Innovex International, Inc.

Good morning, everyone, and thank you for 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 N of X's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause N of X's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the second quarter 2025 financial and operational results announcement that we released yesterday for a discussion of forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from N of X, we have Adam Anderson, Chief Executive Officer, and Kendall V, Chief Financial Officer. I would now like to turn the call over to Adam Anderson.

Thanks, Avi. Good morning, and thank you, everyone, for joining us today. First, I'd like to say thanks to our incredible team. We continue to make progress on our strategic initiatives, and I'm very proud and grateful for their efforts. On today's call, I'll discuss our second quarter results and walk through some of the key highlights, starting with organic growth, the Citadel acquisition, and our outlook. Kendall will then review our Q2 financial results, our strong financial position, and the multiple levers we can pull to drive strong shareholder returns. N of X has created a unique energy industrial platform that drives exceptional service and value for our customers, as well as strong absolute returns for our shareholders. We've done this by curating a portfolio of what we refer to as big impact, small ticket products. Our business model requires very little capital, typically 2 to 3 percent of revenue, and we plan to convert 50 to 60 percent of our EBITDA into free cash flow under normal business conditions. I am extremely pleased with our strong margins in free cash flow in Q2, but disappointed by the lower than expected revenue. Margins in free cash flow grew sequentially despite a challenging operating environment. Our North America land business remained resilient, absorbing the seasonal effects of breakup in Canada. Excluding the benefit of one month of Citadel revenue, our U.S. land business remained flat, outperforming a 7 percent recount reduction. This revenue performance reflects market share gains. For example, in our drilling enhancement product line, which was brought over from the DWS acquisition last year, this product line continues to gain share in the U.S., while also growing share outside of the U.S. as we leverage our international distribution channels. Importantly, revenue synergies from the DWS acquisition have begun materializing, demonstrating the value of this transaction. As an example, the legacy DWS sales team recently won a multi-rig bid for our cementing tools with a major operator in the Permian Basin, the first big cross-selling win of many we expect to realize. Turning to our international and offshore business, revenue was down approximately 13 percent sequentially. This softness was primarily isolated to our Middle East and Asia Pacific markets, which experienced activity declines, short-term product-specific headwinds, and delivery delays, which deferred revenues that we had previously expected to book in Q2. Underlying demand, however, remains healthy, and we expect a return to momentum in the coming quarters. Despite the weakness in our Middle East and Asia Pacific businesses, we did see growth in our Latin America business thanks to stronger performance in Mexico and Argentina. Importantly, we're starting to gain traction with our drilling and completion tools in Argentina's unconventional market thanks to customer adoption of our gunned-roll reamers and dissolvable crack plugs. This is particularly exciting as we expect adoption of these products to open the market for our entire suite of webware technologies, driving organic growth in future quarters. I would now like to discuss our recent acquisition of Citadel Casing Solutions, which we closed on May 30. Citadel is already expanding our market position, enhancing our technology portfolio, and unlocking meaningful commercial synergies. This acquisition further solidifies NFX leadership position in the U.S. land market for senior cementing tools, with market-leading scale and capabilities. Citadel's product lines are highly complementary to our legacy portfolio and fit squarely within our big impact, small ticket approach. By big impact, small ticket, we mean solutions that are critical to well construction and completion yet represent a small portion of our customers' overall well cost. We've curated a portfolio of products that fit this description because these products tend to have consistent margins driven by a clear value proposition. Citadel's Trench Foot Wet Shoe technology is a quintessential big impact, small ticket product. This proprietary technology enables increased reservoir access, which ultimately increases production from our customers' wells. Additionally, these tools help operators reduce cycle times, driving measurable gains in efficiencies, paramount in today's competitive landscape. A good example of this, Trench Foot has been utilized by one major international operator in over 1,500 successful installations in the U.S., with a 100% reliability rate, leading to an estimated $161 million in savings. We estimate that this technology has been adopted on only 25% of applicable wells in the U.S., which means we have significant potential to grow share. We are already seeing significant revenue synergies in the transaction, which should drive incremental growth in the coming quarters. It's important to understand that Citadel's existing blue chip customer base had minimal overlap with Inovex's legacy customer base, which means there are opportunities to grow market share for both legacy portfolios. In fact, just a few months after close, we have already seen early wins. Within the last week, we've made significant progress validating the Trench Foot system for one of the largest operators in West Texas. We successfully passed the first stage of field testing with this customer and expect to pick up nine additional rigs utilizing Trench Foot with this strategic customer. We expect this to translate to roughly $1 million per quarter of additional revenue, with further potential by both deploying Trench Foot to more rigs with this customer and expanding the set of products we supply to this customer. We don't plan to stop with U.S. land, however. While approximately 80% of Citadel's current business is concentrated in U.S. land, the portfolio is well-suited for applications in offshore and international markets, which can now be easily tapped as part of the Inovex platform. Finally, we have already realized synergies through Salesforce integration and distribution consolidation. Cross-selling efforts are quickly gaining traction alongside efforts to improve delivery efficiency by streamlining our footprint. These early wins give us confidence that this transaction will drive long-term, sustainable value across the entire Inovex platform for both our customers and shareholders. The Citadel acquisition is a prime example of our M&A strategy, a great business needing an exit for its current investors that fits extremely well with Inovex's platform and business model. Our strong balance sheet allowed us to execute this transaction at a time of particularly elevated macro uncertainty, as we see the long-term value that combined portfolio and commercial synergies. As we said all along, we make the cycles of our industry a feature, not a bug, of our business model, and this quarter was no exception. Even after spending $70 million of cash on the Citadel acquisition, we maintain a net of $50 million of cash balance sheet. We expect to close on the $95 million sale of our Elders facility in the third quarter, which today represents roughly 8% of our market cap. Our thesis when we merged with RealQuick was that we could improve margins and service quality, and this sale not only frees up an exceptional amount of capital, but the key enabler of our plans to consolidate facilities, create efficiencies, and drive cultural change. As discussed previously, we've made improving the customer experience a top priority, and a key driver of that has been raising our on-time delivery of the Subsea product line, now to the low 70% range. This operational progress has meaningfully enhanced our credibility with customers and positioned us to compete for new opportunities we simply wouldn't have been considered for before. In fact, we've recently secured two contracts, each in the $5-10 million range, that we likely would have lost in the past due to delivery reliability concerns. While we're pleased with this early progress, we're not stopping here. Our goal is to reach an on-time delivery rate of over 90% consistent with Innovex's historical standards, and we're confident in our team's ability to continue to close that gap. Overall, I'm pleased with the second quarter results despite the tough operating environment. We maintained margins, generated significant pre-cash flow, and closed on a highly accretive acquisition. 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 in the -20% range. I will now hand the call over to Kendall.

Thanks, Adam, and good morning, everyone. Just as a general reminder before we review the Q2 results, we closed on the merger with Drowquip on September 6, 2024, and Innovex was the accounting acquirer in the merger, so historical comparative periods prior to Q3 2024 reflect legacy Innovex standalone results. Turning to Q2 2025, while we were disappointed by the top-line results, we were pleased that our overall Q2 financial performance demonstrated the durability of our earnings and cash flow, highlighting the strength of our business model in all phases of the cycle. Our second quarter revenue was $224 million, which is an increase of 72% -over-year and a decrease of 7% sequentially. The -over-year increase is primarily driven by the impact of the Drowquip merger and the We evaluate our revenue geographically by separating our shorter cycle onshore U.S. and Canadian operations, which we refer to as NAM land, from our longer cycle international and offshore operations, which include the Gulf of America. Our Q2 NAM land revenue of $120 million was flat in comparison to Q1 revenue, with growth in U.S. land primarily as a result of the DWS business continuing to outpace the market and the addition of one month of citadel revenue, roughly offsetting seasonal declines in Canada due to spring breakups. Our international and offshore revenue during the second quarter of 2025 was $104 million, a decrease of 13% sequentially, due primarily to greater than anticipated revenue weakness in our Middle East and Asia Pacific business, as Adam discussed. Our Q2 cost of sales, exclusive of depreciation and amortization, decreased by $11 million sequentially to $153 million. Selling general and administrative expenses for the quarter decreased by $3 million sequentially to $29 million. Our SG&A as a percentage of revenue continues to decrease from the close of the Drowquip merger, moving from approximately 25% in Q3 2024 to just below 13% in Q2 2025. Strong operational execution and synergies have driven increases in EVITA margin from the time of the merger, rising from 18% in Q3 2024 to 21% in Q2 2025, despite a decrease in revenue. We continue to believe that in the long term, the combined Innovex platform can generate EVITA 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. We still expect the facility sale to close in the third quarter of 2025, with margin over the course of 2026. However, we would caution that we do not expect margin improvement to be linear, as we will incur various costs and inefficiencies as we work through the integration of physical operations over the next year. Adjusted EVITA for the second quarter was approximately $47 million, an increase of approximately $1 million sequentially and an increase of $17 million year over year. Free cash flow for the second quarter was $52 million, a sequential increase of $28 million. During Q2, we successfully completed the divestiture of our Subsea Tree product line for total proceeds of $10 million. While this sale had no impact on Q2 revenue, approximately $7 million of that $10 million sale price was attributable to inventory, and thus represents a one-time benefit to cash flow from operations and free cash flow during the second quarter. As a reminder, under normal business conditions, we aim to convert 50 to 60% of our adjusted EVITA into free cash flow. During periods of slower activity, however, we can unwind working capital to convert an even higher percentage of our adjusted EVITA into cash. Capital expenditures in the second quarter of 2025 were $7 million, representing approximately 3% of revenue in line with our historical target of 2 to 3% of revenue. We still anticipate being on the high end of our historical range in 2025 while we work through facility consolidation after the sale of the Eldridge facility. This marginal increase in 2025 capex will be far outweighed by the net proceeds of the sale of Eldridge, which demonstrates the value of our capital-wide business law. Even after acquiring Citadel in an all-cash deal, our balance sheet remained strong with the net cash position to end the quarter. Our total debt as of June 30, 2025, was $41 million, representing a -to-trailing 12-month adjusted EVITA ratio of 0.2 times, more than offset by $69 million of cash and equivalents. Our return on capital employed for the 12-month ended June 30, 2025, was 13%, which is an increase of 1% compared to the 12-month ended March 31, 2025. We continue to make progress towards our goal of returning the business to Inovex's 7-year historical average ROCE of approximately 18%. Turning to our outlook for the third quarter, we expect adjusted EVITA of $40 to $45 million and revenues of $230 to $240 million. Our anticipated sequential revenue growth is supported by several key factors. First, scheduled deliveries on certain key projects in the Middle East will increase from Q2 to Q3. Additionally, our U.S. offshore and Asia Pacific revenue is expected to benefit from shipments that were previously expected in Q2 but have now shifted into the back half of the year. Finally, Q3 will mark the first full quarter of contribution from Citadel, which we expect to be a meaningful offset to potential softness in the U.S. land market, where continued uncertainty and decreased customer investments may weigh further on activity. Our Latin America, North Sea, and Africa businesses are expected to remain relatively stable quarter over quarter, reflecting consistent underlying demand across those regions. Although the operating environment continues to be volatile, we remain focused on strong execution and capital discipline, and we're confident in the resilience of our portfolio as we move into the back half of the year. As we have stressed previously, we believe that our business model can be opportunistic in all phases of the cycle. The acquisition of Citadel is a great example and showcases our M&A strategy in action. By leveraging our strong balance sheet and cash flow generative business model, we were able to acquire Citadel in an all cash deal while maintaining a conservative leverage profile and net cash position. Citadel was acquired at an attractive value of 3.8 times LPM adjusted EVTA and was 8% accretive to N of X's earnings per share before factoring in expected synergies. Citadel fits our strict qualitative and quantitative frameworks, utilizing its big impact small ticket product portfolio to create a capitalized business which achieved 26% adjusted EVTA margins with strong free cash flow and returns on capital. We continue to maintain an active M&A pipeline of attractive companies which fit our framework, and we are positioned to be opportunistic given the lack of capital available to the energy sector. In addition to evaluating inorganic growth opportunities, we maintain significant capacity on our previously authorized $100 million share repurchase program as a competing use of capital. During the second quarter, we repurchased approximately $8.5 million worth of shares. We will continue to weigh share repurchases against M&A, especially in the current environments where there is significant market volatility. As we look towards the second half of the year, we are excited about potential opportunities on the horizon. We believe our net cash balance sheet, expected close of the Eldridge facility sale in Q3, and the integration of the Citadel business will position us well to continue delivering superior returns to our shareholders. I will now turn the call back to Adam.