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DATE

Friday, Aug. 7, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Wayne Prejean
• Chief Financial Officer - David Johnson
• Investor Relations - Ken Dennard

TAKEAWAYS

• Total Revenue -- $38.1 million, reflecting a slight decline from $39.4 million in the second quarter of 2025.
• Tool Rental Revenue -- $29.6 million, representing approximately 78% of total quarterly revenue.
• Product Sales Revenue -- $8.5 million, compared to $6.7 million in the same period last year.
• Net Loss Attributable to Stockholders -- $1.8 million, or $0.05 per share, as reported for the three months ended June 30, 2026.
• Adjusted Net Loss -- $575,000, resulting in an adjusted loss per share of $0.02.
• Adjusted EBITDA -- $8.4 million, representing an adjusted EBITDA margin of 22% for the quarter.
• Adjusted Free Cash Flow -- $4.1 million, which is an increase from $1.8 million in the prior year period.
• Cash and Cash Equivalents -- $2.5 million as of June 30, 2026, down from $3.6 million at the end of 2025.
• Net Debt -- $51.7 million, calculated as total debt less cash and cash equivalents.
• North American Rig Count -- 777 rigs in July, representing an increase of more than 70 rigs or 10% over the average for the second quarter.
• U.S. Land Rig Count -- 541 rigs on average during the quarter, reflecting a 3% decline year over year.
• July Canadian Rig Activations -- 193 rigs, which management identified as the highest level since February.
• Eastern Hemisphere Revenue Contribution -- 18% of total company revenue during the second quarter.
• Maintenance Capital Expenditures -- 12% of total revenue, which is primarily offset by tool recovery revenue.
• Full-Year Revenue Guidance -- $155 million to $170 million, reaffirmed by management for the 2026 fiscal year.
• Full-Year Adjusted EBITDA Guidance -- $35 million to $45 million, with an expected margin of 23% to 26%.
• Full-Year Adjusted Free Cash Flow Guidance -- $17 million to $22 million, which includes the impact of strategic technology investments.
• Projected Capital Expenditures -- $18 million to $23 million for the full year, focused on ClearPath technology for offshore markets.
• Public Float -- Approximately 90% of outstanding shares, following the distribution of shares by former sponsor HHEP to its limited partners.
• Global Rig Count -- Declined nearly 4% sequentially, reflecting a drop of approximately 7% in the Middle East that accounted for roughly half of the total global decline.

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RISKS

• Prejean stated, "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," citing the impact of volatility in the Middle East.
• Johnson noted that the second quarter results reflected "some continued pricing pressure in certain areas of our rental business."

SUMMARY

Drilling Tools International Corporation (DTI +0.82%) reported results for the second quarter of 2026, characterized by management as a period of resilience despite a decline in the global rig count. The company focused on expanding its international presence, particularly in the Eastern Hemisphere, and investing in its proprietary ClearPath stabilizer technology to support offshore opportunities in Norway. Management highlighted a recovery in U.S. and Canadian rig activity toward the end of the quarter, which they expect to drive a stronger second half of the year. The company maintained its full-year 2026 financial guidance while planning for elevated capital expenditures to support long-term rental agreements and gain market share in high-specification drilling environments.

• CEO Prejean noted that the Eastern Hemisphere is "the most transformative" segment, where activity is building and the industry outlook is strengthening.
• The company is redeploying capital from mature markets into higher-return international opportunities, specifically targeting the Norwegian offshore market.
• Management stated that pricing pressure in the rental tool business has stabilized after several quarters of compression.
• CEO Prejean attributed recent market share gains to "reliability, the quality of our tools, and the specialized equipment that today's high performance wells demand."
• CFO Johnson indicated that free cash flow for the remainder of the year will be primarily allocated toward debt reduction.
• CEO Prejean stated that the company expects a stronger second half of 2026, which he anticipates will build "steadily throughout the third and fourth quarters."
• The company plans to make strategic investments in "ClearPath technology to support our clients in the Norwegian market, as well as other offshore opportunities," according to CFO Johnson.

INDUSTRY GLOSSARY

• ADNOC: Abu Dhabi National Oil Company.
• Bottom-hole assembly (BHA): The components of a drill string located at the bottom of the wellbore, typically including the drill bit, stabilizers, and collars.
• ClearPath technology: A proprietary stabilizer design used to improve wellbore conditioning and hydraulic profiles in high-specification offshore drilling.
• HHEP: Hicks Equity Partners, the former private equity sponsor of Drilling Tools International.
• Managed pressure drilling (MPD): An adaptive drilling process used to precisely control the annular pressure profile throughout the wellbore.
• Tool recovery revenue: Revenue generated from customers to cover the cost of rental tools that are lost or damaged beyond repair during drilling operations.

Full Conference Call Transcript

Operator: Greetings. Welcome to Drilling Tools International's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Ken Dennard, Investor Relations.

Ken Dennard: Thank you, operator. 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 will be a replay of today's call that will 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 7, 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 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.

R. Prejean: Thank you, 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's 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, and 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, so 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, and our differentiated technology portfolio positions us well to capture that work. Taken together, this gives us real confidence in our full-year outlook, and as a result, we reaffirmed our 2026 guidance ranges in yesterday's earnings release. 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. David?

David Johnson: Thank you, Wayne. In yesterday's earnings release, we provided detailed second quarter financial tables. So 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. The U.S. land rig count averaged approximately 541 rigs in the second quarter, down roughly 3% from the same period last year, a lengthy spring breakup in Canada, and some continued pricing pressure in certain areas of our rental business. 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 the business. As Wayne mentioned, the activity began to improve, and commercial terms firmed up toward the end of the second quarter.

The U.S. land rig count added more than 20 rigs in June alone and finished the quarter above the prior year June level. And that momentum has carried into the third quarter with the U.S. count up nearly 19 rigs again in July. As our value-added product lines continue to gain traction with operators, we expect to benefit from leverage on improved margins alongside higher revenue. Capital expenditure in the second quarter were approximately $4.2 million, compared to $7.7 million in the First Quarter of this year. As Wayne mentioned earlier, we plan to make further strategic investments in our ClearPath technology to support our clients in the Norwegian market, as well as other offshore opportunities.

This means CapEx will not taper in the same significant fashion it usually does in the back half of the year. Maintenance CapEx for the second quarter was approximately 12% of total revenue. And as we always like to remind everyone on this topic, our maintenance CapEx is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. Turning to the balance sheet, as of June 30, 2026, we had $2.5 million of cash and cash equivalents and net debt of $51.7 million. Net debt increased modestly during the second quarter, primarily reflecting the Norway investment we flagged last quarter.

That opportunity carries an attractive return profile and will deliver a strong return as the work ramps up through the second half of 2026 and into 2027. Beyond our continued capital deployment in Norway in the third quarter, improved cash flow over the remainder of the year will be geared primarily toward debt reduction, consistent with how we have managed the business historically. We expect to return to an improved leverage ratio year-over-year. Turning to our geographic segment mix, our Eastern Hemisphere segment remained an important contributor in the second quarter at approximately 18% of DTI's total revenue.

As activity and utilization improve, the conflict in the Middle East stabilizes, and we realize the anticipated inflection in our Eastern Hemisphere operations, we expect this segment to play an increasingly meaningful role in our overall results in the coming quarters. Our Western Hemisphere segment continues to represent the bulk of our business. We are encouraged by recent rig additions and the opportunity that presents DTI after a prolonged period of activity decline. As Wayne mentioned, 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. Given our results year to date, these ranges imply a stronger second half of the year, including substantial free cash flow generation. Importantly, these ranges also account for our elevated CapEx plan, consisting of targeted spending on our ClearPath Stabilizer technology to support the Norwegian growth opportunities, which are tied to long-term rental agreements. While this investment may bring our full-year adjusted free cash flow toward the lower end of our range, we view it as an attractive, high return use of capital that will support durable revenue growth in the second half of 2026 and beyond.

We remain confident in our full-year trajectory. Finally, before turning the call back to Wayne, I wanted to briefly revisit an important milestone for DTI that occurred during the second quarter. Our former sponsor, HHEP, completed its share distribution to its limited partners during the second quarter. Although we discussed this at length on our last call, it bears repeating. Following the HHEP distribution, approximately 90% of outstanding shares are held in the public float. This positions DTI as a fully independent public company with broad ownership profile and significantly improving trade liquidity. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments.

R. Prejean: Thank you, David. We entered the second half of 2026 in a unique and exciting position. Much of the first half was marred by macro uncertainty, geopolitical turbulence, volatile commodity prices, and the customer prudence that followed. While some of that persists, we are seeing encouraging momentum across several regions. These points to the elevated activity and improved utilization that translate directly to our results. DTI is winning new business, improving commercial terms, gaining market share, and is well-positioned as the Middle East rebounds. Collectively, this enables us to finish the year strong.

We are committed to improving our market presence through consistent execution, technological innovation and differentiation, and operational excellence, and we will continue to prioritize profitable growth and shareholder value above all else. Before we open the call for questions, I would like to highlight a few key takeaways. We have seen early signs of recovery in the U.S. Both activity levels and commercial terms improved as the second quarter progressed. As I mentioned, much of that momentum arrived late in the quarter, and its benefit was muted for our Q2 results. But this gives us a real tailwind heading into the second half of 2026.

Our recent wins in offshore markets are expected to drive a meaningful step-up in our European and U.S. Gulf of Mexico business in the back half of the year, led by the traction of our ClearPath technology is gaining in high-value offshore and complex well markets. We believe these will represent the first of many wins to come as we continue to demonstrate the advantages of this exciting technology. In the Middle East, we are holding serve through a disruptive period with steady demand for our tools and substantial opportunities still ahead of us. We continue to win new work, and our Deep Casing Tools and Drill-N-Ream product lines are contributing to our growing Eastern Hemisphere story.

Finally, we are reaffirming our full 2026 guidance ranges, which would indicate a strong second half, one that builds steadily throughout the third and fourth quarters rather than arriving all at once. Activity increases in major operating areas and rising international utilization give us confidence in our ability to deliver on previously disclosed outlook despite a softer start to the year. In closing, DTI remains a disciplined consolidator in a fragmented industry with a platform that positions us to be an effective acquirer as the right opportunities present themselves. As always, we will remain prudent and disciplined when pursuing only the opportunities that strengthen our already strong platform and create lasting value for our shareholders.

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 who continue to operate in a challenging environment. Our employees' commitment and dedication have been essential in navigating a constantly evolving energy landscape and are central to the success and future growth we are building together. With that, we will now take your questions. Operator?

Operator: [Operator Instructions] First question comes from Steve Ferazani with Sidoti & Company.

Steve Ferazani: Wayne, you're maintaining guidance -- I mean, good quarter. You're maintaining guidance. The guidance at the midpoint implies pretty solid year-over-year and sequential growth in the second half. I'm trying to -- what I'm curious about is how much you're breaking that apart for North America versus international, and, sort of, if you can give us a sense of what you're thinking on U.S. drilling or North American drilling activity into the second half and what's built into that guidance. Trending well, but there's still certainly a fair amount of uncertainty out there.

R. Prejean: Well, we're kind of relying on Canada rebounding, which has been really helpful, and it's such a bright spot for a strong component of our business. And the U.S. is rebounding nicely with a few little ripples in the water every now and then. Some -- there's a couple of folks drop rigs, but other people pick them right back up. So there seems to be a shifting plus additions going on. But it hasn't been just a direct upward trend, which -- we see the rig count rising, of course, but there's been some shuffling around from one operator to another.

I think the higher commodity prices and the confidence in the market going forward lends itself to a greater degree of more and more activity throughout the second half of the year. Internationally, we're making big strides with some of our new technology launches in different markets, particularly the offshore market, high-spec, high-value markets. So that's gaining traction. And we -- despite this Middle East volatility, which has been very challenging, we seem to be gaining momentum in countries like Oman, Kuwait, and other places. Then a little bit of traction in ADNOC in UAE. Saudi has still been, kind of, an opportunity, but still not as much traction as we'd like.

There's been some disruptions in their offshore operations where they picked up rigs, but with the ongoing conflict, they've had to suspend operations and continue operations and suspend them again. So those disruptions have just caused delays in some of the activity expectations we had.

Steve Ferazani: You note Canada is a particularly strong market for you. We're getting a sense of a lot of positive momentum there, given the government seems to be more pro-oil and gas than the previous one. They're fast-tracking a lot of infrastructure projects, trying to increase egress. Are you getting that sense from your customers that there's this momentum, and it could drive well into 2027?

R. Prejean: Yes. I think the Alberta government, and particularly some of the provincial governments, are high on takeaway capacity and midstream, and that lends itself well to the operators' ability to increase their production and continue their momentum forward. So yes, we are seeing a higher rig count activity in Canada year-over-year from last year's counts, and we'll see if that plays out in the peak winter drilling season coming up here in the next few months.

Steve Ferazani: Helpful. Can you talk about how you've generated such success with the ClearPath Stabilizer that was part of one of your acquisitions, how that has ramped so quickly?

R. Prejean: Well, it started out as just mostly a geometric design, and it's evolved into systems approach to high-value applications, and it's just taken a while to develop the confidence and the repeatable data results to enable the value proposition to flow through to the client. So one of the greatest opportunities with this technology, it increases operators' ability to use managed pressure drilling, lower their equivalent circulating density so they can have an overall improved hydraulic profile when they drill these wells.

I don't want to go into the weeds on drilling techniques, but that's a very important component of deepwater drilling operations around the world and many other drilling operations around the world, where MPD, managed pressure drilling, is becoming more and more prevalent and important in managing those different profiles in how the well is drilled and how they plan their casing and so on, is critical in the success and economic value of how they drill these wells. So we are able to contribute to that, and anytime you can contribute to those types of solutions, you usually get rewarded.

Steve Ferazani: Fair enough. David, you mentioned the higher CapEx expected for some of this newer value-add equipment in the Eastern Hemisphere. Did you mention -- did you provide a range or a guidance to CapEx, and how should we be thinking about that? Obviously, if the demand is there, we'd want to see you build out as much as you can.

David Johnson: Yes, Steve. Thank you for the question. Good question. I think, yes, the way we, kind of, framed it was, we just don't expect the ramp down that we kind of typically have in CapEx spending in the second half of the year in support of this technology. So obviously, yes, that's going to kind of lend us to be on the higher end of our CapEx and lower end of our free cash flow guide.

But -- so obviously doing all that with all of the other improvements that you kind of heard, both Western Hem, Eastern Hem combined, kind of moving us, you would have to imply more toward the midpoint of our revenue and EBITDA numbers to kind of come in that range. And then - obviously, the compelling part is a lot of those benefits in that late, kind of, half of the year investment flow into '27 as well.

Steve Ferazani: Right. Wayne, when we think about the success of some of these acquisitions, does it give you confidence to be out there finding new potential targets? And does it change the way you'll judge them when you see the success of something like ClearPath Stabilizer? Does it get you focused on, hey, this equipment isn't well known, but on our platform, we can really aggressively market this and show the performance better? Is it product-driven M&A more than necessarily what you bought the business?

R. Prejean: Well, we always have -- we have a backlog of opportunities we're always working on and evaluating in different categories, whether it's a technological advantage or some sort of clever product line that's operating disguised as a company. And we're also looking at more significant things. There are companies out there that we have our eyes on, but we're always working on something. So we always have things working in the background. Yes, so.

Steve Ferazani: How are valuations looking out there?

R. Prejean: Yes. So we continue to incubate opportunities because we've made it clear that M&A -- our growth opportunity is through M&A, layered in with technology to continue our organic initiatives, which you always have to have those in motion with your clients, so.

Operator: Thank you. This does conclude our question-and-answer session. I would like to turn the floor back over to management for closing comments.

R. Prejean: Well, thank you. Thank you, everyone, for listening. We have a lot of momentum going into the second half of this year and going into 2027. We feel like with the activity support and our momentum from technology acquisitions and other acquisitions is giving us all the support we need to deliver solid, solid results going forward. So thank you for your interest and look forward to the next call.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.