Drilling Tools International Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 6 speakers on the call.

Operator

Thank you for standing by, and welcome to Drilling Tools International's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the call over to Savon Hickey, Investor Relations for Drilling Tools International. Please go ahead.

Speaker 1

Thank you, Latif, and welcome everyone to Drilling Tools International's 3rd quarter conference call. I am joined today by Wayne Prejean, our President and Chief Executive Officer and David Johnson, our Chief Financial Officer. Before we start, I would like to remind everyone that some of today's comments include forward looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations we expressed in or are implied by these statements. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements.

Speaker 1

Our comments today also include non GAAP financial measures. The underlying details and a reconciliation of GAAP to non GAAP financial measures are included in our Q3 earnings press release, which can be found on our website. Lastly, as a reminder, today's call is being webcast and a recorded version will be available for replay on the Investor Relations section of the company website shortly after the conclusion of this call. With that, I'll hand it over to Wayne Prejean, Chief Executive Officer.

Speaker 2

Juan? Good morning and thank you for joining our first earnings call as a public company. My name is Wayne Frasier and I'm Chief Executive of DTI. For those of you who are new to our company's story, I will begin my remarks with an overview of Drilling Tools International, which is more commonly referred to in the industry as DTI. DTI is an industrial service company whose distinct business model combines tools, technology and equipment rental along with in house manufacturing capabilities.

Speaker 2

We primarily serve the oil and gas upstream industry with downhole tools in the wellbore construction process. In addition, our tools also serve their emerging geothermal and carbon capture business. We employ a loyal and dedicated group of people who believe in our values and share our vision for the future. Our competitive advantage continues to be the people we employ who drive the strength, innovation and performance of our company. The reason DTI exists is because our customers such as SLB, Baker Hughes, Exxon, Chevron and Oxy would not find it efficient to own and maintain their own fleet of downhole metal tools.

Speaker 2

There are just too many assorted configurations, hole sizes, geographies and engineers' preferences that make it inefficient for customers to own their own rental tool fleet. Although David Johnson, our CFO will explain results in more detail later, I will briefly describe how our business works. Our business model relies mostly on rental repair and recovery revenues. Our customers count on us to maintain a relevant and sustainable fleet of equipment. Our rental and repair income provides the basis for our rental model.

Speaker 2

The tool recovery revenue also known as lost or damaged equipment charges allows us to sustain our fleet which enables us to not only remain relevant but also generate positive adjusted free cash flow throughout the energy industry cycles. These financial results provide DTI tremendous flexibility across a variety of business strategies. We are debt free and have an enviable income stream from multiple product lines and numerous geographic locations covering every significant oil and gas producing region in North America. We also think we have some of the best professionals in the industry. In a steady state or non growth environment, our business consistently delivers mid-thirty percent adjusted EBITDA margins and a high teen percentage of adjusted free cash flow.

Speaker 2

I hope this overview was helpful in providing some context for

Operator

the rest

Speaker 3

of the call.

Speaker 2

Now, we'll take a few minutes to discuss a little bit about our company history, market conditions, how we are executing a review of the quarter and our outlook for the remainder of 2023 before opening the line for questions. So let's get started. DTI was founded in 1984 as Directional Rentals in Lafayette, Louisiana. After 28 years of Gulf Coast success and expanding from 1 to 3 locations, the company was sold in 2012 to private equity firm, Hicks Equity Partners. Oilfield Services is an industry where experience and relationships matter.

Speaker 2

A dedicated group of employees led by experienced management is the key to sustainable success. This means the strength of our management team is important. In 2013, the company recruited and hired additional senior management to execute a long range growth plan and soon after rebranded Drilling Tools International. The senior leadership team in place today has worked together for over 10 years. We have decades of industry experience between us and have successfully managed the business through numerous industry cycles.

Speaker 2

Over the last decade, DTI has grown from a small regional tool supplier, primarily servicing independent directional drilling clients to a well established oilfield services company, supplying the top tier oil and gas service companies worldwide, providing downhole tools for both the land and offshore drilling markets. Our primary focus is tools and technology used in drilling completion and work over operations. We have a fleet of mission critical tools that include bottom hole assembly components such as subs, stabilizers, drill collars, premium drill pipe and drill pipe accessories, tubing, pressure control equipment, reamers, borehole enlargement tools and production desanders. We also offer some proprietary wellbore optimization products such as the patented Drill N Ream wellbore conditioning tool, SafeLoad, a patented downhole pressure control valve, and our new patented Roto Steer technology. All of these provide value added solutions to the evolving challenges in the drilling industry.

Speaker 2

DTI operates from our headquarters in Houston, Texas and from 20 service locations across North America, Europe and the Middle East. Many of these locations have machining, inspection and repair capabilities that enable us to efficiently service our equipment, which results in improved customer satisfaction, reliability and efficient utilization of our assets. We also have full manufacturing capabilities, which allows us to control all the cost and delivery of many of our rental 2 items. Our customers drilling tool needs are ever changing and evolving. To support and manage a complex fleet of assets, you must have a best in class quality system with a reliable maintenance process to meet the needs of the industry.

Speaker 2

To meet these needs, DTI created and deployed a customized state of the art fleet management software system called Compass. COMPASS is an acronym for Customer Order Management Portal and Support System. This software system simplifies the complex task of managing a large inventory of tools spread out over numerous geographic locations with tools of various geometry and customer specifications. But most importantly, this system provides valuable performance data to assist the management team with capital allocation priorities. For example, we've seen asset performance as defined by utilization rates increase almost 10% since implementing the system in 2021 and it continues to improve.

Speaker 2

While most investors do not yet know us, it is worth noting that we are well known within the industry and to our customers. We service a wide customer base, including blue chip companies such as Chevron, Exxon, BP, Oxy, Pioneer, ConocoPhillips, EOG, SLB, Baker Hughes and Phoenix Energy Services. In addition, we serve several independent E and P operators such as Newbern, Endeavor and Continental, and as well as many others. We are proud of our progress and track record thus far. In fact, since 2013, the company has been EBITDA positive every single year during the last 10 years, including 2020 during the depths of COVID.

Speaker 2

Although we prefer a market that is steady state or upward, we view downturns as opportunities to strengthen our business and we have done so each cycle. It is noteworthy that Higgs Equity Partners has been the majority owner of DTI since 2012 and remains so today. The Hicks team has invested in the energy industry for over 40 years and we are proud of our strong and enduring working relationship. Turning now to the market outlook and effect on our business. In Q4 of 2022, the forecast across the industry and for 2023 began with rig counts expected to be flat to upward throughout the year.

Speaker 2

Unfortunately, near the end of the Q1 of 2023, natural gas market softened and shortly after main contagion fears created macro concerns of a major worldwide recession. This triggered a softer oil and gas market and resulted in rig count declines in many areas. While U. S. Rig activity has declined approximately 19% from December 2022 to September of 2023, The company continues to execute on plan with a revenue decrease of less than the linear market decline.

Speaker 2

Essentially, we have outperformed the market. We will elaborate on this later in the call. Looking forward, management believes that the North American rig count has bottomed and will begin to move upwards in 2024. Longer term demand trends remain robust with projections from agencies such as the EIA expecting oil demand to continue to grow through 2,050 and gas demand to increase materially in the next few years as in process LNG plants come on stream. It is well documented that the industry has underinvested in recent years And to meet future demand, additional drilling completion and production of oil and gas wells will be required worldwide.

Speaker 2

PTI's base business is competitively positioned in North America land and in the U. S. Offshore business as well. Our customers have requested we expand to serve them on a more global scale. We recently expanded our fleet to the North Sea Europe market and we have made steady progress expanding into the Middle East.

Speaker 2

DTI continually works to provide tools, technology and services to meet our customers' changing needs in markets throughout the world. And now, some discussion on growth, mergers and acquisitions and industry consolidation. Given how highly fragmented the oilfield services industry is today, we believe there are meaningful consolidation opportunities which exist in the sector and we have identified a substantial pipeline of accretive growth opportunities within our core competency. To pursue those opportunities, BTI became a public company in June of 2023 to gain public equity as well as other funding methods to execute transactions. Our targets include opportunities that would strengthen our technological capabilities, capture competitive positions or bolt on assets and expand our reach internationally.

Speaker 2

As has always been the case, we seek to execute on transactions which are aligned with our long term portfolio strategy and increase shareholder value. It is our goal to make strategic acquisitions that double or triple the size of the company in relatively short order and we spend a substantial part of our time each day driving towards this goal. We believe DTI has a proven track record of successfully deploying capital in a disciplined manner for select accretive acquisitions. DTI has executed 6 acquisitions since 2013, which have included companies, strategic asset purchases and distribution agreements with technology advantages. Today, DTI has a fortress balance sheet, 0 leverage on undrawn $60,000,000 ABL credit facility, public equity, which provide ample financial liquidity.

Speaker 2

We are poised for accretive growth in numerous areas of our business, have an excellent management team and continue to execute well, generating strong adjusted free cash flow. With that, I will turn it over to our CFO, David Johnson, for a review of our financial results. David?

Speaker 3

Thanks, Wayne, and thank you, everyone, for joining us today. DTI generated total consolidated revenue of 38 $100,000 in Q3 of 'twenty 3, an increase of 4.4% compared to the Q3 of 'twenty 2. For the 9 months ended September 23, total consolidated revenue was 116,800,000 dollars 25.8 percent higher compared to the 1st 9 months of 2022. The revenue contribution from our Tool Rental segment in the Q3 was $29,400,000 which was 9.4% higher compared to the Q3 of 2022. The improvement was primarily driven by increased market activity and customer pricing across all product lines with the strongest contributions coming from our directional tool rentals and the wellbore optimization tools product lines.

Speaker 3

For the 9 month period ending September 23, the Tool Rental segment generated $90,600,000 of revenue, which was 29% higher compared to the same 9 month period in 2022. Revenue generated by the product sales segment in the Q3 of 2023 was $8,800,000 which was 9.6% lower compared to the Q3 of 2022, primarily due to higher than average tool recovery revenue in the Q3 of 2022. For the 9 months ended September 23, the product sales segment generated revenue of $26,200,000 an increase of 15.9% compared to 22. DTI's operating costs and expenses in the Q3 of 2023 were $31,000,000 which was 8.9% higher compared to the Q3 of 2022. This was primarily driven by higher personnel expenses, depreciation, insurance expense and other public company costs.

Speaker 3

For the 9 month period ended September of 2023, operating costs and expenses were 93 point $5,000,000 an increase of 23.7% compared to the same 9 month period in 2022. It is worth highlighting that for the 9 month period ending September of 2023, our operating expenses increased at a lower rate than our revenue increased, illustrating our ability to gain operating leverage as activity and pricing improved over the prior year, even with the impact of increased costs associated with becoming a public company. The company posted net income of $4,300,000 or $0.14 per diluted share in the Q3 of 2023 compared to net income of $7,000,000 or $0.36 per diluted share in the Q3 of 20 22. For the 9 month period ending September 23, net income was $10,900,000 or $0.46 per diluted share compared to net income of $14,300,000 or 0 point 7 $2 per diluted share. The lower result in the 9 month period was impacted by one time transaction related expenses of $6,000,000 and one time related stock option expenses of 1,700,000 We also had ERC benefits of $4,300,000 in the Q3 of 2022 that were not repeated in the Q3 of 2023.

Speaker 3

3rd quarter adjusted EBITDA was $12,700,000 which was 2.3% lower compared to the Q3 of 2022. The decrease was primarily driven by higher personnel expenses and other public company costs in the current quarter and higher than average tool recovery revenue that occurred in the Q3 of 'twenty two. For the 9 months ended September 'twenty three, adjusted EBITDA was $40,800,000 which was 45.2% higher compared to the 9 months ended September of 22. DTI ended the 3rd quarter with strong financial flexibility with approximately $4,000,000 of cash on hand and an undrawn $60,000,000 credit facility. Before moving on to guidance for the Q4, I want to take a moment to discuss our capital expenditures and recovery of costs for lost or damaged tools since we regularly receive questions on this topic and it is not well understood.

Speaker 3

As a downhole rental tool company, our maintenance capital is funded by tool recovery revenue. The customer is responsible for all lost or damaged tools while the tools are in their care, custody, or control. This tool recovery component of our rental business model keeps our rental tool fleet relevant and sustainable. For the 3 9 month periods ending September 23, maintenance capital was approximately 14% of total consolidated revenue for these periods. This self funding portion of our capital investments has remained relatively consistent over the past couple of years.

Speaker 3

Now I would like to turn our attention to guidance for the full year 2023. As of September 23, U. S. Rig activity has declined by approximately 19% compared with December of 2022. However, despite the challenging environment, DTI continues to execute well with a monthly revenue decrease of only 5% from December '22 to September of 'twenty three, outperforming the market.

Speaker 3

Management anticipates the rig count will remain relatively flat in Q4, and we are maintaining our previous projections for the full year 2023, which I will review now. We expect revenue to be in the range of $150,000,000 to $158,000,000 for the full year 2023. We expect adjusted EBITDA to be within the range of $50,000,000 to $54,000,000 Gross capital expenditures are expected to be between $44,000,000 $46,000,000 Net income for the full year is expected to be between $12,000,000 $19,000,000 And finally, we expect adjusted free cash flow to be in the range of $6,000,000 to $8,000,000 for the year. That concludes the financial review section. Let me now turn it back over to Wayne to provide some summary comments before Q and A.

Speaker 2

Thank you, David. So everyone to recap a few key items before opening up the lines for Q and A. As I stated earlier, DTI is currently unknown to the investment community, but we are well known and respected in the industry. We are an established company with seasoned management team that has interest aligned with its shareholders. We have an employee base that is loyal, dedicated and skilled in supporting our operation.

Speaker 2

This team is cohesive, collaborative and has worked together for a number of years. We are the market leader in numerous categories and have an enviable facility footprint. We have an outstanding roster of customers and large sales force covering numerous geographic locations. We have proven operational performance and can boast an impressive delivery of steady state adjusted EBITDA and adjusted free cash flow margins. We have a proven track record of successfully executing acquisitions and we believe consolidation opportunities exist in Oilfield Services.

Speaker 2

We have a pipeline of attractive acquisition and organic growth initiatives already in motion. We have a strong balance sheet, 0 leverage and undrawn $60,000,000 credit facility and equity capital. DTI is well positioned to achieve our strategic portfolio objectives. And to be blunt, at our current stock price, we believe we are at an attractive entry point versus our peers. We have a very bright future as a publicly traded company and we look forward to getting to know you and for you to get to know DTI.

Speaker 2

With that, I will turn the call back over to our operator who can open the line for questions. Thank you.

Operator

Our first question comes from the line of Donovan Shafer of Northland Capital Markets.

Speaker 4

Great, guys. Thanks for taking the questions. I want to start off by asking about so and forgive me if I missed some of the details on this, but the 5% decrease in revenue despite the rig count being down really almost 20%, could you give us can you talk through the specific dynamics there? What it is that you think resulted in you doing performing better than market? I mean, as a starting point, just to clarify, are there any sort of timing delays?

Speaker 4

Or if not, was it the customer mix being more sort of skewed towards Tier 1? I've heard about there's sort of being a flight to quality and service providers. So perhaps that's part of it. Or if it's more geographic focus, having to do with which basins you're in. Any sort of color there would be greatly appreciated.

Speaker 4

Thanks.

Speaker 2

Okay, great. This is Wayne. Thanks for that question. So we believe because of the structure of our business and our customer base and the broad geography we have, along with many of our products having contractual links to them. We were able to have a more sustainable activity level than a linear equation where you don't have a one to one equation of lost rigs, lost jobs.

Speaker 2

Having the stickiness to work for Tier 1 operators with large programs enabled us to have a higher sustainability factor. So not only is our activity a little less more cushion from the direct reduction in activity, but our pricing also was less volatile, meaning it provided us more runway throughout these down cycles. And we believe that's one of our advantages in strategic positioning.

Speaker 4

Okay. That's helpful. And then I know it's a bit early to talk about 20 24, but I mean you guys did talk about thinking having your own internal view or internal expectations of rig count would be roughly flat in 2024. So I know you haven't issued 2024 guidance, but my question just at a higher kind of conceptual level and kind of thinking about your business model, if it's a flat rig count in 2024, does it follow or does that imply a relatively flat level of revenue for you guys, maybe taking kind of the run rate from this quarter? Or is it something where if sort of excluding M and A for the time being, just with the current businesses that you have, you see yourselves sort of taking share or certain contracts, anything happening underneath the hood, if you will, from just a rig count standpoint where revenue would be up, down or kind of consistent with the rig count?

Speaker 2

So this is Wayne again answering. We view our current rig count U. S. Rig count is a 600 ish with ebb and flow depending on who you're what week you're looking at it. It is likely that the rig count will increase in 2024.

Speaker 2

It's less likely it will be flat to down. Our view is there will be more rigs in 2024 than there were at the end of 2023 working in 2024. When and how that happens and how it ramps up in which quarter, whether it's front loaded for customers to start drilling their budgets early or organically move it up the food chain as the year progresses, it's hard to determine. It's possible it could be more than 50 rigs, but I'm going to say I have to take the under on 50 rigs increase. So we see an uptick in the U.

Speaker 2

S. Activity. That's our view. We believe our business will grow with that uptick. And we also have some new products that we think will gain market share to help provide more revenue and income for us in a tiered basis over and above an existing linear market trend.

Speaker 2

So I think we have some opportunities to see our business, our revenues and earnings move upward in 2024. And our guidance will be soon soon as we forecast that in later meetings. But that's we think it's going to be upwards.

Speaker 4

Okay. And actually you anticipated my next question about the new product launches. So is this the same, I think in the deck you referred to them as sort of emerging products, those Roto Steer and Trill Save. Are those the 2 products that you can see layering in incremental revenue next year or are there additional products behind that? And then if you can give us any kind of real it can be pretty rough, but just is that a potential upside revenue in the single digit percentages, low single digit, high single digit, double digit percentage impact on revenue new to the upside?

Speaker 4

And what kind of a margin that would have if it would be above kind of what your corporate average is right now for margins or below?

Speaker 2

So number 1, I'm reluctant to give specific guidance on those new products contributions because they're still we're developing our commercial forecast models on how they will really what results we can achieve. But I will tell you this that we fully expect them to be at or above the performance of our current product lines because everything we do going forward we believe has to be equally or more accretive than our current business model. And to give you some scale, I know you'd love to have a percentage amount, single, double, triple tincture, but I would probably reluctant to give too much scale guidance at this point. But it will help us grow our business more than we have been before. So I think once we give that guidance forthcoming, there'll be more clarity on that in the coming few weeks, we hope.

Speaker 4

Okay. And then I do have a couple more, but I want to be respectful to other folks. So just if I can check-in with the operator real quick. Operator, are there any other people in the question queue right now?

Operator

Please proceed with your question, sir.

Speaker 4

Okay. Thank you. So then if I can step back and look at a longer kind of time horizon. So as I understand it, you guys have grown very significantly in the last 10 years. I want to say, I think it's something like fixed or set some time on a revenue basis.

Speaker 4

And of course, that's not all organic. There have been some fairly meaningful acquisitions over the course of that time. But it would be good to get your take between the 2 of you guys. What your sense of like a normalized growth expectation for your businesses? Maybe, I guess, excluding and then then I guess, however you think about it.

Speaker 4

If you think about it, if your mental framework tends to include the M and A, then you can include that. If your mental framework tends not to, but I'm just trying to orient myself with respect to what your own views are for growth rate over like a 10 year, like a normalized, excluding cycles, talking like a 10 year type growth rate?

Speaker 2

So realizing that the U. S. And North America market is it's going to ebb and flow over the next few years. We always feel like we're going to we are very, very solidly positioned to take full advantage of the activity that exists. We have strong positions in all of our product lines.

Speaker 2

We're going to have some new product lines, like I said earlier, that will help us achieve growth in that area. Think modestly, you can expect in a steady state, we'll probably achieve more of a flat revenue line. But our opportunity is going to excluding even excluding M and A, our opportunity is to grow in other markets. And we can push some of our existing tool portfolio into other markets with our distribution partners. And then if you layer on that some strategic acquisitions we already have in motion that we're in discussions with and have on our strategy profile, we should see some better penetration in those markets as we make those acquisitions.

Speaker 2

So it's all going to depend on the volatility of the North American market. I think that's on everyone's concern list right now, whether or not the long term M and A of your Exons and Pioneers and Chevron and Hess' those types of things will What kind of rig activity and well count will we see as a result of these changes in the macro components of our North American market. So we are well positioned with that. We tend to benefit from those more than it has an adverse impact on our business because we're working for the acquirers. So that's always a good thing.

Speaker 3

Okay. Wade, let me just add on what what you said, echo your comments and Donovan for your benefit. I mean, I think it's important to recognize that DTI is entering a new chapter as a public company. So we're able we're going to be able to do things we didn't do over the last 10 years even though we've built a solid foundation for our business over that 10 year period. But we're now going into a period of where that growth through acquisitions is our strategy and we'll be able to do more than we have been historically because we have that public currency to kind of add to our tool belt.

Speaker 3

So we are kind of entering that new chapter.

Speaker 4

Okay. That's helpful. And then I guess just my last question would be on the international opportunities. And it looks like, I think you talked about more recently, the UK and your deck shows footprint in Germany or something. I'm assuming that's mostly around the North Sea.

Speaker 4

Correct me if I'm wrong on that. But I'm not the North Sea was such a big deal in the 80s 90s. I'm not as up to speed on the current state of the North Sea opportunity, but certainly with the Nord Stream gas pipeline, Russia invading Ukraine, last winter in Europe, all the kind of chaos and turmoil around there. Do you see the North Sea as a potential important driver going forward? You've historically done I think it was you've historically done well with offshore in Gulf of Mexico, I believe, at various times.

Speaker 4

So is that something you see yourselves trying to replicate in the North Sea or meaningful opportunity there?

Speaker 2

So good question. So we believe that despite the attitudes towards fossil fuel development in the North Sea and European areas, I think that logic will prevail and there will be some reliable activity, likely upper activity in the entire North Sea sector over time. I don't think it's going to boom where there's hundreds of rigs, but there'll be a steady state of activity, number 1. Number 2, being based in the Aberdeen market for offshore, also many of the West Africa and operations that are coming back on stream originate from Aberdeen. And so being positioned there gives you more opportunities in that West Africa offshore market.

Speaker 2

Then our presence in the European land market, particularly in Sella, Germany with our partner there, we're participating in a lot of geothermal activity, which we're pretty excited about. And we're being having we're having requests from more and more tools as those projects become more reliable and understood. So there seems to be a significant amount of interest in the geothermal market as well as carbon capture. There's wells being drilled, sequestration wells for carbon capture that we provide tools on. So we're participating in all those different segments and we see that as an opportunity.

Speaker 2

Being positioned there gives you those opportunities.

Speaker 4

Okay, great. Thank you. That's helpful. I'll take the rest of my questions offline. Thanks guys.

Speaker 2

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Bill Austin of Daniel Energy Partners.

Speaker 5

Hey guys, congrats on the first call and thanks for taking my questions. Sure. So really just main question is, I know you guys talked a lot about M and A on the call.

Speaker 4

Can you

Speaker 5

guys speak to which products or even just geographic regions that are most appealing to you guys from an M and A perspective?

Speaker 2

Sure. This is Wayne again. The first part of that answer is prioritization, right? So we have to put priorities in 3 buckets and they have to number 1, we have to we need to see some geographic expansion, which we want to achieve, but they also have to provide accretive value. And thirdly, and probably equally important in all of the balances, technology, some sort of differentiating technology.

Speaker 2

We're remaining in our core competencies of drilling and all the way through casing installation. I call it the wellbore construction, initial wellbore construction process phase. Eventually, we might move into more completion and production type products, But initially, we're still focusing on bolt on more moat building, but expanding our differentiating product lines technologically and geographically. But all of those must meet that smell test of accretive value and the ability to grow and expand our income stream. So that would be how I described the priorities of M and A.

Speaker 2

Okay. And

Speaker 4

I know you touched on this with

Speaker 5

a question from the last caller, but R and D efforts on the new products, are you going to see those come to fruition in 2024? Or is that a little longer term than what we talked about?

Speaker 2

We fully expect to see some positive exposure in 2024 from 2 or 3 that are already in motion and then a couple of acquisition targets that we are contemplating would have immediate value going into 2024. And building momentum through 2024 would tell a great put a great story in motion for 2025 as well. So 2024 some, 2025 more.

Speaker 4

And then how do you guys think about R

Speaker 5

and D as kind of a percentage of kind of going forward as a percentage of your revenue or how do you guys think about your R and D budget?

Speaker 2

We do have a budget for R and D within our own business lines as we speak. As a percentage, I'm kind of have to look back into what we've spent in R and D. We do have a budget for it. Going forward, some of the targets that we have in mind bring more engineering R and D and what we call. So this is all baked into our cost and it's historically significant and significant.

Speaker 2

So it's historically insignificant thus far, but we baked it into our cost thus far.

Speaker 5

Well, thanks, yes. That's all for me.

Speaker 2

Okay. Thank you, Bill.

Operator

Thank you. As there appear to be no further questions in queue, I would now like to turn the conference back to Wayne Prejean for closing remarks. Sir?

Speaker 2

Well, thank you. Well, thanks for joining us everybody. We look forward to sharing additional information with all of you in the coming quarters. Please don't hesitate to reach out with additional comments or questions. We're always here to answer your questions and inquiries.

Speaker 2

We look forward to the future and have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Drilling Tools International Q3 2023
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