10-Q

请勾选是否注册人（1）在过去12个月内（或在注册人被要求提交此类报告的更短期限内）已提交根据1934年证券交易法第13节或第15(d)节要求提交的所有报告，以及（2）在过去90天内是否受到此类提交要求的约束。是 ☒ 不 ☐

请通过勾选的方式指示注册人是否在过去12个月内（或在注册人被要求提交此类文件的较短期间内）根据S-t法规第405条（本章第232.405条）提交了所有需要提交的互动数据文件。是 ☒ 不 ☐

勾选以下选框，指示申报人是大型加速评估提交人、加速评估提交人、非加速评估提交人、小型报告公司或新兴成长型公司。关于“大型加速评估提交人”、“加速评估提交人”、“小型报告公司”和“新兴成长型公司”的定义，请参见《交易所法规》第12亿.2条。

如果是新兴成长型企业，请勾选复选标记，表明注册者已选择不使用延长过渡期来符合根据证券交易法第13(a)条规定提供的任何新财务会计准则。 ☐

请勾选“是”，如果报告人是外壳公司（定义见证券交易法规则12b-2）。是 ☐ 不 ☒

请勾选是否注册人已按照1934年证券交易法第12、13或15(d)条款提交所有必须提交的文件和报告，这些文件和报告是在法院确认的证券发行计划后提交的。是 ☐ 不是 ☒

截至2024年11月14日，注册人已 34,704,696 每股面值0.0001美元的普通股，已发行股份。

本报告（本“报告”）中的某些陈述可能构成根据联邦证券法的“前瞻性陈述”。这些前瞻性陈述包括但不限于关于我们及我们管理团队对未来的期望、希望、信念、意图或战略的陈述。此外，任何提及对未来事件或情况的预测、预报或其他描述的陈述，包括任何基本假设，都是前瞻性陈述。“预期”、“相信”、“继续”、“可能”、“估计”、“期望”、“打算”、“可能”、“可能”、“计划”、“可能的”、“潜在的”、“预测”、“项目”、“应该”、“将”、“会”以及类似的表达可能标识前瞻性陈述，但缺少这些词并不意味着某个陈述不是前瞻性的。本报告中的前瞻性陈述可能包括，例如，关于：

本报告中包含的前瞻性声明基于我们目前对未来发展及其对我们业务潜在影响的期望和信念。无法保证影响我们业务的未来发展将是我们所预期的。这些前瞻性声明涉及多种风险、不确定性（其中一些超出我们控制范围）或其他假设，可能导致实际结果或表现与这些前瞻性声明所表达或暗示的结果存在重大差异。这些风险和不确定性包括但不限于本报告第II部分第1A项中描述的因素。Risk Factors此外，我们在一个竞争非常激烈、变化迅速的环境中运营。新的风险和不确定性会不时出现，我们无法预测所有风险因素，也无法评估所有这些风险因素对我们业务的影响，或者任何因素或因素组合可能导致实际结果与任何前瞻性声明中包含的结果存在重大差异的程度。如果这些风险或不确定性之一或多个发生，或者任何假设被证明不正确，实际结果可能在重大方面与这些前瞻性声明中的预测存在差异。

本报告中我们所作出的前瞻性声明仅反映本报告日期的情况。除非在联邦证券法以及SEC的规则和规定下有要求，我们不承担任何义务去更新任何前瞻性声明，以反映声明作出后事件或情况的变化，或反映意外事件的发生。鉴于这些风险和不确定性，无法保证前瞻性声明所暗示的事件或结果确实会发生，因此您不应对这些前瞻性声明过于依赖。

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

* 传统可赎回可转换优先股和传统普通股已被追溯重述，以反映合并的效果。

简明合并的可赎回可转换优先股及股东权益变动表可赎回可转换优先股及股东权益

* Shares of legacy redeemable convertible preferred stock and legacy common stock have been retroactively restated to give effect to the Merger.

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

附带的注释是这些未经审计的简明合并基本报表不可或缺的一部分.

注释 1 — SIGNIFI 摘要CanT 会计政策

运营的组织和性质

Drilling Tools International Corporation是特拉华州的一家公司（“DTIC” 或 “公司”），是一家全球油田服务公司，设计、设计、制造和提供差异化的、以租赁为中心的工具，用于陆上和海上水平和定向钻探作业，以及其他贯穿油井生命周期的尖端解决方案。

2024年3月15日（“CTG收购日期”），我们与Casing Technologies集团有限公司（“CTG”）、CTG的某些股东和CTG的一位代表签订了股票购买协议（“股份购买协议”）。根据股票购买协议的条款，公司百分之百收购了（100百分比）CTG（“CTG收购”）的股份，该公司以约英镑的价格全资拥有能源技术开发公司Deep Casing Tools Limited（“Deep Casing”）16.2 百万美元，或美元20.9 百万，基于CTG收购日英镑兑美元的汇率。有关此次收购的更多详情，请参阅附注2 —”业务组合.”

2024年3月6日，公司与犹他州的一家公司Superior Drilling Products, Inc.（“SDPI”）、特拉华州的一家公司兼该公司的直接全资子公司DTI Merger Sub I, Inc.（“Merger Sub I”）以及特拉华州有限责任公司兼该公司的全资子公司Merger DTI Merger Sub II, LLC及其相互之间签订了协议和合并计划（“合并协议”）（“合并协议”）ComaPany（“Merger Sub II”），根据该协议，Merger Sub I与SDPI合并并入SDPI（“首次合并”），SDPI作为全资子公司幸存在DTI和第一次合并生效之时（“首次生效时间”），SDPI作为第一次合并的幸存公司，与Merger Sub II合并（“第二次合并”，与第一次合并一起称为 “合并”），Merger Sub II作为公司的全资子公司继续存在。根据合并协议的条款，合并于2024年7月31日（“SDPI截止日期” 或 “SDPI收盘日期”）结束，总对价为美元47.9 百万。有关此次收购的更多详情，请参阅附注2-”业务合并。”

该公司的美国（“美国”）业务在德克萨斯州、加利福尼亚州、路易斯安那州、俄克拉荷马州、宾夕法尼亚州、北达科他州、新墨西哥州、犹他州和怀俄明州设有办事处。该公司的国际业务位于加拿大、英国、德国、阿拉伯联合酋长国、沙特阿拉伯、科威特、阿曼、马来西亚和澳大利亚。在美国境外的业务面临在不同的法律制度和不同的政治和经济环境下运营所固有的风险。风险包括现行税法的变化和对外国投资的可能限制。公司不从事套期保值活动以减少其受外币汇率波动的影响。

演示基础

随附的未经审计的简明合并财务报表由公司根据财务会计准则委员会（“FASB”）规定的美国普遍接受的会计原则（“美国公认会计原则”）以及美国证券交易委员会（“SEC”）的规章制度编制。财务会计准则委员会在随附的未经审计的简明合并财务报表附注中提及的美国公认会计原则是指财务会计准则编纂（“ASC”）和会计准则更新（“ASU”）。

未经审计的中期财务信息

本季度报告中随附的未经审计的中期简明合并财务报表是根据美国公认会计原则编制的，公司认为，其中包含所有调整，仅包括正常的经常性调整，这是公允列报其截至2024年9月30日的财务状况、截至2024年9月30日和2023年9月30日的三个月和九个月的经营业绩以及截至2024年9月30日和2023年9月30日的九个月的现金流所必需的。截至2023年12月31日的简明合并资产负债表，源自经审计的年度财务报表，但不包含年度财务报表的所有脚注披露。

新兴成长型公司

部分《Jumpstart Our Business Startups法》（“JOBS法”）第102（b）（1）条规定，在要求私营公司（即那些尚未宣布生效的《证券法》注册声明或没有根据经修订的1934年《证券交易法》注册的一类证券的公司）遵守新的或修订后的财务会计准则之前，新兴成长型公司无需遵守新的或修订后的财务会计准则。《乔布斯法案》规定，公司可以

选择公司已选择不退出该扩展过渡期，这意味着当发布或修订标准并且对公众公司或私营公司的适用日期不同的情况下，公司作为一家新兴成长型公司，可以在私营公司采用新或修订标准的同时采用该新或修订标准，直到公司不再被视为新兴成长型公司。有时，公司可能会选择提前采用新或修订标准。因此，公司在财务报表中可能与那些遵循公共公司生效日期的公司不可比较。

估计的使用

准备未经过审计的简明合并财务报表以符合美国公认会计原则（GAAP）要求管理层做出估计和假设，这些估计和假设影响公司未经过审计的简明合并财务报表及附注中所报告的资产和负债、营业收入和费用，以及或有资产和负债的披露。这些估计和假设基于当前事实、历史经验和认为在此情况下合理的各种其他因素，其结果构成了判断资产和负债账面价值及记录不易从其他来源显现的费用的基础。实际结果可能与这些估计有实质性和不利的差异。在当前受俄乌和以色列-哈马斯冲突和通货膨胀压力影响的宏观经济和业务环境中，这些估计需要增加判断，并且具有更高的变动性和波动性。随着事件的不断发展和更多信息的可用，这些估计在未来期间可能会发生重大变化。

合并原则

所附的未经审计的简化合并基本报表包括公司的账户及其全资子公司的账户。所有的公司内部账户和交易在合并时已被消除。此外，合并的基础包含我们外国实体Casing Technologies Group Limited的财务报表，该实体根据英国公认会计原则（"英国GAAP"）运营。这些财务报表为合并目的而翻译为美国公认会计原则（"U.S. GAAP"）。翻译过程遵循既定的会计标准和指南，以确保我们合并财务报表的一致性和可比性。这种方法使我们能够准确反映合并业务的财务状况、经营结果和现金流量。

外汇翻译和交易

公司已确定，其在全球业务的功能性和报告货币为公司国际子公司的功能货币。因此，所有外国资产负债表账户已使用各自资产负债表日期的汇率换算为美元。未经审计的简化合并损益及全面收益表的各个组成部分已按报告期内的平均汇率换算。翻译产生的收益或损失记录在累计其他综合损失中，作为股东权益的一个组成部分。因交易汇率波动而产生的收益或损失包括在未经审计的简化合并损益及全面收益表中。至2024年和2023年9月30日结束的三个月和九个月，包含在未经审计的简化合并损益及全面收益表中的交易净收益和损失是微不足道的。

收入确认

公司根据主题842（处理租赁会计）和主题606（处理客户合同的营业收入）确认营业收入。公司从两种营业收入类型中获得收入，工具租赁服务和产品销售。

工具租赁服务

工具租赁服务包括租赁服务、检查服务和维修服务。工具租赁服务的营业收入依照主题842进行会计处理。

自有工具租赁是最重要的营业收入类型，受公司标准租赁合同的管辖。公司将这些租赁视为经营租赁。租赁条款已包含在合同中，确定公司合同是否包含租赁通常不需要重大假设或判断。公司的租赁营业收入

不要包括可变付款的实质金额。拥有的工具租赁代表公司拥有的租赁工具的营业收入。公司通常不提供承租人在租约结束时购买租赁设备的选项。

公司以直线法确认工具租赁的营业收入。公司的租赁合同按天、按月或按井计费。作为这一直线法的部分，当设备归还时，公司确认所需支付金额与至今已确认的累计营业收入之间的差额（如有）作为增量营业收入，客户合同要求支付的金额是基于实际租赁天数适用的租赁合同期。在任何一个会计期间，公司都会有客户归还钻井工具，并在合同上需要支付超过截至目前已确认的累计营业收入。此外，公司还有基于使用的租赁合同，按线性或按井计费。这些类型的租赁合同主要由开始时未知的可变租金构成，当基于可变租金的因素发生变化时确认营业收入。当客户归还租赁设备且使用量变得明显时，公司确认营业收入。

公司将超出可识别营业收入的应收款项记录为未确认收入，在其未经审计的合并资产负债表中列示。

如上所述，公司不确定客户何时将租赁的钻井工具归还。因此，公司不知道客户在归还工具时将欠公司多少，也无法提供未来租赁付款的到期分析。公司的钻井工具一般租赁时间较短（远低于一年）。承租人不提供租赁设备的残值担保。

公司预计在租赁期结束后，能够从其钻探工具中获得显著的未来收益。公司的租赁通常是短期性质，工具通常在公司拥有的时间内大部分时间处于出租状态。

产品销售

产品销售包括因租用工具而造成的超出维修范围的损坏费用、遗失在钻孔中的费用和在客户的照管、监护或控制下遗失的费用、钻头制造和翻新费用，以及其他定制产品销售的费用。产品销售按照主题606进行会计处理。

营业收入在承诺的商品或服务的控制权转移给客户时确认，其金额反映实体期望为这些商品或服务所应得的对价。为了判断与客户的收入确认，公司执行以下五个步骤：(i) 确定与客户的合同；(ii) 确定合同中的履约义务；(iii) 判断交易价格；(iv) 将交易价格分配给合同中的履约义务；(v) 在实体满足履约义务时确认收入。公司在获得双方的批准和承诺时会对合同进行会计处理，双方的权利被识别，付款条款被识别，合同具有商业实质，并且对价的可收回性是可能的。履约义务是合同中向客户转移独特商品或服务的承诺，是收入标准中的会计单位。交易价格是指合同中规定的对价，不包括任何销售激励、税收或为第三方代收的其他金额。由于公司与客户的每个合同都包含一个提供产品销售的单一履约义务，因此公司没有任何需要分配交易价格的履约义务。

定制产品销售及钻头制造和翻新所提供的履约义务在资产控制权转移给客户时满足，并在此时确认营业收入，通常这一过程发生在产品交付时或当产品在公司的装运码头可以供客户自取时。此外，根据与公司客户的合同条款，客户必须通知公司，并从公司购买在公司客户的保管、控制或照料下损坏无法修复、丢失在孔内或在运输途中丢失的任何租赁工具。这些产品在客户通知公司发生上述事件时确认营业收入。

公司未来没有预计与未交付履约义务相关的剩余履约义务或可变对价相关的合同中确认的营业收入。在当前期间内，没有确认来自以前期间履行履约义务的营业收入。

按地理位置划分的营业收入

产生的营业收入集中在美国。截止2024年9月30日的三个月和九个月内，在美国产生的营业收入为 $31.7 百万和 $96.9 百万分别为，或 79% 和 85% 总营业收入的。截止2024年9月30日的三个月和九个月内，在美国以外、加拿大和国际的营业收入为 $8.4 百万和 $17.7 百万, 分别，或者 21% 和 15% 总营业收入的。截止到2023年9月30日的三个月和九个月内，美国生成的营业收入为 $34.9 百万和 $106.6 百万，分别为，或 92% 和 91% 总营业收入的。截止到2023年9月30日的三个月和九个月，来自美国以外的营业收入在加拿大和国际 $3.2 百万和 $10.2 百万，分别为，或 8% 和 9% 总营业收入的

合同资产和合同负债

合同资产代表公司已完成但尚未开票的工作的对价权利。截至2024年9月30日和2023年12月31日，公司拥有合同资产 $4.0 百万和 $4.2 百万，分别。合同资产被记录在附带的未经审计的简明合并资产负债表中的应收账款净额中。

合同负债包括公司客户已开具或支付的费用，但相应的服务尚未提供，因此根据上述公司的营收确认标准尚未确认营业收入。截止至2024年9月30日和2023年12月31日，公司没有无没有任何重大合同负债。所有递延收入预计将在接下来的12个月内确认，并记录在随附的未经审计的财务报表中的应计费用和其他流动负债中。

现金及现金等价物

公司将所有原始到期三个月或更短时间内购买的高度流动投资视为现金等价物。公司没有无在 2024年9月30日和2023年12月31日.

应收账款，净额

公司的应收账款主要由未担保的应收客户款项组成。这些应收款通常在对应销售或租赁发生后的30到60天内到期，并且不计利息。它们按净可实现价值记录，扣除信用损失准备，并在未经审计的压缩合并资产负债表上列为应收账款，净额。

信用损失准备金

公司在评估不可收回应收余额的预期信用损失时，会考虑当前状况和合理且可支持的未来状况预测。在我们确定信用损失准备时，我们按应收账款的逾期天数进行分组，并对每组应用预期信用损失百分比。预期信用损失百分比是根据调整了当前状况和未来经济状况预测的历史损失数据来确定的。考虑的当前状况包括预定义的逾期标准以及指示到期余额不可收回的特定事件。用于确定未来收回概率的合理且可支持的预测考虑了公开获取的宏观经济数据，以及未来信用损失是否预期会与历史损失有所不同。

截至2024年9月30日和2023年12月31日，信用损失准备总额为 $1.3 百万和 $1.5 百万，分别为。

商业组合

公司采用收购会计方法进行业务合并，这需要我们利用估计和判断将为收购支付的购买价格分配到所收购的资产和负债的公允价值。我们在收购日期以公允价值对或有资产和负债进行会计处理，并将与这些资产和负债相关的公允价值变动记录为发生时的期间费用。我们使用既定的估值技术并聘请信誉良好的估值专家来协助我们进行这些估值。我们使用合理的计量期来记录与开盘资产负债表相关的任何调整（通常少于一年）。在计量期结束后，开盘资产负债表的变动可能导致收入或费用作为期间费用的确认。在这些项目源于资产负债表日存在的或有事项，但依赖于未来事件的实现时，该费用在未来事件被确认时计入费用。

库存，净额

存货按成本或可变现净值中较低者列报。根据库存的类型，使用特定的识别方法或先进先出（“FIFO”）方法确定成本。根据对未来需求和市场状况的假设，过时或超过预测使用量的库存将减记为其可实现的净价值。库存减记记入未经审计的简明合并收益表和综合收益表的运营成本部分中的租金收入成本和产品销售成本收入，并为库存建立新的成本基础。库存包括原材料和制成品。

财产、厂房和设备，净额

公司购买的不动产、厂房和设备按成本减去累计折旧值入账。折旧是根据折旧财产的估计使用寿命或租赁权益改善的剩余租期（以较短者为准）使用直线法记录折旧。尚未使用的资产不折旧。

作为业务收购的一部分购置的不动产、厂房和设备按收购日的公允价值入账，随后增加的按成本计算。

当不动产、厂房或设备的价值在很长一段时间内得到提高时，翻新和更新费用即被资本化。不动产、厂房和设备的维护和维修支出不会改善或延长相关资产的使用寿命，在发生时记作业务费用。当财产、厂房和设备报废或以其他方式处置时，相关成本和累计折旧将从账户中扣除，由此产生的任何损益都计入业务。

租约

该公司采用了ASC 842, 租约（“ASC 842”）自2022年1月1日起使用修改后的追溯过渡方法，不重报前期或累计调整留存收益。通过后，公司选择了一揽子过渡切实可行的权宜之计，这使其能够延续先前得出的结论，这些结论涉及任何到期或现有合同是否是或包含租赁、任何到期或现有租约的租赁分类以及现有租赁的初始直接成本。该公司选择了事后看来重新评估租赁期限。公司选择不在未经审计的简明合并资产负债表中确认初始期限为12个月或更短的租赁，并在未经审计的简明合并收益表和租赁期内综合收益表中以直线方式确认这些租赁付款。新的租赁会计准则还为实体的持续会计提供了实用的权宜之计。该公司选择了切实可行的权宜之计，即不将所有租赁的租赁和非租赁部分分开。

公司从一开始就确定一项安排是否为租赁。经营租赁包含在经营租赁使用权（“ROU”）资产、流动经营租赁负债和经营租赁负债中，扣除未经审计的简明合并资产负债表中的流动部分。公司在租赁期限内按直线方式确认其运营租赁的租赁费用。

ROU资产代表公司在租赁期内使用标的资产的权利，租赁负债代表公司支付租赁产生的租赁款项的义务。ROU资产和经营租赁负债在开始之日根据租赁期内未来最低租赁付款的现值进行确认。经营租赁ROU资产还包括任何租赁激励措施的影响。对租约的修订进行评估，以确定其是租赁修改还是单独的合同。自修改生效之日起，租赁修改将根据开始之日获得的信息，使用递增借款利率进行重新评估。对于修改后的租约，公司还会重新评估自修改生效之日起的租赁分类。

用于确定未来租赁付款现值的利率是公司的增量借款利率，因为公司租赁中隐含的利率不容易确定。据估计，增量借款利率在抵押基础上以及租赁资产所在的经济环境中接近利率，条件和付款方式相似。

公司的租赁条款包括延长或终止租约期权下的期限，前提是可以合理确定公司将在衡量其投资回报率资产和负债时行使该期权。公司会考虑基于合同的因素，例如续订或终止的性质和条款、基于资产的因素（例如资产的实际位置）以及基于实体的因素

such as the importance of the leased asset to the Company’s operations to determine the lease term. The Company generally uses the base, noncancelable, 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

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. We conduct our annual assessment of the recoverability of goodwill as of December 31 of each year. 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.

Accounting for Impairment of Long-lived Assets

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 and nine months ended September 30, 2024 and 2023, management determined that there were no triggering events necessitating impairment testing of property, plant, and equipment or intangible assets.

Investments - Equity Securities

Equity securities are stated at fair value. Unrealized gains and losses are reflected in the unaudited condensed consolidated statements of income and comprehensive income. The Company periodically reviews the securities for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the three months ended September 30, 2024, the Company settled all investments in equity securities for a realized loss of $12 thousand.

Redeemable Convertible Preferred Stock

Prior to the closing of the Merger, there were outstanding shares of DTIH Series A redeemable convertible preferred stock ("Redeemable Convertible Preferred Stock"), which was classified outside of permanent equity in mezzanine equity on the unaudited condensed consolidated balance sheets as it was redeemable on a fixed date.

Upon the closing of the Merger, all of the Redeemable Convertible Preferred Stock was canceled in exchange for DTIC common stock and the right to receive cash. Accordingly, there was no Redeemable Convertible Preferred Stock outstanding as of September 30, 2024 and December 31, 2023.

Preferred Stock

As of the closing of the Merger, the Board of Directors (the "Board") has expressly granted authority to issue shares of preferred stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board providing for the issue of such series and as may be permitted by the Delaware General Corporation Law. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to any preferred stock designation.

The Board has not issued any shares of any classes or series of preferred stock as of September 30, 2024, and through the date these financial statements were available to be issued.

Cost of Revenue

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.

Stock-Based Compensation

The Company recognizes stock-based compensation expenses over the requisite service period. The Company historically granted stock-based compensation awards with performance based vesting conditions. These options all vested upon the closing of the Merger with ROC. Subsequent to the closing of the merger with ROC, the Company’s stock-based compensation awards granted are subject to service based and performance based vesting conditions. Pursuant to ASC 718-10-35-8, the Company recognizes compensation cost for stock awards with only service conditions that have a graded vesting schedule on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. 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, net of estimated forfeitures. 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 the 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.

Earnings Per Share

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 Redeemable Convertible Preferred Stock are considered potential dilutive common stock and are excluded from the computation of net loss per share if their effect is anti-dilutive.

The Redeemable Convertible Preferred Stock did not contractually entitle its holders to participate in profits or losses. As such, it was not treated as a participating security in periods of net income or net loss.

Income Taxes

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 September 30, 2024 and December 31, 2023. 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 and nine months ended September 30, 2024 and 2023.

Derivative Financial Instruments

From time to time, the Company may enter into derivative instruments to manage exposure to interest rate fluctuations. During 2016, the Company entered into an interest swap agreement with respect to amounts outstanding under its revolving line of credit.

The Company’s interest rate swap is a pay-fixed, receive-variable interest rate swap based on SOFR swap rate. The SOFR swap rate is observable at commonly quoted intervals for the full term of the swap and therefore is considered a Level 2 item. For interest rate swaps in an asset position, the credit standing of the counterparty is analyzed and factored into the fair value measurement of the asset. The impact of the Company’s creditworthiness has also been factored into the fair value measurement of the interest rate swap in a liability position. For the three and nine months ended September 30, 2024 the application of valuation techniques applied to similar assets and liabilities has been consistent.

This arrangement was designed to manage exposure to interest rate fluctuations by effectively exchanging existing obligations to pay interest based on floating rates for obligations to pay interest based on a fixed rate. These derivatives are marked-to-market at the end of each quarter and the realized/unrealized gain or loss is recorded as interest expense.

The interest swap agreement was settled on July 10, 2023. Upon settlement, the swap had a fair value of $0.4 million. For the three and nine months ended September 30, 2023, the settlement resulted in a realized loss of $4 thousand. No new interest swaps were entered into subsequently or during the nine months ended September 30, 2024.

Fair Value Measurements

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.

Asset and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):


	Assets at Fair Value as of September 30, 2024
	Level 1		Level 2		Level 3		Total
Investments, equity securities	$	—	$	—	$	—	$	—
Total assets at fair value	$	—	$	—	$	—	$	—


	Assets at Fair Value as of December 31, 2023
	Level 1		Level 2		Level 3		Total
Investments, equity securities	$	888	$	—	$	—	$	888
Total assets at fair value	$	888	$	—	$	—	$	888

As of September 30, 2024, the Company did not have any Level 1, 2, or 3 assets or liabilities. As of December 31, 2023, the Company did not have any Level 2 or 3 assets or liabilities.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily 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.

Concentration of Credit Risk and Other Risks and Uncertainties

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 September 30, 2024 and 2023, the Company generated approximately 29% and 28%, respectively, of its revenue from 2 customers. During the nine months ended September 30, 2024 and 2023, the Company generated approximately 28% and 28%, respectively, of its revenue from 2 customers. Amounts due from these customers included in accounts receivable at September 30, 2024 and December 31, 2023 were approximately $5.8 million and $8.6 million, respectively.

During the three months ended September 30, 2024, the Company had 2 vendors that represented approximately 25% of purchases. During the three months ended September 30, 2023, the Company had 1 vendor that represented approximately 15% of purchases. During the nine months ended September 30, 2024 and 2023, the Company had 2 vendors that represented approximately 25% and 21% of purchases, respectively. Amounts due from these vendors included in accounts payable at September 30, 2024 and December 31, 2023 were approximately $0.1 million and $1.8 million, respectively.

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.

Operating Segment

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 and Chief Financial Officer work together as the CODM. The Company’s CODM reviews financial information presented on a consolidated basis for the purposes of making operations decisions, allocating resources and evaluating financial performance. Consequently, the Company has determined it operates in one operating and reportable segment as of September 30, 2024.

Accounting Standards Issued But Not Yet Effective

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.

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, which includes requirements for more robust disclosures of significant segment expenses and measures of a segment’s profit and loss used in assessing performance. This standard is effective for the Company’s annual period beginning January 1, 2024 and interim periods beginning January 1, 2025 with early adoption permitted. The Company is still evaluating the effects of adopting this new accounting guidance on its disclosures.

NOTE 2 – 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 £16.2 million, or approximately $20.9 million, based on the British pound sterling to United States dollar exchange rate on the CTG Acquisition Date. 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 £16.2 million, or approximately $20.9 million, gross cash purchase consideration was used on the CTG Acquisition Date to (i) settle Deep Casing’s outstanding debt of £15.3 million, or approximately $19.8 million; (ii) pay Deep Casing’s legacy shareholders £0.3 million, or approximately $0.3 million, in accordance with the Share Purchase Agreement; and (iii) pay Deep Casing’s acquisition-related costs of £0.6 million, or approximately $0.8 million.

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 preliminary allocation of the purchase is as follows:


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

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 three months ended June 30, 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 September 30, 2024, 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 CTG Acquisition Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):


	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

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 nine months ended September 30, 2024, which are included in other income (expense), net in the condensed consolidated statement of income and comprehensive income.

The Company’s condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2024 include CTG’s revenues of $3.9 million and $8.7 million, respectively and net income of $0.6 million and $1.4 million, respectively. CTG’s revenues and net income included in the Company’s condensed consolidated statement of income and comprehensive income for the nine months ended September 30, 2024 are from the CTG Acquisition Date through September 30, 2024.

Supplemental Pro Forma Information

The unaudited supplemental pro forma financial results below for the three and nine months ended September 30, 2024 and 2023, combine the consolidated results of the Company and CTG, giving effect to the CTG Acquisition as if it had been completed on January 1, 2023. 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, 2023, or any other date.


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2024		2023		2024		2023
Pro forma revenue	$	40,093	$	37,775	$	117,972	$	130,606
Pro forma net income	$	1,299	$	4,234	$	4,293	$	12,702

The unaudited supplemental pro forma financial information in the table above contains material nonrecurring pro forma adjustments to remove interest expense on CTG's debt as it is assumed that the business combination occurred and the debt was paid off on January 1, 2023.

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. The consideration for the Merger of $47.9 million is comprised of the following items (in thousands):


Cash paid to holders of SDPI Common Stock(1)	$	13,668
Cash payment of SDPI transaction costs		2,907
Cash repayment of SDPI debt		2,278
Cash payment to holders of SDPI Restricted Stock		1,806
Cash severance payment to former SDPI employee(2)		233
Fair value of DTI Common Stock issued in exchange for outstanding SDPI Common Stock(3)		27,714
Fair value of replacement awards issued to holders of SDPI Options		138
Effective settlement of preexisting relationship between DTI and SDPI(4)		(828	)
Fair value of consideration transferred	$	47,916

(1) Represents cash consideration paid to holders of SDPI common stock, which consisted of (i) payment of $0.4 million to holders of SDPI common stock who elected to receive cash election consideration of $1.00 per share of SDPI common stock held pursuant to the terms of the Merger Agreement; (ii) payment of $4.3 million to SDPI stockholders who did not make an election to

receive either cash election consideration or stock election consideration and, therefore, pursuant to the terms of the Merger Agreement, automatically received the cash election consideration of $1.00 per share of SDPI common stock held; and (iii) payment of $9.0 million to holders of SDPI common stock whereby the stock election shares exceeded the maximum share amount, as described in the Merger Agreement, which triggered the proration provision described in the Merger Agreement.

(2) Represents a severance payment made in accordance with the terms of an employment agreement between SDPI and an employee that was entered into prior to contemplation of the Merger Agreement. The agreement contained a provision whereby a change in control event would trigger a severance payment, and it was determined that the closing of the Merger triggered the requirement for such a payment to be made. Upon the SDPI Closing, DTI paid the severance payment on SDPI’s behalf.

(3) Represents the fair value of the shares of DTI common stock issued to holders of SDPI common stock as consideration for the Merger. Holders of SDPI common stock received 4,845,132 shares of DTI's common stock with an aggregate fair value of $27.7 million, which was calculated using the quoted market price of DTI common stock of $5.72 per share on the SDPI Closing Date.

(4) Represents the effective settlement of DTI’s accounts payable to SDPI as DTI was a customer of SDPI's prior to the SDPI Closing.

The Company previously held an equity interest in SDPI that was acquired and held prior to the SDPI Closing Date. The Company’s previously held interest was remeasured to its fair value of $1.2 million based on the market price of SDPI’s common stock on the SDPI Closing Date. This remeasurement resulted in a $0.4 million loss included in the Company’s condensed consolidated statement of income and comprehensive income for the three months ended September 30, 2024 and a total gain of $0.4 million included in the Company’s condensed consolidated statement of income and comprehensive income for the nine months ended September 30, 2024. The fair value of DTI’s previously held equity interest in SDPI was included in the measurement of goodwill on the SDPI Closing Date.

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):


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

The following table presents a preliminary reconciliation of the fair value of consideration transferred and the fair value of DTI’s investment in SDPI that was acquired and held prior to Closing which is included in the calculation of goodwill (in thousands):


Fair value of consideration transferred	$	47,916
Fair value of DTI's investment in SDPI that was acquired and held prior to Closing		1,244
Total fair value consideration transferred and fair value of DTI's investment in SDPI that was acquired and held prior to Closing	$	49,160

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):


	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

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 $0.6 million and $1.7 million during the three and nine months ended September 30, 2024, respectively, which are included in other expense, net in the condensed consolidated statements of income and comprehensive income.

The Company’s condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2024 include SDPI's revenues of $2.2 million and net loss of $0.7 million from the SDPI Closing Date to September 30, 2024.

Supplemental Pro Forma Information

NOTE 3 – REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company identified certain errors in its previously issued September 30, 2023 interim unaudited condensed 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 unaudited condensed consolidated financial statements presented herein for the three and nine months ended September 30, 2023 have been revised to correct the errors described above in accordance with SEC SAB Topic 1.M, as codified in ASC 250.


	Three months ended September 30,
(In thousands, except share and per share data)	As Previously Reported		Total Adjustment			As Revised
Cost of tool rental revenue	$	7,956	$	(619	)	$	7,337
Cost of product sale revenue		1,195		619			1,814


	Nine months ended September 30,
(In thousands, except share and per share data)	As Previously Reported		Total Adjustment			As Revised
Cost of tool rental revenue	$	23,785	$	(2,207	)	$	21,578
Cost of product sale revenue		3,655		2,207			5,862

NOTE 5 – BALANCE SHEET DETAILS - CURRENT ASSETS AND CURRENT LIABILITIES

Inventories, net

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


	September 30, 2024			December 31, 2023
Raw materials	$	13,365		$	5,022
Work in progress	$	1,362		$	—
Finished goods		2,841			16
Total inventories		17,568			5,038
Allowance for obsolete inventory		(216	)		(4	)
Inventories, net	$	17,352		$	5,034

Prepaid expenses and other current assets

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


	September 30, 2024		December 31, 2023
Prepaid expenses:
Deposits on inventory	$	1,896	$	2,146
Prepaid income tax		869		362
Prepaid insurance		1,368		1,110
Prepaid rent		452		372
Prepaid equipment		—		331
Prepaid other		382		214
Other current assets:
Other		—		18
Total	$	4,967	$	4,553

Accrued expenses and other current liabilities

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


	September 30, 2024		December 31, 2023
Accrued expenses:
Accrued compensation and related benefits	$	4,716	$	4,999
Accrued insurance		957		978
Accrued transaction advisory fees		—		1,000
Accrued professional services		44		189
Accrued interest		367		58
Accrued property taxes		916		60
Accrued monitoring fees		373		373
Other		426		147
Other current liabilities:
Income tax payable		3,523		1,586
Sales tax payable		37		71
Unbilled lost-in-hole revenue		303		76
Deferred revenue		675		1,042
Total accrued expenses and other current liabilities	$	12,337	$	10,579

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

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


	Estimated Useful Lives (in Years)	September 30, 2024			December 31, 2023
Rental tools and equipment	3-10	$	205,223		$	188,949
Buildings and improvements	5-40		7,083			6,672
Office furniture, fixtures and equipment	3-5		2,470			2,389
Transportation and equipment	3-5		715			793
Total property, plant and equipment			215,491			198,803
Less: accumulated deprecation			(139,395	)		(133,003	)
Property, plant and equipment, net (excluding construction in progress)			76,095			65,800
Construction in progress			1,565			-
Property, plant and equipment, net		$	77,660		$	65,800

Total depreciation expense for the three months ended September 30, 2024 and 2023 was approximately $5.8 million and $5.3 million, respectively. Total depreciation expense for the nine months ended September 30, 2024 and 2023 was approximately $16.7 million and $15.0 million, respectively. The Company has not acquired any property, plant and equipment under capital leases.

Property, plant and equipment, net, is concentrated within the United States. As of September 30, 2024 and December 31, 2023, property, plant and equipment, net held within the United States was $67.7 million and $63.0 million,or 87% and 96% of total property, plant and equipment, net, respectively. As of September 30, 2024 and December 31, 2023, property, plant and equipment, net held outside the United States, in Canada and International, was $9.9 million and $2.8 million, or 13% and 4% of total property, plant and equipment, net, respectively.

NOTE 7 – INTANGIBLE ASSETS, NET

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


	Useful Lives (in Years)	September 30, 2024			December 31, 2023
Trade name	10-15	$	2,927		$	1,280
Developed Technology	13-20		12,251			270
Customer Relationships	15-20		17,563			—
Total intangible assets			32,741			1,550
Less: accumulated amortization			(1,875	)		(1,334	)
Intangible assets, net		$	30,866		$	216

Total amortization expense for the three months ended September 30, 2024 and 2023 was approximately $0.4 million and $12 thousand, respectively. Total amortization expense for the nine months ended September 30, 2024 and 2023 was approximately $0.5 million and $35 thousand, respectively.

NOTE 10 – STOCK-BASED COMPENSATION

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. 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 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 September 30, 2024, there were 1,056,536 shares of Common Stock available for issuance under the 2023 Plan.

Stock Options

In connection with the Merger, all outstanding options to purchase shares of DTIH common stock were canceled and exchanged for options to purchase shares of DTIC Common Stock ("Company Options"). The number of Company Options issued and the associated exercise prices were adjusted using the Common Exchange Ratio used for the Merger. As a result of the Merger, the Company issued options to purchase a total of 2,361,722 shares of the Company's Common Stock to former holders of the DTIH stock options. The vesting schedules, remaining term, and provisions (other than the adjusted number of underlying shares and exercise prices) of the Company Options issued, are identical to the vesting schedules, remaining term, and other provisions of the DTIH stock options that were exchanged. Per a post-closing amendment, Company Options currently held by former holders of DTIH stock options are no longer subject to employment considerations.

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes 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. For any grants of stock options subsequent to the Company being publicly traded, the Company will use the quoted market price as of the grant date as an input into the Black-Scholes model.

During the three and nine months ended September 30, 2023, there were no shares granted, exercised, or forfeited.

During the nine months ended September 30, 2023, the Company recognized $1.7 million of stock-based compensation expense within selling, general, and administrative expense on the unaudited condensed consolidated statements of income and comprehensive income related to the accelerated vesting of an executive's 534,063 performance-based stock options. The performance conditions were satisfied upon completion of the Merger and all 534,063 performance-based stock options vested on June 20, 2023.

During the nine months ended September 30, 2023, the Company recognized $2.3 million of stock-based compensation expense within other expense on the unaudited condensed consolidated statements of income and comprehensive income as a result of the issuance of shares in accordance with the Transaction Service Agreement.

The following table summarizes our stock option activity for the nine months ended September 30, 2024:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
OUTSTANDING, December 31, 2023		2,361,722	$	4.02		3.12	$	—
Granted		2,670,374		3.04		—		—
Exercised		68,470		3.72		—		—
Forfeited		—	$	—		—		—
OUTSTANDING, September 30, 2024		4,963,626	$	3.49		6.32	$	1,902
UNVESTED, September 30, 2024		2,600,000	$	3.02		9.63	$	1,851
EXERCISABLE, September 30, 2024		2,363,626	$	4.03		2.67	$	51

During the three months ended September 30, 2024, the Company recognized $0.4 million of stock-based compensation expense related to stock options within selling, general, and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income. During the nine months ended September 30, 2024, the Company recognized $1.0 million of stock-based compensation expense within selling, general, and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income. As of September 30, 2024, total unrecognized compensation expense related to the stock options totaled $3.5 million.

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.

During the three and nine months ended September 30, 2024, the Company recognized $0.1 million and $0.5 million, respectively, of stock based compensation related to RSUs within selling, general, and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income related to the RSUs. As of September 30, 2024, unrecognized compensation expense related to the RSUs totaled $0.2 million

NOTE 12 – RELATED PARTY TRANSACTIONS

Management fees

For the three months ended September 30, 2024 and 2023, management fees paid to Hicks Holdings Operating LLC ("HHLLC"), a shareholder of the Company, were approximately $0.2 million and $0.3 million, respectively. For the nine months ended September 30, 2024 and 2023, management fees paid to Hicks Holdings Operating LLC were approximately $0.6 million and $0.9 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 September 30, 2024 and 2023, director fees paid to Board were approximately $0.1 million and $0.0 million, respectively. For the nine months ended September 30, 2024 and 2023, director fees paid to Board members were approximately $0.4 million and $0.1 million, respectively. Director fees 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 September 30, 2024 and 2023, the Company paid rent to Cree Investments, LLC, a shareholder of the Company, of approximately $13 thousand and $13 thousand, respectively, relating to the lease of a building. For the nine months ended September 30, 2024 and 2023, the Company paid rent expense to Cree Investments, LLC of approximately $38 thousand and $38 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.

Promissory Notes

Upon consummation of the Merger, the Company issued shares of DTIC Common Stock in connection with the PIPE Financing to payoff convertible promissory notes which were issued to an affiliate of the ROC Sponsor on December 6, 2022 and March 2, 2023. The notes did not bear interest and were in the amounts of $2.1 million and $2.1 million, respectively.

Working Capital Loan

Prior to the Merger, ROC paid the remaining outstanding principal amount owed to an affiliate of the ROC Sponsor in the amount of $0.4 million for a loan to fund working capital deficiencies or finance transaction costs in connection with the Merger. The loan did not bear interest.

Sale of trucks

During the three months ended September 30, 2024, the Company sold two trucks to employees of the Company. The transactions were conducted at fair market value, with a total sales price of $0.1 million. As of September 30, 2024, the Company did not have any receivables recorded on the balance sheet related to this transaction.

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 average stock 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 September 30, 2024 was $5.0 million.

The Company leases various facilities and vehicles under noncancelable 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 September 30, 2024.

For the three and nine months ended September 30, 2024, the components of the Company’s lease expense were as follows (in thousands):


	Three months ended September 30, 2024		Three months ended September 30, 2023
Operating Lease Cost	$	1,647	$	1,543
Short-term Lease Cost		34		33
Variable Lease Cost		96		78
Sublease Income		—		—
Total Lease Cost	$	1,777	$	1,654


	Nine months ended September 30, 2024		Nine months ended September 30, 2023
Operating Lease Cost	$	4,725	$	4,593
Short-term Lease Cost		104		96
Variable Lease Cost		287		242
Sublease Income		—		(76	)
Total Lease Cost	$	5,116	$	4,855

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


	Nine months ended September 30, 2024

Weighted-average remaining lease term (in years)		7.23
Weighted average discount rate		7.58	%


	Nine months ended
	September 30, 2024
Cash paid for amounts included in the measurement of lease liabilities		3,533

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 September 30, 2024 were as follows (in thousands):



2024	$	1,528
2025		5,746
2026		5,084
2027		3,742
2028		3,055
Thereafter		12,254
Total lease payments	$	31,411
Less: imputed interest		(7,437	)
Present value of lease liabilities	$	23,974

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 and nine months ended September 30, 2024, tool rental revenue was approximately $28.1 million and $86.4 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 following table sets forth the computation of the Company’s basic and diluted net earnings per share for the three and nine months ended September 30, 2024 and 2023 (in thousands except share and per share data):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Numerator:
Net income	$	867	$	4,287	$	4,359	$	10,925
Less: Redeemable Convertible Preferred Stock dividends		—		—		—		(314	)
Net income attributable to common shareholders — basic	$	867	$	4,287	$	4,359	$	10,611
Add: Redeemable Convertible Preferred Stock dividends		—		—		—		314
Net income attributable to common shareholders — diluted	$	867	$	4,287	$	4,359	$	10,925
Denominator
Weighted-average common shares used in computing earnings per share — basic		33,072,097		29,768,568		30,893,602		18,608,708
Weighted-average effect of potentially dilutive securities:
Effect of potentially dilutive time-based stock options		363,581		204,686		412,309		651,996
Effect of potentially dilutive performance-based stock options		97,722		70,292		87,285		60,269
Effect of potentially dilutive restricted stock units		13,656		—		11,137		—
Effect of potentially dilutive redeemable convertible preferred stock		—		—		—		4,233,620
Weighted-average common shares outstanding — diluted		33,547,056		30,043,546		31,404,333		23,554,593
Earnings per share — basic	$	0.03	$	0.14	$	0.14	$	0.57
Earnings per share — diluted	$	0.03	$	0.14	$	0.14	$	0.46

As of September 30, 2024, the Company’s potentially dilutive securities consisted of options to purchase common stock. Based on the amounts outstanding as of the three and nine months ended September 30, 2024 and 2023, the Company excluded the following potential common shares from the computation of diluted net income per share because including them would have had an anti-dilutive effect:


	Three months ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Time-based options outstanding		162,237		140,135		140,135		140,135
Total		162,237		140,135		140,135		140,135

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 September 30, 2024, and for the three months ended June 30, 2024 and 2023, 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, 2023. 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 (“U.S.”) dollars (“$”), unless otherwise indicated. Capitalized terms used in this section, but not otherwise defined, have the meanings ascribed to them in the Report.

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 now operate from 16 service and support centers across North America and maintains 11 international service and support centers across the Europe, Middle East, and Africa ("EMEA") regions and Asia-Pacific ("APAC") regions.

Our business model primarily centers on revenue generated from tool rentals and product sales. We generated revenue from total tool rentals and product sales of $40.1 million and $38.1 million for the three months ended September 30, 2024 and 2023, respectively, and had net income of $0.9 million and $4.3 million for those same periods. Additionally, we generated revenue from tool rentals and product sales of $114.6 million and $116.8 million for the nine months ended September 30, 2024 and 2023, respectively, and had net income of $4.4 million and $10.9 million for those same periods, respectively. As of September 30, 2024, we had cash and cash equivalents of $12.0 million, and an accumulated deficit of $2.2 million.

We believe our future financial performance will be driven by continued investment in oil and gas drilling following years of industry underinvestment.

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 tool rental revenues are primarily dependent on drilling activity and our ability to gain or maintain market share with a sustainable pricing model.

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.

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.

In the first half of 2024, the oil and gas market witnessed a dynamic interplay of geopolitical tensions, supply concerns, and global demand fluctuations. Crude oil prices remained volatile, with benchmarks such as Brent and WTI experiencing fluctuations driven by a multitude of factors. Geopolitical tensions in key oil-producing regions, such as the Middle East, continued to influence market sentiment, leading to sporadic spikes in prices. Additionally, concerns over supply disruptions, particularly amidst conflicts and geopolitical uncertainties, added to the market’s unease. As the global market for crude oil has continued its recovery, technical recessions, specifically in China, have slowed progress and created fluctuations in global demand. As of September 30, 2024, the WTI oil price was approximately $68.75 per barrel.

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. These forward prices

experienced far less volatility in 2022 and 2023 and have maintained levels in 2024 which are highly constructive for offshore project demand.

Prices for natural gas have decreased somewhat throughout the first half of 2024 relative to the fourth quarter of 2023 in the U.S. due to several factors, including a mild winter in key consuming regions and increased production and availability, both of which led to an oversupply in the market. Additionally, constrained storage capacity and delivery delays resulted in uncertainty around liquified natural gas exports in the U.S.

Henry Hub natural gas spot prices have decreased from an average of $2.64 per one million British Thermal Units (“MMBtu”) in September 2023 to $2.28 per MMBtu in September 2024.

The ongoing conflict in Ukraine and the evolving Israel-Hamas conflict have caused uncertainty in the oil and natural gas markets, and the financial markets, both globally and in the U.S. Such uncertainty already has and could continue to cause stock price volatility and supply chain disruptions as well as higher oil and natural gas prices. These could result in higher inflation worldwide, impact consumer spending and negatively impact demand for our goods and services. Moreover, additional interest rate increases by the U.S. Federal Reserve to combat inflation could further increase the probability of a recession.

Notwithstanding the significant commodity price volatility over the past several years, we have seen decreases in drilling activity in the Western Hemisphere. Conversely, Eastern Hemisphere drilling activity has increased year over year. During the three and nine months ended September 30, 2024, the monthly average Western Hemisphere rig count was 947 and 946 rigs, respectively, compared to 1,007 and 1,062 rigs for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, the monthly average Eastern Hemisphere rig count was 736 and 752 rigs, respectively, compared to 739 and 725 rigs for the three and nine months ended September 30, 2023, respectively. However, notwithstanding the impact of longer laterals, improved rig efficiencies have partially offset the impact of this reduction.

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.

We use a number of financial and operational measures to routinely analyze and evaluate the performance of our business, including revenue, net and non-GAAP measures Adjusted EBITDA and Free Cash Flow.

We analyze our performance by comparing actual monthly revenue to revenue trends and revenue forecasts by product line as well as tool activity trends for each month. Our revenue is primarily derived from tool rental and product sales.

We regularly evaluate our financial performance using Adjusted EBITDA. Our management believes Adjusted EBITDA is a useful financial performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations.

Beginning in the first quarter of fiscal year 2024, we revised our presentation of non-GAAP measures to exclude the presentation of free cash flow in alignment with industry practices and to enhance comparability with our peers. The Company has determined that GAAP disclosures regarding the Company’s liquidity and capital resources, in the form provided in the Company’s recent periodic reports and without further enhancement through the inclusion of non-GAAP free cash flow information, provide investors with sufficient information on the Company’s cash available for investments, acquisitions, and working capital requirements.

Please refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial performance measure calculated and presented in accordance with GAAP and a reconciliation of free cash flow to net cash provided by (used in) operating activities, the most directly comparable liquidity measure calculated and presented in accordance with U.S GAAP.

The discussion below relating to significant line items from our interim unaudited consolidated statements of income and comprehensive income are based on available information and represent our analysis of significant changes or events that impact the comparability of the reported amount. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, we have quantified the impact of such items.

We currently generate our revenue, net from tool rental services and product sales. Tool rental services consist of rental services, inspection services, and repair services is accounted for in accordance Topic 842. We recognize revenues from renting tools on a straight-line basis. Our rental contract periods are daily, monthly, per well, or based on footage. As part of this straight-line methodology, when the equipment is returned, we recognize 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.

The rental tool recovery component of product sales revenue is recognized when a tool is deemed to be lost-in-hole, damaged-beyond-repair, or lost-in-transit while in the care, custody, or control of the customer. Other made to order product sales revenue is recognized when the product is made available to the customer for pickup at our shipping dock.

We expect our tool rental services revenue to increase over time as a function of an increase in drilling activity, customer pricing, and market share.

We expect that product sales revenue will increase as aged and consumable products will continue to be replaced in order to maintain or increase capacity. Additionally, product sale focused acquisitions are expected to further increase product sale revenue.

Our costs and expenses consist of cost of revenue, selling, general, and administrative expense, and depreciation and amortization expense.

Our cost of revenue consists primarily of all direct and indirect expenses related to providing our tool rental services offering and delivering our product sales, including personnel-related expenses and costs associated with maintaining the facilities.

We expect our total cost of tool rental revenue and our total cost of product sale revenue to increase in absolute dollars in future periods, corresponding to our anticipated growth in revenue and employee headcount to support our customers and to maintain the manufacturing, operations and field service team with some expected cost inflation.

We expect that gross margins will continue to improve slightly as we leverage our existing cost structure to support an increase in our business activity. In addition, we expect that customer price increases will help offset cost inflation.

General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel and outside professional services expenses including legal, audit and accounting services, insurance, other administrative expenses and allocated facility costs for our administrative functions.

We expect our operating expenses to increase in absolute dollars for the foreseeable future as a result of operating as a public company. In particular, we expect our legal, accounting, tax, personnel-related expenses and directors’ and officers’ insurance costs reported within general and administrative expense to increase as we establish more comprehensive compliance and governance functions, increased security and IT compliance, review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act of 2002, as amended, and prepare and distribute periodic reports as required by the rules and regulations of the U.S. Securities and Exchange Commission. As a result, our historical results of operations may not be indicative of our results of operations in future periods.

Selling expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions.

We intend to increase investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future.

Depreciation and amortization expense relates to the consumption of our property and equipment, which consists of rental tools, shop equipment, computer equipment, furniture and fixtures and leasehold improvements, and the amortization of our intangible assets mainly related to customer relationships, software and partnerships.

Our other income (expense), net is primarily comprised of interest income (expense), gain on sale of property, unrealized gain (loss) on securities, and other miscellaneous income and expense unrelated to our core operations.

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

Tool rental revenue decreased $1.2 million, or (4)%, to $28.1 million for the three months ended September 30, 2024 as compared to $29.4 million for the three months ended September 30, 2023. The decrease was primarily driven by decreased market activity in relation to our Directional Tool Rentals (“DTR”) division, the revenue of which decreased $2.5 million. The decrease was partially offset by an increase in our Premium Tools Division ("PTD"), the revenue of which increased $0.4 million and an increase at our Wellbore Optizimation Tools ("WOT") division, revenue of which increased $0.6 million.

Product sale revenue increased $3.2 million, or 36%, to $12.0 million for the three months ended September 30, 2024 as compared to $8.8 million for the three months ended September 30, 2023. The increase by additional product sales as it relates to Deep Casing ("DCT") which was acquired in March 2024 and the Diamond Products Division ("DPD"), which was acquired in August 2024. This increase was partially offset by lower tool recovery revenue for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Our cost of revenue consists of cost of tool rental revenue and cost of product sale revenue.

Cost of tool rental revenue decreased $3.3 million, or (44)%, to $4.1 million for the three months ended September 30, 2024 as compared to $7.3 million for the for the three months ended September 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in labor and repairs cost due to the decrease in rental activity.

Cost of product sale revenue increased $3.9 million, or 216%, to $5.7 million for the three months ended September 30, 2024 as compared to $1.8 million for the for the three months ended September 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from Deep Casing and DPD, offset by a decrease in cost of product sales associated with tool recovery.

Selling, general, and administrative expense increased $3.3 million, or 20%, to $19.9 million for the three months ended September 30, 2024 as compared to $16.6 million for the three months ended September 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Depreciation and amortization expenses increased $0.9 million, or 17%, to $6.2 million for the three months ended September 30, 2024 as compared to $5.3 million for the three months ended September 30, 2023. The increase was primarily due an increase in depreciation expense resulting from a higher property, plant and equipment balance as of September 30, 2024.

Interest expense increased $965 thousand, or 1322%, to $1.0 million for the three months ended September 30, 2024 as compared to $0.1 million for the three months ended September 30, 2023. The increase was primarily due to an increase in interest expense on the term loan entered into in March 2024 and the Credit Facility, which was drawn on during three months ended September 30, 2024.

Other expense for the three months ended September 30, 2024 was $2.4 million, a increase of $2.3 million, or (1710)%, compared to the three months ended September 30, 2023. The increase was primarily due to increased transaction costs related to the completion of the acquisition of SDPI during the third quarter of 2024.

Tool rental revenue decreased $4.2 million, or (5)%, to $86.4 million for the nine months ended September 30, 2024 as compared to $90.6 million for the nine months ended September 30, 2023. The decrease was primarily driven by decreased market activity across certain divisions, especially in relation to our DTR division, the revenue of which decreased $8.0 million and our PTD division, the revenue of which decreased $0.9 million. These decreases were offset by increases at our WOT division, the revenue of which increased by $2.3 million and DCT, the revenue of which increased $0.6 million.

Product sale revenue decreased $2.0 million, or 8%, to $28.2 million for the nine months ended September 30, 2024 as compared to $26.2 million for the nine months ended September 30, 2023. The decrease was primarily driven by higher than average rental tool recovery events in the nine months ended September 30, 2023, partially offset by additional product sales at DCT and DPD for the nine months ended September 30, 2024.

Our cost of revenue consists of cost of tool rental revenue and cost of product sale revenue.

Cost of tool rental revenue decreased $4.0 million, or (19)%, to $17.6 million for the nine months ended September 30, 2024 as compared to $21.6 million for the for the nine months ended September 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in sub rental, accessory, and repair cost due to the decrease in rental activity.

Cost of product sale revenue increased $4.9 million, or 84%, to $10.8 million for the nine months ended September 30, 2024 as compared to $5.9 million for the for the nine months ended September 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from DCT and DPD, offset by a decrease in cost of product sales associated with tool recovery.

Selling, general, and administrative expense increased $6.4 million, or 13%, to $57.4 million for the nine months ended September 30, 2024 as compared to $51.0 million for the nine months ended September 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Depreciation and amortization expenses increased $2.2 million, or 15%, to $17.2 million for the nine months ended September 30, 2024 as compared to $15.0 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in depreciation expense resulting from a higher property, plant and equipment balance as of September 30, 2024.

For the nine months ended September 30, 2024 we had interest expense of $2.0 million as compared to interest expense of $1.0 million for the nine months ended September 30, 2023. This change of $1.0 million or 104%. The increase was primarily due to an increase in interest expense on the term loan entered into in March 2024 and the Credit Facility, which was drawn on during three months ended September 30, 2024.

Other expense for the nine months ended September 30, 2024 was $5.2 million, a decrease of $0.9 million, or (15)%, compared to the nine months ended September 30, 2023. The decrease was primarily due to increased transaction costs related to the completion of the merger with ROC Energy Acquisition in June 2023 and compared to transaction costs incurred during the nine months ended September 30, 2024.

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 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:

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) for the three and nine months ended September 30, 2024 and 2023 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

At September 30, 2024, we had $12.0 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 at least the next 12 months to meet working capital requirements and anticipated capital expenditures.

Reference is made to the disclosure set forth under the heading “Revolving Credit Facility” in Note 7 – Revolving Credit Facility, of the notes to the unaudited condensed consolidated financial statements included elsewhere in this Report (the ”Interim Financial Statements).

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.

Our material contractual obligations arise from leases of facilities and vehicles under noncancelable operating leases agreements. See Note 14, Commitments and Contingencies, of the notes to the Interim Financial Statements.

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 8, Income Taxes, of the notes to the Interim Financial Statements.

Net cash provided by operating activities for the nine months ended September 30, 2024 was $9.7 million resulting from our net income of $4.4 million, adjusted for non-cash charges of $21.1 million in depreciation and amortization, including non-cash lease expense and deferred financing costs, $1.6 million of stock-based compensation expense, and $0.3 million in provisions for excess and obsolete property, plant, and equipment and credit losses. This was partially offset by a $7.3 million gain on rental tool recovery sales, $1.3 million in deferred tax expense, and $8.6 million in net changes from operating assets and liabilities. The $8.6 million in cash used in operating assets and liabilities is primarily due to a $0.6 million cash outflow in prepaid expenses due to the timing of payments, a $2.9 million cash outflow in inventory, $3.4 million cash outflow in operating lease liabilities, and a $3.7 million cash outflow related to accounts payable and accrued expenses. These outflows were offset by a $2.1 million cash inflow related to accounts receivables. 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 nine months ended September 30, 2023 was $17.5 million resulting from our net income of $10.9 million, adjusted for non-cash charges of $18.5 million in depreciation and amortization, including amortization of right of use assets and deferred financing costs, $4.0 million of stock-based compensation expense as a result of the Merger, $0.5 million of bad debt expense and $3.7 million in deferred tax expense. This was partially offset by a $14.0 million gain on rental tool recovery sales and $6.7 million in net changes from operating assets and liabilities. The $6.7million in cash used in operating assets and liabilities is primarily due to a $0.5 million cash outflow in accounts receivable associated with an increase in sales and higher revenues during the first nine months of 2023 compared to the first nine months of 2022, a $3.3 million cash outflow from operating lease liabilities as we increase right-of-use assets on hand and a $2.9 million cash outflow from inventories due to purchased inventory related to our attempt to reduce risk and uncertainties in our supply chain. This was partially offset by a $0.1 million cash inflow in accounts payable and accrued expenses due to differences in the timing of disbursements. 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 used in investing activities for the nine months ended September 30, 2024 was $46.1 million. Purchases of property, plant, and equipment of $19.6 million and business acquisitions of $38.6 million were partially offset by proceeds from rental tool recovery sales of $10.9 million and proceeds from the sale of equity securities of $1.2 million.

Net cash used in investing activities for the nine months ended September 30, 2023 was $20.0 million. Purchases of property, plant, and equipment of $36.7 million were partially offset by proceeds from rental tool recovery sales of $16.6 million and proceeds from sale of property of $0.1 million.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $43.4 million resulting from proceeds from the term loan of $25 million and proceeds from the revolving line of credit of $30.1 million offset by $0.7 million in payments of deferred financing costs and $10.9 million in repayments of the Term Loan and the revolving line of credit.

Net cash provided by financing activities for the nine months ended September 30, 2023 was $4.3 million resulting from proceeds from the Merger and PIPE Financing, net of transaction costs, of $23.1 million, partially offset by a net decrease in amounts outstanding under the Credit Facility Agreement of $18.3 million, payments of deferred financing costs of $0.3 million and payments to holders of DTIH convertible preferred stock in connection with the Merger of $0.2 million.

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, 2023 (the "Annual Report"). In addition to the critical accounting policies and estimates disclosed in our Annual Report, accounting for Business Combinations was identified as a new critical accounting policy and estimate in the nine months ended September 30, 2024.

We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. On the acquisition date for a business combination, we allocate the total purchase consideration for the acquisition to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Additionally, we identify and attribute fair values and estimated lives to acquired intangible assets. We identify an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separately sold, transferred, licensed, rented, or exchanged. We recognize goodwill, if any, in the amount by which the aggregate fair value of the total purchase consideration exceeds the aggregate fair value of the net assets (including intangible assets) acquired.

In determining the fair values of assets acquired (including intangible assets) and liabilities assumed, we utilize a variety of methods. Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant. The methods used to estimate the fair values of intangible assets incorporate significant estimates and assumptions regarding the estimates a market participant would make in order to evaluate an asset, including, but not limited to, a market participant’s use of the asset as well as forecasts for cash flows, revenue growth, asset lives, customer attrition rates, royalty rates, income tax rates, and discount rates.

We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that a market participant would use. While we use our best estimates and assumptions to value assets acquired and liabilities assumed

at the acquisition date, our estimates are inherently uncertain and subject to refinement. The use of different assumptions related to these uncertain factors at acquisition could result in material changes to the amounts initially recorded at acquisition, which could have a material impact on our condensed consolidated financial statements. When appropriate, we engage third-party valuation specialists to assist in determining the fair values of assets acquired and liabilities assumed.

If the initial accounting for a business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. We must complete the accounting for each business combination during its measurement period, which cannot exceed one year from the acquisition date. Adjustments made during the measurement period could have a material impact on our condensed consolidated financial statements.

Costs that are directly attributable to business combinations are expensed as incurred within other expenses, net, on the condensed consolidated statements of income and comprehensive income. The results of operations of acquisitions are included in the consolidated financial statements from the date of acquisition.

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.

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.

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.

A discussion of concentration risk is included in 1 – Summary of Significant Accounting Policies, to the Interim Financial Statements included elsewhere in this report.

Our customers are primarily located in the United States and Canada. 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 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.

We expect we will continue to experience inflationary pressures on our cost structure for the foreseeable future. However, tightness in overseas freight and transit times have eased. Additionally, raw material and component costs are moderating due in part to a strengthening U.S. dollar and weakening steel demand. Nonetheless, we cannot be confident that transit times or input prices will return to the lower levels experienced in prior years. Continued inflation and looming concerns regarding a possible recession weigh on the outlook for oil demand which could in turn negatively impact demand for our goods and services.

We have a suite of controls including 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 reputational 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.

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 Securities Exchange Act of 1934, as amended (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.

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 June 30, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. 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 June 30, 2024, or as of the date of the filing of this Report.

Our disclosure controls and procedures were not effective as of September 30, 2024, or as of the date of filing of this Report, 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, 2023 have not been fully remediated despite ongoing projects and improvements made in the current quarter. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of September 30, 2024, or as of the date of this filing, 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 the Merger, 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 the following deficiencies in the design or operation of our internal controls to be a material weakness:

We are in the process of implementing a risk assessment process and measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weakness, including (1) hiring more qualified staff and increasing resources with sufficient knowledge and experience to strengthen financial reporting, (2) implementing software and procedures to enhance our Company’s IT environment and (3) devoting proper time by senior management to perform comprehensive review of procedures to assess risks and enforce effective accountability. The process of designing and implementing 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.

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

See Part I, Item 1, Note 14 to our consolidated financial statements entitled “Commitments and Contingencies,” which is incorporated in this item by reference.

Our Annual Report filed with the SEC on March 28, 2024, 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 to the risk factors that appear in the Annual Report as of the date of this Quarterly 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.

During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

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

† 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.

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.


特拉华州	87-2488708
(州或其他管辖区的公司注册或组织)	(美国国税局雇主识别号)
3701 Briarpark Drive 150号套房休斯顿, 德克萨斯州	77042
(主要执行办公室地址)	(Zip Code)


		页
	关于前瞻性声明的警示说明	1
第一部分。	财务信息
项目1.	基本报表（未经审计）	3
	简明合并资产负债表	3
	合并综合收益表及全面收益表	4
	可赎回可转换优先股和股东权益变动的简明合并报表	5
	简明合并现金流量表	7
	未经审计的简明合并财务报表注释	8
项目2.	管理层对控件和经营结果的讨论与分析	33
项目3。	关于市场风险的定量和定性披露	43
项目4。	控制和程序	44
第二部分。	其他信息
项目1.	法律诉讼	46
项目1A。	Risk Factors	46
项目2.	未注册的股票证券销售及收益使用	46
项目3。	高级证券的缺省	46
项目4。	矿业安全披露	46
第五项。	其他信息	46
第六项。	展览品	47
签名		48


	九月三十日			12月31日
（以千为单位，除股票数据外）	2024			2023
	(未经审计)			(已审计)
资产
流动资产
现金	$	11,961		$	6,003
应收账款，净额		33,152			29,929
关联方应收款项，流动		1,310			—
存货，净额		17,352			5,034
预付款项及其他流动资产		4,967			4,553
投资 - 公允价值下的股权证券		—			888
总流动资产		68,742			46,408
物业、厂房及设备，净值		77,660			65,800
经营租赁使用权资产		23,887			18,786
无形资产，净值		30,866			216
商誉		10,970			—
递延融资成本，净额		903			409
关联方应收票据，非流动资产		3,740			—
存款及其他长期资产		2,076			879
总资产	$	218,844		$	132,498
负债和股东权益
流动负债
应付账款	$	9,054		$	7,751
应计费用和其他流动负债		12,337			10,579
循环信贷额度		21,164			—
当前运营租赁负债部分		4,441			3,958
长期债务的流动部分		5,000			—
总流动负债		51,996			22,288
经营租赁负债，扣除流动部分		19,533			14,893
长期债务		17,917			—
递延所得税负债，净额		6,208			6,627
总负债		95,654			43,808
承诺与或有事项（见附注15）
股东权益
普通股，$0.0001 面值，授权的股份 500,000,000 截至2024年9月30日和2023年12月31日， 34,704,696截至2024年9月30日已发行并在外流通的股票数量， 29,768,568截至2023年12月31日已发行并在外流通的股票数量		3			3
新增已实收资本		124,896			95,218
累计亏损		(2,238	)		(6,306	)
累计其他综合损失		529			(225	)
总股东权益		123,190			88,690
总负债和股东权益	$	218,844		$	132,498


	截至9月30日的三个月						截至9月30日的九个月
(单位为千，除股份和每股数据外)	2024			2023			2024			2023
营业收入，净值：
工具租赁	$	28,116		$	29,361		$	86,410		$	90,639
产品销售		11,977			8,777			28,190			26,206
总营业收入净额		40,093			38,138			114,600			116,845
营业费用和开支：
工具租赁收入成本		4,076			7,337			17,558			21,578
产品销售收入成本		5,726			1,814			10,779			5,862
销售、一般和管理费用		19,855			16,552			57,415			50,999
折旧和摊销费用		6,185			5,303			17,232			15,035
总营业费用和支出		35,842			31,006			102,984			93,474
营业收入		4,251			7,132			11,616			23,371
其他费用，净额：
利息费用，净额		(1,038	)		(73	)		(2,030	)		(995	)
出售资产的收益（损失）		19			—			61			68
对以前持有的股权利益的重新计量的收益（损失）		(361	)		(535	)		368			(148	)
其他（费用）		(2,443	)		(135	)		(5,241	)		(6,170	)
总其他费用，净额		(3,823	)		(743	)		(6,842	)		(7,245	)
税前利润		428			6,389			4,774			16,126
所得税（费用）/收益		439			(2,102	)		(415	)		(5,201	)
净利润	$	867		$	4,287		$	4,359		$	10,925
可赎回可转换优先股的累积分红		—			—			—			314
可分配给普通股东的净利润	$	867		$	4,287		$	4,359		$	10,611
基本每股收益	$	0.03		$	0.14		$	0.14		$	0.57
摊薄后每股收益	$	0.03		$	0.14		$	0.14		$	0.46
基本加权平均流通普通股数*		33,072,097			29,768,568			30,893,602			18,608,708
摊薄加权平均流通普通股数*		33,547,056			30,043,546			31,404,333			23,554,593
其他全面收益（损失）：
净利润	$	867		$	4,287		$	4,359		$	10,925
外币翻译调整，税后		1,161			90			753			(117	)
综合收益	$	2,028		$	4,377		$	5,112		$	10,808


	截至9月30日的九个月
(以千计)	2024			2023
经营活动产生的现金流：
净利润	$	4,359		$	10,925
调整净利润与经营活动产生的现金净额之间的差异：
折旧和摊销		17,232			15,035
递延融资费用摊销		226			88
非现金租赁费用		3,620			3,418
过剩和过时库存的准备		—			22
过剩和过时财产及设备的准备金		286			381
信用损失准备金		42			502
递延所得税费用		(1,301	)		3,741
财产销售收益		(72	)		(68	)
资产处置损失		27			—
利率掉期的已实现损失		—			4
权益证券的未实现收益		(368	)		148
权益证券的已实现损失		12			—
失落井设备销售毛利润		(7,348	)		(13,968	)
基于股票的补偿费用		1,572			3,986
经营资产和负债的变动：
应收账款，净额		2,086			(577	)
预付款项及其他流动资产		(633	)		(92	)
存货，净额		(2,883	)		(2,876	)
经营租赁负债		(3,416	)		(3,311	)
应付账款		(2,802	)		(888	)
应计费用和其他流动负债		(916	)		1,014
来自运营活动的净现金流		9,723			17,484
投资活动的现金流：
收购业务，扣除购得现金		(38,670	)		—
出售股权证券的收益		1,244			—
物业、厂房和设备的销售收入		77			126
购买物业、厂房和设备		(19,678	)		(36,776	)
失落设备销售所得		10,895			16,623
投资活动产生的净现金		(46,132	)		(20,027	)
融资活动产生的现金流:
合并和PIPE融资所得，扣除交易成本		—			23,162
递延融资成本的支付		(721	)		(322	)
循环信贷所得		30,062			71,646
循环信用额度的支付		(8,898	)		(89,995	)
定期贷款的收益		25,000			—
定期贷款偿还		(2,083	)		—
与合并时支付给DTIH可赎回可转换优先股持有者以退还其DTI股票相关的款项		—			(194	)
融资活动的净现金		43,360			4,297
汇率变动的影响		(993	)		(117	)
现金净变化		5,958			1,637
期初现金		6,003			2,352
期末现金	$	11,961		$	3,989
补充现金流信息：
支付的利息	$	1,488		$	901
支付的所得税现金	$	256		$	2,546
非现金投资和融资活动：
在CTG收购中假设的CTG负债公允价值	$	3,162		$	—
SDPI收购中承担的SDPI负债的公允价值	$	6,246		$	—
为租赁负债而获取的使用权资产	$	5,737		$	3,002
应收票据的非现金回收	$	453		$	—
期权的净行使	$	254		$	—
为支付税款而从期权行使中扣留的股票	$	36		$	—
包括在应付账款和应计费用以及其他流动负债中的库存购买	$	1,592		$	451
包括在应付账款和应计费用以及其他流动负债中的物业和设备购买	$	—		$	1,733
非现金的董事和高管保险	$	—		$	1,063
非现金的合并融资	$	—		$	2,000
在合并中将DTIH可赎回可转换优先股交换为DTIC普通股	$	—		$	7,193
根据交换协议向DTIH可赎回可转换优先股的前持有人发行DTIC普通股	$	—		$	10,805
可赎回可转换优先股按赎回价值逐年累积	$	—		$	314


☒	根据1934年证券交易法第13或15(d)条款提交的季度报告


☐	根据1934年证券交易法第13条或第15(d)条的过渡报告


大型加速报告人	☐	加速报告人	☐

非加速报告人	☒	小型报告公司	☒

新兴成长公司	☒


	Redeemable Convertible Preferred Stock						Common Stock						Treasury Stock
(In thousands, except share and per share data)	Shares			Amount			Shares			Amount			Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
BALANCE, December 31, 2022		20,370,377		$	17,878			53,175,028		$	532			(811,156	)	$	(933	)	$	52,790		$	(21,054	)	$	(111	)	$	31,224
Retroactive application of Merger		(13,650,736	)		—			(41,223,891	)		(531	)		811,156			933			(402	)		-			—			—
Adjusted Balances, beginning of period*		6,719,641			17,878			11,951,137			1			—			—			52,388			(21,054	)		(111	)		31,224
Accretion of redeemable convertible preferred stock to redemption value		—			314			—			—			—			—			(314	)		—			—			(314	)
Foreign currency translation adjustment, net of tax		—			—			—			—			—			—			—			—			—			-
Net income		—			—			—			—			—			—			—			5,701			—			5,701
BALANCE, March 31, 2023		6,719,641		$	18,192			11,951,137		$	1			—		$	—		$	52,074		$	(15,353	)	$	(111	)	$	36,611
Net exercise of DTIH stockholders stock options								36,163			—			—			—		-				—			—			—
Exchange of DTIH redeemable convertible preferred stock for DTIC Common Stock		(6,719,641	)		(18,192	)		6,719,641			1			—			—			7,192			—			—			7,193
Issuance of DTIC Common Stock to former holders of DTIH redeemable convertible preferred stock in connection with Exchange Agreements		—			—			2,042,181			—			—			—			10,805			—			—			10,805
Merger, net of redemptions and transaction costs		—			—			5,711,721			1			—			—			(8,839	)		—			—			(8,838	)
Issuance of DTIC Common Stock in connection with the consummation of the PIPE Financing		—			—			2,970,296			—			—			—			30,000			—			—			30,000
Stock-based compensation		—			—			337,429			—			—			—			3,986			—			—			3,986
Foreign currency translation adjustment, net of tax		—			—			—			—			—			—		-				—			(207	)		(207	)
Net income		—			—			—			—			—			—		-				937		-				937
BALANCE, June 30, 2023		—		$	—			29,768,568		$	3			—		$	—		$	95,218		$	(14,416	)	$	(318	)	$	80,487
Foreign currency translation adjustment, net of tax		—			—			—			—			—			—			—			—			90			90
Net income		—			—			—			—			—			—			—			4,287						4,287
BALANCE, September 30, 2023		—		$	—			29,768,568		$	3			—		$	—		$	95,218		$	(10,129	)	$	(228	)	$	84,864


	Cost		Unrealized Gain			Fair Value
September 30, 2024	$	—	$	—		$	—

	Cost		Unrealized Loss			Fair Value
December 31, 2023	$	999	$	(111	)	$	888


	Three months ended September 30, 2024			Three months ended September 30, 2023
Transaction fees	$	(1,857	)	$	(124	)
HHLLC stock-based compensation		—			—
Interest income		36			—
Other, net		(622	)		(11	)
Other expense, net	$	(2,443	)	$	(135	)


	Three Months Ended September 30,				Change
(In thousands)	2024		2023		Amount			%
Tool rental	$	28,116	$	29,361	$	(1,245	)		(4	)%
Product sale	$	11,977	$	8,777	$	3,200			36	%


Exhibit Number		Description

2.1†		Agreement and Plan of Merger, dated as of February 13, 2023, by and among ROC Energy Acquisition Corp., ROC Merger Sub, Inc. and Drilling Tools International Holdings, Inc. (incorporated by reference to Exhibit 2.1 to ROC Energy Acquisition Corp.’s Current Report on Form 8-K (File No. 001-41103), filed with the Securities and Exchange Commission on February 13, 2023).
2.2		First Amendment to the Agreement and Plan of Merger, by and among ROC Energy Acquisition Corp., ROC Merger Sub, Inc. and Drilling Tools International Holdings, Inc. (incorporated by reference to Exhibit 2.1 to ROC Energy Acquisition Corp.’s Current Report on Form 8-K (File No. 001-41103), filed with the Securities and Exchange Commission on June 9, 2023).
3.1		Second Amended and Restated Certificate of Incorporation of Drilling Tools International Corporation (incorporated by reference to Exhibit 3.1 to Drilling Tools International Corporation’s Current Report on Form 8-K (File No. 001-41103), filed with the Securities and Exchange Commission on June 27, 2023).
3.2		Amended and Restated Bylaws of Drilling Tools International Corporation (incorporated by reference to Exhibit 3.2 to Drilling Tools International Corporation’s Current Report on Form 8-K (File No. 001-41103), filed with the Securities and Exchange Commission on June 27, 2023).
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)


	Drilling Tools International Corporation

Date: November 14, 2024	By:	/s/ David R. Johnson
		David R. Johnson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)