DRQ Dril-Quip

Luke Lemoine Capital One Securities
Blake DeBerry CEO & Director
Raj Kumar CFO & VP
Call transcript
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Luke Lemoine

Good morning everyone. Thanks for joining. My name is Luke Lemoine with Capital One Securities. And I am joined with Dril-Quip’s CEO Blake DeBerry, and CFO Raj Kumar. Blake and Raj thanks for taking the time to chat about Dril-Quip in the quarter today.

Blake DeBerry

thanks us. and Luke, you, for hosting Thank

Raj Kumar

Thanks, Luke.

Luke Lemoine

you you the just with it]. highlights quarter could [got Blake, maybe there? some some and some you start-off things Yes, and accomplished opening remarks about

Blake DeBerry

Luke. Sure,

that from bookings. proud are really helping growth was men of The just I'm We're executed good seeing of quarter. quarter First-off, the really pillars our view. and to the women drive Dril-Quip my a strategic quarter our

working the tools bookings that were And had We strongly up which results. the business we on So the in been over really strong pretty show reductions growth, we're we've downhole in starting impact up. last cost XXXX the did year. to of see

in very So all, result. happy I'm the all with

Luke Lemoine

the there $XX to end at that were Good. just the so what's Maybe you very the next $XXX million $XX the million guided per quarterly for orders XQ million kind $XX of to at million as that range, top million at remainder pathway of to to $XX year start back of point some the you’ve a getting see strong quarter with as far that outlook do year. range And orders? of

Blake DeBerry

And to that's tree one with And of our operator and QX, call pleased yes, is two that consolidation were we in collaboration. horizontal it did we respect So the Gulf have on Proserv was controls the to an for by Mexico. booked we in of collaboration collaboration. peer-to-peer with strategies

win. that So was big a

some in back year. range that million still Going the to that in happening $XX believe million the see XXXX. we forward for $XX of orders be will half But we strength

at be that end of we're range. that So top hopeful the we'll

into if continues, recover of and expect economy XXXX bookings. range from we prove be orders to the As would to continue a continues higher at that to pace potentially pandemic, to see then the

Luke Lemoine

the how expect acquisition downhole Can of us remarks the double revs quarterly XQ, opening trend to quarter-on-quarter. your outlook to as the you ‘XX mentioned you turning highest you Maybe on revenue this tools had rest well since and to that give in year? your the an

Blake DeBerry

that with we some expect we see see Mexico think a Yes, And was because and initiated we downhole carryover that likely year, so during orders had growth line. Latin in deep-water Arabia, really to of the also QX some in tools for where in program, strong lumpiness very meaningful strong. Saudi our and I Arabia, growth year. year-over-year stocking product one was is key the But recent pillars. in we're particular that's last particular we business Saudi in America strength our to see

Luke Lemoine

of the remainder little of kind lighter year? than the to some the in a project progression delays. about we here rocky Subsea for How Okay. should quarter starts think we expected got-off delivery the

Blake DeBerry

we're seeing significant with business. numbers of Yes, subsea we somewhat back, that's coming is really the in demand is parts improvements and and that's of in to XXXX. U.S. still true. challenging what proceeding but -- impact muting demand starting the to We're recover in restrictions slower And We're bookings our terms had some Asia. of Europe in the COVID the that

accordingly. the a our up, a future that QX we and of widely of So And distributed indicator be vaccines quarter, our to up economies but is to revenue more good through good part a pick really the bit it's challenging open become that's see business year, the not going and was revenue. surprising expect as that bookings

Luke Lemoine

for outlined? about talk mix your of margin cost the projected a subsea you've little the revs in So with XQ, Can cadence with the strong very were gross the nice declining increase quarter-on-quarter. savings some margins and the a and bit balance even showed year you

Blake DeBerry

going over to I'm Yes, sure. to about him. Raj is hand probably talk that that. best to

Raj Kumar

allowing talk thanks Yes, margins. for about our to us

performance of we part year. the as in this structural year. savings We're expect We you year's year. terms our And recall, QX. productivity million productivity made good started-off year a to tools we're our are are the we that play about progress, gains. very supply last recall, also position $XX benefit We with some business of this this, as million. $X.X margin costs downhole of in targeting from of million We had we savings seeing of in stakeouts productivity gains. into pleased extremely $XX the this hit chain year, And later this you about From with that was good

So got cost of helping margin think if perspective. us a from terms the about it you side, we've I on think tailwinds in

Now if quarter. saw help side revenue from quarter strong they we of mix talked I as aftermarket we was well shift talked tools downhole about, service as this things, this about the that revenue to that the

to a good expect see on our seeing we see us I lumpiness with it's back work. some [indiscernible] essentially to forward, customers for sign Going near-term higher mix go -- in if the we're

So, year productivity and margins I and hold the mix with margins will up gains that start we as expect year. progress the will go half become the the will into through of year we the exit back to as favorable form and more

Luke Lemoine

can secrets? in the you very litigation involving been trade Okay, not there resolution I'm at good. a as your sure this say have But with what’s FMC what point.

Blake DeBerry

through a a because which a we've favor, on just It's our obviously received jury verdict Dril-Quip resources. this technology. outcome. in jury we with reach very tremendous to work for develop yesterday. are our on about Luke, verdict to jury question, And with been of we are own work this and And that done the timely solely say, have actually, it our trial, was we And did I pretty grateful team pleased judge to validates the a three-week case, it really the the their

And us now. have behind glad are just to so we that

Luke Lemoine

recent looking proposition some for mentioned your your to on these congratulations conversations peers customer including peers how you've turning hear. been progressing, value and the Maybe customers, responding broaden really That's efforts everybody strategic kind of as in Okay, involved? quarters, that. and of operational how our at your some what's items, to good to base,

Blake DeBerry

we're done -- pleased view some initial primarily products. Tier my wellhead subsea this on work of discussions We've subsea in and had our with be simple. we that a so of to And our proposition only quite want a and wellheads we've the focusing and really, providers couple provider independent X is Yes, in on peers, relatively wellheads the considered market space. value with Tier providers honestly X are

you but more of if rare get circumstances EPC system equipment. set facility also a that tied user, their because do the gives one have all through they model, if for of together. find where the latest that to this gives technology so we breed customer if definitely manufacturing it's market of they get win They And that's a get And ability something our reduce for best exit the that's they -- why one and they And our through to classes to the reduce overhead. the follow I specific and one user. manufacturing always it's peer, not multiple that a our to those contract, end of because provide that's user, in a the a it's technology equipment can volume bundled It's wellhead win some win-win-win to of our this, Dril-Quip peers they're to us win end the offer scenario, latest for we costs. choose to end choose

to we're the And hopeful are outcome think positive that we this going in progress and it's so continuing. conversations year. I to And a make some be

Luke Lemoine

little bit Okay. We talked a earlier. business about tool the downhole

Your kind what quarter-to-quarter. of good making But XXXX year of quarters it kind lot when how term a over are that the of are for your be about lumpy could you Corporation strategy? in you late look just business expectations multi-year, your this? a do legacy progress. This multi-year modify of there is operations TRW this record period And longer talked

Blake DeBerry

Hey, Raj, you to question? want this take

Raj Kumar

Yes, take Blake, thanks. I'll that,

a we review into to individual offering. made standardizing downhole in So the needs grow of that this done has to inroads he business. it. our and led strategic that product new business first business in brought to be from this we've Luke, what -- And And experienced leader in the some tool we

more So that us to easily. allows stock

this as Dril-Quip know, business, wants a importance -- it's plays turn, is of quick And execution satisfaction high execution. at customer a quick priority look you level and customer customer for you on If #X service quality us.

point You that saw the point of survey to the results energy that.

So that's approached it. how we've

become locations We expect are have more focused not And closed we the to leader. we markets where we have And we the are on growth. be there's where some down going markets performing. that deemed

can I to downhole see that's in be the our East, think So America tools well lumpiness think Latin And Middle QX as on business. the make you about year-over-year we're year, if setting segment. and where results, you we're the this good over focusing going aside the deep-water from space, way to progress the

Luke Lemoine

you. Got

the what gaining for year, On future? you your the customers? challenges you're seeing for e-Series you've these these acceptance are technologies in progressing, terms How what are highlighting in adoption? past with And product been are products your line. of the the And goals

Blake DeBerry

e-Series So yes, quarter a for our it products. good actually was

the good Big about to customers products developed first savings. provide is permanent somebody one to the talked our in that cost with All drill we've one the change was to a Bore which QX, has are is are how always get it several ran largest first one goal, over wells these together primary impediments And our last first. what with that structurally we years it's success. the we which that's usually of them bundled done, And IIe, done

And so well. been QX the also so first ran TE, that the is X ground, Bore as our done IIe that's first Big in in Pack

with we've out. to we're And what positive think our applied lower to work that risk attractive going is been about heavily whole those signs. I coming we're in does mitigate that And award, And our proposition reduce all OTC We've And coming for spotlight So customers. product products the time the see months accepted. all continuing e-Series more for very of pretty new together and carbon technology. we'll these up. that's here market series invest footprint hopefully speaking them. for we'll to for and coming how in a are this another see customers And

Luke Lemoine

your can year some some the how the The you marketing peers, from VXTe shown has his when enthusiasm even for in could and so trees past going, update product see received attention possibly of any provide installed? products terms a of during these VXTe of you and and been booked you've the that first

Blake DeBerry

fair had Yes, so But space. development I we I pause, in pieces damper of put some am of up marketing very but it -- want product, on that's of lawsuit VXTe, get don't the most put did -- lawsuit. the the on honesty, on the is that I one all a said, I am subsea I to think middle disruptive efforts. customers hey, our statement, the of a in yes, And bullish that tangled in technology the like

I'm it lawsuits So the resolved. put going pause on until to

what So they were engaging. waiting just fully see happened to before

now pick to doing us. we going back And think trials these in that discussions future. the will bookings behind to installations are up and I So more believe all the lead

in that assembly, Our in should be next so. is tree first VXTe, has the done here been month sold, or it's final

go value we this VXTe a tree look the to tree. they the in keeper and our stock. which you allows completion is customer and it full the just and ahead well. getting drill uses what do forward -- land that for there And customers they he the And so has he putting hands and And to do, the commercial, the of right and of if

that's see run that of to it. they're products, a So one going everyone us. product opportunity acceleration that other new serial of matter number like be Once -- behind we'll get else, I one when And market. think to the every have we these the it's really that'll into run next all when

Luke Lemoine

on How in involved these how do if challenges these in Okay. Raj, quarter? do progress much made these fixed the productivity variable you expect we can of And targets just the a remainder market of progress but of maybe, year set for you kind any with the earlier, versus quantify for it some kind toward touched will think this of first targets? you reaching and recovery? be Dril-Quip’s you XXXX, costs

Raj Kumar

And was right? as happy most we the supply fixed related an in to QX in in probably selling a So of Luke, that's with that direct a progress -- chain I'm as chain more tools, see QX variable would biggest nature on gains, to product. we the coming to we've got the nature. very late third-party million supply the We into made costs I like $X.X transition savings, dividends mentioned, productivity growth gains downhole model. business productivity be QX in going of in-house yes manufacturing from to

sum variable, the would versus tool to fixed initiative. variable year, as zero up to half of early the fixed we So outsourcing say, more and progress if more coming and or move from it's back segment be I it I going probably would through downhole gains the

Luke Lemoine

turning been XXXX. subsea market has to just market subdued outlook for be may It since of kind very the

begin projects? we improve fewer in As and when period, and in seen see competitors give pricing available post-COVID to view as you pricing on you commodity activity have terms some a improvement react price of could to see

Blake DeBerry

never in secure the order good at side, the quantity call we always intuitive large of seems pricing Luke competitors margins market. I'm say some rather the On tenders being us. facilities margins So delivery, know, pricing that will a we're on to look our often to yes we we That's just major precursor for seeing a happy it's tenders, expect. better interesting in really I'm cut high happy the to would their pretty What is what as what's push-outs large are order And you then value, work. on aggressive, what going and the seeing strategy, -- mega to trees. probably is on aggressive Luke my positive subsea be are to manufacturing you open. win that's just to second And few to are keep in kind that than seeing extremely particularly been at

think I there is that is come scarcity, starting and So to for positive a some pricing. always

Luke Lemoine

medium outside impacting energy see lot How oil and talk traditional sources you Dril-Quip How to a its over the on for preparing are A demand spending? you transition for of just do on any products? it maybe at looking that? tack Okay. shift mitigate gas? from the And how in your on And long-term? customers ways impact investment potentially your to negative the of is and

Blake DeBerry


the XX worth VXTe tree the of for worth that example eliminates COX look a go make e-Series of design, you tons more to hardware, go people tree tons billion in energy transportation the that's cheapest around five But reality. whole don't green our do cycle, campaign marketing footprint. there when from induced the then steel. just it's to we just of at to is that for things view called oil help the together that's really that's all gas pronged we and form just doesn't help atmosphere a And manufacturing XX are And carbon reduce into our customers importantly, spread, a of of can have the time. is the that installation their But have of And to you products improve about e-Series saves that. of So any carbon you products a lives that's why firstly, approach. days by more still going rolled-out working world, offshore

-- out the engines customers. diesel that I it's be believe big is be delivery another think like review, that carbon a quality, on forward price strongly going to reliability, of days that. for and all I there think believe our of propulsion power bid five we carbon going running We all for we And footprint. footprint and take element going footprint just carbon vessels So out to

things just existing we our products probably for mitigation number that's that there product and capture allow one us to with carbon us. geothermal our line. carbon in within now, Right are do that our existing participate that's So can or

right follow the customers is our the we're that And right longer for term, for dedicated and recently energy and space. really look resources are our technologies what able that now us with may in So on to we've focus to strengths. prowess or strategic new customers participating to in we In that, and going maybe now. view that and opportunities there are use really fit that transition and doing other R&D be

Luke Lemoine

give circle just that, back of went few products, the a examples just and geothermal us over carbon you could some you four to three, can just there? we you Maybe could capture point to your

Blake DeBerry

Yes, an so putting then existing into of there's that's injecting and a and about capture reservoir. talking sequestration, carbon into a slurry carbon lot injecting that

like lot bit well for Singapore. R&D And HPHT It's effort a But, wholly just in tree, we things have But drilling waterflood to little that a effectively on more a we've well. water do environment. some lower that's a So and a like and injection spent geothermal field like in that in development. efforts materials temperature. is there's high energies different much it's water really injection it's the And drilling of pressure. our

temperature So we high can we something environments. for do. have that developed And that's subsea

that's into. to pretty flip easy So for us

Luke Lemoine

ways on in-house? inorganic M&A collaboration or side M&A developing Maybe, products to but Dril-Quip on consolidate you've expansion does subsea been and equipment new through how view exploring versus capabilities supply, those

Blake DeBerry

you Raj, want to take that?

Raj Kumar

Blake. Thanks, Yes.

at always So to said technology, we now aware industry. I needs -- that, right lead just we think know our for we're we've well looking not take going with of that before the sake, R&D we're but that Luke, pursue roadmap, right. consolidation you're in to technologies accelerate But just consolidation place consolidation

scale, guidelines. We have of we leverage flow free market cash this the at a from levels generation. set what share the and are look And

potential. So I that wide. all this must we bid ask on, is areas are we when at of admit, focus look any still spread the

But develop -- active of we'll that ongoing. of it's sometimes into year. and in over to terms going have that's review. course tuck-ins, this see So year, something things that's constantly the how And technology next we

Luke Lemoine


sheet. balance your to Turning

need scenarios what it's are So looking free resuming shares? allocation repurchase you the you Dril-Quip, how cash strength see considering at or excess a circumstances guys and for to of been would flow of

Blake DeBerry

customers hybrid able balance fortress in be any of this our and sheet have drive sheet be If on challenged credit any And structure, I we're in with the don't nature to project a wherewithal this given around when organic having of security, is about also are believe the to work like We a recovery have support capital we strength, where our as sheet. to I I the business environment think -- to year, that's ours be there we the sheet, show player talked right balance to type when sector, flexibility. capital we like will to that earlier with to or bidding bid need prefer my a work. year working this of half a are simple, earlier will of about, kind we or into the build that, that not to complicated, that go And cash of strong a if us debt early comes will the that. say of both out we maximum it's this we the a I into comfortable offices like, and we fund, is liquidity. smaller use When timing, a need back there to potential technology go have now, need for balance is we you we simple we that, given fund capital balance forward. for going investments, about simple it help are we our later convertible for the typically and structure, balance to when our risk, refinancing in excess the So comment next liquidity say and business, and inorganic, sheet going we sort isn't

Luke Lemoine

achieving for areas? XQ X% How outlook in far capital cash margin your you progressing And benefit? these challenges the And and So cash or flow that capital in free that for this revenue, talked working about targets with cash as working the these any margin? free XXXX? as are what's risks flow you've meeting things in in improvements flow exceeded

Blake DeBerry

facilitate controlling free encouraged think implementing our flow. what close order be wait reduce I So right, $XX on performance, will inventory our won't billing inventory, we at If working inventory for I'm about think to basically an capital our this I cash the done, we've we -- for current substitute Luke, start we've And side, at we're working we But what we turnaround day, reductions. can the convert looking need inventory we're we the suppliers. milestone to of end pick on using immediate to efforts great times, current to some substitutions we about very what we million we've been add When at to are made need challenges progressing the risks before course, in looking to the payments, control of to up. seeing play. to by are on pushing to inventory inventory they're doing, sales. of the QX in had bookings of

to continue. have We we good start, are trend see off a but to this

we've efforts say picked And caused our I -- detrimental interaction that's While have -- number. I quarters am seen encouraged collections we have that with free we've customers our customers stepped in our has prior collections. customers up. from with us flow collected a our where up cash have held to we've

expect We continue constant QX at with especially there's larger I for think, in and this meeting to payment something good with Dril-Quip. that saw are critical them. I'm an performance that's payments and communication our to meeting trend And is customers, hopeful us -- XXXX. I obligations we in appreciation And in

Luke Lemoine

where Good a things you at and playing back are months customers most Which back level from do are opportunity? geographies out the and maybe further more if to year high in activity? seeing contribute factors might be seeing you to the resuming think your half the across behind of improvement we expectations first areas What year? could do step of for think and look you all view for the XXXX, of just four relative how kind

Blake DeBerry

oil to has governmental Norway some exploration incentivizing gas. there's activities, with regulation been level So and been strong, that’s regional respect for there

and dynamics going strong. America, a uncertain, So think there's that's Mexico's Suriname the we and because then certainly But, strong. Caribbean, America Brazil, Deanna to some is strong South Latin been be bit there. in

Africa going I Asia improved think side I on the up, the with Australia. see gas down West commodity think strong will we're be price, to in pick think I

the are in that consumption. internal and then So because that's net they're for their a that of that strong, countries exporters that gas positive. and developing of gas lot And oil not a oil seas is reserves are

of their so Mexico has been bit continues. a business And The little Gulf weak.

do the environment like I hope uncertainty U.S. that class around position. there. in with world regulatory I But the mitigates certainly think to our something that out a that's I resource

We becoming customers, scrambling we as out how for we the And more things carbon carbon is This doing are not the since also to have how which do customers figure more faster reduce and in important. and footprint less by done inception and and the a our safer faster our back was XXXX benefit costly, is safer business help footprint. of its we something reducing smarter. do things and we've

think in the right than been recovering. the starts can much game incredibly gas just think be excited I Dril-Quip have demand past. our of it's oil that simpler for customers. So so think we once about what's It's products I'm and I positive outlook done help suite the changing. to that going for I And VXTe is

Luke Lemoine

breezed Well, a make lot good. through kind points think last closing And of to of the I remarks wanted high we in you question. questions of Okay, had. hit Blake? any But all kind you the that I

Blake DeBerry

office all efforts into the looking globally. to Dril-Quip -- back want our in starting employees I say of the we're I employees appreciate the U.S. of we're to in the tough. mid XXXX to XXXX just was in just see forward that. recovery. to closing, I'm May. And We're And Really

think think pretty good start roll-out looking will economy the XXXX starts So from Dril-Quip. for end the home there. I And up, and you to the to know we continue open if I futures to people work travel, the vaccines

Luke Lemoine

Good. to Blake Dril-Quip all and and all great you weekend. hope taking have the a time Raj, really you appreciate chat about

Raj Kumar

Luke. Thanks,

Blake DeBerry

it. you, appreciate Luke. Thank I

Luke Lemoine

Take Okay. care.