Drilling Tools International Q2 Earnings Call Highlights

Key Points

• DTI reported resilient second-quarter results despite a nearly 4% sequential decline in global rig activity, with revenue of $38.1 million, adjusted EBITDA of $8.4 million and adjusted free cash flow of $4.1 million. Tool rental revenue was $29.6 million, while net loss attributable to stockholders was $1.8 million.
• North American activity improved late in the quarter, with the July rig count reaching 777—about 10% above the second-quarter average—although softer land activity and pricing pressure reduced rental revenue. International operations faced Middle East disruptions, while demand for specialized ClearPath offshore technology remained strong.
• Management reaffirmed full-year 2026 guidance for revenue of $155 million–$170 million, adjusted EBITDA of $35 million–$45 million and adjusted free cash flow of $17 million–$22 million. DTI expects a stronger second half driven by international and U.S. activity, though elevated ClearPath-related capital spending may push free cash flow toward the low end of its range.

Drilling Tools International NASDAQ: DTI reported second-quarter 2026 revenue of $38.1 million, adjusted EBITDA of $8.4 million and adjusted free cash flow of $4.1 million, as the company navigated lower global drilling activity and operational disruptions in the Middle East.

Net loss attributable to stockholders was approximately $1.8 million, or $0.05 per share, during the quarter. Adjusted net loss was $575,000, or $0.02 per share. Tool rental revenue totaled $29.6 million, while product sales revenue was $8.5 million.

Chairman and Chief Executive Officer Wayne Prejean said the company generated resilient results despite a nearly 4% sequential decline in the global rig count. He said Middle Eastern rig activity declined almost 7% during the quarter and represented about half of the global decline affecting activity levels.

North American Activity Improved Late in the Quarter

Prejean said North American activity was affected early in the quarter by Canada’s seasonal breakup period, which removed roughly 50 rigs from the regional count in April. U.S. operators also broadly held activity flat while assessing the impact and duration of the Iran conflict, he said.

Activity strengthened later in the quarter, according to management. Prejean said the North American rig count reached 777 rigs in July, more than 70 rigs, or 10%, above the second-quarter average. The company also said additions of bottom-hole assembly rigs on U.S. land were outpacing the broader rig-count increase, which it views as a favorable indicator for its largest business line.

Chief Financial Officer David Johnson said the U.S. land rig count averaged about 541 rigs in the second quarter, down roughly 3% from the prior-year period. Tool rental revenue declined year over year due to softer North American land activity, an extended Canadian breakup period and pricing pressure in certain rental markets.

Still, tool rental gross margin remained above 70%, Johnson said. He added that commercial terms and activity improved toward the end of the second quarter, with the U.S. land rig count increasing by more than 20 rigs in June and nearly 19 additional rigs in July.

In Canada, Prejean said activity exceeded prior-year levels throughout the quarter, although the recovery after breakup was flatter than management expected. July activations reached 193 rigs, the highest level since February, which he said indicated much of the softness had subsided.

International Investments Center on Offshore Opportunities

The company’s Eastern Hemisphere segment contributed about 18% of total revenue in the second quarter. Management said ongoing regional conflict created intermittent operating disruptions and rig moves in the Middle East, though demand for DTI’s specialized tools remained steady.

Prejean said the company is seeing momentum in Oman, Kuwait and other markets, along with some traction with ADNOC in the United Arab Emirates. Saudi Arabia remained an opportunity, he said, but offshore operational suspensions related to the conflict delayed activity expectations.

Management highlighted demand for its ClearPath stabilizer technology in offshore, high-specification drilling markets. Prejean said the technology is gaining traction because it can help operators use managed pressure drilling and lower equivalent circulating density, supporting drilling operations in deepwater and other complex wells.

The company expects new offshore awards to produce a material increase in European contribution during the second half of 2026. Prejean also cited expected growth in the U.S. Gulf of Mexico. DTI is reallocating capital from more mature markets to international opportunities, with Norway representing a key investment area.

Capital expenditures were approximately $4.2 million in the second quarter, down from $7.7 million in the first quarter. Johnson said spending will not decline as sharply as usual during the second half because of ClearPath investments supporting Norwegian and other offshore opportunities. He said the investments are tied to long-term rental agreements and are expected to support revenue growth into 2027.

Guidance Reaffirmed as Company Expects Stronger Second Half

DTI reaffirmed its full-year 2026 outlook, projecting:

• Revenue of $155 million to $170 million;
• Adjusted EBITDA of $35 million to $45 million; and
• Adjusted free cash flow of $17 million to $22 million.

Johnson said the outlook implies a stronger second half, including substantial free cash flow generation, though elevated capital spending could place full-year adjusted free cash flow toward the lower end of the company’s range. Management expects activity gains in Europe, North Africa and the U.S., as well as improving international utilization, to build through the third and fourth quarters.

As of June 30, DTI had $2.5 million in cash and cash equivalents and net debt of $51.7 million. Net debt increased modestly during the quarter, primarily due to the Norway investment. Johnson said improved cash flow in the remainder of the year is expected to be directed primarily toward debt reduction.

Management also noted that former sponsor HHEP completed the distribution of its shares to limited partners during the quarter. Following the distribution, approximately 90% of DTI’s outstanding shares are held in the public float, according to the company.

Prejean said DTI continues to pursue profitable growth through technology, operational execution and potential acquisitions, describing the company as a disciplined consolidator in a fragmented industry.

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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