My Market Wizard

Drilling Tools International Corp 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Drilling Tools International Co

Filing date:

03/14/2025

TLDR:

ELI5:

DTI made a little more money overall, but their profits went down a lot. They bought some new companies, but they’re having trouble making everything work together smoothly and have some accounting problems.

Accession #:

0000950170-25-039259

Published on

Analyst Summary

  • Revenue increased slightly due to acquisitions, but tool rental revenue decreased.
  • Operating income and net income decreased significantly year-over-year.
  • Adjusted EBITDA decreased, indicating a decline in core profitability.
  • The company is focused on maximizing fleet uptime and professionalizing the organization.
  • DTI is navigating challenges related to geopolitical tensions, supply concerns, and global demand fluctuations.
  • A material weakness in internal controls over financial reporting was identified.

Opportunities and Risks

  • Opportunity: International expansion through acquisitions.
  • Opportunity: Diversification of product portfolio.
  • Risk: Fluctuating oil and gas prices.
  • Risk: Global economic uncertainty.
  • Risk: Competition in the oilfield services industry.
  • Risk: Supply chain disruptions.
  • Risk: Regulatory changes.
  • Risk: Integration challenges with recent acquisitions.

Potential Implications

Company Performance

  • Continued investment in oil and gas drilling may drive future financial performance.
  • Integration of acquired companies is crucial for realizing synergies and improving profitability.
  • Addressing the material weakness in internal controls is essential for maintaining investor confidence.
  • The company’s ability to manage costs and improve operational efficiency will impact future profitability.

Stock Price

  • The decrease in net income and adjusted EBITDA may negatively impact the stock price.
  • The material weakness in internal controls could lead to increased scrutiny and potentially lower valuation.
  • Successful integration of acquisitions and improved profitability could positively influence the stock price.
  • Overall market conditions and oil and gas prices will also affect the stock price.

SEC Filing Report: Drilling Tools International Corp (DTI) – Form 10-K (FY2024)

Executive Summary

This report analyzes Drilling Tools International Corp’s (DTI) Form 10-K filing for the fiscal year ended December 31, 2024. Key findings include a slight increase in overall revenue driven by acquisitions, offset by a decrease in tool rental revenue. Operating income decreased significantly compared to the prior year. The company is navigating a complex environment with fluctuating oil and gas prices, global economic uncertainty, and ongoing integration of recent acquisitions. While DTI is expanding internationally and diversifying its offerings, it faces risks related to competition, supply chain disruptions, and regulatory changes. The report highlights a material weakness in internal controls over financial reporting. Overall assessment: Hold. While DTI shows potential for growth, the identified risks and the material weakness warrant a cautious approach.

Company Overview

Drilling Tools International Corporation (DTI) is a global oilfield services company focused on designing, engineering, manufacturing, and renting tools for horizontal and directional drilling. The company operates through four divisions: Directional Tool Rentals (DTR), Premium Tools Division (PTD), Wellbore Optimization Tools (WOT), and Other Products & Services. Recent acquisitions (CTG, SDPI, EDP) are integral to DTI’s growth strategy, expanding its international presence and product portfolio. The industry is cyclical and highly competitive.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth driven by acquisitions but acknowledges a decrease in tool rental revenue due to decreased market activity and customer pricing. They emphasize the importance of maximizing fleet uptime and professionalizing the organization. The MD&A discusses the impact of geopolitical tensions, supply concerns, and global demand fluctuations on the oil and gas market. Management expresses confidence in future financial performance driven by continued investment in oil and gas drilling. However, the tone is tempered by acknowledging the challenges of inflation and potential recession.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue: Increased slightly from $152.0 million in 2023 to $154.4 million in 2024.
  • Tool Rental Revenue: Decreased by 1% year-over-year.
  • Product Sale Revenue: Increased by 11% year-over-year, driven by acquisitions.
  • Operating Income: Decreased significantly from $27.9 million in 2023 to $13.4 million in 2024.
  • Net Income: Decreased from $14.7 million in 2023 to $3.0 million in 2024.
  • Adjusted EBITDA: Decreased from $51.0 million in 2023 to $40.1 million in 2024.

Visual Aids

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1. Commentary

Drilling Tools International (DTI) reported a mixed financial performance for 2024. Revenue increased slightly, driven by product sales, but net income significantly decreased due to higher operating expenses and other expenses. The company made strategic acquisitions, expanding its market presence, but these acquisitions also contributed to increased debt and integration costs. While Adjusted EBITDA decreased, the company continues to invest in growth through capital expenditures and acquisitions.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: 75.15% (2024), 76.64% (2023)
    • Trend: -1.95%
    • Industry: The oil and gas equipment and services industry typically sees gross profit margins ranging from 25% to 50%. DTI’s gross profit margin is significantly higher, suggesting a premium pricing strategy or efficient cost management in its core operations.
  • Operating Profit Margin

    • Metric: 8.69% (2024), 18.35% (2023)
    • Trend: -52.65%
    • Industry: An operating profit margin of 8.69% is below the typical range of 10-15% seen in the oil and gas equipment and services industry.
  • Net Profit Margin

    • Metric: 1.95% (2024), 9.70% (2023)
    • Trend: -79.90%
    • Industry: A net profit margin of 1.95% is low compared to the industry average of 5-10%.
  • Return on Assets (ROA)

    • Metric: 1.35% (2024), 11.13% (2023)
    • Trend: -87.87%
    • Industry: An ROA of 1.35% is significantly below the industry average of 5-10%.
  • Return on Equity (ROE)

    • Metric: 2.51% (2024), 16.63% (2023)
    • Trend: -84.91%
    • Industry: An ROE of 2.51% is low compared to the industry average of 10-15%.
  • EPS (Basic)

    • Metric: $0.09 (2024), $0.67 (2023)
    • Trend: -86.57%
    • Industry: N/A
  • EPS (Diluted)

    • Metric: $0.09 (2024), $0.59 (2023)
    • Trend: -84.75%
    • Industry: N/A

Liquidity

  • Current Ratio

    • Metric: 2.20 (2024), 2.08 (2023)
    • Trend: 5.77%
    • Industry: A current ratio of 2.20 is healthy, indicating the company has sufficient current assets to cover its current liabilities. The industry average typically ranges from 1.5 to 2.0.
  • Quick Ratio

    • Metric: 1.63 (2024), 1.85 (2023)
    • Trend: -11.89%
    • Industry: A quick ratio of 1.63 is generally considered healthy, suggesting the company can meet its short-term obligations without relying heavily on inventory.
  • Cash Ratio

    • Metric: 0.20 (2024), 0.27 (2023)
    • Trend: -25.93%
    • Industry: A cash ratio of 0.20 is relatively low, indicating the company has limited cash to cover its current liabilities immediately.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: 0.85 (2024), 0.49 (2023)
    • Trend: 73.47%
    • Industry: A debt-to-equity ratio of 0.85 indicates a moderate level of leverage. The industry average typically ranges from 0.5 to 1.5.
  • Debt-to-Assets Ratio

    • Metric: 0.46 (2024), 0.33 (2023)
    • Trend: 39.39%
    • Industry: A debt-to-assets ratio of 0.46 suggests that 46% of the company’s assets are financed by debt.
  • Interest Coverage Ratio

    • Metric: 3.98 (2024), 26.20 (2023)
    • Trend: -84.81%
    • Industry: An interest coverage ratio of 3.98 indicates the company can comfortably cover its interest expenses. A ratio above 1.5 is generally considered safe.

Activity/Efficiency

  • Inventory Turnover

    • Metric: 2.60 (2024), 3.98 (2023)
    • Trend: -34.67%
    • Industry: An inventory turnover of 2.60 indicates the company sells its inventory 2.6 times per year.
  • Days Sales Outstanding (DSO)

    • Metric: 93.50 (2024), 71.65 (2023)
    • Trend: 30.49%
    • Industry: A DSO of 93.50 days is relatively high, indicating the company takes a longer time to collect its receivables.
  • Days Payable Outstanding (DPO)

    • Metric: 113.03 (2024), 79.03 (2023)
    • Trend: 43.02%
    • Industry: A DPO of 113.03 days suggests the company takes a longer time to pay its suppliers.
  • Asset Turnover

    • Metric: 0.69 (2024), 1.15 (2023)
    • Trend: -40.00%
    • Industry: An asset turnover of 0.69 indicates the company generates $0.69 of revenue for every dollar of assets.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: 30.00 (2024), 4.03 (2023)
    • Trend: 644.42%
    • Industry: The current P/E ratio for the Oil & Gas Equipment & Services industry is around 15-25. DTI’s P/E ratio of 30.00 is higher than the industry average, suggesting that the stock may be overvalued or that investors are expecting high growth in the future.
  • Price-to-Book Ratio (P/B)

    • Metric: 0.23 (2024), 0.20 (2023)
    • Trend: 15.00%
    • Industry: A P/B ratio of 0.23 is very low, suggesting the company’s stock is undervalued relative to its book value.
  • Price-to-Sales Ratio (P/S)

    • Metric: 0.61 (2024), 0.59 (2023)
    • Trend: 3.39%
    • Industry: A P/S ratio of 0.61 is relatively low, indicating the company’s stock is reasonably valued compared to its revenue.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: 2.34 (2024), 1.58 (2023)
    • Trend: 48.10%
    • Industry: An EV/EBITDA of 2.34 is low, suggesting the company may be undervalued.

Growth Rates

  • Revenue Growth

    • Metric: 1.59%
    • Trend: N/A
  • Net Income Growth

    • Metric: -79.57%
    • Trend: N/A
  • EPS Growth

    • Metric: -86.57%
    • Trend: N/A

Other Relevant Metrics

  • Adjusted EBITDA
    • Metric: $40.10 million (2024), $51.04 million (2023)
    • Trend: -21.44%
    • Significance: Adjusted EBITDA is a non-GAAP measure used by the company to assess its operating performance. It excludes items such as income tax expense, depreciation and amortization, interest expense, stock option expense, management fees, gains/losses on asset disposals, and transaction expenses. The decrease in Adjusted EBITDA suggests a decline in the company’s core profitability.
    • Criticism: While Adjusted EBITDA can provide insights into a company’s operating performance, it is important to be critical of non-GAAP measures. The adjustments made by the company may not be representative of its true financial performance. For example, excluding transaction expenses may mask the costs associated with acquisitions, which are a significant part of the company’s growth strategy.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️