Drilling Tools International Corp. Q2 FY2025 earnings call

• Strong execution across most business segments despite industry headwinds.
• Benefited from strategic initiatives like integration of recent acquisitions in the Eastern Hemisphere, European drilling projects, and Titan Tools.
• Cost reduction program instituted in Q1 contributed to performance.
• Achieved positive adjusted free cash flow in Q2 for the first time since going public.
• Eastern Hemisphere operations grew 21% sequentially and Drill-N-Ream Eastern Hemisphere Group achieved first positive adjusted EBITDA month.
• Implemented 'One DTI' consolidation effort, including relocating U.S. Drill-N-Ream repair facility to Houston and integrating Eastern Hemisphere operations into centralized accounting platform.

Total revenue grew nearly 5% year-over-year in the second quarter, and adjusted EBITDA grew 4%. The Eastern Hemisphere operations grew revenue by 21% sequentially and contributed approximately 14% of total revenue in the first half of 2025. The Western Hemisphere had softness in the deep casing product line but saw outperformance in DTR and pipe rentals. Second quarter total consolidated revenue was $39.4 million, with tool rental revenue of approximately $32.8 million and product sales of $6.7 million.

• Maintained full year 2025 revenue outlook at $145 million to $165 million.
• Expected adjusted EBITDA to be within $32 million to $42 million.
• Gross capital expenditures expected between $18 million and $23 million.
• Expected 2025 adjusted free cash flow to range between $14 million to $19 million.
• Anticipated margin compression from pricing pressure in Q3 and Q4, with activity declines continuing but at a slower pace.

• Industry headwinds and global rig count declines.
• Commodity price volatility impacting rig count and pricing.
• Pricing pressure and product mix issues affecting margins.
• Potential impact of trade policy shifts on business.

Q: Steve Ferazani asked about how margins held up in Q2 despite rig count decline and growth in international.

A: David R. Johnson said pricing pressures were muted in Q2 but expected in Q3-Q4, and they felt most activity declines earlier.

Q: Steve Ferazani asked if cost cuts were fully felt in Q2.

A: David R. Johnson said more benefit would be seen in Q3-Q4 as cost cuts were just starting in Q2.

Q: Steve Ferazani asked about what drives the low end vs high end of guidance.

A: David R. Johnson said activity factors and pricing pressure are key.

Q: Steve Ferazani asked about sequential international revenue growth.

A: Wayne Prejean said positive momentum from acquisitions and post-acquisition setup in Middle East.

Q: John Matthew Daniel asked about pricing pressures being from customer RFPs or competitors.

A: Wayne Prejean said it's mainly from client signaling due to oil price declines and negotiation.

Q: John Matthew Daniel asked about exposure to Western Canada and gassy markets.

A: Wayne Prejean said they have solid presence in Haynesville, Northeast, and Canada.

Q: Poe Fratt asked about margins in Q3.

A: David R. Johnson said they expect margin compression in Q3-Q4 due to pricing pressure.

Q: Poe Fratt asked about M&A environment.

A: Wayne Prejean said they are actively pursuing potential bolt-on and synergistic candidates.