Drilling Tools International Corporation Common Stock EnerCom Denver – The Energy Investment Conference

Thanks. I have the investor deck up. Instead of just walking you through the quarter, I had the thought of trying to address some of the main misconceptions that we deal with when doing investor one-on-one meetings and covering some of the nuances of our business model. There are a few items that are very pertinent to us, not the disclaimers page, when we get past that are not broadly reported on in public oilfield service. I wanted to kind of unpack our business model a little more, talk about where we operate, and the accomplishments we have had since going public 3 years ago. What I wanted to cover predominantly on this landing page is that our business model centers around the three Rs of rental, repair, and recovery.

We charge a fair rental price for all of our downhole tools. Then we repair them, get them back to spec. Then should the customer lose them or damage them beyond repair, there is a recovery event for that. We can get into that slide later, but that funds our maintenance CapEx. That is a significant piece for us that other public OFS companies do not have to unpack and go through the whole lost in hole damage beyond repair piece. I wanted to also kind of allude to when I get to the tool page, our addressable market and the market opportunity. Just to have a table setter, 82% of our revenue comes from the Western Hemisphere, that is U.S. and Canada. We are actively working to get an equal weight distribution to rig counts globally.

We have been investing a lot through M&A and through organic growth, in the Eastern Hemisphere, which is now up to 18% of revenue. 3 years ago, that was 1%. We have done four acquisitions since going public and then heavily invested in some of that technology we acquired to grow the business. Let me run to customer page. We work for the blue chips, but I will get into the mix here. We are uniquely positioned where approximately 50% of our customer base is the E&P operator directly, and the other 50% is through other oilfield service companies. We really support directional drilling and extended reach horizontal drilling globally. Here is the customer page. One of the main questions that we get from investors is, why do people rent tools from you? Why is this part of the energy value chain?

Could they just buy their own equipment and keep it in-house? We have found that much like we travel to Midland a lot, but we do not have our own hotel. We could never have it fully utilized. We have found that our customers need so many varieties of tools, hole size, geometry, connection types, that it is simply not efficient for them to own and maintain their own fleet. It makes us efficient because our field locations largely look like machine shops where we are not sending a one for one person to a rig or to a well site to enable our customer success. We repair and redress all at kind of a central location, whether it is Midland or Canada. We are spread through every basin in the U.S. Again, highlighting here almost a 50/50 mix between E&P operator direct and the directional drilling services companies.

As you go through various product lines we offer, whether it is the bottom hole assembly equipment or directional accessories or drill pipe or specialty products like reamers or engineered stabilizers, those have different paths to market, whether it is through the directional drilling company as part of improved value added, or if it is just sourced directly from the operator. The next thing, this is a good place to pause on our addressable market and what we actually provide to the industry. One of the nice parts about being here in the Rockies, there is a lot of oil and gas specific people that want to understand more about our technology and what we offer. To the introduction earlier, we do have product lines that are in support of plug and abandonment. It is a very small piece of the business.

On the completion side, most of that technology came through our Deep Casing Tools acquisition. That is the bottom lateral you see there that is meant to represent a completion string. We have a drill pipe or a casing swivel called the MechLOK. We have the TurboCaser and TurboRunner, which are turbine powered reamer shoes that allow you to overcome micro doglegs when you are trying to install casing. These have been on some of the longest casing installations for ADNOC and others that do the extremely extremely long extended reach drilling and completion. The core of our business and what drives the most of the revenue is that middle line there, which is all of the drilling accessory equipment and directional drilling work.

When a lot of analysts ask us what is the best proxy for us, a macro indicator that they can track, we are very rig count correlated. We do tend to outperform in downturns given that we work for some of the people that stay busy through cycle. We can also outperform from a free cash flow basis in an upcycle because we maintain our fleet through that lost in hole damage beyond repair that I will get to here in a second. What we provide, we rent drill pipe, heavyweight, then down into some of you know us from the Superior Drilling Products acquisition we made of the Drill-N-Ream. A really good tool that helps condition the wellbore, has eccentric cutting structures, and allows us to provide value to the client, and it is not just another commodity tool that goes in the drill string.

Further down the string, you see some of the stabilizers that look a little bit different than the traditional stabilizer you may or may not have seen that just has spiral blades. We spent a lot of time on the Q2 earnings call unpacking the ClearPath stabilization suite of products that are going on sleeves, whether it is an RSS or motor or LWD or just a string stabilizer. We have seen a lot of adoption from both Gulf of America operators and Norwegian North Sea operators. This tool lends itself really well to address known issues with managed pressure drilling in the deep water environments where you have thin frac gradients and you need to control equivalent circulating density around the tools.

It is a really unique approach to the drill string stabilization and really gives us a way to be a participant in the design of the BHA and working directly with our customers as opposed to just being another provider of tools to them. One of the other unique things that we have done is invested in manufacturing capacity. Most, if not all of our CapEx, we manufacture internally, whether it is in Broussard, Louisiana, or for some of the higher spec work, we go to Vernal, Utah, again, from the Superior Drilling Products acquisition we made. Canada as well is another kind of. They are on an island up there, so they are pretty self-sustaining, and can make a lot of their own equipment. One other piece that, as you can imagine, we have over 65,000 different tools in inventory.

We have invested heavily in our COMPASS software, which enables us to give good up-to-date information to our customer base of what they have on rent and be very transparent with them so they know what to expect from a monthly billing and what they have out, what we have available for them. It is a unique product line that tracks the full cradle to grave of every tool that we put out, that shows everything from QA, QC inspections and certificates and material certs. Every time that the tool gets touched in our repair queue, it is logged in COMPASS. This is a really good tool that our sales team leans heavily on, and also our executive team looks heavily at for detailed utilization trends and what type of tool, what thread connection is being utilized most, where, and how we can optimize our fleet for that.

I will gloss over these quickly. This is just a summary of achievements or accomplishments since going public. Again, four acquisitions. We think that M&A is one of the main areas of focus for us, not only for growth, but just in general, the oil field service industry needs to continue consolidation. We think there is a long runway ahead of us staying very focused on rental tools, especially in the drilling industry. There are other tools in the completion and production side that could be of interest, but we are predominantly focused on the rig space today. One of the nice parts of that three Rs business model of rental, repair, and recovery is that we can be very good allocators of capital. Again, maintenance CapEx is fully customer funded, so the fleet is sustainable, and we can pull it up and down in different rig cycles.

We can focus on growth CapEx, like we mentioned in the call in Q2 in Norway, where there is a good customer-backed reason to invest heavily in tools, or we can pay down debt, or we can return capital to shareholders. We have done an all of the above approach since going public. We did some share buybacks, have kind of pulled back from that and are predominantly focused on debt paydown and just thoughtful CapEx as we continue to win more customer work that requires investment in new tools. On the organic growth driver summary here, I will skip past this and pause on the. There is a more detailed slide where I can show some of the benefits of the ClearPath tools. I want to get ahead to the comps page real quick. Let me skip some of these. Actually, I will go to this.

This is how lost in hole damage beyond repair impacts what we present as the components of adjusted EBITDA. The light blue is the maintenance CapEx, where we spend the proceeds, and then the dark blue is what we show as adjusted free cash flow in our financials. Adjusted free cash flow is just adjusted EBITDA less gross CapEx. You can see from time of going public, we were predominantly chasing growth via spending on CapEx, realizing the return over time. Now that we went public mid-year in 2023, every year since being public, growth CapEx has come down as we have prioritized M&A, shareholder returns, debt paydown as other uses of capital. The other thing I will point you to is that maintenance CapEx as a percent of revenue, we historically model it very conservatively, and it overachieves our expectations.