Innovex International, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of the results of operations, financial condition and liquidity position of Innovex for the three and six months ended June 30, 2025 and 2024 should be read in conjunction with (i) the accompanying unaudited Condensed Consolidated Financial Statements and the related notes included in Part I, Item 1 of this Quarterly Report and (ii) the audited Consolidated Financial Statements and related notes for the year ended December 31, 2024 included in our Annual Report. The following discussion and analysis contains forward-looking statements that are based on management’s current expectations, estimates and projections about Innovex’s business and operations, and involves risks and uncertainties. Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements because of various factors, including those described in the sections titled “Risk Factors” in our Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and “Cautionary Statement Regarding Forward- Looking Statements” and elsewhere in this Quarterly Report, all of which are difficult to predict. Innovex does not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. References in this section to “Innovex,” the “Company,” the “Combined Company,” “we,”“us” and “our” are to Innovex International, Inc.(formerly known as Dril-Quip, Inc.) and its consolidated subsidiaries after giving effect to the Merger and related transactions, unless the context otherwise requires or as otherwise indicated. Except as otherwise indicated, references herein to “Dril-Quip” are to Dril-Quip, Inc. prior to the completion of the Merger.

Overview

Innovex designs, manufactures, sells and rents mission critical engineered products to the global oil and natural gas industry. Our vision has been to create a global leader in well-centric products and technologies through organic, customer-linked innovations and disciplined acquisitions to drive leading returns for our investors. Our products are used across the life cycle of the well (during the construction, completion, production and intervention phases) and are typically utilized downhole and are consumable in nature. Our products perform a critical well function, and we believe they are chosen due to their reliability and capacity to save our customers time and lower costs during the well lifecycle. We believe that our products have a significant impact on a well’s performance and economic profile relative to the price we charge, creating a “Big Impact, Small Ticket” value proposition. Many of our products can be used in a significant portion of our customers’ wells globally, with our most advanced products providing mission critical solutions for some of the most challenging and complex wells in the world. We have a track record of developing proprietary products to address our customers’ evolving needs, and we maintain an active pipeline of potential new products across various stages of development.

We are a global company, and for the six months ended June 30, 2025, the U.S. and Canadian onshore (“NAM”) market made up approximately 52% of our revenue while the international and offshore (“International and Offshore”) markets constituted 48%. Within the NAM market, we have a strong presence in both the United States and Canada. The NAM market is core to us, and we maintain a robust sales and distribution infrastructure across the region. Our products have broad applicability in this market, particularly for horizontal or unconventional wells that have become prevalent methods of oil and natural gas development across the region. We are focused on significantly increasing our revenue from the International and Offshore markets, as these regions are typically subject to long-cycle investment horizons and exhibit relatively less cyclicality than the NAM market. The Middle East, and in particular Saudi Arabia, has been a key source of growth for Innovex. We also operate across Asia, Latin America, Europe and the Gulf of America, among other regions. To enhance our global reach, we have complemented our locations across these markets with a network of strategic distribution, sales and manufacturing partners.

We are an innovator and have a development process and culture focused on creating proprietary products for our customers. We seek to work with our customers to solve their operational challenges. We believe that these collaborations have been a source of growth as they have allowed us to develop new products with anchor customers that have served as an initial revenue base from which to scale. We have a unique culture that we view as having been critical to our success in the commercialization of new products. We define our culture as “No Barriers.” Our goal is to remove internal barriers that slow the pace of innovation and empower our employees to be responsive to our customers’ needs, while maintaining a focus on returns for the Company. As a result of our culture and our commitment to customer responsiveness, we believe that we are more agile and able to innovate faster than our larger competitors.

Our organic growth has been complemented by a disciplined and contrarian acquisition strategy. We view acquisitions as a core competency and have identified a rich opportunity set of acquisition targets that we believe are seeking to transact. We aim to execute a disciplined acquisition strategy for high-quality opportunities that meet our stringent investment criteria.

We have a broad customer base, ranging from International Oil Companies, National Oil Companies, and exploration and production (“E&P”) companies as well as multinational and regional oilfield service companies. Once a new product has been commercialized or acquired, our global sales and distribution infrastructure enables us to scale and drive customer adoption quickly.

Our business has produced strong returns on invested capital. Refer to “Non-GAAP Financial Measures” within this section for Return on Capital Employed, which is how we assess the effectiveness of our capital allocation over time. For the six months ended June 30, 2025, our net income, income from operations and Adjusted EBITDA were equivalent to approximately 6%, 10% and 20% of revenue, respectively. Over the same period, capital expenditures accounted for only 3% of revenue, and we earned approximately $44.5 million in income from operations. For the six months ended June 30, 2024, our net income, income from operations and Adjusted EBITDA were equivalent to approximately 10%, 14% and 24% of revenue, respectively. Over the same period, capital expenditures accounted for only 2% of revenue, and we earned approximately $35.4 million in income from operations. We believe that our global sales and distribution network, as well as our manufacturing capacity and vendor network, position us well to drive revenue growth and margin expansion. Refer to “Non-GAAP Financial Measures” within this section for the definitions of Adjusted EBITDA, Adjusted EBITDA Margin, and Return on Capital Employed, as well as a reconciliation of Adjusted EBITDA, Adjusted EBITDA Margin, and Return on Capital Employed to our most directly comparable financial measures calculated and presented in accordance with GAAP.

We believe that we can create value for our stockholders across the industry cycle and view our “through-cycle playbook” as providing a plan for us to outperform in all market environments. We prioritize protecting the long-term health of the Company through investments in R&D and sustaining engineering in our existing portfolio in all market environments. We seek to maintain a conservative balance sheet to preserve operational and financial flexibility through the industry cycle.

Recent Developments

On March 18, 2024, the Company (formerly known as Dril-Quip, Inc.) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Innovex Downhole Solutions, Inc., a Delaware corporation (“Legacy Innovex”), Ironman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Dril-Quip, and DQ Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company. Following the consummation of the transactions contemplated by the Merger Agreement (the “Merger”), Legacy Innovex became a wholly owned subsidiary of the Company, the name of the Company was changed to Innovex International, Inc., and its common stock remained listed on the New York Stock Exchange. The merger closed on September 6, 2024 and was accounted for using the acquisition method of accounting with Legacy Innovex being identified as the accounting acquirer. The Consolidated Financial Statements of the Company reflect the financial position, results of operations and cash flows of only Legacy Innovex for all periods prior to the Merger and of the Combined Company (including activities of Dril-Quip) for all periods subsequent to the Merger.

Pursuant to the Merger Agreement, as of the effective time of the Merger, each outstanding share of common stock, par value $0.01 per share, of Legacy Innovex was converted into the right to receive 2.0125 shares of common stock, par value $0.01 per share, of the Company (the “Company Common Stock”). The number of shares of Company Common Stock received by the Legacy Innovex stockholders was equal to 32,183,966. On September 9, 2024, the first trading day following the closing of the Merger, the Company Common Stock began trading on the New York Stock Exchange under the new ticker symbol “INVX.”

On November 29, 2024, Innovex acquired 80% of the issued and outstanding equity securities of DWS. The acquisition was completed simultaneously with the signing of the Equity Purchase Agreement on November 29, 2024. The aggregate purchase price for the acquisition consisted of $75.1 million in cash, subject to post-closing adjustments, and 1,918,558 shares of Company Common Stock. The remaining 20% of the issued and outstanding equity securities of DWS were previously owned by Legacy Innovex, a wholly owned subsidiary of the Company.

On February 7, 2025, the Company acquired SCF Machining Corporation (“SCF”) in exchange for $17.7 million of cash, subject to post-closing adjustments. SCF is a Canadian-domiciled entity and parent company to SCF Machining Corporation Vietnam Company Limited, a Vietnam-based company that was established to grow Innovex’s low-cost country supply chain by establishing an exclusive manufacturing vendor to provide Innovex with high quality, low price machined goods.

On May 30, 2025, the Company acquired Citadel Casing Solutions, LLC ("Citadel") for $69.7 million in cash, subject to post-closing adjustments, resulting in Citadel becoming a wholly owned subsidiary of Innovex. Citadel is a leading provider of differentiated downhole technologies, which are designed to improve its customers’ economics by driving reduced cycle times through improved operational efficiencies and production of high-quality, reliable tools that are used globally in the oil and gas sector.

Refer to Note 3. Mergers and Acquisitions of our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information with respect to the Merger and the Company's recent acquisitions.

On February 27, 2025, we entered into the Third Amended and Restated Revolving Credit, Guaranty and Security Agreement among the Company, and each party joined thereto from time to time as a guarantor, as guarantors, the financial institutions from time to time party thereto, as lenders, and PNC Bank, National Association, as the agent for lenders (the “Credit Agreement”) to replace the Previous Credit Agreement (as defined herein). The Credit Agreement provides for a $200 million senior secured revolving credit facility, subject to a borrowing base. The Credit Agreement matures on February 27, 2030. The Credit Agreement, among other things, (i) extended the maturity of the agreement from June 2026 to February 2030, (ii) increased the maximum revolving amount from $110 million to $200 million, which may, subject to certain conditions, be increased to $250 million, (iii) eliminated the term loan commitment and (iv) provided for an applicable margin for interest on the loans to be based on availability, effective as of April 1, 2025. The applicable margin under the Credit Agreement will range from 0.50% to 1.00% for swing loans and alternate base rate revolving loans and 1.50% to 2.00% for term SOFR revolving loans.

On April 21, 2025, we entered into a purchase and sale agreement (the “Purchase Agreement”) with BIG Acquisitions LLC (the “Purchaser”), to sell our Eldridge facilities located at 6401 North Eldridge Pkwy, Houston, Texas 77041 (the “Property”) as described in the Purchase Agreement. The purchase price for the sale of the Property is $95.0 million, subject to adjustments.

In connection with the Purchase Agreement, the Company and the Purchaser intend to work together in good faith to prepare, negotiate and approve a short-term lease agreement (the “Lease”), pursuant to which the Company will lease the Property from the Purchaser to allow for completion of ongoing facility consolidation initiatives. The Lease will provide for (i) an initial term commencing on the closing date of the Purchase Agreement and expiring on December 31, 2025, (ii) one right to extend the lease term for an additional six consecutive calendar months, and (iii) gross rent in the amount of $650,000 per month. The Company anticipates that closing of the sale will occur in the third quarter of 2025, subject to the satisfaction of certain closing conditions as described in the Purchase Agreement. The Purchase Agreement contains certain representations, warranties, covenants, obligations, conditions, indemnification provisions and termination provisions customary for industrial property sale transactions. The representations and warranties in the Purchase Agreement have been negotiated for purposes of risk-allocation between the Company and the Purchaser and are not a basis for investment decisions or reliance by any party other than the Company and the Purchaser.

Market Factors and Trends

Our business is driven by the number of oil and natural gas wells drilled worldwide, which, in turn, is tied to the level of global spending of the oil and natural gas E&P industry. Rystad Energy, as of July 14, 2025, expects global upstream energy spending, excluding Iran, Venezuela, Cuba, Russia and China, to stay relatively flat through 2027, with approximately 32,000 wells being drilled annually. The pace of development activity is driven by expected well profitability and returns, which, in turn, are influenced by several factors, including current global oil and natural gas supply and demand balances, current and expected future prices for oil and natural gas and the perceived stability and sustainability of these commodity prices over time.

The oil and natural gas industry has historically been characterized by volatility in commodity prices and in the level of drilling and production activity, which are driven by a variety of market forces, including geopolitical instability, climate related initiatives, OPEC+ actions, among others. The global demand for oil and natural gas has consistently increased historically, and we believe that multiple years of under investment in oil and natural gas development has left the industry with a limited amount of spare production capacity. Additionally, public E&P operators have adopted a more conservative approach to capital spending in response to stockholders’ desire for increased return of capital. We believe that these factors have laid a foundation to support oil and natural gas prices and will lead to a sustained spending cycle and stable activity levels by our customers in the near and medium-term.

Description of Certain Components of Financial Data

Revenues

We generate our revenue from three primary sources: sales of products and other associated revenues with product sales, such as freight; rentals of tools that are used to deploy our products or to provide a critical well function; and services that are typically connected to the well-site deployment of our engineered products. We have global operations, with sales generated within both our NAM market operations and our International and Offshore markets.

Cost of revenues

Our cost of revenues consists of expenses relating to the manufacture and procurement of our products in addition to the costs of our support services. Cost of revenues related to manufacturing and procurement of our products includes the cost of components sourced from third-party suppliers and direct and indirect costs to manufacture and supply products, including labor, materials, machine time, lease expense related to our manufacturing facilities, freight and other variable manufacturing costs, such as shrinkage, obsolescence variances and revaluation or scrap related to our existing inventory. Our support services costs include personnel expenses for our field service organization, lease expense related to our operations facilities, threading charges, vehicle expenses and freight.

Selling, general and administrative expense

Selling, general and administrative expense consists of costs such as sales and marketing, engineering and R&D expenses, general corporate overhead, compensation expense, IT expenses, safety and environmental expenses, insurance costs, legal expenses and other related administrative functions.

Gain on sale of assets

Gain on sale of assets represents profit recognized on the sale of property and equipment, net, including any associated inventory determined to be included in the disposal group.

Depreciation and amortization

Depreciation and amortization expense consists of depreciation related to our tangible assets, including investments in property and equipment, and amortization of our finance leases and intangible assets, including identified intangible assets related to acquisition purchase price accounting.

Impairment of long-lived assets

Impairment of long-lived assets consists of the write down of the carrying value of our long-lived assets to fair value when, as part of our periodic impairment evaluation performed in accordance with ASC 360, we determine that the carrying value of the asset or asset group is not recoverable and exceeds its fair value.

Acquisition and integration costs

Acquisition and integration costs consist of legal, accounting, advisory fees, and other integration costs incurred in connection with the acquisition and integration of a business.

Interest expense

Interest expense primarily consists of interest expense associated with the Term Loan and the Credit Facility (each as defined herein).

Other income, net

Other income, net consists of foreign exchange transaction gains or losses resulting from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated, gains or losses on lease terminations, and other non-operating items.

Equity method earnings

Equity method earnings consist of our proportional share of the earnings of our previous equity method investee, DWS, along with the associated amortization of our proportional share of the step up in fair value of the intangible assets acquired. The minority interest requiring equity method accounting treatment was acquired on May 1, 2023. On November 29, 2024, we purchased the remaining equity interest in DWS and therefore, the earnings of DWS after November 29, 2024 are fully consolidated as part of the Company.

Income tax expense

We are subject to income taxes in both the United States and foreign jurisdictions in which we operate. Differences between our effective tax rate and the U.S. federal statutory tax rate are primarily due to state taxes, foreign jurisdiction rate differences, permanent differences between book and tax income and changes in the valuation allowance. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing its impact on our Condensed Consolidated Financial Statements.

Factors Affecting the Comparability of Our Results of Operations

Our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, due to recent and future acquisitions. One way in which we have grown, and will continue to grow, our operations and financial results is through strategic acquisitions. In May 2023, Legacy Innovex acquired 20% of DWS, a company that manufactures and rents engineered downhole tools designed to improve the performance of directional and horizontal drilling operations. In March of 2024, Legacy Innovex entered into the Merger Agreement with Dril-Quip, and the Merger was consummated on September 6, 2024. In November of 2024, we acquired the remaining 80% equity interest in DWS. In February 2025, we acquired SCF, a Canadian-domiciled entity and parent company to SCF Machining Corporation Vietnam Company Limited, a Vietnam-based company. In May 2025, we acquired Citadel, a leading provider of differentiated downhole technologies. As a general matter, following an acquisition, our results of operations are affected by the results of the newly acquired business or operations, the purchase accounting for the acquisition, any debt incurred in connection with the acquisition and expenditures made to integrate the newly acquired business or operations. As a result of our acquisitions and the consolidation of our operating subsidiaries’ into the Company’s financial results, the periods presented in our historical financial statements may not be comparable to one another and our future results of operations and financial results may differ. Additionally, as a result of the Merger, we expect to incur recurring administrative expenses related to being a publicly traded corporation that are not reflected in the historical Legacy Innovex’s financial statements.

Results of Operations

The following table presents summary consolidated operating results for the periods presented:

(in thousands)

(a) Cost of revenues excludes depreciation and amortization.

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Revenues. Our NAM market revenue for the three months ended June 30, 2025 was $120.0 million, an increase of $40.9 million from the three months ended June 30, 2024, primarily driven by an increase in market share and incremental business operations due to the Merger and the acquisitions of DWS, SCF and Citadel. This was offset by a reduction in drilling activity in North America due to a decline in the North American onshore rig count during the comparative period. Our International and Offshore market revenue for the three months ended June 30, 2025, was $104.3 million, an increase of $53.0 million from the three months ended June 30, 2024, primarily driven by increased business operations due to the Merger.

Cost of revenues, exclusive of depreciation and amortization. Total cost of revenues for the three months ended June 30, 2025 was $152.5 million, an increase of $68.2 million from the three months ended June 30, 2024. The change was primarily attributable to a $29.7 million increase in personnel expense due to increased activity levels due to the Merger and a $7.7 million increase in supplies and general manufacturing expenses, with the remainder primarily attributable to our product costs.

Selling, general and administrative expenses. Selling, general and administrative expense for the three months ended June 30, 2025 was $28.8 million, an increase of $10.3 million from the three months ended June 30, 2024. The change is primarily attributable to an $18.3 million increase in salaries, wages and other payroll costs and a $4.1 million increase in IT, facility, and other business costs caused by an increase in headcount attributable to the Merger, offset by a $13.3 million decrease in bad debt, including the recoveries of outstanding receivables from our prior agent in Saudi Arabia.

Gain on sale of assets. Gain on sale of assets for the three months ended June 30, 2025 and 2024 was $0.4 million and $0.2 million, respectively. The change was due to the sale of our Subsea Tree assets for total consideration of $10 million, resulting in a gain, offset by normal variations associated with the sale of property and equipment during the period.

Depreciation and amortization. Total depreciation and amortization expense for the three months ended June 30, 2025 was $15.0 million, an increase of $8.4 million from the three months ended June 30, 2024. The change was primarily due to additional depreciation for assets acquired related to the Merger and our other acquisitions.

Long-lived asset impairments. Long-lived asset impairment expense for the three months ended June 30, 2025 was $0.5 million, a decrease of $3.0 million from the three months ended June 30, 2024. The impairment expense for the three months ended June 30, 2025 was due to declining market conditions associated with our anticipated sub-lease of the prior Dril-Quip corporate office.

Acquisition and integration costs. Acquisition and integration costs for the three months ended June 30, 2025 were $5.1 million, an increase of $0.7 million from the three months ended June 30, 2024. The change was due to the costs incurred in connection with the Merger and the acquisition of DWS, SCF and Citadel.

Interest expense. Total interest expense was $0.6 million for the three months ended June 30, 2025 and 2024. Interest expense is comparable during both periods due to lower average long-term debt balances during the three months ended June 30, 2025, offset by increased finance lease interest due to an increase in finance leases during the comparative periods.

Other income. Total other income for the three months ended June 30, 2025 was $0.1 million, a decrease of $0.6 million from the three months ended June 30, 2024, with the change primarily being due to the net change in our foreign currency exchange gains (losses).

Equity method earnings. Equity method earnings consist of the net earnings in DWS, along with the amortization of our proportional ownership interest in the step up of the fair value of the intangible assets acquired, during the period that DWS was accounted for as an equity method investee. With the purchase of the remaining 80% equity interest in DWS on November 29, 2024, we did not recognize equity method earnings in 2025. Total equity method earnings, excluding the amortization of the step up in fair value, for the three months ended June 30, 2024 was $1.1 million. The amortization of the step up in the fair value of the intangible assets acquired for the three months ended June 30, 2024 was $0.4 million.

Income tax expense. Our operations are subject to U.S. federal income tax at an entity level, as well as various state income and franchise taxes. In addition, our operations located in international jurisdictions are subject to local country income taxes. Income tax expense for the three months ended June 30, 2025 was $6.9 million, an increase of $2.6 million from the three months ended June 30, 2024. The change was primarily driven by changes in our mix of income before income taxes by geography and tax jurisdiction, discrete items recorded in the quarter, and other non-deductible expenses. For the three months ended June 30, 2025, income before income taxes was $22.2 million, an increase of $8.3 million from the three months ended June 30, 2024.

Net income. Net income for the three months ended June 30, 2025 was $15.3 million, an increase of $5.8 million from the three months ended June 30, 2024, as a result of the factors discussed above.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Revenues. Our NAM market revenue for the six months ended June 30, 2025 was $240.5 million, an increase of $80.4 million from the six months ended June 30, 2024, primarily driven by an increase in market share and incremental business operations due to the Merger and the acquisitions of DWS, SCF and Citadel. This was offset by a reduction in drilling activity in North America due to a decline in the North American onshore rig count during the comparative period. Our International and Offshore market revenue for the six months ended June 30, 2025, was $224.2 million, an increase of $125.8 million from the six months ended June 30, 2024, primarily driven by increased business operations due to the Merger.

Cost of revenues, exclusive of depreciation and amortization. Total cost of revenues for the six months ended June 30, 2025 was $316.4 million, an increase of $153.2 million from the six months ended June 30, 2024. The change was primarily attributable to a $57.0 million increase in personnel expense due to increased activity levels due to the Merger and a $16.7 million increase in supplies and general manufacturing expenses, with the remainder primarily attributable to our product costs.

Selling, general and administrative expenses. Selling, general and administrative expense for the six months ended June 30, 2025 was $61.2 million, an increase of $21.3 million from the six months ended June 30, 2024. The change is primarily attributable to a $31.2 million increase in salaries, wages and other payroll costs and a $3.7 million increase in IT, facility, and other business costs caused by an increase in headcount attributable to the Merger, offset by a $13.3 million decrease in bad debt, including the recoveries of outstanding receivables from our prior agent in Saudi Arabia.

Gain on sale of assets. Gain on sale of assets for the six months ended June 30, 2025 and 2024 was $0.3 million and $0.3 million, respectively. The change was due to the sale of our Subsea Tree assets for total consideration of $10 million, resulting in a gain, offset by normal variations associated with the sale of property and equipment during the period.

Depreciation and amortization. Total depreciation and amortization expense for the six months ended June 30, 2025 was $29.9 million, an increase of $18.5 million from the six months ended June 30, 2024. The change was primarily due to additional depreciation for assets acquired related to the Merger and our other acquisitions.

Long-lived asset impairments. Long-lived asset impairment expense for the six months ended June 30, 2025 was $3.4 million, a decrease of $0.1 million from the six months ended June 30, 2024. The impairment expense was related to (i) land and a building in Mexico acquired as part of the Merger, that was held for sale at March 31, 2025 and marketed at an amount that was lower than the net book value, which ultimately resulted in an impairment expense of $2.9 million and (ii) declining market conditions associated with our anticipated sub-lease of the prior Dril-Quip corporate office.

Acquisition and integration costs. Acquisition and integration costs for the six months ended June 30, 2025 were $9.4 million, an increase of $4.2 million from the six months ended June 30, 2024. The change was due to the costs incurred in connection with the Merger and the acquisition of DWS, SCF and Citadel.

Interest expense. Total interest expense was $1.3 million for the six months ended June 30, 2025 and 2024. Interest expense is comparable during both periods due to lower long-term debt balances during the six months ended June 30, 2025, offset by increased finance lease interest due to an increase in finance leases during the comparative periods.

Other income. Total other income for the six months ended June 30, 2025 was $0.3 million, an increase of $0.2 million from the six months ended June 30, 2024, with the change primarily being due to the net change in our foreign currency exchange gains (losses).

Equity method earnings. Equity method earnings consist of the net earnings in DWS, along with the amortization of our proportional ownership interest in the step up of the fair value of the intangible assets acquired, during the period that DWS was accounted for as an equity method investee. With the purchase of the remaining 80% equity interest in DWS on November 29, 2024, we did not recognize equity method earnings in 2025. Total equity method earnings, excluding the amortization of the step up in fair value, for the six months ended June 30, 2024 was $1.9 million. The amortization of the step up in the fair value of the intangible assets acquired for the six months ended June 30, 2024 was $0.7 million.

Income tax expense. Our operations are subject to U.S. federal income tax at an entity level, as well as various state income and franchise taxes. In addition, our operations located in international jurisdictions are subject to local country income taxes. Income tax expense for the six months ended June 30, 2025 was $13.5 million, an increase of $4.1 million from the six months ended June 30, 2024. The change was primarily driven by changes in our mix of income before income taxes by geography and tax jurisdiction, discrete items recorded in the quarter, and other non-deductible expenses. For the six months ended June 30, 2025, income before income taxes was $43.6 million, an increase of $8.2 million from the six months ended June 30, 2024.

Net income. Net income for the six months ended June 30, 2025 was $30.1 million, an increase of $4.1 million from the six months ended June 30, 2024, as a result of the factors discussed above.

Liquidity and Capital Resources

Our primary sources of liquidity are our existing cash, cash provided by operating activities, and borrowings under the Credit Facility. The Company maintains an open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors. As of June 30, 2025, we had cash and restricted cash of $68.8 million and availability under the Revolver (as defined herein) of $110.4 million. Our total indebtedness was $40.7 million as of June 30, 2025.

Our principal liquidity needs have been, and are expected to continue to be, working capital, capital expenditures, debt service and potential mergers and acquisitions. Historically, capital expenditures have been relatively modest, with working capital being the predominant use of cash for the Company during periods of growth. We continuously evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including, among other things, prevailing economic conditions, market conditions in the oil and natural gas industry, customers’ forecasts, demand volatility and company initiatives.

We have certain obligations related to debt maturities, finance leases and operating leases. As of June 30, 2025, we have $22.2 million of minimum non-cancelable lease obligations for the twelve months following June 30, 2025, comprised of $6.7 million of finance lease maturities and $15.5 million of operating lease obligations. We have an additional $63.7 million of minimum non-cancelable lease obligations for the periods after June 30, 2026, comprised of $7.8 million of finance lease maturities and $56.0 million of non-cancelable operating lease obligations. As of June 30, 2025, interest rates on our lease obligations range from 2.88% to 12.00%. In addition, as of June 30, 2025, all amounts borrowed under our Revolver become due and payable in 2030. For the three months ended June 30, 2024, the Company’s effective interest rate on the term loan was approximately 9.95%. For the three and six months ended June 30, 2025, the effective interest rate on the Revolver was approximately 5.63% and 6.94%, respectively. For the three and six months ended June 30, 2024, the effective interest rate on the Revolver was approximately 11.71% and 9.69%, respectively. Refer to Note 10. Debt of our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information.

We believe that our existing cash on hand, cash generated from operations and available capacity under the Revolver will be sufficient to meet our liquidity needs in the short-and long-term. Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, market conditions in the oil and natural gas industry, availability and cost of raw materials, and other factors, many of which are beyond our control.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2025 was $90.3 million, an increase of $54.9 million from the six months ended June 30, 2024. The change was primarily driven by the following:

• an increase in net income of $4.1 million;
• changes in non-cash adjustments to net income from the comparative period as a result of a $18.5 million increase in depreciation and amortization, in connection with the increased size of the business primarily due to the Merger and other acquisitions between July 1, 2024 and June 30, 2025, a $14.2 million increase in deferred taxes due to timing differences, and a $2.2 million increase in amortization of operating lease right-of-use assets; and
• the remaining change is primarily due to the changes in operating assets and liabilities, net of assets acquired as part of the acquisitions.

Investing Activities. Net cash used in investing activities for the six months ended June 30, 2025 was $86.3 million, an increase of $83.0 million from the six months ended June 30, 2024. The change was primarily due to the cash used to fund both the SCF and Citadel acquisitions.

Financing Activities. Net cash used in financing activities for the six months ended June 30, 2025 was $11.0 million, a decrease of $18.0 million from the six months ended June 30, 2024. The change was primarily due to a decrease in net repayments of long term debt of $29.3 million, offset by common stock repurchases of $9.3 million for the six months ended June 30, 2025.

Credit Agreement

Legacy Innovex, Tercel Oilfield Products USA L.L.C., Top-Co Inc. and Pride Energy Services, LLC (collectively, the “Original Borrowers”) entered into the Second Amended and Restated Revolving Credit, Term Loan, Guaranty and Security Agreement in June 2022 (as amended in November 2022, April 2023, December 2023, and June 2024, the “Previous Credit Agreement”), with PNC Bank, National Association, as agent, and the lenders party thereto. On September 6, 2024, the Company and TIW Corporation (collectively and together with the Original Borrowers, the “Borrowers”) joined the Credit Agreement as borrowers thereunder. The Previous Credit Agreement provided for (i) a term loan tranche in a principal amount of the lesser of $25.0 million and a certain amount determined based, in part, on appraised values of certain assets of Legacy Innovex and certain of its subsidiaries (the “Term Loan”) and (ii) a revolving credit facility of up to $110.0 million with a $5.0 million sublimit for letters of credit and an $11.0 million swing loan (collectively, the “Previous Revolver” and, together with the Term Loan, the “Previous Credit Facility”).

The consummation of the transactions contemplated by the Merger Agreement constituted a Change of Control (as defined in the Previous Credit Agreement). In June 2024, the Original Borrowers, the Agent and the lenders party thereto entered into the Fourth Amendment to the Second A&R Credit Agreement, which permitted the change in control event, the payment of the cash dividend contemplated by the Merger Agreement, and the acquisition of 80% of the issued and outstanding equity securities of DWS not then owned by Legacy Innovex.

The Company, as the borrower, entered into the Credit Agreement, dated as of February 27, 2025, to replace the Previous Credit Agreement and provide for a revolving credit facility of up to $200.0 million (the “Revolver” and, together with the Term Loan, the “Credit Facility”). The Credit Agreement, among other things, (a) extended the maturity of the agreement from June 10, 2026 to February 27, 2030, (b) increased the maximum revolving amount from $110 million to $200 million, which may, subject to certain conditions, be increased to $250 million, (c) eliminated the term loan commitment and (d) provided for an applicable margin for interest on the loans to be based on availability, effective as of April 1, 2025. Refer to Note 10. Debt of our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information.

Amounts borrowed under the Credit Agreement are subject to an interest rate per annum equal to, at the Company’s option, either (a) an alternate base rate determined as the highest of (i) the base commercial lending rate of PNC Bank, National Association, (ii) the overnight federal funds rate plus 0.5% and (iii) Daily Simple SOFR (as defined in the Credit Agreement) plus 1% (such base rate to be subject to a 0% floor) or (b) the forward-looking term rate based on the secured overnight financing rate (“SOFR”) for the applicable interest period two business days before such interest period divided by a number equal to 1.00 minus any SOFR reserve percentage (such term rate to be subject to a 0% floor), plus, in each case of clauses (a) and (b) above, an applicable margin based upon availability of the revolving credit line, of 0.50% to 1.00% for swing loans and alternate base rate revolving loans and 1.50% to 2.00% for term SOFR revolving loans. Interest is payable monthly for alternate base rate loans and at the end of the applicable interest period for term SOFR loans (or quarterly if the applicable interest period is longer than three months). The Credit Agreement provides for the issuance of letters of credit, limited to the lesser of total capacity or $10.0 million. As of June 30, 2025 and June 30, 2024, we had no letters of credit outstanding under the Credit Agreement.

In addition to paying interest on outstanding borrowings under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement equal to 0.25% per annum on the amount by which $200.0 million exceeds the daily unpaid balance of the Revolver plus any swing loans plus any undrawn amount of outstanding letters of credit under the Credit Agreement on any day.

The Company is subject to various financial and non-financial covenants under the Credit Agreement, including limitations on the incurrence of debt, granting of liens, investments, dividends, asset sales, and affiliate transactions and, if at any time an Event of Default (as defined in the Credit Agreement) has occurred and is continuing or if Excess Availability (as defined in the Credit Agreement) is less than 20%, a requirement to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00. As defined by the Credit Agreement, the fixed charge coverage ratio represents the ratio of Adjusted EBITDA (as defined in the Credit Agreement), less certain capital expenditures, dividends and tax payments, to all scheduled debt payments during the applicable period.

The obligations under the Credit Agreement are secured by liens on substantially all of the assets of the Company and certain current and future subsidiaries of the Company and guarantees from certain current and future subsidiaries of the Company (the Company together with such subsidiaries, the “Loan Parties”). The Credit Agreement requires the Company to make mandatory prepayments on the outstanding amount of (i) the Credit Facility if any Loan Party issues debt other than certain permitted debt and (ii) the Revolver with the proceeds received from certain insurance or condemnation claims.

As of June 30, 2024, we had $15.2 million of borrowings outstanding under the Term Loan. As of June 30, 2025 we had $29.0 million of borrowings under the applicable revolving credit facility.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA (a non-GAAP measure) as net income before interest expense, income tax expense, depreciation and amortization, (gain)/loss on sale of assets and other expense, net, further adjusted to exclude certain items which we believe are not reflective of our ongoing performance or which are non-cash in nature. Management uses Adjusted EBITDA to assess the profitability of our business operations and to compare our operating performance to our competitors without regard to the impact of financing methods and capital structure and excluding costs that management believes do not reflect our ongoing operating performance, and for this reason we believe this measure will provide useful information to investors. We track Adjusted EBITDA on an absolute dollar basis and as a percentage of revenue, which we refer to as Adjusted EBITDA Margin.

The following table presents a reconciliation of the GAAP financial measure of net income (loss) and net income (loss) as a percentage of revenue to Adjusted EBITDA and Adjusted EBITDA Margin, respectively, for each of the periods indicated:

(in thousands)

(1) Primarily represents foreign currency exchange gain/loss, gain/loss on lease terminations, and other non-operating items.

(2) For the three and six months ended June 30, 2025, acquisition and integration costs consisted of legal, accounting, advisory fees, and other integration costs associated with the Merger, the acquisition of the remaining equity interest in DWS, and the acquisitions of SCF and Citadel. For the three and six months ended June 30, 2024, acquisition and integration costs consisted of legal, accounting, advisory fees, and other integration costs associated with the acquisition of ownership interest in DWS and facility shut-down and integration costs for Rubicon facilities after the acquisition. These acquisition and integration costs are one-time in nature and represent expenses that we do not view as normal operating expenses necessary to operate our business.

(3) Reflects the elimination of our percentage of interest expense, depreciation, amortization and other non-recurring expenses included within equity method earnings relating to our unconsolidated investment in DWS.

(4) Reflects legal, consulting and accounting fees and expenses related to preparation of Legacy Innovex’s initial public offering.

Adjusted EBITDA for the six months ended June 30, 2025 was $92.6 million, an increase of $30.6 million from the six months ended June 30, 2024.

Return on Capital Employed

We utilize Return on Capital Employed (“ROCE”) (a non-GAAP measure) to assess the effectiveness of our capital allocation over time and to compare our capital efficiency to our competitors, and for this reason we believe this measure will provide useful information to investors. We define ROCE as income from operations, before acquisition and integration costs and after tax (resulting in Adjusted Income from Operations, after tax) divided by average capital employed. Capital employed is defined as the combined values of debt and stockholders’ equity.

The following table presents a reconciliation of the GAAP financial measure of income from operations to adjusted income from operations, after tax to ROCE for each of the periods indicated:

(in thousands)

ROCE for the twelve months ended June 30, 2025 was 13%, a decrease from the twelve months ended June 30, 2024.

Free Cash Flow

We also utilize Free Cash Flow (a non-GAAP measure) to evaluate the cash generated by our operations and results of operations. We define Free Cash Flow as net cash provided by operating activities less capital expenditures, as presented in our Condensed Consolidated Statements of Cash Flows. Management believes Free Cash Flow is useful because it demonstrates the cash that was available in the period that was in excess of our needs to fund our capital expenditures. Free Cash Flow does not represent our residual cash flow available for discretionary expenditures, as we have non-discretionary expenditures, including, but not limited to, principal payments required under the terms of our Credit Facility, which are not deducted in calculating Free Cash Flow.

The following table presents a reconciliation of the GAAP financial measure of net cash provided by operating activities to Free Cash Flow for each of the periods indicated:

(in thousands)

Free Cash Flow for the six months ended June 30, 2025 was $75.9 million, an increase of $44.9 million from the six months ended June 30, 2024.

Off-Balance Sheet Arrangements

Currently, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

Business Segments

The Company operates in one reportable segment as our chief operating decision maker (“CODM”) assesses performance and allocates resources based on financial information presented at a consolidated level.

Critical Accounting Estimates

As of June 30, 2025, there have been no significant changes to our critical accounting estimates since our Annual Report.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a discussion of the recent accounting pronouncements issued by the Financial Accounting Standards Board.

There have been no material changes that would affect the quantitative and qualitative disclosures from the information provided in “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the fiscal quarter ended June 30, 2025. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As described in “Part II, Item 9A. Controls and Procedures” of our Annual Report, management excluded (1) Legacy Innovex and (2) DWS from its assessment of the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures as of December 31, 2024. Our evaluation of disclosure controls and procedures as of June 30, 2025 excludes an assessment of those disclosure controls and procedures of Legacy Innovex, DWS, SCF, and Citadel that are subsumed by internal control over financial reporting.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.

Remediation of Previously Disclosed Material Weaknesses

As disclosed in our Annual Report, we previously identified two material weaknesses for Legacy Innovex as we did not design and maintain effective controls related to the accounting for income taxes at a sufficient level of precision or rigor and failed to employ personnel with adequate expertise to identify and evaluate complex income tax accounting matters.

Our management has implemented remediation steps to address these material weaknesses. Specifically, we have (i) designed and implemented new controls for the preparation and review of the income tax provision, associated income tax assets and liabilities and the corresponding valuation allowance, and the income tax disclosures in our Consolidated Financial Statements (ii) engaged an accounting advisory firm to assist with the documentation, evaluation, remediation, and testing of the relevant internal controls related to the accounting for incomes taxes; and (iii) hired additional tax personnel, including an outside accounting advisory firm with adequate expertise to identify and evaluate complex income tax accounting matters.

During the first quarter of our current fiscal year, we completed our testing of the operating effectiveness and concluded that the material weaknesses have been remediated.

Changes in Internal Control Over Financial Reporting

As described in “Part II, Item 9A. Controls and Procedures” of our Annual Report, the Merger was completed on September 6, 2024, and represented a change in internal control over financial reporting. Management continues to consolidate and integrate the internal control over financial reporting. The ongoing integration activities have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the six months ended June 30, 2025.

Except as described above, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the six months ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risks discussed in our Annual Report and those set forth from time to time in our other filings with the SEC. There have been no material changes in risk factors from those reported in our Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. The risks described in such reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results.