Dril-Quip, Inc. Aktie

Good morning, and welcome to Innovex's Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded.

I will now turn the call over to Jason Doan. Please go ahead

Good morning, everyone, and thank you for joining us. 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 third quarter 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 Innovex, we have Adam Anderson, Chief Executive Officer; and Kendal Reed, Chief Financial Officer.

I'll now turn the call over to Adam Anderson.

Thanks, Jason. Good morning, and thank you for joining us today. First off, I want to begin by thanking our employees for another quarter of strong commercial, operational and financial execution. Our teams continue to serve our customers exceptionally well, develop innovations that address their needs and work across the Innovex platform to drive organic growth. That collaboration reflects our no barriers culture and shapes how we operate every day.

On today's call, I'll begin with our third quarter performance and then walk through several important commercial developments across our North American offshore and international businesses before turning the call over to Kendal for a more detailed review of our financial results, capital allocation priorities and outlook for the fourth quarter.

Starting with performance. We delivered a strong third quarter. Revenue totaled $265 million and adjusted EBITDA totaled $55 million, representing an adjusted EBITDA margin of 21%. Our investments in technology, our global platform and acquisitions are helping us win new businesses and grow faster.

Four things stood out to me this quarter. First, our North America land business performed very well, driving modest market share gains. Second, our offshore order book continues to grow, which sets us up nicely for 2027 and 2028. Third, the Middle East delivered a good quarter in a really challenging environment, where we continue to invest in local infrastructure and new product qualifications. Fourth, Venezuela is rapidly developing, and we believe the opportunity there could be meaningful for Innovex across our portfolio.

In North America, our U.S. land business had a very strong quarter with share gains driven by our cementing tool business. We secured 2 significant awards in the Permian Basin, one that expands our market share with a large independent and the second displaces a competitor with a large IOC we've not previously done significant work for. Together, these wins are expected to add approximately $1 million in monthly revenue beginning late in Q4.

Turning to offshore. Our Subsea business continued to build commercial momentum. In U.S. offshore, we successfully installed the first of our 20,000 BigBore IIe subsea wellhead systems for a major IOC with more scheduled in the coming weeks. Our work for this operator demonstrates the power of our no barriers culture with 100% on-time deliveries and 99% uptime across more than 4,500 hours of offshore operations for them during the quarter.

In Malaysia, we secured follow-on awards for the subsea tension riser package we announced last quarter, along with the subsea wellhead award covering an additional 9 to 10 wells. This second example demonstrates how our strategic alliance with OneSubsea creates opportunities we would not have been able to access otherwise.

In Indonesia, we were awarded a 5-year subsea wellhead contract with a major IOC valued at more than $30 million. In the North Sea, we signed a global master service agreement for fishing equipment with a major drilling contractor displacing the incumbent supplier. We expect that agreement to significantly improve our market share in the North Sea for this product line.

Our Middle East business delivered a solid quarter despite disruptions across the region. We signed our first direct corporate purchase agreement with a major national oil company, direct sales to one of the largest operators in the world without the use of a local agent, simplifying our business and bringing us closer to the customer.

While we delivered solid results, activity in the region has been impacted by the regional conflict, and we now expect reduced activity and higher freight and logistics costs to impact our results next quarter. Despite these short-term impacts, we continue to invest in new product qualifications in both Saudi Arabia and Abu Dhabi and expect these investments to position us for sustained long-term growth in the region.

In Latin America, we're particularly encouraged by Venezuela. As international investment returns, we expect activity there to increase significantly. During the third quarter, we reentered the market with an award of more than $5 million for large diameter tubulars and connectors supporting an offshore development. Looking ahead, we see a very exciting opportunity in thermal wellheads. Much of Venezuela's production comes from heavy oil, which requires thermal wellhead systems, an area where our legacy Great North team and product line is well established.

We expect that demand to generate a significant amount of work for us in the future. While these opportunities have not yet translated into meaningful revenue, we believe we are well positioned to participate as activity builds through 2027 and '28. Importantly, our capital-light business model allows us to participate in that recovery without committing significant fixed assets in the country.

Stepping back, this quarter showed what the Innovex platform can do. We're winning share and scaling the technologies we have acquired, all while moving closer to our customers by investing and expanding our platform. Even as we grow, we continue to focus on the same playbook we have followed since we founded the company. We continue to invest in differentiated technologies and provide a delightful customer experience.

We continue to focus on consumable products that have high gross margins, low capital requirements and fit our big impact small ticket value proposition. We believe this approach positions Innovex to continue gaining share, growing profitability and generating cash flow for our shareholders.

I'll now turn the call over to Kendal to review our financial results and outlook in more detail.

Thanks, Adam, and good morning, everyone. I'd now like to review our third quarter 2026 financial results. For the third quarter of 2026, revenue totaled $265 million, up 8% sequentially from the second quarter of 2026 and up 10% year-over-year.

Adjusted EBITDA totaled $55 million, resulting in an adjusted EBITDA margin of 21% compared to 20% in Q2 2026 and 18% in Q3 2025. We were pleased to deliver revenue at the midpoint and adjusted EBITDA in the upper half of our guidance range. We are encouraged by the trajectory of our margins as the benefits of our operating model and commercial execution continue to build.

NAM land revenue for the third quarter was $146 million, up 11% sequentially from $131 million in the second quarter. As Adam mentioned, this strong quarter-over-quarter growth reflects the revenue impact of increased drilling and completion activity levels as well as continued incremental market share gains in U.S. land. We are very pleased with the trajectory and competitive position of our North America business heading into 2027.

International and offshore revenue was $119 million, an increase of 5% sequentially, driven primarily by the addition of TCO, partially offset by a decrease in subsea deliveries in the Eastern Hemisphere due to project timing. Importantly, our Subsea business continues to secure additional project awards, increasing our confidence in a positive trend over the next 2 years.

For example, we secured follow-on awards on 3 subsea projects in the Far East during the quarter, bringing our total expected revenue on those projects over the next 12 months to approximately $53 million, up from $41 million at the end of Q2. For context, we have recognized less than $2 million of revenue to date on these 3 projects combined, illustrating the earnings potential currently being built within this product line.

Although project timing will create some quarter-to-quarter variability in our reported revenues, we remain very positive on the outlook for our international and offshore business in 2027 and 2028, driven by the expected strength of our Subsea product line, contributions from new markets such as Venezuela and a return to growth in the Middle East.

Cost of sales, excluding depreciation and amortization, was approximately $169 million during the quarter.

Gross margins continued their positive trajectory with Q3 margins of 36%, representing a slight increase from the first half of 2026 and a significant step-up from 2025 levels. This trend is a credit to our team's ability to execute on a complex facility consolidation strategy over the past 2 years to unlock the benefits of the Dril-Quip merger as well as the strength of our product portfolio, disciplined pricing and continued operational execution.

Selling, general and administrative expenses for the quarter increased by approximately $5 million sequentially to $44 million, driven primarily by the TCO acquisition. As we continue to grow the business, we expect to leverage our existing platform to reduce SG&A as a percentage of revenue over time, while maintaining disciplined cost control across the organization.

Free cash flow for the quarter was $32 million, representing 58% of adjusted EBITDA. Our ability to consistently generate strong cash conversion remains a key differentiator of the Innovex business model and reflects our capital-light operating structure, disciplined working capital management and limited capital expenditure requirements.

Capital expenditure in the third quarter totaled $6 million, representing approximately 2.4% of revenue within our historical range of 2% to 3% of revenue.

We ended the quarter with approximately $189 million in cash and cash equivalents and no bank debt, providing significant financial flexibility. Our Q3 ending cash balance reflects the cash portion of the TCO acquisition paid on July 1st, partially offset by free cash flow generated during the quarter.

Our M&A pipeline remains robust and includes a mix of smaller bolt-on acquisitions as well as larger strategic transactions. As always, we will remain disciplined and pursue transactions that fit our big impact small ticket strategy, generate strong margins with low capital requirements and can be acquired at reasonable valuations.

Return on capital employed for the 12 months ended September 30th, 2026, was 10%. ROCE was reduced by our net cash balance sheet position. We remain focused on achieving a long-term target of high teens ROCE via margin expansion, high-return M&A and shareholder returns.

Looking ahead to the fourth quarter of 2026, we expect revenue in the range of $260 million to $270 million and adjusted EBITDA of $53 million to $58 million. Our outlook reflects a rebound in Eastern Hemisphere subsea deliveries, offset by a modest decline in Saudi Arabia due to lower drilling activity and a slight seasonal decrease in our U.S. land production-related product lines.

As we close out 2026, we will remain focused on expanding our acquired technologies across the Innovex platform, capturing operational efficiencies, investing in customer-centered innovation and maintaining a disciplined approach to capital allocation. Our strong balance sheet and free cash flow generation position us well to continue creating long-term shareholder value across a range of market conditions.

With that, I'll turn the call back to Adam for closing remarks before we open the line for questions.

Thanks, Kendal. We are pleased with our third quarter performance. We delivered revenue at the midpoint and adjusted EBITDA in the upper half of our guidance ranges, generated strong free cash flow and secured several important commercial wins across our offshore and international businesses.

While Innovex is entering a new phase, our formula has not changed. We offer differentiated technologies that are critical to our customers. We're in a capital-light business that converts a high share of earnings into cash and deploys that cash with discipline. As we head into year-end and look ahead to 2027, we are confident in our ability to keep converting these advantages into profitable growth. Thank you again to our employees, customers and shareholders for your continued trust and support.

Operator, we can now open the line for questions.

[Operator Instructions] Your first question comes from the line of Scott Gruber with Citi.

So it sounds like there'll be a bit of a slowdown in 4Q. I assume a lot of that is the Middle East. But then the outlook for '27, it sounds pretty good. And we've been receiving '27 market outlooks from the larger service players. They've been talking about mid-single digit, potentially high single-digit spending growth next year, even if the Middle East is flat from the second half of this year. How do you think Innovex trends versus the market given your growth potential offshore, given growth in Venezuela and what sounds like some share gains, at least within [ completion ] equipment in the U.S. Can you kind of wrap that all up for us? How should we think about the Innovex growth potential next year?

Yes. Thanks, Scott. Really good question. So I think maybe just to remind everybody, so the key macro driver for our business is really the number of new wells drilled in the geographies, where we operate. And over the long run, we've consistently focused on slightly outgrowing that metric through market share gains. So that's kind of how we tend to think about the business from a macro standpoint.

In terms of 2027, we don't formally give annual guidance, but of course, we are starting to develop a high-level view on revenue for the year. So I'd say with the caveat that there's a lot of factors outside of our control, our assumption would be U.S. land activity is in line to maybe slightly better than current run rates.

No changes in the current deepwater activity outlook or major disruptions the Venezuela operating environment, given that we think that's going to be a key growth area next year and probably the Middle East activity to maybe stay more flat to Q3 levels versus the dip that we're looking at in Q4. But under those assumptions, we would expect 2027 revenue to be up roughly 10% compared to full year 2026 results.

That's right. And I want to drill down a bit on Venezuela. It sounds like there's some initial sales in the queue, and it could be a big opportunity for the great North wellhead business. How big could Venezuela be for Innovex in 2 to 3 years? What would it take to get there from an investment perspective? Do you need to open up and operate major facilities down there? Can you kind of keep a light footprint in the country and to sell product? Maybe just some color on the revenue outlook and what it takes from an investment perspective to get there.

Yes. No, good question. We are excited about Venezuela as we've been talking about for a little while now. We were awarded some large OD tubular stuff for offshore that should deliver next year. We've got a couple of small tool delivery awards that will come Ex Works Houston. And then we've got a lot of wellhead work that we're quoting on currently. And as I said on the script, one of the really interesting things about that market is there's a strong thermal wellhead opportunity, and we've got a really great team and set of products in Canada that we can bring in and help grow that market. So we think that will be a nice tailwind for us in 2027 and beyond.

We put in the presentation that we dropped overnight that we've seen about $50-ish million worth of tender activity. So a strong pipeline, and that's growing. Next year, I would say, hey, we'll probably be double-digit million dollars all going well, maybe $10-ish million is how we think about it next year with the potential to grow pretty meaningfully from there.

And then maybe the last part of your question is the beauty of our business model is we don't need a lot of local infrastructure to deliver on that. Some of that work, like the stuff we've been awarded to date will largely be delivered Ex Works or outside of Venezuela and then only need a light footprint in country.

As we ramp up some of the more service-intensive product lines like wellhead, there's some liner hanger opportunities, we will need some folks in Venezuela, and we're adding a few folks, but it's pretty smallish relative to the size of the opportunity. And then just the physical infrastructure and CapEx we need is pretty small. So we actually fortunately, inherited the facility from Dril-Quip in Anaco, which is kind of right in the core of the Eastern Venezuela area. So we'll do -- we'll spend some CapEx dollars next year getting that ready to go. But it's pretty small and will not require a massive investment in infrastructure for us. So yes, we're excited about Venezuela and where that's headed over the next couple of years.

Your next question comes from the line of Derek Podhaizer with Piper Sandler.

I appreciate the walk-through for 2027. That was a great view. You talked about roughly 10% up year-over-year. Maybe can we flip over to margins? I know you've had this kind of longer-term journey back towards 25% and granted you need the market to work and you need pricing to work. But we've already seen pretty considerable margin improvement since the Dril-Quip acquisition. So maybe if you just spend some time on where you're at with margins, where you see the upside to margins, how we think about incrementals on a 10% top line revenue gain, having more deepwater offshore, more opportunities in Venezuela. It seems just like higher-priced areas. So just some thoughts around the margin journey as we try to get back to that longer-term 25% target.

Yes, absolutely. Thanks, Derek. And as you said, I would highlight this, we're extremely pleased with where we are today. It's been a long journey over the last 2 years. We've kind of been saying through self-help, a lot of the benefits out of the merger integration, we felt like we could consistently get into the low 20s EBITDA margins at roughly these revenue levels, and we've really seen that over the last 3 quarters. So very pleased with where we are today.

But obviously, we do have this target to get up to 25%, which I think is very achievable. The biggest portion of that, as you pointed out, is going to be on higher revenue. And it will vary a little bit by product mix. But in general, we've seen pretty consistent incrementals in the kind of mid-30s range. So call it, 35% incrementals is what I would be expecting as we kind of grow revenue from here.

And then in terms of other things we can do to get more efficient on the current revenue base, we have consolidated subsea manufacturing into our plant in Singapore as we kind of get more volume pushed through there. We'd expect to be more efficient on that product line revenue stream.

And then the other thing we've talked about maybe on and off, but we are just completing an expansion of our manufacturing facility over in Vietnam that's more focused on the downhole products. And as we continue to grow that capacity for downhole tool manufacturing, that will really help us lower costs, both to bring some high-volume products into the U.S., but also to serve the Eastern Hemisphere directly, avoiding any tariff impact, those types of things. So I think some of those initiatives now that we have the facility footprint structure in place, we'll be focused on driving some efficiencies through the supply chain in '27 and '28.

That's super helpful. And then switching back over to the Middle East. Adam, you've had pretty incredible share gains over the last 10 years with Innovex. And I think historically, you've been more conventional Middle East. There's a lot more unconventional activity starting to pop up over recent years and it seems like that's going to take more share in the future. You've talked about more of this direct sales to your customer bypassing some of these local agents. So maybe just some thoughts as we start to think about the mix of your conventional versus unconventional opportunities, what this direct-to-customer opportunity gives you and to continue to advance market share there?

Yes. So as we've talked about many times, we're really excited about our infrastructure in the Middle East. Saudi has been an area of particular focus of ours in mine personally for the last decade plus. And we've got a really great team over across the Middle East. And we have really, in the last few years, leaned to building that team out, localizing the team and improving our local content.

In Saudi specifically, we inaugurated a manufacturing facility going back a little over a year ago. And as you just referenced there, we signed our first direct to the NOC contract there, which is going to help us in a number of different ways, brings margins up a tick, will help us on the working capital side and this brings us closer to that customer in particular.

As you are correct, we first entered that market in the conventional oil. We've diversified over time to more offshore to gas and to unconventional. And that's really our playbook is just to continue to grow that share of wallet, which is happening.

So we've gotten in the unconventional space, for example, in the last -- I think it might have been in Q2, but let's say, in the last 6 months, we've gotten the wet shoe system that we got from Citadel fully qualified and across the finish line. We have a flotation valve that's run to help deploy casing a lot of these wells qualified. We've got another cementing tool used for intermediate cementing, which we're not quite across the finish line with, but pretty close. So we'll definitely be expanding our footprint across all the markets there, but specifically in Saudi.

Maybe the other thing I would say is I took a trip to the Middle East a month-ish or so ago, and we always, as I said, have a lot of focus on Saudi, but had a really good trip to Abu Dhabi and with the various -- with ADNOC as well as a few other operators there. And I think we've got a really strong potential in Abu Dhabi over the next couple of years as they look to grow their output capability in some pretty technically challenging wells.

Some of the -- they drill some of the most complicated wells in the world offshore and a really critical part of that. They're going to grow their unconventional program, and we're already a part of that, both for some of the IOCs that are over there as well as -- or some of the independents that are over there as well as for ADNOC. So I think a lot of opportunity for us in both those markets to grow share over the next few years.

Your next question comes from the line of Keith Beckmann with Pickering Energy Partners.

I just wanted to ask a little bit about the Asia subsea side of things. So we saw some good orders here in Indonesia and Malaysia this quarter, right? I wanted to get a sense on maybe thinking about the order pipeline potentially going forward, where are the biggest opportunities that you guys are seeing? And then beyond that, I mean, what's kind of the typical lead time from the time you receive an order to maybe when number start showing up as revenue?

Yes. So thanks, Keith. Yes, we haven't talked about Asia yet. That's been a really great success and hats off to the team there in Asia. They put in a ton of work over the last year in seeing some of these projects come to fruition. We talked about an expansion of a couple of big projects we've been awarded previously, one with subsea -- one with OneSubsea on subsea wellhead specifically, another an expansion of one of these tension leg platform projects that we've got.

And then a big award for us in Indonesia, which is a really exciting emerging market there. And I think there's a lot for us to do in Indonesia over the next couple of years, and that really sets us up well there. So that's really exciting. You'll see that one specifically in Indonesia, that's a 5-year project. So that will take time to really grow -- or that will take time and be kind of a small add-on each year over the next 5.

Some of those bigger projects we talked about, we'll see a pretty good chunk of that revenue next year as we make really good progress in manufacturing and ultimately deliver a lot of that. So we'll see a big slug, and that's part of what's driving that 10% growth that Kendal referenced earlier.

And then as you look out to '28, we've got some really exciting opportunities we haven't secured yet, but expect to get that's going to drive some growth in '28 as well. So overall, really pleased with where that subsea pipeline is headed and what that team has done. It's been really exciting to see over the last 6, 9 months.

Okay. Awesome. That's really helpful. And then my second question is maybe a little bit more focused around recent M&A with you guys integrated DIS and TCO this year. And just wanted to get a sense maybe on how those businesses have been trending and if there's any additional opportunity you guys have seen since those have come into the fold?

And then secondarily, are there any other offshore has been trending in a good way. Just trying to get a sense on if there's any other M&A opportunities out there where you guys think you could maybe grow the business and find ways to add from maybe products you don't have. Any thoughts on that?

Yes, definitely. I mean, as you know, we talk about a lot, M&A is a core part of the strategy. So we keep a really active pipeline there and [indiscernible] is a pretty broad net, onshore, offshore, U.S., international. It tends to be that those international offshore opportunities are a bit fewer and further between, which is why we're so excited about the TCO deal we were able to get done at the start of the quarter. So we'll continue to look for those. But yes, hard to speculate on kind of when things might come together. But I'll just say that we do have a -- continue to have a very active M&A pipeline and be very focused on that.

And I guess with respect to the 2 acquisitions we've done this year, I think operationally, the integration has gone extremely well, like we're very excited about all that. We're starting to get the kind of the revenue contribution, let's say, from TCO that we expected in Q3 was basically in line with the $15 million that we talked about.

And then I think that -- both of those businesses being more offshore focused are going to be a bit lumpy like the rest of our offshore business kind of based on deliveries and project timing. But from a long-term perspective, I think all the products fit really well within our portfolio will give us opportunities to grow. And we're kind of in the early days of working on cross-selling and pulling those products into new geographies. So maybe a bit early to say, but I think the long-term outlook is still really good for both of those deals.

Your next question comes from the line of Don Crist with Johnson Rice.

I wanted to touch a little bit on the last answer you gave there, Kendal. But as far as cross-selling is concerned, how has that been progressing with all the M&A that you've done recently? I mean it sounds like the cementing awards kind of came from that. Just any thoughts around cross-selling and moving things from one part of the world around the other regions that you operate in?

Yes. No, that's been really good. It's difficult to quantify. I think we've talked previously about one of the major independents out in the Permian Basin that over the last 6 months, we did get that cementing tool work largely as a result of relationships that came over from the DWS side.

As I said earlier, really excited about Venezuela, and that is one that probably candidly, we lock into a little bit. I'd like to say we planned it, but we didn't where we have a great team in Canada, great technology there, combined with legacy infrastructure that Dril-Quip had. so we'll be able to take advantage of that.

On the TCO side, it's early days, but there is a lot of opportunity for those products outside of the core legacy markets. It takes a little time for that one to come to fruition. That's a long sales cycle product. So I would think that's more '27, '28. But overall, a lot of excitement with each of those, especially TCO, DIS, great technology businesses, fits really well with what we do, well known by customers in their home markets, and it really gives us a good opportunity to see those things flourish globally.

I appreciate that. And then on the offshore side, I mean, obviously, you've been getting a lot of awards lately. But are the awards that you're getting with operators that have long-term programs? Are there kind of more one-off projects, discrete here or there? I'm just trying to get a sense of could this lead to a lot more awards in the future?

It's fair. The big ones we've talked about, we referenced 3 big Asia projects, which are a little bit discrete in nature that we announced -- we've announced in previous calls, one of which we had an add-on that we talked about on this call.

That Indonesia award, that's more of a continuous work over multiple years and it's going to allow us to bring more products into Indonesia with that operator as well as other ones. So I think that sets us up. That's more than just discrete.

And then I think we've got a couple of other things cooking that are more -- that are exciting that are lead to longer term, more sustainable, less project-driven growth, if you will, in '28 and beyond, not the least of which is our relationship with OneSubsea, which we've seen a couple of smaller wins in Asia, but we haven't really started to see the fruits of that labor yet.

Okay. And then the final one for me is in the Gulf of America, you installed the first 20,000 psi wellhead. It sounds like by my math, we're going to have 3 20,000 psi rigs out there, and I think you are the only one that have a wellhead. Is that the right way to think about it? And can that market be pretty big going forward in the GOA?

So to be clear, this is not the first one that we've done. We did a project about 2 years ago, I probably really drilled we did a project 2 years ago in the 20,000. This is the first one for this particular operator who is really ramping up activity there. So I do think it's going to be big. We're not the only ones that have the 20,000 wellhead, but I think it's -- we have far and away the best technology in that space. So I think, yes, as that 20,000 technology grows in the U.S. offshore, we're going to be really well positioned to see that activity benefit from that activity. So yes, we're excited about that.

Your next question comes from the line of Josh Jayne with Daniel Energy Partners.

First question is on the Lower 48. How are you seeing evolve? I think in your walk-through, you mentioned for next year, you thought activity would be slightly better than the current run rate. But you talked about 2 awards in the Permian to privates versus publics increasing activity next year, who might be driving the incremental activity gains? And then on top of that, are there any geographies that may grow more quickly than others in 2027?

Yes. So Lower 48, great market for us, have really strong market share across basically everything that we do and added to that this quarter with those 2 wins. We are both with -- I mean one is a really big IOC. The other is one of the larger independents out there that's also publicly traded. And we're balanced. We work for both. We're probably a little bit more weighted to the large publics, but see a really good mix of activity.

This year, we've seen mostly the smaller guys pick up activity. Next year, I think you'll see that. But I do think we're hopeful that you'll see a little bit more -- these bigger guys adding a few rigs too. But in general, I think we continue to see good growth driven in the U.S. market.

And then the other one to unpack a little bit. You highlighted just the higher freight and logistics costs. I think a lot of people are dealing with that. Maybe you could just talk about that impact a little bit and then when you expect that to resolve and just how you're working through that business would be helpful.

Yes, definitely. I mean it's been an ongoing issue really since Q2. We saw a big jump up. I think we maybe quantified it on that call. It's about $1.5 million in the quarter. It's varied a little bit since then, but the fundamental issue is you're still continue to air freight more things that you would normally be able to see freight given the conflict in the region or send it other routes that just takes longer is a little bit more costly.

So it's kind of in that universe, maybe $1 million or so a quarter that when the conflict gets resolved probably is able to come back to the bottom line. So not huge, but definitely a bit of a drag.

Your next question comes from the line of Eddie Kim from Barclays.

So you highlighted several follow-on awards on subsea projects and that you expect more subsea revenue to convert next year than this year. But could you comment on the margins on some of this recent work you've secured? Are these accretive to margins you had in your Subsea backlog, say, a year ago? Or are they fairly consistent? And is kind of margin accretion on recent orders something sort of on the come over the next several years?

Yes. Thanks, Eddie. I would say from what we see in the backlog today, there's nothing like some of those awards we worked through early in '26 that were definitely dilutive to margins. I think the new work that we have in the pipeline, the things we're going to be delivering over the next 12 months are probably more in line, maybe slightly better than our current consolidated gross margins. But I would still think about it as contributing basically those same incrementals on that work, if that makes sense.

Okay. Got it. And then my follow-up is just on Venezuela. You mentioned that you reentered Venezuela. I wasn't aware that you had operations there previously. Could you talk about what product lines and when you were involved in Venezuela previously? And maybe if you could frame the revenue opportunity for us, like how quickly could Venezuela revenue be $20 million? Is that a 2027 event? Or does that seem like a stretch at this point?

Yes. So we -- our Venezuela reentry, so to speak, kind of comes through the legacy Dril-Quip business, specifically a business they acquired TIW, which was a long-time provider of liner hangers as well as other products into Venezuela. There was a facility that had been mothballed some time ago, many years ago, but we retained ownership of that facility, and we're kind of reinvigorating that facility, putting some CapEx into it, hiring a couple of folks, reestablishing a legal entity, doing all that kind of stuff. But that -- when we say reenter, that's really the legacy TIW stuff.

As far as the size of the opportunity, I mean, historically, I would say Venezuela was one of the better, if not the best, at some point in time, international market for oilfield services globally. If you go back 20 years ago, just a ton of opportunity, some fairly -- a variety of different kinds of wells, a variety of operators. There's a lot of dynamics that set up well for a strong oilfield service market.

As far as size of the opportunity, we did put out this morning that we had something like $50-ish million worth of tenders that we've quoted on. Obviously, only a portion of those will come to fruition. We have a $5 million order already for large OD tubulars that we expect to deliver in '27. And I think '27, we'd be thinking about a $10 million, maybe some upside to that.

As far as getting to $20 million, I would say that's probably -- that's possible, but definitely a stretch for 2027. We'd have to have a really good conversion rate on the opportunities we're pursuing. But I think in 2028, all things trending the way that we're seeing it today, I think that's very credible that we get to $20 million in 2028 in Venezuela.

We have reached the end of our Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you. Good morning and welcome to InnoVEX's second quarter 2026 earnings call. At this time, all participants are in listen-only mode, and there will be a question and answer opportunity at the end of this call. reminder, this call is being recorded. I will now turn the call over to Eric Wells, Chief of Staff. Eric, please go ahead.

Good morning, everyone, and thank you for joining us. 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 the expected results. expectations expressed in these forward-looking statements. Please refer to the second quarter financial and operational results announcement 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 will now turn the call over to Adam Anderson.

Good morning, and thank you for joining us today. I want to begin by thanking our employees across the organization for another quarter of strong execution. Our teams continue to focus on delivering a delightful customer experience, advancing customer-centric innovation, and leveraging the InnoVex platform to grow our business organically. That's why we're here today to thank you for joining us today. That spirit of collaboration is at the heart of our No Barriers culture and continues to shape how we operate every day. On today's call, I'll begin with our second quarter performance and then discuss the recent acquisition of TCO Group and the opportunities we see for its technologies within the InnoVEX platform. I'll also highlight several important operational and commercial developments across our sub-seat and international businesses before turning the call over to Kendall for a more detailed review of our financial services. for results, capital allocation priorities, and outlook for the third quarter.

Starting with performance. We delivered an excellent second quarter. Revenue totaled $245 million and adjusted EBITDA totaled $48 million, both at the high end of our guidance ranges and representing an adjusted EBITDA margin of 20%. These results were supported by improving activity levels across several international markets and growing commercial momentum within our subsea business. On July 1st, we completed the acquisition of TCO Group and are excited to welcome the TCO team to InnoVEX. TCO has pioneered laminated glass plugs that create reliable gas-tight downhole barriers. These plugs can subsequently be opened without intervention, reducing cost, time, and risk for customers. This novel technology is applicable across both onshore and offshore wells, including completion, well suspension, and casing or liner deployment.

As a reminder, we apply stringent qualitative and quantitative criteria when evaluating acquisitions. TCO fits these criteria exceptionally well. Its differentiated, largely consumable technologies fit with our big impact, small ticket business proposition. Like our core business, TCO's products require limited sustaining capital. Additionally, TCO strengthens our presence in Norway and the UAE, two markets where we see meaningful long-term opportunity. TCO is a growth business. We believe InnoVEX's diversified portfolio, global reach, and established customer relationships can accelerate TCO technologies across new customers, applications, and geographies, driving value for our shareholders. Importantly, we see potential for future innovation leveraging our suite of technologies.

However, this potential upside is not reflected in the purchase price. The financial characteristics of the transaction are compelling, something Kendall will discuss in more detail later on the call. We're also encouraged by the progress of drilling innovative solutions following its acquisition last quarter. The business continues to mature within the InnoVEX platform, and we are already seeing evidence of its growth potential. For instance, a major North Sea operator, one that DIS would not have been able to access on its own, identified its technology as a critical solution for a specific field development. This is how our acquisition playbook is designed to work, by adding differentiated technologies and leveraging the InnoVEX platform to accelerate their growth. Turning back to the quarter, we saw meaningful progress in our subsea businesses.

We secured an additional $20 million subsea tension riser package for an operator in Malaysia with follow-on wellhead orders anticipated. We also successfully completed the first XPAC trial with a major international operator in Asia Pacific following a multi-year qualification effort. SPAC is a high performance expandable liner hanger system which helps improve well geometry and simplify architecture in technically demanding applications. Together with several important awards secured over the past few months, these developments reinforce the growing momentum we're seeing across our subsea business. While improving offshore markets have certainly provided a welcome tailwind, we believe our no barriers commercial mindset, optimized manufacturing footprint, and strategic alliance with One Subsea has strengthened our ability to compete effectively. effectively and profitably for complex offshore work. Innovation continues to drive organic growth. During the quarter, we completed the first installation of our Argo Latch Subsea Release Plug in Brazil.

The system enabled the customer to complete cementing in a single step, eliminating the need for a sub-mudline system and second cement job, saving time and cost. The Argo Latch was deployed in the same operation as our 18-inch by 22-inch expat system. system, combining capabilities from both legacy InnoVEX and legacy DrillQuip. This successful deployment demonstrates how collaboration across the combined organization can create integrated solutions that simplify well construction and improve execution for customers. Outside of Subsea, we're seeing additional avenues for growth across several growing international markets by deploying our technologies and capabilities with both new and existing customers. Activity in Mexico increased substantially during the quarter, with completion activity through the second quarter already exceeding the total number of jobs performed during all of 2025. Across Latin America, we continue to build stronger customer relationships and see additional opportunities developing. For example, we're seeing increased customer engagement and quotation activity in Venezuela.

While we have not yet recognized meaningful revenue in Venezuela, we believe that NVEX is well positioned to participate as customer activity develops. Importantly, our capital life business model does not require significant fixed assets in the country. Our Canadian wellhead team also completed its first surface wellhead delivery to Mexico while continuing to support commercial developments in other international markets. Mexico represents a large and growing market for surface wellhead technology, making this first delivery an important commercial milestone for our wellhead strategy. These developments demonstrate how we can use product expertise developed in one region to create opportunities across the broader InnoVEX platform. Our Middle East performance also improved during the quarter. In Saudi Arabia, we gained market share in expandable liner hanger technologies and continue to grow our presence in unconventional applications.

We also secured our first direct contract through our NFX Saudi entity, further strengthening our customer relationships and positioning us well for future opportunities in the region. Stepping back, I believe the second quarter demonstrates that InnoVEX is entering a new phase. Integration, manufacturing optimization, and cultural transformation of the past two years are increasingly translating into commercial wins, differentiated technologies, and expanding market position across our global platform. Our priorities remain unchanged. We will continue to invest in differentiated technologies, improve customer experience, and allocate capital with discipline. We believe that approach positions Inovex to deliver sustainable, profitable growth and long-term value for our shareholders. I'll now turn the call over to Kendall to review our financial results and outlook in more detail.

Thanks, Adam, and good morning, everyone. I'd now like to review our second quarter 2026 financial results. For the second quarter of 2026, revenue totaled $245 million, up 2% sequentially from the first quarter of 2026 and up 9% year over year. Adjusted EBITDA totaled $48 million, resulting in an adjusted EBITDA margin of 20%, compared to 21% in Q1 2026 and Q2 2025. We were pleased to achieve the high end of our guidance ranges for both revenue and adjusted EBITDA. We are encouraged by the trajectory of our margins as the benefits of our operating model and commercial execution continue to build. NAMM land revenue for the second quarter was $131 million, down 4% sequentially from $137 million in the first quarter.

We are pleased with the resilience of our NAMM land revenue relative to underlying North American market conditions, which included the impact of seasonally lower Q2 activity in Canada. We believe our differentiated technology portfolio and customer-focused business model will continue to support long-term market share gains in North America. International and offshore revenue during the second quarter of 2026 was $113 million, an increase of 11% sequentially, driven by continued strength across our international portfolio and partially offset by normal project timing within our offshore business. Within Subsea, we continue to secure meaningful customer awards that provide increasing visibility. Although project timing will create some quarter-to-quarter variability, we expect these awards to support attractive growth over the next one to two years. We remain encouraged by activity levels across several key international markets and continue to see a healthy pipeline of opportunities heading into the second half of the year. Cost of sales, excluding depreciation and amortization, was approximately $161 million during the quarter.

Gross margins remained healthy, reflecting the strength of our product portfolio, disciplined pricing, and continued operational execution. Selling general and administrative expenses for the quarter decreased by approximately $3 million sequentially to $39 million. As we fully complete the drill clip integration and continue to grow the business, we expect to leverage our existing platform to reduce SG&A as a percentage of revenue and further strengthen margins while maintaining disciplined cost control across the organization. Free cash flow for the quarter was $30 million, representing 63% of adjusted EBITDA. Our ability to consistently generate strong cash conversion remains a key differentiator of the N of X business model and reflects our capital light operating structure, disciplined working capital management, and limited capital expenditure requirements. Capital expenditures in the second quarter totaled $7 million, representing approximately 2.7% of revenue, in line with our historical target of 2-3% of revenue. We ended the quarter with approximately $222 million of cash and cash equivalents and no bank debt.

On July 1st, we completed the acquisition of TCO for $95 million, consisting of $65 million of cash and $30 million of InnoVex common stock. We believe the transaction represents an attractive use of excess balance sheet cash, allowing us to deploy a portion of our excess cash into a high-quality, cash-generative business while preserving significant financial flexibility. As Adam discussed, TCO is an excellent example of our acquisition strategy in action. We We remain focused on acquiring product and technology driven businesses that complement our portfolio, can benefit from the InnoVEX platform, and are available at reasonable valuations. TCO fits that playbook exceptionally well through its differentiated, largely consumable technologies, attractive margins, strong cash generation, and limited capital requirements. Our M&A pipeline remains robust and includes a mix of smaller bolt-on acquisitions as well as larger strategic transactions. We will remain disciplined and pursue opportunities that strengthen our portfolio, leverage the InnoVex platform, and meet our stringent qualitative and quantitative return criteria.

This disciplined approach remains central to how we intend to create long-term shareholder value. Return on capital employed for the 12 months ended June 30th, 2026 was 12%. ROCE is reduced by our net balance sheet cash position. We remain focused on achieving a long-term target of high-teens ROCE via margin expansion, high return M&A, and shareholder returns. Looking ahead to the third quarter of 2026, we expect revenue in the range of $260 to $270 million and adjusted EBITDA of $51 to $57 million. As we move through the second half of the year, we will remain focused on accelerating the integration and growth opportunities associated with TCO, capturing operational efficiencies across the business, investing in customer-centered innovation, and maintaining a disciplined approach to capital allocation. strong balance sheet cash and free cash flow generation position us well to continue creating long-term shareholder value across a range of market conditions. With that, I'll turn the call back to Adam for closing remarks before we open the line for questions.

Thanks, Kendall. We are pleased with our second quarter performance. We delivered revenue and adjusted EBITDA at the high end of our guidance ranges, generated strong free cash flow, and continued to build commercial momentum across our sub-sea and international businesses. With the acquisition of TCO, we've added differentiated, high margin, and capitalized technologies to the InnoVEX platform. I want to reiterate that InnoVEX is entering a new phase. We now have a stronger and more efficient customer-centric operating platform, a broader portfolio of differentiated technologies, and greater opportunities to extend those technologies across customers, applications, and geographies. Our focus is on converting these advantages into consistent, profitable growth while maintaining our discipline around execution and capital allocation. Thank you again to our employees, customers, and shareholders for your continued trust and support.

Operator, we can now open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Dawn Christ with Johnson Rice. Dawn, your line is now open. Please go ahead.

Morning guys, thanks for letting me in here on a busy morning. I wanted to start on the Canadian wellheads. Obviously, that is a dominant position up there, but really doesn't have a big position in the US. but you sold some into Mexico. Can you give us kind of the game plan? How did you see that progressing over the next couple quarters or years? Are you planning to make a big push into the U.S. to try to unseat the major competitor in the U.S. right now?.

Hey, morning, Don. Thanks for the question. Yes, so that, like you said, really strong position we have in Canada in the wellhead space. We've got a great team up there, definitely one of the market leaders in a pretty consolidated space up there. I think one of the things we're really excited about is the thermal space in Canada. What we're still, one of the smaller of two players, probably the smaller player up there, but consistently growing market share. And I'm pretty excited about our trajectory up there. That's a really nice, I think the second place where we're seeing traction is these international opportunities.

Mexico is a really good one for a variety of technical reasons, and then we are really well established there. And we're selling these to the service companies that we've had good experience with where we can create value in that relationship. And then I think there's a myriad of other international places that we've had some success and then a big pipeline of opportunities. And so I would say the international land region is probably the second biggest area that we're excited about. We are evaluating. We've done a little bit of work in U.S. land. It's still relatively small. So I wouldn't. bake in a ton of growth there, but that is certainly a pretty attractive market where we've got a really strong distribution network, know all the major customers well. So that's certainly an area that we'll be looking at over the next couple of years, but probably a little bit slower to evolve than those first two that I just mentioned.

Okay. I wanted to ask about offshore. Obviously, you had some strong comments and we're seeing some very strong comments from many other people this earnings cycle on the offshore side of the business. Can you classify, has customer behavior changed? Or is there just more conviction today versus kicking the tires in the past? Any kind of comments around the offshore space that gives you more confidence as we move towards the end of 26 and into 27?.

Yes, so we've seen really strong pipeline, I think in a couple of different areas. Some of it, some of these Asia projects that we've won. So we've announced three big Asia projects that in total are somewhere in the 60 to $80 million worth of revenue, which will probably start coming meaningfully in next year. Those are areas where we were the kind of the incumbent as a result of the legacy drill relationship with these folks. So those are projects that got sanctioned and approved in the last six months, let's say, some of that tied to just a desire to get more energy security in local markets. And then we currently have a pretty strong pipeline of things that are pretty close to converting to awards over the next six months, both in the Western Hemisphere, like in the US Gulf, as well as some of these big international awards that we expect to get announced over the next six months. So I think across the board, we see both a really robust pipeline of activity.

And then I'm really pleased with the commercial momentum of both our ability to convert some of these legacy contracts and get really nice awards, but then really taking market share. I think a couple of things we'll announce over the next six months will demonstrate our ability with the really great talent and technology we inherited from the drill clip deal. combined with just being a little bit more aggressive in a number of different ways commercially is going to allow us to take some market share in that space. So really excited with how that offshore space is progressing for us.

I appreciate that. If I could sneak in one for Kendall. We saw a couple other companies get tariff-free funds. Anything on the playbook for y'all to get anything back from a perspective? I didn't see anything in your release.

Yes, thanks Don. So it's a good question. I mean, as a reminder, the tariff that's really more meaningful to our business is the 232 tariff around raw materials steel, which was not included in that kind of refunds program. But we have applied for and received some, I would say, modest tariff refunds that we'll see coming in the door in Q3 here. So we'll get something back, but it's immaterial in the grand scheme of things for our business.

Okay, I appreciate the call and I'll turn it back. Thanks guys. Good quarter.

Thank you. Your next question comes from the line of Keith Beckman with Pickering Energy Partners. Keith, your line is now open. Please go ahead.

Good morning. Thanks for taking my question. I just wanted to get a sense of maybe quarter over quarter kind of what's baked into your 3Q guidance, trying to get a sense on Middle East here as well as TCO contribution for a full quarter of that, and just how you're thinking about third quarter and potentially back half of the year here with the conflict.

Yes, good question. So I think in terms of what we have baked into the Q3 guide, maybe just to start with the TCOP, so really pleased to get that deal closed on July 1st. So we'll get a full quarter of impact from the acquisition there. But as a reminder, with that business being nearly 100% focused on international and offshore markets, it'll have this same variability kind of around 10%. delivery and project timing that the rest of our international offshore business has. So with that in mind, what we're baking into the Q3 guide is 15 million of revenue from TCO and about 3 million of EBITDA. And I think what that implies to us is like we're going to see some nice growth in that in that TCO business as we go into future quarters. We're obviously not getting out that far, but I think the Q3 guide. is nice and conservative based on the orders that we can see and the delivery time we've got scheduled today. So that implies around 250 million of revenue from the legacy InnoVEX business.

You kind of touched on Middle East there. We're seeing things relatively flat in Q3 to Q2 in the Middle East region. So again, hopefully some nice long-term opportunities if the conflict clears up and we can see some activity growth in the region there. And really a lot of what's driving that quarter over quarter growth in the legacy N of X business, let's say, So the opportunities that Adam talked about are just starting to kick in. That's going to be more of a 27 minute 26 driver, but we're starting to see some nice green shoots there. And then obviously from a North America land perspective, we'll have, you know, break up in Canada won't recurse. We'll see some nice Q2 to Q3 growth and then starting to see some growth in the U.S. land business as well. by kind of some building recount activity.

So I think across the board, relatively positive outlook for Q3 and then building into Q4 next year.

So that's that's very helpful. And my second question was just a little bit around. I believe you guys are probably fully out of Eldridge, but any update there? And then the bigger question really more broadly, I mean, what's what's the next biggest thing to attack here to kind of continue improving margins and maybe just talk about the future about the different improvements that you could see and increasing margins from here. Thanks.

Yes, definitely. So as we mentioned, we completed the move out of Eldridge in Q2. So we're excited about that. The consolidation of the supply chain, I think, will enable us to not only be more efficient, drive better margins, but be more responsive to customers, improve our delivery, all those types of things. And then in terms of where we go from here, we're really pleased to see some nice consistency over the last couple of quarters, right in that 20% EBITDA range. And building as we go into Q3, we kind of talked about being consistently north of 20% post the exit of Eldridge. I think we didn't hit on it specifically, but that did weigh on Q2 and we expect to weigh on Q3 is the increased logistics costs hitting the Middle East around this conflict that's going on. We had around $1.5 million of increased freight expense you know, related to air freight or just additional costs of moving things around. That's that's been a lot more difficult.

So I think you get some resolution there even without revenue growth. That's going to drive a bit of margin improvement. And then what's really going to help us are the incrementals. As you see these big subsea awards converting to revenue, as we see kind of the let's say TCO getting back to that more average quarter that they've had over the last couple of years, which we fully expect. And then the two places we've talked about that are, you know, one is improving, kind of slowly building up that low base from last year is Mexico. That's a very good market for us to regenerate great margins with some differentiated technology and then kind of Saudi being the last piece of that where we're we've seen some nice growth there in Q2, but expect that to be a market that has a lot of running room for us as well at high incremental margins. So those are the pieces we're looking at.

I think there's some more trimming we can do around the edges on the cost side to try and continue to be more efficient, but really from here it's, you know, getting some resolution on what's going on in the Middle East and then driving incrementals on a lot of this new work we have coming through the pipeline.

Awesome, that's really helpful. I will turn it back. Congrats guys.

Thank you. Your next question comes from the line of Scott Gruber with Citigroup. Scott, your line is now open. Please go ahead.

Yes, good morning. Scott. Good morning. You know, with your TCO acquisition, obviously, you continue to execute on your M&A strategy. But I'm curious, you guys kind of do the look back analysis and kind of measure the kind of pace of growth within the base business. And I know you've been adding pieces over time, but can you provide some more call on how you see that base kind of growth growing year and year relative to your key end markets? Just to kind of peel back the onion a bit for us.

Yes, so I guess maybe give a little bit more general answer rather than just kind of focusing on TCO. But yes, I think if you were to proform it in all the various acquisitions that we've done and kind of look at how we're thinking about Let's say first first three quarters of this year versus first three quarters of last year. I think we're up slightly year over year in the face of the market broadly being down a bit. We've seen obviously us land activity just starting to turn around a bit in Q2. But I think If we look at kind of the broader world picture, activity has been slowing down over the last couple of years and our business to be kind of slightly up. year over that time period gives us some good confidence. We're continuing to grow share across the board, not just kind of filling in with acquisitions, if that kind of hits on your question. Yes, and I would just add to that.

It's a good question, because we ask ourselves the same thing. How do we measure our organic improvement? And we've had a strong crack record over the last decade of.

growing market share on the back of our approach to the market as we characterize it this no barriers culture of really trying to lean into the understanding what our customers' problems, issues are, whether that's technical or commercial, and finding a way to be a little bit more nimble and better than the competitors at solving those problems has led us to pretty decade growing pretty meaningful market share to the point where we're number one, two, three in just about everything we do in North America. And then in spots internationally in the same area, the same kind of ranking, and then looking at growing that to being the top player in what we do and everything internationally over time as well.

It's helpful, helpful. And then there's a couple of mentions of Mexico, Obviously, you guys saw your first WalHood delivery there and brought a pickup in activity. Just maybe some more color for us on what you're seeing out of that country as it comes out of the doldrums and you make some progress with additional product sales into the country and maybe some color.

or just on the kind of broader land end market as well? Yes, so Mexico has been a really good market both for Legacy Inovex as well as Grilquip prior to the combination, and mostly because they grow some very technically demanding wells, in some ways the most demanding wells in the world in Mexico in terms of depth and pressure and temperature. And in many of those areas there's some technical technologies, liner hangers, and float equipment technology that is really, we have the best fit for purpose technology for that market. So we've got really strong market share and can create value for ourselves in that somewhat what can be a challenging market in some ways. Similarly on the wellhead side, we've got a really nice portfolio of technology that came to us through the drill equip combination and a really strong team in Mexico to help pull that in. And it's it's a little bit less of a harder higher barrier to entry market than say the US land market. So that's why we're kind of focusing on that, starting to see some success and have other things we're working on that are pretty exciting. So yes, I think that that was a big Mexico is a big headwind for us last year, starting to get better this year.

And we'll see where it goes from here. But I think in terms of our technology and commercial acumen in that market, that's something that's really a positive.

That's great. I appreciate the color. I'll turn it back. Thank you.

Thank you. The next question comes from the line of Rahul Kakar with Jefferies. Rahul, your line is now open. Please go ahead.

Hey, good morning guys. Thanks for taking my question. I just want to touch a little bit on the North American land market, like just your view on how do you see that progressing, considering the conflict has resumed, how the conversation is going with the customers, and just like overall your positioning in the.

market like for the second half and going into 2027? Yes, no, very good question. We've got a really strong position in U.S. land, again, across most of the things that we do. have seen, much like the rest of the market participants, pick up an activity. A couple of the majors have an – or majors, a couple of the larger independent majors have announced some rig additions. But what's less obvious to the public market is probably a lot of these smaller one-two-rig operators have added a rig or something like this. And so we're seeing a pretty strong growth that, as Kendall said, is baked into our Q3 forecast in U.S. land. And then we'll see where it goes from there. Obviously, our customers in North America are very efficient, very responsive to what the market signals are telling them.

So we're expecting strength in Q3 and Q4, and then it's a little bit hard to predict out farther than that in that market.

All right, great. And then maybe the next one, I just want to touch a little bit more on the third quarter guide. I think that's great color on the contribution from TCO. Just curious, like the factors that could basically help you and maybe accomplish the high end of the guide. and understand there's a midpoint, it's around a decent uplift in the margin quarter over quarter, what factors could drive you beating the third quarter, being at the high end of the guide as well? Any color on that front?.

Yes, I mean, I think, you know, from a revenue perspective, certainly the first quarter out of the gate, we want to be conservative with what we're factoring in from TCO. But I think from conversations with the team, there are a lot of good opportunities there. I think the second half of the year is going to be strong. So there's just kind of a question of timing of what, you know, what gets delivered. in Q3 versus Q4. So that's certainly one factor. And then from a margin perspective, the other thing I would highlight is just this conflict going on in the Middle East that continues to be a drag on margins for us. So if you look at just the bottom line, if that were to somehow get resolved here tomorrow, that would be a nice boost to our margins in the region from a logistics.

cost perspective, or probably the two things I would point to from a Q3 standpoint. Awesome. If I can just ask one more on TCO overall, obviously. You've been executing on your M&A strategy, you got the TCO completed, and obviously you have a track record of cross-selling whenever we do an M&A. Can you just take us to the near-term? term with the low hanging cross selling opportunities from this acquisition where you can expand the product line any color on that front from the TCO like how you could basically accomplish commercial scenarios out of it.

Yes, we can hit on that real quick. Yes, so there's a lot of opportunities, especially with TCO, for us to cross sell that across our platform. One prime example of that, I would argue, is in Brazil where that's a market TCO is already looking to enter. It never really done anything meaningful in historically, but there's a really nice technology fit with some of their some of the TCO emerging products that we think make a lot of sense for the Brazil market. And it happens to be sold to the exact same folks and used in the exact same, um, uh, cycle as our subsea wellhead business, where we're the number one provider of subsea wellheads into Brazil. So I think it's going to mesh. That's a place where we'll have really great opportunity to partner together with the team.

team there and see some nice growth. Hi, great. Thank you. Good quarter.

Your next question comes from the line of Eddie Kim with Barclays. Eddie, your line is now open. Please go ahead.

Hi, good morning. Just wanted to touch on Saudi Arabia. You mentioned you grew share in the expandable liner hangers business. Fair to say you've seen sort of very little disruption in that Saudi business despite everything that's going on. And separately, you mentioned growth in unconventional applications in Saudi. Are you currently in Jafura? And do you see that as a growing opportunity for you guys?.

Yes, so we had a nice uptick in business in Saudi. That's an area that we talk about regularly, that we've got a really strong market position in Saudi, a great team there, has signed our first contract direct with end users in Saudi and have a few other things coming down that pipeline. out of the position we built there. Yes, I think two technologies to highlight there are that expandable liner that's run a lot in the gas, and that the more the legacy deep gas where we're building really nice market share with the expandable liner hanger. And then in Jafura specifically, we do a couple of different things around well construction or cementing tool products, centralizers, some float equipment, some intermediate stage tools, and then we have qualified now the trench foot technology that came to us through the Citadel acquisition and think that there's a lot of potential for that. So I would say today we're still more levered to the legacy oil land market for Saudi, but we are definitely growing in the gas and the unconventional space and that can be a big driver of growth over the next couple of years for us.

Got it. That's very helpful, Colin. Thank you. My follow-up is on the North Namland region. Your second quarter revenue declined 4% sequentially. You mentioned that a lot of that was due to seasonally lower activity in Canada. Could you just remind us actually about the split, the rough split in revenue? between the lower 48 and Canada is that sort of 60-40 70-30. Any sense there would be great.

Yes, hey Eddie. So Canada represents roughly 8% of our overall business and probably something like 15% of our North America land business. So yes, it's the minority for sure, but they have some pretty hefty seasonality there. So that definitely weighs on Q2 each year in mainland.

Got it. And so the U.S. land portion of that, so lower 48, did you see growth in that region in second quarter? Or was that also flat or a slight decline as well?.

Yes, we were more flat in Q2 in US land. I think from what we're seeing now, we're expecting some nice growth in Q3, I think just based on timing of rigs coming on and when that translates to revenue for us. We did not see a lot of Q2 revenue growth, but we're expecting to see that pick up in the back half of the year.

Got it. Great. Thank you.

Your next question comes from the line of Blake McLean with Daniel Energy Partners. Blake, your line is now open. Please go ahead.

Hey, morning guys. Morning. Yes, just one follow up on the TCO. A lot of good color already here, so I don't want to beat a dead horse. But on the TCO, you guys call out Norway and the UAE kind of strengthening positions there. Can you talk a little bit about those markets, specifically the opportunities?.

said and what this does for you guys there? Yes, no, for sure. I think it's It's a good question. Norway is a very attractive market for the things that we do. I think it's one of the markets where we are definitely under penetrated relative to where we want to be and where we should be over time. So we've taken some steps with our team there, with our technology over the last couple of years, which is just starting to bear a little bit of fruit. But adding the TCO team that they're just inherent knowledge capability in Norway, I think it's really going to help accelerate everything that we can do in the downhole tool and technology space. So I think that's really important and we're looking forward to what comes out of that.

That is definitely a market that takes some time to identify the right technologies, get it qualified through the appropriate channels, et cetera. it'll take some time before you start to see that flow through to our to results. But I think long term great market strong barriers to entry and place you can really create value over time. In the UAE, we participate a little different in our position than Saudi. We do really well with certain niche technologies. We help with some of the most complicated wells that they drill in, those island wells that they drill, and some other areas. And similarly, TCO adds some technologies kind of in a similar way and some niche technologies that really help them. be more efficient in their drilling and completion operations. And then we see some potential to pull that technology into a couple of areas against Saudi in particular, where I think we can help TCO be a lot more successful in Saudi as an area that they again have not focused on quite as much as you ate.

But similarly, I think their position in UAE combination with some of the niche technologies that we do in.

the MRS is going to help us strengthen that position over time. Okay, good. Good call. Thank you. And then just more broadly on the M&A front, I mean, you guys have got a, a, a, a, a, a A fairly clear strategy that's been well executed here. Three noteworthy acquisitions over the last year. So how do you guys think about like the integration bandwidth and the playbook sort of internally? I know there's a really robust opportunity set, but how do you think about the organizational capacity to take on incremental deals as you think about the process moving forward?.

Yes, no, it's a really good question. So, I mean, I'll brag on our team for a minute. We have a really great group of folks that we've done this a lot over the last 10 plus years, building InnoVacs and are really at a place now where we have great confidence in the team of whatever acquisition comes through, we're going to be able to integrate it. pull the systems together, get the organization all feeling like one team and point it in the right direction. WE'VE JUST BEEN VERY PLEASED WITH HOW OUR TEAM INTERNALLY HAS COME TOGETHER AROUND THAT INTEGRATION SKILL SET. I THINK THE OTHER THING THAT I WOULD POINT OUT IS WE'RE REALLY GETTING TO THE END. IT'S BEEN KIND OF A TWO-YEAR JOURNEY, I WOULD SAY, ON THE DRILL CLIP INTEGRATION. WE ARE RIGHT AT THE END OF THAT PROCESS WHERE WE'VE GOT THE FACILITY CONSOLIDATION DONE. or ERP conversion to do later this year.

And then we'll really be through that whole process. So we have a lot of bandwidth freeing up as we look at new opportunities now to be able to take on, you know, as many or more as we've done over the last year or two.

Awesome. Thank you very much for the time this morning.

Thanks, Blake. Have a good one. We have reached the end of the Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to Innovex's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded.

I will now turn the call over to Eric Wells, Chief of Staff.

Good morning, everyone, and thank you for joining us. 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 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 Innovex, we have Adam Anderson, Chief Executive Officer; and Kendal Reed, Chief Financial Officer.

I will now turn the call over to Adam Anderson.

Good morning, and thank you for joining us today. I want to start by thanking our teams across the organization for another quarter of strong execution. We continue to operate in a dynamic environment where our people have remained focused on serving customers, leveraging our unique platform and growing our business through relentless innovation and a commitment to delighting our customers. That commitment is reflected in our first quarter performance.

Since the merger with Dril-Quip, we've stayed disciplined in how we run the company, improving the cost structure, expanding the technology portfolio and focusing on cash flow and returns. Core to our success is our No Barriers culture, which means we tear down barriers between ourselves, our teams and our customers. We operate as one team across regions and product lines, not as a collection of separate businesses. That remains a real source of competitive advantage for us.

On today's call, I'll walk through our first quarter performance, highlight several important commercial and operational developments from the quarter and then turn the call over to Kendal for a more detailed review of our financial results, capital allocation priorities and outlook for the second quarter.

Starting with performance. We delivered a strong start to 2026. First quarter revenue totaled $239 million, which exceeded the high end of our guidance range, and adjusted EBITDA totaled $49 million, with an adjusted EBITDA margin of 21%, well above the high end of our guidance range. These results reflect continued strong operational execution, organic growth from new product introductions, and cross-selling across our global platform. We benefited from a favorable mix in the quarter, and we also saw earlier-than-expected benefits from the exit of the legacy Eldridge facility.

More broadly, the quarter reinforces our view that our Subsea business can generate margins above 20% when operated with the same disciplined cost focus and a commercial approach that we apply across the rest of Innovex.

Our No Barriers culture has unlocked the potential of our combined team. I've been particularly impressed by the contributions from our colleagues who've joined Innovex as a part of the Dril-Quip merger. They bought into the culture and are unlocking the embedded value and technology in the Subsea portfolio.

Commercial performance remained healthy across our core markets. In U.S. Land, we continue to outperform underlying activity levels. Organic growth was driven by cross-selling as well as new product introductions. As a reminder, we have curated a portfolio of big impact, small ticket products and services. In aggregate, our offering represents just 2% to 3% of total well cost. Despite representing a small proportion of the cost of a well, our technologies are critical to well performance. Therefore, the purchase decision is driven primarily by performance, not price.

Offshore and internationally, we continue to build momentum in Subsea. During the quarter, we secured 2 significant project awards in Asia, each exceeding $20 million in value, reflecting the strength of our specialized technology portfolio and our ability to win complex high-specification work. These awards span multiple parts of the well system, reinforcing the breadth of our Subsea technology portfolio. We also delivered the first Subsea wellhead order in Southeast Asia under the OneSubsea alliance, representing an important milestone in expanding our presence in integrated offshore projects.

Beyond Asia, we continue to make encouraging commercial progress across key offshore basins where we see attractive long-term opportunities for our portfolio. More broadly, we are seeing a growing pipeline of Subsea opportunities, which supports our confidence in the trajectory of the business.

In the Middle East, first quarter activity was softer than we had anticipated, driven primarily by project timing and conflict-related disruptions. We remain encouraged by our recent commercial progress, including multiple offshore awards in the Kingdom of Saudi Arabia as well as a contract extension for our off-bottom liner systems and lower completion technologies. We continue to view the Middle East as an important long-term growth market.

We recently completed the acquisition of Drilling Innovative Solutions for $16 million or approximately 4 times trailing 12-month EBITDA. This is exactly the type of transaction that we believe drives value, one that is priced reasonably and offers substantial opportunity for organic growth by leveraging our platform. DIS brings differentiated production technologies that complement our existing completions offering, strengthening our U.S. offshore market position and create additional opportunities to grow with both existing and new customers. We believe the DIS portfolio has applicability across global deepwater markets as well as select onshore markets. DIS fits squarely with our model of curating a portfolio of big impact, small ticket products with strong margins, low capital intensity and meaningful room for growth.

Stepping back, our priorities remain unchanged, gaining share, expanding our technology portfolio, driving innovation, improving efficiency, and disciplined capital allocation. We believe the combination of innovation, execution and capital discipline continues to differentiate Innovex, and we see a strong pipeline of opportunities across both organic initiatives and inorganic opportunities.

As we move through 2026, we remain confident in the trajectory of the business and our ability to create durable value for shareholders over time.

I will now turn the call over to Kendal to walk through our financial results and outlook in more detail.

Thanks, Adam, and good morning, everyone. I'd now like to review our first quarter 2026 financial results. For the first quarter 2026, revenue totaled $239 million, down 13% sequentially from the fourth quarter of 2025 and down 1% year-over-year versus Q1 2025. Adjusted EBITDA totaled $49 million, resulting in an adjusted EBITDA margin of 21% compared to 19% in Q4 2025 as well as Q1 2025. We were pleased to exceed the high end of our guidance range on both revenue and adjusted EBITDA despite a dynamic operating environment during the quarter.

Profitability in the quarter benefited from favorable product mix and improved manufacturing efficiency associated with the transition out of the Eldridge facility. As we consolidated our footprint and improved throughput, we saw better absorption and stronger operating leverage within the Subsea business.

Reported SG&A was higher sequentially due to several discrete items, including legal, transaction-related and other temporary costs. Excluding these items, underlying SG&A remains well controlled, reflecting our continued focus on cost discipline.

During the quarter, we recorded a $49 million legal accrual related to patent infringement litigation between Impulse Downhole Tools USA and Innovex's wholly owned subsidiary, DWS, following the previously disclosed jury verdict. No judgment has been entered at this time. We strongly disagree with the jury verdict and intend to pursue post-trial motions and, if necessary, appeal any resulting judgment to the U.S. Court of Appeals for the Federal Circuit.

From a geographic standpoint, NAM Land remained a source of strength with revenue holding essentially flat at $137 million compared to $139 million in the fourth quarter despite weather-related disruption during the quarter. International and offshore revenue declined 24% sequentially to $102 million from $135 million in Q4. As we discussed previously, the fourth quarter benefited from an unusually high level of Subsea deliveries, including approximately $15 million of shipments that we had originally expected to occur in the first quarter, creating a tough year-over-year comparison.

Lower Subsea delivery volumes, softer activity in certain international markets, and modest disruptions related to the ongoing conflict in the Middle East contributed to the sequential decline. A meaningful increase in activity in Mexico partially offset this softness. We view quarterly volatility as timing related and consistent with the normal variability that can occur in offshore and project-oriented markets. Importantly, underlying commercial momentum remains solid, and we remain constructive on the long-term outlook, expecting significant Subsea momentum in the back half of 2026.

Capital expenditures in the first quarter 2026 totaled $6 million, down 35% sequentially, representing approximately 2.4% of revenue. CapEx remained in line with Innovex's historical range of 2% to 3% of revenue despite ongoing facility integration efforts associated with the exit of the legacy Eldridge facility. Free cash flow was $14 million in the quarter, representing approximately 28% conversion of adjusted EBITDA. As a reminder, the first quarter is typically our weakest free cash flow quarter due to the timing of certain annualized cash payments. We also saw a temporary working capital build in the quarter, primarily related to the timing of collections and normal inventory movements, which we expect to moderate as the year progresses. Our capital-light model continues to support strong through-cycle free cash flow generation.

We ended the quarter with approximately $201 million of cash and cash equivalents and no bank debt, providing significant financial flexibility. Our balance sheet strength supports a disciplined capital allocation framework centered on balancing organic investment with selective high-return M&A opportunities and opportunistic share repurchases. Our M&A pipeline remains robust, including a mix of smaller bolt-on opportunities like DIS as well as larger opportunities.

That said, we will only execute where opportunities align with our big impact, small ticket strategy, can generate high gross margins with low capital expenditures, and can be acquired at reasonable multiples. This disciplined approach remains central to how we intend to create long-term shareholder value.

Consistent with that discipline, we also repurchased over $14 million of our shares at a price of $24.59 per share, underscoring our confidence in the intrinsic value of Innovex and our commitment to thoughtful capital allocation. We were also pleased to see Amberjack complete a secondary sale of shares during the quarter. We believe the transaction broadened our public float and enhanced trading liquidity. Amberjack remains a valued long-term shareholder and partner.

Return on capital employed for the 12 months ended March 31, 2026, was 12%. ROCE is impacted by our net cash balance sheet. We remain focused on achieving a long-term target of high teens ROCE via margin expansion, high-return M&A, and shareholder returns. Looking ahead to the second quarter of 2026, we expect revenue in the range of $235 million to $245 million and adjusted EBITDA of $43 million to $48 million. Our guidance reflects a less favorable product mix in the second quarter as well as the potential for sales disruptions and higher costs associated with the ongoing conflict in the Middle East.

Even with those near-term pressures, we remain confident in our margin improvement trajectory as 2026 progresses, supported by continued share gains in U.S. Land, improving international activity, and the growing Subsea opportunity set that Adam discussed earlier.

I'll now turn the call back to Adam.

Thanks, Kendal. We are pleased with our start to 2026. We exceeded the high end of our guidance range, continued to improve margins, generated positive free cash flow, and strengthened our portfolio through the DIS acquisition. Just as importantly, we continue to build momentum commercially, particularly in Subsea, where recent wins reinforce the progress we are making with customers around the world.

While near-term market conditions may create some quarterly variability, our priorities remain unchanged. We will continue to focus on gaining share, expanding our technology offering through innovation, improving operational efficiency, and deploying capital in a disciplined manner.

We believe our integrated platform, strong balance sheet, and No Barriers culture, positions Innovex well to create durable long-term value. Thank you again to our employees, customers, and shareholders for your continued trust and support.

Operator, we can now open the line for questions.

[Operator Instructions] Our first question comes from the line of Derek Podhaizer from Piper Sandler.

Maybe first start on U.S. Land growth from here. Obviously, a great quarter. What are you seeing when you look out in the second quarter, maybe the back half of the year? One of the biggest E&Ps in the Permian just gave the industry the green light to add rigs and activity and completion. So maybe just help us understand your exposure into that, which specific product lines you are seeing gain the most traction or have the most potential to grow here and really take advantage of the E&Ps restarting a bit of work?

Yes. Derek, thanks for the question. So I think up until now, the tone we have largely heard from our customers is, say, on the margin they are going to do a little bit of extra work, really around like workovers, maybe a couple of incremental DUCs that they were going to frac, which would -- all that would largely benefit our fishing tool and production accessory business.

It does feel like in the last couple of weeks, there's been acceptance that maybe the price signals a little bit stronger for longer than people were expecting a couple of weeks ago. So I would expect that the rig count ticks up a little bit in North America Land the rest of the year. That particular customer, Diamondback, is an important partner of ours. We'd expect to benefit on all of our technologies leveraged to the drilling of new well count.

So hard to tell from here. I don't think it's going to be a big, big ramp-up, but I think we do see a little bit of incremental addition to rig count between now and the end of the year.

The other thing the benefit of our business model is we do not have to be great at predicting forward activity. We just have to be highly responsive to that activity as it ticks up or down. So it feels good right now, but we all know that, that can change a little bit in the near term.

Yes. That is for sure. Maybe on your latest acquisition, Drilling Innovation (sic) [ Innovative ] Solutions, interesting here. Maybe just help us understand exactly what they do, maybe describe to us their product line, their service? Really curious around the commercial rationale with the platform that you created at Innovex driving those revenue synergies, putting it on the global platform, similar to what you have been able to really successfully accomplish with DWS and Citadel? So maybe just some help understand this a little bit better on what you plan to do with DIS here?

Yes, so really excited about the DIS deal. Like you said, it's very similar to the Citadel and DWS acquisitions, really great products that fit nicely with our strategy of big impact, small ticket, capital-light products and an area where they can help us and we can help them. And what I mean by that is, in this case, a really strong team and products that our customers really are asking our salespeople about have been doing for a while. So it really helps. We think their team and kind of the halo effect of their products will help us on the margins, pull through more downhole tools in their core market, which today is largely the U.S. offshore.

And then similarly, there's a home for their products in some of the international offshore markets as well as potentially on U.S. Land that was probably going to be hard for DIS to realize in the short term on a stand-alone basis. So we can help them there.

With respect to their product, they really have 2 big products, one being the Gatekeeper product, which is a valve running the shoe track of liners in the U.S. offshore. That fits great with our float equipment business. We're running other products at that shoe track as well as our liner hanger business. So this is just an integrated part of that portfolio.

And then they've got a valve called the Sentinel valve, which is a drill pipe valve used in underbalanced drilling applications, used a lot again in U.S. offshore. There's a variant for the U.S. market that they are just starting to roll out, that again fits really nicely with the legacy Innovex and our drilling enhancement business that we got through the DWS business. So yes, this is, I think, a great deal both for DIS as well as Innovex. So we are really excited about it.

Your next question comes from the line of Don Crist from Johnson Rice.

I wanted to ask about the Middle East. Obviously, there's a lot of talk about it. It doesn't feel like there's that many impacts in the first quarter. Can you just kind of explain whether or not you were running through inventory in the first quarter and that could have a bigger impact in the second quarter? Or just any comments around the Middle East given that the conflict continues to rage on?

So. Yes, so we did have some impact in Q1, expect to have some impact in Q2 as well from the conflict. For us, the biggest area is some of the offshore markets, particularly in Saudi, has been impacted the most. Most of the land activity is still going, perhaps at a slightly lower pace than it was before. So we saw some impact. It's a little hard to quantify precisely. Certainly, our thoughts and prayers are with everybody in the region, and are pulling for a pretty quick resolution to the conflict for everybody's best interest.

I think going forward, the other impact we're going to see in Q2 that we didn't have as much of in Q1 is just the logistical cost. To your point, we were pulling down -- we were serving our ongoing operations with inventory in the region to withstand a little bit of disruption in the supply chain. Q2, we have to airfreight some things in that we previously would have sea freighted in. And those -- as you can imagine, those airfreight rates are pretty high right now. So we will see a little bit of incremental cost burden tied to that as well as some other kind of onetime expenses. All that is baked into our Q2 guidance.

Okay. But going forward, it shouldn't be that big of an impact. Obviously, there will be some impact, but you are getting things into the region.

Yes, for now, that's correct. So kind of what's baked into our forecast is that we are able to continue to get products and equipment in region, everyone is kept safe over there, and that activity levels are kind of what we see today is what we see for the rest of the quarter and that there's no meaningful change one way or the other in the region.

Okay. And just turning over to the optimization of the businesses and the manufacturing around the world. Obviously, we saw some good margins in the first quarter. Your goal is to come up a couple of more percentage points as we move through the year. But are there any milestones that we're really looking for? Is it Singapore ramping up? Or is it Vietnam ramping up or something like that, that's going to drive a lot of it? Or is Eldridge enough for it to see a boost as we kind of move through the rest of the year?

Yes, so I think what we are really pleased with in the first quarter was how much progress we have made on that. What we had kind of told everyone previously is we're looking to be out of Eldridge by the middle of this year, which is still the target, but we were able to make a lot more progress on the manufacturing efficiency side in Q1 than even we had hoped. It has been a core initiative internally and kind of testament to all the good work that our team has been doing.

So if you look at the gross margin improvement from Q4 to Q1, rough numbers, about half of that's going to be driven by product mix and about half of that's driven by improved manufacturing efficiency. So that was a big driver for the Q1 margin performance. Now, like we have always said, that's not going to be a smooth linear thing. We will make the final push here in Q2 to fully exit that Eldridge facility. We'll incur some moving costs to do that. So not to say it's going to continue to tick up at the same pace. But I think we've seen a big improvement on our manufacturing cost structure that we're really excited about through the rest of the year.

But like you said, the big domino that has to fall is to fully exit Eldridge, get all that demand flowing through the other plants, and really realize the full benefits of that absorption. So I think that's what we are really focused on here in Q2 so that back half of the year, we're kind of in that consistently north of 20% EBITDA margin range like we talked about.

Okay. And if I could sneak in one more. Obviously, a good couple of orders in Asia. But just more broadly, can you talk about the offshore? Is energy security becoming more top of mind and you're seeing more operators accelerate plans or get more aggressive on plans going forward? Just kind of any comments around that?

I think there is some talk of that. As you know, that is a really long-cycle business in the offshore market. So I -- We're not forecasting a really robust recovery in offshore right now as a direct result of the geopolitical situation we have seen over the last couple of months. We still feel like it probably does tick up a little bit here later this year into next year, but there has not been a massive response that we have seen from the customers yet.

Your next question comes from the line of Keith Beckmann from Pickering Energy Partners.

I was wondering, we talked a little bit about the Middle East and kind of the 1Q, 2Q impacts. I was wondering maybe, kind of following a little bit on Don's question, what are the additional potential work scopes you guys think you may see following the conflict if activity really starts to ramp? Is there any sort of products or anything in particular you think could be helpful to maybe a recovery in the Middle East whenever we get to that point potentially?

Yes. So in the Middle East, most of our -- as it is true across the world, most of our business is tied to the number of new wells drilled and the complexity of those wells. One thing we do a lot of in the Middle East and Saudi Arabia in particular is we do a lot of workover work where they're taking existing wells and modifying them, drilling longer laterals, and we sell a lot of equipment and solutions into that application. So if that were to ramp up meaningfully on the back end of that, that's probably where we would see the biggest near-term tick up. As we talked about regularly, we have a nice fishing business, a nice artificial lift accessory business, if we do -- is a nice chunk of our business in the Middle East, although smaller. I think those things would also see a nice boost if there's really a lot of workover work, fishing activity, things like this to get existing wells back on production.

Awesome. That's really helpful. And then on my second question, I just wanted to ask around free cash flow conversion, how you guys are thinking about that now. Obviously, we're in a little bit of a different world. How should we be thinking about maybe working capital through the balance of the year? Is there potentially a little bit of a delay on customer payments early on that could potentially reversed into the back half of the year? Just any thoughts on free cash flow?

Yes, thanks, Keith. It's a good question. So like we talked about on the Q4 call, Q1 is always seasonally our lowest free cash flow quarter. We have a number of annualized cash payments that hit in the first quarter. So not unexpected that cash was down. But as you pointed out, we did see a healthy working capital build in the quarter as well. Some of that's driven just by timing of customer payments that, yes, we would naturally expect to even out and be a nice tailwind to cash over the next few quarters.

And then we did have some inventory build as well, hopefully gearing up for some increased customer activity. So those 2 things I would expect to normalize. And as we talked about, we're not going to specifically guide free cash flow. But given the kind of market dynamic we're in, we would expect to be kind of on or above the high end of that 50% to 60% through-cycle conversion that we talked about. So Q1, I expect to kind of be the low point for 2026 free cash flow.

Your next question comes from the line of Blake McLean from Daniel Energy Partners.

A lot of good stuff on here. I was hoping maybe we could just go back to the M&A stuff real quick. You guys have talked a lot about your pipeline and the potential deals, both small and large, that are in the marketplace. I was just hoping if you maybe talk a little bit about how a choppy macro environment kind of impacts what that pipeline looks like, your ability to move deals forward? Is there anything that changes in a market that feels a little more uncertain?

No, it's a really good question. I mean, I guess I would say a couple of things about that. One is that when we are looking at acquisitions, we tend to underwrite deals over the long-term, right? So one, kind of building in a lot of room for error on the valuation side. We try and be pretty disciplined on valuation. And given the dynamic we've been in where there are just a lot more potential sellers and potential buyers, I think we've been able to benefit from that over the last several years.

And then as Adam mentioned, we don't have to be that great in our business at predicting the future, what activity is going to do over the next couple of quarters. We're very responsive to that. And the types of businesses we look to acquire are generally more in line with that approach, right? These big impact, small ticket products, very little CapEx. So we can kind of benefit and create value through the ups and downs of the cycle. So I wouldn't say that changes our thinking too much other than, yes, it's going to have some impact on how you think about valuation and bid-ask spreads.

And then, yes, the other thing I would say is just generally the private markets where we're mostly looking at acquisitions, react to news a lot slower than the public markets, which tend to be very forward-looking. A lot of times when we're looking at M&A deals, it's much more of a conversation about current run rate or trailing 12-month results, that type of thing. So it takes time for these things to get incorporated. So it doesn't have quite the same volatility in terms of valuation expectations.

There are no further questions. I'd like to hand back for closing comments.

Thanks, this is Adam again. Thanks, everyone, for taking the time today. Thanks for the questions. And really, another great quarter, really exceeded our expectations. And I just have to say thank you to our employees, our customers for all of the good work. I think this is really an exciting time, and we are thrilled with how things are progressing and look forward to the next couple of quarters rolling out. So I appreciate everyone joining us.

This concludes today's conference call. Thank you for participating. You may now disconnect

Good morning, and welcome to Innovex's Fourth Quarter 2025 Earnings Call. [Operator Instructions]

As a reminder, this call is being recorded. I will now turn the call over to Eric Wells, Chief of Staff. Please go ahead.

Good morning, everyone, and thank you for joining us. 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 fourth quarter and full year 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 Innovex, we have Adam Anderson, Chief Executive Officer; and Kendal Reed, Chief Financial Officer.

I will now turn the call over to Adam Anderson.

Good morning, and thanks for joining us today. First off, I want to recognize our team, which has worked tirelessly to deliver margin improvement, organic share growth, improved on-time performance and strong free cash flow since the merger with Dril-Quip in September of 2024. We've asked a lot of the organization, and I'm proud of what we've accomplished.

In 2025, we made tangible progress against the goals we articulated at the time of the merger and the results we are discussing today are a direct reflection of the commitment and collaboration of our global teams. A defining characteristic of Innovex is our no Barriers Culture, the belief that to drive the best outcomes for our customers and shareholders, we must tear down barriers between ourselves, our customers and internally across the entire company. This mindset of working effortlessly across product lines, geographies and functions has enabled us to build a leading global oilfield service company from a standing start less than a decade ago.

Our fourth quarter and full year results demonstrate the power of our no barriers approach. On today's call, I will discuss our fourth quarter and full year results and highlight the key developments shaping our performance, starting with continued market share gains, synergy capture from recent acquisitions, customer-led product innovation and progress against our key operational initiatives.

After these operational and commercial updates, I will turn the call over to Kendal, who will discuss our financial results and provide more detail on our balance sheet, capital allocation priorities and our outlook for Q1.

Turning to performance. We delivered a strong finish to 2025, exceeding the high end of our fourth quarter revenue guidance while generating substantial free cash flow and further strengthening our balance sheet. Fourth quarter revenue totaled $274 million, up 14% sequentially. That performance was driven by higher-than-expected subsea deliveries, continued momentum in our drilling enhancement and well construction portfolios and revenue synergies from recent acquisitions.

Strong Q4 revenues reflected some pull forward of subsea deliveries that were previously expected for Q1 2026, which will impact sequential comparisons. As a reminder, we recognize revenues from those large subsea projects upon customer delivery, which can drive quarter-to-quarter volatility. Despite a softer macro environment, we grew market share across U.S. land, offshore and international markets.

We continuously invest in innovation across our portfolio of big impact small ticket products. While our products represent just a small portion of the wells cost, they are critical to a wells function. And therefore, our customers' purchase decision is driven more by product performance than achieving the lowest possible price. We've curated a portfolio of primarily single-use technologies, which allows us to operate in a capital-light manner.

We leverage a diverse and nimble supply chain, which combined with our product portfolio keeps CapEx low, historically less than 3% of revenue, which allows us to convert a significant proportion of our adjusted EBITDA to free cash flow. We generated strong free cash flow, which we plan to redeploy into disciplined M&A, customer-led innovation and shareholder returns.

Operational execution was strong across the platform. In U.S. land, we outperformed underlying activity levels by realizing revenue synergies and introducing new technologies. The integration of Citadel and DWS provides a clear example of this execution in action. We acquired Citadel for its strong cultural alignment with our no barriers philosophy and its portfolio of highly engineered single-use technologies designed to reduce our customer cycle times and improve operational efficiency.

At the time of the acquisition, we noted limited customer overlap between our legacy Innovex business and Citadels, creating a clear opportunity for revenue synergies, which we are now beginning to realize. Our drilling enhancement product line, which largely came to us through the acquisition of DWS has also driven cross-selling opportunities across the customer base. Together, these integrations demonstrate exactly how our M&A playbook is designed to work, disciplined acquisitions translating into execution, revenue synergies and market share gains.

In offshore and international markets, execution remains solid. During the quarter, we delivered our first products under our global alliance with OneSubsea, validating the strategic importance of our partnership. The alliance enables us to supply OneSubsea with industry-leading wellheads for EPCI or bundled contracts, increasing our addressable market for subsea wellheads and improving OneSubsea's competitive offering.

During the quarter, we also completed our 10 successful XPak expandable liner installation in Brazil's pre-salt fields. XPak is a differentiated technology that we acquired from Dril-Quip, which we believe has broader applicability across offshore basins.

We also leveraged this technology onshore, an example of how we create value through innovation, customer relationships and distribution. In the quarter, we successfully delivered our first onshore XPak Express installation for a major independent in U.S. land, adapting this offshore expandable liner technology to support some of the most technically complex wells in the Permian.

In Mexico, we substantially completed deliveries of subsea wellheads and large-diameter tubulars for a major offshore development, reflecting strong project execution and coordination across our global supply chain. In Saudi Arabia, we increased revenue sequentially and strengthened our local content position with the inauguration of our manufacturing facility in the Dammam industrial area.

Overall, we exited 2025 with strong momentum, a differentiated and expanding technology portfolio and a clear runway for continued execution. I'm excited about the trajectory of our Subsea business with new orders in Q4 and at the start of Q1. We have been awarded significant projects for subsea wellheads and associated specialty items in Asia Pacific and the Mediterranean.

In Brazil, we signed a landmark subsea contract with an IOC we have not worked for in over a decade. We have additional significant opportunities in the subsea pipeline we expect to win this year, setting up a strong outlook for our Subsea business. We plan to build on our commercial momentum this year while remaining focused on improving margins, enhancing the customer experience and unlocking long-term value for our shareholders.

Our execution in 2025 gives me confidence that we're building a platform capable of delivering value for our employees, our customers and our shareholders.

I will now turn the call over to Kendal, who will walk through our financial results and outlook in more detail.

Thanks, Adam, and good morning, everyone. I'd now like to review our fourth quarter and full year 2025 financial results. For the fourth quarter of 2025, revenue was $274 million, which is a 14% sequential increase from the third quarter and a 9% increase compared to Q4 2024. Adjusted EBITDA for the quarter totaled $52 million, resulting in an adjusted EBITDA margin of 19% and free cash flow for the quarter was $43 million.

Our strong Q4 performance was driven primarily by our Subsea business, which over the past several years has seen a seasonally strong Q4 followed by a weaker Q1, an effect further amplified this year by some deliveries occurring prior to year-end, which we previously expected to fall in Q1, a credit to our team's ongoing efforts to improve manufacturing on-time delivery. From a geographic perspective, NAM land revenue increased sequentially by 5% to a record level of $139 million.

Our NAM land business continues to outperform underlying activity levels, driven by market share gains, strong execution and increased cross-selling across the Innovex platform. Customers increasingly deployed multiple Innovex solutions together in the same wellbores, reflecting the value of our integrated sales approach and supporting strong margins and cash generation.

We do expect slightly lower NAM land revenues in Q1 due to the impact of weather on U.S. land activity, but we continue to improve our market position and feel very positive about our organic and M&A growth opportunities. International and Offshore revenues increased sequentially by 25%, benefiting from significantly higher subsea deliveries during the quarter, including approximately $15 million of deliveries we previously expected to fall in Q1 2026. We want to thank our team for the incredible effort to meet our customers' needs in Q4, and we remain pleased with the long-term outlook of our International and Offshore business with significant orders building for late 2026 and 2027.

As expected, Q4 margins were impacted by the completion of several lower-margin legacy subsea projects as well as costs associated with the ongoing exit of the Eldridge facility. These factors will continue to weigh on margins during the first half of 2026. Importantly, the planned exit of the Eldridge facility, which we expect to complete by the end of the second quarter, is a foundational element of our margin improvement plan.

Our reduced manufacturing footprint, improved on-time delivery and more disciplined bidding practices are expected to drive meaningful margin expansion as we progress through 2026. Selling, general and administrative expenses for the full year 2025 were $129 million, representing 13% of revenue. This is a significant decrease from our 2024 level of 18% of revenue. This improved efficiency comes as a result of our focus throughout the year on fully realizing synergies from all recent acquisitions and improving our cost structure wherever possible.

As a result of these cost savings, despite a challenging product mix in Q4 and ongoing Eldridge exit costs, adjusted EBITDA for full year 2025 was $188 million, resulting in margins of 19%. Capital expenditures in the fourth quarter of 2025 totaled $9 million, representing approximately 3.3% of revenue. Full year 2025 capital expenditures were $35 million, representing 3.6% of revenue. 2025 CapEx was slightly elevated relative to Innovex's historical range of 2% to 3% of revenue related primarily to facility integration efforts, and we expect this slightly elevated spending to continue through Q2 2026 as we complete the exit of Eldridge.

However, we believe significant efficiency gains and long-term margin improvement will be unlocked by these onetime investments. Free cash flow was $43 million for the quarter and $156 million for full year 2025. We converted approximately 83% of our adjusted EBITDA into free cash flow in both the quarter and full year 2025, a phenomenal result, well above our normalized conversion target of 50% to 60%. This performance reflects our countercyclical cash conversion profile, which we have previously discussed.

During periods of slower activity growth, we typically convert a higher percentage of our adjusted EBITDA into free cash flow as working capital unwinds. Conversely, during periods of accelerating activity, we see the opposite effect as we build inventory to meet growing customer demand. In addition to this dynamic, 2025 benefited from harvesting cash from the legacy Dril-Quip balance sheet, driving further outperformance.

As a reminder, we do typically see our lowest seasonal free cash flow in the first quarter of each year due to timing of certain annualized cash payments. I'm thrilled with our cash flow performance in 2025 as our high free cash flow conversion reflects the through-cycle strength of our capital-light business model and our disciplined working capital management.

We ended the year with approximately $203 million of cash and cash equivalents and no bank debt, providing significant financial flexibility. Our balance sheet strength supports continued execution of our disciplined capital allocation framework, including selective high-return M&A opportunities and opportunistic share repurchases. We continue to see numerous opportunities to enhance our portfolio and drive market share growth through accretive acquisitions of businesses that fit our big impact, small ticket engineered product thesis, and this remains our top capital allocation priority for 2026.

Return on capital employed for the full year 2025 was 10%. While this remains below our long-term target, we expect ROCE to improve as margins expand, lower-margin legacy projects roll off, integration benefits are fully realized and we utilize cash for high-return M&A or return it to shareholders.

Looking ahead to the first quarter of 2026, we expect revenue in the range of $225 million to $235 million and adjusted EBITDA of $38 million to $42 million, with the sequential decline in revenue driven by seasonality and delivery timing in our Subsea business and some weather-related impacts on U.S. land activity. Our ongoing share gains on U.S. land, further recovery in Saudi Arabia and Mexico as well as the subsea wins Adam mentioned should drive further growth in 2026. While subsea mix and remaining transition costs will continue to impact margins early in the year, we remain confident in our margin improvement trajectory as 2026 progresses.

Our M&A pipeline also remains active with several high-quality capital-efficient businesses that align with our strategy under review.

I'll now turn the call back to Adam.

Thanks, Kendal. To close, I want to again recognize the Innovex team for their execution and commitment throughout 2025. We strengthened our foundation, delivered strong financial results and positioned the company for the next phase of growth. We're building a business that can perform across cycles, leveraging our strong balance sheet, disciplined capital allocation and a differentiated portfolio of technology-driven, high-return products.

As we move into 2026, we remain focused on continuing to enhance customer experience, capturing additional market share and driving sustained margin expansion towards our long-term target of 25%. Thank you once again to our employees, customers and investors for your trust and partnership.

Operator, we can now open the line for questions.

[Operator Instructions]

We'll take our first question from Derek Podhaizer at Piper Sandler.

Maybe just to start, hoping to unpack the first quarter margin guide a little bit further. You've talked about the Subsea margins weighing on company margins, these low-margin projects continue to weigh first half of the year. I know you have the exit costs associated with Eldridge. You talked about optimizing your bidding process. I'm just trying to get an understanding of what happened, what's causing these margins to be weighed upon? And how should we think about the improvement over time and just thinking about any structural headwinds to that long-term 25% target that you've laid out?

Derek, thanks for the question. So first, I would say, hey, point you to Q4, and we had a really strong result in the quarter. Some of that was a result of pulling forward. Some of the subsea deliveries that we were expecting in Q1 got pulled into Q4, which I think on balance is good for us, but makes Q1 a little bit lighter.

We'll still have a couple of low-margin subsea deliveries Q1, Q2 that will weigh margins down a little bit. And then as you know, we're working on a lot of things around improving margins. The single biggest of that is the Eldridge exit, which has pushed back a little bit like we were originally forecasting that probably early-ish in Q1. That's probably going to slide into Q2 as we finish out some customer orders here for the Western Hemisphere.

So I think all in all, like a very good Q4. Yes, Q1 is a little bit -- we're seeing a little bit of seasonal decline there and a little bit of that pull-through effect we mentioned earlier. But I don't think any of this impacts how we're thinking about the long-term margin progression, both seeing a little bit of improvement as you particularly as you get in the back half of this year as well as in '27 and beyond.

Got it. Okay. That's encouraging. I appreciate that. And then I guess on the integrated cross-selling opportunities, I mean, this is pretty exciting, just given this shows the unique platform that you guys have as far as bringing on these acquisitions and putting them on the larger Innovex platform. Maybe could you help us provide some maybe real tangible examples of how you've been able to expand the drilling enhancement well construction with DWS and Citadel because it feel like this sets the playbook for your future M&A opportunities that I know you guys are focused on as we move through the year.

Yes, I agree. I think we're really excited about that, both what we've accomplished in the couple of those really great acquisitions we've done over the last 1.5 years or so as well as our pipeline of M&A opportunities. So if you look at the drilling enhancement product line that came to us through the DWS acquisition, that business is performing great. And then we're seeing both benefits in U.S. land, where that team has some really strong relationships with a couple of larger independents Innovex historically hadn't worked for that we're seeing some product pull-through already.

So that's exciting. And then conversely, we're seeing really good adoption of those products into the Middle East, which is going to be very difficult for that business to go attack on a stand-alone basis, like we're seeing really good uptake in Oman, UAE. We're doing some good work there with some of those independents coming in to do unconventional work there in the Middle East.

And then a similar story, albeit a little bit earlier with respect to the Citadel deal, another business that's performing -- was performing great in the acquisition has continued to do well. And then we've seen some cross-selling opportunity in North America. And then we're really excited with what those -- that product set can do internationally and the likes of Argentina. We're in the middle of a trial test right now in Saudi with the trench foot wet shoe product that came to us through the Citadel acquisition.

So yes, we're seeing a lot of good early tangible benefits from those deals, which gives us more confidence not only in where those deals are headed, but also executing on the string of other -- of really other attractive businesses that we see in front of us. And to be clear, we normally don't bake any of these revenue synergies into underwriting new deals. We look at them on a stand-alone basis and any kind of revenue synergies, we usually keep as upside.

Next, we'll move to Don Crist at Johnson Rice.

It's been about 15 months or so since you closed Dril-Quip. And I know a lot of investors probably don't realize the kind of length of order schedule on the offshore side. So just kind of curious as to -- are you fully finalized all of the kind of Dril-Quip initiated orders on the Subsea side now and maybe that's the reason why your margins are coming in a little bit? And kind of when did your sales team really take over after the Dril-Quip merger to where you're actually driving the pencil versus inheriting some of those orders? Can you tell us where you are in that kind of structure?

Yes. Don, thanks for the question. Yes. So to be clear, like I wouldn't -- some of the contracts, these are long-term 4-, 5-year contracts, some of which are very attractive. Other -- some stuff comes in a little bit less margin. We're going to see margin improvement going forward, both through cost structure reduction, for example, not having as many really large under manufacturing plants and really consolidating a lot of that or all of that subsea demand into a singular manufacturing plant is going to be a really big benefit.

We do have a couple of specific one in particular subsea project flowing through the books right now that's at lower margin than we expected. And to be perfectly frank, that was bid under our tenure. That was bid post the deal closing. We just made some assumptions we were too optimistic in some of our assumptions there.

So we'll see that order still weigh a little bit in Q1, start to bleed off in Q2, and then we're rebidding that as we speak. And would expect both a little bit of incremental price improvement as well as a little bit of cost reduction on that specific one, but that's kind of the broader theme.

Okay. And then can you give us an update kind of on the Far East manufacturing expansion, Vietnam and China and that kind of where you are in that process of kind of moving everything over? I mean, are we pretty much done with the CapEx on that and ready to kind of go full force there?

Yes. No, I would -- I think we're kind of mid-innings. I think we've got two big projects going on there. We're moving a lot of the subsea manufacturing to our existing footprint in Singapore. As Kendal said on the call, we saw some CapEx impact in Q4 of that. We'll probably see a little bit more in the first half of this year. Then to be clear, that's both for some manufacturing footprint in Singapore as well as repositioning our Gulf U.S. offshore operations here, we need some CapEx to probably sustain that as we move out of Eldridge.

And then on the downhole world, we acquired a business, a manufacturing facility in Vietnam last year. That's still -- we're ramping slowly into that. I think that's one over the next year or 2, we'll see continued growth there. There will be a little bit of incremental CapEx there, but that's kind of baked -- again, kind of baked into our earlier comments. I think both of those, we really haven't started to see any of the impact of the efficiencies that will come with having lower overall footprint and then a really high-quality but low-cost, high-volume facilities there in the Far East that we can lean on.

We'll maintain a pretty robust supply chain in many of the markets we operate like the U.S. We'll always have a pretty good-sized manufacturing capability to respond to our market needs here in the U.S. But as we channel some of the higher volume and some of the Eastern Hemisphere demand into these plants, we'll see some nice benefit over the next year or 2.

Okay. That's very, very helpful as you expand around the world. And just one final one for me. We're -- as analysts, we're talking a lot about the broader Middle East and Northern Africa region. And can you just tell us just broadly speaking, kind of when you get brought into conversations if somebody is bidding on one of those big tenders? Is it 6 months before the project starts? Or is it kind of when the project starts? Because I know a lot of the guys from the U.S. are over there consulting and presumably, they like your equipment here in the U.S., they would bring it over there.

Yes. So it depends a lot based on the project and the operator. For example, if you look -- some of the quickest hit stuff, if you look at some of the IOCs that are putting rigs to work and like a Bahrain or the UAE, we're seeing some benefit from that right now and some guys that we work with in the U.S. have showed up over there, and we're seeing some of that. That's on the smaller side just because that's -- those are smaller dollars. When you look at some of these big, big contracts that are let across the Saudi or Kuwait, some of those, we don't -- the benefit of being these kind of big impact small ticket products is that we're not always included in those big, big tenders that can be pretty aggressively priced. And we have these niche products that are sold a little bit later than those big projects.

So it can kind of run the gambit from we get them brought in right away to, hey, we're a little bit more just in time as the rigs are getting stood up and start to go to work.

Okay. But you are seeing demand from friends over there that have moved from the U.S. that like your product?

Yes. Yes. We have definitely seen some of that. I mean to be -- it's not nearly as big. And these IOCs, you're not running nearly the same rig count as some of the big NOCs in the region. But yes, we're seeing a little bit of benefit from that. And then in general, we're seeing some of that reactivation of rigs in Saudi, continued growth in other countries in the Middle East. So we'll start to see the benefit of that as we progress throughout this year and go into '27.

We'll move next to Keith Beckmann at Pickering.

I just kind of wanted to hit around the M&A side of things again. I wanted to know if you could give us a little bit of a better sense on maybe the current M&A landscape you see, whether it's private equity companies in the U.S. or are there even any opportunities internationally? And maybe what areas of the business do you think could be improved? You guys have a lot of products, but maybe is there any areas from an M&A perspective that you think you're missing that could help you improve?

Yes. Thanks, Keith. So as you know, M&A is definitely a core part of our strategy. So we're constantly looking for opportunities to grow and improve the business through acquisitions. And I would say right now, we're very excited about the opportunity set. Our M&A pipeline is probably as active right now as it's ever been. We mentioned on the call, we have multiple opportunities under review. Some of those are progressing nicely. And I think to your question on what are the most kind of actionable opportunities there.

We have a handful of things, but I would say the most near-term impactful ones for us are probably going to be add-on style acquisitions where we can add kind of a specific differentiated product or a small portfolio of products to our overall portfolio and then look to grow those through the global distribution network. That could be private equity-backed, could be founder-backed, but generally speaking, more U.S.-based, a little bit smaller companies that have a lot of the abilities to both help us and we can help them kind of allow the DWS and Citadel playbook.

I think that continues to be a really interesting space for us to play. We are looking at a few bigger, more transformative, more international style deals as well. But as you know, those tend to be take much longer or harder to handicap what's going to come to fruition there. But overall, I think based on what we're seeing, we really think M&A remains a great way for us to deploy capital in the near term. But as we've always said, we screen these deals against our buyback program and look to allocate capital in a way that drives the best long-term shareholder returns.

Awesome. That's very helpful. And then my second question was just going to be kind of around free cash flow conversion. And I know you guys hit on this a little bit, but the free cash flow improvement, I mean, I think you guys had 83% free cash flow conversion for the year, which is just a substantial structural improvement, along with some help from working capital, I know. But I think you've described 50% to 60% is kind of the normal business run rate conditions. I just wanted to get an idea on throughout 2026, if we should expect some further structural improvement maybe with some self-help still or 50% to 60% is maybe a good way to think about a good chunk of this year?

Yes, it's a good question. I mean we're thrilled with the free cash flow conversion in 2025, and you kind of see it showing up on the balance sheet gives us a lot of capital to go look at some of these great accretive M&A opportunities as well as do some different things. So very pleased with how that's played out. I do think the 83% is probably on the high end, benefited from harvesting some cash off the Dril-Quip balance sheet, like we said. But that 50% to 60%, that's kind of our normalized through cycle number that we target.

So in a year like 2026, I mean, we're not giving out full year guidance, but I think it probably in the market feels generally flattish, maybe some areas of growth, some areas of some slow decline. But if you're not expecting a huge ramp-up, we don't need to build the inventory to support the customer needs in that scenario. And I think we'd look to still continue to have a healthy free cash flow conversion. So yes, probably something more akin to that range, but maybe on the higher end of that 50% to 60% target.

We'll move next to Eddie Kim at Barclays.

We don't get too much detail on the magnitude of your Subsea product bookings. But just curious if you could share even just directionally how 2025 Subsea product bookings trended versus '24 levels? And looking ahead to this year, do you expect Subsea orders will be up versus last year's levels? Or do you expect that to be more of a 2027 event?

Yes. Eddie, yes, fair question. We probably in '25 in aggregate subsea orders would have been down a little bit versus '24, but it's pretty lumpy. So the first half was down a little bit. What I would say, though, is in Q4 through the beginning part of this year, there's been a lot of projects that have kind of been a little bit slow to come that we've seen show up in Q4, Q1. So we have a number of big projects in the Far East that we've gotten contract awards on.

We got a nice project in the Mediterranean awarded, and then we have a bunch of things we're waiting to see what happens in Asia. So I would think that our order volume for '26 is probably going to be up pretty nicely versus '25. And we're going to start to see a little bit of the fruit of that into this year and as we move into '27. So we're really happy with the trajectory of that, but there was a little bit of a lull there back half of '24, start of '25 on those orders, I would say.

Got it. Got it. That's very helpful. And then just with the exit of the Eldridge facility at the end of 2Q, and the slide in your earnings deck is a good one and an 80% reduction in that footprint. I'm sure that facility was set up for an activity environment far beyond current levels. But to the extent we do get an offshore activity recovery here really in 2027 and for the next several years, how confident are you that your reduced footprint is going to be able to support an increase in subsea product demand?

Yes. We're very confident that we can serve that market even with the reduced footprint that we're seeing here that as you said, that Eldridge a wonderful facility just built for a different time in that market. I think from here forward, we can still sustain a very nice increase in activity levels across the Subsea business globally.

And we'll move next to Josh Jayne at Daniel Energy Partners.

Adam, I feel like you've been one of the more balanced with respect to offshore outlooks as we work through this white space period over the last 12 to 18 months from a rig activity standpoint. But I'm curious if you've seen enough things announced recently with respect to term on some contracts and maybe the subsea tree awards that we've seen where you could provide more of an outlook outside of Q1 on the Subsea side and how you see the business going, maybe an international offshore walk-through sort of through the end of this year and into 2027 would be helpful.

Yes. Josh, Well, yes, fair question. We can be probably qualitative in how we respond to that. We're not putting out quantitative guidance beyond Q1. What I would say is I would -- I think we're seeing some nice project opportunities pop up for us, as I just referenced to Eddie's question that we -- things we've been waiting for a little while that came in, a couple of things that have been a little bit of a nice positive surprise in the offshore award world over the last few months for us that I do think, again, getting back half of this year into '27, we should see some nice growth there in the offshore -- our offshore business, our Subsea business.

When you look at the other international markets, I would think the other really important places for us like Saudi and Mexico, which were down in '25, they have started to come back a little bit. They're still probably closer to a trough than a peak, but I think both of those markets will see some nice growth this year. And then we're seeing pockets of other countries in the Middle East that are admittedly smaller for us, but we're seeing some nice green shoots of growth there.

So I think in general, yes, probably it will take a little bit of time. But I think, again, back half this year into '27, we'll see some nice overall international offshore growth.

And then if you've referenced this before, I apologize what the cycle times you highlighted. But when you think about shortening your cycle times from order to delivery on the subsea side of the business, could you remind me what your initial targets were? So for example, from the time in which an order was placed right after the acquisition of Dril-Quip closed to ultimate delivery, what that time frame was like? And then how you see that playing out sort of for something ordered middle of this year or end of this year and how your targets on ultimately how much cycle times will compress and since you started this journey, if there was upside to your initial target would be helpful.

Yes. So I think with respect to specifically from the time line from order to delivery, that has not changed too much. I mean it varies to some extent, but rule of thumb, I would say, for a subsea order, we're generally getting that a year or so before delivery, plus or minus. I think the big thing we've really been focused on is improving that on-time delivery in that Subsea business, which we've continued to see really nice progress with that.

I think it was very low when the deal started has kind of consistently ticked up and we're around 80% on-time delivery in that subsea product line in Q4 with the target, obviously, of getting that to 95-plus percent. So I think that's the big area we've been focused of really pulling that in, making that run efficiently and consistently hitting that delivery date that we schedule.

The other thing I would point out, and I don't know that we've talked about this a lot publicly, but it's definitely -- when you look internationally, it's definitely you get an order, you build it over x period of time and then deliver it and that model will probably persist. In the Gulf, the U.S. offshore, we're seeing some transition to more of a consignment model where, hey, we have a contract. We are built -- for example, we're building stuff right now against a contract that will really only recognize the revenue once we install it for the customer, whereas in prior subsea cycles, that would have been -- we've been recognizing revenue as we speak right now for that stuff.

So that also is going to contribute to a little bit of this lag in revenue versus what you would historically have seen as the Gulf makes this transition, which ultimately will be good for us and good for our customers as we're able to standardize products, build more things in volume across a wider customer base versus just do one-off project stuff, but there's a little bit of an air pocket there on revenue as you make that transition, if that makes sense.

It does.

And that concludes our question-and-answer session and today's conference call. We thank you for your participation. You may now disconnect.