Dril-Quip, Inc.

Good morning and welcome to DrillQuip's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode and there will be a question and answer opportunity at the end of this call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Erin Fazio, Corporate Finance Director for DrillQuip. Please go ahead.

Thank you and good morning. We appreciate you joining us on today's call. An updated investor presentation has been posted under the Investors tab on the company's website along with the earnings release. 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 DrillClip's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause DrillClip's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the third quarter 2023 Financial and Operational Results Announcement we released yesterday for a full disclosure on forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from Drolpip, we have Jeff Byrd, President and Chief Executive Officer, and Kyle McClure, Vice President and Chief Financial Officer. I would now like to turn the call over to Jeff Byrd.

Thank you, Erin, and thank you for joining us today. During the third quarter, we delivered strong top-line results that were up 31% sequentially and 33% year-over-year. In addition to the revenue from Great North, we saw continued strength in key end markets, specifically Latin America, the Middle East, and a further strengthening African market. While revenue was consistent with our guidance, we did see some customer-specific headwinds as a result of both rig availability in a very tight rig market and FPSO delivery timing. This directly impacts our ability to service certain customers, and as a result, our higher margin service segment delivered lower revenue than expected. We do expect our service segment to rebound in Q4. The availability also directly impacts the timing of certain bookings, specifically MSA call-offs in Latin America and the Middle East, as well as the timing of certain sub-C tree orders. Accordingly, we are adjusting our outlook slightly for the fourth quarter of 2023, which Kyle will go into in more detail later. Bookings in the quarter were $46.5 million, a decrease of $26 million sequentially as a result of the rig and FPSO timing. During the third quarter, we were also notified that the award of the Petrobras tender valued at up to $28 million, of which most is not included in bookings for the quarter. This is an incremental master service agreement supporting Petrobras in their pre-salt development wells project, and we expect the first call-offs against the agreement to occur as soon as the next couple of months. We have over 70 open MSAs and end of the quarter with approximately $200 million in backlog. The strength of our backlog, combined with our confidence in the underlying market backdrop, supports our long-term growth outlook. As a reminder, approximately 80% of our current business is call off or book and ship against MSAs as we've different standardization across many product lines and reduced lead times. Our second quarter gross margin of 27% remains healthy and we continue to execute on our organic initiatives across the organization to drive operational efficiency. Adjusted EBITDA for the second quarter was $12.4 million up $3.6 million sequentially, and up $5.3 million year over year. As we enter the final quarter of 2023, I believe the team has made excellent progress in terms of both operational and service excellence. A good example of this is our recently awarded number one service quality position with Aramco in Saudi Arabia. Congrats to the team for their continued improvements and service quality excellence. Strategically, we completed our first acquisition since 2016, with the addition of Great North this quarter. Adding Great North to the portfolio has not only been financially accretive, with the Great North team producing excellent results since close, but also adds exposure to a top-producing region. The integration team has done a great job with the back-office work, now largely complete, and supply chain optimization plans well underway. The first purchase orders in our liner hanger business utilizing Great North supply chain have been created with initial deliveries occurring early next year. We continue to expect total supply chain to drive annual synergies of approximately $10 million, which will be recognized starting in late 2024. The team has also been working diligently on establishing a framework for cross-selling Great North and drill-quit products given the white space across our customer sets. The excitement about the Great North technology coming from our customers and country managers globally has surpassed our expectations. And we look forward to seeing incremental revenue opportunities as a result. The footprint optimization initiative has continued to progress with the sale of a third building in Houston expected to close in the fourth quarter of the year. Total cash proceeds from this initiative for the year are expected to be approximately $25 million, while simultaneously reducing operating expenses to run our Houston campus. These proceeds more than pay for the investment in manufacturing equipment we announced late last year. I'm excited to announce the first machine was delivered this quarter, and we are currently testing that machine alongside our existing production lines. The final machine deliveries are anticipated to occur in late spring next year, which will drive both cost and delivery time improvements for our subsea wellhead protocol. Simultaneously, we have also been investing in key markets where growth is underway, and this quarter recognized several key wins. We signed a new commercial agreement in the Ivory Coast of Africa and subsequently recognized the first delivery of our products and rental tools in-country, supported by our new service base there. In Brazil, we sold our first offshore big bore liner hangers to two different customers, making a notable entrance to this market by our well construction team to complement our leading wellhead technology in the region. In Canada, the multi-well frac connector line with Great North had a record two-month total revenue as customers increasingly adopt this time and cost-saving equipment. Finally, our equipment was used in the third quarter in a geothermal energy project in New Zealand. While these type of projects are still in their very early stages, we are excited about the potential growth and the steady commercial successes of our energy transition team is achieving. These systematic, deliberate adjustments and investments have set DrillClip up to enter 2024 with a strengthened foundation and ability to capitalize on the growth of a continuing up cycle. While there may be some near-term product mix challenges that we will navigate as our customers refine their drilling schedules, We are confident in our ability to provide long-term, profitable return on capital. With that said, I'll now turn the call over to Kyle for some more color on our financial results.