Document and Entity Information - USD ($)

12 Months Ended

Dec. 31, 2023

Feb. 22, 2024

Jun. 30, 2023

Cover [Abstract]

Document Type

10-K/A

Amendment Flag

true

Amendment Description

EXPLANATORY NOTEDril-Quip, Inc. (the “Company” or “Dril-Quip”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment” or “Form 10-K/A”) to amend and restate certain items in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, originally filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024 (the “Original Form 10-K”).In filing this Amendment, we are restating our previously issued audited Consolidated Financial Statements as of and for the fiscal year ended December 31, 2021 (the “Affected Period”) to correct for a misclassification of inventory write-downs as “Restructuring and other charges” rather than being recorded as “Cost of sales” in the Consolidated Statement of Income (Loss) for the fiscal year ended December 31, 2021 and other immaterial presentation errors. Those previously issued financial statements for the Affected Period should no longer be relied upon. In addition, we intend to file an amendment to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, originally filed with the SEC on May 2, 2024, to update that our disclosure controls and procedures were not effective due to the material weakness described below (such report, together with this Amendment, the “Amended Reports”). All material restatement information will be included in the Amended Reports, and we do not intend to separately amend other filings that we have previously filed with the SEC.Accordingly, investors and other readers should rely only on the financial information and other disclosures regarding the periods described above in this Amendment and in any other future filings with the SEC (as applicable) and should not rely on any previously issued or filed reports, press releases, corporate presentations or similar communications relating to the periods described above.

Document Period End Date

Dec. 31, 2023

Document Fiscal Year Focus

2023

Document Fiscal Period Focus

FY

Entity Registrant Name

DRIL-QUIP, INC.

Entity Central Index Key

0001042893

Entity Current Reporting Status

Yes

Entity Voluntary Filers

No

Entity Interactive Data Current

Yes

Current Fiscal Year End Date

--12-31

Entity Filer Category

Large Accelerated Filer

Entity Well-known Seasoned Issuer

Yes

Entity Public Float

$ 777,800,000

Entity Common Stock, Shares Outstanding

34,413,906

Entity Shell Company

false

Entity Small Business

false

Entity Emerging Growth Company

false

Title of 12(b) Security

Common Stock, $.01 par value per share

Trading Symbol

DRQ

Security Exchange Name

NYSE

Entity File Number

001-13439

Entity Incorporation, State or Country Code

DE

Entity Tax Identification Number

74-2162088

Entity Address, Address Line One

2050 West Sam Houston Parkway S.

Entity Address, Address Line Two

Suite 1100

Entity Address, City or Town

Houston

Entity Address, State or Province

TX

Entity Address, Country

US

Entity Address, Postal Zip Code

77042

City Area Code

713

Local Phone Number

939-7711

Document Annual Report

true

Document Transition Report

false

ICFR Auditor Attestation Flag

true

Documents Incorporated by Reference

Portions of the Registrant’s Proxy Statement for its 2024 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III of this Form 10-K

Auditor Name

PricewaterhouseCoopers LLP

Auditor Location

Houston, Texas

Auditor Firm ID

238

Document Financial Statement Error Correction [Flag]

true

Document Financial Statement Restatement Recovery Analysis [Flag]

true

Auditor Opinion [Text Block]

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Dril-Quip, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Dril-Quip, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the Company not designing and maintaining effective controls over the financial statement classification of inventory write-downs related to restructurings.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanying Management's Annual Report on Internal Control over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Restatement of Previously Issued Financial Statements and Management’s Conclusion Regarding Internal Control over Financial Reporting

As discussed in Note 21 to the consolidated financial statements, the Company has restated its 2021 financial statements to correct an error.

Management and we previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2023. However, management has subsequently determined that a material weakness in internal control over financial reporting related to the Company not designing and maintaining effective controls over the financial statement classification of inventory write-downs related to restructurings existed as of that date. Accordingly, management’s report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Great North from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination during 2023. We have also excluded Great North from our audit of internal control over financial reporting. Great North is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 11% and 8%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Reserve for Slow Moving, Excess and Obsolete Inventory

As described in Note 2 to the consolidated financial statements, management periodically performs obsolescence reviews on slow-moving and excess inventories, and reserves are established based on current assessments about future demands and market conditions. Management determines the reserve percentages based on an analysis of stocking levels, historical sales levels and future sales forecasts anticipated for inventory items by product type. The Company’s consolidated inventory balance was $194.6 million as of December 31, 2023, which was reduced by a reserve for slow moving, excess and obsolete inventory of $66.2 million.

The principal considerations for our determination that performing procedures relating to the reserve for slow moving, excess, and obsolete inventory is a critical audit matter are (i) the significant judgment by management when developing the reserve and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to stocking levels, historical sales levels, and future sales forecasts impacting the determination of the reserve percentages.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s reserve for slow moving, excess, and obsolete inventory, including controls over significant assumptions and data utilized. These procedures also included, among others (i) testing management’s process for developing the reserve; (ii) evaluating the appropriateness of the analysis performed by management; (iii) testing the completeness and accuracy of the underlying data used in the analysis; and

(iv) evaluating the reasonableness of the significant assumptions used by management related to stocking levels, historical sales levels, and future sales forecasts. Evaluating management’s assumptions related to stocking levels, historical sales levels, and future sales forecasts involved considering (i) the consumption and use of inventory in previous periods; (ii) changes in market conditions; (iii) current backlog levels; and (iv) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Acquisition of Great North – Valuation of Customer Relationships

As described in Notes 2 and 3 to the consolidated financial statements, on July 31, 2023, the Company completed the acquisition of Great North for total consideration of $87.7 million. Of the $22.3 million of acquired intangible assets recorded, $14.7 million related to customer relationships. The fair value of customer relationships was estimated by management using a multi-period excess earnings method. Management’s cash flow projections for the customer relationships acquired included significant judgments and assumptions relating to baseline revenue and revenue growth rates, EBITDA margins, contributory asset charges, customer attrition rate, and discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of customer relationships acquired in the acquisition of Great North is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the customer relationships acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to baseline revenues, EBITDA margins, contributory asset charges, customer attrition rate, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships acquired. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the customer relationships; (iii) evaluating the appropriateness of the multi-period excess earnings method used by management; (iv) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings method; and (v) evaluating the reasonableness of the significant assumptions used by management related to baseline revenues, EBITDA margins, contributory asset charges, customer attrition rate, and discount rate. Evaluating management’s assumptions related to baseline revenues, EBITDA margins, and customer attrition rate involved considering (i) the current and past performance of the Great North business; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings method and (ii) the reasonableness of the contributory asset charges, customer attrition rate, and discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 27, 2024, except for the effects of the restatement and other immaterial disclosure errors discussed in Note 21 to the consolidated financial statements and the matter discussed in the third to last paragraph of Management’s Annual Report on Internal Control over Financial Reporting, as to which the date is July 8, 2024

We have served as the Company’s auditor since 2014.