Dril-Quip(DRQ) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fourth quarter revenue totaled $274 million, representing a 14% sequential increase and a 9% increase compared to Q4 2024 [6][13] - Adjusted EBITDA for Q4 was $52 million, resulting in an Adjusted EBITDA margin of 19% [13] - Free cash flow for Q4 was $43 million, with a full year free cash flow of $156 million, reflecting a conversion of approximately 83% of adjusted EBITDA into free cash flow [18][19] Business Line Data and Key Metrics Changes - The subsea business was a primary driver of strong Q4 performance, with significant revenue synergies from recent acquisitions [6][13] - NAM Land revenue increased sequentially by 5% to a record level of $139 million, outperforming underlying activity levels [14] - International and offshore revenues increased sequentially by 25%, benefiting from higher subsea deliveries [15] Market Data and Key Metrics Changes - Market share grew across US land, offshore, and international markets despite a softer macro environment [6] - The company experienced strong project execution in Mexico and Saudi Arabia, with increased revenue and local content position [11] Company Strategy and Development Direction - The company aims to enhance customer experience, capture additional market share, and drive sustained margin expansion toward a long-term target of 25% [22] - Focus on disciplined M&A, customer-led innovation, and shareholder returns, with a strong pipeline of potential acquisitions [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the trajectory of the subsea business, with new orders and significant projects awarded in Q4 and early Q1 [11][12] - The exit of the Eldridge facility is expected to improve margins and operational efficiency in the long term [16][19] Other Important Information - Selling, general, and administrative expenses for the full year 2025 were $129 million, a decrease from 18% of revenue in 2024 to 13% in 2025 [17] - Capital expenditures in Q4 totaled $9 million, representing approximately 3.3% of revenue, with full year 2025 capital expenditures at $35 million [17][18] Q&A Session Summary Question: Can you unpack the first quarter margin guide further? - Management noted that Q1 margins will be impacted by low-margin subsea deliveries and the exit costs associated with the Eldridge facility, but they remain optimistic about long-term margin progression [24][25] Question: Can you provide examples of cross-selling opportunities from recent acquisitions? - Management highlighted successful cross-selling in U.S. land and international markets, particularly with products from the DWS and Citadel acquisitions [27][28] Question: What is the current M&A landscape and what areas could be improved? - Management indicated an active M&A pipeline with a focus on add-on acquisitions that can enhance the product portfolio and leverage the global distribution network [49][50] Question: How do you expect subsea product bookings to trend in 2026? - Management anticipates an increase in subsea orders for 2026 compared to 2025, driven by new project awards and a recovering market [57][58]