Drilling Tools International Q3 Earnings Call Highlights

Key Points

• Third-quarter performance improved: Revenue rose 5% year over year to $40.6 million, while adjusted EBITDA increased 14% sequentially to $9.5 million. DTI reported an adjusted net loss of about $433,000, including significant acquisition-related expenses in its reported net loss.
• Higher investment lowered the cash flow outlook: DTI maintained revenue and adjusted EBITDA guidance but expects results near the lower ends of those ranges. It raised capital expenditure guidance to $22–$23 million and cut its adjusted free cash flow outlook to $13–$22 million, partly due to offshore technology investments.
• Saltire acquisition would expand international operations: DTI expects to close the approximately $80 million cash-and-stock deal in Q1 2027, subject to approvals. Management says the deal would boost the Eastern Hemisphere’s share of pro forma revenue to about 40% and plans to prioritize debt reduction after closing.

Drilling Tools International NASDAQ: DTI reported higher third-quarter revenue and adjusted earnings as drilling activity improved, while lowering its full-year adjusted free cash flow outlook to reflect increased spending on offshore tools.

The company also said it expects to close its proposed acquisition of Saltire Energy in the first quarter of 2027, subject to stockholder and regulatory approvals and other conditions. The deal would expand DTI’s international operations and increase its debt, with management prioritizing debt reduction after closing.

Revenue and margins improve

Third-quarter revenue rose approximately 7% from the second quarter and 5% from a year earlier to $40.6 million. Adjusted EBITDA increased 14% sequentially to $9.5 million, with the adjusted margin reaching approximately 23%. Adjusted free cash flow was $3.8 million.

DTI posted a net loss attributable to stockholders of approximately $2.6 million, or $0.07 per share. Chief Financial Officer David Johnson said the loss included approximately $2.2 million in transaction expenses, primarily related to the pending Saltire acquisition and financing. Adjusted net loss was approximately $433,000, or $0.01 per share.

Tool rental revenue was $32 million, up approximately 8% from the second quarter and essentially flat year over year. Johnson said rental gross margin improved to approximately 77%, helped by stronger utilization and firmer commercial terms. Product sales revenue was $8.7 million, up approximately 25% from a year earlier, primarily because of higher revenue from tools lost downhole or damaged beyond repair.

Chairman and CEO Wayne Prejean said September was DTI’s strongest month of the quarter and its first month in 2026 with approximately $4 million in adjusted EBITDA. He said he does not expect activity to decelerate in the fourth quarter, despite the spending slowdown that has historically occurred near year-end.

Prejean said the average U.S. rig count rose more than 6% sequentially to 589 in the third quarter, while Canada’s average rig count increased more than 40% following the seasonal spring breakup. In the Eastern Hemisphere, new offshore contracts in Europe began generating substantial revenue during the quarter, Johnson said.

Investment weighs on cash flow outlook

DTI maintained its full-year revenue guidance of $155 million to $170 million and adjusted EBITDA guidance of $35 million to $45 million. Johnson said the company expects to finish toward the lower end of both ranges.

The company raised its capital expenditure outlook to $22 million to $23 million and revised its adjusted free cash flow range to $13 million to $22 million, with results expected near the low end. Johnson attributed the change to targeted growth investments and the expectation for EBITDA near the bottom of its guidance range.

DTI’s investments in ClearPath technology for new offshore contracts will add approximately $4 million in capital expenditures above its original plan, Johnson said. He said the investments are already generating revenue and are expected to produce returns into 2027.

Saltire deal would expand international footprint

DTI agreed to acquire Aberdeen-based Saltire for approximately $80 million in cash, subject to customary adjustments, and 17.4 million DTI shares. The company expects to finance the cash portion with new debt and borrowings under its existing credit facility.

Prejean said the transaction would increase the Eastern Hemisphere’s share to approximately 40% of pro forma revenue, from approximately 19% of DTI’s third-quarter revenue. He also said the combined rental fleet would exceed 100,000 tools, compared with approximately 63,000 at DTI.

At the October announcement, management estimated Saltire would add $50.4 million of run-rate revenue and $22.5 million of run-rate adjusted EBITDA. Those estimates were based on unaudited monthly information and had not been reviewed by DTI’s auditors. DTI expects the deal to improve adjusted EBITDA margin and adjusted free cash flow per share in the first year after closing, without relying on synergies.

Johnson said DTI previously estimated net debt would be approximately 2.2 times trailing 12-month adjusted EBITDA at closing and expected to reduce that ratio to approximately one times within 24 months. As of September 30, DTI had $3 million in cash and $47.4 million in net debt. The latter fell approximately $4.3 million from June 30, primarily reflecting proceeds from a product-line sale-leaseback used to pay down debt.

Asked about share repurchases, Prejean said DTI paused buyback activity while developing the transaction and would prioritize deleveraging. He said the company could revisit repurchases later, depending on its share performance, liquidity and float.

About Drilling Tools International (NASDAQ:DTI)

Drilling Tools International Corporation NASDAQ: DTI provides rental tools and related services to the oil and gas drilling industry. The company supplies downhole equipment used in drilling, completion and production operations, serving exploration and production companies, drilling contractors and oilfield service providers.

Its product offering includes drill pipe, drill collars, heavy-weight drill pipe, stabilizers, subs, mud motors, drilling jars and other specialized downhole tools.

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