Drilling Tools International Conference Call to Discuss Saltire Acquisition - DRILLING TOOLS INTERNATIONAL CORP

Financial Performance:

• Total consideration for Saltire Energy and Foxley Energy is ~$80 million in cash and 17.4 million shares of Drilling Tools International (DTI) stock.
• Saltire adds ~$50.4 million in run-rate revenue and $22.5 million in adjusted EBITDA, representing an adjusted EBITDA margin of ~45%.
• Pro forma combined company expects 2026 revenue of $205–$220 million, adjusted EBITDA of $58–$68 million (28–31% margin), and adjusted free cash flow of $33–$38 million.
• Transaction is expected to be accretive to adjusted EBITDA margin and adjusted free cash flow per share from day one, with free cash flow increasing by >80% based on 2026 guidance.
• Accretion is based on standalone performance; no reliance on cost savings, revenue synergies, or pricing improvements.
• Pro forma net debt to trailing 12-month adjusted EBITDA is ~2.2x at closing, managed via debt financing and existing credit facilities.

Guidance and Future Outlook:

• Transaction is expected to close in Q1 2027, subject to regulatory approvals and DTI stockholder approval.
• Management projects a clear path to reduce net leverage to ~1.0x within 24 months of closing, driven by enhanced free cash flow.
• Eastern Hemisphere revenue exposure will increase from ~18% in Q2 2026 to ~40% pro forma.
• Long-term goal is to combine North American stability with high-growth international markets, targeting the Middle East (projected $69B drilling spend in 2026, rising to $88B by 2030).
• Strategic focus includes deploying DTI technologies (ClearPath, Drill and Ream, deep casing) into Saltire's distribution network.

Business Segments and Product Lines:

• Combined rental fleet grows from ~63,000 tools to >100,000 tools, offering a global one-stop shop.
• Saltire specializes in bottom-hole assembly components, pipe, tubulars, and pressure control equipment across the North Sea, Middle East, and Eastern Hemisphere.
• DTI gains access to National Oil Companies (NOCs) and international operators in the Middle East, reducing reliance on U.S. public company costs.
• Saltire management team, including Founder/CEO Mike Logie, will remain with the combined entity; Logie retains ~30% ownership stake.
• No product line changes; the strategy leverages complementary geographies with limited customer overlap.

Market and Competitive Landscape:

• Market context: Eastern Hemisphere has ~910 active rigs with significant drilling and completion spending growth expected through 2030.
• The deal creates a larger, more balanced platform capable of securing category-driven product contracts required by NOCs in the Middle East.
• Saltire's established presence in technically challenging environments offers higher and more consistent margins due to reliability and service quality premiums.
• DTI aims to differentiate from commodity distributors by offering technology-driven solutions across a broader product suite.

Risks and Challenges:

• Deal closure is subject to customary conditions, including regulatory approvals and stockholder votes; completion is not guaranteed.
• Operational risks include potential logistical disruptions from ongoing geopolitical conflicts in the Middle East, though management asserts "business as usual" continuity.
• Financing risks exist regarding the new debt used to fund the cash portion of the acquisition.
• Integration risks include merging distinct operating models and maintaining Saltire's specific customer relationships.

Management Commentary and Tone:

• Tone is highly confident and optimistic, described as a "natural fit" and a "low-risk, high-return" opportunity (likened to a "3-foot putt").
• Management emphasizes that the investment case relies on the standalone performance of both businesses rather than speculative synergies.
• CEO Wayne Prejean and CFO David Johnson highlighted the "lean and focused" operational efficiency of Saltire as a key driver of its high margins.
• Strong alignment noted via the Logie family retaining 30% equity, signaling conviction in future value creation.

Analyst Questions and Answers:

• Q (Steve Verrazani, Sedoti): Asked about the significant margin and cash conversion differential between Saltire and DTI despite similar models.
  • A: Management attributed Saltire's ~45% margin to lower overhead, concentrated work locations, longer-term contracts, and less frequent tool handling compared to the North American market.
• Q: Asked if the deal validates the geographic diversification strategy amid global disruption.
  • A: Management confirmed the strategy, noting that operators and NOCs are adapting supply chains to mitigate conflict risks; the combined platform enhances commercial power to win larger contracts.
• Q: Asked why Saltire is selling after 40 years of solid growth.
  • A: Mike Logie cited a lack of previous "right" partners; DTI was chosen for its technical expertise, oil industry understanding, and ability to provide a larger platform for technology deployment.
• Q: Asked how Saltire's cash conversion influenced the decision to accept 2.2x leverage.
  • A: CFO David Johnson confirmed the strong free cash flow was a primary factor, providing a clear 24-month runway to deleverage to 1.0x.

Other Key Points:

• Saltire has a 40-year history of business, now entering its next chapter as a public company subsidiary.
• The acquisition is a "bolt-on" transaction that preserves Saltire's culture while adding DTI's financial strength and technology.
• Forward-looking statements include non-GAAP financial measures (Adjusted EBITDA, Adjusted Free Cash Flow) which require reconciliation to GAAP measures.
• All foreign currency figures have been converted to U.S. dollars for reporting purposes.