CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – VARIABLE INTEREST ENTITY AND JOINT VENTURE ARRANGEMENT

NOTE 3 – BUSINESS COMBINATION

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

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 6 – INTANGIBLE ASSETS, NET

NOTE 8 – LONG TERM DEBT

NOTE 9 – INCOME TAXES

NOTE 10 – STOCK-BASED COMPENSATION

NOTE 11 – OTHER OPERATING AND NON-OPERATING EXPENSES, NET

NOTE 13 – LEASES

NOTE 14 – EMPLOYEE BENEFITS

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Condensed Consolidated Statements of Changes in Shareholders' Equity

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

DRILLING TOOLS INTERNATIONAL CORPORATION

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – VARIABLE INTEREST ENTITY AND JOINT VENTURE ARRANGEMENT

NOTE 3 – BUSINESS COMBINATION

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

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 6 – INTANGIBLE ASSETS, NET

NOTE 8 – LONG TERM DEBT

NOTE 9 – INCOME TAXES

NOTE 10 – STOCK-BASED COMPENSATION

NOTE 11 – OTHER OPERATING AND NON-OPERATING EXPENSES, NET

NOTE 12 – RELATED PARTY TRANSACTIONS

NOTE 13 – LEASES

NOTE 14 – EMPLOYEE BENEFITS

NOTE 15 – COMMITMENTS AND CONTINGENCIES

NOTE 16 – EARNINGS PER SHARE

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Organization and Nature of Operations

Basis of Presentation

Use of Estimates

Principles of Consolidation

Foreign Currency Translation and Transactions

Revenue Recognition

Cash and Cash Equivalents

Accounts Receivable and Allowance for Credit Losses

Inventories

Property, Plant and Equipment, net

Intangible Assets

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. The Company assesses goodwill impairment annually on October 31. 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.

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. 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. The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition. These assets and liabilities are not remeasured at each reporting period.

As of March 31, 2026 and December 31, 2025, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.

Fair value of Financial Instruments

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

Cost of Revenue

Stock-Based Compensation

Income Taxes

Operating Segments

Litigation

Management Fee

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Organization and Nature of Operations

Basis of Presentation

Use of Estimates

Principles of Consolidation

Foreign Currency Translation and Transactions

Revenue Recognition

Cash and Cash Equivalents

Accounts Receivable and Allowance for Credit Losses

Inventories

Property, Plant and Equipment, net

Intangible Assets

Goodwill

Fair Value Measurements

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.

As of March 31, 2026 and December 31, 2025, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.

Fair value of Financial Instruments

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

Cost of Revenue

Stock-Based Compensation

Earnings Per Share

Income Taxes

Operating Segments

Litigation

Management Fee

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-41103

DRILLING TOOLS INTERNATIONAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		87-2488708
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
10370 Richmond Ave. #1000 Houston, Texas		77042
(Address of principal executive offices)		(Zip Code)

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

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

     Title of each class

     Trading
Symbol(s)

     Name of each exchange on which registered

     Common stock, par value $0.0001 per share

     DTI

     The Nasdaq Stock Market LLC

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

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

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

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

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

As of May 3, 2026, the registrant had 35,139,094 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
	Cautionary Note Regarding Forward-Looking Statements	1
PART I.	Financial Statements (Unaudited)
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Changes in Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
Signatures		36

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

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

•

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

•

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

•

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

•

our ability to source tools at reasonable cost;

•

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

•

our ability to market our services in a competitive industry;

•

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

•

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

•

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

•

the impact of a global pandemic;

•

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

•

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

•

our ability to obtain additional capital;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.


	March 31,			December 31,
(In thousands, except share data)	2026			2025

ASSETS
Current assets
Cash	$	2,840		$	3,648
Accounts receivable, net		40,335			37,683
Related party note receivable, current		1,541			1,541
Inventories		18,615			18,149
Prepaid expenses and other current assets		5,395			3,866
Total current assets		68,726			64,887
Property, plant and equipment, net		73,026			72,602
Operating lease right-of-use asset		24,245			25,181
Intangible assets, net		38,437			39,674
Goodwill, net		14,524			14,616
Deferred financing costs, net		517			468
Related party note receivable, less current portion		3,927			3,836
Deposits and other long-term assets		1,298			917
Total assets	$	224,700		$	222,181
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	12,234		$	9,785
Accrued expenses and other current liabilities		9,120			10,711
Current portion of operating lease liabilities		4,596			4,335
Current maturities of long-term debt		5,990			5,989
Total current liabilities		31,940			30,820
Operating lease liabilities, less current portion		20,370			21,494
Revolving line of credit		32,500			25,000
Long-term debt, less current portion		13,263			14,827
Deferred tax liabilities, net		6,194			7,167
Total liabilities		104,267			99,308
Commitments and contingencies (See Note 15)
Shareholders' equity
Common stock, $0.0001 par value, shares authorized 500,000,000 as of March 31, 2026 and December 31, 2025, 35,901,128 issued and outstanding as of March 31, 2026 and 35,661,297 shares issued and outstanding as of December 31, 2025		4			4
Less: Treasury stock at cost, 775,368 and 505,169 shares as of March 31, 2026 and December 31, 2025, respectively		(2,192	)		(1,265	)
Additional paid-in-capital		131,580			130,801
Accumulated deficit		(8,883	)		(7,343	)
Accumulated other comprehensive income (loss)		(90	)		664
Total Drilling Tools International stockholder's equity		120,419			122,861
Non-controlling interest		14			12
Total equity		120,433			122,873
Total liabilities and shareholders' equity	$	224,700		$	222,181

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


	Three Months Ended March 31,
(In thousands, except share and per share data)	2026			2025
Revenue, net:
Tool rental	$	28,910		$	34,533
Product sale		9,049			8,347
Total revenue, net		37,959			42,880
Costs and other deductions:
Cost of tool rental revenue		7,750			7,688
Cost of product sale revenue		3,362			3,558
Selling, general, and administrative expense		20,226			21,609
Depreciation and amortization expense		6,927			6,722
Interest expense, net		1,013			1,309
Loss (gain) on asset disposal		—			(13	)
Goodwill impairment		—			1,901
Other operating and non-operating expense, net		776			1,934
Total costs and other deductions		40,054			44,708
Income (loss) before income tax expense		(2,095	)		(1,828	)
Income tax benefit (expense)		557			159
Net income (loss)	$	(1,538	)	$	(1,669	)
Less: Net income (loss) attributable to non-controlling interest	$	2		$	—
Net income (loss) attributable to Drilling Tools International stockholders	$	(1,540	)	$	(1,669	)
Basic earnings (loss) per share	$	(0.04	)	$	(0.05	)
Diluted earnings (loss) per share	$	(0.04	)	$	(0.05	)
Basic weighted-average common shares outstanding		35,116,094			35,592,737
Diluted weighted-average common shares outstanding		35,116,094			35,592,737
Comprehensive income (loss):
Net income (loss)	$	(1,538	)	$	(1,669	)
Foreign currency translation adjustment, net of tax		(754	)		942
Comprehensive income (loss):		(2,292	)		(727	)
Less: comprehensive income attributable to non-controlling interest		2			—
Comprehensive income (loss) attributable to Drilling Tools International stockholders	$	(2,294	)	$	(727	)

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


	Common Stock				Treasury Stock
(In thousands, except share and per share data)	Shares		Amount		Shares		Amount			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total Drilling Tools International Shareholders' Equity			Non-controlling Interest		Total Equity
BALANCE, December 31, 2025		35,661,297		4		505,169		(1,265	)		130,801		(7,343	)		664		$	122,861		$	12	$	122,873
Stock-based compensation		—		—		—		—			719		—			—			719			—		719
Treasury stock purchases		—		—		206,800		(706	)		—		—			—			(706	)		—		(706	)
Restricted stock vesting		219,831		—		63,399		(221	)		—		—			—			(221	)		—		(221	)
Stock option exercise		20,000		—		—		—			60		—			—			60			—		60
Foreign currency translation adjustment, net of tax		—		—		—		—			—		—			(754	)		(754	)		—		(754	)
Net loss		—		—		—		—			—		(1,540	)		—			(1,540	)		2		(1,538	)
BALANCE, March 31, 2026		35,901,128	$	4		775,368	$	(2,192	)	$	131,580	$	(8,883	)	$	(90	)	$	120,419		$	14	$	120,433


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

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


	Three Months Ended March 31,
(In thousands)	2026			2025
Cash flows from operating activities:
Net income (loss)	$	(1,538	)	$	(1,669	)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		6,927			6,722
Amortization of deferred financing costs		38			87
Non-cash lease expense		1,220			1,383
Unrealized loss (gain) on currency translation		(271	)		(114	)
Write off of excess and obsolete inventory		18			418
Write off of excess and obsolete property and equipment		—			54
Provision (recovery) for credit losses		316			217
Deferred tax expense (benefit)		(973	)		(750	)
Loss (gain) on sale of property		—			23
Gain on sale of lost-in-hole equipment		(3,914	)		(3,145	)
Stock-based compensation expense		719			541
Interest income on related party note receivable		(91	)		(91	)
Goodwill impairment		—			1,901
Changes in operating assets and liabilities:
Accounts receivable, net		(3,062	)		(670	)
Prepaid expenses and other current assets		(2,438	)		572
Inventories		(136	)		2,540
Operating lease liabilities		(1,147	)		(1,303	)
Accounts payable		2,031			(3,651	)
Accrued expenses and other current liabilities		(862	)		(634	)
Net cash flows from operating activities		(3,163	)		2,431
Cash flows from investing activities:
Acquisition of a business, net of cash acquired		—			(5,619	)
Purchase of intangible assets		(417	)		(681	)
Proceeds from sale of property, plant, and equipment		—			14
Purchase of property, plant, and equipment		(7,687	)		(5,043	)
Proceeds from sale of lost-in-hole equipment		5,133			4,049
Net cash flows from investing activities		(2,971	)		(7,280	)
Cash flows from financing activities:
Proceeds from exercise of stock options	60				—
Payment of deferred financing costs		(87	)		—
Purchase of treasury stock		(706	)		—
Repayment of term loan		(1,250	)		(1,250	)
Repayment of promissory note		(235	)		(216	)
Proceeds from revolving line of credit		19,770			19,349
Repayment on revolving line of credit		(12,270	)		(16,491	)
Net cash flows from financing activities		5,282			1,392
Effect of changes in foreign exchange rates		44			61
Net change in cash		(808	)		(3,396	)
Cash at beginning of period		3,648			6,185
Cash at end of period	$	2,840		$	2,789

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

Drilling Tools International Corporation, a Delaware corporation ("DTIC" or the "Company"), is a global oilfield services company that designs, engineers, manufactures and provides a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the well life cycle.

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

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

Unaudited Interim Financial Information

The accompanying interim unaudited condensed consolidated financial statements included in this quarterly report have been prepared in accordance with U.S. GAAP and, in the opinion of the Company, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2026, and its results of operations for the three months ended March 31, 2026 and 2025, and cash flows for the three months ended March 31, 2026 and 2025. The condensed consolidated balance sheet at December 31, 2025, was derived from the audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.

During the year ended December 31, 2025, the Company changed the presentation of its interim condensed consolidated statements of comprehensive income (loss) from a two-step format to a one-step format. Under the previous two-step format, operating income was presented as a subtotal. Under the new one-step format, all revenues are presented, followed by all expenses and losses, including income taxes, without the presentation of intermediate subtotals such as operating income. This change was made to simplify the presentation and enhance comparability with peer companies that use a similar format. The prior period’s income statement has been revised to conform to the current year’s presentation. This change in format does not affect the recognition, measurement, or classification of individual line items and has no impact on net income or other key financial metrics.

Emerging Growth Company

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

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

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

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

Business Combinations

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

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

Tool Rental Services

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

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

The Company recognizes revenues from renting tools on a straight-line basis. The Company’s rental contract periods are daily, monthly, or per well. Additionally, the Company has rental contracts that are based on usage, either on a per footage or per well basis. As these types of rental contracts primarily consist of variable lease payments, which are unknown at commencement, revenue is recognized when the changes in the factor on which the contingent lease payments are based occur. When the customer returns the rental equipment and the footage or usage becomes known, the Company recognizes revenue. The Company accrues all known fixed lease payments for rental contracts that also include variable payments, such as those based on usage or per well, when such variable amounts are not reasonably determinable at period end.

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

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

Product Sales

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

Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the revenue standard. The transaction price is measured as consideration specified in a contract with a customer and excludes any sales incentives and taxes or other amounts collected on behalf of third parties. As each of the Company’s contracts with customers contain a single performance obligation to provide a product sale, the Company does not have any performance obligations requiring allocation of transaction prices.

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

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

Contract Assets and Contract Liabilities

Contract assets represent the Company’s rights to consideration for work completed but not billed. Contract assets were recorded in accounts receivable, net in the accompanying unaudited condensed consolidated balance sheets. The changes in contract assets for the year ended December 31, 2025 and three months ended March 31, 2026 were as follows (in thousands):


Balance at December 31, 2024	$	5,449
Revenue recognized from contract assets		42,598
Conversion of contract assets into accounts receivable		(40,851	)
Balance at December 31, 2025	$	7,196
Revenue recognized from contract assets		10,583
Conversion of contract assets into accounts receivable		(9,502	)
Balance at March 31, 2026		8,277

Contract liabilities consist of fees invoiced or paid by the Company’s customers for which the associated services have not been performed and revenue has not been recognized based on the Company’s revenue recognition criteria described above. As of March 31, 2026, December 31, 2025 and December 31, 2024, the Company did not have any contract liabilities.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2026 and December 31, 2025.

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

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

The changes in the allowance for credit losses for the year ended December 31, 2025 and the three months ended March 31, 2026 were as follows (in thousands):


Balance at December 31, 2024	$	(1,690	)
Provisions for expected credit losses		(595	)
Foreign currency adjustments		(130	)
Utilization of allowance for credit losses		213
Balance at December 31, 2025	$	(2,202	)
Provisions for expected credit losses		(313	)
Foreign currency adjustments		52
Utilization of allowances for credit losses		-
Balance at March 31, 2026	$	(2,462	)

Concentration of Credit Risk

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

During the three months ended March 31, 2026 and 2025, the Company generated approximately 29% and 29%, respectively, of its revenue from 2 customers. Amounts due from these customers included in accounts receivable at March 31, 2026 and December 31, 2025 were approximately $4.6 million and $5.7 million, respectively.

During the three months ended March 31, 2026 and 2025, the Company did not have any vendors that represented over 10% of total purchases.

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

consolidated statements of comprehensive income (loss) and establish a new cost basis for the inventory. Inventory includes raw material, work in progress, and finished goods.

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

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

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

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. During the three months ended March 31, 2026, management determined that there were no triggering events necessitating impairment testing of property, plant and equipment, net.

Leases

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

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

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

The Company’s lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option in the measurement of its ROU assets and liabilities. The Company considers contractual-based factors such as the nature and terms of the renewal or termination, asset-based factors such as physical location of the asset and entity-based factors such as the importance of the leased asset to the Company’s operations to determine the lease term. The Company generally uses the base, 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 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 comprehensive income (loss).

Intangible assets with finite useful lives include customer relationships, trade name, patents, and developed technology. 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.

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 comprehensive income (loss). 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 comprehensive income (loss).

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted stock awards, be measured based on the grant-date fair value of the award. The Company determines the fair value of stock options granted using the Black-Scholes- Merton option-pricing model (“Black-Scholes model”) and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, generally the vesting period, with forfeitures accounted for as they occur.

For 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.

For performance 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. The Company applies a graded vesting attribution method, recognizing expense over the entire tranche of awards and updating the estimate of probable achievement of performance conditions at each reporting period. Changes in estimated outcomes are recognized prospectively through cumulative catch-up adjustments to compensation expense.

Treasury Stock

The Company uses the cost method to record treasury stock purchases whereby the entire cost of the acquired shares of our common stock is recorded as treasury stock (at cost). When we subsequently reissue these shares, proceeds in excess of cost upon the issuance of treasury shares are credited to additional paid-in-capital, while any deficiency is charged to retained earnings.

Non-controlling Interest

When the Company holds an equity method investment in a Variable Interest Entity ("VIE") and is determined to be the primary beneficiary, the VIE is consolidated in accordance with ASC 810, Consolidation. Upon consolidation, any equity interests in the VIE not held by the Company are presented as non-controlling interests in the unaudited condensed consolidated financial statements. The non-controlling interest represents the portion of the VIE’s net assets and net income attributable to other equity holders. The Company reassesses its status as the primary beneficiary of the VIE on an ongoing basis and adjusts the non-controlling interest accordingly. Changes in ownership interests that do not result in a loss of control are accounted for as equity transactions.

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 are 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, restricted stock units, and performance-based awards are considered potential dilutive common stock and are excluded from the computation of net loss per share if their effect is anti-dilutive.

Income taxes are provided for the tax effects of transactions reported in the unaudited condensed consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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

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

Each uncertain tax position is assessed using a two-step process. A determination is first made whether it is more likely than not that the income tax position will be sustained, based upon technical merits and upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the unaudited condensed consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. The Company has no uncertain tax positions at March 31, 2026 and December 31, 2025. 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 comprehensive income (loss) for the three months ended March 31, 2026 and 2025.

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

Restructuring

The Company recognizes restructuring charges in accordance with ASC 420, Exit or Disposal Cost Obligations. Restructuring costs primarily include severance and other employee-related termination benefits, as well as reorganization costs associated with strategic initiatives to streamline operations or reduce overhead. These costs are recognized when a formal plan has been approved, communicated to affected employees, and the obligation is probable and reasonably estimable.

Recent Accounting Pronouncements

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

On May 22, 2025, the Company, through its wholly owned subsidiary DTI Canada 1, LLC, entered into a Joint Venture and Shareholders’ Agreement with Upstream Energy SDN. BHD. (“Upstream Energy”), a Malaysian entity, to form Drilling Tools International SDN. BHD. (“DTI Malaysia”), a Malaysian corporation. The purpose of DTI Malaysia is to expand the Company’s geographic footprint to serve a broader customer base in the Asia-Pacific market.

Under the terms of the agreement, the Company contributed $11.6 thousand and Upstream Energy contributed $12.1 thousand to the initial share capital of $23.7 thousand, resulting in ownership interests of 49% and 51%, respectively. Despite holding a minority equity interest, the Company was appointed as the sole manager of DTI Malaysia under a separate Management Agreement, granting it full operational and financial control over the entity.

DTI Malaysia is considered a variable interest entity (“VIE”) under ASC 810 due to the disproportionality between DTI’s voting interest and its control and economic exposure. DTI has the power to direct the activities that most significantly impact the economic performance of DTI Malaysia and is entitled to receive substantially all the economic returns from its operations. As such, DTI is the primary beneficiary of DTI Malaysia and consolidates its financial results.

DTI consolidates 100% of DTI Malaysia’s assets, liabilities, revenues, and expenses. The portion of net assets and net income attributable to Upstream Energy is presented as a noncontrolling interest in the Company’s consolidated financial statements. There are no assets of DTI Malaysia that can be used only to settle its obligations nor are there liabilities for which creditors do not have recourse to the general credit of DTI.

Titan Tools Group Limited

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

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


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

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

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

The acquisition of Titan has been accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). Drilling Tools International, Inc. has been treated as the accounting acquirer. Accordingly, Titan’s tangible and identifiable intangible assets acquired, and its liabilities assumed were recorded at their estimated fair values on the Titan Closing Date. The purchase price allocation for the acquisition is final as of December 31, 2025.

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


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

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

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


	Fair value		Useful life (in years)	Fair value methodology
Customer Relationship	$	2,657	25	Multi-period Excess Earnings Method
Total intangible assets	$	2,657

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

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

The Company’s consolidated statements of comprehensive income (loss) for the three months ended March 31, 2026 and 2025 include Titan’s revenues of $2.1 million and $2.6 million, respectively, and net income of $0.1 million and $0.1 million, respectively.

Inventories

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


	March 31, 2026		December 31, 2025
Raw materials	$	9,732	$	14,281
Work in progress		794		672
Finished goods		8,089		3,196
Total inventories	$	18,615	$	18,149

Prepaid expenses and other current assets

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


	March 31, 2026		December 31, 2025
Prepaid expenses:
Deposits on inventory	$	2,312	$	1,020
Prepaid income tax		—		—
Prepaid insurance		428		891
Prepaid rent		456		445
Prepaid software		557		0
Other prepaid expenses		10		334
Other current assets:
Income tax receivable		1,632		1,176
Total	$	5,395	$	3,866

Accrued expenses and other current liabilities

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


	March 31, 2026		December 31, 2025
Accrued expenses:
Accrued compensation and related benefits	$	4,604	$	5,662
Accrued insurance		386		616
Accrued professional services		308		210
Accrued inventory and property, plant, and equipment purchases		198		1,014
Accrued interest		415		493
Accrued property taxes		296		86
Accrued monitoring fees		534		504
Other		232		991
Other current liabilities:
Income tax payable	$	906	$	—
Sales tax payable		344		276
Unbilled lost-in-hole revenue		56		137
Deferred income		840		722
Total accrued expenses and other current liabilities	$	9,119	$	10,711

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


	Estimated Useful Lives (in Years)	March 31, 2026			December 31, 2025
Rental tools and equipment	5-10	$	219,829		$	215,596
Buildings and improvements	5-40		8,126			7,876
Office furniture, fixtures and equipment	3-5		3,258			3,153
Transportation and equipment	3-5		708			691
Total property, plant and equipment			231,921			227,317
Less: accumulated depreciation			(160,647	)		(156,382	)
Property, plant and equipment, net (excluding construction in progress)			71,274			70,935
Construction in progress			1,752			1,667
Property, plant and equipment, net		$	73,026		$	72,602

Total depreciation expense for the three months ended March 31, 2026 and 2025 was approximately $6.2 million and $6.1 million, respectively.

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


	Weighted-average remaining amortization period (in years)	March 31, 2026			December 31, 2025
Trade name	12.4	$	2,033		$	2,050
Developed technology	14.7		18,098			18,609
Customer relationships	19.6		24,044			24,180
Patents	12.1		12			12
Total intangible assets			44,187			44,850
Less: accumulated amortization			(5,750	)		(5,176	)
Intangible assets, net		$	38,437		$	39,674

Total amortization expense for the three months ended March 31, 2026 and 2025 was approximately $0.7 million and $0.6 million, respectively. Estimated future amortization expense for the next five years is as follows:


2026	$	2,475
2027	$	2,475
2028	$	2,475
2029	$	2,475
2030	$	2,475
Thereafter	$	26,062
Total	$	38,437

NOTE 7 – GOODWILL

The change in carrying amount of goodwill for the three months ended March 31, 2026 was as follows (in thousands):


	Total
Net balance as of December 31, 2025	$	14,616
Foreign currency translation		(92	)
Net balance as of March 31, 2026	$	14,524

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

On March 15, 2024, the Company refinanced its revolving credit facility (the “Revolving Line of Credit”) by entering into a Second Amended and Restated Revolving Credit, Term Loan and Security and Guaranty Agreement (the “Credit Facility”) with certain of the Company’s subsidiaries and PNC Bank, National Association as lender and as agent. Pursuant to the terms of the Credit Facility, the Company will be provided a revolving line of credit in a principal amount up to $80.0 million and a single draw term loan (the "Term Loan") in a principal amount of $25.0 million. The line of credit and the Term Loan mature in March 2029. The Credit Facility amends and restates the Company’s Existing Credit Facility under that certain Amended and Restated Revolving Credit, Term Loan, and Security Agreement, dated as of June 20, 2023, by and among the Company, certain of its subsidiaries, and PNC Bank National Association. Additionally, the Company is required to make an annual payment of up to $5.0 million, to be determined based on the Excess Cash Flows generated each fiscal year commencing with the year ended December 31, 2024, as defined in the Credit Facility.

For the three months ended March 31, 2026, the interest on the amount drawn on the Revolving Line of Credit and Term Loan and the outstanding Term Loan balance are based on the Secured Overnight Financing Rate ("SOFR") or the bank’s base lending rate plus applicable margin (approximately 6.64% and 7.73%, respectively, at March 31, 2026). The Credit Facility is collateralized by substantially all the assets of the Company.

As of March 31, 2026, there was $32.5 million drawn against the line of credit.

In connection with acquisition of EDP, the Company issued an unsecured Promissory Note to the former parent company of EDP, totaling $5.2 million. On April 22, 2025, the First Amendment to the note was signed, reducing the balance by $0.3 million. The note bears an interest rate of 8% per annum. The note matures in December 2029 and payments are made quarterly. The note is a foreign currency denominated monetary liability (issuance and payments are denominated in Euros), and as such, is measured at the end of each reporting period based on the exchange rate at that date. The remaining balance on the Promissory Note was $3.8 million as of March 31, 2026. For the three months ended March 31, 2026 and 2025, the Company recognized a gain of $0.1 million and $0.1 million, respectively, on the unaudited condensed consolidated statements of comprehensive income (loss).

As of March 31, 2026, the future maturities of long-term debt consisted of the following (in thousands):


2026	$	4,484
2027		6,051
2028		6,137
2029		35,081
Total long term debt	$	51,753

Contingent Interest Embedded Derivative Liability

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

The Default Rate Derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the Default Rate Derivative was negligible as of March 31, 2026 and December 31, 2025 and therefore no amounts were recorded as of March 31, 2026 or December 31, 2025.

The Company recorded an income tax benefit on the unaudited condensed consolidated statements of comprehensive income (loss) of $0.6 million and $0.2 million for the three months ended March 31, 2026 and 2025, respectively.

The income tax expense for the three months ended March 31, 2026 was calculated using a discrete approach. This methodology was used because changes in the Company's results of operations and acquisitions can materially impact the estimated annual effective tax rate. The Company’s effective tax rate for the three months ended March 31, 2026 and 2025 was 26.6% and 8.7%, respectively. Such rates differed from the Federal Statutory rate of 21.0% primarily due to the state taxes, foreign income taxes on the Company’s international operations, and permanent differences.

The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. There was no signficant changes to the valuation allowance during the three months ended March 31, 2026 and 2025.

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 March 31, 2026, there were 1,928,447 shares of Common Stock available for issuance under the 2023 Plan.

Stock Options

The stock options issued are service based with a vest term ranging from one to three years. The awards have contractual terms of ten years. 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 will use the quoted market price as of the grant date as an input into the Black-Scholes model.

The following table summarizes our stock option activity for the three months ended March 31, 2026:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
OUTSTANDING, December 31, 2025		4,933,626		$	3.50		4.97	$	—
Granted		—			—		—		—
Exercised		(20,000	)		3.02		—		—
Forfeited		—			—		—		—
OUTSTANDING, March 31, 2026		4,913,626		$	3.51		4.66	$	4,708
UNVESTED, March 31, 2026		828,330		$	3.02		7.88	$	1,085
EXERCISABLE, March 31, 2026		4,085,296		$	3.61		4.01	$	3,623

During the three months ended March 31, 2026 and 2025, the Company recognized $0.4 million and $0.4 million, respectively, of stock-based compensation expense related to stock options within selling, general, and administrative expenses on the unaudited condensed

consolidated statements of comprehensive income (loss). As of March 31, 2026, total unrecognized compensation expense related to the stock options totaled $1.3 million which will be recognized over the next 0.8 years.

Restricted Stock Units

Restricted stock units ("RSUs") are granted to employees as well as members of the Board of Directors. RSUs vest over a one to four year period with service and continued employment as the only vesting criteria. The recipient of the restricted stock award is entitled to all of the rights of a shareholder, except that the award is nontransferable during the vesting period. The fair value of the restricted stock award is established on the grant date and then expensed over the vesting period resulting in an increase in additional paid-in-capital.

The following table summarizes our restricted stock unit activity for the three months ended March 31, 2026:


	Shares			Weighted Average Exercise Price
UNVESTED, December 31, 2025		1,022,451		$	3.16
Granted		310,995			3.48
Vested		(219,831	)		3.23
Forfeited		—			—
UNVESTED, March 31, 2026		1,113,615		$	3.24

During the three months ended March 31, 2026 and 2025, the Company recognized $0.3 million and $0.2 million, respectively, of stock-based compensation related to RSUs within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). As of March 31, 2026, total unrecognized compensation expense related to the restricted stock units totaled $3.2 million which will be recognized over the next 2.9 years.

Performance Share Awards

During the three months ended March 31, 2026, the Company granted performance-based restricted stock units (“PSUs”) under the Drilling Tools International Corporation 2023 Omnibus Incentive Plan. The Company granted 665,836 to certain employees. Each PSU represents the right to receive one share of the Company’s common stock upon vesting, subject to the achievement of specified performance conditions and continued service. The PSUs are subject to a three-year performance period and vest, if at all, based on the Company's achievement of cumulative performance goals. The PSUs are eligible to vest based on the achievement of a performance metric, with payouts at the end of the vesting period ranging from 50% to 200% of target. The performance target is established annually within the three-year cumulative performance period, and final payout is determined following certification by the Compensation Committee after the end of the performance period. During the three months ended March 31, 2026, the Company recognized $0.1 million of stock-based compensation related to PSUs within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). As of March 31, 2026, total unrecognized compensation expense related to the stock options totaled $1.8 million which will be recognized over the next 2.9 years.

The following table shows the components of other operating and non-operating expenses, net for the three months ended March 31, 2026 and 2025 (in thousands):


	Three months ended March 31,
	2026			2025
Transaction fees	$	401		$	732
Unrealized loss on foreign currency		105			—
Restructuring charges		213			—
Software implementation		131			132
Interest income		(108	)		(98	)
Other, net		33			1,168
Other operating and non-operating expenses, net	$	775		$	1,934

Management fees

For the three months ended March 31, 2026 and 2025, management fees paid to Hicks Holdings Operating LLC ("HHLLC"), a shareholder of the Company, were approximately $0.2 million and $0.2 million, respectively. Management fees paid to a shareholder are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). The last payment under this arrangement is set to be made in December 2027.

Director fees

Director fees for the three months ended March 31, 2026 and 2025 were approximately $0.2 million and $0.1 million, respectively. Director fees are included in selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

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. The face value of the note is $6.5 million. Pursuant to the Sixth Amendment and Restated Promissory Note, Tronco will make payments to the Company annually, commencing on the first anniversary of the Closing Date through the fifth anniversary of the Closing Date. Per the agreement, if the 20-day volume-weighted average price of DTI falls below $3.20 per share, the principal that otherwise would have been due shall be deferred and apportioned over the remaining payment dates specified in the agreement. The first payment due on July 31, 2025 was deferred as the 20-day volume-weighted average price of DTI was below $3.20 per share. Payment deferrals can continue for any period in which the 20-day-volume-weighted average price leading up to the anniversary date falls below $3.20 per share, up to the fifth anniversary. If at the fifth anniversary the 20-day-volume-weighted average price is below $3.20, the entire principal balance would be due upon the sixth anniversary. Any payments due and not received by the Company before the fifth day following the anniversary date will bear interest from the date of nonpayment until paid equal to 3%. In accordance with ASC 805, the receivable's fair value was measured at the present value of future cash flows upon the Closing Date. Based on the present value calculation, the note was discounted by $1 million. For the three months ended March 31, 2026 and 2025, interest income recognized on the discounted note totaled $0.1 million and $0.1 million, respectively. The carrying value of the note as of March 31, 2026 was $5.5 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 March 31, 2026.

For the three months ended March 31, 2026, the components of the Company’s lease expense were as follows (in thousands):


	Three months ended March 31,
	2026		2025
Operating lease cost	$	1,723	$	1,739
Short-term lease cost		32		31
Variable lease cost		152		109
Total Lease Cost	$	1,907	$	1,879

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


	2026			2025
Weighted-average remaining lease term (in years)		7.74			7.15
Weighted average discount rate		8.22	%		7.73	%

Future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities recognized on the unaudited condensed consolidated balance sheet as of March 31, 2026 were as follows (in thousands):



2026	$	4,689
2027		5,107
2028		4,458
2029		3,684
2030		3,518
Thereafter		12,764
Total lease payments	$	34,220
Less: imputed interest		(9,254	)
Present value of lease liabilities	$	24,966

The Company leases downhole drilling tools to companies in the oil and natural gas industry. Such leases are accounted for in accordance with ASC 842. For the three months ended March 31, 2026 and 2025, tool rental revenue was approximately $28.9 million and $34.5 million, respectively. Our lease contract periods are short-term in nature and are typically daily, monthly, per well, or footage based. Due to the short term nature of the contracts, no maturity table is presented.

The Company sponsors various defined contribution savings plan, primarily in the U.S., that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or match a percentage of the employee contributions up to certain limits. The total expense for the three months ended March 31, 2026 and 2025 was approximately $0.3 million and $0.3 million, respectively.

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

From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims.

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

indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.

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

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

The following table sets forth the computation of the Company’s basic and diluted net earnings per share for the three months ended March 31, 2026 and 2025 (in thousands except share and per share data):


	Three months ended March 31,
	2026			2025
Numerator:
Net income (loss) attributable to Drilling Tools International stockholders	$	(1,540	)	$	(1,669	)
Denominator
Weighted-average common shares used in computing earnings per share — basic		35,116,094			35,592,737
Weighted-average effect of potentially dilutive securities:
Effect of potentially dilutive time-based stock options		—			—
Effect of potentially dilutive performance-based stock options		—			—
Effect of potentially dilutive restricted stock units		—			—
Weighted-average common shares outstanding — diluted		35,116,094			35,592,737
Earnings (loss) per share — basic

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Drilling Tools International Corp 10-Q