Innovex International, Inc.

Previous wording

The following discussion and analysis of the results of operations, financial condition and liquidity position of Innovex for the three and nine months ended September 30, 2024 and 2023 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, 2023 included in our Form 8-K/A filed with the SEC on September 16, 2024. 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 “Cautionary Statement Regarding Forward- Looking Statements,” “Risk Factors” 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.

Current wording

The following discussion and analysis of the results of operations, financial condition and liquidity position of Innovex for the three months ended March 31, 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 “Cautionary Statement Regarding Forward- Looking Statements,” “Risk Factors” 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.

Previous wording

We are a global company, and forthe nine months ended September 30, 2024, the US and Canadian onshore ("NAM") market made up approximately 63% of our revenue while the international and offshore ("International and Offshore") markets constituted 37%. Within the NAM market, we have a strong presence in the United States and a growing presence in 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 and has become our largest International and Offshore market. We also operate across Latin America, Europe and the U.S. Gulf of Mexico, 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.

Current wording

We are a global company, and forthe three months ended March 31, 2025, the U.S. and Canadian onshore (“NAM”) market made up approximately 50% of our revenue while the international and offshore (“International and Offshore”) markets constituted 50%. 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.

Previous wording

We have a broad customer base, ranging from the largest International Oil Companies, National Oil Companies, and exploration and production ("E&P") companies as well as multinati onal 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.

Current wording

We have a broad customer base, ranging from International Oil Companies, National Oil Companies, and exploration and production (“E&P”) companies as well as multinati onal 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.

Previous wording

Our business has produced strong returns on invested capital. Please see "—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 nine months ended September 30, 2024, our net income, income from operations and Adjusted EBITDA were equivalent to approximately 26%, 5% and 22% of revenue, respectively. Over the same period, capital expenditures accounted for only 1% of revenue, and we earned approximately $22.2 million in income from operations. For the nine months ended September 30, 2023, our net income, income from operations, and Adjusted EBITDA were equivalent to approximately 13%, 18% and 24% of revenue, respectively. Over the same period, capital expenditures accounted for only 3% of revenue, and we earned approximately $74.0 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. Please see “—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.

Current wording

Our business has produced strong returns on invested capital. Please see “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 three months ended March 31, 2025, our net income, income from operations and Adjusted EBITDA were equivalent to approximately 6%, 9% and 19% of revenue, respectively. Over the same period, capital expenditures accounted for only 3% of revenue, and we earned approximately $21.9 million in income from operations. For the three months ended March 31, 2024, our net income, income from operations and Adjusted EBITDA were equivalent to approximately 13%, 17% and 25% of revenue, respectively. Over the same period, capital expenditures accounted for only 2% of revenue, and we earned approximately $22.3 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. Please see “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.

Previous wording

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 expects, based on their current forecast of $85 per barrel for Brent crude oil in 2025, global E&P capital spending, excluding Russia and China, to increase 12% from approximately $239 billion in 2023 to approximately $268 billion in 2026. Rystad Energy also estimates that the annual number of global wells drilled, excluding Russia and China, will increase 1% from approximately 34,000 in 2023 to approximately 34,300 in 2026, which we expect will lead to modest additional revenue opportunities for our business. As a result, the average E&P capex spending per well is expected to increase, a trend that would increase the TAM of our business, all else held equal. 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.

Current wording

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 April 17, 2025, expects global upstream energy spending, excluding Iran, Venezuela, Cuba, Russia and China, to stay relatively flat through 2025, with spending forecasted to increase by 3% in 2027. Rystad Energy also estimates that the annual number of global wells drilled, excluding Iran, Venezuela, Cuba, Russia and China, will increase from approximately 31,700 in 2024 to approximately 32,300 in 2027. 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.

Previous wording

We believe that the outlook for oil and natural gas development activity and prices remains positive. 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 increased activity levels by our customers in the near and medium-term.

Current wording

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. Theglobal 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.

Previous wording

The Company accounts for more complex, customer specific projects that have relatively longer manufacturing time frames on an over-time basis. For the three months ended September 30, 2024, there were 6 projects representing approximately 0.2% of the Company’s total revenues and approximately 0.2% of its product revenues that were accounted for using over-time accounting, compared to zero projects for the three months ended September 30, 2023. For the nine months ended September 30, 2024, there were 6 projects representing approximately 0.1% of the Company’s total revenues and approximately 0.1% of its product revenues that were accounted for using over-time accounting, compared to zero projects for the nine months ended September 30, 2023. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete, which is used to determine the revenue earned and the appropriate portion of total estimated cost of revenues to be recognized. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments, proportionate to the percentage complete, are reflected in the period when such estimates are revised. Losses, if any, are recorded in full in the period they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability.

Current wording

The Company accounts for more complex, customer specific projects that have relatively longer manufacturing time frames on an over-time basis. For the three months ended March 31, 2025, there were 6 projects representing approximately 0.1% of the Company’s total revenues and approximately 0.1% of its product revenues that were accounted for using over-time accounting, compared to zero projects for the three months ended March 31, 2024. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete, which is used to determine the revenue earned and the appropriate portion of total estimated cost of revenues to be recognized. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments, proportionate to the percentage complete, are reflected in the period when such estimates are revised. Losses, if any, are recorded in full in the period they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability.

Previous wording

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 Accounting Standards Codification 360 Property, Plant, and Equipment, we determine that the carrying value of the asset or asset group is not recoverable and exceeds its fair value.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Equity method earnings consist of our proportional share of the earnings of our equity method investee, Downhole Well Solutions, LLC ("DWS"), acquired on May 1, 2023 along with the associated amortization of our proportional share of the step up in fair value of the intangible assets acquired.

Current wording

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. See “Gain on consolidation of equity method investment” below.

Previous wording

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 August 2022, Legacy Innovex acquired Pride Energy Services, LLC ("Pride"), a company that complemented our well production and intervention product group. 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. Finally, in March 2024, Legacy Innovex entered into the Merger Agreement with Dril-Quip and the Merger was consummated on September 6, 2024. 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.

Current wording

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. 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.

Previous wording

Revenues. Our NAM market revenue for the three months ended September 30, 2024 was $98.3 million, an increase of $6.0 million from $92.3 million for the three months ended September 30, 2023, primarily driven by an increase in market share and incremental business operations due to the Merger. This was offset by a reduction in drilling activity in North America due to a decline in the North America land rig count during the comparative period. Our International and Offshore market revenue for the three months ended September 30, 2024, was $53.5 million, an increase of $6.7 million from $46.8 million for the three months ended September 30, 2023, primarily driven by increased business operations due to the Merger.

Current wording

Revenues. Our NAM market revenue for the three months ended March 31, 2025 was $120.5 million, an increase of $39.6 million from $80.9 million for the three months ended March 31, 2024, primarily driven by an increase in market share and incremental business operations due to the Merger and the acquisitions of DWS and SCF. This was offset by a reduction in drilling activity in North America due to a decline in the North America land rig count during the comparative period. Our International and Offshore market revenue for the three months ended March 31, 2025, was $119.9 million, an increase of $72.7 million from $47.1 million for the three months ended March 31, 2024, primarily driven by increased business operations due to the Merger.

Previous wording

Cost of Revenues, Exclusive of Depreciation and Amortization. Total cost of revenues for the nine months ended September 30, 2024 was $262.4 million, a decrease of $13.0 million from $275.4 million for the nine months ended September 30, 2023.The decrease wasprimarily attributable to $6.2 million decrease in product cost of goods sold, a $2.1 million decrease in freight expenses, and a $2.4 million decrease in cost of supplies and general manufacturing expenses, as a result of decreased procurement and manufacture of supplies and products due to the decrease in revenues. The remaining difference is attributable to increases in manufacturing absorption costs, change in inventory reserves, and other miscellaneous costs.

Current wording

Cost of revenues, exclusive of depreciation and amortization. Total cost of revenues for the three months ended March 31, 2025 was $163.9 million, an increase of $85.0 million from $78.9 million for three months ended March 31, 2024. The change was primarily attributable to a $41.4 million increase in product cost of goods sold, a $27.3 million increase in personnel expense due to increased activity levels due to the Merger, and a $9.0 million increase in supplies and general manufacturing expenses. This change was offset by a decrease of a net $4.5 million in variance, scrap and absorption expense due to reduced costing in lower cost geographies along with increased inventory absorption costs due to the Merger. The remaining difference is attributable to increases in facilities costs, inventory reserves, property taxes, and other miscellaneous costs.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expense for the three months ended September 30, 2024 was $38.0 million, an increase of $18.8 million from $19.2 million for the three months ended September 30, 2023. The increase isprimarily attributable to a $10.4 million increase in stock-based compensation expenses mostly related to vested stock awards as a result of the closing of the Merger, $3.6 million increase in salaries and wages caused by an increased headcount after the Merger, and $1.9 million increase in other personnel expenses driven by increased payroll tax expenses due to the Merger. The remaining change is increased business insurance expenses along with increases in other miscellaneous selling, general and administrative expenses.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expense for the three months ended March 31, 2025 was $32.3 million, an increase of $11.0 million from $21.3 million for the three months ended March 31, 2024. The change is primarily attributable to a $11.2 million increase in salaries, wages and other payroll costs caused by an increased headcount due to the Merger.

Previous wording

(Gain)/loss on sale of assets. (Gain)/loss on sale of assets for the three months ended September 30, 2024 and 2023 was $(0.2) million and $(0.1) million, respectively. The change during the two periods was due to normal variations in property and equipment sales activity.

Current wording

(Gain)/loss on sale of assets. (Gain)/loss on sale of assets for the three months ended March 31, 2025 and 2024 was $0.1 million and $(0.1) million, respectively. The change during the two periods was due to normal variations in property and equipment sales activity.

Previous wording

Depreciation and Amortization. Total depreciation and amortization expense for the three months ended September 30, 2024 was $7.8 million, an increase of $2.0 million from $5.8 million for the three months ended September 30, 2023. The increase in depreciation and amortization was primarily due to additional depreciation for assets acquired related to the Merger.

Current wording

Depreciation and amortization. Total depreciation and amortization expense for the three months ended March 31, 2025 was $14.9 million, an increase of $10.1 million from $4.8 million for the three months ended March 31, 2024. The change in depreciation and amortization was primarily due to additional depreciation for assets acquired related to the Merger.

Previous wording

Acquisition Costs. Acquisition Costs for the three months ended September 30, 2024 was $20.3 million, an increase of $19.5 million from $0.8 million for thethree months ended September 30, 2023. The increase in acquisition costs was due to the costs incurred in connection with the Merger.

Current wording

Acquisition and integration costs. Acquisition and integration costs for the three months ended March 31, 2025 was $4.3 million, an increase of $3.5 million from $0.8 million for the three months ended March 31, 2024. The change in acquisition and integration costs was due to the costs incurred in connection with the Merger and the acquisition of DWS and SCF.

Previous wording

Other (Income) Expense, Net. Total other (income) expense, net for the three months ended September 30, 2024 was $(0.3) million, a decrease of $0.4 million from $0.1 million for the three months ended September 30, 2023, with the change primarily being due to the net change in our foreign currency exchange gains (losses).

Current wording

Other (income) expense. Total other (income) expense for the three months ended March 31, 2025 was $(0.2) million, a decrease of $0.7 million from $0.5 million for the three months ended March 31, 2024, with the change primarily being due to the net change in our foreign currency exchange gains (losses).

Previous wording

Equity Method Earnings. Equity method earnings consist of the net earnings of our equity method investee, DWS, acquired on May 1, 2023, along with the amortization of our proportional ownership interest in the step up of the fair value of the intangible assets acquired. Total Equity method earnings, excluding the amortization of the step up in fair value, for the three months ended September 30, 2024 and 2023 were $1.4 million and $1.4 million, respectively. The amortization of the step up in the fair value of the intangible assets acquired for the three months ended September 30, 2024 and 2023 were $0.4 million and $0.6 million, respectively.

Current wording

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, the Company will 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 March 31, 2024 was $0.8 million. The amortization of the step up in the fair value of the intangible assets acquired for the three months ended March 31, 2024 was $0.4 million.

Previous wording

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 September 30, 2024 was $(2.6) million, a decrease of$10.5 million from $7.9 million for the three months ended September 30, 2023. The decrease was primarily driven by changes in 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 September 30, 2024, income before income taxes was $80.0 million, representing an increase of $56.8 million from $23.2 million for the three months ended September 30, 2023 primarily due to the effect of the Gain on Bargain Purchase discussed above, which is treated as a permanent discrete adjustment for purposes of calculating income tax expense.

Current wording

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 March 31, 2025 was $6.6 million, an increase of $1.5 million from $5.1 million for the three months ended March 31, 2024. The change was primarily driven by changes in 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 March 31, 2025, income before income taxes was $21.4 million, representing a decrease of $0.1 million from $21.5 million for the three months ended March 31, 2024 primarily due to the factors discussed above.

Previous wording

Net Income. Net income for the three months ended September 30, 2024 was $82.6 million, an increase of $67.2 million from net income of $15.4 million for the three months ended September 30, 2023, as a result of the factors discussed above.

Current wording

Net income. Net income for the three months ended March 31, 2025 was $14.8 million, a decrease of $1.6 million from net income of $16.4 million for the three months ended March 31, 2024, as a result of the factors discussed above.

Previous wording

Our primary sources of liquidity are our existing cash, cash provided by operating activities, and borrowings under the Credit Facility. As of September 30, 2024, we had cash and restricted cash of $99.9 million and availability under the Revolver (as defined herein) of $90.8 million. Our total indebtedness was $23.0 million as of September 30, 2024.

Current wording

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 March 31, 2025, we had cash and restricted cash of $68.1 million and availability under the Revolver (as defined herein) of $103.3 million. Our total indebtedness was $25.2 million as of March 31, 2025.

Previous wording

We have certain obligations related to debt maturities, finance leases and operating leases. As of September 30, 2024, we have $18.0 million of minimum non-cancelable lease obligations for the twelve months following September 30, 2024, comprised of $6.2 million of finance lease maturities and $11.8 million of operating lease obligations. We have an additional $55.7 million of minimum non-cancelable lease obligations for the periods after September 30, 2025, comprised of $5.5 million of finance lease maturities and $50.2 million of non-cancelable operating lease obligations. As of September 30, 2024, interest rates on our lease obligations range from 2.08% -12%. In addition, as of September 30, 2024, we have$5.0 million of debt maturities over the next twelve months comprised of $5.0 million of required amortization payments on our Term Loan (as defined herein). For the periods after September 30, 2025, for our Term Loan, we have an additional $7.7 million of debt maturities representing the remaining balance on our Term loan. Any outstanding balances under our Revolver would become due and payable during 2026. For the nine months ended September 30, 2024 and 2023, the Company’s effective interest rate on the term loan was approximately 8.85% and 7.33%, respectively, and the effective interest rate on the revolving line of credit was approximately 10.46% and 8.48%, respectively. See “Note 9—Debt” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

Current wording

We have certain obligations related to debt maturities, finance leases and operating leases. As of March 31, 2025, we have $20.8 million of minimum non-cancelable lease obligations for the twelve months following March 31, 2025, comprised of $6.1 million of finance lease maturities and $14.7 million of operating lease obligations. We have an additional $62.1 million of minimum non-cancelable lease obligations for the periods after March 31, 2025, comprised of $5.4 million of finance lease maturities and $56.7 million of non-cancelable operating lease obligations. As of March 31, 2025, interest rates on our lease obligations range from 2.88% to 13.09%. In addition, as of March 31, 2025, all amounts borrowed under our Revolver become due and payable in 2030. For the three months ended March 31, 2024, the Company’s effective interest rate on the term loan was approximately 8.60% For the three months ended March 31, 2025 and 2024, the effective interest rate on the Revolver was approximately 8.25% and 8.52%, respectively. See Note 10. Debt to our consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Previous wording

Net cash provided by operating activities was $57.1 million and $54.5 million for the nine months ended September 30, 2024 and 2023, respectively. The $2.6 million increase in cash provided by operations for the comparative periods was due to the following:

Current wording

Net cash provided by operating activities for the three months ended March 31, 2025 was $31.1 million, an increase of $18.5 million from the three months ended March 31, 2024. The change in cash provided by operations for the comparative periods was primarily driven by the following:

Previous wording

changes in non-cash adjustments to net income from the comparative period as a result of a $10.3 million increase in stock compensation expense, primarily due to the accelerated vesting of equity based awards, an $11.2 million increase in deferred taxes due to timing differences, offset by a $92.7 million gain on bargain purchase as a result of the Merger, which was a non-cash equity based transaction, along with other non-cash (gains) losses of $6.5 million; and

Current wording

changes in non-cash adjustments to net income from the comparative period as a result of a $10.1 million increase in depreciation and amortization, in connection with the increased size of the business primarily due to the Merger and other acquisitions between April 1, 2024 and March 31, 2025, a $6.2 million increase in deferred taxes due to timing differences, a $2.9 million increase in impairment of long-lived assets related to land and buildings in Mexico designated as assets held for sale, and a $1.3 million increase in stock compensation expense, primarily due to the accelerated vesting of equity based awards; and

Previous wording

changes in operating assets and liabilities, net of assets acquired as part of the Merger, totaling $14.2 million, primarily due to changes in trade receivable balances from the comparative period of $31.5 million due to increased cash collections on outstanding receivables for the nine months ended September 30, 2024, partially offset by increases in cash used to acquire inventory for the nine months ended September 30, 2024 of $16.2 million from the comparative period due to inventory procurement activity in anticipation of expected increases in product sales and to allow us to take advantage of vendor pricing incentives.

Current wording

changes in operating assets and liabilities, net of assets acquired as part of the acquisitions, totaled $1.3 million.

Previous wording

Net cash used in financing activities was $(114.2) million and $(23.0) million for the nine months ended September 30, 2024 and 2023, respectively. The $91.2 million increase in cash used in financing activities was primarily due to the payment of $75.0 million in dividends, the payment of $10.2 million of taxes related to net share settlement of equity awards during the third quarter of 2024, and an increase of $7.4 million in net repayments on the Revolver due to cash generated from positive operating cash flows.

Current wording

Net cash used in financing activities for the three months ended March 31, 2025 was $13.4 million, a decrease of $3.1 million from the three months ended March 31, 2024. The change in cash used in financing activities was primarily due to an increase of $1.4 million in net repayments of long term debt due to cash generated from positive operating cash flows and debt issuance costs incurred in connection with the Credit Agreement.

Previous wording

Legacy Innovex, Tercel Oilfield Products USA L.L.C., Top-Co Inc. and Pride (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 “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 Credit Agreement provides 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 a $11.0 million swing loan (collectively, the “Revolver” and, together with the Term Loan, the “Credit Facility”).

Current wording

Legacy Innovex, Tercel Oilfield Products USA L.L.C., Top-Co Inc. and Pride (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”).

Previous wording

The consummation of the transactions contemplated by the Merger Agreement constituted a Change of Control (as defined in the Credit Agreement). In June 2024, Legacy Innovex entered into the Fourth Amendment to the Second A&R Credit Agreement, which permitted the change in control event and payment of the cash dividend contemplated by the Merger Agreement.

Current wording

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.

Previous wording

The Credit Facility matures on June 10, 2026. The Term Loan is amortized in an amount equal to $1.25 million each quarter. Amounts borrowed under the Credit Facility 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 (subject to a 0% floor) 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 of 0.75% for swing loans and alternate base rate revolving loans, 1.75% for term SOFR revolving loans, 1.00% for alternate base rate term loans and 2.00% for term SOFR term 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).

Current wording

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 March 31, 2025 and March 31, 2024, we had no letters of credit outstanding under the Credit Agreement.

Previous wording

In addition to paying interest on outstanding borrowings under the Credit Facility, 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 $110.0 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.

Current wording

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.

Previous wording

The Credit Facility is secured by liens on substantially all of the assets of the Borrowers and certain future subsidiaries of Innovex and guarantees from certain future subsidiaries of Innovex. The Credit Facility requires the Borrowers to make mandatory prepayments on the outstanding amount of (i) the Term Loan in an amount equal to 25% of excess cash flow for each fiscal year, (ii) the Credit Facility if Borrowers issue debt other than certain permitted debt or, subject to certain exceptions, sell assets and (iii) the Term Loan and/or the Revolver if the Borrowers issue equity interests the proceeds of which are not used for certain purposes.

Current wording

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 of received with respect to certain insurance or condemnation claims.

Previous wording

As of September 30, 2024 and September 30, 2023, we had $12.7 million and $19.0 million, respectively, of borrowings outstanding under the Term Loan, and no borrowings, and $31.3 million, respectively, of borrowings under the Revolver.

Current wording

As of March 31, 2024, we had $16.5 million of borrowings outstanding under the Term Loan. As of March 31, 2025 and March 31, 2024, we had $15.6 million, and $16.0 million, respectively, of borrowings under the applicable revolving credit facility.

Previous wording

For the nine months ended September 30, 2024, Acquisition Costs consisted of legal, accounting, advisory fees, and other integration costs associated with the Merger. For the nine months ended September 30, 2023, Acquisition Costs consisted of legal, accounting, advisory fees, associated with the acquisition of our ownership interest in DWS along with other integration related expenses. These Acquisition Costs are one-time in nature and represent expenses that we do not view as normal operating expenses necessary to operate our business.

Current wording

For the three months ended March 31, 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 acquisition of SCF. For the three months ended March 31, 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.

Previous wording

Reflects legal, consulting and accounting fees and expenses related to IPO preparation.

Current wording

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

Previous wording

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 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.

Current wording

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.

Previous wording

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

Current wording

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:

Previous wording

We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe the following are the critical accounting estimates used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application of these policies. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Part I. Item 1 of this Quarterly Report and with Legacy Innovex's financial statements and related notes thereto for the year ended December 31, 2023 included in our Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 16, 2024.

Current wording

We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe the following are the critical accounting estimates used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application of these policies. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report and with our financial statements and related notes thereto for the year ended December 31, 2024 included in our Annual Report.

Previous wording

Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the carrying amount and tax basis of assets and liabilities using enacted tax laws and rates expected to apply to taxable income in the year in which the differences are expected to reverse. We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies and results of recent operations. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. As of September 30, 2024, the valuation allowance for deferred tax assets was $65.1 million. The Company recognizes a tax benefit in our financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position.

Current wording

Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the carrying amount and tax basis of assets and liabilities using enacted tax laws and rates expected to apply to taxable income in the year in which the differences are expected to reverse. We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies and results of recent operations. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. As of March 31, 2025, the valuation allowance for deferred tax assets was $53.3 million. The Company recognizes a tax benefit in our financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position.