Q3 2024 Innovex International Inc Earnings Call

November 8, 2024

Speaker Change: [music].

Unknown Executive: Good morning and welcome to InnoVEX's third quarter 2024 earnings call. At this time all participants are on a listen only mode and there will be a question and answer opportunity at the end of this call. As a reminder, this call is being recorded.

Good morning, I'm welcome to <unk> third quarter 2024 earnings call.

At this time, all participants are on a listen only mode.

And there'll be a question and answer opportunity at the end of this call.

As a reminder, this call is being recorded.

Erin Fazio: At this time, I would like to turn the call over to Erin Fazio, Investor Relations. Thank you and good morning. We appreciate you joining us on today's call.

Speaker Change: At this time I would like to turn the call over to Erin Fazio Investor Relations Ma'am. Please go ahead.

Erin Fazio: Thank you, and good morning. We appreciate you joining us on today's call. An updated investor presentation has been posted under the Investors tab on the company's website, along with the earnings press release. This call is being recorded and a replay will be made available on the company's website following the call. Before we begin, I'd like to remind you that Innovex's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause Innovex's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the Q3 2024 financial and operational results announcement we released yesterday for a discussion of forward-looking statements and reconciliation of non-GAAP measures. Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer, and Kendal Reed, Chief Financial Officer.

Erin Fazio: Thank you and good morning, we appreciate you joining us on today's call and updated investor presentation have been posted under the investors tab on the Companys website, along with the earnings press release.

Erin Fazio: An updated investor presentation has been posted under the Investors tab on the company's website, along with the earnings press release. This call is being recorded and a review will be made available on the company's website following the call.

This call is being recorded and a replay will be made available on the company's website following the call.

Unknown Executive: Before we begin, I would like to remind you that ineffective comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause NFX's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements.

Erin Fazio: Before we begin I would like to remind you that these comments may include forward looking statements and discuss non-GAAP financial measures.

It should be noted that a variety of factors could cause Indianapolis actual results to differ materially from the anticipated results or expectations expressed in these forward looking statements.

Unknown Executive: Please refer to the 3rd Quarter 2024 Financial and Operational Results Announcement we released yesterday for a discussion of forward-looking statements and reconciliation of non-GAAP measures.

Erin Fazio: Please refer to the third quarter 2024 financial and operational results announcement would be released yesterday for a discussion of forward looking statements that installation.

Erin Fazio: Sure.

Unknown Executive: Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer, and Kendal Reed, Chief Financial Officer.

Speaker Change: Speaking on the call today from any of that we had out of Anderson, Chief Executive Officer, and cannot read Chief Financial Officer, I would now like to turn the call over to Adam Anderson.

Adam Anderson: I would now like to turn the call over to Adam Anderson. Thanks Erin.

Erin Fazio: I would now like to turn the call over to Adam Anderson.

Adam Anderson: Thanks, Erin. Welcome to our inaugural earnings call at Innovex International. On 6 September, Innovex Downhole Solutions closed on the merger with Dril-Quip, and the combined company is now trading on the New York Stock Exchange under the ticker INVX. On today's call, we will introduce you to the new Innovex, discuss the current quarter performance, and provide an outlook on our plans going forward. Before we dive into these details, however, we want to spend some time introducing you to the Innovex platform and our approach. Our vision is to create a unique energy platform, a leader in well-centric products and technologies with a focus on driving exceptional value and service to our customers and exceptional absolute returns for our shareholders. Since Innovex's inception in 2016, we have generated strong financial returns, not just relative to traditional energy service companies, but returns superior to the S&P 500.

Adam Anderson: Thanks, Erin and welcome to our inaugural earnings call as <unk> International and.

Adam Anderson: Welcome to our Inaugural Earnings Call at InnoVEX International. On September 6, Innovex Downhole Solutions closed on the merger with Dril-Quip, and the combined company is now trading on the New York Stock Exchange under the ticker INVX. On today's call, we will introduce you to the new InnoVEX, discuss the current quarter performance, and provide an outlook on our plans going forward.

Adam Anderson: September six <unk> downhole solutions closed on the merger with drove it and the combined company is now trading on the New York stock exchange under the ticker INV X.

Adam Anderson: On today's call, we will introduce you to the new and Opex discuss the current quarter performance and provide an outlook on our plans going forward before we dive into these details. However, we want to spend some time, introducing you to the <unk> platform and our approach.

Adam Anderson: Before we dive into these details, however, we want to spend some time introducing you to the InnoVEX platform and our approach. Our vision is to create a unique energy platform, a leader in well centric products and technologies with a focus on driving exceptional value and service to our customers and exceptional absolute returns for our shareholders. Since Inovex's inception in 2016, we have generated strong financial returns, not just relative to traditional energy service companies, but returns superior to the S&P 500. To achieve these returns, we have curated a portfolio of what we call small-ticket, big-impact, single-use products.

Adam Anderson: Our vision is to create a unique energy platform a leader in well centric products and technologies with a focus on driving exceptional value and service to our customers and exceptional absolute returns for our shareholders.

Since <unk> inception in 2016, we have generated strong financial returns not just relative to your traditional energy service companies, but return superior to the S&P 500.

Adam Anderson: To achieve these returns, we have curated a portfolio of what we call small ticket, big impact, single-use products, employing a capital-light business model. We create differentiation and customer loyalty through our unique No Barriers culture. Let me take each one of these in turn. Our portfolio has been curated to focus primarily on consumable or single-use products. Most of our revenues come from products that are consumed in the process of drilling, completing, and producing oil and gas. We're focused on small ticket, big impact products that are highly engineered to our customers' requirements and are critical to efficient operations. However, they represent a small proportion of the overall well cost. For these mission-critical products, reliability and service quality are the primary driver of purchase intent, not pricing. Our business is capital-light by design.

Adam Anderson: To achieve these returns we have curated a portfolio of what we call small ticket big impact single use products employing our capital light business model.

Adam Anderson: Employing a Capital Light Business Model.

Adam Anderson: We create differentiation and customer loyalty through our unique no barriers Let me take each one of these in turn. Our portfolio has been curated to focus primarily on consumable or single-use products. Most of our revenues come from products that are consumed in the process of drilling, completing, and producing oil and gas. focused on small-ticket, big-impact products that are highly engineered to our customers' requirements and are critical to efficient operations. However, they represent a small proportion of the overall well cost. These mission critical products, reliability and service quality are the primary driver of purchase intent, not price.

Adam Anderson: We create differentiation and customer loyalty through our unique no barriers culture, let.

Adam Anderson: Let me take each one of these in turn.

Adam Anderson: Our portfolio has been curated to focus primarily on consumable or single use products. Most of our revenues come from products that are consumed in the process of drilling completing and producing oil and gas.

Adam Anderson: We focused on small ticket big impact products that are highly engineered to our customers' requirements and are critical to efficient operations. However, they represent a small proportion of the overall well cost.

Adam Anderson: These mission critical products reliability and service quality are the primary driver of purchase intent not pricing.

Adam Anderson: Our business is capitalized by design. Given the consumable nature of our product portfolio and a focus on a lean operating model, InnoVEX requires a negligible amount of CapEx, 3% of revenue or less, to sustain and grow our business. Consequently, under normal business conditions, we convert 50-60% of our EBITDA into free cash flow. High free cash flow drives our reinvestment flywheel, allowing us to fund organic and inorganic investment opportunities.

Adam Anderson: Our business is capital light by design.

Adam Anderson: Given the consumable nature of our product portfolio and a focus on a lean operating model, Innovex requires a negligible amount of CapEx, 3% of revenue or less, to sustain and grow our business. Consequently, under normal business conditions, we convert 50% to 60% of our EBITDA into free cash flow. High free cash flow drives our reinvestment flywheel, allowing us to fund organic and inorganic investment opportunities that target returns on invested capital in excess of 20%. To drive innovation and organic growth, our No Barriers culture is paramount. No Barriers means eliminating all barriers within Innovex as well as between Innovex and our customers. We minimize the layers between management and the people in the field doing the actual work to ensure our team can respond more adeptly to our customers' needs. No Barriers is not just a catchphrase, it is how we do business.

Adam Anderson: Given the consumable nature of our product portfolio and a focus on a lean operating model <unk> requires a negligible amount of capex, 3% of revenue or less to sustain and grow our business.

Adam Anderson: Consequently under normal business conditions, we convert $50 to 60% of our EBITDA into free cash flow.

Adam Anderson: High free cash flow drives our reinvestment flywheel, allowing us to fund organic and inorganic investment opportunities the target returns on invested capital in excess of 20%.

Adam Anderson: The target returns on invested capital in excess of 20%. To drive innovation and organic growth, our No Barriers culture is paramount. No barriers means eliminating all barriers within Innovex, as well as between Innovex and our customers. We minimize the layers between management and the people in the field doing the actual work to ensure our team can respond more adeptly to our customers. No barriers is not just a catchphrase, it is how we do business.

Adam Anderson: To drive innovation and organic growth are no barriers culture is paramount.

Adam Anderson: No barriers means eliminating all barriers within N of X as well as between <unk> and our customers we.

Adam Anderson: We minimize the layers between management and the people in the field doing the actual work to ensure our team can respond more definitely to our customers' needs.

Adam Anderson: No barriers as not just a catch phrase it is how we do business, we design organizations to be lean Wow and bureaucratic.

Adam Anderson: We designed organizations to be lean, flat, and unbureaucratic. It's important to me that we both, one, keep our overhead costs low, and two, maintain a highly responsive organization where bottoms-up decision-making is centered around taking care of our customers. We empower employees to focus on our customer needs and rapidly respond with radical transparency. We listen to our customers, admit our mistakes, and use those mistakes to deepen our relationship and trust with clients.

Adam Anderson: We design organizations to be lean, flat, and unbureaucratic. It's important to me that we, both, one, keep our overhead costs low, and two, maintain a highly responsive organization where bottoms-up decision making is centered around taking care of our customers. We empower our employees to focus on our customer needs and rapidly respond with radical transparency. We listen to our customers, admit our mistakes, and use those mistakes to deepen our relationship and trust with clients. We have consistently and organically grown our market share through innovation and excellent service. A recent example of this was in the Delaware Basin, when a major operator in the basin was experiencing a challenge with the capabilities of the liner hanger system they were using as they transitioned to longer and more challenging laterals.

Adam Anderson: It is important to me that we both one keep our overhead costs low and to maintain a highly responsive organization, where bottoms up decision, making is centered around taking care of our customers.

We empower our employees to focus on our customer needs and rapidly respond with radical transparency.

Adam Anderson: We listen to our customers' admit our mistakes and use those mistakes to deepen our relationship and trust with clients.

Adam Anderson: We have consistently and organically grown our market share through innovation and excellent service. A recent example of this was in the Delaware Basin, when a major operator in the basin was experiencing a challenge with the capabilities of the liner hanger system they were using as they transitioned to longer and more challenging laterals. We were able to solve this technical challenge nearly six months earlier in the incumbent supplier, and as a result, significantly grew our market share in this strategic product.

Adam Anderson: We have consistently and organically grown our market share through innovation and excellent service.

Adam Anderson: A recent example of this was in the Delaware Basin when a major operator in the basin was experiencing a challenge with the capabilities of the liner hanger system, they were using as they transition to longer and more challenging laterals.

Adam Anderson: We were able to solve this technical challenge nearly 6 months earlier than the incumbent supplier. As a result, significantly grew our market share in this strategic product. One of the best examples of our culture driving market share growth is in the US land cementing tool market, where we have grown our market share from 5% in 2018 to 30% today. Similarly, in Saudi Arabia, we have established ourselves as an innovator for a variety of downhole consumable products. From a standing start a decade ago, we have over 30 products qualified and did roughly $60 million of revenue in the last 12 months. I am excited to see how the new Innovex can leverage our combined strengths to drive additional market share capture. We've already seen some early success on this front that I'll describe in a minute.

Adam Anderson: We were able to solve this technical challenge nearly six months earlier than the incumbent supplier and as a result significantly grew our market share in this strategic product.

Adam Anderson: One of the best examples of our culture-driving market share growth is in the U.S. land cementing tool market, where we have grown our market share from 5% in 2018 to 30% today.

Adam Anderson: One of the best examples of our culture driving market share growth is in the U S land cementing to a market, where we have grown our market share from 5% in 2018% to 30% today.

Adam Anderson: Similarly, in Saudi Arabia, we have established ourselves as an innovator for a variety of downhole consumable products. From a standing start a decade ago, we have over 30 products qualified and did roughly $60 million of revenue in the last 12 months.

Similarly in Saudi Arabia, we have established ourselves as an innovator for a variety of downhole consumable products from a standing start a decade ago. We have over 30 products qualified ended roughly $60 million of revenue in the last 12 months.

Adam Anderson: I am excited to see how the new NFX can leverage our combined strengths to drive additional market share capture. And we have already seen some early success on this front that I'll describe in a minute.

Adam Anderson: I am excited to see how the new <unk> can leverage our combined strengths to drive additional market share capture.

Adam Anderson: And we've already seen some early success on this front that I'll describe in a minute.

Adam Anderson: We consider our financial results to be the true measure of our success. Since inception, we have grown revenues per share at a 22% CAGR, a rate far better than our peers and four times faster than the S&P 500. We look at our revenue per share because we do acquire and divest of businesses over time. We are not looking to get bigger, but rather more valuable. Our margins have been consistently high over time, including during COVID, a testament to our resiliency and ability to adapt quickly. Finally, while Innovex has generated exceptional per share growth, produced consistently high margins, and required low capital intensity, we have also generated excellent return on capital, averaging 17% over the last six years, 300 basis points better than the S&P 500 and far superior to almost any other company in our space. We consider ourselves to be a high-quality industrial platform.

We consider our financial results to be the true measure of our success.

Adam Anderson: Since inception, we have grown revenues per share at a 22% CAGR rate far better than our peers and four times faster than the S&P 500.

Adam Anderson: We look at our revenue per share because we do acquire and divest of businesses over time, we're not looking to get bigger, but rather more valuable.

Adam Anderson: We're not looking to get bigger, but rather more value. Our margins have been consistently high over time, including during COVID, a testament to our resiliency and ability to adapt quickly. Finally, while Innovex has generated exceptional per share growth, produced consistently high margins, and required low capital intensity, we have also generated excellent return on capital.

Adam Anderson: Our margins have been consistently high overtime, including during Covid, a testament to our resiliency and ability to adapt quickly.

Adam Anderson: Finally, while <unk> has generated exceptional per share growth produce consistently high margins and required low capital intensity. We have also generated excellent return on capital.

Adam Anderson: Averaging 17% over the last six 300 basis points better than the S&P 500 and far superior to almost any other company in our space. We consider ourselves to be a high quality industrial platform.

Adam Anderson: Averaging 17% over the last six years 300 basis points better than the S&P 500, and far superior to almost any other company in our space.

We consider ourselves to be a high quality industrial platform.

Adam Anderson: What do we mean by platform? In addition to our organic growth, we can successfully fold in disciplined acquisitions by leveraging our no barrier culture, our global distribution network, our customer relationships, and a capital like business.

Adam Anderson: What do we mean by platform? In addition to our organic growth, we can successfully fold in disciplined acquisitions by leveraging our No Barriers culture, our global distribution network, our customer relationships, and a capital-light business model. When we look at inorganic growth, we look for very specific criteria. It must fit our small ticket, big impact value proposition and have an opportunity for the combined entity to be better together to ultimately generate exceptional gross margins, consistent EBITDA margins, and high free cash flow. We drive organic growth of acquired companies through customer-focused innovation and access to a broader distribution network. We are not aggregating EBITDA. We will get bigger over time, only as we get better. In a time when our industry is generally struggling for investor relevancy, we believe that the best way to be relevant is to be highly profitable.

Adam Anderson: What do we mean by platform.

Adam Anderson: In addition to our organic growth, we can successfully folding disciplined acquisitions by leveraging our no barrier culture.

Adam Anderson: Our global distribution network, our customer relationships and a capital light business model.

Adam Anderson: When we look at inorganic growth, we look for very specific criteria. It must fit our small ticket, big impact value proposition and have an opportunity for the combined entity to be better together to ultimately generate exceptional gross margins, consistent EBITDA margins and high free cash flow. We drive organic growth of acquired companies through customer focused innovation and access to a broader distribution.

When we look at inorganic growth, we look for very specific criteria. It must fit our small ticket big impact value proposition and have an opportunity for the combined entity to be better together to ultimately generate exceptional gross margins consistent EBITDA margins and high free cash flow.

Adam Anderson: We drive organic growth of acquired companies through customer focused innovation and access to a broader distribution network. We are not aggregating EBITDA, we will get bigger over time, but only as we get better.

Adam Anderson: We are not aggregating EBITDA. We will get bigger over time, but only as we get better.

Adam Anderson: In a time when our industry is generally struggling for investor relevancy, we believe that the best way to be relevant is to be highly profitable. As we execute this inorganic strategy, maintaining a strong, conservative balance sheet and keeping leverage less than one times EBITDA is a priority.

Adam Anderson: In a time when our industry is generally struggling for investor Relevancy, we believe that the best way to be relevant is to be highly profitable.

Adam Anderson: As we execute this inorganic strategy, maintaining a strong, conservative balance sheet and keeping leverage less than 1x EBITDA is a priority. Innovex has a history of acquiring and successfully integrating numerous companies over the years. We have a wonderful team of people, a defined operating model, and a No Barriers culture that enables this success. I was originally attracted to Dril-Quip given the strength of both their team and technology. Since closing the transaction, I have gotten to know the people and products even better, and my enthusiasm for the potential of the new Innovex is only growing. What Dril-Quip brings to the combined company is incredibly difficult to replicate, particularly in the high-performance offshore and international markets in which the company historically operated.

Adam Anderson: As we execute this inorganic strategy, maintaining a strong conservative balance sheet and keeping leverage less than one times EBITDA is a priority.

Adam Anderson: NFX has a history of acquiring and successfully integrating numerous companies over the years. We have a wonderful team of people, a defined operating model, and a no-barriers culture that enables this success. I was originally attracted to Dril-Quip given the strength of both their team and technology. And since closing the transaction, I have gotten to know the people and products even better, and my enthusiasm for the potential of the new InnoVEX has only grown.

Adam Anderson: <unk> has a history of acquiring and successfully integrating numerous companies over the years.

Adam Anderson: We have a wonderful team of people a defined operating model and have no barriers culture that enables the success.

Speaker Change: I was originally attracted to drill quipped, given the strength of both their team and technology and since closing the transaction.

Speaker Change: Gotten to know the people and products, even better and my enthusiasm for the potential of the new <unk> is only growing.

Adam Anderson: What Dril-Quip brings to the combined company is incredibly difficult to replicate, particularly in the high performance offshore and international markets in which the company historically operates. There is a definitive moat around the Dril-Quip business due to the high barrier to entry and high cost of change for our customers. Highly engineered 20,000 PSI deepwater subsea wellheads and large bore expandable liner hangers are the definitive big impact small ticket products and I love that about the Dril-Quip business.

Speaker Change: With brokerage brings to the combined company is incredibly difficult to replicate particularly in the high performance offshore and international markets in which the company historically operated.

Adam Anderson: There is a definitive moat around the Dril-Quip business due to the high barrier to entry and high cost to change for our customers. Highly engineered 20,000 PSI deepwater subsea wellheads and large bore expandable liner hangers are the definitive big impact, small ticket products, and I love that about the Dril-Quip business. What was apparent to us during the early stages of our conversation with Dril-Quip, and what has only become more obvious after the merger, is that the operating model was inadequate to serve customers and generate sufficient returns. Infrastructure from a pre-2014 vertically integrated world and a set of priorities that focused on following a process for the sake of process rather than serving the customer hindered both growth and financial performance. As we apply a No Barriers approach to these challenges, there is an enormous opportunity for the company, our employees, and our customers.

Speaker Change: There is a definitive moat around the <unk> quip business due to the high barrier to entry and high cost of change for our customers.

Speaker Change: Highly engineered 20000 Psi deepwater subsea wellheads and large bore expandable liner hangers are the definitive big impact small ticket products and I love that about the <unk> business.

Adam Anderson: What was apparent to us during the early stages of our conversation with Dril-Quip and what has only become more obvious after the merger is that the operating model was inadequate to serve customers and generate sufficient returns. Infrastructure from a pre-2014 vertically integrated world and a set of priorities that focused on following a process for the sake of process rather than serving the customer hindered both growth and financial performance.

Speaker Change: What was apparent to us during the early stages of our conversation withdrew equip antibody has only become more obvious. After the merger is that the operating model was inadequate to serve customers and generate sufficient returns in.

Speaker Change: Infrastructure from our pre 2014 vertically integrated world and a set of priorities that focused on following a process for the sake of process rather than serving the customer hindered both growth and financial performance.

Adam Anderson: As we apply a no barriers approach to these challenges, there is an enormous opportunity for the company, our employees, and our customers. We will recenter the organization around fulfilling our commitments to our customers and driving cash flow and return. Once transformed, this business will have a significantly enhanced bond with its customers.

Speaker Change: As we apply and no barriers approach to these challenges there is an enormous opportunity for the company our employees and our customers.

Adam Anderson: We will recenter the organization around fulfilling our commitments to our customers and driving cash flow and returns. Once transformed, this business will have a significantly enhanced bond with its customers. This process will not be simple, and it may be choppy. There will be a short-term impact on the business results. In evaluating the combined business accounting policies, we believe it most prudent to shift how revenue is being recognized in the subsea wellhead franchise. Historically, Dril-Quip has adhered to a percentage of completion accounting method, recognizing revenue in increments as the manufacturing process is completed. Although this process has some merit, we believe it is more appropriate and beneficial to convert to a point-in-time method, which, among other impacts, will change the priorities of the entire organization. Instead of prioritizing work that optimizes revenue recognition, we will prioritize work that satisfies our customers and prioritizes cash flow.

Speaker Change: We will recenter the organization around fulfilling our commitments to our customers and driving cash flow and returns.

Speaker Change: Once transformed this business will have a significantly enhanced bond with its customers.

Adam Anderson: This process will not be simple, and it may be choppy. There will be a short-term impact on the business results.

Speaker Change: This process will not be simple and it may be choppy there will be a short term impact on the business results.

Adam Anderson: In evaluating the combined business accounting policies, we believe it most prudent to shift how revenue is being recognized in the subsea wellhead franchise. Historically, Dril-Quip has adhered to a percentage of completion accounting method, recognizing revenue in increments as the manufacturing process is completed. Although this process has some merit, we believe it is more appropriate and beneficial to convert to a point in time.

Speaker Change: In evaluating the combined business accounting policies, we believe it most prudent to shift how revenue is being recognized in the subsea wellhead franchise.

Historically <unk> has adhere to a percentage of completion accounting method wrecking recognizing revenue in increments as the manufacturing process is completed.

Speaker Change: Although this process has some merit, we believe it is more appropriate and beneficial to convert to a point in time method.

Adam Anderson: which among other impacts will change the priorities of the entire organization. Instead of prioritizing work that optimizes revenue recognition, we will prioritize work that satisfies our customers and prioritizes cash This is one example of many we will employ to optimize process, improve deliveries, and generate cash flow.

Speaker Change: We have demand and other impacts will change the priorities of the entire organization.

Speaker Change: Instead of prioritizing work that Optimizes revenue recognition, we will prioritize work that satisfies our customers and prioritizes cash flow.

Adam Anderson: This is one example of many we will employ to optimize process, improve deliveries, and generate cash flow. However, in the short term, it will lead to some lumpiness in results and may delay when revenue is recognized versus the historical periods. It is critical that customers can trust in the commitments we make to them. This pertains to both quality and timeliness. Dril-Quip has a phenomenal record of delivering the best-in-class subsea wellheads, as well as many other products. However, on-time delivery of subsea products has been just 25%, which compares to Innovex's on-time delivery at 90% to 95%. This performance has weighed on Dril-Quip's market share, margins, and free cash flow, but this is fixable. We have a well-worn playbook that suggests it's not only fixable, but we believe will transform the financial results of the business by attacking this aggressively. Some history is helpful here.

Speaker Change: This is one example of many we will employ to optimize process improved deliveries and generate cash flow.

Adam Anderson: However, in the short term, it will lead to some lumpiness in results and may delay when revenue is recognized versus the historical period. It is critical that customers can trust in the commitments we make. This pertains to both quality and time. Dril-Quip has a phenomenal record of delivering the best-in-class subsea wellheads, as well as many other products.

Speaker Change: However, in the short term it will lead to some lumpiness in our results and May delay when revenue is recognized versus the historical periods.

It is critical that customers can trust and the commitments, we make to them. This pertains to both the quality and timeliness broke up has a phenomenal record of delivering the best in class subsea wellheads as many as well as many other products.

Adam Anderson: However, on-time delivery of subsea products has been just 25%, which compares to Innovex's on-time delivery of 90% to 95%. This performance has weighed on Dril-Quip's market share, margins, and free cash flow, but this is fixable.

Speaker Change: However on time delivery of subsea products has been just 25%, which compares to <unk> on time delivery at 90% to 95%.

Speaker Change: This performance is weighed on <unk> market share margins and free cash flow, but this is fixable.

Adam Anderson: We have a well-worn playbook that suggests it's not only fixable, but we believe will transform the financial results of the business by attacking this aggressive market.

Speaker Change: We have a well worn playbook that suggests it's not only fixable, but we believe will transform the financial results of the business by attacking this aggressively.

Adam Anderson: Some history is helpful here. When Inovex acquired Rubicon in 2021, one of the iconic product lines we acquired was Logan Fishing. where we design, manufacture, and sell an array of fishing tools. At the time of that acquisition, on-time delivery and gross margins were similarly low, which created numerous problems for our customers as well as for ourselves.

Speaker Change: Some history is helpful here.

Adam Anderson: When Innovex acquired Rubicon in 2021, one of the iconic product lines we acquired was Logan Fishing Tools, where we design, manufacture, and sell an array of fishing tools. At the time of that acquisition, on-time delivery and gross margins were similarly low, which created numerous problems for our customers as well as for ourselves. It took some time, but over a year or two, we were able to radically transform the supply chain to achieve 90% to 95% on-time delivery, which helped increase gross margins to exceptional levels, driving strong returns on our invested capital. In addition to the opportunities I just discussed, there's a significant potential to grow revenue by leveraging the strength of the combined portfolio. Innovex has long provided cementing tools in the US Gulf of Mexico, often on wells with a Dril-Quip wellhead.

Speaker Change: <unk> acquired Rubicon in 2021, one of the iconic product lines, we acquired was Logan efficient tools, where we design manufacture and sell an array of fishing tools.

Speaker Change: At the time of that acquisition on time delivery and gross margins were similarly, low which created numerous problems for our customers as well as for ourselves.

Adam Anderson: It took some time, but over a year or two, we were able to radically transform the supply chain to achieve 90 to 95 percent on-time delivery, which helped increase gross margins to exceptional levels, driving strong returns on our investors.

Speaker Change: It took some time, but over a year or two we were able to radically transform the supply chain to achieve 90% to 95% on time delivery, which helped increase gross margins to exceptional levels driving strong returns on our invested capital.

Adam Anderson: In addition to the opportunities I just discussed, there's a significant potential to grow revenue by leveraging the strength of the combined portfolio. Inovex has long provided cementing tools in the U.S. Gulf of Mexico. Offered on wells with a Dril-Quip wellhead.

In addition to the opportunities I just discussed there is a significant potential to grow revenue by leveraging the strength of the combined portfolio.

Speaker Change: <unk> has long provided cementing tools in the U S Gulf of Mexico.

Speaker Change: Offered on wells with a drill quip wellhead.

Adam Anderson: However, we have had a limited market share in the International Deepwater. In the combined organization will benefit from the opportunity to provide the whole array of casing mounted products from the wellhead to the toe of the well. Significantly enhanced by Dril-Quip's strong market share outside the U.S. Gulf of Mexico.

Adam Anderson: However, we've had a limited market share in the international deepwater market, and the combined organization will benefit from the opportunity to provide the whole array of casing-mounted products from the wellhead to the toe of the well, significantly enhanced by Dril-Quip's strong market share outside the US Gulf of Mexico. The wellhead is typically the first well-centric consumable product procured for deepwater wells, and that early visibility will give us a significant advantage on offering a combined package well ahead of our competition. Similarly, when we look at North America, our geographic footprint is significantly expanded in the new Innovex.

Speaker Change: However, we have had a limited market share in the international deepwater market.

In the combined organization will benefit from the opportunity to provide a whole array of casing mounted products from the wellhead to the tour the world <unk>.

Speaker Change: <unk> enhanced by drove strong market share outside the U S Gulf of Mexico.

Adam Anderson: The wellhead is typically the first well-centric, consumable product procured for deepwater wells, and that early visibility will give us a significant advantage on offering a combined package well ahead of our competition. Similarly, when we look at North America, our geographic footprint is significantly expanded in the new InnoVEX. Historically, we were very underweight Canada, but going forward, we can now leverage off Dril-Quip, strengthen this market to pull through many of our legacy products. We've already seen success in this area, with early wins leveraging the combined footprint to sell conventional liner hangers in Brazil and Mexico, as well as being awarded a project with a large IOC in the Gulf of Mexico to provide centralization solutions in combination with an 18 by 22 inch big bore liner hanger.

Speaker Change: The wellhead is typically the first well centric consumable product procured for deepwater wells in that early visibility will give us a significant advantage on offering a combined package well ahead of our competition.

Speaker Change: Similarly, when we look at North America, our geographic footprint has significantly expanded in the new <unk>. Historically, we were very underweight, Canada, but going forward. We can now leverage off drove could strengthen this market to pull through many of our legacy products.

Adam Anderson: Historically, we were very underweight Canada. Going forward, we can now leverage off Dril-Quip's strength in this market to pull through many of our legacy products. We've already seen success in this area, with early wins leveraging the combined footprint to sell conventional liner hangers in Brazil and Mexico, as well as being awarded a project with a large IOC in the Gulf of Mexico to provide centralization solutions in combination with an 18 by 22-inch big bore liner hanger. This has occurred in just a few weeks since closing. We believe these examples can be replicated many times over. We have the ability and the will to transform the new Innovex into something truly unique and valuable for the benefit of our employees, our customers, and our shareholders. I will now hand the call to Kendal Reed to discuss Q3 results and our outlook for Q4.

Speaker Change: We've already seen success in this area with early wins, leveraging the combined footprint to sell conventional liner hangers in Brazil, and Mexico as well as being awarded a project with a large IOC in the Gulf of Mexico to provide centralization solutions in combination with an 18 by 'twenty two inch Big Board liner hanger and.

Adam Anderson: And this has occurred in just a few weeks since closing.

Speaker Change: This has occurred in just a few weeks since closing.

Adam Anderson: We believe these examples can be replicated many times over.

Speaker Change: We believe these examples can be replicated many times over.

Adam Anderson: We have the ability and the will to transform the new InnoVEX into something truly unique and valuable for the benefit of our employees, our customers, and our shareholders.

Speaker Change: We have the ability and the will to transform the new and effects into something truly unique and valuable to the benefit of our employees our customers and our shareholders.

Adam Anderson: I will now hand the call over to Kendal to discuss Q3 results and our outlook for Q4. Thanks, Adam.

Speaker Change: I'll now hand, the call over to Kindle to discuss Q3 results and our outlook for Q4.

Kendal Reed: Thanks, Adam. Before I discuss the Q3 results, I want to review a few housekeeping items on the accounting side that investors should be aware of when reviewing the results and forming forward-looking views. First, while legacy Dril-Quip was the legal acquirer of legacy Innovex, we determined that legacy Innovex would be the accounting acquirer in this transaction. What that means is that the Q3 results are a full Q3 of legacy Innovex plus 6 September through 30 September of legacy Dril-Quip results. Comparative periods reflected in our financials show legacy Innovex results excluding legacy Dril-Quip. Additionally, we have decided to conform several accounting policies during this combination. As Adam mentioned, the most significant of these is the decision to cease utilization of the percentage of completion revenue recognition methodology for our subsea wellhead franchise, shifting instead to point-in-time revenue recognition.

Kindle: Thanks, Adam.

Kendal Reed: Before I discuss the Q3 results, I want to review a few housekeeping items on the accounting side that investors should be aware of when reviewing the results and forming forward looking First, while Legacy Dril-Quip was the legal acquirer of Legacy Innovex, we determined that Legacy Innovex would be the accounting acquirer in this transaction. What that means is that the third quarter results are a full third quarter of Legacy Innovex plus September 6th through September 30th of Legacy Dril-Quip results. Comparative periods reflected in our financials show legacy Innovex results excluding legacy Dril-Quip. Additionally, we have decided to conform several accounting policies during this combination.

Kindle: Before I discuss the Q3 results I want to review a few housekeeping items on the accounting side that investors should be aware of when reviewing the results in forming forward looking views.

Kindle: First while legacy drilled quick was the legal acquirer of legacy <unk>, we determined that legacy <unk> would be the accounting acquirer in this transaction.

Kindle: What that means is that the third quarter results are a full third quarter of legacy <unk> plus September six through September 30th of legacy drill clip results.

Kindle: Comparative periods reflected in our financials show legacy <unk> results, excluding legacy droplet.

Kindle: Additionally, we have decided to conform several accounting policies. During this combination as Adam mentioned the most significant of these is the decision to cease utilization of the percentage of completion revenue recognition methodology for our subsea wellhead franchise shifting instead, you point in time revenue recognition.

Kendal Reed: As Adam mentioned, the most significant of these is the decision to cease utilization of the percentage of completion revenue recognition methodology for our subseed wellhead franchise, shifting instead to point-in-time revenue recognition. As a result, as part of the purchase price accounting exercise, we reverse the revenue recognized to date for any wellhead that has not yet been delivered to a customer.

Kendal Reed: As a result, as part of the purchase price accounting exercise, we reversed the revenue recognized to date for any wellhead that has not yet been delivered to a customer. From a segmentation perspective, we have one reporting segment, Innovex International. Adam spoke earlier and at length about the metrics by which we judge our performance, margins and ROCE. In our view, those only matter at a consolidated level. If we aren't hitting those as Innovex International, then we aren't succeeding. While we certainly have talented leaders regionally and at a product line level, Adam and I are laser-focused on delivering a high-performing total entity to our shareholders. Finally, due to the equity value of legacy Dril-Quip on the closing date of the merger relative to the fair value of the assets acquired, we recorded a bargain purchase gain of approximately $93 million during Q3.

Kindle: As a result as part of the purchase price accounting exercise, we reverse the revenue recognized to date for any wellhead that has not yet been delivered to a customer.

Kendal Reed: From a segmentation perspective, we have one reporting segment, Innovex International. Adam spoke earlier and at length about the metrics by which we judge our performance, margins and ROCE. In our view, those only matter at a consolidated level. If we aren't hitting those as Innovex International, then we aren't successful.

Kindle: From a segmentation perspective, we have one reporting segment <unk> internationally.

Kindle: Adam spoke earlier and at length about the metrics by which we judge our performance margins and our oce in our view those only matter at a consolidated level, if we arent hitting those as <unk> International then we arent succeed.

Kendal Reed: While we certainly have talented leaders regionally and at a product line level, Adam and I are laser-focused on delivering a high-performing total entity to our shareholders. Finally, due to the equity value of Legacy Dril-Quip on the closing date of the merger, relative to the fair value of the assets acquired, we recorded a bargain purchase gain of approximately $93 million during Q3.

While we certainly have talented leaders regionally and at a product line level, Adam and I are laser focused on delivering a high performing total entity to our shareholders.

Finally, due to the equity value of legacy drove grip on the closing date of the merger relative to the fair value of the assets acquired we recorded a bargain purchase gain of approximately $93 million during Q3.

Kendal Reed: This gain is not factored into any of our key operating Moving on to results for the court. Third quarter revenue is $152 million, an increase of 9% year-over-year and 17% sequentially, primarily driven by the merger with Dril-Quip. We evaluate our revenue geographically by separating our shorter cycle onshore U.S. and Canadian operations, which we refer to as NAM, from our longer cycle international and offshore operations, which include the U.S. Gulf of Mexico. Excluding the impact of the merger, we were very pleased with the resilience of our NAM revenue, which increased by approximately 13% sequentially, despite a 3% decline in the U.S.

Kendal Reed: This gain is not factored into any of our key operating metrics. Moving on to results for the quarter. Third quarter revenue was $152 million, an increase of 9% year over year and 17% sequentially, primarily driven by the merger with Dril-Quip. We evaluate our revenue geographically by separating our shorter cycle onshore US and Canadian operations, which we refer to as NAM, from our longer cycle international and offshore operations, which include the US Gulf of Mexico. Excluding the impact of the merger, we were very pleased with the resilience of our NAM revenue, which increased by approximately 13% sequentially despite a 3% decline in the US land rig count over that same time period. This demonstrates the ability of our team in North America to adapt to challenging market conditions and grow market share.

This gain is not factored into any of our key operating metrics.

Moving on to results for the quarter.

Kindle: Third quarter revenue was $152 million, an increase of 9% year over year, and 17% sequentially, primarily driven by the merger with droplet.

Kindle: We evaluate our revenue geographically by separating our shorter cycle onshore U S and Canadian operations, which we refer to as Nam from our longer cycle International and offshore operations, which include the U S Gulf of Mexico.

Kindle: Excluding the impact of the merger we were very pleased with the resilience of our NAND revenue, which increased by approximately 13% sequentially. Despite a 3% decline in the U S land rig count over that same time period.

Kendal Reed: land rig count over that same time. This demonstrates the ability of our team in North America to adapt to challenging market conditions and grow market share.

Kindle: This demonstrates the ability of our team in North America to adapt to challenging market conditions and grow market share we expect to see some slowdown in Nam revenue during Q4, but overall remained very pleased with our position in this market.

Kendal Reed: We expect to see some slowdown in NAM revenue during Q4, but overall remain very pleased with our position in the market. Our international and offshore revenue grew 4% sequentially on an as-reported basis, with the incremental revenue from the Dril-Quip merger being mostly offset by a decline of 26% in the legacy NFX business following an extremely strong quarter in Q2 2024, driven by record deliveries of deepwater centralizers into the Gulf of Mexico, which did not recur in Q3. On a pro-forma basis, including a full quarter of Dril-Quip activity, international and offshore markets would have represented approximately 51% of our revenue in Q3.

Kendal Reed: We expect to see some slowdown in NAM revenue during Q4, but overall remain very pleased with our position in this market. Our international and offshore revenue grew 4% sequentially on an as-reported basis, with the incremental revenue from the Dril-Quip merger being mostly offset by a decline of 26% in the legacy Innovex business following an extremely strong quarter in Q2 2024, driven by record deliveries of deepwater centralizers into the Gulf of Mexico, which did not recur in Q3. On a pro forma basis, including a full quarter of Dril-Quip activity, international and offshore markets would have represented approximately 51% of our revenue in Q3. That compares to approximately 35% of revenue for legacy Innovex over the last 12 months. We believe the combination with Dril-Quip significantly strengthens our international and offshore position and will allow us to drive market share gains over the long term.

Kindle: Our international and offshore revenue grew 4% sequentially on an as reported basis with the incremental revenue from the <unk> merger being mostly offset by a decline of 26% and the legacy <unk> business. Following an extremely strong quarter in Q2, 2024, driven by record deliveries of deepwater centralized <unk> into the Gulf of Mexico, which.

Not recur in Q3.

Kindle: On a pro forma basis, including a full quarter of drop of activity International and offshore markets would have represented approximately 51% of our revenue in Q3.

Kendal Reed: That compares to approximately 35% of revenue for legacy Innovex over the last 12 months.

Kindle: That compares to approximately 35% of revenue for legacy <unk> over the last 12 months we.

Kendal Reed: We believe the combination with Dril-Quip significantly strengthens our international and offshore position and will allow us to drive market share gains over the long term. Turning to costs and expenses, our Q3 cost of sales, exclusive of depreciation and amortization, increased by $15 million sequentially, primarily driven by the addition of legacy Dril-Quip results. Selling general and administrative expenses increased $19 million sequentially due to the addition of legacy Dril-Quip results, as well as a significant one-time increase in stock-based compensation of approximately $10 million related to the equity vesting in connection with the merger transaction. Please note that the SG&A line item in our financials includes legacy Dril-Quip's engineering costs that were previously reported separately, but excludes acquisition costs, which are reported as a separate line item.

Kindle: We believe the combination with <unk> significantly strengthens our international and offshore position and will allow us to drive market share gains over the long term.

Kendal Reed: Turning to costs and expenses, our Q3 cost of sales, exclusive of depreciation and amortization, increased by $15 million sequentially, primarily driven by the addition of legacy Dril-Quip results. Selling, general, and administrative expenses increased $19 million sequentially due to the addition of legacy Dril-Quip results, as well as a significant one-time increase in stock-based compensation of approximately $10 million related to the equity vesting in connection with the merger transaction. Please note that the SG&A line item in our financials includes legacy Dril-Quip's engineering costs that were previously reported separately, but excludes acquisition costs, which are reported as a separate line item. Adjusted EBITDA for Q3 of 2024 was $27.4 million, a decrease of $2.1 million sequentially and $5.8 million year over year.

Turning to costs and expenses, our Q3 cost of sales exclusive of depreciation and amortization increased by $15 million sequentially, primarily driven by the addition of legacy drilled clip results <unk>.

Kindle: General and administrative expenses increased $19 million sequentially due to the addition of legacy drove good results as well as a significant onetime increase in stock based compensation of approximately $10 million related to the equity vesting in connection with the merger transaction.

Please note that the SG&A line item in our financials includes legacy drove clips engineering costs that were previously reported separately, but excludes acquisition costs, which are reported as a separate line item.

Kendal Reed: Adjusted EBITDA for the third quarter of 2024 was $27.4 million, a decrease of $2.1 million sequentially and $5.8 million year-over-year. I'm also very pleased to note that as of today, we have achieved our full year one cost synergy target of $15 million in annualized savings. While we still have plenty of work to do to decrease costs and improve margins, starting in Q4, we should begin to see the benefit of merger synergies in our cost structure. Free cash flow for the third quarter of 2024 was $20.1 million, a sequential decrease of $0.8 million and down $6.4 million compared to the third quarter of 2023, primarily due to investment banking fees, legal expenses, and other acquisition-related costs from the Dril-Quip market.

Kindle: Adjusted EBITDA for the third quarter of 2024 was $27 4 million, a decrease of $2 $1 million sequentially and $5 $8 million year over year.

Kendal Reed: I'm also very pleased to note that as of today, we have achieved our full year 1 cost synergy target of $15 million in annualized savings. While we still have plenty of work to do to decrease costs and improve margins, starting in Q4, we should begin to see the benefit of merger synergies in our cost structure. Free cash flow for Q3 2024 was $20.1 million, a sequential decrease of $0.8 million and down $6.4 million compared to Q3 2023, primarily due to investment banking fees, legal expenses, and other acquisition-related costs from the Dril-Quip merger. CapEx in Q3 2024 were $1.7 million, representing approximately 1.1% of revenue, consistent with our capital-light business model. Our balance sheet continues to be strong, with ending net cash equivalents of approximately $100 million at quarter end.

Kindle: I am also very pleased to note that as of today, we have achieved our full year, one cost synergy target of $15 million in annualized savings, while we still have plenty of work to do to decrease costs and improve margins. Starting in Q4, we should begin to see the benefit of merger synergies and our cost structure.

Free cash flow for the third quarter of 2024 was $20 1 million a sequential decrease of <unk> 8 million and down $6 4 million compared to the third quarter of 2023, primarily due to investment banking fees legal expenses and other acquisition related costs from the droplet merger.

Kendal Reed: Capital expenditures in the third quarter of 2024 were $1.7 million, representing approximately 1.1% of revenue consistent with our capital life business. Our balance sheet continues to be strong with ending net cash and equivalents of approximately $100 million at quarter end. Our return on capital employed or ROCE for the 12 months ended September 30, 2024 was 9%. This is low relative to both legacy Innovex performance, as well as our long-term expectations. Driven by a large increase in capital employed as a result of the Dril-Quip merger without any corresponding increase in operating income, as the benefits of the merger will start to be realized in Q4.

Kindle: Capital expenditures in the third quarter of 2024 were $1 $7 million, representing approximately one 1% of revenue consistent with our capital light business model.

Kindle: Our balance sheet continues to be strong with ending net cash and equivalents of approximately $100 million at quarter ends.

Kendal Reed: Our return on capital employed, or ROCE, for the 12 months ended 30 September 2024, was 9%. This is low relative to both legacy Innovex performance as well as our long-term expectations. Driven by a large increase in capital employed as a result of the Dril-Quip merger without any corresponding increase in operating income, as the benefits of the merger will start to be realized in Q4. As Adam mentioned, we've averaged high teens ROCE over the past six years and believe that this is an achievable long-term target for the combined Innovex Dril-Quip business. Turning to our guidance for Q4 2024, we expect adjusted EBITDA of $35 to $40 million on revenues of $220 to $230 million, which assumes a generally flat activity levels in Q4 relative to Q3.

Kindle: Our return on capital employed our oce for the 12 months ended September 32024 was 9%.

Kindle: This is low relative to both legacy index performance as well as our long term expectations.

Kindle: Driven by a large increase in capital employed as a result of the droplet merger without any corresponding increase in operating income as the benefits of the merger we will start to be realized in Q4.

Kendal Reed: As Adam mentioned, we've averaged high teens ROCE over the past six years and believe that this is an achievable long-term target for the combined Inovec-Dril-Quip.

As Adam mentioned, we've averaged high teens or oce over the past six years and believe that this is an achievable long term target for the combined in a extra business.

Kendal Reed: Turning to our guidance for the fourth quarter of 2024, we expect adjusted EBITDA of $35 to $40 million on revenues of $220 to $230 million, which assumes a generally flat activity levels in Q4 relative to Q3. Our Q4 guidance reflects continued strong execution for the legacy NFX business, the partial impact of our $15 million in achieved annualized synergies, lower anticipated revenues for the legacy Dril-Quip business resulting from the adoption of point-in-time accounting standards, and expected expenses related to the ongoing merger integration. We expect to see tangible progress towards our long-term vision for margins in 2025.

Kindle: Turning to our guidance for the fourth quarter of 2024, we expect adjusted EBITDA of $35 million to $40 million on revenues of $220 million to $230 million, which assumes that generally flat activity levels in Q4 relative to Q3.

Kendal Reed: Our Q4 guidance reflects continued strong execution for the legacy Innovex business, the partial impact of our $50 million in achieved annualized synergies, lower anticipated revenues for the legacy Dril-Quip business resulting from the adoption of point-in-time accounting standards, and expected expenses related to the ongoing merger integration. We expect to see tangible progress towards our long-term vision for margins in 2025. Finally, I'd like to take a moment to discuss our approach to capital allocation. Due to the high margin, capital-light nature of our business model, we're able to consistently fund our maintenance and growth capital needs through internally generated cash flow. We also have a counter-cyclical cash flow profile, which allows us to continually invest in R&D through industry down cycles and to pursue opportunistic, transformative acquisitions at low points in the market, which often drive the largest value creation.

Kindle: Our Q4 guidance reflects continued strong execution for the legacy <unk> business, the partial impact of our $50 million and achieved annualized synergies lower anticipated revenues for the legacy drilled clip business, resulting from the adoption of point in time accounting standards unexpected expenses related to the ongoing merger integration we expect.

Kindle: To see tangible progress towards our long term vision for margins in 2025.

Kendal Reed: Finally, I'd like to take a moment to discuss our approach to capital allocation. Due to the high margin capital light nature of our business model, we're able to consistently fund our maintenance and growth capital needs through internally generated cash flow. We also have a counter cyclical cash flow profile, which allows us to continually invest in R&D through industry down cycles and to pursue opportunistic transformative acquisitions at low points in the market, which often drive the largest value creation. As a result, we believe industry cyclicality is a feature, not a bug, of our business model. At all points in the cycle, we seek to leverage our platforms to successfully grow through acquisitions, provided they meet the criteria of our discipline framework.

Kindle: Finally, I'd like to take a moment to discuss our approach to capital allocation.

Kindle: Due to the high margin capital light nature of our business model, we were able to consistently fund our maintenance and growth capital needs through internally generated cash flow.

Kindle: We also have a counter cyclical cash flow profile, which allows us to continually invest in R&D through industry down cycles and to pursue opportunistic transformative acquisitions at low points in the market, which often drive the largest value creation.

Kendal Reed: As a result, we believe industry cyclicality is a feature, not a bug, of our business model. At all points in the cycle, we seek to leverage our platform to successfully grow through acquisitions, provided they meet the criteria of our discipline framework. We believe the current environment is the best we've seen in a long time for accretive acquisitions, and therefore adding to our portfolio remains our top priority for capital deployment. This view is driven by cyclical and structural factors as well as active deal flow. Between 2010 and 2017, over $175 billion of private equity was raised in energy-focused funds. This contrasts to $low single-digit billions raised per annum on average in recent years. Many of these pre-2017 funds need exits, and we've seen increased deal flow from sponsors in the past 18 months.

As a result, we believe the industry cyclicality is a feature not a bug of our business model.

Kindle: At all points in the cycle, we seek to leverage our platform to successfully grow through acquisitions provided they meet the criteria of our disciplined framework.

Kendal Reed: We believe the current environment is the best we've seen in a long time for accretive acquisitions, and therefore adding to our portfolio remains our top priority for capital deployment. This view is driven by cyclical and structural factors, as well as active yield flow. Between 2010 and 2017, over $175 billion of private equity was raised in energy-focused funds. This contrasts to low single digits raised, billions raised per annum on average in recent years.

Kindle: We believe the current environment is the best we've seen in a long time for accretive acquisitions, and therefore, adding to our portfolio remains our top priority for capital deployment.

Kindle: This view is driven by cyclical and structural factors as well as active deal flow.

Kindle: Between 2010, and 2017 over $175 billion of private equity was raised in energy focused funds.

Kindle: This contrasts to low single digits raised billions raised per annum on average in recent years.

Kendal Reed: Many of these pre-2017 funds need exits, and we have seen increased deal flow from sponsors in the past 18 months. In addition, we currently own 20% of a business called Downhole Well Solutions, or DWS, with a pre-negotiated framework to acquire the remaining 80% on attractive Since acquiring our 20% interest in DWS, they've grown into a leading player in the U.S. market, and we've helped them grow internationally. We are pleased with this investment and the opportunity it provides for accretive near-term growth.

Kindle: Many of these <unk> 2017 funds need exits and we've seen increased deal flow from sponsors in the past 18 months in.

Kendal Reed: In addition, we currently own 20% of a business called Downhole Well Solutions, or DWS, with a pre-negotiated framework to acquire the remaining 80% on attractive terms. Since acquiring our 20% interest in DWS, they've grown into a leading player in the US market, and we've helped them grow internationally. We are pleased with this investment and the opportunity it provides for accretive near-term growth. In addition, we see multiple other opportunities to acquire product-driven businesses that fit well with our platform at valuations that we believe will generate superior returns for our investors. In short, we see many attractive uses for our capital and believe we will be able to take advantage of this generational opportunity in the energy space.

Kindle: In addition, we currently own 20% of our business called Downhole, well solutions for dws with a pre negotiated framework to acquire the remaining 80% on attractive terms.

Kindle: Since acquiring our 20% interest in dws, they've grown into a leading player in the U S market and we have helped them grow internationally we.

Kindle: We are pleased with this investment and the opportunity it provides for accretive near term growth in.

Kendal Reed: In addition, we see multiple other opportunities to acquire product-driven businesses that fit well with our platform at valuations that we believe will generate superior returns for our investors. In short, we see many attractive uses for our capital and believe we will be able to take advantage of this generational opportunity in the energy sector.

Kindle: In addition, we see multiple other opportunities to acquire product driven businesses that fit well with our platform at valuations that we believe will generate superior returns for our investors.

Kindle: In short we see many attractive uses for our capital and believe we will be able to take advantage of this generational opportunity in the energy space.

Kendal Reed: That having been said, we operate in a very dynamic market, and as things change, we continually evaluate the best use of our capital and will pivot to returning cash to shareholders when the time is right.

Kindle: That having been said we operate in a very dynamic market and as things change we continually evaluate the best use of our capital and we'll pivot to returning cash to shareholders. When the time is right.

Unknown Executive: We'd now like to open the line for any questions. Operator? Thank you.

Speaker Change: We'd now like to open the line for any questions operator.

Operator: Thank you. At this time, we'll be conducting our question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pause for questions. Thank you. Our first question is coming from David Smith with Pickering Energy. Your line is live.

Thank you at this time, we will be conducting our question and answer session.

Unknown Executive: At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions.

Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please while we poll for questions.

Unknown Executive: Thank you.

Speaker Change: Thank you.

David Smith: Our first question is coming from David Smith with Pickering Energy, your line is live. Hey, good morning, and thank you for taking my question.

Speaker Change: First question is coming from David Smith with Pickering Energy Your line is live.

David Smith: Hey, good morning, thank you for taking my questions.

David Smith: Hey, good morning, and thank you for taking my questions.

Unknown Executive: Good morning, Dave.

Kendal Reed: Good morning, Dave.

Good morning, Dave.

Adam Anderson: Adam, Kendal, I hope it's not too early to ask this, but I'm curious for your thoughts on the optimal capital structure for the business, because I never understood the rationale for Legacy Dril-Quip's heavy net cash and zero debt approach. Yeah, thanks, Dave. It's an important question. So as you know, we operate in a very cyclical industry. So we view it as critical to maintain a conservative balance sheet at all times. And that's not only to protect the business from a defensive standpoint, but also because having the balance sheet strength to lean in through down cycles allows us to take advantage of opportunities for transformative acquisitions that really wouldn't be available at other points in the cycle.

David Smith: Adam Kendal, I hope it's not too early to ask this, curious for your thoughts on the optimal capital structure for the business. I never understood the rationale for legacy Dril-Quip's heavy net cash and maintaining that approach.

David Smith: Adam Tindle I hope, it's not too early to ask this but I'm curious to your thoughts on the optimal capital structure for the business.

David Smith: Because I never understood the rationale for the legacy <unk> heavy Nat gas.

David Smith: Yes.

Kendal Reed: Yeah, thanks, Dave. It's an important question. As you know, we operate in a very cyclical industry, so we view it as critical to maintain a conservative balance sheet at all times. That's not only to protect the business from a defensive standpoint, but also because having the balance sheet strength to lean in through down cycles allows us to take advantage of opportunities for transformative acquisitions that really wouldn't be available at other points in the cycle. The Rubicon acquisition we closed in early 2021 is a great example of that. Those opportunistic acquisitions are where we've been able to create the most value throughout the history of Innovex, so we think it's really important to maintain that flexibility. That being said, we're also highly focused on maximizing return on capital, as we mentioned during the call.

Speaker Change: Yes, Thanks, Dave It's an important question. So as you know we operate in a very cyclical industry. So we view it is critical to maintain a conservative balance sheet at all times and Thats not only to protect the business from a defensive standpoint, but also because having the balance sheet strength to lean into through down cycles allows us to take advantage of opportunities for transformative.

Speaker Change: Acquisitions that really wouldn't be available at other points in the cycle. The Rubicon acquisition. We closed in early 2021 is a great example of that and.

Adam Anderson: The Rubicon acquisition we closed in early 2021 is a great example of that. Those opportunistic acquisitions are where we've been able to create the most value throughout the history of InnoVEX. So we think it's really important to maintain that flexibility. You know, that being said, we're also highly focused on maximizing return on capital, as we mentioned during the call. So we understand that maintaining a large net cash balance over the long run is inefficient. Given our countercyclical cash flow profile, we're comfortable maintaining some leverage. And we view leverage in the zero to one times net debt to LPM EBITDA range as being optimal for our business.

Speaker Change: Those opportunistic acquisitions or where we've been able to create the most value throughout the history of <unk>. So we think it's really important to maintain that flexibility.

Speaker Change: That being said were also highly focused on maximizing return on capital as we mentioned during the call. So we understand that maintaining a large net cash balance over the long run is inefficient.

Kendal Reed: We understand that maintaining a large net cash balance over the long run is inefficient. Given our counter-cyclical cash flow profile, we're comfortable maintaining some leverage, and we view leverage in the 0 to 1x net debt to LTM EBITDA range as being optimal for our business.

Given our countercyclical cash flow profile, we're comfortable maintaining some leverage and we deleverage in the zero to one times net debt to LTM EBITDA range as being optimal for our business.

Unknown Executive: That was great, Culler. Thank you.

David Smith: That's great color. Thank you. I did want to circle back to the international and offshore product revenue. Kendal, I appreciate your comments about the sequential decline from the strong legacy Innovex Q2 revenue. I did want to ask if there was some impact for the segment from the change in accounting on the subsea wellheads, and if you're able to quantify that?

Speaker Change: That's great color. Thank you.

Unknown Executive: I did want to circle back to the International and Offshore Product Revenue. Kendal, I appreciate your comments about the sequential decline from the strong legacy NFX Q2 revenue.

Speaker Change: I did want to circle back to the international and offshore product revenue.

Speaker Change: I appreciate your comments about Paul.

Speaker Change: <unk> declined from the strong legacy and of ex Q2 revenue.

Kendal Reed: I did want to ask if there was an impact for the segment from the change in accounting on the subsea wellheads, and if you're able to quantify that. Yeah, so I think quantifying the impact on Q3 is a little bit difficult. I will tell you, we reversed approximately $60 million of revenue through the purchase price accounting exercise, again, largely related to that subsidy products business that we'd expect to be realized over the next 12 to 18 months as those products are completed and delivered to customers. So no doubt there was some impact on Q3.

I just wanted to ask if there was an impact for this segment from the change in accounting on the.

Speaker Change: The subsea wellheads.

Speaker Change: And if youre able to quantify that.

Kendal Reed: Yes, I think quantifying the impact on Q3 is a little bit difficult. I will tell you, we reversed approximately $60 million of revenue through the purchase price accounting exercise, again, largely related to that Subsea products business that we'd expect to be realized over the next 12 to 18 months as those products are completed and delivered to customers.

Speaker Change: Yes, so I think quantifying the impact on Q3 is a little bit difficult I will tell you we reversed approximately $60 million of revenue through the purchase price accounting exercise again largely related to that subsea products business that we would expect to be realized over the next 12 months to 18 months as those products are completed and delivered.

Speaker Change: To customers.

Adam Anderson: No doubt there was some impact on Q3. I think maybe just to give you a bit more color, on a pro forma basis, if you included Dril-Quip for the entire quarter, international offshore revenue would've been about $119 million, approximately 51% of pro forma revenue for the quarter.

Speaker Change: So no doubt there was some impact on Q3, I think maybe just to give you a bit more color on a pro forma basis.

Kendal Reed: I think maybe just to give you a bit more color, on a pro forma basis, if you included Dril-Quip for the entire quarter, international offshore revenue would have been about $119 million, approximately 51% of pro forma revenue. That's a great call. Thank you.

Speaker Change: You included drill quit for the entire quarter International offshore revenue would have been about $119 million approximately 51% of pro forma revenue for the quarter.

David Smith: That was great color. Thank you. I can stick with my two or sneak one more in if you'll let me.

Speaker Change: That's great color. Thank you.

Unknown Executive: I can stick with my two or sneak one more in if you'll let me. We'd like to do one more. I appreciate it.

Speaker Change: I can stick with my theory sneak one more in if your allotment.

Adam Anderson: Would like to do one more.

Well, let's do one more.

David Smith: I appreciate it. I do like your prepared comments about the M&A opportunities. I did want to ask, just given how the 2025 outlook has fared back in North America and internationally, wanted to ask for any color that you might be seeing in seller expectations.

Speaker Change: I appreciate it.

Adam Anderson: I do like the prepared comments about the M&A opportunities that I did want to ask, you know, just Given how the 25 outlook is pared back in North America and internationally, I wanted to ask for any color that you might be seeing and seller expectations. Yeah, Dave, this is Adam. So we've been, we've seen as exciting, let's say funnel of opportunities, as we've seen the last eight years that we've been doing this, where you have really great companies that have a good fit with strong margins, really good returns, and that there's a natural logical fit where we think we can help each other out.

Speaker Change: I do like that.

Speaker Change: Your prepared comments about the M&A opportunities that I did want to ask.

Speaker Change: Given how the 25 outlook is paired back in North America and internationally.

Speaker Change: Wanted to ask for any color that you might be missing.

Speaker Change: And seller expectations.

Adam Anderson: Yeah. Hey, Dave, this is Adam. We've seen as exciting a, let's say, funnel of opportunities as we've seen the last eight years that we've been doing this, where you have really great companies that have a good fit with us, strong margins, really good returns, and that there's a natural, logical fit where we think we can help each other out. We continue to see a pretty robust pipeline of those opportunities, and it's very much a buyer's market in that space. Those businesses are continuing to perform. Some of them, as an example, the DWS business that we own 20% of, has continued to outperform this year in spite of the weakness in the market. Those kinds of businesses like DWS that can be up in the current environment, you can get more excited about the potential for those businesses.

Adam Anderson: Yes, Dave this is Adam.

So we've been we've seen as exciting, let's say funnel of opportunities as we've seen in the last eight years that we've been doing this where you have really great companies that have a good fit with our strong margins really good returns and that Theres, a natural logical fit where we think we can help each other out so we continue to see a pretty robust.

Adam Anderson: So we continue to see a pretty robust pipeline of those opportunities. And it's very much a buyer's market in that in that space. So those businesses, that are continuing to perform, some of them, as example, the DWS business that we own 20% of, has continued to outperform this year, in spite of the weakness in the market. So those kinds of businesses like DWS, that can be up in the current environment, you kind of get even, you can get more excited about the potential for those businesses. So yeah, I think there's reason to be cautious on activity.

Adam Anderson: Pipeline of those opportunities.

Adam Anderson: And it's very much a buyer's market in that in that space. So those businesses that are continuing to perform some of this some of them. As example, the gws business that we own 20% of has has continued to outperform this year in spite of the weakness in the market. So those kinds of businesses like dws that can be up and.

Adam Anderson: The current environment, you kind of get even you can get more excited about the potential for those businesses. So yes, I think theres reason to be cautious on activity.

Adam Anderson: Yeah, I think there's reason to be, let's say, cautious on activity. I think our view is activity from here is probably likely to be flattish on North America land, and that that's a pretty good opportunity to find a deal that works for both buyer and sellers, where we can add some great businesses to our platform.

Unknown Executive: But I think our view is activity from here is probably likely to be flattish.

Adam Anderson: Our view is activity from here is probably likely to be flattish on North America land and Thats, a pretty good opportunities to find a deal that works for both buyer and sellers, where we can add some great businesses to our platform.

Unknown Executive: On North America land, and that that's a pretty good opportunity to find a deal that works for both buyer and sellers where we can add some great businesses to our to our platform.

Unknown Executive: Great, thank you very much. I'll save the rest for offline.

David Smith: Great. Thank you very much. I'll save the rest for offline.

Speaker Change: Alright, Thank you very much.

Speaker Change: I'll take the rest offline.

Unknown Executive: Thanks, Ted. Thank you.

Adam Anderson: Thanks, Dave.

Speaker Change: Thanks Pat.

Operator: Thank you. Our next question is coming from James West with Evercore ISI. Your line is live.

Speaker Change: Thanks Keith.

James West: Our next question is coming from James West. with Evercore ISI. Your line is live.

Speaker Change: Our next question is coming from James West.

James West: With Evercore ISI.

Your line is light.

Unknown Executive: Hey, good morning, Adam, Kendal, and congratulations on the inaugural conference call. Thanks, Dan. Thanks for joining. Absolutely.

James West: Hey, good morning, Adam, Kendal. Congratulations on the inaugural Powerstock.

Speaker Change: Hey, good morning, Adam Kendall and graduations on the inaugural conference call.

Adam Anderson: Thanks, Dan. Thanks for joining us.

Speaker Change: Thanks, Dan and thanks for joining us.

James West: Absolutely. I'd love to hear, Adam or Kendal, about some of the kind of early wins as you've closed this deal, where you've been able to combine the product sales and if you could talk about how the wellhead business plus your downhole business, the purchasers on the customer side, how they interact with you. If they're the same person, different groups, how that whole process works. I think it's been a little bit unclear, I think, to investors, at least in the early stages.

Adam Anderson: I'd love to hear, Adam or Kendal, about some of the kind of early wins as you've closed this deal, where you've been able to, you know, combine, you know, the product sales, and if you could talk about how the, you know, the wellhead business plus your downhole business, how, you know, the purchasers on the customer side, how they interact with you, if they're the same person, different groups, how the whole process works. I think it's been a little bit unclear, I think, to investors, at least in the early stages. Yeah, I think that's a great question.

Speaker Change: Absolutely.

Speaker Change: Good to hear.

Speaker Change: I'm not going to about some of the kind of early wins as you close this deal.

Speaker Change: Where <unk> been able to combine the product sales and if you could talk about how the.

Speaker Change: The wellhead business plus your your downhole business.

Speaker Change: How the purchasers on the customer side and how they interact with you. After the same person different groups, how that whole process work. So I think it's been a little bit.

Speaker Change: Unclear I think to investors at least in the early stages.

Speaker Change: Okay.

Adam Anderson: Yeah, I think that's a great question, because I would admit, I think this is one of those topics that's misunderstood by investors. Maybe I'll start with the end of your question. If you look at that deep water market, both the legacy Innovex business and the legacy Dril-Quip business, we sell products to the exact same person, typically the drilling engineer in these deep water markets, be it in the US or Brazil, Guyana, and other markets. There is a kind of natural cross-sale opportunity. As I referenced on the call, we've already gotten some pretty exciting wins on that front, where one of the biggest operators in the US, Gulf of Mexico, we just were awarded the first big bore 18 by 22 liner hanger for this particular customer. We run many of them globally.

Speaker Change: Yes, I think Thats a great question. So I would admit I think this is one of those topics that's misunderstood by investors and maybe I'll start with the end of your question. If you look at that deepwater markets.

Adam Anderson: So I would admit, I think this is one of those topics that's that's misunderstood by investors. Maybe I'll start with the end of your question. If you look at that deepwater market, We, both the legacy Innovex business and the legacy Dril-Quip business, we sell products to the exact same person, typically the drilling engineer in these deep water markets, be it in the U.S. or Brazil, Guyana, and other markets. So there is a kind of natural cross-sale opportunity. As I referenced on the call, we've already gotten some pretty exciting wins on that front, where one of the biggest operators in the U.S.

Speaker Change: We both the legacy <unk> business and the legacy drill quip business, we sell products to the exact same person typically the drilling engineer in these deepwater markets be it in the U S or Brazil, Guyana other markets. So there is a kind of natural cross sale opportunity we've resi.

Speaker Change: Our referenced on the call we've already gotten some pretty exciting wins on that front. We're one of the biggest operators in the U S Gulf of Mexico.

Adam Anderson: Gulf of Mexico. We just were awarded the first Big Bore 18x22 liner hanger for this particular customer. We run many of them globally. And attached below that is some pretty innovative technology from Innovex on the centralization standpoint, and then over time, we'll be able to add a couple other products to that package. So we will be able to provide a complete solution for these casing strings from liner hanger to the shoe or from the wellhead all the way down to the bottom of the well.

Speaker Change: We just were awarded the first big bore 18 by 'twenty two liner hanger for this particular customer we've run many of them globally and attached below that has some pretty innovative technology from <unk> on the centralization standpoint, and then over time, we'll be able to add a couple of other products to that package. So we will be able to provide a complete.

Adam Anderson: Attached below that is some pretty innovative technology from Innovex on the centralization standpoint. Over time, we'll be able to add a couple other products to that package. We will be able to provide a complete solution for these casing strings from liner hanger to the shoe or from the wellhead all the way down to the bottom of the well. That's probably the most tangible early win. Longer term, already had some conversations with customers in the Caribbean in particular, where they want to change some of their well geometry to minimize the number of casing strings, improve the time to drill.

Speaker Change: <unk> solution.

Speaker Change: For these casing streams from liner hanger to the shoe or from the wellhead all the way down to the bottom of the well.

Adam Anderson: So that's probably like the most tangible early win for the longer term. We've already had some conversations with customers in the Caribbean in particular, where they want to change some of their well geometry to minimize the number of casing strings and improve the time to drill, and we're really the only guys that can have that conversation from start to finish of how it's going to impact the wellhead system, the liner hanger, all the centralization and float equipment technology, all of the casing-mounted equipment from wellhead to the toe of the well. And that's going to take a little bit of time to really show up because these are all long-term projects, but I think that the opportunity there is incredibly exciting.

Speaker Change: So that's probably like the most tangible early.

When longer term already had some conversations with customers in the Caribbean in particular, where they want to change some of their well geometry to minimize the number of casing strings and improve the time to drill and we're really the only guys that can have that conversation from from start to finish and how it's going to impact the wellhead system the liner hanger.

Adam Anderson: We're really the only guys that can have that conversation from start to finish of how it's going to impact the wellhead system, the liner hanger, all the centralization and float equipment technology, kind of all of the casing manage equipment from wellhead to the toe of the well. That's going to take a little bit of time to really show up because these are all long-term projects. I think that the opportunity there is incredibly exciting for us.

Speaker Change: The centralization and fluid equipment technology kind of all of the casing mounted equipment from wellhead to the pillar, the well and thats going to take a little bit of time to really show up because these are all long term projects, but I think the opportunity there is incredibly exciting for us.

Unknown Executive: Got it. Okay.

James West: Got it. Okay. Maybe just a question about the outlook here. I guess our thinking is NAM kind of flattish to down, offshore obviously up. Is that consistent with kind of how your customer is talking to you about 2025?

Speaker Change: Got it Okay, and then maybe just a question about the outlook here.

Unknown Executive: And then maybe just a question about the outlook here. You know, I guess our thinking is, you know, NAM kind of flattish to down, offshore, obviously up. Is that consistent with kind of how your customer is talking to you about a 25. Yeah, I think that seems pretty consistent.

Speaker Change: Our thinking is Nam.

Speaker Change: Flattish to down offshore obviously up is that consistent with kind of how your customers talking to you about.

Speaker Change: 25.

Adam Anderson: Yeah, I think that seems pretty consistent. The first thing I would say, and we'll reemphasize for folks a number of times, is that the key market driver is the number of new wells drilled, not directly rig count. Almost everything we sell is a consumable product and count the number of wells, and that's what really the market driver is. I think if you look at US land, I would agree that rig count is probably flat to down a smidge. The number of wells drilled is probably flattish, maybe up a smidge. Then in the international and offshore space, I think you're right that you'll see a little bit of growth. There's a few headwinds, obviously, some white space in the offshore market. Saudi, which is a wonderful market for us

Yes, I think that seems pretty consistent the first thing I would say, we'll reemphasize for folks a number of times is that our business is really driven the key market driver is the number of new wells drilled not directly rig count is almost everything we sell is the terms suitable product and count the number of wells and that's what really the market.

Adam Anderson: The first thing I would say, and we'll reemphasize for folks a number of times, is that our business is really driven. The key market driver is the number of new wells drilled, not directly rig counts. Almost everything we sell is a consumable product and count the number of wells. And that's what really the market driver is. So I think if you look at US land, I would agree that rig count is probably flat to down a smidge. The number of wells drilled is probably flattish, maybe up a smidge. And then in the international and offshore space, I think you're right that you'll see a little bit of growth.

Speaker Change: <unk>. So I think if you look at U S land I would agree that rig count is probably flat to down a smidge. The number of wells drilled is probably flattish maybe maybe up a smidge.

And then in the international and offshore space, I think youre right that youll see a little bit of growth. There's a few headwinds obviously, some white space in the offshore market.

Adam Anderson: There's a few headwinds, obviously, some white space in the offshore market. Saudi, which is a wonderful market for us, but is probably going to see a little bit flat to down activity. So there might be a couple of headwinds in that direction. But in general, we feel really good about our ability to kind of outperform the market and pick up a little bit of incremental market share. We've historically been pretty successful doing that over time.

Speaker Change: Saudi which is a wonderful market for us, but it's probably going to see a little bit flat to down activity.

Adam Anderson: Is probably going to see a little bit of flat to down activity. There might be a couple of headwinds in that direction. In general, we feel really good about our ability to outperform the market and pick up a little bit of incremental market share. We've historically been pretty successful doing that over time. On a combined basis to what we just talked about, I think there's some good opportunities that will come to fruition over the next year or so where we're able to generate some outsized growth because of our combination.

Speaker Change: Maybe a couple of headwinds in that direction, but in general we feel really good about our ability to kind of outperform the market and pick up a little bit of incremental market share. We've historically been pretty successful doing that over time.

Unknown Executive: And on a combined basis to what we just talked about, I think there's some good opportunities that will come to fruition over the next year or so, where we're able to generate some outsized growth because of our combination. Got it.

Speaker Change: And on a combined basis to what we just talked about I think there's some good opportunities that will come to fruition over the next year or so we were able to generate some outsized growth because of our combination.

James West: Got it. Thanks, guys. Congrats again.

Speaker Change: Got it thanks, guys. Congrats again, thanks, Dan I appreciate it.

Unknown Executive: Thanks guys.

Unknown Executive: Congrats again. Thanks, man.

Adam Anderson: Thanks, man. Appreciate it.

Unknown Executive: Appreciate it. Thank you.

Operator: Thank you. Our next question is coming from Eddie Kim, who is with Barclays. Your line is live.

Speaker Change: Thank you. Our next question is coming from Eddie came.

Eddie Kim: Our next question is coming from Eddie Kim. Who is with Barclays, your line is live. Hey, good morning.

Speaker Change: Who is with Barclays. Your line is nice.

Eddie Kim: Hey, good morning. Congratulations on closing the deal and on your first earnings call as a combined company. My first question is just circling back to offshore white space concerns for next year that some of the drillers have been talking about over the past three months. Have you started to see some of that impact your offshore business lines, whether that's some of the downhole tools you sell offshore or in your subsea wellheads orders? How do you think this will impact your offshore business heading into next year?

Speaker Change: Hey, good morning.

Adam Anderson: Congratulations on closing the deal and on your first earnings call as a combined company. But my first question is just circling back to kind of offshore white space concerns for next year that some of the drillers have been talking about over the past three months. Have you started to see some of that impact your offshore business lines, whether that's some of the downhole tools you sell offshore, or in your subsea wellhead orders? And how do you think this will impact your offshore business heading into next year?

Speaker Change: Congratulations on closing the deal and on your first earnings call as a combined company. My first question is just circling back to kind of offshore white space concerns for next year that some of the drillers have been talking about over the past three months have you started to see.

Speaker Change: Some of that impact your offshore business lines, whether that's some of the downhole tools you sell offshore or in your subsea wellhead orders and how do you think this will impact your offshore business heading into next year.

Adam Anderson: Yeah, so it's early days, and we're not giving specific guidance for 2025 at this time. We haven't seen a lot of, you know, pressure from that. I think if, again, as I said earlier, we probably expect the market overall, international and offshore, to probably be up a little bit. I mean, I'm talking like probably mid-single digits. So we haven't really seen big pressure due to that white space that the drillers are concerned about. We might see a smidge, but I think we still, again, still have a lot of opportunities to outperform that, given where we operate in the market, and the opportunity for us to pick up some incremental market share.

Kendal Reed: Yeah. It's early days, and we're not giving specific guidance for 2025 at this time. We haven't seen a lot of pressure from that. I think, again, as I said earlier, we probably expect the market overall, international and offshore, to probably be up a little bit. I'm talking like probably mid-single digits. We haven't really seen big pressure on due to that white space that the drillers are concerned about. We might see a smidge, but I think we still, again, have a lot of opportunities to outperform that given where we operate in the market and the opportunity for us to pick up some incremental market share.

Speaker Change: Yes. So it is early days and we're not giving specific guidance for 2025 at this time, we haven't seen a lot of.

Pressure from that I think again as I said earlier, we probably expect the market overall international and offshore to probably be up a little bit I mean, I'm talking probably mid single digits.

Speaker Change: So we haven't really seen big pressure on due to that white space.

The drillers are concerned about we might see a smidge, but it's.

Speaker Change: We still again still a lot of opportunities to outperform that given our where we operate in the market and the opportunity for us to pick up some incremental market share.

Kendal Reed: Okay, understood. And then just my follow-up is on your pro forma EBITDA for this year. Just want to understand what the baseline is for this year as we think about how to model next year.

Eddie Kim: Okay, understood. Just my follow-up is on your pro forma EBITDA for this year. Just want to understand what the baseline is for this year as we think about how to model next year. Inclusive of your Q4 EBITDA guidance of $35 to 40 million, could you let us know what that implies for full year 2024 adjusted EBITDA on a combined basis, assuming the merger closed on 1 January of this year?

Speaker Change: Okay understood and then just my follow up is on your pro forma EBITDA for this year just just wanted to.

Speaker Change: Understand what the baseline is for this year as we think about how to model next year or so so inclusive of your <unk> EBITDA guidance of $35 million to $40 million could you, let us know what that implies for full year 2024, adjusted EBITDA on a combined basis.

Kendal Reed: So inclusive of your 4Q EBITDA guidance of $35 to $40 million, could you let us know what that implies for full year 2024 adjusted EBITDA on a combined basis, assuming them are closed on Jan 1 of this year? Yeah, no, I think it's a great question. So just to, I guess, answer your question directly, and then I'll elaborate on it. So if you were to just add what both companies did separately in the first half, plus Q3, plus Q4 guidance, that gets you to something in the 150 to 160 range for EBITDA.

Speaker Change: <unk> them or close on Jan one of this year.

Kendal Reed: Yeah, no, I think it's a great question. Just to, I guess, answer your question directly, and then I'll elaborate on it. If you were to just add what both companies did separately in H1, plus Q3, plus Q4 guidance, that gets you to something in the $150 to 160 range for EBITDA. I think it's worth level setting, just given the number of moving parts in the quarter, probably on both revenue and EBITDA. The top-line perspective is cleaner and more straightforward. From a year-to-date standpoint, our pro forma revenue at the end of Q3 is $728 million. If you add the midpoint of guidance, that puts you just over $950 million for full year 2024 revenue.

Speaker Change: Yes, no I think it's a great question. So just to I guess to answer your question directly and then I'll elaborate on it. So if you were to just add what both companies separately in the first half plus Q3, plus Q4 guidance that gets you to something in the $1 50 to $1 60 range for EBITDA.

Kendal Reed: But I think it's worth level setting, just given the number of moving parts in the quarter, probably on both revenue and EBITDA. So the top line perspective is cleaner and more straightforward. From a year-to-date standpoint, our pro forma revenue at the end of the third quarter is $728 million. So if you add the midpoint of guidance, that puts you just over $950 million for full year 2024 revenue. And, you know, just as a reminder, the changes in revenue recognition standards we've talked about does mean that contribution from legacy Dril-Quip is lower in Q3 and Q4 than it otherwise would have been.

Speaker Change: It's worth level setting just given the number of moving parts in the quarter, probably on both revenue and EBITDA.

Speaker Change: So the top line perspective is cleaner and more straightforward from a year to date standpoint, our pro forma revenue at the end of the third quarter was 728 million. So if you add the midpoint of guidance that you just over $950 million for full year 2020 for revenue.

Kendal Reed: Just as a reminder, the changes in revenue recognition standards we have talked about does mean that contribution from legacy Dril-Quip is lower in Q3 and Q4 than it otherwise would have been. Q3 in particular was a low point at just over $100 million due to a combination of some order cancellations you will remember Dril-Quip disclosed in Q2, as well as those changes in revenue recognition approach. On the EBITDA side, it is really a bit more complicated as those prior periods are not fully apples to apples with the go-forward business given the number of changes around merger integration. I will comment that we saw modestly negative EBITDA performance at the legacy Dril-Quip business in Q3, obviously due to a lot of disruption related to the merger as well as that decrease in revenue I just mentioned. We are moving quickly to fully integrate the business.

Speaker Change: And just as a reminder, the changes in revenue recognition standards, we've talked about doesn't mean that contribution from legacy drilled quip is lower in Q3 and Q4 than it otherwise would have been Q.

Kendal Reed: Q3, in particular, was a low point at just over $100 million. Due to a combination of some order cancellations, you'll remember Dril-Quip disclosed in Q2, as well as those changes in revenue recognition approach.

Speaker Change: Q3 in particular was a low point at just over $100 million due to a combination of some order cancellations, you'll remember drill quip disclosed in Q2 as well as those changes in revenue recognition approach on.

Kendal Reed: On the EBITDA side, it's really a bit more complicated as those prior periods aren't fully apples-to-apples with the go-forward business, given the number of changes around merger integration. But I will comment that we saw modestly negative EBITDA performance at the legacy Dril-Quip business in Q3, obviously due to a lot of disruption related to the merger, as well as that decrease in revenue I just mentioned. We're moving quickly to fully integrate the business. We don't plan to break out Dril-Quip versus Innovex EBITDA contribution going forward, but needless to say, we don't view that Q3 performance as representative.

Speaker Change: The EBITDA side, it's really a bit more complicated as those prior periods arent fully apples to apples with the go forward business given the number of changes around merger integration, but I will comment that we saw modestly negative EBITDA performance at the legacy drove business in Q3.

Speaker Change: Obviously due to a lot of disruption related to the merger as well as that decrease in revenue I just mentioned.

Speaker Change: We're moving quickly to fully integrate the business, we don't plan to break out drove quit versus <unk> EBITDA contribution going forward, but needless to say, we don't view that Q3 performance is representative so the Q4 guidance as we mentioned on the call that represents strong execution from legacy <unk> partial benefit of that $50 million of merger synergies that have already.

Kendal Reed: We don't plan to break out Dril-Quip versus Innovex EBITDA contribution going forward. Needless to say, we don't view that Q3 performance as representative. The Q4 guidance, as we mentioned on the call, that represents strong execution from legacy Innovex, partial benefit of that $15 million of merger synergies that have already been realized, and some ongoing noise on the Dril-Quip side around the integration. It's a bit more representative of the combined business, but those Q4 margins at 17% at the midpoint, that's still low relative to our long-term expectations. As we mentioned, we have very high confidence in the ability to get to the full $30 million of merger cost synergies. I think we have a lot of great opportunities from there. I fully expect that margin percentage number to improve over the next year.

Kendal Reed: So the Q4 guidance, as we mentioned on the call, that represents strong execution from legacy Innovex, partial benefit of that $15 million of merger synergies that have already been realized, and then some ongoing noise on the Dril-Quip side around the integration. So it's a bit more representative of the combined business, but those Q4 margins at 17% at the midpoint, that's still low relative to our long-term expectations. And as we mentioned, we have very high confidence in the ability to get to the full $30 million of merger cost synergies. I think we have a lot of great opportunities from there.

Speaker Change: <unk> realized and then some ongoing noise on the drove flip side around the integration.

Speaker Change: A bit more representative of the combined business, but those Q4 margins at 17% at the midpoint, that's still low relative to our long term expectations.

Speaker Change: And as we mentioned we have very high confidence in the ability to get to the full $30 million of merger cost synergies.

Speaker Change: And I think we have a lot of great opportunities from there. So I fully expect that margin percentage number to improve over the next year.

Kendal Reed: So I fully expect that margin percentage number to improve over time.

Kendal Reed: Got it. Thanks for walking through those components. And if I could just squeeze one last one in here, I know Legacy Dril-Quip used to provide subsidy product bookings each quarter. Would you be able to let us know what that was in the second quarter and third quarter? Or is that something you don't intend to disclose going forward?

Eddie Kim: Got it. Thanks for walking through those components. If I could just squeeze one last one in here. I know legacy Dril-Quip used to provide subsea product bookings each quarter. Would you be able to let us know what that was in the Q2 and Q3, or is that something you don't intend to disclose going forward?

Speaker Change: Got it thanks for walking through those components and if I could just squeeze one last one in here.

Speaker Change: No legacy drill quip is to provide subsea product bookings each quarter.

Speaker Change: Would you be able to let us know what that was in the second quarter and third quarter or is that something you don't you don't intend to disclose going forward.

Kendal Reed: Yeah, so with respect to both bookings and backlog, those are not metrics that we're tracking at this point. We don't plan to report on those moving forward just due to the immateriality of that long lead time subsea products business relative to the overall enterprise.

Kendal Reed: Yeah. With respect to both bookings and backlog, those are not metrics that we're tracking at this point. We don't plan to report on those moving forward just due to the immateriality of that long lead time subsea products business relative to the overall enterprise. Just as a general comment, we mentioned on the call, we're very focused on driving returns and cash flow, not as much on top line. We really want the organization to focus on those items.

Yes, so with respect to both bookings and backlog those are not metrics that we're tracking at this point, we don't plan to report on those moving forward just due to the immateriality of that long lead time subsea products business relative to the overall enterprise.

Kendal Reed: And just as a general comment, you know, we mentioned on the call, we're very focused on driving returns and cash flow, not as much on top line. So we really want the organization to focus on Got it. Understood.

And just as a general comment we mentioned on the call. We're very focused on driving returns and cash flow.

Speaker Change: Not as much on top line. So we really want the organization to focus on those items.

Eddie Kim: Got it. Understood. Great. I'll turn it back. Thank you.

Speaker Change: Got it understood.

Unknown Executive: Great. I'll turn it back. Thank you.

Speaker Change: Great I'll turn it back thank you.

Operator: Thank you. As we have no further questions on the lines at this time, I would like to hand it back to our CEO, Adam Anderson, for any closing remarks.

Adam Anderson: As we have no further questions on the lines at this time, I would like to hand it back to our CEO, Adam Anderson, for any closing remarks. All right, thank you. Thanks to everybody, our employees, analysts, investors, for joining the call.

Speaker Change: As we have no further questions on the lines at this time I would like to hand, it back to our CEO, Adam Anderson for any closing remarks.

Adam Anderson: All right. Thank you. Thanks to everybody, our employees, analysts, investors, for joining the call. This is extremely exciting for us, a culmination of a lot of work across the board for the entire company. What I would like to say to the investors is say we're incredibly excited about what we're building here, and although not yet fully appreciated by the market over time, we think we're going to do great things. To the employee base, I would say thank you for everything that you've done to help make both companies successful. Even just pulling together in short order the financials is a huge lift for everybody. A ton of work to go from here, but I think this is incredibly exciting. What we are going to build is extremely unique, differentiated, and advantage for our industry.

Adam Anderson: Alright. Thank you thanks to everybody our employees analysts investors for joining the call. This is extremely exciting for us a culmination of a lot of work across the board.

Adam Anderson: This is extremely exciting for us, a culmination of a lot of work across the board for the entire company. What I would like to say to the investors is, hey, we're incredibly excited about what we're building here. And although not yet fully appreciated by the market over time, we think we're going to do great things.

Adam Anderson: For the entire company.

Adam Anderson: I would like to say to the investors to say we are incredibly excited about what we're building here.

Adam Anderson: And.

Adam Anderson: Though not yet fully appreciated by the market over time.

Adam Anderson: We think we're going to do great things to.

Unknown Executive: To the employee base, I would say thank you for everything that you've done to help make both companies successful. Even just pulling together in short order, the financials is a huge lift for everybody. A ton of work to go from here, but I think this is incredibly exciting. What we are going to build is extremely unique, differentiated, and an advantage for our industry. So thank you to everybody at the Innovex team for what you do to help make us successful today. So thank you very much. We'll talk to everyone soon. Thank you.

Adam Anderson: To the employee base I would say thank you for everything that you've done to help make both companies successful even just pull it together in short order.

Adam Anderson: The financials is a huge lift for everybody a ton of work to go from here, but I think this is incredibly exciting what we are going to build.

Adam Anderson: Is extremely unique differentiated advantage for our for our industry. So thank you to everybody at the end of X team for what you do to help make us successful today and into the future.

Adam Anderson: Thank you to everybody at the Innovex team for what you do to help make us successful today and into the future. Thank you very much. We'll talk to everyone soon.

Thank you very much we'll talk to everyone soon.

Operator: Thank you. Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. We thank you for your participation.

Speaker Change: Thank you ladies and gentlemen, this concludes today's call and you may disconnect. Your lines at this time and we thank you for your participation.

Unknown Executive: Ladies and gentlemen, this concludes today's call and you may disconnect your lines at this time and we thank you for your participation.

Q3 2024 Innovex International Inc Earnings Call

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