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DT

Drilling Tools International Corp (DTI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue was $38.8M, up sequentially from Q2 but down year over year; GAAP diluted EPS was -$0.03 while Adjusted Diluted EPS was $0.02, with Adjusted EBITDA of $9.1M and Adjusted Free Cash Flow of $5.6M .
  • Results beat Wall Street consensus: EPS (normalized) $0.02 vs -$0.04 estimate and revenue $38.8M vs $36.2M estimate; low estimate count implies limited coverage but a clear surprise on both lines (values retrieved from S&P Global)*.
  • Management maintained full-year 2025 guidance (Revenue $145–$165M; Adjusted EBITDA $32–$42M; AFCF $14–$19M) and indicated outcomes leaning at or slightly above midpoints .
  • Eastern Hemisphere execution remained a highlight: revenue contribution ~15% in Q3 and QoQ growth of 41%, partly offsetting North America softness, supported by flexible pricing and improved activity levels .

What Went Well and What Went Wrong

What Went Well

  • “Flex pricing options” and proactive customer communication lifted activity despite pricing pressure, enabling better-than-anticipated Q3 results and shareholder returns: $5.6M debt paydown, cash up $3.2M, $550k buybacks .
  • Eastern Hemisphere momentum: segment revenue up ~41% QoQ and ~15% of total revenue, with improving Middle East utilization and DNR tools deployment .
  • Capital discipline: Q3 Adjusted Free Cash Flow $5.6M and CapEx held to $3.5M, with maintenance CapEx ~10% of revenue, supporting FCF generation in a down market .

What Went Wrong

  • YoY topline decline and margin compression: total revenue fell to $38.8M from $40.1M, GAAP net income swung to a -$0.9M loss from $0.9M profit on higher SG&A and D&A, and pricing pressure constrained profitability .
  • Continued macro uncertainty and pricing/rig count headwinds in North America; management expects typical Q4 seasonality to affect activity, pricing and utilization .
  • Adjusted EBITDA declined YoY (Q3 2025 $9.1M vs Q3 2024 $11.1M), reflecting softer market conditions and elevated costs .

Financial Results

Consolidated Performance (YoY and Sequential)

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$40.093 $42.880 $39.421 $38.817
Net Income - (IS) ($USD Millions)$0.867 -$1.669 -$2.407 -$0.903
Diluted EPS ($USD)$0.03 -$0.05 -$0.07 -$0.03
Adjusted EBITDA ($USD Millions)$11.125 $10.754 $9.332 $9.115
Adjusted Free Cash Flow ($USD Millions)$7.759 $5.711 $1.781 $5.573

Key comparisons:

  • Revenue: -3.2% YoY (Q3 2025 vs Q3 2024) and -1.5% QoQ (Q3 vs Q2).
  • Adjusted EBITDA: -18.0% YoY and -2.3% QoQ.
  • GAAP diluted EPS: declined YoY to -$0.03; improved QoQ from -$0.07 to -$0.03.

Segment/Revenue Mix

MetricQ1 2025Q2 2025Q3 2025
Tool Rental Revenue ($USD Millions)$34.533 $32.756 $31.859
Product Sales Revenue ($USD Millions)$8.347 $6.665 $6.958
Eastern Hemisphere Revenue Share (%)—~14% ~15%

KPIs and Balance Sheet Indicators

MetricQ1 2025Q2 2025Q3 2025
Capital Expenditure (Gross) ($USD Millions)$5.043 $7.551 $3.542
Cash And Equivalents ($USD Millions)$2.789 $1.145 $4.373
Net Debt ($USD Millions)$52.1 $55.8 $46.9

Actuals vs Wall Street Consensus (Q3 2025)

MetricConsensus EstimateActual ReportedSurprise
EPS (Normalized) ($USD)-$0.04*$0.02 +$0.06
Revenue ($USD Millions)$36.1845*$38.817 +$2.632 (+7.3%)

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$145M–$165M $145M–$165M Maintained; leaning at/above midpoints
Adjusted EBITDAFY 2025$32M–$42M $32M–$42M Maintained
Adjusted EBITDA MarginFY 202522%–25% 22%–25% Maintained
Adjusted Free Cash FlowFY 2025$14M–$19M $14M–$19M Maintained
Capital ExpendituresFY 2025$18M–$23M (disclosed on call)$18M–$23M (reiterated)Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2025)Trend
Cost reductionsInitiated ~$6M program to align spending with activity ; On track to meet/exceed $6M in Q2 Activity increased; only ~$4M of cost cuts likely needed in 2025 Moderating cuts; operational flexibility improving
Pricing strategyHeightened volatility; prepared to curtail growth CapEx “Flex pricing options” offset pricing concessions and sustained activity Adaptive pricing lifts utilization
International (Middle East)Eastern Hemisphere contribution rising (14% in Q2) 15% of revenue; DNR fleet utilization rising; optimism in Saudi/UAE activity Improving trajectory
Q4 seasonalityN/AExpect typical seasonality (capital discipline, holidays, budget exhaustion) Seasonal softening expected
Capital allocationQ1: $10M buyback authorization Q3: $5.6M debt paydown; cash +$3.2M; $550k buybacks at $2.09/share Balance sheet strength; opportunistic buybacks
Systems/integration (OneDTI)N/ARelocated U.S. repair facility to Houston; Eastern Hemisphere accounting integration by Jan 2026 Execution momentum

Management Commentary

  • “Proactive communications with customers and our ability to flex pricing options… stimulated higher activity levels… offsetting the impact of pricing pressure.”
  • “Our Eastern Hemisphere segment grew revenue by 41% and contributed ~15% of total revenue” (quarter-over-quarter growth) .
  • “We paid down $5.6M in debt, increased our cash position by $3.2M, and bought back an additional $550,000 of common shares.”
  • “We are maintaining our previously disclosed full year guidance ranges, albeit leaning at or slightly above the midpoints.”
  • OneDTI integration: centralized accounting for Eastern Hemisphere by Jan 2026; U.S. repair facility relocation two years ahead of schedule .

Q&A Highlights

  • Utilization and U.S. vs Eastern Hemisphere: management won RFQs/tenders to maintain activity despite ~5% rig count decline; best-in-class tools/service helped retain share .
  • Q4 seasonality: likely flat to slightly down for remainder of year; no acceleration of slowdown observed yet .
  • Middle East outlook: Saudi/UAE expected to pick up rigs; unconventional gas prospects favorable; DTI transferring tools/technology and people to capitalize .
  • Capital allocation: priority on debt paydown, selective buybacks constrained by volume rules, and targeted CapEx; continued M&A focus .

Estimates Context

  • Q3 2025 beat: EPS (normalized) $0.02 vs -$0.04 estimate; revenue $38.8M vs $36.2M estimate; EPS estimate count = 1; revenue estimate count = 2 (values retrieved from S&P Global).*
  • Low estimate counts imply thin coverage; nonetheless the magnitude of the beat suggests upward revisions to near-term estimates, especially for Q4 revenue ($36.3M est) and normalized EPS (-$0.03 est)*.

Key Takeaways for Investors

  • The quarter delivered a dual beat on EPS and revenue versus consensus amid pricing pressure, with resilience driven by flexible pricing and solid execution; watch for estimate revisions higher (values retrieved from S&P Global).*
  • International growth is a key offset: Eastern Hemisphere now ~15% of revenue with clear momentum, supporting diversification and smoothing North America volatility .
  • Strong capital discipline: debt down $5.6M QoQ, cash up to $4.4M, and positive adjusted FCF despite a softer environment—supporting ongoing buybacks and selective CapEx .
  • Guidance steady and leaning toward midpoints, signaling confidence into year-end despite typical Q4 seasonal headwinds in activity/price/utilization .
  • Execution on OneDTI and operational integration is improving scalability and speed-to-synergy, positioning the platform for 2026 recovery and further M&A .
  • Near-term trading: stock could react positively to the beat/maintained guidance; monitor commodity price volatility, rig count trends, and Q4 seasonal cadence raised by management .
  • Medium-term thesis: diversified footprint plus disciplined capital allocation and systems integration should enhance margin durability and growth optionality as Middle East activity normalizes .