Innovex International (NYSE:INVX) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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The full earnings call is available at https://events.q4inc.com/attendee/364412720
Summary
Innovex International reported first quarter 2026 revenue of $239 million, exceeding guidance, with an adjusted EBITDA of $49 million and a margin of 21%.
The company highlighted strong performance from the subsea business and successful integration of the RealQuip merger, emphasizing a 'no barriers' culture.
Innovex International secured significant project awards in Asia and completed the acquisition of Drilling Innovation Solutions for $16 million.
Despite Middle East disruptions, the company sees long-term growth potential in the region and expects a strong subsea business trajectory.
Guidance for Q2 2026 includes revenue of $235 to $245 million and adjusted EBITDA of $43 to $48 million, with expectations of continued margin improvement.
Full Transcript
OPERATOR
Good morning and welcome to Innovex International's first quarter 2026 earnings call. at this time, all participants are in a listen only mode and there will be a question and answer opportunity at the end of this call. As a reminder, this call is being recorded. I will now turn the call over to Eric Wells, Chief of Staff. Please go ahead.
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 International'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 International'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 Kendall Reed, Chief Financial Officer. I will now turn the call over to Adam Anderson.
Adam Anderson (Chief Executive Officer)
Good morning. 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, but our people have remained focused on serving customers, leveraging our unique platform and in 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 RealQuip, 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 Kendall 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 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 International. Our no barriers culture has unlocked the potential of our combined team. I've been particularly impressed by the contributions from our colleagues who joined Innovex International as a part of the DrilQuip 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 US 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've 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 two 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 well head 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're 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 rewards 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 US 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 International, 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 Kendall to walk through our financial results and outlook and more to say
Kendall Reed (Chief Financial Officer)
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 a 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 this sequential decline. A meaningful increase in activity in Mexico partially offset the 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 and A opportunities and opportunistic share repurchases. Our M and 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. In part 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 to 245 million, an adjusted EBITDA of 43 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 US lands, improving international activity and the growing subsea opportunity set that Adam discussed earlier. I'll now turn the call back to Adam.
Adam Anderson (Chief Executive Officer)
Thanks Kendall. 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 (Drilling Innovative Solutions) acquisition. Just as importantly, we continued to build momentum commercially, particularly in subsea where recent wins reinforce the progress we're 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
If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. And your first question comes to the line of Derek Podhazer from Piper Sandler. Your line is open.
Derek Podhazer (Equity Analyst)
Hey, good morning guys. Maybe first start on US land growth from here. Obviously a great quarter. What are you seeing when you look out in second quarter? Maybe the back half of the year? One of the biggest EMPs 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're seeing gain the most traction or have the most potential to grow here and really take advantage of the EMPs? Restarting a bit of work.
Adam Anderson (Chief Executive Officer)
Yeah. Morning Derek. Thanks for the question. So I think up until now the tone we've largely heard from our customers is say on the margin they're going to do a little bit of extra work really around like workovers, maybe a couple of incremental ducks that they were going to frack 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 leverage 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 our business models, we don't have to be great at predicting forward activity. We just have to be highly responsive to that activity as it picks up or down. So field feels good right now, but we all know that that could change a little bit in the near term.
Derek Podhazer (Equity Analyst)
Yeah, no, that is for sure. Maybe on on your latest acquisition, Drilling Innovation 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 you know the platform that you created at Innovex driving those revenue synergies, putting it on the global platform similar to what you been able to really successfully accomplish with DWS (Downhole Well Solutions) and Citadel. So maybe just some help understand us a little bit better what you plan to do with DIS (Drilling Innovative Solutions) here.
Adam Anderson (Chief Executive Officer)
Yeah, so really excited about the DIS (Drilling Innovative Solutions) deal. Like you said, it's very similar to the Citadel DWS (Downhole Well Solutions) 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 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 that 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 (Drilling Innovative Solutions) to realize in the short term on a standalone basis so we can help them there with respect to their product. They really have two big products, one being the Gatekeeper product which is a valve run in the shoe track of liners in the U.S. Offshore 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 float valve used in under balanced drilling applications. Used a lot again in U.S. Offshore. There's a variant for the U.S. market that they're just starting to roll out the that again fits really nicely with the legacy Innovex and our drilling enhancement business that we got through the DWS (Downhole Well Solutions) business. So yeah, this is I think a great deal both for DIS (Drilling Innovative Solutions) as well as Innovax. So we're really excited about it.
Derek Podhazer (Equity Analyst)
Great. Good stuff. Appreciate it. I'll turn it back.
Adam Anderson (Chief Executive Officer)
Thanks Derek.
OPERATOR
Your next question comes to line of Don Crist from Johnson Rice. Your line is open.
Don Crist (Equity Analyst)
Morning guys. Thanks for letting me in. I wanted to ask about the Middle East. Obviously it's a lot of talk about 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 kind of any comments around the Middle east given that the conflict continues to rage on?
Adam Anderson (Chief Executive Officer)
So yeah, we did have some impact in the quarter in quarter1. Expect to have some impact in quarter2 as well from the conflict. For us, the biggest areas of some of the offshore markets, particularly in Saudi Arabia 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 quarter2 that we didn't have as much of in quarter1 is just the logistical cost. To your point we were pulling down, we were serving our ongoing operations with inventory in the region could withstand a little bit of disruption in the supply chain. quarter2 we're having to air freight some things in that we previously would have sea freighted in and those as you can imagine those air freight 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 one timing expenses. All that's baked into our quarter2 guidance.
Don Crist (Equity Analyst)
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.
Adam Anderson (Chief Executive Officer)
Yeah, for now, that's correct. So we're kind of. What's baked into our forecast is we are able to continue to get products, 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.
Don Crist (Equity Analyst)
Okay. And just turn it 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. Is to come up a couple quarter, a couple 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?
Adam Anderson (Chief Executive Officer)
Yeah. So I think what we were really pleased with in the first quarter was how much progress we made on that. What we had kind of told everyone previously is we're looking to be out of ELGE 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's been a core initiative internally and kind of testament to all the good work that our team's 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've 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, you know, 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're 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.
Don Crist (Equity Analyst)
Okay. And if I could sneak in one more, obviously a good couple 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?
Adam Anderson (Chief Executive Officer)
I think there's some talk of that. As you know, that's a really long cycle business in the offshore market. So we're not forecasting a really robust recovery in offshore right now as a direct result of the geopolitical situation we've 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 hasn't been a massive response that we've seen from the customers yet.
Don Crist (Equity Analyst)
Okay, I appreciate the caller. I'll turn it back.
Adam Anderson (Chief Executive Officer)
Thanks, Don.
OPERATOR
Your next question comes to mind of Keith Beckman from Pickering Energy Partners. Your line is open.
Keith Beckman (Equity Analyst)
Hey guys, thanks for taking my question. I was wondering, you know, 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 position, the additional potential work scopes you guys think you may see following the conflict if activity really starts to ramp, is there any, is there any sort of products or anything in particular you think could be helpful to maybe recovery in the Middle east whenever we get to that point? Essentially, yeah.
Adam Anderson (Chief Executive Officer)
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 work over 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'd see the biggest near term tick up. As we talk about regularly, we have a nice fishing business, a nice artificial lift accessory business, which we do 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 work over work, fishing activity, things like this to get existing wells back on production.
Keith Beckman (Equity Analyst)
Awesome. That's really helpful. And then on my second question, 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 that, you know, early on that could potentially get reversed into the back half of the year?
Kendall Reed (Chief Financial Officer)
Just. Any thoughts on free cash flow? Yeah, 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 two things I would expect to normalize. And you know, 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, you know, on or above the high end of that 50 to 60% through cycle conversion that we. That we talk about. So Q1, I expect to kind of be the low point for 20, 26 free cash flow.
Keith Beckman (Equity Analyst)
Perfect. It's really helpful. I'll turn it back, guys. Thank you.
OPERATOR
Thanks. Thanks. Your next question comes from line of Blake McLean from Daniel Energy Partners. Your line is open.
Blake McLean (Equity Analyst)
Morning, guys. Morning. Hey. A lot of. A lot of good stuff on here. I was hoping maybe we could just go back to the M and A stuff real quick. You guys have talked a lot about, you know, your pipeline and the potential deals, both small and large, that are in the marketplace. I was just hoping 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 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 it's just a lot more potential sellers than 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. You know, what's activity 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 yeah, it's going to have some impact on how you think about valuation and bid ask spreads and then yeah, the other thing I would say is just generally the private markets where we're mostly looking at acquisitions, react and use a lot slower than the public markets which tend to be very forward looking. A lot of times when we're looking at M and A deals, it's much more of a conversation about current run rate or trailing twelve 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. All right, that's helpful. The rest of my stuff has been answered so I'm squared away. Thanks very much for the time.
OPERATOR
Thank you sir.
Adam Anderson (Chief Executive Officer)
There are no further questions so I'd like to hand back for closing comments.
OPERATOR
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're thrilled with how things are progressing and look forward to the next couple of quarters rolling out. So appreciate everyone joining us. This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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