DRIL-QUIP INC (DRQ)·Q4 2023 Earnings Summary

Executive Summary

• Q4 revenue and profitability improved sequentially: revenue $126.344M (+8% q/q, +31% y/y), adjusted EBITDA $16.546M (+34% q/q), net income $1.844M (from a $7.034M loss in Q3) as Subsea Services rebounded and Great North contributed its first full quarter .
• Bookings accelerated to $122.7M on a major ~$40M subsea production system in Australia; backlog rose 26% q/q and 15% y/y, positioning DRQ for 2024 growth amid an offshore upcycle .
• 2024 outlook: revenue +15%-20%, adjusted EBITDA $65–$75M, Subsea Product bookings $200–$225M, capex 3–5% of revenue; management flagged normal Q1 seasonality with a sequential decline .
• Versus Wall Street: S&P Global consensus was unavailable via our tool; third-party sources indicate revenue beat (~$7.84M) and EPS miss (range of ~$0.07–$0.14) versus consensus, suggesting estimate dispersion; results plus strong bookings and 2024 guide are key stock catalysts .

What Went Well and What Went Wrong

• What Went Well
  • Strong topline and earnings momentum: revenue $126.344M (+8% q/q, +31% y/y), adjusted EBITDA $16.546M (+34% q/q, +61% y/y), free cash flow $14.546M; net income turned positive .
  • Bookings re-accelerated: $122.7M in Q4, including a ~$40M subsea production system in Australia; backlog up 26% q/q, 15% y/y; 11 new MSAs signed in 2023 support steady demand .
  • Management tone/confidence: “Strong performance in the fourth-quarter was [a] great way to close out 2023… well positioned to capitalize on the ongoing offshore upcycle and drive future margins meaningfully higher,” CEO Jeff Bird .
• What Went Wrong
  • Gross margin compressed y/y to 27.4% (−381 bps) on product mix and Well Construction international start-up costs (though up 44 bps q/q) .
  • Q1 seasonality headwind: management expects a sequential decline, which may temper near‑term momentum despite robust 2024 guide .
  • Prior quarter disruption: Q3 reflected rig capacity constraints that delayed orders and services, an industry headwind that can affect quarterly mix/margins and bookings timing .

Financial Results

Segment/category revenue mix (company reporting)

Key KPIs

Vs. estimates (S&P Global unavailable via tool)

Note: S&P Global consensus data was unavailable via our tool; third-party references shown above.

Guidance Changes

Note: The investor presentation also referenced EBITDA of $70–$80M for FY24, versus $65–$75M in the press release; we default to the press release as primary (both dated Feb 26, 2024) .

Earnings Call Themes & Trends

Management Commentary

• CEO Jeff Bird: “Strong performance in the fourth-quarter was [a] great way to close out 2023… Bookings in the fourth quarter came in at $123 million driven by securing a subsea production system tender for approximately $40 million in Australia… we are well positioned to capitalize on the ongoing offshore upcycle and drive future margins meaningfully higher” .
• On strategy and operations: “With improved reporting lines, leaner operations, and quicker delivery times for our customers, we are well positioned… Our strong balance sheet and financial flexibility allow us to continue to evaluate both organic and inorganic growth opportunities” .
• Outlook highlights: FY24 revenue growth +15%–20%, adjusted EBITDA $65–$75M, Subsea Product bookings $200–$225M, capex 3–5% of revenue; Q1 sequential decline expected due to seasonality .

Q&A Highlights

• Seasonality and near-term cadence: Management expects a normal seasonal dip in Q1 before growth inflects through 2024, consistent with the FY outlook .
• Bookings disclosure evolution: Beginning Q1 2024, DRQ will report Subsea Product bookings only and add regular disclosures regarding MSAs to better reflect customer procurement trends .
• Mix and margin drivers: Q4 y/y margin pressure reflected product mix and international start-up costs in Well Construction; sequential margin improved, with further upside targeted through operational initiatives .

Estimates Context

• S&P Global consensus was unavailable via our tool for DRQ this quarter. We attempted to retrieve S&P Global (CIQ) data but could not due to mapping issues (tool error).
• Third-party references indicate a revenue beat and an EPS miss: Seeking Alpha cites revenue beat of ~$7.84M and EPS miss of ~$0.14; Zacks cites adjusted EPS of $0.04 vs $0.11 consensus (miss ~$0.07) .
• Given the dispersion in consensus, investors should focus on the magnitude of revenue outperformance, sequential earnings improvement, and the 2024 guide as inputs to near‑term estimate revisions .

Key Takeaways for Investors

• Demand backdrop supportive: Q4 bookings rebound and backlog growth underscore a healthy offshore cycle; MSAs provide multi‑year visibility .
• Positive operating momentum: Sequential improvement in margins and EBITDA with mix and start‑up cost headwinds manageable; operational initiatives continue .
• 2024 guide credible: Double‑digit revenue growth and higher EBITDA imply continued operating leverage; capex discipline (3–5% of revenue) supports FCF .
• Near‑term cadence: Expect a seasonal Q1 dip before re‑acceleration; watch bookings conversion and segment mix for margin trajectory .
• Strategic optionality: Net cash balance sheet and integration of Great North enable both organic and inorganic growth levers .
• Estimate dynamics: With S&P Global consensus unavailable via tool and mixed third‑party estimates, the revenue beat, stronger bookings, and FY24 outlook likely drive upward revenue revisions; EPS revisions hinge on mix and margin execution .

Sources: DRQ Q4 2023 8‑K press release and supplemental presentation (Feb 26, 2024) ; DRQ Q3 2023 8‑K (Oct 26, 2023) ; DRQ Q2 2023 8‑K (Jul 31, 2023) ; Q4 call transcript (third‑party) and press release PDF for reference .