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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, 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.R.S. Employer

Identification No.)

6401 N. ELDRIDGE PARKWAY

HOUSTON, texas

77041

(Address of principal executive offices) (Zip Code)

(713) 939-7711

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

DRQ

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes       No  

As of July 27, 2020, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 35,093,933.

 

 


TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

PART I

Item 1.

Condensed Consolidated Financial Statements

3

 

Balance Sheets

3

 

Statements of Income (Loss)

4

 

Statements of Comprehensive Income (Loss)

5

 

Statements of Cash Flows

6

 

Statements of Stockholders' Equity

7

 

Notes to Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

Index to Exhibits

34

 

Signatures

35

 

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

June 30,

2020

 

 

December 31,

2019

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

345,808

 

 

$

398,946

 

Trade receivables, net

 

 

101,034

 

 

 

107,626

 

Unbilled receivables

 

 

140,226

 

 

 

140,534

 

Inventories, net

 

 

212,412

 

 

 

205,062

 

Prepaids and other current assets

 

 

48,732

 

 

 

28,321

 

Total current assets

 

 

848,212

 

 

 

880,489

 

Operating lease right of use assets

 

 

4,729

 

 

 

5,144

 

Property, plant and equipment, net

 

 

243,796

 

 

 

258,497

 

Deferred income taxes

 

 

9,566

 

 

 

8,936

 

Goodwill

 

 

-

 

 

 

7,947

 

Intangible assets

 

 

30,473

 

 

 

32,245

 

Other assets

 

 

10,915

 

 

 

13,307

 

Total assets

 

$

1,147,691

 

 

$

1,206,565

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

58,856

 

 

$

46,324

 

Accrued income taxes

 

 

8,936

 

 

 

4,561

 

Contract liabilities

 

 

7,682

 

 

 

6,901

 

Accrued compensation

 

 

9,209

 

 

 

13,599

 

Operating lease liabilities

 

 

984

 

 

 

1,314

 

Other accrued liabilities

 

 

28,044

 

 

 

24,241

 

Total current liabilities

 

 

113,711

 

 

 

96,940

 

Deferred income taxes

 

 

3,609

 

 

 

4,150

 

Income tax payable

 

 

9,123

 

 

 

8,868

 

Operating lease liabilities, long-term

 

 

3,714

 

 

 

3,801

 

Other long-term liabilities

 

 

2,147

 

 

 

2,105

 

Total liabilities

 

 

132,304

 

 

 

115,864

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock: 10,000,000 shares authorized at $0.01 par value (none issued)

 

 

-

 

 

 

-

 

Common stock:

 

 

 

 

 

 

 

 

100,000,000 shares authorized at $0.01 par value, 35,073,744 and 35,859,540

shares issued and outstanding at June 30, 2020 and December 31, 2019

 

 

363

 

 

 

371

 

Additional paid-in capital

 

 

59,327

 

 

 

52,870

 

Retained earnings

 

 

1,122,191

 

 

 

1,181,023

 

Accumulated other comprehensive losses

 

 

(166,494

)

 

 

(143,563

)

Total stockholders' equity

 

 

1,015,387

 

 

 

1,090,701

 

Total liabilities and stockholders' equity

 

$

1,147,691

 

 

$

1,206,565

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

63,133

 

 

$

77,233

 

 

$

130,691

 

 

$

142,667

 

Services

 

 

20,750

 

 

 

16,575

 

 

 

39,564

 

 

 

35,051

 

Leasing

 

 

6,563

 

 

 

10,000

 

 

 

16,189

 

 

 

20,407

 

Total revenues

 

 

90,446

 

 

 

103,808

 

 

 

186,444

 

 

 

198,125

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

49,741

 

 

 

53,568

 

 

 

103,386

 

 

 

105,110

 

Services

 

 

9,222

 

 

 

10,219

 

 

 

18,910

 

 

 

19,455

 

Leasing

 

 

7,974

 

 

 

10,080

 

 

 

16,055

 

 

 

18,675

 

Total cost of sales

 

 

66,937

 

 

 

73,867

 

 

 

138,351

 

 

 

143,240

 

Selling, general and administrative

 

 

23,331

 

 

 

23,068

 

 

 

47,989

 

 

 

48,315

 

Engineering and product development

 

 

5,364

 

 

 

5,157

 

 

 

10,889

 

 

 

8,777

 

Impairments

 

 

-

 

 

 

-

 

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

1,587

 

 

 

1,019

 

 

 

34,300

 

 

 

3,415

 

Gain on sale of assets

 

 

(85

)

 

 

(1,190

)

 

 

(552

)

 

 

(1,203

)

Foreign currency transaction (gains) and losses

 

 

817

 

 

 

(233

)

 

 

(2,425

)

 

 

(937

)

Total costs and expenses

 

 

97,951

 

 

 

101,688

 

 

 

236,271

 

 

 

201,607

 

Operating income (loss)

 

 

(7,505

)

 

 

2,120

 

 

 

(49,827

)

 

 

(3,482

)

Interest income

 

 

653

 

 

 

2,680

 

 

 

1,859

 

 

 

4,686

 

Interest expense

 

 

(209

)

 

 

-

 

 

 

(400

)

 

 

(121

)

Income (loss) before income taxes

 

 

(7,061

)

 

 

4,800

 

 

 

(48,368

)

 

 

1,083

 

Income tax provision (benefit)

 

 

7,081

 

 

 

3,119

 

 

 

(14,528

)

 

 

5,452

 

Net income (loss)

 

$

(14,142

)

 

$

1,681

 

 

$

(33,840

)

 

$

(4,369

)

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.40

)

 

$

0.05

 

 

$

(0.96

)

 

$

(0.12

)

Diluted

 

$

(0.40

)

 

$

0.05

 

 

$

(0.96

)

 

$

(0.12

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,023

 

 

 

35,967

 

 

 

35,359

 

 

 

35,764

 

Diluted

 

 

35,023

 

 

 

36,210

 

 

 

35,359

 

 

 

35,764

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Net income (loss)

 

$

(14,142

)

 

$

1,681

 

 

$

(33,840

)

 

$

(4,369

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,048

 

 

 

(2,317

)

 

 

(22,931

)

 

 

(690

)

Total comprehensive loss

 

$

(12,094

)

 

$

(636

)

 

$

(56,771

)

 

$

(5,059

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(33,840

)

 

$

(4,369

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16,813

 

 

 

16,851

 

Stock-based compensation expense

 

 

6,458

 

 

 

8,083

 

Impairments

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

34,300

 

 

 

314

 

Gain on sale of assets

 

 

(552

)

 

 

(1,203

)

Deferred income taxes

 

 

(2,421

)

 

 

164

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

(104

)

 

 

7,621

 

Unbilled receivables

 

 

(467

)

 

 

(24,337

)

Inventories, net

 

 

(33,869

)

 

 

(1,002

)

Prepaids and other assets

 

 

(23,452

)

 

 

5,860

 

Accounts payable and accrued expenses

 

 

11,224

 

 

 

2,731

 

     Other, net

 

 

-

 

 

 

(63

)

Net cash provided by (used in) operating activities

 

 

(18,191

)

 

 

10,650

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(8,318

)

 

 

(4,598

)

Proceeds from sale of equipment

 

 

3,138

 

 

 

1,565

 

Net cash used in investing activities

 

 

(5,180

)

 

 

(3,033

)

Financing activities

 

 

 

 

 

 

 

 

Repurchase of common shares

 

 

(25,000

)

 

 

(1,996

)

Other

 

 

(129

)

 

 

-

 

Net cash used in financing activities

 

 

(25,129

)

 

 

(1,996

)

Effect of exchange rate changes on cash activities

 

 

(4,638

)

 

 

(595

)

Increase (decrease) in cash and cash equivalents

 

 

(53,138

)

 

 

5,026

 

Cash and cash equivalents at beginning of period

 

 

398,946

 

 

 

418,100

 

Cash and cash equivalents at end of period

 

$

345,808

 

 

$

423,126

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at April 1, 2020

 

$

363

 

 

$

56,045

 

 

$

1,136,335

 

 

$

(168,542

)

 

$

1,024,201

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,048

 

 

 

2,048

 

Net loss

 

 

-

 

 

 

-

 

 

 

(14,142

)

 

 

-

 

 

 

(14,142

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,094

)

Stock option expense

 

 

-

 

 

 

3,282

 

 

 

-

 

 

 

-

 

 

 

3,282

 

Other

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Balance at June 30, 2020

 

$

363

 

 

$

59,327

 

 

$

1,122,191

 

 

$

(166,494

)

 

$

1,015,387

 

 

 

Balance at January 1, 2020

 

$

371

 

 

$

52,870

 

 

$

1,181,023

 

 

$

(143,563

)

 

$

1,090,701

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,931

)

 

 

(22,931

)

Net loss

 

 

-

 

 

 

-

 

 

 

(33,840

)

 

 

-

 

 

 

(33,840

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(56,771

)

Repurchase of common stock (808,389 shares)

 

 

(8

)

 

 

-

 

 

 

(24,992

)

 

 

-

 

 

 

(25,000

)

Stock option expense

 

 

-

 

 

 

6,458

 

 

 

-

 

 

 

-

 

 

 

6,458

 

Other

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Balance at June 30, 2020

 

$

363

 

 

$

59,327

 

 

$

1,122,191

 

 

$

(166,494

)

 

$

1,015,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at April 1, 2019

 

$

376

 

 

$

39,815

 

 

$

1,198,700

 

 

$

(143,486

)

 

$

1,095,405

 

Foreign currency translation adjustment

 

 

-

 

 

 

-