DTI Balance Sheets
Description
Situation Analysis Drilling Tools International (“DTI” or the “Company”) presents a timely and compelling deep-value opportunity in the small-cap oilfield services sector. DTI operates a resilient, rental-focused business model providing downhole drilling tools. Despite recent cyclical softness in global rig counts (down 7% in 2025), the Company has maintained steady top-line growth and has generated impressive free cash flow ($.52 / share LTM – a 14% yield to equity). DTI also has a modest leverage profile (1.1x LTM). Trading at around 4x EV / EBITDA, DTI is executing a geographic expansion strategy into the Eastern Hemisphere (currently 14% of sales which increased 78% in Q425) and consolidating a fragmented market through accretive M&A. With a clean balance sheet, DTI has the flexibility to pause M&A to generate free cash flow which can be used to further deleverage and / or repurchase shares. One important point to note, last week when reporting earnings, management provided guidance that does not contemplate current oil price trends that may oil / gas production and rig counts. At the midpoint of 2026 free cash flow guidance (~$20MM), the stock is currently trading at a 15% FCF yield and we find the stock to be mispriced at current levels. Following the passing of Tom Hicks in Dec 2025 it is our understanding shares associated with his family office’s investment in DTI have been distributed to LPs which co-invested in the DTI, which may have created uneconomic selling pressure in shares. At year end 2024, PE / Hicks Equity Partners ownership was approximately 42% and we think that once the newest proxy is released, this number will be substantially lower leading to a transition from concentrated private equity hands to broader ownership, resulting improvement in liquidity and visibility which could drive a multiple re-rating. What is it Worth? A core pillar of the DTI thesis is that the Company does not need a sustained bull market in oil or elevated commodity prices to generate cash. In 2025, DTI grew its total consolidated revenue by 3% (to $159.6 million) despite a 7% decline in the global rig count. For FY26, management has issued guidance that factors in a continued soft macro environment for the first half of the year: Revenue: $155 million — $170 million Adjusted EBITDA: $35 million — $45 million (representing strong ~23%–26% margins) Adjusted Free Cash Flow: $17 million — $22 million This baseline guidance is completely exclusive of any sudden spike in oil prices, relying instead on market share capture, recent M&A synergies, and a surging Eastern Hemisphere segment (which grew 78% year-over-year in late 2025). We think that DTI can generate $.60-80 / share of annual free cash flow (vs. $.55 LTM) over the next two years.