Innovex International, Inc.

Good morning, and welcome to InnoVEX's third quarter 2024 earnings call. At this time, all participants are on a listen-only mode, and there will be a question and answer opportunity at the end of this call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Erin Fazio, Investor Relations. Mom, please go ahead.

Thank you, and good morning. We appreciate you joining us on today's call. An updated investor presentation has been posted under the Investors tab on the company's website, along with the earnings press release. This call is being recorded, and a refill will be made available on the company's website following the call. Before we begin, I would like to remind you that InnoVax's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause InnoVax's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. please refer to the third quarter 2024 financial and operational results announcement we released yesterday for discussion of forward-looking statements and reconciliation of non-debt measures. Speaking on the call today from InnoVEX, we have Adam Anderson, Chief Executive Officer, and Kendall Reed, Chief Financial Officer. I would now like to turn the call over to Adam Anderson.

Thanks, Erin. Welcome to our inaugural earnings call as InnoVEX International. On September 6, InnoVEX Downhole Solutions closed on the merger with DrillQuip. and the combined company is now trading on the New York Stock Exchange under the ticker INVX. On today's call, we will introduce you to the new Innovex, discuss the current quarter performance, and provide an outlook on our plans going forward. Before we dive into these details, however, we want to spend some time introducing you to the Innovex platform and our approach. Our vision is to create a unique energy platform, a leader in well-centric products and technologies, with a focus on driving exceptional value and service to our customers, and exceptional absolute returns for our shareholders. Since InnoVEX's inception in 2016, we have generated strong financial returns, not just relative to traditional energy service companies, but returns superior to the S&P 500. To achieve these returns, we have curated a portfolio of what we call small-ticket, big-impact, single-use products, employing a capital-light business model. We create differentiation and customer loyalty through our unique no barriers culture. Let me take each one of these in turn. Our portfolio has been curated to focus primarily on consumable or single use products. Most of our revenues come from products that are consumed in the process of drilling, completing, and producing oil and gas. We're focused on small ticket, big impact products that are highly engineered to our customers' requirements and are critical to efficient operations However, they represent a small proportion of the overall well cost. For these mission-critical products, reliability and service quality are the primary driver of purchase intent, not pricing. Our business is capitalized by design. Given the consumable nature of our product portfolio and a focus on a lean operating model, InnoVEX requires a negligible amount of CapEx, 3% of revenue or less, to sustain and grow our business. Consequently, under normal business conditions, we convert 50% to 60% of our EBITDA into free cash flow. High free cash flow drives our reinvestment flywheel, allowing us to fund organic and inorganic investment opportunities that target returns on invested capital in excess of 20%. To drive innovation and organic growth, our no-barriers culture is paramount. No barriers means eliminating all barriers within InnoVEX as well as between InnoVEX and our customers. We minimize the layers between management and the people in the field doing the actual work to ensure our team can respond more adeptly to our customers' needs. No barriers is not just a catchphrase. It is how we do business. We design organizations to be lean, flat, and unbureaucratic. It's important to me that we both, one, keep our overhead costs low, and two, maintain a highly responsive organization where bottoms-up decision-making is centered around taking care of our customers. We empower our employees to focus on our customer needs and rapidly respond with radical transparency. We listen to our customers, admit our mistakes, and use those mistakes to deepen our relationship and trust with clients. We have consistently and organically grown our market share through innovation and excellent service. A recent example of this was in the Delaware Basin. when a major operator in the basin was experiencing a challenge with the capabilities of the liner-hanger system they were using as they transitioned to longer and more challenging laterals. We were able to solve this technical challenge nearly six months earlier than the incumbent supplier, and as a result, significantly grew our market share in this strategic product. One of the best examples of our culture-driving market share growth is in the U.S. land cementing tool market, where we have grown our market share from 5% in 2018 to 30% today. Similarly, in Saudi Arabia, we have established ourselves as an innovator for a variety of down-hole consumable products. From a standing start a decade ago, we have over 30 products qualified and did roughly $60 million of revenue in the last 12 months. I am excited to see how the new InnoVEX can leverage our combined strengths to drive additional market share capture, and we have already seen some early success on this front that I'll describe in a minute. We consider our financial results to be the true measure of our success. Since inception, we have grown revenues per share at a 22% CAGR, a rate far better than our peers and four times faster than the S&P 500. We look at our revenue per share because we do acquire and divest of businesses over time. We're not looking to get bigger, but rather more valuable. Our margins have been consistently high over time, including during COVID, a testament to our resiliency and ability to adapt quickly. Finally, while InnoVEX has generated exceptional per share growth, produced consistently high margins, and required low capital intensity, we have also generated excellent return on capital, averaging 17% over the last six years, 300 basis points better than the S&P 500, and far superior to almost any other company in our space. We consider ourselves to be a high quality industrial platform. What do we mean by platform? In addition to our organic growth, we can successfully fold in disciplined acquisitions by leveraging our no barrier culture, our global distribution network, our customer relationships, and a capital life business model. When we look at inorganic growth, we look for very specific criteria. It must fit our small ticket, big impact value proposition and have an opportunity for the combined entity to be better together to ultimately generate exceptional gross margins, consistent EBITDA margins, and high free cash flow. We drive organic growth of acquired companies for customer-focused innovation and access to a broader distribution network. We are not aggregating EBITDA. We will get bigger over time, but only as we get better. In a time when our industry is generally struggling for investor relevancy, we believe that the best way to be relevant is to be highly profitable. As we execute this inorganic strategy, maintaining a strong, conservative balance sheet and keeping leverage less than one times EBITDA is a priority. InnoVEX has a history of acquiring and successfully integrating numerous companies over the years. We have a wonderful team of people, a defined operating model, and a no barriers culture that enables this success. I was originally attracted to Drillquip given the strength of both their team and technology. And since closing the transaction, I have gotten to know the people and products even better, and my enthusiasm for the potential of the new Innovex has only grown. What drillquip brings to the combined company is incredibly difficult to replicate, particularly in the high performance offshore and international markets in which the company historically operated. There is a definitive moat around the drillquip business due to the high barrier to entry and high cost of change for our customers. Highly engineered 20,000 PSI deepwater subsea wellheads and large bore expandable liner hangers are the definitive big impact small ticket products. And I love that about the DrillQuip business. What was apparent to us during the early stages of our conversation with DrillQuip and what has only become more obvious after the merger is that the operating model was inadequate to serve customers and generate sufficient returns. Infrastructure from a pre-2014 vertically integrated world and a set of priorities that focused on following a process for the sake of process, rather than serving the customer, hindered both growth and financial performance. As we apply a no barriers approach to these challenges, there is an enormous opportunity for the company, our employees, and our customers. We will recenter the organization around fulfilling our commitments to our customers and driving cash flow and returns. Once transformed, this business will have a significantly enhanced bond with its customers. This process will not be simple, and it may be choppy. There will be a short-term impact on the business results. In evaluating the combined business accounting policies, we believe it most prudent to shift how revenue is being recognized in the subsea wellhead franchise. Historically, DrillQuip has adhered to a percentage of completion accounting method, recognizing revenue in increments as the manufacturing process is completed. Although this process has some merit, we believe it is more appropriate and beneficial to convert to a point-in-time method, which among other impacts will change the priorities of the entire organization. Instead of prioritizing work that optimizes revenue recognition, we will prioritize work that satisfies our customers and prioritizes cash flow. This is one example of many we will employ to optimize process, improve deliveries, and generate cash flow. However, in the short term, it will lead to some lumpiness in results and may delay when revenue is recognized versus the historical periods. It is critical that customers can trust in the commitments we make to them. This pertains to both quality and timeliness. Brokeup has a phenomenal record of delivering the best-in-class subsea wellheads, as well as many other products. However, on-time delivery of subsea products has been just 25%. which compares to InnoVEX's on-time delivery of 90 to 95%. This performance has weighed on Drillquip's market share, margins, and free cash flow, but this is fixable. We have a well-worn playbook that suggests it's not only fixable, but we believe will transform the financial results of the business by attacking this aggressively. Some history is helpful here. When InnoVEX acquired Rubicon in 2021, One of the iconic product lines we acquired was Logan Fishing Tools, where we design, manufacture, and sell an array of fishing tools. At the time of that acquisition, on-time delivery and gross margins were similarly low, which created numerous problems for our customers as well as for ourselves. It took some time, but over a year or two, we were able to radically transform the supply chain to achieve 90% to 95% on-time deliveries. which helped increase gross margins to exceptional levels, driving strong returns on our invested capital. In addition to the opportunities I just discussed, there's a significant potential to grow revenue by leveraging the strength of the combined portfolio. Inovex has long provided cementing tools in the U.S. Gulf of Mexico, often on wells with a drill-quip wellhead. However, we have had a limited market share in the international deepwater market, And the combined organization will benefit from the opportunity to provide the whole array of casing-mounted products from the wellhead to the toe of the well, significantly enhanced by Droquip's strong market share outside the U.S. Gulf of Mexico. The wellhead is typically the first well-centric consumable product procured for deepwater wells, and that early visibility will give us a significant advantage on offering a combined package well ahead of our competition. Similarly, when we look at North America, our geographic footprint is significantly expanded in the new InnoVEX. Historically, we were very underweight Canada, but going forward, we can now leverage our drill equipment to strengthen this market to pull through many of our legacy products. We've already seen success in this area, with early wins leveraging the combined footprint to sell conventional liner hangers in Brazil and Mexico, as well as being awarded a project with a large IOC in the Gulf of Mexico provide centralization solutions in combination with an 18 by 22 inch big board liner hanger. And this has occurred in just a few weeks since closing. We believe these examples can be replicated many times over. We have the ability and the will to transform the new InnoVEX into something truly unique and valuable for the benefit of our employees, our customers, and our shareholders. I will now hand the call over to Kendall to discuss Q3 results and our outlook for Q4.

Thanks, Adam. Before I discuss the Q3 results, I want to review a few housekeeping items on the accounting side that investors should be aware of when reviewing the results and forming forward-looking views. First, while Legacy Drillquip was the legal acquirer of Legacy InnoVex, we determined that Legacy InnoVex would be the accounting acquirer in this transaction. What that means is that the third quarter results are a full third quarter of Legacy InnoVex plus September 6th through September 30th of Legacy Drillquip results. Comparative periods reflected in our financials show legacy N of X results, excluding legacy drill clip. Additionally, we have decided to conform several accounting policies during this combination. As Adam mentioned, the most significant of these is the decision to cease utilization of the percentage of completion revenue recognition methodology for our sub-seat wellhead franchise, shifting instead to point-in-time revenue recognition. As a result, as part of the purchase price accounting exercise, we reversed the revenue recognized to date for any wellhead that has not yet been delivered to a customer. From a segmentation perspective, we have one reporting segment, InnoVEX International. Adam spoke earlier and at length about the metrics by which we judge our performance, margins and ROCE. In our view, those only matter at a consolidated level. If we aren't hitting those as InnoVEX International, then we aren't succeeding. While we certainly have talented leaders regionally and at a product line level, Adam and I are laser-focused on delivering a high-performing total entity to our shareholders. Finally, due to the equity value of legacy drillquip on the closing date of the merger relative to the fair value of the assets acquired, we recorded a bargain purchase gain of approximately $93 million during Q3. This gain is not factored into any of our key operating metrics. Moving on to results for the quarter. Third quarter revenue was $152 million, an increase of 9% year-over-year and 17% sequentially, primarily driven by the merger withdrawal clip. We evaluate our revenue geographically by separating our shorter cycle onshore U.S. and Canadian operations, which we refer to as NAM, from our longer cycle international and offshore operations, which include the U.S. Gulf of Mexico. Excluding the impact of the merger, we were very pleased with the resilience of our NAM revenue, which increased by approximately 13% sequentially, despite a 3% decline in the U.S. land rate count over that same time period. This demonstrates the ability of our team in North America to adapt to challenging market conditions and grow market share. We expect to see some slowdown in NAM revenue during Q4, but overall remain very pleased with our position in this market. Our international and offshore revenue grew 4% sequentially on an as-reported basis, with the incremental revenue from the drillquip merger being mostly offset by a decline of 26% in the legacy N of X business following an extremely strong quarter in Q2 2024, driven by record deliveries of deepwater centralizers into the Gulf of Mexico, which did not recur in Q3. On a pro forma basis, including a full quarter of drillquip activity, international and offshore markets would have represented approximately 51% of our revenue in Q3. That compares to approximately 35% of revenue for legacy Inovex over the last 12 months. We believe the combination with DROQIP significantly strengthens our international and offshore position and will allow us to drive market share gains over the long term. Turning to costs and expenses, our Q3 cost of sales, exclusive of depreciation and amortization, increased by $15 million sequentially, primarily driven by the addition of legacy drill clip results. Selling general and administrative expenses increased $19 million sequentially due to the addition of legacy drill clip results, as well as a significant one-time increase in stock-based compensation of approximately $10 million related to the equity vesting in connection with the merger transactions. Please note that the SG&A line item in our financials includes legacy DROQIP's engineering costs that were previously reported separately, but excludes acquisition costs, which are reported as a separate line item. Adjusted EBITDA for the third quarter of 2024 was $27.4 million, a decrease of $2.1 million sequentially and $5.8 million year-over-year. I'm also very pleased to note that as of today, we have achieved our full year-one cost synergy target of $15 million in annualized savings. While we still have plenty of work to do to decrease costs and improve margins, starting in Q4, we should begin to see the benefit of merger synergies in our cost structure. Free cash flow for the third quarter of 2024 was $20.1 million, a sequential decrease of $0.8 million and down $6.4 million compared to the third quarter of 2023, primarily due to investment banking fees, legal expenses, and other acquisition-related costs from the drill quit merger. Capital expenditures in the third quarter of 2024 were $1.7 million, representing approximately 1.1% of revenue, consistent with our capital life business model. Our balance sheet continues to be strong, with ending net cash and equivalents of approximately $100 million at quarter ends. Our return on capital employed, or ROCE, for the 12 months ended September 30, 2024, was 9%. This is low relative to both legacy InnoVEX performance, as well as our long-term expectations. driven by a large increase in capital employed as a result of the drill-quit merger without any corresponding increase in operating income as the benefits of the merger will start to be realized in Q4. As Adam mentioned, we've averaged high-teens ROCE over the past six years and believe that this is an achievable long-term target for the combined InnoVEX drill-quit business. Turning to our guidance for the fourth quarter of 2024, we expect adjusted EBITDA of $35 to $40 million on revenues of $220 to $230 million. which assumes a generally flat activity levels in Q4 relative to Q3. Our Q4 guidance reflects continued strong execution for the legacy N of X business, the partial impact of our $15 million in achieved annualized synergies, lower anticipated revenues for the legacy drill-quit business resulting from the adoption of point-in-time accounting standards, and expected expenses related to the ongoing merger integration. We expect to see tangible progress towards our long-term vision for margins in 2025. Finally, I'd like to take a moment to discuss our approach to capital allocation. Due to the high-margin, capital-light nature of our business model, we're able to consistently fund our maintenance and growth capital needs through internally generated cash flow. We also have a counter-cyclical cash flow profile, which allows us to continually invest in R&D through industry down cycles and to pursue opportunistic, transformative acquisitions at low points in the market, which often drive the largest value creation. As a result, we believe industry cyclicality is a feature, not a bug, of our business model. At all points in the cycle, we seek to leverage our platform to successfully grow through acquisitions, provided they meet the criteria of our disciplined framework. We believe the current environment is the best we've seen in a long time for accretive acquisitions, and therefore adding to our portfolio remains our top priority for capital deployment. This view is driven by cyclical and structural factors, as well as active deal flow. Between 2010 and 2017, over $175 billion of private equity was raised in energy-focused funds. This contrasts to low single digits raised billions raised per annum on average in recent years. Many of these pre-2017 funds need exits, and we've seen increased deal flow from sponsors in the past 18 months. In addition, we currently own 20% of a business called Downhole Wealth Solutions, or DWS, with a pre-negotiated framework to acquire the remaining 80% on attractive terms. Since acquiring our 20% interest in DWS, they've grown into a leading player in the US market, and we've helped them grow internationally. We are pleased with this investment and the opportunity it provides for accretive near-term growth. In addition, we see multiple other opportunities to acquire product-driven businesses that fit well with our platform at valuations that we believe will generate superior returns for our investors. In short, we see many attractive uses for our capital and believe we will be able to take advantage of this generational opportunity in the energy space. That having been said, we operate in a very dynamic market, and as things change, we continually evaluate the best use of our capital and will pivot to returning cash to shareholders when the time is right. We'd now like to open the line for any questions. Operator?

Thank you. At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from David Smith with Pickering Energy. Your line is live.

Hey, good morning, and thank you for taking my questions.

Good morning, Dave.

Adam Kendall, I hope it's not too early to ask this, but I'm curious for your thoughts on the optimal capital structure for the business, because I never understood the rationale for Legacy Dual Club's heavy net cash and zero debt approach.

Yeah, thanks, Dave. It's an important question. So, as you know, we operate in a very cyclical industry, so we view it as critical to maintain a conservative balance sheet at all times, and that's Not only to protect the business from a defensive standpoint, but also because having the balance sheet strength to lean in through down cycles allows us to take advantage of opportunities for transformative acquisitions that really wouldn't be available at other points in the cycle. The Rubicon acquisition we closed in early 2021 is a great example of that. Those opportunistic acquisitions are where we've been able to create the most value throughout the history of InnoVEX, so we think it's really important to maintain that flexibility. You know, that being said, we're also highly focused on maximizing return on capital, as we mentioned during the call. So, we understand that maintaining a large net cash balance over the long run is inefficient. Given our counter cyclical cash flow profile, we're comfortable maintaining some leverage, and we view leverage in the zero to one times net debt to LT and EBITDA ranges being optimal for our business.

That was great, Kohler. Thank you. I did want to circle back to the international and offshore product revenue. Tindall, I appreciate your comments about the sequential decline from the strong legacy N of X Q2 revenue. I did want to ask if there was an impact for the segment from the change in accounting on the subsea wellheads and if you're able to quantify that.

Yes. Quantifying the impact on Q3 is a little bit difficult. I will tell you, we reversed approximately $60 million of revenue through the purchase price accounting exercise, again, largely related to that subsea products business that we'd expect to be realized over the next 12 to 18 months as those products are completed and delivered to customers. So no doubt there was some impact on Q3. I think maybe just to give you a bit more color, On a pro forma basis, if you included drill quip for the entire quarter, international offshore revenue would have been about $119 million, approximately 51% of pro forma revenue for the quarter.

That's great, Collin. Thank you. I can stick with my two or sneak one more in if you'll let me.

We'd like to do one more.

I appreciate it. I do like the... your prepared comments about the M&A opportunities that I did want to ask, you know, just given how the 25 outlook has pared back in North America and internationally. I wanted to ask for any color that you might be seeing and seller expectations.

Yeah. Hey, Dave, this is Adam. So we've been, we've seen as exciting, let's say funnel of opportunities as we've seen the last, eight years that we've been doing this, where you have really great companies that have a good fit with us, strong margins, really good returns, and that there's a natural logical fit where we think we can help each other out. So we continue to see a pretty robust pipeline of those opportunities. And it's very much a buyer's market in that space. So those businesses that are continuing to perform, some of them, as example, the DWS business that we own 20% of has continued to outperform this year in spite of the weakness in the market. So those kinds of businesses like DWS that can be up in the current environment, you can get more excited about the potential for those businesses. So, yeah, I think there's reason to be, let's say, cautious on activity, but I think our view is activity from here is probably likely to be flattish on North America land, and that that's a pretty good opportunity to find a deal that works for both buyer and sellers where we can add some great businesses to our platform.

Great. Thank you very much. I'll save the rest for offline.

Thanks, Ted.

Thank you. Our next question is coming from James West with Evercore ISI. Your line is live.

Hey, good morning, Adam Kendall. Congratulations on the inaugural conference call.

Thanks, Dan. Thanks for joining us.

Absolutely. I'd love to hear Adam or Kendall's about some of the kind of early wins as you, as you've closed this deal, uh, where you've been able to combine, you know, the product sales. And if you could talk about how the, you know, the wellhead business plus your, your downhole business, um, how, you know, the purchasers, uh, on the customer side, how they interact with you after the same person, different groups, how, how the whole process works. I think it's been a little bit, uh, unclear, I think, to investors, at least in the early stages.

Yeah, I think that's a great question, because I would admit, I think this is one of those topics that's misunderstood by investors. Maybe I'll start with the end of your question. If you look at that deep water market, We, both the Legacy InnoVex business and the Legacy Drill Equip business, we sell products to the exact same person, typically the drilling engineer, in these deep water markets, be it in the U.S. or Brazil, Guyana, and other markets. So there is a kind of natural cross-sale opportunity. As I referenced on the call, we've already gotten some pretty exciting wins on that front, where one of the biggest operators in the U.S. Gulf of Mexico said, We just were awarded the first big bore 18 by 22 liner hanger for this particular customer. We run many of them globally. And attached below that is some pretty innovative technology from InnoVEX on the centralization standpoint. And then over time, we'll be able to add a couple other products to that package. So we will be able to provide a complete solution for these casing strings from liner hanger to the shoe or from the wellhead all the way down to the bottom of the well. So that's probably like the most tangible early win. Longer term, already had some conversations with customers in the Caribbean in particular where they want to change some of their well geometry to minimize the number of casing strings and improve the time to drill. And we're really the only guys that can have that conversation from start to finish of how it's going to impact the wellhead system, the liner hangar. all the centralization and float equipment technology, kind of all of the casing-mounted equipment from wellhead to the toe of the well. And that's going to take a little bit of time to really show up because these are all long-term projects. But I think that the opportunity there is incredibly exciting for us.

Got it. Okay. And then maybe just a question about the outlook here. You know, I guess our thinking is, you know, NAM kind of flattish it down, Offshore, obviously, up. Is that consistent with kind of how your customer is talking to you about 25?

Yeah, I think that seems pretty consistent. The first thing I would say, and we'll reemphasize for folks a number of times, is that our business is really driven. The key market driver is the number of new wells drilled, not directly rig counts. Almost everything we sell is a consumable product and count the number of wells, and that's what really the market driver is. So I think if you look at U.S. land, I would agree that rig count is probably flat to down a smidge. The number of wells drilled is probably flattish, maybe up a smidge. And then in the international and offshore space, I think you're right that you'll see a little bit of growth. There's a few headwinds, obviously, some white space in the offshore market. Saudi, which is a wonderful market for us. but is probably going to see a little bit flat to down activity. So there might be a couple of headwinds in that direction. But in general, we feel really good about our ability to kind of outperform the market and pick up a little bit of incremental market share. We've historically been pretty successful doing that over time. And on a combined basis to what we just talked about, I think there's some good opportunities that will come to fruition over the next year or so where we're able to generate some outsized growth because of our combination.

Got it. Thanks, guys. Congrats again. Thanks, Tim. Appreciate it.

Thank you. Our next question is coming from Eddie Kim, who is with Barclays. Your line is live.

Hey, good morning. Congratulations on closing the deal and on your first earnings call as a combined company. But my first question is just circling back to kind of offshore white space concerns for next year that some of the drillers have been talking about over the past three months. Have you started to see some of that impact your offshore business lines, whether that's some of the downhole tools you sell offshore or in your subsea wellhead orders? And how do you think this will impact your offshore business heading into next year?

Yeah, so it's early days and we're not giving specific guidance for 2025 at this time. We haven't seen a lot of pressure from that. I think, again, as I said earlier, we probably expect the market overall, international and offshore, to probably be up a little bit. I mean, I'm talking like probably mid-single digits. So we haven't really seen big pressure due to that white space that the drillers are concerned about. We might see a smidge, but it's... I think we still, again, still have a lot of opportunities to outperform that given where we operate in the market and the opportunity for us to pick up some incremental market share.

Okay, understood. And then just my follow-up is on your pro forma EBITDA for this year. Just want to understand what the baseline is for this year as we think about how to model next year. So inclusive of your 4Q EBITDA guidance of $35 million to $40 million, Could you let us know what that implies for full year 2024 adjusted EBITDA on a combined basis, assuming them are closed on Jan 1 of this year?

Yeah, no, I think it's a great question. So just to, I guess, answer your question. question directly and then I'll elaborate on it. So if you were to just add what both companies did separately in the first half, plus Q3, plus Q4 guidance, that gets you to something in the 150 to 160 range for EBITDA. But I think it's worth level setting, just given the number of moving parts in the quarter, probably on both revenue and EBITDA. So the top line perspective is cleaner and more straightforward. From a year to date, standpoint, our pro forma revenue at the end of the third quarter is $728 million. So if you add the midpoint of guidance, that puts you just over $950 million for full year 2024 revenue. And just as a reminder, the changes in revenue recognition standards we've talked about does mean that contribution from legacy drill quip is lower in Q3 and Q4 than it otherwise would have been. Q3 in particular was a low point at just over $100 million due to a combination of some order cancellations. You'll remember drill quip disclosed in Q2 as well as those changes in revenue recognition approach. On the EBITDA side, it's really a bit more complicated as those prior periods aren't fully apples to apples with the go-forward business given the number of changes around merger integration, but I will comment that we saw modestly negative EBITDA performance at the legacy DROQIP business in Q3, obviously due to a lot of disruption related to the merger as well as that decrease in revenue I just mentioned. We're moving quickly to fully integrate the business. We don't plan to break out DROQIP versus N of X EBITDA contribution going forward. But needless to say, we don't view that Q3 performance as representative. So the Q4 guidance, as we mentioned on the call, that represents Strong execution from Legacy and Avex, partial benefit of that $15 million of merger synergies that have already been realized, and then some ongoing noise on the DROP website around the integration. So it's a bit more representative of the combined business, but those Q4 margins at 17% at the midpoint, that's still low relative to our long-term expectations. And as we mentioned, we have very high confidence in the ability to get to the full $30 million of merger cost synergies. I think we have a lot of great opportunities from there. So I fully expect that margin percentage number to improve over the next year.

Got it. Thanks for walking through those components. And if I could just squeeze one last one in here. I know Legacy Drill Equip used to provide subsidy product bookings each quarter. Would you be able to let us know what that was in the second quarter and third quarter? Or is that something you don't intend to disclose going forward?

Yeah, so with respect to both bookings and backlog, those are not metrics that we're tracking at this point. We don't plan to report on those moving forward just due to the immateriality of that long lead time subsea products business relative to the overall enterprise. And just as a general comment, you know, we mentioned on the call, we're very focused on driving returns and cash flow, not as much on top lines. We really want the organization to focus on those items.

Got it. Understood. Great. I'll turn it back. Thank you.

Thank you. As we have no further questions on the lines at this time, I would like to hand it back to our CEO, Adam Anderson, for any closing remarks.

All right. Thank you. Thanks to everybody, our employees, analysts, investors, for joining the call. This is extremely exciting for us, a culmination of a lot of work across the board for the entire company. What I would like to say to the investors is, hey, we're incredibly excited about what we're building here. And although not yet fully appreciated by the market over time, we think we're going to do great things. To the employee base, I would say thank you for everything that you've done to help make both companies successful. Even just pulling together in short order the financials is a huge lift for everybody. A ton of work to go from here, but I think this is incredibly exciting. What we are going to build is extremely unique, differentiated, and advantaged for our industry. So thank you to everybody at the InnoVEX team for what you do to help make us successful today and into the future. So thank you very much. We'll talk to everyone soon.

Thank you. Ladies and gentlemen, this concludes today's call and you may disconnect your lines at this time. We thank you for your participation.