Drilling Tools International Corporation · NASDAQ:DTI
Drilling Tools International — SPAC Merger (February 2023)
46 slides from Drilling Tools International's SPAC merger presentation, February 2023
Slide 1: Investor Presentation
Investor Presentation February 2023
Slide 2: Disclaimers
Disclaimers 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
Slide 3: Disclaimers (Cont’d)
Disclaimers (Cont’d) 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 t
Slide 4: Disclaimers (Cont’d)
Disclaimers (Cont’d) 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
Slide 5: Table of Contents
Table of Contents Today’s Presenters 5 Transaction Summary 6 Business Overview 9 Financial Overview and Growth Opportunities 31 Valuation 35 Conclusion 40 Appendix 42 4
Slide 6: Today’s Presenters
Today’s Presenters Wayne Prejean David Johnson Daniel Kimes Rose Cicalese Joe Drysdale Alberto Pontonio President & Chief Chief Financial Chief Executive Chief Financial Chairman of the Board / Board Member / Head of Executive Officer Officer Officer Officer Co-Founder Capital Markets ⚫ More than 40
Slide 7: Transaction Summary
(DRILLING TOOLS’ ~ INTERNATIONAL Transaction Summary
Slide 8: Seasoned Private Equity and Public Company Sponsorship
Seasoned Private Equity and Public Company Sponsorship ⚫ Based in Dallas, Texas, Hicks Equity Partners (“Hicks”) is the ⚫ Based in Dallas, Texas, and founded in 2015, Fifth Partners private equity arm of Hicks Holdings LLC, a holding company currently manages approximately $2.5 billion of assets, wi
Slide 9: DTI Checks All the Boxes for an Attractive Target
DTI Checks All the Boxes for an Attractive Target 1 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 oilfiel
Slide 10: Business Overview
INTERNATIONAL DRILLING TOOLS* & Business Overview
Slide 11: Significant Industry Tailwinds & Supportive Macro Backdrop
Significant Industry Tailwinds & Supportive Macro Backdrop A combination of elevated commodity prices, increased rig count and capital spending creates a highly constructive market backdrop Historical Rig Count(1) Historical Commodity Pricing(2) North America Rest of World WTI Oil Henry Hub Natural
Slide 12: DTI is a Leading Rental Provider of Mission Critical Drilling Tools
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+ Global ~40 years 4 segments DTI manages & DTI has a global DTI’s history began in DTI operates across maintains a fleet of foot
Slide 13: The Rental Tool Business & DTI’s Value Proposition
The Rental Tool Business & DTI’s Value Proposition Why do E&P operators and some service providers prefer to rent rather than buy? Given the complexity of modern drilling, completions and workover programs, most drillers and service providers prefer to focus on core competencies and rely on third-pa
Slide 14: Expansive Offering to Supply Drilling Tools Required in a Typical Job
Expansive Offering to Supply Drilling Tools Required in a Typical Job Diverse and extensive inventory of tools to address the wide-ranging needs of oil & gas customers across all regions Blow Out Preventer Represents Key DTI Rental Product Crossover Subs Hevi-Wate Drill Pipe Drill Pipe Non-Magnetic
Slide 15: Our Business: A Market Leader in Downhole Tools for the Oil & Gas Industry
Our Business: A Market Leader in Downhole Tools for the Oil & Gas Industry 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-chip E
Slide 16: How Did we Get There? DTI Has a Long History of Success
How Did we Get There? DTI Has a Long History of Success DTI’s history began in 1984 when it was founded as Directional Rentals to provide equipment to offshore drillers ⚫ In 2012, Hicks Energy Partners acquired a majority interest in Directional Rentals before merging with Allegiant Tool & Machine t
Slide 17: Our Proven Track-Record in Executing & Integrating M&A
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 Rental Tools Year Acquired 2013 2014 2018 2018 ⚫ Purchased their entire ⚫ Manufactures, rents
Slide 18: Scale Matters: Operations Across All Major Operating Basins in North America
Scale Matters: Operations Across All Major Operating Basins in North America 18 service centers, shops, distribution and repair centers located strategically across North America to service all major oil & gas basins, providing solutions with minimal logistics required Major US Basins Serviced by DT
Slide 19: Strong Permian Presence in both Midland and Delaware Basins
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 basin Midland DTR Campus (1) Space (sq. ft.) 57,246 Acres 14 Segments Served DTR Midland DNR F
Slide 20: Modernized Manufacturing and Repair Facility
Modernized Manufacturing and Repair Facility 35,840 square foot facility located on a ten-acre campus in Broussard, Louisiana ⚫ Machine and repair equipment ensures product quality, increases product life and improves fleet utilization ⚫ Facility equipment includes hollow spindle lathes, CNC mills,
Slide 21: DTI’s COMPASS Order Management System = Key Differentiator
DTI’s COMPASS Order Management System = Key Differentiator DTI’s proprietary customer order management system provides valuable information to the company for use in making data-based capital allocation and pricing decisions Unique, Proprietary Software and Support System Customized, Automated and A
Slide 22: ESG + Safety Are Integral to Our Success
ESG + Safety Are Integral to Our Success DTI is committed to environmental stewardship by: ✓ Performing continuous evaluations and implementing control measures to ensure minimization of waste Environmental ✓ Striving for the highest levels of operational proficiency to reduce rework, use of chemica
Slide 23: Overview of DTI’s Core Product and Service Offering
Overview of DTI’s Core Product and Service Offering ($Millions) Product / Service Offering 2020A – 2023E Revenue Profile Key Products / Features ⚫ Stabilizers (standard, directional, ⚫ Roller reamers $100.7 integral blade, sleeve type, motor / $78.0 ⚫ Hole openers MWD and RSS sleeve) Directional Too
Slide 24: Overview of Directional Tool Rentals Key Equipment
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 Roller Reamers / Hole Openers Variety of subs, crossovers and handling
Slide 25: Overview of Wellbore Optimization Tools
Overview of Wellbore Optimization Tools Specialty tools division with a focused group of field sales and service professionals providing rig site visits and customer service, enabling consistent product performance and customer satisfaction Products Offered Substantial Improvements in Wellbore Quali
Slide 26: Overview of Premium Tools Key Equipment
Overview of Premium Tools Key Equipment 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 Tubulars Handling Tools API BOPs and Pressure Contr
Slide 27: Other Products and Services
Other Products and Services Products Offered Internal Support Services and Emerging Products ⚫ Independent inspection services equipment of all DTI divisions and select external customers Downhole ⚫ Critical to efficient operations Inspection Solutions ⚫ Services across North America including netwo
Slide 28: Blue-Chip Customer Base Across E&Ps & OFS Companies
Blue-Chip Customer Base Across E&Ps & OFS Companies 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 providers in North America ⚫ Over the last decade, DTI has
Slide 29: DTI Sales Team Covers Global Markets
DTI Sales Team Covers Global Markets The Sales and Corporate Strategy teams cover customer decision makers at all organizations levels, globally ✓ DTI Sales Organization Coverage Sales Organization Covers Every Major U.S. Basin and Several North America International Attractive International Markets
Slide 30: Significant Upside Through Continued Consolidation
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 ⚫ Has reviewed more than 100 potential acquisition targets, with approximately 20 targets in the c
Slide 31: Experience Matters! – The DTI Leadership Team
Experience Matters! – The DTI Leadership Team Experienced, talented, and committed management team with history of success Wayne Prejean Mike Domino David Johnson Jim Rowell President & Chief President, Directional Tool Chief Financial VP, Premium Tools Executive Officer Rentals Division Officer Ald
Slide 32: Financial Overview and Growth Opportunities
Financial Overview and Growth Opportunities 31
Slide 33: Attractive Financial Profile
Attractive Financial Profile ($Millions) Generated positive Adjusted EBITDA margins and cash flow through the pandemic, and now boasts among the top margins and cash flow profiles in the industry Revenue Commentary $163.8 $129.6 $67.6 $77.4 Strong and Increasing Revenue Profile 2020A 2021A 2022E 202
Slide 34: Strong Growth Driven by all DTI Products…
Strong Growth Driven by all DTI Products… ($Millions) Revenue Growth by Product CAGR ’20A – ’23E $163.8 Total: 34% $5.0 41% 53% $31.9 $129.6 $3.5 $22.7 $26.2 18% $25.3 $77.4 $67.6 $5.6 $1.8 $6.3 $8.9 $17.8 $15.8 $100.7 35% $78.0 $41.2 $47.6 2020A 2021A 2022E 2023E DTR Wellbore Optimization Tools Pre
Slide 35: …Driving Consistently Attractive Margins
…Driving Consistently Attractive Margins Consolidated EBITDA Margin (1) Product-Level EBITDA Margin (2) 32% 35% 23% 35% Directional Tool 15% Rentals 32% 2020A 2021A 2022E 2023E 38% 42% 39% 35% Wellbore Optimization Tools 20% 2020A 2021A 2022E 2023E 58% 50% 12% Premium Tools 16% 7% 2020A 2021A 2022E
Slide 36: Valuation
(DRILLING TOOLS* INTERNATIONAL Valuation
Slide 37: Transaction Summary
Transaction Summary ($Millions, except where otherwise noted) Estimated Sources and Uses Pro Forma Valuation Sources Share Price ($ per share) $10.10 (4) Rollover Equity $198 (x) Shares Outstanding (millions) 53.1 SPAC Cash in Trust (1) 209 Pro Forma Equity Value $536 PIPE Proceeds 45 Less: Pro Form
Slide 38: A Differentiated Pro Forma Balance Sheet
A Differentiated Pro Forma Balance Sheet Upon close, DTI expects to have zero debt, significant cash, and a streamlined warrant-less capital structure ✓ Expected zero debt • Upon closing, DTI expects to pay down all current indebtedness and come to market ✓ Expected significant cash with zero debt ✓
Slide 39: Peer Valuation and Operating Metrics
Peer Valuation and Operating Metrics Robust financial performance and attractive valuation vs. peers (2) (1) Peer Group Median Equity Value ($MM) $536 $6,348 $4,234 $2,274 $566 Trading Metrics Enterprise Value ($MM) $319 $7,094 $4,405 $2,135 $691 EV / 2022E EBITDA 7.8x 10.5x 13.5x 10.5x 9.3x 10.5x E
Slide 40: Valuation Relative to Peers
Valuation Relative to Peers Peer Group 13.5x (2) Median: 10.5x 10.5x 10.5x EV / 2022E EBITDA 9.3x (1) 7.8x 1 2 3 4 5 Peer Group Median: 8.2x 10.4x(2) EV / 2023E EBITDA 8.6x 7.9x 7.2x 5.5x(1) WHD FTI XPRO OIS Source: Capital IQ and company filings. Market data as of February 8, 2023. 1) EBITDA includ
Slide 41: Conclusion
(DRILLING TOOLS* INTERNATIONAL Conclusion
Slide 42: Why Drilling Tools International?
Why Drilling Tools International? 1 Established rental-focused company with scale & leading market position 2 Competitive margins with consistent free cash flow generation 3 Blue-chip customer base 4 Domestic and international growth opportunities 5 Proven acquisition platform with robust M&A pipeli
Slide 43: Appendix
(DRILLING TOOLS’ ~ INTERNATIONAL Appendix
Slide 44: Reconciliation of Adjusted EBITDA
Reconciliation of Adjusted EBITDA ($ in thousands) 2020A 2021A 2022E 2023E Net income $(18,525) $2,101 $20,640 $23,113 Interest expense, net 2,954 1,229 1,718 509 Income tax expense/(benefit), net (5,034) (209) 4,569 6,904 Depreciation and amortization 23,814 21,718 17,965 26,715 Intangible impairme
Slide 45: Risk Factors
Risk Factors 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 curren
Slide 46: Risk Factors (Cont’d)
Risk Factors (Cont’d) 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 matter
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