Q4 2025 Drilling Tools International Corp Earnings Call

March 6, 2026

Speaker #1: 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, please press star 0 on your telephone keypad.

Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, Investor Relations. Thank you, sir. You may begin.

Speaker #2: Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International's 2025 year-end and fourth-quarter conference call and webcast. With me today are Wayne Prejean, Chief Executive Officer; and David Johnson, Chief Financial Officer.

Speaker #2: Following my remarks, management will provide a review of year-end, fourth-quarter results, and 2026 outlook. Before opening the call for your questions, there'll be a replay of today's call that'll be available via webcast on the company's website.

Speaker #2: That's drillingtools.com. And there'll also be a telephonic recorded replay available until March 13th. Please note that any information reported on this call speaks only as of today, March 6th, 2026, and therefore you're advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Speaker #2: 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.

Speaker #2: However, various risks and uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed in the statements made by management.

Speaker #2: The listener or reader is encouraged to read the company's 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.

Speaker #2: The comments today will also include certain non-GAAP financial measures including but not limited to adjusted EBITDA and adjusted free cash flow. The company provides these non-GAAP results for informational purposes and they should not be considered in isolation from the most directly comparable GAAP measures.

Speaker #2: 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 DSCC.

Speaker #2: And now with that, housekeeping behind me, I'd like to turn the call over to Wayne Prejean, DTI's Chief Executive Officer. Wayne.

Speaker #3: Thanks, Ken, and good morning, everyone. I will open with some comments on our full year results, then hand the call over to David to review fourth-quarter financials and our 2026 outlook.

Speaker #3: After that, I will wrap it up with a few additional thoughts before we open up for questions. We are pleased with our strong performance in the fourth quarter, which enabled us to finish the year on a positive note.

Speaker #3: These results demonstrate our ability to deliver consistent returns in the face of continued market softness. Despite global rig count declining 7% year over year, we were able to produce resilient results and generate significant free cash flow.

Speaker #3: In fact, DTI's annual adjusted free cash flow has grown each year since going public in 2023. This is an achievement we take great pride in, and underscores our ability to operate efficiently, capitalize on opportunities in the energy landscape.

Speaker #3: Our 2025 results came in at or above the high end of our guidance ranges. We generated total rental revenues of $129.6 million and total product sales revenues of $30.1 million, or $159.6 million on a consolidated basis.

Speaker #3: Adjusted net income for 2025 was $3.4 million and adjusted diluted EPS for 2025 was $0.10 per share. We generated 2025 adjusted EBITDA of $39.3 million and adjusted free cash flow of $19.2 million.

Speaker #3: We completed our fourth acquisition in January 2025 since going public, and we were able to meaningfully reduce our net debt compared to the same period a year ago.

Speaker #3: This reflects our capital discipline and intentional focus on paying down debt. As the market softened throughout the year, we utilized our flexible CapEx model and pivoted to harvesting cash.

Speaker #3: Which we then used to pay down over $11 million of debt in the back half of 2025. We also returned a portion of our free cash flow to shareholders through our share buyback program.

Speaker #3: These actions reinforce our commitment to enhancing shareholder value and maintain our solid financial position. Geographically, our eastern hemisphere operations experience continued growth in 2025, and this expansion was a large contributor to the resilience of our results.

Speaker #3: Year over year, our eastern hemisphere revenue grew by 78% and contributed approximately 14% of our total revenue. The eastern hemisphere segment has continued to perform well, reflecting significant demand for our tools along with consistent execution and DTI's growing market presence.

Speaker #3: Western hemisphere operations were impacted by softer North American drilling and completions activity in 2025, but managed to only see a low single-digit revenue decline when compared to 2024.

Speaker #3: As the situation evolves in the Middle East, we are focused on supporting our employees and clients. As of today, most all rigs are operating.

Speaker #3: Assuming this remains the same, we anticipate a positive baseline of activity with upside-driven by oil capacity expansion and strategic gas development. This momentum sends an encouraging signal as we look to further expand our eastern hemisphere operations.

Speaker #1: On discipline integration synergies. This has allowed us to make the best out of a challenging foundation and position the company for meaningful financial improvement and success.

Speaker #3: Our strong alignment with local operators positions us well for continued expansion and, again, assuming there are no major rig activity or infrastructure disruptions, we expect our customers to scale up their activities, heading into 2026, and we expect growing market adoption of our tools to make us the service company of choice in the region.

Speaker #1: David will now take you through strengthening DTI's results in greater detail—specifically, activity levels.

Speaker #3: As evidence of the traction that our tools have gained in the eastern hemisphere to date, our wellbore optimization product line offering continues to benefit from the significant increase in utilization of drill and ream tools and our clear path stabilizer technology throughout the eastern hemisphere.

Speaker #2: specific financial metrics. Wayne gave an overview of our so I will provide some additional color on our fourth-quarter results. However, just to time to offer further insight into echo Wayne's comments from earlier, we are pleased to have achieved Thanks, Wayne.

Speaker #3: We expect this constructive trend to continue as rig activity in Saudi Arabia stabilizes and selected programs or reactivated, creating incremental demand tailwinds for our eastern hemisphere segment.

Speaker #2: Another record year for adjusted free cash flow. Even with the general industry and typical Q4 seasonal softness, we prioritized generating and preserving cash flow by managing costs and CapEx.

Speaker #3: Over the past 24 months, we have completed several strategic acquisitions, and even as market conditions have tempered some of the near-term upside, we have remained focused on disciplined integration and realization of targeted synergies.

Speaker #2: We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business. As of December 31, 2025, we had $3.6 million of cash and cash equivalents, net debt of $42.2 million, and a net leverage ratio of 1.1 times which is down slightly from 1.2 times a year ago despite taking on additional debt to fund the Titan Tools acquisition in 2025.

Speaker #3: This has allowed us to strengthen DTI's foundation and position the company for meaningful financial improvement as activity levels rebound. I'm encouraged by our team's ability to make the best out of a challenging environment, and I firmly believe that this will set us up for future success.

Speaker #3: David will now take you through our results in greater detail and introduce our 2026 outlook. David?

Speaker #2: Now, turning to our fourth-quarter results. We generated consolidated Q4 revenue of $38.5 million, fourth-quarter tool rental revenue was $30.4 million, and product sales revenue totaled $8.1 million.

Speaker #4: Thanks, Wayne. In yesterday's earnings release, we provided detailed year-end and fourth-quarter financial tables. So I'll use this time to offer further insight into specific financial metrics.

Wayne Prejean: On disciplined integration and realization of targeted synergies. This has allowed us to strengthen DTI's foundation and position the company for meaningful financial improvement as activity levels rebound. I'm encouraged by our team's ability to make the best out of a challenging environment, and I firmly believe that this will set us up for future success. David will now take you through our results in greater detail and introduce our 2026 outlook. David?

Speaker #4: Wayne gave an overview of our full-year results in his opening comments, so I will provide some additional color on our fourth-quarter results. However, just to echo Wayne's comments from earlier, we are pleased to have achieved another record year for adjusted free cash flow.

Speaker #2: Net income attributable to stockholders for the fourth quarter was $1.2 million, or 3 cents per share. Q4 adjusted net income was $1.5 million, or adjusted diluted EPS of $0.04 per share.

Speaker #4: Even with the general industry and typical Q4 seasonal softness, we prioritized generating and preserving cash flow by managing costs and CapEx. We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business.

[Company Representative] (Drilling Tools International): Thanks, Wayne. In yesterday's earnings release, we provided detailed year-end and Q4 financial tables, so I'll use this time to offer further insight into specific financial metrics. Wayne gave an overview of our full year results in his opening comments, so I will provide some additional color on our Q4 results. However, just to echo Wayne's comments from earlier, we are pleased to have achieved another record year for adjusted free cash flow. Even with the general industry and typical Q4 seasonal softness, we prioritize generating and preserving cash flow by managing costs and CapEx. We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business.

David Johnson: Thanks, Wayne. In yesterday's earnings release, we provided detailed year-end and Q4 financial tables, so I'll use this time to offer further insight into specific financial metrics. Wayne gave an overview of our full year results in his opening comments, so I will provide some additional color on our Q4 results. However, just to echo Wayne's comments from earlier, we are pleased to have achieved another record year for adjusted free cash flow. Even with the general industry and typical Q4 seasonal softness, we prioritize generating and preserving cash flow by managing costs and CapEx. We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business.

Speaker #2: Fourth-quarter adjusted EBITDA was $10.1 million, and adjusted free cash flow was $6.1 million. Our capital expenditures in the fourth quarter were $4 million. Looking at maintenance CapEx for the fourth quarter, it was approximately 10% of total revenue.

Speaker #4: As of December 31st, 2025, we had $3.6 million of cash and cash equivalents. Net debt of $42.2 million and a net leverage ratio of 1.1 times which is down slightly from 1.2 times a year ago despite taking on additional debt to fund the Titan Tools acquisition in 2025.

Speaker #2: And just as a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends.

Speaker #2: CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders.

Speaker #4: Now turning to our fourth-quarter results. We generated consolidated Q4 revenue of $38.5 million. Fourth-quarter tool rental revenue was $30.4 million. And product sales revenue totaled $8.1 million.

[Company Representative] (Drilling Tools International): As of 31 December 2025, we had $3.6 million of cash and cash equivalents, net debt of $42.2 million, and a net leverage ratio of 1.1x, which is down slightly from 1.2x a year ago, despite taking on additional debt to fund the Titan Tools acquisition in 2025. Turning to our Q4 results. We generated consolidated Q4 revenue of $38.5 million. Q4 tool rental revenue was $30.4 million, and product sales revenue totaled $8.1 million. Net income attributable to stockholders for the Q4 was $1.2 million or $0.03 per share. Q4 adjusted net income was $1.5 million or adjusted diluted EPS of $0.04 per share.

David Johnson: As of 31 December 2025, we had $3.6 million of cash and cash equivalents, net debt of $42.2 million, and a net leverage ratio of 1.1x, which is down slightly from 1.2x a year ago, despite taking on additional debt to fund the Titan Tools acquisition in 2025. Turning to our Q4 results. We generated consolidated Q4 revenue of $38.5 million. Q4 tool rental revenue was $30.4 million, and product sales revenue totaled $8.1 million. Net income attributable to stockholders for the Q4 was $1.2 million or $0.03 per share. Q4 adjusted net income was $1.5 million or adjusted diluted EPS of $0.04 per share.

Speaker #2: For example, we paid down $5.5 million in debt in the fourth quarter and overall approximately $11 million in the second half of 2025, bringing down our net debt to EBITDA leverage ratio to 1.1 times.

Speaker #4: Net income attributable to stockholders for the fourth quarter was $1.2 million or 3 cents per share. Q4 adjusted net income was $1.5 million or adjusted diluted EPS of $0.04 per share.

Speaker #2: We have also been active in our share buyback program in the second half of 2025, where we purchased approximately $660,000 of additional common shares averaging $2.17 per share.

Speaker #4: Fourth quarter adjusted EBITDA was $10.1 million and adjusted free cash flow was $6.1 million. Our capital expenditures in the fourth quarter were $4 million.

Speaker #2: We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base.

Speaker #4: Looking at maintenance, CapEx for the fourth quarter, it was approximately 10% of total revenue. And just as a reminder, our maintenance capital is primarily funded by tool recovery revenue which keeps our rental tool fleet relevant and sustainable regardless of market trends.

Speaker #2: With 14% of our total Q4 revenue coming from our Eastern Hemisphere segment, this growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high-quality performance across our global footprint, especially as we look ahead to a market rebound.

[Company Representative] (Drilling Tools International): Q4 adjusted EBITDA was $10.1 million, and adjusted free cash flow was $6.1 million. Our capital expenditures in Q4 were $4 million. Looking at maintenance CapEx for Q4, it was approximately 10% of total revenue. Just as a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment, prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders.

David Johnson: Q4 adjusted EBITDA was $10.1 million, and adjusted free cash flow was $6.1 million. Our capital expenditures in Q4 were $4 million. Looking at maintenance CapEx for Q4, it was approximately 10% of total revenue. Just as a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment, prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders.

Speaker #4: CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders.

Speaker #2: As we disclosed in yesterday's earnings release, and as Wayne alluded to earlier, we have released our 2026 full-year guidance ranges that reflect year-over-year growth at the midpoint.

Speaker #4: For example, we paid down $5.5 million in debt in the fourth quarter and overall approximately $11 million in the second half of 2025, bringing down our net debt to EBITDA leverage ratio to 1.1 times.

Speaker #2: 2026 revenue is expected to be in the range of $155 to $170 million, adjusted EBITDA is expected to be within the range of $35 to $45 million, capital expenditures are expected to be between $18 and $23 million, and finally we expect our 2026 adjusted free cash flow to range between $17 to $22 million.

Speaker #4: We have also been active in our share buyback program in the second half of 2025 where we purchased approximately $660,000 of additional common shares averaging $2.17 per share.

[Company Representative] (Drilling Tools International): For example, we paid down $5.5 million in debt in Q4 and overall approximately $11 million in the second half of 2025, bringing down our net debt to EBITDA leverage ratio to 1.1x. We have also been active in our share buyback program in the second half of 2025, where we purchased approximately $660,000 of additional common shares, averaging $2.17 per share. We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base, with 14% of our total Q4 revenue coming from our Eastern Hemisphere segment.

David Johnson: For example, we paid down $5.5 million in debt in Q4 and overall approximately $11 million in the second half of 2025, bringing down our net debt to EBITDA leverage ratio to 1.1x. We have also been active in our share buyback program in the second half of 2025, where we purchased approximately $660,000 of additional common shares, averaging $2.17 per share. We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base, with 14% of our total Q4 revenue coming from our Eastern Hemisphere segment.

Speaker #4: We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base.

Speaker #2: We have constructed these ranges with the assumption that activity will remain relatively flat in the first half of 2026 and improve slightly in the second half of the year.

Speaker #4: With 14% of our total Q4 revenue coming from our eastern hemisphere segment. This growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high-quality performance across our global footprint, especially as we look ahead to a market rebound.

Speaker #2: Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section.

Speaker #2: I will now turn the call back over to Wayne for closing comments.

Speaker #1: Thank you, David. We continue to make substantial headway on our synergy program called One DTI. We have been able to align our operating divisions into integrated systems and processes, as well as onboard new business units into our Compass platform to manage assets and customers.

Speaker #4: As we disclosed in yesterday's earnings release, and as Wayne alluded to earlier, we have released our 2026 full-year guidance ranges that reflect year-over-year growth at the midpoint.

Speaker #4: 2026 revenue is expected to be in the range of $155 to $170 million. Adjusted EBITDA is expected to be within the range of $35 to $45 million.

[Company Representative] (Drilling Tools International): This growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high quality performance across our global footprint, especially as we look ahead to a market rebound. As we disclosed in yesterday's earnings release, and as Wayne alluded to earlier, we have released our 2026 full year guidance ranges that reflect year-over-year growth at the midpoint. 2026 revenue is expected to be in the range of $155 to $170 million. Adjusted EBITDA is expected to be within the range of $35 to $45 million. Capital expenditures are expected to be between $18 and $23 million. Finally, we expect our 2026 adjusted free cash flow to range between $17 to $22 million.

David Johnson: This growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high quality performance across our global footprint, especially as we look ahead to a market rebound. As we disclosed in yesterday's earnings release, and as Wayne alluded to earlier, we have released our 2026 full year guidance ranges that reflect year-over-year growth at the midpoint. 2026 revenue is expected to be in the range of $155 to $170 million. Adjusted EBITDA is expected to be within the range of $35 to $45 million. Capital expenditures are expected to be between $18 and $23 million. Finally, we expect our 2026 adjusted free cash flow to range between $17 to $22 million.

Speaker #1: This represents an important milestone for the company's growth potential, as it streamlines workflows, enhances accountability, and materially shortens the timeline for integrating future acquisitions into the DTI platform.

Speaker #4: Capital expenditures are expected to be between $18 and $23 million, and finally we expect our 2026 adjusted free cash flow to range between $17 to $22 million.

Speaker #1: We also remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. As we continue to thoughtfully scale our current operations, we believe DTI is the preferred provider for downhole tool rentals supporting wellbore construction and casing installation.

Speaker #4: We have constructed these ranges with the assumption that activity will remain relatively flat in the first half of 2026 and improve slightly in the second half of the year.

Speaker #1: Despite the near-term softness we expect to occur within the first half of the year, our outlook for 2026 reflects not only the solid foundation we have established but also our forward-looking commitment to operational excellence and delivering consistent results.

Speaker #4: Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section.

Speaker #4: I will now turn the call back over to Wayne for closing comments. Thank you, David. We continue to make substantial headway on our synergy program called One DTI.

Speaker #1: We believe there are several potential catalysts to cross multiple geographies that offer upside potential later in the year. Including rig reactivations in Saudi Arabia, incremental tenders in the broader Middle East, and increased project activity in select international markets where we have recently expanded our presence, among others.

[Company Representative] (Drilling Tools International): We have constructed these ranges with the assumption that activity will remain relatively flat in the first half of 2026 and improve slightly in the second half of the year. Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments.

David Johnson: We have constructed these ranges with the assumption that activity will remain relatively flat in the first half of 2026 and improve slightly in the second half of the year. Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments.

Speaker #4: We have been able to align our operating divisions into integrated systems and processes as well as onboard new business units into our Compass platform to manage assets and transactions from our customers.

Speaker #1: These are not built into our guidance but may materialize into areas of outperformance. Looking forward, I am optimistic about the momentum we're building across the organization and the attractive opportunities we see on the horizon.

Speaker #4: This represents an important milestone for the company's growth potential. As it streamlines workflows, enhances accountability, and materially shortens the timeline for integrating future acquisitions into the DTI platform.

Wayne Prejean: Thank you, David. We continue to make substantial headway on our synergy program called OneDTI. We have been able to align our operating divisions into integrated systems and processes, as well as onboard new business units into our COMPASS platform to manage assets and transactions from our customers. This represents an important milestone for the company's growth potential as it streamlines workflows, enhances accountability, and materially shortens the timeline for integrating future acquisitions into the DTI platform. We also remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. As we continue to thoughtfully scale our current operations, we believe DTI is the preferred provider for downhole tool rentals supporting wellbore construction and casing installation.

Speaker #1: The investments made to date are beginning to gain traction and are positioned to drive meaningful results. We are confident that elevated demand for complex wellbore solutions should further reinforce the need for our differentiated technology and the value-added solutions we deliver to customers around the world.

Speaker #4: We also remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. As we continue to thoughtfully scale our current operations, we believe DTI is the preferred provider for downhole tool rentals supporting well-bore construction and casing installation.

Speaker #1: Our ongoing focus on generating shareholder value is supported by the prospect of a more favorable market backdrop emerging later this year. Finally, I want to address the conflict in the Middle East as it pertains directly to DTI.

Speaker #4: Despite the near-term softness we expect to occur, within the first half of the year, our outlook for 2026 reflects not only the solid foundation we have established but also our forward-looking commitment to operational excellence and delivering consistent results.

Speaker #1: As of yesterday, our Middle East personnel were all accounted for, have sheltered in place per local government requirements, and are maintaining continuity with customers' needs and supporting our operations.

Speaker #4: We believe there are several potential catalysts across multiple geographies that offer upside potential later in the year. Including rig reactivations in Saudi Arabia, incremental tenders in the broader Middle East, and increased project activity in select international markets where we have recently expanded our presence, among others.

Speaker #1: We have experienced minimal disruption to our ongoing business thus far. We do not have any American expat employees in the conflict zone. But we do have numerous expat employees from other nationalities who are based in the Middle East.

Wayne Prejean: Despite the near-term softness we expect to occur within the first half of the year, our outlook for 2026 reflects not only the solid foundation we have established, but also our forward-looking commitment to operational excellence and delivering consistent results. We believe there are several potential catalysts across multiple geographies that offer upside potential later in the year, including rig reactivations in Saudi Arabia, incremental tenders in the broader Middle East, and increased project activity in select international markets where we have recently expanded our presence, among others. These are not built into our guidance, but may materialize into areas of outperformance. Looking forward, I am optimistic about the momentum we're building across the organization and the attractive opportunities we see on the horizon. The investments made to date are beginning to gain traction and are positioned to drive meaningful results.

Speaker #4: These are not built into our guidance but may materialize into areas of outperformance. Looking forward, I am optimistic about the momentum we're building across the organization and the attractive opportunities we see on the horizon.

Speaker #1: We are diligently monitoring the situation and have launched our crisis response plan, which is providing resources to support our team members in the area.

Speaker #1: We are conducting frequent meetings, obtaining regular operational updates, and are maintaining communications with our personnel in the region. I want to thank every member of the DTI organization for their continued commitment to working in a safe inspired and productive manner with special thanks to those personnel who are in the Middle East for their continued support of our operations.

Speaker #4: The investments made to date are beginning to gain traction and are positioned to drive meaningful results. We are confident that elevated demand for complex well-bore solutions should further reinforce the need for our differentiated technology and the value-added solutions we deliver to customers around the world.

Speaker #4: Our ongoing focus on generating shareholder value is supported by the prospect of a more favorable market backdrop emerging later this year. Finally, I want to address the conflict in the Middle East as it pertains directly to DTI.

Speaker #1: Our thoughts are with you every day. Our employees' commitment and dedication have been essential in navigating a constantly evolving environment and is central to the success and future growth we are building together.

Speaker #1: With that, we will now take your questions. Operator?

Wayne Prejean: We are confident that elevated demand for complex wellbore solutions should further reinforce the need for our differentiated technology and the value-added solutions we deliver to customers around the world. Our ongoing focus on generating shareholder value is supported by the prospect of a more favorable market backdrop emerging later this year. Finally, I want to address the conflict in the Middle East as it pertains directly to DTI. As of yesterday, our Middle East personnel were all accounted for, have sheltered in place per local government requirements, and are maintaining continuity with customers' needs and supporting our operations. We have experienced minimal disruption to our ongoing business thus far. We do not have any American expat employees in the conflict zone, but we do have numerous expat employees from other nationalities who are based in the Middle East.

Speaker #4: As of yesterday, our Middle East personnel were all accounted for, have sheltered in place per local government requirements, and are maintaining continuity with customers' needs and supporting our operations.

Speaker #2: Thank you. We will now be conducting a question and answer full-year results in his opening comments, session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #4: We have experienced minimal disruption to our ongoing business thus far. We do not have any American expat employees in the conflict zone. But we do have numerous expat employees from other nationalities who are based in the Middle East.

Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from a line of Steve Ferrazzani with Sidotti.

Speaker #4: We are diligently monitoring the situation and have launched our crisis response plan, which is providing resources to support our team members in the area.

Speaker #2: Please proceed with your question.

Speaker #3: Good morning, everyone. Appreciate the detail and color on the call this morning. Also appreciate Wayne, your message on Middle Eastern safety. I think that's certainly appreciated right now.

Speaker #4: We are conducting frequent meetings, obtaining regular operational updates, and are maintaining communications with our personnel in the region. I want to thank every member of the DTI organization for their continued commitment to working in a safe, inspired, and productive manner with special thanks to those personnel who are in the Middle East for their continued support of our operations.

Speaker #3: A couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. The first one, the big one, was the really healthy EBIT to margin.

Speaker #3: This quarter, highest in, it looks to us, like in six quarters, six quarters ago, the rig count was much better. What drove that really strong margin this quarter?

Wayne Prejean: We are diligently monitoring the situation and have launched our crisis response plan, which is providing resources to support our team members in the area. We are conducting frequent meetings, obtaining regular operational updates, and are maintaining communications with our personnel in the region. I want to thank every member of the DTI organization for their continued commitment to working in a safe, inspired, and productive manner, with special thanks to those personnel who are in the Middle East for their continued support of our operations. Our thoughts are with you every day. Our employees' commitment and dedication have been essential in navigating a constantly evolving environment and is central to the success and future growth we are building together. With that, we will now take your questions. Operator?

Speaker #4: Our thoughts are with you every day. Our employees' commitment and dedication have been essential in navigating a constantly evolving environment and is central to the success and future growth we are building together.

Speaker #4: Yeah, you want to take that one?

Speaker #1: Yeah, I think, Steve, it was just a combination of—we didn't see all the Q4 sort of typical seasonal softness in some of our numbers.

Speaker #4: With that, we will now take your questions. Operator?

Speaker #5: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #1: And then we were further benefiting from some of the cost reductions that we did earlier in the year. So kind of the combination of that, we had our product kind of mix was a little bit different.

Speaker #5: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #1: But yeah, just in overall, a good quarter compared to the rest of the year.

Speaker #4: Yeah.

Speaker #5: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from a line of Steve Ferazani with Sidodi.

Speaker #3: And anything specific, one quarter type mix here? Because your margin in the quarter was above the full year guide for '26 on the margin line.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would 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 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. Thank you. Our first question comes to the line of Steve Ferrazzane with Sidoti. Please proceed with your question.

Speaker #5: Please proceed with your question.

Speaker #6: Morning, everyone. Appreciate the detail and color on the call this morning. Also appreciate Wayne, your message on Middle Eastern safety. I think that's certainly appreciated right now.

Speaker #1: Yeah, I think mainly it was the product sale impacted. We had some additional product sales that's at a little bit better kind of margin profile, especially on the lost and hold DBR-type sales.

Speaker #6: A couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. The first one, the big one, was the really healthy EBIT to margin.

Speaker #1: So that's driving improved margins there.

Speaker #3: So it helps support the overall quarter. But generally, it was steady state. Pretty good performance overall. Got it. And then all of your numbers came in at the, as you noted, came in at the very high end of your full year ranges.

Speaker #6: This quarter, highest in, it looks to us, like in six quarters, six quarters ago, the rig count was much better. What drove that really strong margin this quarter?

Stephen Ferazani: Morning, everyone. Appreciate the detail and color on the call this morning. Also appreciate Wayne, your message on Middle Eastern safety. I think that's certainly appreciated right now. Couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. The first one, the big one, was the really healthy EBITDA margin this quarter. Highest in, it looks to us like in six quarters. Six quarters ago, the rig count was much better. What drove that really strong margin this quarter?

Steve Ferazani: Morning, everyone. Appreciate the detail and color on the call this morning. Also appreciate Wayne, your message on Middle Eastern safety. I think that's certainly appreciated right now. Couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. The first one, the big one, was the really healthy EBITDA margin this quarter. Highest in, it looks to us like in six quarters. Six quarters ago, the rig count was much better. What drove that really strong margin this quarter?

Speaker #3: The one that beat was adjusted free cash flow. It was a very strong free cash flow quarter. Anything driving that? And you put a really solid guidance for free cash flow again next year.

Speaker #6: Yeah.

Speaker #7: Yeah, I think it Steve was just a combination of we didn't see all the Q4 sort of typical seasonal softness in some of our numbers.

Speaker #1: Yeah, Steve, I think yeah, I think that's a good point. We're definitely seeing kind of that durable free cash flow generation since kind of going public.

Speaker #7: And then we were further benefiting from some of the cost reductions that we did earlier in the year. So kind of the combination of that, we had our product kind of mix was a little bit different.

Speaker #1: That was kind of our stated goal—kind of focusing on the M&A front for growth and really demonstrating that we can generate that free cash flow.

Speaker #7: But yeah, just an overall good quarter compared to the rest of the year.

Speaker #1: But typically, and we'll see it kind of every year where a lot of our CapEx is front-loaded in the year. So as we kind of cycle through those first couple of quarters, then I think we saw our third quarter was stronger than the first and second quarter.

Wayne Prejean: Oh.

Speaker #6: Yeah. Anything specific, one-quarter type mix here? Because your margin in the quarter was above the full-year guide for '26 on the margin line.

[Company Representative] (Drilling Tools International): Yeah, you wanna take that one?

David Johnson: Yeah, you wanna take that one?

Wayne Prejean: Yeah, I did, yeah.

[Company Representative] (Drilling Tools International): Yeah, I think it, Steve, it was just a combination of, you know, we didn't see all the Q4 sorta typical seasonal softness in some of our numbers.

David Johnson: Yeah, I think it, Steve, it was just a combination of, you know, we didn't see all the Q4 sorta typical seasonal softness in some of our numbers.

Wayne Prejean: Yep.

[Company Representative] (Drilling Tools International): We, you know, we were further benefiting from some of the cost reductions, you know, that we did earlier in the year. Kind of the combination of that. We had, you know, our product kind of mix was a little bit different. Yeah, just an overall a good quarter compared to, you know, the rest of the year.

David Johnson: We, you know, we were further benefiting from some of the cost reductions, you know, that we did earlier in the year. Kind of the combination of that. We had, you know, our product kind of mix was a little bit different. Yeah, just an overall a good quarter compared to, you know, the rest of the year.

Speaker #1: And then our fourth quarter was even stronger on the free cash flow side. For that reason.

Speaker #7: Yeah, I think mainly it was the product sale impacted. We had some additional product sale that's a little bit better kind of margin profile, especially on the lost and hold DBR-type sales.

Speaker #3: Got it, that's helpful. And speaking about free cash flow—your leverage now, I mean, you're barely above one time, a great place to be. And if we're theoretically, and I think you'd think that we're at a trough on your annual EBIT or very close—by our model, your leverage goes under one times next year.

Wayne Prejean: Yeah.

Stephen Ferazani: Anything specific one quarter type mix here? Your margin in the quarter was above the full year guide for 26 on the margin line.

Steve Ferazani: Anything specific one quarter type mix here? Your margin in the quarter was above the full year guide for 26 on the margin line.

Speaker #7: So that's driving improved margins there.

Speaker #6: So it helps support the overall quarter. But generally, it was steady state. Pretty good performance overall. Got it. And then all of your numbers came in at the, as you noted, came in at the very high end of your full-year ranges.

[Company Representative] (Drilling Tools International): Yeah, I think mainly it was a product sale impact. We had some.

David Johnson: Yeah, I think mainly it was a product sale impact. We had some.

Speaker #3: What's the thought here? What's M&A looking like? Are there opportunities? Would you still produce debt further? How are you thinking about cash flow?

Speaker #6: The one that beat was adjusted free cash flow. It was a very strong free cash flow quarter. Anything driving that? And you put a really solid guidance for free cash flow again next year.

Stephen Ferazani: Okay.

Steve Ferazani: Okay.

[Company Representative] (Drilling Tools International): product sale, that's a little bit better, you know, kinda margin profile, especially on the lost-in-hole DBR.

David Johnson: product sale, that's a little bit better, you know, kinda margin profile, especially on the lost-in-hole DBR.

Speaker #1: Well, we've stated in previous quarters and on previous calls, we have a healthy pipeline of M&A opportunities that we're constantly evaluating. And we'll continue to look at the most accretive, most attractive strategic opportunities that are out there.

Speaker #7: Yeah, Steve, I think yeah, I think that's a good point. We're definitely seeing kind of that durable free cash flow generation since kind of going public.

[Company Representative] (Drilling Tools International): type sales. That's driving improved-

Wayne Prejean: Yeah.

David Johnson: type sales. That's driving improved-

Stephen Ferazani: Okay.

Steve Ferazani: Okay.

[Company Representative] (Drilling Tools International): margins there.

David Johnson: margins there.

Wayne Prejean: It helped support the overall quarter. You know, generally it was steady state, you know, pretty good performance overall.

Speaker #7: That was kind of our stated goal. Kind of focusing on the M&A front for growth and really demonstrating that we can generate that free cash flow.

Stephen Ferazani: Got it. All of your numbers as you noted, came in at the very high end of your full year ranges. The one that beat was adjusted free cash flow. It was a very strong free cash flow quarter. Anything driving that? You put out-

Steve Ferazani: Got it. All of your numbers as you noted, came in at the very high end of your full year ranges. The one that beat was adjusted free cash flow. It was a very strong free cash flow quarter. Anything driving that? You put out-

Speaker #1: And our use of funds as they flow will be debt service M&A, some buybacks mostly throughout '25. We focused on integration and gaining efficiencies from what we acquired previously.

Speaker #7: But typically, and we'll see it kind of every year, a lot of our CapEx is front-loaded in the year. So as we kind of cycle through those first couple of quarters, then I think we saw our third quarter was stronger than the first and second quarter.

[Company Representative] (Drilling Tools International): Yeah.

David Johnson: Yeah.

Stephen Ferazani: really solid guidance for free cash flow again next year.

Steve Ferazani: really solid guidance for free cash flow again next year.

[Company Representative] (Drilling Tools International): Steve, I think that's a good point.

David Johnson: Steve, I think that's a good point.

Wayne Prejean: We're definitely seeing kind of that durable free cash flow generation, you know, since kind of going public, that was kind of our stated goal. Kind of focusing on the M&A front for growth and, you know, really demonstrating that we can generate that free cash flow. Typically, you know, and we'll see it kind of every year, a lot of our CapEx is front-loaded in the year.

Speaker #1: So right now, we're probably looking at a number of opportunities. And they ebb and flow as the market dictates. But there are definitely still opportunities on the horizon.

Speaker #7: And then our fourth quarter was even stronger on the free cash flow side. For that reason.

Speaker #6: Got it. That's helpful. And speaking about free cash flow, your leverage now, I mean, you're barely above one-time great place to be. And if we're theoretically, and I think you'd think that we're at a trough on your annual EBIT or very close, by our model, your leverage goes under one-times next year.

Speaker #3: Got it. That's helpful. And I saw just going through the new deck you put up, the guidance does show you expect Eastern Hemisphere share of revenue to be even higher next year if we've seen that steady growth.

Stephen Ferazani: Yep.

Steve Ferazani: Yep.

Wayne Prejean: As we kind of cycle through those, you know, first couple of quarters, I think we saw our Q3 was stronger than the Q1 and Q2, and then our Q4 was even stronger on the free cash flow side for that reason.

Speaker #3: Can you talk about where the opportunities are in the Eastern Hemisphere? Also, particularly curious about your opportunities in APAC.

Speaker #6: What's the thought here? What's M&A looking like? Are there opportunities? Would you still reduce debt further? How are you thinking about cash flow?

Speaker #1: So throughout, as we've integrated all of the product lines and all of the business units and aligned our management team and sales team, they're all far and all cylinders and doing a great job.

Stephen Ferazani: Got it. That's helpful. Speaking about free cash flow, your leverage now, I mean, you're barely above 1x. Great place to be. If we're theoretically, and I think you'd think that we're at a trough on your annual EBIT or very close. By our model, your leverage goes under 1x next year. What's the thought here? What's M&A looking like? Are there opportunities? Would you still reduce debt further? How are you thinking about cash flow?

Steve Ferazani: Got it. That's helpful. Speaking about free cash flow, your leverage now, I mean, you're barely above 1x. Great place to be. If we're theoretically, and I think you'd think that we're at a trough on your annual EBIT or very close. By our model, your leverage goes under 1x next year. What's the thought here? What's M&A looking like? Are there opportunities? Would you still reduce debt further? How are you thinking about cash flow?

Speaker #7: Well, we've stated in previous quarters and on previous calls, we have a healthy pipeline of M&A opportunities that we're constantly evaluating. And we'll continue to look at the most accretive, most attractive strategic opportunities that are out there.

Speaker #1: So we're getting lots of opportunities throughout Africa with various products. We're moving products around. Many of the countries in the Middle East. And despite the ongoing conflict in the Middle East, we're able to continue maintaining our customer support.

Speaker #7: And our use of funds as they flow will be debt service M&A, some buybacks, but mostly throughout '25, we focused on integration and gaining efficiencies from what we acquired previously.

Speaker #1: Surprisingly, most everyone's still in operation. You've probably heard of different news reports of different things and facilities and refineries. But drilling operations are still commencing with major disruptions to our knowledge.

Wayne Prejean: Well, you know, we've stated in previous quarters and, on previous calls, we have a healthy pipeline of M&A opportunities that we're constantly evaluating. You know, we'll continue to look at the most accretive, most attractive strategic opportunities that are out there. You know, our use of funds as they flow will be, you know, debt service, M&A, some buybacks, you know.

Speaker #7: So right now, we're probably looking at a number of opportunities. And they ebb and flow as the market dictates. But there are definitely still opportunities on the horizon, so.

Speaker #1: Then we also have our Malaysian entity up and running with our Asia Pac focus, so that's starting to gain traction. And we're distributing a lot of our new technologies such as our drilling reams, our deep casing products, and our Clear Path product lines, which was an acquisition of the ED Projects Group a year ago.

Speaker #6: Got it. That's helpful. And I saw just going through the new deck you put up, the guidance does show on your expect Eastern Hemisphere share of revenue to be even higher next year if we've seen that steady growth.

Stephen Ferazani: Yep.

Steve Ferazani: Yep.

Wayne Prejean: Mostly, you know, throughout 2025, we focused on integration and gaining efficiencies from what we acquired previously. Right now, you know, we're probably, you know, looking at a number of opportunities. You know, they ebb and flow as the market dictates, but there are definitely still opportunities on the horizon.

Speaker #6: Can you talk about where the opportunities are in Eastern Hemisphere, also particularly curious about your opportunities in APAC?

Speaker #1: So all of those things are starting to get traction in Europe, the Middle East, and Asia-Pac.

Speaker #7: So throughout, as we've integrated all of the product lines and all of the business units and aligned our management team and sales team, they're all far and all cylinders and doing a great job.

Speaker #3: Got it. That's helpful. What's implied in your guidance in terms of revenue per active rig in the US? How are you thinking about that?

Stephen Ferazani: Got it. That's helpful. I saw, you know, just going through the new deck you put up, the guidance does show you expect Eastern Hemisphere share of revenue to be even higher next year if we've seen that steady growth. Can you talk about where the opportunities are in Eastern Hemisphere? Also particularly curious about your opportunities in APAC.

Steve Ferazani: Got it. That's helpful. I saw, you know, just going through the new deck you put up, the guidance does show you expect Eastern Hemisphere share of revenue to be even higher next year if we've seen that steady growth. Can you talk about where the opportunities are in Eastern Hemisphere? Also particularly curious about your opportunities in APAC.

Speaker #3: I think a lot of us assume we're modeling in sort of a flat rig count January 1 to December 31. How are you thinking about that?

Speaker #7: So we're getting lots of opportunities throughout Africa with various products. We're moving products around. Many of the countries in the Middle East. And despite the ongoing conflict in the Middle East, we're able to continue maintaining our customer support.

Speaker #3: Can you grow revenue per rig in an active rig in a flattish market?

Speaker #7: Surprisingly, most everyone's still in operation. You've probably heard of different news reports of different things in facilities and refineries. But drilling operations are still commencing with major disruptions to our knowledge.

Wayne Prejean: You know, throughout as we've integrated all of the product lines and all the business units and, you know, aligned our management team and sales team, they're all firing on all cylinders and doing a great job. You know, we're getting lots of opportunities throughout Africa with various products. We're moving products around, you know, many of the countries in the Middle East. You know, despite the ongoing conflict in the Middle East, we're able to continue maintaining our customer support. Surprisingly, you know, most everyone's still in operation. Now, you've probably heard of, you know, different, you know, news reports of different things and, you know, facilities and refineries, but drilling operations are still commencing without major disruptions to our knowledge.

Speaker #1: Yeah, we see it as a we model it as a steady state with opportunistic realities where some of our new technologies gain traction. Those things are evolving.

Speaker #1: In different markets. So we think there are opportunities to overachieve is as those new technologies gain more traction, that's where we'll see our opportunity to increase over and above.

Speaker #7: Then we also have our Malaysian entity up and running with our Asia Pac focus. So that's starting to gain traction. And we're distributing a lot of our new technologies such as our drilling reams, our deep casing products, and our clear path product lines, which was an acquisition of the ED projects group a year ago.

Speaker #1: Where we're at today, but mostly the market's a steady-state environment.

Speaker #3: Got it. That's helpful. Last one for me, and I know this is a totally unfair question, but I have to ask it anyway. In terms of—we're only a week in—but in terms of the Middle East developments we've seen so far, any thoughts?

Speaker #7: So all of those things are starting to get traction in Europe, Middle East, and Asia Pac.

Speaker #3: And we don't know how long or how this exactly plays out, how you're positioned one way or the other. Is this plays out any initial thoughts?

Wayne Prejean: We also have our, you know, Malaysian entity up and running with our Asia Pacific focus. You know, that's starting to gain traction. We're distributing a lot of our new technologies such as our drilling rings, our Deep Casing products, and our ClearPath product lines, which is an acquisition of the ED Projects Group a year ago. All of those things are starting to get traction in Europe, Middle East, and Asia Pacific.

Speaker #6: Got it. That's helpful. What's implied in your guidance in terms of revenue per active rig in the US? How are you thinking about that?

Speaker #3: I know it's an unfair question.

Speaker #1: Well, I'll start with if you'll notice our revenues are about 14% as we've stated in here, right? And we hope that they'll grow, but they're only and the Middle East is a part of that 14% of Eastern Hemisphere.

Speaker #6: I think a lot of us assume or modeling in sort of a flat rig count January 1 to December 30th. How are you thinking about that?

Speaker #6: Can you grow revenue per rig in an active rig in a flattish market?

Speaker #1: So it's still a smaller part of our overall revenue and earning stream, but it's emerging and growing. It could be how it's going to be affected is unknown today.

Speaker #7: Yeah. We see it as a we model it as a steady state with opportunistic realities where some of our new technologies gain traction. Those things are evolving.

Stephen Ferazani: Got it. That's helpful. What's implied in your guidance in terms of revenue per active rig in the US? How are you thinking about that? If I think a lot of us assume we're modeling in sort of a flat rig count 1 January, you know, 1 January to 30 December. How are you thinking about that? Can you grow revenue per rig in a active rig in a flattish market?

Steve Ferazani: Got it. That's helpful. What's implied in your guidance in terms of revenue per active rig in the US? How are you thinking about that? If I think a lot of us assume we're modeling in sort of a flat rig count 1 January, you know, 1 January to 30 December. How are you thinking about that? Can you grow revenue per rig in a active rig in a flattish market?

Speaker #1: All we know today is that things are still operating. I don't think anyone's sure of exactly what the impact might be. We don't have a lot of personnel scattered throughout.

Speaker #7: In different markets. So we think there are opportunities to overachieve is as those new technologies gain more traction, that's where we'll see our opportunity to increase over and above.

Speaker #1: We have some personnel that are scattered throughout different parts of that area, and they're all in safe and accounted for today and operating. So we're able to move tools about.

Wayne Prejean: You know, we model it as a steady state with opportunistic...

Speaker #7: Where we're at today, but mostly the market's a steady state environment.

Wayne Prejean: You know, we model it as a steady state with opportunistic...

Speaker #6: Got it. That's helpful. Last one for me, and I know this is a totally unfair question, but I have to ask it anyway. In terms of we're only a week in, but in terms of the Middle East developments we've seen so far, any thoughts?

Speaker #1: We're able to support our customers' operations. They're asking for support. So despite the noise and everything that's going on and the unknowns, what we know today feels like it's minimally disruptive.

Stephen Ferazani: Okay.

Steve Ferazani: Okay.

Wayne Prejean: realities where there's. Some of our new technologies gain traction. You know, those things are evolving.

Stephen Ferazani: Yeah.

Steve Ferazani: Yeah.

Wayne Prejean: in different markets. We think our opportunity to overachieve is, as those new technologies gain more traction, that's where we'll see our opportunity to increase over and above where we're at today. Mostly, you know, the market's a steady state environment.

Speaker #6: And we don't know how long or how this exactly plays out. How your position one way or the other is this plays out? Any initial thoughts?

Speaker #1: And I don't mean that to minimize the conflict and the impact of that, but I mean, from a business point of view, so far, our team has performed just fantastic.

Speaker #6: I know it's an unfair question.

Speaker #7: Well, I'll start with if you'll notice our revenues are about 14% as we've stated in here, right? And we hope that they'll grow, but they're only and the Middle East is a part of that 14% of Eastern Hemisphere.

Stephen Ferazani: Got it. That's helpful. Last one for me, and I know this is a totally unfair question, but, you know, I have to ask it anyway. In terms of we're only a week in, but in terms of the Middle East developments we've seen so far, any thoughts, and we don't know how long or how this exactly plays out, how you're positioned one way or the other as this plays out? Any initial thoughts? I know it's an unfair question.

Steve Ferazani: Got it. That's helpful. Last one for me, and I know this is a totally unfair question, but, you know, I have to ask it anyway. In terms of we're only a week in, but in terms of the Middle East developments we've seen so far, any thoughts, and we don't know how long or how this exactly plays out, how you're positioned one way or the other as this plays out? Any initial thoughts? I know it's an unfair question.

Speaker #1: And I mean, we really kind of are operating out of our COVID-style playbook of how to do crisis management and deal with remoteness and things like that.

Speaker #7: So it's still a smaller part of our overall revenue and earnings stream, but it's emerging and growing. It could be how it's going to be affected if it's unknown today.

Speaker #1: So, a lot of lessons learned from that experience on how to operate remotely with our clients and coordinate logistics and things like that. All of our team is working well with that in that regard.

Speaker #3: Got it. Okay. Thanks so much, Wayne. Appreciate it, David.

Speaker #7: All we know today is that things are still think anyone's sure of exactly what the impact might be. We don't have a lot of personnel scattered throughout.

Wayne Prejean: Well, I'll start with, you know, if you'll notice our revenues are about 14%, as we've stated in here, right? We hope that they'll grow. They're only, you know, and the Middle East is a part of that 14% of the Eastern Hemisphere. It's still, you know, a smaller part of our overall, you know, revenue and earning stream, but it's emerging and growing. It could be, you know, how it's gonna be affected is unknown today. All we know today is that things are still operating. We, you know, I don't think anyone's sure of exactly what the impact might be.

Speaker #1: Thank you.

Speaker #2: Thank you, Steve.

Speaker #4: Our next question comes from the line of John Daniel with Daniel Energy Partners. Please proceed with your question.

Speaker #7: We have some personnel. They're scattered throughout different parts of that area. And they're all in safe and accounted for today and operating. So we're able to move tools about.

Speaker #5: Hey, guys. Thanks for having me. Just three quick ones for you. I'm assuming this is a safe one here, but the revenue guidance you provided for '26—I’m assuming that was all created pre-Iran.

Speaker #7: We're able to support our customers' operations. They're asking for support. So despite the noise and everything that's going on, and the unknowns, what we know today, it feels like it's minimally disruptive.

Speaker #5: Is that fair?

Speaker #1: Correct.

Speaker #5: Okay. And then good job on paying down the 11 million in '25. Do you have an established goal for '26? I mean, looking at the free cash flow guidance of, say, a 20 million bucks at the midpoint, roughly what would you envision as being allocated to debt reduction versus buybacks?

Stephen Ferazani: Yeah.

Wayne Prejean: We don't have a lot of personnel scattered throughout. You know, we have some personnel that are scattered throughout, you know, different parts of that area, and they're all in, you know, safe and accounted for today and operating. We're able to move tools about. We're able to support our customers' operations. They're asking for support. Despite the noise and everything that's going on and the unknowns, what we know today, it feels like it's minimally disruptive. I don't mean that to minimize the conflict and the impact of that.

Steve Ferazani: Yeah.

Speaker #7: And I don't mean that to minimize the conflict and the impact of that. But I mean, from a business point of view, so far, our team has performed just fantastic.

Speaker #7: And I mean, we really kind of are operating out of our COVID-style playbook of how to do crisis management and deal with remoteness and things like that.

Speaker #1: I think if you look at our historical pay down events, this is the one you just described. One could expect continued pay down of the majority of the debt, hopefully.

Speaker #7: So a lot of lessons learned from that experience on how to operate remotely with our clients and coordinate logistics and things like that. All of our team is working well with that in that regard, so.

Speaker #1: We could probably accelerate that, but it will depend on the currencies that are happening throughout the year. And as these events unfold, particularly the events in the Middle East, it'll help us understand where we need to focus our efforts on investments.

Stephen Ferazani: Right. Right.

Steve Ferazani: Right. Right.

Wayne Prejean: I mean, from a business point of view, so far our team has performed just fan-fantastic. I mean, we really kind of, you know, we're operating out of our COVID, you know, style playbook of how to do crisis management and, you know, deal with remoteness and things like that. A lot of lessons learned from that experience on how to operate remotely with our clients and coordinate logistics and things like that. You know, all of our team is working well in that regard, so.

Speaker #6: Got it. Okay. Thanks so much, Wayne. Appreciate it, David.

Speaker #7: Thank you.

Speaker #4: Thank you, Steve.

Speaker #1: If the US market picks up, we can dial that up. If we find that the conflict is less impactful and it returns to more normal, we can dial that up.

Speaker #1: Our next question comes from Line of John Daniel with Daniel Energy Partners. Please continue with your question.

Speaker #8: Hey, guys. Thanks for having me. Just three quick ones for you. I'm assuming this is a safe one here. But the revenue got the guidance you provided for '26, I'm assuming that was all created pre-Iran.

Speaker #1: And so on. So, as in other parts of the world, the good news is we're spread out. And now, established with infrastructure and capabilities in many parts of the world, we have a lot more diversification in how we can deploy our capital in meaningful ways across different geomarkets, depending on where the needs are made.

Speaker #8: Is that fair?

Stephen Ferazani: Got it. Okay. Thanks so much, Wayne. Appreciate it, David.

Steve Ferazani: Got it. Okay. Thanks so much, Wayne. Appreciate it, David.

Speaker #7: Correct.

Speaker #8: Okay. And then good job on paying down the 11 million in '25. Do you have an established goal for '26? I mean, looking at the free cash flow guidance of, say, 20 million bucks at the midpoint, roughly what would you envision as being allocated to debt reduction versus buybacks?

Wayne Prejean: Thank you.

Stephen Ferazani: Thank you, Steve.

Steve Ferazani: Thank you, Steve.

Wayne Prejean: Mm-hmm.

Speaker #5: Okay, last one. And again, recognizing we're like five days into this thing or whatever, but there's a little bit of turmoil, right? Just look at crude prices, market concerns, etc.

Operator: Our next question comes from the line of John Daniel with Daniel Energy Partners. Please proceed with your question.

John Daniel: Hey, guys. Thanks for having me. Just three quick ones for you. I'm.

Wayne Prejean: Yeah.

John Daniel: This is a safe one here, but the revenue guidance you provided for 2026, I'm assuming that was all created pre-Iran. Is that fair?

Wayne Prejean: Yeah.

John Daniel: This is a safe one here, but the revenue guidance you provided for 2026, I'm assuming that was all created pre-Iran. Is that fair?

Speaker #1: Sure.

Speaker #5: It's Wayne. The question would be, in a weird way, does this get you excited that there's going to be great opportunities to capitalize on the turmoil, or do you go more defensive?

Speaker #7: I think if you look at our historical pay down events, this is the one you just described, one could expect continued pay down majority of the debt, hopefully.

Wayne Prejean: Correct.

Speaker #5: How do you think about just running the business the next few quarters as this is all playing out?

John Daniel: Okay. good job on paying down the $11 million in 2025. Do you have an established goal for 2026? I mean, looking at the free cash flow guidance of, you know, say, $20 million bucks at the midpoint, roughly what would you envision as being allocated to debt reduction versus buybacks?

Speaker #1: Well, John, it's a very dynamic and fluid situation because there's so many unknowns of how things will be impacted. Speculation is dangerous on my part, but we kind of feel like we're in a position to deal with the situation in multiple, as I just stated, in multiple areas.

Speaker #7: We could probably accelerate that. But it will depend on the occurrences that happen throughout the year. And as these events unfold, particularly the events in the Middle East, it'll help us understand where we need to focus our efforts on investments.

Speaker #7: If the US market picks up, we can dial that up. If we find that the conflict is less impactful and it returns to more normal, we can dial that up.

Wayne Prejean: I think if you, if you look at our historical pay down, you know, events, this is the one you just described, you know, one could expect continued pay down majority of the debt. Hopefully, we could probably accelerate that, it will depend on, you know, the occurrences that happen throughout the year. As these events unfold, particularly the events in the Middle East, it'll help us understand where we need to focus our efforts on investments. You know, if the US market picks up, we can, you know, dial that up. If we find that the conflict is less impactful and it returns to more normal, we can dial that up, and so on.

Speaker #1: So I think we're flexible with regard to the opportunity that may present itself as a result of this conflict. And what I mean by that—and I don't mean to diminish the impact of a war—but oil is a dynamic commodity.

Speaker #7: And so on. So as other parts of the world, the good news is we're spread out throughout. And now established with infrastructure and capabilities in many parts of the world, we have a lot more diversification in how we can deploy our capital in meaningful ways across different geomarkets depending on where the needs are.

Speaker #1: And so, if there's a major supply disruption, someone else will fill that gap, and we are prepared to participate in wherever that activity may be.

Speaker #7: And the adjustments are made.

Speaker #8: Okay. Last one. And again, recognizing we're like five days into this thing, or whatever, but there's a little bit of turmoil, right? Just look at crude prices, market concerns, etc.

Speaker #1: So our fleet is relevant and sustainable, and we have the diverse geomarket exposure now with different technologies. So we're in a good position to deal with how this dynamically unfolds.

Wayne Prejean: As other parts of the world, you know, the good news is we're spread out throughout and now established with infrastructure and capabilities in many parts of the world. We have a lot more diversification in how we can, you know, deploy our capital in meaningful ways across different geo-markets, depending on where the needs are and the adjustments are made, so.

Speaker #7: Sure.

Speaker #8: It's Wayne, the question would be, in a weird way, does this get you excited that there's going to be great opportunities to capitalize on the turmoil?

Speaker #5: Okay. Last one. I lied to you. I told you there's three. There's four. And just look at the chart here. WTI, $88 right now, run better.

Speaker #8: Or do you go more defensive? How do you think about just running the business the next few quarters as this is all playing out?

John Daniel: Okay.

Speaker #7: Well, John, it's a very dynamic and fluid situation because there's so many unknowns of how things will be impacted. It's speculation is dangerous on my part, but we kind of feel like we're in a position to deal with the situation in multiple as I just stated, in multiple areas.

Wayne Prejean: Mm-hmm.

Speaker #5: I mean, there's been a lot of pricing pressure for the service industry the last couple of years. I mean, things have changed. Have you even started thinking about how you're going to start your customer discussions given the backdrop and where we are?

John Daniel: Last one, again, recognizing we're, like, five days into this thing or whatever, but there's a little bit of turmoil, right? Just look at crude prices, market concerns, et cetera.

Wayne Prejean: Sure.

John Daniel: Wayne, the question would be, like, in a weird way, does this get you excited that there's gonna be great opportunities to capitalize on the turmoil, or do you go more defensive? How do you think about just running the business the next few quarters as this is all playing out?

Speaker #1: For sure. I mean, particularly in North America, there has been a meandering rig count, mostly meandering downward with capital discipline and the need for improved earnings.

Speaker #7: So I think we're flexible with regard to the opportunity that may present itself as a result of this conflict. And what I mean that, and I don't mean to diminish the impact of a war, but oil is a dynamic commodity.

Wayne Prejean: Well, John, it's a very dynamic and fluid situation because there's so many unknowns of, you know, how things will be impacted. You know, it's, you know, speculation is dangerous on my part, but we kind of feel like we're in a position to deal with the situation, as I just stated, in multiple areas. I think we're flexible in with regard to the opportunity that may present itself as a result of this conflict. When I mean that, I don't mean to diminish the impact of a war.

Speaker #1: But we our business has what we call a ceiling and a floor on pricing and how we participate in the market and how we provide our customers value.

Speaker #7: And so if there's a major supply disruption, someone else will fill that gap, and we are prepared to participate in where that activity may be.

Speaker #1: And so, if the price is too low, no one will invest in it. If the price is too high, everybody will invest in it.

Speaker #1: So, we feel like we're very efficient in the middle to upper tier of that range, participating with our clients. Now, how do we get OFS pricing up?

Speaker #7: So our fleet is relevant and sustainable, and we have the diverse geomarket exposure now with different technologies. So we're in a good position to deal with how this dynamically unfolds, so.

Speaker #1: I think it's just a matter of time, in my opinion, that people are going to have to reinvest in equipment, and that will drive a push back on pricing reductions and get to more neutral state and maybe upward in the future.

John Daniel: Yeah.

Wayne Prejean: You know, oil is a dynamic, you know, commodity. If there's a major supply disruption, someone else will fill that gap, and we are prepared to participate in where that activity may be. You know, our fleet is relevant and sustainable, and we have the diverse, you know, geo-market, you know, exposure now with different technologies. We're in a good position to deal with how this dynamically unfolds, so.

Speaker #8: Okay. Last one. I lied to you. I told you there's three. There's four. And just look at the chart here. WTI, $88 right now, burnt better.

Speaker #8: I mean, there's been a lot of pricing pressure for the service industry the last couple of years. I mean, things have changed. Have you even started thinking about how you're going to start your customer discussions, given the backdrop and where we are?

Speaker #1: And of course, an activity increase will immediately create probably a stress point in the supply chain throughout the industry. I think we can all make that calculation.

Speaker #5: Okay, thanks for having me, guys. Have a great weekend.

Speaker #7: For sure. I mean, particularly in the North America, there has been a meandering rig count. Mostly meandering downward with capital discipline and the need for improved earnings.

Speaker #2: Thanks, John.

Speaker #4: We have reached the end of the question-and-answer session. Mr. Prejean, I'd like to turn the floor back over to you for closing comments.

John Daniel: Okay. Last one. I lied to you. I told you there's three, there's four. I'm just looking at this chart here, WTI, $88 right now, Brent better. I mean, there's been a lot of pricing pressure for the service industry the last couple years. I mean, things have changed. Have you even started thinking about how you're gonna start your customer discussions given the backdrop and where we are relates to price?

Speaker #1: So thank you, everyone. This we had a good quarter and a good year, and we have a pretty positive outlook throughout 2026. But there are some challenges ahead of us.

Speaker #7: But we our business has what we call a ceiling and a floor on pricing and how we participate in the market and how we provide our customers value.

Speaker #1: The conflict notwithstanding, but we are prepared from a from our company point of view, our employee point of view, and we've got a great customer base, and a good geographic diversity, and we're executing well in interest in drilling Tools International and appreciate your time on the call.

Speaker #7: And so if the price is too low, no one will invest in it. If the price is too high, everybody will invest in it.

Wayne Prejean: For sure. I mean, you know, particularly in North America, there's been a meandering rig count, you know, mostly meandering downward with capital discipline and, you know, the need for, you know, improved earnings. We, you know, our business has what we call a ceiling and a floor, on pricing and how we participate in the market, how we provide our customers value. You know, if the price is too low, no one will invest in it. If the price is too high, everybody will invest in it. We feel like we're very efficient in the middle to upper tier of that range, participating with our clients. Now, how do we get OFS pricing up?

Speaker #7: So we feel like we're very efficient in the middle to upper tier of that range participating with our clients. Now, how do we get OFS pricing up?

Speaker #4: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day.

Speaker #7: I think it's just a matter of time in my opinion that people are going to have to reinvest in equipment. And that will drive a push back on pricing reductions and get to more neutral state and maybe upward in the future.

Speaker #7: And of course, an activity increase will immediately create probably a stress point in the supply chain throughout the industry. I think we can all make that calculation, so.

Wayne Prejean: I think it's just a matter of time, in my opinion, that, you know, that the people are gonna have to reinvest in equipment, and that will drive the push back on, you know, on pricing reductions and get to a more neutral state and maybe upward in the future. Of course, an activity increase will immediately create probably a stress point in the supply chain throughout the industry. I think we can all make that calculation.

Speaker #8: Okay. Thanks for having me, guys. Have a great weekend.

Speaker #7: Thanks, John.

Speaker #1: We have reached the end of the question and answer session. Mr. Prejean, I'd like to turn the floor back over to you for closing comments.

Speaker #7: So thank you, everyone. This we had a good quarter and a good year, and we have a pretty positive outlook throughout 2026. But there are some challenges ahead of us.

Speaker #7: The conflict notwithstanding, but we are prepared from a from our company point of view, our employee point of view, and we've got a great customer base.

John Daniel: Okay.

Wayne Prejean: Yeah.

John Daniel: Thanks for having me, guys. Have a great weekend.

Wayne Prejean: Mm-hmm.

Stephen Ferazani: Thanks, John.

Steve Ferazani: Thanks, John.

Speaker #7: And a good geographic diversity and we're executing well in all those markets. So thank you for your interest in drilling Tools International. And appreciate your time on the call.

Operator: We have reached the end of the question and answer session. Mr. Prejean, I'd like to turn the floor back over to you for closing comments.

Wayne Prejean: Thank you, everyone. You know, this, we had a good quarter and a good year, and we have a, you know, pretty, you know, positive outlook throughout 2026. There are some challenges ahead of us, you know, you know, the conflict notwithstanding. We are, you know, prepared from our company point of view, our employee point of view, and we've got a great customer base and a good geographic diversity, and we're executing well in all those markets. Thank you for your interest in Drilling Tools International and appreciate your time on the call.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Have a wonderful day.

Q4 2025 Drilling Tools International Corp Earnings Call

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