FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Registrant's telephone number, including area code: (832) 742-8500 Securities registered pursuant to Section 12(b) of the Act: Commission File ...

Exhibit 99.1 NEWS RELEASE Drilling Tools International Corp. Reports 2025 Third Quarter Results Company maintains full year 2025 outlook HOUSTON — November 6, 2025 — Drilling Tools International Corp., (NASDAQ: DTI) ("DTI" or the "Company"), a global oilfield services company that designs, engineers, manufactures and provides a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the we ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking information, highlighting inherent risks and uncertainties that could cause actual results to differ materially from projections [PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20Financial%20Statements%20(Unaudited)) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive income (loss), statements of changes in shareholders' equity, and statements of cash flows, along with their accompanying notes, providing a detailed financial overview for the periods ended June 30, 2025 and December 31, 2024 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows the company's financial position, highlighting changes in assets, liabilities, and shareholders' equity between December 31, 2024, and June 30, 2025 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash | $1,145 | $6,185 | | Accounts receivable, net | $41,557 | $39,606 | | Total current assets | $66,134 | $68,076 | | Total assets | $230,279 | $222,431 | | Total current liabilities | $32,047 | $30,963 | | Revolving line of credit | $33,140 | $27,142 | | Total liabilities | $107,757 | $102,472 | | Total shareholders' equity | $122,522 | $119,959 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The statements of comprehensive income (loss) detail the company's revenues, costs, and net income (loss) for the three and six months ended June 30, 2025, compared to the same periods in 2024, reflecting a shift from net income to net loss Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total revenue, net | $39,421 | $37,533 | $82,301 | $74,507 | | Total costs and other deductions | $41,082 | $37,250 | $85,790 | $70,161 | | Net income (loss) | $(2,407) | $365 | $(4,076) | $3,492 | | Basic earnings (loss) per share | $(0.07) | $0.01 | $(0.11) | $0.12 | | Diluted earnings (loss) per share | $(0.07) | $0.01 | $(0.11) | $0.12 | | Net comprehensive income (loss) | $(208) | $467 | $(935) | $3,083 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This statement outlines the changes in shareholders' equity, including common stock, additional paid-in capital, accumulated deficit, and accumulated other comprehensive income (loss), from December 31, 2023, to June 30, 2025, reflecting impacts from stock-based compensation, business combinations, and net losses Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric (in thousands) | Balance, Dec 31, 2024 | Stock-based compensation | Issuance of common stock related to business combination | Foreign currency translation adjustment, net of tax | Net loss | Purchase of treasury stock | Shares issued due to vesting of restricted stock units | Balance, June 30, 2025 | | :------------------------------------ | :-------------------- | :----------------------- | :------------------------------------------------------- | :------------------------------------------------ | :------- | :------------------------- | :------------------------------------------------ | :-------------------- | | Common Stock (Shares) | 34,704,696 | — | 888,041 | — | — | — | 68,560 | 35,661,297 | | Common Stock (Amount) | $3 | — | $1 | — | — | — | — | $4 | | Treasury Stock (Shares) | — | — | — | — | — | 202,611 | — | 202,611 | | Treasury Stock (Amount) | $— | — | — | — | — | $(608) | — | $(608) | | Additional Paid-In Capital | $125,415 | $541 | $2,922 | — | — | — | — | $129,520 | | Accumulated Deficit | $(3,582) | — | — | — | $(1,669) | — | — | $(7,657) | | Accumulated Other Comprehensive Income (loss) | $(1,877) | — | — | $942 | — | — | $2,199 | $1,264 | | Total Shareholders' Equity | $119,959 | $541 | $2,923 | $942 | $(1,669) | $(608) | $2,199 | $122,522 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statement details the sources and uses of cash across operating, investing, and financing activities for the six months ended June 30, 2025 and 2024, showing a net decrease in cash for 2025 compared to an increase in 2024 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash flows from operating activities | $4,626 | $4,391 | | Net cash flows from investing activities | $(12,141) | $(26,728) | | Net cash flows from financing activities | $2,448 | $23,495 | | Effect of changes in foreign exchange rates | $27 | $(377) | | Net change in cash | $(5,040) | $781 | | Cash at end of period | $1,145 | $6,784 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering significant accounting policies, business combinations, balance sheet details, debt, taxes, stock-based compensation, related party transactions, leases, and segment information [NOTE 1 – Summary of Significant Accounting Policies](index=10&type=section&id=NOTE%201%20%E2%80%93SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's organizational structure, nature of operations, recent acquisitions (CTG, SDPI, EDP, Titan), basis of financial statement presentation, status as an emerging growth company, use of estimates, principles of consolidation, foreign currency translation, business combination accounting, revenue recognition policies for tool rental and product sales, and other key accounting policies - Drilling Tools International Corporation is a global oilfield services company specializing in rental tools for horizontal and directional drilling, with operations in North America, Europe, the Middle East, and Asia-Pacific[22](index=22&type=chunk)[27](index=27&type=chunk) - The company completed several acquisitions: CTG (March 2024, **$20.9 million**, expanding IP and global presence), SDPI (July 2024, **$47.9 million**, vertical integration and global rights for Drill-N-Ream®), EDP (October 2024, **$13.9 million**, next-generation stabilizers), and Titan (January 2025, **$10.8 million**, wellbore construction rental items in UK, Europe, Africa)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[101](index=101&type=chunk)[106](index=106&type=chunk)[110](index=110&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Revenue is primarily derived from tool rental services (operating leases, recognized straight-line or based on usage) and product sales (damaged/lost tools, made-to-order products, recognized at point of control transfer)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - The company changed its interim consolidated statements of comprehensive income (loss) presentation from a two-step format to a one-step format to simplify presentation and enhance comparability, with prior periods retrospectively revised[30](index=30&type=chunk)[31](index=31&type=chunk) - As an emerging growth company, DTIC has elected to use the extended transition period for complying with new or revised financial accounting standards, meaning it adopts new standards at the same time as private companies[32](index=32&type=chunk) - Effective January 1, 2025, the company realigned its reportable segments into two geographical segments: Eastern Hemisphere and Western Hemisphere, to support global expansion[90](index=90&type=chunk) [NOTE 2 – Revisions of Previously Issued Financial Statements](index=25&type=section&id=NOTE%202%20%E2%80%93%20REVISIONS%20OF%20PREVIOSULY%20ISSED%20FINANCIAL%20STATEMENTS) The company identified and corrected immaterial errors in its December 31, 2023, audited consolidated financial statements related to the classification of accessory sales costs between 'cost of tool rental revenue' and 'cost of product sale revenue', with these revisions having no impact on total costs or net income - Immaterial errors in classification of accessory sales costs were identified and corrected in previously issued financial statements for December 31, 2023, and the three and six months ended June 30, 2024[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - The reclassification resulted in a net zero impact to total costs and other deductions or net income[97](index=97&type=chunk) Revisions to Cost of Revenue (in thousands) | Metric (in thousands) | As Previously Reported (3 months ended June 30, 2024) | Total Adjustment | As Revised (3 months ended June 30, 2024) | | :-------------------------- | :---------------------------------------------------- | :--------------- | :---------------------------------------- | | Cost of tool rental revenue | $7,454 | $(456) | $6,998 | | Cost of product sale revenue | $2,544 | $456 | $3,000 | | | As Previously Reported (6 months ended June 30, 2024) | Total Adjustment | As Revised (6 months ended June 30, 2024) | | Cost of tool rental revenue | $14,455 | $(973) | $13,482 | | Cost of product sale revenue | $4,080 | $973 | $5,053 | [NOTE 3 – Business Combinations](index=27&type=section&id=NOTE%203%20%E2%80%93%20BUSINESS%20COMBINATION) This note details the acquisitions of CTG, SDPI, EDP, and Titan, outlining the strategic rationale, total consideration, and preliminary purchase price allocations for each, including the recognition of goodwill and intangible assets - Acquisition of CTG (March 15, 2024) for **$20.9 million**, expanding global presence, intellectual property (over 60 patents), and accretive earnings, with **goodwill of $3.144 million** recognized[101](index=101&type=chunk)[103](index=103&type=chunk) - Acquisition of Superior Drilling Products, Inc. (SDPI) (July 31, 2024) for **$47.9 million**, aimed at vertical integration, global rights for Drill-N-Ream® tool, and acquiring over 30 patents, with **goodwill of $7.718 million** recognized[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) - Acquisition of European Drilling Projects B.V. (EDP) (October 3, 2024) for **$13.9 million**, enhancing next-generation stabilizers and wellbore optimization technology, with **goodwill of $3.186 million** recognized and a measurement period adjustment of **$1.7 million** identified in H1 2025[110](index=110&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - Acquisition of Titan Tools Group Limited (Titan) (January 2, 2025) for **$10.8 million**, expanding full-service down-hole tool rental in the UK, Europe, and Africa, with **goodwill of $2.335 million** recognized[115](index=115&type=chunk)[116](index=116&type=chunk)[119](index=119&type=chunk) Titan Acquisition Intangible Assets (in thousands) | Intangible Asset | Fair value (in thousands) | Useful life (in years) | Fair value methodology | | :----------------- | :------------------------ | :--------------------- | :--------------------- | | Customer Relationship | $2,671 | 25 | Multi-period Excess Earnings Method | - Titan contributed **$3.0 million** in revenue and **$0.6 million** in net income for the three months ended June 30, 2025, and **$5.6 million** in revenue and **$0.7 million** in net income for the six months ended June 30, 2025[123](index=123&type=chunk) Supplemental Pro Forma Financial Results (in thousands) | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Pro forma revenue | $39,421 | $36,468 | $82,301 | $79,476 | | Pro forma net loss | $(2,407) | $(1,103) | $(4,076) | $(1,234) | [NOTE 4 – Balance Sheet Details - Current Assets and Current Liabilities](index=35&type=section&id=NOTE%204%20%E2%80%93%20BALANCE%20SHEET%20DETAILS%20-%20CURRENT%20ASSETS%20AND%20CURRENT%20LIABILITIES) This note provides a breakdown of key current asset and liability accounts, including inventories, prepaid expenses, other current assets, and accrued expenses and other current liabilities, showing changes between December 31, 2024, and June 30, 2025 Inventories (in thousands) | Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------- | :----------------------------- | :------------------------------- | | Raw materials | $13,368 | $12,777 | | Work in progress | $966 | $1,828 | | Finished goods | $3,945 | $2,897 | | Total inventories | $18,279 | $17,502 | Prepaid Expenses and Other Current Assets (in thousands) | Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Deposits on inventory | $1,087 | $551 | | Prepaid income tax | $— | $1,293 | | Prepaid insurance | $1,479 | $957 | | Income tax receivable | $855 | $— | | Total | $4,245 | $3,874 | Accrued Expenses and Other Current Liabilities (in thousands) | Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Accrued compensation and related benefits | $4,291 | $4,497 | | Accrued insurance | $1,137 | $645 | | Income tax payable | $669 | $459 | | Total | $9,927 | $7,864 | [NOTE 5 – Property, Plant and Equipment, Net](index=36&type=section&id=NOTE%205%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT,%20NET) This note details the components of property, plant, and equipment, net, including rental tools, buildings, and office equipment, and their accumulated depreciation, showing an increase in net value from December 31, 2024, to June 30, 2025, primarily due to acquisitions and capital expenditures Property, Plant and Equipment, Net (in thousands) | Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------------------------------------- | :----------------------------- | :------------------------------- | | Rental tools and equipment | $213,878 | $205,939 | | Total property, plant and equipment | $224,988 | $216,234 | | Less: accumulated deprecation | $(148,780) | $(142,203) | | Property, plant and equipment, net (excluding construction in progress) | $76,208 | $74,031 | | Construction in progress | $3,102 | $1,540 | | Property, plant and equipment, net | $79,310 | $75,571 | - Total depreciation expense for the three months ended June 30, 2025, was approximately **$6.2 million** (vs **$5.6 million** in 2024), and for the six months ended June 30, 2025, was approximately **$12.3 million** (vs **$10.9 million** in 2024)[130](index=130&type=chunk) [NOTE 6 – Intangible Assets, Net](index=38&type=section&id=NOTE%206%20%E2%80%93%20INTANGIBLE%20ASSETS,%20NET) This note provides a breakdown of intangible assets, net, including trade names, developed technology, customer relationships, and patents, along with their accumulated amortization and estimated useful lives, showing an increase in net value from December 31, 2024, to June 30, 2025 Intangible Assets, Net (in thousands) | Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | | Trade name | $4,048 | $3,184 | | Developed technology | $16,100 | $15,438 | | Customer relationships | $24,313 | $21,081 | | Patents | $13 | $11 | | Total intangible assets | $44,474 | $39,714 | | Less: accumulated amortization | $(3,808) | $(2,482) | | Intangible assets, net | $40,666 | $37,232 | - Weighted-average remaining amortization periods are **12.2 years** for trade names, **15.1 years** for developed technology, **19.9 years** for customer relationships, and **12.9 years** for patents[131](index=131&type=chunk) - Total amortization expense for the three months ended June 30, 2025, was approximately **$0.6 million** (vs **$0.1 million** in 2024), and for the six months ended June 30, 2025, was approximately **$1.3 million** (vs **$0.1 million** in 2024)[131](index=131&type=chunk) Estimated Future Amortization Expense (in thousands) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2026 | $2,531 | | 2027 | $2,531 | | 2028 | $2,531 | | 2029 | $2,531 | | 2030 | $2,531 | | Thereafter | $28,011 | | Total | $40,666 | [NOTE 7 – Goodwill](index=38&type=section&id=NOTE%207%20-%20GOODWILL) This note details the changes in goodwill, including additions from business combinations, measurement period adjustments, and a significant impairment loss recognized due to a segment realignment Change in Carrying Amount of Goodwill (in thousands) | Metric | Total (in thousands) | | :-------------------------------- | :------------------- | | Net balance as of December 31, 2024 | $12,147 | | Additions due to business combinations | $2,335 | | Measurement period adjustments | $1,670 | | Impairments | $(1,901) | | Foreign currency translation | $453 | | Net balance as of June 30, 2025 | $14,704 | - On January 1, 2025, the company realigned its reportable segments into Eastern Hemisphere and Western Hemisphere, splitting into four reporting units, which triggered a goodwill impairment test[133](index=133&type=chunk) - A non-cash goodwill impairment loss of **$1.9 million** was recognized during the six months ended June 30, 2025, related to the Diamond Products and Deep Casing reporting units, as their estimated fair values were lower than carrying values[134](index=134&type=chunk) - The annual goodwill impairment assessment date has been changed from December 31 to October 31, starting in 2025, to align with the segment realignment[71](index=71&type=chunk) [NOTE 8 – Long Term Debt](index=39&type=section&id=NOTE%208%20%E2%80%93%20LONG%20TERM%20DEBT) This note details the company's long-term debt, including the refinanced revolving credit facility and term loan, and a promissory note related to an acquisition, outlining interest rates, collateral, and future maturities - On March 15, 2024, the company refinanced its revolving credit facility, increasing it to **$80.0 million** and adding a **$25.0 million** term loan, both maturing in March 2029[136](index=136&type=chunk) - Interest rates are based on SOFR or the bank's base lending rate plus applicable margin (approximately **6.78%** and **8.30%** at June 30, 2025), with the facility collateralized by substantially all company assets[137](index=137&type=chunk) - As of June 30, 2025, **$33.1 million** was drawn against the revolving line of credit[138](index=138&type=chunk) - An unsecured Promissory Note of **$5.2 million** was issued for the EDP acquisition, reduced by **$0.3 million** in April 2025, bearing **8%** interest and maturing in December 2029, with a remaining balance of **$4.6 million** as of June 30, 2025[139](index=139&type=chunk) Future Maturities of Long-Term Debt (in thousands) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2025 | $2,965 | | 2026 | $5,988 | | 2027 | $6,069 | | 2028 | $6,157 | | 2029 | $35,737 | | Total | $56,916 | - The Credit Facility Agreement includes a contingent interest embedded derivative liability (Default Rate Derivative) that would reset interest rates upon default, with its fair value negligible as of June 30, 2025, and December 31, 2024, due to the remote likelihood of a non-credit default event[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) [NOTE 9 – Income Taxes](index=40&type=section&id=NOTE%209%20%E2%80%93%20INCOME%20TAXES) This note details the company's income tax expense and effective tax rates, highlighting the impact of state taxes, foreign income taxes, and permanent differences, and discusses the ongoing evaluation of tax impacts from the Titan Acquisition - Income tax expense was **$0.7 million** for Q2 2025 (vs benefit of **$0.1 million** in Q2 2024) and **$0.6 million** for H1 2025 (vs expense of **$0.9 million** in H1 2024)[144](index=144&type=chunk) - Effective tax rates for H1 2025 and H1 2024 were provisions of **16.8%** and **19.6%**, respectively, differing from the **21.0%** Federal Statutory rate due to state taxes, foreign income taxes, and permanent differences[145](index=145&type=chunk) - The company is still evaluating the tax impact of the Titan Acquisition, including transaction costs and deferred tax assets/liabilities[147](index=147&type=chunk) - The recently enacted One Big Beautiful Bill Act (OBBBA) in the U.S. is not expected to have a material impact on the consolidated financial statements[148](index=148&type=chunk) [NOTE 10 – Stock-Based Compensation](index=40&type=section&id=NOTE%2010%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This note describes the company's stock-based compensation plans, including stock options and restricted stock units (RSUs), detailing their valuation, activity, and recognized compensation expenses - The 2023 Omnibus Incentive Plan allows for issuance of common stock up to **10%** of outstanding shares, increasing annually by **3%**, with **1,045,226 shares** available as of June 30, 2025[149](index=149&type=chunk) Stock Option Activity (Six Months Ended June 30, 2025) | Metric | Shares | Weighted Average Exercise Price | | :-------------------------- | :------- | :------------------------------ | | OUTSTANDING, Dec 31, 2024 | 4,963,626 | $3.50 | | OUTSTANDING, June 30, 2025 | 4,963,626 | $3.50 | | UNVESTED, June 30, 2025 | 1,656,666 | $3.02 | | EXERCISABLE, June 30, 2025 | 3,306,960 | $2.93 | - Stock-based compensation expense for stock options was **$0.4 million** for Q2 2025 (vs **$0.4 million** in Q2 2024) and **$0.8 million** for H1 2025 (vs **$0.6 million** in H1 2024), with unrecognized expense totaling **$2.4 million** to be recognized over **1.6 years**[152](index=152&type=chunk) Restricted Stock Units (RSUs) Activity (Six Months Ended June 30, 2025) | Metric | Shares | Weighted Average Exercise Price | | :-------------------------- | :------- | :------------------------------ | | UNVESTED, Dec 31, 2024 | 68,560 | $3.23 | | Granted | 1,052,451 | $3.16 | | Vested | (68,560) | $3.23 | | UNVESTED, June 30, 2025 | 1,052,451 | $3.16 | - Stock-based compensation expense for RSUs was **$0.3 million** for Q2 2025 (vs **$0.4 million** in Q2 2024) and **$0.4 million** for H1 2025 (vs **$0.4 million** in H1 2024), with unrecognized expense totaling **$3.0 million** to be recognized over **3.3 years**[154](index=154&type=chunk)[155](index=155&type=chunk) [NOTE 11 – Other Operating and Non-Operating Expenses, Net](index=42&type=section&id=NOTE%2011%20%E2%80%93%20OTHER%20OPERATING%20AND%20NON-OPERATING%20EXPENSES,%20NET) This note details the components of other operating and non-operating expenses, net, including transaction fees, foreign currency losses, restructuring charges, and software implementation costs, showing an increase in these expenses for both the three and six months ended June 30, 2025, compared to 2024 Other Operating and Non-Operating Expenses, Net (in thousands) | Component | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Transaction fees | $215 | $2,019 | $947 | $2,909 | | Unrealized loss on foreign currency | $421 | $— | $586 | $— | | Restructuring charges | $629 | $— | $998 | $— | | Software implementation | $316 | $— | $448 | $— | | Interest income | $(103) | $(323) | $(201) | $(76) | | Total | $1,912 | $1,672 | $3,846 | $2,798 | [NOTE 12 – Related Party Transactions](index=42&type=section&id=NOTE%2012%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with related parties, including management fees paid to a shareholder, director fees, and a related party note receivable from an entity owned by company employees - Management fees paid to Hicks Holdings Operating LLC (a shareholder) were approximately **$0.2 million** for Q2 2025 (vs **$0.2 million** in Q2 2024) and **$0.4 million** for H1 2025 (vs **$0.4 million** in H1 2024)[157](index=157&type=chunk) - Director fees paid to Board members were approximately **$0.1 million** for Q2 2025 (vs **$0.2 million** in Q2 2024) and **$0.2 million** for H1 2025 (vs **$0.3 million** in H1 2024)[158](index=158&type=chunk) - A related party note receivable from Tronco Energy Corporation (owned by employees) had a carrying value of **$5.4 million** as of June 30, 2025, with annual payments of **$1.3 million** commencing on the first anniversary of the July 31, 2024, closing date[159](index=159&type=chunk)[160](index=160&type=chunk) [NOTE 13 – Leases](index=44&type=section&id=NOTE%2013%20%E2%80%93%20LEASES) This note provides details on the company's operating leases for facilities and vehicles, including lease terms, costs, and future undiscounted cash flows, and also discusses lessor accounting for tool rental revenue - The company leases facilities and vehicles under noncancelable operating lease agreements with remaining terms ranging from **1 month to 14 years**, with options to extend up to **5 years**[161](index=161&type=chunk) Lease Expense (in thousands) | Component | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,737 | $1,588 | $3,476 | $3,041 | | Short-term lease cost | $31 | $35 | $63 | $70 | | Variable lease cost | $110 | $74 | $219 | $162 | | Total Lease Cost | $1,879 | $1,697 | $3,758 | $3,273 | Supplemental Balance Sheet Information Related to Leases | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Weighted-average remaining lease term (in years) | 6.89 | 7.19 | | Weighted average discount rate | 7.95% | 7.35% | Future Undiscounted Cash Flows for Lease Liabilities (in thousands) | Year | Amount (in thousands) | | :--------- | :-------------------- | | 2025 | $2,916 | | 2026 | $5,499 | | 2027 | $4,417 | | 2028 | $3,695 | | 2029 | $3,077 | | Thereafter | $10,773 | | Total lease payments | $30,378 | | Less: imputed interest | $(7,165) | | Present value of lease liabilities | $23,213 | - Tool rental revenue was approximately **$32.8 million** for Q2 2025 (vs **$28.3 million** in Q2 2024) and **$67.3 million** for H1 2025 (vs **$58.3 million** in H1 2024)[163](index=163&type=chunk) [NOTE 14 – Employee Benefits](index=46&type=section&id=NOTE%2014%20%E2%80%93%20EMPLOYEE%20BENEFITS) This note outlines the company's defined contribution savings plans, including employer contributions and matching percentages, and reports the total expense incurred for these benefits - The company sponsors defined contribution savings plans, making contributions and/or matching employee contributions up to certain limits[164](index=164&type=chunk) - Total employee benefits expense was approximately **$0.3 million** for Q2 2025 (vs **$0.2 million** in Q2 2024) and **$0.6 million** for H1 2025 (vs **$0.4 million** in H1 2024)[164](index=164&type=chunk) [NOTE 15 – Commitments and Contingencies](index=46&type=section&id=NOTE%2015%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note addresses the company's material contractual obligations from operating leases, potential legal proceedings, and indemnification agreements, noting the difficulty in determining maximum liability for indemnification - Material contractual obligations arise from operating leases for facilities and vehicles[165](index=165&type=chunk) - The company may be involved in various legal proceedings and subject to third-party infringement claims in the ordinary course of business[166](index=166&type=chunk) - The company agrees to indemnify third parties (customers, lessors) for certain losses, but the maximum potential liability is undeterminable due to limited history and unique circumstances[167](index=167&type=chunk) - A monthly management fee is paid to a shareholder, based on a percentage of trailing twelve months' earnings before interest, taxes, and accumulated depreciation[168](index=168&type=chunk) [NOTE 16 – Earnings Per Share](index=46&type=section&id=NOTE%2016%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note provides the computation of basic and diluted earnings per share, detailing the weighted-average common shares outstanding and the impact of potentially dilutive securities Basic and Diluted Earnings Per Share (in thousands, except share and per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) (in thousands) | $(2,407) | $365 | $(4,076) | $3,492 | | Weighted-average common shares used in computing earnings per share — basic | 35,573,749 | 29,816,202 | 35,583,139 | 29,792,385 | | Weighted-average common shares outstanding — diluted | 35,573,749 | 30,873,436 | 35,583,139 | 30,321,002 | | Earnings (loss) per share — basic | $(0.07) | $0.01 | $(0.11) | $0.12 | | Earnings (loss) per share — diluted | $(0.07) | $0.01 | $(0.11) | $0.12 | Potentially Dilutive Securities Excluded from Diluted EPS (Anti-Dilutive Effect) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Performance-based options outstanding | 534,063 | — | 534,063 | — | | Time-based options outstanding | 4,429,563 | 140,135 | 4,396,855 | 140,135 | | Time-based restricted stock units outstanding | 1,052,451 | — | 1,052,451 | — | | Total | 4,963,626 | 140,135 | 4,930,918 | 140,135 | [NOTE 17 – Segment Information](index=47&type=section&id=NOTE%2017%20-%20SEGMENT%20INFORMATION) This note provides financial information by the company's two operating segments, Western Hemisphere and Eastern Hemisphere, detailing revenue, cost of sales, selling, general, and administrative expenses, and segment income, along with capital expenditures and segment assets - The company operates in two geographical segments: Western Hemisphere and Eastern Hemisphere, with performance assessed using Segment EBITDA[171](index=171&type=chunk)[172](index=172&type=chunk) Segment Revenue and Income (Three Months Ended June 30, in thousands) | Metric | Western Hemisphere (2025, in thousands) | Eastern Hemisphere (2025, in thousands) | Total (2025, in thousands) | Western Hemisphere (2024, in thousands) | Eastern Hemisphere (2024, in thousands) | Total (2024, in thousands) | | :-------------------------- | :------------------------ | :------------------------ | :----------- | :------------------------ | :------------------------ | :----------- | | Tool Rental | $29,794 | $5,333 | $35,128 | $29,952 | $569 | $30,521 | | Product Sales | $7,791 | $754 | $8,545 | $5,604 | $3,613 | $9,217 | | Total Revenue | $37,585 | $6,087 | $43,672 | $35,556 | $4,182 | $39,738 | | Segment income | $12,106 | $45 | $12,151 | $11,498 | $912 | $12,409 | Segment Revenue and Income (Six Months Ended June 30, in thousands) | Metric | Western Hemisphere (2025, in thousands) | Eastern Hemisphere (2025, in thousands) | Total (2025, in thousands) | Western Hemisphere (2024, in thousands) | Eastern Hemisphere (2024, in thousands) | Total (2024, in thousands) | | :-------------------------- | :------------------------ | :------------------------ | :----------- | :------------------------ | :------------------------ | :----------- | | Tool Rental | $62,456 | $9,858 | $72,314 | $62,054 | $992 | $63,047 | | Product Sales | $16,325 | $1,281 | $17,606 | $11,808 | $4,436 | $16,244 | | Total Revenue | $78,781 | $11,139 | $89,920 | $73,863 | $5,429 | $79,291 | | Segment income (loss) | $25,682 | $(143) | $25,539 | $25,011 | $1,330 | $26,342 | Segment Capital Expenditures and Assets (in thousands) | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :-------------------- | :----------------------------- | :----------------------------- | | Capital Expenditures: | | | | Western Hemisphere | $9,964 | $16,177 | | Eastern Hemisphere | $2,630 | $135 | | Total capital expenditures | $12,594 | $16,312 | | Segment Assets: | | | | Western Hemisphere | $154,445 | $135,324 | | Eastern Hemisphere | $68,689 | $22,157 | | Total segment assets | $223,134 | $157,481 | [NOTE 18 – Supplemental Cash Flows](index=50&type=section&id=NOTE%2018%20-%20SUPPLEMENTAL%20CASH%20FLOWS) This note provides supplemental cash flow information, detailing non-cash investing and financing activities, including measurement period adjustments, ROU assets obtained, liabilities assumed in business combinations, and purchases of inventory and property included in accounts payable Supplemental Cash Flow Information (Six Months Ended June 30, in thousands) | Item | 2025 (in thousands) | 2024 (in thousands) | | :---------------------------------------------------------------------------------------------------- | :------------------ | :------------------ | | Cash paid for interest | $2,381 | $660 | | Cash paid for income taxes | $1,227 | $256 | | Measurement period adjustment related to EDP Acquisition | $1,671 | $— | | ROU assets obtained in exchange for lease liabilities | $1,548 | $5,054 | | Fair value of Titan liabilities assumed in Titan Acquisition | $4,045 | $— | | Non-cash consideration in Titan Acquisition | $4,597 | $— | | Purchases of inventory included in accounts payable and accrued expenses and other current liabilities | $1,128 | $5,082 | | Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities | $866 | $1,402 | [NOTE 19 – Share Repurchases](index=51&type=section&id=NOTE%2019%20%E2%80%93%20SHARE%20REPURCHASES) This note details the company's share repurchase program, including the authorized amount, shares repurchased during the period, and the remaining authorization - On May 13, 2025, the company announced a share repurchase program for up to **$10.0 million** in aggregate value, active until December 31, 2025[181](index=181&type=chunk) - During the three months ended June 30, 2025, the company repurchased **202,611 shares** for an aggregate of **$0.6 million**[182](index=182&type=chunk) Shares Repurchased (Three Months Ended June 30, 2025) | Period | Total number of shares of Common Stock Purchases | Average price paid per share of Common Stock | Aggregate purchase price of Common Stock repurchases (in thousands) | Number of remaining shares authorized for purchase | | :------------------------ | :----------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | — | — | 10,000,000 | | May 1, 2025 - May 31, 2025 | 61,528 | $2.60 | $160 | 9,839,880 | | June 1, 2025 - June 30, 2025 | 141,083 | $3.17 | $448 | 9,392,339 | | Total | 202,611 | $3.00 | $608 | 9,392,339 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, market factors, recent developments, detailed analysis of financial performance by segment, non-GAAP financial measures, liquidity, capital resources, and critical accounting policies Consolidated Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | $ Change (in thousands) | % Change | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | $ Change (in thousands) | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Total revenue, net | $39,421 | $37,533 | $1,888 | 5% | $82,301 | $74,507 | $7,794 | 10% | | Total segment income | $12,151 | $12,409 | $(258) | nm | $25,539 | $26,342 | $(803) | -3% | | Corporate and other expenses | $3,649 | $4,494 | $(845) | -19% | $7,012 | $7,930 | $(918) | -12% | | Depreciation and amortization expense | $6,830 | $5,681 | $1,149 | 20% | $13,552 | $11,047 | $2,505 | 23% | | Interest expense, net | $1,336 | $811 | $525 | 65% | $2,645 | $992 | $1,653 | 167% | | Goodwill impairment | $— | $— | $— | nm | $1,901 | $— | $1,901 | nm | | Other operating and non-operating costs, net | $1,912 | $1,671 | $241 | 14% | $3,846 | $2,798 | $1,048 | 37% | | Net income (loss) | $(2,407) | $365 | $(2,773) | -759% | $(4,076) | $3,492 | $(7,568) | -217% | [Overview](index=51&type=section&id=Overview) The company is a global oilfield services provider, specializing in rental tools for horizontal and directional drilling, operating from 15 North American and 11 international locations, with revenues primarily from tool rental (82-83%) and product sales (17-18%), segmented into Western and Eastern Hemisphere operations - The company is a global oilfield services provider, offering rental-focused tools for onshore and offshore horizontal and directional drilling, with **15 North American** and **11 international** service centers[184](index=184&type=chunk) - Revenues are derived from tool rental (**83%** in Q2 2025, **75%** in Q2 2024; **82%** in H1 2025, **78%** in H1 2024) and product sales (**17%** in Q2 2025, **25%** in Q2 2024; **18%** in H1 2025, **22%** in H1 2024)[185](index=185&type=chunk) - Operations are split into two reporting segments: Western Hemisphere and Eastern Hemisphere[186](index=186&type=chunk) [Market Factors](index=51&type=section&id=Market%20Factors) Demand for the company's services and products is heavily influenced by the general activity level in the oil and gas industry, including drilling rig counts, well completions, and commodity prices, which have historically been volatile - Demand is primarily dependent on oil and gas industry activity, such as active drilling rigs, wells drilled, well completions, and capital spending by oil and gas companies[187](index=187&type=chunk) - Tool rental revenues rely on drilling activity and market share, while product sales depend on payments for lost/damaged tools, replacement needs, and competitive pricing[188](index=188&type=chunk)[189](index=189&type=chunk) [Recent Developments and Trends](index=52&type=section&id=Recent%20Developments%20and%20Trends) The oil and gas market in the first half of 2025 saw record U.S. oil production but downward pressure on crude oil prices due to global supply surplus, while U.S. natural gas prices rebounded, driven by seasonal demand, and rig counts decreased in both Western and Eastern Hemispheres, though improved rig efficiencies partially offset this, with the company also facing impacts from global inflation, leading to increased personnel and operational costs - U.S. oil production reached record highs (**13.5 million barrels per day**) in H1 2025, but a global supply surplus led to downward pressure on crude oil prices (WTI quarterly average decreased from **$78.41 to $64.63 per barrel**)[191](index=191&type=chunk) - U.S. natural gas prices rebounded in H1 2025, with Henry Hub spot price averaging **$3.19 per MMBtu** in Q1, a **30% increase** from Q4 2024, driven by heightened heating demand[192](index=192&type=chunk) Weekly Average Rig Count (Baker Hughes) | Hemisphere | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Western Hemisphere | 832 | 897 | 881 | 946 | | Eastern Hemisphere | 714 | 764 | 719 | 760 | - The company is experiencing global inflation, leading to increased personnel costs and prices for goods and services, which are expected to impact profitability in the near term[193](index=193&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) The company experienced a 5% increase in total revenue for Q2 2025 and a 10% increase for H1 2025, primarily driven by acquisitions in the Eastern Hemisphere and the Diamond Products Division in the Western Hemisphere, however, net income shifted to a significant net loss due to increased costs, including depreciation, interest, goodwill impairment, and other operating expenses [Comparison of the Three Months Ended June 30, 2025 and 2024](index=54&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) For Q2 2025, Western Hemisphere revenue increased by 6% due to the Diamond Products Division, while Eastern Hemisphere revenue surged by 46% from recent acquisitions, however, Eastern Hemisphere segment income decreased by 95% due to increased headcount and market decline, and overall, depreciation, interest, and other operating expenses rose significantly - Western Hemisphere revenue increased by **$2.0 million (6%)** to **$37.6 million**, driven by the Diamond Products Division acquisition[195](index=195&type=chunk) - Eastern Hemisphere revenue increased by **$1.9 million (46%)** to **$6.1 million**, primarily due to recent acquisitions of tool rental businesses[196](index=196&type=chunk) - Eastern Hemisphere segment income decreased by **$0.9 million (95%)** to **$45.3 thousand**, attributed to increased headcount from acquisitions and a decline in the Middle Eastern market[196](index=196&type=chunk) - Depreciation and amortization expense increased by **$1.1 million (20%)** to **$6.8 million**, reflecting growth in property, plant, equipment, and intangible assets from acquisitions[198](index=198&type=chunk) - Interest expense, net, increased by **$0.5 million (65%)** to **$1.3 million**, mainly due to the term loan and promissory note from 2024 acquisitions[199](index=199&type=chunk) - Other operating and non-operating expense, net, increased by **$0.2 million (14%)** to **$1.9 million**, driven by software implementation costs and restructuring charges[200](index=200&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=54&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) For H1 2025, Western Hemisphere revenue grew 7% from the Diamond Products Division, and Eastern Hemisphere revenue more than doubled (105%) due to acquisitions, however, Eastern Hemisphere segment income turned into a loss, and overall costs, including depreciation, interest, goodwill impairment, and other operating expenses, significantly increased, leading to a substantial net loss - Western Hemisphere revenue increased by **$4.9 million (7%)** to **$78.8 million**, driven by the Diamond Products Division acquisition[201](index=201&type=chunk) - Eastern Hemisphere revenue increased by **$5.7 million (105%)** to **$11.1 million**, primarily due to recent acquisitions of tool rental businesses[202](index=202&type=chunk) - Eastern Hemisphere segment income shifted to a loss of **$0.1 million**, a decrease of **$1.5 million (111%)**, due to increased headcount from acquisitions and a decline in the Middle Eastern market[202](index=202&type=chunk)[203](index=203&type=chunk) - Depreciation and amortization expenses increased by **$2.5 million (23%)** to **$13.5 million**, reflecting growth in property, plant, equipment, and intangible assets from acquisitions[205](index=205&type=chunk) - Interest expense, net, increased by **$1.7 million (167%)** to **$2.6 million**, mainly due to the term loan and promissory note from 2024 acquisitions[206](index=206&type=chunk) - Other operating and non-operating expense, net, increased by **$1.1 million (37%)** to **$3.8 million**, driven by software implementation costs and restructuring charges[207](index=207&type=chunk) [Non-GAAP Financial Measures](index=56&type=section&id=Non-GAAP%20Financial%20Measures) The company uses Adjusted EBITDA as a non-GAAP financial measure to evaluate core operating performance, excluding interest, taxes, depreciation, amortization, and certain non-cash or non-recurring items, which helps identify underlying business trends but has limitations compared to GAAP net income - Adjusted EBITDA is used as a non-GAAP financial measure to understand core operating performance, excluding interest income/expense, other operating/non-operating expense, income tax, depreciation, amortization, and certain non-cash/non-recurring items[209](index=209&type=chunk) Adjusted EBITDA Reconciliation to Net Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(2,407) | $365 | $(4,076) | $3,492 | | Income tax expense (benefit) | $746 | $(82) | $587 | $854 | | Depreciation and amortization | $6,830 | $5,681 | $13,552 | $11,047 | | Interest expense, net | $1,336 | $811 | $2,645 | $992 | | Stock option expense | $642 | $855 | $1,183 | $1,064 | | Management fees | $188 | $187 | $375 | $375 | | Goodwill impairment | $— | $— | $1,901 | $— | | Transaction expense | $215 | $2,020 | $947 | $2,909 | | Adjusted EBITDA | $9,332 | $8,965 | $20,085 | $19,858 | [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity primarily comes from cash on hand, operating cash flows, and borrowings under its Credit Facility Agreement, and it expects these sources to be sufficient for the next 12 months, with capital expenditures focused on maintaining and expanding its rental tool fleet, funded partly by rental tool recovery sales - As of June 30, 2025, cash and cash equivalents totaled **$1.1 million**[212](index=212&type=chunk) - Primary liquidity sources are cash on hand, operating cash flows, and borrowings under the Credit Facility Agreement, which are expected to be sufficient for the next 12 months[212](index=212&type=chunk) - Capital expenditures are incurred to increase/maintain rental tool fleet, extend useful life, and acquire/upgrade computer hardware/software, with funding partly from rental tool recovery sales[214](index=214&type=chunk)[215](index=215&type=chunk) - The company has federal net operating loss carryforwards expected to substantially reduce cash tax payments over several years[217](index=217&type=chunk) Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2025 (in thousands) | 2024 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $4,626 | $4,391 | | Net cash used in investing activities | $(12,141) | $(26,728) | | Net cash provided by financing activities | $2,448 | $23,495 | | Net increase (decrease) in cash and cash equivalents | $(5,040) | $781 | - Net cash from operating activities was **$4.6 million** in H1 2025 (vs **$4.4 million** in H1 2024), driven by a net loss offset by non-cash adjustments[219](index=219&type=chunk) - Net cash used in investing activities was **$12.1 million** in H1 2025 (vs **$26.7 million** in H1 2024), primarily due to purchases of property, plant, and equipment, intangible assets, and the Titan acquisition, partially offset by rental tool recovery sales[220](index=220&type=chunk)[221](index=221&type=chunk) - Net cash from financing activities was **$2.4 million** in H1 2025 (vs **$23.5 million** in H1 2024), resulting from net debt increases offset by treasury stock purchases[222](index=222&type=chunk) [Critical Accounting Policies and Estimates](index=61&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The preparation of financial statements requires significant management estimates and assumptions, which are based on historical experience and current facts, and actual results may differ materially, with changes in these estimates due to unforeseen events potentially impacting financial position or results of operations - Financial statements require management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenue, expenses, and contingent assets/liabilities[223](index=223&type=chunk) - Estimates are based on historical experience and current facts, but actual results may differ significantly, and changes due to unforeseen events could materially impact financial position or results[223](index=223&type=chunk) [Recently Issued and Adopted Accounting Standards](index=61&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Standards) This section refers to Note 1 for a discussion of recent accounting pronouncements, including the adoption of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), and the evaluation of ASU 2024-03 (Expense Disaggregation) - Refer to Note 1 for details on recently issued and adopted accounting pronouncements[225](index=225&type=chunk) [JOBS Act Accounting Election](index=61&type=section&id=JOBS%20Act%20Accounting%20Election) As an emerging growth company, the company has irrevocably elected to use the extended transition period under the JOBS Act for complying with new or revised accounting standards, delaying adoption until private companies are required to comply, which allows for reduced disclosure requirements until it ceases to be an emerging growth company - As an 'emerging growth company' under the JOBS Act, the company has irrevocably elected to use the extended transition period for complying with new or revised accounting standards, adopting them at the same time as private companies[226](index=226&type=chunk) - This status allows for reduced disclosure and other requirements until the company ceases to be an emerging growth company, which occurs based on revenue, debt, or filer status thresholds[226](index=226&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to various market risks, including credit risk, concentration risk, foreign currency risk, inflation risk, and cybersecurity risk, and the measures taken to manage them [Credit Risk](index=61&type=section&id=Credit%20risk) The company's credit risk primarily stems from cash and cash equivalents held with major financial institutions and accounts receivable from customers, and it monitors credit quality and maintains an allowance for doubtful accounts - Credit risk is concentrated in cash and cash equivalents (held with major financial institutions) and accounts receivable[227](index=227&type=chunk) - The company monitors customer credit quality and maintains an allowance for doubtful accounts[227](index=227&type=chunk) [Concentration Risk](index=61&type=section&id=Concentration%20risk) The company's customer concentration can impact its credit risk, as these entities may be similarly affected by economic conditions in the oil and gas industry, with further details referenced in Note 1 - Customer concentration can affect overall credit risk, as major customers are susceptible to similar economic conditions in the oil and gas industry[54](index=54&type=chunk)[55](index=55&type=chunk) - During Q2 2025 and Q2 2024, two customers accounted for approximately **25%** of total revenue, and for H1 2025 and H1 2024, two customers accounted for approximately **27%** of total revenue[56](index=56&type=chunk) - Amounts due from these customers in accounts receivable were approximately **$6.7 million** at June 30, 2025, and **$5.4 million** at December 31, 2024[56](index=56&type=chunk) [Foreign Currency Risk](index=61&type=section&id=Foreign%20currency%20risk) Foreign exchange risk arises from transactions in non-U.S. dollar currencies, particularly as the company expands internationally, and while a majority of sales are in USD and CAD, international expansion could increase exposure, with the company currently not using hedging arrangements - Foreign exchange risk stems from transactions in currencies other than the U.S. dollar, especially with international expansion[229](index=229&type=chunk) - A majority of sales are in USD and CAD, but international growth may increase exposure to foreign exchange rate fluctuations[229](index=229&type=chunk) - The company has not entered into hedging arrangements to mitigate foreign currency risk and will periodically reassess its approach[230](index=230&type=chunk) [Inflation Risk](index=63&type=section&id=Inflation%20Risk) Rising international tariffs and new tariffs could negatively impact global trade, economic conditions, and demand for the company's products, potentially increasing costs and adversely affecting business if not recoverable - Rising international tariffs (e.g., between U.S. and China, Mexico, Canada) could materially and adversely affect business and results of operations[231](index=231&type=chunk) - New tariffs could negatively impact global trade, economic conditions, and product demand, making it costly to adapt business operations, and unrecovered increased tariff costs could materially affect financial performance[232](index=232&type=chunk) [Cybersecurity Risk](index=63&type=section&id=Cybersecurity%20Risk) The company employs various controls, including technology solutions, regular testing, and training, to mitigate cybersecurity risks, and an incident response plan is in place, but there is no assurance that these efforts will fully prevent cybersecurity incidents - The company uses technology hardware/software, regular testing (penetration, disaster recovery), and training to manage cybersecurity risks[233](index=233&type=chunk) - An incident response plan and team are established to contain, mitigate, and remediate cybersecurity incidents[233](index=233&type=chunk) - Despite mitigation efforts, there is no assurance that cybersecurity risks will be fully prevented[233](index=233&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025, due to a material weakness in internal control over financial reporting related to ineffective monitoring activities, with remediation efforts ongoing, and the assessment of acquired businesses' internal controls phased - As of June 30, 2025, the company's disclosure controls and procedures were deemed ineffective due to a material weakness in internal control over financial reporting[235](index=235&type=chunk) - The material weakness relates to ineffective monitoring activities to assess the operation of internal control over financial reporting, despite ongoing remediation efforts[236](index=236&type=chunk) - The internal control over financial reporting of Titan Tools (acquired January 2, 2025) has been excluded from management's assessment as permitted for up to one year post-acquisition[237](index=237&type=chunk)[238](index=238&type=chunk) [PART II. OTHER INFORMATION](index=66&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 15 for information regarding the company's legal proceedings, commitments, and contingencies - Information on legal proceedings is incorporated by reference from Note 15 to the consolidated financial statements[240](index=240&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to the risk factors described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, have occurred[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase program, including the authorization, shares repurchased during the quarter, and the remaining authorized amount - On May 13, 2025, the company announced a share repurchase program to buy back up to **$10.0 million** of common stock from non-affiliates, active until December 31, 2025[181](index=181&type=chunk)[242](index=242&type=chunk) Shares Repurchased (Three Months Ended June 30, 2025) | Period | Total number of shares of Common Stock Purchases | Average price paid per share of Common Stock | Aggregate purchase price of Common Stock repurchases (in thousands) | Number of remaining shares authorized for purchase | | :------------------------ | :----------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | — | — | 10,000,000 | | May 1, 2025 - May 31, 2025 | 61,528 | $2.60 | $160 | 9,839,880 | | June 1, 2025 - June 30, 2025 | 141,083 | $3.17 | $448 | 9,392,339 | | Total | 202,611 | $3.00 | $608 | 9,392,339 | [Item 3. Defaults Upon Senior Securities](index=66&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[244](index=244&type=chunk) [Item 4. Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[245](index=245&type=chunk) [Item 5. Other Information](index=66&type=section&id=Item%205.%20Other%20Information) This section discloses that Michael Domino, President of the Directional Tool Rentals Division, adopted a pre-arranged stock trading plan (Rule 10b5-1) on May 16, 2025, to sell 125,000 shares of common stock over 15 months - Michael Domino, President of Directional Tool Rentals Division, adopted a Rule 10b5-1 trading plan on May 16, 2025[246](index=246&type=chunk)[247](index=247&type=chunk) - The plan allows for the sale of **125,000 shares** of common stock over a **15-month** duration[247](index=247&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, the report, including certifications, XBRL documents, and other required filings - The report includes various exhibits such as certifications of principal executive and financial officers, and Inline XBRL documents[248](index=248&type=chunk)[250](index=250&type=chunk) [Signatures](index=70&type=section&id=Signatures) This section contains the required signatures, confirming the due authorization and filing of the report - The report is duly signed by David R. Johnson, Chief Financial Officer, on behalf of Drilling Tools International Corporation[252](index=252&type=chunk)[253](index=253&type=chunk)

[News Release & Company Overview](index=1&type=section&id=News%20Release) This section provides an overview of Drilling Tools International Corp.'s Q2 2025 financial performance and management's strategic commentary [Q2 2025 Financial Highlights](index=1&type=section&id=Q2%202025%20Financial%20Highlights) Drilling Tools International Corp. reported $39.4 million in Q2 2025 revenue, a net loss of $2.4 million, and achieved its first positive Adjusted Free Cash Flow for a second quarter Q2 2025 Key Financial Highlights | Metric | Amount (in millions USD) | | :-------------------------- | :----------------------- | | Total Consolidated Revenue | $39.4 | | Tool Rental Revenue | $32.8 | | Product Sales Revenue | $6.7 | | Net Loss | $(2.4) | | Adjusted Net Loss | $(0.7) | | Diluted EPS | $(0.07) | | Adjusted Diluted EPS | $(0.02) | | Adjusted EBITDA | $9.3 | | Adjusted Free Cash Flow | $1.8 | | Cash and Cash Equivalents | $1.1 | | Net Debt | $55.8 | - Achieved **first positive Adjusted Free Cash Flow** for any second quarter since becoming public[4](index=4&type=chunk) [Management Commentary on Q2 Performance and Market Conditions](index=1&type=section&id=Management%20Commentary) Management highlighted solid Q2 performance exceeding forecasts, driven by strong Eastern Hemisphere growth despite market softness, while implementing cost-cutting measures - Q2 performance remained **solid** and exceeded internal forecasts despite lower commodity prices and reductions in rig count and customer activity, particularly on US land[4](index=4&type=chunk) - Eastern Hemisphere segment revenue grew by **46% quarter over quarter** and contributed approximately **14% of total revenue** in Q2 2025[5](index=5&type=chunk) - Consolidated Revenue and Adjusted EBITDA grew by **5% and 4% respectively** compared to Q2 2024, despite market softness[5](index=5&type=chunk) - Implemented a program to cut expenses by approximately **$6 million in 2025** and is on track to meet or exceed this goal, with contingency plans for additional cost cuts if the market deteriorates further[6](index=6&type=chunk) [2025 Full Year Outlook](index=1&type=section&id=2025%20Full%20Year%20Outlook) DTI is maintaining its previously disclosed full-year 2025 guidance ranges for Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Free Cash Flow, anticipating continued pricing pressures and margin compression in the second half of the year 2025 Full Year Outlook | Metric | Low (in millions USD) | High (in millions USD) | | :-------------------- | :-------------------- | :--------------------- | | Revenue | $145 | $165 | | Adjusted EBITDA | $32 | $42 | | Adjusted EBITDA Margin| 22% | 25% | | Adjusted Free Cash Flow| $14 | $19 | - Expects **pricing pressures** to compress margins in the back half of 2025[7](index=7&type=chunk) [2025 Second Quarter Conference Call Information](index=1&type=section&id=2025%20Second%20Quarter%20Conference%20Call%20Information) Details for accessing Drilling Tools International Corp.'s Q2 2025 conference call, scheduled for August 14, 2025, at 10:00 a.m. Eastern Time, including dial-in and webcast options, as well as replay and archive availability - Conference call scheduled for **Thursday, August 14, 2025, at 10:00 a.m. Eastern Time**[10](index=10&type=chunk) - Access available via dial-in (**201-389-0869**) or live webcast (**https://investors.drillingtools.com/news-events/events**)[10](index=10&type=chunk) - Audio replay available through **August 21, 2025**, and webcast archive for **90 days**[10](index=10&type=chunk) [About Drilling Tools International Corp.](index=2&type=section&id=About%20Drilling%20Tools%20International%20Corp.) Drilling Tools International Corp. (DTI) is a Houston, Texas-based global oilfield services company specializing in the design, engineering, manufacturing, and rental of downhole drilling tools for horizontal and directional drilling - DTI is a **Houston, Texas-based global oilfield services company**[11](index=11&type=chunk) - Specializes in manufacturing and renting **downhole drilling tools** for horizontal and directional drilling of oil and natural gas wells[11](index=11&type=chunk) - Operates from **15 service and support centers across North America** and **11 international centers** across the EMEA and APAC regions[11](index=11&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements, highlighting various risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are subject to **numerous conditions and risks**, many beyond DTI's control[12](index=12&type=chunk) - Key risks include **demand for products, customer retention, skilled worker availability, raw material costs, market competition, acquisition integration, and potential liabilities**[12](index=12&type=chunk) - Additional risks cover **capital access, political/regulatory disruptions, IT system dependence, compliance, stock price volatility, and increased costs as a public company**[12](index=12&type=chunk) [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) This section presents DTI's unaudited consolidated financial statements, including comprehensive income, balance sheets, and cash flows, for relevant periods [Consolidated Statements of Comprehensive Income (Loss) - Three Months Ended June 30, 2025 & 2024](index=3&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20-%20Three%20Months) For the three months ended June 30, 2025, DTI reported a net loss of $2.407 million, a significant decline from a net income of $0.365 million in the prior year, despite a 5% increase in total revenue Consolidated Statements of Comprehensive Income (Loss) - Q2 2025 vs Q2 2024 | Metric (in thousands USD) | Q2 2025 | Q2 2024 | Change (YoY) | | :------------------------ | :------ | :------ | :----------- | | Total Revenue, net | $39,421 | $37,533 | +$1,888 (+5%)| | Cost of tool rental revenue | $7,402 | $6,998 | +$404 (+5.8%)| | Cost of product sale revenue | $2,494 | $3,000 | -$506 (-16.9%)| | Selling, general, and administrative expense | $21,023 | $19,619 | +$1,404 (+7.2%)| | Depreciation and amortization expense | $6,830 | $5,681 | +$1,149 (+20.2%)| | Interest expense, net | $1,336 | $811 | +$525 (+64.7%)| | Net income (loss) | $(2,407)| $365 | $(2,772) (-759%)| | Diluted earnings (loss) per share | $(0.07) | $0.01 | $(0.08) | - Net income (loss) decreased significantly from **$365K in Q2 2024 to $(2,407)K in Q2 2025**[14](index=14&type=chunk) - Total revenue increased by **$1.888 million (5%)** year-over-year[14](index=14&type=chunk) [Consolidated Statements of Comprehensive Income (Loss) - Six Months Ended June 30, 2025 & 2024](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20-%20Six%20Months) For the six months ended June 30, 2025, DTI reported a net loss of $4.076 million, a reversal from a net income of $3.492 million in the same period of 2024, primarily due to increased expenses and a goodwill impairment charge Consolidated Statements of Comprehensive Income (Loss) - H1 2025 vs H1 2024 | Metric (in thousands USD) | H1 2025 | H1 2024 | Change (YoY) | | :------------------------ | :------ | :------ | :----------- | | Total Revenue, net | $82,301 | $74,507 | +$7,794 (+10.5%)| | Cost of tool rental revenue | $15,090 | $13,482 | +$1,608 (+11.9%)| | Cost of product sale revenue | $6,051 | $5,053 | +$998 (+19.7%)| | Selling, general, and administrative expense | $42,633 | $37,560 | +$5,073 (+13.5%)| | Depreciation and amortization expense | $13,552 | $11,047 | +$2,505 (+22.7%)| | Interest expense, net | $2,645 | $992 | +$1,653 (+166.6%)| | Goodwill impairment | $1,901 | — | +$1,901 | | Net income (loss) | $(4,076)| $3,492 | $(7,568) (-216.7%)| | Diluted earnings (loss) per share | $(0.11) | $0.12 | $(0.23) | - Net income (loss) decreased from **$3.492 million in H1 2024 to $(4.076) million in H1 2025**[16](index=16&type=chunk) - Total revenue increased by **$7.794 million (10.5%)** year-over-year[16](index=16&type=chunk) - Goodwill impairment of **$1.901 million** was recorded in H1 2025[16](index=16&type=chunk) [Consolidated Balance Sheets - June 30, 2025 & December 31, 2024](index=5&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) As of June 30, 2025, DTI's total assets increased to $230.279 million from $222.431 million at December 31, 2024, driven by property, plant and equipment, and intangible assets, despite a decrease in cash Consolidated Balance Sheets - June 30, 2025 vs December 31, 2024 | Metric (in thousands USD) | June 30, 2025 | December 31, 2024 | Change | | :------------------------ | :------------ | :---------------- | :----- | | Cash | $1,145 | $6,185 | $(5,040) | | Accounts receivable, net | $41,557 | $39,606 | +$1,951 | | Inventories | $18,279 | $17,502 | +$777 | | Total current assets | $66,134 | $68,076 | $(1,942) | | Property, plant and equipment, net | $79,310 | $75,571 | +$3,739 | | Intangible assets, net | $40,666 | $37,232 | +$3,434 | | Goodwill, net | $14,704 | $12,147 | +$2,557 | | Total assets | $230,279 | $222,431 | +$7,848 | | Total current liabilities | $32,047 | $30,963 | +$1,084 | | Revolving line of credit | $33,140 | $27,142 | +$5,998 | | Long-term debt, less current portion | $17,485 | $19,676 | $(2,191) | | Total liabilities | $107,757 | $102,472 | +$5,285 | | Total shareholders' equity| $122,522 | $119,959 | +$2,563 | - Total assets increased by **$7.848 million (3.5%)** from December 31, 2024, to June 30, 2025[18](index=18&type=chunk) - Cash decreased by **$5.040 million (81.5%)** from $6.185 million at December 31, 2024, to $1.145 million at June 30, 2025[18](index=18&type=chunk) - Total liabilities increased by **$5.285 million (5.2%)** from December 31, 2024, to June 30, 2025, primarily due to an increase in the revolving line of credit[18](index=18&type=chunk) [Consolidated Statements of Cash Flows - Six Months Ended June 30, 2025 & 2024](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) For the six months ended June 30, 2025, net cash from operating activities increased slightly, while net cash used in investing activities decreased, and net cash from financing activities saw a substantial reduction year-over-year Consolidated Statements of Cash Flows - H1 2025 vs H1 2024 | Metric (in thousands USD) | H1 2025 | H1 2024 | Change (YoY) | | :------------------------ | :------ | :------ | :----------- | | Net cash flows from operating activities | $4,626 | $4,393 | +$233 (+5.3%)| | Net cash flows from investing activities | $(12,141)| $(26,728)| +$14,587 (+54.6%)| | Net cash flows from financing activities | $2,448 | $23,495 | $(21,047) (-89.6%)| | Net change in cash | $(5,040)| $783 | $(5,823) | | Cash at end of period | $1,145 | $6,786 | $(5,641) | - Net cash from operating activities increased by **$0.233 million (5.3%)** year-over-year[20](index=20&type=chunk) - Net cash used in investing activities decreased by **$14.587 million (54.6%)**, primarily due to lower acquisition spending[20](index=20&type=chunk) - Net cash from financing activities decreased by **$21.047 million (89.6%)**, mainly due to the absence of term loan proceeds seen in 2024[20](index=20&type=chunk) [Non-GAAP Financial Measures & Reconciliations](index=7&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles DTI's key non-GAAP financial measures, including Adjusted EBITDA, Adjusted Free Cash Flow, Net Debt, and Adjusted Net Income (Loss), to their most directly comparable GAAP measures [Definition of Non-GAAP Financial Measures](index=7&type=section&id=Definition%20of%20Non-GAAP%20Financial%20Measures) This section defines DTI's key non-GAAP financial measures, including Adjusted EBITDA, Adjusted Free Cash Flow, Net Debt, Adjusted Net Income (Loss), and Adjusted Basic/Diluted EPS, used to evaluate operating performance - Adjusted EBITDA is defined as net earnings (loss) before interest, taxes, depreciation, and amortization, further adjusted for specific non-recurring items[22](index=22&type=chunk) - Adjusted Free Cash Flow is defined as **Adjusted EBITDA less Gross Capital Expenditures**[24](index=24&type=chunk) - Net Debt is defined as **total debt less cash and cash equivalents**[25](index=25&type=chunk) - Adjusted Net Income (Loss) and Adjusted Basic/Diluted EPS are adjusted for non-recurring items and calculated using an effective tax rate on adjusted pre-tax income[26](index=26&type=chunk)[27](index=27&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures - Adjusted EBITDA](index=8&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures%20(Unaudited)%20-%20Adjusted%20EBITDA) This section provides the reconciliation of Net Income (Loss) to Adjusted EBITDA for the three and six months ended June 30, 2025 and 2024, showing a slight increase in Adjusted EBITDA for both periods Adjusted EBITDA Reconciliation - Q2 2025 vs Q2 2024 | Metric (in thousands USD) | Q2 2025 | Q2 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(2,407)| $365 | | Add (deduct): | | | | Income tax expense (benefit)| $746 | $(82) | | Depreciation and amortization | $6,830 | $5,681 | | Interest expense, net | $1,336 | $811 | | Stock option expense | $642 | $855 | | Management fees | $188 | $187 | | Loss (gain) on sale of property | $85 | $(51) | | Transaction expense | $215 | $2,020 | | Other operating and non-operating expense, net | $1,697 | $(341) | | **Adjusted EBITDA** | **$9,332**| **$8,965**| Adjusted EBITDA Reconciliation - H1 2025 vs H1 2024 | Metric (in thousands USD) | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(4,076)| $3,492 | | Add (deduct): | | | | Income tax expense (benefit)| $587 | $854 | | Depreciation and amortization | $13,552 | $11,047 | | Interest expense, net | $2,645 | $992 | | Stock option expense | $1,183 | $1,064 | | Management fees | $375 | $375 | | Loss (gain) on sale of property | $71 | $(42) | | Goodwill impairment | $1,901 | — | | Transaction expense | $947 | $2,909 | | Other operating and non-operating expense, net | $2,900 | $(104) | | **Adjusted EBITDA** | **$20,085**| **$19,858**| - Adjusted EBITDA for Q2 2025 increased by **$0.367 million (4.1%)** to $9.332 million from $8.965 million in Q2 2024[30](index=30&type=chunk) - Adjusted EBITDA for H1 2025 increased by **$0.227 million (1.1%)** to $20.085 million from $19.858 million in H1 2024[30](index=30&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures - Adjusted Free Cash Flow](index=9&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures%20(Unaudited)%20-%20Adjusted%20Free%20Cash%20Flow) This section reconciles Net Income (Loss) to Adjusted Free Cash Flow for the three and six months ended June 30, 2025 and 2024, demonstrating significant improvement in Adjusted Free Cash Flow for both periods Adjusted Free Cash Flow Reconciliation - Q2 2025 vs Q2 2024 | Metric (in thousands USD) | Q2 2025 | Q2 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(2,407)| $365 | | Add (deduct): | | | | Income tax expense (benefit)| $746 | $(82) | | Depreciation and amortization | $6,830 | $5,681 | | Interest expense, net | $1,336 | $811 | | Stock option expense | $642 | $855 | | Management fees | $188 | $187 | | Loss (gain) on sale of property | $85 | $(51) | | Transaction expense | $215 | $2,020 | | Other operating and non-operating expense, net | $1,697 | $(341) | | Capital expenditures | $(7,551)| $(10,084)| | **Adjusted Free Cash Flow**| **$1,781**| **$(1,119)**| Adjusted Free Cash Flow Reconciliation - H1 2025 vs H1 2024 | Metric (in thousands USD) | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(4,076)| $3,492 | | Add (deduct): | | | | Income tax expense (benefit)| $587 | $854 | | Depreciation and amortization | $13,552 | $11,047 | | Interest expense, net | $2,645 | $992 | | Stock option expense | $1,183 | $1,064 | | Management fees | $375 | $375 | | Loss (gain) on sale of property | $71 | $(42) | | Goodwill impairment | $1,901 | — | | Transaction expense | $947 | $2,909 | | Other operating and non-operating expense, net | $2,900 | $(104) | | Capital expenditures | $(12,594)| $(16,312)| | **Adjusted Free Cash Flow**| **$7,491**| **$3,545**| - Adjusted Free Cash Flow for Q2 2025 was **$1.781 million**, a positive change from $(1.119) million in Q2 2024[32](index=32&type=chunk) - Adjusted Free Cash Flow for H1 2025 increased by **$3.946 million (111.3%)** to $7.491 million from $3.545 million in H1 2024[32](index=32&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures - Adjusted Net Income (Loss) & EPS](index=10&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures%20(Unaudited)%20-%20Adjusted%20Net%20Income%20(Loss)%20%26%20EPS) This section provides the reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted EPS for the three and six months ended June 30, 2025 and 2024, indicating a decrease in adjusted profitability Adjusted Net Income (Loss) & EPS Reconciliation - Q2 2025 vs Q2 2024 | Metric (in thousands USD) | Q2 2025 | Q2 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(2,407)| $365 | | Transaction expense | $215 | $2,020 | | Restructuring charges | $629 | — | | Software implementation | $316 | — | | Income tax expense (benefit)| $746 | $(82) | | Adjusted Income Before Tax| $(501) | $2,303 | | Adjusted Income tax expense (benefit)| $225 | $(666) | | **Adjusted Net Income (loss)**| **$(726)**| **$2,968**| | Adjusted Basic earnings (loss) per share | $(0.02) | $0.10 | | Adjusted Diluted earnings (loss) per share | $(0.02) | $0.10 | Adjusted Net Income (Loss) & EPS Reconciliation - H1 2025 vs H1 2024 | Metric (in thousands USD) | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | | Net income (loss) | $(4,076)| $3,492 | | Transaction expense | $947 | $2,909 | | Goodwill impairment | $1,901 | — | | Restructuring charges | $998 | — | | Software implementation | $448 | — | | Income tax expense (benefit)| $587 | $854 | | Adjusted Income Before Tax| $805 | $7,255 | | Adjusted Income tax expense (benefit)| $(135) | $1,426 | | **Adjusted Net Income (loss)**| **$940** | **$5,829**| | Adjusted Basic earnings (loss) per share | $0.03 | $0.20 | | Adjusted Diluted earnings (loss) per share | $0.03 | $0.19 | - Adjusted Net Income (loss) for Q2 2025 was **$(0.726) million**, a decrease from $2.968 million in Q2 2024[34](index=34&type=chunk) - Adjusted Diluted EPS for H1 2025 was **$0.03**, down from $0.19 in H1 2024[34](index=34&type=chunk) [Reconciliation of Estimated Consolidated Net Income to Adjusted EBITDA (Full Year 2025 Outlook)](index=11&type=section&id=Reconciliation%20of%20Estimated%20Consolidated%20Net%20Income%20to%20Adjusted%20EBITDA%20(Full%20Year%202025%20Outlook)) This section provides the reconciliation of estimated consolidated net income to Adjusted EBITDA for the full year 2025 outlook, projecting Adjusted EBITDA between $32 million and $42 million 2025 Full Year Outlook - Adjusted EBITDA Reconciliation | Metric (in thousands USD) | Low | High | | :------------------------ | :------ | :------ | | Net income (loss) | $(8,500)| $(3,000)| | Add (deduct): | | | | Interest expense, net | $4,600 | $5,300 | | Income tax expense | $(500) | $500 | | Depreciation and amortization | $26,900 | $28,000 | | Management fees | $700 | $800 | | Other expense | $3,600 | $4,300 | | Stock option expense | $2,400 | $2,900 | | Goodwill impairment | $1,900 | $2,000 | | Transaction expense | $900 | $1,200 | | **Adjusted EBITDA** | **$32,000**| **$42,000**| | Revenue | $145,000| $165,000| | Adjusted EBITDA Margin | 22% | 25% | - Full year 2025 Adjusted EBITDA is projected to be between **$32 million and $42 million**[35](index=35&type=chunk) - Full year 2025 Adjusted EBITDA Margin is projected to be between **22% and 25%**[35](index=35&type=chunk) [Reconciliation of Estimated Consolidated Net Income to Adjusted Free Cash Flow (Full Year 2025 Outlook)](index=11&type=section&id=Reconciliation%20of%20Estimated%20Consolidated%20Net%20Income%20to%20Adjusted%20Free%20Cash%20Flow%20(Full%20Year%202025%20Outlook)) This section provides the reconciliation of estimated consolidated net income to Adjusted Free Cash Flow for the full year 2025 outlook, projecting Adjusted Free Cash Flow between $14 million and $19 million 2025 Full Year Outlook - Adjusted Free Cash Flow Reconciliation | Metric (in thousands USD) | Low | High | | :------------------------ | :------ | :------ | | Net income (loss) | $(8,500)| $(3,000)| | Add (deduct): | | | | Interest expense, net | $4,600 | $5,300 | | Income tax expense | $(500) | $500 | | Depreciation and amortization | $26,900 | $28,000 | | Management fees | $700 | $800 | | Other expense | $3,600 | $4,300 | | Stock option expense | $2,400 | $2,900 | | Goodwill impairment | $1,900 | $2,000 | | Transaction expense | $900 | $1,200 | | Gross capital expenditures| $(18,000)| $(23,000)| | **Adjusted Free Cash Flow**| **$14,000**| **$19,000**| | Adjusted Free Cash Flow Margin | 10% | 12% | - Full year 2025 Adjusted Free Cash Flow is projected to be between **$14 million and $19 million**[36](index=36&type=chunk) - Full year 2025 Adjusted Free Cash Flow Margin is projected to be between **10% and 12%**[36](index=36&type=chunk)

Revenue Performance - Total revenue for the three months ended March 31, 2025, was $42.88 million, a 16% increase from $36.97 million in the same period of 2024[190] - Tool rental revenues accounted for 81% of total revenues, while product sales contributed 19% during the three months ending March 31, 2025[180] - Western Hemisphere revenue increased by $2.89 million, or 8%, to $41.2 million, driven by the addition of the Diamond Products Division[191] - Eastern Hemisphere revenue surged by $3.8 million, or 305%, to $5.1 million, primarily due to acquisitions in the rental business[192] Operating Income and Expenses - Total operating income decreased by 36% to $3.3 million, down from $5.13 million in the prior year[190] - Interest expense increased significantly by 619% to $1.3 million, attributed to new loans and credit facility draws[194] - Corporate and other expenses rose by 15% to $10.1 million, mainly due to increased depreciation from acquired assets[193] Cash Flow and Liquidity - Net cash provided by operating activities for Q1 2025 was $2.4 million, down from $3.3 million in Q1 2024, driven by a net loss of $1.7 million[206] - Net cash used in investing activities for Q1 2025 was $7.3 million, including $5.0 million for property, plant, and equipment purchases and $5.6 million for the acquisition of Titan[207] - Net cash provided by financing activities for Q1 2025 was $1.4 million, compared to a net cash outflow of $24.6 million in Q1 2024[209] - Cash and cash equivalents as of March 31, 2025, were $2.8 million, with sufficient liquidity expected for the next 12 months[200] - Cash and cash equivalents at March 31, 2025, included approximately $5.3 million due from major customers[216] Future Outlook and Risks - The company expects federal net operating loss carryforwards to substantially reduce cash tax payments over the next several years[204] - The company has not entered into any hedging arrangements to minimize foreign currency exchange rate fluctuations, which may impact future cash flows[217] - The company is monitoring inflation risks due to rising international tariffs that could adversely affect business operations[219] - The company will continue to evaluate capital requirements for liquidity needs, influenced by various risks including inflation and interest rates[206] Cybersecurity - Cybersecurity measures include regular testing and an incident response plan to mitigate risks, although no assurance can be given that incidents will not occur[222] Rig Count - The average rig count in the Western Hemisphere decreased to 930 from 995 year-over-year, while the Eastern Hemisphere count increased to 757 from 725[187] Customer Concentration - 29.0% of total revenue in Q1 2025 was earned from two customers, slightly down from 30.0% in Q1 2024[216]

Financial Performance - Total consolidated revenue for the first quarter of 2025 was $42.9 million, with Tool Rental revenue at approximately $34.5 million and Product Sales revenue totaling $8.3 million, representing a 16% increase year-over-year[2][3]. - Adjusted EBITDA for the first quarter was $10.8 million, showing an 18% growth compared to the same period last year[2][3]. - The company reported a net loss of approximately $1.7 million for the first quarter, with diluted EPS at a loss of $0.05 per share[2][3][15]. - Tool rental revenue increased from $29.97 million in Q1 2024 to $34.53 million in Q1 2025, while product sales rose from $7.01 million to $8.35 million in the same period[15]. - Adjusted EBITDA for Q1 2025 was $10,754 million, slightly down from $10,891 million in Q1 2024, indicating a decrease of about 1.3%[29]. - Adjusted Free Cash Flow for Q1 2025 was $5,711 million, an increase from $4,663 million in Q1 2024, reflecting a growth of approximately 22.4%[31]. - Net income for the three months ended March 31, 2025, was a loss of $1,669 million, compared to a profit of $3,126 million for the same period in 2024[19]. Guidance and Projections - Updated full-year 2025 revenue guidance is set between $145 million and $165 million, with Adjusted EBITDA guidance between $32 million and $42 million[6]. - The Adjusted EBITDA margin is projected to be between 22% and 25% for the full year 2025[6]. - For the three months ended March 31, 2025, Drilling Tools International Corp. reported a net income ranging from $(4,500) thousand to $(1,500) thousand[34]. - Adjusted EBITDA is estimated to be between $32,000 thousand and $42,000 thousand, with an adjusted EBITDA margin of 22% to 25%[34]. - Revenue for the same period is projected to be between $145,000 thousand and $165,000 thousand[34]. - Adjusted Free Cash Flow is expected to range from $14,000 thousand to $19,000 thousand, with an adjusted free cash flow margin of 10% to 12%[36]. Expenses and Liabilities - The company has implemented a new program to cut expenses by approximately $6 million in response to market volatility and uncertainty[4][5]. - Total current liabilities rose to $34,801 million as of March 31, 2025, compared to $30,963 million at December 31, 2024, marking an increase of approximately 12.0%[17]. - The company incurred transaction expenses of $732 million in Q1 2025, down from $889 million in Q1 2024, reflecting a decrease of about 17.7%[31]. - Goodwill impairment recorded in Q1 2025 was $1,901 million, with no such impairment reported in Q1 2024[29]. - Goodwill impairment is projected to be between $1,800 thousand and $2,000 thousand[34]. - Depreciation and amortization expenses are estimated between $26,500 thousand and $28,000 thousand[34]. - Interest expense, net, is projected to be between $3,700 thousand and $5,000 thousand[34]. - The company anticipates other expenses to range from $1,500 thousand to $3,000 thousand[34]. - Stock option expenses are estimated to be between $2,500 thousand and $3,000 thousand[34]. Cash and Assets - As of March 31, 2025, the company had approximately $2.8 million in cash and cash equivalents and net debt of $52.1 million[2][15]. - Cash at the end of Q1 2025 was $2,789 million, a significant decrease from $14,049 million at the end of Q1 2024, representing a decline of about 80.2%[19]. - Total assets increased to $233,169 million as of March 31, 2025, up from $222,431 million at December 31, 2024, representing a growth of approximately 3.3%[17]. - Basic weighted-average common shares outstanding increased to 35,592,737 in Q1 2025 from 29,768,568 in Q1 2024, indicating a rise of approximately 19.6%[33]. Shareholder Actions - The board authorized a $10 million share repurchase program to enhance shareholder value, reflecting confidence in the company's long-term strategy[8][9].

Revenue Growth and Composition - Revenue increased by 340%, from $35 million in 2012 to $154 million in 2024[18]. - Directional Tool Rentals (DTR) accounted for approximately 50% of total revenue in 2024, with a fleet of over 23,000 tools[17][20]. - Premium Tools Division (PTD) contributed approximately 17% of total revenue in 2024, with a fleet of approximately 1,000,000 feet of drill pipe[20]. - Wellbore Optimization Tools (WOT) represented approximately 21% of total revenue in 2024, featuring tools that enhance drilling efficiency[20]. - New acquisitions accounted for approximately 10% of total revenue in 2024, including Casing Technologies Group Limited and Superior Drilling Products[21]. - Approximately 46% of the company's 2024 revenue comes from diversified oilfield service companies, while E&P operators account for about 48%[31]. - The company generated revenue from tool rentals and product sales of $154.4 million for the year ended December 31, 2024, compared to $152.0 million for 2023, indicating a slight increase in revenue[194]. Operational Expansion - The company expanded its customer base from less than 10% to over 45% revenue derived from exploration and production (E&P) operators from 2014 to 2024[27]. - The company established 16 service and support centers in North America and 11 additional international centers across Europe, the Middle East, and Asia-Pacific[18]. - In 2024, the company expanded its international operations by completing 2 acquisitions, increasing its service and support centers from 4 to 11[28]. - The company operates a large rental tool fleet concentrated in the Permian Basin, which is critical for securing large contracts across multiple geographic locations[29]. - The company operates from 16 locations in North America and maintains 11 international stocking points in Europe, the Middle East, and Asia-Pacific[35]. Financial Performance and Profitability - The net income for the company was $3.0 million for the year ended December 31, 2024, down from $14.7 million in 2023, reflecting a significant decrease in profitability[194]. - The accumulated deficit as of December 31, 2024, was $3.6 million, improved from $6.3 million in 2023, showing a reduction in historical losses[194]. - The company is experiencing rising costs due to global inflation, which is expected to impact profitability in the near term[205]. Safety and Compliance - The company has reduced its total recordable incident rate from 2.3 in 2018 to 1.15 in 2024, which is lower than the industry average, demonstrating a commitment to employee safety[34]. - Compliance with environmental laws and regulations may increase operational costs and affect demand for products and services[121]. - The company is subject to regulatory changes, including potential restrictions on federal oil and gas leasing practices, which could adversely affect operations and revenue[82]. Strategic Initiatives - The company aims to maximize the profitability of its core rental tool business and expand geographically[26]. - The company has a strategy to execute accretive mergers and acquisitions, having completed four transactions in 2024[26]. - The company completed a merger with ROC Energy Acquisition Corp. on June 20, 2023, which may impact future operational strategies and market positioning[190]. Risks and Challenges - The company faces risks related to dependence on a small number of customers and potential challenges in obtaining necessary permits for operations[43]. - The company experienced a significant reliance on a small number of customers, with 28% and 39% of total revenue coming from its two largest customers in 2024 and 2023, respectively[64]. - The company is dependent on the oil and gas industry's activity levels, which are influenced by crude oil and natural gas prices, and any downturn could adversely affect demand for its products and services[59]. - The company may face significant competition in the oil and gas drilling tool rental industry, which could lead to price competition and reduced utilization rates[85]. - The company may incur additional indebtedness to support its long-term growth strategy, which could reduce profitability[102]. Cybersecurity and IT Management - The company has a cybersecurity Risk Management Policy in place to identify and manage cybersecurity risks[169]. - Cybersecurity incidents could damage the company's reputation, disrupt operations, and impact revenues[180]. - The company utilizes third-party services for cybersecurity support and conducts annual risk assessments[173][175]. - The Chief Financial Officer and VP of Finance are responsible for overseeing cybersecurity threats and risks, reporting to the Board of Directors[179]. Market Conditions and Economic Factors - The monthly average rig count in the Western Hemisphere decreased by 10% from 1,040 rigs in 2023 to 940 rigs in 2024[25]. - The WTI oil price was approximately $72.44 per barrel as of December 31, 2024, reflecting ongoing volatility in the oil market[200]. - Henry Hub natural gas spot prices increased from an average of $2.52 per MMBtu in December 2023 to $3.01 per MMBtu in December 2024, indicating a rebound in natural gas prices[202]. Shareholder and Financial Governance - The company has broad discretion over its cash usage, with no current plans to pay cash dividends on common stock, potentially limiting returns for shareholders[55]. - There are no current plans to pay cash dividends on the Common Stock for the foreseeable future, which may limit returns for investors[161]. - The company's sole material asset is its direct equity interest in DTIH, making it dependent on distributions from DTIH for financial obligations[162]. - The Nasdaq Capital Market may delist the Common Stock, which could adversely affect trading and liquidity[163].

Financial Performance - For the full year 2024, Drilling Tools International Corp. generated total consolidated revenue of $154.4 million, with tool rental revenue at approximately $117.9 million and product sales revenue totaling $36.5 million[3]. - In Q4 2024, total consolidated revenue was $39.8 million, with tool rental revenue around $31.5 million and product sales revenue of $8.3 million[4]. - Adjusted EBITDA for 2024 was $40.1 million, while adjusted free cash flow was $17.2 million[3]. - The company reported a net income of $3.0 million for 2024, with diluted EPS of $0.09[3]. - Net income for 2024 was $3,014 million, a decrease from $14,748 million in 2023, indicating a decline of 79.6%[17]. - Adjusted EBITDA for the year ended December 31, 2024, was $40,101,000, down 21.5% from $51,042,000 in 2023[30]. - Adjusted Free Cash Flow for the year ended December 31, 2024, increased to $17,209,000 from $7,292,000 in 2023, representing a 135.5% increase[30]. - For the three months ended December 31, 2024, net loss was $1,345,000 compared to a net income of $3,823,000 in the same period of 2023[30]. - Adjusted Net Income for the three months ended December 31, 2024, was $600,000, a decrease of 84.4% from $3,840,000 in 2023[32]. - Adjusted Basic earnings per share for the year ended December 31, 2024, was $0.32, down from $0.88 in 2023[32]. Future Projections - For 2025, the company expects consolidated revenue to range between $163 million and $183 million, with adjusted EBITDA projected between $40 million and $50 million[6]. - The adjusted EBITDA margin for 2025 is anticipated to be between 25% and 27%[6]. - Estimated revenue for the twelve months ending December 31, 2025, is projected to be between $163,000,000 and $183,000,000[34]. - Adjusted EBITDA margin for the twelve months ending December 31, 2025, is expected to be between 25% and 27%[34]. Cash and Debt Management - As of December 31, 2024, the company had approximately $6.2 million in cash and cash equivalents, with net debt of $47.6 million[3]. - Cash and cash equivalents at the end of the period rose to $6,185 million, up from $6,003 million in 2023, a 3.0% increase[17]. - Net cash flows from operating activities decreased to $6,058 million in 2024 from $23,334 million in 2023, a drop of 74.0%[17]. Asset and Liability Changes - Total assets increased to $222,431 million in 2024 from $132,498 million in 2023, representing a 67.8% growth[15]. - Accounts receivable increased significantly to $39,606 million in 2024, compared to $29,929 million in 2023, marking a 32.5% rise[15]. - Inventories surged to $17,502 million in 2024, up from $5,034 million in 2023, reflecting a 248.5% increase[15]. - The company reported a total liabilities increase to $102,472 million in 2024, up from $43,808 million in 2023, a 133.3% increase[15]. Acquisitions and Growth Strategy - Drilling Tools International Corp. plans to significantly grow its international revenue in 2025, despite a flat market environment forecasted for the year[5]. - The company is actively pursuing additional acquisitions to enhance value and expand its geographic reach, having already acquired several companies in the past year[5]. - The company engaged in acquisitions, with cash outflow of $47,258 million for business acquisitions in 2024[17]. Performance Metrics - Adjusted EBITDA is used to evaluate operating performance, excluding non-recurring items and providing a clearer view of ongoing business performance[19]. - Adjusted Free Cash Flow for the company is defined as Adjusted EBITDA less Gross Capital Expenditures, aiding in performance evaluation[21]. - Transaction expenses for the year ended December 31, 2024, were $7,036,000, an increase from $5,979,000 in 2023[30]. - Gross capital expenditures for the year ended December 31, 2024, were $(22,892,000), compared to $(43,750,000) in 2023[30].

Financial Performance - Total revenue for the three months ended September 30, 2024, was $40.1 million, a 5.1% increase from $38.1 million in the same period of 2023[182]. - Net income for the three months ended September 30, 2024, was $0.9 million, a decrease of 79.8% compared to $4.3 million for the same period in 2023[182]. - Tool rental revenue for the three months ended September 30, 2024, was $28.1 million, down 4.2% from $29.4 million in 2023[214]. - Product sales revenue increased by 36.5% to $12.0 million for the three months ended September 30, 2024, compared to $8.8 million in 2023[214]. - Tool rental revenue decreased by $1.2 million, or 4%, to $28.1 million for the three months ended September 30, 2024, compared to $29.4 million for the same period in 2023[216]. - Product sale revenue increased by $3.2 million, or 36%, to $12.0 million for the three months ended September 30, 2024, compared to $8.8 million for the same period in 2023, driven by acquisitions of Deep Casing and Diamond Products Division[217]. - Tool rental revenue decreased by $4.2 million, or 5%, to $86.4 million for the nine months ended September 30, 2024, compared to $90.6 million for the same period in 2023[227]. - Product sale revenue increased by $1.9 million, or 8%, to $28.2 million for the nine months ended September 30, 2024, compared to $26.2 million for the same period in 2023[228]. - Adjusted EBITDA for the nine months ended September 30, 2024 was $30.98 million, down 24.2% from $40.84 million in 2023[239]. Expenses and Costs - Cost of tool rental revenue decreased by $3.3 million, or 44%, to $4.1 million for the three months ended September 30, 2024, primarily due to reduced labor and repair costs[219]. - Cost of product sale revenue increased by $3.9 million, or 216%, to $5.7 million for the three months ended September 30, 2024, driven by additional costs from Deep Casing and Diamond Products Division[220]. - Selling, general, and administrative expenses increased by $3.3 million, or 20%, to $19.9 million for the three months ended September 30, 2024, primarily due to increased personnel-related fees[221]. - Selling, general, and administrative expenses increased by $6.4 million, or 13%, to $57.4 million for the nine months ended September 30, 2024, compared to $51.0 million for the same period in 2023[232]. - Interest expense increased by $965 thousand, or 1322%, to $1.0 million for the three months ended September 30, 2024, due to a new term loan and drawn Credit Facility[224]. - Other expense increased by $2.3 million, or 1710%, to $2.4 million for the three months ended September 30, 2024, primarily due to transaction costs related to the acquisition of SDPI[225]. Cash Flow and Liquidity - As of September 30, 2024, cash and cash equivalents were $12.0 million, with an accumulated deficit of $2.2 million[182]. - As of September 30, 2024, the company had $12.0 million in cash and cash equivalents, with sufficient liquidity to meet working capital requirements for at least the next 12 months[240]. - Net cash provided by operating activities for the nine months ended September 30, 2024 was $9.7 million, a decrease of 44.7% from $17.5 million in 2023[246]. - Net cash used in investing activities for the nine months ended September 30, 2024 was $46.1 million, primarily due to business acquisitions of $38.6 million[248]. - Net cash provided by financing activities for the nine months ended September 30, 2024 was $43.4 million, resulting from proceeds from a term loan of $25 million and a revolving line of credit of $30.1 million[250]. - The company incurred $21.1 million in non-cash charges for depreciation and amortization during the nine months ended September 30, 2024[247]. Market Conditions and Risks - The WTI oil price was approximately $68.75 per barrel as of September 30, 2024, reflecting ongoing market volatility[187]. - Henry Hub natural gas spot prices decreased from $2.64 per MMBtu in September 2023 to $2.28 per MMBtu in September 2024[191]. - The average monthly rig count in the Western Hemisphere decreased to 947 rigs in 2024 from 1,007 rigs in 2023, while the Eastern Hemisphere rig count increased slightly to 736 rigs from 739 rigs[193]. - Inflationary pressures on the cost structure are expected to continue, although raw material costs are moderating due to a strengthening U.S. dollar[266]. - Concerns regarding a possible recession may negatively impact oil demand, which could affect demand for the company's goods and services[266]. Strategic Plans - The company expects total costs and expenses to increase in absolute dollars due to anticipated growth in revenue and employee headcount[206]. - The company plans to increase investments in sales and marketing to drive additional revenue and expand its global customer base[211]. - The company is actively evaluating capital requirements for both short-term and long-term liquidity needs amid risks such as inflation and rising interest rates[248]. Financial Management and Risks - The company expects federal net operating loss carryforwards to substantially reduce cash tax payments over the next several years[245]. - The company maintains cash and cash equivalents with major financial institutions, with potential concentrations of credit risk in accounts receivable[262]. - The majority of sales are denominated in United States and Canadian dollars, exposing the company to foreign currency risk as it expands internationally[264]. - The company has not entered into any hedging arrangements to mitigate foreign currency fluctuations, but does not believe this risk materially affected operations[265]. - The company has implemented a suite of cybersecurity controls, including regular testing and an incident response plan, but cannot guarantee complete mitigation of cybersecurity risks[267].

Financial Performance - Total consolidated revenue for Q3 2024 was $40.1 million, with Tool Rental revenue at approximately $28.1 million and Product Sales revenue totaling $12.0 million[3]. - Net Income for Q3 2024 was $867,000, while Adjusted Net Income was $4.6 million, resulting in a Diluted EPS of $0.03 and Adjusted Diluted EPS of $0.14[3]. - Adjusted EBITDA for Q3 2024 was $11.1 million, and Adjusted Free Cash Flow was $7.8 million[3]. - The company revised its 2024 full-year revenue outlook to between $145 million and $155 million, with Adjusted Net Income expected to be between $7.7 million and $9.8 million[5]. - DTI's total operating expenses for Q3 2024 were $35.8 million, leading to an Income from Operations of $4.3 million[3]. - Net income for the nine months ended September 30, 2024, was $4,359,000, a decrease of 60% compared to $10,925,000 in the same period of 2023[16]. - Adjusted EBITDA for the nine months ended September 30, 2024, was $30,982,000, down 24% from $40,840,000 in the same period of 2023[26]. - Adjusted net income for the nine months ended September 30, 2024, was $8,710,000, down from $14,965,000 in 2023, reflecting a decrease of about 41.0%[30]. - For the three months ended September 30, 2024, the net income decreased to $867,000 from $4,287,000 in the same period of 2023, representing a decline of approximately 80.7%[30]. - The company reported an adjusted income before tax of $9,540,000 for the nine months ended September 30, 2024, down from $22,089,000 in 2023, a decrease of approximately 56.7%[30]. Cash Flow and Investments - As of September 30, 2024, DTI had approximately $12 million in cash and cash equivalents and net debt of $32.1 million[3]. - Net cash flows from operating activities for the nine months ended September 30, 2024, were $9,723,000, compared to $17,484,000 in 2023, reflecting a decline of 44%[16]. - Cash at the end of the period increased to $11,961,000 in 2024 from $3,989,000 in 2023, representing a growth of 199%[16]. - The company reported a net cash from investing activities of $(46,132,000) for the nine months ended September 30, 2024, compared to $(20,027,000) in 2023, indicating increased investment activity[16]. - Adjusted Free Cash Flow for the nine months ended September 30, 2024, was $11,303,000, compared to $4,064,000 in 2023, showing a significant increase of 178%[28]. - The company incurred gross capital expenditures of $19,678,000 for the nine months ended September 30, 2024, down from $36,776,000 in 2023, a reduction of 47%[28]. - The company completed the acquisition of a business for $38,670,000, impacting cash flows from investing activities significantly[16]. Operational Strategy and Market Position - The company is focused on an acquisition growth strategy to enhance its market position amid industry headwinds[4]. - DTI operates 16 service and support centers in North America and 11 international centers across EMEA and APAC regions[7]. - The company is enhancing its cost management program to align with current market conditions and anticipates a sequential slowdown in Q4 due to holiday breaks and budget constraints from customers[4]. Shareholder Information - The basic weighted-average common shares outstanding increased to 30,893,602 for the nine months ended September 30, 2024, from 18,608,708 in 2023, an increase of about 65.5%[30]. - The diluted weighted-average common shares outstanding increased to 31,404,333 for the nine months ended September 30, 2024, compared to 23,554,593 in 2023, an increase of about 33.2%[30]. Future Projections - Estimated adjusted EBITDA for the twelve months ended December 31, 2024, is projected to be between $38,000,000 and $43,000,000, with an adjusted EBITDA margin of 26% to 28%[31]. - Estimated adjusted free cash flow for the twelve months ended December 31, 2024, is expected to range from $18,000,000 to $21,000,000, with a free cash flow margin of 12% to 14%[32]. - The estimated adjusted net income for the twelve months ended December 31, 2024, is projected to be between $7,700,000 and $9,800,000[33]. Credit Quality and Asset Management - The company reported a provision for credit losses of $42,000 in 2024, a decrease from $502,000 in 2023, indicating improved credit quality[16]. - The company reported a loss on asset disposal of $27,000 in 2024, with no comparable loss in 2023, indicating potential asset management challenges[16]. - Transaction expenses for the nine months ended September 30, 2024, totaled $4,766,000, compared to $5,963,000 in the same period of 2023, indicating a decrease of approximately 20.0%[30].