Summary of Drilling Tools International (DTI) Conference Call Company Overview - **Company Name**: Drilling Tools International (DTI) - **Industry**: Oil and Gas - **Core Business**: Provider of rental and service solutions for the oil and gas industry, specializing in downhole tools such as drill strings, motors, and stabilizers [2][3] Key Points and Arguments Business Model - DTI operates under a business model focused on the "three R's": rental, repair, and recovery, which allows for a unique position in the rental landscape [4][5] - The company has a significant market share of 50-60% in both onshore and offshore rigs in the U.S. and Canada [4][6] Financial Performance - Despite a declining rig environment, DTI reported solid EBITDA margins and adjusted free cash flow for 2025 [5][6] - The company has completed four M&A transactions in the last 12-18 months, contributing to its financial resilience [6][14] Customer Base and Rental Strategy - DTI's rental strategy is supported by a diverse customer base, including global clients, which allows for geographic expansion [10][26] - The company maintains a large inventory of over 65,000 tools, making it inefficient for E&P operators to own all tools [8][10] Manufacturing and Repair Capabilities - DTI has in-house manufacturing and repair facilities, which enhance its operational efficiency and reduce reliance on external suppliers [11][12] - The company utilizes a proprietary software system, Compass, for rental tool management, providing traceability and data-driven decision-making [12][13] Capital Allocation and M&A Strategy - DTI is focused on thoughtful capital allocation, with options including CapEx, M&A, debt repayment, share repurchase, or dividends [16][17] - The company views M&A as integral to its growth strategy, targeting technology with intellectual property, geographic expansion, and accretive earnings [24][25][30] Recent Acquisitions - DTI has made several strategic acquisitions, including: - **Deep Casing Tools**: Expanded patent portfolio and exposure to Middle East and Asia Pacific [30] - **Superior Drilling Products**: Enhanced market share and IP for the Drill N Ream tool [32] - **European Drilling Projects**: Acquired a unique stabilizer tool, leading to significant business growth [34] - **Titan Tools**: Strengthened presence in the UK North Sea and onshore Europe [36] Market Trends and Future Outlook - DTI is experiencing a strong buyers' market for M&A opportunities, with a large pipeline of potential acquisitions [28][29] - The company is optimistic about its growth trajectory in the Eastern Hemisphere, which has grown to 14% of revenue [39] Additional Important Information - DTI's adjusted free cash flow margins are expected to remain strong despite industry headwinds, supported by customer-funded maintenance CapEx [18][20] - The company has a high insider ownership structure, which aligns management interests with those of shareholders [22] This summary encapsulates the key insights from the DTI conference call, highlighting the company's strategic focus, financial performance, and growth opportunities within the oil and gas industry.

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]