible%20Assets) Presents net book value of intangible assets, including trademarks, patents, and customer relationships, as of March 31, 2021 Intangible Assets (In thousands) | Intangible Assets (In thousands) | March 31, 2021 Net Book Value | December 31, 2020 Net Book Value | | :------------------------------- | :---------------------------- | :------------------------------- | | Trademarks | $7,084 | $7,200 | | Patents | $3,186 | $3,337 | | Customer relationships | $18,302 | $18,727 | | Organizational costs | $171 | $170 | | Total | $28,743 | $29,434 | - Total net intangible assets decreased by **$0.7 million** from December 31, 2020, to March 31, 2021, primarily due to ongoing amortization[61](index=61&type=chunk) [9. Asset Backed Loan (ABL) Credit Facility](index=13&type=section&id=9.%20Asset%20Backed%20Loan%20(ABL)%20Credit%20Facility) Describes the senior secured revolving credit facility, its availability, and covenant compliance - The company has a five-year senior secured revolving credit facility (ABL Credit Facility) with total commitments of **$100.0 million**, including up to **$10.0 million** for letters of credit[62](index=62&type=chunk) - As of March 31, 2021, the availability under the ABL Credit Facility was **$35.4 million**, after accounting for **$1.0 million** in outstanding letters of credit[64](index=64&type=chunk) - The company was in compliance with all related covenants of the ABL Credit Facility as of March 31, 2021[64](index=64&type=chunk) [10. Geographic Areas](index=14&type=section&id=10.%20Geographic%20Areas) Breaks down total revenues by geographic segment and discusses non-cash inventory write-downs Total Revenues by Geographic Segment (In thousands) | Total Revenues by Geographic Segment (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Western Hemisphere | $55,081 | $60,503 | | Eastern Hemisphere | $10,710 | $25,596 | | Asia-Pacific | $19,887 | $15,800 | | Total Revenues | $81,239 | $95,998 | - Eastern Hemisphere revenues saw the largest decline, decreasing by **$14.9 million (58.2%)** year-over-year, while Asia-Pacific revenues increased by **$4.1 million (25.9%)**[66](index=66&type=chunk) - Non-cash inventory write-downs in Q1 2021 were **$19.1 million** in the Western Hemisphere and **$0.2 million** in the Eastern Hemisphere, as the company shifted to a vendor outsourcing model for downhole tools[68](index=68&type=chunk) [11. Income Tax](index=15&type=section&id=11.%20Income%20Tax) Explains Q1 2021 and Q1 2020 effective tax rates, attributing changes to CARES Act benefits and valuation allowances - The effective tax rate for Q1 2021 was **(7.5%)**, a significant change from **52.3%** for the same period in 2020[69](index=69&type=chunk) - The change in effective tax rate was primarily due to discretely recognized tax benefits of Net Operating Losses (NOLs) in 2020 from the CARES Act, changes in income/loss in foreign jurisdictions, and changes in valuation allowances[69](index=69&type=chunk) - As of June 30, 2020, the company reversed its indefinite reinvestment assertion for foreign earnings, resulting in a deferred foreign tax liability of **$3.6 million** as of March 31, 2021[70](index=70&type=chunk) [12. Contingencies](index=15&type=section&id=12.%20Contingencies) Details ongoing legal matters, including a Brazilian tax amnesty program and a trade secret lawsuit - The company's Brazilian subsidiary elected to participate in an amnesty program to settle two tax assessments totaling approximately **$13.0 million** for **$2.1 million**, with approximately **$6 million** in court-deposited security amounts to be returned[71](index=71&type=chunk)[73](index=73&type=chunk) - FMC Technologies, Inc. sued the company in October 2020, alleging misappropriation of trade secrets related to its VXTe subsea tree systems; the company denies the allegations and is vigorously defending the lawsuit, with jury deliberations ongoing as of April 27, 2021[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of Dril-Quip's Q1 2021 financial condition, operations, and cash flows [Forward-Looking Statements](index=17&type=section&id=Forward-Looking%20Statements) Highlights forward-looking statements regarding COVID-19, OPEC actions, and future operating results - The report contains forward-looking statements regarding the impact of the COVID-19 pandemic, OPEC actions, future operating results, capital expenditures, cost savings, liquidity, new products, backlog, market conditions, environmental regulations, legal proceedings, and customer requirements[77](index=77&type=chunk) [Overview](index=18&type=section&id=Overview) Overview of Dril-Quip, Inc.'s business, specializing in highly engineered drilling and production equipment - Dril-Quip, Inc. specializes in designing, manufacturing, selling, and servicing highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications, serving major integrated, large independent, and foreign national oil and gas companies globally[81](index=81&type=chunk) [Business Environment](index=18&type=section&id=Business%20Environment) Discusses impact of winter storm, COVID-19 pandemic, and government support schemes on operations - A severe winter storm in February 2021 caused a week-long shutdown of Houston manufacturing facilities, incurring additional costs[82](index=82&type=chunk) - The COVID-19 pandemic continues to reduce global economic activity and oil/gas demand, exacerbated by OPEC disputes, leading to a **14%** decrease in overall production output in Q1 2021 compared to Q1 2020[82](index=82&type=chunk) - The company utilized CARES Act Payroll Tax Deferral, deferring **$2.9 million** in FICA taxes to 2021/2022, and expects to file a NOL carryback claim for 2020, also benefiting from **$0.4 million** in government job support schemes in Singapore, Australia, the U.K., and Denmark[82](index=82&type=chunk) [Oil and Gas Prices](index=19&type=section&id=Oil%20and%20Gas%20Prices) Analyzes Brent Crude oil price trends and their impact on customer contract renegotiations Brent Crude Oil Price per Barrel | Brent Crude Oil Price per Barrel | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Low | $50.37 | $14.85 | | High | $69.95 | $70.25 | | Average | $61.04 | $50.27 | | Closing | $63.52 | $14.85 | - EIA projects Brent Crude oil prices to average **$62 per barrel** in 2021 and **$60 per barrel** in 2022, up from **$41.96** in 2020[85](index=85&type=chunk) - Lower crude oil and natural gas prices have led customers to renegotiate contract terms, including price reductions, delivery extensions, and contract revisions[86](index=86&type=chunk) [Offshore Rig Count](index=19&type=section&id=Offshore%20Rig%20Count) Presents average contracted offshore rig count for Q1 2021 and Q1 2020, showing a decrease Average Contracted Offshore Rig Count | Average Contracted Offshore Rig Count | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Floating Rigs | 129 | 155 |\n| Jack-up Rigs | 344 | 392 |\n| Total Rigs | 473 | 547 | - The total contracted offshore rig count decreased by **11.4%** from **536 rigs** at March 31, 2020, to **475 rigs** at March 31, 2021[89](index=89&type=chunk) [Regulation](index=20&type=section&id=Regulation) Addresses influence of industry laws, tariffs, trade agreements, and impending LIBOR phase-out - The company's business is affected by laws and regulations in the oil and gas industry, including tariffs on steel and Chinese imports, the USMCA agreement, and Brexit[90](index=90&type=chunk) - The LIBOR benchmark is expected to be phased out by the end of 2021, which could impact the ABL Credit Facility, though the company is still evaluating the potential impact[92](index=92&type=chunk) - Product backlog at March 31, 2021, was **$196.7 million**, an increase from **$195.7 million** at December 31, 2020, but a decrease from **$261.1 million** at March 31, 2020[92](index=92&type=chunk) [Revenues](index=21&type=section&id=Revenues) Analyzes Q1 2021 revenue decrease, primarily due to reduced product revenues and foreign sales - Revenues decreased by **$14.8 million (15.4%)** to **$81.2 million** in Q1 2021, primarily due to decreased product revenues in subsea equipment, offshore rig equipment, and surface equipment, partially offset by increased downhole tools revenue[99](index=99&type=chunk) - Foreign sales accounted for **68.5%** of total revenues in Q1 2021, up from **63.1%** in Q1 2020[94](index=94&type=chunk) - Revenues from projects accounted for under the 'over time' method represented **17.1%** of total revenues and **24.9%** of product revenues in Q1 2021, down from **31.4%** and **44.7%** respectively in Q1 2020[94](index=94&type=chunk) [Cost of Sales](index=22&type=section&id=Cost%20of%20Sales) Details Q1 2021 cost of sales decrease, aligning with revenue reduction and reflecting business transformation savings - Cost of sales decreased by **$14.6 million (20.5%)** to **$56.8 million** in Q1 2021, generally in line with the decrease in revenue[101](index=101&type=chunk) - Cost of sales as a percentage of revenues decreased to **69.9%** in Q1 2021 from **74.4%** in Q1 2020, reflecting savings from business transformation activities, partially offset by higher costs due to COVID-19 and the winter storm[101](index=101&type=chunk) [Selling, General and Administrative Expenses](index=22&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) Explains Q1 2021 SG&A expense increase, mainly due to higher legal expenses and tax settlements - Selling, general and administrative expenses increased by **$4.9 million (19.9%)** to **$29.6 million** in Q1 2021, mainly due to higher legal expenses related to an ongoing legal matter and an importation tax settlement in Brazil[101](index=101&type=chunk) [Engineering and Product Development Expenses](index=22&type=section&id=Engineering%20and%20Product%20Development%20Expenses) Highlights Q1 2021 R&D expense decrease, attributed to lower spending on completed projects - Engineering and product development expenses decreased by **$1.5 million (26.9%)** to **$4.0 million** in Q1 2021, attributable to lower spending on research and development activities for completed strategic projects[101](index=101&type=chunk) [Impairments](index=22&type=section&id=Impairments) Confirms no impairment charges were recorded for the three months ended March 31, 2021 - No impairment charges were recorded for the three months ended March 31, 2021[94](index=94&type=chunk) [Restructuring and Other Charges](index=22&type=section&id=Restructuring%20and%20Other%20Charges) Details **$25.0 million** in Q1 2021 restructuring charges, including inventory write-downs and severance - Restructuring charges in Q1 2021 totaled **$25.0 million**, including **$19.3 million** in non-cash inventory write-downs, **$2.7 million** in severance, and **$3.0 million** in other charges, as part of the ongoing global strategic plan to realign manufacturing facilities and shift to a vendor outsourcing model for downhole tools[101](index=101&type=chunk) [(Gain) Loss on Sale of Assets](index=22&type=section&id=(Gain)%20Loss%20on%20Sale%20of%20Assets) Reports a **$4.0 million** gain on asset sales in Q1 2021, primarily from two Singapore buildings - The company recognized a gain on sale of assets of approximately **$4.0 million** in Q1 2021, primarily from the sale of two buildings in Singapore, compared to a **$0.5 million** gain in Q1 2020 from the sale of the TIW Oklahoma facility[101](index=101&type=chunk) [Foreign Currency Transaction (Gains) and Losses](index=22&type=section&id=Foreign%20Currency%20Transaction%20(Gains)%20and%20Losses) Notes a **$1.4 million** foreign exchange loss in Q1 2021, a reversal from a prior year gain - The company experienced a foreign exchange loss of **$1.4 million** in Q1 2021, a shift from a gain of **$3.2 million** in Q1 2020[101](index=101&type=chunk) [Income Tax Provision (Benefit)](index=22&type=section&id=Income%20Tax%20Provision%20(Benefit)) Explains **$2.4 million** income tax provision in Q1 2021 and the change in effective tax rate - An income tax provision of **$2.4 million** was recorded in Q1 2021 on a pre-tax loss of **$32.0 million**, resulting in an effective tax rate of **(7.5%)**, contrasting with an income tax benefit of **$21.6 million** in Q1 2020 on a pre-tax loss of **$41.3 million**, with an effective tax rate of **52.3%**[101](index=101&type=chunk) - The change in the effective tax rate was primarily due to the discretely recognized benefits of the CARES Act in 2020, changes in valuation allowances, and the mix of earnings in jurisdictions with differing tax rates[101](index=101&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Summarizes overall financial performance, highlighting increased net loss and key revenue/expense percentages (As a percentage of revenues) | (As a percentage of revenues) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Products | 68.4% | 70.4% | | Services | 21.8% | 19.6% | | Leasing | 9.8% | 10.0% | | Total revenues | 100.0% | 100.0% | | Cost of sales | 69.9% | 74.4% | | Selling, general and administrative | 36.4% | 25.7% | | Engineering and product development | 5.0% | 5.8% |\n| Impairments | - | 8.0% |\n| Restructuring and other charges | 30.8% | 34.1% |\n| Net loss | (42.2)% | (20.5)% | Revenues by Product Line (In millions) | Revenues by Product Line (In millions) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Subsea equipment | $38.1 | $51.9 | | Surface equipment | $3.4 | $3.9 | | Downhole tools | $11.9 | $8.7 | | Offshore rig equipment | $2.2 | $3.1 | | Total products | $55.6 | $67.6 | | Services | $17.6 | $18.8 |\n| Leasing | $8.0 | $9.6 |\n| Total revenues | $81.2 | $96.0 | - Net loss increased to **$34.4 million** in Q1 2021 from **$19.7 million** in Q1 2020, driven by decreased revenues, increased selling, general and administrative expenses, and a shift from income tax benefit to provision[102](index=102&type=chunk) [Non-GAAP Financial Measures](index=25&type=section&id=Non-GAAP%20Financial%20Measures) Presents Adjusted EBITDA as a key non-GAAP measure, reconciling it to net loss and highlighting operational improvements - Adjusted EBITDA is used as a key non-GAAP measure to evaluate operating performance, removing the effect of capital structure and significant non-cash items[103](index=103&type=chunk)[104](index=104&type=chunk) Adjusted EBITDA Reconciliation (In thousands) | Adjusted EBITDA Reconciliation (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(34,358) | $(19,698) | | Add: Interest (income) expense, net | $390 | $(1,015) | | Income tax provision (benefit) | $2,386 | $(21,609) | | Depreciation and amortization expense | $7,416 | $8,873 | | Impairments | - | $7,719 | | Restructuring and other charges | $29,820 | $32,713 | | Gain on sale of assets | $(3,955) | $(467) | | Foreign currency transaction (gains) and losses | $1,374 | $(3,242) | | Stock compensation expense | $3,186 | $3,176 | | Brazilian amnesty settlement | $1,787 | - | | Adjusted EBITDA | $8,046 | $6,450 | - Adjusted EBITDA increased to **$8.0 million** in Q1 2021 from **$6.5 million** in Q1 2020, reflecting operational improvements despite the net loss[105](index=105&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses cash flows, equity repurchase activities, ABL Credit Facility, and off-balance sheet arrangements [Cash Flows](index=26&type=section&id=Cash%20Flows) Details significant improvement in net cash from operating activities and decreased capital expenditures Cash Flows (In thousands) | Cash Flows (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating activities | $13,072 | $(21,237) | | Investing activities | $3,431 | $(3,500) | | Financing activities | $(40) | $(25,085) | | Increase (decrease) in cash and cash equivalents | $16,258 | $(55,474) | - Net cash provided by operating activities improved by **$34.3 million** year-over-year, primarily due to a **$58.9 million** increase from changes in operating assets and liabilities, driven by focused global cash collections and inventory management[107](index=107&type=chunk) - Capital expenditures decreased to **$2.5 million** in Q1 2021 from **$4.2 million** in Q1 2020, with **$1.2 million** for rental tools, **$0.6 million** for machinery/equipment, and **$0.7 million** for other expenditures[107](index=107&type=chunk) [Repurchase of Equity Securities](index=27&type=section&id=Repurchase%20of%20Equity%20Securities) No shares repurchased in Q1 2021 under the plan, contrasting with Q1 2020 activity - The company did not repurchase any shares under its **$100 million** share repurchase plan during Q1 2021, while in Q1 2020, it repurchased **808,389 shares** for approximately **$25.0 million**[109](index=109&type=chunk) [Asset Backed Loan (ABL) Credit Facility](index=27&type=section&id=Asset%20Backed%20Loan%20(ABL)%20Credit%20Facility) Confirms **$35.4 million** available under the ABL Credit Facility as of March 31, 2021 - As of March 31, 2021, the company had **$35.4 million** available under its ABL Credit Facility[110](index=110&type=chunk) [Off-Balance Sheet Arrangements](index=27&type=section&id=Off-Balance%20Sheet%20Arrangements) States the company has no derivative instruments or off-balance sheet hedging or financing arrangements - The company currently has no derivative instruments or off-balance sheet hedging or financing arrangements[111](index=111&type=chunk) [Other Matters](index=27&type=section&id=Other%20Matters) Indicates potential acquisitions or joint ventures, with funding contingent on market conditions - The company may engage in discussions or negotiations for acquisitions or joint ventures, with funding dependent on market conditions and opportunities[112](index=112&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) Confirms no material changes in critical accounting policies, judgments, and assumptions during Q1 2021 - There were no material changes in critical accounting policies, judgments, and assumptions during the three months ended March 31, 2021[113](index=113&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Outlines exposure to market risks, specifically interest rate and foreign exchange rate fluctuations [Foreign Exchange Rate Risk](index=27&type=section&id=Foreign%20Exchange%20Rate%20Risk) Discusses exposure to foreign exchange rate risk from international operations and monetary assets - The company is exposed to foreign exchange rate risk due to international operations and monetary assets/liabilities not denominated in functional currencies[115](index=115&type=chunk) - A pre-tax foreign currency loss of approximately **$1.4 million** was experienced in Q1 2021, compared to a pre-tax gain of **$3.2 million** in Q1 2020[115](index=115&type=chunk) - The company does not engage in material hedging transactions to mitigate currency fluctuations[115](index=115&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2021 - Disclosure controls and procedures were deemed effective as of March 31, 2021, ensuring timely and accurate reporting[116](index=116&type=chunk) - No material changes occurred in the company's internal control over financial reporting during Q1 2021[118](index=118&type=chunk) PART II—OTHER INFORMATION Additional information including legal proceedings, risk factors, an index to exhibits, and signatures [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 12 for details on legal proceedings, including a Brazilian tax issue and a trade secret lawsuit - Legal proceedings are detailed in Note 12 to the Condensed Consolidated Financial Statements[121](index=121&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors reported since the Annual Report on Form 10-K for December 31, 2020 - No material changes to risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2020[122](index=122&type=chunk) [Item 6. Index to Exhibits](index=30&type=section&id=Item%206.%20Index%20to%20Exhibits) Lists exhibits filed with the Form 10-Q, including organizational documents and certifications - The report includes various exhibits such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, Common Stock Certificate form, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[124](index=124&type=chunk) [Signatures](index=31&type=section&id=Signatures) Confirms report was duly authorized and signed by Raj Kumar, CFO, on April 29, 2021 - The report was signed by Raj Kumar, Vice President – Chief Financial Officer, on April 29, 2021[129](index=129&type=chunk)

Dril-Quip, Inc. (NYSE:DRQ) Q4 2020 Earnings Conference Call February 26, 2021 10:00 AM ET Company Participants Blake Holcomb - Director, IR & Corporate Planning Blake DeBerry - CEO & Director Raj Kumar - CFO & VP Jeffrey Bird - President & COO Conference Call Participants Sean Meakim - JPMorgan Chase & Co. James West - Evercore ISI Taylor Zurcher - Tudor, Pickering, Holt & Co. John Anderson - Barclays Bank Connor Lynagh - Morgan Stanley Operator Good morning, and welcome to Dril-Quip's Year-End 2020 Confere ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 001-13439 DRIL-QUIP, INC. (Exact name of registrant as specified in its charter) Delaware 74-2162088 (State or other ...

Dril-Quip, Inc. (NYSE:DRQ) Fireside Chat Webcast Call October 30, 2020 11:00 AM ET Company Participants Blake DeBerry - President and Chief Executive Officer Raj Kumar - Chief Financial Officer Conference Call Participants George O'Leary - Tudor Pickering Holt & Company Taylor Zurcher - Tudor Pickering Holt & Company Operator Good morning ladies and gentlemen, and welcome to the Drill-Quip Fireside Chat Webcast. At this time, all participants have been placed on listen only mode. It is now my pleasure to tu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-13439 DRIL-QUIP, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2162088 (State or other jurisdiction of incorporation or organization ...

Summary of Dril-Quip, Inc. Conference Call Company Overview - **Company**: Dril-Quip, Inc. (NYSE: DRQ) - **Participants**: - Blake DeBerry - President & CEO - Raj Kumar - Chief Financial Officer - **Analyst**: Sean Meakim - Oil Services Analyst at JP Morgan Key Points Industry Context - The conference call was held following the release of Dril-Quip's 2Q results, amidst a challenging environment for the offshore oil services industry due to COVID-19 impacts [2][12]. Financial Performance - **2Q Results**: - Top line slightly better than consensus, EBITDA in line with expectations despite a challenging quarter [12][25]. - Booked approximately $40 million in orders, below expectations of $50 to $60 million per quarter [21][22]. - The company is targeting a total of $200 million in bookings for the full year [22][23]. COVID-19 Impact - Implemented a business continuity plan in mid-March, allowing 700 employees to work from home while essential personnel continued operations [13][14]. - Production output was affected due to social distancing measures and COVID-related quarantines, leading to lost hours in production [15][26]. Cost Management and Transformation - Achieved $11.5 million in cost savings in Q2, with a target of an additional $9 million for the second half of the year [16][17]. - Focus on capital allocation and working capital management moving forward [11][30]. Product Development and Innovation - Emphasis on developing differentiated products to provide cost savings for customers, particularly in subsea wellhead and connectors [5][6][8]. - New products like the VXTe subsea tree have generated significant interest, with ongoing discussions with peers for potential monetization [8][54]. Market Outlook - Anticipates a challenging market environment for the next few quarters, with recovery expected around 2022 or 2023 [42]. - Differentiation in behavior observed among independent oil companies (IOCs), national oil companies (NOCs), and independents, with independents cutting CapEx more dramatically [44][45]. Strategic Partnerships - Collaboration with Proserv to enhance subsea controls business, reducing the need for R&D spending and leveraging each other's customer bases [35][36][38]. Capital Allocation Strategy - Plans to maintain a cash balance of approximately $350 million, with a focus on maintenance-level CapEx and strategic investments in R&D [57][58]. - Open to M&A opportunities but will require creative financing solutions due to current cash levels [58]. Conclusion - Dril-Quip remains optimistic about its position in the market, emphasizing the resilience of its workforce and the potential for recovery post-pandemic [60][61]. Additional Important Points - The company has successfully adapted to the pandemic, maintaining customer engagement through virtual presentations and online marketing efforts [60]. - The focus on lean operating philosophy has allowed Dril-Quip to monetize excess real estate assets rather than exiting leases [20]. This summary encapsulates the key discussions and insights from the conference call, highlighting Dril-Quip's strategic direction, financial performance, and market outlook amidst ongoing challenges in the oil services industry.

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part details Dril-Quip's financial performance, condition, and operational results, including statements and management analysis [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) Presents Dril-Quip's unaudited condensed consolidated financial statements, including balance sheets, income statements, and detailed notes [Balance Sheets](index=3&type=section&id=Balance%20Sheets) Provides a snapshot of Dril-Quip's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--------------------------- | :------------ | :---------------- | | Total Assets | $1,147,691 | $1,206,565 | | Cash and Cash Equivalents | $345,808 | $398,946 | | Goodwill | $- | $7,947 | | Total Liabilities | $132,304 | $115,864 | | Total Stockholders' Equity | $1,015,387 | $1,090,701 | [Statements of Income (Loss)](index=4&type=section&id=Statements%20of%20Income%20%28Loss%29) Presents Dril-Quip's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Income (Loss) Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $90,446 | $103,808 | $186,444 | $198,125 | | Operating Income (Loss) | $(7,505) | $2,120 | $(49,827) | $(3,482) | | Net Income (Loss) | $(14,142) | $1,681 | $(33,840) | $(4,369) | | Basic Income (Loss) per Common Share | $(0.40) | $0.05 | $(0.96) | $(0.12) | [Statements of Comprehensive Income (Loss)](index=5&type=section&id=Statements%20of%20Comprehensive%20Income%20%28Loss%29) Details Dril-Quip's net income or loss and other comprehensive income components, such as foreign currency adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $(14,142) | $1,681 | $(33,840) | $(4,369) | | Foreign Currency Translation Adjustments | $2,048 | $(2,317) | $(22,931) | $(690) | | Total Comprehensive Loss | $(12,094) | $(636) | $(56,771) | $(5,059) | [Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) Outlines Dril-Quip's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Activity | 2020 | 2019 | | :------------------------------------------ | :--------- | :--------- | | Net Cash Provided by (Used in) Operating Activities | $(18,191) | $10,650 | | Net Cash Used in Investing Activities | $(5,180) | $(3,033) | | Net Cash Used in Financing Activities | $(25,129) | $(1,996) | | Increase (Decrease) in Cash and Cash Equivalents | $(53,138) | $5,026 | | Cash and Cash Equivalents at End of Period | $345,808 | $423,126 | [Statements of Stockholders' Equity](index=7&type=section&id=Statements%20of%20Stockholders%27%20Equity) Shows changes in Dril-Quip's equity accounts, including net loss, stock repurchases, and translation adjustments Condensed Consolidated Statements of Stockholders' Equity Highlights (Six Months Ended June 30, in thousands) | Metric | January 1, 2020 | June 30, 2020 | | :---------------------------------- | :-------------- | :------------ | | Balance at Beginning of Period | $1,090,701 | $1,090,701 | | Foreign Currency Translation Adjustment | $(22,931) | $(22,931) | | Net Loss | $(33,840) | $(33,840) | | Repurchase of Common Stock | $(25,000) | $(25,000) | | Stock Option Expense | $6,458 | $6,458 | | Balance at End of Period | $1,015,387 | $1,015,387 | [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Organization and Basis of Presentation](index=8&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) Describes Dril-Quip's business, geographic segments, and the significant impact of the COVID-19 pandemic - Dril-Quip designs, manufactures, sells, and services highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications[32](index=32&type=chunk) - The company's operations are organized into three geographic segments: Western Hemisphere, Eastern Hemisphere, and Asia-Pacific[32](index=32&type=chunk) - The COVID-19 pandemic and disputes over oil production have significantly reduced global economic activity and caused declines in crude oil prices, creating a challenging industry environment with potential material adverse impacts on the company's performance[32](index=32&type=chunk) [Note 2. Significant Accounting Policies](index=9&type=section&id=Note%202.%20Significant%20Accounting%20Policies) Details Dril-Quip's key accounting policies, including goodwill impairment, restructuring charges, and share repurchases - A **$7.7 million goodwill impairment loss** was recorded in the first quarter of 2020, entirely within the Eastern Hemisphere reporting unit, due to declining offshore market conditions, lower commodity prices, and reduced customer capital budgets[39](index=39&type=chunk) - Restructuring and other charges for the six months ended June 30, 2020, totaled **$34.3 million**, including **$17.3 million in inventory write-downs**, **$8.4 million in severance**, and **$7.8 million in long-lived asset write-downs**, driven by market conditions and a global strategic plan[42](index=42&type=chunk)[56](index=56&type=chunk) - The company repurchased **808,389 shares of common stock** for approximately **$25.0 million** during the six months ended June 30, 2020, under its share repurchase plan[43](index=43&type=chunk) [Note 3. New Accounting Standards](index=11&type=section&id=Note%203.%20New%20Accounting%20Standards) Discusses Dril-Quip's assessment of recently issued accounting standards and their potential financial impact - The company is assessing the impact of ASU 2020-04 'Reference Rate Reform (Topic 848)' and ASU 2019-12 'Income Taxes (Topic 740)' on its financial position, results of operations, or cash flows[48](index=48&type=chunk) [Note 4. Revenue Recognition](index=12&type=section&id=Note%204.%20Revenue%20Recognition) Explains Dril-Quip's revenue recognition policies and provides a breakdown of revenues by type Revenue by Type (in thousands) | Revenue Type | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :------------- | :------------------------------- | :----------------------------- | | Product Revenues | $63,133 | $130,691 | | Service Revenues | $20,750 | $39,564 | | Total | $83,883 | $170,255 | - The aggregate amount of the transaction price allocated to remaining performance obligations from over time product lines was **$92.7 million** as of June 30, 2020, with approximately **62.3%** expected to be recognized over the next 12 months[52](index=52&type=chunk) [Note 5. Stock-Based Compensation and Stock Awards](index=13&type=section&id=Note%205.%20Stock-Based%20Compensation%20and%20Stock%20Awards) Presents Dril-Quip's stock-based compensation expenses for various reporting periods Stock-Based Compensation Expense (in thousands) | Period | June 30, 2020 | June 30, 2019 | | :------------- | :------------ | :------------ | | Three Months | $3,300 | $3,200 | | Six Months | $6,500 | $8,100 | [Note 6. Inventories, net](index=13&type=section&id=Note%206.%20Inventories%2C%20net) Details Dril-Quip's inventory components, including raw materials, work in progress, and finished goods Inventories, net (in thousands) | Component | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Raw materials and supplies | $40,100 | $46,282 | | Work in progress | $49,863 | $54,171 | | Finished goods | $204,402 | $175,629 | | Less: allowance for slow moving and excess inventory | $(81,953) | $(71,020) | | **Total Inventory** | **$212,412** | **$205,062** | [Note 7. Impairment, Restructuring and Other Charges](index=13&type=section&id=Note%207.%20Impairment%2C%20Restructuring%20and%20Other%20Charges) Outlines Dril-Quip's goodwill impairment and restructuring charges, including inventory write-downs and severance - Goodwill impairment of **$7.7 million** was recorded in the first quarter of 2020, all in the Eastern Hemisphere, due to market conditions[59](index=59&type=chunk) Components of Restructuring and Other Charges (Six Months Ended June 30, 2020, in thousands) | Component | Amount | | :-------------------------- | :------- | | Inventory write-down | $17,272 | | Severance | $8,399 | | Long-lived asset write-down | $7,854 | | Other | $775 | | **Total** | **$34,300** | - The accrued liability balance related to restructuring and other charges was **$7,055 thousand** at June 30, 2020[58](index=58&type=chunk) [Note 8. Intangible Assets](index=14&type=section&id=Note%208.%20Intangible%20Assets) Provides a breakdown of Dril-Quip's net intangible assets, including trademarks, patents, and customer relationships Net Intangible Assets (in thousands) | Asset Type | June 30, 2020 | December 31, 2019 | | :------------------- | :------------ | :---------------- | | Trademarks | $7,390 | $7,694 | | Patents | $3,540 | $3,416 | | Customer relationships | $19,376 | $20,955 | | Non-compete agreements | $- | $1 | | Organizational costs | $167 | $179 | | **Total Net Book Value** | **$30,473** | **$32,245** | [Note 9. Asset Backed Loan (ABL) Credit Facility](index=14&type=section&id=Note%209.%20Asset%20Backed%20Loan%20%28ABL%29%20Credit%20Facility) Describes Dril-Quip's senior secured revolving ABL Credit Facility and its available capacity - The company has a five-year senior secured revolving ABL Credit Facility with total commitments of **$100.0 million**[61](index=61&type=chunk) - As of June 30, 2020, the availability under the ABL Credit Facility was **$38.0 million**, and the company was in compliance with all related covenants[63](index=63&type=chunk) [Note 10. Geographic Areas](index=15&type=section&id=Note%2010.%20Geographic%20Areas) Presents Dril-Quip's total revenues and impairment charges broken down by geographic segment Total Revenues by Geographic Segment (in thousands) | Segment | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :----------------- | :------------------------------- | :----------------------------- | | Western Hemisphere | $55,952 | $116,455 | | Eastern Hemisphere | $20,324 | $45,920 | | Asia-Pacific | $20,589 | $36,389 | | Eliminations | $(6,419) | $(12,320) | | **Total Revenues** | **$90,446** | **$186,444** | - During the six months ended June 30, 2020, impairments, restructuring, and other charges totaled **$42.0 million**, with **$32.1 million** recorded in the Eastern Hemisphere, **$2.8 million** in the Western Hemisphere, **$6.9 million** in DQ Corporate, and **$0.2 million** in Asia-Pacific[66](index=66&type=chunk) [Note 11. Income Tax](index=16&type=section&id=Note%2011.%20Income%20Tax) Details Dril-Quip's effective tax rates and the impact of the CARES Act and foreign tax liabilities Effective Tax Rate | Period | June 30, 2020 | June 30, 2019 | | :------------- | :------------ | :------------ | | Three Months | (100.3)% | 65.0% | | Six Months | 30.0% | 503.5% | - The CARES Act discretely impacted and increased the effective tax rate by **69.1%** in the current period due to provisions relating to net operating loss carryback periods[68](index=68&type=chunk) - The company reversed its indefinite reinvestment assertion for foreign earnings, recording a deferred foreign tax liability of **$3.4 million** related to estimated foreign withholding tax[71](index=71&type=chunk) [Note 12. Contingencies](index=17&type=section&id=Note%2012.%20Contingencies) Discusses Dril-Quip's involvement in a Brazilian tax dispute and management's assessment of legal liabilities - The company is involved in a Brazilian tax dispute with two assessments totaling approximately **$13.0 million**, which it is appealing, believing success in the judicial court process is probable[72](index=72&type=chunk) - Management believes that the ultimate liability from ongoing legal actions will not have a material adverse effect on the company's results of operations, financial position, or cash flows[73](index=73&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on Dril-Quip's financial performance, condition, and cash flows, impacted by market volatility [Overview](index=18&type=section&id=Overview) Describes Dril-Quip's core business of designing and manufacturing drilling and production equipment for severe applications - Dril-Quip designs, manufactures, sells, and services highly engineered drilling and production equipment primarily for deepwater, harsh environment, and severe service applications[76](index=76&type=chunk) - The company's principal products include subsea and surface wellheads, production trees, control systems, riser systems, and various tools, used by major oil and gas companies globally[76](index=76&type=chunk) [Business Environment](index=18&type=section&id=Business%20Environment) Analyzes the impact of the COVID-19 pandemic, oil market disputes, and other factors on Dril-Quip's operations - The COVID-19 pandemic and global oil market disputes have caused significant economic disruption, reduced oil and gas demand, supply chain disruptions, and delays in product shipments and production[77](index=77&type=chunk) - The company deferred approximately **$3.1 million** in FICA cash tax payments to 2021 under the CARES Act and expects a **$24.0 million NOL carryback refund** in 2020[77](index=77&type=chunk)[79](index=79&type=chunk) Brent Crude Oil Price per Barrel (Average) | Period | June 30, 2020 | June 30, 2019 | | :------------------------- | :------------ | :------------ | | Three Months Ended | $29.70 | $69.04 | | Six Months Ended | $40.23 | $66.07 | Average Contracted Offshore Rig Count | Rig Type | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------- | :----------------------------- | :----------------------------- | | Floating Rigs | 149 | 154 | | Jack-up Rigs | 378 | 357 | | **Total** | **527** | **511** | - Rigs under construction decreased by approximately **21.5%** from 93 rigs at June 30, 2019, to 73 rigs at June 30, 2020, potentially limiting future product supply[88](index=88&type=chunk) Backlog (in thousands) | Period | June 30, 2020 | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :------------- | :---------------- | | Beginning Backlog | $261,132 | $272,537 | $250,673 | | Total Bookings | $67,181 | $84,593 | $130,318 | | Total Revenue | $90,446 | $95,998 | $108,454 | | **Ending Backlog** | **$237,867** | **$261,132** | **$272,537** | - The total number of employees decreased by **7%** from December 2019 to 1,572 as of June 30, 2020, due to worldwide workforce reductions and natural attrition[93](index=93&type=chunk) - Brexit continues to pose uncertainties regarding trade and customs requirements, and potential volatility in the British pound sterling[96](index=96&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Compares Dril-Quip's financial performance across different periods, highlighting revenue, costs, and profitability changes Revenue Composition as a Percentage of Total Revenues | Revenue Type | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :------------- | :------------------------------- | :----------------------------- | | Products | 69.8% | 70.1% | | Services | 22.9% | 21.2% | | Leasing | 7.3% | 8.7% | - Total revenues decreased by **12.9%** to **$90.4 million** for the three months ended June 30, 2020, and by **5.9%** to **$186.4 million** for the six months ended June 30, 2020, primarily due to decreased product revenues[102](index=102&type=chunk)[106](index=106&type=chunk) - Cost of sales as a percentage of revenues increased to **74.0%** for the three months and **74.2%** for the six months ended June 30, 2020, due to COVID-19 disruptions and dilutive revenue mix[104](index=104&type=chunk)[106](index=106&type=chunk) - Engineering and product development expenses increased by **24.1%** to **$10.9 million** for the six months ended June 30, 2020, driven by strategic growth initiatives and R&D efforts[106](index=106&type=chunk) - Net loss for the six months ended June 30, 2020, was **$33.8 million**, significantly higher than the **$4.4 million net loss** in the prior year, primarily due to lower revenues, increased impairment, and restructuring charges[108](index=108&type=chunk) [Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019](index=24&type=section&id=Three%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202019) Compares Dril-Quip's financial results for the three months ended June 30, 2020, against the prior year - Revenues decreased by **$13.4 million (12.9%)** to **$90.4 million**, primarily due to a **$14.1 million decrease in product revenues**, partially offset by a **$4.1 million increase in service revenues**[102](index=102&type=chunk)[104](index=104&type=chunk) - Leasing revenues decreased by **$3.4 million**, mainly due to reduced subsea rental tool utilization and COVID-19 related travel restrictions[104](index=104&type=chunk) - Net loss was **$14.1 million**, compared to a net income of **$1.7 million** in the prior year, driven by lower revenues, increased restructuring charges (**$1.6 million** vs. **$1.0 million**), and a foreign exchange loss[104](index=104&type=chunk)[105](index=105&type=chunk) [Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019](index=26&type=section&id=Six%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202019) Compares Dril-Quip's financial results for the six months ended June 30, 2020, against the prior year - Revenues decreased by **$11.7 million (5.9%)** to **$186.4 million**, with product revenues down **$12.0 million**, while service revenues increased by **$4.5 million**[106](index=106&type=chunk) - The company recorded a **$7.7 million goodwill impairment loss** in the Eastern Hemisphere and **$34.3 million in restructuring and other charges**, significantly impacting profitability[106](index=106&type=chunk) - Net loss was **$33.8 million**, compared to a net loss of **$4.4 million** in the prior year, primarily due to the aforementioned factors and a higher effective tax rate[108](index=108&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) Presents Dril-Quip's Adjusted EBITDA as a non-GAAP measure to evaluate operational performance - Adjusted EBITDA is used as a non-GAAP measure to evaluate operational performance by removing the effect of capital structure and certain non-cash items[110](index=110&type=chunk) Adjusted EBITDA (in thousands) | Period | June 30, 2020 | June 30, 2019 | | :------------- | :------------ | :------------ | | Three Months | $6,036 | $13,432 | | Six Months | $12,486 | $22,727 | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses Dril-Quip's cash position, operating cash flows, financing activities, and available credit facilities - Cash and cash equivalents decreased to **$345.8 million** at June 30, 2020, from **$398.9 million** at December 31, 2019[8](index=8&type=chunk)[113](index=113&type=chunk) - Net cash used in operating activities for the six months ended June 30, 2020, was **$18.2 million**, a significant shift from **$10.7 million provided** in the prior year, primarily due to changes in operating assets and liabilities and increased net loss[115](index=115&type=chunk) - The company used **$25.1 million** in financing activities, mainly for repurchasing **808,389 common shares** for approximately **$25.0 million** during the six months ended June 30, 2020[115](index=115&type=chunk)[116](index=116&type=chunk) - As of June 30, 2020, the company had **$38.0 million** available under its ABL Credit Facility[117](index=117&type=chunk) - Management believes existing cash reserves and anticipated operating cash flows will be sufficient to meet cash needs for the next twelve months[113](index=113&type=chunk) [Critical Accounting Policies](index=31&type=section&id=Critical%20Accounting%20Policies) Confirms no material changes to Dril-Quip's critical accounting policies during the reporting period - There were no material changes in the company's critical accounting policies or associated judgments and assumptions during the six months ended June 30, 2020[121](index=121&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details Dril-Quip's exposure to interest rate and foreign exchange risks, noting no material hedging activities - The company is exposed to market risks related to interest rate changes on short-term investments and fluctuations in foreign exchange rates[122](index=122&type=chunk) - The company does not engage in any material hedging transactions, forward contracts, or currency trading[123](index=123&type=chunk) Foreign Currency Pre-tax (Loss)/Gain (in millions) | Period | June 30, 2020 | June 30, 2019 | | :------------- | :------------ | :------------ | | Three Months | $(0.8) | $0.2 | | Six Months | $2.4 | $0.9 | [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) States the effectiveness of Dril-Quip's disclosure controls and procedures, with no material changes in internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[124](index=124&type=chunk) - There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2020[124](index=124&type=chunk) [PART II—OTHER INFORMATION](index=32&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part includes information on legal proceedings, risk factors, and equity security sales [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 12, 'Contingencies,' for a description of Dril-Quip's legal proceedings - For a description of the company's legal proceedings, refer to Note 12, 'Contingencies,' in the Notes to Condensed Consolidated Financial Statements[127](index=127&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) States no material changes to the risk factors previously disclosed in Dril-Quip's prior annual and quarterly reports - No material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and the Quarterly Report on Form 10-Q for the period ended March 31, 2020[128](index=128&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details Dril-Quip's common stock repurchases and cancellations under its authorized share repurchase plan Common Stock Repurchase and Cancellation (Six Months Ended June 30, 2020) | Metric | Value | | :------------------------------------------ | :-------------------- | | Total Number of Shares Purchased | 808,389 | | Average Price Paid per Share | $30.91 | | Total Value of Shares Purchased | ~$25.0 million | | Maximum Value Remaining Under Plan | $48.5 million | - The share repurchase plan, authorized on February 26, 2019, allows for repurchases of up to **$100.0 million** of common stock with no set expiration date[130](index=130&type=chunk) [FORWARD LOOKING STATEMENTS](index=33&type=section&id=FORWARD%20LOOKING%20STATEMENTS) Identifies forward-looking statements and outlines the substantial risks and uncertainties that could affect future results [Forward-Looking Statements Disclosure](index=33&type=section&id=Forward-Looking%20Statements%20Disclosure) Identifies forward-looking statements and outlines the substantial risks and uncertainties that could affect future results - Forward-looking statements are identified by words such as 'anticipate,' 'estimate,' 'expect,' 'may,' 'project,' and 'believe,' and involve substantial risks and uncertainties[133](index=133&type=chunk) - Key risks include the impact of the COVID-19 pandemic, actions by OPEC and non-OPEC nations, oil and natural gas price volatility, economic uncertainties, political tensions, regulatory actions, operating interruptions, project terminations, and fluctuations in foreign currency[133](index=133&type=chunk)[135](index=135&type=chunk) - The company cautions against undue reliance on forward-looking statements and undertakes no obligation to publicly update or revise any such statement, as actual future results could differ materially[135](index=135&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This part lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents and certifications [Exhibits List](index=35&type=section&id=Exhibits%20List) Lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents and certifications - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Form of Certificate representing Common Stock, Rule 13a-14(a)/15d-14(a) Certifications (CEO and CFO), Section 1350 Certifications (CEO and CFO), and various Inline XBRL documents[137](index=137&type=chunk) [SIGNATURE](index=36&type=section&id=SIGNATURE) This part contains the official signature for the Quarterly Report on Form 10-Q [Report Signature](index=36&type=section&id=Report%20Signature) Confirms the signing of the Quarterly Report on Form 10-Q by Dril-Quip, Inc.'s Chief Financial Officer - The report is signed by Raj Kumar, Vice President – Chief Financial Officer, on behalf of Dril-Quip, Inc[142](index=142&type=chunk) - The signing date of the report is July 30, 2020[142](index=142&type=chunk)

Dril-Quip, Inc. (NYSE:DRQ) Evercore ISI 2020 Webinar May 7, 2020 11:15 AM ET Company Participants Blake DeBerry - President and Chief Executive Officer Jeff Bird - Senior Vice President, Production Operations and Chief Financial Officer Conference Call Participants James West - Evercore ISI Operator Hello, and welcome to the Evercore ISI 2020 Webinar with Dril-Quip. Speaking today from Evercore ISI will be Energy Analyst, James West. I’d like to remind everyone that the material in this webinar is based upo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-13439 DRIL-QUIP, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2162088 (State or other jurisdiction of incorporation or organization) (I ...