Hot Stock That Must Be in Your Portfolio: Dril-Quip Inc. (NYSE: DRQ)

Houston, February 10, 2020 – Shares of Dril-Quip Inc. (NYSE: DRQ) declined -1.78% to $40.90. The stock grabbed the investor’s attention and traded 339.490K shares as compared to its average daily volume of 252.35K shares.

For the third quarter of 2019, Dril-Quip Inc. (NYSE: DRQ) reported consolidated revenue of $108.0M, an increase of $4.0M, or 4%, compared to the second quarter of 2019, primarily driven by an increase in product revenue of $5.0M partially offset by a nominal decrease in services and leasing revenue. Western Hemisphere revenue increased approximately $5.0M, or 10%, during the third quarter due to increased product and aftermarket revenue. Eastern Hemisphere revenue decreased approximately $2.0M, or 6%, as compared to the prior quarter due to lower product sales and aftermarket activity. Asia-Pacific revenue increased sequentially by approximately $1.0M, or 5%, due primarily to increased percentage of completion (POC) activity.

Cost of sales for the third quarter of 2019 was $76.0M, an increase of $2.0M compared to the prior quarter. Gross operating margin for the third quarter of 2019 was 30%, a slight increase from 29% in the second quarter of 2019.  The improved gross margin was due to a combination of favorable activity, the results of the restructuring and ongoing cost savings initiatives, partially offset by employee compensation merit increases and partial restoration of prior salary rollback.  In addition, there was an out-of-period adjustment which was offset by an earn-out contingency release both of which are non-recurring.

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2019 were $28.0M, an increase of $5.0M compared to the second quarter of 2019 due to higher stock compensation expense. After excluding stock compensation expense, SG&A expenses for the third quarter remained consistent with the prior quarter.

For the third quarter of 2019, Dril-Quip reported net loss of $1.0M, or $0.04 loss per diluted share. Adjusted net loss for the third quarter was $2.0M, or $0.07 loss per diluted share, after excluding $0.03 per share related to restructuring charges and gains related to foreign currency and the sale of assets. Adjusted EBITDA totaled $15.0M for the third quarter of 2019, compared to $13.0M in the second quarter of 2019. Dril-Quip used $4.0M in net cash provided by operating activities to fund working capital related to our POC order trend, and free cash flow for the second quarter was negative $8.0M after incurring approximately $4.0M in capital expenditures mostly related to establishing our global manufacturing centers of excellence.

During the third quarter of 2019, Dril-Quip achieved an additional $14.0M of annualized cost savings, bringing the total annualized savings since the third quarter of 2018 to approximately $43.0M. The majority of the cost savings achieved during the third quarter was related to the leasing of the Company’s forge facilities and equipment to AFGlobal. Effective October 1, 2019, AFGlobal assumed all operational responsibility of Dril-Quip’s forge facilities, and the Company expects this transaction to contribute approximately $11.0M annually towards our transformation target. The full impact of this lease is expected to reach $13.0M over the course of the lease.

Balance Sheet:

Dril-Quip had cash on hand of $413.0M as of September 30, 2019. When combined with the Company’s asset-based lending (ABL) facility, available liquidity was approximately $454.0M.  This strong liquidity position provides both financial and operational flexibility and allows the Company to quickly capitalize on opportunities as market conditions improve. This robust cash position also allows the Company to continue to execute on its long-term strategy of investing in research and development, supporting an upturn, opportunistically buying back shares, and pursuing complementary acquisitions.

Share Repurchases:

On February 26, 2019, the Board of Directors authorized a share repurchase plan under which the Company can repurchase up to $100.0M of its common stock. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or superseded at any time at the Company’s discretion.

DRQ has a market value of $1.51B while its EPS was booked as $-2.23 in the last 12 months. The stock has 36.84M shares outstanding. In the profitability analysis, the company has gross profit margin of 28.70% while net profit margin was -20.00%. Beta value of the company was 1.52; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.90.

Nicholas Stoffel

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