Dril-Quip, Inc. (NYSE: DRQ), a leading developer of innovative technologies for the energy industry, has reported its fourth quarter and full-year 2023 financial results, showcasing significant progress towards its longer-term financial, operational and strategic objectives.

Financials

The company delivered strong fourth quarter results, with revenue growing 17% year-over-year to $424.1 million for the full year 2023. This performance was driven by a 2% increase in Subsea Products revenue, a 7% increase in Subsea Services revenue, and a 70% increase in Well Construction revenue, the latter of which was boosted by the acquisition of Great North in the third quarter of 2023.

Gross margins improved 73 basis points to 27.3% for the full year, largely due to the company's ongoing initiatives to drive operational efficiency, though this was partially offset by some supply chain headwinds and international start-up costs in the legacy Well Construction product line.

Profitability also improved, with adjusted EBITDA increasing 56% year-over-year to $46.5 million for the full year 2023. This was attributed to the leverage on incremental revenues and the accretive impact of the Great North acquisition.

Free cash flow, however, was negative $24.9 million for the full year, though this represented a significant improvement of $44.5 million compared to 2022, driven by improvements in profitability and the cash conversion cycle, as well as the receipt of a U.S. tax refund.

Liquidity

Dril-Quip's balance sheet remains strong, with $217 million in cash and cash equivalents at the end of 2023, providing the company with the flexibility to continue investing in accretive organic and inorganic opportunities.

Outlook

Looking ahead to 2024, the company expects revenue to increase 15% to 20% over 2023 levels, with the first quarter of 2024 expected to generate revenue in the range of $105 million to $110 million. Adjusted EBITDA for the full year 2024 is expected to be in the range of $65 million to $75 million.

Subsea product bookings are expected to be in the range of $200 million to $225 million, representing growth of 5% over 2023 levels. This guidance excludes the impact of master service agreements (MSAs), which the company will begin reporting separately going forward to better reflect the evolving procurement strategies of the energy industry.

Business Overview

Dril-Quip's strategic initiatives, including the reorganization of the business into product lines, the optimization of its footprint, the investment in subsea wellhead manufacturing capabilities, and the acquisition of Great North, have been systematically executed, positioning the company for continued growth in 2024 and beyond.

In the Subsea Products segment, the company saw a notable order in the fourth quarter of 2023 for subsea production systems, or trees, valued at approximately $40 million. This project, which includes three trees plus various accessories, will be delivered over the next two years in Australia.

The Well Construction segment, which includes the acquired Great North business, saw significant growth in 2023, with revenue increasing 70% year-over-year. This was driven by the addition of Great North, as well as increased activity in Latin America and Saudi Arabia. The legacy TIW business within the Well Construction segment is also exiting 2023 with a $100 million annual run rate, ahead of schedule.

Recent Developments

Geographically, Dril-Quip continues to strategically invest in key growth markets, such as Saudi Arabia, where the company has established an in-kingdom operating team, invested in a new facility, and is preparing technologies for qualification and building out manufacturing capability. In Latin America, specifically Mexico, the company is investing in a larger facility to accommodate accelerating demand for its liner hanger and onshore wellhead offerings. In West Africa, the company is putting operating structures in place to support new contract awards in Ghana, Namibia, and the Ivory Coast.

Conclusion

The company's focus on operational efficiency, strategic investments, and inorganic growth has positioned Dril-Quip for continued success in 2024 and beyond. With a strong balance sheet, a growing order book, and a favorable market outlook, the company is well-positioned to capitalize on the anticipated increase in offshore project FIDs and the continued growth in the Canadian onshore market.