Summary of Drilling Tools International (DTI) Conference Call Company Overview - **Company Name**: Drilling Tools International (DTI) - **Ticker Symbol**: DTI - **CEO**: Wayne Prejean - **Industry**: Oil and Gas Equipment Rental Key Financial Highlights - **Q1 Revenue**: Approximately $42.9 million, representing a 16% quarter-to-quarter increase [6] - **Geographic Revenue Distribution**: 89% from the Western Hemisphere and 11% from the Eastern Hemisphere [6] - **2025 Financial Outlook**: Expected adjusted free cash flow between $14 million and $19 million [28] Business Model and Operations - **Primary Business**: Rental tools for drilling, completion, and production in the oil and gas sector [8] - **Customer Base**: Focus on oil and gas companies and service companies, with minimal rentals to drilling contractors [9] - **Product Offerings**: Includes downhole tools, drill pipe, BHA components, and completion tools [11][12] - **Manufacturing Locations**: Facilities in Brewster, Louisiana; Vernal, Utah; and NISQ Canada, with partnerships in Asia, Europe, and the Middle East [13] Technology and Innovation - **Asset Management System**: Introduction of the Compass system for order management and transparency [14] - **Acquisitions**: Four acquisitions in nine months, expanding product offerings from 2 to 16 patented products [15] Market Dynamics and Strategy - **Market Conditions**: Acknowledgment of market volatility due to tariffs and OPEC+ actions, leading to a cautious capital spending environment among oil companies [38][39] - **Growth Strategy**: Focus on mergers and acquisitions (M&A) to consolidate and grow in a fragmented industry [20][29] - **Geographic Expansion**: Plans to increase Eastern Hemisphere revenue contribution from 1% in 2023 to an expected 16% in 2025 [27] Financial Management and Capital Allocation - **Capital Allocation Priorities**: Balancing debt reduction, share buybacks, and M&A opportunities based on market conditions [46] - **Share Repurchase Program**: Authorized a $10 million share repurchase program to enhance shareholder value [16][17] Competitive Landscape - **Market Position**: DTI leads in several downhole tool categories, with a competitive landscape consisting of a few substantial players and many smaller suppliers [50][51] - **Differentiation**: Emphasis on technology deployment and customer-centric focus to maintain competitive advantage [14][29] Conclusion - **Resilience and Future Outlook**: Despite current market challenges, DTI remains committed to growth through strategic initiatives and maintaining a strong balance sheet [54]

Company Overview - Drilling Tools International Corp. (DTI) is a global oilfield services company specializing in the design, engineering, manufacturing, and rental of tools for onshore and offshore horizontal and directional drilling operations [1][4] - The company has a history dating back to 1984 and operates 15 service and support centers in North America, along with 11 international centers across the EMEA and APAC regions [4] Conference Participation - DTI will participate in the Sidoti & Company June 2025 Small-Cap Virtual Conference on June 11-12, 2025 [1] - The company will webcast its investor presentation on June 12th at 12:15 PM EDT, with free registration available [2] - Management will also conduct virtual one-on-one meetings with investors during the conference [2] Investor Relations - A copy of the investor presentation will be available on the Investor Relations section of DTI's website [3] - A replay of the webcast will be archived on the company's Events and Presentations page following the event [3]

Revenue Performance - Total revenue for the three months ended March 31, 2025, was $42.88 million, a 16% increase from $36.97 million in the same period of 2024[190] - Tool rental revenues accounted for 81% of total revenues, while product sales contributed 19%, consistent with the previous year[180] - Western Hemisphere revenue increased by $2.89 million, or 8%, to $41.2 million, driven by the addition of the Diamond Products Division[191] - Eastern Hemisphere revenue surged by $3.8 million, or 305%, to $5.1 million, primarily due to acquisitions in the rental business[192] - 29.0% of total revenue in Q1 2025 was generated from two customers, slightly down from 30.0% in Q1 2024[216] Operating Income and Expenses - Total operating income decreased by 36% to $3.3 million, impacted by rising corporate expenses and interest costs[190] - Interest expense rose significantly by 619% to $1.3 million, attributed to new loans and credit facility draws[194] - Adjusted EBITDA for the three months ended March 31, 2025, was $10.75 million, slightly down from $10.89 million in the prior year[199] Cash Flow and Liquidity - Cash and cash equivalents stood at $2.8 million as of March 31, 2025, with sufficient liquidity expected for the next 12 months[200] - Net cash provided by operating activities for Q1 2025 was $2.4 million, down from $3.3 million in Q1 2024, driven by a net loss of $1.7 million[206] - Net cash used in investing activities for Q1 2025 was $7.3 million, including $5.0 million for property, plant, and equipment purchases and $5.6 million for the acquisition of Titan[207] - Net cash provided by financing activities for Q1 2025 was $1.4 million, compared to a net cash outflow of $24.6 million in Q1 2024[209] Market Conditions - The average U.S. rig count in the Western Hemisphere decreased to 930 from 995 year-over-year, while the Eastern Hemisphere count increased to 757 from 725[187] - U.S. oil production reached a record high of 13.5 million barrels per day, but crude oil prices fell from $78.41 to $71.84 per barrel[186] Risks and Challenges - Cash and cash equivalents may exceed insurance limits, posing a concentration risk[215] - The company has not entered into hedging arrangements to mitigate foreign currency exchange rate fluctuations, which may impact future cash flows[217] - Rising international tariffs could adversely affect the company's business and results of operations[219] - The company has established a cybersecurity incident response plan, but there is no assurance that it will fully mitigate cybersecurity risks[222]

Financial Data and Key Metrics Changes - The company reported a 16% year-over-year revenue growth and an 8% increase compared to the fourth quarter of 2024 [6][12] - Adjusted EBITDA grew nearly 18% year-over-year and remained flat sequentially [7] - Total consolidated revenue for the first quarter was $42.9 million, with tool rental revenue of approximately $34.5 million and product sales revenue of $8.3 million [12] - Adjusted free cash flow for the first quarter was $5.7 million, with net debt of $52.1 million [12][13] - The company recorded a noncash goodwill impairment of approximately $1.9 million, which does not affect day-to-day operations or liquidity [13] Business Line Data and Key Metrics Changes - The Western Hemisphere segment, which includes directional tool rentals and wellbore optimization tools, remained steady [14] - The Eastern Hemisphere segment, which includes deep casing tools and European drilling projects, showed some volatility, but tool rental revenue increased significantly compared to Q1 of 2024 [15] - The decline in product sales was primarily attributed to deep casing tools, which are expected to see increased demand in 2025 as customer-owned inventory depletes [15] Market Data and Key Metrics Changes - Despite a 6% global rig count decline, the company managed to increase revenue, validating its M&A strategy to strengthen its business model [12] - The Eastern Hemisphere accounted for 11% of total revenue in Q1, with expectations for growth as the year progresses [16] Company Strategy and Development Direction - The company is executing a two-phase strategy to manage potential disruptions in order flow due to market volatility [7] - A share buyback authorization of up to $10 million has been approved, reflecting confidence in the stock's value [11] - The company is focused on cost reduction measures, anticipating $6 million in annual savings [18] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about increased volatility and uncertainty in the marketplace due to tariffs and potential recession impacts [7] - The company has adjusted its 2025 revenue guidance to a range of $145 million to $165 million, with adjusted EBITDA expected between $32 million and $42 million [19] - Management remains optimistic about the demand for complex wellbore solutions and believes that their differentiated technology will provide value to clients [22] Other Important Information - The company is maintaining its planned capital expenditures to support growth in its RotoShear product line and international expansion [16] - Maintenance capital expenditures were approximately 10% of total revenue, reflecting a trend of lower investment due to declining rig counts [17] Q&A Session Summary Question: How is the company maintaining free cash flow in a challenging environment? - Management highlighted cost reductions and strategic CapEx management to preserve EBITDA margins [26][29] Question: What is the outlook for the Eastern Hemisphere, particularly in Saudi Arabia? - Management noted flat conditions in the Middle East but mentioned that they are gaining traction in other areas despite rig count softness [30][32] Question: How does the company view the North American market for the back half of the year? - Management anticipates some softness in the U.S. market but noted that Canadian operations may be more resilient [40][42] Question: Can you elaborate on the CapEx program and growth focus? - The focus will be on new technology and tools with growth potential, while sustaining the existing rental fleet [53]

Financial Data and Key Metrics Changes - The company reported a 16% year-over-year revenue growth, reaching $42.9 million, and an 8% increase compared to the fourth quarter of 2024 [5][12] - Adjusted EBITDA grew nearly 18% year-over-year, remaining flat sequentially at $10.8 million [6][12] - Adjusted free cash flow for the first quarter was $5.7 million, with net debt reported at $52.1 million [12][13] Business Line Data and Key Metrics Changes - Tool rental revenue was approximately $34.5 million, while product sales revenue was $8.3 million [12] - The Western Hemisphere segment remains steady, while the Eastern Hemisphere, which includes deep casing tools and European drilling projects, showed some volatility [14][15] - The Eastern Hemisphere accounted for 11% of total revenue in Q1, with expectations for growth as the year progresses [16] Market Data and Key Metrics Changes - Despite a 6% global rig count decline, the company managed to increase revenue, indicating resilience in its business model [12][19] - The company anticipates a further decline in North American land rig counts, adjusting its revenue and EBITDA guidance accordingly [18][19] Company Strategy and Development Direction - The company is executing a two-phase strategy to mitigate potential disruptions, including negotiating with suppliers and implementing a cost reduction program expected to save $6 million annually [6][11] - A share buyback authorization of up to $10 million has been approved, reflecting confidence in the company's stock valuation [11][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased volatility and uncertainty in the marketplace due to tariffs, potential recession, and OPEC+ production decisions [6][19] - The company has adjusted its 2025 revenue guidance to a range of $145 million to $165 million, with adjusted EBITDA expected between $32 million and $42 million [19] Other Important Information - A noncash goodwill impairment of approximately $1.9 million was recorded, which does not affect day-to-day operations or liquidity [13] - The company is focused on maintaining operational agility and identifying future cost reduction opportunities to enhance shareholder value [11][20] Q&A Session Summary Question: Insights on maintaining free cash flow amidst challenges - Management emphasized cost reductions and aligning CapEx with projected activity to preserve EBITDA margins [24][26] Question: Growth expectations in the Eastern Hemisphere - Management noted flat conditions in the Middle East but highlighted emerging technologies gaining traction, which could offset declines [27][28] Question: North American market outlook - Management indicated a slow downturn in the U.S. market, with regional variances based on oil prices and economic conditions [45][46] Question: Capital allocation and guidance - Management acknowledged the wide range in interest expense guidance due to potential debt reduction and share buyback considerations [39][40]

Financial Performance & Growth - DTI's Q1 2025 revenue reached $42.9 million, reflecting broad scope and scale[13] - Q1 2025 revenue increased by 16% quarter-over-quarter, despite a 6% global rig count decline[13] - The company anticipates Adjusted Free Cash Flow between $14 million and $19 million for FY 2025[95] - DTI expects to double revenue contribution from the Eastern Hemisphere in FY 2025[96] Geographic Footprint - Western Hemisphere accounted for 89% of Q1 2025 revenue, while the Eastern Hemisphere contributed 11%[13] - Tool rental in the Eastern Hemisphere saw a significant increase of 968% quarter-over-quarter[86] - Over 60% of all drilling rigs in North America utilize DTI tools and equipment[85] Strategic Initiatives - DTI expanded its ABL Credit Facility from $60 million to $80 million and added a $25 million term loan maturing in March 2029[42] - The company has grown its portfolio from 2 to 16 patented products, supported by approximately 150 active patents[42] - DTI authorized a $10 million share repurchase program[45] M&A and Synergies - DTI is on track to achieve 100% of the $4.5 million in previously announced SDPI synergies by August 2025[59] - The company identified additional synergies in excess of the targeted amount from acquisitions[59]

Group 1 - Drilling Tools International Corp. (DTI) reported quarterly earnings of $0.02 per share, missing the Zacks Consensus Estimate of $0.04 per share, and down from $0.13 per share a year ago, representing an earnings surprise of -50% [1] - The company posted revenues of $42.88 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 6.76%, compared to year-ago revenues of $36.97 million [2] - DTI shares have lost about 19.9% since the beginning of the year, while the S&P 500 has declined by -0.6% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.04 on revenues of $41.22 million, and for the current fiscal year, it is $0.20 on revenues of $166.22 million [7] - The Zacks Industry Rank for Oil and Gas - Field Services is currently in the bottom 27% of over 250 Zacks industries, indicating potential underperformance compared to the top 50% of ranked industries [8]

Executive Summary [First Quarter 2025 Financial Highlights](index=1&type=section&id=First%20Quarter%202025%20Financial%20Highlights) Drilling Tools International Corp. (DTI) reported total consolidated revenue of $42.9 million for the first quarter of 2025, marking a 16% increase year-over-year. Despite this growth, the company recorded a net loss of $1.7 million, or ($0.05) per diluted share. On an adjusted basis, net income was $0.7 million, or $0.02 per diluted share, with Adjusted EBITDA holding steady at $10.8 million Q1 2025 Financial Performance | Metric | Value (in millions, except per share data) | | :--- | :--- | | Total Consolidated Revenue | $42.9 | | Tool Rental Revenue | $34.5 | | Product Sales Revenue | $8.3 | | Operating Income | $3.3 | | Net Loss | $(1.7) | | Adjusted Net Income | $0.7 | | Diluted EPS | $(0.05) | | Adjusted Diluted EPS | $0.02 | | Adjusted EBITDA | $10.8 | | Adjusted Free Cash Flow | $5.7 | - Revenue demonstrated strong growth, increasing **7.6%** sequentially and **16%** compared to the first quarter of the previous year. Adjusted EBITDA was nearly flat sequentially but grew almost **18%** year-over-year[3](index=3&type=chunk) [Management Commentary and Outlook](index=1&type=section&id=Management%20Commentary%20and%20Outlook) Management acknowledged increased market volatility due to potential tariffs, recession fears, and OPEC+ decisions. In response, the company has initiated a $6 million expense reduction program for the year. Citing this uncertainty, DTI has adjusted its full-year 2025 guidance, now forecasting revenue between $145 million and $165 million and Adjusted EBITDA between $32 million and $42 million - The company is facing market uncertainty from potential tariffs, recession fears, and OPEC+ production decisions[4](index=4&type=chunk) - To mitigate risks, DTI has implemented a **$6 million** cost-cutting program and believes its strong US manufacturing base and diverse supply chain provide insulation from tariff impacts[4](index=4&type=chunk)[5](index=5&type=chunk) Updated 2025 Full Year Outlook | Metric | Low Range | High Range | | :--- | :--- | :--- | | Revenue | $145 million | $165 million | | Adjusted EBITDA | $32 million | $42 million | | Adjusted EBITDA Margin | 22% | 25% | | Adjusted Free Cash Flow | $14 million | $19 million | [Share Repurchase Program](index=2&type=section&id=Board%20Authorizes%20a%20%2410%20Million%20Repurchase%20Program) The Board of Directors has authorized a share repurchase program of up to $10 million of the company's outstanding common stock. Management stated this decision reflects confidence in DTI's long-term strategy and financial health, viewing the company's stock as an undervalued investment opportunity. The program is intended to enhance shareholder value by optimizing the capital structure - The Board of Directors authorized a program to repurchase up to **$10 million** of the company's common stock[8](index=8&type=chunk) - The repurchase program is part of a disciplined capital allocation strategy and is intended to enhance shareholder value, reflecting the belief that the stock is currently undervalued[8](index=8&type=chunk) - Repurchases may occur through open-market transactions, privately negotiated purchases, or other methods in accordance with securities laws[9](index=9&type=chunk) Financial Statements [Consolidated Statement of Operations](index=4&type=section&id=Consolidated%20Statement%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29%20%28Unaudited%29) For the first quarter of 2025, total revenue grew 16.0% year-over-year to $42.9 million. However, operating income fell to $3.3 million from $5.1 million in the prior year, largely due to increased operating expenses and a $1.9 million goodwill impairment charge. This resulted in a net loss of $1.7 million, a significant downturn from the $3.1 million net income reported in Q1 2024 Q1 Statement of Operations Highlights (in thousands) | Metric | Q1 2025 | Q1 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenue, net | $42,880 | $36,974 | +16.0% | | Operating Income | $3,303 | $5,130 | -35.6% | | Net Income (Loss) | $(1,669) | $3,126 | N/A | | Diluted EPS | $(0.05) | $0.11 | N/A | - The company recorded a goodwill impairment charge of **$1.9 million** in Q1 2025, which was not present in the prior-year period and significantly impacted profitability[15](index=15&type=chunk) - Selling, general, and administrative (SG&A) expenses increased by **20.4%** YoY to **$21.6 million**[15](index=15&type=chunk) [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%29) As of March 31, 2025, DTI's total assets were $233.2 million, an increase from $222.4 million at the end of 2024. Total liabilities rose to $110.5 million from $102.5 million over the same period, driven by increases in accounts payable and the revolving line of credit. Cash and cash equivalents decreased from $6.2 million to $2.8 million during the quarter Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash | $2,789 | $6,185 | | Total Current Assets | $67,374 | $68,076 | | Total Assets | $233,169 | $222,431 | | Total Current Liabilities | $34,801 | $30,963 | | Total Liabilities | $110,473 | $102,472 | | Total Shareholders' Equity | $122,696 | $119,959 | - The revolving line of credit increased to **$30.0 million** from **$27.1 million** at the end of the previous year[17](index=17&type=chunk) [Consolidated Statement of Cash Flows](index=6&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows%20%28Unaudited%29) In Q1 2025, the company generated $2.4 million in cash from operating activities, a decrease from $3.3 million in Q1 2024. Cash used in investing activities was $7.3 million, mainly for a business acquisition ($5.6 million) and equipment purchases ($5.0 million). Cash from financing activities was a net inflow of $1.4 million. Overall, cash decreased by $3.4 million during the quarter Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $2,431 | $3,311 | | Net cash from investing activities | $(7,280) | $(19,585) | | Net cash from financing activities | $1,392 | $24,611 | | **Net Change in Cash** | **$(3,396)** | **$8,046** | - Investing activities were significant, with **$5.6 million** used for a business acquisition and **$5.0 million** for the purchase of property, plant, and equipment[19](index=19&type=chunk) Non-GAAP Financial Measures and Reconciliations [Definition of Non-GAAP Measures](index=7&type=section&id=Definition%20of%20Non-GAAP%20Measures) The company utilizes non-GAAP financial measures such as Adjusted EBITDA, Adjusted Free Cash Flow, Net Debt, and Adjusted Net Income to supplement its GAAP results. These metrics are intended to provide a clearer view of ongoing operational performance by excluding items that management believes are not reflective of the core business, such as impairment charges, transaction costs, and stock-based compensation - Adjusted EBITDA is defined as net earnings adjusted for interest, taxes, depreciation, amortization, goodwill impairment, stock-based compensation, and other non-recurring items[21](index=21&type=chunk) - Adjusted Free Cash Flow is calculated as Adjusted EBITDA less Gross Capital Expenditures[23](index=23&type=chunk) - Adjusted Net Income and Adjusted Diluted EPS exclude non-recurring items like goodwill impairment and transaction costs to better evaluate operating performance[25](index=25&type=chunk)[26](index=26&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=8&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) For Q1 2025, DTI reconciled its GAAP net loss of $1.7 million to a non-GAAP Adjusted EBITDA of $10.8 million. Key adjustments included adding back $6.7 million for depreciation and amortization and a $1.9 million goodwill impairment. The GAAP net loss was also reconciled to an Adjusted Net Income of $0.7 million, or $0.02 per adjusted diluted share. Adjusted Free Cash Flow for the quarter was $5.7 million Reconciliation of Net Loss to Adjusted EBITDA (Q1 2025, in thousands) | Line Item | Amount | | :--- | :--- | | **Net loss** | **$(1,669)** | | Depreciation and amortization | $6,722 | | Interest expense, net | $1,309 | | Goodwill impairment | $1,901 | | Other adjustments | $2,491 | | **Adjusted EBITDA** | **$10,754** | Reconciliation of Net Loss to Adjusted Net Income (Q1 2025, in thousands) | Line Item | Amount | | :--- | :--- | | **Net loss** | **$(1,669)** | | Transaction expense | $732 | | Goodwill impairment | $1,901 | | Income tax expense (benefit) | $(159) | | **Adjusted Income Before Tax** | **$805** | | Adjusted Income tax expense | $(70) | | **Adjusted Net Income** | **$735** | - Adjusted Free Cash Flow for Q1 2025 was **$5.7 million**, compared to **$4.7 million** in Q1 2024[31](index=31&type=chunk)

Core Insights - Drilling Tools International Corp. (DTI) reported a total consolidated revenue of $42.9 million for Q1 2025, with a 7.6% sequential growth and a 16% year-over-year increase [2][3] - The company has authorized a $10 million share repurchase program to enhance shareholder value, reflecting confidence in its long-term strategy and financial health [8][9] Financial Performance - Tool Rental revenue was approximately $34.5 million, while Product Sales revenue totaled $8.3 million [2] - Total Operating Expenses were $39.6 million, resulting in an Operating Income of $3.3 million and a Net Loss of approximately $1.7 million for the quarter [2][15] - Adjusted EBITDA for the quarter was $10.8 million, with an Adjusted Free Cash Flow of $5.7 million [2][29] Guidance and Market Outlook - The company has adjusted its annual guidance for 2025, projecting Revenue between $145 million and $165 million, Adjusted EBITDA between $32 million and $42 million, and Adjusted Free Cash Flow between $14 million and $19 million [6][31] - DTI anticipates potential market volatility due to factors such as tariffs, recession fears, and OPEC+'s production decisions, prompting a $6 million expense reduction program [4][6] Strategic Initiatives - The share repurchase program is part of DTI's disciplined capital allocation strategy, which also includes investments in maintenance, organic growth, and strategic acquisitions [8][9] - The company aims to optimize its capital structure and demonstrate a commitment to returning excess capital to shareholders through this program [9][10]

Company Overview - Drilling Tools International Corp. (DTI) is a global oilfield services company specializing in the design, engineering, manufacturing, and rental of tools for horizontal and directional drilling operations [1][3] - The company has been operational since 1984 and has 16 service and support centers in North America, along with 11 international centers in the EMEA and APAC regions [3] Upcoming Financial Results - DTI plans to report its first quarter financial results for 2025 on May 14, 2025, prior to a live conference call [1] - The conference call will be accessible via phone and webcast, starting at 10:00 a.m. Eastern Time [2] Conference Call Details - Participants can join the call by dialing 1-201-389-0869 or through the webcast link provided [2] - A replay of the call will be available until May 21, 2025, and an archive of the webcast will be accessible for 90 days after the event [2]