Drilling Tools International Corp. (DTI) is a global oilfield services company that has established itself as a leader in the design, engineering, manufacturing, and provision of a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the well life cycle. With a strategic focus on technological innovation and global expansion, DTI has meticulously navigated the dynamic oilfield services industry, consistently delivering value to its customers and shareholders.
Business Overview and History Founded in the early 2000s, Drilling Tools International Corp. (DTI) began as a global oilfield services company with a focus on the U.S. market. The company initially established service and support centers across North America, laying the foundation for its future growth. As DTI expanded, it opened 11 international service and support centers across Europe, the Middle East, Africa, and the Asia-Pacific regions, significantly broadening its global footprint and enhancing its ability to serve international customers.
In 2016, DTI faced challenges during an industry-wide downturn in the oil and gas sector. The company navigated through reduced drilling activity and pricing pressures by implementing cost reduction measures and focusing on operational efficiencies to maintain profitability. Despite these headwinds, DTI continued to invest in its rental tool fleet and innovation, developing new technologies to differentiate its offerings. This strategy of providing technologically-advanced, performance-driven solutions helped the company gain market share during this challenging period.
A significant milestone in DTI's history came in 2023 when the company completed a merger with ROC Energy Acquisition Corp., becoming a publicly traded company on the Nasdaq stock exchange. This transition provided DTI with additional resources and access to capital to fuel its growth and expansion plans, further solidifying its position in the global oilfield services market.
Financial Overview DTI's financial performance has been characterized by resilience and adaptability, as the company navigates the cyclical nature of the oilfield services industry. In the 2023 fiscal year, the company reported annual revenue of $152.03 million, reflecting a 17.3% increase compared to the prior year. This top-line growth was driven by a combination of increased demand for the company's rental tools and product sales.
Despite the inherent volatility in the industry, DTI has demonstrated its ability to maintain profitability, reporting annual net income of $14.75 million in the 2023 fiscal year. The company's strong financial position is further evidenced by its healthy balance sheet, with a current ratio of 1.32 and a debt-to-equity ratio of 0.36, indicating a prudent approach to capital allocation and a commitment to financial stability.
Financials DTI's cash flow generation has also been a key strength, with the company reporting annual operating cash flow of $23.33 million and annual free cash flow of -$20.42 million in the 2023 fiscal year. The company's ability to generate consistent cash flow has enabled it to fund growth initiatives, including strategic acquisitions and capital expenditures, while maintaining a disciplined approach to managing its liquidity.
For the most recent quarter (Q3 2024), DTI reported revenue of $40.09 million, net income of $0.87 million, operating cash flow of $5.33 million, and free cash flow of $1.96 million. The company achieved a year-over-year growth in revenue of 5.1%, driven by additional product sales from the acquired Deep Casing Tools and Diamond Products Division, partially offset by lower tool recovery revenue.
Liquidity The company's strong liquidity position is reflected in its balance sheet metrics and cash flow generation. With a current ratio of 1.32 and a quick ratio of 0.99, DTI demonstrates its ability to meet short-term obligations. The company's debt management is evident in its debt-to-equity ratio of 0.36, providing financial flexibility for future growth initiatives and the ability to weather potential industry downturns.
As of the latest reporting period, DTI had $12.0 million in cash and an $80.0 million credit facility with PNC Bank, maturing in March 2029, further enhancing its liquidity position.
Operational Highlights and Geographical Diversification One of the hallmarks of DTI's success has been its ability to diversify its operations both geographically and across product lines. During the three and nine months ended September 30, 2024, revenue generated within the United States was $31.7 million and $96.9 million, respectively, or 79% and 85% of total revenues. Revenue generated outside the United States, in Canada and International, was $8.4 million and $17.7 million, respectively, or 21% and 15% of total revenues.
The company's international expansion strategy has been a key driver of growth, as it has allowed DTI to capitalize on the increasing demand for its innovative solutions in global markets. The recent acquisitions of Deep Casing Tools and European Drilling Projects have further strengthened the company's presence in the Eastern Hemisphere, providing access to new customer bases and growth opportunities. DTI conservatively estimates their Eastern Hemisphere revenue mix will grow from approximately 1% of total revenue in 2023 to 10% or more when they report full year 2024 results.
In terms of product mix, DTI generates revenue from two primary business segments: tool rental services and product sales. The tool rental services segment, which accounted for approximately 75% of the company's total revenue for the nine months ended September 30, 2024, has been a reliable source of recurring income, while the product sales segment has provided opportunities for incremental growth and profitability.
The tool rental services segment consists of rental services, inspection services, and repair services. DTI recognizes revenue from tool rentals on a straight-line basis over the lease term. Tool rental services revenue accounted for $86.41 million for the nine months ended September 30, 2024, compared to $90.64 million for the same period in 2023. The decrease in tool rental revenue was primarily driven by lower market activity in DTI's Directional Tool Rentals (DTR) division, partially offset by increases in the Premium Tools Division (PTD) and Wellbore Optimization Tools (WOT) divisions.
The product sales segment includes revenue from the sale of tools that are damaged beyond repair, lost-in-hole, or lost-in-transit while in the customer's care, as well as revenue from drill bit manufacturing, refurbishments, and other made-to-order product sales. Product sales accounted for $28.19 million, or 25%, of DTI's total revenue for the nine months ended September 30, 2024, compared to $26.21 million, or 22%, for the same period in 2023. The increase in product sales revenue was primarily driven by additional sales from the acquisitions of Casing Technologies Group (CTG) in March 2024 and the Diamond Products Division (DPD) in August 2024, partially offset by lower tool recovery revenue.
Navigating Industry Challenges and Positioning for the Future The oilfield services industry has faced its share of challenges in recent years, including volatile commodity prices, fluctuating drilling activity, and increasing cost pressures. However, DTI has demonstrated its ability to adapt to these market conditions, implementing cost-saving measures and strategic initiatives to maintain its competitive edge.
One such initiative is the company's ongoing "One DTI" strategy, which aims to enhance operational efficiency, foster better alignment across the global organization, and leverage best practices from its various acquired businesses. This approach has already begun to yield tangible results, with the company reporting improvements in its adjusted EBITDA margins and free cash flow generation. Starting in Q4 2024, DTI will be transitioning from one to two reporting segments - Eastern Hemisphere and Western Hemisphere - to align with their "One DTI" strategy and enhance transparency.
Looking ahead, DTI remains well-positioned to capitalize on the expected recovery in the global energy market. The company's diversified product portfolio, technological leadership, and strong international presence position it to capture a larger share of the growing demand for oilfield services, particularly in the areas of horizontal and directional drilling, well construction, and casing installation.
Furthermore, DTI's strategic acquisitions have strengthened its competitive advantage, expanding its geographic reach, enhancing its technological capabilities, and diversifying its customer base. The recent additions of Deep Casing Tools, European Drilling Projects, Casing Technologies Group (CTG), and the Diamond Products Division (DPD) have bolstered the company's position as a provider of innovative, value-added solutions for the global drilling industry.
The global oilfield services market is expected to grow at a CAGR of approximately 5% from 2024 to 2029, driven by increased drilling activity and demand for innovative technologies to improve drilling efficiency and productivity. This industry trend bodes well for DTI's future growth prospects.
For the full year 2024, DTI has revised its guidance ranges, expecting revenue to be in the range of $145 million to $155 million, adjusted EBITDA between $38 million and $43 million, gross capital expenditures between $20 million and $22 million, adjusted net income between $7.7 million and $9.8 million, and adjusted free cash flow in the range of $18 million to $21 million, which is more than double the adjusted free cash flow reported in 2023.
Conclusion Drilling Tools International Corp. (DTI) has firmly established itself as a leader in the dynamic oilfield services industry, navigating the challenges of a cyclical market with resilience and adaptability. Through strategic acquisitions, technological innovation, and a relentless focus on operational excellence, the company has built a diversified and global platform capable of delivering sustainable value to its customers and shareholders.
As the energy industry continues to evolve, DTI is well-positioned to capitalize on the growing demand for its specialized tools and services, both in the domestic U.S. market and the increasingly important international markets. With a robust financial profile, a talented management team, and a commitment to innovation, DTI is poised to continue its trajectory of success, solidifying its position as a trusted partner in the global oilfield services landscape.