Drilling Tools International Corp Q3 FY2024 earnings call

• Despite headwinds like rig count softness in various regions, the company saw sequential growth in revenue, adjusted net income, adjusted diluted EPS, adjusted EBITDA, and adjusted free cash flow from the second quarter. - Acquired three companies in 2024, including European Drilling Projects (EDP) and Titan Tool Services Limited, with EDP bringing cutting-edge drilling tool solutions and Titan enhancing international presence. - Implemented the One DTI strategy to maximize synergies, adopt a common accounting system, and migrate Eastern Hemisphere operations to the Compass Asset Management platform. - Exhibited at the ADIPEC convention in Abu Dhabi, showing optimism for international growth. - Continues to evaluate and adjust its cost reduction program to align with market conditions.

Total revenue for the third quarter was $40.1 million. Tool rental revenue was $28.1 million (constituting 70.1% of total revenue), and product sales revenue totaled $12 million (29.9% of total revenue). Adjusted EBITDA in the quarter was $11.1 million, and adjusted free cash flow was $7.8 million. Starting from the fourth quarter, the company will transition to reporting two segments: Eastern Hemisphere and Western Hemisphere, with the Eastern Hemisphere revenue mix expected to grow from approximately 1% of total revenue in 2023 to 10% or more in 2024.

• Revised 2024 revenue range: $145 million to $155 million. - Adjusted EBITDA expected to be within $38 million to $43 million. - Gross capital expenditures projected between $20 million and $22 million. - Adjusted net income for the full year expected to be between $7.7 million and $9.8 million. - Adjusted free cash flow for 2024 expected to range between $18 million to $21 million. - Eastern Hemisphere revenue mix is forecasted to grow from 1% in 2023 to 10% or more in 2024.

• Rig count softness in U.S. land, U.S. Gulf of Mexico, and Middle Eastern markets. - Various risks and uncertainties outlined in the company's annual report, quarterly reports, and current reports that could cause actual results to differ from forward-looking statements.

Q: Jeff Grampp from Alliance Global Partners inquired about tool rental revenue, gross margins, and Superior Drilling integration.

A: David Johnson responded that margin improvement was due to vertical integration of Superior Drilling Products benefiting the Drill-N-Ream product rental, and Wayne Prejean mentioned integration progress in the Western and Eastern Hemispheres with traction starting to build.

Q: Steve Ferazani with Sidoti & Company asked about how Titan Tools fits the M&A strategy.

A: Wayne Prejean explained that Titan is a tuck-in with the directional tool rentals platform, brings additional product lines, and has a good geographic presence in Europe and related areas.

Q: Blake McLean with Daniel Energy Partners asked about differences in M&A market between North America and internationally.

A: Wayne Prejean stated that opportunities exist in both, with Eastern Hemisphere deals having more complexity due to multiple countries, while North America has more seamless business operations but focuses on range down valuations and economies of scale.