Business Context and Reporting Period
Company: Drilling Tools International Corp (DTI)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: DTI is a global oilfield services company providing rental-focused downhole drilling tools and services for onshore and offshore operations. The company operates in two geographic segments: Western Hemisphere (North and Latin America) and Eastern Hemisphere (Europe, Middle East, and Asia-Pacific).
Key Developments: In 2025, the company completed the acquisition of Titan Tools Group Limited and realigned its reporting segments. It also remediated a previously identified material weakness in internal controls over financial reporting.
Key Financial Metrics
| Metric (in thousands, except per share) | 2025 | 2024 |
|---|---|---|
| Total Revenue, Net | $159,626 | $154,446 |
| Net Income (Loss) | $(3,761) | $3,014 |
| Adjusted EBITDA | $39,321 | $40,102 |
| Segment EBITDA | $50,027 | $52,764 |
| Operating Cash Flow | $19,923 | $6,058 |
| Cash and Cash Equivalents (Year End) | $3,648 | $6,185 |
| Total Debt (Current + Long-Term) | $45,816 | $53,813 |
| Basic EPS | $(0.11) | $0.09 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 3% to $159.6 million. This was driven by a 78% increase in Eastern Hemisphere revenue ($23.5 million) due to acquisitions, partially offset by a 3% decline in Western Hemisphere revenue ($148.6 million) due to lower customer activity levels.
- Profitability Decline: The company reported a net loss of $3.8 million in 2025 compared to net income of $3.0 million in 2024. This reversal was primarily caused by a $1.9 million non-cash goodwill impairment charge, increased interest expense (up 50% to $5.1 million), and higher depreciation and amortization (up 15% to $27.3 million).
- Segment Performance: Western Hemisphere Segment EBITDA decreased 4% to $49.5 million. Eastern Hemisphere Segment EBITDA decreased 59% to $0.5 million, despite revenue growth, due to increased headcount from acquisitions and activity declines in the Middle East.
- Cash Flow: Operating cash flow improved significantly to $19.9 million from $6.1 million, driven by non-cash add-backs and working capital management, despite the net loss.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the revenue decline in the Western Hemisphere to lower drilling activity, noting an 8% decrease in the average rig count. The company continues to pursue a growth strategy focused on maximizing rental fleet uptime, commercializing new high-value tools, and expanding internationally. A $10.0 million share repurchase program was authorized in May 2025; as of year-end, approximately $1.3 million had been utilized.
Risks and Contingencies:
- Market Volatility: Demand is highly correlated with oil and gas prices and drilling activity. WTI oil prices decreased 14% in 2025, while natural gas prices increased 61%.
- Customer Concentration: Two customers accounted for 27% of total revenue in 2025.
- Geopolitical and Regulatory: Risks include global conflicts (Russia-Ukraine, Israel-Hamas), potential changes in offshore drilling regulations, and international tariffs.
- Goodwill Impairment: A $1.9 million impairment was recognized in 2025 following a segment reorganization, indicating potential valuation risks in acquired assets.
Investor Verification Checklist
- Goodwill Impairment: Verify the assumptions used in the fair value assessment of the Diamond Products and Deep Casing reporting units that led to the $1.9 million impairment.
- Eastern Hemisphere Integration: Assess the timeline for the newly acquired Eastern Hemisphere businesses (Titan, EDP, CTG) to achieve profitability, given the 59% drop in segment EBITDA despite revenue growth.
- Debt Covenants: Review the terms of the $80 million revolving credit facility and $25 million term loan to ensure compliance with covenants, particularly given the shift to a net loss position.
- Customer Concentration: Evaluate the stability of contracts with the top two customers representing 27% of revenue.
- Internal Controls: Confirm the effectiveness of the remediated internal controls over financial reporting, as the company previously identified a material weakness.