Q2 2025 Innovex International Inc Earnings Call

Speaker #4: Good morning and welcome to Innovex's second quarter 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.

Speaker #4: 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.

Speaker #4: Please go ahead.

Speaker #5: Good morning, everyone, and thank you for 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.

Avinash Cuddapah: Good morning, everyone, and thank you for 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 Q2 2025 financial and operational results announcement 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 #5: 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.

Speaker #5: 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.

Speaker #5: Please refer to the second quarter 2025 financial and operational results announcement that we released yesterday for a discussion of forward-looking statements and reconciliations of non-GAAP measures.

Speaker #5: Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer, and Kendal Reed, Chief Financial Officer. I would now like turn the call over to Adam Anderson.

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

Speaker #6: Thanks, Avi. Good morning, and thank you, yone, for joining us today. First, I'd ike to say thanks to our redible team. We continue to make progress in our strategic initiatives and I'm y proud and grateful for their efforts.

Adam Anderson: Thanks, Avi. Good morning, thank you everyone for joining us today. First, I'd like to say thanks to our incredible team. We continue to make progress on our strategic initiatives, I'm very proud and grateful for their efforts. On today's call, I'll discuss our Q2 results and walk through some of the key highlights, starting with organic growth, the Citadel acquisition, and our outlook. Kendall will review our Q2 financial results, our strong financial position, and the multiple levers we can pull to drive strong shareholder returns. Innovex has created a unique energy industrial platform that drives exceptional service and value for our customers, as well as strong absolute returns for our shareholders. We've done this by curating a portfolio of what we refer to as big impact, small ticket products.

Speaker #6: On today's call, I'll uss our second quarter results and walk through some of the key highlights, starting organic growth, the Citadel acquisition, and our look.

Speaker #6: Kendal will then review our Q2 financial results, our strong financial position, and the multiple levers we can pull to drive strong shareholder returns. Innovex has created a unique energy industrial platform that drives exceptional service and value for our ustomers as well as strong absolute returns for our shareholders.

Speaker #6: We've done this by curating a portfolio of what we refer to as big impact, small ticket products. Our business model requires very little capital, typically two to three percent of revenue, and we aim to convert 50 to 60 percent of our EBITDA into free cash flow under normal business conditions.

Adam Anderson: Our business model requires very little capital, typically 2% to 3% of revenue. We aim to convert 50% to 60% of our EBITDA into free cash flow under normal business conditions. I am extremely pleased with our strong margins and free cash flow in Q2. Disappointed by the lower than expected revenue. Margins and free cash flow grew sequentially despite a challenging operating environment. Our North America land business remained resilient, absorbing the seasonal effects of breakup in Canada. Excluding the benefit of one month of Citadel revenue, our US land business remained flat, outperforming a 7% rig count reduction. This revenue performance reflects market share gains. For example, in our Drilling Enhancement product line, which was brought over from the DWS acquisition last year.

Speaker #6: I am extremely pleased with our strong margins and free cash flow in Q2, but disappointed by the lower than expected revenue. Margins and free cash flow grew sequentially despite a challenging operating environment.

Speaker #6: Our North America land business remained resilient, absorbing the seasonal effects of breakup in Canada. Excluding benefit of one month of Citadel revenue, our US land business remained flat.

Speaker #6: Outperforming a 7% recount reduction, this revenue performance reflects market share gains. For example, in our drilling enhancement product line, which was brought over from the DWS acquisition last year.

Speaker #6: This product line continues to gain share in the US, while also growing share outside of the US as we leverage our international distribution channels.

Adam Anderson: This product line continues to gain share in the US, while also growing share outside of the US as we leverage our international distribution channels. Importantly, revenue synergies from the DWS acquisition have begun materializing, demonstrating the value of this transaction. As an example, the legacy DWS sales team recently won a multi-rig bid for our cementing tools with a major operator in the Permian Basin, the first big cross-selling win of many we expect to realize. Turning to our international and offshore business, revenue was down approximately 13% sequentially. This softness was primarily isolated to our Middle East and Asia Pacific market, which experienced activity declines, short-term product-specific headwinds, and delivery delays which deferred revenues that we had previously expected to book in Q2. Underlying demand, however, remains healthy, and we expect a return to momentum in the coming quarters.

Speaker #6: Importantly, revenue synergies from the DWS acquisition have begun materializing. Demonstrating the value of this transaction. As an ample, the legacy DWS sales team recently won a multi-rig bid for our cementing ols, with a major operator in the Permian Basin, the first big cross-selling win of many we expect to realize.

Speaker #6: Turning to our international and offshore business, revenue was down approximately 13% sequentially. This softness was primarily isolated to our Middle East and Asia Pacific markets.

Speaker #6: Which experienced activity declines, short-term product-specific headwinds, and delivery delays, which deferred revenues that we had previously expected to book in Q2. Underlying demand, however, remains healthy, and we expect a return to momentum in the coming quarters.

Speaker #6: Despite the weakness in our Middle East and Asia Pacific businesses, we did see growth in our Latin America business thanks to stronger performance in Mexico and Argentina.

Adam Anderson: Despite the weakness in our Middle East and Asia-Pacific businesses, we did see growth in our Latin America business, thanks to stronger performance in Mexico and Argentina. Importantly, we're starting to gain traction with our Drilling Enhancement tools in Argentina's unconventional market, thanks to customer adoption of our GunDRILL Reamers and dissolvable frac plugs. This is particularly exciting as we expect adoption of these products to open the market for our entire suite of wellbore technologies, driving organic growth in future quarters. I would now like to discuss our recent acquisition of Citadel Casing Solutions, which we closed on 30 May. Citadel is already expanding our market position, enhancing our technology portfolio, and unlocking meaningful commercial synergies. This acquisition further solidifies Innovex's leadership position in the US land market for cementing tools with market-leading scale and capabilities.

Speaker #6: Importantly, we're starting to gain traction with our drilling and completion tools in Argentina's unconventional market thanks to customer adoption of our gun drill reamers and dissolvable frack plugs.

Speaker #6: This is particularly exciting as we expect adoption of these products to open the market for our entire suite of weldware technologies driving organic growth and future quarters.

Speaker #6: I would now like to discuss our recent acquisition of Citadel Casing Solutions, which we closed on May 30th. Citadel is already expanding our market position, enhancing our technology portfolio, and unlocking meaningful commercial synergies.

Speaker #6: This acquisition further solidifies Innovex's leadership position in the US land market for cementing tools, with market-leading scale and capabilities. Citadel's product lines are highly complementary to our acy portfolio and fit squarely within our big impact, small ticket approach.

Adam Anderson: Citadel's product lines are highly complementary to our legacy portfolio and fit squarely within our big impact, small ticket approach. By big impact, small ticket, we mean solutions that are critical to well construction and completion, yet represent a small portion of our customers' overall well cost. We've curated a portfolio of products that fit this description because these products tend to have consistent margins driven by a clear value proposition. Citadel's TrenchFoot wet shoe technology is a quintessential big impact, small ticket product. This proprietary technology enables increased reservoir access, which ultimately increases production from our customers' wells. Additionally, these tools help operators reduce cycle times, driving measurable gains and efficiencies, paramount in today's competitive landscape.

Speaker #6: By big impact, small ticket, we mean solutions that are critical to weld construction and completion, yet represent a small portion of our customers' overall weld cost.

Speaker #6: We've curated a portfolio of products that fit this description because these products tend to have consistent margins driven by a clear value proposition. Citadel's trench foot wetshoe technology is a quintessential big impact, small ticket product.

Speaker #6: This proprietary technology enables increased reservoir access, which ultimately increases production from our ustomers' wells. Additionally, these tools help operators reduce cycle times, driving measurable gains in efficiencies.

Speaker #6: Paramount in today's competitive landscape. A good ample of this trench foot has been utilized by one major international operator's over 1,500 successful installations in the US, with 100% reliability rate leading to an estimated 161 million dollars in savings.

Adam Anderson: A good example of this, TrenchFoot has been utilized by one major international operator in over 1,500 successful installations in the US with 100% reliability rate, leading to an estimated $161 million in savings. We estimate that this technology has been adopted on only 25% of applicable wells in the US, which means we have significant potential to grow share. We are already seeing significant revenue synergies from the transaction, which should drive incremental growth in the coming quarters. It's important to understand that Citadel's existing blue-chip customer base had minimal overlap with Innovex's legacy customer base, which means there are opportunities to grow market share for both legacy portfolios. In fact, just a few months after close, we have already seen early wins.

Speaker #6: We estimate that this technology has been adopted on only 25% of applicable wells in the US, which means we have significant potential to grow share.

Speaker #6: We are already seeing significant revenue synergies from the transaction, which should drive incremental growth in the coming quarters. It's important to understand that Citadel's existing fluid chip customer base had minimal overlap with Innovex's legacy customer base.

Speaker #6: Which ans there are opportunities to grow market share for both legacy portfolios. In fact, just a few months after close, we have already seen early wins.

Speaker #6: Within the last week, we've made significant progress validating the trench foot system for one of the largest operators in West Texas. We successfully passed the first stage of field testing with this customer and expect to pick up nine additional rigs utilizing trench foot with this strategic customer.

Adam Anderson: Within the last week, we have made significant progress validating the TrenchFoot system for one of the largest operators in West Texas. We successfully passed the first stage of field testing with this customer and expect to pick up nine additional rigs utilizing TrenchFoot with this strategic customer. We expect this to translate to roughly $1 million per quarter of additional revenue, with further potential by both deploying TrenchFoot to more rigs with this customer and expanding the set of products we supply to this customer. We do not plan to stop with US land, however. While approximately 80% of Citadel’s current business is concentrated in US land, the portfolio is well suited for applications in offshore and international markets, which can now be easily tapped as part of the Innovex platform. Finally, we have already realized synergies through sales force integration and distribution consolidation.

Speaker #6: We expect this to translate to roughly $1 million per quarter of additional revenue, with further potential by both deploying trench foot to more rigs with this customer and expanding the set products we supply to this customer.

Speaker #6: We don't plan to stop with US land, however. While approximately 80% of Citadel's current business is concentrated in US land, the portfolio is well suited for applications in offshore and international markets.

Speaker #6: Which can now be easily tapped as part of the Innovex platform. Finally, we have already realized synergies through Salesforce integration and distribution consolidation. Cross-selling efforts are quickly gaining traction alongside efforts to improve delivery efficiency by streamlining our footprint.

Adam Anderson: Cross-selling efforts are quickly gaining traction alongside efforts to improve delivery efficiency by streamlining our footprint. These early wins give us confidence that this transaction will drive long-term, sustainable value across the entire Innovex platform for both our customers and shareholders. The Citadel acquisition is a prime example of our M&A strategy, a great business needing an exit for its current investors that fits extremely well with Innovex's platform and business model. Our strong balance sheet allowed us to execute this transaction at a time of particularly elevated macro uncertainty as we see the long-term value of the combined portfolio and commercial synergies. As we've said all along, we make the cycles of our industry a feature, not a bug in our business model, and this quarter was no exception. Even after spending $70 million of cash on the Citadel acquisition, we maintain a net cash balance sheet.

Speaker #6: These early wins give us confidence that this transaction will drive long-term sustainable value across the entire Innovex platform for both our customers and shareholders.

Speaker #6: The Citadel acquisition is a prime example our M&A strategy, a great business needing an exit for its current investors that fits extremely well with Innovex's platform and business model.

Speaker #6: Our strong balance sheet allowed us to execute this transaction at a time of particularly elevated macro uncertainty. As we see the long-term value of the combined portfolio and commercial synergies, as we said all along, we make the cycles of our industry a feature, not a bug of our business model, in this quarter with no exception.

Speaker #6: Even after spending $70 million in cash on the Citadel acquisition, we maintain a net cash balance sheet. We expect to close in the $95 million sale of our Eldridge facility in the third quarter, which today represents roughly 8% of our market cap.

Adam Anderson: We expect to close on the $95 million sale of our Eldridge facility in Q3, which today represents roughly 8% of our market cap. Our thesis when we merged with Dril-Quip was that we could improve margins and service quality, this sale not only frees up an exceptional amount of capital, but it's a key enabler of our plans to consolidate facilities, create efficiencies, and drive cultural change. As discussed previously, we've made improving the customer experience a top priority, a key driver of that has been raising our on-time delivery of the Subsea Tree product line, now to the low 70% range. This operational progress has meaningfully enhanced our credibility with customers and positioned us to compete for new opportunities we simply wouldn't have been considered for before.

Speaker #6: Our thesis when we merged with DrillQuote was that we could improve margins and service quality and this sale not only frees up an exceptional amount of capital, but the key enabler of our plans to consolidate facilities, great efficiencies, and drive cultural change.

Speaker #6: As discussed previously, we've improving the customer experience a top priority. And a key driver of that has been raising our on-time delivery of the subsea product line, now to the low 70% range.

Speaker #6: This operational progress has meaningfully enhanced our redibility with customers and positioned us to compete for new opportunities we've simply wouldn't have been considered for before.

Speaker #6: In fact, we've recently secured two contracts, each in the 5 to 10 million dollar range that we likely would have lost in the past due to delivery reliability concerns.

Adam Anderson: In fact, we've recently secured two contracts, each in the $5 to 10 million range, that we likely would have lost in the past due to delivery reliability concerns. While we're pleased with this early progress, we're not stopping here. Our goal is to reach an on-time delivery rate of over 90%, consistent with Innovex's historical standards, and we're confident in our team's ability to continue to close that gap. Overall, I'm pleased with the Q2 results, despite the tough operating environment. We maintained margins, generated significant free cash flow, and closed on a highly accretive acquisition. 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 in the mid-20% range. I will now hand the call over to Kendall.

Speaker #6: While we're pleased with this early progress, we're not stopping here. Our goal is to reach an on-time delivery rate of over 90%, consistent with Innovex's historical standards, and we're confident in our team's ability to continue to close that gap.

Speaker #6: Overall, I'm pleased with the second quarter results despite the tough operating environment. We maintained margins, generated significant free cash flow, and closed on a highly accretive acquisition.

Speaker #6: 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 in the mid-20% range.

Speaker #6: I will now hand the call over to Kendal.

Speaker #7: Thanks, Adam. And good ning, everyone. Just as a general reminder before we review the Q2 results, we closed on the merger with DrillQuote on September 6th, 2024.

Kendal Reed: Thanks, Adam. Good morning, everyone. Just as a general reminder before we review the Q2 results, we closed on the merger with Dril-Quip on 6 September 2024. Innovex was the accounting acquirer in the merger. Historical comparative periods prior to Q3 2024 reflect legacy Innovex standalone results. Turning to Q2 2025, while we are disappointed by the top-line results, we are pleased that our overall Q2 financial performance demonstrated the durability of our earnings and cash flow, highlighting the strength of our business model in all phases of the cycle. Our Q2 revenue was $224 million, which is an increase of 72% year-over-year and a decrease of 7% sequentially. The year-over-year increase is primarily driven by the impact of the Dril-Quip merger and the DWS acquisition.

Speaker #7: And Innovex was the accounting acquirer in the merger, so historical comparative periods prior to Q3 2024 reflect legacy Innovex standalone results. Turning the Q2 2025, while we are disappointed by top-line results, we are pleased that our overall Q2 financial performance demonstrated the durability of our earnings and cash flow.

Speaker #7: Highlighting the strength of our business model in all phases of the cycle. Our second quarter revenue was $224 million, which is an increase of 72% year-over-year and a rease of 7% sequentially.

Speaker #7: The year-over-year increase is primarily driven by the impact of the DrillQuote merger and the DWS acquisition. 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 the Gulf of America.

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 the Gulf of America. Our Q2 NAM Land revenue of $120 million was flat in comparison to Q1 revenue, with growth in US lands primarily as a result of the DWS business continuing to outpace the market and the addition of one month of Citadel revenue, roughly offsetting seasonal declines in Canada due to spring breakup. Our international and offshore revenue during the Q2 2025 was $104 million, a decrease of 13% sequentially, due primarily to greater than anticipated revenue weakness in our Middle East and Asia Pacific business, as Adam discussed. Our Q2 cost of sales, exclusive of depreciation and amortization, decreased by $11 million sequentially to $153 million.

Speaker #7: Our Q2 NAM land revenue of $120 million was flat in comparison to Q1 revenue, with growth in US land primarily as a result of the DWS business continuing to outpace the market and the addition of one month of Citadel revenue, roughly offsetting seasonal declines in Canada due to spring breakup.

Speaker #7: Our international and offshore revenue during the second quarter of 2025 was $104 million. A decrease of 13% sequentially due primarily to greater-than-anticipated revenue weakness in our Middle East and Asia Pacific business, as Adam discussed.

Speaker #7: Our Q2 cost of sales exclusive of depreciation and amortization decreased by $11 million sequentially to $153 million. Selling general and administrative expenses for the quarter decreased by $3 million sequentially to $29 million.

Kendal Reed: Selling, general, and administrative expenses for the quarter decreased by $3 million sequentially to $29 million. Our SG&A as a percentage of revenue continues to decrease from the close of the Dril-Quip merger, moving from approximately 25% in Q3 2024 to just below 13% in Q2 2025. Strong operational execution and synergies have driven increases in EBITDA margin from the time of the merger, rising from 18% in Q3 2024 to 21% in Q2 2025, despite a decrease in revenue. We continue to 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. We still expect the facility sale to close in Q3 2025, with margin benefits being realized over the course of 2026.

Speaker #7: Our SG&A is a percentage of revenue continues to decrease from the close of the DrillQuote merger. Moving from approximately 25% in Q3 2024 to just below 13% in Q2 2025.

Speaker #7: Strong operational execution and synergies have driven increases in EBITDA margin from the time of the merger, rising from 18% in Q3 2024 to 21% in Q2 2025, despite a decrease in revenue.

Speaker #7: We continue to believe in the long term, the combined Innovex platform can generate EBITDA margins of 25% or greater, in line with Innovex's historical results.

Speaker #7: We expect the sale of Eldridge facility to unlock the next phase of margin expansion. We still expect the facility sale to close in the third quarter of 2025, with margin benefits being realized over the course of 2026.

Speaker #7: However, we would caution that we do not expect margin improvement to linear, as we will incur various costs and inefficiencies as we work through the integration of physical operations over the next year.

Kendal Reed: However, we would caution that we do not expect margin improvement to be linear, as we will incur various costs and inefficiencies as we work through the integration of physical operations over the next year. Adjusted EBITDA for Q2 was approximately $47 million, an increase of approximately $1 million sequentially and an increase of $17 million year-over-year. Free cash flow for Q2 was $52 million, a sequential increase of $28 million. During Q2, we successfully completed the divestiture of our Subsea Tree product line for total proceeds of $10 million. While this sale had no impact on Q2 revenue, approximately $7 million of that $10 million sale price was attributable to inventory and thus represents a one-time benefit to cash flow from operations and free cash flow during Q2.

Speaker #7: Adjusted EBITDA for the second quarter was approximately $47 million. An increase of approximately $1 million sequentially and an increase of $17 million year-over-year. Free cash flow for the second quarter was $52 million.

Speaker #7: A sequential increase of $28 million. During Q2, we successfully completed the divestiture of our subsea tree product line for total proceeds of $10 million.

Speaker #7: While this sale had no impact on Q2 revenue, approximately $7 million of that $10 million sale price was attributable to inventory and thus represents a one-time benefit to cash flow from operations and free cash flow during the second quarter.

Speaker #7: As a reminder, under normal business conditions, we aim to convert 50 to 60 percent of our adjusted EBITDA into free cash flow. During periods of slower activity, however, we can unwind working capital to convert an even higher percentage of our adjusted EBITDA into cash.

Kendal Reed: As a reminder, under normal business conditions, we aim to convert 50% to 60% of our adjusted EBITDA into free cash flow. During periods of slower activity, however, we can unwind working capital to convert an even higher percentage of our adjusted EBITDA into cash. Capital expenditures in Q2 2025 were $7 million, representing approximately 3% of revenue, in line with our historical target of 2% to 3% of revenue. We still anticipate being on the high end of our historical range in 2025 while we work through facility consolidation after the sale of the Eldridge facility. This marginal increase in 2025 CapEx will be far outweighed by the net proceeds of the sale of Eldridge, which demonstrates the value of our capital-light business model. Even after acquiring Citadel in an all-cash deal, our balance sheet remains strong with a net cash position to end the quarter.

Speaker #7: Capital expenditures in the second quarter of 2025 were $7 million. Representing approximately 3% of revenue, in line with our historical target of 2 to 3 percent of revenue.

Speaker #7: We still anticipate being on the high end of our historical range in 2025 while we work through facility consolidation after the sale of the Eldridge facility.

Speaker #7: This marginal increase in 2025 CapEx will be far outweighed by the net proceeds of the sale of Eldridge, which demonstrates the value of our capital-light business model.

Speaker #7: Even after acquiring Citadel in an all-cash deal, our balance sheet remains strong with a net cash position to end the quarter. Our total debt as of June 30th, 2025, was $41 million.

Kendal Reed: Our total debt as of 30 June 2025, was $41 million, representing a debt to trailing 12-month adjusted EBITDA ratio of 0.2 times, more than offset by $69 million of cash and equivalents. Our return on capital employed for the 12 months ended 30 June 2025, was 13%, which is an increase of 1% compared to the 12 months ended 31 March 2025. We continue to make progress towards our goal of returning the business to Innovex's 7-year historical average ROCE of approximately 18%. Turning to our outlook for Q3, we expect adjusted EBITDA of $40 to $45 million and revenues of $230 to $240 million. Our anticipated sequential revenue growth is supported by several key factors. First, scheduled deliveries on certain key projects in the Middle East will increase from Q2 to Q3.

Speaker #7: Representing a debt-to-trailing 12-month adjusted EBITDA ratio of 0.2 times. More than offset by $69 million of cash in equivalence. Our return on capital employed for the 12-month ended June 30th, 2025, was 13%.

Speaker #7: Which is an increase of 1% compared to the 12 months ended March 31st, 2025. We continue to make progress towards our goal of returning the business to Innovex's seven-year historical average ROCE of approximately 18%.

Speaker #7: Turning to our outlook for the third quarter, we expect adjusted EBITDA of $40 to $45 million and revenues of $230 to $240 million. Our anticipated sequential revenue growth is supported by several key factors.

Speaker #7: First, scheduled deliveries on certain key projects in the le East will increase from Q2 to Q3. Additionally, our US offshore and Asia Pacific revenue is expected to benefit from shipments that were previously expected in Q2, but have now shifted into the back half of the year.

Kendal Reed: Additionally, our US offshore and Asia Pacific revenue is expected to benefit from shipments that were previously expected in Q2 but have now shifted into the back half of the year. Finally, Q3 will mark the first full quarter of contribution from Citadel, which we expect to be a meaningful offset to potential softness in the US land market, where continued uncertainty and decreased customer investments may weigh further on activity. Our Latin America, North Sea, and Africa businesses are expected to remain relatively stable quarter over quarter, reflecting consistent underlying demand across those regions. Although the operating environment continues to be volatile, we remain focused on strong execution and capital discipline, and we're confident in the resilience of our portfolio as we move into the back half of the year.

Speaker #7: Finally, Q3 will mark the first full quarter of contribution from Citadel, which we expect to be a aningful offset to potential softness in the US land market.

Speaker #7: We're continued uncertainty and decreased customer investments may weigh further on activity. Our Latin America, North Sea, and Africa businesses are expected to remain relatively stable quarter over quarter, reflecting consistent underlying demand across those regions.

Speaker #7: Although the operating environment continues to be volatile, we remain focused on strong execution and capital discipline, and we're ident in the resilience of our portfolio as we move into the back half of the year.

Speaker #7: As we have stressed previously, we believe our business model can be opportunistic in all phases of the cycle. The acquisition of Citadel is a great example and showcases our M&A strategy in action.

Kendal Reed: As we have stressed previously, we believe that our business model can be opportunistic in all phases of the cycle. The acquisition of Citadel is a great example and showcases our M&A strategy in action. By leveraging our strong balance sheet and cash flow generative business model, we were able to acquire Citadel in an all-cash deal while maintaining a conservative leverage profile and net cash position. Citadel was acquired at an attractive value of 3.8x LTM adjusted EBITDA and was 8% accretive to Innovex's earnings per share before factoring in expected synergies. Citadel fits our strict qualitative and quantitative frameworks, utilizing its big impact, small ticket product portfolio to create a capital-light business which achieved 26% adjusted EBITDA margins with strong free cash flow and returns on capital.

Speaker #7: By leveraging our strong balance sheet and cash flow generative business model, we were able to acquire Citadel in an all-cash deal while maintaining a conservative leverage profile and net cash position.

Speaker #7: Citadel was acquired at an attractive value of $3.8 times LVM adjusted EBITDA and was 8% accretive to Innovex's earnings per share before factoring in expected synergies.

Speaker #7: Citadel fits our strict qualitative and quantitative frameworks, utilizing its big impact, small ticket product portfolio, to create a capitalized business which achieved 26% adjusted EBITDA margins with strong free cash flow and returns on capital.

Speaker #7: We continue to maintain an active M&A pipeline of attractive companies which fit our ework, and we are positioned to be opportunistic given the lack of capital available to the energy sector.

Kendal Reed: We continue to maintain an active M&A pipeline of attractive companies which fit our framework, we are positioned to be opportunistic given the lack of capital available to the energy sector. In addition to evaluating inorganic growth opportunities, we maintain significant capacity on our previously authorized $100 million share repurchase program as a competing use of capital. During Q2, we repurchased approximately $8.5 million worth of shares. We will continue to weigh share repurchases against M&A, especially in the current environment where there is significant market volatility. As we look towards H2 of the year, we are excited about the potential opportunities on the horizon. We believe our net cash balance sheet, expected close of the Eldridge facility sale in Q3, and the integration of the Citadel will position us well to continue delivering superior returns to our shareholders.

Speaker #7: In addition to evaluating inorganic growth opportunities, we maintain significant capacity on our previously authorized $100 million share repurchase program, as a competing use of capital.

Speaker #7: During the second quarter, we repurchased approximately $8.5 million worth of shares. We will continue to weigh share repurchases against M&A, especially in the current environment where there is ant market volatility.

Speaker #7: As we look towards the second half of the year, we are excited about the potential opportunities on the horizon. We believe our net cash balance sheet expected close of the Eldridge facility sale in Q3 and the integration of the Citadel business will position us well to continue delivering superior returns to our shareholders.

Speaker #7: I'll now turn the call back to Adam.

Kendal Reed: I will now turn the call back to Adam.

Speaker #8: Thanks, Kendal. To close, I want to reiterate that while we face some headwinds in the quarter, we've continued to remain opportunistic and grow the business both organically and inorganically.

Adam Anderson: Thanks, Kendall. To close, I want to reiterate that while we face some headwinds in the quarter, we've continued to remain opportunistic and grow the business both organically and inorganically. As I've always said, we are adept at responding to events and developments that are difficult to predict. We've taken steps to strengthen our execution, unlock synergies, and ensure that we remain aligned with our customers' evolving needs in a more demanding environment. At the same time, the foundational pillars of our business remain strong. Our strategy is resonating. Our portfolio is well-positioned for both near-term resilience and long-term growth, and we continue to execute with discipline. As we look ahead, we are confident in our ability to navigate the current landscape while investing in the resources that will position us for success over time.

Speaker #8: As I've always said, we are adept at responding events and developments that are difficult to predict. We've taken steps to strengthen our execution, unlock synergies, and ensure that we remain aligned with our customers' evolving needs in a more demanding environment.

Speaker #8: At the same time, the foundational pillars of ur business remain strong. Our strategy is resonating, our portfolio is well-positioned for both near-term resilience and long-term growth, and we continue to execute with discipline.

Speaker #8: As we look ahead, we are confident in our ability to navigate the current landscape while investing in the resources that will position us for success over time.

Speaker #8: Thank you again to our team for their continued focus and to our customers and shareholders for our trust and partnership. We would like to open the line for questions now.

Adam Anderson: Thank you again to our team for their continued focus and to our customers and shareholder for your trust and partnership. We would like to open the line for questions now. Operator?

Speaker #8: Operator?

Speaker #4: Thank you. Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question, please press the star button, followed by the number one on your telephone keypad.

Rachel Smear: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of David Smith of Pickering Energy Partners. Please go ahead.

Speaker #4: If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Dave Smith of Pickering Energy Partners.

Speaker #4: Please go ahead.

Speaker #9: Hey, good morning. Congrats on the quarter and the seriously strong free cash flow generation.

David Smith: Hey, good morning. Congrats on the quarter and the seriously strong free cash flow generation.

Speaker #10: Thanks, Dave.

Adam Anderson: Thanks, Dave.

Speaker #9: I think last quarter, you flagged a recovery in subsea deliveries that were expected in the second half. Wanted to ask if anything has changed in that view since last quarter?

David Smith: I think last quarter you flagged a recovery in subsea deliveries that were expected in H2. Wanted to ask if anything has changed in that view since last quarter and could you please share some color for how H2 subsea deliveries might split up between Q3 and Q4?

Speaker #9: And could you please share some color for how the second half subsea deliveries might split up between Q3 and Q4?

Speaker #10: Yeah. That's right. We think the subsea deliveries will be a little stronger in the back half of the year than the first half of the year.

Adam Anderson: Yeah, that's right. We think the subsea deliveries will be a little stronger in the H2 of the year than the H1 of the year. We gave specific guidance on Q3. It'll still be a little early, we're not ready to give guidance on Q4 revenue. I'd say those increases are probably going to be modest. You'll definitely see it. International and offshore should be up a little bit in Q3. We're a little bit too early to say with, let's say, specificity. I think what we see in that subsea business is we have a really wonderful franchise. The nature of the business is a little bit lumpier than our US land business.

Speaker #10: We gave specific guidance on Q3 of probably a little early to give we're not ready to give guidance on Q4 revenue. But I think I'd say those increases are ably going to be modest.

Speaker #10: You'll itely see it. International offshore should be up a little bit in Q3. But we're a little bit too early to say what, let's say, specificity.

Speaker #10: I think what we see in that subsea business is we have a really wonderful franchise. The nature of the business is a little bit lumpier than our US land business.

Speaker #10: So I think that's what you're seeing is a ittle bit of softness in the first half of the year offset by a little stronger in the back half of the year.

Adam Anderson: I think that's what you're seeing is a little bit of softness in H1, offset by a little bit stronger in H2. It's a good franchise. We're really excited about where we're headed with it over the next couple of years.

Speaker #10: But it's a good franchise and we're really cited about where we're headed with it over the next couple of years.

Speaker #9: Okay. Appreciate that. And just wanted to follow up. On the international and offshore, product revenue decline, you know, sequentially, I know you gave some regional color on it.

David Smith: Okay. Appreciate that. Just wanted to follow up on the international and offshore product revenue decline sequentially. I know you gave some regional color on it, was just looking if there was any more color on whether it really was just mostly delayed deliveries. Was it concentrated in any particular product line or customer? Does the Q3 guide factor in any conservatism on the current delivery schedule?

Speaker #9: But I was just looking if there was, you know, any more color on whether, you ow, it really was just mostly delayed deliveries that, ou know, was it concentrated in any particular product line or customer?

Speaker #9: And then, you ow, does the Q3 guide factor in, you ow, any conservatism on the current delivery schedule?

Speaker #10: Yeah. So the as I said on the call, I mean, it's a couple of different things. I would say activity was a little bit lighter, but most of it was really some deliveries that we're expecting to get in Q2.

Adam Anderson: Yeah. As I said on the call, it's a couple different things. Obviously, activity was a little bit lighter, but most of it was really some deliveries that we were expecting to get in Q2. A lot of those things we had manufactured ready to go. We just didn't quite do everything we needed to do to cross the hurdles for revenue recognition, which, as we talked about before, we've got a much more stringent criteria than what had been recognized previously in the subsea world. That's still giving us a little bit of lumpiness in our results right now, I would say. Then the second one that's worth talking about is we talked a little bit about a product-specific headwind, and that really has to do with the singular product that we run in one specific market in the eastern hemisphere.

Speaker #10: A lot of those things we had manufactured were ready to go. We just didn't quite do everything we needed to do to cross the hurdles for revenue recognition, which, as we talked about before, I've got a much more stringent criteria than what had been recognized previously in the subsea world.

Speaker #10: So we're , that's still a little bit of a, giving us a little of lumpiness in our results right , I would say. And then the second one that's worth talking about is we talked a little bit about a product-specific headwind, and that really has to do with the singular product that we run in one specific market in the eastern hemisphere.

Speaker #10: We've run this tool a ew thousand times over the last seven or eight years, had really good success with it. We had a little bump in the road on Q2 with that operationally.

Adam Anderson: We've run this tool a few thousand times over the last seven or eight years, had really good success with it. We had a little bump in the road on Q2 with that operationally where we had a problem down hole and were unfortunately put on hold temporarily with this customer. We have all hands on deck addressing that issue. We've got really good line of sight on fixing it. I think we've done enough work now that we know what the resolution is. We're just working with our customer on dotting all the I's, crossing all the T's. Expect that we get that product back in the ground probably in Q4 and start to see a little bit of improvement for there. That was the other kind of less than expected revenue or a driver for our less than expected revenue.

Speaker #10: Where we had a problem down hole, and we're unfortunately put on hold temporarily with this customer. So we have all hands on deck addressing that issue.

Speaker #10: We've got really od line of sight on fixing it. I ink we've done enough work now that we know what the resolution is. We're just working with our customer on dotting all the I's, crossing all the T's, expect that we get that product back in the ground probably in Q4 and start to see a little bit of improvement for there.

Speaker #10: But that was the other kind of less than expected revenue. Or a driver for our less than expected revenue. What I would say on that issue, though, is this is really it is unfortunate for sure.

Adam Anderson: What I would say on that issue, though, is it is unfortunate for sure. It's really an opportunity for us to demonstrate to our customers our strength of how responsive we are, the way we really differentiate ourselves. Not that we don't have some of these bumps in the road, but that when we have them, we're much more adept at working with our customers to resolve those issues quickly, leave them feeling like, Hey, we've got a really good resolution to it, and that we're problem solvers that they can trust in the future.

Speaker #10: But it's really an opportunity for us to demonstrate to our customers how our strength of how responsive we are, the way we really differentiate ourselves.

Speaker #10: And not that we don't have some of these bumps in the road, but that when we have them, we're much more adept at working with our customers to resolve those issues quickly, leave them feeling like, "Hey, 've got a really good resolution to it," and that we're problem solvers that they can trust in the future.

Speaker #9: Really great color. Thank you. I'll turn it back.

David Smith: Really great color. Thank you. I'll turn it back.

Speaker #10: Thanks, Dave.

Adam Anderson: Thanks, Dave.

Speaker #4: Your next question comes from the line of Derek Podheiser of Piper Sandler. Please go ahead.

Rachel Smear: Your next question comes from the line of Derek Podhaizer of Piper Sandler. Please go ahead.

Speaker #11: Hey. Good morning, guys. Maybe just wanted to talk about the guide. It's implied margin step down to around the 18% range. That's down from what we just did around 21%.

Derek Podhaizer: Hey, good morning, guys. Maybe just wanted to talk about the guide. This implied margin step down to around the 18% range. That's down from what we just did around 21%. Maybe can you run through the puts and takes of what's driving some of the margin step down, and then how we can think about shape of recovery getting back to that 20% level that you guys just hit this quarter?

Speaker #11: Maybe can you run through the puts and takes of what's driving some of the margin step down and then how we could ink about shape a recovery getting back to that 20% level that you guys just hit this quarter?

Speaker #10: Yeah, absolutely. So we have a few things going on that are going to weigh on margins in Q3 as compared to Q2. So for some of those large deliveries on projects in the Middle East that we've referenced, are going to come at slightly lower gross margins.

Adam Anderson: Yeah, absolutely. We have a few things going on that are going to weigh on margins in Q3 as compared to Q2. For some of those large deliveries on projects in the Middle East that we've referenced are going to come at slightly lower gross margins. That'll have an unfavorable impact on product mix. That'll be just kind of a temporary thing that we don't expect to necessarily recur going forward. That'll impact Q3. Maybe more importantly, we're making a big push on some key integration projects that will result in some costs and inefficiencies during Q3. Namely, we're going to start to incur more meaningful costs related to facility consolidation as we close on the sale of that Eldridge campus in Q3 and begin to consolidate both the manufacturing and service operations out of that location into other Innovex facilities.

Speaker #10: So that'll have an favorable impact on product mix. That'll be just kind of a temporary thing that we don't expect to necessarily recur going forward.

Speaker #10: But that'll impact Q3. And then maybe more importantly, we're making a big push on some key integration projects that are will result in some costs and inefficiencies during Q3.

Speaker #10: Namely, we're going to start to incur more meaningful costs related to facility consolidation as we close on the sale that Eldridge campus in Q3.

Speaker #10: And begin to consolidate both the manufacturing and service operations out of that location into other Innovex facilities. And it's not just Eldridge. We're also pushing to integrate facilities between Citadel and Innovex during Q3, given the overlap in our US footprint between the companies.

Adam Anderson: It's not just Eldridge. We're also pushing to integrate facilities between Citadel and Innovex during Q3, given the overlap in our US footprints between the companies. I guess finally, I'd say our last large ERP conversion is coming up as well as part of our project to bring the entire company onto the same system as soon as possible. That'll, again, drive a few inefficiencies in Q3. Those integration initiatives are going to put some pressure on margins in the short term, but we really believe that they're important and necessary over the long run to be able to run our business as efficiently as possible and ultimately enable us to reach our long-term margin target of 25% or greater.

Speaker #10: And then I guess finally, I'd our last large ERP conversion is coming up as well as part of our ect to bring the entire company onto the same system as soon as possible.

Speaker #10: That'll, again, drive a few of the inefficiencies in Q3. So you know those integration initiatives are going to put some pressure on margins in the short term, but we really believe that they're important and necessary over the long run to be able to run our business as efficiently as possible and ultimately enable us to reach our long-term margin target of 25% or greater.

Speaker #11: Gotcha. And then to get back to kind of the 20% of what you think we can get there in 4Q and all this clears up, or is that more of a first half of next year?

Derek Podhaizer: Got you. To get back to kind of the 20% level, you think we can get there in Q4 when all this clears up or is that more of a H1 of next year target?

Speaker #11: Target?

Speaker #10: Yeah. So I an, obviously, we don't have Q4 guidance out there, but I would say we expect most of these integration costs to really be concentrated in Q3.

Kendal Reed: Yes. Obviously, we don't have Q4 guidance out there, but I would say we expect most of these integration costs to really be concentrated in Q3, and that's a chunk of what's driving it. Probably the rest will depend on that product mix, how that looks in Q4.

Speaker #10: And that's a chunk of what's driving it. And then you ow probably the rest will depend on that product mix, how that looks in Q4.

Speaker #11: Got it. That's helpful. And then just for my follow-up, wanted to go back to the Citadel trench foot product line that you talked about.

Derek Podhaizer: Got it. That's helpful. Just for my follow-up, wanted to go back to the Citadel TrenchFoot product line that you talked about. You gave us some market share stats, 25% of applicable wells. That was interesting. You had a large operator on a trial that looks like it converted. You're adding 9 additional rigs. Maybe could you help us understand or provide some color around other trials that you're working on with large customers, and could you see another big tailwind like you just were able to capture? Just maybe some help as far as further customer adoption.

Speaker #11: You gave us some market share stats, 25% of applicable wells. That was interesting. You had a large operator on a trial that looks like it converted.

Speaker #11: You're adding nine itional rigs. Maybe could ou help us understand and provide color around other trials that you're working on with large customers? And could you see another big tailwind like you just were able to capture?

Speaker #11: Just maybe some help as far as further customer adoption.

Speaker #10: Yeah. I know that we that's really exciting product. I think the large part of why we're really attracted to the Citadel team and many different reasons, the team, the technology portfolio, and just engthening one of our most important businesses.

Adam Anderson: No, that's a really exciting product. I think a large part of why we were really attracted to the Citadel team is many different reasons. The team, the technology portfolio, just strengthening one of our most important businesses. That TrenchFoot technology in particular has some real good tailwinds behind it. We referenced that one big operator where we picked up 9 additional rigs. There's more potential with that same customer, both with TrenchFoot as well as with pulling through some other products. I think that customer growth opportunity there. That's the singular biggest one in NAM Land we're working with, but there's a couple other smaller operators, or large customers, but smaller relative to those guys, that we're mid-cycle on or midstream on getting qualifications done. When you look internationally, that technology really hasn't been implemented internationally hardly at all.

Speaker #10: That trench foot technology in particular has some real good tailwinds behind it. We referenced that one big operator where we icked up nine additional rigs.

Speaker #10: There's more potential with that same customer, both with trench foot as well as with pulling through some other products. So I think that that customer growth opportunity there.

Speaker #10: That's the singular biggest one in US land we're working with, but there's a couple of smaller operators or large customers, but smaller relative to those guys.

Speaker #10: That we're kind of mid-cycle on or mid-stream on getting qualifications done. And then when you look internationally, that technology really hasn't been implemented internationally hardly at all.

Speaker #10: And we think in the unconventional space that Canada, Argentina, and Saudi Arabia, there's a big opportunity; the same value proposition you see in the U.S. for that technology is present in those other markets.

Adam Anderson: We think in the unconventional space, the Canada, Argentina, Saudi, there's the same value proposition you see in the US for that technology is present in those other markets. For a whole bunch of reasons, that hasn't been exploited yet. We're starting to make inroads there. In fact, we expect to do our first trial of the TrenchFoot technology in the Middle East by the end of this year. Really excited about continued potential of that technology adoption.

Speaker #10: But it just because of for a whole bunch of reasons, that hasn't been exploited yet. So 're starting to make inroads ere. And in fact, we expect to do our first trial of the trench foot technology in the Middle East by by the end of this year.

Speaker #10: So really, really excited about continued potential of that technology adoption.

Speaker #11: Great. It's I appreciate the color. 'll turn it back.

Derek Podhaizer: Great. Appreciate the color. I'll turn it back.

Speaker #10: Thanks, Derek.

Adam Anderson: Thanks, Derek.

Speaker #4: Your next question comes from the line of Donna Kreis of Johnson Rise. Please go head.

Rachel Smear: Your next question comes from the line of Don Crist of Johnson Rice. Please go ahead.

Speaker #12: Good morning, guys. Hopefully, ou all are doing well this morning. I wanted to start on I know Kendal, you talked about this a ittle bit as you kind of walked around the world and the integration efforts.

Don Crist: Good morning, guys. Hopefully you all are doing well this morning. I wanted to start on, I know, Kendall, you talked about this a little bit as you walked around the world and the integration efforts, but specifically in Vietnam and SCF, how long do you think it's gonna take before we can shift some serious manufacturing over there and actually start saving some money around the world as lower cost construction of those parts and pieces come out of Vietnam versus other parts in the world?

Speaker #12: But specifically in the in Vietnam and SCF, like how long do you think it's going to take before we can shift some serious manufacturing over there and actually start saving some money around the world as as you know lower-cost construction of those of those parts and pieces come out of Vietnam versus you know other parts in the ?

Speaker #10: Yeah. No, it's a good question. So for anybody who might not be familiar, we closed on the acquisition of a company called SCF back in February that is a machine shop in Vietnam that Innovex had partnered with for a couple of years and really vetted well as a high-quality low-cost provider of manufactured ts exclusively for Innovex.

Kendal Reed: Yeah, no, it's a good question. For anybody who might not be familiar, we closed on the acquisition of a company called SCF back in February. That is a machine shop in Vietnam that Innovex had partnered with for a couple of years and really vetted well as a high quality, low cost provider of manufactured products exclusively for Innovex. We have a lot of confidence in our ability to get good products at a very low cost out of that facility. I would say we haven't really ramped up what we're doing over there since the acquisition closed.

Speaker #10: So we have a lot of confidence in our ability to get good products at a very low cost out of that facility. I would say we haven't really ramped up what we're doing over there since the acquisition closed.

Speaker #10: Partially as we're working through strategy around manufacturing consolidation globally and where we think that it's been partially because of a lot of the uncertainty due to tariffs and just you know understanding how we're going to e that facility best, whether it's to service the US market or to service the eastern hemisphere market.

Kendal Reed: Partially as we're working through strategy around manufacturing consolidation globally and where everything fits, and partially because of a lot of the uncertainty due to tariffs and just understanding how we're gonna utilize that facility best, whether it's to service the US market or to service the Eastern Hemisphere market, without crossing US borders due to tariff issues. I would say still thinking through that a little bit, but probably should start to see some progress during 2026 on ramping up those volumes and getting some cost margin benefits there.

Speaker #10: Without crossing US borders due to tariff issues. So I would say still thinking through that a little bit, but probably should start to see some progress during 2026 on ramping up those volumes and getting some cost margin benefits there.

Speaker #12: Okay. And one on kind of cross-selling and bringing some products from, you know, either Canada or around the world into the U.S. and vice versa.

Don Crist: Okay. One on cross-selling and bringing some products from either Canada or around the world into the US and vice versa, but where are we in wellheads and other kind of products that were big in other locales around the world and kind of cross-selling them into the US? I fully appreciate that in this environment, it's not the best time to start pushing new products on some people, but just where are we in that kind of process?

Speaker #12: But kind of where are we in you know wellheads and other kind of products that were big in other locales around the world and kind of cross-selling them into the US?

Speaker #12: And fully appreciate that in a in this environment, it's not the best time to start pushing new products on some people. But just where are we in that kind of process?

Speaker #10: Yeah. No, that's been a really important initiative for us over the last 6 to 12 months, really since the DrillQuote deal closed. As you referenced, we've got a really strong position in the Canadian wellhead market as a result of the DrillQuote merger.

Adam Anderson: Yeah, no, that's been a really important initiative for us over the last 6, 12 months, really since the Dril-Quip deal closed. As you referenced, we've got a really strong position in the Canadian wellhead market as a result of the Dril-Quip merger. We have started doing a little bit of work outside of Canada with that technology. Probably the earliest success we've seen is in some projects in North Africa. Interestingly, we've had a little bit of success there. I think there's a lot of opportunity in Latin America. Again, a little bit of a depressed market, but at the same time, there's some opportunities with customers that we know well that can help accelerate the adoption of some of that technology. Probably the big market is of course in US land. We've gotten a little bit of work in US land.

Speaker #10: So we have started doing a little bit of work outside of Canada with that technology. Probably the earliest success we've seen is in some projects in North Africa interestingly.

Speaker #10: 've had a little bit of success there. I think there's a lot opportunity in Latin America again, a little bit a depressed market, but at the same time, there's some opportunities with customers that we know well.

Speaker #10: That can help kind of accelerate the adoption of some of that technology. And then, probably the big market is, of course, in U.S. land.

Speaker #10: We've gotten a little bit of work in US land. It's pretty early days. We have a little bit of ongoing work in North Dakota with wellheads, but it's pretty de minimis today.

Adam Anderson: It's pretty early days. We have a little bit of ongoing work in North Dakota with wellheads, but it's pretty de minimis today. We're going through a process right now of, let's say, optimizing the product set so it fits what our customers need for the lower 48. We have some equipment we're just now getting ready to place on order to serve that market. Because of the long supply chain in that product, it probably won't hit the ground until late this year and then be 2026 before we can start to see a little bit of discernible revenue traction there. That one is the longest burn of the, let's say, land-based technologies. We've been really pleased with what we're seeing from the Drilling Enhancement guys, the legacy DWS team.

Speaker #10: We're going through a process right now of, let's say, optimizing the product set. So it fits what our customers need for the lower 48.

Speaker #10: And we have some equipment. We're just now getting ready to place on order to serve that market. We probably won't, ause of the kind of long supply chain in that product, it probably won't hit the ground until late this year and then be 2026 before we can start to see a little bit of discernible revenue traction there.

Speaker #10: So that one is kind of the longest burn of the, let's say, land-based technologies. We've been really pleased with kind of what we're seeing from the illing enhancement guys, the legacy DWS team.

Speaker #10: got a really nice win with a larger independent operator out in West Texas that we n't done a lot. Innovex hadn't done a of work for historically, where they pulled through a lot of these cementing tools for those rigs.

Adam Anderson: We got a really nice win with a larger independent operator out in West Texas that Innovex hadn't done a lot of work for historically, where they pulled through a lot of these cementing tools for those rigs. That was a nice win to see. We're early days. We have a couple of small wins from a cross-selling standpoint between Citadel and Innovex, or the legacy Citadel team, I should say, and Innovex, but I think there's more brew in there that we're excited about.

Speaker #10: So that a nice one to see. And then we're early days; we have a uple of small wins from a cross-selling standpoint between Citadel and Innovex.

Speaker #10: Or the legacy Citadel team, I should say, and Innovex. But I think there's there's more brewing that we're excited about.

Speaker #12: Okay. And just one final one for me. Kendal's done a very good job, and you all have done a very good ob on preserving cash and doing M&A for cash without going into the revolver at all.

Don Crist: Okay. Just one final one from me. Kendall's done a very good job, and y'all have done a very good job on preserving cash and doing M&A for cash without going into the revolver at all. Now that Eldridge is getting ready to close, it looks like you're going to have a lot of cash on the balance sheet. Now, I don't know what the M&A pipeline looks like for y'all, but is it safe to say that you'll carry more cash than you historically have on the balance sheet? Should we expect a ramp-up in share repurchases as a use for that cash going forward? Just your thoughts around that.

Speaker #12: But now that Eldridge is getting ready to close, it looks like you're going to a lot of cash on the balance sheet. And I don't know what M&A pipeline looks like for y'all.

Speaker #12: But is it safe to say that you'll kind of carry more cash than you historically have on the balance sheet? Or should we expect you know a ramp-up in in share repurchases as a use for that cash going forward?

Speaker #12: Just your thoughts around that.

Speaker #10: Yeah. I think it's a really good question, and it's one we evaluate, I would say, day to day. We do maintain a very active M&A pipeline that we're excited about.

Kendal Reed: Yeah, I think it's a really good question, and it's one we evaluate, I would say, day to day. We do maintain a very active M&A pipeline that we're excited about, and to the extent we can deploy meaningful capital into good accretive deals that strengthen our company and make us better, I think that's certainly the preference. We look to continue to do that, but understand that, yeah, holding onto a large cash balance is inefficient, and that's part of the reason we like having the share repurchase program out there. It gives us an alternative use of that capital to be able to return that to shareholders. I think we want to stay very flexible on that, but certainly our vision is not to carry a huge cash balance in perpetuity.

Speaker #10: And to the extent we can deploy meaningful capital into good accretive deals that strengthen our company and make us better, I think that's the certainly the preference.

Speaker #10: So we look to continue to do that, but understand that, yeah, holding on to a large cash balance is inefficient, and that's part of the reason we like having the share repurchase program out there.

Speaker #10: It gives us an alternative use of that capital to be able to return that shareholders. So I ink we want to stay very flexible on that.

Speaker #10: But you know, certainly, our vision is not to carry a huge cash balance in perpetuity. It's to use that cash in a way that either makes our company better or gets it back in the hands of shareholders.

Kendal Reed: Let's use that cash in a way that either makes our company better or get it back in the hands of shareholders.

Speaker #12: I appreciate the color. I'll turn it back. Thanks.

Don Crist: I appreciate the color. I'll turn it back. Thanks.

Speaker #11: Thank you, sir.

Adam Anderson: Thank you, sir.

Speaker #4: Your next question comes from the line of Eric Kim of Barclays. Please go ahead.

Rachel Smear: Your next question comes from the line of Eddie Kim of Barclays. Please go ahead.

Speaker #11: Hi, good ning. Just want to touch on the the strong US land performance you held revenue flat quarter to quarter despite a recount decline of 7%.

Eddie Kim: Hi, good morning. Just want to touch on the strong NAM Land performance. You held revenue flat quarter to quarter, despite a rig count decline of 7%. I know you mentioned outperformance in DWS and 1 month's contribution of Citadel, but is there anything other than that that drove that result, or was it really just a function of those two items?

Speaker #11: I know ou mentioned outperformance in DWS in one month's contribution to Citadel, but is there anything other than that that drove that result? Or was it really just a function of those two items?

Speaker #11: No, I think that's the big pieces. If you look at the, let's call it like the legacy Innovex business X, the drilling enhancement stuff from DWS was flat to down a smidge.

Adam Anderson: No, I think that's a big piece is if you look at the, let's call it the legacy Innovex business, ex the Drilling Enhancement stuff from DWS, that was flat to down a smidge. The Drilling Enhancement business was pretty flat. Most of that, I think, is we do get the benefit that we're much more levered to number of wells drilled, complexity of those wells. I think some of it is just as the rig count declines, we're able to offset some of that because of how we're positioned. It's just the blocking and tackling, the good work that our folks do in the field, staying close to the customers, our manufacturing guys and our engineering folks taking care of our folks in the field as well as the customer, just that continuous flywheel to maintain and grow market share.

Speaker #11: The drilling enhancement business was pretty flat. Most of that, I think, is we do get the benefit that we're much more levered to, number of wells drilled, complexity of those wells, so I ink some of it is just as the recount declines, we're able to offset some of that because of how we're positioned.

Speaker #11: And then it's just the blocking attack, the good work that our folks do in the field, staying close to the customers, our ufacturing guys, and our engineering folks taking care of our folks in the field as well as the customer, just that continuous flywheel.

Speaker #11: To maintain and grow market share. And it's yeah, so we were very pleased with that performance in the arter. Got it. Got it. And just a quick housekeeping one.

Adam Anderson: Yeah, we were very pleased with that performance in the quarter.

Eddie Kim: Got it. Just a quick housekeeping one. I don't know if you mentioned the revenue EBITDA contribution from the Citadel acquisition in your Q2 results. I get that it was only 1 month. Just curious if you could provide that.

Speaker #11: I don't know if you mentioned the revenue EBITDA contribution from the Citadel acquisition in your two key results. I get that it was only one month.

Speaker #11: But I'm just curious if you could provide that.

Speaker #10: Yeah. I think because we integrated it tightly, it's saying a specific EBITDA contribution is hard. But you can think the top-line contribution as being around $5 million.

Kendal Reed: Yeah. I think because we integrated tightly, saying a specific EBITDA contribution is hard, but you can think of the top-line contribution as being around $5 million.

Speaker #11: Okay. Great. And then last one, if I can squeeze one in. I know you don't provide free cash flow guidance for the full year.

Eddie Kim: Okay, great. Last one, if I can squeeze one in. I know you don't provide free cash flow guidance for the full year. I know you have the target to aim to convert 50% to 60% of EBITDA to free cash flow. Just based on how H1 is trending, it looks like you'll be well above that mark. Just from a dollar perspective, you did $76 million of free cash flow in H1. Is it reasonable to assume you'll be maybe at or above $125 million of free cash flow for the full year? Any thoughts there would be great.

Speaker #11: I know you have the target to aim to convert 50 to 60 percent of EBITDA to free cash flow. But just based on how the first half is trending, it looks ike you'll be well above that mark.

Speaker #11: So I mean, just from a dollar perspective, you did $76 million of free cash flow in the first half. Is it reasonable to assume you'll maybe at or above $125 million of free cash flow for full year?

Speaker #11: Any thoughts there would be great.

Speaker #10: Yeah. I mean, I 't know that we want to throw a specific number out there, but you're right. We have this goal of 50 to 60 percent of adjusted EBITDA converting into free ash flow under we call normal business conditions, but say relatively stable revenue environment.

Kendal Reed: Yeah. I don't know that we want to throw a specific number out there, but you're right. We have this goal of 50% to 60% of adjusted EBITDA converting into free cash flow under, we call, normal business conditions, but say, relatively stable revenue environment. As things have slowed down a little bit, we do tend to convert a higher percentage of EBITDA into cash as we unwind working capital. I think that's a little bit of what you've seen going on in H1. If we get back to revenue growth in H2, I wouldn't expect that percentage to be quite so high. Still, you can think about it as maybe that normalized 50% to 60% is still a good target for the full year.

Speaker #10: As things have slowed down a little bit, we do tend to convert a higher percentage of EBITDA into cash as we unwind working capital.

Speaker #10: So I think that's little bit of what you've seen going on in the first half. If we get back to revenue growth in the second half, I wouldn't expect that percentage to be quite so high.

Speaker #10: But still, ou can think about it as maybe that normalized 50 to 60 percent is still a good get for the full year.

Speaker #11: Got it. Understood. Great. Thank you. I'll turn it back.

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

Speaker #12: We got one more question, or are ?

Adam Anderson: We got one more question, or are we? I think with that, we appreciate everybody's time. Thank you to all of our employees for all the good work they do. Thank you to our shareholders and to our customers for all the support we get. Thank you very much. We'll wrap the call.

Speaker #10: Yeah. I think with that, we reciate everybody's time. Thank you to all of our employees for all the good work they do. Thank you to our shareholders and to our customers for all the support we get.