Drilling Tools International Corp. Reports 2024 First Quarter Results

Company Reaffirms 2024 Outlook

HOUSTON, May 9, 2024 /PRNewswire/ -- Drilling Tools International Corp., (NASDAQ: DTI) ("DTI" or the "Company"), a global oilfield services company that designs, engineers, manufactures and provides a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the well life cycle, today reported 2024 first quarter results and reaffirmed its 2024 full year outlook.

DTI generated total consolidated revenue of $37 million in the first quarter of 2024.  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. Net Income and Adjusted Net Income(1) for the first quarter were $3.1 million and $3.8 million, respectively. First quarter Adjusted EBITDA(1) was $10.9 million and Adjusted Free Cash Flow(1)(2) was $4.7 million. As of March 31, 2024, DTI had approximately $14 million of cash and cash equivalents, net debt of $11 million, and an undrawn $80 million ABL Credit Facility.

Wayne Prejean, CEO of DTI, stated, "We are pleased to report first quarter results that were in line with our expectations despite the current competitive and flat rig count environment. Highlights for the first quarter included entering into a definitive agreement to acquire Superior Drilling Products, Inc. (NYSE American: SDPI) ("SDP"); the closing of our Deep Casing Tools acquisition; and boosting our balance sheet by securing a new $25 million Term Loan, which was fully drawn as of March 31, 2024, and amending and extending our ABL Credit Facility. We are very excited about our growth opportunities organically and through acquisitions, both domestically and internationally, throughout 2024 and into 2025."

Prejean added, "We are reaffirming our full-year 2024 outlook. As we disclosed in our 2023 year-end earnings release, our current 2024 outlook includes our recent Deep Casing Tools acquisition's estimated impact on 2024 results but does not include any contributions from the pending acquisition of Superior Drilling Products. We will update 2024 guidance to include SDP once we close the transaction."

 2024 Full Year Outlook

Revenue

$170 million

-

$185 million

Adjusted Net Income(1)

$15.6 million

-

$21.9 million

Adjusted EBITDA(1)

$50 million

-

$58.5 million

Adjusted EBITDA Margin(1)

29 %

-

32 %

Adjusted Free Cash Flow(1)(2)

$20 million

-

$25.5 million



(1)

Adjusted Net Income, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Free Cash Flow are non-GAAP financial measures. See "Non-GAAP Financial Measures" at the end of this release for a discussion of reconciliations to the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP").

(2)

Adjusted Free Cash Flow defined as Adjusted EBITDA less Gross Capital Expenditures.



2024 First Quarter Conference Call Information

DTI's first quarter conference call can be accessed live via dial-in or webcast on Friday, May 10, 2024 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) by dialing 1- 201-389-0869 and asking for the DTI call at least 10 minutes prior to the start time, or via live webcast by logging onto the webcast at this URL address: https://investors.drillingtools.com/news-events/events. An audio replay will be available through May 17 by dialing 1-201-612-7415 and using passcode 13745745#.  Also, an archive of the webcast will be available shortly after the call at https://investors.drillingtools.com/news-events/events for 90 days. Please submit any questions for management prior to the call via email to DTI@dennardlascar.com.

About Drilling Tools International Corp.

DTI is a Houston, Texas based leading oilfield services company that manufactures and rents downhole drilling tools used in horizontal and directional drilling of oil and natural gas wells. With roots dating back to 1984, DTI now operates from 16 service and support centers across North America and maintains 7 international service and support centers across Europe and the Middle East. To learn more about DTI, please visit: www.drillingtools.com.

Contact:
DTI Investor Relations
Ken Dennard / Rick Black
InvestorRelations@drillingtools.com

Forward-Looking Statements

This press release may include, and oral statements made from time to time by representatives of the Company may include, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements regarding the business combination and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this press release are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intends," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward looking. These forward-looking statements include, but are not limited to, statements regarding DTI and its management team's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward looking statements in this press release may include, for example, statements about: (1) the demand for DTI's products and services, which is influenced by the general level activity in the oil and gas industry; (2) DTI's ability to retain its customers, particularly those that contribute to a large portion of its revenue; (3) DTI's ability to remain the sole North American distributor of the Drill-N-Ream; (4) DTI's ability to employ and retain a sufficient number of skilled and qualified workers, including its key personnel; (5) DTI's ability to source tools and raw materials at a reasonable cost; (6) DTI's ability to market its services in a competitive industry; (7) DTI's ability to execute, integrate and realize the benefits of acquisitions, and manage the resulting growth of its business; (8) potential liability for claims arising from damage or harm caused by the operation of DTI's tools, or otherwise arising from the dangerous activities that are inherent in the oil and gas industry; (9) DTI's ability to obtain additional capital; (10) potential political, regulatory, economic and social disruptions in the countries in which DTI conducts business, including changes in tax laws or tax rates; (11) DTI's dependence on its information technology systems, in particular Customer Order Management Portal and Support System, for the efficient operation of DTI's business; (12) DTI's ability to comply with applicable laws, regulations and rules, including those related to the environment, greenhouse gases and climate change; (13) DTI's ability to maintain an effective system of disclosure controls and internal control over financial reporting; (14) the potential for volatility in the market price of DTI's common stock; (15) the impact of increased legal, accounting, administrative and other costs incurred as a public company, including the impact of possible shareholder litigation; (16) the potential for issuance of additional shares of DTI's common stock or other equity securities; (17) DTI's ability to maintain the listing of its common stock on Nasdaq; and (18) other risks and uncertainties separately provided to you and indicated from time to time described in filings and potential filings by DTI with the Securities and Exchange Commission (the "SEC"). You should carefully consider the risks and uncertainties described in the definitive proxy statement/prospectus/consent solicitation statement with the SEC by the Company on May 12, 2023 (the "Proxy Statement"), and the information presented in DTI's annual report on Form 10-K filed March 29, 2024 (the "10-K"). Such forward-looking statements are based on the beliefs of management of DTI, as well as assumptions made by, and information currently available to DTI's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in the Proxy Statement or the 10-K. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this paragraph. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of each of DTI, including those set forth in the Risk Factors section of the Proxy Statement and described in the 10-K. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

Tables to Follow

 

Drilling Tools International Corp.

Consolidated Statement of Operations and Comprehensive Income

(In thousands of U.S. dollars and rounded)

(Unaudited)








Three Months Ended March 31,



2024


2023

Revenue, net:





Tool rental


$         29,966


$         32,276

Product sale


7,008


8,523

Total revenue, net


36,974


40,799

Operating costs and expenses:





Cost of tool rental revenue


7,001


8,137

Cost of product sale revenue


1,536


1,303

Selling, general, and administrative expense


17,942


18,423

Depreciation and amortization expense


5,365


5,015

Total operating costs and expenses


31,844


32,878

Income (loss) from operations


5,130


7,921

Other expense, net:





Interest expense, net


(182)


(573)

Gain (loss) on sale of property



69

Loss on asset disposal 


(9)


Unrealized gain (loss) on equity securities


249


(33)

Other income (expense), net


(1,125)


40

Total other expense, net


(1,067)


(497)

Income before income tax expense


4,063


7,424

Income tax expense


(937)


(1,723)

Net income


$           3,126


$           5,701

Accumulated dividends on redeemable convertible preferred stock



314

Net income available to common shareholders


$           3,126


$           5,387

Basic earnings  per share


$             0.11


$             0.45

Diluted earnings per share


$             0.11


$             0.29

Basic weighted-average common shares outstanding*


29,768,568


11,951,137

Diluted weighted-average common shares outstanding*


29,768,568


19,677,507

Comprehensive income:





Net income


$           3,126


$           5,701

Foreign currency translation adjustment, net of tax


(511)


Net comprehensive income 


$           2,615


$           5,701






* Shares of legacy redeemable convertible preferred stock and legacy common stock have been retroactively restated to give effect to the Merger.

 

Drilling Tools International Corp.

Consolidated Balance Sheets

(In thousands of U.S. dollars and rounded)

(Unaudited)








March 31,


December 31,



2024


2023

ASSETS





Current assets





Cash


$   14,050


$           6,003

Accounts receivable, net


35,730


29,929

Inventories, net


11,441


5,034

Prepaid expenses and other current assets


3,231


4,553

Investments - equity securities, at fair value


1,137


888

Total current assets


65,589


46,408

Property, plant and equipment, net


70,596


65,800

Operating lease right-of-use asset


18,296


18,786

Goodwill


2,556


Intangible assets, net


8,058


216

Deferred financing costs, net


864


409

Deposits and other long-term assets


992


879

Total assets


$ 166,951


$       132,498

LIABILITIES AND  SHAREHOLDERS' EQUITY





Current liabilities





Accounts payable


$   16,736


$           7,751

Accrued expenses and other current liabilities


8,442


10,579

Current portion of operating lease liabilities


3,965


3,958

Current maturities of long-term debt


5,000


Total current liabilities


34,143


22,289

Operating lease liabilities, less current portion


14,402


14,893

Long-term debt


20,000


Deferred tax liabilities, net


6,893


6,627

Total liabilities


75,438


43,809

Commitments and contingencies (See Note 14)





Shareholders' equity





Common stock, $0.0001 par value, shares authorized 500,000,000 as of March 31, 2024 and December 31, 2023, 29,768,568 issued and outstanding as of March 31, 2024 and December 31, 2023


3


3

Additional paid-in-capital


95,426


95,218

Accumulated deficit


(3,180)


(6,306)

Accumulated other comprehensive loss


(736)


(225)

Total shareholders' equity


91,513


88,690

Total liabilities and shareholders' equity


$ 166,951


$       132,498






* Shares of legacy redeemable convertible preferred stock and legacy common stock have been retroactively restated to give effect to the Merger.

 

Drilling Tools International Corp.

Consolidated Statement of Cash Flows

(In thousands of U.S. dollars and rounded)

(Unaudited)








Three Months Ended March 31, 



2024


2023

Cash flows from operating activities:





Net income


$    3,126


$   5,701

Adjustments to reconcile net income to net cash from operating activities:





Depreciation and amortization


5,365


5,015

Amortization of deferred financing costs


56


19

Non-cash lease expense


1,111


1,140

Provision for excess and obsolete inventory



17

Provision for excess and obsolete property and equipment


66


117

Bad debt expense


(135)


334

Deferred tax expense


266


1,116

Loss (gain) on sale of property



(69)

Loss on asset disposal


9


Unrealized loss (gain) on equity securities


(249)


33

Unrealized loss (gain) on interest rate swap



105

Gross profit from sale of lost-in-hole equipment


(2,799)


(4,535)

Stock-based compensation expense


208


0

Changes in operating assets and liabilities:





Accounts receivable, net


(1,839)


(1,675)

Prepaid expenses and other current assets


1,723


713

Inventories, net


2,836


116

Operating lease liabilities


(1,067)


(1,086)

Accounts payable


(2,848)


3,208

Accrued expenses and other current liabilities


(2,517)


(3,180)

Net cash flows from operating activities


3,312


7,089

Cash flows from investing activities:





Acquisition of a business, net of cash acquired


(18,261)


Proceeds from sale of property and equipment



80

Purchase of property, plant and equipment


(6,228)


(7,067)

Proceeds from sale of lost-in-hole equipment


4,904


5,819

Net cash from investing activities


(19,585)


(1,168)

Cash flows from financing activities:





Payment of deferred financing costs


(389)


Proceeds from revolving line of credit



34043

Payments on revolving line of credit



(41,496)

Proceeds from Term Loan


25,000


Net cash from financing activities


24,611


(7,453)

Effect of Changes in Foreign Exchange Rate


(291)


Net Change in Cash


8,047


(1,532)

Cash at Beginning of Period


6,003


2,352

Cash at End of Period


$  14,050


$       820

Supplemental cash flow information:





Cash paid for interest


$          58


$       444

Cash paid for income taxes


$        153


$          —

Non-cash investing and financing activities:





ROU assets obtained in exchange for lease liabilities


$        314


$    1,360

Fair value of CTG liabilities assumed in CTG Acquisition


$     2,636



Purchases of inventory included in accounts payable and accrued expenses and other current liabilities


$     5,018


$    1,575

Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities


$     4,482


$    4,369

Undeclared Dividends


$           —


$       314

Non-cash directors and officers insurance


$        327


$          —

Deferred financing fees included in accounts payable


$        122


$          —


Non-GAAP Financial Measures

This release includes Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted Net Income measures. Each of the metrics are "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934.

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. Adjusted EBITDA is not a measure of net earnings or cash flows as determined by GAAP. We define Adjusted EBITDA as net earnings (loss) before interest, taxes, depreciation and amortization, further adjusted for (i) goodwill and/or long-lived asset impairment charges, (ii) stock-based compensation expense, (iii) restructuring charges, (iv) transaction and integration costs related to acquisitions and (v) other expenses or charges to exclude certain items that we believe are not reflective of ongoing performance of our business.

We believe Adjusted EBITDA is useful because it allows us to supplement the GAAP measures in order to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP, or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Adjusted Free Cash Flow is a supplemental non-GAAP financial measure, and we define Adjusted Free Cash Flow as Adjusted EBITDA less Gross Capital Expenditures. We use Adjusted Free Cash Flow as a financial performance measure used for planning, forecasting, and evaluating our performance. We believe that Adjusted Free Cash Flow is useful to enable investors and others to perform comparisons of current and historical performance of the Company. As a performance measure, rather than a liquidity measure, the most closely comparable GAAP measure is net income (loss).

We define Adjusted Net Income (Loss) as consolidated net income (loss) adjusted for (i) goodwill and/or long-lived asset impairment charges, (ii) restructuring charges, (iii) transaction and integration costs related to acquisitions and (iv) other expenses or charges to exclude certain items that we believe are not reflective of the ongoing performance of our business. We believe Adjusted Net Income (Loss) is useful because it allows us to exclude non-recurring items in evaluating our operating performance.

We define Adjusted Diluted Earnings (Loss) per share as the quotient of adjusted net income (loss) and diluted weighted average common shares. We believe that Adjusted Diluted Earnings (Loss) per share provides useful information to investors because it allows us to exclude non-recurring items in evaluating our operating performance on a diluted per share basis.

The following tables present a reconciliation of the non-GAAP financial measures of Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted Net Income to the most directly comparable GAAP financial measures for the periods indicated:

Drilling Tools International Corp.

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands of U.S. dollars and rounded)




Three Months Ended March 31,



2024


2023

Net income (loss)


$   3,126


$   5,701

Add (deduct):





Income tax expense


937


1,723

Depreciation and amortization


5,365


5,015

Interest expense, net


182


573

Stock option expense


208


Management fees


188


216

Loss (gain) on sale of property



(69)

Loss on asset disposal


9


Unrealized (gain) loss on equity securities


(249)


33

Transaction expense


889


1,694

Other expense, net


236


(40)

Adjusted EBITDA


$ 10,891


$ 14,846

 

Drilling Tools International Corp.

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands of U.S. dollars and rounded)








Three Months Ended March 31,



2024


2023

Net income (loss)


$ 3,126


$  5,701

Add (deduct):





Income tax expense


937


1,723

Depreciation and amortization


5,365


5,015

Interest expense, net


182


573

Stock option expense


208


Management fees


188


216

Loss (gain) on sale of property



(69)

Loss on asset disposal


9


Unrealized (gain) loss on equity securities


(249)


33

Transaction expense


889


1,694

Other expense, net


236


(40)

Gross capital expenditures


(6,228)


(7,067)

Adjusted Free Cash Flow


$ 4,664


$  7,779

 

Drilling Tools International Corp.

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands of U.S. dollars and rounded)




Three Months Ended March 31,



2024


2023

Net income (loss)


$        3,126


$        5,701

Transaction expense


889


1,694

Income tax expense


937


1,723

Adjusted Income Before Tax


$        4,952


$        9,118

Adjusted Income tax expense


1,142


2,116

Adjusted Net Income


$        3,810


$        7,002

Accumulated dividends on redeemable convertible preferred stock



314

Adjusted Net income available to common shareholders


$        3,810


$        6,688

Adjusted Basic earnings  per share


0.13


0.56

Adjusted Diluted earnings per share


0.13


0.36

Basic weighted-average common shares outstanding*


29,768,568


11,951,137

Basic weighted-average common shares outstanding*


29,768,568


19,677,507

 

Drilling Tools International Corp.

Reconciliation of Estimated Consolidated Net Income to Adjusted EBITDA

(In thousands of U.S. dollars and rounded)

(Unaudited)





Twelve Months Ended December 31, 2024








Low


High

Net Income



$   15,000


$   21,000

Add (deduct)






Interest expense, net



2,000


2,300

Income tax expense



5,500


6,000

Depreciation and amortization


22,000


22,500

Management fees



600


1,000

Other expense



2,000


2,200

Stock option expense



2,100


2,300

Transaction expense



800


1,200

Adjusted EBITDA



$ 50,000


$ 58,500

Revenue



170,000


185,000

Adjusted EBITDA Margin



29 %


32 %

























 


Drilling Tools International Corp.

Reconciliation of Estimated Consolidated Net Income to Adjusted Free Cash Flow

(In thousands of U.S. dollars and rounded)

(Unaudited)






Twelve Months Ended December 31, 2024








Low


High

Net Income



$   15,000


$   21,000

Add (deduct)






Interest expense, net



2,000


2,300

Income tax expense



5,500


6,000

Depreciation and amortization


22,000


22,500

Management fees



600


1,000

Other expense



2,000


2,200

Stock option expense



2,100


2,300

Transaction expense



800


1,200

Gross capital expenditures


(30,000)


(33,000)

Adjusted Free Cash Flow



$ 20,000


$ 25,500













Drilling Tools International Corp.

Reconciliation of Estimated Consolidated Net Income to Adjusted Net Income

(In thousands of U.S. dollars and rounded)

(Unaudited)






Twelve Months Ended December 31, 2024








Low


High

Net income (loss)



$   15,000


$   21,000

Transaction expense



$        800


$     1,200

Income tax expense



5,500


6,000

Adjusted Income Before Tax



$ 21,300


$ 28,200

Adjusted Income tax expense


5,700


6,300

Adjusted Net Income



$ 15,600


$ 21,900

 

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SOURCE Drilling Tools International Corp.

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