Superior Drilling Products, Inc. (SDPI)·Q2 2023 Earnings Summary

Executive Summary

• Q2 2023 revenue increased 18.2% year-over-year to $5.37M, while diluted EPS was $0.01; sequentially, revenue declined 14.5% due to lower U.S. rig count and strong prior-quarter tool sales through the U.S. channel partner .
• Adjusted EBITDA rose 46% YoY to $1.21M with margin expansion to 22.6% (+430 bps YoY), demonstrating operating leverage; operating income was $0.55M (10.2% of sales), up >4x YoY .
• Management lowered 2023 guidance to revenue of $22–$24M (from $24–$27M) and Adjusted EBITDA of $5.5–$6.5M (from $6.5–$7.5M), citing U.S. rig count decline and higher litigation costs; SG&A guidance narrowed to $9.0–$9.5M (incl. ~$1.2M legal) .
• Strategic and liquidity catalysts: opened Dubai service and technology center in Q2; executed a new credit agreement post quarter-end (5-year $1.7M term loan, 2-year $0.75M revolver, receivables program) to extend maturities and add liquidity .

What Went Well and What Went Wrong

What Went Well

• International traction: Middle East revenue doubled YoY and represented nearly 20% of total; service and technology center opened in Dubai to support growth .
• Operating leverage: Operating income reached $0.55M (10.2% margin), up >4x YoY; Adjusted EBITDA increased 46% YoY to $1.21M with margin at 22.6% .
• CEO tone on growth investments: “We continued to gain traction in the Middle East… We added to our technical sales and business development team and completed our new service and technology center during the quarter.” .

What Went Wrong

• Sequential slowdown: Revenue fell 14.5% QoQ, driven by prior-quarter strength in U.S. channel partner tool sales and a decline in U.S. rig count .
• Elevated SG&A: SG&A increased to $2.46M (45.8% of sales), including $0.45M of legal expenses tied to ongoing patent litigation; legal spending pressured margins .
• Cash decreased: Quarter-end cash was $1.18M, down $0.98M from year-end 2022, reflecting working capital timing, higher capex, and inventory build for Middle East demand; accounts receivable collection of ~$0.75M occurred post quarter .

Financial Results

Core Financials vs Prior Periods and Estimates

Note: Wall Street consensus from S&P Global was not available for SDPI in Q2 2023; therefore, beats/misses vs estimates cannot be assessed.

Segment and Geography

KPIs and Balance Sheet (Operational)

Guidance Changes

Earnings Call Themes & Trends

Note: Q2 2023 transcript is available externally . Slide deck posted as Exhibit 99.2 and public link .

Management Commentary

• Troy Meier (CEO): “We had a strong quarter with revenue up 18% over the second quarter last year. The leverage that we gained from this higher sales volume led to measurably improved operating income and net income, as well as solid EBITDA performance.” .
• On international growth: “We continued to gain traction in the Middle East as our international revenue doubled year-over-year and accounted for nearly 20% of our total revenue mix during the quarter… completed our new service and technology center.” .
• On domestic Contract Services: “We have begun to refurbish a second customer’s PDC bits… Over time, we aim to replicate the success and volume of services performed with that of our long-time legacy customer.” .
• On liquidity actions: Executed a new credit agreement post quarter-end, extending maturities and adding a receivables program; AR collection of $0.75M subsequently improved cash .

Q&A Highlights

• The Q2 2023 earnings call and transcript were held on August 14, 2023; themes mirrored the release: updated FY23 guidance (revenue, SG&A incl. legal costs, Adjusted EBITDA), Middle East expansion and Dubai center, and domestic rig count pressure .
• Slide presentation accompanied the call (Exhibit 99.2), reinforcing operational initiatives and guidance .
• Call logistics were announced via press release and company site .

Estimates Context

• Wall Street consensus (S&P Global) for Q2 2023 EPS, revenue, and EBITDA was unavailable for SDPI; as a result, beats/misses vs estimates cannot be assessed in this recap.
• Given the guidance reduction (revenue and Adjusted EBITDA) and domestic rig count headwind, sell-side estimates for 2H 2023 may need to be revised lower to align with updated management ranges .

Key Takeaways for Investors

• International growth is becoming a meaningful offset: Middle East revenue doubled YoY, and Dubai center establishes on-the-ground capability; watch for incremental share gains and margin impact from localized refurbishment .
• Domestic softness tied to rig count is pressuring sequential performance; any stabilization or uptick in U.S. rigs would be a near-term catalyst for tools and Contract Services .
• SG&A/legal expenses are a tangible drag; FY legal spending raised to ~$1.2M—monitor litigation timeline and potential resolution to relieve margin pressure .
• Liquidity improved via new credit agreement (term loan + revolver + receivables program); enhances flexibility to fund Middle East inventory and operations .
• Guidance reset lowers FY revenue and EBITDA expectations; positioning for execution within a tighter range suggests discipline amid macro headwinds .
• Contract Services expansion to a second PDC-bit customer could drive more stable revenue and utilization across cycles; monitor on-boarding and volume ramp .
• Near-term trading: sentiment likely hinges on U.S. rig count trends and international order flow; medium-term thesis depends on Middle East scaling, litigation resolution, and disciplined cost management .

Prior-Quarter Context

• Q1 2023: record revenue of $6.28M, diluted EPS $0.05, Adjusted EBITDA $2.02M (32.1% margin); guidance was initially $24–$27M revenue and $6.5–$7.5M Adjusted EBITDA .
• Q4/FY 2022: revenue $5.25M in Q4 and $19.10M for FY; FY diluted EPS $0.04; Adjusted EBITDA margin expanded to 24.7%; FY23 guidance first set at $24–$27M revenue and $6.5–$7.5M Adjusted EBITDA .