Innovex (INVX) Q2 2025 Earnings Call Transcript

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DATE

Wednesday, August 6, 2025, at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Adam Anderson
• Chief Financial Officer — Kendal Reed

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RISKS

• International and offshore revenue declined 13% sequentially, primarily due to activity declines, short-term product-specific headwinds, and delivery delays resulting in deferred revenue recognition.
• Management stated integration-related costs, facility consolidation, and the upcoming ERP conversion would temporarily depress margins in Q3 2025.
• A product-specific operational issue in the Eastern Hemisphere led to a temporary halt with a major customer, with management expecting the issue to extend at least until the fourth quarter.
• Management anticipates continued volatility in the U.S. land market, cautioning that decreased customer investments may further weigh on activity.

TAKEAWAYS

• Revenue-- $224 million in revenue for Q2 2025, representing 72% year-over-year revenue growth and a 7% sequential decline.
• NAM Land Revenue-- $120 million in Q2 2025, flat sequentially compared to Q1 2025, with US land outperformance offsetting a 7% rig count reduction and seasonal weakness in Canada.
• International and Offshore Revenue-- $104 million in international and offshore revenue for Q2 2025, a sequential decrease of 13% in international and offshore revenue, driven by Middle East and Asia Pacific short-term weakness and delivery deferrals.
• Adjusted EBITDA-- Adjusted EBITDA was approximately $47 million in Q2 2025, up $1 million sequentially in adjusted EBITDA and up $17 million year over year, with EBITDA margin expanding to 21% from 18% in Q3 2024 at the time of the DrillQuip merger.
• Free Cash Flow-- Free cash flow was $52 million in Q2 2025, a sequential increase of $28 million in free cash flow, with $76 million of free cash flow generated in the first half of 2025.
• SG&A Expense-- $29 million in Q2 2025, down $3 million sequentially, with SG&A as a percent of revenue reduced to below 13% from 25% in Q3 2024 at the time of the DrillQuip acquisition.
• Net Cash Position-- $69 million in cash and equivalents as of Q2 2025 and $41 million in total debt as of Q2 2025, resulting in a 0.2x trailing twelve-month adjusted EBITDA leverage ratio at quarter-end.
• Return on Capital Employed (ROCE)-- 13% return on capital employed for the twelve months ended June 30, 2025, an increase of 1% compared to the twelve months ended March 31, 2025, with a target to return to a historical average return on capital employed (ROCE) of approximately 18%.
• Citadel Acquisition-- All-cash transaction closed May 30, acquired at 3.8x LTM adjusted EBITDA, with a top line contribution of around $5 million, and delivered immediate revenue and commercial synergies.
• Subsea Tree Divestiture-- Completed in Q2, providing $10 million in proceeds in Q2 2025, of which $7 million benefited inventory and free cash flow; no impact on reported revenue.
• Capital Expenditures-- $7 million for the quarter, or 3% of revenue, with guidance for full-year 2025 CapEx at the high end of the historical 2%-3% range.
• Share Repurchases-- $8.5 million in shares repurchased during Q2 2025, maintaining capacity on a $100 million authorized program.
• Q3 2025 Outlook-- Guidance for $230 million-$240 million in revenue for Q3 2025 and $40 million-$45 million in adjusted EBITDA, reflecting project delivery timing, full-quarter Citadel contribution, and offshore recovery.

SUMMARY

Innovex International (NYSE:INVX) management directly addressed sequential top-line softness in Q2 2025, attributing the decline to project-specific delays in key international markets but asserted that underlying demand remains stable, supporting a sequential revenue growth outlook for Q3 2025. They explicitly guided for a temporary step-down in margins for Q3 2025, driven by low-margin project deliveries, consolidation costs, and ERP system integration, but reaffirmed a long-term EBITDA margin target of 25% or higher (non-GAAP). Early integration of Citadel Casing Solutions is yielding revenue and commercial synergies, with management highlighting successful cross-selling in the Permian and strong prospects for market share gains, as adoption of the trench foot product remains at only 25% of applicable wells in the US. The company remains capital disciplined, reporting positive net cash post-acquisition, proceeds expected from the impending Eldridge facility sale, and affirmation of continued optionality between M&A and share repurchases given a large, underdeployed buyback authorization.

• CFO Reed said, "SG&A as a percentage of revenue continues to decrease from the close of the DrillQuip moving from approximately 25% in Q3 2024 to just below 13% in Q2 2025," referencing efficiency gains from post-merger integration.
• CEO Anderson stated, "Margins and free cash flow grew sequentially despite a challenging operating environment," emphasizing operational resilience amid market headwinds.
• Management described Citadel's trench foot wet shoe technology as having generated "$161 million in savings" for a major US operator with a "100% reliability rate" across 1,500 installations.
• CFO Reed said, We aim to convert 50% to 60% of our adjusted EBITDA into free cash flow under normal business conditions. positioning current above-target conversion as resulting from working capital unwinds rather than core business changes.
• Management expects most integration costs to concentrate in Q3 and anticipates that margin recovery will depend on the completion of integration activities and product mix in subsequent quarters, cautioning that margin improvement may not be linear as integration costs are incurred over the next year.

INDUSTRY GLOSSARY

• NAM Land: North American onshore business segment, encompassing US and Canadian land operations.
• Big Impact Small Ticket Products: Essential well construction solutions that represent a small component of total well cost but drive consistent margins due to a differentiated value proposition.
• Trench Foot Wet Shoe: Proprietary Citadel casing technology designed to increase reservoir access and well production while reducing cycle time.
• ERP Conversion: Transitioning enterprise resource planning systems to unify operations, cited as a source of integration cost in the near term.

Full Conference Call Transcript

Adam Anderson: Thanks, Avi. Good morning, and thank you everyone for joining us today. First, I'd like to say thanks to our incredible team. We continue to make progress on our strategic initiatives, and I am very proud and grateful for their efforts. On today's call, I'll discuss our second quarter results and walk through some of the key highlights. Starting with organic growth, the Citadel acquisition, and our outlook. Kendal will then review our Q2 financial results, our strong financial position, and the multiple levers we can pull to drive strong shareholder returns. Innovex Downhole Solutions Inc has created a unique energy industrial that drives exceptional service and value for our customers as well as strong absolute returns for our shareholders.

We've done this by curating a portfolio of what we refer to as big impact small ticket products. Our business model requires very little capital, typically 2% to 3% of revenue, and we aim to convert 50% to 60% of our EBITDA into free cash flow under normal business conditions. I am extremely pleased with our strong margins and free cash flow in Q2, but disappointed by the lower-than-expected revenue. Margins and free cash flow grew sequentially despite a challenging operating environment. Our North America land business remained resilient, absorbing the seasonal effects of breakup in Canada. Excluding the benefit of one month of Citadel revenue, our US land business remained flat, outperforming a 7% rig count reduction.

This revenue performance reflects market share gains, for example, in our drilling enhancement product line, which was brought over from the DWS acquisition last year. This product line continues to gain share in the US, while also growing share outside of the US as we leverage our international distribution channels. Importantly, revenue synergies from the DWS acquisition have begun materializing, demonstrating the value of this transaction. As an example, the legacy DWS sales team recently won a multi-rig bid for our cementing tools with a major operator in the Permian Basin, the first big cross-selling win of many we expect to realize. Turning to our international and offshore business, revenue was down approximately 13% sequentially.

This softness was primarily isolated to our Middle East and Asia Pacific market, which experienced activity declines, short-term product-specific headwinds, and delivery delays which deferred revenues that we had previously expected to book in Q2. Underlying demand, however, remains healthy, and we expect a return to momentum in the coming quarters. Despite the weakness in our Middle East and Asia Pacific businesses, we did see growth in our Latin America business, thanks to stronger performance in Mexico and Argentina. Importantly, we are starting to gain traction with our drilling and completion tools in Argentina's unconventional market, thanks to customer adoption of our gun drill reamers and dissolvable frac plugs.

This is particularly exciting as we expect adoption of these products to open the market for our entire suite of wellbore technologies, driving organic growth in future quarters. Citadel Casing Solutions, which we closed on May 30, is already expanding our market position, enhancing our technology portfolio, and unlocking meaningful commercial synergies. This acquisition further solidifies Innovex Downhole Solutions Inc's leadership position in the US land market for cementing tools, with market-leading scale and capabilities. Citadel's product lines are highly complementary to our legacy portfolio and fit squarely within our big impact, small ticket approach.

By big impact, small ticket, we mean solutions that are critical to well construction and completion but represent a small portion of our customers' overall well cost. We've curated a portfolio of products that fit this description because these products tend to have consistent margins driven by a clear value proposition. Citadel's trench foot wet shoe technology is a quintessential big impact small ticket product. This proprietary technology enables increased reservoir access, which ultimately increases production from our customers' wells. Additionally, these tools help operators reduce cycle times, driving measurable gains and efficiencies, paramount in today's competitive landscape.

A good example of this is that trench foot has been utilized by one major international operator's network with 1,500 successful installations in the US, with a 100% reliability rate, leading to an estimated $161 million in savings. We estimate that this technology has been adopted on only 25% of applicable wells in the US, which means we have significant potential to grow share. We are already seeing significant revenue synergies from the transaction, which should drive incremental growth in the coming quarters. It's important to understand that Citadel's existing blue-chip customer base had minimal overlap with Innovex Downhole Solutions Inc's legacy customer base, which means there are opportunities to grow market share for both legacy portfolios.

In fact, just a few months after close, we have already seen early wins. Within the last week, we've made significant progress validating the trench foot system with one of the largest operators in West Texas. We successfully passed the first stage of field testing with this customer and expect to pick up nine additional rigs utilizing trench foot with this strategic customer. We expect this to translate to roughly $1 million per quarter of additional revenue with further potential by both deploying trench foot to more rigs with this customer and expanding the set of products we supply to this customer. We don't plan to stop with US land, however.

While approximately 80% of Citadel's current business is concentrated in the US land, the portfolio is well-suited for applications in offshore and international markets, which can now be easily tapped as part of the Innovex Downhole Solutions Inc platform. Finally, we have already realized synergies through Salesforce integration and distribution consolidation. Cross-selling efforts are quickly gaining traction alongside efforts to improve delivery efficiency by streamlining our footprint. These early wins give us confidence that this transaction will drive long-term sustainable value across the entire Innovex Downhole Solutions Inc platform for both our customers and shareholders. The Citadel acquisition is a prime example of our M&A strategy.

A great business needing an exit for its current investors that fits extremely well with Innovex Downhole Solutions Inc's platform and business model. Our strong balance sheet allowed us to execute this transaction at a time of particularly elevated macro uncertainty, as we see the long-term value of the combined portfolio and commercial synergies. As we said all along, we make the cycles of our industry a feature, not a bug for our business model. This quarter was no exception.

Kendal Reed: Even after spending $70 million cash on the Citadel acquisition, we maintained a net cash balance sheet. We expect to close on the $95 million sale of our Eldridge facility in the third quarter, which today represents roughly 8% of our market cap. Our thesis will emerge with DrillQuip. Is that we can improve margins and service quality the key enabler of our plans to consolidate facilities create efficiencies, and drive cultural change. As discussed previously, and a key driver of that has been raising our on-time delivery of the Subsea product line. Now it's the low 70% range. and positioned us to compete for new opportunities we simply wouldn't have been considered for before.

In fact, we've recently secured two contracts, each in the $5 to $10 million range, that we likely would have lost in the past due to delivery reliability concerns. While we're pleased with this early progress, not stopping here. Our goal is to reach an on-time delivery rate of over 90% consistent with Innovex Downhole Solutions Inc's historical standards and we're confident in our team's ability to continue to close that gap.

Adam Anderson: Overall, I'm pleased with the second quarter results despite the tough operating environment. We maintained margins, generated significant free cash flow, and closed on a highly accretive acquisition. I would like to once again thank our employees for their efforts and look forward to continued progress against our aspirations to improve the customer experience grow market share, achieve margins in the mid 20% range. I will now hand the call over to Kendal.

Kendal Reed: Thanks, Adam, and good morning, everyone. Just as a general reminder before we review the Q2 results, we closed on the merger with DrillQuip on 09/06/2024. And Innovex Downhole Solutions Inc was the accounting acquirer in the merger. So historical comparative periods prior to Q3 2024 reflect legacy Innovex Downhole Solutions Inc standalone results. Turning to Q2 2025. While we are disappointed by the top line results, we are pleased that our overall Q2 financial performance demonstrated the durability of our earnings and cash flow. Highlighting the strength of our business model in all phases of the cycle. Our second quarter revenue was $224 million, which is an increase of 72% year over year and a decrease of 7% sequentially.

The year-over-year increase is primarily driven by the impact of the DrillQuip merger and the DWS acquisition. We evaluate our revenue geographically by separating our shorter cycle onshore US and Canadian operations, which we refer to as NAM Land, from our longer cycle international and offshore operations, which include the Gulf of America. Our Q2 NAM land revenue of $120 million was flat in comparison to Q1 revenue. With growth in US land primarily as a result of the DWS business continuing to outpace the market and the addition of one month of Citadel revenue, roughly offsetting seasonal declines in Canada due to spring breakup.

Our international and offshore revenue during the 2025 was $104 million, a decrease of 13% sequentially as Adam discussed. Our Q2 cost of sales, exclusive of depreciation and amortization, decreased by $11 million sequentially to $153 million. Selling, general, and administrative expenses for the quarter decreased by $3 million sequentially to $29 million. Our SG&A as a percentage of revenue continues to decrease from the close of the DrillQuip moving from approximately 25% in Q3 2024 to just below 13% in Q2 2025. Strong operational execution and synergies have driven increases in EBITDA margin from the time of the merger. Rising from 18% in Q3 2024 to 21% in Q2 2025 despite a decrease in revenue.

We continue to believe that in the long term, the combined Innovex Downhole Solutions Inc platform can generate EBITDA margins of 25% or greater, in line with Innovex Downhole Solutions Inc's historical results. We expect the sale of the Eldridge facility to unlock the next phase of margin expansion. We still expect the facility sale to close in 2025, with margin benefits being realized over the course of 2026. However, we would caution that we do not expect margin improvement to be linear. As we will incur various costs and inefficiencies as we work through the integration of physical operations over the next year.

Adjusted EBITDA for the second quarter was approximately $47 million, an increase of approximately $1 million sequentially and an increase of $17 million year over year. Free cash flow for the second quarter was $52 million, a sequential increase of $28 million. During Q2, we successfully completed the divestiture of our Subsea Tree product line for total proceeds of $10 million. While this sale had no impact on Q2 revenue, approximately $7 million of that $10 million sale price was attributable to inventory and free cash flow during the second quarter. As a reminder, under normal business conditions, we aim to convert 50% to 60% of our adjusted EBITDA into free cash flow.

We can unwind working capital to convert an even higher percentage of our adjusted EBITDA into cash. Capital expenditures in 2025 were $7 million, representing approximately 3% of revenue in line with our historical target of 2% to 3% of revenue. We still anticipate being on the high end of our historical range in 2025 while we work through facility consolidation after the sale of the Eldridge facility. This marginal increase in 2025 CapEx will be far outweighed by the net proceeds of the sale of Eldridge, which demonstrates the value of our capital-light business model. Even after acquiring Citadel in an all-cash deal, our balance sheet remains strong with a net cash position to end the quarter.

Our total debt as of 06/30/2025 was $41 million, representing a debt to trailing twelve-month adjusted EBITDA ratio of 0.2 times, more than offset by $69 million of cash and equivalents. Our return on capital employed for the twelve months ended 06/30/2025 was 13%, which is an increase of 1% compared to the twelve months ended 03/31/2025. We continue to make progress towards our goal of returning the business to Innovex Downhole Solutions Inc's seven-year historical average ROCE of approximately 18%.

Turning to our outlook for the third quarter, we expect adjusted EBITDA of $40 million to $45 million and revenues of $230 million to $240 million. Our anticipated sequential revenue growth is supported by several key factors. First, scheduled deliveries on certain key projects in the Middle East will increase from Q2 to Q3. Additionally, our US offshore and Asia Pacific revenue is expected to benefit from shipments that were previously expected in Q2 but have now shifted into the back half of the year.

Finally, Q3 will mark the first full quarter of contribution from Citadel, which we expect to be a meaningful offset to potential softness in the US land market, where continued uncertainty and decreased customer investments may weigh further on activity. Our Latin America, North Sea, and Africa businesses are expected to remain relatively stable quarter over quarter, reflecting consistent underlying demand across those regions. Although the operating environment continues to be volatile, we remain focused on strong execution and capital discipline, and we're confident in the resilience of our portfolio as we move into the back half of the year. As we have stressed previously, we believe that our business model can be opportunistic in all phases of the cycle.

The acquisition of Citadel is a great example and showcases our M&A strategy in action. By leveraging our strong balance sheet and cash flow generative business model, we were able to acquire Citadel in an all-cash deal maintaining a conservative leverage profile and net cash position. Citadel was acquired at an attractive value of 3.8 times LTM adjusted EBITDA and was 8% accretive to Innovex Downhole Solutions Inc's earnings per share before factoring in expected synergies. Citadel fits our strict qualitative and quantitative frameworks, utilizing its big impact small ticket product portfolio to create a capital-light business, which achieved 26% adjusted EBITDA margins with strong free cash flow and returns on capital.

We continue to maintain an active M&A pipeline of attractive companies which fit our framework, and we are positioned to be opportunistic given the lack of capital available to the energy sector. In addition to evaluating inorganic growth opportunities, we maintain significant capacity on our previously authorized $100 million share repurchase program as a competing use of capital. During the second quarter, we repurchased approximately $8.5 million worth of shares. We will continue to weigh share repurchases against M&A, especially in the current environment where there is significant market volatility. As we look towards the second half of the year, we are excited about potential opportunities on the horizon.

We believe our net cash balance sheet, expected close of the Eldridge facility sale in Q3, and the integration of the Citadel business will position us well to continue delivering superior returns to our shareholders. I will now turn the call back to Adam.

Adam Anderson: Thanks, Kendal. To close, I want to reiterate that while we faced some headwinds in the quarter, we continue to remain opportunistic and grow the business both organically and inorganically. As I've always said, we are adept at responding to events and developments that are difficult to predict. We've taken steps to strengthen our execution, unlock synergies, ensure that we remain aligned with our customers' evolving needs in a more demanding environment. At the same time, the foundational pillars of our business remain strong. Our strategy is resonating, our portfolio is well-positioned for both near-term resilience and long-term growth. We continue to execute with discipline.

As we look ahead, we are confident in our ability to navigate the current landscape while investing in the resources that will position us for success over time. Thank you again to our team for their continued focus and to our customers and shareholders for your trust and partnership. We would like to open the line for questions now. Operator?

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment please for your first question. Your first question comes from the line of David Smith of Pickering Energy Partners. Please go ahead.

David Smith: Hey. Good morning. Congrats on the quarter and the seriously strong free cash flow generation.

Adam Anderson: Thanks, David. I think last quarter, you flagged the recovery in subsea deliveries that were expected in the second half. Want to ask if anything has changed in that view since last quarter. And, you know, could you please share some color for how second half subsea deliveries might split up between Q3 and Q4?

Kendal Reed: Yeah. That's right. We think the subsea deliveries will be a little stronger in the back half of the year than the first half of the year. We gave specific guidance on Q3, which will be a little early to give I'm not ready to give guidance on Q4 revenue. But I think I'd say those increases are probably gonna be modest. You'll definitely see it. International offshore should be up a little bit in Q3. But we're a little bit too early to say with, like, let's say, specificity. I think what we see in that subsea business is we have a really wonderful franchise. The nature of the business is a little bit lumpier than our land business.

So I think that's what you're seeing is a little bit of softness in the half of the year, offset by a little bit stronger in the back half of the year. But it's a good franchise. We're really excited about where we're headed with it over the next couple of years.

David Smith: Okay. Appreciate that. And just want to follow-up on the international and offshore product revenue decline, you know, sequentially. I know you gave some regional color on it. But, was just looking if there was any more color on whether it really was just mostly delayed deliveries that you know, was it concentrated in any particular product line or customer? And then, you know, did the Q3 guide factor in any conservatism on the current delivery schedule?

Kendal Reed: Yeah. So as I said on the call, it's a couple different things. I guess the activity was a little bit lighter, but most of it was really some deliveries that we're expecting to get in Q2. That we a lot of those things we had manufactured ready to go. We just didn't quite do everything we needed to do to cross the hurdles for revenue recognition, which as we talked about before, we've got a much more stringent criteria than what had been recognized previously in the subsea world. So that's still a little bit of a us a little bit of lumpiness in our results now, I would say.

And then the second one that's worth talking about is we talked a little bit about a product-specific headwind, and that really has to do with a singular product that we run in one specific market in the Eastern Hemisphere. We've run this tool a few thousand times over the last seven or eight years, had really good success with it. We had a little bump in the road on Q2 with that operationally. Where we had a problem downhole and were unfortunately put on hold temporarily with this customer. So we have all hands on deck at addressing that issue. We've got a really good line of sight on fixing that.

I think we've done enough work now that we know what the resolution is. We're just working with our customer on dotting all the i's, crossing all the t's. Expect that we get that product back in the ground probably in Q4 and start to see a little bit of improvement from there. But that was the other kind of less-than-expected revenue. Or a driver for our less-than-expected revenue. What I would say on that issue, though, is this is really, it is unfortunate for sure. But it's really an opportunity for us to demonstrate to our customers how our strength and how responsive we are, the way we really differentiate ourselves.

Not that we don't have some of these bumps in the road, but that when we have them, we're much more adept at working with our customers to resolve those issues quickly. Leave them feeling like, hey. We've got a really good resolution to it and that we're problem solvers that they can in the future.

David Smith: Really great color. Thank you. I'll turn it back.

Adam Anderson: Thanks, David.

Operator: Your next question comes from the line of Derek Pontheiser of Piper Sandler. Please go ahead.

Derek Pontheiser: Hey, good morning, guys. Just wanted to talk about the guide. It's implied margin stepped down to around the 18% range. It's down from what we just did around 21%. Maybe can you run through the puts and takes of what's driving some of the margin step down? And then how we could think about the shape of recovery getting back to that 20% level that you guys just hit this quarter?

Kendal Reed: Yeah. Absolutely. So we have a few things going on that are gonna weigh on margins in Q3 as compared to Q2. For some of those large deliveries on project Q2 in the Middle East that we've referenced are gonna come at slightly lower gross margin, so that'll have an unfavorable impact on product mix. That'll be just kind of a temporary thing that we don't expect to necessarily recur going forward. But that'll impact Q3. And then maybe more importantly, we're making a big push on some key integration projects that will result in some costs and inefficiencies during Q3.

Namely, we're gonna start to incur more meaningful costs related to facility consolidation as we close on the sale of that Eldridge campus in Q3 and begin to consolidate both the manufacturing and service operations out of that location into other Innovex Downhole Solutions Inc facilities. And it's not just Eldridge. We're also pushing to integrate facilities between Citadel and Innovex Downhole Solutions Inc during Q3 given the overlap in our US footprint between the companies. And then, I guess, finally, I'd say our last large ERP conversion is coming up as well as part of our project to bring the entire company onto the same system as soon as possible. That'll, again, drive a few inefficiencies in Q3.

So those integration initiatives are gonna put some pressure on margins in the short term, but we really believe that they're important and necessary over the long run to be able to run our business as efficiently as possible and ultimately enable us to reach our long-term margin target of 25% or greater.

Derek Pontheiser: Gotcha. And then to get back kind of the 20%, well, you think we can get there in April when all this clears up, or is that more of a first half of next year target?

Kendal Reed: Yes. I mean, obviously, we don't have Q4 guidance out there, but I would say we expect most of these integration costs to really be concentrated in Q3. And that's a chunk of what's driving it. And then probably the rest will depend on that product mix, how that looks in Q4.

Derek Pontheiser: Got it. That's helpful. And then just for my one of the to go back to the Citadel trench foot product line that you talked about. You gave us some market share stats, 25% of applicable wells. Was interesting. You had a large operator on a trial that looks like it converted. You're adding nine additional rigs. Maybe could you help us understand or provide some color around other trials that you're working on with large customers? And could you see another big tailwind like you just were able to capture? Just maybe some help as far as further customer adoption.

Adam Anderson: Yeah. No. That would that's a really exciting product. I think a large part of why we were really attracted to the Citadel team is many different reasons the team, the technology portfolio, and just strengthening one of our most important businesses. But that trench foot technology in particular has some real good tailwinds behind it. We referenced that one big operator where we picked up nine additional rigs. There's more potential with that same customer both with trench foot as well as with pulling through some other products. So I think that customer has more growth opportunity there.

The singular biggest one in US land we're working with, but there's a couple other smaller operators or large customers, but smaller relative to those guys. That we're kind of mid-cycle on or midstream on getting qualifications done. And then when you look internationally, that technology really hasn't been implemented internationally hardly at all. And we think in the unconventional space, the Canada, Argentina, Saudi, there's the same value proposition you see in the US for that technology is present in those other markets. But it just because of for a whole bunch of reasons that hasn't been exploited yet, so we're starting to make inroads there.

And in fact, we expect to do our first trial of the trench foot technology in the Middle East by the end of this year. So really, really excited about continued potential of that technology adoption.

Derek Pontheiser: Great. Appreciate the color. I'll turn it back.

Adam Anderson: Thanks, Derek.

Operator: Your next question comes from the line of Don Christ of Johnson Rice. Please go ahead.

Don Christ: Good morning, guys. Hopefully, you all are doing well this morning. I wanted to start on a note, Kendal, you talked about this a little bit as you kind of walked around the world and the integration efforts. But specifically in Vietnam and SCF, like, how long do you think it's gonna take before we can ship some serious manufacturing over there and actually start saving some money around the world as, you know, lower cost construction of those parts and pieces come out of Vietnam versus, you know, other parts in the world?

Kendal Reed: Yeah. No. It's a good question. So, anybody who might not be familiar, we closed on the acquisition of a company called SCF back in February. That is a machine shop in Vietnam that Innovex Downhole Solutions Inc had partnered with for a couple of years and really vetted well as a high-quality, low-cost provider of manufactured products exclusively for Innovex Downhole Solutions Inc. So we have a lot of confidence in our ability to get good products at a very low cost out of that facility. I would say we haven't really ramped up what we're doing over there since the acquisition closed.

Partially as we're working through strategy around manufacturing consolidation globally and where everything fits and partially because of a lot of the uncertainty due to tariffs and just understanding how we're gonna utilize that facility best, whether it's to service the US market or service the Eastern Hemisphere market without crossing US borders due to tariff issues. So I would say still thinking through that a little bit, but probably should start to see some progress during 2026 on ramping up those volumes and getting some cost margin benefits there.

Don Christ: Okay. And one on kind of cross-selling and bringing some products from, you know, either Canada or around the world into the US and vice versa. But kind of where are we in, you know, wellheads and other kind of products that were big in other locales around the world and kind of cross-selling them into the US? I and I fully appreciate that, you know, in this environment, it's not the best time to start pushing new products on some people, but just where are we in that kind of process?

Adam Anderson: Yeah. No. That's been a really important initiative for us over the last six, twelve months, really, since the DrillQuip deal closed. And as you referenced, we've got a really strong position in the Canadian wellhead market as a result of the DrillQuip merger. So we have started doing a little bit of work outside of Canada with that technology. Probably the earliest success we've seen is in some projects in North Africa. Interestingly, we've had a little bit of success there. I think there's a lot of opportunity in Latin America.

Again, a little bit of a depressed market, but at the same time, there's some opportunities with customers that we know well that can help kind of accelerate the adoption of some of that technology. And then probably the big market is a portion of U.S. land. We've gotten a little bit of work in U.S. land. It's pretty early days. We have a little bit of ongoing work in North Dakota with wellheads, but it's pretty de minimis today. We're going through a process right now of, I'll say, optimizing the product set so it fits what our customers need for the lower 48. And we have some equipment.

We're just now getting ready to place an order to serve that market. We probably won't because of the kind of long supply chain in that product, it probably won't hit the ground until late this year and then be 2026 before we can start to see a little bit of discernible revenue traction there. One is kind of the longest burn of the, let's say, land-based technology. We've been really pleased with what we're seeing from the drilling enhancement guys, the legacy DWS team.

We got a really nice win with a larger independent operator out in West Texas that Innovex Downhole Solutions Inc hadn't done a lot of work for historically, where they pulled through a lot of these cementing tools for those rigs. So that was a nice one to see. And then we're early days. We have a couple of small wins from a cross-selling standpoint between Citadel and Innovex Downhole Solutions Inc. Legacy Citadel team, I should say, and Innovex Downhole Solutions Inc. But I think there's more room there that we're excited about.

Don Christ: Okay. And just one final one for me. Kendal's done a very good job, and you all have done a very good job on preserving cash and doing M&A for cash, but going into the revolver at all. But now that Eldridge is getting ready to close, it looks like you're gonna have a lot of cash on the balance sheet. Now I don't know what the M&A pipeline looks like for you all, but is it safe to say that you'll kind of carry more cash than you historically have on the balance sheet, or should we expect, you know, a ramp-up in share repurchases as a use for that cash going forward? Just your thoughts around that.

Kendal Reed: Yeah. I think it's a really good question, and it's one we kind of evaluate, I would say, day to day. We do maintain a very active M&A pipeline that we're excited about. And to the extent we can deploy meaningful capital into good accretive deals that strengthen our company and make us better, I think that's certainly the preference. So we look to continue to do that. But understand that, yeah, holding on to a large cash balance is not ideal, and that's part of the reason we like having the share repurchase program out there. It gives us an alternative use of that capital to be able to return that to shareholders.

So I think we want to stay very flexible on that, but, you know, certainly, our vision is not to carry a huge cash balance in perpetuity. It's let's use that cash in a way that either makes our company better or get it back and enhance the shareholders.

Don Christ: I appreciate the color. I'll turn it back. Thanks.

Operator: Thank you, sir. Your next question comes from the line of Eddie Kim of Barclays. Please go ahead.

Eddie Kim: Hi, good morning. Just want to touch on the strong US land performance. You held revenue flat quarter to quarter despite a rig count decline of 7%. I know you mentioned outperformance in DWS in one month's contribution stood out, but is there anything other than that drove that result, or was it really just a function of those two items?

Adam Anderson: No. I think that's the big pieces. If you look at the let's call it, like, the legacy Innovex Downhole Solutions Inc business excluding the drilling enhancement stuff from DWS. That was flat to down a smidge. The drilling enhancement business was pretty flat. Most of that, I think, is we do get the benefit that we're much more levered to the number of wells drilled, the complexity of those wells. So I think some of it is just as the rig count declines, we're able to offset some of that because of how we're positioned.

And then it's just the blocking and tackling, the good work that our folks do in the field, staying close to the customers, our manufacturing guys, our engineering folks taking care of our folks in the field as well as the customer, just that continuous flywheel to maintain and grow market share. And it's, yeah. So we've been very pleased with that performance in the quarter.

Eddie Kim: Got it. Got it. And just a quick housekeeping one. I don't know if you mentioned the revenue EBITDA contribution from the Citadel acquisition in your 2Q result, I get that it was only one month, but just curious if you could provide that.

Kendal Reed: Yeah. I think because we integrated tightly, saying specific EBITDA contribution is hard, but you can think of the top line contribution as being around $5 million.

Eddie Kim: Okay. Great. And then, last one, if I can squeeze one in. I know you don't provide free cash flow guidance for the full year. Know you have the target aim to convert 50% to 60% of EBITDA to free cash flow. But just based on how the first half is trending, it looks like you'll be well above that mark. So, I mean, just from a dollar perspective, you did, you know, $76 million of free cash flow in the first half. Is it reasonable to assume you'll be maybe at or above $125 million of free cash flow for the full year? Any thoughts there would be great.

Kendal Reed: Yeah. I mean, I don't know that we want to throw a specific number out there, but you're right. We have this goal of 50% to 60% of adjusted EBITDA converting into free cash flow under what we call normal business conditions but say, relatively stable revenue environment. As things have slowed down a little bit, we do tend to convert a higher percentage of EBITDA into cash as we unwind working capital. So I think that's a little bit of what you've seen going on in the first half. If we get back to revenue growth in the second half, I wouldn't expect that percentage to be quite so high.

But still, you can think about it as maybe that normalized 50% to 60% is still a good target for the full year.

Eddie Kim: Got it. Understood. Great. Thank you. I'll turn it back.

Adam Anderson: We got one more question, or we...

Eddie Kim: Yeah. I think with that, we appreciate everybody's time. Thank you to all of our employees for all the good work they do. Thank you to our shareholders and to our customers for all the support we get. Thank you very much.

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