DRIL-QUIP INC (DRQ)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 revenue rose 9.1% q/q and 34.3% y/y to $120.3M on strong Subsea Products deliveries and robust Well Construction activity; gross margin expanded to 30.8% (+194 bps q/q, +417 bps y/y) and adjusted EBITDA improved to $16.5M (vs. $10.2M in Q1) .
• The company posted a net loss of $1.8M (–$0.05/sh), a sharp improvement from Q1’s –$20.0M (–$0.58/sh), aided by better mix and operating efficiency, though cash from operations was –$9.3M due to timing of customer payments and insurance premiums (expected to normalize in 2H24) .
• Subsea Product orders booked were $54.1M; after a $39.6M subsea tree project cancellation in Australia, net Subsea Product bookings were $12.8M. Management highlighted momentum with Petrobras tenders and OneSubsea collaboration .
• Guidance updates remain suspended due to the pending Innovex merger, which management expects to close in Q3 2024; no Q2 earnings call was held. Potential stock catalysts: merger close (synergies/cross-sell), subsea booking conversion, and continued margin expansion .

What Went Well and What Went Wrong

• What Went Well

  • Revenue and margin execution: revenue +9.1% q/q and +34.3% y/y to $120.3M; gross margin to 30.8% on favorable mix/productivity; adjusted EBITDA to $16.5M (+$6.3M q/q, +$7.7M y/y) .
  • Segment momentum: “particularly in our Subsea Products and Well Construction segments,” with Well Construction showing “proforma year on year growth of 25%” (CEO) .
  • Strategic pipeline: “successful tender with Petrobras” and accelerating OneSubsea wellhead collaboration; incoming bookings strong in subsea wellheads/connectors (CEO) .

• What Went Wrong

  • Project cancellation: a customer canceled an Australian drilling campaign, reversing previously recorded subsea production system bookings; net Subsea Product bookings were $12.8M after a $39.6M reversal .
  • Cash usage: operating cash flow was –$9.3M and free cash flow –$15.5M, driven by timing of customer and insurance payments; management expects normalization in 2H24 .
  • Guidance visibility: guidance updates suspended amid pending Innovex merger; no earnings call, limiting near-term disclosure/clarifications .

Financial Results

Revenue composition

KPIs and other operating metrics

Context versus prior quarter and year:

• Sequential: Revenue +$10.0M; gross margin +194 bps; adjusted EBITDA +$6.3M; EPS improved to $(0.05) from $(0.58) .
• Year-over-year: Revenue +$30.7M; gross margin +417 bps; adjusted EBITDA +$7.7M; EPS declined to $(0.05) from $0.10 .

Guidance Changes

Note: Q1 2024 also indicated guidance updates were suspended due to the merger process .

Earnings Call Themes & Trends

Note: No Q2 2024 earnings call or webcast due to the pending Innovex merger . The table below tracks themes from Q4 2023 investor materials and Q1/Q2 press releases.

Management Commentary

• “We experienced robust revenue growth and strong performance across several of our key businesses in the second quarter, particularly in our Subsea Products and Well Construction segments… The Well Construction segment was especially robust with proforma year on year growth of 25%.” — Jeffrey Bird, President & CEO .
• “We expect revenue to continue at or above these levels in the second half of 2024, with strong incoming bookings in our subsea wellheads and connectors product lines.” — Jeffrey Bird .
• On Innovex merger: “We look forward to the significant benefits for the combined company including scale, cross-selling opportunities, attractive synergies and diversified presence across the most compelling markets… We expect the transaction to close in the third quarter.” — Jeffrey Bird .

Q&A Highlights

• No Q2 2024 earnings call or webcast was held due to the pending Innovex merger; therefore there was no Q&A session .

Estimates Context

• S&P Global consensus estimates: unavailable for DRQ via our S&P Global CIQ mapping at this time; as a result, we do not present vs-consensus comparisons for Q2 2024. We attempted to retrieve “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q2 2024 but could not due to a missing CIQ mapping for DRQ (tool error). Where estimates are not shown, note that the values were unavailable from S&P Global at the time of analysis.

Key Takeaways for Investors

• Execution improved materially: revenue growth (+9% q/q, +34% y/y), gross margin to 30.8%, and adjusted EBITDA to $16.5M signal operating leverage as mix shifts toward higher-margin subsea wellhead deliveries .
• Well Construction momentum is durable: management highlighted 25% pro forma y/y growth and international traction, including West Africa, following the Great North acquisition .
• Booking quality matters: underlying demand appears healthy (Petrobras tender, OneSubsea collaboration), but the Australian project cancellation shows macro/project risk; monitor net bookings conversion .
• Cash timing headwinds overshadowed P&L improvement in Q2; management expects normalization in 2H24—watch working capital cadence and FCF inflection .
• Guidance visibility limited until after Innovex close; merger remains the dominant catalyst (synergies, cross-sell, scale). Absence of calls may constrain near-term information flow .
• Trendline into 2H24: management expects revenue “at or above” Q2 levels, supported by subsea wellheads/connectors; continued margin expansion would be a positive re-rating driver .
• Risk checks: exposure to project cancellations, FX swings (sizeable FX line items historically), and merger execution/close timing remain key watch items .

Sources: Q2 2024 8-K/press release, including financial tables and management commentary ; Q1 2024 8-K/press release ; Q4 2023 8-K/press release and investor presentation (for 2024 outlook and strategic context) .