Drilling Tools International Corporation · NASDAQ:DTI
Drilling Tools International — SPAC Merger (February 2023)
46 slides from Drilling Tools International's SPAC merger presentation, Feb 14, 2023
Slide 1: Investor Presentation February 2023
Investor Presentation February 2023
Slide 2: Disclaimer
Disclaimer: This confidential presentation (the “Presentation”) is being delivered to you by ROC Energy Acquisition Corp. (“SPAC”) in connection with its potential business combination with Drilling Tools International Holdings, Inc. (“Drilling Tools”) and the offering of the securities of the post
Slide 3: No Offer or Solicitation
No Offer or Solicitation: This Presentation and any oral statements made in connection with this Presentation are is not intended to and shall not constitute (i) a solicitation of a proxy, vote, consent, approval or authorization with respect to any securities or in respect of the proposed business
Slide 4: Non-GAAP Financial Measures
Non-GAAP Financial Measures: This Presentation includes certain financial measures not presented in accordance with generally accepted accounting principles (“GAAP”), including, but not limited to, earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA before capital expen
Slide 5: Table of Contents
Table of Contents 4 Today’s Presenters 5 Transaction Summary 6 Business Overview 9 Financial Overview and Growth Opportunities 31 Valuation 35 Conclusion 40 Appendix 42
Slide 6: Today's Presenters
5 Today’s Presenters Wayne Prejean President & Chief Executive Officer ⚫ More than 40 years of experience ⚫ 9+ years at DTI ⚫ Prior to joining DTI, Mr. Prejean served in several executive-level, operational and sales roles throughout the industry including NOV, Wildcat Services (Acquired by NOV), Ba
Slide 7: Transaction Summary
(ORILLING TOOLS* INTERNATIONAL Transaction Summary
Slide 8: Seasoned Private Equity and Public Company Sponsorship
7 Seasoned Private Equity and Public Company Sponsorship ⚫ Based in Dallas, Texas, and founded in 2015, Fifth Partners currently manages approximately $2.5 billion of assets, with over half in real assets ⚫ Approximately 8 years of capital deployment spanning more than 15 investments since the firm’
Slide 9: DTI Checks All the Boxes for an Attractive Target
Resilient Core Business ✓ Differentiated rental-focused product offering with leading scale and market position ✓ Robust margins with consistent free cash flow generation ✓ Blue-chip customer base composed of large E&P operators and leading oilfield service companies 8 DTI Checks All the Boxes for a
Slide 10: Business Overview
(RILLING TOOLS” INTERNATIONAL Business Overview
Slide 11: Significant Industry Tailwinds & Supportive Macro Backdrop
1) Baker Hughes; 2) Energy Information Association; 3) Spears Directional Drilling Market Report – Q3 2022. Only includes number of feet drilled through reservoir rock, excludes vertical part of well; 4) Rystad 10 A combination of elevated commodity prices, increased rig count and capital spending c
Slide 12: DTI is a Leading Rental Provider of Mission Critical Drilling Tools
1) Includes four international stocking points. See page 17 for additional detail. 11 DTI is a Leading Rental Provider of Mission Critical Drilling Tools A platform developed and designed to keep up with the ever-changing requirement of our customers 65,000+ DTI manages & maintains a fleet of over 6
Slide 13: Why do E&P operators prefer to rent rather than buy?
Why do E&P operators and some service providers prefer to rent rather than buy? 12 The Rental Tool Business & DTI’s Value Proposition Topic DTI’s Value-Additive Solutions Outsources Logistics, Inspection, Storage and Maintenance Customers lack the willingness, resources and/or experience to track, t
Slide 14: Expansive Offering to Supply Drilling Tools Required in a Typical Job
13 Expansive Offering to Supply Drilling Tools Required in a Typical Job Blow Out Preventer Hevi-Wate Drill Pipe Drill Pipe Crossover Subs Spiral Drill Collar Drill-N-ReamTM RotoSteerTM Stabilizer Bit Sub Represents Key DTI Rental Product Diverse and extensive inventory of tools to address the wide-
Slide 15: Our Business: A Market Leader in Downhole Tools
Source: Company financials and management estimates. 1) Net of eliminations. 14 Leading provider of downhole drilling equipment rentals to North American onshore and offshore markets, as well as select international locations, with a highly competitive suite of differentiated products serving blue-c
Slide 16: DTI Has a Long History of Success
15 How Did we Get There? DTI Has a Long History of Success 1984 ⚫ Founded as Directional Rentals ⚫ Primarily rented stabilizers and sub-assemblies to offshore directional drillers in the Gulf of Mexico (“GoM”) 2009 ⚫ Opened Houston, TX and Casper, WY offices ⚫ Mike Domino joined the management team
Slide 17: Our Proven Track-Record in Executing & Integrating M&A
16 Our Proven Track-Record in Executing & Integrating M&A Management boasts a proven track record in strategic acquisitions highlighted by the integration of 4 businesses since 2012 Select Acquisitions Target Year Acquired Description 2013 2014 2018 2018 ⚫ Purchased their entire North American fleet
Slide 18: Scale Matters: Operations Across All Major Operating Basins
17 Scale Matters: Operations Across All Major Operating Basins in North America DTI Corporate Headquarters DTI Service Centers (DTR, DNR, & DIS): 9 Drill-N-ReamTM: 2 Premium Tools Division (PTD): 2 18 service centers, shops, distribution and repair centers located strategically across North America
Slide 19: Strong Permian Presence in Midland and Delaware Basins
18 1) Includes aggregate square footage from five buildings. 2) Downhole machining solutions. Strong Permian Presence in both Midland and Delaware Basins DTI has an extensive footprint within the Permian Basin, providing numerous services to clients operating in one of the most prolific oil and gas
Slide 20: Modernized Manufacturing and Repair Facility
19 ⚫ Machine and repair equipment ensures product quality, increases product life and improves fleet utilization ⚫ Facility equipment includes hollow spindle lathes, CNC mills, racking systems, manual lathes and in-house drill collar spiraling equipment ⚫ Machine shop reworks drill collars and hevi-
Slide 21: COMPASS Order Management System
20 DTI’s proprietary customer order management system provides valuable information to the company for use in making data-based capital allocation and pricing decisions DTI’s COMPASS Order Management System = Key Differentiator Unique, Proprietary Software and Support System Full Catalog of Tools an
Slide 22: ESG + Safety Are Integral to Our Success
ESG + Safety Are Integral to Our Success 21 1) Total Recordable Incident Rate 2) We expect that following the business combination, a majority of our directors will be independent as per the applicable listing rules. The wellbeing of employees, customers, and suppliers is rooted in DTI’s operations:
Slide 23: Overview of DTI's Core Product and Service Offering
Source: Company financials and management estimates. 1) Net of eliminations. 22 Overview of DTI’s Core Product and Service Offering ($Millions) Product / Service Offering Other Products and Services(1) Premium Tools Wellbore Optimization Tools Directional Tools Rental 2020A – 2023E Revenue Profile K
Slide 24: Overview of Directional Tool Rentals
23 Overview of Directional Tool Rentals Key Equipment Stabilizers Reduces drill string vibration and torque… Drill Collars Adds weight to the BHA to increase rate of penetration (“ROP”) and reduce vibration… Subs and Other Equipment Variety of subs, crossovers and handling tools used in the drill st
Slide 25: Overview of Wellbore Optimization Tools
1) DTI distributes the DNR pursuant to a distribution agreement with Superior Drilling Products, Inc., the owner of the relevant patent. 24 Overview of Wellbore Optimization Tools Products Offered Drill-N-ReamTM (“DNR”) WellBore Conditioning Tool(1) ⚫ Patented technology allows the tool to maintain
Slide 26: Overview of Premium Tools
25 DTI offers a wide array of premium tubulars for drilling, workover and completion operations, API blowout preventers and pressure control accessories as well as a comprehensive suite of related handling tools Overview of Premium Tools Key Equipment Tubulars ⚫ Drill Pipe – 2 Τ 7 8 to 5 Τ 1 2 inch
Slide 27: Other Products and Services
26 Other Products and Services Products Offered Internal Support Services and Emerging Products Downhole Inspection Solutions ⚫ Independent inspection services equipment of all DTI divisions and select external customers ⚫ Critical to efficient operations ⚫ Services across North America including ne
Slide 28: Blue-Chip Customer Base Across E&Ps & OFS Companies
Blue-Chip Customer Base Across E&Ps & OFS Companies 27 Select DTI Customers 2022E Revenue by Customer (%) DTI has established an exceptional customer base that includes blue-chip E&P operators and many of the largest oilfield services companies ⚫ First-call supplier for leading oilfield service prov
Slide 29: DTI Sales Team Covers Global Markets
28 DTI Sales Team Covers Global Markets 1) January 1, 2022 through December 31, 2022, expected. DTI Sales Organization Coverage Aberdeen Latin America Middle East Abu Dhabi Colombia Dubai Mexico Oman Trinidad International Europe Western Canada California Bakersfield Calgary Nisku Louisiana Texas/Ne
Slide 30: Significant Upside Through Continued Consolidation
29 Significant Upside Through Continued Consolidation DTI believes that its established M&A framework and robust M&A pipeline will allow it to rapidly consolidate the oilfield service rental tool industry Overview of DTI’s M&A Framework DTI’s 300+ MSAs, many of which are with leading service compani
Slide 31: The DTI Leadership Team
30 Experience Matters! – The DTI Leadership Team Experienced, talented, and committed management team with history of success Wayne Prejean President & Chief Executive Officer Mike Domino President, Directional Tool Rentals Division David Johnson Chief Financial Officer Jim Rowell VP, Premium Tools
Slide 32: Financial Overview and Growth Opportunities
31 Financial Overview and Growth Opportunities
Slide 33: Attractive Financial Profile
32 Attractive Financial Profile Revenue Free Cash Flow(2) Commentary Adjusted EBITDA Growth Rate 14% 67% 26% % Margin(1) 20% 32% 35% Strong and Increasing Revenue Profile Accelerating EBITDA and Margin Profile Translating to Record Free Cash Flow Generation ($Millions) Generated positive Adjusted EB
Slide 34: Strong Growth Driven by all DTI Products
33 Strong Growth Driven by all DTI Products… Revenue Growth by Product Source: Company financials and management estimates. Note: Due to rounding numbers presented herein may not sum precisely to the totals provided. CAGR ’20A – ’23E Total: 34% 41% 53% 18% 35% ($Millions) $41.2 $47.6 $78.0 $15.8 $10
Slide 35: Driving Consistently Attractive Margins
34 …Driving Consistently Attractive Margins Source: Company financials and management estimates. 1) Includes full burden of corporate expenses. 2) Excludes corporate expense burden. Consolidated EBITDA Margin (1) Product-Level EBITDA Margin (2) Other Products & Services Premium Tools Wellbore Optimi
Slide 36: Valuation
(RILLING TOOLS” INTERNATIONAL Valuation
Slide 37: Transaction Summary
⚫ Common equity holders are rolling 100% of their shares as part of the Transaction Note: Due to rounding numbers presented herein may not sum precisely to the totals provided. 36 Transaction Summary ($Millions, except where otherwise noted) Estimated Sources and Uses Pro Forma Valuation Sources Rol
Slide 38: A Differentiated Pro Forma Balance Sheet
37 A Differentiated Pro Forma Balance Sheet Upon close, DTI expects to have zero debt, significant cash, and a streamlined warrant less capital structure x Expected zero debt x Expected significant cash x No warrant overhang x Streamlined capital structure x Dry powder to execute further M&A x Signi
Slide 39: Peer Valuation and Operating Metrics
Peer Valuation and Operating Metrics 38 Source: Capital IQ and company filings. Market data as of February 8, 2023. 1) EBITDA includes full burden of corporate expenses. Pro forma for illustrative transaction found on page 36. 2) Pro forma for FlexSteel acquisition announced on January 3, 2023 and J
Slide 40: Valuation Relative to Peers
EV / 2022E EBITDA EV / 2023E EBITDA 7.8x 13.5x 10.5x 10.5x 9.3x 1 2 3 4 5 Valuation Relative to Peers 39 Source: Capital IQ and company filings. Market data as of February 8, 2023. 1) EBITDA includes full burden of corporate expenses. Pro forma for illustrative transaction found on page 36. 2) Pro f
Slide 41: Conclusion
(ORILLING TOOLS* INTERNATIONAL Conclusion
Slide 42: Why Drilling Tools International?
41 Why Drilling Tools International? Established rental-focused company with scale & leading market position Blue-chip customer base Competitive margins with consistent free cash flow generation 1 Proven acquisition platform with robust M&A pipeline Domestic and international growth opportunities 2
Slide 43: Appendix
(ORILLING TOOLS* INTERNATIONAL Appendix yr ie ” oe sae i
Slide 44: Reconciliation of Adjusted EBITDA
43 Reconciliation of Adjusted EBITDA Source: Company financials and management estimates. DTI is a December year-end company. Note: Due to rounding numbers presented herein may not sum precisely to the totals provided. ($ in thousands) 2020A 2021A 2022E 2023E Net income $(18,525) $2,101 $20,640 $23,
Slide 45: Risk Factors Summary
Risk Factors Summary Certain factors may have a material adverse effect on our business, financial condition and results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe a
Slide 46: Risks Relating to Legal and Regulatory Matters
Risks Relating to Legal and Regulatory Matters • We could be adversely affected if we fail to comply with any of the numerous existing or future federal, state, local and foreign laws, regulations and policies that govern environmental protection, manufacturing and other matters applicable to our bu
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