Drilling Tools International (DTI) - 2025 Q2 - Quarterly Report

PART I: Financial Information This section details the company's unaudited financial statements, management's analysis, market risks, and internal controls Item 1. Condensed Consolidated Financial Statements The company presents its unaudited condensed consolidated financial statements, reporting a 10% revenue increase to $82.3 million but a net loss of $4.1 million for the first half of 2025 Condensed Consolidated Balance Sheets Total assets increased to $230.3 million as of June 30, 2025, driven by acquisitions, while total liabilities rose to $107.8 million and shareholders' equity slightly increased | | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $66.1 | $68.1 | | Total Assets | $230.3 | $222.4 | | Total Current Liabilities | $32.0 | $31.0 | | Revolving line of credit | $33.1 | $27.1 | | Total Liabilities | $107.8 | $102.5 | | Total Shareholders' Equity | $122.5 | $120.0 | Condensed Consolidated Statements of Comprehensive Income (Loss) Total revenue increased 10.5% to $82.3 million for the six months ended June 30, 2025, but the company reported a net loss of $4.1 million due to increased expenses and a goodwill impairment | | Six months ended June 30, 2025 (in millions) | Six months ended June 30, 2024 (in millions) | | :--- | :--- | :--- | | Total revenue, net | $82.3 | $74.5 | | Tool rental | $67.3 | $58.3 | | Product sale | $15.0 | $16.2 | | Total costs and other deductions | $85.8 | $70.2 | | Goodwill impairment | $1.9 | $0.0 | | Net income (loss) | $(4.1) | $3.5 | | Diluted earnings (loss) per share | $(0.11) | $0.12 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities remained stable at $4.6 million, while investing activities decreased to $12.1 million and financing activities significantly declined to $2.4 million | | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :--- | :--- | :--- | | Net cash flows from operating activities | $4.6 | $4.4 | | Net cash flows from investing activities | $(12.1) | $(26.7) | | Net cash flows from financing activities | $2.4 | $23.5 | | Net change in cash | $(5.0) | $0.8 | | Cash at end of period | $1.1 | $6.8 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, recent acquisitions, segment realignment, a $1.9 million goodwill impairment, and the initiation of a share repurchase program - The company completed four acquisitions: Casing Technologies Group (CTG) on March 15, 2024; Superior Drilling Products (SDPI) on July 31, 2024; European Drilling Projects (EDP) on October 3, 2024; and Titan Tools Group on January 2, 2025[23][24][26] - In January 2025, the company realigned its operations into two reportable segments: Eastern Hemisphere and Western Hemisphere. This change was made to support strategic initiatives to expand global operations[90] - The segment realignment triggered a goodwill impairment test, resulting in a non-cash impairment loss of $1.9 million during the six months ended June 30, 2025[134] - On May 13, 2025, the company announced a share repurchase program for up to $10.0 million. During the quarter, 202,611 shares were repurchased for $0.6 million[181][182] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 10% revenue growth driven by acquisitions, the shift to a net loss, and market headwinds, while affirming liquidity Six Months Ended June 30, 2025 vs 2024 | | 2025 (in millions) | 2024 (in millions) | $ Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue, net | $82.3 | $74.5 | $7.8 | 10% | | Western Hemisphere Revenue | $78.8 | $73.9 | $4.9 | 7% | | Eastern Hemisphere Revenue | $11.1 | $5.4 | $5.7 | 105% | | Net income (loss) | $(4.1) | $3.5 | $(7.6) | -217% | | Adjusted EBITDA | $20.1 | $19.9 | $0.2 | 1% | - Revenue growth was driven by acquisitions, particularly in the Eastern Hemisphere, which saw a 105% increase in revenue for the six-month period[194][202] - The swing to a net loss was primarily due to a $2.5 million increase in depreciation and amortization, a $1.7 million increase in net interest expense, and a $1.9 million goodwill impairment charge[194] - The company is experiencing market headwinds, including declining rig counts. The weekly average Western Hemisphere rig count was 881 for H1 2025, down from 946 in H1 2024. The Eastern Hemisphere rig count was 719, down from 760[192] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies credit, concentration, foreign currency, and inflation as primary market risks, noting significant customer concentration and unhedged FX exposure - The company has significant customer concentration, with two customers representing 27% of revenue for the six months ended June 30, 2025[56] - Foreign exchange risk is growing due to expansion in international markets. The company does not currently hedge this exposure[229][230] - Rising international tariffs and inflation are identified as risks that could materially and adversely affect business, financial condition, and results of operations[231][232] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a continued material weakness in internal control over financial reporting - As of June 30, 2025, the Company's disclosure controls and procedures were deemed ineffective by management[235] - The ineffectiveness is due to a continued material weakness related to ineffective monitoring activities to assess the operation of internal control over financial reporting[236] PART II: Other Information This section covers legal proceedings, risk factors, equity sales, and other relevant disclosures Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, with no specific material litigation disclosed - The company may become involved in various legal proceedings in the ordinary course of its business. Refer to Note 15 for further details on commitments and contingencies[166][240] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K have been identified - No material changes to the risk factors from the Annual Report as of the date of this Quarterly Report have been identified[241] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company initiated a $10.0 million share repurchase program, repurchasing 202,611 shares for $0.6 million in Q2 2025 Share Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | May 2025 | 61,528 | $2.60 | $0.2 | | June 2025 | 141,083 | $3.17 | $0.4 | | Total | 202,611 | $3.00 | $0.6 | - The company remains authorized to purchase an additional $9.4 million worth of common shares under the current repurchase program[242] Item 5. Other Information A Rule 10b5-1 trading plan was adopted by an executive to sell up to 125,000 shares over a 15-month period - Michael Domino, President of the Directional Tool Rentals Division, adopted a Rule 10b5-1 trading plan on May 16, 2025, to sell up to 125,000 shares over 15 months[246][247]