Q1 2025 Innovex International Inc Earnings Call

Operator: Good morning, welcome to Innovex's Q1 2025 Earnings Call. At this time, all participants are in 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. At this time, I would like to turn the call over to Avinash Cuddapah, Senior Director of Investor Relations. Please go ahead.

Good morning and welcome to Inevex's first quarter, 2025 earnings call. At this time, all participants are in a listenly mode and there will be a question and answer opportunity at the end of this call. As a reminder, this call is being recorded.

Speaker Change: At this time, I would like to turn the call over to Avinash Cuddapah, Senior Director of Investor Relations. Please go ahead.

Avinash Cuddapah: Thank you. 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 would 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 Q1 2025 financial and operational results announcements that we released yesterday for a discussion of forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer, and Kendal Reed, Chief Financial Officer.

Speaker Change: 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 reported, and a replay will be available on the company's website following the call.

Speaker Change: Before we begin, I would like to remind you that Intervex's comments may include forward-looking statements and discuss non-GAAP financial measures.

Speaker Change: It should be noted that a variety of factors could cause infective actual results to differ materially from the anticipated results or expectations expressed in these forward-looking

Speaker Change: Please refer to the first quarter 2025 Financial and Operational Results Announcements that we really see it yesterday for discussion of forward-looking statements and recommendations of non-GAF measures.

Speaker Change: Speaking on the call today for Minnevex, we have Adam Anderson, Chief Executive Officer and Kendal Reed, Chief Financial Officer. I would now like to turn the call over to Adam Anderson.

Avinash Cuddapah: I would now like to turn the call over to Adam Anderson.

Adam Anderson: Good morning, thanks, everyone, for joining us today. I'm pleased by the progress we have made on our strategic initiatives, which is thanks to our incredible team of people. I'm extremely grateful for their efforts in Q1. On today's call, I'll discuss how we are uniquely positioned to continue providing value to our customers and shareholders in all phases of the cycle and give an update on our continued transformation of the combined business. Kendal will discuss our Q1 financial results and how Innovex continues to be well-positioned financially and operationally to be opportunistic and flexible in a volatile macro environment. We've created a unique energy-focused industrial platform that drives exceptional value and service for our customers and exceptional absolute returns for our shareholders. Since Innovex's inception in 2016, we've generated strong financial returns on capital employed.

Speaker Change: Good morning, and thanks everyone for joining us today. I'm pleased by the progress we have made on our strategic initiatives, which is thanks to our incredible team of people. I'm extremely grateful for their efforts in the first quarter.

Speaker Change: On today's call, I'll discuss how we are uniquely positioned to continue providing value to our customers and shareholders in all phases of the cycle and give an update on our continued transformation of the combined visits.

Speaker Change: Kendal would discuss our Q1 financial results and how NFX continues to be well-positioned financially and operationally to be opportunistic and flexible in a volatile macro environment.

Speaker Change: We've created a unique energy-focused industrial platform that drives exceptional value and service for our customers and exceptional absolute returns for our shareholders.

Speaker Change: In the end of X's inception of 2016, we've generated strong financial returns on capital [inaudible]

Adam Anderson: To achieve these returns, we've curated a portfolio of what we call small ticket, big impact products, employing a capital-light business model that focuses on technology-enabled consumable products with consistently high gross margins. Given the nature of our product set and our lean operating model, Innovex has historically required a small amount of CapEx to sustain and grow our business, typically 2% to 3% of revenue, allowing us to convert somewhere between 50% to 60% of our EBITDA into free cash flow under normal business conditions. To drive innovation, organic growth, and operational excellence, our No Barriers culture is paramount. No Barriers means eliminating all of the barriers between ourselves and our customers, as well as within our company, to ensure that we're elevating the experience for everyone. Our culture drives innovation and customer loyalty, as evidenced by continued gains in market share across multiple markets.

Speaker Change: To achieve these returns, we've curated a portfolio of what we call small-ticket dig-impact products, employing a capital-like business model that focuses on technology enabled to consumable products with consistently high-grows margins.

Speaker Change: Given the nature of our products set in our lean operating model, Intervex is the story of the required a small amount of cat-decks to sustain and grow our business, typically 2-3% of revenue. Allowing us to convert somewhere between 50-60% of our EBITDA into free cash flow under normal business conditions.

Speaker Change: To drive innovation, organic growth, and operational excellence are no barriers cultures paramount. No barriers means eliminating all of the barriers between ourselves and our customers, as well as within our company to ensure that we're elevating the experience for everyone.

Speaker Change: Our culture drives innovation and customer loyalty, as evidenced by continued gains in market share across multiple markets.

Adam Anderson: Turning to our Q1 results, I'm very pleased by the resilience of our North America land business. Our legacy US land downhole business remains flat, while our reported revenues grew 17% sequentially, driven by the inclusion of a full quarter of DWS revenue and seasonal growth in Canada. Q1 NAM results demonstrate delivery on both pillars of our strategy to both grow market share organically as well as inorganically through high-returning acquisition opportunities. DWS continues to be the market leader in their product category in the US. In addition to strong US results, DWS delivered record revenues in Canada by levering the operations and sales team from legacy Dril-Quip. Distribution synergies in Canada were another driver of the merger. We're pleased to see early proof points of our thesis.

Speaker Change: Turning to our first quarter results, I'm very pleased by the resilience of our North America land business. Our legacy U.S. land downhill business remains flat, while a reported revenue is grew 17% sequentially driven by the inclusion of a full quarter of DWS revenue and seasonal growth in Canada.

Speaker Change: Q1 NAM results demonstrate delivery on both pillars of our strategy to both grow markets to organically as well as in organically through high returning acquisition opportunities.

Speaker Change: DWF continues to be the market leader in their product category in the U.S. In addition to strong U.S. results, DWF delivered record revenues in Canada by leveraging the operations and sales team from Legacy Dril-Quip.

Speaker Change: Distribution, Synergies, and Canada were another driver of the merger and were pleased to see early proof points of our thesis.

Adam Anderson: As anticipated, our international and offshore revenue was down from Q4 2024, but the decline in revenue was greater than we had originally anticipated. This was primarily caused by greater than expected weakness in Mexican drilling activity, along with some seasonality and delivery delays in our US offshore during the first 2 months of Q1. Despite the activity declines in Mexico, we continue to see exciting opportunities in other international markets, such as the Middle East and Latin America. One such highlight was a recent well for Petrobras, in which Innovex was able to combine a fully integrated solution in the Búzios Field, one of the most significant pre-salt fields. This was the first well in the country to integrate products from each legacy company, utilizing Dril-Quip subsea wellhead and XPak liner hanger with Innovex's centralizer and float equipment technology.

Speaker Change: Fifth anticipated, our international and offshore revenue is down from Q4 2024, but the decline in revenue is greater than we had originally anticipated.

Speaker Change: This was primarily caused by greater than expected weakness in Mexican drilling activity, along with some seasonality and delivery delays in our U.S. offshore during the first two months of Q1.

Speaker Change: Despite the activities of clients in Mexico, we continue to see exciting opportunities in other international markets such as the Middle East and Latin America.

Speaker Change: One such highlight was a recent love for Petra Ross, in which Intervax was able to combine a fully integrated solution in the Buzio field, one of the most significant pre-solve fields.

Speaker Change: This was the first well in the country to integrate products from each legacy company utilizing Dril-Quip with Substitute Wells at an EXPEC Winerhanger with NFX's Centralizer Influed Equipment Technology.

Adam Anderson: The successful installation on this well led to an order for 10 additional liner hanger systems, highlighting the untapped organic growth and synergy opportunities available to us. We continue to place focus on profitability and cash flow, as evidenced by our margins remaining flat sequentially and our generation of $24 million of free cash flow, which equated to approximately 52% of our adjusted EBITDA. Oil cycles are a feature, not a bug of our business model. We've successfully grown through all phases of the oil cycle, but are particularly adept at exploiting down cycles to create lasting value for our shareholders. A key enabling pillar of our strategy is maintaining a strong balance sheet. We currently enjoy a net cash balance, and we do not intend to leverage our business over 1x debt to EBITDA.

Speaker Change: The successful installation on this well led you in order for 10 additional liner hanger systems highlighting the untapped organic growth and synergy opportunities available to us.

Speaker Change: We continue to play focus on profitability and cash flow, as evidence fire margins remaining flat sequentially, and our generation of $24 million of free cash flow, which equated to approximately 52% of our adjusted EBITDA.

Speaker Change: Oil Cycles are a feature, not a bug of our business model. We successfully grown through all phases of the oil cycle, but are particularly adept at exploiting down cycles to create lasting value for our shareholders.

Speaker Change: A key enabling pillar of our strategy is maintaining a strong balance sheet. We currently enjoy a net cash balance and we do not intend to leverage our business over one time step to EBITDA.

Adam Anderson: In an upcycle, we innovate across our small ticket, big impact product portfolio to grow share while divesting non-core businesses that no longer meet our stringent financial criteria. During the mid-cycle, we continue to optimize margins by focusing on process and product optimization while evaluating highly accretive, high return acquisition opportunities. Finally, during the down cycle, which we may be entering now, we are able to utilize our balance sheet and execution capabilities to exploit transformative investment opportunities. Importantly, during down cycles, we unwind working capital, which further increases our liquidity. No matter where we are in the cycle, we continue to invest in R&D and innovation. We truly mean it when we say that down cycles are a feature, not a bug of our business model. In March of 2021, not long after oil had traded at negative pricing, we acquired Rubicon Oilfield International.

Speaker Change: In an upcycle, we innovate across our small ticket big impact product portfolio to Grocery, while the best in nine core businesses that no longer meet her stringent financial criteria.

Speaker Change: During the mid-cycle, we continue to optimize margins by focusing on process and product optimization while evaluating highly accretive high-return acquisition opportunities.

Speaker Change: Finally, during the down cycle, which we may be entering now, we are able to utilize our balance sheet and execution capabilities to exploit transformative investment opportunities.

Speaker Change: Importantly, during down cycles we unwind working capital, which further increases our liquidity. No matter where we are in the cycle, we continue to invest in R&D and innovation.

Speaker Change: Which really means that when we say that downpickles are a feature, not a bug or a business model.

Speaker Change: In March of 2021, not long after oil had treated at negative pricing, we acquired Rubicon

Adam Anderson: Due to the preceding macro environment, we were able to transact on this acquisition at a highly attractive price. We acquired our fishing tool business at that time, which we have transitioned into a highly profitable franchise that holds a leading market share position. This acquisition also bolstered our international distribution network, which has helped drive significant organic growth in Latin America and the Middle East. During industry downturns, we focused our innovation flywheel on projects that drive value and efficiency for our clients. For instance, we evaluate our portfolio for opportunities to provide tailored solutions, combining different products or technologies within the same well to reduce our customers' costs and streamline their operations. We also look to provide technologies that save the customer significant time and money by reducing their costs and enhancing their operational efficiencies.

Speaker Change: Due to the preceding macro-environment, we were able to transact on this acquisition at a highly attractive price. We acquired our fishing tool business at that time, which we have transitioned into a highly profitable franchise that holds the leading market share position.

Speaker Change: This acquisition also bolstered international distribution network which is health creates significant organic growth in Latin America and the Middle East.

Speaker Change: During industry downturns, we focused our innovation flywheel on projects that drive value and efficiency for our clients.

Speaker Change: For instance, we evaluate our portfolio for opportunities to provide tailored solutions combining different products or technologies within the same well to reduce our customer's costs and streamline their operations.

Speaker Change: We also look to provide technologies that save the customer significant time and money by reducing their costs and enhancing their operational efficiencies.

Adam Anderson: One example of this is our SubZERO centralizer technology, which eliminates the need for traditional centralizer subs in offshore wells. These centralizer subs are very expensive and require additional planning and logistical burdens for our customers, as well as requiring CapEx and an increased inventory footprint for Innovex. SubZERO is able to alleviate all of these issues by installing the needed centralizers directly onto our customer's pipe much closer to the date of deployment, while charging roughly half the price of traditional centralizer subs and increasing Innovex's margins and returns. This is a win-win for both Innovex and our customers. As evidenced by a recent job for a major operator in our US offshore market, we were able to save our customer $300,000 on a single well and reduce their lead time by 60% relative to traditional centralizer subs.

One example of this is our sub-zero centralizer technology, which eliminates the need for traditional centralizer subs and offshore wells.

Speaker Change: These centralizer subs are very expensive and require additional planning and logistical burdens for our customers, as well as requiring capex in an increased inventory footprint

Speaker Change: Sub-0 is able to alleviate all of these issues by installing the needed centralisers directly onto our customers' pipe, much closer to the data deployment, while charging roughly half the price of traditional centralisers' subs, and increasing NFX's margins and returns. This is a win-win for both NFX and our customers.

Speaker Change: As evidenced by a recent job for a major operator in our U.S. offshore market, we were able to save our customer $300,000 on a single well and reduce their lead time by 60% relative to traditional centralizer subs.

Adam Anderson: We estimate this technology is applicable to approximately half of the wells drilled in our US offshore market and are still in the early stages of market penetration, with SubZERO being utilized on approximately 10% of these wells. A significant focus of our team continues to be driving cash flow and returns that match the unique value proposition that our subsea technologies deliver for our clients. We continue to rightsize the subsea business and improve operational efficiencies. We mentioned on our last call that we are planning to divest the Dril-Quip Eldridge facility. I'm pleased to share that we've recently entered into a definitive agreement to sell the property for a sum of $95 million and expect to close on this transaction by the end of 2025. Let me underscore this number, as $95 million is roughly 9% of our market cap.

Speaker Change: We estimate this technology is applicable to approximately half of the wells drilled in our US offshore market and are still in the early stages of market penetration with sub-zero being utilized on approximately 10% of these wells.

Speaker Change: A significant focus of our team continues to be driving cash flow and returns that match the unique value proposition that our subsidy technologies deliver for our clients. We continue to right size the subsidy business and improve operational efficiencies.

Speaker Change: We mentioned on our last call that we were claiming to divest the Dril-Quip Eldridge facility, and I'm pleased to share that we've recently entered into a definitive agreement to sell the property for some of $95 million.

Speaker Change: and expect to close in this transaction by the end of 2025. Let me underscore this number, as $95 million is roughly 9% of our market cap.

Adam Anderson: Our thesis when we merged the companies was that we could improve margins and service quality, this sale not only frees up an exceptional amount of capital but is a key enabler of our plans to consolidate facilities, create efficiencies, and drive cultural change. This sale will further bolster our existing net cash position, giving us additional dry powder for organic and inorganic investments to drive further growth. We are currently in the process of moving the functions from this facility to other facilities and expect to have this completed by mid-2026. There will be some temporary increase in CapEx and operational expenses during this transition, by the end of 2026, we anticipate a considerable amount of operational savings, even after considering a modest increase in lease expenses related to the relocation of certain business functions.

Speaker Change: Our thesis when we merge the companies was that we could improve margins and service quality. In this sale, not only frees up an exceptional amount of capital, but is a key enabler of our plans to consolidate facilities, create efficiencies, and drive cultural change.

Speaker Change: This sale will further bolster our existing net cash position, giving us additional dry powder for organic and inorganic investments to drive further growth. We are currently in the process of moving the functions from this facility to other facilities and expect to have this completed by mid-2026.

Speaker Change: There will be some temporary increase in CAPEX and operational expenses during this transition, but by the end of 2026, we anticipate a considerable amount of operational savings, even after considering a modest increase in these expenses related to the relocation of certain business functions.

Adam Anderson: Critically, we continue to improve the customer experience by improving the on-time delivery of the Dril-Quip subsea business. At the time of the merger, on-time delivery was below 50%. As of the end of Q1, we've improved this metric to 72%. To be clear, our goal is to continue improving this metric until we are above 90%, consistent with Innovex's historical on-time delivery rate. This improvement will take several quarters as we work through the existing backlog, but is a foundational element of our transformation strategy. Although there is a significant uncertainty surrounding the macro environment, we are truly excited to showcase the strength and flexibility of our business model and proactively exploit opportunities to help our customers improve their operations. Our execution on the transformation of the combined business has begun to provide significant value to our employees, customers, and shareholders.

Speaker Change: Critically, we continue to improve the customer experience by improving the on-time delivery of the Dril-Quip Sub-C business.

Speaker Change: At the time of the merger, on-time delivery was below 50%. As of the end of Q1, we've improved this metric to 72%. To be clear, our goal is to continue improving this metric until we are above 90%, consistent with the NOVAX's historical on-time delivery rate.

Speaker Change: This improvement will take several quarters as we work through the existing backlog, but is a foundational element of our transformation strategy.

Speaker Change: Although there is a significant uncertainty surrounding the macro environment, we are truly excited to showcase the strength and flexibility of our business model and proactively exploit opportunities to help our customers improve their operations.

Speaker Change: Our execution on the transformation of the combined business has begun to provide significant value to our employees, customers, and shareholders.

Adam Anderson: I would like to once again thank our employees for their efforts and look forward to continued progress against our aspirations to improve the customer experience, grow market share, and achieve margins of mid-20%. I will now hand the call over to Kendal.

Speaker Change: I would like to once again thank our employees for their efforts and look forward to continued progress against our aspirations to improve the customer experience, grow market share, and achieve margins of bit 20%. I'll hand the call over to Kendal.

Kendal Reed: Thank you. Good morning, everyone. We are pleased that our Q1 financial results continue to demonstrate the earnings power and cash flow resilience of our platform with further margin enhancement opportunities in 2025 as synergies are realized through the full integration of both Dril-Quip and DWS. As a reminder, we closed on the merger with Dril-Quip on 6 September 2024, and Innovex was the accounting acquirer in the merger, so historical comparative periods prior to Q3 2024 reflect legacy Innovex standalone results. Our Q1 revenue was $240 million, which is an increase of 88% year over year and a decrease of 4% sequentially. The year over year increase is primarily driven by the impact of the Dril-Quip and DWS acquisitions.

Kendal Reed: Thank you, Adam, and good morning, everyone. We're pleased that our Q1 financial results continue to demonstrate the earnings power and cashflow resilience of our platform, with further margin enhancement opportunities in 2025 as synergies are realized through the full integration of full stroke-width and DWS.

Kendal Reed: As a reminder, we closed on the merger with Dril-Quip on September 6, 2024, and Intervex was the accounting acquirer in the merger, so historical comparative periods prior to Q3 2024 were like legacy and intervex standalone results.

Kendal Reed: Our first quarter revenue was 240 million, which is an increase of 88% year-over-year and a decrease of 4% sequentially. The year-over-year increase is primarily driven by the impact of the Dril-Quip and DWS acquisition.

Kendal Reed: We evaluate our revenue geographically by separating our shorter cycle onshore US and Canadian operations, which we refer to as NAM Land, from our longer cycle international and offshore operations, which include offshore US. Our Q1 NAM Land revenue of $121 million increased 17% as compared to Q4 revenue of $103 million, primarily as a result of 1 full quarter of DWS results. Our international and offshore revenue during Q1 2025 was $120 million, a decrease of 19% sequentially, due primarily to greater than anticipated revenue weakness in Mexico due to the dramatic slowdown in local activity and a slow start to the year in our US offshore business. While our top-line results were slightly weaker than expected, we evaluate our performance based on margins, free cash flow, and ROCE, all of which showed good progress during the quarter.

Kendal Reed: We evaluate our revenue geographically by separating our shorter cycle onshore U.S. and Canadian operations, which we refer to as MAMLAND, from our longer cycle, international and offshore operations, which include offshore U.S.

Kendal Reed: Our Q1 NAMLAND revenue of $121 million increased 17% as compared to Q4 revenue of $103 million primarily as a result of one-fold quarter of GWS results.

Kendal Reed: Our international and offshore revenue during the first quarter of 2025 was 120 million. A decrease of 19 percent sequentially due primarily to greater than anticipated revenue weakness in Mexico due to the dramatic slowdown in local activity and a slow start to the year in our U.S. offshore business.

Kendal Reed: While our top-line results were slightly weaker than expected, we evaluate our performance based on margins, free cash flow, and ROCE, all of which showed good progress during

Kendal Reed: Turning to costs and expenses, our Q1 cost of sales, exclusive of depreciation and amortization, decreased by $2 million sequentially to $164 million. Selling, general, and administrative expenses for the quarter decreased by $6 million sequentially to $32 million. Importantly, our SG&A as a percentage of revenue has continued to decrease from the close of the merger, moving from approximately 25% in Q3 2024 to 13% in Q1. Strong execution on synergies has driven increases in EBITDA margin from the time of the merger, rising from 18% in Q3 2024 to 19% in Q1, despite the pullback in revenue. As a reminder, our realized cost synergies will phase in over time, partially impacting Q1 and fully impacting Q2.

Kendal Reed: Turning to costs and expenses are Q1 cost of sales, exclusive of depreciation and amortization, decreased by 2 million sequentially to 164 million.

Kendal Reed: Selling general and administrative expenses for the quarter decreased by 6 million sequentially to 32 million Importantly our S DNA is a percentage of revenue has continued to decrease from the close of the merger moving from approximately 25% in Q3 2024 to 13% in Q1 [inaudible]

Kendal Reed: Strong execution on synergies has driven increases in EBITDA Marchion from the time of the merger, rising from 18% in Q3 2024 to 19% in Q1 despite the pullback in revenue.

Kendal Reed: As a reminder, our realized cost synergies will face in over time, partially impacting Q1 and fully impacting Q2.

Kendal Reed: We continue to identify opportunities for cost savings and margin enhancements and believe that in the long term, the combined Innovex platform can generate EBITDA margins of 25% or greater, in line with Innovex's historical results. We expect the sale of the Eldridge facility to unlock the next phase of margin expansion, which we expect to realize over the course of 2026. Adjusted EBITDA for the first quarter was approximately $46 million, a decrease of approximately $3 million sequentially and an increase of $13 million year over year, with the sequential decrease primarily driven by greater than anticipated weakness in Mexico. Free cash flow for the first quarter was $24 million, a sequential decrease of $5 million, but in line with our goal to convert 50% to 60% of our EBITDA into free cash flow.

Kendal Reed: We continue to identify opportunities for cost savings and margin enhancements and believe them in the long-term, the combined NFX platform can generate EBITDA margins of 25% or greater, in line with NFX's historical results.

Kendal Reed: We expect the sale of the Eldridge facility to unlock the next case of margin expansion which we expect to realize over the course of 2026.

Kendal Reed: Adjusted EBITDA for the first quarter was approximately 46 million, a decrease of approximately 3 million sequentially and an increase of 13 million year over year, with this sequential decrease primarily driven by greater than anticipated weakness in Mexico.

Kendal Reed: Free cash flow for the first quarter was 24 million, a sequential decrease of 5 million but in line with our goal to convert 50% to 60% of our EBITDA into free cash flow.

Kendal Reed: Given that Q1 is seasonally our lowest cash flow quarter, we are pleased with our strong free cash flow generation, which allowed us to fully fund our acquisition of SCF Machining in February while still increasing our net cash balance during the quarter. Capital expenditures in Q1 2025 were $7 million, representing approximately 3% of revenue. This value is consistent with our historically capital-light business model. We expect our near-term CapEx to be on the high end of Innovex's historical average of 2% to 3% of revenue as we continue working through merger integration, including facility moves and consolidation after the sale of Eldridge. We expect the bulk of any additional CapEx to occur in 2025 and to be far outweighed by the net proceeds of the Eldridge sale.

Kendal Reed: Given that Q1 is seasonally our lowest cashflow quarter, we are pleased with our strong free cashflow generation, which allowed us to fully fund our acquisition of SCF machining in February , while still increasing our net cash balance during the quarter.

Kendal Reed: Capital expenditures in the first quarter of 2025 were 7 million, representing approximately 3% of revenue. This value is consistent with our historically capital-like business model.

Kendal Reed: We expect our near-term capex to be on the high end of NFX's historical average of 2% to 3% of revenue as we continue working through merger integration, including facility moves and consolidation after the sale of Eldridge. We expect the bulk of any additional capex to occur in 2025 and to be far outweighed by the net proceeds of the Eldridge sale.

Kendal Reed: Our balance sheet continues to be strong with a net cash position of $43 million to end the quarter. Our total debt at 31 March 2025 was $25 million, representing a debt to trailing 12-month adjusted EBITDA ratio of 0.17 times, more than offset by $68 million of cash and equivalents. Our return on capital employed for the 12 months ended 31 March 2025 was 12%, which is consistent with the 12 months ended 31 December 2024. We continue to work towards our goal of returning the business to Innovex's seven-year historical average ROCE of approximately 18%. Turning to our guidance for Q2 2025, while acknowledging that there is significant uncertainty in the market at the moment, in particular with respect to US land activity levels, we currently expect adjusted EBITDA of $40 to 45 million and revenues of $225 to 235 million.

Kendal Reed: Our balance sheet continues to be strong with the net cash position of 43 million to end the quarter. Our total debt at March 31, 2025 was 25 million, representing a debt to trailing 12-month adjusted Yvita ratio of 0.17 times, more than offset by 68 million of cash and equipment.

Kendal Reed: Our return on capital employed for the 12 months ended March 31st, 2025, was 12%, which is consistent with the 12 months ended December 31st, 2024.

Kendal Reed: We continue to work towards our goal of returning to business to NFX's seven-year historical average RSE of approximately 18%.

Kendal Reed: Turning to our guidance for the second quarter of 2025 while acknowledging that there is significant uncertainty in the market at the moment, in particular with respect to US land activity levels, we currently expect adjusted EBITDA of 40 to 45 million and revenues of 225 to 235 million.

Kendal Reed: The decrease in revenue sequentially is driven by the continued weakness in Mexico, sequential declines in Canada related to spring breakup, and lumpiness in our subsea deliveries related to project timing. We expect deliveries in the subsea business to be back-half weighted in 2025. As a reminder, we are no longer accounting for wellhead deliveries on a percentage of completion basis. While this will add lumpiness to our quarterly results, we believe the change better aligns incentives across the organization, which will help drive on-time delivery to our goal of greater than 90% and will significantly improve earnings quality and cash conversion. I would next like to briefly address the fluid tariff environment. As our business and supply chain is highly diversified across several global markets, we do have exposure to rising tariffs. This exposure mainly arises from raw materials sourced out of Asia.

Kendal Reed: The decrease in revenue sequentially is driven by the continued weakness in Mexico to sequential declines in Canada related to spring break-up and lumpiness in our subsidy deliveries related to project timing.

Kendal Reed: We expect deliveries and the subsidy business to be back half-weighted in 2025.

Kendal Reed: As a reminder, we are no longer accounting for well-head deliveries on a percentage of completion basis. While this will add lumpiness to our quarterly results, we believe the change better aligns incentives across the organization, which will help drive on-time delivery to our goal of greater than 90% and will significantly improve earnings quality and cash conversion.

Kendal Reed: How next like to briefly address the fluid tariff environment, as our business and supply chain is highly diversified across several global markets, we do have exposure to rising tariffs.

Kendal Reed: This exposure mainly arises from raw material sourced out of Asia. However, we maintain a very flexible and diverse supply chain network, which will allow us to throttle manufacturing both domestically and its specific international hubs to optimize profitability and mitigate the impact of rising tariffs.

Kendal Reed: However, we maintain a very flexible and diverse supply chain network, which will allow us to throttle manufacturing both domestically and at specific international hubs to optimize profitability and mitigate the impact of rising tariffs. To enhance our global supply chain capabilities, we recently acquired SCF Machining Corporation in Vietnam, which gives us access to low-cost manufacturing, which is well-positioned to serve our Eastern Hemisphere operations. Importantly, the majority of our business is not locked into long-term pricing agreements. Thus, we have the flexibility to work with our customers to pass along cost increases over time as necessary. We will continue to monitor and assess this landscape as it evolves. As Adam mentioned, we strongly believe that our business model can be opportunistic in all phases of the cycle. I would like to expand a bit further on this.

Kendal Reed: To enhance our global supply chain capabilities, we recently acquired SCF Machining Corporation in Vietnam, which gives us access to low-cost manufacturing which is well-positioned to serve our Eastern Hemisphere operations.

Kendal Reed: Importantly, the majority of our business is not locked into long-term pricing agreements.

Kendal Reed: Thus, we have the flexibility to work with our customers to pass along cost increases over time as necessary.

Kendal Reed: We will continue to monitor and assess this landscape as it evolves.

Kendal Reed: As Adam mentioned, we strongly believe that our business model can be opportunistic in all phases of the cycle. I would like to expand a bit further on this.

Kendal Reed: The high margin, capital-light nature of our business model allows us to fund our growth and maintenance capital needs through internally generated cash flow. We currently have $68 million of cash on the balance sheet, expect to generate continued free cash flow from operations, and expect to receive additional cash from the net proceeds of the $95 million sale of the Eldridge facility. All of which provides us with significant capital to deploy even before considering our borrowing capacity. Given the lack of capital available to the energy sector, we've been pleased with the number of opportunities to acquire businesses that fit our qualitative investment criteria and have the potential to generate ROCE above our corporate average, often in excess of 20%. The recent acquisition of DWS is a great example of this.

Kendal Reed: The high-margined capital-light nature of our business model allows us to fund our growth and maintenance capital needs through internally-generated cash flow.

Kendal Reed: We currently have 68 million of cash on the balance sheet, expect to generate continued free cash flow from operations, and expect to receive additional cash from the net proceeds of the $95 million sale of the Elders facility.

Kendal Reed: All of which provides us with significant capital to sue deploy, even before considering our borrowing capacity.

Kendal Reed: Given the lack of capital available to the energy sector, we've been pleased with the number of opportunities to acquire businesses that fit our qualitative investment criteria and have the potential to generate RSE above our corporate average, often in excess of 20%.

Kendal Reed: The recent acquisition of GWS is a great example of this. GWS continues to drive growth in the name-land market, and its products are actively being distributed to untapped international markets through our global distribution network.

Kendal Reed: DWS continues to drive growth in the NAM Land market, and its products are actively being distributed to untapped international markets through our global distribution network. There is an abundance of PE-backed companies that will be looking for an exit in the coming year, a select group of these will meet our high return, stable margin, high free cash flow, and small ticket, big impact consumable product proposition. We also announced last quarter that our board authorized a $100 million share repurchase program, which allowed us to have a competing use of capital to organic and inorganic growth opportunities. Since the announcement 10 weeks ago, we have repurchased approximately $6 million worth of shares. We will continue to weigh share repurchases as a use of capital, especially in the current macro environment where there's significant volatility in the markets.

Kendal Reed: There is an abundance of PE-backed companies that will be looking for an exit in the coming year, and a select group of these will meet our high-return, stable margin, high-free cash flow, and small ticket big impact consumable product proposition.

Kendal Reed: We also announced last quarter that our board authorized a 100 million dollar share repurchase program which allowed us to have a competing use of capital to organic and inorganic growth opportunities.

Kendal Reed: Since the announcement 10 weeks ago, we have repurchased approximately $6 million worth of shares We will continue to weigh share repurchases as a use of capital, especially in the current macro environment where there's significant volatility in the markets

Kendal Reed: Importantly, we believe the current weakness in oil prices will further constrict capital to the sector, which should provide the ideal backdrop for us to invest in our business, either via our share repurchase program or through accretive, high-returning acquisition opportunities. We're very excited as this is exactly the kind of market we were built for. I will now turn the call back to Adam.

Kendal Reed: Importantly, we believe the current weakness in oil prices will further constrict capital to the sector, which should provide the ideal backdrop for us to invest in our business, either via our share repurchase program or through a creative, high-returning acquisition

Kendal Reed: We're very excited as this is exactly the kind of market we were built for.

I'll now turn the call back to Adam.

Adam Anderson: Thanks, Kendall. In closing, we're extremely pleased with our progress to date on the Dril-Quip merger, the performance of the DWS business, margins in our downhole product lines, and the way we've positioned this company for a potential down cycle. That said, we are disappointed that our revenues did not meet our guidance range. We are learning and getting better at modeling the subsea business, which enjoys strong backlog-driven visibility that is inherently lumpy. We expect Q2 to be the low point for this business in 2025 and foresee a stronger back half based on the timing of customer deliveries. Despite lower than anticipated activity, we are pleased with the free cash flow and margin performance and still believe that our goal of mid-20s EBITDA margins is attainable over time.

Kendal Reed: Thanks, Kendal. In closing, we're extremely pleased with our progress to date on the Dril-Quip The performance of the DWS business, margins in our downhill product lines, and the way we've positioned this company for a potential downside.

That said, we're at this point that our revenues did not meet our guidance range.

Kendal Reed: We are learning and getting better at modeling the subsea business, which enjoys strong background-driven visibility that is inherently lumpy.

Kendal Reed: We expect Q2 to be the low point for this business in 2025 and foresee a stronger back half based on the timing of customer deliveries.

Kendal Reed: Despite lower than anticipated activity, we are pleased with the free cash flow and margin performance, and still believe that our goal of mid-20's EBITDA margins is attainable over time.

Adam Anderson: As I've told many investors over the past year, oil prices or activity levels are hard to predict, but we're adept at responding to customer needs and changes to their plans. Our flexible supply chain, high gross margins, and small ticket, big impact value proposition positions us well for whatever the market brings. We would like to open the line for questions now. Operator?

Kendal Reed: As I've told many investors over the past year, oil prices or activity levels are hard to predict. But we're in depth at responding to customer needs and changes to their plans.

Kendal Reed: Flexible supply chain, high-grace margins, and small ticket big impact value proposition positions us well for whatever the market brings.

Kendal Reed: We would like to open the line for questions now. Operator?

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one if you would like to join the queue. Our first question comes from the line of David Smith with Pickering Energy Partners. Your line is open.

Kendal Reed: Thank you, and we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time.

Kendal Reed: If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, it is Star One if you would like to join the Q. And our first question comes from the line of David Smith with Pickering Energy Partners. Your line is open.

David Smith: Hey, good morning. Thank you for taking my question.

Hey, good morning. Thank you for taking my question.

Adam Anderson: Good morning.

David Smith: I know we touched on this, with the net cash balance of $43 million and pro forma the $95 million sale of the Eldridge facility, net cash balance will rise to almost $140 million, 14% of your market cap. I know Innovex has a strong M&A record across cycles, I imagine today's environment presents a little bit more of a challenge for both buyers and sellers between the macro uncertainty, policy risk, WTI flirting with the mid-50s. How do you balance that desire to pursue strategic deals with the risk of forward activity levels still being in flux? How are you seeing seller expectations? Historically, how long do those take to adjust to activity disruptions that seem increasingly likely?

Speaker Change: So I didn't really touch on this, but with the net cash balance of 43 million and for a form of the 95 million sale of the elder's facility, net cash balance will.

Speaker Change: Whereas almost 140 million, you know, 14% of your market cat.

Speaker Change: and I know an event says a strong and many record-across cycles but I imagine today's environment presents a little bit more of a challenge for both buyers and sellers between the

Right, macro uncertainty policy risk, WTI floating with the mid-50s.

Speaker Change: Have you balanced that desire to pursue strategic deals with a...

Speaker Change: The risk of, you know, for activity level still being in flux and, you know, how are you seeing in kind of seller expectations and

Speaker Change: Historically, how long does it take to adjust to activity disruptions that's increasingly likely?

Kendal Reed: Thanks, Dave. Yeah, it's a really good question. Maybe just to start out, as you point out, we have a lot of cash on the balance sheet today, with more coming in from the sale of Eldridge, plus generating continual free cash flow from our operations. We've generated approximately $94 million of free cash flow over the past 4 quarters. We have a counter-cyclical cash flow profile. If we're going into a period of declining activity here, we do expect to spin out even more free cash flow. We'll have a lot of capital to put to work. We continue to really like our opportunity set and believe there are multiple great businesses out there that fit with our strategy, which can be acquired at attractive valuations.

Speaker Change: Thanks Dave. Yeah it's a really good question maybe just to start out as you point out we have a lot of cash on the balance sheet today with more coming in from the sale of Eldridge.

Speaker Change: Plus generating continual free cash flow from our operations, you know generated approximately 94 million of free cash flow over the past four quarters and we have a counter cyclical cash flow profile. So if we're going into a period of declining activity here, we do expect to spin out even more free cash flow.

Speaker Change: So we'll have a lot of capital to put to work.

Speaker Change: We continue to really like our opportunity set and believe there are multiple great businesses out there that fit with our strategy which can be acquired and attractive valuations.

Kendal Reed: To your point, there's always an element of thinking about what's going to happen with the market and getting to a valuation that works for everyone. Each acquisition that we've done over time has taken a while to come to fruition. We think given the number of good opportunities out there's still some good things we can do on the M&A side. I'd also point out we do have significant bandwidth remaining on our $100 million share repurchase program, so we're going to weigh M&A against buybacks to maximize returns, given the market volatility. We'll continue to stay very disciplined on valuation, but like I said, I think this is a great market environment to invest in our business.

Speaker Change: You know, to your point, there's always an element of thinking about what's going to happen with the market and getting to evaluation that works for everyone. So each acquisition that we've done over time has taken a while to come to fruition.

Speaker Change: But we think given the number of good opportunities out there, there's still some good things we can do on the M&A side. I'd also point out we do have significant bandwidth remaining on our $100 million share of our purchase program, so we're going to weigh M&A against buybacks.

to maximize returns given the market volatility.

Speaker Change: and we'll continue to stay very disciplined on valuation but like I said I think this is a great market environment to invest in our business and between our active and a pipeline in the buyback program. Really confident that we'll be able to put our access cash to work in a way that drives returns for our shareholders.

Kendal Reed: Between our active M&A pipeline and the buyback program, really confident that we'll be able to put our excess cash to work in a way that drives returns for our shareholders.

Adam Anderson: Yeah, maybe if I would just add a couple words to that. I think that was well said, but we focus on, let's say, things that create value for the long term. I don't think we're very good prognosticators on what's going to happen in the next 6 or 12 months in terms of activity. Obviously, if we're going into a period of some level of decline, we're going to generate a bunch of free cash flow. We'll have even more opportunities to do deals. I think we really look at, hey, from an acquisition standpoint, we look at, hey, is this deal going to make sense for us over the next 3 to 5 plus years, not just over the next 6 months or 12 months?

Speaker Change: Yeah, maybe if I would just add a couple words to it, I think that was well said, but

We focus on, let's say,

Speaker Change: Things that create value for the long term. I don't think we're very good prognosticators on what's going to happen in the next six or 12 months in terms of activity. Obviously, we're going into a period of some level of decline. We're going to generate a bunch of recast, but we'll have even more opportunities to do deals, but I think we really look at, hey, what what?

Speaker Change: From an acquisition standpoint, we look at Hazel's deal going to make sense for us over the next 3-5 plus years, not just over the next 6 months or 12 months.

David Smith: Really appreciate that color. If I could ask 1 follow-up. You cited the weaker than expected Mexico activity as a driver of the Q1 revenue miss and Q2 outlook. Can you help frame how meaningful Mexico was to your international revenue last year and how the current run rate compares to that prior baseline?

Speaker Change: I really appreciate that color. That's one follow-up. You said it though, we could then expect in Mexico activity as a driver of the Q1 revenue mess and Q2 outlook. Can you help frame how meaningful Mexico was to your international revenue last year and have the current run rate compares to that prior baseline?

Adam Anderson: Yeah. Mexico was historically, or I'd say last year, was roughly 5% of total company revenue, whatever that pencils out to on the international and offshore piece of the business. It was a really meaningful part of the business, and we ran some of our highest technology liner hanger and well construction equipment in Mexico. It was 5% of revenue last year. It came off hugely year over year. Yeah. Our run rate's down probably 80-ish%, if not a bit more than that, in Q1, and we're expecting not much of a rebound in Q2. I think at some point, they're going to have to get back to drilling more wells.

Speaker Change: Yeah, so Mexico was historically, or the last year was roughly 5%

Speaker Change: Total Company Revenue, so whatever that pencils out to in the international offshore piece of the business. So it's a really meaningful part of the business and we ran our highest, some of our highest technology liner hanger and well construction equipment in Mexico. So it was 5% of revenue last year, it came off.

Usually, you're over here, so...

Speaker Change: Yeah, so we're down about a run rate sound probably 80-ish percent if not a bit more than that in Q1 and we're expecting not much of a rebound in Q2. I think at some point they're going to have to get back to Dril and more wells, maybe not back to what it was last year, but we're having lots of conversations where we know that there's some...

Adam Anderson: Maybe not back to what it was last year, but we're having lots of conversations where we know that there's some talks in the way about getting back to work through some of the local contractors, as well as some of the bigger service companies down there. That's probably going to take a little bit of time to work through the system.

Speaker Change: Some talks in the way about getting some of the local contractors, getting back to work through some of the local contractors as well as some of the bigger service companies down there, but that's probably going to take a little bit of time to work through the system.

David Smith: I appreciate that. If I can be greedy and slip in one related one. For the US Gulf, it sounds like Q1 deliveries were on the softer side as expected. Can you talk about your outlook for the US Gulf business for the rest of 2025 compared to Q1?

Speaker Change: I appreciate that. If I can be greedy and slip in one related one, for the US call pit, it sounds like Q1 deliveries were on the softer side is expected. Can you talk about how, you know, your outlook for the US calls business for the rest of 25 compared to Q1?

Adam Anderson: Yeah. Q1 was off a little bit from Q4. We had a really strong lot of deliveries in Q4. Q1 was a little lighter as we had expected. It probably picks up a little bit in Q2 and then ramps a little bit harder in Q4. We're expecting some deliveries there. I think all in all for us, we're thinking full year-over-year is probably flattish in 2025 versus 2024. It feels like that. It's a little bit early to say, but it feels like 2026 is probably similar. We got a few customers picking up some activity, a few customers that are softening a little bit. I think flattish in general. It's just a little bit lumpy quarter-to-quarter given those big deliveries.

You're over years probably flat-ish in 25 versus 24

Speaker Change: and feels like that. I mean, it's a little bit early to say, but feels like 26 is probably similar. So we've got a few customers picking up some activity, a few customers that are softening a little bit. But I think flatish in general, it's just a little bit want-be-quarter to quarter given us those big deliveries.

David Smith: Really appreciate it. I will turn it back.

Really appreciate it. I'll turn it back.

Adam Anderson: Thanks, Dave.

Thanks, Ed.

Operator: Your next question comes from the line of Eddie Kim with Barclays. Your line is open.

Speaker Change: And your next question comes from the line of Eddie Kim with Barclays. Your line is open.

Eddie Kim: Hi, good morning. Just wanted to ask about the Q2 guidance. You noted in your slide deck that the market assumption is for continued weakness in Mexico and for slight activity declines in the NAM Land market. Based on what we're hearing so far from the E&P is just in the past couple of days, it sounds like the NAM Land market could decline more meaningfully in Q2 on a sequential basis. Just wanted to get some more color on your assumption there. Could you also just remind us how much of your business today is exposed to the NAM Land market? I was under the understanding it was about 60%, but if you could confirm that'd be great.

Speaker Change: It's based on what we're hearing so far from the E&P is just in the past couple of days it sounds like the NAMM landmark a could decline more meaningfully and in second quarter on a sequential basis.

Speaker Change: So, I just wanted to get some more color on your assumption there. And could you also just remind us how much of your business today is exposed to the land market? I was understanding it was about 60 percent, but if you could confirm that, that would be great.

Kendal Reed: Yeah, thanks, Eddie. Just in general, roughly half of our business comes from the NAM Land market and about half from the international and offshore market today, just to frame that. Adam can probably add some more color on activity outlook, but the one specific thing we highlighted on the call is seasonality in Canada with spring breakups. We will see some reduction in that revenue as expected, seasonally light in Q2. Then, as we said, there's significant uncertainty around what's going on in the US land market today. We're expecting a little bit of softness there, but acknowledge there's some volatility. I don't know if you want to add anything to that.

Speaker Change: Yeah, I think so. So just in general, roughly half of our business comes from the Nam Land market and about half from the international and offshore market today just to frame that.

Speaker Change: Adam can probably add some more color on activity outlook, but the one specific thing we highlighted on the call is seasonality in Canada with spring breakups, so we will see some some reduction in that.

Speaker Change: Revenue as expected, seasonally light in Q2. And then, as we said, there's significant uncertainty around what's going on in the U.S. land market today. We're expecting a little bit of softness there, but acknowledge there's some volatility. I don't know if you want to ask.

Adam Anderson: Yeah, no, obviously we stay close to what our customers are saying. Just this week we've had a couple of folks talk about reducing CapEx from a little bit to 20-ish% or a little more than that. Obviously, that's going to take them a little bit of time, so we haven't seen the impact of that yet. There might be what we're estimating is, we start to see a little bit of that at the end of the quarter. As I said earlier, and as I'll reinforce, we do not pretend to be great prognosticators on the level of activity. I think it's hard for anybody to do accurately.

Speaker Change: Yeah, no, I mean, obviously we try to, we say close to what our customers are saying. And just this week we've had a couple of folks talk about reducing capex from a little bit to 20% or a little more than that. Obviously, that's going to take them a little bit at a time, so we haven't seen the impact of that yet, so there might be a little where we're estimating is.

Speaker Change: We start to see a little bit of that at the end of the quarter, but as I said earlier and as I'll reinforce [inaudible]

Speaker Change: We do not pretend to be great prognosticators on the level of activity. I think it's hard for anybody to do accurately. I think what we really take pride and then try to do exceptionally well is being highly responsive to what the market gives us and optimizing our business for the stage of the cycle that we're in.

Adam Anderson: I think what we really take pride in and try to do exceptionally well is being highly responsive to what the market gives us and optimizing our business for the stage of the cycle that we're in.

Eddie Kim: Got it. My follow-up is just on kind of preliminary thoughts into H2 of the year. I know the market is very uncertain at the moment, if the NAM Land market does deteriorate from here, is it fair to assume that kind of overall company-wide H2 revenue and EBITDA should decline from versus H1 levels? Will some of those subsea deliveries in H2 of the year potentially provide a sufficient offset to make H2 look maybe fairly balanced versus H1 level? Just any preliminary thoughts on H2.

Got it, got it. My follow up is just on

Speaker Change: Kind of pre-liminate thoughts into the second half of the year. I know that the market is very uncertain at the moment but if the nameland market does deteriorate from here

Speaker Change: Is it fair to assume that kind of overall company wide-second half revenue in EBITDA should decline from versus first half levels or will some of those subsidy deliveries in the second half of the year potentially provide sufficient offset?

Speaker Change: To make second half look, maybe fairly balanced versus first half level, just any preliminary thoughts on second half?

Kendal Reed: Yeah, it's probably difficult to quantify at this point, just given the uncertainty around what's going to happen with activity levels. I think you make a good point that we will have some international offshore deliveries that'll be tailwinds to the H2 of the year that would definitely help offset any softness in the NAM Land market. Maybe the other thing I would just underscore is to reiterate Adam's point. We have a very flexible business model, right? If things are slowing down, we'll be able to take costs out of the business, maintain margins, and we do have this countercyclical cash flow profile that will allow us to generate a lot of cash through those cycles in the market that we look to deploy either through M&A or through repurchasing shares to kind of drive returns.

Speaker Change: Yeah, it's probably difficult to quantify at this point, just given the uncertainty around what's going to happen with the activity levels but I think you make a good point that we will have some international offshore deliveries that will be tailwinds the second half of the year that would definitely help offset any softness in the nameland market. [inaudible]

Speaker Change: And then maybe the other thing I would just underscore is to reiterate Adam's point. We have a very flexible business model, right? If things are slowing down, we'll be able to take costs out of the business, maintain margins.

Speaker Change: And we do have this counter-cyclical cash flow profile that will allow us to generate a lot of cash through those cycles in the market that we look to deploy either through M&A or through repurchasing shares to kind of drive returns. So I think we have multiple ways to win, even if we are going into a soft period in the market. But yeah, very difficult to say exactly what's going to happen the rest of this year.

Kendal Reed: I think we have multiple ways to win, even if we are going into a soft period in the market. Yeah, very difficult to say exactly what's going to happen the rest of this year.

Adam Anderson: Yeah, I think just to add a little bit to that, historically, we've had a pretty good track record of organically growing market share. I think right now a great example of that is the legacy DWS business that we acquired late 2023 and been partnered with for a couple of years. They continue to grow market share, and that business is really well levered to longer laterals. As those laterals get longer and longer, we need more and more of those kind of drilling optimization products that we provide. We have some segments and some parts of the market that we think can outgrow the overall market performance.

Speaker Change: Yeah, and I think to add a little bit to that, we obviously historically have had a pretty good track record of organically growing market share. I think right now a great example of that is the legacy, the WCS business that we acquired late last year and been partnered with for a couple of years.

Speaker Change: They continue to grow market share, and that business is really well levered to longer laterals. Those laterals get longer and longer, we need more and more of those kind of drilling optimization products that we provide.

Speaker Change: So we have some segments and some parts of the market that we think can outgrow the overall market performance.

Eddie Kim: Got it. Thanks for that color. If I could just squeeze one more in here. Just on free cash flow, you said that under normal business conditions, the company converts about 50% to 60% of EBITDA into free cash flow. I don't think it'd be fair to characterize what we're going through now as normal business conditions, but wanted to ask what your expectations were for free cash flow this year and if you think that EBITDA conversion could still hold this year.

Speaker Change: Got it. Thanks for that color. And if I could just squeeze one more in here. Just on free cash flow, you said that, you know, under normal business conditions, the company converts about 50.

Speaker Change: to 60% of EBITAN to pre-cash a lot. I don't think it'd be fair to characterize what we're going through now as normal business conditions, but wanted to ask what your expectations were for pre-cash with this year, and if you think that EBITAN conversion could still hold this year.

Kendal Reed: Yeah, no, it's definitely an important point. When we talk about normal business conditions, we're thinking more mid-cycle where things are relatively stable. Just as a reminder, our business is very capital light. We tend to spend 2% to 3% of revenue on CapEx. We do invest in working capital, stocking inventory close to our customers to support their activity. Actually, if things are slowing down, we'd expect to generate more than 50% to 60% of our EBITDA converted into free cash flow. It's during periods of growth that we tend to generate a little bit less than that. I think if we're kind of in a flat to down market over the next year or two, I think that 50% to 60% is very achievable, hopefully a bit better than that.

Speaker Change: Yeah, no, it's definitely an important point so when we talk about normal business conditions we're thinking more mid-cycle where things are relatively stable.

Speaker Change: And just as reminders, our business is very capital light. We tend to spend two to three percent of revenue on CapEx.

Speaker Change: But we do invest in working capital, stocking inventory close to our customers to support their activity. So, actually, if things are slowing down, we'd expect to generate more than 50% to 60% of our EBITDA converted into free cash flow. It's during periods of growth that we tend to generate a little bit less than that. So, I think if we're kind of in a flat to downmarket over the next year or two, I think that 50% to 60% is very achievable, hopefully a bit better than that.

Eddie Kim: Understood. Great. Thanks for that, Kendal. I'll turn it back.

Speaker Change: Understood. Understood. Great. Thanks for that call. I'll turn it back.

Speaker Change: and we have follow-up questions from David Smith with Pickering Energy Partners. Your line is open.

Operator: We have follow-up questions from David Smith with Pickering Energy Partners. Your line is open.

David Smith: Hey, thanks for letting me back in. I did want to say congratulations on the first deployment of the VXTe tree. Wanted to ask if you could share any details on the performance of that installation and client feedback, but also whether you're seeing any additional customer interest in the VXTe, and if so, how would you think about the path to commercialize that technology?

Thanks for letting me back in.

David Smith: I did want to say congratulations on the first deployment of the VXTE tree.

Speaker Change: I wanted to ask if you could share any details on the performance of that installation and client feedback, but also whether you're seeing any additional customer interest in the VXTE. And so, how do you think about the path to commercialize that technology?

Adam Anderson: Thanks, Dave. It's a good question. That's a really awesome technology, and I think the first installation went very smoothly, so the customer is really pleased with the performance. Huge hats off to our technical team that's been working on that for quite a long time, from the design all the way through implementation. It went as smoothly as these kind of things can go. I think the customer is very pleased with that initial installation. We are, and as a reminder, the customer estimate was that we could save up to 7 days of installation time because this tree directly orients to the tubing hanger in the wellhead and cuts out a lot of intermediate steps that people typically use to deploy trees today in an offshore deepwater environment. We absolutely are getting some more customer interest on the back of that success.

Speaker Change: Yeah, thanks David. It's a good question. Yeah, so that's a really awesome technology. And I think the first installation went very smoothly. So the customer is really pleased with the performance. So huge hats off to our technical team has been working on that for quite a long time from the design all the way through implementation. It went as smoothly as these kind of things can go. So I think the customer is very pleased with that initial installation. Yes, we are. And as a reminder, like they as

Speaker Change: The customer estimate was that we could save up to seven days of installation time because this tree directly oriented to the tubing hanger in the well head and cuts out a lot of intermediate steps that people typically use to deploy trees today in an offshore deep water environment.

Speaker Change: We absolutely are getting some more customer interest on the back of that.

Adam Anderson: As you know, that's a very long lead time, long sales cycle on subsea trees, but we have a lot of customers who have been paying attention for a while, and now that it's been successful, they want to know more about it. As you know, our scale on the subsea tree business today is really pretty small. What we're evaluating, is there an avenue for us to commercialize this technology by getting our customers excited about it and then partnering with their existing tree provider to implement this technology and combine our wellhead tubing hanger technology with the customer's existing tree supplier. That's how we're thinking about it today. Again, it's going to take a while for that to actually reveal itself.

Speaker Change: That success, as you know, that's a very long, long sales cycle on subsea trees, but we have a lot of customers who have been paying attention for a while, and now that it's been successful, they want to know more about it.

Speaker Change: As you know, our scale on the subsea tree business today is really pretty small, so I don't what we're evaluating is there an avenue for us to commercialize this technology by getting our customers excited about it, and then partnering with their existing tree provider to implement this technology and combine our well head tubing hanger technology.

Speaker Change: with the customer's existing tree supplier. That's how we're thinking about it today, but again, it's going to take a while for that to actually reveal itself.

David Smith: Great. That's all I had. Thank you.

Great. That's all I have. Thank you.

Adam Anderson: Thanks, Dave.

Thanks, Beth.

Operator: With no further questions, I will now turn the conference back over to Mr. Adam Anderson for closing remarks.

Adam Anderson: Thank you very much. Thanks to everybody for joining the call, and especially thank you to all our employees for everything that they do to make the company so successful. We're very pleased with where we're headed, and I look forward to updating everyone on our progress.

Speaker Change: Thank you very much. Thanks to everybody for joining the call and especially thank you to all our employees for everything that they do to make the company so successful. We're very pleased with where we're headed and look forward to updating everyone on our progress.

Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.

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