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 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.

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 September 30, 2026, and for the three and nine months ended September 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. 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 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.

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 September 30, 2026 and 2025, we derived 79% and 82% of total revenues from tool rentals and 21% and 18% from product sales, respectively. During the nine months ended September 30, 2026 and 2025, we derived 78% and 82% from tool rentals and 22% and 18% from product sales, respectively.

Previous wording

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

Current wording

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

Previous wording

The following table summarized average oil and natural gas prices in North America over the indicated periods as well as International and Domestic industry activity levels as reflected by the average number of active onshore drilling rigs during the same periods.

Current wording

The following table summarizes average oil and natural gas prices in North America over the indicated periods as well as International and Domestic industry activity levels as reflected by the average number of active onshore drilling rigs during the same periods.

Previous wording

During the six months ended June 30, 2026, the oil and gas market continued to be influenced by evolving supply and demand fundamentals, geopolitical developments, and broader macroeconomic conditions. U.S. crude oil production remained near record levels, supported by continued activity in key shale basins and offshore developments. While crude oil prices remained volatile during the period, customer investment decisions continued to be driven primarily by medium- and long-term commodity price expectations, particularly for offshore projects with longer development cycles.

Current wording

During the nine months ended September 30, 2026, the oil and gas market continued to be influenced by evolving supply and demand fundamentals, geopolitical developments, and broader macroeconomic conditions. U.S. crude oil production remained near record levels, supported by continued activity in key shale basins and offshore developments. While crude oil prices remained volatile during the period, customer investment decisions continued to be driven primarily by medium- and long-term commodity price expectations, particularly for offshore projects with longer development cycles.

Previous wording

U.S. natural gas prices remained above prior-year levels during the first half of 2026, supported by improving market fundamentals, including continued demand growth and relatively tighter inventories, despite increasing domestic production.

Current wording

U.S. natural gas prices remained above prior-year levels during the nine months ended September 30, 2026, supported by improving market fundamentals, including continued demand growth and relatively tighter inventories, despite increasing domestic production.

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 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.

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 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.

Previous wording

The following table set forth our results of operations for the periods presented (in thousands):

Current wording

The following table sets forth our results of operations for the periods presented (in thousands):

Previous 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.

Current wording

Eastern Hemisphere revenue was $7.9 million for the three months ended September 30, 2026, an increase of $1.7 million, or 27%, compared to the three months ended September 30, 2025. The increase in revenues was driven by increased rental activity in geographies into which the Company has expanded. Additionally, Eastern Hemisphere segment income was $1.3 million for the three months ended September 30, 2026, an increase of $1.1 million or 571%, compared to the three months ended September 30, 2025. The increase was primarily driven by the increase in revenue year over year.

Previous wording

Other operating and non-operating expense, net was $1.1 million for the three months ended June 30, 2026, a decrease of $0.8 million, or 42%, compared to the three months ended June 30, 2025. The decrease was primarily a result of reduction in restructuring and software implementation expenses incurred in the second quarter of 2025 compared to the second quarter of 2026.

Current wording

Other operating and non-operating expense, net was $3.0 million for the three months ended September 30, 2026, an increase of $2.4 million, or 411%, compared to the three months ended September 30, 2025. The increase was primarily a result of the higher transaction related expenses incurred in the third quarter of 2026.

Previous wording

Western Hemisphere revenue was $66.4 million for the six months ended June 30, 2026, a decrease of $12.4 million, or 16%, compared to the six 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 $20.0 million for the six months ended June 30, 2026, a decrease of $5.7 million or 22%, compared to the six months ended June 30, 2025. The decrease was in line with the decrease in revenue and a result of the same drivers.

Current wording

Western Hemisphere revenue was $101.1 million for the nine months ended September 30, 2026, a decrease of $12.6 million, or 11%, compared to the nine months ended September 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 during the nine months ended September 30, 2026. Additionally, Western Hemisphere segment income was $31.4 million for the nine months ended September 30, 2026, a decrease of $6.0 million or 16%, compared to the nine months ended September 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 $14.0 million for the six months ended June 30, 2026, an increase of $2.9 million, or 26% compared to the six months ended June 30, 2025. The increase in revenues was driven by the recent acquisitions of tool rental businesses located within the Eastern Hemisphere and increased rental activity in geographies into which the Company has expanded. Eastern Hemisphere segment income was $0.7 million for the six months ended June 30, 2026, an increase of $0.8 million, or 566%, compared to the six months ended June 30, 2025. The increase was in line with the increase in revenue and a result of the same drivers.

Current wording

Eastern Hemisphere revenue was $21.9 million for the nine months ended September 30, 2026, an increase of $4.5 million, or 26% compared to the nine months ended September 30, 2025. The increase in revenues was driven by increased rental activity in geographies into which the Company has expanded. Eastern Hemisphere segment income was $1.9 million for the nine months ended September 30, 2026, an increase of $1.9 million compared to less than $0.1 million for the nine months ended September 30, 2025. The increase was in line with the increase in revenue and a result of the same drivers.

Previous wording

Interest expense, net was $1.1 million for the three months ended June 30, 2026, a decrease of $0.2 million, or 17%, compared to the three months ended June 30, 2025. The decrease was primarily a result of the decrease in the overall debt balance of approximately $2.7 million when comparing June 30, 2026 to June 30, 2025.

Current wording

Interest expense, net was $3.3 million for the nine months ended September 30, 2026, a decrease of $0.7 million, or 18%, compared to the nine months ended September 30, 2025. The decrease was primarily a result of the decrease in the overall debt balance when comparing September 30, 2026 to September 30, 2025.

Previous wording

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

Current wording

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

Previous 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):

Current wording

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

Previous 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.

Current wording

At September 30, 2026, we had $3.0 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 to meet our working capital requirements and anticipated capital expenditures for at least the next 12 months and in the longer term, excluding the cash consideration for the Saltire Acquisition. Cash consideration payable at closing of the Saltire Acquisition is approximately £60.3 million (approximately $81 million), subject to adjustment, which substantially exceeds our cash on hand and available borrowings under the Credit Facility Agreement as of September 30, 2026. We expect to fund the cash consideration for the Saltire Acquisition, together with related fees and expenses, through new debt financing and borrowings under the Credit Facility Agreement. The Buyer’s obligation to close is conditioned on obtaining this financing, and the Seller Representative may terminate the Purchase Agreement if the financing has not been obtained by November 30, 2026 and certain other conditions are met. The completion of the Saltire Acquisition and the related financing will significantly increase our indebtedness and debt service obligations. There can be no assurance that such financing will be available on acceptable terms or at all.

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 condensed consolidated financial statements.

Current wording

Our material contractual obligations arise from leases of facilities and vehicles under noncancelable operating lease agreements. See Note 13 - Leases, 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 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.

Previous wording

Cash Flows Used In Operating Activities

Current wording

Cash Flows Provided By (Used In) Operating Activities

Previous 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.”

Current wording

Net cash used in operating activities for the nine months ended September 30, 2026 was $4.0 million, the driver being a net loss of $6.0 million and a increase in net working capital of $12.8 million offset by non-cash adjustments of $14.7 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 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.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2025 was $14.6 million, the driver being a net loss of $5.0 million and a increase in net working capital of $1.8 million offset by non-cash adjustments of $21.4 million.

Previous 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.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2026 was $0.9 million, resulting from purchases of property, plant, and equipment of $17.6 million and the purchase of intangible assets of $1.0 million, offset by proceeds from rental tool recovery sales of $13.7 million and property, plant, and equipment sales of $4.0 million.

Previous 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.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2025 was $12.7 million, resulting from purchases of property, plant, and equipment of $16.1 million, purchases of intangible assets of $1.4 million, and the acquisition of Titan for $5.6 million, partially offset by proceeds from rental tool recovery sales of $10.4 million.

Previous 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.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2026 was $4.2 million, resulting primarily from debt increases of $4.8 million offset by purchases of treasury stock of $0.7 million.

Previous 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.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2025 was $3.7 million, resulting primarily from debt decreases of $2.6 million and purchases of treasury stock of $1.2 million.

Previous wording

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 $1.07 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.

Current wording

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 will cease to be an emerging growth company on the earliest of (i) the last day of the fiscal year following the fifth anniversary of the first sale of common equity securities of DTI (as successor to ROC Energy Acquisition Corp.) pursuant to an effective registration statement under the Securities Act, which we expect to be December 31, 2026, (ii) the last day of the fiscal year in which its total annual gross revenue is equal to or more than $1.235 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 SEC. Upon losing emerging growth company status, which we expect to occur on December 31, 2026, we will be required to adopt any deferred accounting standards and will no longer be eligible for the related reduced disclosure accommodations, including for purposes of our Annual Report on Form 10-K for the fiscal year ending December 31, 2026.