Drilling Tools International Corporation

Greetings and welcome to the Drilling Tools International 2025 Second Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal 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 is now my pleasure to introduce your host, Mr. Ken Dennard. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International 2025 Second 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 second quarter results and 2025 outlook before opening the call for your questions. There'll be a replay of today's call that'll be available by webcast on the company's website at drillingtools.com. There'll also be a telephonic recorded replay available until August 21st. Please note that any information reported on this call speaks only as of today, August 14th, 2025, and therefore, we advise that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this column 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 DTI's annual report on Form 10-K quarterly reports on Form 10Q, and current reports on Form 8K to understand certain of those risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures, including but not limited to adjusted EBITDA and adjusted free cash flow. DTI provides 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 the company believes 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 earnings release and our 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 before handing the call over to David to review the financials and our reaffirmed annual 2025 outlook. I'll then come back and provide a few additional thoughts before we open it up for questions. Despite well-documented industry headwinds and global rig count declines, we are pleased to report that 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. Our performance this quarter reflects strong execution across most of our business segments, though we continue to see some variability in specific areas. As you may recall last quarter, we felt it was prudent to revise our annual revenue, adjusted EBITDA, and adjusted free cash flow guidance ranges based upon expected lower commodity prices resulting in reductions in rig count and pricing pressures. However, DTI benefited from solid progress on our strategic initiatives, particularly the integration of our recent acquisitions in the Eastern Hemisphere, European drilling projects, and Titan tools. Additional progress came from the cost reduction program we instituted early in Q1, and we benefited from outperformance in our DTR and pipe rentals product offerings in the Western Hemisphere. This was somewhat offset by a decrease in product sales due to market conditions and significant softness in our deep casing product line as a result of rig declines in the Middle East and Mexico. Overall, we delivered consolidated financial results that slightly exceeded our internal forecast for the second quarter. Another highlight for the quarter is we achieved positive adjusted free cash flow in the second quarter for the first time since becoming public. Historically, this has been our weakest quarter due to the impacts of front-loaded capex and seasonality effects in Canada. We also continue to benefit from our diversified geographic footprint and customer base. Sequentially, our Eastern Hemisphere operations grew revenue by 21% and contributed approximately 14% of our total revenue in the first half of this year. The eastern hemisphere is performing in line with our forecast plan, demonstrating our disciplined approach to capital allocation and our ability to successfully integrate new assets into our operations. During the second quarter, we saw a significant increase in utilization of the DNR tool fleet in the Middle East and throughout the eastern hemisphere. This increase in DNR tools deployed contributed to our eastern hemisphere growth and Middle East expansion during the quarter. As a result, I'm pleased to report that our drill and ream eastern hemisphere group achieved its first positive adjusted EBITDA month during the quarter, and this momentum is something we expect to build on in future periods. Looking forward, commodity prices continue to flex as world events have created volatility in the oil markets. Average rig count and activity levels have continued to trend downward. In the past, current oil prices would typically support higher drilling and completions activity than we are seeing today, but our customers have remained cautious as uncertainty persists. Our team continues to skillfully manage the current volatility in commodity prices and rig counts, delivering resilient financial results while navigating the evolving energy landscape. While the market works to find its footing, we still expect uncertainty to continue causing disruptions through both pricing, pressure, and utilization. In anticipation of these disruptions, and as I mentioned earlier, we implemented a program in the first half of 2025 to cut expenses by an annual $6 million in order to align our spending with the activity levels of our customers. We are pleased to report that we are on track to exceed this goal. Should the market deteriorate further, we have contingency plans to continue adjusting the organization while maintaining operational flexibility to quickly respond to the current challenging environment. Despite these challenges, I'm encouraged by the momentum we're building across the organization. We are seeing the benefits of our investments beginning to materialize, and our personnel continue to execute well in a dynamic market environment. David will now take you through some second quarter and six-month metrics, as well as our reaffirmed annual 2025 outlook. David?