Drilling Tools International Targets Global Growth, Debt Reduction Through Rentals and M&A

Key Points

• Growth strategy: Drilling Tools International is targeting global expansion through its rental-tool model, international investments and acquisitions, with Eastern Hemisphere revenue rising to 18% from 1% three years ago.
• Acquisition and operating focus: The company is seeking technology and rental-tool acquisitions that add intellectual property, customer access, cash flow and geographic reach, while leveraging its repair, recovery and in-house manufacturing capabilities.
• Financial priorities: Management is emphasizing free cash flow and debt reduction over expansion for its own sake, targeting net debt of one times EBITDA or less and limiting growth capital spending to opportunities supported by customer demand.

Drilling Tools International NASDAQ: DTI is pursuing a growth strategy centered on rental tools, international expansion and acquisitions while emphasizing free cash flow and debt reduction, Vice President of Corporate Development Jameson Parker said during an investor presentation.

Parker described the company’s operating model as the “three Rs”: rental, repair and recovery. The company rents downhole drilling tools, repairs them for reuse and collects recovery payments when tools are lost in a well or damaged beyond repair. He said those recovery payments fund maintenance capital expenditures, a feature he characterized as distinct from many other public oilfield-services businesses.

Rental model and customer base

The company provides downhole tools used in land and offshore drilling, including drill pipe, heavyweight pipe, bottom-hole assembly equipment, directional drilling accessories, reamers and stabilizers. Parker said Drilling Tools International’s core revenue is tied to drilling accessories and directional drilling work, making its business closely correlated with rig counts.

About half of the company’s customers are exploration and production operators, while the other half are other oilfield-services companies, according to Parker. He said customers typically choose to rent tools rather than own them because they need a wide variety of equipment configurations, including different hole sizes, geometries and connection types.

“It is simply not efficient for them to own and maintain their own fleet,” Parker said, comparing the rental decision to travelers using hotels rather than maintaining their own lodging.

Drilling Tools International maintains and repairs equipment at centralized field locations that function largely as machine shops, he said. The company has more than 65,000 tools in inventory and uses its COMPASS software platform to track each tool throughout its lifecycle, including inspections, certifications, repairs, utilization and customer rental activity.

Technology and manufacturing investments

Parker highlighted several technology offerings acquired or developed through acquisitions, including the Drill-N-Ream tool from Superior Drilling Products and the ClearPath stabilization product suite acquired through European Drilling Projects.

He said ClearPath tools have gained adoption among operators in the Gulf of America and the Norwegian North Sea. The products are designed to support managed-pressure drilling applications in deepwater environments, where controlling equivalent circulating density can be important because of thin fracture gradients.

The company also manufactures most of its capital equipment internally, Parker said, citing facilities in Broussard, Louisiana; Vernal, Utah; and Canada. He said the manufacturing footprint supports the company’s fleet needs and higher-specification work.

International expansion and acquisition strategy

While 82% of revenue currently comes from the Western Hemisphere, primarily the U.S. and Canada, Parker said the company has increased its Eastern Hemisphere revenue contribution to 18%, up from 1% three years earlier. The expansion has been supported by acquisitions and organic investments in areas including Abu Dhabi, Aberdeen and Malaysia.

Drilling Tools International has completed four acquisitions since becoming public and remains active in evaluating additional opportunities, Parker said. The company’s last acquisition closed in January 2025.

Its acquisition criteria include intellectual property, earnings and cash-flow contribution, customer access, and geographic expansion. Parker said the company seeks technologies that can improve its rental offering, as well as similar rental-tool businesses in international markets.

• Technology acquisitions can add differentiated products and potentially support higher pricing, Parker said.
• Like-for-like acquisitions can expand the company’s scale and regional reach.
• International acquisitions may allow the company to introduce technologies developed in North America to overseas markets, or vice versa.

Parker said Drilling Tools International is focused particularly on reducing its reliance on North American activity and moving toward exposure that is more evenly weighted with global rig counts.

Capital allocation and balance sheet priorities

Parker said growth capital expenditures have declined since the company went public in 2023 as management shifted more capital toward acquisitions, debt repayment and shareholder returns. The company has conducted share repurchases but is now primarily focused on debt reduction and investment tied to specific customer demand, he said.

He said management aims to reduce net debt to earnings before interest, taxes, depreciation and amortization to one times or less over time. Parker described the company as “very debt averse” and said it does not intend to pursue expansion solely for growth’s sake.

Maintenance capital expenditures have historically ranged from 8% to 13% of revenue, with the company currently using 12% of revenue as an expected incident rate for lost-in-hole or damaged-beyond-repair events, Parker said. He noted that the rate can rise when drilling activity increases and less experienced crews enter the market.

Parker also said the company believes its adjusted free-cash-flow margin compares favorably with peers and cited a 25% free-cash-flow yield, though he said the figure was not included in the presentation materials.

Finally, Parker said the company expects continued opportunities in deepwater and Asia-Pacific markets amid customer discussions concerning energy security and prolonged disruption in the Middle East. He said management is encouraged by activity in the geographic markets where it has invested and sees potential for further rig additions and rental-tool demand.

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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