Come one, come all. We are wrapping up here Monday, a very successful day. The perfect segue is then to a very successful company, Drilling Tools International. They have been around a while, since 1984, before some of you pups in the room were even born. That is how long these guys have been around. They have been a leading provider of downhole tools to the land and offshore drilling market, so they are literally at the forefront of what is taking place in getting resource out of the ground these days. They now offer products and services to multiple segments in drilling completion and production. Today joining us is the Vice President of Corporate Development, Jameson Parker. Jameson, thanks for joining us.
Thanks. I have the investor deck up. Instead of just walking you through the quarter, I had the thought of trying to address some of the main misconceptions that we deal with when doing investor one-on-one meetings and covering some of the nuances of our business model. There are a few items that are very pertinent to us, not the disclaimers page, when we get past that are not broadly reported on in public oilfield service. I wanted to kind of unpack our business model a little more, talk about where we operate, and the accomplishments we have had since going public 3 years ago. What I wanted to cover predominantly on this landing page is that our business model centers around the three Rs of rental, repair, and recovery.
We charge a fair rental price for all of our downhole tools. Then we repair them, get them back to spec. Then should the customer lose them or damage them beyond repair, there is a recovery event for that. We can get into that slide later, but that funds our maintenance CapEx. That is a significant piece for us that other public OFS companies do not have to unpack and go through the whole lost in hole damage beyond repair piece. I wanted to also kind of allude to when I get to the tool page, our addressable market and the market opportunity. Just to have a table setter, 82% of our revenue comes from the Western Hemisphere, that is U.S. and Canada. We are actively working to get an equal weight distribution to rig counts globally.
We have been investing a lot through M&A and through organic growth, in the Eastern Hemisphere, which is now up to 18% of revenue. Three years ago, that was 1%. We have done four acquisitions since going public and then heavily invested in some of that technology we acquired to grow the business. Let me run to customer page. We work for the blue chips, but I will get into the mix here. We are uniquely positioned where approximately 50% of our customer base is the E&P operator directly, and the other 50% is through other oilfield service companies. We really support directional drilling and extended reach horizontal drilling globally. Here is the customer page. One of the main questions that we get from investors is, why do people rent tools from you? Why is this part of the energy value chain?
Could they just buy their own equipment and keep it in-house? We have found that much like we travel to Midland a lot, but we do not have our own hotel. We could never have it fully utilized. We have found that our customers need so many varieties of tools, hole size, geometry, connection types, that it is simply not efficient for them to own and maintain their own fleet. It makes us efficient because our field locations largely look like machine shops where we are not sending a one for one person to a rig or to a well site to enable our customer success. We repair and redress all at kind of a central location, whether it is Midland or Canada. We are spread through every basin in the U.S. Again, highlighting here almost a 50/50 mix between E&P operator direct and the directional drilling services companies.
As you go through various product lines we offer, whether it is the bottom hole assembly equipment or directional accessories or drill pipe or specialty products like reamers or engineered stabilizers, those have different paths to market, whether it is through the directional drilling company as part of improved value added, or if it is just sourced directly from the operator. The next thing, this is a good place to pause on our addressable market and what we actually provide to the industry. One of the nice parts about being here in the Rockies, there is a lot of oil and gas specific people that want to understand more about our technology and what we offer. To the introduction earlier, we do have product lines that are in support of plug and abandonment. It is a very small piece of the business.
On the completion side, most of that technology came through our Deep Casing Tools acquisition. That is the bottom lateral you see there that is meant to represent a completion string. We have a drill pipe or a casing swivel called the MechLOK. We have the TurboCaser and TurboRunner, which are turbine powered reamer shoes that allow you to overcome micro doglegs when you are trying to install casing. These have been on some of the longest casing installations for ADNOC and others that do the extremely extremely long extended reach drilling and completion. The core of our business and what drives the most of the revenue is that middle line there, which is all of the drilling accessory equipment and directional drilling work.
When a lot of analysts ask us what is the best proxy for us, a macro indicator that they can track, we are very rig count correlated. We do tend to outperform in downturns given that we work for some of the people that stay busy through cycle. We can also outperform from a free cash flow basis in an upcycle because we maintain our fleet through that lost in hole damage beyond repair that I will get to here in a second. What we provide, we rent drill pipe, heavyweight, then down into some of you know us from the Superior Drilling Products acquisition we made of the Drill-N-Ream. A really good tool that helps condition the wellbore, has eccentric cutting structures, and allows us to provide value to the client, and it is not just another commodity tool that goes in the drill string.
Further down the string, you see some of the stabilizers that look a little bit different than the traditional stabilizer you may or may not have seen that just has spiral blades. We spent a lot of time on the Q2 earnings call unpacking the ClearPath stabilization suite of products that are going on sleeves, whether it is an RSS or motor or LWD or just a string stabilizer. We have seen a lot of adoption from both Gulf of America operators and Norwegian North Sea operators. This tool lends itself really well to address known issues with managed pressure drilling in the deep water environments where you have thin frac gradients and you need to control equivalent circulating density around the tools.
It is a really unique approach to the drill string stabilization and really gives us a way to be a participant in the design of the BHA and working directly with our customers as opposed to just being another provider of tools to them. One of the other unique things that we have done is invested in manufacturing capacity. Most, if not all of our CapEx, we manufacture internally, whether it is in Broussard, Louisiana, or for some of the higher spec work, we go to Vernal, Utah, again, from the Superior Drilling Products acquisition we made. Canada as well is another kind of. They are on an island up there, so they are pretty self-sustaining, and can make a lot of their own equipment. One other piece that, as you can imagine, we have over 65,000 different tools in inventory.
We have invested heavily in our COMPASS software, which enables us to give good up-to-date information to our customer base of what they have on rent and be very transparent with them so they know what to expect from a monthly billing and what they have out, what we have available for them. It is a unique product line that tracks the full cradle to grave of every tool that we put out, that shows everything from QA, QC inspections and certificates and material certs. Every time that the tool gets touched in our repair queue, it is logged in COMPASS. This is a really good tool that our sales team leans heavily on, and also our executive team looks heavily at for detailed utilization trends and what type of tool, what thread connection is being utilized most, where, and how we can optimize our fleet for that.
I will gloss over these quickly. This is just a summary of achievements or accomplishments since going public. Again, four acquisitions. We think that M&A is one of the main areas of focus for us, not only for growth, but just in general, the oil field service industry needs to continue consolidation. We think there is a long runway ahead of us staying very focused on rental tools, especially in the drilling industry. There are other tools in the completion and production side that could be of interest, but we are predominantly focused on the rig space today. One of the nice parts of that three Rs business model of rental, repair, and recovery is that we can be very good allocators of capital. Again, maintenance CapEx is fully customer funded, so the fleet is sustainable, and we can pull it up and down in different rig cycles.
We can focus on growth CapEx, like we mentioned in the call in Q2 in Norway, where there is a good customer-backed reason to invest heavily in tools, or we can pay down debt, or we can return capital to shareholders. We have done an all of the above approach since going public. We did some share buybacks, have kind of pulled back from that and are predominantly focused on debt paydown and just thoughtful CapEx as we continue to win more customer work that requires investment in new tools. On the organic growth driver summary here, I will skip past this and pause on the. There is a more detailed slide where I can show some of the benefits of the ClearPath tools. I want to get ahead to the comps page real quick. Let me skip some of these. Actually, I will go to this.
This is how lost in hole damage beyond repair impacts what we present as the components of adjusted EBITDA. The light blue is the maintenance CapEx, where we spend the proceeds, and then the dark blue is what we show as adjusted free cash flow in our financials. Adjusted free cash flow is just adjusted EBITDA less gross CapEx. You can see from time of going public, we were predominantly chasing growth via spending on CapEx, realizing the return over time. Now that we went public mid-year in 2023, every year since being public, growth CapEx has come down as we have prioritized M&A, shareholder returns, debt paydown as other uses of capital. The other thing I will point you to is that maintenance CapEx as a percent of revenue, we historically model it very conservatively, and it overachieves our expectations.
Right now, we see 12% of revenue as the incident rate, and it is important to remember that the lost in hole damage beyond repair are incident driven. So that if a customer loses a full string of pipe, it is very rare that they would, but that number would tick up. This number historically has ebbed and flowed between 8% and 13%, but when you have new rigs coming to market, less experienced crews, and you are ramping in activity, you see that incident rate climb. That is just something we are seeing in our numbers and planning accordingly. This is one of the things that I wanted to kind of pause on and highlight for the investors or sell side analysts in the room. We went public in 2023 in a non-traditional manner and have dealt with the limited float and liquidity in the stock and limited coverage on what we do.
I wanted to really drive home that our adjusted free cash flow margin relative to our peer group, we are leading or in second place, and it has moved around since being public, but we have always been one or two on this list. When you flip to the next page of our valuation multiple, we are significantly undervalued to the peer group, and we try not to talk about it on the call because it sounds like sour grapes really quickly. No management teams thinks they are appropriately valued, but there is clearly a big dislocation in what we provide and what others in the industry lump us into that manufacturers and capital equipment group. I think it goes to being subscale today and the ability to demonstrate that there is a long road ahead, both from M&A and the addressable market for what we already do.
I want to pause there and also highlight, we do not call it out in the deck today, but one of the most common things we have been getting recently on the investor one-on-one meetings has been our free cash flow yield relative to the peer group. Just another metric that investors are cognizant of and looking at us for us. I do not have the number in front of me. It was 25% free cash flow yield, so indicates a pretty cheap stock relative to the cash that we throw off. Look for us in coming quarters to kind of use that as one of the peer benchmarking things we highlight because, again, we think that the rental business lends itself well to leading returns on capital. Then let me run ahead to touch on the geographic segments. Again, Eastern Hemisphere is a growing focus area for us.
We originally led with technology acquired through M&A and had a very kind of lean structure, but now that our major customer accounts that we service numerous rigs for them in the States, they are starting to pull us through when they see that we have an operating base in Abu Dhabi or in Aberdeen or in Malaysia. Look to see more of rental growth here, especially as the ClearPath stabilizing technology takes off in other deepwater markets. We see a lot of growth opportunity there. I am going to run ahead to the specific EDP. This is one other thing I wanted to hit on with the group. Again, the non-traditional nature of how we went public, we had a high insider concentration at the outset. Our private equity firm and management and all other insiders rolled equity at the time of de-SPAC.
Out of the gates, we had a 54% private equity ownership and very limited shares in the public float. The first week of April this year, that distribution was completed out to all of the LP base, and now over 90% of our shares are in the public float. We hope to continue to see improved float and liquidity in the trading profile, demonstrating more on-ramps for potential interested investors. We think that it is all kind of near-term pain for long-term gain and success that we got those shares distributed. Then let me jump to the M&A slide. Actually, we took that out, but I will go to the cash flow statement on lost in hole real quick.
One of the things that we spend a lot of time with investors on is, again, tracking that elements of adjusted EBITDA graph into where it impacts the cash flow statement. The reason we present our financials this way is that the proceeds from lost in hole have to show up in cash flows from investing activities. We take a lot of time unpacking the cash flow statement with investors, and I know and recognize that I am probably the last presentation before cocktails for you all, so I will not unpack all of this. Welcome in the breakout session or any other time to rip through that with you all. It is just a nuance of how we have to report financials.
But going through my notes here, the other piece that I jumped ahead and past is we did four deals right out of the gates after being public of acquiring companies that we had long relationships with, whether we were their exclusive distribution partner or we had had tools on consignment with them. The last deal we closed was January of 2025, and M&A is still core to what we want to pursue. We are still active in the market looking for more opportunities. Again, there's a lot of companies or maybe product lines that fit with what we do, and they're going to be smaller reporting segments of the bigger names you know. So, I think that continue to watch that space for more transactions from us as we think that that's core to what we want to pursue.
One of the ways we filtered. Let me jump back to that slide just so I have a better graphic than a cash flow statement. One of the ways that we filter for inbound opportunities or good M&A is we really have three legs that we filter on. Sorry for jumping around. In an ideal scenario, we want to find companies that have some intellectual property around what they do, similar to the Drill-N-Ream when we acquired it, or from European Drilling Projects, the ClearPath stabilizer, because we find that we have a really solid base rental business that if we can layer on technology with it, we can continue to elevate our offering to our customer and command a higher price while still maintaining a very steady rental business. So IP is one thing that we're constantly vetting and reviewing.
And then a broader scope, but accretive deals or accretion is always in the eye of the beholder, depending on what metric you look at. We obviously don't love where our share price is, so acquiring something under our multiple is a challenge, but we look for deals that are either just straight improve our EBITDA profitability or our free cash flow margins, or they're accretive in terms of the markets they serve, the access to customers we're seeking to get in front of. Because ultimately, we find that our business is really durable and sustainable when we have an equal weight to the global rig count exposure, and trying to migrate to an equal weight away from just North America drilling exclusively. The last piece of that M&A filter is around geographic expansion.
We've found both that finding technologies developed in the eastern hemisphere that can be used in the U.S. and Canada is a good way to do reverse geographic expansion, or finding other businesses that look very similar to us in the eastern hemisphere, and then layering in the technology we've already acquired is a really good recipe for success. To that end, the parting shot that I would leave you with on what we're hearing from the investor community here recently is, and from our customer base, is that the conversations around energy security and the durability of this disruption we're seeing in the Middle East is going to be a lot longer lived than maybe talking heads on CNBC would say. We're seeing the deepwater activity pick up, Asia-Pacific pick up.
We are really happy with the geo markets that we have invested in thus far and think that there is a good long tail on what we have in front of us. Hopefully there is continued rig adds every Friday that Baker Hughes reports, and we can see that going forward. I am happy to. I think there is four minutes left in the presentation. I hit all the kind of common either misconceptions or commonly asked questions we get. If anybody has any questions for the group, happy to take them now or in the breakout session. Steve, you have always got questions for us. Yeah.
You got the slide up.
You run through the sort of four levels you are looking at for M&A.
Can you give us any sense how you prioritize them or do you.
Sure. Steve asked how we prioritize M&A and the filters. It depends on the opportunity set because we get a lot of inbounds from what I've affectionately described as product lines disguised as companies or inventor driven IP only that's in the R&D phase, and they want us to be the commercial partner. We see the most inbounds from those opportunities. It would be very difficult to commercialize all of them, so we try and weigh that with opportunities that have chunky earnings and really additive EBITDA and free cash flow to what we want to pursue. There's no perfect filtering or answer. We weigh all the puts and takes. I would say that after doing the four deals we did, one was around quasi vertical integration with Superior Drilling because we already were the main distribution partner there. That improved profitability for us.
Others have been around new nascent technology that we wanted to do a thoughtful fleet replacement strategy with, again, with the ClearPath stabilizers. Others like Titan Tools was just another. They did exactly what we do in Aberdeen and Germany, and it was a good group of guys that we wanted to partner with, and we had already had tools on rent with them. The timing was right where they wanted to partner with a bigger organization. I would say that you would look for similar from us. Deep Casing was one that came to us from a broadly marketed bank process. We've covered all the kind of inbound opportunity sets that you would traditionally see for M&A, and I think that we have a DNA of wanting to look at new technology all the time.
Everybody loves a new tool, especially when you're on 55%, 60% of the North American rigs. Having something new to offer your client is always compelling. We also prioritize growth and more of the same, whether it's regional competitors that we like how they go to market or a like for like of us in the eastern hemisphere that does similar work. I think that that's one of the biggest issues I have quantifying with investors is really how much opportunity is there? How big is the downhole rental tool space? We point to Superior Energy is number one competitor of ours. They're private, so you don't get to see a lot of information on them, but they're very large. We think that we can continue to either take market share, out-compete, or find new areas to compete there as well.
Given the balance sheet where you are in any environment of cash flow positive, people look at. Couldn't you positively grow purely by adding size and scale from here? Just the partnering partners aside.
Yeah. Steve asked about the balance sheet and what we could and couldn't do. I would say that we are very debt averse. The debt on the balance sheet today is the cash portion of M&A we did previously. We're very focused on paying that down and getting back one turn of net debt to EBITDA or less. We think is a healthy kind of steady state for us. I think that we could just prioritize growth for growth's sake, but we have always positioned ourselves as a strong free cash flow narrative in the public sphere and really want to show the leverage that we can go up and down on that and pursue free cash flow. I would say that we were not going to pursue growth for growth's sake and just invest in CapEx.
We will be either doing it via M&A or through thoughtful technology expansion.