Drilling Tools International Q1 Earnings Call Highlights

Key Points

• DTI reported Q1 revenue of $38.0 million, a net loss of $1.5 million (adjusted loss $1.0 million), adjusted EBITDA of $7.5 million and adjusted free cash flow of about -$0.16 million, and management reaffirmed 2026 guidance of Revenue $155–170M, Adjusted EBITDA $35–45M and Adjusted FCF $17–22M.
• North American land activity was soft and an earlier-than-expected Canadian spring breakup shifted seasonality into Q1, while international offshore momentum and adoption of technologies like ClearPath, Drill‑N‑Ream and Deep Casing Tools are driving improvement; tool rental gross margin remained above 70% despite pricing pressure.
• Capital deployment included $7.7 million of Q1 CapEx, cash of $2.8 million and net debt of $48.9 million (plus ~$700k of share repurchases), and the primary sponsor HHEP completed distribution of its remaining shares, boosting public float to about 90% and marking a move to a fully independent public company.

Drilling Tools International NASDAQ: DTI reported first-quarter 2026 results that management said came in “largely as anticipated,” reflecting a seasonally softer start to the year and continued uneven activity conditions across key markets. On the company’s earnings call, Chairman and CEO Wayne Prejean and CFO David Johnson reaffirmed full-year 2026 guidance and pointed to improving momentum in international offshore markets and continued adoption of the company’s technology-led product lines.

First-quarter performance and key drivers

DTI posted total consolidated revenue of $38.0 million for the first quarter. Tool rental revenue was $28.9 million and product sales revenue totaled $9.0 million. The company reported a net loss attributable to stockholders of $1.5 million, or a loss of $0.04 per share. Adjusted net loss was $1.0 million, or an adjusted loss of $0.03 per share.

Adjusted EBITDA was $7.5 million, while Adjusted Free Cash Flow was a loss of approximately $160,000.

Prejean said the quarter tracked with the framework management discussed on its year-end call, when DTI anticipated relatively soft activity through the first half of 2026, with potential improvement in the second half driven by “several potential catalysts across multiple geographies.”

Management highlighted several factors shaping the quarter:

• North American land activity was “flat to slightly down,” according to Prejean.
• Canada seasonality shifted earlier due to an earlier-than-expected spring breakup, which “pulled some typical second quarter seasonality into the first quarter,” Prejean said.
• Middle East disruption tied to ongoing regional conflict muted what would have been a stronger contribution, though Prejean emphasized DTI’s “more targeted footprint and specialized product focus” has allowed it to see “rising demand” even amid volatility.
• International offshore momentum continued, which management said is being supported by adoption of ClearPath stabilizers and progress with Drill-N-Ream and Deep Casing Tools.

Margins, pricing pressure, and Canada spring breakup

Johnson said the year-over-year decline in tool rental revenue reflected softer North American land activity, the earlier Canadian spring breakup, and “continued pricing pressure in certain segments of our rental fleet.” Even with that compression, he said tool rental gross margin “remained above 70%,” which the company views as a baseline that “validates the underlying quality of our rental business.”

During the Q&A, Sidoti & Company analyst Steve Ferazani asked about the factors impacting tool rental margins and how much was utilization versus mix, pricing, and costs. Prejean attributed pressure to “soft market conditions in the U.S.” and the “muted or an early breakup in Canada,” adding that pricing dynamics and customer mix also play a role as the company “push[es] back on pricing” and tries to be “the price maker instead of the price taker.”

Prejean said he expects conditions to improve as the year progresses, stating there will be “an uptick in the North America market” that should help relieve compression. He added that new products can carry higher margins and help offset weaker areas. When asked to quantify the impact of the early spring breakup, Prejean said he could not “really quantify that exactly,” but noted that the softness typically shows up in the second quarter and instead occurred more in the first quarter.

Technology adoption and international expansion

Management repeatedly pointed to adoption of DTI’s differentiated tool portfolio as a key contributor to its outlook, particularly outside North America.

Prejean said ClearPath stabilizer technology is “gaining traction as customers adopt it for high-value offshore and land projects around the world,” and that DTI has shifted “more from a product approach to a system approach.” In the Q&A, he cited traction in the North Sea and “high-value operations” in parts of Asia and the Gulf of America.

Prejean also discussed the Drill-N-Ream’s progress in the Middle East, describing it as a solution for “complex wellbore challenges, including micro doglegs, tortuosity, and getting casing to bottom.”

On Deep Casing Tools, Prejean said utilization bottomed in 2024 and has continued to recover, with a “notable rebound” in product sale purchase orders. Johnson added that Deep Casing Tools product sales had “bottomed out much earlier” and have started picking up as customers depleted inventories. Ferazani pointed to the product sales line being higher than expected, and Johnson said the company expects “continued improvement” through the rest of 2026, referencing increased opportunity as customers work through inventories and activity rises.

Capital spending, balance sheet, and capital allocation

DTI reported capital expenditures of approximately $7.7 million in the first quarter. Johnson said the level was elevated versus the company’s typical first-quarter run rate, but “not unexpected as we prepare for the year ahead,” and he expects CapEx to trend downward as the year progresses.

At the same time, Johnson said DTI is evaluating incremental, targeted investments to support early adoption of ClearPath and other international opportunities. He characterized these as “attractive project-based opportunities with sticky revenue characteristics,” though he noted that if the company accelerates investment, it “may land at the lower end” of its Adjusted Free Cash Flow guidance range.

Maintenance CapEx was about 13% of total revenue, which Johnson said was “primarily fueled by higher-than-average tool recovery revenue.” He emphasized that maintenance spending is “primarily funded by tool recovery revenue,” which helps keep the rental fleet “relevant and sustainable regardless of market trends.”

On the balance sheet, Johnson said that as of March 31, 2026, DTI had $2.8 million of cash and cash equivalents and net debt of $48.9 million. He said net debt increased modestly due to typical first-quarter seasonal working capital patterns, including incentive compensation payouts and elevated first-quarter CapEx. Johnson said the company expects improved cash flow through the remainder of the year and intends to reduce leverage “consistent with how we have managed the business historically.”

DTI also repurchased approximately $700,000 of shares during the quarter.

Guidance reaffirmed and sponsor distribution completed

Management reaffirmed 2026 guidance ranges, reflecting its view of a softer first half with improvement building in the second half:

• Revenue: $155 million to $170 million
• Adjusted EBITDA: $35 million to $45 million
• Adjusted Free Cash Flow: $17 million to $22 million

Prejean said the company’s full-year outlook remains intact, and Johnson said the ranges reflect the company’s previously communicated assumptions on the cadence of improvement. Prejean also said DTI is seeing steady traction in offshore markets, including the Gulf of America and the North Sea.

Beyond operations, management highlighted a corporate milestone: DTI’s primary private equity sponsor, HHEP, completed the distribution of its remaining DTI shares to limited partners. Prejean said the event “materially increases our public float and our trading liquidity,” and, together with a board refresh, marks a transition into a “fully independent public company.”

Johnson said that following the distribution, about 90% of outstanding shares are held in the public float, with the former sponsor and insiders holding a “low double-digit minority.”

About Drilling Tools International NASDAQ: DTI

Drilling Tools International Corporation provides oilfield equipment and services to oil and natural gas sectors in North America, Europe, and the Middle East. It offers downhole tool rentals, machining, and inspection services to support the global drilling and wellbore construction industry. The company also provides products are bottom hole assembly components, such as stabilizers, subs, non-magnetic and steel drill collars, hole openers, and roller reamers, as well as drill pipe and drill pipe accessories; ancillary equipment and handling tools to support its rental platform, including float valves, ring gauges, tool baskets, lift bail, lift subs, mud magnets, elevators, bracket and bail assemblies, slips, tongs, stabbing guides and safety clamps; and blowout preventers, and pressure control accessory equipment.

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