Drilling Tools International Corp Q4 FY2024 earnings call

• Achieved strong finish in tough industry environment despite rig count softness in various markets. - Acquired three companies in 2024 (Deep Casing Tools, Superior Drilling Products, European Drilling Projects) and closed fourth acquisition (Titan Tool Services) in Q1 2025. - Integration approach involves adopting best practices and migrating Eastern Hemisphere operations to Compass asset management platform. - Achieved 6.5% improvement in safety in 2024. - Focus on international expansion and technology ownership through acquisitions.

For 2024, tool rental revenues were $117.9 million, contributing approximately 76.4% to the consolidated revenue of $154.4 million. Product sales were $36.5 million, making up about 23.6% of the total consolidated revenue.

• Expect 2025 revenue to be in the range of $163 to $183 million. - Anticipate adjusted EBITDA to be within $40 to $50 million. - Gross capital expenditures expected between $23 and $29 million. - Project adjusted free cash flow to range between $17 to $21 million. - Effective January 1, 2025, will report results in two segments: Eastern Hemisphere and Western Hemisphere, with Q1 2025 10-Qs reflecting new reporting segments.

• Industry-wide headwinds including rig count softness in US land, US Gulf, and Middle Eastern markets. - Pricing pressure, lower tool recovery revenue, and product mix changes impacting gross profit margins. - Uncertainties related to M&A integration and market recovery. - Potential impact of tariffs on international operations.

Q: Morning, guys. Thanks for the time. Can you talk about current trends or themes in the M&A market broadly and your optimism about opportunities?

A: Sure. We still have a steady pipeline of opportunities. We continue to look at deals strategically to fit into our organization. There are still quite a few opportunities on the horizon and hopefully acting on those this year.

Q: For my follow-up, somewhat related on the balance sheet side. How important is delevering this year when we look at that adjusted free cash flow guide?

A: The net debt number was related to the cash portion of acquisitions. We're well positioned on the balance sheet. We'll use free cash flow to pay off debt or do further M&A based on opportunities. We're mindful of the balance sheet and will make strategic decisions depending on M&A opportunities.

Q: For taking the questions this morning. I know it's was a very, very active 2024. I'm sure it's gonna be an active 2025 as well. I did wanna ask about the mix in 4Q on the tool rentals, I was surprised at the sequential growth given that US land, as you noted, was was sequentially drilling was flat to maybe even down a little bit. So I'm curious if that was just international growth or if you gained any share on the rentals. And then product sales, the sequential decline, how much of that is typical seasonality or is there something else in play?

A: The reduction in product sales was affected by Saudi activity decline and softness in PEMEX. Tool rental activity had gains due to new technologies with higher pricing neutralizing other activity fluctuations. On CapEx, it's related to growth in Eastern Hemisphere following acquisitions and supporting rotor steer technology. Synergies from acquisitions are taking place with cost savings, and integration is gaining traction with some successes in different regions.

Q: Maybe I hate to stay on the M&A theme, but just as you think about M&A opportunities, over the course of the next year or two, you you guys are gonna be reporting Eastern Hemisphere, Western Hemisphere. Can you give us some color around you think more M&A opportunities in the Eastern Hemisphere or Western or is it too early to tell?

A: We have targets in both places. We're working actively on opportunities. There are significant opportunities in the industry, including accretive bolt on tuck ins for both North America and other regions. We'll evaluate opportunities as they present themselves. Regarding tariffs, we have a diversified supplier and manufacturing base, and our operations fall under USMCA, allowing us to divert raw materials and move tools as needed.