Drilling Tools International (DTI) 7 Aug 242024 Q2 Earnings call transcript

Greetings, and welcome to the Drilling Tools International Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ken Dennard. yours. is floor the Sir,

to Thank you, joining commonly We you welcome morning, to and And for Drilling good you We us DTI. more industry everyone. conference Tools call in webcast. appreciate as operator. DTI's International, referred or

today Chief Executive are Financial Johnson, Officer; Corporate of Prejean, Parker, Jameson and VP Wayne Development. me David Chief With Officer;

outlook, review Following before questions. results of the benefits commentary of my the quarter call the remarks, management turn second acquisition, we will of a to provide and your XXXX a updated high level for the SDPI you

will call. the available There any be and recorded will a at August website available today's replay there'll on that It XX. webcast feature a note telephonic of replay by only no longer replay drillingtools.com, be accurate of be company's this today you're listening until reading. information of or therefore, And time speaks August be may the XXXX. reported time information transcript any advised on as of the sensitive X, call Please

will current Also, the of laws. reflect comments statements on this management. These forward-looking federal contain forward-looking United States the within of securities DTI's meaning views the statements call

understand XX-Q, However, from current made risks read expressed differ performance to or the of and and Form materially report on risks, is certain annual to actual DTI's those reports contingencies listener uncertainties Form achievements reports cause quarterly various could statements or The on by results, to uncertainties management. in and reader those and encouraged X-K XX-K, contingencies. Form on

These for purposes, not in directly EBITDA including measures. the not also isolation today comparable should limited may measures, results be be these the discussion or to non-GAAP comments of adjusted informational can measures to flow. adjusted cash SEC. using from comparable include and but in they certain which is A considered most certain financial non-GAAP GAAP filings and free believe The to why the page the with limitations our and on GAAP release, reconciliations the of measures directly found earnings the are measures most investors, we non-GAAP useful

behind to to me, that DTI's And over I'd now Chief the call turn Prejean, like with Executive Officer. Wayne? Wayne

After that, will and during of results, and through with acquisitions. review our VP call go revised acquisition David dealing hand the on everyone. outlook. my on begin second I hand Parker, synergies, Products comments of will Ken, softness good discuss Jameson Also off the Q&A quick observations Superior with our Thanks, how we Drilling in recent Development, financials our quarter morning, America. and a market and the North to are I is XXXX available today on for to our Corporate remarks

and we the transactions March, domestic showcasing focus SDP, has DTI's Casing growth acquisition, These particular offer both with step products in current our change and into presence Deep of DTI with we proprietary are expanding in along on opportunities completed markets, Starting Tools outstanding examples for with to customers, East. a created a this prospective two Middle how believe international. are

quite Our for acquisition SDP is the rationale compelling.

and realizable next realize expect tax identifiable $X.X synergies NOL of in to the excess Over million we SG&A benefits. months, an XX

there and of Maintenance on Repair XX% global that integration addition, DNR asset. In new our approximately synergies Drill-N-Ream and on & margin are horizontal include vertical capture XX% CapEx tools savings

repair team with machining The PDC development, in offering and Superior facility brazing manufacturing precision a product and adds cutter is ongoing headquartered repair our Vernal, center. additional expertise, DTI's and of Utah. capabilities, course, bit engineering facility to substantial Drill-N-Ream state-of-the-art and

repair and fully the the several the trials hundred in In us region. Middle three tank and to years our contract a a tools a fuel DNR with ground and addition, facility repair PDC Dubai, development, bit staffed operational UAE, Drill-N-Ream investment bit after and of in fit-for-purpose significant the on local serve ongoing in provides clients revenues across East. as as well This

the benefit, an extinguish party transaction will which million from a our from market these they once price Adding the the adjustments. believe quite approximately stabilizes will to While million, to integration the also accrue gained purchase reducing to $XX.X to effectively rig significant selling and prove and synergies, $XX.X activity horizontal we be we beyond. XXXX are activity to and driven, to of million note, subject receivable accounting synergies backdrop count and vertical $X.X price total purchase DTI's improves into

accretive and As long-term synergies rentable of a cost invested see, in to million, DTI. million $X.X to and add meaningful due can reduction, you note SG&A $X.X of up very the previously assets CapEx the value the millions infrastructure, and

experienced our earlier to flat outlook this The quarter results. quarter year. the in operating now continued XXXX compared Moving rig count count second softness our US rig to

to So decline. conditions softer what count we market to done and adjust have the rig

First, we for cost cost. reduction have a savings in annualized $X.X million program implemented of overall

initiatives scale to for North We with growth operations levels will continue adjust available. America, in opportunities are where our markets continue other appropriately to growth our the but will activity in

cost on and our Currently, the the current while met a long-term. cost environment, needs be realizing lower our are that still decisions more near-term with structure our keeping adjustment must on focused short-term eye

second to expenditures Additionally, the by quarter. during able manage flow quarter cash and $X.X million to we free compared adjusted last capital improved were our year's

business North despite model us land in returns a decline American unique enables Our activity. generate to

from more the we our for result, million guidance flow adjusted our David to year. to cash shortly. commentary outlook range full million updated $XX will maintaining are $XX As free a add

as observations market, transpired customers reduced gas over and few now the what months, have has activity. of last And the oil and some

turned more and rationalizing begun It improving slow efficiency to Our customers, producing and megamergers to operators service executing integrating, providers their and drilling their the oilfield have focused have attention operators less. programs. appears E&P very became with in and

are with with eventually deploying more require they best operators and more much crews their redeploy to are demand as rigs rise with Operators more efficiently utilizing laterals up, essence, In important, on look to focus producing by footage, possible loss in rigs. these best as drill activity. when will mistakes Also all should fewer a producing efficient and additional will picks minimizing like and longer demand drilling believe drilling events. hole rigs we their

decade have things then the life, operations oil will more typically to efficient, their wells will decline believe in changed meet rise, much last producing and continue and wells year-by-year. Certainly, needed demand are gas demand. then that If peak over early more although, we be to

soft counts next International flat in months less mid-XXXX, should are rig to rise and few well the markets For and should with likely a we expect XXXX. through be North confident pace counts America upwards for and volatility. activity

our flexible with customers mergers, more to we best to Due and cost service rotate terms to suppliers America and customers landscape had have align to commercial business needs. value, competitive rental core meet customer oilfield adjusting the shifts our be as current changing by softness, tool to market our had our to more North find we remain

immune opposed of have Although, market have this we of price and be deal but request per drilled it's key reflective we as of installed many downturns. and challenging, this lines, trend. not adjusted have transitory with coming so type downturn to strategic yes, are day. have we like more other initiatives In out for this we And to these during we pricing events, moats to to product footage some vibrant will prevail

adjusted environment, steady to business stated, free previously consistently flow adjusted in margins margins. and XX-plus-percent delivers our cash EBITDA state a have we high-teens As mid-

well to recovers. lower to out the when taken to have demand, positioned adjust will measures believe we we come we stronger While be market

repair Although, rental, streams model sales and and relied as Casing on repair product historically mostly recovery Drilling we Products, such new business acquired some revenue, have revenue has Deep revenues. with Superior service our

us rental Our repair on damaged known relevant basis and not cycles. to generate our The and positive industry for is only income of remain us a fleet, equipment. recovery free which This provides equipment to the relevant customers our flow model. adjusted count tool rental also revenue to throughout one fleet also us of The charges, cycles. lost those and the enables maintain allows sustain as sustainable cash energy but

value sizes, said engineering I their because to line, prefer and fleet from would blue rent customers efficient customers This, our needs. positions because scale. Bottom we opportunities, and our capture exhausted DTI to configurations, serve hole not it to acquired greater the share be global products new geographies along to best on of revenue to us As and and high previously, to our own continue tools downhole quality provide with requirements. a rent their due a of service industry tools fleet maintain many along with own substantial chip our tools the

through demand the remain Agencies such continue demand expect Longer-term grow XXXX. to oil robust. as to EIA trends

centers. in that with addition, rapidly with particularly strong, new demand of come industry electricity forecasting the long-term LNG slated to to XXXX. outlook data rising is are XXXX gas accommodate capacity natural experts growth anticipated and the medium- In many very the And demand online to

is this trend. DTI well for positioned industry

as M&A for We we XXXX have and consolidation to would in position work believe we said we since that what meaningful do, future DTI is opportunities to are our active going public exist extremely sector. continue been market growth, we there the that in which in June

significant stated our growth make a thoughtful to our part acquisitions of is It strategy. goal

robust companies an will oilfield for that and to pipeline the growth rental We that and service, our have criteria established and meet M&A M&A selectively us strategically tool framework numerous allow product consolidate plan.

to David? of I'll review CFO, David financial outlook. our that, over results Johnson, turn a and With it our for

further so $XX.X earnings release, this specific into insight of I'll the joining In financial generated financial for and second quarter of everyone, offer today's you, Wayne, in detailed XXXX. Thanks, the for thank quarter. million us revenue to consolidated today. tables, total provided DTI second use metrics time we

and was product million. quarter rental totaled Second net million, tool revenue revenue $XX.X $X.X net sales

income million were of share. second and per expenses $XX.X adjusted from income $X.XX EPS diluted quarter operating million. quarter Second for $X was operations $X.X net million, the was or Adjusted

free was cash XXXX. improvement $X.X quarter and was Second $X second compared $X.X million quarter a to adjusted million the million, adjusted of negative EBITDA flow

cash, As we undrawn million $XX.X and of of June ABL facility. net credit an $X.X million $XX of debt had XXXX, XX, million approximately

during we XXXX quarter this months. activity, in flat second of over mentioned, second down and the land US roughly sequentially XX Rig saw last the the the down rig rig over was quarter. count Wayne were in revenues the of count quarter Despite XX% decline our XXXX. As count second

Our Deep integral base, managing Tier network this customer cycle. new our have product been Casing, support in offerings service our X distribution of and acquisition wide challenging and

Moving to maintenance CapEx.

and care, tool calls, or control. our lost rental rental funded relevant of model component rental of and capital tools company in the downhole while tool reminder damaged what are revenue. maintenance is shared recovery we responsible is by tool our our for helps keep a previous all a The custody recovery or sustainable. tool I tools This their customer are fleet on As have

our and maintenance June to efficiencies the approximately lost CapEx capital portion rig of This revenue. For in customers consolidated into events. investments have the damage on was period total lower focus ended months decline hole repair translated fewer XX, in of three count due our trending XXXX, X% beyond and is that

Now to moving our outlook. on

Deep the We are updating of Superior ranges, full on our include Products estimated XXXX and Drilling Casing Tools year which results. impact

expect million We in the of to range revenue $XXX XXXX to $XXX million. be

million. We $X.X $XX to to are range $XX of expect EBITDA million Gross the year Adjusted be between expected million. to for capital between $XX.X $XX $XX full and expenditures adjusted the million. be net million million and within be is income to expected

adjusted planned And million our than to year flow our incurred are between XXXX. which and deferred CapEx million be $XX cash to the maintaining first other curtailed cash more this free majority adjusted for is we finally, in CapEx, since double XXXX, a have half flow the of in was $XX free or of we

financial concludes and That section. review outlook my

over Let summary some it me Wayne to to before comments back Q&A. provide turn

Thank David. you,

up products, like family expanding sales reiterate, welcome our the to and DTI channels. pleased extremely manufacturing talented opening broad to we and SDP's reaching expertise I'd global service Q&A, Before SDP's line team and class for world to add the are into

to pleased In reemphasize synergies softer significant our cost lower in well Two, to we we internal and market adjust implemented months, we improve to like program our cost cost horizontal an five to SDP and one, the integration annualized margins. have closed in conclusion, from believe that we million two as acquisitions the as acquisition very I are see our would and will have that vertical $X.X will synergies conditions. reduction

slower positioned when to year, Three, profitable well outlook was commercial to traction, at to make pressures. last a competitive late our pace we RotoSteer we but than pricing soft are market are despite anticipated and the positive technology upward. the flat combat Four, and market continues

important and this plans expect fleet We tempered to quarter-to-quarter have and continued in growth our deferred have increases technology, fleet adjust to our but utilization. development CapEx

thoughtful opportunity quality tuned I am will product industry believe organic the this to highly and reliability cycles, continuously consolidation services continue updates finally, that focus supplement will our additional initiatives. DTI. exciting Throughout we as this on growth of grow. safety, exist be our opportunities confident develops. oilfield line Stay hallmark And for in

sincerest of success, dedication The I critical for safety, the our Superior appreciation every their successful execution gratitude extend like Casing would, of has addition, our and driving and for again, recent Deep my member initiatives. express to most my to to contributions. the their I in heartfelt and customer team DTI, employees continued our of commitment been strategic service,

we that, take Operator? With will questions. now your

Thank you.

We will question-and-answer [Operator now Thank conducting be you. session. a Instructions]

Jeff from ahead, Go Partners. Grampp from Global comes question Jeff. Alliance first Our

Your line open. is

of could elsewhere kind could in that you Is that first preliminary is integration everyone. the event, tuned morning, where week event see Superior wanted synergies Or the XXXX the Good revenue upside, on the shoots East, of traction see you of some internationally? more have signs for we're do any success? start guys estimate you should only for? particularly closed. here now stay in success a on a potentially when but and we or XXXX I understand that to green Middle maybe here, some first of we've I guys

This is Prejean. Wayne Jeff. Thanks,

the expect sprouts remainder see to starting this throughout year. some We green occur to of

of have We now we on things a teams between in to might team to been initiatives we're really of on team, having between some see those more market. their our traction. efforts and commercial slowly event and that implement accelerate Probably, team we've post-closing how that, the integrate happened, true discussions and and has XXXX that up ramping our get ready the and – their

So we make to expect quarter-by-quarter, progress. steady

So...

and in targets kind updated on size you near-term these guys you. this a Can product bit on shed kind to can it. touched deck focus, the what broad of your line, you remarks a in prepared strokes? Thank maybe Wayne, five any you And so priority Great. bit more terms light well, on of fence guidance those M&A, the on terms some in of, are revised slide as businesses ring as you call these in know, in extent size perhaps geographic I don't of of the opportunities

VP Thanks, to Jeff. comment invited I've Jameson, M&A, some our kind of Jameson? that. Corporate of on

Yeah.

speaking kind larger. and So significant the single we way product pipeline, we're equal that everything product are pipeline identified have the of working on from some all to of mergers Jeff, specific even of tuck-ins companies, or up

say constantly coming real the we're of find on. very near-term in consolidation I opportunities the and opportunities in the opportunity we're to market speak to actively the So thoughtful deck. depths when is the funnel the would that that we working set we to speak that And

could a I tack Okay, great. that, Jameson. If up just on follow

Sure.

a that would of kind kind versus few months few seller last how to today guys bid/ask characterize of What's relative a the What months ago? spreads, call is sentiment? ago, market you like overall

Yeah.

bound spread being these seen of is there And think equity most narrow. in processes. – the think in spoke I bid/ask I of valuations continues still calls, have private kind we to range departure not very one in the our complete introductory to of bidder the service of oilfield

processes is And a the take some of products timing worked These And founder companies their that we're that long marketed commercial. are we've individual broadly doing these deals. right the for driven known are with or to time. not

landscape what service. for consolidation larger doing our for acquisition oilfield the So get think is need and and to We leaner. do I remains base robust customer

it effort I'll Thank Great comments. those you, guys. back. to turn

Thanks.

Sidoti. from you. Go Steve ahead, question Ferazani comes And Thank next Steve. from our

the Wayne. Good on Appreciate call. the everyone. morning, Good morning, detail

Yeah.

on give the now expecting guidance of detail there about includes because to ask on for is Wanted kind us of breakdown updated SDPI. the you're Is can SDPI remainder what it the the you contribution any the of year?

year we improvement integrated. the percent being margin kind they the speak contribution at can to some I prior, were to the by historically, of only the spoke and and by vertically So lines and results, mean, you we product capture end. public see of

Okay.

where now. are that's of kind trending So things

Can similar your SDPI, legacy are outlook to business? terms SDPI in you your trends if on say of

the repair traction. have they opportunities – are to bit they're some East think We that get business Yeah. starting in Middle

So also, things [indiscernible] we we ground believe up work, to the that (XX:XX:XX) put assets that we assets our efforts. kind of on And as integrate we have on the ground, anticipate we can renewable continue ramp to contribution. as

Okay.

we good opportunity – factored our pretty an we feel the so feel activity, what like that certainly in sticky future. potential is, for We appropriate more pretty amount of about guidance – in there's we of believe

integrate So we we'll these businesses. have as that gauge two quarter-to-quarter just to

So...

maybe utilization. probably even the to is of a about touched pricing severe we're be think in how guidance in down getting more to slower last rig pressure we into but comments, continuing trying about and guidance, cases. of XX more on I consolidation when see soften, maybe incumbent is or has you And playing quarter pricing count figure rig I When you updated it the just and these quarter. you more the it out consolidation we're to there updated this to the much impact decline count? enough. though Fair from that, Are But continued obviously rigs lot a the acquirer know, your I'm or it's seems

rig the rapidly, it an where just our a of rig when count, ticked as XX interesting So just months over of leak, away been the kind the bleed will. go slow industry, if within count phenomenon the slow didn't of has kind down you last

Yeah.

different had press so a operator release affected to that how B. cut to that's and spoke in to I and providers those compressive – pricing costs customers chance And ways around of rotation to the What that operator that, the put of shuffled slow consolidate have on as was adjust to some different burn happened, trying A we've seen have on. to rig of the well. we've as core to activity. And had this and get service rate because us vendors And different to from had that's industry's our as operators learn shuffle

So we made those adjustments.

As having our previously to one connections the investors, strategic market industry the strategic strongest said I've no most gives sticking are types and the earlier, us power. I of the in moats immune things spoke have relevant fleet, we with that is built-in. by and customers. proper as the calls of the But in a compression Those different moats

So, yeah.

can and we seeing all the pricing start all some you get capacity we reverse on as with and LNG much are how think this you there's export we I Does recovery? How positive think mentioned next some if that margins, on it certainly, recovery year recovery coming?

Well, I grow desire activity time business because a think do the play, as they their it's have being matter customers and customers. oil just our that in of gas to a put more well, in

Yeah.

back what our you we've and tools and rising and maintain commercial As done, things when unutilized. like have we've standby terms we extra we like up, utilization, pricing things points, that far with make tools used pricing as every rates that to but effort our tried modify

in to our goal activity So is supports to be where pricing more model. we move future. and better commercial back think then products our we'll to better the the a relevant modify competitive and And products for position efforts offer our terms a utilization

touch half really really, to cycle come Middle the mean, Bellwether the out A SDPI, Can here Deep some in of a as on strength conference outlook Perfect. first with international healthy. multi-year remains your Last of that's outlook East. strategy the particular of people lot calling me. international calls, listening we one you how the the for Casing? with for I

Yeah.

sort international will little strategy? bit multi-year international give that into potential a how upcycle? this of on you picture of your play how And that Can affects

product that's and So East has beneficial very players. to Deep international Casing, a for offshore of example, contributory and many line Middle your

So and that we significant see – that contribution. evolving and more slowly business a growing making

with SDP now We're them. two have unison. We're longer no we together serving acquisition, in masters. joined we've that forces aligned Now working and the

line. help can up expand and rapidly centers that set we locations think repair that I and product other platform expand and

component M&A Jameson on are So for didn't reserving color criteria and the it place you the his that in I'll can opportunities comments a because is addition on to high do of – for where impact add to international emphasis for give real these M&A any there and deals strategies us. but to is, he's one

that technology to tuck-in expansion and contribution focused some our bolt-ons as and which the a than North an So attractive, in but – Middle we as long-term higher pretty much many market, a maybe proposition towards make to could M&A far that as we're aiming just value we look and American deal be make strategy. East when needs we're significant at in more technology international and

Fantastic. Thanks, Wayne.

from And Partners. our Go John question comes (XX:XX:XX) (sic) from Daniel next John [Daniel] Daniel ahead. Energy

already a better the than of elaborate reduction Wayne, you what it Yeah. on the and $X.X cost noteworthy your are you doing? just I was million. lot your margins efforts, saw are when peers Can guys

our regard With to reduction? cost

Yeah. are regional approaching you how or Is that? it yeah,

very about to some thing its one interesting and So centric, activity of but challenging, business we business our cost. certain deferring aspirational that's of labor scale our its is, can some according

North So those adjustments appropriate we've America. made in

flows. We they industry them tenured and And facilities, the all team all which have ebbs a is year-to-year is of required of unique. what in how and understand, quarter-to-quarter, our management

are those but we made variable public – we cost and adjustments now. a So company

we're public So of. some on we've had aware burdens company all take to that

mindful managing So muscle of grow larger that and broader more we've and take to escalation and enterprises. build as on been M&A we more

support business. been activity. the North ebb requires component it's a we and cost raises And level we're more the that lever variable of activity So – increases, if prepared the rises of most see support, to where to but if needed, of America, the or those in to flow

So...

And that? you start the like be you other If the a repair for calls facility expand, into the out could bit will release facility press services but taking unrelated a And there? a just roofline curious, what's additional helpful. have facility in you up that like follow the it opportunity could when product quickly I'm Okay. just just then UAE. how

was needs how could – Yeah. we're simply in but Thanks. – Eastern set think facility located we the the Middle market. of in line add I that's currently our now We product up something now, The and UAE that for put our roof possibly Well, could the to Saudi. support for in serves lines some that have other okay. looking at

business There's capability fleets. expandable. can bit the it's repair some capability more into repair to can expanded. rental add loaded be Drill-N-Ream we be So The business And to that's being machining support have there expanded. repair

a So, we're go good to while. for

Good.

That's all Okay. I had. Thank you for me. including

Thanks, John.

does does any This remarks. sorry. would conclude question-and-answer you. turn to session. management Thank – to like This now conclude I the it closing for

pretty for on Well, outlook posted a challenges again DTI. thanks, those events. for everybody, forward your to we've interest. It's once overcome we a but you interest forward and look year, we going those keeping Thanks in and see been challenging your bright

conclude today's participation. does for We This thank you. conference. Thank your you

You may a disconnect your lines at this wonderful time and have day.