Greetings. Welcome to Drilling Tools International 2024 Year End and Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jacqueline. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International 2024 year-end and fourth quarter earnings conference call and webcast. With me today are Wayne Prejean, Chief Executive Officer, and David Johnson, Chief Financial Officer. Following my remarks, management will provide a review of year-end fourth quarter results and 2025 outlook, opening the call for your questions. There will be a replay of today's call. It will be available by webcast on the company's website at drillingtools.com. There will also be a telephonic recorded replay available until March 21st. Please note that any information reported on this call speaks only as of today, March 14th, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States Federal Securities laws. These forward-looking statements reflect the current views of DTI's management. However, various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. We encourage the listener or reader to read its annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies. Comments today will also include certain non-GAAP financial measures, including but not limited to adjusted EBITDA and adjusted free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and reconciliations to the most directly comparable GAAP measures can be found in our earnings release and our filings with the SEC. And now with that behind me, I'd like to turn the call over to Wayne Prejean, DTI's Chief Executive Officer. Wayne?

Thanks, Jacqueline, and good morning, everyone. I will provide some opening remarks before handing the call over to David to review the numbers. I'll then provide a few final thoughts before we open it up for questions. Let's get started. As you saw in our pre-release last month, and in our detailed earnings release yesterday, we are proud of our strong finish in a tough industry environment. Despite the industry-wide headwinds that persisted in Q4, including rig count softness in US land, US Gulf, and Middle Eastern markets, we generated 2024 revenue growth at the high end of our guidance, and our adjusted EBITDA was near the midpoint of our guidance. For adjusted net income, we finished the year above the high end of our guidance, and we more than doubled our prior year adjusted free cash flow. Tool rental revenues were $117.9 million and product sales $36.5 million for a full year 2024 consolidated revenue of $154.4 million. Adjusted net income for 2024 was $10.1 million, and adjusted diluted EPS for 2024 was $0.31 per share. We generated 2024 adjusted EBITDA of $40.1 million and adjusted free cash flow of $17.2 million. As of December 31st, 2024, we had approximately $6.2 million in cash and cash equivalents and net debt of $47.6 million. In a moment, David will take you through the year-end and fourth quarter financials in more detail and discuss our 2025 outlook. We have now been a public company for seven quarters, and our mission remains as clear today as when we began. We continuously demonstrate to our customers we are the premier drilling tools rental solutions provider for servicing the wellbore construction and casing installation market segments. We believe our expertise, experience, and market-leading position enable us to continue our growth initiatives through expansion and…

Thanks, Wayne, and thank you everyone for joining us today. In yesterday's earnings release, we provided detailed year-end fourth quarter financial tables. So I'll use this time to offer further insight into specific financial metrics. Wayne gave an overview of full-year results in his opening comments. So I will provide some color on our fourth quarter results. We generated consolidated revenue of $39.8 million with tool rental revenue of approximately $31.5 million and product sales revenue of $8.3 million. While we saw continued rig count softness and some fourth quarter budget in 2024, revenue was nearly flat sequentially. Fourth quarter revenue also increased over last year's fourth quarter by 13% despite a 4% global rig count decline over the same period. We believe this is a true testament to the resiliency of our business model and diversified geographic footprint. Total operating expenses were $38 million and income from operations was $1.8 million. Net loss for the fourth quarter was $1.3 million, and adjusted net income was $600,000. Diluted EPS for the fourth quarter was a loss of $0.04 per share and adjusted diluted EPS was a profit of $0.02 per diluted share. Fourth quarter adjusted EBITDA was $9.1 million and adjusted free cash flow was $5.9 million. While we made decisions throughout the year to delay or defer CapEx, we maintained our CapEx spend to support the momentum we are seeing from our organic RotoStream product growth story. As a result, adjusted free cash flow was slightly below our expectations in the fourth quarter, but important to note that adjusted free cash flow was still more than double the prior year. Consolidated gross profit was mostly flat compared to the prior quarter and increased 9.5% over Q4 2023 with the increase over the prior year coming mainly from the effect…

Before we open up the lines for questions, I want to officially welcome Titan's talented team to the DTI family. As we continue to integrate Deep Casing, STP, EDP, and Titan, we have greatly expanded our geographical footprint. Enhanced our technological capabilities, and positioned DTI as a leader in the evolving energy landscape. We believe we will be able to provide our customers with access to an even wider array of products and services with the addition of these quality organizations. I would like to point out that we remain competitive and profitable despite soft market conditions, and we continue to be resourceful and innovative while combating pricing pressures. We constantly evaluate customer activity levels and adjust our operations to align with the demand. And we believe we will be well-positioned to come out stronger when the market recovers with the best personnel processes, products, and performance, all focused on best practices. And finally, as I have said before, we believe additional thoughtful consolidation opportunities exist in oilfield services that will supplement our organic growth initiatives. We believe acquiring high-quality companies at attractive multiples positions DTI to successfully participate in the next three to five-year expected growth cycle. We are very pleased with the execution of our acquisition growth strategy, especially in light of the headwinds our industry has experienced. Our acquired technologies are gaining traction due to their unique value and differentiated technological advantages. Some examples are our Deep Casing group deployed our MEK lock swivel for installing extended reach completion tools and it is making steady progress on locations across the globe. Our Revelizer tool is also gaining traction in the wellbore abandonment segment. Our proprietary stabilizer and reamer technology acquired from ED Projects is also growing rapidly and making a contribution in both hemispheric on land, and offshore markets. Elevated demand for complex wellbore solutions will further strengthen the need for our differentiated technology and the value-added solutions we provide our clients across the globe. In closing, we value and appreciate our customers, our employees, and our shareholders. I would like to thank every member of the DTI team for their continuous dedication to working in a safe, inspired, and productive manner. This commitment by our employees is crucial in driving our success and is integral to our future growth. With that, we will now take your questions. Operator?

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.

Morning, guys. Thanks for the time.

Good morning, Jeff. First, I want to start on the M&A market. Obviously, super busy last, you know, nine, twelve months for you guys. Can you talk about kinda current trends or themes in the M&A market broadly and guess curious your overall level of optimism about guess, the number of opportunities as well as the transactability of those, for lack of a better term. Thanks.

Sure. Sure. We we Joel will have a this is Wayne. Thanks, Jeff, for the question. We still have a steady pipeline of opportunities that are out there, and we continue to look at deals on a, you know, strategic level of how they fit into our organization, we've we, you know, you can see there's been some deals done in the industry over the last year, not only ours, but a few others. And I think that develops deal metrics and how the expectations between the buyers and the sellers are starting to come together. And I I think that's productive for all of us. So I I feel like we still have, you know, quite a few opportunities on the horizon. And, hopefully, be acting on those this year.

Okay. Great. Thank you. And for my follow-up, somewhat related on the balance sheet side of things. I think you guys ended the year maybe a little over one times leverage on a trailing basis. How important is delevering this year when we look at that adjusted free cash flow guide? You know, is is the first use of that to to pay down debts? And how do you think about you know, potentially using some of that free cash or further using your balance sheet for M&A opportunities.

I'll let David take that one. Dave?

Yeah. Jeff, thanks for the question. Yeah. We need to kinda look at the balance sheet and how we ended the year. The the net debt number of approximately I think it was $47 million or so was basically, the the full use of that was related to the cash portion of the acquisitions. So that kinda tells us, obviously, that was planned, number one. And number two, we basically used all of our, you know, all the CapEx was funded out of our free cash flow. So we can see that trend continuing. We'll be able to support our our CapEx needs, you know, for for twenty five as well as have that free cash flow to pay off debt or do further M&A kind of again, pull those levers as we need to based on the opportunities that come up in twenty five.

Okay. So I I guess to to rephrase the the answer, essentially, we should think about, you know, potential use of the balance sheet is is still in the cards for you guys in the context of M&A. Like, you guys feel good with with the balance sheet position that you're in. There's not an imminent urgency to you know, attack the debt side of things at at the detriment of M&A.

No. Absolutely. I think we're we're well positioned on the balance sheet. We still have availability under the know, credit facility, but we are obviously mindful and keeping an eye on our overall. And we'll do the, you know, the right strategic decisions there depending on the M&A opportunities. But focus on, you know, aggressive pay down of debt with our free cash flow.

And, David, further that, Jeff, we're very mindful of keeping an eye on the activity trends of the industry. You know, we're assuming flat to we have some, you know, baked in potential downward activity you know, bets placed into our forecast. But, you know, if we saw the industry changing, we we would pivot we have the means and the wherewithal and the cash flow to to accelerate any kind of delevering that that might be required. So

Understood. I'll turn it back. Thank you, guys.

Our next question is from Steve Ferazani with Sidoti and Company. Please proceed.

Morning, Wayne David. For taking the questions this morning. I know it's was a very, very active twenty twenty four. I'm sure it's gonna be an active twenty twenty five as well. I did wanna ask about the the the mix in four Q on the tool rentals, I was surprised at the sequential growth given that US land, as you noted, was was sequentially drilling was flat to maybe even down a little bit. So I'm curious if that was just international growth or if you gained any share on the rentals. And then product sales, the sequential decline, how much of that is typical seasonality or is there something else in play?

I think I think the answer to the first question with the product sales. We did, you know, the the the reduction in Saudi activity did affect our decasing product sales flow into that market. As well as, you know, softness in PEMEX. We have pivoted, you know, a lot of those efforts, you know, to other parts of the world and they're gaining traction steadily. But there's no we're not immune to that Saudi decline, I can assure you. As far as our tool rental activity, I think we've just you know, had a little surge of you know, your general activity. You know, we have gains and losses and they'll ebb and flow of the business. And deploying a new tool, some of the newer technologies that we have are getting more traction at higher pricing. So that's that's helping neutralize some of the other, you know, activity fluctuations. So I guess that would be the the general answer to that question about tool rentals changing.

Great. Thanks. And then on the the your your CapEx being high, you expect your guide is for higher in twenty twenty five and obviously after very low CapEx in the second half of twenty four. Is twenty five a catch up after a very low CapEx in the second half of twenty four? Are there any specific growth initiatives you wanna highlight behind the higher CapEx, which is not high, but higher. Target. I I understand. David, you wanna I'll stay by I'll I'll take that question. Yeah. Basically, you know, we're seeing the the change in twenty five related primarily to the the growth in the Eastern Hemisphere following these acquisitions. Know, with with some of the new technology that we've acquired. The CapEx to support that Eastern Hemisphere growth is really what we're seeing the difference you know, from twenty four to twenty five.

Mhmm. And supporting our rotor steer, which is continuing to grow off of you know, as well. So which is some of our newer technologies we're funding you know, as as and we're kinda neutral to negative not negative, but neutral on all of our supporting all of our other products, but no catch up is like I mean, I think I think the the source of your question is, are trying to catch up because we were behind The answer is we're we're we're still in the neutral zone on those, but we're investing some of the new things that we're supporting to grow in other areas and other product lines.

Fantastic. If I could just get one more in. Can you talk a little bit of I mean, you obviously pointed out we know Saudi and PEMEX specifically or or are areas for weakness in the first half of twenty five is most expect and and and obviously start impacting in twenty four. Any particular successes you wanna point to anything going better than expected with some of these acquisitions integration getting easier as you're getting more experience with it? If you can just sort of walk through your your view of of the international picture as twenty four went and how you're thinking about twenty five?

Yeah. So I think we're starting to the first the first part of that question is synergies. You know, we paint a significant amount of cost savings to the the the the SDPI transaction, and we're really excited about that. And now, you know, our launch in the Middle East, notwithstanding the Saudi decline, is starting to gain traction. And, you know, it's it's slow evolutionary process here to, you know, re you know, organize the group, get things moving faster and faster. We're in dozens of countries and and locations around the world, and so we've got a lot of diversification in traction gaining. You know, we're it's disappointing the softness in Saudi. That that one's, you know, you know, kind of little more impactful. But we we see our indications or that will heal itself over a short period of time. They can't stay low forever. But, you know, short term, that is that is slowed down our momentum. But the synergies are really taking place with the reduction in public cost, the reduction in repair cost, the reduction in royalties. All those those are ongoing sustainable synergies that will get savings from for years to come. And add more value. Then some of the new acquisitions, EDP and Titan, are just gaining, you know, getting off the ground because they were later in the year or early this year. So we're really excited about the technology we acquired from EMEA Projects. We're starting to gain traction in so many parts of the world. And with major customers around every operating environment. Offshore, land, you name it, North Sea, you know, Europe land, Middle East, getting constant orders. So it's picking up steam, and I think those premium products will help offset some of the, you know, the less than stellar activity issues that are ongoing in different parts of the world. So Right. Right.

Thanks, Wayne. Thanks, David.

Our next question is from Sean Mitchell with Daniels Energy Partners. Please proceed.

Good morning, guys, and thanks for taking my question. Wayne, maybe I hate to stay on the M&A theme, but just as you think about M&A opportunities, over the course of the next year or two, you you guys are gonna be reporting Eastern Hemisphere, Western Hemisphere. Can you give us some color around you think more M&A opportunities in the Eastern Hemisphere or Western or is it too early to tell? I mean, I know you're not breaking that out today on your financials, but just kinda thinking about the M&A market.

Well, we we do have targets in both places. So we are working actively working on opportunities. I wanna be careful not to say we're actually working on deals because we don't have any deal. We're just working on opportunities. But to be clear, we do believe that there are significant opportunities in these in the industry, which we're we're And there are some where we consider accretive bolt on really tuck ins that work for us here to strengthen our our North America business. And and we have willing, you know, sellers and and, you know, who people who see the the benefit our platform and wanna join our the the culture of our team, and they see the opportunity. So it should be on both sides of the of the water. So and we'll we'll just evaluate those as they come, you know. It's kinda like you know, we gotta hit a shot and, you know, in the fairway, then we gotta get it on the green next. So we're we're just gonna keep moving through each deal as they present themselves and seize those opportunities.

Fair enough. Maybe one more for me. I'll sneak one in. Given your exposure in the international markets, kinda how are you guys thinking about tariffs? And where do you see the risk So do you want me to take that one away? Yeah. Sure. Sure. So yeah. Sean, obviously, a very fluid and dynamic topic. But we have been kinda working with our our US trade council here You know, the the short two short answers are we believe a diversified supplier base and a diversified manufacturing base are are some of the best mitigating strategies, and I think we have both of those.

Got it. So that's a good box that we can check. The other thing, obviously, we're we're, you know, sort of contemplating is that the the Canadian, US, Canada, US affects our business the most. You know, we believe right now that's you know, the the the long term you know, you know, sooner than later because think the desire, you know, of both countries is to kinda create a free trade zone. So we don't think those tariffs right now and our council kinda believe the same, but they've that they won't be long term in nature. So we just need to address the any short term implications, you know, while they do last. And we can do that currently under the know, everything we do falls under the USMCA agreement or the know, Mexico Canada agreement there. So the way we move tools around and can you know, divert raw material to different locations as needed and do repairs, we have all that kinda working in our favor right now.

Got it. For taking my questions, guys.

Alright. Thanks, Sean.

This now concludes our question and answer session. I would like to turn the floor over to management for closing comments.

Okay. Thank you, everyone. Appreciate your interest in Drilling Tools International and participating in the call. We we are executing well throughout this this challenging cycle. I think we've demonstrated our resilience and viability through this continued challenge in the marketplace and we're you know, we're we have some bright things that we're working on and and and continuing to grow our business. Wanna invite everyone to we'll be participating at the Rolf and Piper conferences next week and hope to see you all there. So you for your interest. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.