Superior Drilling Products, Inc.
Q1 2015 Earnings Call Transcript

Published: 15 May 2015

[Operator:]

Greetings. Welcome to the Superior Drilling Products Incorporated First Quarter 2015 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Deborah Pawlowski, Investor Relations for Superior Drilling Products. Thank you, Ms. Pawlowski. You may now begin.

[Deborah Pawlowski:]

Thank you, Rob, and good day everyone. We certainly appreciate your interest in Superior Drilling Products and for you taking the time to join us. On the call with me are Troy Meier, our Chairman and CEO; Annette Meier, our President and COO; and Chris Cashion, Chief Financial Officer. Troy and Chris are going to review the results for the first quarter as well as provide an update on the Company’s progress and strategic activities. You should have a copy of the financial results that were released before the market this morning. If not, you can access it on our website at www.sdpi.com. There are also slides that are accompanying this teleconference, and if you have not received that e-mail, the slides as well are available on the website. As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed by the Company with the Securities and Exchange Commission. These documents can be found on the website as well or at sec.gov. So with that, I’ll turn it over to you, Troy, to begin. Troy?

[Troy Meier:]

Thanks, Deb, and good morning everyone. We’re happy for joining us today. I am sure, most of you who have done this call before will follow the format that we have kind of set up in the past. We will talk a little bit about – I will talk a little bit about what the first – what we’ve done in the first quarter, the gains we have made, what the market looks like, and then Chris will go into the finances and then I will follow-up with the future outlook. So if we look at the slide number 4, you’re going to see – we talk about the DNR gaining market share, what we have going on with that tool and that was our flagship tool that gets us out there in front of the consumer. And as you all know, we have got some very challenging market conditions right now. But that being said, we’re pleased with what our sales and marketing and engineering teams have been able to accomplish with this tool. We have – they’ve got a very loyal customer base. We’re finding that the customers that are using this tool and learning about this tool are really, really liking it. We’re also finding that the – the operators and the sales that are very, very experienced operators, really, really complement is on the DNR and how it works and what it does for them where we’re seeing to struggle in sales as usually with newer less experienced operators that that don’t quite understand what Drill-N-Ream can do for them, but we’re pleased. As you can see, our monthly average, run average for the first quarter is 62, even though if you look at the 27% reduction in the rig count what we found is we’ve got – you have customers say that had 12 rigs running and we may have been on 8 of those 12 rigs and as though their rigs have dropped from 12 to 6, we find oil in five of those six rigs. So within our customers themselves, we’re getting more and more penetration that we’re very pleased with. As you look at our organic business, being the bit fabrication and the machine shop, our third-party machining – design in machining that we do, you’re going to see that that’s off. It’s essentially down 55% and we’ll talk a little bit more about that. Some of the things we’re doing is that our relationship with Baker Hughes, we’ve had a very good solid long-term relationship and it’s still very solid, probably more solid today than it’s ever been and but the fact of the matter is that the market has just dropped a bunch and they have facilities as well. They try to keep work going through and they’re very supportive of us, they know the benefits that we give them and that work hard on that every week to make sure that we’re getting all we can out of them. The third party machining, you’ll see that if that goes down that pipeline, we’ve – we don’t want to be that third-party machine shop. We have found that we have some great people over there, some highly skilled programmers, machiners and we need them. We met that people doing our new products, our new OrBIT line, and new Strider line. We’ll talk about some new tools that were taken to the marketplace. We found that in the fourth quarter of last year, there was a struggle of getting our own parts out because we have scheduled work through some very large companies, but it would really interfere with us being able to get out our products to the market. So like I said by plan, we have turned down work due to the fact that we have got to gear up to start producing – our parts that we will talk about that were introduced into the marketplace. So anyway let’s turn to the next slide. If we look at number 5, again, I talked a little bit about, our customers are recognizing the value and we’re seeing a very loyal following and it’s not that we’re losing any customers at all, we’re actually gaining more customers, but they’re laying down rigs. So we feel very, very good about – we don’t feel good any – at all that laying down rigs, but we feel good about when they are laying down rigs, those rigs that are laying – that are still up in working have the DNR tool or majority of them do within these companies that are using us. We’re starting to get – as we get market penetration into some of these other basins. What we’re seeing is like right now we’re working with six new customers that – at January 1 we didn’t have and some of these are very large customers, so we’re very pleased with – again with the sales, marketing and engineering has been able to do. We found that as we built these relationships with these customers as we’re building these relationships, we’re finding that they let us into their data rooms and Lane and his team is going to analyze the data and show them the benefits of what our tool does for them and that’s starting to become a great – a wonderful value for us to be able to do that and our customers are starting to really like it. So, if we look at the average for April, we’ve got 16 customers and 34 rigs. So you can look back and see where we’ve come and get a little bit of track record for what maybe the first half of the year looks like. One thing that you’ll notice is our average revenue per run is down and that’s due to two things. One, we had a lot of pricing pressure at the first of the year and it actually started about the spend that we start to hear about it, but the first of the year as the rig counts really start to drop, we were under a ton of pricing pressure. Again, I’ve got to really complement our sales team, they worked with our customers and we did drop price, but there was a trade off as well. We’ve seen that they were given us more, more work within their company. But the other thing that we found is the dilution of these shorter laterals. As we get stronger and stronger in some of these other basins, they’re not drilling the 10,000 foot laterals, but that they are in the Bakken. And so when you look at the price per foot and you essentially are cutting your laterals distance in half, you can also look at that price per foot coming down. We are starting to see that swing a little bit the other way as there – as customers that are using our tool were starting to drill – we’re drilling these shorter lateral, we’re starting to extend their laterals a little bit more. So, we think that has stabilized, but that’s the two things that are adding to that drop in price per run, it’s linked to the footage drilled. Okay, so let’s look at the next slide. We go to slide 6. Under development – we talk about – but we’ve got new product development and deployment. So you all know about the OrBIT, we’re still very, very enthused about that. We have some – we bought an existing inventory that we were going to get out of the marketplace as we built up and geared up here to start math produced in this product line. But what we’ve learned, we’ve learned a lot about the plug business in a very short time and one of things we’ve learned is that that inventory that we bought, it cuts a certain type of plug very well, but that’s it. As we go – and if there is essentially a – positive plug, that is actually quiet simple to drill. And we start drilling – looking at what the market is mostly [Indiscernible] plugs, which this bit gets tour up very rapidly in. So we’ve been under a very massive redesign efforts. We feel we’ve got some great cutting structures now that that we’re able to put out to the marketplace, where we’ve been in a testing phase with this product line. The issue that we have with the testing phase was that we either have got to Houston to test these products or we would be up in Red Deer, Canada and that’s very expensive. And so we’ve taken upon ourselves to develop our own testing facility here. We should have it up in running by the end of next week. We’re very far along with it. It will do everything we need to do to be able to test these products in house. We’re working with major plug suppliers, frac plug suppliers that are really excited about us. We got MDAs with them, they’re really excited about us coming up with a tool that will cut their plugs, it will help them to sell more plugs, and they’re actually supplying as in one case we’ve got a manufacturer of the fantastic plug that’s getting a lot of utilization. They’re supplying us with those plugs, so that we can develop our cutting structure to drill through these cast iron plugs and that’s moving along very, very well. So we’re excited about that and we’re excited about the relationships that we’re making with these plug suppliers. We were thinking of them being a benefit for us in sales, but we’ve realized now that that they could really help us to sell tools. The Strider, you’ve heard about that. It’s taking – it’s still in development. We have the biggest, I guess, [indiscernible] for us is our test loop that we setup in our R&D facility. We’ve got a closed loop system. The drill string is buried under ground that loops around our R&D facility or it goes into a battery, a big tank and then it’s drawn out through Tri-Flex pump system and goes back to the loop again. What we found was when we started up; we put Brian in there, because we’ve got this facility done in the fall. It gets really cold here in Toronto and so we did want to freeze lines or pipe or frac some of you heads on our pump. So we end up running the Brian system and we matched up Brian way to what the drilling fluid would be, 9 point something pounds, what was the average drilling weight was here in the Rockies and – do we feel that this will be that – where this tool gets implemented first. And what we found is as all of our design criteria was based on this mud – this Brian way and as we got really comfortable with the tool that we felt very good about, we got it out there and as we got it down to location and we start look at the viscosity of the drilling mud, and started breaking down and analyzing their mud in the silica sand, it’s in there. We didn’t feel comfortable telling letting our – our potential customer run this tool. So we ask them, hey, let us go back before we get this first – let us go back, let’s make some modifications for the abrasive mud that you have here, the silica sand that’s introduced into this mud because these tools have got to be able to fight wear and erosion. So we brought that back and we’re now designing this thing for some more wear resistant materials and we’re still pushing to get this thing out and it’s going to be – a good part of our revenue stream in the second quarter. But we taken our loop system, we totally flush out all the brand, now we run the same mud that these operators muddled very some from operator to operator, but the viscosity of that mud is what we’re matching in this and with this tool we’ll operate under a broader range of viscosity. So we feel pretty good about what we’re doing down there. And again, we’re moving forward very quickly. It would be nice to have that tool out three months ago, but I’m still very pleased with our R&D efforts and I think when we get this tool out, it’s going to be a good tool. Some of the tools that we’ve deployed in this first quarter, we’ve got a tool that we call V stream and what we have found is as our sales team has been following on rigs and going into the offices and seeing customers and we find that there’s a need for stabilization, there’s is lot of customers that run down-hole stabilization. And then we really –we weren’t giving that any attention because we were so focused on Drill N Ream. But as we realized, you know, we want our sales team to have – we don’t – we want every rigs that’s out there. We want them to be able to sell something to it. And if [indiscernible] sold on Drill N Ream yet, we still want to get in there and then up sell them. So what we’ve find is V Stream is that tool that gives them the stabilization, they’re running the bottom hole assembly, they can produce a quality well bore by doing this. A lot of these customers still will run that still will have a Drill N Ream on there, just have their BHA stabilized. We make this in non-mag, so you can put it right next to your directional – your MWD and we won’t interfere with that. So V Stream is a new tool for us. We’ve got six of those built right now and we’ve got them deployed in North Dakota and we’re now making those in larger sizes and then we’ll start getting them into these other basis. So it will complement the sales of Drill N Ream and also maybe get some of them customers that won’t run Drill N Ream, but do run stabilization and then maybe we can convince them to run Drill N Ream down the road. The other tool that we have is a DR Stinger, this tool we’ve actually had and it’s just been something that we kind of kept to ourselves, it’s an idea that was brought to us by a very good customer of ours a few years ago that as they – as customers, that’s our people are wanted to dedicated reamer runs and typically what they do is when they drill the well, they come off trip all the way as a hole put on a bit and then spend a couple of days reaming. Drilling ream takes care of that reaming process for those customers that understand the value of drilling rigs. They don’t have to do that dedicated reamer run. But for those customers that we haven’t got convinced that drilling reamer is the way to go yet and they’ve got into a dedicated reamer run, we’re now going to offer and we call the DR Stinger and that’s the DR just stands for Dedicated Reamer. So those customers that say, hey look, I like doing it this way, I’m going to do it with reamer run, we can say great, we have a tool for you. And essentially what’s unique about this is that the customer is not going to site traffic, he is not going to have a drill bit on the end, he essentially has a long tapered profile on the end of the reamer assembly that holds in the centre in the well bore as the hole gets smaller, this still find center and it works very, very well. We’ve never promoted that in sales, we haven’t talked to our sales team about this, up until recently as we’ve said look let’s get in front of every customer out there and let’s get something on those rigs, so, that will be the stinger that you’ll hear about more in the future. One thing that I would like to say about the, just going back to the OrBit real quick, a little note here I had here that I forgot, I passed over is one of the things that we’re really optimistic about OrBit is a fact that we have all these wells that have been out there that have been drilled but uncompleted. We call them dugs [ph] and just like in North Dakota alone there is 880 of them. And so we think if this market starts to come back, we believe that the drilling of these frac plugs will come back faster than people want to go and put a new rig out there and drill a new hole, so we’re very excited about the opportunity with OrBit. With that, I’m going to go ahead and turn it over now to Chris Cashion, our CFO and he’ll talk about the important stuff.

[Chris Cashion:]

Okay, well, thank you, Troy and good morning everyone. If we turn to page 8 in the slide deck, this slide is titled adjusting to market conditions. And as everyone on this call knows this is indeed a challenging market. As you saw Troy, our revenues are down from Q4 to Q1. But it also as you heard our share with drilling ream is up, so we are pleased about that. So from a cost perspective, and then this kind of market obviously a huge focus on cost, and that’s what we’ve been focusing on in Q1, and continue to keep our eyes on given how this market seems to be settling but still is very unpredictable from our perspective. So there is lot variability, there is lot of things to start, not very clear at this point. So we are focusing on costs. And as well as these new products if you just heard about drilling ream, market penetration all those things, but cost is a huge focus for us. In Q1 2015, you can see that we dropped operating expenses $1 million from Q4, that’s a combination of a couple of things going on with the organic business, that’s a high variable cost business. So as that revenue goes down and we are able to take out variable costs, and we did that and as well in SG&A, some cost reduction is there. We’ve gone through a couple of reduction enforced during Q1. And I just might add that the focus on those reductions have been in the organic businesses, debt refurbishment in the traditional custom manufacturing. We’ve had some cost reductions and the drilling ream or rent a tool fleet is very, very minimal. You are going to see that we are keeping that cost in place, that steel distribution that we’ve worked hard in the last half of 2014 to get setup to get these drilling tools out. We are not cutting back on that in any significant sense at all. We are holding on to those costs. And those people, the sales people, that investment that we’ve made, we need that investment not only for drilling ream, but also these new products. I think as most everyone knows drilling ream is just a start of what this company is doing. As you just saw we’ve got new products, we are focused on new product development. And that field distribution infrastructure very important strategically [Indiscernible] to us. So that’s not where we’ve been cutting costs to expand the organic business and in some SG&A areas. If you compare Q1 2015 to Q1 2014, as you know its apples to oranges comparison. It’s a different company today than what it was a year ago Q1 2014, we bought the drilling ream product line at the end of May 2014, it began transforming the company. So you look back a year-ago, cost of revenues up, that’s the investment in the fuel distribution, I just spoke about, SG&A is up, I see investment in the sales personnel at the city sales level and in the technical sales level and then of course the cost that we put in place to be a above [ph] the trading company. And then depreciation and amortization is up and that’s driven by the acquisition of Hard Rock. The Amortization expense in that number $600,000 as you’ll see on the slide, it’s in the slide deck. So if you go to the second page, page 9 and our focus is on cash obviously, this is a very difficult environment, we’re doing a lot of good things on the revenue side. But we’ve got to keep our eye on cash and EBITDA and net cash flow and that’s what we’re doing. You can see that EBITDA is down from Q4 to Q1 and that’s driven by the drop in revenues. So it had an impact on our EBITDA, but still positive EBITDA $200,000 in Q1 2015 is up as I’ve alluded to we’re keep our eyes on the market trying to figure out as best as we can where it’s going and we’re ready to make further reductions in cost, if we need to. What we have done as I mentioned in Q1, we’ve reduced our headcount, we have eliminated bonuses for the year and we expect in Q2, there will be another 100,000 that we expect out of SG&A. So we’re not finished to take the cost out where we can, but I want to continue to emphasize, we’re not diminishing our ability to distribute drilling ream to the field nor we diminishing our ability to get stride around the field in the second half of the year nor get open [ph] sales, that we’re maintaining impact. As I mentioned in the last page, you’ll see an adjusted net income from a GAAP net income and it’s just taken off the amortization expense of $600,000. The last bullet point, we’re about $5.5 million revenues where it takes for a quarter to break-even as the income before tax line. So that’s where we’re focused on and we’ll continue to be focused on. Page 10, looking at the balance sheet, once again it’s all about cash. Uses of cash in Q1 a couple of thousand dollars for CapEx and that’s replacing some drilling rig tools, a minimal amount CapEx and it’s in this tools. As you all – I believe know – we don’t make to buy anymore machining centers. We don’t need any root clients – we’re good in those areas. So CapEx is going to be for tools, revenue generating CapEx. And just as a way of comparison we have $2.6 million of CapEx in Q4, so Q4 2014, $2.6 million down to $200,000 in the first quarter of 2015. And then principle debt payments $300,000, so we’re servicing our debts and we’re making CapEx investment where we need to. For the reminder of 2015, we’re looking at $800,000 to $1 million for the entire year. And that’s going to be back end loaded, most of that is going to come in the second half of the year and it’s going to be Drill N Ream tools, and it’s going to be Strider tools. I think that most everyone knows, we know we did a few things in April that has improved our financial flexibility. We refinanced $5 million notes – basically a mortgage on our facility here in Brunel and we extended that payment term out three years and it was due to be repaid August 15th of this year, so we got based into for three more years and then we’ve restructured our Hard Rock note basically taking $2.5 million of principle payment that was due this year and we managed to get that restructured into 2017, the third year of the seller note. So just to kind of remind everyone that note was $5 million this year, $5 million in 2016, $2.5 million in 2017 and that was the principle repayment schedule. It is now flipped around $2.5 million in 2015, $5 million in 2016, and $5 million in 2017. And that will have the result of decrease in interest expense up just to remind everyone we – we have a discount that we booked on that note and that drove from an accounting perspective a debit on the balance sheet that’s netted against – the note credit. And so, as we pay that down then that – that non-cash interest goes down. So that’s what that last bullet point is referring to. And just – once again a reminder and this is in our – when you look at our statement of cash flows, we’ve got about $560,000 of quarterly interest expense and $226,000 of that is this non-cash interest expense, but cash interest per quarter is $330,000. So with that let’s look at our outlook for 2015 and we are – we’re just reiterating our 2015 expectations that we had communicated to the market on March 27 of this year. So, we’re basically confirming that guidance. We don’t have any better visibility – seem to have stabilized but where is it all are going, where is the rig count going, it’s still pretty highly uncertain. So we’re just going to repeat. What we said in March 27th and drill every – in the business, third-party manufacturing business and that’s for the year expecting to be down 50% to 60% and that’s kind of in line with where we see that the rig count for the year. Our goal for 2015 is to offset the drop in the organic business in the second half of the year with these new products. Drill N Ream continues to penetrate the market and this Strider and the OrBIT is gets those products out there. So our revenue expectations, as we said last time, it’s waited for the later part of the year. So we think 2015 from a top line revenue perspective. We still think that’s going to look like 2014. We did $20 million in 2014. And so, we think 2015 is going to look like that with heavy weighting of the revenue in the second half and that’s when these new products are going to come on stream. If that revenue goal is achieved then we should be able to reach our 20%, roughly EBITDA margin for the year and that’s what we said a month and half ago or so and that’s why we still see it. So with that I’m going to turn it back over to Troy , to talk little bit more about our market outlook.

[Troy Meier:]

Thanks Chris. So we look for our strategies for growth. We still remain very, very positive on the tools that we’re bringing in the offerings of market place, but one thing that we have to be very careful of throughout this year and into the future as our cost. We’re very cognizant of our cost and [indiscernible] we’ve got – we’re very careful. But we’re going to leverage those contacts that we made with the DNR and the benefits those give our customers and we’re really going to strengthen those and start you know we’ve got customers that they uses in one day and but have never even heard about as in an other basin. And we’re going to start walking down the hall and talking to somebody within that company they don’t know about it, it’s a board or else get on the plane and fly to a different city, we still see the same company so we’re going to start really, really working on penetrating those customers and strengthening those relationships. We got a – as we start looking at our technology, our – we’ll start bringing those complementary tools onto those rigs. We’ve got a – like I told you I’m incredibly proud of our sales team, the people that we have out there and we’ve got to support those people, we got to support those gentlemen and we get those complementary tools in the back of their trucks that’s they’re proud to get out there in front of those customers and we’re working very diligently doing that. In our R&D we’re still heavily focused on the Strider that’s – that we said we are going to get that tool down and we’re committed to getting that done. We still feel that we can offer something that a tremendous value to our customers and our customers expect that to bring this to market. And but with that being said, we’re also utilizing our R&D team to redesign cutting structures for OrBIT and to – as we’ve gone into this through tooling business, we realized that there is customers they need help and other places with industry to be – that without us loosing focus, we can help them out a little bit as well, whether it’s drilling sliding fleet assemblies or whatever. So with all this being said, we’d like to turn the time over to your questions. If you have any and so we’ll answer.

[Operator:]

Thank you. Now we’ll be conducting a question-and-answer session [Operator Instructions] Our first question is from line of [Indiscernible] Securities. Please go ahead with your question.

[Unidentified Analyst:]

Hey, guys good morning.

[Troy Meier:]

Hey, [Indiscernible].

[Unidentified Analyst:]

Just I was curious, if you could obviously you talked about pricing pressures and that’s obvious, I think across the entire space, but as far as how you guys price the tool. Could you maybe just give us a little bit of color of as you move into these other basins, is it truly that you are looking at footage or is that how you build them or is it [Indiscernible] just kind a trying to understand as you moving to other basin and laterals shift around, how that changes in your aspect?

[Troy Meier:]

Well, it all comes down to a footage cost, what we find is whether it’s a bits or motor in different basins, they are tougher to drill and so you go through more bits [indiscernible] motors or drill starting to beat up a little bit more. And then there is basins that such as Wattenberg they are very, very easy on downhole tool. And so, but when you look at it, it still comes down to a cost per foot. If you look at what you get up in Williston, up in the Bakken you look at what you get in – down in Oklahoma versus West Texas versus the DJ Niobrara what we find is – like I said, it comes down to cost per foot and also when you go into these basins and one of the things that was an eye opener for us was when we started getting into some of these basins one in particular where the cost per foot was so cheap. It was very disappointing at first [Indiscernible] we’ve been want to compete in this market over here and but then we found that our tools one would come out as a whole and virtually green, it looks great. With customers over there, they work with us really well, there is no reason for us to go pick up the tool and take it back to the shop, where that would cost us and definitely we don’t have those repair cost and transportation cost. As long as our guy goes over to the rig and inspects the tool there at location, but he doesn’t have to load that much truck and take off. And so as we looked at these basins that have these lower costs per foot we have found that they’ve actually become very appealing because we are getting more runs per tool before repair then we would in these – the basins that we started off in. So yes, it comes down, is all comes out for cost per foot.

[Unidentified Analyst:]

Okay. And that’s really helpful, I guess where I was in a – I think you may be answered a bit there, but just to make sure I understand it. From a fore scale from deploying the tool to one of the repairs that’s no matter which basin you are in or something is it relatively comparable from a revenue and cost perspective from pushing it out the door to getting it back?

[Troy Meier:]

It is.

[Unidentified Analyst:]

Okay. That’s great. And then just curious about the last one if I could on the two products of the V Stream and the standard that you talked about, do you – you have tools out there deployed now, just curious how many you have out there and just what you’re looking at as far as ramping up the inventory there?

[Troy Meier:]

Well we do have the V Stream is out there, we just got some of those up in North Dakota here this month, what was unique about that the those kind of – as we design this tool there was a good report come out from the – from one of the derivatives [ph] at Exxon Mobil and as we talked about stabilization which you got to have and pretty much everything he talked about in that report this tool already incorporated, so it was very unique to be that a company of that size, say hey this is important to have a tool like this, but to answer your question as far as gearing up, it’s a – it’s pitch right in our wheel house – it’s the dynamiters of still that we purchased, it’s the type of machine that we know very, very well. The ramp up and put these out, I think we have alluded in the past about Drill-N-Ream and how efficient we’ve become of making those. We can put these out very, very quickly. The new thing for us on these tools was the fact that that we use the non-mag material and at first we are looking at that thing well, okay we got to have a different tooling to cut it, we have to program our tool path in a different way and but as we started talking with our experts in our machine facility, they have done plenty of that in the past and now they made us feel very, very confident that we go into the non-mag line and manufacturing time will be very appealing.

[Unidentified Analyst:]

That’s really helpful. Thank You.

[Operator:]

Our next question comes from the line of [Indiscernible] Capital. Please go ahead with your question.

[Unidentified Analyst:]

Hi, guys thanks for taking my question this morning.

[Troy Meier:]

Hey, Joe.

[Unidentified Analyst:]

Couple of things, first one on Drill-N-Ream, entering the second quarter, I mean with pricing fallen to about a 11,000 first, do you think further pricing pressure in Q2, and are you still maintaining kind of that same level of run, roughly 50 a month or we using an uptick with the oil price?

[Troy Meier:]

The pricing you feel Joe is stabilize like I talked a little bit earlier, we’re actually seeing some of these customers now start doing what we’ve gone extended lateral. So as we talk about price per foot which we like to seem drill these longer laterals because it matches more of where we cut our pieces into Bakken. So it should be borrowing any more, as a matter of fact we think its get stabilized. If you look at the runs in April, we are 67 runs and that – so if you look at the second quarter, I think it’s going to be a lot like the first, maybe as a little bit and maybe and we can start complementing those runs with some additional tools whether it’s Bstream or stinger.

[Chris Cashion:]

And Joe that is – the average rig count for Q2, obviously it is going to be lower than the average of Q1. So maintaining the runs at that kind of Q1 level and that is – we’re very pleased with that because that implies continues most of the concession.

[Unidentified Analyst:]

Okay, moving over to the new tools, give us an idea of kind of how much you spent in Q1 for those Q1 your total operating expenses jumped a little bit. Can you give us an idea what part of that was the R&D side of things?

[Troy Meier:]

Okay, so you are looking at Q1 operating expenses at $5.1 million number?

[Unidentified Analyst:]

So you would hit the $1.9 million or so that was the total cost of good sold, its still I guess…

[Troy Meier:]

That is as much as yes, it’s been very minimal, we are really not breaking out a lot of all details added those numbers. But what we can tell you is that these tools we’ve been over to develop and minimal R&D cost. As Tony indicated with stinger, that is actually something that the company has had for a couple of years, it just wasn’t focused. I mean the focus has been drilling rig. And so that is kind of – no R&D around that tool, which is the matter of now putting a marketing strategy around that tool. As Tony walk through getting something falling down that rig so we’re trying to have an answer for any objections they have in drilling rig. So with the Strider have this already in the tool kit, it’s just something that now how we elevated the sales force.

[Unidentified Analyst:]

Okay. And then just one final thing, you guys give us a little bit of color on the exact economic design Strider like what do you think you’re going to get as far as revenue from a per use and then how you are going to like sell it and give you a similar pricing system to Drill-N-Ream for you rented out or is it going to be a sale based. Please give us an outlook on that.

[Troy Meier:]

Sure, sure. Yes, yes Strider is going to be a rental tool and the revenue is going to be real similar to Drill-N-Ream. One difference with Strider is going to be a day rate base where as Drill-N-Ream is a well base pricing. So it will be a little bit different positive structure but at the end of the day revenue per well is the way we would look at it. It’s going to be real similar to the Drill-N-Ream. So, yes, rental tool revenue for wells than the Drill-N-Ream.

[Unidentified Analyst:]

Okay, thanks, Dave.

[Troy Meier:]

Okay.

[ChrisCashion:]

Thanks.

[Operator:]

Our next question comes from the line of [indiscernible]. Please proceed with your question.

[Unidentified Analyst:]

Okay. Well guys first of I noticed managing through a sub-quarter and it is good to see this new customers with existing customers, so good job on trade, but more questions for you Chris, it says $5.5 million kind of a break-even or that’s more on just a book that are same cash flow break-even is more like $4.3 million within $100,000 additional SG&A and that $1.1 million is kind of D&A, is that correct?

[ChrisCashion:]

Yes, you can see that for this quarter rate we did about $1.1 million in revenue and for EBITDA we were about $100,000.

[Unidentified Analyst:]

But from more of a cash flow break-even not on EBITDA.

[ChrisCashion:]

Net cash flow, where we got $200,000 for EBITDA – we got CapEx and we had $200,000. So that takes from 10 to 0.

[Unidentified Analyst:]

Yeah.

[ChrisCashion:]

And we had principle and interest debt service for the quarter cash in for this $300,000 and the debt service $300,000. So $600,000 make it to $600,000 in our Q1.

[Unidentified Analyst:]

Okay. And then the improvement you did with both illustrated on balance sheet with the property and an extension of the arm. But that’s happened after March 31, so the short-term, the amount of debt, those current will change or that am I wrong on that?

[Troy Meier:]

Yes. The balance sheet reflects those refinancing from a GAAP perspective. You can do that if you get those deals done before you issue the queue.

[Unidentified Analyst:]

Okay. Thanks, helpful but confused on that, because it did already look a lot better. Get work on that?

[Troy Meier:]

And then my turn I would also add. But one last little bit there on that cash flow number which you’ll see on our segment of cash flows as we pickup in AR, we were positive AR which basically offset the negative after CapEx and after debt service.

[Unidentified Analyst:]

Okay.

[Troy Meier:]

So if you look at our segment of cash flows, and at the cash flow earnings release, and you’ll see that – but the part of we were break-even.

[Unidentified Analyst:]

Yes.

[Troy Meier:]

Start with that $5.8 million and we round up of $5.8 million.

[Unidentified Analyst:]

Okay. I want to see there when the rigs comeback. Good work.

[Troy Meier:]

Thanks.

[Troy Meier:]

Yes, Thanks [Indiscernible].

[Operator:]

[Operator Instructions] Thank you, at this time, I'll now turn the floor back to Troy Meier for closing comments.

[Troy Meier:]

Thanks Rob. We appreciate everyone, continue to support and interest in Superior. We’re really encouraged about what we look forward to. We have a – we got an incredible team here its world-class, we got great customer base. We’re got to on our end herein internal we’ve got to support ourselves and engineering staff by – to be able to produce those, we’re producing a high quality tool. But we need to get more tools in the back of their trucks. And do we get more tools out in front of our customers. But that being said, we’re excited about the future and we appreciate everyone’s support. So thank you and have a great weekend.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.