Drilling Tools International Corporation Common Stock 2026 Q2 Earnings Call

Good morning everyone. We appreciate your joining us for Drilling Tools International's 2026 second 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 second quarter results and 2026 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, and that's drillingtools.com. There'll also be a telephonic recorded replay available until August 14th. Please note that any information reported on this call speaks only as of today, August 7th, 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. They should not be considered in isolation from the most directly comparable GAAP measures.

A discussion of why we believe the non-GAAP measures are useful to investors, certain limitations of using these measures, and reconciliations to the most directly comparable GAAP measure can be found in the earnings release or in our filings with the SEC. Now with that behind me, I'd like to turn the call over to Wayne Prejean.

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 outlook. I will then come back and provide a few additional thoughts before we open it up for questions. I am pleased with our performance in the second quarter. Our team continues to deliver resilient results, and we are building solid momentum across the business. Despite a global rig count that declined nearly 4% sequentially, remains down year-over-year, and with considerable disruption in the Middle East, where the rig count fell almost 7% in the quarter and accounted for roughly half the global decline impacting activity levels for much of Q2. We generated $38.1 million of revenue, $8.4 million of adjusted EBITDA, and strong adjusted free cash flow of $4.1 million.

This marks a notable step-up in cash flow from both the first quarter of 2026 and the second quarter a year ago. It is evident that the strength of our business model, disciplined execution, and geographic diversification is creating earnings power that will only grow as activity improves. In North America, there were a few dynamics that shaped the second quarter, some of which will continue to evolve and are expected to support stronger results later in the year. The quarter opened up with the seasonal Canadian breakup trough, which took roughly 50 rigs out of the North American rig count in April, while U.S. operators held activity broadly flat as they gauged the impact and duration of the initial Iran conflict. We, and the rest of the market, expected the pause to be short-lived.

As oil prices spiked and the world began to feel the supply shock of the Strait of Hormuz blockade, we were proven right. The North American rig count built steadily through the quarter and stands at 777 rigs in July, more than 70 rigs or 10% above the second quarter average, which is encouraging as we contemplate the remainder of 2026. On U.S. land and based on our own fleet activity, we are seeing additions of bottom-hole assembly rigs outpace the broader rig count increase. This is a positive indication for the largest part of our business, and we anticipate improved utilization domestically in the coming months. In Canada, activity ran ahead of prior year levels throughout the quarter, though the recovery from breakup has been flatter than we anticipated, given its earlier start. July activations at 193 rigs, the highest since February, signaled that softness has largely abated.

Turning to the Eastern Hemisphere, the story is one of stability today, but our operations are gaining momentum, and we are building for the future. In the Middle East, the ongoing regional conflict continued to create operational disruption in the second quarter with intermittent starts and stops and rig moves that tempered what would otherwise have been a stronger contribution. However, as we noted last quarter, our experience in the region differs from that of larger, diversified service companies. Our lean operations and specialized product focus have kept demand for our tools steady through the recent volatility, with limited headcount and little to no additional resources needed. To reemphasize, our Eastern Hemisphere is the most transformative, where activity is building, utilization is improving, and industry outlook is strengthening. Our ClearPath stabilizer technology is gaining real traction in offshore markets, where the highest-spec operators are placing a premium on its performance.

We anticipate new awards to drive a material step up in our European contribution in the second half of the year. We are investing ahead of that work today by harvesting capital from our more mature markets and redeploying it into these higher return international opportunities. This will make the back half of 2026 look meaningfully different from the first half, with a runway that extends well into 2027. More broadly, we are encouraged by our recent conversations with customers. We have seen market share gains in recent months, even as we hold firm on price. Their return reflects our reliability, the quality of our tools, and the specialized equipment that today's high-performance wells demand, a combination that very few competitors can match.

We pride ourselves on customer service and delivering a significant value proposition. Operators are increasingly recognizing that dependable service and reliable performance lower the total cost of the well. In this improving environment, we are winning business on stronger commercial terms and seeing higher tool utilization. After several quarters of pricing compression, we believe that pressure has stabilized. Much of this momentum arrived late in the quarter, its benefit was muted in our Q2 results, but it positions us well for the remainder of 2026. Looking forward, we anticipate results to improve materially in the second half of the year, driven by a step change in activity in Europe and North Africa and an early-stage recovery in the U.S. We expect these benefits to continue building over the next 12 to 18 months.

Further, we are seeing steady traction in various offshore markets around the world. Our differentiated technology portfolio positions us well to capture that work. Taken together, this gives us real confidence in our full-year outlook. As a result, we reaffirmed our 2026 guidance ranges in yesterday's earnings release. I'll pass it over to David to take you through the results in greater detail and provide an update on our 2026 outlook.

David? Thank you, Wayne. In yesterday's earnings release, we provided detailed second quarter financial tables.

I'll use this time to offer further insight into specific financial metrics. We generated total consolidated revenue of $38.1 million during the second quarter, with tool rental revenue of $29.6 million and product sales revenue totaling $8.5 million. Net loss attributable to stockholders for the second quarter was approximately $1.8 million, or a loss of $0.05 per share. Adjusted net loss was $575,000, or an adjusted loss per share of $0.02. Second quarter adjusted EBITDA was $8.4 million, and adjusted free cash flow was approximately $4.1 million. I'll offer a bit more color on the movement in tool rental revenue and margins. The year-over-year decline reflects the combination of softer North American land activity.