CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – REVISIONS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company identified certain errors in its previously issued December 31, 2023 audited consolidated financial statements related to the presentation between cost of tool rental revenue and cost of product sale revenue. Through management's review of classification within the consolidated statements of income and comprehensive income, the Company identified that the cost of revenue for the sale of accessories was historically presented within cost of tool rental revenue, as opposed to correctly presented within cost of product sale revenue, whereas the associated accessory revenue is presented in product sale revenue.

Management evaluated these errors in accordance with SEC Staff Accounting Bulletin Number 99, Materiality (“SAB 99”), which is since codified in Accounting Standards Codification 250, Accounting Changes and Error Corrections (“ASC 250”). The Company performed a quantitative and qualitative assessment of the errors and determine that the errors did not have a material impact to previously issued financial statements. Management noted that the presentation errors identified resulted in a net zero impact to total operating costs and expenses, income from operations, or net income. Therefore, these immaterial errors have been corrected in the current period in accordance with the guidance under SAB 99 and ASC 250.

The audited consolidated financial statements presented herein for the three months ended March 31, 2024 have been revised to correct the errors described above in accordance with SEC SAB Topic 1.M, as codified in ASC 250.

NOTE 3 – BUSINESS COMBINATIONS

Acquisition of CTG

On the CTG Acquisition Date, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., entered into and consummated the Share Purchase Agreement with CTG, the shareholders of CTG, and a representative of CTG, to acquire 100% of the shares of CTG for a gross cash purchase consideration of $20.9 million. CTG is incorporated in the United Kingdom and is the holding company of its wholly owned subsidiary, Deep Casing. Deep Casing specializes in the design, engineering, and manufacturing of a range of patented and innovative products for well construction, well completion, and casing installation processes for the global oil and gas sector. The CTG Acquisition allows the Company to further expand its geographical presence globally, especially in the Middle East, provides accretive earnings to consolidated results of operations, and expands the Company’s portfolio of intellectual property rights, through the acquisition of over 60 patents.

The CTG Acquisition has been accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). Drilling Tools International, Inc. has been treated as the accounting acquirer. Accordingly, CTG’s tangible and identifiable intangible assets acquired and its liabilities assumed were recorded at their estimated fair values on the CTG Acquisition Date.

The allocation of the purchase is as follows:

The excess of the purchase price over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s competitive position. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the CTG Acquisition is not deductible for tax purposes.

During the year ended December 31, 2024, a measurement period adjustment was identified as it relates to assumed accrued liabilities. The total measurement period adjustment was $0.5 million. The measurement period adjustment impacted the goodwill recognized on March 15, 2024. As of March 31, 2024, the Company is complete with the process of allocating the purchase price and valuing the acquired assets and liabilities assumed.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the CTG Acquisition Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Acquisition of Superior Drilling Products, Inc.

On March 6, 2024, the Company entered into the Merger Agreement by and among the Company, SDPI, Merger Sub, Merger Sub II, pursuant to the First Merger, with SDPI surviving as a wholly owned subsidiary of DTI and upon the effective time of the First Merger, SDPI, as the surviving corporation of the First Merger, merged with and into Merger Sub II, with Merger Sub II surviving as a wholly owned subsidiary of the Company.

In accordance with the terms of the Merger Agreement, the closing of the Merger occurred on July 31, 2024 (the “SDPI Closing Date” or “SDPI Closing”) for total consideration of $47.9 million.

SDPI is an innovative drilling and completion tool technology company providing cost saving solutions that drive production efficiencies for the oil and natural gas drilling industry. In addition, SDPI is a manufacturer and refurbisher of polycrystalline diamond compact drill bits for leading oil field services companies. The acquisition furthers the Company's growth strategy as a premier provider of technologically differentiated solutions and services for the global oil & gas drilling industry. The SDPI acquisition allows the company to vertically integrate around our proven and successful Drill-N-Ream® tool, gain global rights to run this tool, continue the Vernal, UT bit repair business supporting major OEMs of PDC drill bits, and leverage their high-spec machine shop. In addition, we acquired over 30 patents and patents pending, the majority of which have been granted.

The acquisition of SDPI has been accounted for as a business combination in accordance with ASC 805, Business Combinations. The Company has been treated as the accounting acquirer. Accordingly, SDPI's tangible and identifiable intangible assets acquired and its liabilities assumed were recorded at their estimated fair values on the SDPI Closing Date. The purchase price allocation for the Merger is preliminary and subject to revision, primarily relating to information pertaining to inventory. Additional information that existed as of the SDPI Closing Date may become known during the remainder of the measurement period, which will not extend beyond one year from the SDPI Closing Date.

The preliminary allocation of the purchase is as follows (in thousands):

The excess of the fair value of the consideration transferred and the fair value of DTI’s previously held investment in SDPI over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s competitive position. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the acquisition of SDPI is not deductible for tax purposes.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the SDPI Closing Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Acquisition of European Drilling Projects B.V.

On September 30, 2024, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., entered the Share Purchase Agreement with European Drilling Projects B.V. (“EDP”), and the sole shareholder of EDP, to acquire 100% of the shares of EDP. European Drilling Products is a global provider of next-generation stabilizers, specialty reamers, and wellbore optimization technology for the drilling industry. EDP designs and manufactures bespoke drilling equipment tailored to address specific industry challenges. The integration of EDP's expertise aligns seamlessly with DTI's international growth strategy and commitment to technological differentiation.

In accordance with the terms of the Merger Agreement, the closing of the acquisition occurred on October 3, 2024 (the “EDP Closing Date” or “EDP Closing”) for total consideration of $13.9 million, including a Promissory Note payable to parent company of EDP for $5.2 million. On April 22, 2025, the First Amendment to the Promissory Note was entered into, reducing the balance owed on the Promissory Note by $0.3 million. The conditions that resulted in the amendment existed as of the balance sheet date. Since the amendment was signed prior to the report date, the impact of the amendment is reflected in the condensed balance sheet as of March 31, 2024. Refer to Note 19 - Subsequent Events for further information. As the amendment was signed within a year of the acquisition date of September 30, 2024 and related to additional information about matters which existed as of the acquisition date , the Company

accounted for the amendment as a measurement period adjustment. Please refer to the table below for the impact of the reduction. Additionally, refer to Note 8 - Long-Term Debt for further information regarding the Promissory Note.

The acquisition of EDP has been accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). Drilling Tools International, Inc. has been treated as the accounting acquirer. Accordingly, EDP’s tangible and identifiable intangible assets acquired, and its liabilities assumed were recorded at their estimated fair values on the EDP Closing Date. The purchase price allocation for the Merger is preliminary and subject to revision. Additional information that existed as of the EDP Closing Date may become known during the remainder of the measurement period, which will not extend beyond one year from the EDP Closing Date.

The preliminary allocation of the purchase is as follows (in thousands):

The excess of the fair value of the consideration transferred over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits of acquiring EDP as the acquisition not only enhances DTI's competitive edge, but also reinforces its position as a leader in providing innovative drilling solutions to the global oil and gas industry. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the acquisition of EDP is not deductible for tax purposes.

During the three months ended March 31, 2025, a measurement period adjustment was identified as it relates to the consideration transferred and the recognition of deferred tax assets and liabilities. The total measurement period adjustment was $1.7 million. The measurement period adjustment impacted the goodwill recognized on September 30, 2024. As of March 31, 2025, the Company is substantially complete with the process of allocating the purchase price and valuing the acquired assets and liabilities assumed.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the EDP Closing Date, and the methodologies used to determine the fair values of those intangible assets (in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Titan Tools Group Limited

On January 2, 2025, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., completed the acquisition of 100% of the shares of Titan Tools Group Limited (“Titan”). Titan is a full-service, down-hole tool rental company for land and offshore operations focused on wellbore construction rental items for both traditional hydrocarbon extraction and geothermal industries. Titan's primary operations are located in the United Kingdom, Europe, and Africa.

In accordance with the terms of the acquisition, the closing of the acquisition occurred on January 2, 2025 (the “Titan Closing Date” or “Titan Closing”) for total consideration of $10.8 million. The consideration for the acquisition of $10.8 million is comprised of the following items (in thousands):

The acquisition of Titan has been accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). Drilling Tools International, Inc. has been treated as the accounting acquirer. Accordingly, Titan’s tangible and identifiable intangible assets acquired, and its liabilities assumed were recorded at their estimated fair values on the Titan Closing Date. The purchase price allocation for the acquisition is preliminary and subject to revision. Additional information that existed as of the Titan Closing Date may become known during the remainder of the measurement period, which will not extend beyond one year from the Titan Closing Date.

The preliminary allocation of the purchase is as follows (in thousands):

The excess of the fair value of the consideration transferred over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits of acquiring Titan as the acquisition not only enhances DTI's competitive edge, but also reinforces its position as a leader in providing innovative drilling solutions to the global oil and gas

industry. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the acquisition of Titan is not deductible for tax purposes.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the Titan Closing Date, and the methodologies used to determine the fair values of those intangible assets (in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

The Company incurred acquisition-related costs of $0.3 million during the three months ended March 31, 2025, which is included in other expense, net in the consolidated statements of income and comprehensive income.

The Company’s consolidated statements of income and comprehensive income for the three months ended March 31, 2025, include Titan’s revenues of $2.6 million and net income of $0.1 million from the Titan Closing Date to March 31, 2025.

Supplemental Pro Forma Information (unaudited)

The unaudited supplemental pro forma financial results below for the three months ended March 31, 2025 and 2024, combine the consolidated results of the Company, SDPI and CTG, giving effect to the mergers as if they had been completed on January 1, 2023. The unaudited supplemental pro forma financial results to not give effect to the impact of the Titan or EDP Acquisition as these were not considered significant individually or in the aggregate. This unaudited supplemental pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of January 1, 2024, or any other date.

NOTE 4 – BALANCE SHEET DETAILS - CURRENT ASSETS AND CURRENT LIABILITIES

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 6 – INTANGIBLE ASSETS, NET

NOTE 8 – DEBT

NOTE 9 – INCOME TAXES

NOTE 10 – STOCK-BASED COMPENSATION

NOTE 11 – OTHER EXPENSES, NET

NOTE 12 – RELATED PARTY TRANSACTIONS

NOTE 13 – LEASES

NOTE 14 – EMPLOYEE BENEFITS

NOTE 15 – COMMITMENTS AND CONTINGENCIES

NOTE 16 – EARNINGS PER SHARE

NOTE 18 – SUPPLEMENTAL CASH FLOWS

Cash flows related to income taxes, interest, leases, inventory purchases and capital expenditures included in accounts payable, assumed liabilities acquired in a business combination and other non-cash investing and financing activities were as follows:

NOTE 19 – SUBSEQUENT EVENTS

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Shareholders' Equity

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – REVISIONS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The audited consolidated financial statements presented herein for the three months ended March 31, 2024 have been revised to correct the errors described above in accordance with SEC SAB Topic 1.M, as codified in ASC 250.

NOTE 3 – BUSINESS COMBINATIONS

Acquisition of CTG

The allocation of the purchase is as follows:

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the CTG Acquisition Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Acquisition of Superior Drilling Products, Inc.

In accordance with the terms of the Merger Agreement, the closing of the Merger occurred on July 31, 2024 (the “SDPI Closing Date” or “SDPI Closing”) for total consideration of $47.9 million.

The preliminary allocation of the purchase is as follows (in thousands):

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the SDPI Closing Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Acquisition of European Drilling Projects B.V.

accounted for the amendment as a measurement period adjustment. Please refer to the table below for the impact of the reduction. Additionally, refer to Note 8 - Long-Term Debt for further information regarding the Promissory Note.

The preliminary allocation of the purchase is as follows (in thousands):

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the EDP Closing Date, and the methodologies used to determine the fair values of those intangible assets (in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Titan Tools Group Limited

The preliminary allocation of the purchase is as follows (in thousands):

industry. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the acquisition of Titan is not deductible for tax purposes.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the Titan Closing Date, and the methodologies used to determine the fair values of those intangible assets (in thousands):

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

The Company incurred acquisition-related costs of $0.3 million during the three months ended March 31, 2025, which is included in other expense, net in the consolidated statements of income and comprehensive income.

The Company’s consolidated statements of income and comprehensive income for the three months ended March 31, 2025, include Titan’s revenues of $2.6 million and net income of $0.1 million from the Titan Closing Date to March 31, 2025.

Supplemental Pro Forma Information (unaudited)

NOTE 4 – BALANCE SHEET DETAILS - CURRENT ASSETS AND CURRENT LIABILITIES

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 6 – INTANGIBLE ASSETS, NET

NOTE 8 – DEBT

NOTE 9 – INCOME TAXES

NOTE 10 – STOCK-BASED COMPENSATION

NOTE 11 – OTHER EXPENSES, NET

NOTE 12 – RELATED PARTY TRANSACTIONS

NOTE 13 – LEASES

NOTE 14 – EMPLOYEE BENEFITS

NOTE 15 – COMMITMENTS AND CONTINGENCIES

NOTE 16 – EARNINGS PER SHARE

NOTE 18 – SUPPLEMENTAL CASH FLOWS

Cash flows related to income taxes, interest, leases, inventory purchases and capital expenditures included in accounts payable, assumed liabilities acquired in a business combination and other non-cash investing and financing activities were as follows:

NOTE 19 – SUBSEQUENT EVENTS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Organization and Nature of Operations

Basis of Presentation

Use of Estimates

Principles of Consolidation

Foreign Currency Translation and Transactions

Revenue Recognition

Cash and Cash Equivalents

Accounts Receivable and Allowance for Credit Losses

Inventories, net

Property, Plant and Equipment, net

Impairment of Long-lived Assets

Intangible Assets

Fair Value Measurements

Fair value of Financial Instruments

The Company's financial instruments consist of cash, accounts receivable, and accounts payable. The carrying amount of such instruments approximates fair value due to their short-term nature. Additionally, the Company carries long-term debt at its amortized cost, which approximates fair value.

Cost of Revenue

Stock-Based Compensation

Earnings Per Share

Income Taxes

Operating Segments

Litigation

Management Fee

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Organization and Nature of Operations

Basis of Presentation

Use of Estimates

Principles of Consolidation

Foreign Currency Translation and Transactions

Revenue Recognition

Cash and Cash Equivalents

Accounts Receivable and Allowance for Credit Losses

Inventories, net

Property, Plant and Equipment, net

Impairment of Long-lived Assets

Intangible Assets

Fair Value Measurements

Fair value of Financial Instruments

The Company's financial instruments consist of cash, accounts receivable, and accounts payable. The carrying amount of such instruments approximates fair value due to their short-term nature. Additionally, the Company carries long-term debt at its amortized cost, which approximates fair value.

Cost of Revenue

Stock-Based Compensation

Earnings Per Share

Income Taxes

Operating Segments

Litigation

Management Fee

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 March 31, 2025


☐	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
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10370 Richmond Ave. #1000 Houston, Texas	77042
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (832) 742-8500

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class

     Trading
Symbol(s)

     Name of each exchange on which registered

     Common stock, par value $0.0001 per share

     DTI

     The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒

As of May 14, 2025, the registrant had 35,592,737 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
	Cautionary Note Regarding Forward-Looking Statements	1
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income (loss) and Comprehensive Income (loss)	4
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Report on Form 10-Q (this “Report”) may constitute "forward-looking statements" for purposes of the federal securities laws. These forward-looking statements include, but are not limited to, statements regarding our and our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward‑looking. Forward-looking statements in this Report may include, for example, statements about:

Important factors that could cause actual results to differ materially from those contained in the forward‑looking statements include, but are not limited to:

•

the demand for our products and services, which is influenced by the general level activity in the oil and gas industry;

•

our ability to retain our customers, particularly those that contribute to a large portion of our revenue;

•

our ability to employ and retain a sufficient number of skilled and qualified workers, including our key personnel;

•

the impact of our status as an emerging growth company and smaller reporting company;

•

our ability to source tools at reasonable cost;

•

our customers’ ability to obtain required permits or authorizations from applicable governmental agencies and other third parties;

•

our ability to market our services in a competitive industry;

•

our ability to execute, integrate and realize the benefits of acquisitions, and manage the resulting growth of our business;

•

our ability to obtain new technology that may become prevalent in the oilfield services industry;

•

potential liability for claims arising from damage or harm caused by the operation of our tools, or otherwise arising from the dangerous activities that are inherent in the oil and gas industry;

•

the impact of global pandemic

•

the impact of the ongoing Russia-Ukraine and Israel-Hamas conflicts on the global economy;

•

application of oilfield anti-indemnity limitations enacted by certain states;

•

our ability to obtain additional capital;

•

the impact of restrictive covenants in the Amended and Restated Revolving Credit, Security and Guaranty Agreement among Drilling Tools International, Inc., certain of its subsidiaries, Drilling Tools International Corporation and PNC Bank, National Association, dated as of March 15, 2024 (the “Credit Facility Agreement”);

•

the impact of indebtedness incurred to execute our long-term growth strategy;

•

potential political, regulatory, economic and social disruptions in the countries in which we conduct business, including changes in tax laws or tax rates;

•

our dependence on our information technology systems, in particular Customer Order Management Portal and Support System, for the efficient operation of our business;

•

the impact of a change in relevant accounting principles, enforcement of existing or new regulations, and changes in policies, rules, regulations, and interpretations of accounting and financial reporting requirements;

•

the impact of adverse and unusual weather conditions on our operations;

•

our ability to comply with applicable laws, regulations and rules, including those related to the environment, greenhouse gases and climate change;

•

our ability to protect our intellectual property rights or trade secrets;

•

our ability to maintain an effective system of disclosure controls and internal control over financial reporting;

•

the potential for volatility in the market price of the Common Stock;

•

the fact that the price per share of Common Stock paid by certain Selling Stockholders is less than the price of such shares as of the date of this prospectus;

•

the impact of increased legal, accounting, administrative and other costs incurred as a public company, including the impact of possible shareholder litigation;

•

the potential for issuance of additional shares of DTIC Common Stock or other equity securities;

•

our ability to maintain the listing of the Common Stock on Nasdaq;

•

the impact of industry or securities analysts changing their recommendation, or failing to cover, the Common Stock; and

•

other risks and uncertainties described in this Report, including those under the section entitled “Risk Factors.”

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.


	March 31,			December 31,
(In thousands, except share data)	2025			2024
	(Unaudited)			(Audited)
ASSETS
Current assets
Cash	$	2,789		$	6,185
Accounts receivable, net		42,381			39,606
Related party note receivable, current		909			909
Inventories, net		18,250			17,502
Prepaid expenses and other current assets		3,045			3,874
Total current assets		67,374			68,076
Property, plant and equipment, net		80,863			75,571
Operating lease right-of-use asset		23,653			22,718
Intangible assets, net		40,227			37,232
Goodwill, net		14,401			12,147
Deferred financing costs, net		730			817
Related party note receivable, less current portion		4,353			4,262
Deposits and other long-term assets		1,569			1,608
Total assets	$	233,169		$	222,431
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	15,603		$	11,983
Accrued expenses and other current liabilities		9,031			7,864
Current portion of operating lease liabilities		4,258			4,121
Current maturities of long-term debt		5,908			6,995
Total current liabilities		34,801			30,963
Operating lease liabilities, less current portion		19,644			18,765
Revolving line of credit		30,000			27,142
Long-term debt, less current portion		18,961			19,676
Deferred tax liabilities, net		7,067			5,926
Total liabilities		110,473			102,472
Commitments and contingencies (See Note 15)
Shareholders' equity
Common stock, $0.0001 par value, shares authorized 500,000,000 as of March 31, 2025 and December 31, 2024, 35,592,737 issued and outstanding as of March 31, 2024 and 34,704,696 shares issued and outstanding as of December 31, 2024		4			3
Additional paid-in-capital		128,878			125,415
Accumulated deficit		(5,251	)		(3,582	)
Accumulated other comprehensive loss		(935	)		(1,877	)
Total shareholders' equity		122,696			119,959
Total liabilities and shareholders' equity	$	233,169		$	222,431

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Three Months Ended March 31,
(In thousands, except share and per share data)	2025			2024
Revenue, net:
Tool rental	$	34,533		$	29,966
Product sale		8,347			7,008
Total revenue, net		42,880			36,974
Operating costs and expenses:
Cost of tool rental revenue		7,688			6,484
Cost of product sale revenue		3,558			2,053
Selling, general, and administrative expense		21,609			17,942
Depreciation and amortization expense		6,722			5,365
Total operating costs and expenses		39,577			31,844
Operating income		3,303			5,130
Other expense, net:
Interest expense, net		(1,309	)		(182	)
Gain on sale of property		13			—
Loss on asset disposal		—			(9	)
Gain (loss) on remeasurement of previously held equity interest		—			249
Goodwill impairment		(1,901	)		—
Other income (expense), net		(1,934	)		(1,125	)
Total other expense, net		(5,131	)		(1,067	)
Income before income tax expense		(1,828	)		4,063
Income tax benefit (expense)		159			(937	)
Net income (loss)	$	(1,669	)	$	3,126
Basic earnings per share	$	(0.05	)	$	0.11
Diluted earnings per share	$	(0.05	)	$	0.11
Basic weighted-average common shares outstanding		35,592,737			29,768,568
Diluted weighted-average common shares outstanding		35,592,737			29,768,568
Comprehensive income:
Net income (loss)	$	(1,669	)	$	3,126
Foreign currency translation adjustment, net of tax		942			(511	)
Net comprehensive income (loss)	$	(727	)	$	2,615

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Common Stock
(In thousands, except share and per share data)	Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
BALANCE, December 31, 2023		29,768,568	$	3	$	95,218	$	(6,306	)	$	(225	)	$	88,690
Stock-based compensation		—		—		208		—			—			208
Foreign currency translation adjustment, net of tax		—		—		—		—			(511	)		(511	)
Net income		—		—		—		3,126			—			3,126
BALANCE, March 31, 2024		29,768,568	$	3	$	95,426	$	(3,180	)	$	(736	)	$	91,513


	Common Stock
(In thousands, except share and per share data)	Shares		Amount		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
BALANCE, December 31, 2024		34,704,696	$	3	$	125,415	$	(3,582	)	$	(1,877	)	$	119,959
Stock-based compensation		—		—		541		—			—			541
Issuance of common stock related to business combination		888,041		1		2,922		—						2,923
Foreign currency translation adjustment, net of tax		—		—		—		—			942			942
Net income (loss)		—		—		—		(1,669	)		—			(1,669	)
BALANCE, March 31, 2025		35,592,737	$	4	$	128,878	$	(5,251	)	$	(935	)	$	122,696

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Three Months Ended March 31,
(In thousands)	2025			2024
Cash flows from operating activities:
Net income (loss)	$	(1,669	)	$	3,126
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		6,722			5,365
Amortization of deferred financing costs		87			56
Non-cash lease expense		1,383			1,111
Unrealized gain on currency translation		(114	)		—
Provision for excess and obsolete inventory		418			—
Provision for excess and obsolete property and equipment		54			66
Provision for credit losses		217			(135	)
Deferred tax expense		(750	)		266
Gain on sale of property		(14	)		—
Loss on asset disposal		37			9
Unrealized loss (gain) on equity securities		—			(249	)
Gross profit from sale of lost-in-hole equipment		(3,145	)		(2,799	)
Stock-based compensation expense		541			208
Interest income on related party note receivable		(91	)		—
Goodwill impairment		1,901			—
Changes in operating assets and liabilities:
Accounts receivable, net		(670	)		(1,839	)
Prepaid expenses and other current assets		572			1,723
Inventories, net		2,540			2,836
Operating lease liabilities		(1,303	)		(1,067	)
Accounts payable		(3,651	)		(2,848	)
Accrued expenses and other current liabilities		(634	)		(2,517	)
Net cash flows from operating activities		2,431			3,312
Cash flows from investing activities:
Acquisition of a business, net of cash acquired		(5,619	)		(18,261	)
Purchase of intangible assets		(681	)		—
Proceeds from sale of property, plant, and equipment		14			—
Purchase of property, plant, and equipment		(5,043	)		(6,228	)
Proceeds from sale of lost-in-hole equipment		4,049			4,904
Net cash flows from investing activities		(7,280	)		(19,585	)
Cash flows from financing activities:
Payment of deferred financing costs		—			(389	)
Proceeds from Term Loan		—			25,000
Repayment of Term Loan		(1,250	)		—
Repayment of Promissory Note		(216	)		—
Proceeds from revolving line of credit		19,349			—
Repayment on revolving line of credit		(16,491	)		—
Net cash flows from financing activities		1,392			24,611
Effect of changes in foreign exchange rates		61			(291	)
Net change in cash		(3,396	)		8,047
Cash at beginning of period		6,185			6,003
Cash at end of period	$	2,789		$	14,050

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Refer to Note 18 for supplemental cash flow information.

Drilling Tools International Corporation, a Delaware corporation ("DTIC" or the "Company"), is 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 well life cycle.

On March 15, 2024 (the “CTG Acquisition Date”), the Company entered into a Share Purchase Agreement with Casing Technologies Group Limited (“CTG”), certain shareholders of CTG, and a representative of CTG. Pursuant to the terms of the Share Purchase Agreement, the Company acquired one hundred percent (100%) of the shares of CTG (the “CTG Acquisition”), which wholly owns Deep Casing Tools Limited (“Deep Casing”), an energy technology development company, for $20.9 million. For further details regarding the acquisition, refer to Note 3, “Business Combinations.”

On March 6, 2024, the Company entered into an agreement and plan of merger by and among the Company, Superior Drilling Products, Inc., a Utah corporation (“SDPI”), DTI Merger Sub I, Inc., a Delaware corporation and directly wholly owned subsidiary of the Company (“Merger Sub I”), and Merger DTI Merger Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub II”), pursuant to which Merger Sub I merged with and into SDPI (the “First Merger”), with SDPI surviving as a wholly owned subsidiary of DTI and upon the effective time of the First Merger (the “First Effective Time”), SDPI, as the surviving corporation of the First Merger, merged with and into Merger Sub II (the “Second Merger,” and together with the First Merger, the “Merger”), with Merger Sub II surviving as a wholly owned subsidiary of the Company. In accordance with the terms of the Merger Agreement, the closing of the Merger occurred on July 31, 2024 (the “SDPI Closing Date” or “SDPI Closing”) for total consideration of $47.9 million. For further details regarding the acquisition, refer to Note 3 - "Business Combinations."

On September 30, 2024, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., entered into a Share Purchase Agreement with European Drilling Projects B.V. (“EDP”), and the sole shareholder of EDP, to acquire 100% of the shares of EDP. The closing of the acquisition occurred on October 3, 2024 for total consideration of $13.9 million. For further details regarding the acquisition, refer to Note 3 – “Business Combinations.”

On January 2, 2025, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., completed the acquisition of 100% of the shares of Titan Tools Group Limited (“Titan”) for a total consideration of $10.8 million. For further details regarding the acquisition, refer to Note 3 – “Business Combinations.”

The Company’s United States (“U.S.”) operations have locations in Texas, Louisiana, Oklahoma, Pennsylvania, North Dakota, New Mexico, Utah, and Wyoming. The Company’s international operations are located in Canada, the United Kingdom, Europe, the Middle East, and Asia-Pacific. Operations outside the U.S. are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws and possible limitations on foreign investment. The Company does not engage in hedging activities to mitigate its exposure to fluctuations in foreign currency exchange rates.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as set forth by the Financial Accounting Standards Board ("FASB") and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). References to US GAAP issued by the FASB in these notes to the accompanying unaudited condensed consolidated financial statements are to the FASB Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”).

Unaudited Financial Information

The accompanying unaudited condensed consolidated financial statements included in this quarterly report have been prepared in accordance with U.S. GAAP and, in the opinion of the Company, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2025, and its results of operations for the three months

ended March 31, 2025 and 2024, and cash flows for the three months ended March 31, 2025 and 2024. The condensed consolidated balance sheet at December 31, 2024, was derived from the audited annual consolidated financial statements but does not contain all of the footnote disclosures from the annual consolidated financial statements.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard, until such time the Company is no longer considered to be an emerging growth company. At times, the Company may elect to early adopt a new or revised standard. As such, the Company’s financial statements may not be comparable to companies that comply with public company effective dates.

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes as of the date of the unaudited condensed consolidated financial statements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. In the current macroeconomic and business environment, these estimates require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change materially in future periods.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated on consolidation. Further, the basis of consolidation incorporates the financial statements of our foreign entities, Casing Technologies Group Limited and Titan Tools Services, which operates under UK Generally Accepted Accounting Principles ("UK GAAP"). Those financial statements are translated into U.S. GAAP for consolidation purposes. The translation process adheres to established accounting standards and guidelines to ensure consistency and comparability across our consolidated financial statements. This approach enables us to accurately reflect the financial position, results of operations, and cash flows of our consolidated operations.

The Company has determined that the functional and reporting currency for its operations across the globe is the functional currency of the Company’s international subsidiaries. Accordingly, all foreign balance sheet accounts have been translated into United States dollars using the rate of exchange at the respective balance sheet date. Components of the unaudited condensed consolidated statements of income and comprehensive income have been translated at the average rates during the reporting period. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. Gains or losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the unaudited condensed consolidated statements of income and comprehensive income.

Business Combinations

The Company applies the acquisition method of accounting for business combinations, which requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets and liabilities acquired. We account for

contingent assets and liabilities at fair value on the acquisition date, and record changes to fair value associated with these assets and liabilities as a period cost as incurred. We use established valuation techniques and engage reputable valuation specialists to assist us with these valuations. We use a reasonable measurement period to record any adjustment related to the opening balance sheet (generally, less than one year). After the measurement period, changes to the opening balance sheet can result in the recognition of income or expense as period costs. To the extent these items stem from contingencies that existed at the balance sheet date, but are contingent upon the realization of future events, the cost is charged to expense at the time the future event becomes known.

The Company recognizes revenue in accordance with Topic 842 (which addresses lease accounting) and Topic 606 (which addresses revenue from contracts with customers). The Company derives its revenue from two revenue types, tool rental services and product sales.

Tool Rental Services

Tool rental services consist of rental services, inspection services, and repair services. Tool rental services are accounted for under Topic 842.

Owned tool rentals represent the most significant revenue type and are governed by the Company’s standard rental contract. The Company accounts for such rentals as operating leases. The lease terms are included in the contracts, and the determination of whether the Company’s contracts contain leases generally does not require significant assumptions or judgments. The Company’s lease revenues do not include material amounts of variable payments. Owned tool rentals represent revenue from renting tools that the Company owns. The Company does not generally provide an option for the lessee to purchase the rented equipment at the end of the lease.

The Company recognizes revenues from renting tools on a straight-line basis. The Company’s rental contract periods are daily, monthly, or per well. As part of this straight-line methodology, when the equipment is returned, the Company recognizes as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the drilling tool was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, the Company will have customers return the drilling tool and be contractually required to pay the Company more than the cumulative amount of revenue recognized to date under the straight-line methodology. Additionally, the Company has rental contracts that are based on usage, either on a per footage or per well basis. As these types of rental contracts primarily consist of variable lease payments, which are unknown at commencement, revenue is recognized when the changes in the factor on which the contingent lease payments are based occur. When the customer returns the rental equipment and the footage or usage becomes known, the Company recognizes revenue.

The Company records the amounts billed to customers in excess of recognizable revenue as deferred revenue on its unaudited condensed consolidated balance sheet.

As noted above, the Company is unsure of when the customer will return rented drilling tools. As such, the Company cannot provide a maturity analysis of future lease payments as it is unknown when the tool will be returned and what the customer will owe upon return of the tool. The Company’s drilling tools are generally rented for short periods of time (significantly less than a year). Lessees do not provide residual value guarantees on rented equipment.

The Company expects to derive significant future benefits from its drilling tools following the end of the rental term. The Company’s rentals are generally short-term in nature, and its tools are typically rented for the majority of the time that the Company owns them.

Product Sales

Product sales consist of charges for rented tools that are damaged beyond repair, charges for lost-in-hole, and charges for lost-in-transit while in the care, custody or control of the Company’s customers, and other charges for made to order product sales. Product sales are accounted for under Topic 606.

Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify

the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the revenue standard. The transaction price is measured as consideration specified in a contract with a customer and excludes any sales incentives and taxes or other amounts collected on behalf of third parties. As each of the Company’s contracts with customers contain a single performance obligation to provide a product sale, the Company does not have any performance obligations requiring allocation of transaction prices.

The performance obligation for made to order product sales is satisfied and revenue is recognized at a point in time when control of the asset transfers to the customer, which typically occurs upon delivery of the product or when the product is made available to the customer for pickup at the Company’s shipping dock. Additionally, pursuant to the contractual terms with the Company’s customers, the customer must notify the Company of, and purchase from the Company, any rented tools that are damaged beyond repair, lost-in-hole, or lost-in-transit while in the care, custody or control of the Company’s customers. Revenue is recognized for these products at a point in time upon the customer’s notification to the Company of the occurrence of one of these noted events.

The Company does not have any revenue expected to be recognized in the future related to remaining performance obligations or contracts with variable consideration related to undelivered performance obligations. There was no revenue recognized in the current period from performance obligations satisfied in previous periods.

Contract Assets and Contract Liabilities

Contract assets represent the Company’s rights to consideration for work completed but not billed. As of March 31, 2025 and December 31, 2024, the Company had contract assets of $7.7 million and $5.5 million, respectively. Contract assets were recorded in accounts receivable, net in the accompanying unaudited condensed consolidated balance sheets.

Contract liabilities consist of fees invoiced or paid by the Company’s customers for which the associated services have not been performed and revenue has not been recognized based on the Company’s revenue recognition criteria described above. As of March 31, 2025 and December 31, 2024, the Company did not have any material contract liabilities. All deferred revenues are expected to be recognized during the following 12 months, and they were recorded in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2025 and December 31, 2024.

The Company’s accounts receivable consists principally of uncollateralized amounts billed to customers. These receivables are generally due within 30 to 60 days of the period in which the corresponding sales or rentals occur and do not bear interest. They are recorded at net realizable value less an allowance for doubtful accounts and are classified as accounts receivable, net on the unaudited condensed consolidated balance sheets.

The Company considers both current conditions and reasonable and supportable forecasts of future conditions when evaluating expected credit losses for uncollectible receivable balances. In our determination of the allowance for credit losses, we pool receivables by days outstanding and apply an expected credit loss percentage to each pool. The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions. Current conditions considered include predefined aging criteria, as well as specified events that indicate the balance due is not collectible. Reasonable and supportable forecasts used in determining the probability of future collection consider publicly available macroeconomic data and whether future credit losses are expected to differ from historical losses.

As of March 31, 2025 and December 31, 2024, the allowance for credit losses totaled $2.0 million and $1.7 million, respectively.

Concentration of Credit Risk

The Company’s customer concentration may impact its overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry.

During the three months ended March 31, 2025 and 2024, the Company generated approximately 29.0% and 30.0%, respectively, of its revenue from 2 customers. Amounts due from these customers included in accounts receivable as of March 31, 2025 and December 31, 2024 were approximately $5.3 million and $5.4 million, respectively.

During the three months ended three months ended March 31, 2025, the Company did not have any single vendor make up more than 10% of total vendor purchases. During the three months ended March 31, 2024, the Company had 2 vendors that represented approximately 30% of its vendor purchases.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains accounts in federally insured financial institutions in excess of federally insured limits. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held and of the money market funds in which these investments are made.

Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the specific identification method or the first-in-first-out ("FIFO") method, depending on the type of inventory. Inventory that is obsolete or in excess of forecasted usage is written down to its net realizable value based on assumptions regarding future demand and market conditions. Inventory write-downs are charged to cost of rental revenue and cost of product sale revenue within operating costs section of the unaudited condensed consolidated statements of income and comprehensive income and establish a new cost basis for the inventory. Inventory includes raw material and finished goods.

Property, plant and equipment purchased by the Company are recorded at cost less accumulated depreciation. Depreciation is recorded using the straight-line method based on the estimated useful lives of the depreciable property or, for leasehold improvements, the remaining term of the lease, whichever is shorter. Assets not yet placed in use are not depreciated.

Property, plant and equipment acquired as part of a business acquisition is recorded at acquisition date fair value with subsequent additions at cost.

The cost of refurbishments and renewals are capitalized when the value of the property, plant or equipment is enhanced for an extended period. Expenditures to maintain and repair property, plant and equipment, which do not improve or extend the life of the related assets, are charged to operations when incurred. When property, plant and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations.

Long-lived assets with finite lives include property, plant and equipment and acquired intangible assets. The Company evaluates long-lived assets, including acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group.

For the three months ended March 31, 2025 and 2024, management determined that there were no triggering events necessitating impairment testing of property, plant, and equipment or intangible assets.

Leases

The Company adopted ASC 842, Leases (“ASC 842”) as of January 1, 2022 using the modified retrospective transition approach, with no restatement of prior periods or cumulative adjustments to retained earnings. Upon adoption, the Company elected the package of

transition practical expedients, which allowed it to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. The Company elected the use-of-hindsight to reassess lease term. The Company elected not to recognize leases with an initial term of 12 months or less within the unaudited condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis in the unaudited condensed consolidated statements of income and comprehensive income over the lease term. The new lease accounting standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the practical expedient to not separate lease and non-lease components for all leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current operating lease liabilities and operating lease liabilities, net of current portion on the unaudited condensed consolidated balance sheets. The Company recognizes lease expense for its operating leases on a straight-line basis over the term of the lease.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from a lease. ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term. Operating lease ROU assets also include the impact of any lease incentives. An amendment to a lease is assessed to determine if it represents a lease modification or a separate contract. Lease modifications are reassessed as of the effective date of the modification using an incremental borrowing rate based on the information available at the commencement date. For modified leases the Company also reassess the lease classification as of the effective date of the modification.

The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.

The Company’s lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option in the measurement of its ROU assets and liabilities. The Company considers contractual-based factors such as the nature and terms of the renewal or termination, asset-based factors such as physical location of the asset and entity-based factors such as the importance of the leased asset to the Company’s operations to determine the lease term. The Company generally uses the base, non-cancelable, lease term when determining the ROU assets and lease liabilities. The right-of-use asset is tested for impairment in accordance with Accounting Standards Codification Topic 360, Property, Plant, and Equipment.

Lessor Accounting

Our leased equipment primarily consists of rental tools and equipment. Our agreements with our customers for rental equipment contain an operating lease component under ASC 842 because (i) there are identified assets, (ii) the customer has the right to obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (iii) the customer directs the use of the identified assets throughout the period of use.

Our lease contract periods are daily, monthly, per well or based on footage. Lease revenue is recognized on a straight-line basis based on these rates. We do not provide an option for the lessee to purchase the rented tools at the end of the lease and the lessees do not provide residual value guarantees on the rented assets.

We recognized operating lease revenue within “Tool rental” on the unaudited condensed consolidated statements of income and comprehensive income.

Intangible assets with finite useful lives include customer relationships, trade name, patents, non-compete agreements and a supply agreement. These intangible assets are amortized either on a straight-line basis over the asset’s estimated useful life or on a basis that reflects the pattern in which the economic benefits of the intangible are realized.

Goodwill

Goodwill represents the excess of purchase price paid over the fair value of the net assets of acquired businesses. We evaluate Goodwill

at least annually for impairment. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. To align with our change in reporting segments and reporting units referenced in Note 7 – Goodwill, the Company has changed its annual goodwill impairment assessment date from December 31 to October 31 starting in 2025. This change will not have a material impact on the annual assessment. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount or we elect not to perform a qualitative assessment, the quantitative assessment of goodwill test is performed. The goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If it is necessary to perform the quantitative assessment to determine if our goodwill is impaired, we will utilize a discounted cash flow analysis using management’s projections that are subject to various risks and uncertainties of revenues, expenses and cash flows as well as assumptions regarding discount rates, terminal value and control premiums. Estimates of future cash flows and fair value are highly subjective and inherently imprecise. These estimates can change materially from period to period based on many factors. Accordingly, if conditions change in the future, we may record impairment losses, which could be material to any particular reporting period. Refer to Note 7 - Goodwill for discussion around segment realignment and the Company's impairment analysis during the three months ended March 31, 2025.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels:

Level 1 – Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

Level 2 – Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the assets or liabilities being measured.

Level 3 – Valuation inputs are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition. These assets and liabilities are not remeasured at each reporting period.

As of March 31, 2025 and December 31, 2024, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.

The Company recorded all operating costs associated with its product sales and tool rental revenue streams in cost of product sale revenue and cost of tool rental revenue, respectively, in the unaudited condensed consolidated statements of income and comprehensive income. All indirect operating costs, including labor, freight, contract labor and others, are included in selling, general, and

administrative expense in the unaudited condensed consolidated statements of income and comprehensive income.

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted stock awards, be measured based on the grant- date fair value of the award. The Company determines the fair value of stock options granted using the Black-Scholes- Merton option-pricing model (“Black-Scholes model”) and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, generally the vesting period, with forfeitures accounted for as they occur. For any stock options granted prior to the Company’s common stock being publicly traded on June 21, 2023, the Company estimated the fair value of its common stock as of the grant date and used these estimates as inputs into the Black-Scholes model. The Board considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved. The factors considered include, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the redeemable convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares.

For restricted stock units, the grant date fair value is determined based on quoted market price for the Company's common stock as of the grant date and the grant date fair value of the awards are recognized as compensation cost as awards vest over the requisite service period.

Basic earnings per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings is computed by adjusting net income (loss) to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted earnings is computed by dividing the diluted net income (loss) by the weighted-average number of common shares outstanding for the period, including potential dilutive common stock. For the purposes of this calculation, outstanding stock options and restricted stock units are considered potential dilutive common stock and are excluded from the computation of net loss per share if their effect is anti-dilutive.

Income taxes are provided for the tax effects of transactions reported in the unaudited condensed consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and liabilities.

The Company is subject to state income taxes in various jurisdictions.

The Company follows guidance issued by the FASB in accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the unaudited condensed consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits and upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the unaudited condensed consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. The Company has no uncertain tax positions at March 31, 2025 and December 31, 2024. The Company believes there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within twelve months of the reporting date.

The Company records income tax related interest and penalties, if applicable, as a component of the provision for income tax expense. However, there were no amounts recognized relating to interest and penalties in the unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2025 and 2024.

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in deciding resource allocation and assessing performance. The Company’s Chief Executive Officer is the CODM. The Company’s CODM reviews financial information presented for each operating segment for the purposes of making operations decisions, allocating resources and evaluating financial performance.

In January 2025, coinciding with the closing of the Company’s acquisition of Titan Tools Services Limited, the Company has realigned its operations to support its strategic initiatives to expand its global operations and reach new markets, particularly in the Eastern Hemisphere. As a result, the Company realigned its reportable segments to correspond with changes to its operating model, management structure, and organizational responsibilities. Consequently, the Company has determined it operates in two operating and reportable segments: Eastern Hemisphere and Western Hemisphere. This realignment is reflected within the Company's unaudited condensed consolidated financial statements and prior periods are retrospectively revised to reflect this change in reportable segments.

Recent Accounting Pronouncements - Adoption of Segment Reporting Standard

In November 2023, FASB issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which includes requirements for more robust disclosures of significant segment expenses and information used in assessing segment performance on an annual and interim basis. The guidance also requires that a public entity that has a single reportable segment provide all the disclosures required by the guidance and all existing segment disclosures under the FASB Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting. This standard was effective for the Company’s annual period beginning January 1, 2024 and is effective for the Company's interim periods beginning January 1, 2025. The Company applied the standard retrospectively to all comparative periods. Effective with this Report, the Company adopted this ASU. Refer to Note 17 - Segment Information for the required segment disclosures.

Recent Accounting Pronouncements - Adoption of Income Taxes - Improvements to Income Tax Disclosures

In December 2023, FASB issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which requires enhanced income tax disclosures that reflect how operations and related tax risks, as well as how tax planning and operational opportunities, affect the tax rate and prospects for future cash flows. This standard is effective for the Company beginning January 1, 2025 with early adoption permitted. The Company is evaluating the effects of adopting this new accounting guidance on its disclosures but does not currently expect adoption will have a material impact on the Company’s consolidated financial statements. The Company does not intend to early adopt this ASU.

Recent Accounting Pronouncements - Accounting Standards Issued But Not Yet Effective

In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of specific information about costs and expenses within relevant expense captions on the face of the income statement, qualitative descriptions for expense captions not specifically disaggregated quantitatively, and the total amount and definition of selling expenses for interim and annual reporting periods. This standard is effective for the Company’s annual reporting period beginning January 1, 2027 and interim reporting periods beginning January 1, 2028. Early adoption is permitted. The Company is currently evaluating the effects of adopting this new accounting guidance.


	Three months ended March 31, 2024
(In thousands)	As Previously Reported		Total Adjustment			As Revised
Cost of tool rental revenue	$	7,001	$	(517	)	$	6,484
Cost of product sale revenue		1,536		517			2,053


Assets	Preliminary March 15, 2024			Measurement Period Adjustments		As adjusted March 15, 2024
Cash	$	2,674		$	—	$	2,674
Accounts receivable, net		3,781			—		3,781
Inventories, net		4,282			—		4,282
Prepaid expenses and other current assets		189			—		189
Property, plant and equipment , net		1,647			—		1,647
Operating lease ROU asset		315			—		315
Intangible assets, net		8,065			—		8,065
Goodwill		2,618		526			3,144
Total assets acquired	$	23,571		$	526	$	24,097

Liabilities
Accounts payable		2,656			—		2,656
Accrued expenses and other current liabilities		(295	)		526		231
Current portion of operating lease liabilities		95			—		95
Operating lease liabilities, less current portion		180			—		180
Total liabilities assumed	$	2,636		$	526	$	3,162
Total consideration transferred	$	20,935		$	—	$	20,935


	Fair value		Useful life (in years)	Fair value methodology
Intangible assets
Trade names	$	819	15	Relief from royalty method
Developed Technology		3,269	20	Relief from royalty method
Customer relationships		3,977	20	Multi-period excess earnings method of the income approach
Total intangible assets	$	8,065


Assets acquired:
Cash	$	1,726
Accounts receivable, net		1,239
Related party note receivable, current		1,231
Inventories, net		2,800
Prepaid expenses and other current assets		573
Property, plant and equipment, net		10,213
Related party note receivable, noncurrent		4,193
Operating lease right-of-use asset		2,662
Intangible assets, net		22,850
Deposits and other long-term assets		200
Total assets acquired		47,687
Liabilities assumed:
Accounts payable		370
Current portion of operating lease liabilities		147
Accrued expenses and other current liabilities		1,804
Deferred tax liabilities, net		881
Deferred income		675
Operating lease liabilities, less current portion		2,368
Total liabilities assumed		6,245
Total identifiable net assets		41,442
Goodwill		7,718
Total net assets acquired and goodwill	$	49,160


	Fair value		Useful life (in years)		Fair value methodology

Customer relationships	$	13,400		15	Multi-period Excess Earnings Method
Developed technology		8,600		15	Relief-From-Royalty Method
Trade names		800		15	Relief-From-Royalty Method
Backlog		50		0.4	Multi-period Excess Earnings Method
Total intangible assets	$	22,850


	Preliminary September 30, 2024		Measurement Period Adjustments			As adjusted September 30, 2024
Assets acquired:
Cash	$	79		—		$	79
Accounts receivable, net		1,180		—			1,180
Accrued Revenue		271		—			271
Other current assets		42		—			42
Property, plant and equipment, net		3,176		—			3,176
Operating lease right-of-use asset		325		—			325
Deferred tax assets		883		(28	)		855
Intangible assets, net		8,197		—			8,197
Total assets acquired		14,153		(28	)		14,125
Liabilities assumed:
Accounts payable		428		—			428
Other current liabilities		876		—			876
Debt, noncurrent		138		—			138
Operating lease liabilities, less current portion		325		—			325
Deferred tax liabilities, net		2		1,908			1,910
Total liabilities assumed		1,769		1,908			3,677
Total identifiable net assets		12,384		(1,936	)		10,448
Goodwill		1,516		1,670			3,186
Total net assets acquired and goodwill	$	13,900	$	(266	)	$	13,634


	Fair value		Useful life (in years)		Fair value methodology
Customer relationships	$	4,135		25	Multi-period Excess Earnings Method
Developed technology		3,721		15	Relief-From-Royalty Method
Trade names		341		20	Relief-From-Royalty Method
Total intangible assets	$	8,197


Cash paid to Titan shareholders	$	6,002
Titan transaction costs to be paid by DTI		175
Closing date equity consideration(1)		2,922
Effective settlement of preexisting relationship between DTI and Titan (2)		1,675
Fair value of consideration transferred	$	10,774

(1) Represents the value, as of the Titan Closing Date, of the DTI common stock transferred as purchase consideration.

(2) Represents the effective settlement of DTI’s accounts receivable from Titan and DTI’s accounts payable to Titan as Titan and DTI were customers of each other prior to the Titan Closing.


Assets acquired:
Cash	$	559
Accounts receivable, net		3,670
Inventory		658
Other current assets		93
Property, plant and equipment, net		3,927
Operating lease right-of-use asset		919
Intangible assets, net		2,657
Total assets acquired		12,484
Liabilities assumed:
Accounts payable		1,090
Operating lease liabilities, current		226
Other current liabilities		1,965
Operating lease liabilities, less current portion		694
Deferred tax liabilities, net		71
Total liabilities assumed		4,045
Total identifiable net assets		8,439
Goodwill		2,335
Total net assets acquired and goodwill	$	10,774


	Fair value		Useful life (in years)	Fair value methodology
Customer Relationship	$	2,671	25	Multi-period Excess Earnings Method
Total intangible assets	$	2,671


	Three months ended March 31,
(in thousands)	2025			2024
Pro forma revenue	$	42,880		$	43,008
Pro forma net income	$	(1,669	)	$	(131	)

Inventories, net

The following table shows the components of inventory (in thousands):


	March 31, 2025			December 31, 2024
Raw materials	$	13,349		$	12,928
Work in progress		1,278			1,828
Finished goods		3,754			2,897
Total inventories		18,381			17,653
Allowance for obsolete inventory		(131	)		(151	)
Inventories, net	$	18,250		$	17,502

Prepaid expenses and other current assets

The following table shows the components of prepaid expenses and other current assets (in thousands):


	March 31, 2025		December 31, 2024
Prepaid expenses:
Deposits on inventory	$	1,436	$	551
Prepaid income tax		362		1,293
Prepaid insurance		472		957
Prepaid rent		438		449
Prepaid equipment		101		263
Prepaid other		236		361
Total	$	3,045	$	3,874

Accrued expenses and other current liabilities

The following table shows the components of accrued expenses and other current liabilities (in thousands):


	March 31, 2025		December 31, 2024
Accrued expenses:
Accrued compensation and related benefits	$	4,830	$	4,497
Accrued insurance		385		645
Accrued professional services		122		253
Accrued interest		463		416
Accrued property taxes		360		44
Accrued monitoring fees		373		373
Other		1,063		272
Other current liabilities:
Income tax payable	$	44	$	459
Sales tax payable		716		229
Deferred revenue		675		675
Total accrued expenses and other current liabilities	$	9,031	$	7,864

The following table shows the component of property, plant and equipment, net (in thousands):


	Estimated Useful Lives (in Years)	March 31, 2025			December 31, 2024
Rental tools and equipment	5-10	$	214,251		$	205,939
Buildings and improvements	5-40		7,273			7,074
Office furniture, fixtures and equipment	3-5		3,166			2,507
Transportation and equipment	3-5		715			714
Total property, plant and equipment			225,405			216,234
Less: accumulated deprecation			(145,969	)		(142,203	)
Property, plant and equipment, net (excluding construction in progress)			79,436			74,031
Construction in progress			1,427			1,540
Property, plant and equipment, net		$	80,863		$	75,571

Total depreciation expense for the three months ended March 31, 2025 and 2024 was approximately $6.1 million and $5.3 million, respectively. The Company has not acquired any property, plant and equipment under financing leases.

The following table shows the components of intangible assets, net (in thousands):


	Useful Lives (in Years)	March 31, 2025			December 31, 2024
Trade name	10-15	$	3,996		$	3,184
Developed Technology	13-20		15,475			15,438
Customer Relationships	20-25		23,869			21,081
Patents	5-20		12			11
Total intangible assets			43,352			39,714
Less: accumulated amortization			(3,125	)		(2,482	)
Intangible assets, net		$	40,227		$	37,232

Total amortization expense for the three months ended March 31, 2025 and 2024 was approximately $632 thousand and $31 thousand, respectively.

NOTE 7 - GOODWILL

The change in carrying amount of goodwill for the years ended December 31, 2024 was as follows (in thousands):


	Total
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		150
Net balance as of March 31, 2025	$	14,401

Change in Reporting Units and Goodwill Impairment

On January 1, 2025, the Company realigned its reportable segments to correspond with changes to its operating model, management structure, and organizational responsibilities. We bifurcated results into two segments: Eastern Hemisphere and Western Hemisphere. As a result, we split into four reporting units and reallocated goodwill among our affected reporting units on a relative fair value basis. We performed a goodwill impairment assessment immediately before and after our business reorganization. We concluded based on our pre-reorganization impairment test that goodwill was not impaired. As a result of the post-reorganization impairment test, we recognized a non-cash goodwill impairment loss of $1.9 million in the three months ended March 31, 2025, related to our Diamond Products and Deep Casing reporting units as the estimated fair values of the new reporting units was lower than the related carrying value.

In December 2015, the Company entered into a credit facility with PNC Bank, National Association (the "Credit Facility"). The facility provided for a revolving line of credit with a maximum borrowing amount totaling $60.0 million.

On March 15, 2024, the Company refinanced its revolving credit facility (the “Refinancing”) by entering into a Second Amended and Restated Revolving Credit, Term Loan and Security and Guaranty Agreement (the “Credit Facility”) with certain of the Company’s subsidiaries and PNC Bank, National Association as lender and as agent. Pursuant to the terms of the Credit Facility, the Company will be provided a revolving line of credit in a principal amount up to $80.0 million and a single draw term loan (the "Term Loan") in a principal amount of $25.0 million. The line of credit and the Term Loan mature in March 2029. The Credit Facility amends and restates the Company’s Existing Credit Facility under that certain Amended and Restated Revolving Credit, Term Loan, and Security Agreement, dated as of June 20, 2023, by and among the Company, certain of its subsidiaries, and PNC Bank National Association. Additionally, we are required to make an annual payment of up to $5,000,000, to be determined based on the Excess Cash Flows

generated each fiscal year commencing with the year ended December 31, 2024, as defined in the Credit Facility. Based on the calculation for Excess Cash Flows laid forth in the agreement, no payment was owed in April 2025.

For the three months ended March 31, 2025, the interest on the Revolving Line of Credit and Term Loan was based on the Secured Overnight Financing Rate ("SOFR") or the bank’s base lending rate plus applicable margin (approximately 6.8% and 8.30% at March 31, 2025). The Credit Facility is collateralized by substantially all the assets of the Company and matures March 15, 2029.

As of March 31, 2025, there was $30.0 million drawn against the line of credit.

In connection with acquisition of EDP, the Company issued an unsecured Promissory Note to the former parent company of EDP, totaling $5.2 million. On April 22, 2025, the First Amendment to the note was signed, reducing the balance by $0.3 million. The note bears an interest rate of 8% per annum. The note matures in December 2029 and payments are made quarterly. The note is a foreign currency denominated monetary liability (issuance and payments are denominated Euro), and as such, is measured at the end of each reporting unit based on the exchange rate that date. The remaining balance on the Promissory Note was $4.4 million as of March 31, 2025. For the three months ended March 31, 2025, the Company recognized a gain of $0.1 million on the condensed consolidated statements of income and comprehensive income.

As of March 31, 2025, the future maturities of long-term debt consisted of the following (in thousands):


2025	$	4,386
2026		5,910
2027		5,985
2028		6,066
2029		32,523
Total long term debt	$	54,869

Contingent Interest Embedded Derivative Liability

Under the Credit Facility Agreement, the interest rate will reset (the 'Default Rate') upon the event of a default and an additional 2% will be added to the base rate. The Company analyzed the Default Rate feature of the Credit Facility for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined the Default Rate met the definition of a derivative as it is a contingent interest feature. The Company also noted that the Default Rate feature (the 'Default Rate Derivative') required bifurcation from the host contract and was to be accounted for at fair value. In accordance with ASC 815-15, the Company bifurcated the Default Rate feature of the note and determined the derivative is liability classified.

The Default Rate Derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the Default Rate Derivative was negligible as of March 31, 2025 and December 31, 2024 and therefore no amounts were recorded as of March 31, 2025 or December 31, 2024.

The Company recorded income tax benefit of $0.2 million and income tax expense of $0.9 million for the three months ended March 31, 2025 and 2024, respectively, on the unaudited condensed consolidated statements of income and comprehensive income.

The income tax expense/benefit for the three months ended March 31, 2025 and 2024 was calculated using a discrete approach. This methodology was used because changes in the Company's results of operations and acquisitions can materially impact the estimated annual effective tax rate. The Company’s effective tax rate for the three months ended March 31, 2025 and 2024 were provisions of 8.7% and 23.1%, respectively. Such rates differed from the Federal Statutory rate of 21.0% primarily due to the state taxes, foreign income taxes on the Company’s international operations, and permanent differences.

The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. There was no significant change to the valuation allowance during the three months ended March 31, 2025 and 2024.

The Company is still evaluating the tax impact of the Titan Acquisition, including the impact of the transaction costs. Additionally, the Company continues to evaluate the deferred tax assets and liabilities and corresponding valuation allowance in connection with the Titan Acquisition.

On June 20, 2023, the Company adopted the Drilling Tools International Corporation 2023 Omnibus Incentive Plan (the 2023 Plan). The 2023 Plan became effective on the closing of the Merger, which also occurred on . The 2023 Plan provides for the issuance of shares of Common Stock up to ten percent (10%) of the shares of outstanding Common Stock as of the closing of the Merger (which equated to 2,976,854 shares as of December 31, 2023) and automatically increases on the first trading day of each calendar year by the number of shares of Common Stock equal to three percent (3%) of the total number of outstanding Common Stock on the last day of the prior calendar year. The 2023 Plan allows for awards to be issued to employees, non-employee directors, and consultants in the form of options, stock appreciation rights, restricted shares, restricted stock units, performance based awards, other share-based awards, other cash-based awards, or a combination of the foregoing. As of March 31, 2025, there were 1,188,356 shares of Common Stock available for issuance under the 2023 Plan.

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatilities are based on comparable public company data. The Company uses future estimated employee termination and forfeiture rates of the options within the valuation model. The expected term of options granted is derived using the “plain vanilla” method due to the lack of history and volume of option activity at the Company. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect at the time of grant. The Company’s calculation of share price involves the use of different valuation techniques, including a combination of an income and market approach. The Company used the quoted market price as of the grant date as an input into the Black-Scholes model.

The following table summarizes options outstanding as well as activity for the three months ended March 31, 2025:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
OUTSTANDING, December 31, 2024		4,963,626	$	3.50		6.46	$	—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		—	$	—		—		—
OUTSTANDING, March 31, 2025		4,963,626	$	3.50		5.72	$	—
UNVESTED, March 31, 2025		1,656,666	$	3.02		8.88	$	—
EXERCISABLE, March 31, 2025		3,306,960	$	2.93		4.14	$	—

During the three months ended March 31, 2025 and 2024, there was $0.4 million and $0.2 million of stock based compensation related to Stock Options within selling, general, and administrative expenses on the consolidated statements of income and comprehensive income, respectively. As of March 31, 2025 and March 31, 2024, there was $2.7 million and $4.4 million, respectively, of unrecognized compensation expense.

Restricted Stock Units

In May 2024, the Company issued an aggregate 143,000 restricted stock units (“RSUs”) to five members of the Board (the “Directors”). Of the awards, 74,440 RSUs were deemed to be related to services performed during the year ended December 31, 2023, and were to vest immediately, while the remaining 68,560 RSUs are subject to a vesting term of one year. The Directors are considered to be employees of the Company under ASC 718. Additionally, on February 28, 2025, the Company issued 909,321 RSU's to employees of the Company. These RSUs will vest equally over 4 years and have a grant date price of $3.23.

During three months ended March 31, 2025, the Company recognized $0.2 million of stock based compensation related to RSUs within selling, general, and administrative expenses on the consolidated statements of income and comprehensive income. As of March 31, 2025, unrecognized compensation expense related to the RSUs totaled $2.9 million

The following table shows the components of other expenses, net for the three months ended March 31, 2025 and 2024 (in thousands):


	Three Months Ended March 31, 2025			Three Months Ended March 31, 2024
Transaction fees	$	(732	)	$	(889	)
Other, net		(1,168	)		(247	)
Software Implementation		(132	)		—
Interest income		98			11
Other expense, net	$	(1,934	)	$	(1,125	)

Management fees

For the three months ended March 31, 2025 and 2024, management fees paid to Hicks Holdings Operating LLC, a shareholder of the Company, were approximately $0.2 million and $0.2 million, respectively. Management fees paid to a shareholder are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of income and comprehensive income.

Director fees

For the three months ended March 31, 2025 and 2024, director fees paid to Board of Directors were approximately $114 thousand and $85 thousand , respectively. Management fees paid to a shareholder are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of income and comprehensive income.

Leases

For the three months ended March 31, 2025 and 2024, the Company paid rent expense to Cree Investments, LLC, a shareholder of the Company, of approximately nil and $13 thousand, respectively, relating to the lease of a building. Future minimum lease payments related to this lease are included in the future minimum lease schedule in Note 13 - Leases.

Related Party Note Receivable

On July 31, 2024 ("Closing Date"), the Company entered into the Sixth Amendment and Restated Promissory Note with Tronco Energy Corporation ("Tronco"), an entity owned by employees of the Company. Pursuant to the Sixth Amendment and Restated Promissory Note, Tronco will make payments to the Company of $1.3 million annually, commencing on the first anniversary of the Closing Date through the fifth anniversary of the Closing Date. Per the agreement, if the 20-day volume-weighted average price of DTI falls below $3.20 per share, the principal that otherwise would have been due shall be deferred and apportioned over the remaining payment dates under specified in the agreement. Any payments due and not received by the Company before the fifth date following the anniversary date will bear interest from the date of nonpayment until paid equal to 3%. In accordance with ASC 805, the receivables fair value was measured at the present value of future cash flows upon the Closing Date. The carrying value of the note as of March 31, 2025 was $5.3 million.

The Company leases various facilities and vehicles under non-cancelable operating lease agreements. The remaining lease terms for our leases range from 1 month to 14 years. These leases often include options to extend the term of the lease which may be for periods of up to 5 years. When it is reasonably certain that the option will be exercised, the impact of the renewal term is included in the lease term for purposes of determining total future lease payments and measuring the ROU asset and lease liability. We apply the short-term lease policy election, which allows us to exclude from recognition leases with an original term of 12 months or less. We have not entered into any finance leases as of March 31, 2025.

For the three months ended March 31, 2025 and 2024, the components of the Company’s lease expense were as follows (in thousands):


	Three months ended March 31, 2025		Three months ended March 31, 2024
Operating Lease Cost	$	1,739	$	1,482
Short-term Lease Cost		31		35
Variable Lease Cost		109		88
Total Lease Cost	$	1,879	$	1,605

Supplemental balance sheet information related to leases was as follows (in thousands):


	Three months ended March 31, 2025			Three months ended March 31, 2024
Weighted-average remaining lease term (in years)		7.15			6.45
Weighted average discount rate		7.73	%		5.86	%

Future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the unaudited condensed consolidated balance sheet as of March 31, 2025 were as follows (in thousands):



2025	$	4,338
2026		5,416
2027		4,354
2028		3,635
2029		3,025
Thereafter		10,595
Total lease payments	$	31,363
Less: imputed interest		(7,461	)
Present value of lease liabilities	$	23,902

The Company leases downhole drilling tools to companies in the oil and natural gas industry. Such leases are accounted for in accordance with ASC 842. For the three months ended March 31, 2025 and 2024, tool rental revenue for leases of downhole drilling tools was approximately $34.5 million and $30.0 million, respectively. Our lease contract periods are short-term in nature and are typically daily, monthly, per well, or footage based. Due to the short-term nature of the contracts, no maturity table is presented.

The Company sponsors various defined contribution savings plan, primarily in the U.S., that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or match a percentage of the employee contributions up to certain limits. The total expenses related to the defined contribution plans for the three months ended March 31, 2025 and 2024 was approximately $0.3 million and $0.3 million, respectively.

The Company maintains operating leases for various facilities and vehicles. See Note 13 - Leases, for further information.

From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims. Such proceedings can be costly, time consuming, and unpredictable, and, therefore, no assurance can be given that the final outcome of such proceedings will not materially impact our consolidated financial condition or results of operations. Estimated losses are accrued for these proceedings when the loss is probably and can be estimated. While we maintain insurance coverage that we believe is adequate to mitigate the risks of such proceedings, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. The current liability for the estimated losses associated with these proceedings is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.

In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.

The Company is required to pay a monthly management fee to a shareholder. The fee is based upon a percentage of the Company’s trailing twelve months, earnings before interest, taxes and accumulated depreciation amount, as defined in the management agreement. See Note 12 – Related Party Transactions, for further information.

Basic earnings per share is computed using the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding for the period plus dilutive potential common shares, including performance share awards, using the treasury stock method. Performance share awards are included based on the number of shares that would be issued as if the end of the reporting period was the end of the performance period and the result was dilutive.

The following table sets forth the computation of the Company’s basic and diluted earnings per share for the three months ended March 31, 2025 and 2024 (in thousands except share and per share data):


	Three months ended March 31,
	2025			2024
Numerator:
Net income	$	(1,669	)	$	3,126
Less: Redeemable Convertible Preferred Stock dividends		—			—
Net income attributable to common shareholders — basic	$	(1,669	)	$	3,126
Add: Redeemable Convertible Preferred Stock dividends		—			—
Net income attributable to common shareholders — diluted	$	(1,669	)	$	3,126
Denominator
Weighted-average common shares used in computing earnings per share — basic		35,592,737			29,768,568
Weighted-average effect of potentially dilutive securities:
Effect of potentially dilutive time-based stock options		—			—
Effect of potentially dilutive performance-based stock options		—			—
Effect of potentially dilutive restricted stock units		—			—
Weighted-average common shares outstanding — diluted		35,592,737			29,768,568
Earnings per share — basic	$	(0.05	)	$	0.11
Earnings per share — diluted	$	(0.05	)	$	0.11

As of March 31, 2025 and March 31, 2024, the Company’s potentially dilutive securities consisted of options to purchase common stock. Based on the amounts outstanding for the three months ended March 31, 2025 and 2024, the Company excluded the following potential common shares from the computation of diluted earnings per share because including them would have had an anti-dilutive effect. The options excluded from the diluted earnings per share calculations were as follows:


	Three months ended March 31,
	2025		2024
Time-based options outstanding		4,396,855		4,427,659
Performance-based options outstanding		534,063		534,063
Total		4,930,918		4,961,722

NOTE 17 – SEGMENT INFORMATION

Prior to the acquisition of Titan, we operated as a single operating segment which reflected how our business was managed. Upon completion of the acquisition, the Company split into two operating segments based on geography, Western Hemisphere and Eastern Hemisphere. Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the CODM in deciding resource allocation and assessing performance. The Company’s Chief Executive Officer serves as the CODM. The Company’s CODM reviews financial information disaggregated by hemisphere for the purposes of making operational decisions, allocating resources, and evaluating financial performance.

The Company’s two operating segments derives revenues from customers by providing oilfield equipment and services to operators in wellbore construction and casing installation. The CODM assesses performance for each segment individually and decides how to allocate resources by using Segment EBITDA, which is defined as net income (loss); excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; and unallocated corporate general and administrative expenses, including stock-option expense and monitoring fees. Additionally, the Company’s CODM total segment assets and capital expenditures by segment regularly in making operational decisions. The CODM uses these metrics in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis to forecast future performance, adjust the budget, and make decisions about the allocation of operating and capital resources to the segment.

Financial information by segment for the three months ended March 31, 2025 and 2024 is summarized below:


	For The Three Months Ended March 31, 2025
	Western Hemisphere		Eastern Hemisphere			Total
Tool Rental		32,662		4,525			37,186
Product Sales		8,534		527			9,061
Total Revenue		41,196		5,052			46,248
Reconciliation of revenue
Elimination of intersegment revenue							(3,368	)
Total Consolidated Revenue							42,880
Less:(1)
Cost of Tool Rental		8,390		1,951			10,341
Cost of Product Sales		3,750		522			4,273
Total Cost of Sales		12,140		2,473			14,614
Reconciliation of cost of revenue
Elimination of intersegment cost of revenue							(3,368	)
Total consolidated cost of revenue							11,246
Selling, general, administrative expenses		15,479		2,767			18,246
Segment EBITDA		13,576		(188	)		13,388
Reconciliation of segment profit
Corporate expenses(2)							2,634
Depreciation and amortization							6,722
Stock Option Expense							541
Monitoring fees							188
Total operating income							3,303
Transaction expenses							732
Goodwill impairment							1,901
Other expenses							2,498
Consolidated income before taxes							(1,828	)


	For The Three Months Ended March 31, 2024
	Western Hemisphere		Eastern Hemisphere		Total
Tool Rental		32,102		424		32,526
Product Sales		6,205		823		7,027
Total Revenue		38,307		1,247		39,554
Reconciliation of revenue
Elimination of intersegment revenue						(2,580	)
Total Consolidated Revenue						36,974
Less:(1)
Cost of Tool Rental		9,524		56		9,580
Cost of Product Sales		1,115		421		1,536
Total Cost of Sales		10,640		477		11,117
Reconciliation of cost of revenue
Elimination of intersegment cost of revenue						(2,580	)
Total consolidated cost of revenue						8,537
Selling, general, administrative expenses		14,153		351		14,504
Segment profit		13,514		419		13,932
Reconciliation of segment profit
Corporate expenses(2)						3,041
Depreciation and amortization						5,365
Stock Option Expense						208
Monitoring fees						188
Total operating income						5,130
Transaction expenses						890
Other expenses						178
Consolidated income before taxes						4,063

(1) The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker

(2) Comprised primarily of expenses not allocated to our general and administrative segments.

Additional financial information by operating segment for the three months ended March 31, 2025 and 2024 is summarized below:


	Three Months Ended March 31,
	2025		2024
Capital Expenditures
Western Hemisphere	$	4,583	$	6,228
Eastern Hemisphere		460		—
Total capital expenditures		5,043		6,228
Segment Assets(2):
Western Hemisphere	$	159,598	$	135,835
Eastern Hemisphere		65,189		21,237
Total segment assets		224,787		157,072
Corporate and other(1)		8,382		9,880
Total assets	$	233,169	$	166,952

(1) Corporate assets consist of cash, related party note receivables, and deferred financing costs

(2) The goodwill allocated to the four reporting units is included within their respective segment asset totals. The goodwill amount included in segment assets is net of impairment losses of $0.9 million and $1.0 million at the Western Hemisphere and Eastern Hemisphere segments, respectively. Please refer to Note 7 - Goodwill for further details.


	Three Months Ended March 31,
	2025		2024
Supplemental cash flow information:
Cash paid for interest	$	1,164	$	58
Cash paid for income taxes		41		153
Non-cash investing and financing activities:
Measurement period adjustment related to EDP Acquisition		1,671		—
ROU assets obtained in exchange for lease liabilities		1,370		314
Fair value of CTG liabilities assumed in CTG Acquisition		—		2,636
Fair value of Titan liabilities assumed in Titan Acquisition		4,045		—
Purchases of inventory included in accounts payable and accrued expenses and other current liabilities		2,691		5,018
Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities		3,247		4,482
Non-cash directors and officers insurance		—		327
Deferred financing fees included in accounts payable		—		122

First Amendment to the Promissory Note

On April 22, 2025, the Company amended its Promissory Note payable to the parent company of EDP by entering into the First Amendment to the Promissory Note dated October 2, 2024. The Promissory Note’s principal balance of $5.7 million was reduced by $0.3 million as a result of the First Amendment. The maturity date and interest rate originally stated in the Promissory Note remain unchanged. As the adjustment was related to negotiations with the seller regarding conditions as of the acquisition date, this was reflected as a recognized subsequent event and an the consideration transferred and goodwill recorded was adjusted as of March 31, 2025. The impact of the First Amendment is reflected in the condensed consolidated balance sheet as of March 31, 2025, and the associated footnotes.

Share Repurchase Plan

On May 13, 2025, our Board of Directors unanimously approved a share repurchase program authorizing the Company to repurchase up to $10 million of our common stock. The plan will remain active until December 31, 2025. The timing and amount of repurchases will be determined by the Company based on its evaluation of market conditions and other factors.

Issuance of Restricted Stock Units

On May 13, 2025, the Company issued an aggregate 143,130 restricted stock units ("RSUs") to five members of the Board of Directors under the 2023 Omnibus Incentive Plan. All of the RSUs are subject to a vesting term of one year and have a grant date price of $2.62 per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of March 31, 2025, and for the three months ended March 31, 2025 and 2024, included elsewhere herein. For additional information pertaining to our business, including risk factors which should be considered before investing in our common stock, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated. Capitalized terms used in this section, but not otherwise defined, have the meanings ascribed to them in the Report.

Overview

We are 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 well life cycle. We operate from 15 locations in North America and 11 international service and support centers in Europe, the Middle East, and Asia-Pacific.

Our revenues are derived from two sources: tool rental and product sales. Tool rental revenues are derived from the rental of tools used in bottom hole assemblies (“BHA”), various wellbore optimization tools, and tubular goods for drilling, workover, and completion operations. Additionally, tool rental revenue consists of the repair and inspection of such tools. Product sale revenues are derived from the sale of target depth technologies, the manufacturing and repair of tools for external customers, and tool recovery revenue. During the three months ending March 31, 2025, we derived 81% of total revenues from tool rentals and 19% from product sales. During the three months ending March 31, 2024, we derived 81% from tool rentals and 19% from product sales.

We operate out of 2 reporting segments, split by geography, consisting of the Western Hemisphere operations and the Eastern Hemisphere operations.

Market Factors

Demand for our services and products depends primarily upon the general level of activity in the oil and gas industry, including the number of active drilling rigs, the number of wells drilled, the depth and working pressure of these wells, the number of well completions, the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, investor sentiment, availability of capital and oil and gas prices locally and worldwide, which have historically been volatile.

Our product sales revenues are primarily dependent on oil and gas companies paying for tools that are lost or damaged in their drilling programs as well as the customers need to replace aging or consumable products and our ability to provide competitive pricing. With the addition of Deep Casing Tools, we now sell tools to the end users for use in constructing their wells.

All of these factors may be influenced by the oil and gas region in which our customers are operating. While these factors may lead to differing revenues, we have generally been able to forecast our product needs and anticipated revenue levels based on historic trends in a given region and with a specific customer.

Recent Developments and Trends

Industry Update

In the first quarter of 2025, the oil and gas market witnessed a dynamic interplay of geopolitical tensions, shifting demand dynamics, and evolving geopolitical and economic factors. U.S. oil production reached record highs, averaging 13.5 million barrels per day, driven by the Permian Basin and offshore developments. However, this surge in supply coincided with an increasing surplus in global oil supply over demand, leading to downward pressure on prices. Crude oil prices experienced declines, specially WTI, whose quarterly average decreased from $78.41 per barrel to $71.84 per barrel from the fourth quarter of 2024 to the first quarter of 2025. Despite the high volatility in spot oil prices described above, our customers tend to be more focused on medium-term and long term commodity prices when making investment decisions due to the longer lead times for offshore projects.

In the first quarter of 2025, U.S. natural gas prices experienced a notable rebound following the record lows of 2024. The Henry Hub spot price averaged approximately $4.15 per million British thermal units (MMBtu) during the first quarter, or a 70% increase compared to the fourth quarter of 2024, reflecting seasonal increases due to heightened heating demand during colder-than-average weather in January. This uptick in demand is expected to outpace any expected growth in U.S. production, leading to a tightening of inventories and supporting higher prices through the remainder of 2025

Notwithstanding the significant commodity price volatility over the past several years, we have seen decreases both the Western and Eastern Hemisphere. During the three months ended March 31, 2025, the weekly average Western Hemisphere rig count, as reported by Baker Hughes, was 930 compared to 995 for the three months ended March 31, 2024. Additionally, during the three months ended March 31, 2025, the weekly average Eastern Hemisphere rig count, as reported by Baker Hughes, was 757 compared to 725 for the three months ended March 31, 2024. However, notwithstanding the impact of longer laterals, improved rig efficiencies have partially offset the impact of this reduction.

Inflation and Increased Costs

We are experiencing the impacts of global inflation, both in increased personnel costs and the prices of goods and services required to operate our rigs and execute capital projects. While we are currently unable to estimate the ultimate impact of rising prices, we do expect that our costs will continue to rise in the near term and will impact our profitability.

Results of Operations

We have two operating segments consisting of the Western Hemisphere and Eastern Hemisphere. Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (in addition to other measures), which is defined as income before taxes and before interest expense, net, other income (expense), net and corporate and other expenses not allocated to the operating segments.

Comparison of the Three Months Ended March 31, 2025 and 2024


	Three Months Ended March 31,
	2025			2024			$ Change			% Change
Revenue, net:
Western Hemisphere	$	41,196		$	38,307		$	2,889			8	%
Eastern Hemisphere		5,052			1,247			3,805			305	%
Intersegment Revenue		(3,368	)		(2,580	)		(788	)		31	%
Total revenue, net		42,880			36,974			5,906			16	%
Operating income/(loss)
Western Hemisphere		13,576			13,514			62		nm
Eastern Hemisphere		(188	)		419			(607	)		-145	%
Total segment operating income		13,388			13,932			(544	)		-4	%
Corporate and other expenses		(10,085	)		(8,802	)		(1,283	)		15	%
Total operating income		3,303			5,130			(1,827	)		-36	%
Interest expense, net		(1,309	)		(182	)		(1,127	)		619	%
Gain on sale of property		13			—			13		nm
Loss on asset disposal		—			(9	)		9		nm
Unrealized gain (loss) on equity securities		—			249			(249	)	nm
Goodwill impairment		(1,901	)		—			(1,901	)	nm
Other income (expense), net		(1,934	)		(1,125	)		(809	)		72	%
Total other expense, net		(5,131	)		(1,067	)		(4,064	)		381	%
Income before income taxes		(1,828	)		4,063			(5,891	)		-145	%
Income tax benefit (expense)		159			(937	)		1,096		nm
Net income (loss)	$	(1,669	)	$	3,126			(4,795	)		-153	%

nm = not meaningful

Western Hemisphere

Western Hemisphere revenue was $41.2 million for the three months ended March 31, 2025, an increase of $2.9 million, or 8%, compared to the three months ended March 31, 2024. The increase in revenues was driven by the addition of our Diamond Products Division ("DPD") in August of 2024. The increase in Western Hemisphere operating income was not meaningful quarter over quarter due to higher personal related costs as a result of acquisitions.

Eastern Hemisphere

Eastern Hemisphere revenue was $5.1 million for the three months ended March 31, 2025, an increase of $3.8 million, or 305%, compared to the three months ended March 31, 2024. The increase was primarily a result of acquisitions to rental businesses located within the Eastern Hemisphere. Eastern Hemisphere operating loss was $0.2 million for the three months ended March 31, 2025, a decrease of $0.6 million, or 145% compared to the three months ended March 31, 2024. The decrease was driven by increased headcount as a result of the acquisitions and an activity decline seen in the Middle Eastern market.

Corporate and Other

Corporate and other represents various expenses not directly attributable to our segments as well as expenses not used in the measurement of segment profitability. Corporate and other expenses for the three months ended March 31, 2025 were $10.1 million, an increase of $1.3 million or 15%, compared to the three months ended March 31, 2024. The increase was primarily attributable to increased depreciation expense as a result of acquired property, plant, and equipment balances.

Interest expense, net

Interest expense net was $1.3 million for the three months ended March 31, 2025, an increase of $1.1 million, or 619%, compared to the three months ended March 31, 2024. The increase was primarily a result of interest on the term loan, entered into in March 2024, interest on amounts drawn on the credit facility, and interest on the promissory note, entered into in September 2024.

Other income (expense), net

Other income (expense), net represents various one time and non-recurring expenses Other income (expense), net was $1.9 million for the three months ended March 31, 2025, an increase of $0.8 million, or 72%, compared to three months ended March 31, 2024. This increase was driven by software implementation costs and additional transaction costs incurred during the three months ended March 31, 2025.

Non-GAAP Financial Measures

To supplement our unaudited interim consolidated financial statements, which are prepared and presented in accordance with U.S GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We use the non-GAAP financial measure Adjusted EBITDA, which is defined as net income (loss); excluding interest income; interest expense; other income (expense), net; income tax benefit (expense); depreciation and amortization; and certain other non-cash or non-recurring items impacting net income (loss) from time to time. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

This non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to the closest comparable GAAP measure. Some of these limitations are that:

•

Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

•

Adjusted EBITDA excludes income tax benefit (expense).

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) for the three months ended March 31, 2025 and 2024 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):


	Three Months Ended March 31,
(In thousands)	2025			2024
Net income (loss)	$	(1,669	)	$	3,126
Add (deduct):
Income tax expense		(159	)		937
Depreciation and amortization		6,722			5,365
Interest expense, net		1,309			182
Stock option expense		541			208
Management fees		188			188
Gain on sale of property		(14	)		—
Loss on asset disposal		—			9
Unrealized (gain) loss on equity securities		—			(249	)
Goodwill impairment		1,901
Transaction expense		732			889
Other expense, net		1,203			236
Adjusted EBITDA	$	10,754		$	10,891

Liquidity and Capital Resources

At March 31, 2025, we had $2.8 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities, the term loan, and, if necessary, borrowings under the Credit Facility Agreement. We may use additional cash generated to execute strategic acquisitions or for general corporate purposes. We believe that our existing cash on hand, cash generated from operations and available borrowings under the Credit Facility Agreement will be sufficient for at least the next 12 months to meet working capital requirements and anticipated capital expenditures.

Credit Facility Agreement

Reference is made to the disclosure set forth under the heading “Revolving Credit Facility” in Note 8, Revolving Credit Facility, of the notes to the unaudited condensed consolidated financial statements included elsewhere in this Report (the ”Interim Financial Statements").

Capital Expenditures

Our capital expenditure relates to capital additions or improvements that add to our rental or repair capacity or extend the useful life of our drilling tools and related infrastructure. Also, our capital expenditures replace tools that are lost or damaged by a customer and these are funded by a rental tool recovery sale amount from the customer. We regularly incur capital expenditures on an on-going basis in order to (i) increase or maintain our rental tool fleet and equipment, (ii) extend the useful life of our rental tools and equipment and (iii) acquire or upgrade computer hardware and software. The amount of our capital expenditures is influenced by, among other things, demand for our services, recovery of lost or damaged tools, schedules for refurbishing our various rental tools and equipment, cash flow generated by our operations, expected rates of return and cash required for other purposes.

Contractual Obligations and Commitments

Our material contractual obligations arise from leases of facilities and vehicles under non-cancelable operating leases agreements. See Note 15, Commitments and contingencies, of the notes to the Interim Financial Statements.

Tax Obligations

We currently have available federal net operating loss carryforwards to offset our federal taxable income, and we expect that these carryforwards will substantially reduce our cash tax payments over the next several years. If we forfeit these carryforwards for any reason or deplete them faster than anticipated, our cash tax obligations could increase substantially. For additional information, see Note 9, Income Taxes, of the notes to the Interim Financial Statements.

Cash Flows

The following table sets forth our cash flows for the period indicated:


	Three Months Ended March 31,
(In thousands)	2025			2024
Net cash (used in) provided by:
Operating activities	$	2,431		$	3,312
Investing activities		(7,280	)		(19,585	)
Financing activities		1,392			24,611
Effect of changes in foreign exchange rate		61			(291	)
Net increase (decrease) in cash and cash equivalents	$	(3,396	)	$	8,047

Cash Flows (Used In) Provided by Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2025 was $2.4 million, the driver being a net loss of $1.7 million offset by non-cash charges of $7.2 million and a decrease in net working capital of $3.1 million. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report entitled “Risk Factors.”

Net cash provided by operating activities for the three months ended March 31, 2024 was $3.3 million, the driver being net income of $3.1 million, including non-cash charges of $3.9 million, offset by a decrease in net working capital of $3.7 million.

Cash Flows (Used In) Provided by Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 was $7.3 million. Purchases of property, plant, and equipment of $5.0 million, purchases of intangible assets of $0.7 million, and the acquisition of Titan for $5.6 million were partially offset by proceeds from rental tool recovery sales of $4.0 million.

Net cash used in investing activities for the three months ended March 31, 2024 was $19.6 million. Purchases of property, plant, and equipment of $6.2 million and the acquisition of Deep Casing Tools for $18.3 million were partially offset by proceeds from rental tool recovery sales of $5.0 million.

Cash Flows (Used In) Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $1.4 million resulting from net proceeds on from the revolving line of credit of $2.9 million, offset by payments on the term loan of $1.3 million and payments on the Promissory Note of $0.2 million.

Net cash used in financing activities for the three months ended March 31, 2024 was $24.6 million resulting from proceeds on the term loan on $25.0 million, offset by payments of deferred financing fees of $0.3 million.

Critical Accounting Policies and Estimates

The Interim Financial Statements included in this Report have been prepared in accordance with U.S. GAAP. The preparation of these Interim Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions that affect the reported amounts and related disclosures for the periods presented. Our estimates are based on our historical experience and other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly. Additionally, changes in assumptions, estimates or assessments due to unforeseen events or other causes could have a material impact on our financial position or results of operations.

For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Recently Issued and Adopted Accounting Standards

A discussion of recent accounting pronouncements is included in Note 1, Summary of significant accounting policies, to the Interim Financial Statements included elsewhere in this report.

JOBS Act Accounting Election

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, as an emerging growth company, we may take advantage of certain reduced disclosure and other requirements that are otherwise applicable generally to public companies. DTI will take advantage of these exemptions until such earlier time that it is no longer an emerging growth company. DTI would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering (ii) the last day of the fiscal year in which its total annual gross revenue is equal to or more than $1.23 billion (iii) the date on which it has issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which it is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Credit risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with major and reputable financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided by the Canadian Deposit Insurance Corporation and the Federal Deposit Insurance Corporation on such deposits but may be redeemed upon demand. We perform periodic evaluations of the relative credit standing of the financial institutions. With respect to accounts receivable, we monitor the credit quality of our customers as well as maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.

Concentration risk

During the three months ended March 31, 2025 and 2024, 29.0% and 30.0%, respectively of our total revenue was earned from two customers. Amounts due from these customers included in accounts receivable at March 31, 2025 and December 31, 2024 were approximately $5.3 million and $5.4 million, respectively.

Foreign currency risk

Our customers are primarily located in the United States, Canada and throughout Europe and the Middle East. Therefore, foreign exchange risk exposures arise from transactions denominated in currencies other than the United States dollar, which is our functional and reporting currency. To date, a majority of our sales have been denominated in United States, British pound sterling ("GBP") and Canadian dollars. As we expand our presence in international markets, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements to minimize the impact of these fluctuations in the exchange rates. We will periodically reassess our approach to manage our risk relating to fluctuations in currency rates.

We do not believe that foreign currency risk had a material effect on our business, financial condition, or results of operations during the periods presented.

Inflation Risk

Rising international tariffs, including any tariffs applied to goods traded between the U.S. and China, the U.S. and Mexico and the U.S. and Canada, could materially and adversely affect our business and results of operations. The U.S. government has previously and now again recently imposed tariffs on certain foreign goods from a variety of countries and regions that it perceives as engaging in unfair

trade practices. Foreign governments have imposed, and may impose in the future, retaliatory tariffs on goods that their countries import from the U.S. Such changes can make it difficult or costly for us to do business in, or import our products from, those countries.

With certain tariff exclusions ending and with any new tariffs, it could further negatively impact global trade and economic conditions in many of the regions where we do business. It may also adversely impact demand for our products in certain locations. It may be time-consuming and costly for us to modify our business operations to adapt to or comply with such tariffs. If we become unable to recover a substantial portion of any increased tariff related costs, the recent or increased international tariffs could materially and adversely affect our business, financial condition and results of operations.

Cybersecurity Risk

We continue to monitor technology hardware and software solutions, regular testing of the resiliency of our systems including penetration and disaster recovery testing as well as regular training sessions on cybersecurity risks and mitigation strategies. We have established an incident response plan and team to take steps it determines are appropriate to contain, mitigate and remediate a cybersecurity incident and to respond to the associated business, legal and reputation risks. There is no assurance that these efforts will fully mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur.

Item 4. Controls and Procedures.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures in effect as of March 31, 2025, the end of the period covered by this Report. As a result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of March 31, 2025, or as of the date of the filing of this Report.

Our disclosure controls and procedures were not effective as of March 31, 2025 because all findings in connection with our preparation and the audit of our consolidated financial statements as of and for the year ended December 31, 2022 and December 31, 2023, have not been fully remediated despite ongoing projects and improvements made in the current year. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of March 31, 2025 and we continue to have a material weakness in our internal control over financial reporting. This material weakness is described in more detail below.

Prior to going public, we had been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with our preparation and the audit of our consolidated financial statements as of and for the year ended December 31, 2023, we identified deficiencies in the design or operation of our internal controls to be a material weakness relating to inadequate documentation and monitoring of information technology (“IT”) general controls and cybersecurity processes within the Company’s IT environment, including access controls and segregation of duties between key IT functions.

We have made progress towards remediation of the remaining material weakness with the following steps:

•

Developing a plan to monitor and assess the established control environment;

•

Developing and implementing a periodic testing plan to assess the design of implemented controls covering all material business processes and systems;

•

Executing the testing plan as designed; and

•

Reporting results of testing to management and the Board of Directors.

Through the work performed in 2024, management has identified the below areas for improvement to fully remediate the fourth material weakness:

•

Employees should be trained on Information Produced by Entity (IPE) and IPE procedures should be built into internal controls and tested;

•

Provide greater precision of evidence related to the performance of both the business process and IT controls;

•

Continue to implement, refine and assess controls over gaps identified from previous years and during our remediation efforts; and

•

Monitor the execution of IT and business process controls throughout the year.

The process of maintaining effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Changes in Internal Control over Financial Reporting

On March 15, 2024, we acquired Deep Casing Tools. As the acquisition date has exceeded one year, we are now required to assess on the internal controls over financial reporting. Additionally, on January 2, 2025, we completed the acquisition of Titan Tools. We are permitted to omit an assessment of an acquired business' internal control over financial reporting from our assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, we have excluded the internal control over financial reporting of Titan Tools from management's assessment of internal control over financial reporting as of March 31, 2025.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

See Part I, Item 1, Note 15 to our consolidated financial statements entitled “Commitments and Contingencies,” which is incorporated in this item by reference.

Item 1A. Risk Factors.

Our Annual Report filed with the SEC on March 14, 2025, describes important risk factors that could cause our business, financial condition, results of operations and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Report or presented elsewhere by management from time to time. There have been no material changes in the risk factors that appear in the Annual Report. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

During the year ended December 31, 2024, Michael Domino, President, Directional Tool Rentals Division and Thomas Patterson, Independent Director, each adopted a pre-arranged stock trading plan in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The trading plans are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and allow for the sale of a specified number of shares of the Company’s common stock over a designated period of time, subject to certain price, timing, and volume conditions.

The plans were adopted during an open trading window in accordance with the Company’s insider trading policy and are further described below:


Name/Title	Date	Type of Arrangement	Nature of Arrangement	Duration	Aggregate number of shares
Thomas Patterson, Independent Director	6/11/2024	Rule 10b5-1 Trading Plan	Sale of Common Stock	15 months	42,000
Michael Domino, President - Directional Tool Rentals Division	9/9/2024	Rule 10b5-1 Trading Plan	Sale of Common Stock	6 months	450,000

Mr. Domino’s plan expired on March 9, 2025 without any trades being executed under the plan. Transactions under Mr. Patterson’s plan will be disclosed publicly through Form 4 filings with the Securities and Exchange Commission as they occur.

During the three months ended March 31, 2025, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Report.


Exhibit Number		Description
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

† Certain exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). We agree to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request.

# Indicates management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Drilling Tools International Corporation

Date: May 14, 2025	By:	/s/ David R. Johnson
		David R. Johnson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company