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 ...

Dril-Quip, Inc. (NYSE:DRQ) Q4 2019 Results Conference Call February 28, 2020 11:00 AM ET Company Participants Blake DeBerry - President and Chief Executive Officer Jeff Bird - SVP, Production Operations and Chief Financial Officer Conference Call Participants David Anderson - Barclays Sean Meakim - JP Morgan Marc Bianchi - Cowen Ian Macpherson - Simmons George O'Leary - Tudor Pickering Holt Connor Lynagh - Morgan Stanley Vebs Vaishnav - Scotiabank Blake Gendron - Wolfe Research Operator Ladies and gentleme ...

PART I [Business](index=6&type=section&id=Item%201.%20Business) Dril-Quip, Inc. designs, manufactures, and services highly engineered drilling and production equipment for deepwater and harsh environments, with revenue primarily from product sales and significant international operations - The company's principal products include subsea and surface wellheads, production trees, control systems, and riser systems, serving major integrated, independent, and national oil and gas companies worldwide[13](index=13&type=chunk) Revenue Breakdown by Source (2017-2019) | Revenue Source | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Products | **73.1%** | **68.9%** | **77.1%** | | Services | **17.4%** | **18.8%** | **13.6%** | | Leasing | **9.5%** | **12.3%** | **9.3%** | - International operations are significant, with foreign sales accounting for approximately **65.0%** of revenues in 2019, an increase from **61.0%** in 2018 and **55.0%** in 2017[13](index=13&type=chunk)[16](index=16&type=chunk) Brent Crude Oil Prices per Barrel (2017-2019) | Year | High | Low | Average | | :--- | :--- | :--- | :--- | | 2019 | **$74.94** | **$53.23** | **$64.28** | | 2018 | **$86.07** | **$50.57** | **$71.34** | | 2017 | **$66.80** | **$43.98** | **$54.15** | - Product backlog was approximately **$272.5 million** at the end of 2019, a slight increase from **$270.0 million** at the end of 2018. The 2019 backlog was negatively impacted by **$61.0 million** in cancellations, including the termination of the Ca Rong Do Project in Vietnam[28](index=28&type=chunk)[31](index=31&type=chunk) - The company's customer base is concentrated, with the top 15 customers representing **52%** of total revenues in 2019. BP and its affiliates were the largest customer, accounting for approximately **10%** of total revenues[27](index=27&type=chunk) - As of December 31, 2019, the company had 1,814 employees, a **6%** reduction from 1,926 employees at the end of 2018, resulting from worldwide workforce reductions and attrition[38](index=38&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks tied to the oil and gas industry's cyclical nature, including dependency on customer capital expenditures, volatile commodity prices, intense competition, international operations, and potential backlog cancellations - The business is highly dependent on the capital expenditures of oil and gas companies, which are influenced by volatile oil and gas prices and broader economic conditions. The recent COVID-19 outbreak is noted as a risk that could negatively impact demand[47](index=47&type=chunk)[59](index=59&type=chunk) - Competition is a major risk, as several primary competitors are larger, more diversified multinational companies with greater capital resources and longer operating histories[50](index=50&type=chunk) - The company's backlog is subject to unexpected adjustments and cancellations, as exemplified by the termination of the Ca Rong Do Project in Vietnam during the third quarter of 2019[54](index=54&type=chunk) - International operations, which accounted for **65%** of 2019 revenue, expose the company to risks such as political instability, currency fluctuations, changes in tax laws, and trade policies. The uncertainty surrounding Brexit is specifically highlighted as a risk to the company's U.K. operations[56](index=56&type=chunk)[59](index=59&type=chunk) - The company is subject to extensive governmental regulations, including environmental, health, and safety laws. Changes in these regulations, particularly those curtailing offshore drilling, could increase costs and limit demand for its products[68](index=68&type=chunk)[71](index=71&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments from the Securities and Exchange Commission - None[79](index=79&type=chunk) [Properties](index=31&type=section&id=Item%202.%20Properties) Dril-Quip owns and leases numerous properties globally for its manufacturing, sales, service, and reconditioning activities, with major manufacturing facilities in Houston, Aberdeen, Singapore, and Macae Major Manufacturing Facilities | Location | Approx. Size (sq. ft.) | Acreage | Ownership | | :--- | :--- | :--- | :--- | | Houston, TX (N. Eldridge) | 1,731,000 | 218 | Owned | | Aberdeen, Scotland | 222,800 | 24.1 | Owned | | Singapore | 293,200 | 14.4 | Leased | | Macae, Brazil | 169,600 | 10.6 | Owned | - The company also operates numerous smaller sales, service, and reconditioning facilities in key energy markets across North and South America, Europe, Africa, and Asia-Pacific[86](index=86&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in a tax dispute in Brazil, with assessments of approximately **$13.0 million** related to tax credits, which the company has appealed and expects to win - The company's Brazilian subsidiary was served with two tax assessments totaling approximately **$13.0 million** by the State of Rio de Janeiro related to the cancellation of tax credits from July 2005 to October 2007[87](index=87&type=chunk) - The company has appealed the assessments in a judicial court and deposited approximately **$8.8 million** with the court. Management believes the credits are valid and has not accrued any liability for this matter[87](index=87&type=chunk) [Mine Safety Disclosure](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company's operations - Not applicable[89](index=89&type=chunk) PART II [Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Stock%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Dril-Quip's common stock trades on the New York Stock Exchange under "DRQ," with no current dividends, and the company repurchased approximately **$26.6 million** of its common stock during 2019 - The company's common stock is traded on the New York Stock Exchange under the symbol "DRQ"[92](index=92&type=chunk) - The company has not paid dividends and does not anticipate paying any in the foreseeable future, intending to reinvest earnings into the business[92](index=92&type=chunk) - On February 26, 2019, a new **$100.0 million** stock repurchase plan was authorized. During 2019, the company repurchased 615,940 shares for approximately **$26.6 million** at an average price of **$43.12** per share[94](index=94&type=chunk) [Selected Financial Data](index=36&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key financial data, with 2019 total revenues of **$414.8 million** and net income of **$1.7 million**, a significant improvement from prior losses Selected Financial Data (2017-2019, in thousands) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenues | **$414,806** | **$384,626** | **$455,469** | | Operating Income (Loss) | **$2,803** | **$(122,738)** | **$(69,136)** | | Net Income (Loss) | **$1,720** | **$(95,695)** | **$(100,639)** | | Diluted EPS | **$0.05** | **$(2.58)** | **$(2.69)** | | Net Cash from Ops | **$14,678** | **$45,503** | **$107,993** | | Total Assets | **$1,206,565** | **$1,192,510** | **$1,399,805** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the 2019 financial results, highlighting a **7.8%** revenue increase to **$414.8 million** and a return to **$1.7 million** net income, covering key operational and financial aspects - Revenues for 2019 increased by **$30.2 million** (**7.8%**) to **$414.8 million**, primarily due to a **$38.3 million** increase in product revenues, reflecting improved market conditions for exploration and production equipment[120](index=120&type=chunk) - Net income was **$1.7 million** in 2019, a significant turnaround from a net loss of **$95.7 million** in 2018. The 2018 loss was heavily impacted by **$98.6 million** in impairment, restructuring, and other charges[120](index=120&type=chunk)[115](index=115&type=chunk) - Cost of sales as a percentage of revenue decreased to **71.1%** in 2019 from **76.3%** in 2018, attributed to lower unabsorbed manufacturing costs and savings from transformation initiatives[120](index=120&type=chunk) - Net cash provided by operating activities decreased to **$14.7 million** in 2019 from **$45.5 million** in 2018, primarily due to changes in operating assets and liabilities, including an increase in inventory and unbilled receivables[126](index=126&type=chunk) Backlog Reconciliation (2018-2019, in thousands) | Description | 2019 | 2018 | | :--- | :--- | :--- | | Beginning Backlog | **$269,968** | **$207,303** | | Total Bookings | **$417,375** | **$447,291** | | Total Revenue | **($414,806)** | **($384,626)** | | **Ending Backlog** | **$272,537** | **$269,968** | Reconciliation to Adjusted EBITDA (2017-2019, in thousands) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net income (loss) | **$1,720** | **$(95,695)** | **$(100,639)** | | Adjustments | **$52,079** | **$113,125** | **$161,177** | | **Adjusted EBITDA** | **$53,799** | **$17,430** | **$60,538** | [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are related to interest rate changes on investments and foreign currency exchange rate fluctuations, with a **10%** adverse movement potentially decreasing 2019 revenues by approximately **$13.8 million** - The company is exposed to market risks from interest rate changes and foreign currency exchange rate fluctuations[149](index=149&type=chunk) - A sensitivity analysis showed that a **10%** adverse movement in foreign currency exchange rates against the U.S. dollar would have resulted in a decrease in revenues of approximately **$13.8 million** and a decrease in net income of approximately **$3.2 million** for 2019[150](index=150&type=chunk) [Financial Statements and Supplementary Data](index=52&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's consolidated financial statements for 2019 and PricewaterhouseCoopers LLP's unqualified auditor's report, highlighting the allowance for slow-moving and excess inventory as a critical audit matter - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[155](index=155&type=chunk) - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[160](index=160&type=chunk) - The auditor identified the 'Allowance for Slow Moving and Excess Inventory' as a Critical Audit Matter due to the significant management judgment and auditor subjectivity required to evaluate assumptions about future demand and sales[168](index=168&type=chunk)[169](index=169&type=chunk) Consolidated Income Statement Highlights (2019, in thousands) | Line Item | Amount | | :--- | :--- | | Total Revenues | **$414,806** | | Gross Profit | **$119,799** | | Operating Income | **$2,803** | | Net Income | **$1,720** | Consolidated Balance Sheet Highlights (As of Dec 31, 2019, in thousands) | Line Item | Amount | | :--- | :--- | | Cash and cash equivalents | **$398,946** | | Total Current Assets | **$880,489** | | Total Assets | **$1,206,565** | | Total Liabilities | **$115,864** | | Total Stockholders' Equity | **$1,090,701** | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[286](index=286&type=chunk) [Controls and Procedures](index=85&type=section&id=Item%209A.%20Controls%20and%20Procedures) Based on an evaluation as of December 31, 2019, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the fourth quarter of 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[287](index=287&type=chunk) - No material changes in internal controls over financial reporting occurred during the fourth quarter of 2019[287](index=287&type=chunk) [Other Information](index=85&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[288](index=288&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=86&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2020 Proxy Statement[291](index=291&type=chunk) [Executive Compensation](index=86&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding director and executive compensation is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2020 Proxy Statement[292](index=292&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=86&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and equity compensation plans is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2020 Proxy Statement[293](index=293&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=86&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2020 Proxy Statement[294](index=294&type=chunk) [Principal Accountant Fees and Services](index=86&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding fees paid to the principal accountant and the audit committee's pre-approval policies is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2020 Proxy Statement[295](index=295&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=87&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including Schedule II—Valuation and Qualifying Accounts - This item lists all financial statements, schedules, and exhibits filed with the report[298](index=298&type=chunk) Schedule II—Valuation and Qualifying Accounts (Year ended Dec 31, 2019, in thousands) | Description | Beginning Balance | Charges to Costs | Write-offs | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful trade receivables | **$5,666** | **$617** | **$(4,069)** | **$2,214** | | Allowance for slow moving/excess inventory | **$108,567** | **$1,032** | **$(38,579)** | **$71,020** | [Form 10-K Summary](index=90&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[315](index=315&type=chunk)

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, 2019 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 ...

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 June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |---------------------------------------------------------------------------|--------------------------------------------------------------------------------------------- ...