Innovex International, Inc.

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 replay will be made available on the company's website following the call. Before we begin, I would like to remind you that InnoVEX's comments may include forward-looking statements and discuss non-GAAP financial measures. IT SHOULD BE NOTED THAT A VARIETY OF FACTORS COULD CAUSE INNOVEX'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS OR EXPECTATIONS EXPRESSED IN THESE FORWARD-LOOKING STATEMENTS. PLEASE REFER TO THE FIRST QUARTER 2025 FINANCIAL AND OPERATIONAL RESULTS ANNOUNCEMENTS THAT WE RELEASED YESTERDAY FOR DISCUSSION OF FORWARD-LOOKING STATEMENTS AND RECONCILIATIONS OF NON-GAAP 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.

Good morning, and thanks to everyone for joining us today. I'm pleased by the progress we have made on our strategic initiatives, which is thanks to our incredible team of people. I'm extremely grateful for their efforts in the first quarter. On today's call, I'll discuss how we are uniquely positioned to continue providing value to our customers and shareholders in all phases of the cycle and give an update on our continued transformation of the combined business. Kendall will discuss our Q1 financial results and how InnoVEX continues to be well-positioned financially and operationally to be opportunistic and flexible in a volatile macro environment. We've created a unique energy-focused industrial platform that drives exceptional value and service for our customers and exceptional absolute returns for our shareholders. Since InnoVEX's inception in 2016, we've generated strong financial returns on capital employees. To achieve these returns, we've curated a portfolio of what we call small-ticket, big-impact products, employing a capital-like business model that focuses on technology-enabled, consumable products with consistently high gross margins. Given the nature of our product set and our lean operating model, InnoVex has historically required a small amount of capex to sustain and grow our business, typically 2% to 3% of revenue, allowing us to convert somewhere between 50% to 60% of our EBITDA into free cash flow under normal business conditions. To drive innovation, organic growth, and operational excellence, our no-barriers culture is paramount. No barriers means eliminating all of the barriers between ourselves and our customers, as well as within our company, to ensure that we're elevating the experience for everyone. Our culture drives innovation and customer loyalty, as evidenced by continued gains in market share across multiple markets. Turning to our first quarter results, I'm very pleased by the resilience of our North America land business. Our legacy U.S. land downhole business remains flat, while our reported revenues grew 17% sequentially, driven by the inclusion of a full quarter of DWS revenue and seasonal growth in Canada. Q1 NAM results demonstrate delivery on both pillars of our strategy to both grow markets here organically as well as inorganically through high returning acquisition opportunities. DWS continues to be the market leader in their product category in the U.S. In addition to strong U.S. results, DWS delivered record revenues in Canada by loving the operations and sales team from Legacy Drill Clip. Distribution synergies in Canada were another driver of the merger and were pleased to see early proof points of our thesis. As anticipated, our international and offshore revenue was down from Q4 2024, but the decline in revenue was greater than we had originally anticipated. This was primarily caused by greater than expected weakness in Mexican drilling activity, along with some seasonality and delivery delays in our U.S. offshore during the first two months of Q1. Despite the activity declines in Mexico, we continue to see exciting opportunities in other international markets, such as the Middle East and Latin America. One such highlight was a recent well for Petrobras, in which Inovex was able to combine a fully integrated solution in the Buzios field, one of the most significant pre-salt fields. This was the first well in the country to integrate products from each legacy company. utilizing drill-quipped subsea wellhead and XPAC liner hanger with InnoVex's centralizer and float equipment technology. The successful installation on this well led to an order for 10 additional liner hanger systems, highlighting the untapped organic growth and synergy opportunities available to us. We continue to place focus on profitability and cash flow, as evidenced by our margins remaining flat sequentially and our generation of $24 million of free cash flow, which equated to approximately 52% of our adjusted EBITDA. Oil cycles are a feature, not a bug, of our business model. We've successfully grown through all phases of the oil cycle, but are particularly adept at exploiting down cycles to create lasting value for our shareholders. A key enabling pillar of our strategy is maintaining a strong balance sheet. We currently enjoy a net cash balance, and we do not intend to leverage our business over one-time debt to EBITDA. In an up cycle, we innovate across our small-ticket, big-impact product portfolio to grow share, while divesting non-core businesses that no longer meet our stringent financial criteria. During the mid-cycle, we continue to optimize margins by focusing on process and product optimization while evaluating highly accretive high return acquisition opportunities. Finally, during the down cycle, which we may be entering now, we are able to utilize our balance sheet and execution capabilities to exploit transformative investment opportunities. Importantly, during down cycles, we unwind working capital, which further increases our liquidity. No matter where we are in the cycle, we continue to invest in R&D and innovation. We truly mean it when we say that down cycles are a feature, not a bug of our business model. In March of 2021, not long after oil had treated at negative pricing, we acquired Rubicon Oilfield International. Due to the preceding macro environment, we were able to transact on this acquisition at a highly attractive price. We acquired our fishing tool business at that time, which we had transitioned into a highly profitable franchise that holds the leading market share position. This acquisition also bolstered our international distribution network, which has helped drive significant organic growth in Latin America and the Middle East. During industry downturns, we focused our innovation flywheel on projects that drive value and efficiency for our clients. For instance, we evaluate our portfolio for opportunities to provide tailored solutions combining different products or technologies within the same well to reduce our customers' costs and streamline their operations. We also look to provide technologies that save the customer significant time and money by reducing their costs and enhancing their operational efficiencies. One example of this is our SubZero centralizer technology, which eliminates the need for traditional centralizer subs in offshore wells. These centralizer subs are very expensive and require additional planning and logistical burdens for our customers. as well as requiring CapEx and an increased inventory footprint for InnoVex. Sub-Zero is able to alleviate all of these issues by installing the needed centralizers directly onto our customers' pipe much closer to the date of deployment, while charging roughly half the price of traditional centralizer subs and increasing InnoVex's margins and returns. This is a win-win for both InnoVex and our customers. As evidenced by a recent job for a major operator in our U.S. offshore market, We were able to save our customer $300,000 on a single well and reduce their lead time by 60% relative to traditional centralizer subs. We estimate this technology is applicable to approximately half of the wells drilled in our U.S. offshore market and are still in the early stages of market penetration, with Sub-Zero being utilized on approximately 10% of these wells. A significant focus of our team continues to be driving cash flow and returns that match the unique value proposition that our subsidy technologies deliver for our clients. We continue to right-size the subsidy business and improve operational efficiencies. We mentioned on our last call that we were planning to divest the Drillquip Eldridge facility, and I'm pleased to share that we've recently entered into a definitive agreement to sell the property for some of $95 million and expect to close in this transaction by the end of 2025. Let me underscore this number, as $95 million is roughly 9% of our market cap. Our thesis when we merged the companies was that we could improve margins and service quality. And this sale not only frees up an exceptional amount of capital, but is a key enabler of our plans to consolidate facilities, create efficiencies, and drive cultural change. This sale will further bolster our existing net cash position, giving us additional dry powder for organic and inorganic investments to drive further growth. We are currently in the process of moving the functions from this facility to other facilities and expect to have this completed by mid-2026. There will be some temporary increase in capex and operational expenses during this transition, but by the end of 2026, we anticipate a considerable amount of operational savings, even after considering a modest increase in lease expenses related to the relocation of certain business functions. Critically, We continue to improve the customer experience by improving the on-time delivery of the drill clip subsea business. At the time of the merger, on-time delivery was below 50%. As of the end of Q1, we've improved this metric to 72%. To be clear, our goal is to continue improving this metric until we are above 90%, consistent with InnoVEX's historical on-time delivery rate. This improvement will take several quarters as we work through the existing backlog, but is a foundational element of our transformation strategy. Although there's a significant uncertainty surrounding the macro environment, we are truly excited to showcase the strength and flexibility of our business model and proactively exploit opportunities to help our customers improve their operations. Our execution on the transformation of the combined business has begun to provide significant value to our employees, customers, and shareholders. I would like to once again thank our employees for their efforts and look forward to continued progress against our aspirations to improve the customer experience grow market share, and achieve margins for bid 20%. I will now hand the call over to Kendall.

Thank you, Adam, and good morning, everyone. We are pleased that our Q1 financial results continue to demonstrate the earnings power and cash flow resilience of our platform, with further margin enhancement opportunities in 2025 as synergies are realized through the full integration of both DrillQuip and DWS. As a reminder, we closed on the merger with Droquip on September 6, 2024, and InnoVEX was the accounting acquirer in the merger, so historical comparative periods prior to Q3 2024 were like legacy InnoVEX standalone results. Our first quarter revenue was $240 million, which is an increase of 88% year-over-year and a decrease of 4% sequentially. The year-over-year increase is primarily driven by the impact of the Droquip and DWS acquisitions. We evaluate our revenue geographically by separating our shorter cycle onshore U.S. and Canadian operations, which we refer to as NAMLAND, from our longer cycle international and offshore operations, which include offshore U.S. Our Q1 NAMLAND revenue of $121 million increased 17% as compared to Q4 revenue of $103 million, primarily as a result of one full quarter of DWS results. Our international and offshore revenue during the first quarter of 2025 was $120 million, a decrease of 19% sequentially due primarily to greater than anticipated revenue weakness in Mexico due to the dramatic slowdown in local activity and a slow start to the year in our U.S. offshore business. While our top-line results were slightly weaker than expected, we evaluate our performance based on margins, free cash flow, and ROCE, all of which showed good progress during this quarter. Turning to costs and expenses, our Q1 cost of sales, exclusive of depreciation and amortization, decreased by $2 million sequentially to $164 million. Selling general and administrative expenses for the quarter decreased by $6 million sequentially to $32 million. Importantly, our SG&A as a percentage of revenue has continued to decrease from the close of the merger, moving from approximately 25% in Q3 2024 to 13% in Q1. Strong execution on synergies has driven increases in EBITDA margin from the time of the merger, rising from 18% in Q3 2024 to 19% in Q1, despite the pullback in revenue. As a reminder, our realized cost synergies will phase in over time, partially impacting Q1 and fully impacting Q2. We continue to identify opportunities for cost savings and margin enhancements and believe that in the long term, the combined InnoVEX platform can generate EBITDA margins of 25% or greater, in line with InnoVEX's historical results. We expect the sale of the Eldridge facility to unlock the next phase of margin expansion, which we expect to realize over the course of 2026. Adjusted EBITDA for the first quarter was approximately 46 million, a decrease of approximately 3 million sequentially and an increase of 13 million year over year, with the sequential decrease primarily driven by greater than anticipated weakness in Mexico. Free cash flow for the first quarter was $24 million, a sequential decrease of $5 million, but in line with our goal to convert 50% to 60% of our EBITDA into free cash flow. Given that Q1 is seasonally our lowest cash flow quarter, we are pleased with our strong free cash flow generation, which allowed us to fully fund our acquisition of SCF Machining in February, while still increasing our net cash balance during the quarter. Capital expenditures in the first quarter of 2025 were $7 million, representing approximately 3% of revenues. This value is consistent with our historically capital light business model. We expect our near-term CapEx to be on the high end of InnoVEX's historical average of 2% to 3% of revenue as we continue working through merger integration, including facility moves and consolidation after the sale of Eldridge. We expect the bulk of any additional CapEx to occur in 2025 and to be far outweighed by the net proceeds of the Eldridge sale. Our balance sheet continues to be strong with the net cash position of $43 million to end the quarter. Our total debt at March 31st, 2025 was $25 million, representing a debt-to-trailing 12-month adjusted EBITDA ratio of 0.17 times, more than offset by $68 million of cash and equivalents. Our return on capital employed for the 12 months ended March 31st, 2025 was 12%, which is consistent with the 12 months ended December 31st, 2024. We continue to work towards our goal of returning the business to NFX's seven-year historical average ROCE of approximately 18%. Turning to our guidance for the second quarter of 2025, while acknowledging that there is significant uncertainty in the market at the moment, in particular with respect to U.S. land activity levels, we currently expect adjusted EBITDA of $40 to $45 million and revenues of $225 to $235 million. The decrease in revenue sequentially is driven by the continued weakness in Mexico, sequential declines in Canada related to spring breakup, and lumpiness in our subsea deliveries related to project timings. We expect deliveries in the subsea business to be back half-weighted in 2025. As a reminder, we are no longer accounting for wellhead deliveries on a percentage of completion basis. While this will add lumpiness to our quarterly results, we believe the change better aligns incentives across the organization, which will help drive on-time delivery to our goal of greater than 90% and will significantly improve earnings quality and cash conversion. I would next like to briefly address the fluid tariff environment. As our business and supply chain is highly diversified across several global markets, we do have exposure to rising tariffs. This exposure mainly arises from raw materials sourced out of Asia. However, we maintain a very flexible and diverse supply chain network, which will allow us to throttle manufacturing both domestically and at specific international hubs to optimize profitability and mitigate the impact of rising tariffs. To enhance our global supply chain capabilities, we recently acquired SCF Machining Corporation in Vietnam. which gives us access to low-cost manufacturing, which is well positioned to serve our eastern hemisphere operations. Importantly, the majority of our business is not locked into long-term pricing agreements. Thus, we have the flexibility to work with our customers to pass along cost increases over time as necessary. We will continue to monitor and assess this landscape as it evolves. As Adam mentioned, we strongly believe that our business model can be opportunistic in all phases of the cycle. I would like to expand a bit further on this. The high margin capital light nature of our business model allows us to fund our growth and maintenance capital needs through internally generated cash flow. We currently have 68 million of cash on the balance sheet, expect to generate continued free cash flow from operations, and expect to receive additional cash from the net proceeds of the $95 million sale of the Eldridge facility, all of which provides us with significant capital to deploy even before considering our borrowing capacity. Given the lack of capital available to the energy sector, We've been pleased with the number of opportunities to acquire businesses that fit our qualitative investment criteria and have the potential to generate ROCE above our corporate average, often in excess of 20%. The recent acquisition of DWS is a great example of this. DWS continues to drive growth in the NAMLAND market, and its products are actively being distributed to untapped international markets through our global distribution network. There is an abundance of PE backed companies that will be looking for an exit in the coming year, and a select group of these will meet our high return, stable margin, high free cash flow, and small ticket big impact consumable product proposition. We also announced last quarter that our board authorized a $100 million share repurchase program, which allowed us to have a competing use of capital to organic and inorganic growth opportunities. Since the announcement 10 weeks ago, we have repurchased approximately $6 million worth of shares. We will continue to weigh share repurchases as a use of capital, especially in the current macro environment where there's significant volatility in the markets. Importantly, we believe the current weakness in oil prices will further constrict capital to the sector, which should provide the ideal backdrop for us to invest in our business, either via our share repurchase program or through accretive, high-returning acquisition opportunities. We're very excited, as this is exactly the kind of market we were built for. I'll now turn the call back to Adam.