DTI maintains $145M–$165M revenue outlook for 2025 while expanding Eastern Hemisphere operations

Earnings Call Insights: Drilling Tools International Corporation (DTI) (DTI) Q2 2025

MANAGEMENT VIEW

* R. Wayne Prejean, CEO, reported "second quarter year-over-year total revenue grew nearly 5% and adjusted EBITDA grew 4%, this tracks ahead of our forecast plan as we reach the halfway point of the year." Prejean highlighted the successful integration of recent acquisitions in the Eastern Hemisphere and cost reduction initiatives that have contributed to outperformance, particularly in DTR and pipe rentals in the Western Hemisphere. He noted, "we achieved positive adjusted free cash flow in the second quarter for the first time since becoming public."
* Prejean emphasized the importance of the Eastern Hemisphere, stating, "Sequentially, our Eastern Hemisphere operations grew revenue by 21% and contributed approximately 14% of our total revenue in the first half of this year."
* Prejean also discussed a significant milestone: "our Drill-N-Ream Eastern Hemisphere Group achieved its first positive adjusted EBITDA month during the quarter."
* David R. Johnson, CFO, stated, "Both total revenue and adjusted EBITDA increased over last year's second quarter by 4.8% and 4.1%, respectively, in the face of a 7% global rig count decline over the same period." Johnson detailed, "we generated total consolidated revenue of $39.4 million, comprised of tool rental revenue of approximately $32.8 million and product sales of $6.7 million."
* Johnson added, "Second quarter adjusted EBITDA was $9.3 million and adjusted free cash flow was $1.8 million."
* Johnson reported, "during the second quarter, we repurchased $600,000 of DTI common stock at an average price of $3 per share."
* Prejean outlined the ongoing integration strategy, "One DTI," noting the relocation of the U.S. Drill-N-Ream repair facility to Houston, Texas, and advancements in centralizing accounting and asset management platforms.

OUTLOOK

* Johnson reaffirmed the full year 2025 guidance: "we are maintaining our full year 2025 revenue outlook to be in the range of $145 million to $165 million. We continue to expect adjusted EBITDA to be within the range of $32 million to $42 million. Gross capital expenditures are expected to be between $18 million and $23 million. And finally, we expect our 2025 adjusted free cash flow to range between $14 million to $19 million."
* Johnson explained, "pricing pressure, product mix and activity declines have impacted our margins. While we didn't experience significant pricing pressure in the second quarter, we believe the margin compression from pricing pressure will emerge in Q3 and Q4, while activity declines may continue."
* Prejean stated, "Despite these headwinds, I'm confident in our ability to adapt to the rapidly evolving market, preserve our financial strength and deliver meaningful shareholder value."

FINANCIAL RESULTS

* Johnson reported, "6-month revenue totaled $82.3 million. Adjusted EBITDA was $20.1 million. Capital expenditures were $12.6 million and adjusted free cash flow during the first 6 months of 2025 was $7.5 million."
* Johnson stated, "Our planned CapEx spend in the second quarter was considerably lower than in the first quarter. Going forward, we expect CapEx to be significantly lower in the second half of this year than it was in the first half."
* He noted, "maintenance CapEx for the second quarter... was approximately 10% of total revenue."

Q&A

* Stephen Michael Ferazani, Sidoti & Company: Questioned margin resilience and the timing of cost reduction benefits. Johnson responded, "we saw the activity declines coming... those were just sort of muted and kind of deferred a little bit longer than we initially thought... we'll see more of the benefit in Q3 and Q4."
* Ferazani asked about the permanence of cost reductions. Johnson explained, "most of the reductions...is part of our what we refer to as a scalability factor of our business...a lot of it's activity-driven cost reductions."
* Ferazani inquired about guidance range drivers. Johnson replied, "the activity factor...combined with the pricing pressure...that's obviously the most EBITDA impactful that we'll see in the second half of the year."
* Ferazani questioned international revenue growth drivers. Prejean cited "positive momentum from [the Titan] acquisition" and "steady traction" post-acquisition of Superior with Drill-N-Ream in the Middle East.
* John Matthew Daniel, Daniel Energy Partners: Asked about pricing pressure origins. Prejean stated, "in many cases, it's them [customers] signaling to us...we go in there and negotiate with them."
* Daniel asked about Western Canada and U.S. gas market presence. Prejean said, "we have a solid presence with our pipe rentals in the Haynesville...and Canada is our second biggest distribution center."
* Charles Kennedy Fratt, Alliance Global Partners: Asked about margin erosion in Q3/Q4. Johnson stated, "we expect the pricing and pressure to continue into Q3 and Q4."
* Fratt inquired about the M&A environment. Prejean replied, "we're still in process of having meaningful dialogue with...potential targets...we're going to actively pursue potential good bolt-on and synergistic candidates."

SENTIMENT ANALYSIS

* Analysts displayed a slightly negative to neutral tone, focusing on margin resilience, cost reduction permanency, pricing pressure, and the impact of activity declines. Ferazani commented, "I know a challenging quarter and challenging times ahead."
* Management maintained a confident but cautious tone, emphasizing operational discipline and adaptability. Prejean said, "I'm confident in our ability to adapt to the rapidly evolving market, preserve our financial strength and deliver meaningful shareholder value."
* Compared to the previous quarter, analysts' tone shifted from curiosity and operational questioning to more concern about margin sustainability and pricing pressures, while management remained focused on adaptability and execution.

QUARTER-OVER-QUARTER COMPARISON

* The revenue and adjusted EBITDA outlook ranges remained the same as the prior quarter. Guidance language now emphasizes the expectation of margin compression in Q3 and Q4 due to pricing pressure, a more explicit warning than in Q1.
* Management highlighted continued international expansion and the integration of new acquisitions, with Eastern Hemisphere revenue contributions rising from 11% in Q1 to 14% in H1.
* Analysts' questions in Q2 shifted more toward concerns about how cost reductions would impact margins and the permanence of these savings, whereas in Q1, focus was on geographic and product line performance and capital allocation.
* Management's tone remained steady, reiterating confidence in cost structure control and acquisition integration.

RISKS AND CONCERNS

* Management cited ongoing volatility in commodity prices and global rig counts as major risks.
* Johnson noted, "pricing pressure, product mix and activity declines have impacted our margins," and warned of further margin compression in Q3 and Q4.
* Prejean acknowledged, "uncertainty persists" in customer activity and that "we still expect uncertainty to continue causing disruptions through both pricing pressure and utilization."
* Contingency plans are in place should market conditions deteriorate further, including additional cost reductions and operational adjustments.

FINAL TAKEAWAY

DTI management remains upbeat about the remainder of 2025, underscoring the company's ability to deliver resilient financial results amid ongoing industry volatility. With a reaffirmed revenue outlook of $145 million to $165 million and an increasing contribution from Eastern Hemisphere operations, management highlights continued progress integrating acquisitions, controlling costs, and adapting to challenging market conditions, while monitoring the impact of commodity price swings and rig activity on pricing and margins.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dti/earnings/transcripts]

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* Drilling Tools International Corporation 2025 Q2 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4813720-drilling-tools-international-corporation-2025-q2-results-earnings-call-presentation]
* Drilling Tools International Corporation (DTI) Q2 2025 Earnings Conference Call Transcript [https://seekingalpha.com/article/4813718-drilling-tools-international-corporation-dti-q2-2025-earnings-conference-call-transcript]
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