Dril-Quip, Inc.

Good morning and welcome to Drillquip's fourth quarter and full year 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 Aaron 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 press 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 DrillCup's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause DrillCup's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the fourth 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 Joel Cook, 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 all for joining us today. DrillQuip delivered strong fourth quarter results, marking a pivotal year with double digit growth in both annual revenue and adjusted EBITDA, showcasing significant progress towards our longer term financial, operational, and strategic objectives. Total revenue grew 17% year over year, and our fourth quarter organic revenue was the highest quarter achieved since pre-pandemic. Net bookings in the quarter were $123 million, an increase of $76 million sequentially and above our expectations for the quarter. There were several notable orders in the quarter. The largest was for subsea production systems or trees for approximately $40 million. Orders for trees, as we've mentioned, tend to be very large, discrete events that can shift materially from period to period depending on the customer's schedules. This project includes three trees plus various accessories which will be delivered over the next two years in Australia. We also saw incremental call-offs from Petrobras in the quarter and some large diverter orders. Total bookings for subsea products in the period were $97 million. There were also multiple significant contract wins in the quarter not reflected in our bookings. We were awarded a three-year, $20 million deepwater subsea wellhead MSA by CNOC. We won a multi-well, multi-year contract to supply subsea wellhead systems in Mexico. We were awarded a second project on the north slope of Alaska for 20 liner-hanger systems through 2025. Additionally, we're off to a strong start to 2024 as we were directly awarded the contract for all of BP's subsea wellheads for another five years, and the Tullow subsea wellhead MSA has been extended for three more years. Throughout 2023, we consistently communicated that bookings may not be the most accurate metric to evaluate the current state of drill clip, particularly following the recent acquisition of Great North. The majority of our revenue is short lead time delivery and operate on a book and ship model. This quarter will be the final disclosure of well construction and subsea service bookings in our results. Moving forward, we will continue to report subsea product bookings and add regular disclosures regarding master service agreements to reflect the evolving procurement strategies of the energy industry. We will review the new metrics in our first quarter 2024 earnings conference call. Reflecting on the accomplishments of 2023, our strategic efforts to reorganize the business into product lines, optimize our footprint, invest in wellhead manufacturing capabilities, and grow inorganically have been systematically executed thanks to the hard work and commitment of our employees. In the fourth quarter, we successfully completed the sale of our Houston administration building, marking the end of this phase of the footprint optimization initiative. The cash proceeds from this endeavor, approximately 23 million for the year, funded the investment in subsea wellhead manufacturing equipment announced in late 2022. Simultaneously, this effort has contributed to a significant reduction in operating expenses for our Houston campus. Our investment in upgrading our subsea wellhead manufacturing equipment remains on schedule and is expected to go live in the second quarter of 2024. As previously stated, this move is expected to significantly reduce lead times and lower costs for our subsea wellhead product line. In 2023, we took a significant stride in our strategic venture to broaden our well construction portfolio through the completion of our acquisition of Great North. This acquisition has swiftly proven to be financially accretive, and our progress on recognizing the announced synergies of bringing their wellhead through our international footprint and leveraging their best cost supply chain has seen early wins. Almost immediately, we received inbound customer calls asking for cross-selling contacts, and we've already had orders placed in regions such as the Middle East and Latin America. On the supply chain side, we've notably completed multiple supplier qualifications for our liner hanger product line, and the first purchase orders were placed in December. While it will take several months for older inventory to work its way through the system, we are excited about these early wins towards tangible margin improvements. The macroeconomic outlook for 2024 and beyond continues to be constructive for all our segments. Offshore project FIDs are projected to increase substantially through 2023 levels for the next two years, according to RISDAT. Beyond that, the discipline operators have enabled in their procurement methods in recent history have made the break-evens for those projects even more flexible, ensuring the continuity and strength of this upcycle for many more years. While this fall we saw some projects push out due to rig capacity constraints, we are confident that we will begin to see contract awards accelerate in 2024 and beyond as this is resolved. In the Canadian onshore market, we anticipate growth to come from three areas. First, increasing production from operators driving increased rental revenues from our multi-well frac connector as they support the increased offtake capacity from the new Trans Mountain pipeline coming online. Second, increasing market share, particularly in the Grand Prairie region of Canada. We are currently increasing our facility size to support anticipated growth and committed projects. And finally, we expect early green shoot international growth, leveraging drill quips footprint in key areas such as the Middle East, Latin America and the US. We continue to strategically invest in key growth markets globally. In particular, In Saudi Arabia, we have established an in-kingdom operating team, are investing in a new facility, preparing technologies for qualification, and building out manufacturing capability. In Latin America, specifically Mexico, we are investing in a larger facility to accommodate accelerating demand for our liner hangar and onshore wellhead offerings. In West Africa, we are putting operating structures in place to support new contract awards in Guyana, Namibia, and the Ivory Coast. Before turning the call over to Kyle for some color on our 2023 financial results and 2024 outlook, I would like to thank our exceptionally talented and committed team here at DrillQuip. The success we achieved in the fourth quarter and throughout 2023 is a direct result of your hard work. Kyle?