Drilling Tools International (US:DTI)2025-08-14 15:00Financial Data and Key Metrics Changes - Total revenue for the second quarter grew nearly 5% year-over-year, reaching $39.4 million, while adjusted EBITDA increased by 4% to $9.3 million [6][14] - Adjusted free cash flow was positive for the first time since the company went public, amounting to $1.8 million [7][17] - The company reported a net debt of $55.8 million and cash and cash equivalents of approximately $1.1 million at the end of the second quarter [14] Business Line Data and Key Metrics Changes - Tool rental revenue was approximately $32.8 million, while product sales revenue was $6.7 million, reflecting a drop in deep casing sales due to market conditions [14][15] - The Eastern Hemisphere operations saw a revenue increase of 21%, contributing about 14% of total revenue in the first half of the year [9][16] - The deep casing product line experienced significant softness due to rig declines in the Middle East and Mexico [7][15] Market Data and Key Metrics Changes - The global rig count declined by 7% year-over-year, impacting overall market activity levels [13] - Despite the decline in rig counts, the company managed to maintain operational discipline and benefited from recent acquisitions [13][19] Company Strategy and Development Direction - The company is focused on integrating recent acquisitions and enhancing operational efficiency through a program called "One DTI" [22][23] - A cost reduction program was implemented to cut expenses by $6 million annually, aligning spending with customer activity levels [11][19] - The company is actively pursuing strategic acquisitions to enhance its competitive position and expand its geographic footprint [27][55] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the future, noting that while pricing pressures are expected, the company is well-positioned to adapt to market changes [25][26] - The company anticipates continued uncertainty in the market, but remains confident in its ability to deliver shareholder value [25][27] - Management highlighted the importance of maintaining strong communication with clients to navigate pricing pressures effectively [44] Other Important Information - The company repurchased $600,000 of its common stock during the second quarter at an average price of $3 per share [20] - Maintenance capital expenditures for the second quarter were approximately 10% of total revenue, primarily funded by tool recovery revenue [18] Q&A Session Summary Question: How did the company maintain margins despite rig count declines? - Management indicated that they anticipated activity declines and pricing pressures, which were somewhat muted in the first half of the year, allowing margins to hold up [30][31] Question: Will the cost cuts fully impact Q2, or will benefits be seen in Q3 and Q4? - Management stated that more benefits from cost cuts are expected in Q3 and Q4, as the cuts were just being implemented in Q2 [33] Question: What factors will determine the company's position within the guidance range for the year? - The activity level and pricing pressure will significantly impact whether the company reaches the low or high end of its guidance range [36] Question: What drove the sequential international revenue growth this quarter? - Management attributed growth to positive momentum from recent acquisitions and successful re-establishment in the Eastern Hemisphere market [37][39] Question: What is the company's exposure to Western Canada and gas markets in the US? - The company has a solid presence in the Haynesville and Northeast markets, with a strong business in Canada [48][49] Question: Have margins eroded in Q3, and what is the outlook for Q4? - Management acknowledged that while Q1 and Q2 were on plan, they expect pricing pressure to continue impacting margins in Q3 and Q4 [52] Question: What is the current M&A environment like? - Management noted ongoing discussions with potential acquisition targets and emphasized the importance of finding good value in the current cycle [54][55]