Innovex International, Inc. Q4 FY2024 earnings call

Overarching Value Proposition: Innovex aims to create an energy-focused industrial platform for customer value and shareholder returns, with a portfolio of small-ticket, big-impact products and a lean operating model. Acquisitions: Acquired 20% of DWS in May 2023, with full acquisition in November 2024. DWS provides drilling optimization tools, has high market share, and untapped international opportunities. Acquired SCF Machining Corporation in February 2024 for access to low-cost manufacturing, improving gross margins and serving international operations. Transformation of Legacy Drill-Quip: Integrated products like the XPak liner hanger system with Innovex centralizers for major international operators, creating revenue synergy. Plan to divest Dril-Quip's Eldridge facility to reduce operating footprint by ~82% and improve service quality. Focus on improving operational performance, including reducing working capital and shortening cash conversion cycles, with day sales outstanding improving from Q3 to Q4. Margin and Cash Flow: Realized $30 million in annualized cost savings, adjusted EBITDA improved, free cash flow increased, and strong balance sheet with net cash equivalents of $38 million at year-end.

Full year 2024 revenue was $661 million, a 19% year-over-year increase, primarily driven by the merger with Dril-Quip. Fourth quarter revenue was $251 million, up 89% year-over-year and 65% sequentially, boosted by the Dril-Quip and DWS acquisitions. NAMs (North America and Canada) land revenue in Q4 was $103 million, a 5% increase from Q3, but pro forma 2024 NAMs land revenue decreased 6% due to a 13% decline in US land revenue. International and offshore revenue in Q4 2024 was $148 million, a 176% sequential increase, but pro forma 2024 international and offshore revenue declined 5% due to a slowdown in the legacy drill-quip business. Q4 adjusted EBITDA was approximately $49 million, up sequentially and year-over-year. Free cash flow for Q4 was $29 million, up sequentially. SG&A as a percentage of revenue decreased from 25% in Q3 to 15% in Q4. The company realized $30 million in annualized cost savings from the merger, and expects EBITDA margins of 25% or greater long-term.

First Quarter 2025: Expected adjusted EBITDA of $45 million to $50 million and revenue of $245 million to $255 million. Long-Term: Aim for EBITDA margins of 25% or greater, and continue to evaluate M&A opportunities and share repurchases based on return potential.

Market Uncertainties: Potential impacts from seasonal weakness, market conditions in regions like Mexico and the Gulf of Mexico. Integration Challenges: Risks associated with integrating acquisitions and transforming legacy businesses, including potential delays in facility divestment or operational improvements. Valuation and Liquidity: Uncertainties in M&A valuations and stock market conditions affecting share repurchase decisions.

Q: David Smith asked about new technologies from combined product offerings and potential proceeds from selling Eldridge facility.

A: Adam Anderson mentioned integration of Dril-Quip's expandable liner hanger with Innovex centralizers as a near-term opportunity, and longer-term deepwater casing design transformations. Kendall Reed stated the sale of Eldridge facility is ongoing with competitive interest, optimistic about completing sale this year at attractive valuation.

Q: Eddie Kim inquired about first quarter guidance and MSA with OneSubsea.

A: Adam Anderson said first quarter guidance is affected by full DWS contribution offset by seasonal weakness, particularly in Mexico and Gulf of Mexico. Kendall Reed explained the MSA with OneSubsea is an evolution of a prior partnership, with expected more orders in the first half of 2025.

Q: Arvind Sanger asked about additional synergies from Eldridge sale and balancing buybacks with acquisitions.

A: Kendall Reed said additional synergies from Eldridge sale are expected, particularly in facility consolidation. Regarding buybacks, they will be spread out with flexibility to evaluate M&A vs buyback based on return potential.