Drilling Tools International Corp

Previous wording

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, 2026, and for the three months ended March 31, 2026 and 2025, 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, 2025. 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.

Current wording

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of June 30, 2026, and for the three and six months ended June 30, 2026 and 2025, 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, 2025. 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.

Previous wording

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 ended March 31, 2026 and 2025, we derived 76% and 81% of total revenues from tool rentals and 24% and 19% from product sales, respectively.

Current wording

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 ended June 30, 2026 and 2025, we derived 78% and 83% of total revenues from tool rentals and 22% and 17% from product sales, respectively. During the six months ended June 30, 2026 and 2025, we derived 77% and 82% from tool rentals and 23% and 18% from product sales, respectively.

Previous wording

We are experiencing the impacts of global inflation, both in increased personnel costs and the prices of goods and services required to operate drilling 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.

Current wording

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.

Previous wording

Western Hemisphere revenue was $33.4 million for the three months ended March 31, 2026, a decrease of $7.8 million, or 19%, compared to the three months ended March 31, 2025. The decrease in revenues was driven by a decrease in tool rental revenue as a result of lower customer activity levels and pricing pressures during the three months ended March 31, 2026. Western Hemisphere segment income was $10.1 million for the three months ended March 31, 2026, a decrease of $3.5 million, or 26%, compared to three months ended March 31, 2025. The decrease was in line with the decrease in revenue and driven by lower customer activity levels and pricing pressures during the three months ended March 31, 2026.

Current wording

Western Hemisphere revenue was $33.0 million for the three months ended June 30, 2026, a decrease of $4.6 million, or 12%, compared to the three months ended June 30, 2025. The decrease in revenues was driven by a decrease in tool rental revenue as a result of lower customer activity levels and pricing pressures. Additionally, western hemisphere segment income was $9.9 million for the three months ended June 30, 2026, a decrease of $2.2 million or 18%, compared to the three months ended June 30, 2025. The decrease was in line with the decrease in revenue and a result of the same drivers.

Previous wording

Eastern Hemisphere revenue was $6.7 million for the three months ended March 31, 2026, an increase of $1.7 million, or 33%, compared to the three months ended March 31, 2025. The increase in revenues was driven by increases in our product sales in the Eastern Hemisphere as well as increased rental activity in geographies into which the Company has expanded. Eastern Hemisphere segment loss was $0.1 million for the three months ended March 31, 2026, an increase of $0.1 million, or 41%, compared to the three months ended March 31, 2025. This increase was in line with the increase seen in revenue.

Current wording

Eastern Hemisphere revenue was $7.3 million for the three months ended June 30, 2026, an increase of $1.2 million, or 20%, compared to the three months ended June 30, 2025. The increase in revenues was driven by increases in our product sales in the Eastern Hemisphere as well as increased rental activity in geographies into which the Company has expanded. Additionally, eastern hemisphere segment income was $0.8 million for the three months ended June 30, 2026, an increase of $0.7 million or 1633%, compared to the three months ended June 30, 2025. The increase was in line with the increase in revenue and a result of the same drivers.

Previous wording

The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for the (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

Current wording

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) for the three and six months ended June 30, 2026 and 2025 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

Previous wording

At March 31, 2026, 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 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 the next 12 months to meet working capital requirements and anticipated capital expenditures as well as any need beyond the next 12 months.

Current wording

At June 30, 2026, we had $2.5 million of cash. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities 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 the next 12 months to meet working capital requirements and anticipated capital expenditures as well as any need beyond the next 12 months.

Previous wording

Reference is made to the disclosure set forth under the heading “Revolving Credit Facility” in Note 8 –Long Term Debt, of the notes to Interim Financial Statements.

Current wording

Reference is made to the disclosure set forth in Note 8 –Long-term Debt, of the notes to condensed consolidated financial statements.

Previous wording

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

Current wording

Our material contractual obligations arise from leases of facilities and vehicles under noncancelable operating lease agreements. See Note 15 -Commitments and Contingencies, of the notes to the condensed consolidated financial statements.

Previous wording

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 Condensed Consolidated Financial Statements.

Current wording

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 condensed consolidated financial statements.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2026 was $3.2 million, the driver being a net loss of $2.0 million and a decrease in net working capital of $6.1 million offset by non-cash adjustments of $4.9 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.”

Current wording

Net cash used in operating activities for the six months ended June 30, 2026 was $5.5 million, the driver being a net loss of $3.3 million and a decrease in net working capital of $11.6 million offset by non-cash adjustments of $9.4 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.”

Previous wording

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, including non-cash charges of $7.2 million, offset by a decrease in net working capital of $3.1 million.

Current wording

Net cash provided by operating activities for the six months ended June 30, 2025 was $4.6 million, the driver being a net loss of $4.0 million and a decrease in net working capital of $4.8 million offset by non-cash adjustments of $13.5 million.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2026 was $3.0 million resulting from purchases of property, plant, and equipment of $7.7 million, purchases of intangible assets of $0.4 million, partially offset by proceeds from rental tool recovery sales of $5.1 million.

Current wording

Net cash used in investing activities for the six months ended June 30, 2026 was $3.7 million, resulting from purchases of property, plant, and equipment of $11.9 million and the purchase of intangible assets of $0.8 million, offset by proceeds from rental tool recovery sales of $8.9 million.

Previous wording

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

Current wording

Net cash used in investing activities for the six months ended June 30, 2025 was $12.1 million, resulting from purchases of property, plant, and equipment of $12.6 million, purchases of intangible assets of $1.1 million, and the acquisition of Titan for $5.6 million, partially offset by proceeds from rental tool recovery sales of $7.1 million.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2026 was $5.3 million, resulting from net debt increases of $6.0 million, offset by purchases of treasury stock of $0.7 million.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2026 was $8.0 million, resulting from net debt increases of $8.7 million offset by purchases of treasury stock of $0.7 million.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2025 was $1.4 million, resulting from net debt increases of $1.4 million.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2025 was $2.4 million, resulting from net debt increases of $3.1 million offset by purchases of treasury stock of $0.6 million.

Previous wording

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.

Current wording

The condensed consolidated financial statements included in this Report have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated 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.

Previous wording

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, 2025.

Current wording

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, 2025. There have been no material changes to our critical accounting policies and estimates since the 2025 Form 10-K.