Financial Performance - Total revenue for the three months ended June 30, 2024, was $37.5 million, a decrease of 1% from $37.9 million in the same period of 2023[163]. - Net income for the three months ended June 30, 2024, was $0.4 million, down from $0.9 million in the same period of 2023, representing a decline of 56%[163]. - Adjusted EBITDA for the three months ended June 30, 2024, was $8.965 million, down 32% from $13.265 million in the same period of 2023[221]. - For the three months ended June 30, 2024, the company reported a net income of $365,000, a decrease of 61% compared to $937,000 in the same period of 2023[221]. - For the six months ended June 30, 2024, net cash provided by operating activities was $4.391 million, a significant decrease from $14.061 million in the same period of 2023[230]. - The company reported a net increase in cash and cash equivalents of $781,000 for the six months ended June 30, 2024, compared to an increase of $4.804 million in the same period of 2023[230]. Revenue Breakdown - Tool rental revenue for the three months ended June 30, 2024, was $28.3 million, a decrease of 2.3% from $29.0 million in 2023[195]. - Product sales revenue for the three months ended June 30, 2024, was $9.2 million, an increase of 3.3% from $8.9 million in 2023[195]. - Tool rental revenue decreased by $3.0 million, or 5%, to $58.3 million for the six months ended June 30, 2024, primarily due to decreased market activity in certain divisions[209]. - Product sale revenue increased by $0.3 million, or 3%, to $9.2 million for the three months ended June 30, 2024, driven by additional sales from Deep Casing acquired in March 2024[199]. Costs and Expenses - Total costs and expenses for the three months ended June 30, 2024, were $35.3 million, an increase of 12.9% from $31.3 million in 2023[195]. - Selling, general, and administrative expenses for the three months ended June 30, 2024, were $19.6 million, up 10.1% from $17.7 million in 2023[195]. - Cost of tool rental revenue decreased by $0.2 million, or 3%, to $7.5 million for the three months ended June 30, 2024, primarily due to lower labor and repair costs[201]. - Cost of product sale revenue increased by $1.4 million, or 120%, to $2.5 million for the three months ended June 30, 2024, mainly due to additional costs from Deep Casing[202]. - Selling, general, and administrative expenses increased by $1.9 million, or 11%, to $19.6 million for the three months ended June 30, 2024, driven by higher personnel-related fees[203]. - Depreciation and amortization expenses increased by $1.0 million, or 20%, to $5.7 million for the three months ended June 30, 2024, due to a higher property, plant, and equipment balance[204]. - Interest expense increased by $463 thousand, or 133%, to $0.8 million for the three months ended June 30, 2024, primarily due to increased interest on a term loan entered into in March 2024[205]. Market Conditions - The average U.S. onshore rig count was 583 for the three months ended June 30, 2024, down from 698 in the same period of 2023, reflecting a decline of 16.5%[174]. - The WTI oil price as of June 30, 2024, was approximately $83.29 per barrel, reflecting ongoing volatility in the oil market[168]. - The company is experiencing rising costs due to global inflation, impacting profitability in the near term[175]. - Inflationary pressures on the company's cost structure are expected to continue, although raw material and component costs are moderating[252]. Future Outlook - The company expects tool rental services revenue to increase over time due to anticipated growth in drilling activity and market share[183]. - The company expects that federal net operating loss carryforwards will substantially reduce cash tax payments over the next several years[229]. - The company’s capital expenditures are influenced by demand for services and cash flow generated by operations, with ongoing investments to maintain and upgrade rental tools and equipment[227]. Cash Flow and Financing - The company had $6.8 million in cash and cash equivalents as of June 30, 2024, with sufficient liquidity to meet working capital requirements for at least the next 12 months[224]. - Net cash used in investing activities for the six months ended June 30, 2024, was $26.728 million, primarily due to purchases of property, plant, and equipment of $16.3 million and the acquisition of CTG for $18.2 million[233]. - Net cash provided by financing activities for the six months ended June 30, 2024, was $23.495 million, resulting from proceeds from a term loan of $25 million[235]. - The company incurred $2.020 million in transaction expenses for the three months ended June 30, 2024, compared to $4.142 million in the same period of 2023[221]. Risk Management - The company has established a cybersecurity incident response plan and team to address potential risks, but there is no assurance that these measures will fully mitigate cybersecurity risks[253]. - The company has not entered into any hedging arrangements to minimize foreign currency exchange rate fluctuations, which may impact future operations[250].

Financial Performance - Total revenue for the three months ended March 31, 2024, was $36.974 million, a decrease of 9% from $40.799 million in the same period of 2023[197]. - Net income for the three months ended March 31, 2024, was $3.126 million, down from $5.701 million in the same period of 2023[197]. - Adjusted EBITDA decreased to $10.9 million for Q1 2024 from $14.8 million in Q1 2023, reflecting underlying trends in business performance[212]. - Net cash provided by operating activities was $3.3 million for Q1 2024, down from $7.1 million in Q1 2023, influenced by changes in operating assets and liabilities[222]. Revenue Breakdown - Tool rental revenue decreased by $2.310 million, or 7%, to $29.966 million for the three months ended March 31, 2024, compared to $32.276 million in 2023[199]. - Product sale revenue decreased by $1.515 million, or 18%, to $7.008 million for the three months ended March 31, 2024, compared to $8.523 million in 2023[200]. - As of March 31, 2024, 30.0% of total revenue was generated from two customers, with accounts receivable from these customers amounting to approximately $6.6 million[238]. Cost and Expenses - The company expects total costs and expenses to increase in absolute dollars in future periods due to anticipated growth in revenue and employee headcount[188]. - Tool rental revenue cost decreased by $1.1 million, or 14%, to $7.0 million for Q1 2024 compared to $8.1 million in Q1 2023, primarily due to reduced rental activity[202]. - Product sale revenue cost increased by $0.2 million, or 18%, to $1.5 million for Q1 2024 compared to $1.3 million in Q1 2023, driven by additional costs from the acquisition of Deep Casing Tools[203]. - Selling, general, and administrative expenses decreased by $0.5 million, or 3%, to $17.9 million for Q1 2024 compared to $18.4 million in Q1 2023, mainly due to lower bonus expenses[204]. - Depreciation and amortization expenses increased by $0.4 million, or 7%, to $5.4 million for Q1 2024 compared to $5.0 million in Q1 2023, attributed to additions to property, plant, and equipment[205]. - Interest expense decreased by $0.4 million, or 68%, to $0.2 million for Q1 2024 compared to $0.6 million in Q1 2023, due to a reduction in interest expense on the revolving line of credit[206]. - Other expense increased by $1.2 million, or 2913%, to $1.1 million for Q1 2024 compared to Q1 2023, primarily due to transaction costs related to a business combination[209]. Market Conditions - The average U.S. onshore rig count was 602 for the three months ended March 31, 2024, compared to 742 for the same period in 2023[175]. - WTI oil price was approximately $84 per barrel as of March 31, 2024, reflecting ongoing volatility in the oil market[169]. - Henry Hub natural gas spot prices decreased from an average of $2.31 per MMBtu in March 2023 to $1.49 per MMBtu in March 2024[173]. - Inflationary pressures on the cost structure are expected to continue, although raw material and component costs are moderating due to a strengthening U.S. dollar[242]. Strategic Plans - The company plans to increase investments in its sales and marketing organization to drive additional revenue and expand its global customer base[193]. - The company has not entered into any hedging arrangements to mitigate foreign currency exchange rate fluctuations, which may impact future results as international market presence expands[240]. Accounting and Compliance - The company utilizes the acquisition method of accounting for business combinations, allocating total purchase consideration to acquired assets and assumed liabilities based on estimated fair values[229]. - The accounting for business combinations must be completed within one year from the acquisition date, with adjustments potentially impacting financial statements[233]. - Costs directly attributable to business combinations are expensed as incurred, affecting the condensed consolidated statements of income[234]. - The company has elected to take advantage of the extended transition period under the JOBS Act, delaying the adoption of certain accounting standards[236]. - The estimated fair values assigned to acquired assets and liabilities are based on reasonable assumptions, but are subject to uncertainty and potential material changes[232]. Risk Management - The company monitors credit quality of customers and maintains an allowance for doubtful accounts to address potential losses from customer payments[237]. - The company has established an incident response plan and team to address cybersecurity risks, although there is no assurance that these efforts will fully mitigate such risks[243].

Revenue Growth - Revenue increased by 334%, from $35 million in 2012 to $152 million in 2023[20] - The company generated revenue from tool rentals and product sales of $152.0 million for the year ended December 31, 2023, compared to $129.6 million for 2022, reflecting a year-over-year increase of approximately 17.5%[176] - Tool rental revenue increased by $20.2 million, or 20%, to $119.2 million for the year ended December 31, 2023, compared to $99.0 million in 2022, driven by increased market activity and customer pricing across all divisions[212] - Product sale revenue rose by $2.3 million, or 7%, to $32.8 million for the year ended December 31, 2023, compared to $30.5 million in 2022, primarily due to increased market activity related to accessory revenue[213] - Total revenue, net for the year ended December 31, 2023, was $152.0 million, an increase from $129.6 million in 2022[210] Operational Overview - The company operates from 16 locations in North America and has established 4 international stocking points in Europe and the Middle East[16] - The company operates from 16 locations in North America and maintains a large fleet of rental equipment, which includes various drilling tools and surface control equipment[175] - The company has over 325 master service agreements (MSAs) with leading OSCs and E&P operators as of December 31, 2023[34] - The company has established a fleet of 36 RotoSteer tools ready for deployment as of December 31, 2023, with plans for significant market share growth in the U.S. within the next three to five years[31] Revenue Sources - Directional Tool Rentals division accounted for approximately 61% of 2023 revenue, maintaining a fleet of over 25,000 tools[24] - Premium Tools Division contributed approximately 19% of 2023 revenue, with a fleet of about 1,000,000 feet of drill pipe and tubing[24] - Wellbore Optimization Tools division, which includes the patented Drill-N-Ream tool, accounted for approximately 17% of 2023 revenue[24] - Other Products & Services division accounted for approximately 3% of 2023 revenue, providing inspection and machining services[24] - Approximately 50% of 2023 revenue comes from diversified OSCs, while E&P operators account for about 47%[33] Safety and Compliance - The company has transformed its operations to meet higher safety and quality standards in the oil and gas industry[28] - The total recordable incident rate has decreased from 2.3 in 2018 to 1.23 in 2023, which is lower than the industry average[36] - The company has a commitment to safety, as evidenced by the implementation of the "Safety Now" program, which is crucial for maintaining business relationships with major clients[36] - Compliance with environmental laws and regulations may increase operational costs and limit demand for products and services[102] Financial Performance - The net income for the year ended December 31, 2023, was $14.7 million, down from $21.1 million in 2022, indicating a decrease of approximately 30.3%[176] - As of December 31, 2023, the company had an accumulated deficit of $6.3 million, an improvement from an accumulated deficit of $21.1 million as of December 31, 2022[176] - Operating income for the year ended December 31, 2023, was $27.9 million, compared to $25.3 million in 2022[210] - Selling, general, and administrative expenses rose to $68.26 million in 2023 from $51.57 million in 2022, driven by increased compliance and governance costs[210] Market Conditions - The average U.S. onshore rig count increased by 59% to 667 rigs, while the Canadian rig count doubled to 176 rigs since 2020[26] - The average U.S. onshore rig count was 667 for the year ended December 31, 2023, down from 705 in 2022, but significantly improved from 418 in 2020[187] - The demand for the company's services and products is primarily influenced by the general level of activity in the oil and gas industry, including the number of active drilling rigs and capital spending by oil and natural gas companies[178] Strategic Initiatives - The company aims to increase revenue from E&P operators from over 47% in 2023 to more than 50%[28] - The company plans to execute accretive mergers and acquisitions, focusing on the downhole rental tool sector[29] - The company aims to increase the percentage of revenue derived from outside North America over the next five years through strategic acquisitions[31] - The company is actively evaluating acquisitions to enhance competitiveness, but integration challenges may arise, impacting operational focus and profitability[71][72] Risks and Challenges - The company faces risks from industry consolidation, which could lead to reduced capital spending by customers and a potential loss of business[52] - Rising costs due to inflation, particularly in freight and materials, have not yet materially impacted financial results, but future cost recovery from customers remains uncertain[64][66] - Delays in obtaining necessary permits for drilling activities could adversely affect customer operations and, consequently, the company's revenue[67][69] - The competitive landscape in the oil and gas drilling tool rental industry is intense, with potential price competition affecting profitability[70] - The company may incur additional indebtedness to execute its long-term growth strategy, which could reduce profitability[87] Shareholder Considerations - The company has no current plans to pay cash dividends on the Common Stock for the foreseeable future, as future earnings will be retained for operations and expansion[170] - The Common Stock is listed on Nasdaq under the symbol "DTI," with a closing price of $3.20 per share as of December 29, 2023[169] - The company is a "controlled company," with HHEP controlling more than 50% of the voting power for the election of the Board, which may limit stockholder protections[148] - The issuance of additional shares or equity securities could dilute existing shareholders' ownership interests and depress the market price of shares[140] Cybersecurity and IT - The company has a cybersecurity Risk Management Policy in place to identify and mitigate risks, with no current material cybersecurity risks reported[153][154] - The company’s IT systems, particularly COMPASS, are critical for operations, and failures or cyberattacks could disrupt business[94] Tax and Regulatory Environment - The company may face significant income tax obligations that could impact after-tax profitability and financial results[114] - Changes in tax laws or rates could adversely affect operating results and overall financial condition[109] - The Inflation Reduction Act of 2022 includes a charge on methane emissions, which could impose additional compliance obligations[104] Capital Expenditures - The company spent $44 million and $25 million on property, plant, and equipment for the years ended December 31, 2023, and 2022, respectively[89] - The company spent $44 million in 2023 and $25 million in 2022 to maintain and refresh its rental fleet, indicating significant capital requirements[89] - Significant expenditures are expected to continue as the company expands its business, influenced by the performance of the oil and gas industry[122]

Financial Performance - For the three months ended September 30, 2023, the company generated revenue of $38.1 million from tool rentals and product sales, compared to $36.5 million for the same period in 2022, reflecting a growth of 4.4%[154] - The net income for the three months ended September 30, 2023, was $4.3 million, down from $7.0 million in the same period of 2022, indicating a decrease of 38.6%[154] - For the nine months ended September 30, 2023, total revenue was $116.8 million, up from $92.9 million in 2022, representing a year-over-year increase of 25.7%[154] - Total revenue, net for the three months ended September 30, 2023, was $38.1 million, an increase from $36.5 million in the same period of 2022[185] - Tool rental revenue increased by $2.5 million, or 9%, to $29.4 million for the three months ended September 30, 2023, compared to $26.8 million for the same period in 2022[187] - Product sale revenue decreased by $0.9 million, or 10%, to $8.8 million for the three months ended September 30, 2023, compared to $9.7 million for the same period in 2022[188] - Tool rental revenue increased by $20.4 million, or 29%, to $90.6 million for the nine months ended September 30, 2023, compared to $70.3 million for the same period in 2022[201] - Product sale revenue increased by $3.6 million, or 16%, to $26.2 million for the nine months ended September 30, 2023, compared to $22.6 million for the same period in 2022[202] Costs and Expenses - Total costs and expenses for the three months ended September 30, 2023, were $31.0 million, compared to $28.5 million for the same period in 2022[185] - Selling, general, and administrative expenses increased by $1.9 million, or 13%, to $16.6 million for the three months ended September 30, 2023, compared to $14.7 million for the same period in 2022[193] - Depreciation and amortization expenses increased by $0.5 million, or 10%, to $5.3 million for the three months ended September 30, 2023, compared to $4.8 million for the same period in 2022[194] - Interest expense increased by $28 thousand, or 62%, to $0.1 million for the three months ended September 30, 2023, compared to $45 thousand for the same period in 2022[195] - Personnel-related expenses increased by $5.0 million, with stock-based compensation rising by $1.7 million due to the Merger[208] - Interest expense surged to $1.0 million, a 2327% increase compared to $41 thousand in the prior year, primarily due to the settlement of the interest rate swap[210] - Other expense increased by $6.0 million, or 2852%, to $6.2 million, primarily due to transaction fees related to the Business Combination[213] Cash Flow and Financial Position - Free Cash Flow for the nine months ended September 30, 2023 was $(19.3) million, compared to $(10.6) million in the prior year[218] - Adjusted EBITDA increased to $40.8 million for the nine months ended September 30, 2023, up from $28.1 million in the prior year[220] - Net cash provided by operating activities was $17.5 million for the nine months ended September 30, 2023, compared to $5.6 million in the prior year[227] - Net cash used in investing activities was $20.0 million, with purchases of property, plant, and equipment totaling $36.7 million[228] - As of September 30, 2023, the company had $4.0 million in cash and cash equivalents, sufficient for at least the next 12 months[221] - Net cash provided by financing activities for the nine months ended September 30, 2023 was $4.3 million, resulting from proceeds of $23.1 million from the Merger and PIPE Financing, net of transaction costs[230] Market and Operational Insights - The average U.S. onshore rig count for the three months ended September 30, 2023, was 627 rigs, compared to 741 rigs for the same period in 2022, showing a decline of 15.4%[164] - WTI oil prices were approximately $89 per barrel as of September 30, 2023, reflecting a recovery from a low of $67 per barrel in March 2023[160] - The company expects its tool rental services revenue to increase over time due to anticipated growth in drilling activity and customer pricing[173] - The company plans to increase investments in its sales and marketing organization to drive additional revenue and expand its global customer base[182] Risks and Challenges - The company is experiencing rising costs due to global inflation, which is expected to impact profitability in the near term[165] - The company anticipates that gross margins will improve slightly as it leverages its existing cost structure to support increased business activity[178] - The company expects to continue experiencing inflationary pressures on its cost structure for the foreseeable future, although raw material and component costs are moderating[242] - The company has not entered into any hedging arrangements to minimize the impact of foreign currency exchange rate fluctuations[240] - The company does not believe that foreign currency risk had a material effect on its business during the periods presented[241] Customer Concentration - During the three and nine months ended September 30, 2023, 28% of total revenue was earned from two customers, compared to 26% and 27% for the same periods in 2022[239] - Amounts due from these two customers included in accounts receivable at September 30, 2023 were approximately $8.4 million[239] Accounting and Compliance - There have been no material changes to the company's critical accounting policies and estimates compared to previous reports[234] - The company has irrevocably elected to take advantage of the extended transition period under the JOBS Act, delaying the adoption of certain accounting standards[236] Cybersecurity - Cybersecurity risk mitigation efforts include regular testing of systems and an established incident response plan, though there is no assurance that these efforts will fully mitigate risks[243]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 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 June 30, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number: 001-41103 DRILLING TOOLS INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 87-2488708 ( ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-41103 ROC ENERGY ACQUISITION CORP. (Exact Name of Registrant as Specified in Its Charter) Delaware 87-2488708 (State or o ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-41103 ROC ENERGY ACQUISITION CORP. (Exact name of registrant as specified in its charter) | Delaware | 87-2488708 ...