Executive Summary

Q4 2023 revenue declined to $4.27M on lower North America DNR tool sales and weaker contract services amid a 20% YoY drop in U.S. rig count; Adjusted EBITDA margin compressed to 10.3% from 25.7% YoY .
Diluted EPS was $0.18, driven by a one-time release of a $6.4M deferred tax asset valuation allowance; operating margin was -6.4% versus 13.3% in Q4 2022 .
International revenue rose 9% YoY and 9% QoQ, reflecting continued Middle East execution; North America comprised ~85% of Q4 revenue .
DTI agreed to acquire SDPI for ~$32.2M; shareholders may elect $1.00 cash per share or 0.313 DTI shares, with closing targeted for Q3 2024—an immediate stock reaction catalyst and strategic pivot for the company .

What Went Well and What Went Wrong

What Went Well

International revenue growth and Middle East momentum: “International revenue grew 9%... operations in the Middle East continue to build post‑pandemic,” with regional rig count up to 955 by year-end .
Strategic combination announced: “We are excited to merge with DTI… the combination… will enable us to accelerate our growth and bring our drilling solutions to more customers” (Troy Meier) .
Year-end balance sheet improved: Cash ended at $2.7M (up $0.5M YoY); operating cash flow of $3.2M for 2023, and total debt decreased to $2.2M at year-end .

What Went Wrong

North America weakness: Q4 total revenue fell 15% QoQ and 18.7% YoY; North America revenue -18.6% QoQ and -19.6% YoY due to timing with the distributor and rig count declines .
Margin compression: Q4 operating margin dropped to -6.4% (from 2.5% in Q3 and 13.3% in Q4 2022), Adjusted EBITDA fell to $439K vs $1.35M in Q4 2022 .
Elevated SG&A and litigation costs: SG&A up 10% YoY on international expansion; Q4 included $123K strategic review fees, with specialty legal expenses pressuring quarterly and full-year SG&A .

Financial Results

Metric	Q4 2022	Q3 2023	Q4 2023
Revenue ($USD Millions)	$5.25	$5.05	$4.27
Diluted EPS ($USD)	$0.01	—	$0.18
Operating Income ($USD Thousands)	$701	$126	$(273)
Operating Margin (%)	13.3%	2.5%	-6.4%
Adjusted EBITDA ($USD Thousands)	$1,350	$784	$439
Adjusted EBITDA Margin (%)	25.7%	15.5%	10.3%
Cost of Revenue (% of Sales)	41.2%	39.7%	45.4%
SG&A (% of Sales)	39.2%	51.2%	53.0%

Segment/Geography	Q4 2022	Q3 2023	Q4 2023
North America Revenue ($USD Thousands)	$4,529	$4,469	$3,639
International Revenue ($USD Thousands)	$726	$583	$633
Tool (DNR) Revenue ($USD Thousands)	$3,348	$3,256	$2,512
Contract Services Revenue ($USD Thousands)	$1,906	$1,796	$1,761

KPIs	Q4 2022	Q3 2023	Q4 2023
Average U.S. Rig Count (units)	—	650	621
International Rig Count (units)	900 (end of 2022)	962 (end of Oct 2023)	955 (end of 2023)
Cash And Equivalents ($USD Millions)	$2.16	$4.31	$2.67
Total Debt ($USD Millions)	$0.53 LT at YE 2022	$2.46 total at Q3	$2.2 total at YE 2023
Cash from Operations ($USD Millions, FY)	$3.55 (FY22)	$4.09 (9M23)	$3.19 (FY23)
Capital Expenditure ($USD Millions, FY)	$3.33 (FY22)	$3.12 (9M23)	$3.74 (FY23)

Notes: Q4 2023 EPS benefited from the release of a $6.4M deferred tax asset valuation allowance, a non-recurring item .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance (Q4)	Change
Revenue	FY 2023	$24.0M–$27.0M (Q1)	$22.0M–$24.0M (updated at Q2; reaffirmed Q3)	Lowered (Q2); Maintained (Q3); No new update (Q4)
SG&A Expense	FY 2023	$9.0M–$10.0M incl. ~$1.0M legal (Q1)	$9.0M–$9.5M incl. ~$1.2M legal (Q2; reaffirmed Q3)	Narrowed range; higher legal; Maintained (Q3); No new update (Q4)
Adjusted EBITDA	FY 2023	$6.5M–$7.5M (Q1)	$5.5M–$6.5M (Q2; reaffirmed Q3)	Lowered (Q2); Maintained (Q3); No new update (Q4)

No explicit FY 2024 guidance was provided with Q4 results, coincident with the announced DTI merger .

Earnings Call Themes & Trends

Note: A Q4 2023 earnings call transcript was not available in the document catalog; trends reflect management disclosures in press releases.

Topic	Previous Mentions (Q2 2023)	Previous Mentions (Q3 2023)	Current Period (Q4 2023)	Trend
Middle East expansion	International revenue doubled YoY; Dubai service center opened; team expansion	Strengthened international technical support; ISO standards advancements; service center prep	International revenue +9% QoQ; region continues to build; YE international rig count 955	Positive momentum sustained
U.S. rig count/macro	North America growth YoY but rig count decline noted	Average U.S. rig count down 15% YoY; further decline to 618 after Q3	Average U.S. rig count down 20% YoY; -4% QoQ to 621	Persistent headwind
Strategic review/M&A	Board initiated strategic alternatives process	“Creating greater value… to drive value for strategic initiatives effort”; cost rationalization announced	Definitive agreement to be acquired by DTI; shareholder election mechanics disclosed	Transition to merger execution
Cost actions/OpEx	SG&A up on expansion; litigation costs $450K in Q2	Annualized $600K domestic expense savings planned; one-time severance in Q4	SG&A down 13% QoQ; Q4 includes $123K strategic review fees; R&D down ~$200K QoQ	Normalizing SG&A post actions
Financing/liquidity	New Vast Bank credit agreement post-Q2; AR program	Debt $2.5M; cash $4.3M post AR program timing	YE cash $2.7M; total debt $2.2M; CFO signed 8-K	Stable liquidity
Legal/litigation	Ongoing patent litigation pressures SG&A	$260K litigation costs in Q3; $80K strategic review fees	Full-year legal expenses ~$1.2M; SG&A elevated YoY	Continuing but manageable

Management Commentary

“We are excited to merge with DTI… together we can drive more value… The combination of our patented technology and cutting-edge manufacturing capabilities with DTI’s powerful sales and marketing will enable us to accelerate our growth” — Troy Meier, Chairman & CEO .
“Ultimately, we believe this transaction will provide our employees with expanded opportunities… allow us to continue to deliver… provide enhanced scale and management depth to accelerate growth and deliver value to our stockholders.” — Troy Meier .
Q4 revenue context: timing of DNR orders from the North American distributor and lower drilling activity impacted contract services; North America ~85% of total revenue .

Q&A Highlights

A full Q4 2023 earnings call transcript was not available in the document catalog; Q&A highlights and any guidance clarifications could not be sourced.

Estimates Context

Wall Street consensus (S&P Global Capital IQ) for Q4 2023 was unavailable for SDPI due to missing company mapping; as a result, comparisons versus consensus EPS, revenue, and EBITDA cannot be provided. Values would be retrieved from S&P Global if available.*

Key Takeaways for Investors

Near-term revenue/margins under pressure from U.S. rig count declines and distributor timing; expect volatility until macro stabilizes and distribution cadence normalizes .
International execution is a structural positive; Middle East expansion and service capabilities underpin mix improvement and future growth vectors .
Q4 EPS strength was primarily a tax allowance release; underlying operating performance was weak with negative operating margin—adjust models to strip non-recurring tax items .
Cost discipline underway (headcount rationalization, SG&A moderation); monitor sustainability of SG&A run-rate post severance and strategic review costs .
Balance sheet manageable with YE cash $2.7M and total debt $2.2M; Capex largely tied to Middle East fleet and facility—watch capital intensity vs. revenue recovery .
The DTI merger is the dominant catalyst; election mechanics ($1.00 cash or 0.313 DTI shares) and proration could drive trading dynamics into closing; watch regulatory/shareholder approvals and timeline to Q3 2024 .
Without consensus estimates, use internal benchmarks (sequential/YoY trends) to frame expectations; the post-merger platform may alter standalone trajectory materially.*

*Values retrieved from S&P Global if available; consensus was unavailable for SDPI in our query.

Superior Drilling Products, Inc. (SDPI)·Q4 2023 Earnings Summary