Dril-Quip(US:DRQ)2023-10-27 19:58Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $117.2 million, an increase of 33% year-over-year and 31% sequentially, driven by strong organic growth and the addition of Great North [36][17] - Adjusted EBITDA for the quarter was $12.4 million, an increase of $5.3 million from the previous year and up $3.6 million sequentially [23][44] - Gross margins improved to 27%, up approximately 150 basis points year-over-year, attributed to the addition of Great North and operational efficiency initiatives [8][44] - Cash provided by operations was $26.8 million, an improvement of $15.5 million sequentially and $26 million from the prior year [49] - Free cash flow for the third quarter was positive at $21.4 million, marking the highest figure since 2017 [49] Business Line Data and Key Metrics Changes - Subsea Products revenue increased 15% year-over-year and 25% sequentially, driven by customer milestones in Europe [7] - Subsea Services revenue increased 6% year-over-year and 3% sequentially, although growth was expected to be double digits sequentially [7] - Well Construction segment grew 117% year-over-year and 76% sequentially, reflecting the addition of Great North and increased activity in key regions [22] Market Data and Key Metrics Changes - The company ended the quarter with approximately $200 million in backlog, supported by over 70 open Master Service Agreements (MSAs) [18] - Key markets showing strength included Latin America, the Middle East, and Africa, with notable wins in the Ivory Coast [17][5] Company Strategy and Development Direction - The company completed its first acquisition since 2016 with Great North, which has been financially accretive and adds exposure to a top-producing region [4] - The integration of Great North is largely complete, with supply chain optimization plans underway [4] - The company is focused on cross-selling opportunities between Great North and Drill-Quip products, anticipating incremental revenue [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged customer-specific headwinds due to rig availability and FPSO delivery timing, impacting higher-margin service segment revenue [58] - The outlook for Q4 2023 includes expected revenue in the range of $115 million to $125 million and bookings of $75 million to $100 million [24] - Management expressed optimism for 2024, citing constructive market conditions and positive early indications from customers [14] Other Important Information - The company expects to see a strong revenue ramp in Q4, driven by large orders including subsea trees [10][53] - Selling, general, and administrative expenses increased 22% sequentially to $27 million, driven by Great North expenses and an increase in bad debt reserve [34] - The company anticipates approximately $10 million in CapEx for Q4 2023, concluding investments in Houston manufacturing equipment [40] Q&A Session Summary Question: Can you expand on the FPSO delivery timing and its impact? - Management noted that FPSO delivery timing delays were primarily related to Brazil, affecting call-offs [26] Question: What gives confidence in the fourth quarter bookings guidance of $75 million to $100 million? - Management indicated good visibility to the ramp, largely dependent on FID timing for several customers [28] Question: Any preliminary thoughts on bookings for 2024? - Management expressed optimism for increased bookings in 2024 as rig availability improves and FPSOs are delivered [31]