Drilling Tools International Corp 10-Q for FY2024 Q3

About this 10-Q

Headline figures

Drilling Tools International Corp (DTI)

10-Q 2024-11-14 For: 2024-09-30

Added on April 07, 2026

Drilling Tools International Corp filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $40.09M; up 5.1% from $38.14M a year earlier
Net income: $867K; down 79.8% from net income of $4.29M a year earlier
Diluted EPS: $0.03; down 78.6% from $0.14 a year earlier

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Delaware	87-2488708
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3701 Briarpark Drive Suite 150 Houston, Texas	77042
(Address of principal executive offices)	(Zip Code)


		Page
	Cautionary Note Regarding Forward-Looking Statements	1
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income and Comprehensive Income	4
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signatures		48


	September 30,			December 31,
(In thousands, except share data)	2024			2023
	(Unaudited)			(Audited)
ASSETS
Current assets
Cash	$	11,961		$	6,003
Accounts receivable, net		33,152			29,929
Related party note receivable, current		1,310			—
Inventories, net		17,352			5,034
Prepaid expenses and other current assets		4,967			4,553
Investments - equity securities, at fair value		—			888
Total current assets		68,742			46,408
Property, plant and equipment, net		77,660			65,800
Operating lease right-of-use assets		23,887			18,786
Intangible assets, net		30,866			216
Goodwill		10,970			—
Deferred financing costs, net		903			409
Related party note receivable, noncurrent		3,740			—
Deposits and other long-term assets		2,076			879
Total assets	$	218,844		$	132,498
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	9,054		$	7,751
Accrued expenses and other current liabilities		12,337			10,579
Revolving line of credit		21,164			—
Current portion of operating lease liabilities		4,441			3,958
Current maturities of long-term debt		5,000			—
Total current liabilities		51,996			22,288
Operating lease liabilities, less current portion		19,533			14,893
Long-term debt		17,917			—
Deferred tax liabilities, net		6,208			6,627
Total liabilities		95,654			43,808
Commitments and contingencies (See Note 15)
Shareholders' equity
Common stock, $0.0001 par value, shares authorized 500,000,000 as of September 30, 2024 and December 31, 2023, 34,704,696 shares issued and outstanding as of September 30, 2024 and 29,768,568 shares issued and outstanding as of December 31, 2023		3			3
Additional paid-in-capital		124,896			95,218
Accumulated deficit		(2,238	)		(6,306	)
Accumulated other comprehensive loss		529			(225	)
Total shareholders' equity		123,190			88,690
Total liabilities and shareholders' equity	$	218,844		$	132,498


	Three months ended September 30,						Nine months ended September 30,
(In thousands, except share and per share data)	2024			2023			2024			2023
Revenue, net:
Tool rental	$	28,116		$	29,361		$	86,410		$	90,639
Product sale		11,977			8,777			28,190			26,206
Total revenue, net		40,093			38,138			114,600			116,845
Operating costs and expenses:
Cost of tool rental revenue		4,076			7,337			17,558			21,578
Cost of product sale revenue		5,726			1,814			10,779			5,862
Selling, general, and administrative expense		19,855			16,552			57,415			50,999
Depreciation and amortization expense		6,185			5,303			17,232			15,035
Total operating costs and expenses		35,842			31,006			102,984			93,474
Income from operations		4,251			7,132			11,616			23,371
Other expense, net:
Interest expense, net		(1,038	)		(73	)		(2,030	)		(995	)
Gain (loss) on sale of property		19			—			61			68
Gain (loss) on remeasurement of previously held equity interest		(361	)		(535	)		368			(148	)
Other (expense)		(2,443	)		(135	)		(5,241	)		(6,170	)
Total other expense, net		(3,823	)		(743	)		(6,842	)		(7,245	)
Income before income tax expense		428			6,389			4,774			16,126
Income tax (expense)/benefit		439			(2,102	)		(415	)		(5,201	)
Net income	$	867		$	4,287		$	4,359		$	10,925
Accumulated dividends on redeemable convertible preferred stock		—			—			—			314
Net income available to common shareholders	$	867		$	4,287		$	4,359		$	10,611
Basic earnings per share	$	0.03		$	0.14		$	0.14		$	0.57
Diluted earnings per share	$	0.03		$	0.14		$	0.14		$	0.46
Basic weighted-average common shares outstanding*		33,072,097			29,768,568			30,893,602			18,608,708
Diluted weighted-average common shares outstanding*		33,547,056			30,043,546			31,404,333			23,554,593
Other comprehensive income (loss):
Net income	$	867		$	4,287		$	4,359		$	10,925
Foreign currency translation adjustment, net of tax		1,161			90			753			(117	)
Comprehensive income	$	2,028		$	4,377		$	5,112		$	10,808


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


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


	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


	Nine Months Ended September 30,
(In thousands)	2024			2023
Cash flows from operating activities:
Net income	$	4,359		$	10,925
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		17,232			15,035
Amortization of deferred financing costs		226			88
Non-cash lease expense		3,620			3,418
Provision for excess and obsolete inventory		—			22
Provision for excess and obsolete property and equipment		286			381
Provision for credit losses		42			502
Deferred tax expense		(1,301	)		3,741
Gain on sale of property		(72	)		(68	)
Loss on asset disposal		27			—
Realized loss on interest rate swaps		—			4
Unrealized gain on equity securities		(368	)		148
Realized loss on equity securities		12			—
Gross profit from sale of lost-in-hole equipment		(7,348	)		(13,968	)
Stock-based compensation expense		1,572			3,986
Changes in operating assets and liabilities:
Accounts receivable, net		2,086			(577	)
Prepaid expenses and other current assets		(633	)		(92	)
Inventories, net		(2,883	)		(2,876	)
Operating lease liabilities		(3,416	)		(3,311	)
Accounts payable		(2,802	)		(888	)
Accrued expenses and other current liabilities		(916	)		1,014
Net cash flows from operating activities		9,723			17,484
Cash flows from investing activities:
Acquisition of a business, net of cash acquired		(38,670	)		—
Proceeds from sale of equity securities		1,244			—
Proceeds from sale of property, plant and equipment		77			126
Purchases of property, plant and equipment		(19,678	)		(36,776	)
Proceeds from sale of lost-in-hole equipment		10,895			16,623
Net cash from investing activities		(46,132	)		(20,027	)
Cash flows from financing activities:
Proceeds from Merger and PIPE Financing, net of transaction costs		—			23,162
Payment of deferred financing costs		(721	)		(322	)
Proceeds from revolving line of credit		30,062			71,646
Payments on revolving line of credit		(8,898	)		(89,995	)
Proceeds from Term Loan		25,000			—
Repayment of Term Loan		(2,083	)		—
Payments to holders of DTIH redeemable convertible preferred stock in connection with retiring their DTI stock upon the Merger		—			(194	)
Net cash from financing activities		43,360			4,297
Effect of changes in foreign exchange rates		(993	)		(117	)
Net change in cash		5,958			1,637
Cash at beginning of period		6,003			2,352
Cash at end of period	$	11,961		$	3,989
Supplemental cash flow information:
Cash paid for interest	$	1,488		$	901
Cash paid for income taxes	$	256		$	2,546
Non-cash investing and financing activities:
Fair value of CTG liabilities assumed in CTG Acquisition	$	3,162		$	—
Fair value of SDPI liabilities assumed in SDPI Acquisition	$	6,246		$	—
ROU assets obtained in exchange for lease liabilities	$	5,737		$	3,002
Non-cash recovery of note receivable	$	453		$	—
Net exercise of stock options	$	254		$	—
Shares withheld from exercise of stock options for payment of taxes	$	36		$	—
Purchases of inventory included in accounts payable and accrued expenses and other current liabilities	$	1,592		$	451
Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities	$	—		$	1,733
Non-cash directors and officers insurance	$	—		$	1,063
Non-cash Merger financing	$	—		$	2,000
Exchange of DTIH redeemable convertible preferred stock for DTIC Common Stock in connection with the Merger	$	—		$	7,193
Issuance of DTIC Common Stock to former holders of DTIH redeemable convertible preferred stock in connection with Exchange Agreements	$	—		$	10,805
Accretion of redeemable convertible preferred stock to redemption value	$	—		$	314


	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


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

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


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


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


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


Fair value 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


	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


	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


	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



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


	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


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

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


	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


	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


	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


	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	)


	Nine Months Ended September 30, 2024			Nine Months Ended September 30, 2023
Transaction fees	$	(4,766	)	$	(2,339	)
HHLLC stock-based compensation		—			(3,623	)
Other, net		(546	)		(256	)
Interest income		71			48
Other expense, net	$	(5,241	)	$	(6,170	)


	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

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


	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.

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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)


Date: November 14, 2024	By:	/s/ R. Wayne Prejean
		R. Wayne Prejean
		Chief Executive Officer