Dril-Quip, Inc.

Welcome to the Drill, Quip, Q4, and Full Year 2021 Earnings Call. My name is Darrell and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then 1 on your touchtone phone. I will now turn the call over to Director, Investor Relations and Corporate Planning, Blake Holcomb. Blake, you may begin.

Thank you and welcome to DrillQuip's full year 2021 conference call. An updated investor presentation has been posted under the investors tab on the company's website along with the earnings release and will be referenced during today's call. This call is being recorded and a replay will be made available on the company's website following the call. Before we begin, I would like to remind you that DrillQuip's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause drill clips actual results to differ materially for the anticipated results or expectations expressed in these forward-looking statements. Please refer to the fourth quarter 2021 financial and operational results announcement we released yesterday for a full disclosure on forward-looking statements and recalcifications of non-GAAP measures. Speaking on the call today from Drillquip, we have Jeff Byrd, President and Chief Executive Officer, and Kyle McClure, Vice President and Chief Financial Officer. I would like to now turn the call over to Jeff Byrd.

Thanks, Blake. First, I'd like to say that I'm both humbled and excited to take over as CEO following Blake's 11 years as CEO. I'd like to personally thank Blake for his many years of service to Drillquip. His contributions have been enormous, and he will be missed. I am pleased to introduce Kyle McClure as our new CFO, effective January 1st. Kyle brings a wealth of both private and public company CFO experience and has worked in a variety of industries and is already just starting to bring his fresh perspective to the business. Welcome aboard, Kyle. You'll hear more from him later in the presentation. I'd also like to congratulate our employees around the world. We closed 2021 with the best safety record in the last 20 years for DrillQuip. This is a direct result of the hard work and dedication of all of our employees, but specifically those who are in our manufacturing facilities and on rigs around the world. Thank you for your efforts. With that, we will turn to page three to review some of the highlights for 2021. We've consistently communicated a three-pronged growth strategy, and I'm pleased to announce we've made significant progress on all three pillars. Beginning with peer-to-peer collaboration, We believe our industry and our company are stronger when we work closely with our friends in the industry. These collaborations agreements deliver superior value to our customers and ultimately to our shareholders over time. In 2020, we signed our first collaboration agreement with ProServe. We saw this start to bear fruit in 2021 as tree winds increased and expect that to accelerate into 2022 as we expect to more than double our tree awards from 2021. I'm excited about the two additional collaboration agreements signed in the last 12 months. First, we signed a collaboration agreement with One Subsea to provide wellheads, liner hangers, and other tubular goods and services. This is an important collaboration agreement for DrillQuip as it gives us broader exposure to customers that sometimes prefer bundled EPCI offerings. In addition to this broader exposure, it continues to allow us to serve customers that tender subsea both separately and bundled. This specifically relates to the development market that today is about 60% of the overall subsea wellhead market. The subsea wellhead lead time means we'll begin to see the benefits of this collaboration agreement later in 2022. We've already seen collaboration agreements pay dividend in our downhill tool business across multiple geographies, and we expect these benefits to only accelerate in 2022. This will be an important element of the 20% plus growth we expect in that business in 2022. Second, earlier this week we announced another collaboration, this one with Ocker Solutions. This agreement opens the door for us to participate in a best-in-class carbon capture utilization and storage offering with our customized injection wellheads and subsea trees. The agreement focuses on the strengths of both organizations to deliver an optimum solution for carbon capture and storage and is in line with each party's strategic goals of collaboration and partnership to unlock value for customers. Under this agreement, the parties have agreed to work together to target the Northern Endurance Partnership in the United Kingdom, which will be a priority project to secure offshore carbon dioxide storage in the North Sea. This represents a significant step forward in our energy transition efforts, and we are pleased and excited to be entering that market with a great company like Okra Solutions. Each of the companies we've entered into collaboration agreements with over the last two years is a leader in its respective markets. We appreciate that they recognize the strength of Drilquip's product offerings and are excited to see what the future holds for these agreements. We believe these agreements will allow us to outpace the market recovery over the coming years. Our second growth pillar is downhill tools. As Drillquip's first acquisition, we struggled early with the integration of this business. However, in 2020, we implemented a strategy that I believe righted the ship. We exited unprofitable geographies, bolstered our commercial teams, streamlined our integrated supply chain, and brought in a new leadership team. These actions paid dividends in 2021, resulting in the business growing over 35% year-over-year. Further, we were recently awarded a contract to deliver up to 21 of our OTC award-winning XPAC DE liner hangers for projects in Brazil through 2024. We see this growth trend continuing in 2022 and expect another 20% plus growth from 2021 levels. And ultimately, we expect this business to expand to $100 million in annualized revenue by the end of 2023. Finally, over the last couple of years, we've introduced our E-Series suite of products, all of which are OTC Spotlight Award winners. These products are green by design, and as we see an increasing interest from our customers around their carbon footprint, we believe they will become an integral solution to helping our customers meet their carbon reduction goals. The most successful and best example of this suite of products thus far is our Big Boar 2E wellhead system. This system is rapidly becoming the industry standard, and we believe will likely represent 60% plus of all wellhead orders sometime in 2022. The most significant of these wins are the recent contracts with Petrobras that include up to 87 systems through 2025. In 2021, we also saw first installations of several other E-Series products, including our DXE wellhead connector in the North Sea, and Badger high fatigue casing connector in the U.S. Gulf of Mexico. We are optimistic that as these installations gain traction, we will see similar contract awards for other E-Series products. Moving on to page four, I want to highlight the progress we have made along our ESG journey. In February 2021, we became a participant in the United Nations Global Compact. supporting the organization's principles on human rights, labor, environment, and anti-corruption. While DrillQuip has always focused on maintaining a culture of integrity through ethical behavior, being socially responsible and driving sustainability through technology innovation, joining the UN Compact, and launching our ESG website was our opportunity to increase public visibility of these efforts. On the environmental front, we are focused on lowering emissions through developing green by design technologies that limit environmental and operational risk. From a social standpoint, we want to continue our strong workforce health and safety record while ensuring our workforce is representative of the diverse communities we engage and serve. Finally, from a governance standpoint, we've added additional members to the board who bring outside perspectives and engage with our vendors to ensure that they are aligned with our ESG goals and objectives. I spoke a little on our product suite that is green by design. We believe drill clip can play an important role for our customers in the reduction of greenhouse gases. However, we are not stopping there. Page five shows our progress on greenhouse gas emissions. During 2021, we completed our Scope 1, 2, and 3 emission assessment. We have spent considerable time both internally and with our vendors establishing the baseline we believe appropriate to measure ourselves against. We will then establish targets we believe will make a significant difference over the coming years. We are aiming to release these targets later in Q1 and are excited to begin sharing those with all of our stakeholders, including our customers and investors that are increasingly interested in understanding how drillquip is contributing to decarbonization. I will now turn it over to Kyle to walk you through the financials.