Drilling Tools International Corporation

Greetings and welcome to the Drilling Tools International third quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the form of presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ken Denard. Thank you, sir. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tool International's 2024 Third Quarter Conference Call and Webcast. With me today are Wayne Prejean, Chief Executive Officer, and David Johnson, Chief Financial Officer. Following my remarks, management will provide a review of third quarter results and the updated outlook before opening the call for your questions. There will be a replay of today's call that will be available by webcast on the company's website at drillingtools.com. And there will also be a telephonic recorded replay available until November 21st. Please note that any information reported on this call speaks only as of today, November 14th, 2024. 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. 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. 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. The listener or reader is encouraged to read the 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. The comments today will also include certain non-GAAP financial measures included but not limited to adjusted EBITDA and adjusted free cash flow. We provide these non-GAAP results for informational purposes and they should not be considered in isolation from the most directly comparable GAAP measures. 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 in the filings with the SEC. And now with that behind me, I'd like to turn the call over to Wayne Prejean, DTI's Chief Executive Officer. Wayne.

Thanks, Ken, and good morning, everyone. I will provide some opening remarks, hand the call to David to go through the numbers, and return with closing comments before we open it up for questions. Let's get started. As you saw yesterday, we released our third quarter results after market. We continue to experience headwinds in the third quarter, including rig count softness in U.S. land, U.S. Gulf of Mexico, and Middle Eastern markets. However, we are pleased to have sequentially grown our revenue, adjusted net income, adjusted diluted EPS, adjusted EBITDA, and our adjusted free cash flow from our 2024 second quarter results. Our total revenue came in at $40.1 million. Adjusted EBITDA was $11.1 million in the quarter. And adjusted free cash flow was $7.8 million, which is more adjusted free cash flow than we produced for the entire year of 2023. In a moment, David will take you through the financials in more detail and provide our revised outlook. As we have been saying since going public last year, our goal is to become the premier drilling tools rental solution provider for servicing the world of construction and casing installation market sections. In order to accomplish this goal, we need scale. To that end, we have been extremely active in the M&A market, acquiring three companies in 2024 and announcing a fourth, which is expected to close in the first quarter of 2025. Our first two acquisitions this year were Deep Casing and Superior Drilling Products, which we are currently integrating and operating. We have spoken about these in detail on past calls. Our latest two deals announced subsequent to the end of the third quarter include the acquisition of European Drilling Projects, or EDP for short, which we closed on October 3rd. We followed that with an announcement on October 31st that we signed a definitive agreement to acquire Titan Tool Services Limited, a UK-based downhole tool rental company. Let's start with EDP, which is a global provider of next-generation stabilizers, specialty reamers, and wobble optimization technology for the drilling industry. They bring additional cutting-edge drilling tool solutions to DTI's technology portfolio, complementing our directional tool rental division, along with our weld wall optimization technologies, such as the drilling ring. We're excited to offer these unique solutions to our customers, addressing many known weld wall construction issues faced with extended reach horizontal and directional drilling. By securing EDP's innovative technology, intellectual property, and key personnel, we can offer premium value-added tools in a market segment typically characterized by commoditization. EDP's Eastern Hemisphere footprint and established market penetration further complements our global expansion strategies. Moving to Titan, their strong presence in the North Sea, Europe, and Africa markets will allow us to better serve our international customers beginning in 2025. By combining our expertise in downhole drilling tools with Titan's commitment to service and support, we'll be able to offer a more comprehensive suite of solutions to the oil and gas and geothermal drilling industries worldwide. Together, all our acquisitions demonstrate our focus on international expansion and technology ownership. This is a good segue for me to provide an update on our international operations and integration processes where we have coalesced around a strategy we call One DTI. Integrating multiple businesses and operating groups is never simple. I recently spent two weeks in the Middle East region with our new team members reviewing DTI's path to market by product line and geography. We have established a new leadership team for our Eastern Hemisphere business unit and sales efforts. This will facilitate the appropriate focus on structure and accountability in this important region. While I was in the Middle East, DTI exhibited at the annual ADIPEC convention in Abu Dhabi with great success and engagement, giving us optimism for international growth in future periods. The goal for our one DTI strategy is to firmly establish structure and accountability for our team to maximize synergies, further enhance cost savings, foster better alignment across our global organization, and focus our teams on common goals and objectives. Our approach is to adopt best practices from all parties, and we are immediately adopting a common accounting system and migrating Eastern Hemisphere operations to our Compass asset management platform to minimize replication and maximize accountability. These systems will be implemented in the first half of 2025. We believe collating the best-in-class systems and processes from DTI and our newly acquired businesses, we will have an organization and structure that generates excellent results for our customers, our employees, and our shareholders. We look forward to reporting on our one DTI progress in next quarter's conference call. We continue to believe there are meaningful consolidation opportunities that exist in our sector. As our customers consolidate, so must the OSS space. We have a solid M&A process and robust pipeline that will allow us to selectively and strategically consolidate numerous oilfield service, product, and rental tool companies that meet the criteria for our growth plan. We have a proven team and process to achieve these integration strategies. While our sequential growth this quarter was not as much as we had anticipated, we believe our best-in-class, performance-driven, technologically differentiated offerings combined with our expanded global geographic footprint, will deliver solid growth in the coming years as energy markets recover. As we discussed in our last call, we implemented a cost reduction program for an annualized savings of $2.4 million that may be subject to additional adjustments given the softer market conditions. We continue to appropriately calibrate our operations to adjust for activity levels, and as 1DTI, we will continue to look for ways to boost our operational efficiencies and pursue our growth initiatives in other markets where those opportunities are available. Looking longer term, energy demand trends remain robust. Many industry experts are forecasting that the medium to long term natural gas demand outlook is very strong, particularly with the new LNG capacity slated to come online in 2025 and 2026, and with electricity demand rising rapidly to accommodate the anticipated growth of data centers. DTI is well-positioned for this industry trend. With that, I'll turn it over to our CFO, David Johnson, for a review of our financial results and outlook. David?