Q1 2024 Drilling Tools International Corp Earnings Call

Operator: Greetings and welcome to the Drilling Tools International 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Denard. Thank you. Please go ahead.

Greetings and welcome to the drilling tools International 2024 first quarter earnings Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ken Dennard. Thank you. Please go ahead.

Ken Denard: Thank you, operator, and good morning everyone. We appreciate you joining us for Drilling Tools International, or more commonly referred to in the industry as DTI. We welcome you to DTI's conference call and webcast to review its 2024 first quarter results. With me today are Wayne Prejean, Chief Executive Officer, and David Johnson, Chief Financial Officer. Following my remarks, management will provide a high-level commentary on its 2024 first quarter results and outlook before opening the call for your questions. There will be a replay of today's call, and it will be available by webcast on the company's website at drillingtools.com and also a telephonic recorded replay until May 17.

Ken Dennard: Thank you operator, and good morning, everyone. We appreciate you joining us for drilling tools international or more commonly referred to in the industry as DTI. We welcome you to <unk> conference call and webcast to review 2024.

Ken Denard: Please note that any information reported on this call speaks only as of today, May 10, 2024, and therefore, you are advised that 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 Law. 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 managers.

Ken Denard: The listener or reader is encouraged to read the 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 contentions. The 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-GAP results for informational purposes only, and they should not be considered in isolation from the most directly comparable GAAP measures.

Ken Dennard: First quarter results.

Ken Dennard: With me today are Wayne <unk>, Chief Executive Officer, and David Johnson, Chief Financial Officer. Following my remarks management will provide a high level commentary on 2024 first quarter results.

Ken Denard: A discussion of why we believe these non-gap measures are useful to investors, certain limitations of using these measures, and reconciliations to the most directly comparable gap measures can be found in the earnings release and in 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.

Ken Dennard: The outlook before opening the call for your questions there'll be a replay of today's call. It will be available by webcast on the company's website at drilling tools Dot com it'll also be a telephonic recorded replay until may 17th please.

Ken Dennard: Please note that any information reported on this call speaks only as of today May 10, 2024 and.

Ken Dennard: And therefore, you are advised that 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.

Ken Dennard: These forward looking statements reflect the current views of <unk> 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.

Ken Dennard: The listener or reader is encouraged to read the 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. The comments today will also include certain non-GAAP financial measures, including but not limited to adjusted EBITDA.

And adjusted free cash flow.

Ken Dennard: We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures.

Ken Dennard: 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 the earnings release and in our filings with the SEC and now with that behind me I'd like to turn the call over to Wayne praise John D.

Wayne: <unk> Chief Executive Officer Wade.

Wayne Prejean: Thank you, Ken, and good morning, everyone. It has only been six weeks since our last call when we reported our 2023 fourth quarter, and you're in. Not much has changed in that short span of time relative to our results, messaging, or outlook. Today, I will begin my remarks with a quick overview of our integration activities, make a few observations, and then hand off the call to David to go through the financials and our 2024 outlook.

Wayne: Thank you Ken and good morning, everyone.

Wayne: It has only been six weeks since our last call when we reported our 2023 fourth quarter and year end not.

Wayne: Not much has changed in that short span of time relative to our results messaging or outlook.

Wade: I will begin my remarks with a quick overview of our integration activities make a few observations and then hand off the call to David to go through the financials and our 2020 for outlook.

Wayne Prejean: To begin, we have been extremely busy integrating deep casing tools since we acquired them in mid-March. We have also been working diligently on pre-closed activities related to the SDP transaction, including the S4 filing and integration planning.

David Johnson: To begin we had been extremely busy integrating deep casing tools since we acquired them in mid March.

David Johnson: We have also been working diligently on pre close activities related to the STP transaction, including the S four filing and integration planning.

Wayne Prejean: Once we close on STP, we believe the combination of these two acquisitions creates a step change for DTI by offering current and prospective customers proprietary products into expanding markets, both domestic and international. In addition to driving incremental revenue, we will also be eliminating duplicate costs and improving margins. We will provide more details on the positive financial impacts and potential synergies after we close on SEP. But, as I have said before, both of these transactions are outstanding examples of how we are expanding DTI's growth opportunities both domestically and internationally, with a particular focus on our presence in the Middle East.

David Johnson: Once we close on STP, we believe the combination of these two acquisitions Craig's a step change for DTI by offering current and prospective customers proprietary products into expanding markets, both domestic and international.

David Johnson: In addition to driving incremental revenue, we will also be eliminating duplicate costs and improving margins.

David Johnson: We will provide more details on the positive financial impacts and potential synergies. After we close on STP, but as I have said before both of these transactions are outstanding examples of how we are expanding dti's growth opportunities, both domestically and internationally with a particular focus on our presence in the middle East.

Wayne Prejean: For those of you that have listened to our conference calls since we became public, you'll note that I provided a longer form history of DTI during our first conference call in November and then gave an overview of our company during our year-end call on March 28. If you haven't listened to or read the transcripts of our first two public calls, you can access those webcast replays on our website.

David Johnson: For those of you that have listened to our conference call since becoming public.

David Johnson: Note that I provided a longer form history of DTI during our first conference call in November and then gave an overview of our company during our year end call on March 28, if.

David Johnson: If you haven't listened to or read the transcript of our first two public calls you can access those webcast replays on our website.

Wayne Prejean: Here's a quick overview for our new investors and those following the company since our last call. DTI is an industrial service company whose differentiated business model combines tools, technology, and equipment rental along with in-house manufacturing capability. We primarily serve the oil and gas upstream industry with downhole tools and the wellbore construction process. Our tools also serve the emerging geothermal and carbon capture sectors. We operate from our headquarters in Houston, Texas, and from 16 service and support centers across North America, and maintain seven international service and support centers across Europe and the Middle East.

David Johnson: Here's a quick overview for our new investors and those following the company since our last call.

DTI is an industrial service company, who is differentiated business model combines tool technology and equipment rental along with in house manufacturing capabilities, we primarily serve the oil and gas upstream industry with downhole tools and the Wellbore construction process.

Our tools also serve the emerging geothermal and carbon capture sectors.

David Johnson: We operate from our headquarters in Houston, Texas, and from 16 service and support centers across North America, and maintained seven international service and support centers across Europe, and the Middle East.

Wayne Prejean: Many of our service locations have machining, inspection, and repair capabilities that enable us to efficiently service our equipment, which results in improved customer satisfaction, reliability, and efficient utilization of our assets. Our business model has historically relied mostly on rental, repair, and recovery revenues. Our customers count on us to maintain a relevant and sustainable fleet of equipment. Rental and repair income provides the basis for our rental model.

David Johnson: Many of our service locations have machining inspection and repair capabilities that enable us to efficiently service, our equipment, which results in improved customer satisfaction reliability and efficient utilization of our assets.

David Johnson: Our business model has historically relied mostly on rental repair and recovery revenues, our customers count on us to maintain a relevant and sustainable fleet of equipment.

David Johnson: The rental and repair income provides the basis for a rental model. The tool recovery revenue also known as lost or damaged equipment charges allows us to sustain our fleet, which enables us not only to remain relevant but also generate positive adjusted free cash flow throughout the energy industry cycles.

Wayne Prejean: The tool recovery revenue, also known as lost or damaged equipment charges, allows us to sustain our fleet, which enables us not only to remain relevant, but also to generate positive adjusted free cash flow throughout the energy industry cycle. Lastly, the recent Deep Casing Tools acquisition brings high-margin product sale revenues with it, requires comparatively low capital expenditures to support, and allows our adjusted free cash flow margin profile to expand. We support the needs of blue chip customers like Aramco, Adnok, Baker Hughes, and Chevron.

David Johnson: Lastly, the recent deep casing towards acquisition brings high margin product sale revenues with it requires comparatively low capital expenditures to support and allows our adjusted free cash flow margin profile to expand.

David Johnson: We support the needs of Blue chip customers like Aramco, Abnaki Baker Hughes VP, Chevron Conocophillips EOG Exxon Oxy S. L B and many other prominent firms in our industry.

Wayne Prejean: ConocoPhillips, EOG, Exxon, Oxy, SLB, and many other prominent firms in our industry. These customers prefer to rent downhole tools because it would not be efficient to own and maintain their own fleet due to the many assorted configurations, hole sizes, geographies, and engineering requirements.

David Johnson: These customers prefer to rent downhole tools, because it would not be efficient and own and maintain their own fleet due to the many assorted configurations hole sizes geographies and engineering requirements. There are just too many variables in our dynamic industry that make it inefficient for customers to own all of their own tools.

Wayne Prejean: There are just too many variables in our dynamic industry that make it inefficient for customers to own all of their own tools. Bottom line, our customers rent tools from DTI because we provide high quality, service, and value along with our substantial fleet of tools to best serve their needs. Additionally, our EMP customers have continued their record pace of consolidation, so we occasionally find ourselves working for customers on both sides of the larger deal.

David Johnson: Bottom line, our customers rent tools from DTI, because we provide high quality service and value along with our substantial fleet of tools to best serve their needs.

David Johnson: Additionally, our E&P customers have continued at a record pace of consolidation. So we occasionally find ourselves working for customers on both sides of the larger deals.

Wayne Prejean: We have generally aligned ourselves with the industry consolidators and have extensive business relationships in place to meet their growing rental tool and service demand. Plus, our sales and operations teams make certain to maintain the continuity of business relationships across the industry to mitigate changes in our customer base. We have an enviable revenue stream from multiple product lines and numerous geographic locations covering every significant onshore and offshore oil and gas producing region in North America, Europe, and the Middle East.

David Johnson: We have generally aligned ourselves with the industry consolidators.

David Johnson: And have extensive business relationships in place to meet their growing rental tool and service demands.

David Johnson: Plus our sales and operations teams make certain to maintain the continuity of business relationships across the industry to mitigate changes in our customer base.

David Johnson: We have an enviable revenue stream from multiple product lines and numerous geographic locations covering every significant onshore and offshore oil and gas producing region in North America, Europe, and the Middle East.

Wayne Prejean: In a steady state environment, our business consistently delivers 30-plus percent adjusted EBITDA margins and double-digit adjusted free cash flow margins. We are proud of the progress and track record that we have built. In fact, the company has been EBITDA positive every single year during the last 10 years, including in 2020 during the depths of COVID.

David Johnson: In a steady state environment, our business consistently delivers 30 plus percent adjusted EBITDA margins and double digit adjusted free cash flow margins. We are proud of the progress and track record that we built in fact, the company has been EBITDA positive every single year during the last 10 years, including 2020 during the <unk>.

David Johnson: <unk> <unk> of Covid.

Wayne Prejean: Although we prefer a market that is stable and upward, we view downturns as opportunities to strengthen our business, and we have done so in each cycle. In addition to our positive financial results throughout these industry cycles, our safety, quality, and reliability of performance continue to be the hallmark of DTI. As we stated in our last call, we believe that the North America rig count bottomed in the fourth quarter of 2023 and is expected to remain relatively flat throughout 2024.

David Johnson: Although we prefer a market that is stable and upward we view downturns as opportunities to strengthen our business and we have done so in each cycle.

David Johnson: In addition to our positive financial results throughout these industry cycles, our safety quality and reliability performance continue to be the hallmark of DTI.

David Johnson: As we stated on our last call. We believe that the North America rig count bottomed in the fourth quarter of 2023 and is expected to remain relatively flat throughout 2024.

Wayne Prejean: Longer-term demand trends remain robust, with projections from agencies such as the EIA expecting oil demand to continue to grow through 2050. In addition, many industry experts are forecasting that the medium to long-term natural gas demand outlook is very strong, particularly with the new LNG demand slated to come online in 2025 and 2026 and electricity demand rising rapidly, as an example, the expected growth of AI data centers.

David Johnson: Longer term demand trends remain robust with projections from agencies such as the EIA expect all demand to continue to grow through 2015. In addition, many industry experts are forecasting that the medium to long term natural gas demand outlook is very strong, particularly with the new LNG demand is slated to come online.

David Johnson: Line in 2025, and 2026 and electricity demand rising rapidly as an example, the expected growth of AI data centers.

Wayne Prejean: We detailed while going public last year that there are meaningful consolidation opportunities that exist in our sector. It is our stated goal that, by making thoughtful acquisitions, we believe it is possible we can double or triple the size of the company in the near future. We have established an M&A framework and robust M&A pipeline that will allow us to selectively and strategically consolidate numerous oilfield service product and rental tool companies that meet the criteria for our growth plan.

David Johnson: We can tell while going public last year that there are meaningful consolidation opportunities that exist in our sector.

David Johnson: It is our stated goal that by making thoughtful acquisitions. We believe it is possible, we can double or triple the size of the company in the near future.

David Johnson: We have established an M&A framework and robust M&A pipeline that will allow us to selectively and strategically consolidate numerous oilfield service product and rental tool companies that meet the criteria for our growth plan.

Wayne Prejean: I hope this quick overview was helpful in providing basic background information for our current investors and our prospective investors. We have been extremely active in the M&A market since going public to position DTI for future growth, which is what we said we would do, and believe we are poised to make additional accretive acquisitions in the future. With that, I'll turn it over to our CFO, David Johnson, for a review of our financial results and outlook. Thanks, Wayne.

Speaker Change: I Hope this quick overview was helpful in providing basic background information for our current investors and prospective investors.

Speaker Change: We have been extremely active in the M&A market since going public to position DTI for future growth.

Speaker Change: Which is what we said we would do.

Speaker Change: And believe we are poised to make additional accretive acquisitions in the future.

Speaker Change: With that I'll turn it over to our CFO, David Johnson for a review of our financial results and outlook David.

David Johnson: Thanks, Wayne, and thank you everyone for joining us today. In yesterday's earnings release, we provided detailed financial tables, so today, I'll offer further insight into specific financial metrics for the first quarter. DTI generated total consolidated revenue of $37 million in the first quarter of 2024.

David Johnson: Thanks, Elaine and thank you everyone for joining us today and yesterday's earnings release, we provided detailed financial tables.

David Johnson: So today I'll offer further insight into specific financial metrics for the first quarter.

David Johnson: First quarter tool rental net revenue was approximately $30 million, and product sales net revenue totaled $7 million. First quarter operating expenses were $31.8 million, and operating income was $5.1 million. Adjusted net income for the first quarter was $3.8 million. First quarter adjusted EBITDA was $10.9 million, and adjusted free cash flow was $4.7 million.

David Johnson: <unk> generated total consolidated revenue of $37 million in the first quarter of 2024 <unk>.

David Johnson: First quarter tool rental net revenue was approximately 30 million and product sales net revenue totaled $7 million.

David Johnson: First quarter operating expenses were 31 8 million and operating income was $5 1 million.

David Johnson: Adjusted net income for the first quarter was $3 8 million first quarter adjusted EBITDA was $10 9 million and adjusted free cash flow was $4 7 million.

David Johnson: As of March 31st, 2024, we had approximately $14 million of cash, net debt of $11 million, and an undrawn $80 million ABL credit facility. We saw a sequentially flat U.S. land rig count during the first quarter of 2024 and a 19% decline in rig count compared to the first quarter a year ago. Despite this decline in rig count and activity, our revenues in the first quarter of 2024 are up 5% over the prior quarter and have declined by only 9% compared to the same period of 2023. We attribute this outperformance to our Tier 1 customer base, our wide distribution service and support network, and new product offerings that have gained market traction.

David Johnson: As of March 31, 2024, we had approximately $14 million of cash net debt of $11 million and an undrawn $80 million ABL credit facility.

David Johnson: We saw a sequentially flat U S land rig count during the first quarter of 2024, and a 19% decline in rig count compared to the first quarter a year ago.

David Johnson: Despite this decline in rig count and activity our revenues in the first quarter of 2024 or up 5% over the prior quarter and have declined by only 9% compared to the same period of 2023.

David Johnson: We attribute this outperformance to our tier one customer base, our wide distribution service and support network and new product offerings that have gained market traction.

David Johnson: As I explained on our last call, I want to discuss our capital expenditures and the offsetting benefits of our tool recovery business model that obtains payment for lost or damaged tools. As a down-hole rental tool company, our maintenance capital is funded by tool recovery revenue. The customer is responsible for all lost or damaged tools while the tools are in their care, custody, or control.

David Johnson: As I explained on our last call I want to discuss our capital expenditures and the offsetting benefits of our tool recovery business model that obtain payment for lost or damaged tools.

David Johnson: As a downhole rental tool company, our maintenance capital is funded by tool recovery revenue. The customer is responsible for all lost or damaged tools, while the tools are in their care custody or control.

David Johnson: This tool recovery component of our rental model helps keep our rental tool fleet relevant and sustainable. For the three-month period ending March 31st, 2024, maintenance capex was approximately 9% of total consolidated revenue. This portion of our capital investments is trending lower than it has over the past couple years, and some of this has already been factored into our gross capital expenditure considerations. Now moving on to our Outlook, we are reaffirming our 2024 Outlook, which includes deep casing tools and their estimated impact on full year results, but does not include any contribution from the pending acquisition of superior drilling products. We will update 2024 guidance for SDP's impact once we close the transaction.

David Johnson: This tool recovery component of our rental model helps keep our rental tool fleet relevant and sustainable.

David Johnson: For the three month period, ending March 31, 2020 for maintenance Capex was approximately 9% of total consolidated revenue.

David Johnson: This portion of our capital investments is trending lower than it has over the past couple of years.

David Johnson: Some of this has already been factored into our gross capital expenditure considerations.

David Johnson: Now moving onto our outlook, we are reaffirming our 2024 outlook, which includes deep facing tools estimated impact on full year results, but does not include any contribution from the pending acquisition of superior drilling products.

David Johnson: We will update 2024 guidance for Stp's impact once we close the transaction.

David Johnson: We expect 2024 revenue to be in the range of $170 to $185 million. We expect adjusted EBITDA to be within the range of $50 to $58.5 million. Gross capital expenditures are expected to be between $30 and $33 million. Adjusted net income for the full year is expected to be between $15.6 and $21.9 million. And finally, we expect adjusted free cash flow to more than double prior year adjusted free cash flow and be in the range of $20 to $25.5 million in 2024.

David Johnson: We expect 2020 for revenue to be in the range of $170 million to $185 million.

David Johnson: We expect adjusted EBITDA to be within the range of 50 to $58 5 million.

David Johnson: Gross capital expenditures are expected to be between 30 and $33 million.

David Johnson: Adjusted net income for the full year is expected to be between $15, six and 21 $9 million and finally, we expect adjusted free cash flow to more than double prior year adjusted free cash flow and be in the range of 20% to $25 5 million for 2020.

David Johnson: Four.

David Johnson: Please note, we have substituted adjusted net income for net income in the guidance grid since we now have non-recurring, acquisition, and related one-time charges in 2024. This change will help normalize that portion of our guidance as we execute on our M&A strategy. That concludes my financial review and outlook section. Now, I will turn it back over to Wayne to provide some summary comments before Q&A.

David Johnson: Please note we have substituted adjusted net income for net income and the guidance grid. Since we now have nonrecurring acquisition and related one time charges. In 2024. This change will help normalize that portion of our guidance as we execute on our M&A strategy.

David Johnson: That concludes my financial review and outlook section now, let me turn it back over to Wayne to provide some summary comments before Q&A.

Wayne: Thank you David.

Wayne Prejean: David, before opening up the line for Q&A, I am pleased to say that first quarter results came in as expected and we have reaffirmed our 2024 outlook. RotoSteer and Drill & Ring product revenue continues to grow, and we continue to expand our scope of tools and services in existing product lines through technological advances. We are furthering our customer penetration by growing rental revenue with our expanded capabilities, new tools, and services. The deep case integration is going well, and we will have a full quarter of results to report to you in the second quarter.

Wayne: For opening up the line for Q&A I'm pleased to say that first quarter results came in as expected and we have reaffirmed our 2020 for outlook.

Wayne: <unk> and drilling marine product revenue continues to grow and we continue to expand our scope of tools and services in existing product lines through technological advancements.

Wayne: We are furthering our customer penetration by growing rentals with our expanded capabilities new tools and services.

Wayne: The deep casing integration is going well and we will have a full quarter of results to report to you in the second quarter.

Wayne Prejean: We are working as quickly as possible to get all filings and regulatory portions of the SDP deal administered and are still on track to close in the third quarter. We expect to continue our market-leading strategy throughout 2024 and expand our customer base as we move into 2025. And we believe additional thoughtful consolidation opportunities exist in oil field services that will supplement our organic growth initiatives already in motion. To close, I would again like to express my sincerest gratitude to every member of the DTI team for their continuous dedication to safety, customer service, and the successful execution of our strategic initiative. The commitment of our team members has been critical in driving our success, and I extend my heartfelt appreciation for their contributions. With that, we will now take your questions. Operator.

Wayne: We are working as quickly as possible to get all filings and regulatory portions of the SDP deal administered and are still on track to close in the third quarter.

Wayne: We expect to continue our market leading strategy throughout 2024, and expand our customer base as we move into 2025 and.

Wayne: And we believe additional thoughtful consolidation opportunities exist in oilfield services that will supplement our organic growth initiatives already in motion.

Speaker Change: To close I would again like to express my Sincerest gratitude to every member of the DTI team for their continuous dedication to safety customer service and the successful execution of our strategic initiatives.

Speaker Change: The commitment of our team members has been critical in driving our success and I extend my heartfelt appreciation for their contributions.

Speaker Change: With that we will now take your questions operator.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, that's Star 1 to register a question at this time. Today's first question is coming from Jeff Gramp of Alliance Global Partners. Please go ahead.

Speaker Change: Thank you the floor is now open for questions if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your hand.

Before pressing the star Keys again, Thats Star one to register a question at this time.

Speaker Change: Today's first question is coming from Jeff Gramm of Alliance Global Partners. Please go ahead.

Jeff Gramm: Good morning, guys.

Jeff Gramp: Good morning. Question on the revenue guidance. It looks like kind of an implication is that we should see some sequential increases in revenue going forward. Just hoping you could comment on kind of how you see the pace of progression throughout the rest of 24 and kind of the main drivers for the growth. Thanks.

Jeff Gramm: Yes, good morning question on the.

Jeff Gramm: The guidance for revenue.

Jeff Gramm: It looks like kind of an implication is we should see some sequential increases in revenue going forward, just hoping you could comment on.

How you see the pace of progression throughout the rest of <unk> 24, and kind of the main drivers for the growth. Thanks.

Wayne Prejean: This is Wayne. You know, we feel like our guidance that we've given, you know, publicly is achievable throughout the rest of the year. Some of our growth initiatives were a little back-loaded, and they depend on, you know, the market, you know, being as expected, so we feel like those are still very achievable, and we can continue to grow these new product lines and some of these new initiatives we have. So we feel pretty confident about that going forward.

Wayne: This is Wayne.

Speaker Change: You know.

Speaker Change: We.

Speaker Change: We feel like our guidance that we've given.

Wayne: <unk> is achievable throughout the rest of the year some of our growth initiatives were a little back loaded and they depend on the market being as expected so.

Wayne: We feel like those are still very achievable and we can continue to grow these new product lines and some of the new initiatives we have so.

Wayne: We feel pretty confident about that going forward.

Speaker Change: Okay, Great and my follow up with respect to deep casing can you just touch on the integration process. There I know, it's only been a couple of months, but just update us on how you feel that integration process is going and then also curious if you could touch on maybe some of the revenue synergy opportunities that you guys see with bringing.

Wayne Prejean: Okay, great. And my follow-up question, with respect to deep casing, can you just touch on the integration process there? I know it's only been a couple of months, but just update us on how you feel that integration process is going. And then also, I was curious if you could touch on maybe some of the revenue synergies opportunities that you guys see with bringing that into the DTI platform.

Speaker Change: And bringing that into the DTI platform.

Wayne Prejean: Cool, yeah, great. We, you know, the integration is going well. They have a really fine team.

Speaker Change: Yes, Greg.

Greg: The integration is going well they have a really fine team deep patient tools.

Wayne Prejean: The Deep Case and Tools division, you know, now of DTI, is integrating well. We are starting to, you know, work as a group on our Middle Eastern and, you know, international execution strategies, expanding to different markets and further taking advantage of what's already in motion in the Middle East and assisting them with more inventory and other support functions and removing some of their, you know, overhead and administrative burdens so they're now part of our team, and that makes it easier for them to execute.

Greg: Division now a DTI is <unk>.

Integrating well we are starting to.

Greg: Work as a group on our middle East German and international execution strategies expanding to different markets.

Greg: Further taking advantage of what's already in motion in the middle East and assisting them with more inventory and other support functions and removing some of their overhead and administrative burdens. So they're not part of our team and that makes it easier for them to execute we've had a number of.

Greg: Team meetings and discussions on how to expand into the western hemisphere, which we can greatly assist them with that so all of those things are in motion and we hope to report.

Wayne Prejean: We've had a number of team meetings and discussions on how to expand into the Western Hemisphere, which we can, you know, greatly assist them with. So all of those things are in motion, and we hope to report some of those results here in the very, very near future.

Greg: Some of those results here in the very very near future.

Jeff Gramp: Okay, great. I look forward to it. Thank you, guys.

Speaker Change: Okay, Great look forward to it thank you guys.

Speaker Change: Okay.

Steve Farazani: Thank you. The next question is coming from Steve Farazani of Sidotian Company. Please go ahead.

Speaker Change: Thank you. The next question is coming from Steve <unk> of Sidoti <unk> Company. Please go ahead.

Steve Farazani: Morning, Wayne. Morning, David.

Steve: Good morning, <unk> morning, David.

Just wanted to follow up on the deep casing tools question your EBITDA margin.

Steve: Solid but was at the lower end of your guidance range should we think and I know you've only had a couple of weeks D pacing tools in the quarter.

Wayne Prejean: I did want to follow up on the deep casing tools question. Your EBITDA margin was solid but was at the lower end of your guidance range. Should we think, and I know you only had a couple weeks of deep casing tools in the quarter, I'm assuming you expect deep casing tools to be margin accretive. Is that a mix of synergies, or are there some higher margins from that acquisition?

Steve: Assuming you expect deep casing cool tools to be margin accretive is that a mix of synergies or or are there some higher margins from that acquisition.

Wayne Prejean: Well, we're hoping for both, you know, I think we're planning for some of that, but we also have to absorb some full-year pubco costs. And so it does provide some free cash flow benefit because it's a product sale platform and less of a rental, you know, time and return component.

Steve: Well, we're hoping for both and I think we're planning for some of that but we also have to absorb some full year pubco cost yes.

Steve: And so it does provide some free cash flow benefit because of just a product sale.

Steve: Platform and less of a rental time and return component. So we're happy about that and we're helping them, we're kind of helping them deploy more and more inventory and more and more resources to get the product sale activity.

Wayne Prejean: So we're happy about that. And we're helping them deploy more and more inventory and more and more resources to get the product sale activity momentum in the direction that we want. They've done a really good job pre-closing, and we had already planned post-closing on how to accelerate that, and that's kind of what we're relying on. So, you know, the synergies between the two should give us that upward momentum we see to kind of offset the current run rate. So... Steve McLaughlin makes sense. It makes sense.

Steve: Momentum and the direction that we want they've done a really good job of pre closing and we had already planned post closing on how to accelerate that and that's kind of what we're relying on so.

Steve: The synergies between the two and <unk>.

Steve: Should give us that upward momentum, we see to kind of offset the current run rate. So it makes sense makes sense I appreciate that.

Wayne Prejean: I appreciate that. So you talked about the fact that, again, this quarter, we didn't see the same kind of... Your revenue decline was far better than the decline in the rig count, which says you're outpacing activity. You noted that you have significant business with tier one operators, which certainly makes sense, and it's helping. How does that, does that help, and I would assume it does in terms of the significant consolidation we're getting among operators and how you think that's going to play out on your business moving forward?

Steve: You talked about the fact that again this quarter your <unk>.

Steve: Didn't see the same kind of revenue decline was far better than the decline.

Steve: Of the rig count, which says Youre outpacing activity.

Steve: You noted that Youre a significant.

Steve: Business with tier one operators, which certainly makes sense it's helping.

Speaker Change: Does that does that help but I would assume as does in terms of the significant consolidation, we're getting among operators and how you think that's going to play out on your business moving forward.

Wayne Prejean: Well, we think we're in a good position to, you know, mitigate all the changes. And, you know, that's part of how we operate our business, right? You have a plan one and plan to implement plan B. So, when things happen, you implement plan B, and then plan C. So I think we've done a pretty good job of, you know, mitigating a linear decline in, you know, relative to the general activity by implementing some new products, some new things in our offering that help us remain above the linear decline.

Speaker Change: Well, we think we're in a good position.

<unk> two.

Speaker Change: Mitigate all the changes and I know thats part of how we operate our business right. You don't have a plan one and plan to plan a plan b.

Speaker Change: So things happened you implement a plan B and then plan C. So.

Speaker Change: I think we've done a pretty good job.

Speaker Change: Mitigating a linear decline in relative to the general activity.

Speaker Change: By implementing some new products, some new new things in our in our offering that help us remain above the linear decline I think done a good job of that and we'll continue to do that bigger operators want bigger rental partners.

Wayne Prejean: I think we've done a good job of that, and we'll continue to do that. Bigger operators want bigger rental partners, you know; they want more substantial providers that have a substantial and significant fleet of equipment. So I think that plays into our hand.

Speaker Change: More substantial providers that have a substantial and significant fleet of equipment. So I think that plays into our hands.

David Johnson: Great. David, I'm not sure if you gave this, but for the CAPEX guidance for the year, did you provide the split on maintenance versus growth?

Speaker Change: Great.

Speaker Change: David I'm not sure. If you gave this but for the Capex guidance for the year did you provide the split on maintenance versus growth.

David Johnson: Yeah, I think we mentioned the kind of percentage of maintenance of consolidated revenue. We do have that breakout in our investor presentation, which will be online or is online, but as I mentioned there, we're seeing just a slight decline in our trend from prior years and that maintenance percentage of consolidated revenue, and all that has been factored into our CAPEX considerations for the full year.

David Johnson: Yes, I think we I think we mentioned the kind of the percentage.

David Johnson: Our maintenance.

Speaker Change: Elevated revenue.

David Johnson: We do have that breakout in our investor presentation, which will be online or is online.

David Johnson: But as I mentioned, there were seeing just a slight decline in our trend from prior years and that maintenance.

David Johnson: Percentage of consolidated revenue and all of that has been factored into our capex considerations for the full year.

David Johnson: When we look at what you reported in Q1, the sales of the lost downhole tools almost completely replaced CapEx, and you ended up generating pretty good cash flow, considering the working capital was a negative, and your guidance is solid. Can you sort of walk through the mix and how you think that plays out through the year?

David Johnson: Greg when we look what you reported on Q1 your sales of your of the lost downhole tools almost completely.

David Johnson: Replaced Capex and you ended up generating pretty good cash flow considering working capital was negative in the guidance is solid so.

David Johnson: Can you sort of walk through the mix and how you think that plays out through the year.

David Johnson: Yeah, I mean, basically, our CapEx slate is on order, and as those come in, we'll see that affect the rest of the year. But we're supporting, obviously, our organic growth strategy, particularly with the RotoShare product line and our CapEx spend. And again, as you can see, as you kind of look at the chart in the investor presentation, we are focused on the free cash flow component. So we're managing that growth portion of our CapEx and our free cash flow component of our EBITDA to kind of show that we can generate that free cash flow component this year compared to last year because we spent some money investing in top-line growth last year. So we're seeing that come to fruition in 2024.

Greg: Yes, we've got we've got basically a R.

Greg: Capex slate is on order and as those come in we'll see that affect the rest of the year, but we're supporting obviously, our organic growth strategy, particularly with the <unk> product line and our Capex spend and we're as again as you can see as you kind of look at the chart and the Investor presentation.

Greg: We are focused on the free cash flow component, so we're managing that growth.

Greg: A portion of our Capex in our free cash flow component of our EBITDA to kind of show that we can generate that free cash flow component. This year compared to last year, because we spent some money investing in top line growth last year. So we're seeing that come to fruition in 'twenty four.

David Johnson: I mean, in a normalized year where you wouldn't be making the investments in RotoSteer, and it's understandable why you would given the demand, does the sale of the lost outhold tools largely offset maintenance CapEx if you're in a pure maintenance CapEx year?

Greg: I mean in a normalized year, where you wouldn't be making the investments in rollout steer and understandable why you would given the demand.

Greg: Does the sale of the lost downhole tools, largely offset maintenance capex, if youre in a pure maintenance capex year.

David Johnson: Yes, absolutely. That's the beauty of the down-hole, you know, rental business model: that tool recovery component supports all of our maintenance CapEx. And again, the lever between free cash flow and growth, CapEx, is something that we can control up or down. So that's, yeah, that's what we like about this particular business model.

Speaker Change: Yes, absolutely.

Speaker Change: That's the beauty of the downhole rental bid.

<unk> business model is that.

Speaker Change: Tool recovery component supports all of our maintenance Capex.

Speaker Change: And again, the lever between free cash flow and growth Capex is something that we can control up or down.

So that's yeah. That's that's what we like about this particular business model.

Steve Farazani: Great. Thanks, Wayne. Thanks, David.

Speaker Change: Eight.

Speaker Change: Thanks, David.

Speaker Change: Okay.

Operator: Thank you. Our next question is coming from John Daniel of Daniel Energy. Please go ahead.

Speaker Change: Thank you. Our next question is coming from John Daniel of Daniel Energy. Please go ahead.

John Daniel: Hey guys, thanks for including me. Wayne, I was hoping you could elaborate a little bit more on the International Opportunity Set and, if at all possible, maybe frame for us sort of what, within your guidance, the expectation would be for year-over-year growth in International in 2024, and then what type of visibility you might have into 2025.

John Daniel: Hey, guys. Thanks for including me Wayne I was hoping you could elaborate a little bit more on the international opportunity set and if at all possible maybe frame for us sort of what within your guidance, what the expectation would be for.

Year over year growth in international in 'twenty, four and then what type of visibility you might have into 'twenty five.

Wayne Prejean: Great. Thanks, John.

Speaker Change: Great. Thanks.

Wayne: Thanks, Sean So as an example, our 2023 international revenue was less than 1% of our total and.

Wayne Prejean: So as an example, our 2023 international revenue was less than 1% of our total. In 2024, we expect that to be in the double digit, you know, 10, 11% range, or, you know, you know, at least double digit. And that does not include the SDI revenue that we anticipate, you know, closing and onboarding later in the year, hopefully sooner than later. So we see that percentage of our total growing in 25 and beyond in a more significant fashion. So we're allocating capital resources and acquisition strategies to execute on that component of our growth.

Wayne: In 'twenty four we expect that to be in a double digit.

Wayne: <unk> hundred 11% range.

Wayne: At least double digit and that does not include the SD.

Wayne: Revenue that we anticipate closing in on boarding in the.

Wayne: Later in the year hopefully sooner than later.

Wayne: So.

Wayne: And we see that that percentage of our total growing in 'twenty five and beyond.

More significant fashion so.

Wayne: We're allocating capital resources and the acquisition strategies to execute on that.

Wayne: Component over our growth so.

Wayne: Uh huh.

Wayne Prejean: Here's another one. Let's assume you've got a potential new client from abroad that signs up. From the time you sign an agreement with them to start providing services, how long until the revenue actually shows up? Any comment there would be appreciated.

Speaker Change: Here's another one.

Speaker Change: Let's assume you've got a potential new new client international.

Speaker Change: That signs up from the time, you sign an agreement with them to start providing services, how long until the revenue actually shows up.

Speaker Change: Any color there would be appreciated.

Wayne Prejean: That's a good question. With our current relationships and commercial paths with our acquired partners, we've been able to accelerate that from, you know, into the near-term, but if it's a, you know, complete new product or a complete new area, that could be three to six to nine months depending on the product and the timeline to get full approval and meet all the requirements of the local NOC. So, it's quite a lengthy process, you know, much lengthier than in the U.S., but it has greater stickiness power.

Speaker Change: That's a good question.

Speaker Change: With our current relationships and commercial paths with our acquired partners, we've been able to accelerate that.

Into more near term, but if it's a complete new product or a complete new area that could be three to six to nine months, depending on the product.

And the timeline to get full approval and make meet all the requirements of the local.

Speaker Change: NFC so.

Speaker Change: It's quite a lengthy process.

Speaker Change: Good to hear then the U S but.

Speaker Change: It has greater sticking power so okay and I guess this is.

John Daniel: Okay, and I guess this is somewhat of a leading question, so I apologize, but it seems to me that all else being equal, the rate of growth, 25 over 24, should be better than 24 over 23, for international growth, at that. Yeah, within the realm of reason.

Speaker Change: Somewhat of a leading question so I apologize, but just it seems to me that all else being equal to.

Speaker Change: The rate of growth 25, or 24 should be better than 'twenty four 'twenty three for international.

Speaker Change: Is that.

Speaker Change: Within the realm of reason.

Wayne Prejean: It is, but...

Speaker Change: It is but okay.

John Daniel: I'm not giving formal guidance. I understand. I'm just trying to give you the big picture.

Speaker Change: And theyre not getting into formal guidance I understand I'm just trying to think.

Speaker Change: Big picture.

Wayne Prejean: We put out a general guidance out there, and we can give more clarity on that as we make the rest of these, close the rest of these deals. And we're bullish on international business, so I think that's what we're asking. We're going to stay focused. Okay, thanks guys.

Speaker Change: We put a general we put a general guidance out there and we can give more clarity to that as we.

Speaker Change: Make the rest of these.

Speaker Change: Closed the rest of these deals and we are fully booked were bullish on international So I think that's all I'm asking yeah.

Speaker Change: Gonna stay focus on that okay. Thanks, guys.

Thank you.

Operator: Thank you. That concludes our question and answer session. I will turn it over to Mr. Prejean for closing comments.

Speaker Change: Thank you that concludes our question and answer session I will turn it over to Mr. <unk> for closing comments.

Wayne Prejean: All right, thank you. And thanks, everyone, for joining and listening in and showing your interest. We're pretty enthused about where we are and how we're competing and where we're going. As you know, we're bullish and international. We still have and will continue to have a solid balance sheet, a healthy income stream, a solid customer base, and a talented group of employees. And we're making strategic investments and capital allocation in the areas that we think will provide the best returns. And we continue to believe in and will continue to focus on all those initiatives that we've laid out publicly. So, thank you for your interest in DTI. And we look forward to the next call.

Speaker Change: Alright, Thank you and thanks, everyone for joining and listening in and showing your interest.

Speaker Change: Pretty enthused about.

Speaker Change: Where we're at and how we're competing in where we're going as you heard we're bullish on international we still and continue to have and will continue to have a solid balance sheet health.

Speaker Change: Healthy income stream, a solid customer base.

Speaker Change: Talented group of employees, and we're making strategic investments and capital allocation in the areas that we think will provide the best returns and we continue to believe and we'll continue to focus on all of those initiatives that we've laid out publicly so thank you for your interest in DTI and we look forward to the next call.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or lock off the webcast and enjoy the rest of your day.

Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect. Your lines at this time, our log off the webcast and enjoy the rest of your day.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].