Superior Drilling Products, Inc. Delivered 9.5% Revenue Growth and Generated $1.0 Million in Cash for First Quarter 2019

Superior Drilling Products, Inc. (NYSE American:SDPI) ("SDP” or the "Company”), a designer and manufacturer of drilling tool technologies, today reported financial results for the first quarter ended March 31, 2019.

Troy Meier, Chairman and CEO, noted, "Our performance during the first quarter showed continued progress despite the challenges in the domestic oil and gas industry. Revenue growth in the quarter of 9.5% compared with the prior-year period was primarily due to improved contract terms with our legacy customer that resulted in greater volumes and higher prices being realized by Contract Services. In addition, the Middle East market’s adoption of our patented Drill-N-Ream ("DNR”) well bore conditioning tool is continuing to advance. While early in our international expansion efforts, we are excited by this market’s potential and the impact we expect it will have on 2019 results and beyond.”

He added, "We are furthering our relationships with our market channel partners in the Middle East as we build data validating the significant value proposition of the DNR. Similarly, the DNR continues to demonstrate its economic value in North America and in particular in the Permian Basin, where it has gained significant market share. Given industry conditions and efforts to grow market share, we are evaluating options to broaden our North American channels to market as well.”

First Quarter 2019 Review ($ in thousands, except per share amounts)

When compared with the prior-year period, the increase in Contract Services revenue, which is comprised of drill bit and other repair and manufacturing services, was mostly the result of an enhanced contract with a major customer. Other Related Tool Revenue, which is comprised of royalties and fleet maintenance fees, increased due to an increasingly larger fleet of deployed DNR tools being actively used in drilling operations. These increases were partially offset by a decrease in Tool sales/rental. While tool rentals increased from activity in the Middle East, total tool sales/rental revenue declined on fewer DNR tool sales in the U.S. Additionally, the DNR is demonstrating a longer than previously expected tool life which has the effect of delaying new tool sales, but adds additional refurbishments per tool.

First Quarter 2019 Operating Expenses

The cost of revenue as a percentage of sales increased as a result of international start-up investments and the new repair facility in Abilene, Texas that were offset somewhat by higher Contract Services volume.

The $371 thousand increase in selling, general and administrative expense (SG&A) over the prior-year period reflects higher professional fees, stock compensation expense and accrued bonuses.

Net loss for the quarter was $141 thousand, while Adjusted EBITDA⁽¹⁾, a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation expense and unusual items, was $1.1 million.

The Company believes that when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles ("GAAP”), Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. ⁽¹⁾See the attached tables for important disclosures regarding SDP’s use of Adjusted EBITDA, as well as a reconciliation of net loss to Adjusted EBITDA.

Balance Sheet and Liquidity

The cash balance at the end of the quarter was $4.3 million and working capital was $2.1 million. Cash generated from operations was $1.0 million, compared with $0.5 million in the first quarter of 2018.

Capital expenditures were $339 thousand in the first quarter and was primarily for DNR tools to support the expansion in the Middle East.

Total debt at the end of the first quarter was $10.4 million, down $0.5 million, or 4.6%, compared with $10.9 million at December 31, 2018. Total principal payments in 2019 on the Hard Rock note through April 5, 2019 was $1.5 million. The remaining principal balance on the note following the April payment was $4.5 million. In February 2019, the Company secured a new $4.3 million credit facility which included a $0.8 million term loan and a $3.5 million revolver at prime plus 2% and certain fees. The credit facility matures on February 20, 2023. At the end of the first quarter, there was approximately $700 thousand outstanding on the revolver with a capacity of $1.7 million based on the asset base available.

2019 Outlook and Guidance estimates:

Mr. Meier concluded, "We are focused on the significant market opportunities for our DNR and Strider Technology™ oscillation system. We believe our success at developing tools that increase drilling efficiencies and improve well economics will continue to be a driver of growth this year and beyond. We have potential with continued expansion of our market share in the U.S., the measurable opportunity for international growth and the introduction of the Strider, which we expect to have rapid market acceptance.”

Webcast and Conference Call

The Company will host a conference call and live webcast today at 10:00 am MT (12:00 pm ET) to review the financial and operating results for the quarter and discuss its corporate strategy and outlook. The discussion will be accompanied by a slide presentation that will be made available immediately prior to the conference call on SDP’s website at www.sdpi.com/events. A question-and-answer session will follow the formal presentation.

The conference call can be accessed by calling (201) 689-8470. Alternatively, the webcast can be monitored at www.sdpi.com/events.

A telephonic replay will be available from 1:00 p.m. MT (3:00 p.m. ET) the day of the teleconference until Thursday, May 16, 2019. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13689835, or access the webcast replay at www.sdpi.com, where a transcript will be posted once available.

About Superior Drilling Products, Inc.

Superior Drilling Products, Inc. is an innovative, cutting-edge drilling tool technology company providing cost saving solutions that drive production efficiencies for the oil and natural gas drilling industry. The Company designs, manufactures, repairs and sells drilling tools. SDP drilling solutions include the patented Drill-N-Ream^® well bore conditioning tool and the patented Strider^TM oscillation system technology. In addition, SDP is a manufacturer and refurbisher of PDC (polycrystalline diamond compact) drill bits for a leading oil field service company. SDP operates a state-of-the-art drill tool fabrication facility, where it manufactures its solutions for the drilling industry, as well as customers’ custom products. The Company’s strategy for growth is to leverage its expertise in drill tool technology and innovative, precision machining in order to broaden its product offerings and solutions for the oil and gas industry.

Additional information about the Company can be found at: www.sdpi.com.

Safe Harbor Regarding Forward Looking Statements

This news release contains forward-looking statements and information that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this release, regarding our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects, plans and objectives of management, are forward-looking statements. The use of words "could,” "believe,” "anticipate,” "intend,” "estimate,” "expect,” "may,” "continue,” "predict,” "potential,” "project”, "forecast,” "should” or "plan, and similar expressions are intended to identify forward-looking statements, although not all forward -looking statements contain such identifying words. Certain statements in this release may constitute forward-looking statements, including statements regarding the Company’s financial position, market success with specialized tools, effectiveness of its sales efforts, success at developing future tools, and the Company’s effectiveness at executing its business strategy and plans. These statements reflect the beliefs and expectations of the Company and are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, success at expansion in the Middle East, options available for market channels in North America, commercialization of the Strider technology, the success of the Company’s business strategy and prospects for growth; its cash flow and liquidity; financial projections and actual operating results; the amount, nature and timing of capital expenditures; the availability and terms of capital; competition and government regulations; and general economic conditions. These and other factors could adversely affect the outcome and financial effects of the Company’s plans and described herein.

⁽¹⁾ Adjusted EBITDA represents net income adjusted for income taxes, interest, depreciation and amortization and other items as noted in the reconciliation table. The Company believes Adjusted EBITDA is an important supplemental measure of operating performance and uses it to assess performance and inform operating decisions. However, Adjusted EBITDA is not a GAAP financial measure. The Company’s calculation of Adjusted EBITDA should not be used as a substitute for GAAP measures of performance, including net cash provided by operations, operating income and net income. The Company’s method of calculating Adjusted EBITDA may vary substantially from the methods used by other companies and investors are cautioned not to rely unduly on it.

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