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Drilling Tools International (DTI) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Energy· Aug 7, 2026

Source: earnings call transcript

Executive summary

Drilling Tools International Q2 FY26 — Strong Cash Flow and Reaffirmed Full-Year Guidance

Drilling Tools International delivered resilient Q2 FY26 results, generating strong adjusted free cash flow despite a challenging global rig count environment. The company reaffirmed its full-year guidance, anticipating a robust second half driven by recovering North American activity and growing momentum in the Eastern Hemisphere, particularly with its ClearPath stabilizer technology. Strategic investments in this technology are expected to support durable revenue growth into 2027.

Highlights

5

  • Generated $38.1 million of revenue.

  • Achieved $8.4 million of adjusted EBITDA.

  • Delivered strong adjusted free cash flow of $4.1 million.

  • Maintained tool rental gross margin above 70%.

  • Reaffirmed full-year 2026 guidance ranges for revenue, adjusted EBITDA, and adjusted free cash flow.

Concerns

5

  • Global rig count declined nearly 4% sequentially and remained down year over year.

  • Middle East rig count fell almost 7% in the quarter, impacting activity levels.

  • Reported a net loss attributable to stockholders of $1.8 million, or $0.05 per share.

  • Adjusted net loss was $575,000, or an adjusted loss per share of $0.02.

  • Net debt increased modestly to $51.7 million, primarily reflecting the Norway investment.

Guidance & targets

CategoryTargetConfidence
Full-year 2026 Revenue
$155 million to $170 million
high materiality
High
Full-year 2026 Adjusted EBITDA
$35 million to $45 million
high materiality
High
Full-year 2026 Adjusted Free Cash Flow
up to $22 million
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Eastern Hemisphere
Remained an important contributor. Activity and utilization improving, Middle East conflict stabilizing. Expected to play an increasingly meaningful role in coming quarters.
Contribution to total revenue: approximately 18%
————
Western Hemisphere
Continues to represent the bulk of our business. Encouraged by recent rig additions and opportunities after prolonged activity decline.
Contribution to total business: bulk
————

Capital programs

ClearPath Technology Investment underway
Period spend: $4.2 million
Spent to date: $4.2 million
Start: Q2 FY26

Benefit:support Norwegian growth opportunities, tied to long-term rental agreements

Capital expenditures in the second quarter were approximately $4.2 million, largely for strategic investments in ClearPath technology to support Norwegian and other offshore opportunities. This investment is expected to deliver strong returns as work ramps up in H2 2026 and into 2027.

Risks & headwinds

Global rig count decline Q2 FY26

nearly 4% sequentially, down year over year

Mitigation:strength of our business model, disciplined execution, and geographic diversification

Middle East regional conflict and operational disruption Q2 FY26

rig count fell almost 7% in the quarter, intermittent starts and stops and rig moves

Mitigation:lean operations and specialized product focus have kept demand for our tools steady, limited headcount and little to no additional resources needed

Softer North American land activity Q2 FY26

U.S. land rig count averaged approximately 541 rigs in the second quarter, down roughly 3% from the same period last year; lengthy spring breakup in Canada

Mitigation:activity began to improve and commercial terms firmed up toward the end of the second quarter, momentum has carried into the third quarter

Pricing pressure in certain areas of rental business Q2 FY26

Even with that compression, our tool rental gross margin remained above 70%

Mitigation:pressure has stabilized, winning business on stronger commercial terms

Macro uncertainty, geopolitical turbulence, volatile commodity prices and customer prudence H1 FY26

muted Q2 results

Mitigation:seeing encouraging momentum across several regions, winning new business, improving commercial terms, gaining market share

What to watch in Q3 FY26

North American Rig Count

next quarter
Current 777 rigs in July
Target Continued upward trend and improved utilization

Why it matters

Indicates recovery in the largest part of DTI's business and supports stronger H2 results.

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.

Find out whether DTI delivers this. Inve re-checks your case every morning.

Q&A highlights

How is the maintained full-year guidance broken down between North America and international, and what is the outlook for US drilling activity given the uncertainty?

Management relies on Canada's rebound and improving US activity, noting higher commodity prices should drive more activity. Internationally, new technology (ClearPath) is gaining traction in high-value offshore markets, and momentum is building in the Middle East despite volatility, though Saudi operations faced disruptions.

“Well, we're kind of relying on, you know, Canada rebounding, which has been really helpful. And it's such a bright spot for a strong, you know, component of our business. And the U.S. is rebounding nicely, you know, with a few little ripples in the water every now and then.”

asked by Steve Ferrazzani · answered by Wayne Prejean

2 min read 5 chapters

Detailed narrative

Global Rig Count Dynamics

Despite a nearly 4% sequential and year-over-year decline in global rig count, including a 7% drop in the Middle East, DTI maintained resilient performance. The North American rig count, particularly in the US, showed recovery late in Q2 and into July, with bottom-hole assembly rigs outpacing the broader increase. This momentum is expected to support stronger results later in the year.

Eastern Hemisphere Momentum

Operations in the Eastern Hemisphere are gaining momentum, with improving utilization and a strengthening industry outlook. The ClearPath stabilizer technology is gaining traction in offshore markets, leading to anticipated new awards and a material step-up in European contribution in H2 2026, extending well into 2027. The company is investing ahead of this work by redeploying capital from more mature markets.

Commercial Terms and Market Share

DTI is winning business on stronger commercial terms and gaining market share due to its reliability, tool quality, and specialized equipment that meets the demands of high-performance wells. After several quarters of pricing compression, management believes this pressure has stabilized. This momentum, arriving late in Q2, positions the company well for the remainder of 2026.

Strategic Investments

The company is making strategic investments in its ClearPath technology to support Norwegian and other offshore opportunities. These investments will lead to elevated CapEx in the second half of the year, which will not taper as significantly as usual. These capital outlays are tied to long-term rental agreements and are expected to deliver strong returns, supporting durable revenue growth in H2 2026 and beyond.

HHEP Share Distribution

DTI's former sponsor, HHEP, completed its share distribution to its limited partners during the second quarter. This action resulted in approximately 90% of outstanding shares being held in the public float, positioning DTI as a fully independent public company with a broad ownership profile and significantly improved trading liquidity.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.