Superior Drilling Products, Inc. (NYSE: SDPI) Second Quarter 2022 Earnings Conference Call August 12, 2022 12:00 p. m. Eastern Time
Participating companies
Craig Mychajluk – Kei Advisors LLC
Troy Meier – Executive Director
Chris Cashion – Chief Financial Officer
Conference Call Participants
John Sturges – Oppenheimer
Ben Piggott – EF Hutton
John Bair – Ascend Wealth Advisors
Matt Reiner – Adirondack Fund
Operator
Regards. Welcome to Superior Drilling Products, Inc. Financial Results for the Second Quarter of Fiscal 2022. Right now, all participants are in listen-only mode. A Q&A inquiry will be the official presentation [Operator Instructions] Please note that this lecture is recorded.
I will now give the floor to Craig Mychajluk, Superior Drilling Investor Relations. Thank you. You can get started.
craig michajluk
Merci. Et welcomes everyone to our call on the effects of the current quarter of 2022. We appreciate your time today. With me is Troy Meier, our president and CHIEF Executive Officer; and Chris Cashion, our chief financial officer.
It has a copy of the monetary effects that were published to the market this morning. It also has the slides that accompany our verbal exchange today. If you don’t have them, you can get any of the documents on our online page at sdpi. com.
Moving on to slide 2, I will point out that we can make forward-looking statements in the formal discussion as well as in the question-and-answer session. These statements apply to long-term occasions that are subject to hazards and uncertainties, as well as other points that may cause actual effects to differ materially from those indicated here today. These dangers and uncertainties are provided in the company’s press release, slides, and other filings with the Securities and Exchange Commission. These documents can be viewed on our online page or on sec. gov.
I would also like to point out that in today’s call, we will discuss some non-GAAP monetary measures that will be useful in evaluating our performance. You deserve not to consider presenting such additional data in isolation or as a replacement for GAAP-ready effects. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables accompanying the publication of effects, as well as in the slideshow.
With that, skip to slide 3 and I’ll pass Troy to get started. Troy?
troy meier
Thank you Craig. And thank you all for joining us for our call for now in the first quarter of 2022. As we take a look at the quarter at the moment, I would like to highlight the pieces of leather on which we devote most of our time and resources. And one of the things that I think the first thing that should be highlighted is hiring and educating new skills. As everyone knows, as a company grows, we want to hire more staff and our control team has done a smart job, recruiting skills and education. they, and some of the many we provide here, take on a knack and, more importantly, work with the heat. So I want to tell our smart team for what they’ve done there, and that we’re building smart, strong team work here.
So, the next thing I’d like to communicate to make sure it was discussed today is to secure more opportunities with our former client. This is another important topic that we will communicate about. Securing the MENA channel spouse is another important point that I would like us to communicate or communicate about today.
And then also in the current quarter, we get a lot of maintenance and maintenance from appliances that, as you well know, in recent years we’ve had the opportunity to do. And we spend resources to take care of the plant and the appliances here. So I need all of you to be aware of that as well.
So if we look at what happened in the second quarter or what we had in the second quarter, very, very strong demand for our services. When we look at our old look at the company in tool revamping, it’s very strong and it’s developing every day and every day. This demand continues to grow in the main tool, Drill-n-Ream, as we see DTI maintaining a strong presence in North American markets as they attract new consumers and do a smart job there.
We also have the renovation of the old auger, as you know with Baker Hughes and they have kept us busy as they increase their position in this market. We are seeing an improvement in market situations as the number of drilling rigs increases, of course, there is more demand for our services. So, I think even if we take a look at the number of platforms, it’s far from what it was a few years ago. However, rigs drill many sequences. Keep in mind that the demand for equipment at existing platform levels is huge. So, keep in mind that the perforated photographs on the platform are very impressive.
Chris will communicate about strengthening our balance sheet. We continue to focus on that. As we pay off the debt and collect cash, and he will communicate about it. Then, we analyzed the jobs according to capacity and demand, put in position more groups to supply the new equipment we are doing in our device store, as well as – when we look at the other people we want for that Array, it is a very skilled operator that we are looking for, which not only systematizes and operates the CNCs, but he is also very, very skilled on the design side. And we’ve acquired smart skill there, and we’re still looking. they do it every day, looking for better tactics to attract smart skills.
We spend a lot of time on the foreign side of the company. Everyone knows that we have signed with a distribution partner in the MENA region, the oil company Bin Zayed, and we are working with them weekly as our teams get to know each other and how we will work together to saturate the market with Drill-n-Ream technology and other technologies that they would like to grow. It is a very refreshing opportunity to deal with a world-class organization, we are very satisfied with the other people we deal with and believe it will be a smart step as we move forward.
Remember, we talked about the turnkey procedure. We bought a new machining center. It’s a million dollar machining center that we installed, now we have it in place. We have done it, we manufacture the templates and assemblies that will allow us to perform this turnkey procedure that we have talked about at the time. today, we are mechanizing a new product, but we don’t, we don’t finish the product. We sent it to Houston, where it stews and hardens. This new turnkey procedure that this device will assume will maintain the products we are mechanizing. and then keep them here so we can also finish that product and then ship it.
We believe this will be a wonderful opportunity for this company. And I’m saying this device is in position and we’re running the systems right now. And we’re going to start shutting down our first products this month actually. they’re excited about it.
Having said that, I move on and give Chris the communication about finances. Chris?
chris cashion
Thank you, Troy, and welcome everyone. Let’s continue with our review by moving on to slide 4, where we’ll review the strength of our earnings. Second-quarter earnings rose 34% to $4. 5 million compared to last year’s era and increased 10% sequentially. -Stop improvement of the oil and fuel industry, we also equate our good fortune with our production processes and commercial progress efforts that have resulted in more business with existing customers.
Revenue in North America accounted for approximately 89% of our total revenue, which increased due to industry advancement conditions, the development of requests for contract equipment and facilities similar to other devices, and more rigs, our flagship tool, drill-n-Ream, which continues to prove its price to operators through improved drilling efficiency. This reduces oil and gas drilling and generation prices.
The number of drilling rigs in the U. S. The U. S. economy continues to grow, leading a number of consumers to recognize the price of our technologies and expertise. and 264 platforms since the current quarter of last year, a cumulative of 59%. We expect this stable trend in North America to continue. And last Friday, the number of U. S. platforms. USA 764.
Over the past year, the expansion of the foreign market has been slower than our domestic expansion due to restrictions similar to the ongoing pandemic, which have affected and arduous recruitment in this part of the world.
We are really excited about our new marketing and distribution agreement with Bin Zayed, as Troy said. This will drive our growth abroad. As we announced earlier, this agreement states that Bin Zayed Petroleum will first acquire the company. Existing fleet of drilling rigs in the Middle East, and will acquire new drilling rigs as they enter markets in the Middle East and North Africa. the computer to terminate the users.
In total, through the acquisition of equipment and a profit-sharing model, the company expects to make approximately $13 million in profits over the 12-month period beginning in July 2022 through its relationship with Bin Zayed. The initial portion of acquired shares of approximately $4 million in earnings will be identified in the third quarter of this year. Market penetration forecasts are still agreed and will be adjusted annually.
Turn now to slide five to take a look at our tools revenue and contracts, which are particularly superior. Total tool revenue, which is the sum of other similar tool revenue and tool sales and rental revenue, rising 27% to $2. 9 million from last year’s era and was largely due to Drill-n-Ream’s superior royalties and fixed revenue, given the accumulation among the tool’s end users. develop the demand of our customers. They continue to recognize the price of our high-quality PDC tips and other tool production features, as well as our PDC tip renewal matrix.
On slide 6, you will see that our prices and expenses have increased. We are striving to meet the demand for our products in the face of the headwinds of global inflation, which have particularly affected our wage expenses, uncooked fabrics used in our production operations, supplies and fixed and maintenance prices. We have also expanded our to meet our existing expansion by adding skills in the quality, protection and general production support spaces.
We continue to demonstrate leverage in the SG line
Inflationary pressures are expected to persist at least in the short term. But our groups try to streamline processes and build relationships to expand our global presence. And while we had the good fortune to add talent, the limitations of hard work remain a factor as we move forward and prepare for increased demand.
To combat inflationary headwinds, headwinds around fabrics and labor, we implemented value increases for consumers starting in July 2022, and we plan to make additional value changes this fall and next year.
Now let’s move on to slide 7. We see that our net revenue stream and adjusted EBITDA have been affected by those higher costs, as we just noted on the previous slide. Net loss for the quarter was close to break-even, negative. Adjusted EBITDA of $831,000 accounted for 18% of sales.
Turning now to slide 8, we see that our balance sheet remains strong with reduced debt and solid money levels. During the first part of this year, our money balances exceeded our debt. compared to $335,000 in the same era a year ago, largely reflecting an improved net income.
We have used some of our money to develop the investment plan, which to date has spent $1. 2 million in the first six months of 2022. This reflects the down payment of approximately $300,000 to secure a new CNC device in the first quarter of this year, an accumulation in capacity improvement and maintenance projects, and an accumulation in our fleet of drilling rigs in the Middle East.
The CapEx for the comparable era of 2021 is $55,000. We expect our peak of capital investment to continue through the end of the year, totaling approximately $2 million to $2. 5 million over the next two quarters. Troy will review our capital priorities in a few moments while reviewing our outlook.
Total debt of $2. 4 million was 2% lower than at the end of the 2021 year. We have enough money and we plan to pay our Hard Rock Note : our final payment on our Hard Rock Note, I could add, of $750,000 and we’re going to make that payment in October and that will cancel that component of our debt. In addition, with the money from the sale of the shares of the Stage 1 drilling rig to Bin Zayed, we will settle other high-interest debts.
Now let’s move on to slide nine and look at our forecast for the rest of the year. We expect earnings for 2022 to be between $22 million and $25 million. For reference, it could go up that in 2021 we made $13 million in profits for the year. We who expense SG
As we noted, in the third quarter, as we mentioned, we will be promoting approximately $4 million of our existing middle eastern inventory to Bin Zayed Petroleum, and we expect that to happen this quarter, the third quarter. And with this tool sale, our profit in the third quarter will be between $8 million and $9 million. And adjusted EBITDA in the third quarter will be between $3. 5 million and $4 million.
So now, with that, I’m going to give the ground back to Troy, while he reviews our opportunities.
troy meier
So, when we take a look at the opportunities we’re seeing this year, as I said before, there’s a huge need for our inherited skill set, what we’ve done, and what we’ve done : we’re building this component of our business. When you take a look at the facility here, we build our stew capacity, build new stew stations, move some appliances from one build to another as we find more power and integrate them with drill-n-Ream stew stations and then into the drilling aspect of things.
So we’re going to look at CapEx spending there, we’re going to, we’re looking to set up one, some other big five-axis machining center for the business we have there. You all know that we have several giant machining centers, we call them five axes, however, they are 7-axis machining centers and really 9 axes. We will double the two most giant due to the accumulation and whip we have in those devices. And it also provides us with a smart backup device in case something happens on those two main devices.
So there will also be CapEx spending there. And with that, when we bring those machines, we also have to paint on our foundations those big machines that allow us to maintain the precision that we maintain. We make modifications, cut the existing floor, and then set up a very clever design for those machines.
We are also becoming: we want to make sure that a renovation service center is made and operated in the MENA region in Dubai. So, our team is very focused on that, we identify the apparatus that we want to buy and spend there and install as well as the education of a workforce there to recondition the tools, inspect and recondition. In the same vein as what we are doing here and you know, of course, it will start with the Drill-n-Ream tools, but there are also many drills that are used there. So I’m sure the Drill-n-Ream will come in handy, which also has to contain these types of tools.
We’re also going to expect the demand for Drill-n-Ream to increase, which is wonderful. We make sure we have the equipment and staff in a position to meet this demand. We talk, we expect it to be up and running and during the fourth quarter, it will be a significant addition to the facilities we supply here. And the contracted facilities, as we said, we have a great demand for that service. So, a lot of opportunities, we want to keep expanding our production capabilities.
But with that again, I think the maximum of this total expansion will be the hiring and education of the professional body of workers and we will continue to be artistic about how we attract the high-end and retain them. Having said that, I would like to move forward. a questions and answers. Thank you.
Q&A session
Operator
[Operator Instructions] The first is by John Sturges with Oppenheimer
John Sturge
Thank you so much. Good community gentlemen. I’m curious to know if you can provide an update on Strider, where are you on the other teams you have?Will some of them already be distributed? America is slower for you. I think business in the Middle East would make up for that a little bit. But with the speed of drilling, the fourth quarter may not be as weak. So I’m curious to know what you’re seeing right now compared to the fourth quarter.
troy meier
It is ok. So in relation to your first query about Strider, I don’t communicate much about this tool just because we put it on the back burner in 2020. We started the first quarter of 2020 and are literally excited about Strider, selling our first 4 pieces of equipment, and then what happened. But since then, we’ve had a very high-level visitor who took those pieces of equipment that we sold in the first quarter of 2020 and used them in the first quarter of this year, and they worked very, very well. Since then, we have brought this product.
Everyone we had who was involved in this product line, when we cut back, we lost those people. So, it’s a wonderful wonder for us. And now we have a manager in that branch who has done it and we’ve refurbished the equipment that came in here, that worked well, and they were. we put them back in place and they worked well, again.
So we know there’s a desire for this diversity of products and we’re responding to that. We didn’t put anything in our budget for this, we do it on a small basis, now we’ve moved to – we’re moving this product diversity instead of having an elastomer strength section, this is what we started designing with many years ago, the filler and elastomer of this diversity of products has become very expensive. And that’s why we’re moving to steel over steel, it’s actually exciting for us, steel over steel, we think it’s going to last at least 10 times longer than the elastomer we use. And we’re in the process of converting the force sections, we have 4 that we’re going to release here over the next month.
So we’re excited to release them and put them in the box and see glorious performance in them, and we’ll probably communicate a lot more about that in our third quarter in November. But really, we are, this is going to be the fourth quarter where we’re going to start seeing those teams come out and do various runs. And then we started to see a very smart buildup in this aspect of the company from the first quarter, the current quarter of next year.
As for the fourth quarter, and the typical slowdown you see there, we don’t expect that at all. In the past, what affected the fourth quarter was the fact that the power of drilling was becoming so wonderful year after year that those companies, the E’s.
And what we’re seeing now is that wells are drilled very, very efficiently. But we don’t see those days coming out of the wells we’ve noticed in recent years. So even if they get bigger and more efficient, I think they’re getting to the point where we can only get the pipe in the gap so quickly. So, the effectiveness of well drilling is. . . it is identified in places that are not just days without wells. So, I don’t think we’re going to see cumulative budgets in October, I think we’re going to continue to see smart activity in the fourth quarter.
And with the desire to. . . when you take a look at the number of platforms, you see that it is looking to get. . . But I think one of the upheavals you have with that is that what we’re seeing here beyond 750 now, it turns out that we’re uploading some platforms and going down some platforms. And I know that when you communicate with the service, the Serve-Cos when those E’s
And so it’s a compromise now if you need the equipment to avoid holding hands. But you will have to have hands to climb to the platforms. So it’s an attractive dynamic that we find ourselves in now with platforms and Serve-Cos. So I think we’re going to see a solid fourth quarter in the drilling business, and we plan to be a part of that with some of the other things that we’ve been talking about with the adoptions of new product lines that we’re incorporating and the new facilities that we’re adding. I hope I have answered your question.
John Sturge
You did it, it was wonderful: lots of colors, I enjoy it. Only a small follow-up, and it’s the stock of ducts that could be used, turned out to have: they reduced it. So any new production comes quite a bit from new drilling in the field, or something like that, which would mean just keeping up with existing production, you deserve to have longer deviations or more wells. And I’m just looking to get a concept of what you see along those lines?
troy meier
It seems to me that a two-mile aspect is commonplace now. When we started fainting, we were making 1000-foot branches, then 2000-foot branches, and now we’re making branches that stick to the asset lines in a square. — however, it seems to me that the communication we’re hearing has a lot to do with those two aspects of a kilometer, and I don’t know how far they can be productive. I know there are — when you get to most of the sensitive part of a well, which is the end of the side pipe, I don’t know if you get as much energy from your fracking as you do on the hill. And so, we would possibly not have the power gains and possibly we would not have to get the yield if a well becomes too long. I’m not an expert in this field, but just communicating with people, that’s what I hear.
Operator
The next one is from Ben Piggott with EF Hutton. Continue.
ben piggot
Only in Bin Zayed, if we can go back a little further. I mean, it looks like margins are starting to explode upward in the third quarter when this transition happens. But can you tell us a little more about the long-term capital intensity implications on the company’s margin profile, as if the Middle East is much more like North America?And then a follow-up, he discussed that there can be a wonderful opportunity to have a driller refurbishment business in the Middle East by opening the Dubai middle, just to locate the street or what opportunity can it be for the company in the coming years?Thank you.
troy meier
It is ok. It is ok. So when you take a look at the opportunity we think we have with the Bin Zayed group, it’s: they’re new upstream, aren’t they?They sell oil and are now entering the upstream market. And so they are, when they enter this market, they are looking for a lot of help from us. And we’re looking for a lot of help from them. They have contacts in those oil and fuel corporations that we didn’t have. We didn’t have the contacts in those corporations that we can just call what we might do here in the United States. And so it’s been a fight for us as foreigners there and they hunt to penetrate a market, and they’re very suppliers in that market, as you well know.
So when they take a look at the facilities they expect from us, they not only see the Drill-n-Ream tool as one of the first pieces of equipment that takes them to the service aspect or the upward aspect of the market, but they also have product desires in their look at things, in production, and the after-looking aspect of things that they would also like us to take a look at. There are, I’m not sure what all those products are, but they’re very, very interested in our machining skills that we have here.
And I know you’ve discussed this many times as we look beyond Drill-n-Ream and the drill rig we could supply them. They have a directional drill rig, a very small directional drill rig that they will develop. So, as you well know, when a directional drill rig comes along, they want any drill, they want motors, they want steerable rotary systems, and they want everything that is ed. So, by setting up our service center in Dubai, we will take a look at all those things. We know why we go there, it’s to Drill-n-Ream, but we also know there are many more opportunities.
Our first time in this region, and that will touch your question for now. Our first one there, I mean, probably was, yes, not even in 2018, no, I think it was around 16. And it was there, when we went there, it was to take a look at the drill refurbishment market for ADNOC, Abu Dhabi. And at the time, when we took a look at that, we couldn’t really justify going there and setting up a facility just because of the volume we only got from the UAE.
But now that we’re at the volume we can get from the MENA region, it looks much more attractive. So while we set up this facility that we’re going to open, our goal is until the end of the year. And I hope we can put it in position until the first week of December, but we still have a lot of disorders with the chain of origin and logistics, putting the device in sea cans and looking to get there and, there is no one, no one can give you has a deadline for this merchant to reach his destination, you just have to stick to the suit and expect him to achieve it in a meaningful way.
So, we’re trying to do the things we can there and put things in the market. But when we open this service center, we design things in such a way that we know there will be more products. So when we look at [AMP Ridge], when we look at the cleaning stations, when we look at the inspection stations, this total facility is set up for other machines and appliances coming in. Did that answer your question, Ben?
ben piggot
Is it? I’m just looking to dig a little deeper into margins, just conceptually, if the margins as you expand opportunities with those other people in the Middle East, are larger than the margins in North America or similar or maybe worse. ? Any color in the type of profit profile, why does the additional expansion come from that component of the business?
troy meier
I think when you look at the margins, you can look at them and make them more or less the same. When we look at the rental of products on it, it’s a little higher, we earn a little more consistent with the foot. But it costs us a little more to do business there. So I think it’s going to be a wash. We expect smart margins on the products we manufacture there. But I think there will be a lot of them. They’re going to be very close to what we’re getting here.
Operator
The following is from John Bair with Ascend Wealth Advisors.
John Baier
Given the increased demand for your services as well as tools, etc. , I wonder how this affects your pricing environment and whether you need to increase costs to handle it.
troy meier
We are, as Chris mentioned, had 10% worth building in July on our business’ Drill-n-Ream service, and we hope it’s worth building on the renovation aspect of our business bits in September, that’s what we’re looking for. And yes, we, everyone understands that they are going through the same scenario as us, with the value of steel, the value of the saw, the value of strawberries, everything we use has construction. upd. And they percentage that what we rate goes back to the end user. So, the value of drilling a well is increasing. And I think you probably know very well that E’s
John Baier
Do you see a stabilization in the general components, metals, etc. ?
troy meier
Metals, we are, peaked around November, December. So, we’re starting to see a little bit of relaxation in steel values. I don’t know how it’s going to work in this third and fourth trimester, it’s not a lot. . But when you take a look at uncooked steels consistent with ton, it’s going down. I mean it peaked at 2,000 consistent with metric ton in November, October, November. And I think it went down to about 800. So it’s gone down, It’s gone down a lot from the foundry, but we don’t see such a big drop in value from the supplier.
John Baier
And then, for the past two years, he has discussed that he is suffering to bring other people to the Middle East. How is the scenario there?Was it relieved until. . . was mitigated until you can take your other friends more easily?
troy meier
Well, in Dubai, we can get other people in and out. They have fewer restrictions than, say, Kuwait. And Kuwait was where we were really strong before COVID, that’s where we were making our most productive progress, it was in Kuwait. . And then it was blocked quite strongly. And I think it is, and it’s just not for our services. Keep in mind that many of those wells are drilled with expats, it’s true.
So when they went into lockdown mode, some of the expats were there, they had to stay there much longer than they had planned. So, there are considerations with other people passing by and they would possibly worry about some other blockage where you might have to stay longer than you wanted. So I think that’s why we’re not seeing a huge increase in the number of platforms out there. It’s just the fact that it’s just not desirable right now with the new world of pandemics.
But we’re seeing, like what you’ve noticed in the news here lately, where what’s going on with COVID is diminishing and we’re starting to see a lot of relaxation here. And I hope that, it turns out that the United Arab Emirates is very attached to what is happening here in the United States. And then when countries like Kuwait come in, they can stick a little bit later. But I, with the exception of the access and exit of fabrics and sea cans, I don’t think we have any problems getting staff in and out of Dubai. I think it’s that, we’re going to agree to that, for educational purposes.
And remember, you know, we have a total fleet of Drill-n-Ream, since it’s used, we have to fix it, we’re not going to send it back here to the United States like we’ve done in the past, because if you. . . he can’t count on that at all. So there are equipment that want to be repaired and accumulate, so we have to do it. And I think we’re going to get it, we’re going to set up a facility there and get other people in and out of there while we rent and exercise other people there to do this service work.
John Baier
One last question. What opportunities do you see in South America?There is a physically powerful industry in Brazil and, of course, in Guyana. Do you see an opportunity? Looking at this, maybe a distribution partner or anything that can help you penetrate this market?
troy meier
We talked to several corporations that would like to set up Drill-n-Ream there. But one of the problems we have with that is that we don’t have a service center there. And the drilling agreement, the explanation of why, is one of the explanation of why it’s a successful product is that we keep the reins of the procedures and processes that are followed when using this tool, after it’s used. It goes through a very rigorous inspection process, then a correction process and we don’t entrust it to anyone.
And so, we’ve been in conversations with corporations that would like to. Our bandwidth just didn’t allow us to be too aggressive. When corporations work as a tool there, what we’ve done and they’ve worked very well, then they have to send the tool back to the United States and have them repair us, which ends that opportunity.
So we’re running, we’re just going through to send teams to Guyana for a control well there for a big company. I think we’re moving on to send the teams this month actually. So, we have 4 pieces of equipment that are transmitted in an experimental well. This large consumer was looking to execute this as a component of this exploratory process. And we can tell you about our next effects call on this.
Operator
The following is by Matt Reiner with Adirondack Funds. Continue.
matt reiner
Hi, guys. My first query about capacity. Obviously, you’re making big investments this quarter. And how much or I guess, what percentage can you share with us, like your current capacity and what those additional investments will add to you?
troy meier
It is ok. Well, what is our existing capability? We have devices that, that’s not what’s holding back our capacity, it’s the human capital aspect of things. And I say that, but we will also invest in devices because of the opportunity of turnkey processes and also to facilitate greater capacity with the sets that arrive. So, it probably sounds distasteful. But what I mean is that if you take a look at our 750, if you take a look at the media that makes Drill-n-Reams, we have two devices that produce those pieces of equipment and they’re very exclusive devices. And the big team, we only have one device that produces those computers. So once it starts to exceed a 10-inch length range, they are all manufactured on that device. It’s called B-750.
And we’re going to duplicate it. Our purpose is to double it and put it in position before the end of the year. We would like to see it done. And what it does is that it is compatible with the 750 that we have lately. If it breaks down for any reason, either due to an operator error or maintenance, we can, we do not have to suffer, increase our order book or our delivery time. But this device can also be used with an operator running any of the devices. That’s why I said it: we’re building this device, but the same carrier can run any of the devices, so it’s a huge plus.
The human facet of the capital we are looking for, let me also move on to your turnkey process, this device that we have put in place. At present, we have a manager who solves all the problems and designs and manufactures the insoles and fasteners. we want for this turnkey process. And once it starts, we will now run in 3 shifts, we plan to run 24/7. And so, the other people who will use this device will be the expansion of our human capital.
If you take a look at the existing machines we have, we run, I guess, I can’t imagine, when we run. When we enter the moment and third-party equipment, we use about 40% of the capacity of those machines. And that’s because we don’t have operators in front of all those machines. We have more operators on the shift who have done that, and it’s been managing the workload that we’ve had so far. But the demand has become so high that now we have to run all those machines and put other people in front of them who observe them more 24/7.
So the existing capacity will particularly increase the existing apparatus that we have by putting more people in front of them in more shifts, and then we will also increase our capacity through the additional 750 that we are contemplating, as well as the giant labyrinth. to the filming centers we have just installed. We will develop our capacity in particular.
matt reiner
So I guess maybe it’s a consultation for Chris. But looking at — from a loose money attitude or whatever, while we look at at least the current part of 22, obviously with the giant order in the 3rd quarter, your adjusted EBITDA, if we can move to half of that, is a pretty healthy adjusted EBITDA. They also foresee around 6 million CapEx in the current part. So, I guess some of that is going on to be absorbed by CapEx.
And then I was curious to know how much is fed through current capital or whatever form you need to answer that query. If you can tell me how much loose money you expect to make, in the third quarter, at the moment. half, or if you need to use the technique to execute the capital and break it down that way. Either way is fine with me.
chris cashion
I think in terms of doubling our existing money balance, it’s a way of saying we’re at around $3 million right now, on June 30th. As you just pointed out, we have the big order in the third quarter and we’ll meet on that. And just as a benchmark, there is: existing equipment, a fleet of existing equipment that we have on our balance sheets, so you’re monetizing an asset. So, this sale will go directly to the money line. But we have CapEx that we put in place. That’s why I say, just think about doubling the money balance from 3 to 6, until the end of the year.
matt reiner
And you were saying you can. . . so, in addition to hard Rock’s note, it could take a higher interest rate, that is, I guess some of that extra cash can be allocated to that. And what is the interest rate on this additional debt?
chris cashion
That’s the extra premium, and with some fees, it costs about $10. 5 right now. That’s why we’ll probably remove it. That’s not a lot of money. That’s about a million dollars. So that’s okay. But we’d like to pay for that.
Operator
[Operator Instructions] The next one is from Brett Davidson, a personal investor.
unidentified analyst
Well, hey guys. Hello, here on the East Coast. I am relatively new to the company and ignorant when it comes to the operation, excuse me, etc. So you’ll have to apologize if some of them are a bit simplistic in my component here.
Cost of goods sold, I think you indicated that the aircraft that was shipped to the Middle East had already been manufactured as an existing apparatus. How will this be the charge of the goods sold in this quarter?
chris cashion
The price of our e-book on this device had deteriorated, so those usage prices will become COGS when we sell this device, when we monetize this asset. And then it will be an improvement in margin, in gross margin.
unidentified analyst
It is ok. So, do you have a rough idea, 25% depreciation or?
chris cashion
Something like that.
unidentified analyst
It is ok. Yes. Pretty good. I’m too interested in accuracy. Well, the equipment of the device you ordered and what are the delivery times?
troy meier
You know, we were very lucky. Our home organization is still buying, we have a very smart team that has been at the forefront of this. We often buy at a smart price. And for the future, we are constantly looking for opportunities to buy prints, not a full draw, but what remains of a draw. We take a look at the factories, the high-end factories in the world, whether in South Korea, Ohio, Brazil, Spain or Germany, we handle them all. So, our team did a fantastic job there.
So metal is not a problem. We had some scares. But that’s not the case, nothing tripped us up. The materials when you take a look at PDC milling cutters, this is the next big component and probably the most expensive, the diamond cutters that we put into the products, and we are very fortunate to have kept enough suppliers of this product online. But again, we’ve had a few more scares in 2020, no, 2021 than this year.
Probably the hardest thing for us when we’re waiting for a production time is. . . well, the most difficult component for us is in fact the Middle East. How can we bring things there, and we can put them on a plane at a very high cost speed. Marine boats are quite out of the consultation at the moment due to the backup. damage still.
unidentified analyst
So the chain, the blockade, is all living bodies with impulses.
troy meier
It simply requires a lot more effort on our part. When you’re placing an order, this supplier doesn’t have it for those reasons, so we have to start kicking the trees looking to locate what else we can get at the right time. And of course, you want to build your inventory, which we don’t like to do, but we do.
unidentified analyst
And going back to the production side, so the existing apparatus has been sold, it is already reserved. Are you generating products for the Middle East visitor lately that you will ship this quarter or sometime next quarter?Is there already more production?
troy meier
We have – there are teams here that we plan to sell at some other level of this deal which are – that we have to finish – just – put the knives in and bring them in there. It was – we were hunting this in step 3. But most of those teams were created and stayed there. As they get involved and start calling customers, I’m sure we’ll have a call for a new Drill-n-Ream team. But right now, as we were preparing for that, we put in combination an inventory, we set it up in other countries, and there was an approach to our madness and it’s very much for us now.
unidentified analyst
So for the remaining component of this contract, how do you see it developing?I mean, will you start production in the fourth quarter for add-on equipment or will it just expand further before you want to ramp up and get started generating new equipment?
troy meier
Well, think about the 3 tactics we have in this contract: we get our profit from this contract. We get a percentage of every time the equipment works, we get our percentage of that profit. When we fix those teams in the Middle East, we get paid for it. And in the most sensible, when we get to next year, and you’ll possibly see a little bit of new tool purchases this year, but we’re not betting on that. But when you start going into the first quarter, the quarter of next year’s time, and your visitor base grows, that’s when we see that there will be a need for new products.
unidentified analyst
So, do you have a small cushion before you have to face an onslaught of new profits from a new production?
troy meier
Corriger. Et that – and again, you heard me mention before, the B-750 additional machining center, that’s also what it’s for.
Operator
We have reached the end of our question and answer session. I would like to return to the convention to monitor the final comments.
troy meier
Hello again, thank you all for joining us. And we appreciate what we receive from you. We expect to return in November for the third quarter, and we have many opportunities ahead of us and will do our best to take advantage of them. So thank you again. We appreciate that. Thank you.
Operator
This concludes today’s conference. You can disconnect your at this time and thank you for your participation.