Good afternoon everyone. Ladies and gentlemen, thank you for joining us. My name is Jenny Kim. I'm with CAC Specialty. We are an employee-owned insurance brokerage serving specialized industries such as oil and gas. Drilling Tools International, who is today's panel, is a leading provider of downhole rental and service solutions for the oil and gas industry. With more than 35 years of experience, DTI supplies drill pipe, motors, stabilizers, and other critical downhole tools supported by expert inspection and machining services. Headquartered in Houston, with a network of service facilities both domestically and internationally, DTI is committed to safety, reliability, and helping operators maximize drilling efficiencies. Helping to lead the effort with their C-suite, Jameson Parker, who will be speaking shortly, VP of Corporate Development, is here. Please join me in welcoming Jameson.
Thanks, everybody. Thank you to Larry and team, and congrats on 30 years. I will get this advanced past the disclaimer page and give you a little preview about DTI. We are a downhole rental tool company and have been in business over 40 years now, but only two years as a public company. We've gone underneath a lot of significant Eastern Hemisphere expansion in the last 18 months, hence reporting on East and West revenue mix here. Our core business in the Western Hemisphere is worth noting that we have 50%- 60% market participation on both on and offshore rigs in the U.S. and Canada, so a significant leadership position. I've reordered our slides to kind of hit on our business model and some of the key financial metrics that I think investors like yourself will care about.
The first would be that our business model is really underpinned by what we call the three R's of rental, repair, and recovery. We charge a rental rate for all of our tools that go downhole. We also have a repair component of our business where we charge to repair and get like new and fit for purpose all the tools. The nuanced piece that I think we need to hit on a lot with investors is that the lost and whole damage beyond repair recovery event makes us unique in the rental landscape, that we get made whole and our maintenance CapEx is fully funded by the customer. Moving ahead, just a quick snapshot on financials for 2025. Even in a declining rig environment, throwing off good EBITDA margin, and most importantly, for everyone here, really solid adjusted free cash flow. I'll unpack that a little bit later.
You can see that the business has been resilient even amidst the rig count and activity slowdown this year. This is partly due to the full year benefit of the four M&A transactions we did over the last 12 months - 18 months. Jumping ahead just to unpack what we do a little bit in more depth for any technical people in the room, we do have a little bit of plug-in abandonment exposure through a unique tool called the Rubberlizer. The vast majority of what we do is focused on wellbore construction all the way through casing installation. We rent and sell a few of these products, but predominantly rent drill pipe and collars, stabilizers, sleeves, and also have some clever unique tools such as the Drill-N-Ream and RotoSteer that are enablers of doing extended reach horizontal drilling.
The thesis that wells will only get more challenging and longer and more tortuous as you get further in the third and fourth miles or do a U-turn underpins kind of the whole product strategy for us. On the casing installation side, the last bit I'll touch on here, we have a swivel called the Mechlock and then the turbo caser and turbo runner, which again enable us to get casing to bottom in these long extended reach wells. Jumping ahead, a common question that we get is why do customers rent tools? Many people are capable of doing payback analysis and know when they've rented something long enough that they could have bought it themselves. We have always been in this position in the oil and gas market. These specific tools are rented.
It would not be efficient for an E&P operator to own 65,000+ tools like we carry in inventory. To that end, we also are kind of the unoffending rental supplier both to E&Ps and oilfield service companies providing directional drilling support. It's a good business model that allows us to service our customers as well as keep the tools relevant, sustainable, and make iterative changes when it comes to engineering. Whether it's new thread type connections or new geometries, our fleet is the most kind of up to speed and enables customers to make changes and work with engineering as opposed to being wed to something that procurement bought and now they're stuck with it until they get their return. Drilling further down on customers, you've seen kind of why they rent and what our business model is.
Now you can see just who this is an indicative sample set of who's renting from us. What I wanted to highlight on this page is that several of these clients are global clients of DTI , where we may have begun in the Western Hemisphere with them covering their just NAM land or Shale work and now do global work for them both on the rental tool side as well as the casing installation side. It's not uncommon for us to get pulled into new geo markets by our customers. Now getting into kind of how we do this, what enables us to maintain such a large rental fleet? We have our own in-house manufacturing and repair. We're able to manufacture and build a significant portion of our CapEx for the year in-house in Broussard, Louisiana. That's your stabilizers, collars, et cetera.
We do buy drill pipe from known North America vendors. We also have a bit repair facility in Vernal, Utah, which brings in the PDC drill bits, brazes, and repairs and gets them back fit for purpose. We're also self-sufficient in Canada. Earlier this year, we fielded a lot of questions around tariffs and the impact to our business. Having most of this in-house, our CapEx is really on raw material and forgings, and we do the machining ourselves. Further to how we do this and how we support so many rigs globally is our Compass system.
Years ago, I don't know the exact date, it predates me joining, we invested in a software program for rental tool management and to really be able to demonstrate to the customer the full life cycle of a tool from its birth when it was new, connections were cut on it and it was first machined from bar stock to every inspection and QA/QC cert that it carries. That is digitally available and at the tap of a button. This really is kind of the Amazon Web Store for downhole Bottom Hole Assembly components. We have people in the field, there are people in offices requisitioning tools. An order is then confirmed at our shop through customer service reps, and then it ships out. People like the traceability and the ability to see what that tool's done and then where it is in their system.
The piece that David and I especially like is that it gives us really data-driven informed CapEx decision making by seeing what is most utilized, what's underutilized, where we need to maybe redeploy tools throughout the fleet now that we do have a global network where we can ship these tools. Just touching on a few of the highlights since going public, I think that I again wasn't around at the time of DSPAC, but all of our investor meetings were really around just proving that we're going to do what we say and we're going to continue to execute. Soon after going public, we were able to consummate four acquisitions. We said that we were not going to CapEx our way to growth. We were going to be a consolidator in the space. We got Deep Casing Tools and the three others named on there.
We also improved the liquidity and strengthened our balance sheet by expanding our banking facility. We are very much averse to leverage, as I think most OFS people have gotten religion on now. We target to be at one turn or lower on leverage. We've also been working to migrate on going from dumb to clever and really high grading our rental offering to have more unique geometry, more intellectual property in it, allowing us to just support our clients better and generate a good return for us. At the end of the day, we're ultimately focused on delivering solid adjusted free cash flow margin despite the declining rig environment. Speaking of capital allocation, you know we view ourselves as capital allocators and really have around five alternatives when it comes to determining what we do with the money we make.
We can spend it on CapEx, we can pursue M&A, we can pay down our debt, we can do a share repurchase or pay a dividend. As we've been growth oriented up until the last two quarters, it has not been high priority to do a share repurchase or pay a dividend. We just don't think it would be terribly meaningful. In Q1, we did announce an approval to start buying back shares. We think there's a big dislocation in the market today with what our share price is and what the intrinsic value of the company is. That's just another tool in the tool belt for us. We remain focused on thoughtful capital allocation across all those opportunities.
Speaking about what we've done in the past and delivering results and is it sustainable, one of the most common questions we received last year with investors was, is this adjusted free cash flow going to materialize even as the rig count declines slowly throughout 2024 and into 2025? They just look at our historical CapEx as a private company and how we were growing. We've demonstrated that that is a lever that we can pull up and down as market activity dictates. We think again that we just reiterated on our last earnings call our guide for the year. I think that we can deliver this adjusted free cash flow again. This kind of leads into the next slide. That rental repair recovery business model I spoke of and maintenance CapEx being customer funded enables us to have those adjusted free cash flow margins despite headwinds in the industry.
Pausing here for a second, this is probably where I spend 40%- 60% of my time with investors unpacking is the slide that's got the components of adjusted EBITDA. In the light blue, you see our maintenance CapEx that is fully customer funded through lost in hole or damaged beyond repair charges. The gold bar is what we spend on growth CapEx, which is truly for new technology, new equipment, and growth CapEx. The navy is the adjusted free cash flow. That all adds up to adjusted EBITDA. Some trends we've seen over time show the global trends in the oil and gas industry. The maintenance CapEx % of revenue has declined as you see the rigs getting more efficient, fewer lost in hole events, fewer damaged beyond repair events. We've got really the best operators, the best crews not losing equipment anymore.
You also see the growth CapEx as a % of revenue being significantly pulled back as we've seen the decline in rigs. I think that speaks to our commitment that we're not going to CapEx our way to growth and just spend for spending's sake. We really are focused on delivering adjusted free cash flow. One of the elements that I think is worth highlighting again with the investment community is that our path to becoming public is slightly unique in that we chose to go through a DSPAC. It was not viewed as a liquidity event for management or the private equity owners. It was viewed as a path to liquidity to get a platform to slowly dribble shares out over time and distribute to LPs. Notably, most all of management and equity rolled at the time of the DSPAC.
Out of the gates, we had very high insider ownership and that's whittled down over time. One from the M&A in issuing new shares and two from just slow distributions to the LP base. There's no warrants or strange overhang in the cap stack. There's just a high insider ownership today and it's going in the right direction over time. Jumping ahead to our financial metrics in comparison to the peer group, there's really not a good pure play public peer for us because of our focus on downhole rental tools with a small component of product sale. You see a lot more companies that are heavy product sale and can report on their book to bill ratio. This was just an indicative list of either some customers of ours or people in adjacent spaces or similar market cap and size.
Our adjusted free cash flow margin is right in line or leading depending on which company you're looking at. Not to have sour grapes, going into the next slide, we feel there's a big dislocation in our current share price and just the general peer group itself. There's, again, no good perfect bucket to put our rental service offering in, but we think that some of the names in that manufacturers and capital equipment are a good similar business model for us. At the risk of talking my own book and wanting to talk M&A for the rest of the time in here, I did want to lay out kind of our approach to M&A because it's really been integral since we've gone public and I think will be the next leg of growth for us as we continue down this journey.
The kind of three legs to the stool that we look at is we want to look at technology that has either intellectual property or just an ability to deliver results to our clients similar to the Drill-N-Ream or RotoSteer or other products in our portfolio. They're unique and differentiated. The other piece is that we want to have the ability to have geo market expansion, whether that's taking Western Hemisphere technology for the Shale Plays and moving to the Eastern Hemisphere or vice versa. We want to be able to deploy the tools globally through our service and support network and leverage being in people's backyards, being near concentrations of rigs. Lastly, but not in order of importance, would be accretive earnings. What I wanted to highlight on here is that something I didn't appreciate prior to joining DTI .
was that for us, it made the most sense to lead with technology in the Eastern Hemisphere and have a lighter footprint and be more product sale focused and wait for that customer pull to bring in the full rental and support system. We're seeing that now kind of one and a half, two years into that story. On the Western Hemisphere, we just want to add technology at scale. We have, again, 50%- 60% of the U.S. and Canada rigs have at least one tool from DTI on them. Incredible, I would say, unmatched rig access and ability to have a reason to be at the rig and be pitching new technology. A lot of engineers with a single product line want to partner with us and see us as a very good commercial vehicle to gain access to the customer base.
We're really working to leverage that and grow that going forward. Further to the M&A story here, there is a large pipeline of opportunity. I have not, albeit a short career, ever seen such a strong buyer's market with the lack of private equity bid and strategics being pulling back or trying to whittle down their portfolio. That this opportunity set, many people scratch their heads and say, are there really 500 companies you're reviewing? It is that large. You've seen it with traditional oilfield service companies getting into distributed power as of late. There are skill sets that we have being able to be in remote locations and deliver on time to a customer. We're not just limited to downhole tools.
We remain active in the M&A market and look at all the opportunities ranging from a small tuck-in of a single technology all the way to large transformational transactions. We're really working to be the acquirer of choice. Prior to going public, DTI had a long history of further M&A. I think there were 6- 10 transactions done with private equity as the owners. It's been a really good tool not just for growing the enterprise and earnings, but also for talent acquisition and for just bringing in solid teammates to work with. We've got a track record of execution and we think that we'll continue down that road for the foreseeable future. Further on this point, I wanted to unpack a little bit further some of the M&A and the rationale behind it that we did last year.
The first one we did out of the gates was in March of 2024, was Deep Casing Tools. This moved us from just wellbore construction to casing installation, greatly expanded our patent portfolio, got us significant exposure to the Middle East and Asia-Pac regions with the national oil companies. We had the opportunity to bring some of their tools and technology to the Western Hemisphere. It really checked all the boxes for us. As you've seen in public announcements, Saudi rig count decline and issues with Pemex have really only just tamped the brakes on that. It's going well. The technology is strong and we're very happy with the team that we've got in place from this. Next up is that Superior Drilling Products was closed almost a year ago, August of 2024. Some in the investment community were familiar with this name.
They were a micro-cap public company that had bit repair and then we were the North America distributor for their tool, the Drill-N-Ream. We had a long time to date before we married and to see how each other operated and to test the IP. We owned the customer relationships. We owned the commercial path to success for this tool. It finally became time for us to take that globally. They had invested in a fleet of tools parked in Dubai. We're really seeing good success now about eight months on after the acquisition. Those are gaining traction, gaining market share, getting specced on customer contracts, and going in the hole. This one is really, again, it checked all the boxes from IP and international expansion and accretive earnings. It was a good partnership and now it's going even better.
Quickly on the last two that we did, European Drilling Projects was the next, just in kind of sequential order, acquisition that we did. They had a clever and unique stabilizer, which is a core tool to what we rent already. We were partnered with them again, so another date before you marry opportunity where we paid a royalty to have access to this IP and run it in the Gulf of America. In the 12 months that we partnered together and deployed these tools, the business grew 6X over that timeframe. It became clear that we needed to own this and own the path to commercial success. We made that acquisition and it's grown steadily since then.
We're also expanding into some other adjacencies in the drill string to put that geometric profile on, whether it's on motor sleeves or RSS, where the operator is seeing the benefit of having the same stabilization profile throughout the drill string. Lastly, the one that closed January 2, 2024, Titan Tools. Again, another company that we had partnered with, sent underutilized tools to in Aberdeen. We're on a revenue sharing agreement. We were able to see how they operated, see the customers they had, and really decided if we want to be in UK, North Sea, onshore Europe covering that rig market. Not only is this the team that we would want to partner with, they already have a significant amount of customer relationships that we have in the Western Hemisphere.
It was another good acquisition, good group of people, good inventory that really checked all the boxes for us and got us with a full rental and repair capability in the backyard of another concentration of rigs. With acquisitions come synergies and we're very happy to report that we're well ahead of schedule on the announced synergies. For example, we're able to move the Drill-N-Ream repair facility from Bernal, Utah to Houston and get our people trained and exit a facility lease and be closer to rigs and save on trucking. It's gone very well on that front. The other piece that I'll highlight because we spoke about Compass earlier is that we're able to move and onboard all of these acquisitions to our Compass software, which has really been a good benefit for everybody. Lastly, what's been new for us this year is the segment reporting on Western Hemisphere.
I really just wanted to pause on this slide and highlight that we have facilities and locations where we can be near concentrations of all rigs in the Western Hemisphere. Really what we're focused on in the Western Hemisphere would be the drill pipe rental, the bottom hole assembly rental, RotoSteer, Drill-N-Ream, and then to a lesser extent, some of the casing installation products. This has been the legacy core business of DTI and it's still growing and strong. We just now have the Eastern Hemisphere to be contributing as well. This is my second to last. It's grown to 14%. Eastern Hemisphere has grown to 14% of revenue for us. It's been a rapid expansion story, but it's gotten us good exposure to the right geo markets with the right customer base.
Again, leading with technology and getting pulled from our customer base to bring the rental opportunities as well. We're happy with the team and the exposure we've gotten and think that this expansion story, we're just in the early innings now, but think that we're going to continue to focus on that. Again, being near concentrations of rigs is important for us for the rental tools. That's going to conclude kind of my summary remarks. I think we have a breakout session after this for more nuanced financial discussion, but if there's any Q&A, I'll open the floor for that.