Drilling Tools International (US:DTI)2024-03-28 19:16Financial Data and Key Metrics Changes - DTI generated total consolidated revenue of $152 million in 2023, an increase of 17.4% compared to 2022 [26] - 2023 tool rental net revenue was $119.2 million, an increase of 20.4% compared to the prior year [26] - 2023 net income was $14.7 million compared to $21.1 million in the prior year, impacted by increased operating expenses and one-time transaction-related expenses [28] - 2023 adjusted EBITDA was $51 million, which was 24% higher compared to the prior year [29] - 2023 adjusted free cash flow was $7.3 million compared to $16.5 million in 2022, primarily due to increased capital expenditures [29] Business Line Data and Key Metrics Changes - Tool rental revenue increased significantly, while product sales net revenue totaled $32.8 million, an increase of 7.4% compared to 2022 [26] - Operating expenses rose to $124.1 million in 2023 from $104.3 million in 2022, driven by personnel-related expenses and public company costs [27] Market Data and Key Metrics Changes - The U.S. rig activity declined approximately 20% from January 1st to December 31st, 2023, yet DTI's revenue increased over 17% [18] - The North American rig count is expected to remain flat throughout 2024, with long-term demand trends for oil and gas projected to grow [11] Company Strategy and Development Direction - DTI's business model focuses on rental, repair, and recovery revenues, with a strong emphasis on maintaining a relevant fleet of equipment [8] - The company is actively pursuing acquisitions to expand its capabilities, including the recent acquisition of Deep Casing Tools and a pending acquisition of Superior Drilling Products [13][21] - DTI aims to double or triple its size through thoughtful acquisitions in the oil field services sector [21] Management's Comments on Operating Environment and Future Outlook - Management believes the North American rig count has bottomed and expects robust demand trends for oil and gas in the coming years [11] - The company is positioned to capitalize on future market opportunities and anticipates more than doubling its adjusted free cash flow in 2024 [33] - DTI's strong balance sheet and credit facilities provide financial flexibility to support growth strategies [23][24] Other Important Information - DTI ended 2023 with no debt and an undrawn $60 million ABL credit facility, which was later amended to $80 million [23] - The company has a proven track record of being EBITDA positive for the last ten years, including during downturns [10] Q&A Session Summary Question: Current appetite for further M&A after recent acquisitions - Management indicated they are still exploring other deals while integrating recent acquisitions, emphasizing a thoughtful approach to M&A [42][44] Question: Organic growth CapEx and customer commitments - Management explained that growth CapEx is tied to new products and customer requests, with flexibility to adjust based on market dynamics [45][46] Question: Maintaining flat revenue in a challenging pricing environment - Management attributed flat revenue to a strong competitive position and alignment with customers, despite pricing pressures [48][49] Question: Future gas rig count recovery and budgeting - Management expressed optimism about a future recovery in gas rig counts and emphasized the importance of timing investments [54] Question: M&A strategy and market distinctions - Management discussed the need for alignment between buyer and seller expectations and the importance of strategic acquisitions that enhance cash flow and market position [55][56]