Drilling Tools International Corp (DTI)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 revenue was $39.8M, up 13% YoY, with Tool Rental $31.5M and Product Sales $8.3M; GAAP diluted EPS was -$0.04, and adjusted diluted EPS was $0.02 .
• Adjusted EBITDA was $9.1M and adjusted free cash flow $5.9M; management cited pricing pressure, lower tool recovery revenue, and mix shifts from acquisitions impacting margins despite topline resilience .
• 2024 full-year came in at revenue $154.4M, adjusted EBITDA $40.1M (near midpoint of guidance), adjusted net income $10.1M (above high end), and adjusted FCF $17.2M; year-end cash $6.2M and net debt $47.6M .
• 2025 guidance: revenue $163–$183M, adjusted EBITDA $40–$50M (25–27% margin), adjusted FCF $17–$21M; DTI will begin reporting Eastern vs Western Hemisphere segments in 2025, reflecting its international expansion strategy .

What Went Well and What Went Wrong

• What Went Well

  • Strong execution amid headwinds; Q4 revenue up despite a 4% global rig count decline, underscoring business resilience and geographic diversification .
  • Acquisition strategy expanding technology and footprint (SDPI, Deep Casing Tools, EDP, Titan); management highlighted premium, differentiated tools gaining traction globally (e.g., MECLOK swivel, Rubelizer, stabilizers/reamers) .
  • Full-year adjusted net income finished above the high end of guidance; adjusted free cash flow more than doubled vs 2023, supporting deleveraging and optionality for further M&A .

• What Went Wrong

  • Pricing pressure and lower tool recovery revenue weighed on gross margins; gross margin declined ~250 bps YoY in Q4 even as revenue grew .
  • International softness: Saudi Arabia and PEMEX weakness pressured product sales; management is pivoting efforts to other regions to offset the impact .
  • SG&A up with full impact of acquisitions and public company costs; maintenance CapEx trended lower with rig count decline, but mix changes affected margin structure .

Financial Results

Consolidated P&L and Non-GAAP Performance

Segment/Revenue Mix

Q4 YoY Comparison

Margin Commentary

• Gross profit margin was down slightly QoQ and declined by ~2.5% vs Q4 2023, driven by pricing pressure, lower tool recovery revenue, and mix shifts from acquisitions; product sales mix is accretive to adjusted FCF as it does not require CapEx .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are actively vertically integrating around specific products and are positioning ourselves globally for future growth… we anticipate … significantly grow our international revenue in 2025.” — CEO Wayne Prejean .
• “Fourth quarter revenue increased… by 13% despite a 4% global rig count decline… pricing pressure, lower tool recovery revenue and a change in the overall product mix… impacting our gross profit margins.” — CFO David Johnson .
• “We expect 2025 revenue to be in the range of $163 million to $183 million… adjusted EBITDA… $40 million to $50 million… adjusted free cash flow… $17 million to $21 million.” — CFO David Johnson .
• “Our acquired technologies are gaining traction… MECLOK swivel… Rubelizer tool… stabilizer and reamer technology acquired from ED Projects… making a contribution in both hemispheres.” — CEO Wayne Prejean .

Q&A Highlights

• M&A/Balance sheet: Net debt ~$47M largely tied to acquisitions; free cash flow to fund CapEx and enable debt paydown while retaining capacity for accretive deals; management comfortable with leverage and will pivot to delever if activity weakens .
• Revenue mix dynamics: Tool rentals saw sequential strength; product sales dipped on Saudi and PEMEX softness; newer higher-priced technologies gaining traction to neutralize activity fluctuations .
• 2025 CapEx: Higher CapEx targeted to support Eastern Hemisphere growth and new technologies following acquisitions; no “catch-up” but focused investment .
• Tariffs: Diversified supplier and manufacturing base; expect long-term resolution; leveraging USMCA to mitigate near-term impacts .
• Segment reporting: From Q1 2025, DTI to report Eastern and Western Hemisphere segments with retrospective revisions for prior periods; aligns with global growth strategy .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 EPS/Revenue/EBITDA was unavailable at the time of this analysis due to access limits. As a result, explicit comparisons to consensus could not be made. Values retrieved from S&P Global were unavailable at this time.

Key Takeaways for Investors

• Q4 delivered resilient revenue growth (+13% YoY) with positive adjusted EPS and FCF despite pricing/mix headwinds; topline held amid global rig count softness .
• Mix shift and pricing pressure compressed margins, but product sales mix supports FCF and reduces capital intensity; watch margin recovery as acquisitions integrate and scale .
• 2024 finished above guidance on adjusted net income and near midpoint on adjusted EBITDA; slightly below FCF range—important context for capital allocation and deleveraging in 2025 .
• 2025 outlook (revenue $163–$183M, adj EBITDA $40–$50M, FCF $17–$21M) embeds Eastern Hemisphere expansion and new segment reporting—monitor EH traction vs Saudi/Pemex recovery .
• Active M&A pipeline remains a core catalyst; balance sheet and FCF provide optionality to pursue accretive deals while managing leverage .
• Near-term trading: stock likely sensitive to signs of margin stabilization and EH growth proof points; medium-term thesis hinges on One DTI integration synergies, technology-led differentiation, and international growth runway .
• Risk monitors: pricing pressure persistence, international volatility (Saudi/PEMEX), and timing of synergy capture; offsets include diversified footprint, tech portfolio, and disciplined capital deployment .