Innovex International, Inc. Q4 FY2023 earnings call

• Dril-Quip delivered strong fourth quarter results with double-digit growth in annual revenue and adjusted EBITDA. Total revenue grew 17% year-over-year and fourth quarter organic revenue was the highest since pre-pandemic.
• Notable orders in the quarter included a $40 million subsea production systems order, incremental call-offs from Petrobras, and large diverter orders. Had multiple significant contract wins like a 3-year $20 million deepwater subsea wellhead MSA by CNOOC, etc.
• In 2023, completed sale of Houston administration building, which funded investment in subsea wellhead manufacturing equipment and reduced operating expenses. Investment in subsea wellhead manufacturing equipment on schedule to go live in Q2 2024.
• Completed acquisition of Great North in 2023, which is financially accretive and saw early wins in cross-selling and supplier qualifications for liner hanger product line.

Subsea Products and Subsea service revenue increased 2% and 7% respectively compared to the previous year. The Well Construction segment revenue grew 70% year-over-year, reflecting the addition of Great North and activity increases in Latin America and Saudi Arabia. Fourth quarter revenue was $126.3 million, an increase of 31% year-over-year and 8% sequentially. Full year 2023 revenue was $424.1 million, an increase of 17% year-over-year with Great North contributing $35.2 million for the year. Fourth quarter gross margins were 27.4% and full year gross margins were 27.3%, improving 73 basis points largely due to operational efficiency initiatives, partly offset by supply chain headwinds and international start-up costs.

• Expect revenue to increase 15% to 20% over 2023. Q1 revenue expected to be in range of $105 million to $110 million.
• Adjusted EBITDA for full year expected to be $65 million to $75 million.
• Subsea product bookings expected to be $200 million to $225 million, representing 5% growth over 2023 subsea product bookings of $217 million. Will discontinue inclusion of well construction bookings next year.
• CapEx expected to return to normalized levels of 3% to 5% of revenue in 2024, including final expense related to Houston manufacturing equipment investment of approx $7 million.
• Free cash flow expected to be positive in 2024, with Q1 seasonally challenged and expected to be a net use of cash.

• Macroeconomic outlook has projects pushed out due to rig capacity constraints in fall, but confident contract awards will accelerate in 2024 and beyond as this is resolved.
• Supply chain headwinds and international start-up costs in legacy well construction product line partially offset gross margin improvements.

Q: Could you provide the subsea product bookings for full year 2022 and 2023 and comment on the 2024 guide?

A: In 2022 and 2023, subsea product bookings were about flat at around $215 million to $217 million. 2024 guide for subsea product bookings is $200 million to $225 million. The nuance is that MSAs like the BP MSA are directly tied to subsea bookings, and when they start reordering well heads late this year or early next year, it will be a factor.

Q: The 24 wells announced for the Woodside Trion development offshore Mexico, was that included as part of subsea bookings in the first quarter or booked in the fourth quarter?

A: That was an MSA in the fourth quarter and will be called off over the next year or 2 years probably. The challenge is that with MSAs, it's not a big splashy number in one quarter like before as contracts are now structured differently for products.

Q: Regarding the margin guide for 2024, the delta between previous slide deck and current midpoint guidance, what's the reason?

A: The difference is probably timing on productivity initiatives inside the company right now, with some productivity concepts moving out a quarter or so