EX-99.1 2 d482195dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

Drilling Tools International Reports Second Quarter 2023 Financial Results

Second Quarter 2023 Revenue Grew 25% Year-over-Year to $37.9 million

Successful completion of business combination; Shares commenced trading on Nasdaq

HOUSTON, TEXAS – (August 14, 2023) — Drilling Tools International Corp., (“DTI” or the “Company”) (Nasdaq: DTI), a leading oilfield services company that manufactures and provides a differentiated, rental-focused offering of tools for use in horizontal and directional drilling, operating from 22 locations across North America, Europe and the Middle East, today reported its financial and operational results for the quarter ended June 30, 2023.

Second Quarter Financial Highlights

 

  •  

Net Revenue of $37.9 million increased 25% from $30.4 million in Q2 2022

 

  •  

Operating expenses of $(31.3) million were higher compared to $(22.3) million in Q2 2022

 

  •  

Net Income was $0.9 million, compared to $5.9 million in Q2 2022

 

  •  

Diluted Earnings Per Share was $0.05, compared to $0.30 in Q2 2022

 

  •  

Adjusted EBITDA was $13.3 million, compared to $8.8 million in Q2 2022

Operational and Business Highlights

 

  •  

Completed business combination with ROC Energy Acquisition Corp.

 

  •  

Became a publicly traded company, commencing trading on Nasdaq on June 21, under the ticker “DTI”

 

  •  

In June, announced the appointment of Thomas “Roe” Patterson to the DTI Board of Directors. Mr. Patterson is an independent director and serves as a member of the Audit Committee

 

  •  

Earlier this year, DTI announced an exclusive U.S. distribution agreement for RotoSteer, a versatile tool which provides continuous rotation to the drill string while controlling the attached bottom hole assembly in rotational or sliding mode

“Our first financial results report as a public company represents an important milestone for DTI as a new publicly traded company,” said Wayne Prejean, CEO of DTI. “While rig activity in North America has slowed approximately 13% since the beginning of the year, DTI has executed well, with first half results in-line with our forecasts. The Company remains in a strong financial position as we seek to increase shareholder value and thoughtfully execute on growth opportunities going forward.”

Second Quarter 2023 Financial and Operating Results

In the second quarter the Company generated Net Tool Rental Revenue of $29.0 million, which was an increase of 26% compared to the second quarter of 2022. This increase was primarily driven by increased market activity and customer pricing across all divisions.

Product Sales Net Revenue in the second quarter totaled $8.9 million, an increase of 21% compared to the second quarter of 2022. The increase was primarily driven by increased market activity and customer pricing across all divisions, including rental tool recovery sales revenue.

Second quarter 2023 Operating Expenses were $(31.3) million, compared to $(22.3) million in the second quarter of 2022. The increase was primarily driven by higher personnel expenses, professional services related to the Public Company Audit Oversight Board audit, and expenses related to public company readiness projects.

Second quarter 2023 Net Income was $0.9 million, or $0.05 per diluted share, compared to Net Income of $5.9 million, or $0.30 per diluted share, in the prior year quarter. Factors contributing to that decline included transaction related expenses, higher personnel related expenses, negative foreign currency losses, unavailability of tax credits that the Company benefited from in 2022, and higher costs related to greater Directional Tool Rental activity. These negative impacts were partially offset by increased market activity and customer pricing across all divisions.

Second quarter 2023 Adjusted EBITDA was $13.3 million, compared to Adjusted EBITDA of $8.8 million in the prior year quarter. The increase was primarily driven by increased market activity and customer pricing across all divisions, including rental tool recovery sales revenue.

At June 30, 2023 the Company had $7.2 million of cash and cash equivalents. DTI retains strong financial flexibility with access to an undrawn $60 million revolving line of credit.

Outlook

Rig activity in North America has declined by approximately 13% since January of this year. While our Permian business has continued to be resilient and we believe the rig count decline is likely to be nearing bottom, in recognition of current market conditions and the impact of the rig count contraction, we are adjusting our expectations for the third and fourth quarters of 2023 and our full year 2023 projections downward.

Full Year 2023

 

  •  

Revenue: $150 – 158 million

 

  •  

Adjusted EBITDA: $50 – 54 million

 

  •  

Gross Capital Expenditures: $44 – 46 million

 

  •  

Net Income: $12 – 19 million

 

  •  

Adjusted Free Cash Flow(1): $6 – 8 million

 

  (1)

Adjusted Free Cash Flow defined as Adjusted EBITDA less Gross Capital Expenditures

About DTI

DTI, with roots dating back to 1984, is a Houston, Texas based leading oilfield services company that manufactures and rents downhole drilling tools used in horizontal and directional drilling of oil and natural gas wells. DTI operates from 22 locations across North America, Europe and the Middle East. To learn more about DTI visit: www.drillingtools.com.

Forward-Looking Statements

This press release may include, and oral statements made from time to time by representatives of the Company may include, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements regarding the business combination and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this press release are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward looking. These forward-looking statements include, but are not limited to, statements regarding DTI and its management team’s expectations, hopes, beliefs, intentions or strategies

regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward looking statements in this press release may include, for example, statements about: (1) the demand for DTI’s products and services, which is influenced by the general level activity in the oil and gas industry; (2) DTI’s ability to retain its customers, particularly those that contribute to a large portion of its revenue; (3) DTI’s ability to remain the sole North American distributor of the Drill-N-Ream; (4) DTI’s ability to employ and retain a sufficient number of skilled and qualified workers, including its key personnel; (5) DTI’s ability to market its services in a competitive industry; (9) DTI’s ability to execute, integrate and realize the benefits of acquisitions, and manage the resulting growth of its business; (6) potential liability for claims arising from damage or harm caused by the operation of DTI’s tools, or otherwise arising from the dangerous activities that are inherent in the oil and gas industry; (7) DTI’s ability to obtain additional capital; (8) potential political, regulatory, economic and social disruptions in the countries in which DTI conducts business, including changes in tax laws or tax rates; (9) DTI’s dependence on its information technology systems, in particular Customer Order Management Portal and Support System, for the efficient operation of DTI’s business; (10) DTI’s ability to comply with applicable laws, regulations and rules, including those related to the environment, greenhouse gases and climate change; (11) DTI’s ability to maintain an effective system of disclosure controls and internal control over financial reporting; (12) the potential for volatility in the market price of DTI’s common stock; (13) the impact of increased legal, accounting, administrative and other costs incurred as a public company, including the impact of possible shareholder litigation; (14) the potential for issuance of additional shares of DTI’s common stock or other equity securities; (15) DTI’s ability to maintain the listing of its common stock on Nasdaq; and (16) other risks and uncertainties separately provided to you and indicated from time to time described in filings and potential filings by DTI with the Securities and Exchange Commission (the “SEC”). You should carefully consider the risks and uncertainties described in the definitive proxy statement/prospectus/consent solicitation statement with the SEC by the Company on May 12, 2023 (the “Proxy Statement”), and the information presented in DTI’s current report on Form 8-K filed June 27, 2023 (the “8-K”) and the quarterly report on Form 10-Q filed August [14], 2023 (the “10-Q”). Such forward-looking statements are based on the beliefs of management of DTI, as well as assumptions made by, and information currently available to DTI’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in the Proxy Statement, the 8-K or the 10-Q. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this paragraph. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of each of DTI, including those set forth in the Risk Factors section of the Proxy Statement, and described in the 8-K and the 10-Q. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

Investor Relations

Sioban Hickie, ICR, Inc.

InvestorRelations@drillingtools.com

Drilling Tools International Corporation

Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income

(in thousands, except share data)

 

     Three Months Ended June 30  
     2023     2022  

Revenue, net

     

Tool rental

    $ 29,002     $ 23,024  

Product sale

      8,906       7,348  
  

 

 

    

 

 

  

Total revenue, net

      37,908       30,372  

Operating costs and expenses

     

Costs of tool rental revenue

      7,692       6,678  

Costs of product sale revenue

      1,157       1,262  

Selling, general and administrative expense

      17,718       9,498  

Depreciation and amortization expense

      4,717       4,886  
  

 

 

    

 

 

  

Total operating costs and expenses

      31,284       22,324  
  

 

 

    

 

 

  

Income from Operations

      6,624       8,048  

Other (expense) income

     

Interest income (expense), net

      (348 )      (213 ) 

Gain (loss) on sale of property

      (1 )      —    

Unrealized gain (loss) on equity securities

      420       (87 ) 

Other expense, net

      (4,382 )      (23 ) 
  

 

 

    

 

 

  

Total other (expense) income, net

      (4,311 )      (323 ) 
  

 

 

    

 

 

  

Income before income tax (expense) benefit

      2,313       7,725  

Income tax expense

      (1,376 )      (1,791 ) 
  

 

 

    

 

 

  

Net Income

    $ 937     $ 5,934  

Accumulated dividends on redeemable convertible preferred stock

      —         295  
  

 

 

    

 

 

  

Net Income Available to Common Shareholders

    $ 937     $ 5,639  

Basic earnings per share

    $ 0.07     $ 0.47  

Diluted earnings per share

    $ 0.05     $ 0.30  

Basic weighted-average common shares outstanding

      13,910,670       11,951,123  

Diluted weighted-average common shares outstanding

      20,746,976       19,677,493  

Comprehensive income

     

Net Income

    $ 937     $ 5,934  

Foreign currency translation adjustment, net of tax

      (207 )      13  
  

 

 

    

 

 

  

Net Comprehensive Income

    $ 730     $ 5,947  
  

 

 

    

 

 

  

Drilling Tools International Corporation

Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income

(in thousands, except share data)

 

     Six Months Ended June 30  
     2023     2022  

Revenue, net

     

Tool rental

    $ 61,278     $ 43,440  

Product sale

      17,429       12,909  
  

 

 

    

 

 

  

Total revenue, net

      78,707       56,349  

Operating costs and expenses

     

Costs of tool rental revenue

      15,829       12,992  

Costs of product sale revenue

      2,460       2,413  

Selling, general and administrative expense

      34,447       21,732  

Depreciation and amortization expense

      9,732       9,962  
  

 

 

    

 

 

  

Total operating costs and expenses

      62,468       47,099  
  

 

 

    

 

 

  

Income from Operations

      16,239       9,250  

Other (expense) income

     

Interest income (expense), net

      (922 )      4  

Gain (loss) on sale of property

      68       5  

Unrealized gain (loss) on equity securities

      387       323  

Other expense, net

      (6,035 )      (95 ) 
  

 

 

    

 

 

  

Total other (expense) income, net

      (6,502 )      237  
  

 

 

    

 

 

  

Income before income tax (expense) benefit

      9,737       9,487  

Income tax expense

      (3,099 )      (2,220 ) 
  

 

 

    

 

 

  

Net Income

    $ 6,638     $ 7,267  

Accumulated dividends on redeemable convertible preferred stock

      314       589  
  

 

 

    

 

 

  

Net Income Available to Common Shareholders

    $ 6,324     $ 6,678  

Basic earnings per share

    $ 0.49     $ 0.56  

Diluted earnings per share

    $ 0.33     $ 0.37  

Basic weighted-average common shares outstanding

      12,936,310       11,951,123  

Diluted weighted-average common shares outstanding

      20,217,648       19,677,493  

Comprehensive income

     

Net Income

    $ 6,638     $ 7,267  

Foreign currency translation adjustment, net of tax

      (207 )      (62 ) 
  

 

 

    

 

 

  

Net Comprehensive Income

    $ 6,431     $ 7,205  
  

 

 

    

 

 

  

Drilling Tools International Corporation

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

    June 30, 2023     December 31, 2022  

ASSETS

    

Current Assets

    

Cash

   $ 7,156     $ 2,352  

Accounts receivable, net

     30,357       28,998  

Inventories, net

     5,929       3,281  

Prepaid expenses and other current assets

     6,804       4,381  

Investment - equity securities, at fair value

     1,530       1,143  
 

 

 

    

 

 

  

Total Current Assets

     51,776       40,155  

Property, plant and equipment, net

     64,450       44,154  

Operating lease right-of-use asset

     20,397       20,037  

Intangible assets, net

     239       263  

Deferred financing costs, net

     472       226  

Deposits and other long-term assets

     963       383  
 

 

 

    

 

 

  

Total Assets

   $ 138,297     $ 105,218  
 

 

 

    

 

 

  

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

    

Current Liabilities

    

Accounts payable

   $ 19,530     $ 7,281  

Accrued expenses and other current liabilities

     12,629       7,299  

Current portion of operating lease liabilities

     3,836       3,311  

Revolving line of credit

     —         18,349  
 

 

 

    

 

 

  

Total Current Liabilities

     35,995       36,240  

Operating lease liabilities, less current portion

     16,622       16,691  

Deferred tax liabilities, net

     5,193       3,185  
 

 

 

    

 

 

  

Total Liabilities

   $ 57,810     $ 56,116  
 

 

 

    

 

 

  

Commitments and Contingencies (See Note 15)

    

Redeemable Convertible Preferred Stock

    

Series A redeemable convertible preferred stock, par value $0.01; nil shares and 30,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; nil shares and 6,719,641 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

     —         17,878  

Shareholder’s Equity

    

Common stock, par value $0.0001; 500,000,000 and 65,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 29,768,535 shares and 11,951,123 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

     3       1  

Preferred stock, par value $0.0001; 10,000,000 and nil shares authorized at June 30, 2023 and December 31, 2022, respectively; nil shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

     —         —    

Additional paid-in-capital

     95,218       52,388  

Accumulated deficit

     (14,416 )      (21,054 ) 

Less treasury stock, at cost; nil shares at June 30, 2023 and December 31, 2022

     —         —    

Accumulated other comprehensive loss

     (318 )      (111 ) 
 

 

 

    

 

 

  

Total Shareholder’s Equity

     80,487       31,224  
 

 

 

    

 

 

  

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

   $ 138,297     $ 105,218  
 

 

 

    

 

 

  

Drilling Tools International Corporation

Unaudited Condensed Consolidated Statement of Cash Flows

(In thousands)

 

     Six Months Ended  
   June 30, 2023     June 30, 2022  

Cash Flows from Operating Activities

 

Net Income

    $ 6,638     $ 7,267  

Adjustments to Reconcile Net Income (Loss) to Net Cash from Operations

 

Depreciation and amortization

      9,732       9,962  

Amortization of deferred financing costs

      37       69  

Amortization of debt discount

      —         35  

Non-cash lease expense

      2,275       2,395  

Provision for excess and obsolete inventory

      19       2  

Provision for excess and obsolete property and equipment

      238       272  

Bad debt expense

      418       140  

Deferred tax expense

      2,008       1,737  

Gain on sale of property

      (68 )      (5 ) 

Unrealized (gain) on equity securities

      (387 )      (323 ) 

Unrealized (gain) on interest rate swap

      91       (998 ) 

Gross profit from sale of lost-in-hole equipment

      (9,146 )      (6,432 ) 

Stock based compensation expense

      3,986       —    

Changes in Assets and Liabilities

 

Accounts receivable, net

      (1,777 )      (6,041 ) 

Prepaid expenses and other current assets

      (1,531 )      (1,748 ) 

Inventories, net

      1,409       (543 ) 

Operating lease liabilities

      (2,179 )      (2,407 ) 

Accounts payable

      1,982       (2,514 ) 

Accrued expenses and other current liabilities

      316       1,310  
  

 

 

    

 

 

  

Net Cash from Operating Activities

      14,061       2,178  
  

 

 

    

 

 

  

Cash Flows From Investing Activities

 

Proceeds from sale of property and equipment

      126       80  

Purchase of property, plant and equipment

      (24,617 )      (9,169 ) 

Proceeds from sale of lost-in-hole equipment

      11,103       8,983  
  

 

 

    

 

 

  

Net Cash from Investing Activities

      (13,388 )      (106 ) 
  

 

 

    

 

 

  

Cash Flows From Financing Activities

 

Proceeds from merger and PIPE financing, net of transaction costs

      23,162       —    

Payment of deferred financing costs

      (281 )      —    

Proceeds from revolving line of credit

      71,646       49,659  

Payments on revolving line of credit

      (89,995 )      (51,494 ) 

Payment to capital leases

      —         (10 ) 

Payments to holders of DTIH redeemable convertible preferred stock in connection with retiring their DTI stock upon merger

      (194 )      —    
  

 

 

    

 

 

  

Net Cash Provided by Financing Activities

      4,338       (1,845 ) 
  

 

 

    

 

 

  

Effect of Changes in Foreign Exchange Rates

      (207 )      (62 ) 

Net Change in Cash

      4,804       165  

Cash at Beginning of Period

      2,352       52  
  

 

 

    

 

 

  

Cash at End of Period

    $ 7,156     $ 217  
  

 

 

    

 

 

  

Drilling Tools International Corporation

Unaudited Condensed Consolidated Statement of Cash Flows

(In thousands)

 

     Six Months Ended  
     June 30, 2023      June 30, 2022  

Supplemental Disclosures of Cash Flow Information:

      

Cash paid for interest

    $ 851      $ 514  
  

 

 

     

 

 

  

Cash paid for income taxes

    $ 2,139      $ 1,203  
  

 

 

     

 

 

  

Non-Cash Investing and Financing Activities

      

ROU assets obtained in exchange for lease liabilities

    $ 2,635      $ 399  
  

 

 

     

 

 

  

Purchases of inventory included in accounts payable and accrued expenses and other current liabilities

    $ 4,076      $ 860  
  

 

 

     

 

 

  

Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities

    $ 7,640      $ 451  
  

 

 

     

 

 

  

Non-cash directors and officers insurance

    $ 1,472      $ —    
  

 

 

     

 

 

  

Non-cash merger financing

    $ 2,000      $ —    
  

 

 

     

 

 

  

Exchange of DTIH redeemable convertible preferred stock for DTIC Common Stock in connection with Merger

    $ 7,193      $ —    
  

 

 

     

 

 

  

Issuance of DTIC Common Stock to former holders of DTIH redeemable convertible preferred stock in connection with Exchange Agreements

    $ 10,805      $ —    
  

 

 

     

 

 

  

Deferred financing fees included in accounts payable

    $ 2      $ —    
  

 

 

     

 

 

  

Accretion of redeemable convertible preferred to redemption value

    $ 314      $ 589  
  

 

 

     

 

 

  

Use of Non-GAAP Financial Measures

To supplement its unaudited interim consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses certain non-GAAP financial measures to understand and evaluate its core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of the Company’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

The Company uses the non-GAAP financial measure Adjusted EBITDA, which is defined as net income (loss), excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; and certain other non-cash or non-recurring items impacting net income (loss) from time to time. The Company believes that Adjusted EBITDA helps identify underlying trends in its business that could otherwise be masked by the effect of the expenses that the Company excludes in Adjusted EBITDA.

The Company uses the non-GAAP financial measure Adjusted Free Cash Flow, which is defined as Adjusted EBITDA, reduced by gross capital expenditures. The Company believes Adjusted Free Cash Flow is an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in its business and is a key financial indicator used by management. Adjusted Free Cash Flow is useful to investors as a liquidity measure because it measures the Company’s ability to generate or use cash. Once the Company’s business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.

These non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to the closest comparable GAAP measure. Some of these limitations are that:

 

  •  

Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

 

  •  

Adjusted EBITDA excludes income tax benefit (expense); and

 

  •  

Adjusted Free Cash Flow does not reflect the Company’s future contractual commitments.

Reconciliations of Non-GAAP Financial Measures

The following tables present a reconciliation of Net Income (Loss) to Adjusted EBITDA for the three months ended June 30, 2023 and 2022 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

Drilling Tools International Corporation

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands)

 

     Three Months Ended  
     June 30, 2023      June 30, 2022  

Net Income

    $ 937      $ 5,934  

Add (deduct)

      

Income tax expense

      1,376        1,791  

Depreciation and Amortization

      4,717        4,886  

Interest expense, net

      348        213  

Stock option expense

      1,661        —    

Monitoring fees

      262        105  

Gain on sale of property

      1        —    

Unrealized (gain) loss on equity securities

      (420 )       87  

Transaction expense

      4,142        —    

ERC credit received

      —          (4,272 ) 

Other expense, net

      241        23  
  

 

 

     

 

 

  

Adjusted EBITDA

    $ 13,265      $ 8,767  
  

 

 

     

 

 

  

The following table presents a reconciliation of full year 2023 Estimated Net Income (Loss) to Estimated Adjusted EBITDA:

Drilling Tools International Corporation

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands)

 

     2023E  

Net Income

    $  11,500 - 19,000  

Add (deduct)

 

Interest expense, net

      500 - 1,500  

Income tax expense

      5,000 - 6,000  

Depreciation and amortization

      21,500 - 22,500  

Monitoring fees

      500 - 1,000  

Stock option expense

      1,661  

Transaction expense

      5,838  
  

 

 

  

Adjusted EBITDA

    $ 50,000 - 54,000  
  

 

 

  

The following table presents a reconciliation of full year 2023 Estimated Net Income (Loss) to Estimated Adjusted Free Cash Flow:

Drilling Tools International Corporation

Reconciliation of GAAP to Non-GAAP Measures (Unaudited)

(In thousands)

 

     2023E  

Net Income

    $  11,500 - 19,000  

Add (deduct)

 

Interest expense, net

      500 - 1,500  

Income tax expense

      5,000 - 6,000  

Depreciation and amortization

      21,500 - 22,500  

Monitoring fees

      500 - 1,000  

Stock option expense

      1,661  

Transaction expense

      5,838  

Gross capital expenditures

      (44,000) - (46,000 ) 
  

 

 

  

Adjusted Free Cash Flow

    $ 6,000 - 8,000  
  

 

 

  

Source: Drilling Tools International Corp.