2025 Annual Report (1661f0)

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INTERNATIONAL

Annual report

Driving Innovation. Delivering Excellence.

Advancing the Energy Landscape

2025

DTI ANNUAL UPDATE

Drilling Tools International Corp. (Nasdaq: DTI) remained focused on prudent capital allocation, shareholder value creation and steady growth despite a declining global rig count environment throughout 2025 and into early 2026. The company continues to expand its global footprint and enhance its technological capabilities within the oilfield services sector.

• Net Debt Reduction: Net Debt Reduction of $5.5 million throughout the year, bringing net leverage to 1.1x.

• Share Repurchases: $1.3 million in buybacks completed, totaling approximately 505,000 shares repurchased at an average price of $2.50 per share.

• Growth Capital Investments: investments in high-margin product lines, including the ClearPath® stabilization technologies and premium threaded connections.

• Strategic M&A Integration: New acquisitions moderated in 2025 as DTI focused on integration and growth across its four prior transactions.

This thoughtful approach to capital allocation underscores DTI's ability to deploy capital effectively, onboard accretive acquisitions, generate attractive returns for shareholders, and strengthen its balance sheet while maintaining a leading-edge portfolio of rental assets and consumable items.

357%

Revenue grew by 357% from $35 million in 2012 to $160 million in 2025

63K+

Over 63,000 rental tools and drilling equipment in our fleet

YOY growth of EH revenue contribution, totaling 14% of total

26

78%

DTI operates from 15 locations in North America and maintains 11 international service and support centers in Europe, Middle East, and Asia-Pacific

REVENUE

ADJUSTED FREE CASH FLOW (1)

TOTAL RECORDABLE

(in Millions)

(in Millions)

$19.2

INCIDENT RATE (TRIR)

$129.6

$152.0

$154.5

$159.6

$16.5

$17.2

1.21

1.23

1.15

0.81

$7.3

'22 '23

'24

'25

'22 '23

'24

'25

'22 '23

'24

'25

(1) Adjusted Free Cash Flow is a non-GAAP financial measure that represents net income (loss) adjusted for income tax expense/(benefit), depreciation and amortization, interest expense, net, stock option expense, management fees, gain on sale of property, loss on asset disposal, loss (gain) on remeasurement of previously held equity interest, transaction expense, other expense, net, and gross capital expenditures. Management believes this non-GAAP measure provides useful information for evaluating the Company's cash generation capabilities.

DEAR FELLOW STOCKHOLDERS

2025 was a year of resilience and disciplined execution for Drilling Tools International (DTI), demonstrating our ability to generate significant free cash flow and deliver consistent returns even amid challenging market conditions. Despite a 7% decline in global rig count year over year, our strategic focus on operational excellence, geographic diversification, and capital discipline enabled us to achieve results at or above the high end of our guidance ranges while strengthening our financial position.

Financial Performance and Free Cash Flow Generation

• Consolidated revenue was $159.6 million, consisting of tool rental revenues of $129.6 million and product sales of $30.1 million.

• Adjusted EBITDA for 2025 reached $39.3 million.

• Adjusted Net Income was $3.4 million, or 10 cents per adjusted diluted earnings per share.

• Adjusted Free Cash Flow was $19.2 million, marking the second consecutive year of annual free cash flow growth since going public in 2023(1).

These results underscore DTI's proven ability to operate efficiently, harvest cash in challenging market environments, and navigate the evolving energy landscape with consistent financial discipline.

Our capital allocation strategy in 2025 reflected our commitment to strengthening the balance sheet and returning value to stockholders. DTI also deployed approximately $1,300,000 through its share buyback program during the year, demonstrating our commitment to enhancing stockholder value through multiple capital allocation levers.

Strategic Expansion and Geographic Diversification

Our Eastern Hemisphere expansion continued to deliver exceptional results and proved instrumental in offsetting North American market softness. Year-over-year, Eastern Hemisphere revenue grew by an impressive 78%, contributing approximately 14% of our total 2025 revenue compared to just 8% in 2024 and less than 1% in 2023. This geographic diversification has fundamentally transformed our business profile and provides meaningful insulation from regional market volatility.

The January 2025 acquisition of Titan Tools Services, our fourth acquisition since going public, further strengthens our distribution and rental footprint in the Eastern Hemisphere. Combined with our previous acquisitions of Deep Casing Tools, Superior Drilling Products, and European Drilling Projects, DTI has successfully built a global platform capable of delivering our differentiated technologies to customers worldwide. Our Wellbore Optimization product line

Integration Excellence and "One DTI"

We have made substantial progress on our "One DTI" synergy program, successfully aligning our operating divisions into integrated systems and processes. A major milestone was the onboarding of new business units into our Compass platform, which manages assets and transactions for our customers. This integration streamlines workflows, enhances accountability, and materially shortens the timeline for incorporating future acquisitions into the DTI platform.

The integration of Superior Drilling Products continues to deliver the vertical and horizontal synergies we anticipated, including cost savings and margin improvements. We remain on track to achieve our previously announced synergy targets and have identified additional opportunities beyond our initial projections. These operational improvements strengthen our foundation and position DTI for meaningful financial improvement as activity levels rebound.

Technology and Innovation Leadership

Our technology portfolio continues to differentiate DTI in the marketplace. The Deep Casing group has successfully deployed innovative tools like the MechLok Swivel and Rubblizer, which are gaining global traction. In addition, our TurboCaser and Turbo Runner technologies are contributing to our global footprint as a standard product for complex completion challenges. As previously mentioned, our Wellbore Optimization product line, including our Drill-N-Ream tools and ClearPath Stabilization tools continues to gain traction across the Western and Eastern Hemisphere as customers adopt these solutions to improve wellbore quality and reduce drilling time.

This diverse technology portfolio exemplifies DTI's commitment to commercializing innovative solutions and leveraging its platform to bring valuable technologies to market efficiently.

continues to gain significant traction in the region, with increasing utilization of Drill-N-Ream tools and recently Rebranded ClearPath

Stabilization Technology (formerly known as "Fixed Blade Stabilizers").

While Western Hemisphere operations faced headwinds from softer North American drilling and completions activity, the segment demonstrated resilience with only a low-single-digit revenue decline compared to 2024. This performance reflects the strength of our customer relationships, operational excellence, and DTI's position as a market leader providing downhole tool rentals for both North American land and Gulf of America deepwater drilling operations.

"DTI's strengthened balance sheet, expanded

global platform, and differentiated technology portfolio create a compelling foundation for the next phase of growth."

Capital Discipline and Operational Flexibility

Our flexible capital expenditure model proved invaluable in 2025 as market conditions softened. We pivoted strategically to harvest cash, with maintenance capital expenditures funded primarily by Tool Recovery revenue, which allows us to reinvest in and refresh our rental fleet without materially increasing gross capital outlays and to redeploy excess cash toward debt reduction and opportunistic share repurchases. This disciplined approach enabled us to generate record free cash flow while maintaining a relevant and sustainable fleet.

DTI takes a thoughtful approach to all capital deployment decisions, prioritizing opportunities that align with our capital allocation framework and support long-term value creation for stockholders. Our ability to adjust capital spending, manage costs, and maintain operational efficiency across the business demonstrates the operating leverage built into the DTI platform.

Looking to the Future

As we enter 2026, we are optimistic about the momentum building across our organization and the attractive opportunities we see on the horizon. Our 2026 outlook projects consolidated revenue of $155 million to $170 million and Adjusted EBITDA of $35 million to $45 million, with anticipated Adjusted Free Cash Flow of $17 million to

$22 million. These guidance ranges reflect year-over-year growth at the midpoint and are constructed assuming relatively flat activity in the first half of 2026 with modest improvement in the second half.

We see several potential catalysts that offer upside opportunities, including rig reactivations in the Middle East, and increased project activity in select international markets where we have recently expanded our presence. Our strong alignment with local operators, combined with our established geographic footprint, positions us well for continued expansion as market momentum returns.

We remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. Our disciplined M&A framework and robust opportunity pipeline position us to consolidate select oilfield service, product, and rental tool businesses where we see clear strategic fit and attractive returns. The investments and integrations we have completed to date have strengthened our platform and integration muscle, positioning us to drive meaningful results and capture incremental market share as the next growth cycle emerges.

We believe DTI is a preferred provider for downhole tool rentals supporting wellbore construction and casing installation, particularly in our core markets. Our operational expertise, technologically advanced asset base, and extensive geographic reach make us the product and solutions partner of choice for E&P operators and service companies worldwide. Elevated demand for complex wellbore solutions should further reinforce the need for our differentiated technology and value-added solutions.

A Note on the Middle East

I want to acknowledge the evolving war in the Middle East and its potential impact on our operations. As of this writing, operations continue with minimal disruption, and substantially all rigs in the region remain active. We have activated our Crisis Response Plan to

support our personnel in the region, and I am grateful for their dedication and continued commitment to safely supporting our customers.

We are conducting frequent operational updates and maintaining consistent communication with our teams on the ground. While we monitor the situation closely, assuming there are no major rig activity or infrastructure disruptions, we anticipate a positive baseline of activity with upside driven by oil capacity expansion and strategic gas development.

Closing Thoughts

In closing, I want to express my sincere gratitude to our exceptional team of DTI employees for their unwavering commitment to working in a safe, inspired and productive manner throughout a challenging year. Your dedication has been essential in navigating a constantly evolving environment and is central to the success and future growth we are building together.

I also want to thank our stockholders for their continued support, patience, and confidence in DTI's long term strategy. DTI remains firmly focused on delivering attractive risk adjusted returns through disciplined execution and thoughtful capital allocation.

We have demonstrated our ability to execute our strategic plan, deliver improved results, and generate significant free cash flow throughout the cycle. DTI's strengthened balance sheet, expanded global platform, and differentiated technology portfolio create a compelling foundation for the next phase of growth. We remain committed to creating long term value for our stockholders as we capitalize on the opportunities ahead.

Thank you for your continued partnership in this journey.

R. Wayne Prejean

Interim Chairman of the Board, President and Chief Executive Officer, March 13, 2026

(1) Adjusted EBITDA, adjusted EBITDA margin, and adjusted free cash flow are non-GAAP financial measures. See "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures" in our Annual Report on Form 10-K included in this annual report to stockholders for a reconciliation of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP").

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2025 OR

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)

10370 Richmond Ave.

#1000

Houston, Texas

(I.R.S. Employer Identification No.)

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:

Trading

Title of each class Symbol(s) Name of each exchange on which registered

Common Stock, par value $0.0001 per share DTI The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES

NO Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES NO

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES

NO

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on June 30, 2025, was $49.8 million.

The number of shares of Registrant's Common Stock outstanding as of March 3, 2026 was 35,185,760.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement in connection with the 2026 Annual Meeting of Stockholders are incorporated in Part III of this annual report on Form 10-K.

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PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains and incorporates by reference estimates, projections, statements relating to our business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements generally are identified by the words "may," "believe," "anticipate," "expect," "plan," "predict," "estimate," "will be," or other similar words and phrases. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in "Risk Factors" (Part I, Item 1A of this Form 10-K), "Management's Discussion and Analysis of Financial Condition and Results of Operation" (Part II, Item 7), and "Quantitative and Qualitative Disclosures about Market Risk") (Part II, Item 7A). We undertake no obligation to update or publicly revise any forward-looking statements, whether because of new information, future events, or otherwise, except to the extent required by applicable law.

Important factors that could cause actual results to differ materially from those contained in the forward looking statements include, but are not limited to:

• the demand for our products and services, which is influenced by the general level 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 ("OFS") 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 IT systems, in particular customer order management portal and support system ("COMPASS"), 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 fact that the price per share of Common Stock paid by certain Selling Stockholders is less than the price of such shares as of the date of this Annual Report;

• 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 Common Stock on Nasdaq;

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

• other risks and uncertainties described in this prospectus, including those under the section entitled "Risk Factors."

  Item 1. Business.

  Unless the context otherwise requires, all references in this section to the "Company," "DTIC," "we," "us," or "our" refer to the business of Drilling Tools International Corporation and its consolidated subsidiaries following the consummation of the Merger (defined below), and to Drilling Tools International Holdings, Inc. and its consolidated subsidiaries prior to the consummation of the Merger.

  Our Company

  On June 20, 2023, a merger transaction between Drilling Tools International Holdings, Inc. ("DTIH"), ROC Energy Acquisition Corp ("ROC"), and ROC Merger Sub, Inc., a directly, wholly owned subsidiary of ROC, was completed (the "Merger"). In connection with the closing of the Merger, ROC changed its name to Drilling Tools International Corporation ("DTIC"). The common stock of DTIC ("Common Stock" or the "DTIC Common Stock") commenced trading on the Nasdaq Stock Market LLC ("Nasdaq") under the symbol "DTI" on June 21, 2023.

  Drilling Tools International Corporation 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.

  Drilling and producing oil and gas is a complex endeavor that requires tools of various shapes and sizes. Many of our customers rent these tools, as opposed to owning them, because of the many factors that affect which tools are needed for a specific task. Such factors include different formations, drilling methodologies, drilling engineer preferences, drilling depth and hole size. We believe that we are successful because we meet our customers' wide demands by operating from multiple locations with over 65,000 tools in our fleet.

  We are led by an accomplished management team that has significant experience in the oil and gas industry and has worked together for much of the last decade. Since 2012, we have grown the business and strengthened our standing in the industry. Specifically, we have:

• Grown our revenue by 357%, from $35 million in 2012 to $160 million in 2025;

• Substantially increased our market share within North American land drilling, in which we are the market leader, based on the percentage of active projects to which we supply tools, and regularly have active tool rentals on more than 50% of working locations;

• Expanded our footprint from 3 to 15 service and support centers in North America, allowing us to serve all major oil and gas producing basins in North America land and offshore;

• Established 11 additional International service and support centers across Europe, Middle East, and Asia-Pacific;

• Acquired multiple international businesses, further expanding our presence in the Eastern Hemisphere;

• Become the market leader in Gulf of Mexico ("GOM") deepwater drilling operation tool rentals, based on the percentage of active projects to which we supply tools, growing from serving only a single GOM project in 2012;

• Upgraded our customer base from one comprised primarily of independent directional service providers to one comprised of major diversified oilfield service companies ("OSCs") and global exploration and production ("E&P") operators;

• Built a large sales and marketing organization focused on team selling; and

• Secured distribution rights for emerging technologies that fulfill the growing demand for longer horizontal drilling.

  Operating Activities

  Our operating activities are divided into two geographic segments:

• Western Hemisphere - our Western Hemisphere segment focuses on providing a comprehensive range of downhole drilling tools and services primarily for onshore and offshore operations across North America and Latin America. This segment offers a rental-focused portfolio that includes directional drilling tools, stabilizers, drill collars (steel and non-magnetic), hole openers, roller reamers, and sub-assemblies, all designed to optimize wellbore performance and enhance drilling efficiency. These tools are engineered to meet API specifications and are backed by robust QA/QC processes, ensuring durability and reliability in challenging drilling environments. Strategically located service centers across the U.S. and Canada enable rapid deployment and maintenance, while engineering support and inspection services further strengthen operational performance.

  Overall, our Western Hemisphere segment plays a critical role in our business by combining innovative technology with responsive customer service to meet the evolving demands of the oil and gas industry.

• Eastern Hemisphere - our Eastern Hemisphere segment represents the company's strategic expansion into Europe, the Middle East, and Asia-Pacific, focusing on delivering advanced drilling solutions for both land and offshore markets. This segment offers a broad portfolio of downhole tools and services across the well life cycle, including directional drilling tools, stabilizers, drill collars (steel and non-magnetic), hole openers, roller reamers, and wellbore optimization technologies. Following a series of acquisitions in 2024 and into 2025-including Deep Casing Tools, European Drilling Projects, and Titan Tools-we strengthened our capabilities in plug and abandonment, slot recovery, and completion enhancement technologies, positioning ourselves as a leader in innovation and reliability. Operations are supported by 11 international service centers strategically located across the EMEA and APAC regions, ensuring rapid deployment and localized customer support. The segment emphasizes engineering excellence, product development, and IP-driven innovation, enabling operators to meet complex drilling challenges.

Our Industry

The Role of Rental Tool Companies in the Production of Oil and Gas

Wellbore construction is a critical stage in the production of oil and gas. Wellbore construction is comprised of drilling the wellbore, logging the target producing formation to determine if commercial amounts of hydrocarbons exist, installing casing, cementing casing and performing completion procedures to prepare the well for production. Even after wellbore construction is complete, production products and services are needed over the well's full life cycle.

Oil and gas companies typically hire a drilling contractor with an appropriate drilling rig to begin wellbore construction. However, drilling contractors generally do not have all the necessary tools to complete the project, and instead focus their business on the rig and its main components and rarely rent tools on behalf of oil and gas operators. Instead, oil and gas companies prefer to procure the products and services involved in drilling and subsequent procedures on a temporary basis from entities operating in the oil field services ("OFS") industry. This enables them to obtain the best quality, service, and pricing value directly from the service and equipment suppliers. As a result, upon completion of the well, the oil and gas operator does not hold assets that it no longer needs.

The tools provided by rental tool companies vary from select bottom hole assembly components, drill string tools, pressure control devices and a wide variety of specialty items. Rental tool companies purchase assets and rent them to their oil and gas operator customers, who in turn use these tools to complete their respective projects. Rental tool companies typically charge daily rental fees, but fees also can be structured as hourly, footage, weekly, or monthly charges. Rental tool companies also bill customers for repair charges if tools are damaged beyond normal wear and tear. In addition, if the tools are lost in the well, or damaged beyond repair, the customer is charged a replacement fee. Rental tool companies' ability to charge such fees are particularly important in light of the acceleration of drilling rates, as such acceleration continues the trend of customers consistently damaging tools (although recovery events have decreased year over year). We believe that this commercial arrangement has been standard practice in the industry for over 70 years. Given the cyclical nature of the oil and gas industry, commercial terms will be more favorable to rental tool companies when oil and gas industry activity is higher.

Oil and Gas Drilling Activity

Rental tool companies' financial and operating results are tied to the level of oil and gas drilling activity in their respective regions of operation, which, in our case, spans across both the Eastern and Western Hemispheres. Historically, the level of activity was measured by the number of active drilling rigs. For the years ended December 31, 2025 and 2024, the monthly average Western Hemisphere rig count was 867 and 940 rigs, respectively, or a decrease of 8%. Additionally, for the years ended December 31, 2025 and 2024, the monthly average Eastern Hemisphere rig count was 896 and 961 rigs, respectively, or a decrease of 7%

Drilling rigs now operate faster and drill longer laterals, resulting in more efficient production than ever before. Accordingly, we believe that well count and feet drilled are additional indicators of the level of oil and gas drilling activity.

Our Strategy

We intend to (i) maximize the profitability of our core rental tool business, (ii) commercialize new high-value rental tools that make the drilling process more efficient (iii) extend our reach into other segments of a well's lifecycle, such as completion and production and (iv) expand geographically.

To achieve this, we have implemented a multi-pronged growth strategy focused on increasing sales to E&P operators, maximizing rental tool fleet uptime, and expanding our international footprint. E&P operators now account for over 45% of our revenue, up from less than 10% in 2014, and we aim to grow this further through persistent selling, superior customer service, and differentiated tools. Our COMPASS system optimizes inventory and tool transfers to ensure high utilization, while in-house machining and robotics minimize downtime. At the same time, we continue to professionalize our operations with auditable processes, safety compliance, and quality standards that set us apart from competitors.

To strengthen our market position, we are pursuing accretive acquisitions in the downhole rental tool sector, leveraging our industry relationships and reputation to secure attractive deals. We also differentiate through partnerships with leading tool producers, such as our exclusive agreement for the RotoSteer system, which has shown strong adoption since its 2023 launch. Looking ahead, we plan to expand internationally while maintaining North American leadership. These initiatives position us to deliver sustainable growth and deepen customer relationships across the global oilfield services market.

Our Competitive Strengths

Our company's competitive strengths stem from an experienced management team, a large and diverse rental tool fleet, and strong customer relationships. Led by Chief Executive Officer ("CEO"), Wayne Prejean, who brings decades of oil and gas expertise, our leadership team has transformed the business from a small entrepreneurial operation into a professional organization serving major OSCs and E&P operators across 15 North American locations and 11 international service and support centers. We maintain over 340 Master Service Agreements with leading customers, supported by rigorous safety and quality standards, industry certifications, and a robust quality assurance program-requirements that many smaller competitors cannot meet.

We differentiate ourselves through scale, technology, and customer service. Our extensive rental tool fleet, concentrated in key regions like the Permian Basin, meets the diverse needs of customers across multiple geographies, creating high barriers to entry for new competitors. Our proprietary COMPASS system streamlines ordering, provides transparency, and optimizes fleet utilization, while our wide distribution network and 24/7 facilities ensure rapid turnaround and minimal downtime. Combined with a specialized salesforce that builds deep relationships at both corporate and field levels, these capabilities position us as a trusted partner and a leading provider in the downhole rental tool industry.

Customers

Our customer base is comprised of: (i) diversified OSCs, which account for approximately 48% of 2025 revenue, including but not limited to Baker Hughes Company, Halliburton Company, Phoenix Energy, and SLB (formerly Schlumberger); (ii) E&P operators, which account for approximately 48% of 2025 revenue, included but not limited to Chevron, BPX Energy, EOG Resources Inc., Occidental Petroleum Corporation, Pioneer Energy Services Corp.; and (iii) oil and gas equipment manufacturers, which account for approximately 4% of 2025 revenue, including but not limited to Liberty Lift Solutions and National Oilwell Varco.

Conducting business with top tier customers requires world-class service quality, safety and auditable work processes. These operating requirements are contained in MSAs with our clients. Obtaining MSAs can be difficult and time-consuming. We believe this creates a barrier to entry for smaller, less competent providers and provides us an industry advantage.

Employees and Employee Safety

We have 432 employees and contractors, all of whom were full-time. Our workforce includes 40 sales professionals who are divided between city-sales and field-sales teams. Keeping our workforce safe and healthy is a key priority, and management is committed to ensuring our employees return home safely after each shift. In 2018, we implemented "Safety Now," a rigorous safety program that is part of DTI's Safe, Inspired, Productive incentive program ("SIP"). SIP has helped reduce our total recordable incident rate from 2.3

in 2018 to 0.81 in 2025, which is lower than the industry average. The success of SIP is necessary for us to do business with many of our customers, including Baker Hughes Company, EOG Resources Inc., Occidental Petroleum Corporation and SLB.

Properties

We operate from 15 locations in North America and maintain 11 international service and support centers in Europe, Middle East, and Asia-Pacific as shown below:

Government Regulation and Environmental, Health and Safety Measures

Our business is significantly affected by federal, state and local laws and other regulations. These regulations primarily impact the operation of our facilities. The laws and regulations relate to worker safety standards, the protection of the environment, and waste management, with respect to both fluids and solids.

Our internal environmental group monitors our compliance with applicable laws and regulations. We also engage third parties to review our compliance with such.

We cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings in the future. We also cannot predict whether additional laws and regulations will be adopted, including changes in regulatory oversight, increase of federal, state or local taxes, increase of inspection costs, or the effect such changes may have on us, our business or our financial condition.

Competition

We believe that there are a limited number of competitors in the oil and gas drilling rental tools industry. It is our view that we enjoy a competitive advantage with respect to these competitors due to our large relevant tool inventory, strong management team and significant scale.

Corporate Information

Our operations date to the founding of Directional Rentals, Inc. in 1984. Its name was changed to "Drilling Tools International, Inc." in 2014, and it is a wholly owned subsidiary of DTIH. As a result of the Merger, DTIH became a wholly owned subsidiary of ROC who then changed its name to "Drilling Tools International Corporation". Our website address is https://www.drillingtools.com. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC and is expressly not incorporated by reference into this document. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission ("SEC"). Alternatively, you may access these reports at the SEC's website at https://www.sec.gov.

Item 1A. Risk Factors.

Summary of Risk Factors

The following is a summary of the risk factors our business faces. The list below is not exhaustive, and investors should read this "Risk Factors" section in full.

Summary of Risk Factors Related to our Business

• Demand for our products and services depends on oil and gas industry activity and customer expenditure levels, which are directly affected by trends in the demand for, and price of, crude oil and natural gas as well as the availability of capital.

• Growth in U.S. drilling activity, and our ability to benefit from such growth, could be adversely affected by any significant constraints in equipment, labor or takeaway capacity in the regions in which we operate.

• We depend on a relatively small number of customers in a single industry. The loss of an important customer could adversely affect our business, results of operations and financial condition.

• We may be unable to employ a sufficient number of skilled and qualified workers to sustain or expand our current operations.

• Our business depends on the continuing services of certain of our key managers and employees.

• We are an emerging growth company and smaller reporting company and as such are subject to various risks unique only to emerging growth companies and smaller reporting companies, including but not limited to, no requirement to provide an assessment of the effectiveness of internal controls over financial reporting.

• The lack of availability of the tools we purchase to rent to our customers and inflation may increase our cost of operations beyond what we can recover through price increases.

• Delays in obtaining, or inability to obtain or renew, permits or authorizations by our customers for their operations could impair our business.

• Competition within the oil and gas drilling tool rental industry may adversely affect our ability to market our services.

• We may fail to fully execute, integrate, or realize the benefits expected from acquisitions, which may require significant management attention, disrupt our business and adversely affect our results of operations.

• New technology may cause us to become less competitive.

• We rent tools used in the drilling of oil and gas wells. This equipment may subject us to liability, including claims for personal injury, property damage and environmental contamination, or reputational harm if it fails to perform to specifications.

• Our operations, and those of our customers, are subject to hazards inherent in the oil and gas industry, which could expose us, and our customers, to substantial liability and cause us to lose substantial revenue.

• Oilfield anti-indemnity provisions enacted by many states may restrict or prohibit a party's indemnification of us.

• Political, regulatory, economic and social disruptions in the countries in which we conduct business could adversely affect our business or results of operations.

• A failure of our information technology infrastructure and cyberattack could adversely impact us.

• Our results of operations and financial condition could be negatively impacted by changes in accounting principles.

• Adverse and unusual weather conditions may affect our operations.

  Summary of Risk Factors Related to Legal and Regulatory Matters

• Our operations require us to comply with various domestic and international regulations, violations of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

• We are exposed to political, economic and other risks that arise from operating a multinational business.

• The imposition of new or increased international tariffs may have a material adverse effect on our business, financial condition and results of operations.

• Compliance with environmental laws and regulations may adversely affect our business and results of operations.

• Existing or future laws and regulations related to greenhouse gases and climate change and related public and governmental initiatives and additional compliance obligations could have a material adverse effect on our business, results of operations, prospects, and financial condition.

• If we are unable to fully protect our intellectual property rights or trade secrets, we may suffer a loss in revenue or any competitive advantage or market share we hold, or we may incur costs in litigation defending intellectual property rights.

• As a result of plans to expand our business operations, including to jurisdictions in which tax laws may not be favorable, our obligations may change or fluctuate, become significantly more complex or become subject to greater risk of examination by taxing authorities, any of which could adversely affect our after-tax profitability and financial results.

  Summary of Risk Factors Related to Ownership of the Common Stock

• If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor confidence in us and, as a result, the market price of the Common Stock.

• The market price of the Common Stock may be volatile, which could cause the value of your investment to decline.

• We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.

• As a public company, we will incur significant increased expenses and administrative burdens which could have an adverse effect on our business, financial condition and operating results.

• Our Second Amended and Restated Certificate of Incorporation of DTIC ("Certificate of Incorporation") designates specific courts as the exclusive forum for substantially all stockholder litigation matters, which could limit the ability of our Stockholders to obtain a favorable forum for disputes with us or our directors, officers or employees.

• Shareholder litigation and regulatory inquiries and investigations are expensive and could harm our business, financial condition and operating results and could divert management attention.

• Past performance by our management team may not be indicative of future performance of an investment in us.

• Sales of substantial amounts of Common Stock in the public markets, or the perception that such sales could occur, could reduce the price that the Common Stock might otherwise attain.

• We may issue additional shares of Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of your shares.

• We have access to a significant amount of cash and our management has broad discretion over the use of that cash. Our management may use the cash in ways that our Stockholders may not approve.

• Because there are no current plans to pay cash dividends on the Common Stock for the foreseeable future, you may not receive any return on investment unless you sell the Common Stock at a price greater than what you paid for it.

• Nasdaq Capital Market ("Nasdaq") may delist the Common Stock from trading, which could limit investors' ability to execute transactions in the Common Stock and subject us to additional trading restrictions.

• If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding the Common Stock adversely, the price and trading volume of the Common Stock could decline.

  Risks Related to Our Business

  Demand for our products and services depends on oil and gas industry activity and customer expenditure levels, which are directly affected by trends in the demand for, and price of, crude oil and natural gas as well as the availability of capital.

  Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions and the cumulative feet drilled, the level of well remediation activity, and the corresponding capital spending by oil and gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, current and anticipated oil and natural gas prices locally and worldwide. Historically, such prices have been volatile, and declines, whether actual or anticipated, thereof could negatively affect the level of oil and gas activity and related capital spending. Decreases in oil and gas activity and related capital spending could, in turn, adversely affect demand for our products and services and, in certain instances, result in the cancellation, modification or curtailing of demand for our services and the ability of our customers to pay us for our products and services. These factors could have an adverse effect on our business, results of operations, financial condition and cash flows.

  The oil and gas industry is cyclical and has historically experienced periodic downturns. These downturns have been characterized by diminished demand for our products and services and downward pressure on the prices we charge. These downturns generally cause many E&P companies to reduce their capital budgets and drilling activity. Any future downturn or expected downturn could result in a significant decline in demand for OFS and adversely affect our business, results of operations and cash flows.

  Customer expenditure levels could also drop if our customers face difficulty in accessing capital. If commodity prices drop, our customers may face liquidity constraints and the deterioration of their respective credit worthiness. Moreover, our customers may have limited viable financing alternatives in light of unfavorable lending and investment policies held by financial institutions associated with concerns about environmental impacts of the oil and gas industry or its products. Similarly, certain institutional investors have divested themselves of investments in this industry. If any of our customers experience any of these challenges, they may reduce spending, which could adversely affect our business, results of operations and cash flows.

  Growth in U.S. drilling activity, and our ability to benefit from such growth, could be adversely affected by any significant constraints in equipment, labor or takeaway capacity in the regions in which we operate.

  Growth in U.S. drilling activity may be impacted by, among other things, the availability and cost of drilling equipment, pipeline capacity, and material and labor shortages. Significant growth in drilling activity could strain availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market. Should significant constraints develop that materially impact the efficiency and economics of oil and gas producers, growth in U.S. drilling activity could be adversely affected. This would have an adverse impact on the demand for the products we sell and rent, which could have a material adverse effect on our business, results of operations and cash flows.

  We depend on a relatively small number of customers in a single industry. The loss of an important customer could adversely affect our business, results of operations and financial condition.

  Our customers are primarily diversified OFS companies and E&P operators. Historically, we have been dependent on a relatively small number of customers for our revenues. Our business, results of operations and financial condition could be materially adversely affected if an important customer ceases to engage us for our services on favorable terms, or at all, or fails to pay or delays paying us significant amounts of our outstanding receivables.

  We have operated under a first call supply agreement with one of our largest customer since 2013. We and this customer have agreed to multiple extensions of this agreement, the most recent of which extends the agreement through 2026. However, if we are unable to successfully negotiate extensions in the future, then our ability to do business with this customer may be greatly reduced. Moreover, the supply agreements that we have entered into with our other customers are also of limited duration and require periodic extensions. Similarly, a failure to agree to such extensions may hinder our ability to do business with these customers.

  Additionally, the E&P industry is characterized by frequent consolidation activity. Changes in ownership of our customers may result in the loss of, or reduction in, business from those customers. Moreover, customers may use their size and purchasing power to seek economies of scale and pricing concessions. Consolidation may also result in reduced capital spending by some of our customers, which may lead to a decreased demand for our services and equipment. We cannot assure you that we will be able to maintain our level of sales to a customer that has consolidated or replace that revenue with increased business activity with other customers. As a result, the acquisition of one or more of our primary customers may have a significant negative impact on our business, results of operations, financial condition or cash flows. We are unable to predict what effect consolidations in the industry may have on price, capital spending by our customers, our market share and selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.

  We may be unable to employ a sufficient number of skilled and qualified workers to sustain or expand our current operations.

  The delivery of our products and services requires personnel with specialized skills and experience. Our ability to be productive and profitable will depend upon our ability to attract and retain skilled workers. In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for skilled workers is high, and the cost to attract and retain qualified personnel has increased. During industry downturns, skilled workers may leave the industry, reducing the availability of qualified workers when conditions improve. In addition, a significant increase in the wages paid by competing employers both within and outside of our industry could result in increases in the wage rates that we must pay. Our expenes related to salary and wages continue to increase year over year, especially those expenses related to certain key oil and gas producing regions, as we sought to meet increasing customer demand. During the year ended December 31, 2025, we experienced similar increases. If we are not able to employ and retain skilled workers, our ability to respond quickly to customer demands or strong market conditions may inhibit our growth, which could have a material adverse effect on our business, results of operations and cash flows.

  Our business depends on the continuing services of certain of our key managers and employees.

  We depend on key personnel. The loss of key personnel could adversely impact our business if we are unable to implement our strategy and successfully manage our business in their absence. The loss of qualified employees or an inability to retain and motivate additional highly-skilled employees required for the operation and expansion of our business could hinder our ability to successfully maintain and expand our market share.

  Equity interests in us are a substantial portion of the net worth of our executive officers and several of our other senior managers. As a result, those executive officers and senior managers may have less incentive to remain employed by us if they were to sell their equity interests. After terminating their employment with us, some of them may become employed by our competitors.

  We are an emerging growth company and smaller reporting company and as such are subject to various risks unique only to emerging growth companies and smaller reporting companies.

  We are an "emerging growth company" as defined in the Jumpstart Out Business Startups Act of 2012 ("JOBS Act"). We will remain an emerging growth company until the earlier of (i) December 31, 2026, the last day of the fiscal year following the fifth anniversary of the date of the ROC initial public offering; (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable Securities and Exchange Commission ("SEC") rules.

  We expect that we will remain an emerging growth company for the foreseeable future but cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2026. References herein to "emerging growth company" have the meaning associated with it in the JOBS Act.

  For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;

• not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting;

• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board ("PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;

• reduced disclosure obligations regarding executive compensation; and

• not being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Additionally, as an emerging growth company and smaller reporting company our status as such carries various unique risks such as the risk that our financial statements may not be comparable to those of other public companies.

An emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public reporting companies.

We are also a "smaller reporting company" as defined in Rule 12b-2 of the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.

The lack of availability of the tools we purchase to rent to our customers and inflation may increase our cost of operations beyond what we can recover through price increases.

Our ability to source tools, such as drill collars, stabilizers, crossover subs, wellbore conditioning tools, drill pipe, hevi-wave drill pipe and tubing, at reasonable cost is critical to our ability to successfully compete. Among other things, international conflicts have caused steel and assembled components to increase in price. Our business and results of operations may be adversely affected by our inability to manage rising costs and the availability of the tools that we rent to our customers. Additionally, freight costs, specifically ocean freight costs, have risen significantly due to a number of factors including, but not limited to, a scarcity of shipping containers, congested seaports, a shortage of commercial drivers, capacity constraints on vessels or lockdowns in certain markets. We cannot assure you that we will be able to continue to purchase and move these tools on a timely basis or at commercially viable prices, nor can we be certain of the impact of changes to tariffs and future legislation that may impact trade with China or other countries. Should our current suppliers be unable to provide the necessary tools or otherwise fail to deliver such tools timely and in the quantities required, resulting delays in the provision of rentals to our customers could have a material adverse effect on our business, results of operations and cash flows.

The United States has recently experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services. The most noticeable adverse impact to our business has been increased freight, materials and vehicle-related costs as well as higher salaries and wages. To date, we do not believe that inflation has had a material impact on our financial condition or results of operations because we have been able to increase the prices we receive from our customers. We cannot be sure how long elevated inflation rates will continue. We cannot be confident that all costs will return to the lower levels experienced in prior years even as the rate of inflation abates. Our business and results of operations may be adversely affected by these rising costs to the extent we are unable to recoup them from our customers.

Delays in obtaining, or inability to obtain or renew, permits or authorizations by our customers for their operations could impair our business.

Our customers are required to obtain permits or authorizations from one or more governmental agencies or other third parties to perform drilling and completion activities, including hydraulic fracturing. Such permits or approvals are typically required by state agencies but can also be required by federal and local governmental agencies or other third parties. The requirements for such permits or authorizations vary depending on the location where such drilling and completion activities will be conducted. As with most permitting and authorization processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit or approval to be issued and the conditions which may be imposed in connection with the granting of the permit. In some jurisdictions, certain regulatory authorities have delayed or suspended the issuance of permits or authorizations while the potential environmental impacts associated with issuing such permits can be studied and appropriate mitigation measures evaluated.

In Texas, many rural water districts impose restrictions on water use and may require permits for water used in drilling and completion activities. In addition, in early January 2025, President Biden issued executive actions indefinitely banning new offshore oil and gas drilling across more than 625 million acres of federal waters, including the entire Atlantic and Pacific coastlines, the eastern Gulf of Mexico, and parts of Alaska's Northern Bering Sea. Upon taking office later in January 2025, President Trump signed executive orders reversing these bans. In February 2025, environmental groups filed lawsuits aiming to reinstate Biden's bans on new offshore oil and gas drilling. Currently, the Trump administration's reversal of the offshore drilling ban is in effect, but the outcome of the pending legal challenges could impact future policy and enforcement.

In January 2025, President Trump issued several executive orders with a stated aim toward increasing oil and gas development within the United States, with anticipated future regulatory activity including opening federal lands to oil and gas leasing (with particular focus on resources in Alaska) and expediting permitting for oil and gas projects in the United States. While certain of the Trump administration's actions in early 2025 indicate a clear regulatory shift in favor of oil and gas production in the United States, significant additional regulatory action is required to enact these changes. Additionally, such regulatory actions may be challenged, which could result in implementation delays or a need to take further regulatory action. Additionally, even if these regulatory actions are successful, individual permitting and leasing actions may be challenged, creating additional uncertainty.

Competition within the oil and gas drilling tool rental industry may adversely affect our ability to market our services.

The oil and gas drilling tool rental tool industry is highly competitive and fragmented. The number of rental tool companies active in a given market may exceed the corresponding demand therefor, which could result in active price competition. Some oil and gas drilling companies prioritize rental prices when choosing to contract with a rental tool company, which may further increase competition based primarily on price. In addition, adverse market conditions lower demand for drilling equipment, which results in excess equipment and lower utilization rates. If market conditions in our operating areas deteriorate from current levels or if adverse market conditions persist, the prices we are able to charge and utilization rates may decline. Moreover, our customers may choose to purchase some or all of the tools that they typically rent from us, thereby reducing the volume of business that we conduct with such customers. Any significant future increase in overall market capacity for the rental equipment or services that we offer could adversely affect our business, results of operations and cash flows.

We may fail to fully execute, integrate, or realize the benefits expected from acquisitions, which may require significant management attention, disrupt our business and adversely affect our results of operations.

As part of our business strategy and to remain competitive, we continually evaluate acquiring or making investments in complementary companies, products or technologies. We may not be able to find suitable acquisition candidates or complete such acquisitions on favorable terms. We may incur significant expenses, divert employee and management time and attention from other business-related tasks and our organic strategy and incur other unanticipated complications while engaging with potential target companies where no transaction is eventually completed.

If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or expected growth, and any acquisitions we complete could be viewed negatively by our customers, or we could experience unexpected competition from market participants. Any integration process may require significant time and resources. We may not be able to manage the process successfully and may experience a decline in our profitability as we incur expenses prior to fully realizing the benefits of the acquisition. We could also expend significant cash and incur acquisition related costs and other unanticipated liabilities associated with the acquisition, the product or the technology, such as contractual obligations, potential security vulnerabilities of the acquired company and its products and services and potential intellectual property infringement. In addition, any acquired technology or

product may not comply with legal or regulatory requirements and may expose us to regulatory risk and require us to make additional investments to make them compliant.

We may not successfully evaluate or utilize the acquired technology or personnel or accurately forecast the financial impact of an acquisition transaction, including accounting charges and tax liabilities. We could become subject to legal claims following an acquisition or fail to accurately forecast the potential impact of any claims. Any of these issues could have a material adverse impact on our business and results of operations.

New technology may cause us to become less competitive.

New technology that enhances the functionality, performance reliability and design of downhole drilling tools currently on the market may become prevalent in the OFS industry. We may face difficulty obtaining these new tools for the purpose of renting them to our customers. Although we believe our fleet of rental equipment currently gives us a competitive advantage, if competitors develop fleets that are more technically advanced than ours, we may lose market share or be placed at a competitive disadvantage. Further, we may face competitive pressure to acquire certain new tools at a substantial cost. Some of our competitors have greater financial, technical and personnel resources that may allow them to enjoy various competitive advantages in the acquisition of new tools. We cannot be certain that we will be able to continue to acquire new tools or convert our existing tools to meet new performance requirements. Such an inability may have a material adverse effect on our business, results of operations and cash flows, including a reduction in the value of assets, and the rates that may be charged for their rental.

We rent tools used in the drilling of oil and gas wells. This equipment may subject us to liability, including claims for personal injury, property damage and environmental contamination, or reputational harm if it fails to perform to specifications.

We rent tools used in oil and gas exploration, development and production. Some of these tools are designed to operate in high-temperature and/or high-pressure environments, and some tools are designed for use in hydraulic fracturing operations. Because of applications to which our tools are exposed, particularly those involving high pressure environments, a failure of such tools, or a failure of our customers to maintain or operate the tools properly, could cause damage to the tools, damage to the property of customers and others, personal injury and environmental contamination and could lead to a variety of claims against us or reputational harm that could have an adverse effect on our business, results of operations and cash flows.

We indemnify our customers against certain claims and liabilities resulting or arising from our provision of goods or services to them. In addition, we rely on customer indemnifications, generally, and third-party insurance as part of our risk mitigation strategy.

However, our insurance may not be adequate to cover our liabilities. In addition, our customers may be unable to satisfy indemnification claims against them. Further, insurance companies may refuse to honor their policies, or insurance may not generally be available in the future, or if available, premiums may not be commercially justifiable. We could incur substantial liabilities and damages that are either not covered by insurance or that are in excess of policy limits, or incur liability at a time when we are not able to obtain liability insurance. Such potential liabilities could have a material adverse effect on our business, results of operations and cash flows.

Our operations, and those of our customers, are subject to hazards inherent in the oil and gas industry, which could expose us, and our customers, to substantial liability and cause us to lose substantial revenue.

Risks inherent in our industry include the risks of equipment defects, installation errors, the presence of multiple contractors at the wellsite over which we have no control, vehicle accidents, fires, explosions, blowouts, surface cratering, uncontrollable flows of gas or well fluids, pipe or pipeline failures, abnormally pressured formations and various environmental hazards such as oil spills and releases of, and exposure to, hazardous substances. For example, our operations are subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. Both we and our customers are subject to these risks.

The occurrence of these events could result in substantial losses to us or to our customers due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties, suspension of operations and repairs required to resume operations. The cost of managing such risks may be significant. The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators.