管理層發言
Greetings. Welcome to Drilling Tools International First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, Mr. Dennard. You may begin.
Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International's 2026 First Quarter Conference Call and Webcast. With me today are Wayne Prejean, Chairman and Chief Executive Officer; and David Johnson, Chief Financial Officer. Following my remarks, management will provide a review of the first quarter results and 2026 outlook before opening the call for your questions. There will be a replay of today's call. It will be available by webcast on the company's website at drillingtools.com, and there will also be a telephonic recorded replay available until May 15. Please note that information reported on this call speaks only as of today, May 8, 2026, 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, including, but not limited to, adjusted EBITDA and adjusted free cash flow. The company 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 we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and the reconciliation to the most directly comparable GAAP measures can be found in our 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 Chairman and 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 touch on our outlook. I'll then come back and provide a few additional thoughts before we open it up for questions. Our first quarter results came in largely as anticipated. As we discussed in our year-end call in March, we expected activity to remain relatively soft through the first half of the year with the possibility for improvement in the back half of 2026, driven by several potential catalysts across multiple geographies. The quarter played out consistently with that framework. Despite a softer start to the year, we generated total consolidated revenue of $38 million and adjusted EBITDA of $7.5 million. Importantly, our outlook for the full year remains intact, and we are reaffirming our 2026 guidance ranges today. There were a few distinct factors that shaped our first quarter.
North American land activity continued to be flat to slightly down. The earlier-than-expected spring breakup in Canada pulled some typical second quarter seasonality into the first quarter. While this compressed Q1 results, it also means the post-breakup rebound should begin earlier than usual, and we expect that to be a tailwind as we move into the second quarter. In the Middle East, the ongoing regional conflict has created some operational disruption that has muted what would otherwise have been a stronger first quarter contribution. That said, and this is an important point, our experience in the region is different from public statements expressed by the larger diversified service companies. Due to our more targeted footprint and specialized product focus, we have continued to see rising demand for our tools in the Middle East even through this volatility. Our tide is still rising in that market.
The geopolitical backdrop has simply suppressed the slope. Offsetting these headwinds, we saw very encouraging momentum in our international offshore markets. Our ClearPath stabilizer technology continues to gain traction as customers adopt it for high-value offshore and land projects around the world, and the Drill-N-Ream is making steady progress in the Middle East, providing solutions for complex wellbore challenges, including micro doglegs, tortuosity and getting casing to bottom. Our Deep Casing Tools product line, which saw utilization bottom out in 2024, has continued its recovery with a notable rebound in product purchase orders, particularly from the Middle East customers who have worked through their owned inventories. Together, these unique and value-based product lines are enhancing our Eastern Hemisphere growth and support our confidence in our full year outlook. Looking ahead, we are confident that the forward price of oil is higher rather than lower for the foreseeable future.
And we believe a more constructive commodity backdrop will gradually help relieve the pricing compression that has characterized the last several quarters. In North America, there is a real disconnect today between available rig capacity and the fracturing horsepower capacity needed to convert drilled wells into production, which tempers our near-term enthusiasm for a significant NAM recovery. But we are seeing steady traction in the Gulf of America, the North Sea and offshore markets in other parts of the world. Our differentiated portfolio is positioning us well to capture that work. Before I turn it over to David, I want to highlight an important milestone achieved during the first quarter. Our primary private equity sponsor, HHEP, completed the distribution of its remaining DTI shares to its limited partners. This is an event which we have been signaling to the market since going public in 2023, and it materially increases our public float and our trading liquidity.
This distribution event, together with the recent refreshment of our Board of Directors, represents a significant transition for DTI into a fully independent public company with broader ownership and strengthened governance aligned with our next phase of growth. Now I'll pass it over to David to take you through the results in greater detail and provide an update on our 2026 outlook.
Thank you, Wayne. In yesterday's earnings release, we provided detailed first quarter financial tables. I'll use this time to offer further insight into specific financial metrics. Looking at our first quarter results, we generated total consolidated revenue of $38 million. First quarter Tool Rental revenue was $28.9 million and product sales revenue totaled $9 million. Net loss attributable to stockholders for the first quarter was $1.5 million or a loss of $0.04 per share. Adjusted net loss was $1 million or an adjusted loss per share of $0.03. First quarter adjusted EBITDA was $7.5 million and adjusted free cash flow was a loss of approximately $160,000. I'll offer a bit more color on the movement in tool rental revenue and margins. The year-over-year decline reflects a combination of softer North American land activity, the earlier-than-expected Canadian spring breakup that Wayne described and some continued pricing pressure in certain segments of our rental fleet.
Even with that compression, our tool rental gross margin remained above 70%, which we view as a strong baseline that validates the underlying quality of our rental business. As activity levels improve through the year and as our value-add product lines continue to gain share, we expect both revenue and margins to benefit. Capital expenditures in the quarter were approximately $7.7 million. Although elevated compared to our typical first quarter run rate, it is not unexpected as we prepare for the year ahead. We expect this to trend downward as the year progresses. However, we could see some opportunities to make strategic investments in the coming months to support early adoption of our ClearPath technology and other growth opportunities in international markets. These are attractive project-based opportunities with sticky revenue characteristics, and we believe the returns justify the incremental investment.
Maintenance CapEx for the first quarter was approximately 13% of total revenue, primarily fueled by higher-than-average tool recovery revenue. And as always, we'd like to remind everyone, our maintenance CapEx is primarily funded by tool recovery revenue, which keeps our Rental Tool fleet relevant and sustainable regardless of market trends. Now turning to the balance sheet. As of March 31, 2026, we had $2.8 million of cash and cash equivalents and net debt of $48.9 million. Our net debt increased modestly during the quarter, which is consistent with our typical first quarter seasonal working capital pattern, including the payout of prior year incentive compensation, combined with the elevated first quarter CapEx I just described. We expect to see improved cash flow over the remainder of the year and reduced leverage from here, consistent with how we have managed the business historically.
On the capital allocation front, we continued our share buyback activity in the first quarter with approximately $700,000 of repurchases. As Wayne mentioned, the more significant development during the quarter was the completion of the share distribution by our former sponsor, HHEP, to their limited partners. Following that distribution, the vast majority of our outstanding shares, approximately 90% are now held in the public float with the former sponsor and insiders collectively holding a low double-digit minority. This is exactly the outcome we communicated to investors when we went public, and it positions DTI with the trading liquidity and broad ownership profile of a fully independent public company. You can find additional details around our updated shareholder composition in the investor presentation we posted to the Investor Relations section of our website on Slide #28. Turning to our geographic segment mix.
Our Eastern Hemisphere segment continued to be an important contributor in the first quarter, and we expect its contribution to grow as the year progresses. The growth is supported by ongoing adoption of our ClearPath technology, deep casing tools momentum and rising Drill-N-Ream utilization across complex Middle East wells. As we disclosed in yesterday's earnings release, we are reaffirming our 2026 full year guidance ranges. 2026 revenue is expected to be in the range of $155 million to $170 million. Adjusted EBITDA is expected to be within the range of $35 million to $45 million. And finally, we continue to expect 2026 adjusted free cash flow in the range of $17 million to $22 million. These ranges reflect our previously communicated assumption of a relatively soft first half with improvement building in the second half of the year. Despite the ongoing uncertainty surrounding our industry as it relates to supply and demand dynamics, we remain confident in our full year trajectory.
Also of note is that our ranges contemplate our current CapEx plan. However, as I mentioned earlier, we are actively evaluating additional targeted investments to support international growth opportunities in our technologically differentiated product lines, such as our ClearPath stabilizers and sleeves. To the extent we choose to accelerate investment in these areas to support customer orders, we may land at the lower end of our adjusted free cash flow range. Importantly, we view these customer-sponsored initiatives as attractive, high-return uses of capital that will support durable revenue growth in 2026 and beyond as we meet our customers' needs in the anticipated up cycle. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments.
Thank you, David. Having largely completed the integration work over the past year, DTI now operates as a single unified company anchored by our One DTI platform. Common systems, processes and our Compass asset management backbone have been essential in managing our global footprint and the platform we have built is truly a strategic asset. One DTI allows us to deploy capital with greater precision, scale our differentiated technology portfolio across multiple geographies, minimize fixed cost and integrate future acquisitions on a materially shorter time line than has historically been possible in our industry. We continue to believe the downhole drilling tool industry is fragmented and in need of consolidation. Our platform positions us to be a more effective acquirer as attractive opportunities present themselves. Now before we open up the lines for questions, I would like to highlight a few key takeaways.
We are reaffirming our 2026 full year guidance ranges. Our first quarter results are consistent with the seasonally softer first half we had planned for, and we continue to expect a stronger second half supported by technology adoption, an activity increase in major operating areas and rising international utilization. Our ClearPath stabilizer technology is gaining meaningful traction in high-value offshore and complex well markets, domestic and internationally. Our deep casing tools and Drill-N-Ream product lines are contributing to our growing Eastern Hemisphere story. These are exactly the differentiated technology-led offerings we strategically plan to scale. Our focused footprint and specialized product lines allow us to navigate Middle East volatility differently from the larger diversified service companies. Our tools remain in demand in the region, and we are continuing to win new work even in a disrupted environment.
The completion of the sponsor share distribution and the addition of new Board members mark a meaningful new chapter for DTI. We are entering this chapter as a fully independent public company with a broader ownership base, enhanced trading liquidity and a Board well suited to guide our next phase of growth. Our past M&A activity, our capital discipline and our differentiated technology portfolio have positioned us to generate resilient results in a choppy market and to capture meaningful upside as conditions improve. We believe a higher forward oil price environment will gradually relieve the pricing compression that has characterized the last several quarters and support a more constructive backdrop for our customers and for DTI. Finally, I want to address the ongoing conflict in the Middle East as it pertains directly to DTI. This is a fluid situation, and it seems that circumstances change daily.
We have experienced some operational disruption, but our tools remain in demand and our team on the ground continues to support our customers with remarkable professionalism under difficult conditions. I want to thank every member of the DTI organization for their continued commitment to working in a safe, inspired and productive manner with special thanks to our personnel in the Middle East. Our employees' commitment and dedication have been essential in navigating a constantly evolving environment and are central to the success and future growth we are building together. With that, we will now take your questions. Operator?
分析師問答
Our first question comes from Steve Ferazani with Sidoti & Company.
Appreciate all the color on the call. I certainly covered a lot of the topics I wanted to hit on. But Wayne, I guess the surprising negative number to us in the quarter was the rental tools margins. I know the revenue was lower, but I'm trying to get a sense of the factors that impacted the tool rental margins. How much of it was freight utilization versus a mix of price, cost and product mix?
Well, Steve, the soft market conditions in the U.S. and an early breakup in Canada, where we have a significant amount of business, had a combined effect on results. We also sometimes push back on pricing in many areas. There's a bit of a shuffle in our rental tool business from one client to another. If we push back too hard, we may lose share in certain areas while gaining in others. We're trying to be a price maker rather than a price taker. Given the soft and flattened market in North America, that creates its own set of challenges. And then there's the muted effect of the war in the Middle East; we had some momentum gaining there, but it flattened out. Overall, we're still holding relatively steady in that region.
I guess the question is this: to get to your EBITDA guide for the full year based on the midpoint of your revenue guide, the tool rental margins have to be more like they were last year by our model. Is that fair? And is that achievable based on the margin you reported in Q1?
Yes. We have momentum in some new products. We believe there will be an uptick in the North America market, which is more likely than not and will help relieve some of the compression. We expect activity to increase, and we need to hold pricing indexes and possibly gain in certain areas depending on product mix. We have realistic optimism for the rest of the year. The first quarter is a soft quarter and does not define the structure and capability of where we're going, but it is without a doubt a softer quarter.
Got it. Can you quantify at all the impact of the early spring breakup and how much you get back in Q2?
I can't quantify that exactly. Generally, we see most of the softness start in late March or April, and this year it happened earlier. Those cycles affect revenues differently each year. Usually the effect is in the second quarter, but more of it occurred in the first quarter this year. We're hoping some of the newer products we're launching, which have higher margins, help offset negativity in other products. One of the benefits of layering new technologies on top of our existing rental fleet is it provides balance, and we haven't had significant margin dilution across the overall rental fleet.
Got it. Can you talk about product adoption of some of these technologies you acquired primarily in 2024? I know ClearPath came from your recent acquisitions, and Deep Casing Tools, Drill-N-Ream are acquired technologies. How have you used them on your platform and how is adoption progressing?
Sure. We're getting a lot of traction in high-value offshore markets with our ClearPath stabilization system. We've moved from a product approach to a systems approach, which is gaining solid traction in the North Sea, parts of Asia and the Gulf of America. When we acquired SDPI a couple of years ago, we acquired a large fleet of tools and infrastructure in the Middle East. Given softness in Saudi and some other areas over the last year or so, we've been able to rebound that fleet and it's gaining steady traction with our commercial team focused on high-value selling. We've increased utilization and revenue in that area from where it started after the acquisition. Our Deep Casing product lines, including the MechLOK Swivel, are gaining traction in Africa, the Middle East, the North Sea and Asia. Our turbine tool products, such as the TurboCaser and TurboRunner, are resurging in Saudi and other markets where we've historically done well. As rig counts and activity increase, we're seeing month-over-month and quarter-over-quarter improvement and expect to see those results throughout the year, subject to disruptions from the conflict.
Right. Fair enough. So when I looked at your product sales line, there was some benefit from the acquisition as opposed to just being a straight higher loss in tool revenue. Am I right about that?
Yes, Steve. We saw pickup in product sales, particularly in the Deep Casing Tools line, which had bottomed out earlier. Customers have been depleting inventories, and with Aramco picking up some rigs, we're seeing more opportunity. That improved a bit in Q1 and we expect continued improvement throughout 2026.
Yes. Certainly, that line was much higher than we were expecting, so congratulations on getting that back on track. In terms of CapEx and plans for the year, obviously higher CapEx can be positive if it supports more of the higher value-add equipment. What's the determination at this point? Will second-half activity drive whether you're at the higher end of the guidance range?
Yes, we tend to front-load investments to build momentum into each year, which is how we've historically run the business. We see opportunities in the second half and into 2027 where we can reinvest recovery income from loss-in-holes and DBRs into relevant fleet investments and new technology to sustain the fleet. These opportunities can create significant revenue increases. We will make strategic decisions; as David mentioned, we might invest in more tools to secure longer-term contracts, which may put our free cash flow toward the lower end of our guidance, but these are high-return investments that we believe justify the allocation.
Are you seeing your offshore mix growing at this point?
Yes.
Our next question is from Colby Sasso with Daniel Energy Partners.
Just a quick question. You touched on this a bit earlier, but with seemingly higher rig activity in North America in the back half of the year and with ongoing geopolitical tension in the Middle East, how is DTI evaluating investment opportunities across its global portfolio in Africa, North America and the Middle East? How are you thinking about the different regions?
We evaluate opportunities based on highest return and the ability to generate sustainable, repeatable income streams from each market. If oil and natural gas forward strips remain durable, customers in North America will increase activity in a thoughtful and organized way. We have good opportunities in Norway, which is a growing market for us. Despite conflict, Saudi Arabia and the UAE have remained sustainable and are growing, and we continue to participate. There are opportunities in Africa, particularly deepwater and offshore, but those markets present challenges due to multiple countries' regulations and different customer dynamics, so we navigate them carefully. Asia is another bright spot; we've invested time and effort laying the foundation there because our high-value products address complex wellbore problems that exist across these regions. We've aligned ourselves well for international expansion, and if the North American up cycle continues, we'll benefit from that rising tide as well.
There are no further questions at this time. I would like to turn the conference back over to Wayne for closing remarks.
We appreciate everyone's interest in Drilling Tools International, and we'll continue our journey forward. We look forward to the next call. Thank you for your interest, and thank you for participating.
Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.