Innovex International, Inc. (INVX) Q2 2026 Earnings Call Transcript

Good morning and welcome to Innovex's second quarter 2026 earnings call. As a 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 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 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 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 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 subsea 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 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 1, 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's 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 Kendal 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. One recent example, a major North Sea operator, one that Drilling Innovative Solutions 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 XPak trial with a major international operator in Asia Pacific following a multi-year qualification effort. XPak 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 OneSubsea has strengthened our ability to compete effectively and profitably for complex offshore work. Innovation continues to drive organic growth. During the quarter, we completed the first installation of our ArgoLATCH 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 ArgoLATCH was deployed in the same operation as our 18-inch by 22-inch XPak system, combining capabilities from both legacy Innovex and legacy Dril-Quip. 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 Innovex is well positioned to participate as customer activity develops. Importantly, our capital-light 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 Innovex 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. The 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 Innovex to deliver sustainable, profitable growth and long-term value 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 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. NAM 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 NAM 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 Dril-Quip 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 Innovex 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% to 3% of revenue. We ended the quarter with approximately $222 million of cash and cash equivalents and no bank debt. On July 1, 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 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 30, 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 million to $270 million and adjusted EBITDA of $51 million 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. Our 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, Kendal. 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 subsea and international businesses. With the acquisition of TCO, we've added differentiated, high-margin, and capital-light 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.

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

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 U.S., but you sold some into Mexico. Can you give us kind of the game plan? How do 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?

Thanks for the question. Yes, that 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. I think one of the things we're really excited about is the thermal space in Canada. We're one of the two players there, probably the smaller player, but consistently growing market share. I'm pretty excited about our trajectory there. That's a really nice market. I think the second area where we're seeing traction is international opportunities. Mexico is a really good one for a variety of technical reasons, and we are really well established there. We're selling these to the service companies that we've had good experience with where we can create value in that relationship. Then I think there are a myriad of other international places where we've had some success and a big pipeline of opportunities. So I would say the international land region is probably the second biggest area that we're excited about. We are evaluating U.S. land. We've done a little bit of work in U.S. land. It's still relatively small. I wouldn't bake in a ton of growth there, but it is an attractive market where we've got a strong distribution network and know all the major customers well. That's certainly an area we'll be looking at over the next couple of years, but probably a little slower to evolve than the first two areas I mentioned.

Okay. And 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. But can you classify, has customer behavior changed? Or is there just more conviction today versus kicking the tires in the past? Any comments around the offshore space that gives you more confidence as we move towards the end of '26 and into '27?

Yes, we've seen a really strong offshore pipeline in a couple of different areas. Some of these Asia projects that we've won — we've announced three big Asia projects that in total are somewhere in the $60 million to $80 million range of revenue, which will probably start coming meaningfully in next year. Those are areas where we were kind of the incumbent as a result of the legacy Dril-Quip relationship with these customers. So those are projects that got sanctioned and approved in the last six months, some of that tied to a desire to get more energy security in local markets. We currently have a strong pipeline of things that are close to converting to awards over the next six months, both in the Western Hemisphere, like in the U.S. Gulf, as well as some of these big international awards we expect to see announced over the next six months. Across the board, we see both a robust pipeline and strong commercial momentum — our ability to convert some of these legacy contracts and win sizable awards, and take market share. A couple of things we'll announce over the next six months will demonstrate how the talent and technology from the Dril-Quip deal, combined with being a bit more aggressive commercially, will allow us to take market share in that space. So I'm really excited about how offshore is progressing for us.

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

Thanks, Don. Good question. The tariff that's more meaningful to our business is the Section 232 tariff around raw materials steel, which was not included in that refunds program. But we have applied for and received some modest tariff refunds that we'll see coming in the door in Q3. We'll get something back, but it's immaterial in the grand scheme of things for our business.

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

I just wanted to get a sense of maybe quarter-over-quarter what's baked into your third-quarter guidance, trying to get a sense on Middle East here as well as TCO contribution for a full quarter, and just how you're thinking about third quarter and potentially back half of the year here with the conflict resuming?

Good question. In terms of what we have baked into the Q3 guide, starting with the TCO piece: we're really pleased to have closed that deal on July 1, so we'll get a full quarter of impact from the acquisition. As a reminder, that business is nearly 100% focused on international and offshore markets, so it will have the same variability around delivery and project timing as the rest of our international offshore business. 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. We think we'll see nice growth in TCO as we go into future quarters, but the Q3 guide is conservative based on the orders and delivery timing we can see today. That implies around $250 million of revenue from the legacy Innovex business. Regarding the Middle East, we're seeing things relatively flat in Q3 compared to Q2 in that region. Hopefully, if the conflict clears up we will see activity growth there. What is driving quarter-over-quarter growth in the legacy Innovex business are subsea opportunities Adam mentioned, which will be more of a 2027 driver than 2026, but we're starting to see green shoots. From a North America land perspective, the seasonal break in Canada won't recur and we'll see growth there in Q3, and we're starting to see some growth in the U.S. land business with a building rig count. Overall, a relatively positive outlook for Q3 and then building into Q4 and into next year.

That's very helpful. And my second question was just around whether you are fully out of Eldridge, and then more broadly, what's the next biggest thing to attack here to continue improving margins and maybe talk about the different improvements you could see to increase margins from here.

Yes. We completed the move out of Eldridge in Q2. We're excited about that. The consolidation of the supply chain will enable us to be more efficient, drive better margins, and be more responsive to customers, improving delivery. We're pleased to see consistency in the last couple of quarters around that 20% EBITDA range, and we expect to be consistently north of 20% after the exit of Eldridge. One factor that weighed on Q2 and we expect to weigh on Q3 is increased logistics costs in the Middle East due to the conflict. We had around $1.5 million of increased freight expense related to air freight and additional costs of moving things around. Resolution there, even without revenue growth, would drive margin improvement. Incremental revenue is also key: as the big subsea awards convert to revenue, as TCO returns to more average quarters historically, and as markets like Mexico and Saudi ramp up, those will drive high incremental margins. There's room for trimming costs around the edges, but primarily the focus is resolving the Middle East logistics disruption and driving incrementals from new work in our pipeline.

Congrats, guys.

Your next question comes from the line of Scott Gruber with Citigroup.

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

Yes. If you pro forma in the various acquisitions we've done and look at how we're thinking about the first three quarters of this year versus the first three quarters of last year, I think we're up slightly year-over-year, even as the market broadly has been down a bit. We continue to grow share across the board, not just through acquisitions. That gives us confidence. We've seen U.S. land activity start to turn around in Q2, but overall, a slight year-over-year increase in our business in the face of a softer market is encouraging.

It's a good question. We ask ourselves the same thing about measuring organic improvement. Over the last decade we've had a strong track record of growing market share through our No Barriers culture, leaning into understanding customers' technical and commercial problems and being nimble in solving them. That approach has led to consistent share gains such that we're one of the top providers across most of what we do in North America, and in some international pockets as well. Our aim is to grow that position to be a top global player over time.

It's helpful. There were a couple of mentions of Mexico. You saw your first wellhead delivery there and a pickup in activity. Just some more color on what you're seeing as Mexico comes out of the doldrums and progress with additional product sales into the country, and maybe color on the broader land end market as well?

Mexico has been a really good market for legacy Innovex and Dril-Quip, largely because they drill some technically demanding wells in terms of depth, pressure, and temperature. In many cases, our liner hangers and float equipment are the best fit-for-purpose technologies for that market. We have strong market share and can create value in those challenging applications. On the wellhead side, the Dril-Quip combination brought a strong portfolio, and we've got a strong team in Mexico to support growth. It's a somewhat lower barrier-to-entry market than U.S. land, which is why we're focusing there and starting to see success. Mexico was a headwind last year, but it's improving this year. We believe our technology and commercial acumen in Mexico are positives for future growth.

The next question comes from the line of Rahul Kakkar with Jefferies.

I just want to touch a little bit on the North American land market — how do you see that progressing, considering the conflict has resumed, how the conversation is going with customers, and your overall positioning in the market for the second half and into 2027?

We have a strong position in U.S. land across most of what we do. We've seen a pickup in activity similar to other market participants. A couple of the majors and a couple of the larger independent operators have announced some rig additions. Additionally, many smaller one- to two-rig operators have added rigs. We're seeing growth that is baked into our Q3 forecast for U.S. land. Our customers are efficient and responsive to market signals, so we expect strength in Q3 and Q4, though it's harder to predict beyond that.

Great. On the third-quarter guide, you gave great color on TCO. What factors could help you achieve the high end of the guide? I understand there's a midpoint and some margin uplift quarter-over-quarter — what could drive you to beat the third quarter guide and be at the high end?

From a revenue perspective, we're conservative with TCO in Q3, but there are good opportunities there and the timing of deliveries will determine whether more comes into Q3 versus Q4. From a margin perspective, resolution of the conflict in the Middle East would remove a logistics cost drag and boost margins — that's a notable factor. So the two main drivers that could move us to the high end are better-than-expected timing from TCO deliveries and an improvement in Middle East logistics costs.

If I can ask one more on TCO: you have a track record of cross-selling post-acquisition. Can you walk us through near-term, low-hanging cross-sell opportunities where you can expand the product line and achieve commercial synergies?

There are several cross-sell opportunities with TCO. One prime example is Brazil, where TCO has been looking to enter and where we already have a strong subsea wellhead presence as the number-one provider of subsea wellheads into Brazil. TCO's products fit well with operations there and are used in the same well cycle as our subsea wellhead business. That alignment gives us a great opportunity to partner locally and drive growth. We expect other similar opportunities across our global platform as well.

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

Just wanted to touch on Saudi Arabia. You mentioned you grew share in the expandable liner hangers business. Fair to say you've seen very little disruption in that Saudi business despite everything that's going on. Separately, you mentioned growth in unconventional applications in Saudi. How involved are you currently in Jafurah? Do you see that as a growing opportunity?

We had a nice uptick in business in Saudi. We've built a strong market position there and have a great team. We've signed our first direct contract with end users in Saudi and have a few other things in the pipeline. Two technologies to highlight are the expandable liner that's used a lot in gas and deeper gas wells where we're building market share, and the TrenchFoot technology from the Citadel acquisition, which we've now qualified and see a lot of potential for. In Jafurah specifically, we do a variety of well construction and cementing tools, centralizers, float equipment, and some intermediate stage tools. Today we're still more levered to legacy oil land activity in Saudi, but we are definitely growing in the gas and unconventional space, which could be a significant growth driver over the next couple of years.

Got it. That's very helpful color. My follow-up is on NAM land. Your second-quarter revenue declined 4% sequentially and you mentioned seasonally lower activity in Canada. Could you remind us the split in revenue between the lower 48 and Canada? Is that roughly 60-40 or 70-30?

Canada represents roughly 8% of our overall business and probably something like 15% of our North America land business. So it's a minority of the total business, but it has notable seasonality and that weighs on Q2 each year in NAM land.

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

We were more flat in Q2 in U.S. land. Based on current signals, we're expecting some nice growth in Q3 as rigs come online and that activity translates to revenue for us. We did not see a lot of revenue growth in Q2, but we expect a pickup in the back half of the year.

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

Just one follow-up on TCO. You call out Norway and the UAE as markets where TCO strengthens your position. Can you talk about those markets specifically, the opportunity set and what TCO does for you there?

Norway is an attractive market for our technologies. It's one of the markets where we are underpenetrated relative to our long-term goals. We've taken steps with our team and technology over the last couple of years, and adding the TCO team and their local knowledge in Norway will help accelerate what we can do in downhole tools and technology. Norway takes time to qualify technologies through appropriate channels, so it will take time to see results flow through, but long-term it's a great market with strong barriers to entry and sustainable value creation. In the UAE, we participate with niche technologies and help with complicated wells, including certain island wells. TCO adds complementary niche technologies that improve drilling and completion efficiency in the Emirates. We also see potential to expand TCO's capabilities into Saudi, where they haven't focused as much historically. Combining TCO's position in the UAE with our capabilities will strengthen our position in the region over time.

Good color. On the M&A front, you have a clear strategy and three noteworthy acquisitions over the last year. How do you think about integration bandwidth and your playbook internally? What's your organizational capacity to take on incremental deals moving forward?

Great question. I'll brag on our team a bit — we've done acquisitions a lot over the last ten-plus years building Innovex and have great confidence in our integration capabilities. We can integrate and align systems, get teams working as one, and drive direction effectively. We're nearing the end of the Dril-Quip integration, which has been a two-year journey: facility consolidation is done and we have one more ERP conversion later this year. That will free up a lot of bandwidth for new opportunities, and we expect to have capacity to take on as many or more deals than we've done over the last year or two.

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