Innovex International, Inc. Q1 FY2023 earnings call

• Changed reporting segments to Subsea Products, Subsea Services, and Well Construction to align with internal operating structure and improve stakeholder visibility.
• First quarter revenue up 9% year-over-year, with Well Construction growing 38% and Subsea Services 10% due to growing demand in key markets like Brazil, Middle East, etc.
• Progress on footprint optimization: closed sale of aftermarket facility in Houston, on track to sell another Houston property, expected to contribute over $40 million in cash flow.
• Free cash flow below expectations due to working capital timing, with expectation of working capital normalization over next two quarters, and days sales outstanding expected to return to Q4 2022 levels by third quarter, generating ~$40 million in cash.
• Capital allocation remains a critical focus, with strong balance sheet allowing consideration of organic and inorganic growth opportunities.

The Well Construction segment grew 38% year-over-year, and the Subsea Services segment grew 10% year-over-year. Absolute growth: Well Construction saw a 38% increase, Subsea Services a 10% increase. Revenue contribution percentages were not explicitly stated in absolute terms but the growth rates are highlighted.

• Expect bookings growth throughout 2023, though targets include Subsea Trees where FID is crucial for order timings.
• Working capital expected to normalize over next two quarters, with days sales outstanding returning to Q4 2022 levels by third quarter.
• Full year guidance reiterated, with Q2 expected to be flattish to Q1 2023, bookings in the range of $55 million to $75 million, and free cash flow improved compared to Q1.

• Small and mid-sized customers are more responsive to short-term oil price volatility, potentially deferring FID for Subsea Trees.
• Rig availability could cause projects for midsized independents to be deferred.
• Challenges with qualification for Subsea Products in certain markets, such as the Middle East, with potential 12-18 months needed for formal qualification in the Subsea Products segment.

Q: What are you hearing from customers regarding oil price volatility and project deferrals?

A: Lower 48 has no exposure. IOCs not seeing slowdown, NOCs in well construction areas like Brazil, Middle East, etc., not seeing slowdown. Small/mid-sized customers more responsive, potentially deferring FID for Subsea Trees.

Q: Reason behind changing reporting structure to Subsea Products, Subsea Services, and Well Construction?

A: To align strategically around segments and products, break down silos, improve accountability, and drive returns-focused behavior.

Q: Update on inorganic growth opportunity set and debt?

A: Looking at inorganic opportunities in Well Construction, Subsea Services, and Subsea Products; still targeting debt-free balance sheet unless a unique deal arises.

Q: Outlook for 2Q 2023?

A: Q2 expected to be flattish to Q1, bookings in $55 million to $75 million range, free cash flow improved vs Q1