Innovex International, Inc. 2026 Q2 Earnings Call

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 second 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. 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 will 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 will 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 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'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 was not reflected in the purchase price. The financial characteristics of the transaction are compelling, something Kendal will discuss in more detail later in the call. We are 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 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 well head 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 are 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 submudline 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 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're 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.