Executive Summary

Q3 2023 revenue was $5.05M, down 5.9% sequentially and 2.3% YoY; operating margin compressed to 2.5% amid higher SG&A tied to Middle East expansion and litigation expenses, while Adjusted EBITDA was $0.78M (15.5% margin) .
EPS was $0.00 vs $0.01 in Q2 2023 and $0.02 in Q3 2022; net income was $14K as SG&A rose 50% YoY (to $2.59M), including ~$260K litigation and ~$80K strategic review costs .
2023 outlook reaffirmed: Revenue $22–$24M, SG&A $9.0–$9.5M (incl. ~$1.2M litigation), Adjusted EBITDA $5.5–$6.5M; cost actions implemented in early Q4 expected to save ~$0.6M annually (with Q4 severance) .
Liquidity solidified via Vast Bank facility; quarter-end cash $4.3M and total debt $2.5M; YTD operating cash flow $4.1M (vs. $1.3M last year), aided by receivables program timing; $1.2M AR program payment made in October .

What Went Well and What Went Wrong

What Went Well
- International growth YoY and continued build-out of Middle East footprint (technical support, ISO standards, service/technology center) positioning for future bit refurbishment and rental opportunities .
- Strong cash generation: YTD cash from operations $4.1M vs $1.3M prior year; cash balance $4.3M at quarter-end, aided by AR program timing .
- Financing de-risked: new Vast Bank credit agreement (5-year $1.7M term loan, 2-year $750K revolver, AR purchase program) refinanced prior facility .
What Went Wrong
- Revenue declined sequentially (−5.9%) as Middle East ramp timing offset domestic stability; operating income fell to $126K (2.5% margin) vs $546K (10.2%) in Q2 .
- SG&A up 50% YoY to $2.59M on international expansion and higher legal/strategic costs, pressuring profitability despite revenue mix .
- U.S. rig count pressure: average 650 rigs in Q3 (−15% YoY) and 618 after quarter-end; domestic softness weighed on DNR sales and contract services .

Financial Results

Metric	Q3 2022	Q2 2023	Q3 2023
Revenue ($USD Millions)	$5.173	$5.367	$5.052
Net Income ($USD Millions)	$0.640	$0.323	$0.014
EPS (Diluted, $)	$0.02	$0.01	$0.00
Operating Income ($USD Millions)	$0.856	$0.546	$0.126
Operating Margin (%)	16.5%	10.2%	2.5%
Adjusted EBITDA ($USD Millions)	$1.525	$1.213	$0.784
Adjusted EBITDA Margin (%)	29.5%	22.6%	15.5%
Cost of Revenue ($USD Millions)	$2.231	$2.013	$2.004
SG&A ($USD Millions)	$1.723	$2.459	$2.585

Segment/Geography Revenue

Metric	Q3 2022	Q2 2023	Q3 2023
North America Revenue ($USD Millions)	$4.623	$4.325	$4.469
International Revenue ($USD Millions)	$0.550	$1.042	$0.583
Tool (DNR) Revenue ($USD Millions)	$3.343	$3.552	$3.256
Contract Services ($USD Millions)	$1.829	$1.815	$1.796

Operating Ratios and Mix

KPI	Q3 2022	Q2 2023	Q3 2023
Cost of Revenue as % of Sales	43.1%	37.5%	39.7%
SG&A as % of Sales	33.3%	45.8%	51.2%
Operating Margin (%)	16.5%	10.2%	2.5%
Adj. EBITDA Margin (%)	29.5%	22.6%	15.5%
North America % of Total	—	~81%	~88%

Balance Sheet & Cash Flow Highlights

Total debt: $2.5M at quarter-end; cash: $4.3M; AR program repayment of $1.2M in October; YTD capex $3.1M (ME investments) with 2023E capex $3.5–$4.0M .
YTD operating cash flow: $4.09M vs $1.34M prior year; Q3 release notes $3.2M cash from operations in the quarter .

Estimates vs. Actuals

Metric	Consensus (Q3 2023)	Actual
Revenue	Unavailable (S&P Global data not found for SDPI)	$5.052M
EPS (Diluted)	Unavailable (S&P Global data not found for SDPI)	$0.00

Note: We attempted to retrieve S&P Global consensus via GetEstimates, but mapping was unavailable for SDPI; therefore, consensus comparisons are not provided.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2023	$22.0–$24.0M (Aug 14, 2023)	$22.0–$24.0M (Nov 9, 2023)	Maintained
SG&A Expense	FY 2023	$9.0–$9.5M incl. ~$1.2M litigation (Aug 14, 2023)	$9.0–$9.5M incl. ~$1.2M litigation (Nov 9, 2023)	Maintained
Adjusted EBITDA	FY 2023	$5.5–$6.5M (Aug 14, 2023)	$5.5–$6.5M (Nov 9, 2023)	Maintained

Context: Initial FY23 guidance (May 11) was higher at $24–$27M revenue and $6.5–$7.5M Adjusted EBITDA, and was lowered on Aug 14 due to U.S. rig count declines and litigation costs .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2023 and Q2 2023)	Current Period (Q3 2023)	Trend
Middle East expansion	Q1: Service/tech center planned; team build; double international revenue YoY . Q2: Dubai center opened; international ~20% of revenue .	Continued investments in international technical support; ISO progress to enable U.A.E./Saudi expansion; timing affected sequential revenue .	Positive long-term; near-term timing variability
U.S. rig count/macro	Q1: Domestic growth despite flat rig count . Q2: Sequential decline tied partly to rig count .	Avg U.S. rigs 650 (−15% YoY); 618 post-quarter; pressured DNR and services .	Headwind domestically
Strategic review	Q1: Board initiated process; retaining advisor .	Strategic review continues; $80K fees in SG&A .	Ongoing
Cost structure & OpEx	Q1/Q2: SG&A elevated on expansion and legal; strong operating leverage earlier in year .	Domestic rationalization in early Q4 targeting ~$600K annual savings; one-time severance in Q4 .	Turning to cost discipline
Litigation	Q1: ~$360K legal expense . Q2: ~$450K legal expense; guidance embeds ~$1.2M for 2023 .	~$260K legal expense in Q3; guidance unchanged .	Persisting but moderating in Q3
Financing/liquidity	Q1: Debt $1.6M . Q2: New Vast Bank facility post-quarter .	New facility in place; total debt $2.5M; cash $4.3M; AR program in use .	Improved flexibility

Management Commentary

“Our results were solid considering the significant decline in U.S. rig count throughout the year. On the international front, we grew year-over-year and remain excited about the many opportunities to drive future growth.” — Troy Meier, Chairman & CEO .
“We continued to improve our international technical support group, advanced our international ISO quality standards... and are preparing our new localized service and technology center for future bit refurbishment work.” .
“At the beginning of the fourth quarter we rationalized our domestic operations... expected to result in annual expense savings of approximately $600 thousand, with one-time severance expenses to be recognized in the fourth quarter of 2023.” .

Q&A Highlights

The company hosted its Q3 2023 results call on Nov 9; an external transcript is available for full Q&A details .
Based on the company’s disclosures, management emphasized: maintained FY23 outlook , domestic cost actions and timing of Middle East ramp , liquidity and new financing program details , and SG&A composition (expansion, legal, strategic review) .
Note: Our document tool could not retrieve the internal transcript due to a database inconsistency; please refer to the external transcript link above for verbatim exchanges.

Estimates Context

S&P Global (Capital IQ) consensus for Q3 2023 revenue and EPS was unavailable for SDPI in our feed at the time of analysis; therefore, we cannot provide beat/miss comparisons. We attempted to retrieve S&P Global estimates but the mapping for SDPI was not available in the system.
Implication: With no formal consensus, investors may anchor on company reaffirmed FY23 guidance and sequential/YoY trends rather than a beat/miss narrative .

Key Takeaways for Investors

Revenue and profitability compressed sequentially as Middle East timing and elevated SG&A outweighed domestic resilience; operating margin fell to 2.5% and EPS to $0.00 .
Structural investments internationally remain intact and are central to the medium-term growth thesis; Q3 affirmed progress (ISO, technical support, service center readiness) .
Management took action on costs (Q4 rationalization) with ~$0.6M expected annual savings; watch Q4 P&L for severance and 2024 run-rate benefits .
Liquidity improved (cash $4.3M) with flexible Vast Bank facility and AR program; year-to-date operating cash flow strengthened to $4.1M .
2023 guidance maintained despite rig count headwinds, suggesting confidence in international ramp and cost control; monitor litigation costs versus the ~$1.2M full-year assumption .
Domestic macro remains a headwind (U.S. rigs −15% YoY), but international rig activity improved through October; revenue mix likely to skew toward Middle East as execution progresses .
Near-term trading setup: limited estimate anchor (no consensus), so price reaction likely tied to guidance durability, cash generation, and evidence of ME revenue conversion; look for Q4 commentary on cost savings realization and early 2024 ME pipeline .

Superior Drilling Products, Inc. (SDPI)·Q3 2023 Earnings Summary