Dril-Quip(DRQ) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a strong quarter, marking one of the best since the pandemic began, with revenue and adjusted EBITDA exceeding expectations and consensus [7][8] - Subsea Services experienced over 20% sequential growth, indicating a recovery in customer activity levels [8] - Downhole tools also saw a sequential increase, particularly strong in Latin America and the Middle East, with emerging growth opportunities in deepwater [10] - Subsea product revenue increased by 7% quarter-on-quarter, driven by a rise in orders [11] Business Line Data and Key Metrics Changes - Subsea Services showed significant growth, which is often a leading indicator of customer activity returning [8] - Downhole tools had broad-based growth, particularly in Mexico, Ecuador, and Saudi Arabia, with expectations for continued growth [10] - Subsea product revenue growth was attributed to a 10% to 15% increase in orders from the previous year [11] Market Data and Key Metrics Changes - Brazil is currently a strong market, with rapid order fulfillment and expectations for further tenders [30] - The Middle East, particularly Saudi Arabia, remains robust, with growth anticipated in downhole tools and service equipment [31] - Norway is encouraging drilling through economic schemes, while Asia-Pacific is slower to recover [32] Company Strategy and Development Direction - The company is focused on maintaining capital discipline among customers, with many reevaluating project economics in a high inflationary environment [13] - There is a cautious optimism regarding future orders, with expectations for a 20% year-over-year increase in orders [16] - The company is exploring M&A opportunities in energy and energy-adjacent markets, with a focus on high-pressure, high-temperature capabilities [55][57] Management's Comments on Operating Environment and Future Outlook - Management noted that customers are maintaining capital discipline and reevaluating projects due to inflation concerns [13] - There is an expectation for strong bookings in 2023, driven by high oil prices and a recovery in customer activity [19] - The company is optimistic about the growth of Subsea Services and anticipates a strong performance in the back half of the year [19] Other Important Information - The company is seeing a shift from purchase orders to Master Service Agreements (MSAs), which do not immediately convert to bookings [18] - Management is actively working on pricing strategies to combat inflation, particularly in the downhole tools segment [26][28] - The company is also focusing on improving service quality and inventory management to enhance customer satisfaction [84] Q&A Session Summary Question: What are the expectations for orders and economic environment? - Management expects orders to be up year-over-year by around 20%, with a cautious approach due to inflation [16][19] Question: How is the competitive landscape evolving? - The company has collaboration agreements with OneSubsea and Aker, which differ from previous cycles, indicating a more cooperative approach to bidding [45] Question: What is the outlook for the downhole tools business? - The downhole tools segment is expected to see double-digit growth, supported by stocking programs and improved service quality [89] Question: How does the company view M&A opportunities? - The company is considering M&A as a critical growth pillar, focusing on energy and energy-adjacent markets without taking on debt [55][62] Question: What is the strategy for the E-Series product line? - The E-Series aims to reduce costs and carbon footprints for customers, with a suite of products designed for flexibility [92]