Innovex International, Inc. Q1 FY2025 earnings call

Strategic Progress

• The company has made progress on strategic initiatives with a strong team. Innovex has a unique energy-focused industrial platform with small ticket big impact products, a capitalized business model, and high gross margins.

First Quarter Results

• North America land business was resilient; DWS was market leader in U.S. and had record revenues in Canada. International and offshore revenue was down due to Mexican drilling weakness and U.S. offshore delays.

Innovations and Divestment

• SubZERO centralizer technology saved customers money and time. The company entered into a definitive agreement to sell the Dril-Quip Eldridge facility for $95 million, expected to close by end 2025, bolstering net cash position.

Operational Improvements

• On-time delivery in subsea business improved to 72% from below 50% at merger time, with goal to reach >90%. Cost synergies from merger led to SG&A as % of revenue decreasing and EBITDA margin improving from 18% in Q3 2024 to 19% in Q1 2025.

In the first quarter, Innovex's total revenue was $240 million. The North America land business saw reported revenues grow 17% sequentially, with the legacy U.S. land downhole business flat, driven by full quarter of DWS revenue and Canada seasonality. DWS was the market leader in its product category in the U.S. and had record revenues in Canada. International and offshore revenue was down from 2024, primarily due to greater than expected weakness in Mexican drilling activity and U.S. offshore delivery delays. NAM Land revenue was $121 million, making up approximately 50.4% of total revenue, while international and offshore revenue was $120 million, accounting for about 50% of total revenue.

• Second quarter 2025 guidance: Adjusted EBITDA expected $40M-$45M, revenues $225M-$235M, driven by Mexico weakness, Canada seasonality, and Subsea delivery lumpiness. Subsea deliveries back half weighted in 2025.
• Supply chain: Diversified with acquisition of SCF Machining to mitigate tariff impact.
• Share repurchase: $100M program with $6M already spent, weighing M&A vs buybacks to maximize returns.

• Macro environment uncertainty affecting revenue and activity levels.
• Exposure to rising tariffs on raw materials from Asia, though flexible supply chain mitigates.
• Volatility in oil prices and activity levels impacting business performance.

Q: How does Innovex balance pursuit of strategic deals with macro uncertainty and seller expectations?

A: Kendal Reed noted they have significant cash, generate free cash flow, and see multiple good acquisition opportunities, weighing M&A vs buybacks. Adam Anderson added focus on long-term value creation.

Q: Can you elaborate on the second quarter guidance and NAM Land exposure?

A: Kendal Reed said roughly half the business is NAM Land, with seasonality in Canada and uncertainty in U.S. land market. Adam Anderson mentioned flattish full-year outlook for U.S. Gulf.

Q: Details on VXTE tree performance and commercialization?

A: Adam Anderson said first installation went smoothly, customer pleased, with interest growing, and evaluating commercialization by partnering with existing tree suppliers.