Workflow
Drilling Tools International (DTI) - 2024 Q3 - Earnings Call Transcript
DTIDrilling Tools International (DTI)2024-11-15 13:27
Filings

Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was 40.1million,withadjustedEBITDAat40.1 million, with adjusted EBITDA at 11.1 million and adjusted free cash flow at 7.8million,whichismorethantheentireadjustedfreecashflowgeneratedin2023[10][28]−Adjustednetincomeforthequarterwas7.8 million, which is more than the entire adjusted free cash flow generated in 2023 [10][28] - Adjusted net income for the quarter was 4.6 million, representing an adjusted diluted EPS of 0.14pershare[28]−Operatingexpenseswerereportedat0.14 per share [28] - Operating expenses were reported at 35.8 million, with income from operations at 4.3million[28]BusinessLineDataandKeyMetricsChanges−Toolrentalrevenuewas4.3 million [28] Business Line Data and Key Metrics Changes - Tool rental revenue was 28.1 million, while product sales revenue totaled 12million[27]−Improvedgrossmarginswerenotedinthetoolrentalsegment,attributedtotheverticalintegrationfromtheSuperiorDrillingacquisitionandbetterutilizationofpipe[42][43]MarketDataandKeyMetricsChanges−ThecompanyexperiencedrigcountsoftnessinU.S.land,U.S.GulfofMexico,andMiddleEasternmarkets[9]−TheEasternHemisphererevenuemixisexpectedtogrowfromapproximately112 million [27] - Improved gross margins were noted in the tool rental segment, attributed to the vertical integration from the Superior Drilling acquisition and better utilization of pipe [42][43] Market Data and Key Metrics Changes - The company experienced rig count softness in U.S. land, U.S. Gulf of Mexico, and Middle Eastern markets [9] - The Eastern Hemisphere revenue mix is expected to grow from approximately 1% of total revenue in 2023 to 10% or more in 2024 [33][64] Company Strategy and Development Direction - The company aims to become the premier drilling tools rental solution provider, focusing on scale through active M&A, having acquired three companies in 2024 and announcing a fourth [11][12] - The "One DTI" strategy is being implemented to integrate multiple businesses and enhance operational efficiencies [17][21] - The company is pursuing additional consolidation opportunities in the oilfield services sector to supplement organic growth initiatives [22][40] Management Comments on Operating Environment and Future Outlook - Management noted a stable downturn in the market, with expectations of a flat rig count and potential softness before an uptick [53] - The medium to long-term natural gas demand outlook is strong, particularly with new LNG capacity expected to come online in 2025 and 2026 [25] - The company is revising its 2024 revenue guidance to a range of 145 million to 155million,withadjustedEBITDAexpectedbetween155 million, with adjusted EBITDA expected between 38 million and 43million[31][32]OtherImportantInformation−Thecompanyplanstotransitiontotworeportingsegments,EasternHemisphereandWesternHemisphere,startinginQ42024[33][34]−Acostreductionprogramhasbeenimplementedforannualizedsavingsof43 million [31][32] Other Important Information - The company plans to transition to two reporting segments, Eastern Hemisphere and Western Hemisphere, starting in Q4 2024 [33][34] - A cost reduction program has been implemented for annualized savings of 2.4 million, with adjustments based on market conditions [24] Q&A Session Summary Question: Inquiry about tool rental revenue and gross margins - Management confirmed that improved margins were largely due to the vertical integration from the Superior Drilling acquisition and better utilization of pipe [42][43] Question: Update on the integration process of Superior Drilling - Integration in the Western Hemisphere is complete, and efforts are ongoing in the Eastern Hemisphere, with expectations for revenue synergies to materialize in Q4 and early 2025 [44][45] Question: Insights on M&A strategy and targets - The company is pursuing a range of M&A opportunities, from tuck-ins to transformational mergers, and is comfortable continuing to be active in the M&A space [46][48] Question: Discussion on the M&A market differences between North America and internationally - Management noted that while both markets present opportunities, the Eastern Hemisphere is less transparent and involves more complexities due to multiple countries [60][62]