Innovex International, Inc. Q3 FY2026 earnings call

• North American Land Strength: The U.S. land business secured two significant awards in the Permian Basin, expanding market share with a large independent and displacing a competitor with a major IOC. These wins are expected to add approximately $1 million in monthly revenue starting late Q4.
• Offshore Momentum: Subsea operations continue to build momentum with successful installations of Big Boar 2E systems for a major IOC (achieving 100% on-time delivery and 99% uptime). Follow-on awards were secured in Malaysia and Indonesia, including a five-year contract valued at over $30 million.
• Middle East Resilience & Strategy: Despite regional conflict impacts, InnoVex signed its first direct corporate purchase agreement with a major national oil company, bypassing local agents to improve margins and working capital. Investments in local infrastructure and product qualifications continue for long-term growth.
• Venezuela Re-entry Opportunity: The company re-entered the Venezuelan market via legacy assets inherited from DrillQuip/TIW. Initial awards include >$5 million for tubulars, with a strong pipeline for thermal wellheads (~$50 million in tender activity) positioned for growth in 2027-2028.
• Capital Efficiency: The business model remains capital-light, generating strong free cash flow ($32 million in Q3, 58% of Adjusted EBITDA) with minimal capex requirements ($6 million, ~2.4% of revenue).
• M&A Integration: Recent acquisitions (TCO and DIS) are integrating well. TCO contributed ~$15 million in revenue in Q3, aligning with expectations. Cross-selling opportunities are being explored, particularly in the Permian Basin and international markets.

Total Revenue: $265 million (up 8% sequentially, up 10% year-over-year). Adjusted EBITDA: $55 million (margin of 21%).

• North America Land: Revenue was $146 million, representing approximately 55.1% of total revenue. This segment grew 11% sequentially from $131 million in Q2, driven by increased drilling activity and market share gains in the U.S. land sector.
• International and Offshore: Revenue was $119 million, representing approximately 44.9% of total revenue. This segment grew 5% sequentially, driven by the addition of TCO revenue, partially offset by timing delays in subsea deliveries in the eastern hemisphere.

• Q4 2026 Revenue Guidance: Maintained at $260 million to $270 million.
• Q4 2026 Adjusted EBITDA Guidance: Maintained at $53 million to $58 million.
• Outlook Drivers: The Q4 outlook reflects a rebound in Eastern Hemisphere subsea deliveries, offset by a modest decline in Saudi Arabia due to lower drilling activity and slight seasonal decreases in U.S. land production-related products.
• 2027 Expectations: Management expects full-year 2027 revenue to increase roughly 10% compared to full-year 2026 results, assuming U.S. land activity is in line or slightly better, deepwater activity remains stable, and Middle East activity stays flat to Q3 levels.

• Middle East Geopolitical Instability: Regional conflicts have led to reduced activity, higher freight costs, and logistics disruptions. These factors are expected to negatively impact Q4 results and create headwinds despite long-term investment plans.
• Project Timing Variability: International and offshore revenues may experience quarter-to-quarter variability due to project delivery schedules and manufacturing timelines, although the order book is growing.
• Execution Risk in New Markets: While Venezuela presents a significant opportunity, success depends on the conversion rate of current tenders and the ability to ramp up operations with limited initial infrastructure.
• Freight and Logistics Costs: Elevated air freight costs due to regional instability remain a drag on profitability, estimated at approximately $1 million per quarter until routes stabilize.

Q: Analyst asked about InnoVEX's growth potential vs. market trends in 2027, given offshore growth, Venezuela opportunities, and U.S. share gains. / A: CFO stated that while they don't give formal annual guidance, they expect 2027 revenue to grow roughly 10% YoY. This assumes U.S. land activity matches or slightly exceeds run rates, deepwater outlooks remain unchanged, and Middle East activity stabilizes after the Q4 dip. Venezuela is identified as a key growth area for next year.

Q: Analyst inquired about the size and investment requirements for the Venezuela opportunity, specifically asking if it requires heavy infrastructure. / A: CEO explained that Venezuela offers a ~$50 million tender pipeline, with ~$10 million revenue expected in 2027. The business model allows for a light footprint; much work is delivered ex-works. They will utilize an inherited DrillQuip facility in Anaco with small CapEx investments, avoiding massive infrastructure commitments.

Q: Analyst asked about the margin trajectory toward the 25% target, specifically regarding incrementals on revenue growth and supply chain efficiencies. / A: CFO highlighted that achieving the 25% margin target relies heavily on top-line growth, expecting mid-30s incremental margins. Operational efficiencies are being pursued through subsea manufacturing consolidation in Singapore and a new downhole tool facility in Vietnam, which aims to lower costs and mitigate tariff impacts by serving the Eastern Hemisphere directly.

Q: Analyst asked about the Asia subsea order pipeline, typical lead times, and the integration/performance of recent M&A deals (DIS and TCO). / A: CEO noted strong success in Asia, citing a five-year Indonesian contract and expansions in Malaysia, which will drive significant revenue in 2027 and beyond. CFO confirmed TCO integration is going well, contributing ~$15 million in Q3. Both acquisitions fit the portfolio well, though cross-selling benefits will take time to materialize fully.

Q: Analyst asked about the previous involvement in Venezuela and when revenue could reach $20 million. / A: CEO clarified that 're-entry' leverages legacy TIW/DrillQuip assets, including liner hangers and a mothballed facility now being revitalized. Historically a strong market, current tenders are ~$50 million. With $5 million already awarded and ~$10 million expected in 2027, reaching $20 million is credible for 2028 but unlikely for 2027 without exceptional conversion rates.