Innovex International, Inc.

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) generally in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification. We assessed ASUs and disclosure requirements not listed below and determined that they either were not applicable or were not expected to have a material impact to our Consolidated Financial Statements.

Income Taxes (Topic 740)—In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The amendment improves income tax disclosure requirements by requiring public entities, on an annual basis, to provide disclosure of defined categories in the income tax rate reconciliation, as well as disclosure of income taxes paid, disaggregated by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Weadopted ASU 2023-09 on a prospective basis beginning with the year ended December 31, 2025.

Expense Disaggregation Disclosures (Subtopic 220-40)—In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses. The amendment requires additional disclosures of specific income statement expense line items in the notes to the financial statements on both an interim and annual basis. ASU 2024-03 is effective for annual periods beginning after December 15, 2026. We arecurrently assessing the impact of ASU 2024-03 on the related disclosures.

NOTE 3. MERGERS AND ACQUISITIONS

Our acquisition of business and equity method investments consisted of the following transactions during the years ended December 31, 2025, 2024 and 2023. Acquisition and integration costs in our Consolidated Statements of Operations and Comprehensive Income represent expenditures directly associated with the closing and integration activities of our Merger and acquisitions completed, and include (i) legal, accounting and advisory fees to complete the Merger and acquisitions and (ii) costs to integrate acquired businesses into our existing operations, including move, severance and other integration costs (collectively, "Acquisition and integration costs").

Legacy Innovex and Dril-Quip Merger

As discussed in Note 1. Summary of Business, on the Closing Date, the Merger was consummated. Following the Merger, Legacy Innovex became a wholly owned subsidiary of Dril-Quip, and the name “Dril-Quip, Inc.” was changed to “Innovex International, Inc.” As provided for in the Merger Agreement, Legacy Innovex paid a cash dividend of$75.0 million, or$2.39 per share, to the holders of Legacy Innovex Common Stock on September 6, 2024. The Merger was pursued given the enhanced global scale, footprint, and financial flexibility of combining the two companies. The Merger is accounted for as a reverse acquisition under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), where Legacy Innovex, the legal acquiree, is determined to be the accounting acquirer of Dril-Quip.

Purchase Price Consideration

The accounting acquiree Dril-Quip’s stock price was used to measure the consideration transferred in the reverse acquisition, as Dril-Quip’s stock price was more reliably measurable than the value of the equity interest of the accounting acquirer Legacy Innovex, which was a privately held entity. The following table summarizes the consideration for the Merger (in thousands, except stock price and shares):

(1)The fair value of shares transferred to Dril-Quip stockholders is based on 34,452,230 shares of Dril-Quip common stock outstanding and the closing stock price of Dril-Quip common stock of $15.41 on the Closing Date.

Final Purchase Price Allocation

In accordance with ASC 805, identifiable assets acquired and liabilities assumed were recorded at their estimated fair values on the Closing Date. The Merger resulted in a gain on bargain purchase recognized in our Consolidated Statements of Operations and Comprehensive Income due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred. Upon completion of its assessment, we concluded that all of the assets acquired and liabilities assumed have been identified and recognized, including any additional assets and liabilities not previously identified or recognized in the acquisition accounting, and that recording a gain on bargain purchase was appropriate and required under U.S. GAAP. The bargain purchase gain was due to the decrease in the share price of legacy Dril-Quip stock from the date the Merger Agreement was signed to the Closing Date, while the agreed upon ratio of Innovex stockholder’s ownership of the Combined Company, as stipulated in the Merger Agreement, remained the same.

During September 2025, we finalized the allocation of the purchase price and recorded the measurement period adjustments to our preliminary estimates, as exhibited in the table below. These measurement period adjustments resulted in a final gain on bargain purchase associated with the Merger of$82.5 million. The finalized purchase price allocation to the estimated fair value of identifiable assets acquired and liabilities assumed resulted in a gain on bargain purchase as of the Closing Date. Measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date and that, if known, would have affected the measurement of the amounts recognized at that date.

(1) Measurement period adjustment is related to receivables acquired due to our evaluation of the facts and circumstances that existed as of the acquisition date.

(2) Measurement period adjustment is related to deferred tax asset adjustment recognized from a refinement of our estimated deferred tax positions by jurisdictions.

We incurred transaction costs in connection with the Merger in the amount of$32.2 million for the year ended December 31, 2024. The costs have been expensed as incurred and recognized in Acquisition and integration costs in our Consolidated Statements of Operations and Comprehensive Income.

For the period from September 7, 2024 to December 31, 2024, we have included$148.4 million of revenues contributed by the business acquired in the Merger. Due to the integration of operations since the Closing Date, it was impracticable to present stand-alone earnings since the date of the Merger.

Downhole Well Solutions, LLC

On May 1, 2023, Legacy Innovex acquired a 20% equity interest in DWS, via purchasing stock units of DWS, for the purchase price of $17.6 million in cash consideration. On November 29, 2024, we acquired the remaining 80% of the issued and outstanding equity securities of DWS, resulting in DWS becoming a wholly owned subsidiary of Innovex. DWS rents drilling equipment and related technology which is complimentary to our existing product lines.

Prior to the acquisition of the remaining 80% ownership interest in 2024, Legacy Innovex obtained significant influence over DWS through a 20% ownership and one board seat out of three total board seats of representation on the Board of Directors of DWS. The acquisition was accounted for as an equity method investment under Accounting Standards Codification Topic 323, Investments—Equity Method and Joint Ventures (“ASC 323”). The cost of the investment was $15.0 million more than the acquired underlying equity in DWS net assets. The difference was attributable to intangible assets of $13.0 million and equity method goodwill of $2.0 million. The difference pertaining to intangible assets was being amortized to equity method earnings over the remaining useful life of the related asset. For the period from January 1, 2024 to November 29, 2024, we recorded our proportionate share of DWS’s net income of$3.9 million, adjusted for$1.3 million amortization attributed to intangible assets, and DWS distributed$3.1 million of dividends to the Company, which was recorded as a reduction of the carrying value of our equity investment. For the year ended December 31, 2023, we recorded our proportionate share of DWS’s net income of$3.9 million, adjusted for$1.0 million amortization attributed to intangible assets, and DWS distributed$1.3 million of dividends to the Company, which was recorded as a reduction of the carrying value of our equity investment.

As noted above, on November 29, 2024, we acquired the remaining 80% of the issued and outstanding equity securities of DWS. The 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. We retained an additional $4.0 million of the purchase price (the “Impulse Litigation Holdback Amount”) for purposes of funding any post-closing expenses and liabilities related to a patent infringement-related litigation matter to which DWS is a party. Refer to Note 16. Commitments and Contingencies for further discussion.

Because we acquired control of DWS in the 2024 purchase, the acquisition was accounted for as a step acquisition in accordance with ASC 805. We remeasured our previously held 20% equity interest at its acquisition-date fair value of$27.6 million, which was determined using the implied enterprise value based on the purchase price. The resulting gain of$8.0 million was reflected within Gain on consolidation of equity method investment in our Consolidated Statements of Operations and Comprehensive Income. The following table summarizes the consideration for the acquisition (in thousands, except stock price and shares):

(1)The fair value of equity consideration is based on 1,918,558 shares transferred and the closing stock price of Company Common Stock of $16.27 on the date of acquisition.

(2) The consideration adjustment is related to the original Impulse Litigation Holdback Amount, which is expected to be fully utilized.

Final Purchase Price Allocation

In accordance with ASC 805, identifiable assets acquired and liabilities assumed were recorded at their estimated fair values on the date of acquisition, along with goodwill of$36.2 million as a result of our preliminary valuation. During 2025, we finalized the valuation and recorded measurement period adjustments to our preliminary estimates, as exhibited in the table below, which resulted in an increase to goodwill in the amount of$4.7 million. These measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date and that, if known, would have affected the measurement of the amounts recognized at that date. Goodwill is primarily attributable to the anticipated synergies expected from the integration of DWS. Based on the current tax treatment,$38.5 million of goodwill is expected to be deductible for income tax purposes over a 15-year period, while the remaining portion is not expected to be deductible for income tax purposes.

(1)Measurement period adjustments are related to DWS contingencies. Refer to Note 16. Commitments and Contingencies for further discussion.

The table below represents the detail of the intangible assets acquired and the respective amortization periods (amounts in thousands):

Refer to Note 7. Intangible Assets and Goodwill for further discussion of accounting treatment for goodwill and other intangible assets recognized from these acquisitions.

We incurred transaction costs in connection with the acquisition in the amount of$0.6 million for the year ended December 31, 2024. The costs have been expensed as incurred and recognized in Acquisition and integration costs in our Consolidated Statements of Operations and Comprehensive Income.

For the period from November 30, 2024 to December 31, 2024, we have included$5.6 million of revenues and$2.0 million of earnings contributed by DWS.

SCF Machining Corporation

On February 7, 2025, we acquired SCFin exchange for$17.7 million in cash consideration, 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. The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting.

Preliminary Purchase Price Allocation

In accordance with ASC 805, identifiable assets acquired and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period. We expect to finalize these amounts as soon as possible but no later than one year from the closing date of the acquisition.

The table below presents the preliminary allocation to the estimated fair value of identifiable assets acquired and liabilities assumed and the resulting goodwill as of February 7, 2025. Goodwill is primarily attributable to the anticipated cost reductions and supply chain flexibility expected from the integration of SCF. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes.

We incurred transaction costs in connection with the acquisition in the amount of$0.2 million for the year ended December 31, 2025. The costs have been expensed as incurred and recognized in Acquisition and integration costs in our Consolidated Statements of Operations and Comprehensive Income.

Citadel Casing Solutions, LLC

On May 30, 2025, we acquired Citadel for$69.7 million in cash consideration, subject to post-closing adjustments. We believe this acquisition will enhance our product portfolio and allow us to leverage Citadel's industrial platform. The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting. The purchase price includes$3.0 million that was retained by the Company for purposes of funding any post-closing expenses and liabilities identified after the close of the transaction, if necessary. As of December 31, 2025, we have disbursed the entirety of the original$3.0 million retained based on post-closing expenses identified.

Preliminary Purchase Price Allocation

In accordance with ASC 805, identifiable assets acquired and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period. We expect to finalize these amounts as soon as possible but no later than one year from May 30, 2025, the closing date of the acquisition.

The table below presents the preliminary allocation to the estimated fair value of identifiable assets acquired and liabilities assumed and the resulting goodwill as of May 30, 2025. Goodwill represents the future economic benefits arising from other assets acquired that cannot be individually identified and separately recognized. Based on the current tax treatment, goodwill is expected to be deductible for income tax purposes over a 15-year period.

(1) Measurement period adjustments are related to updated estimated fair value for acquired inventories.

We incurred transaction costs in connection with the acquisition in the amount of$1.2 million for the year ended December 31, 2025. The costs have been expensed as incurred and recognized in Acquisition and integration costs in our Consolidated Statements of Operations and Comprehensive Income.

The table below represents the detail of the intangible assets acquired and the respective amortization periods (amounts in thousands):

The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The assumptions used to derive these values include significant judgments relating to baseline revenue and revenue growth rates, EBITDA margins, contributory asset charges, customer attrition rate, and discount rate. The estimated useful lives are based on our historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.

Due to the integration of operations, it was impracticable to present stand-alone revenue and earnings from the date of the acquisition.

Unaudited Supplemental Pro Forma Financial Information

The unaudited supplemental pro forma information presented below (in thousands) has been prepared for the Company as if we had completed the acquisition of Citadel on January 1, 2024, and completed the Merger and acquisition of the remaining interest in DWS on January 1, 2023. The unaudited supplemental pro forma financial information uses estimates and assumptions based on information available at the time. We believe the estimates and assumptions to be reasonable; however, the unaudited pro forma information is not necessarily indicative of what the Combined Company’s results would have been had the transactions been completed as of the beginning of the periods as indicated, nor does it purport to project our future results. The unaudited pro forma information does not reflect any synergy savings that might have been achieved from combining the operations.

Pro forma information includes, among others, (i) incremental depreciation and amortization resulting from the property and equipment, lease right-of-use assets and intangible assets acquired, (ii) accounting policy alignment, (iii) adjustments to reflect non-recurring transaction and acquisition related costs incurred directly in connection with the transactions as if they had occurred in the earliest period presented above, (iv) adjustments to reflect the bargain purchase gain as if the Merger occurred on January 1, 2023, (v) the effects of the employee retention and other compensation-related arrangements associated with the Merger, (vi) elimination of the previous equity method investment in DWS, and (vii) the tax-related effects as though the Citadel acquisition had occurred on January 1, 2024 and the Merger and acquisition of the remaining interest in DWS had occurred on January 1, 2023.

NOTE 4. REVENUE

Revenue is recognized as, or when, the performance obligations are satisfied. We generate revenue primarily from three revenue streams: (i) product revenues, (ii) service revenues; and (iii) rental revenues. We sell or rent our products and provide services primarily in onshore U.S. and Canadian (“NAM”) markets and in international and offshore (“International and Offshore”) markets. We attribute rental and service revenue to the country in which the rental or service was performed, while we attribute product sales revenue to the country to which the product was shipped. We have elected the practical expedient to expense commissions as the amortization period associated with the asset that would have been recognized for each order that is one year or less. Rental revenue, as presented in the table below, is accounted for under the lease guidance according to ASC 842 and recognized ratably over the term of the lease.

From time to time, we may enter into contracts that contain multiple performance obligations, such as work orders containing a combination of product sales, equipment rentals and contract labor services. For these arrangements, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations.

The following table presents our revenues disaggregated by category and by geography:

Revenue by geography is determined based on the sales destination of the products or services. The table below summarizes revenue by geography for the years ended December 31, 2025, 2024 and 2023:

(a) No single country included in these categories generated more than 10% of revenues.

(b) Revenues from Canada are inclusive of$4.2 million in offshore activity for the year ended December 31, 2025.

Contract Balances

Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in Contract liabilities as a liability in our Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings, in which case the amounts are reported in Contract assets as an asset in our Consolidated Balance Sheets.

Contract assets are recognized for revenue related to products accounted for using the over time method of accounting and are earned on completion of the performance obligations, for which consideration to be received is conditional on something other than the passage of time. The amounts recognized as contract assets are reclassified to trade receivables upon billing, as at that point, consideration is conditional only upon the passage of time. Contract liabilities represent our obligations to transfer goods or services to customers for which we have received consideration, in full or part, from the customer.

Balances related to contracts with customers consisted of the following (in thousands):

Contract Assets

Contract Liabilities

Obligations for returns and refunds were considered immaterial as of December 31, 2025 and 2024.

Remaining Performance Obligations

The aggregate amount of the transaction price allocated to remaining performance obligations from our over time product lines was$0.5 million as of December 31, 2025. We expect to recognize revenue on 100.0% of the remaining performance obligations over the next twelve months.

We apply the practical expedient available under ASC 606, which permits us not to disclose information about remaining performance obligations that have original expected durations of one year or less.

NOTE 5. INVENTORY

Inventories as of December 31, 2025 and 2024 were as follows:

All amounts in the table above are reported net of obsolescence reserves of$104.0 million and$169.5 million at December 31, 2025 and December 31, 2024, respectively.

NOTE 6. PROPERTY AND EQUIPMENT

A summary of property and equipment as of December 31, 2025 and 2024 consisted of the following:

The amortization expense for the right-of-use finance lease assets is$7.6 million,$6.1 million, and$4.1 million for the years ended December 31, 2025, 2024 and 2023, respectively. Refer to Note 11. Leases for further details.

Depreciation expense related to property and equipment was$37.2 million,$16.6 million, and$10.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.

The following tables present our assets by geographic region, net of investments in subsidiaries (in thousands):

NOTE 7. INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Intangible assets include customer relationships, non-compete agreements, trade names, technology, patents, and other intangibles associated with various business and asset acquisitions. These acquired intangible assets were recorded at fair value determined as of the date of acquisition and are being amortized over the period we expect to benefit from the assets.

A summary of intangible assets as of December 31, 2025 and 2024 is as follows (in thousands):

Amortization expense on intangible assets for the years ended December 31, 2025, 2024 and 2023 was$15.9 million,$8.5 million and$8.0 million, respectively.

See below for estimated future amortization expenses:

Goodwill

The following table presents changes in the carrying value of goodwill for the years ended December 31, 2025 and 2024:

(1) Measurement period adjustments are related to (a) legal defense costs pertaining to DWS contingencies, as discussed in Note 16. Commitments and Contingencies and (b) updated estimated fair value for acquired inventories as of the acquisition date for Citadel. Refer to Note 3. Mergers and Acquisitions for further discussion.

Impairment

We analyzed definite lived intangible assets for impairment as of December 31, 2025, 2024 and 2023 in accordance with Accounting Standards Codification Topic 360, Property, Plant, and Equipment ("ASC 360"), noting no impairment indicators were present. We analyzed goodwill for impairment as of December 31, 2025, 2024 and 2023, in accordance with Accounting Standards Codification Topic 350 Intangibles—Goodwill and Other ("ASC 350"), noting no impairment indicators were present. For our annual goodwill impairment test as of December 31, 2025, 2024 and 2023, we performed a qualitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit was less than its carrying value as of the test date. We evaluated events and circumstances since the date of our last quantitative or qualitative assessment, including macroeconomic conditions, industry and market conditions, and our overall financial performance, and it was determined that the reporting unit fair value was, more likely than not, greater than the carrying amount. Therefore, no impairment charges were recorded related to goodwill for the years ended December 31, 2025, 2024 and 2023. We will continue to evaluate our goodwill and definite lived assets for potential triggering events as conditions warrant.

NOTE 8. PREPAIDS AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following as of December 31, 2025 and 2024:

NOTE 9. DEBT

Current and long-term debt obligations consisted of the following as of December 31, 2025 and 2024:

Term Loan and Revolving Credit Facility

The Company’s Second Amended and Restated Revolving Credit, Term Loan, Guaranty and Security Agreement (as amended, the “Second A&R Credit Agreement”) dated June 10, 2022, governed separate debt facilities referred to as the Term Loan and the Revolving Credit Facility. The Second A&R Credit Agreement also included additional borrowing capacities, including swing loans and letters of credit. The Second A&R Credit Agreement defined the Company as the borrower and PNC Bank, National Association (“PNC”) as the agent. The Term Loan and the Revolving Credit Facility were secured by substantially all of the assets of the Company and certain of its subsidiaries, subject to certain customary exclusions.

Debt Modifications—In June 2024, the Second A&R Credit Agreement was amended to permit the change in control event, the payment of the cash dividend contemplated by the Merger Agreement and the acquisition of the 80% issued and outstanding equity securities of DWS not then owned by the Company. Refer to Note 3. Mergers and Acquisitions for discussion of the Merger.

On February 27, 2025, we entered into the Third Amended and Restated Revolving Credit, Guaranty and Security Agreement, dated as of February 27, 2025 (the "Third A&R Credit Agreement" or the "Credit Agreement"), to replace the Second A&R Credit Agreement, which provided for a revolving credit facility of up to $200.0 million, subject to a borrowing base (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 advance 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. As of December 31, 2025, we had no outstanding borrowings under the Credit Agreement, and borrowing capacity available under the Credit Facility was$138.0 million.

We performed a debt modification analysis in accordance with Accounting Standards Codification Topic 470, Debt ("ASC 470"), and concluded that the elimination of the term loan represented a debt extinguishment. We recognized a loss in February 2025 due to the write-down of the remaining debt issuance costs pertaining to the term loan of$0.4 million. The debt issuance cost attributable to the Credit Agreement as of December 31, 2025 was$1.2 million and is classified as Other long-term assets in our Consolidated Balance Sheets at December 31, 2025. We were in compliance with our debt covenants at December 31, 2025 and 2024.

Interest Expense

Interest expense for the Second A&R Credit Agreement and Third A&R Credit Agreement is calculated based on fixed and floating rate components, displayed below:

Note: *Forward-looking rate based on the Secured Overnight Financing Rate.

For the years ended December 31, 2024 and 2023, oureffective interest rate on the Term Loan was approximately 8.77% and 7.61%, respectively. As of December 31, 2025, there wereno borrowings under the Term Loan. For the years ended December 31, 2025, 2024, and 2023, our effective interest rate on the revolving line of credit was approximately 8.92%,9.34%, and 9.56%, respectively. As of December 31, 2025, there wereno borrowings under the Credit Agreement. We haveno capitalized interest for the years ended December 31, 2025, 2024 and 2023.

Maturities of Debt

There were no future contractual maturities of long-term debt, excluding finance leases, for the period ended December 31, 2025.

NOTE 10. ACCRUED EXPENSES

A summary of accrued expenses as of December 31, 2025 and 2024 is as follows:

NOTE 11. LEASES

We lease vehicles, office space, warehouse space, and manufacturing equipment under operating and finance leases expiring in various years. In addition, we have generated sublease income for when we act as a lessor. Total lease expense was$32.1 million,$18.1 million and$14.9 million for the years ended December 31, 2025, 2024 and 2023 respectively.

Our components of net lease cost for the years ended December 31, 2025, 2024 and 2023 is as follows:

Supplemental balance sheet information related to leases as of December 31, 2025 and 2024 is as follows:

Supplemental cash flow information related to leases for the years ended December 31, 2025, 2024 and 2023 is as follows:

Future minimum non-cancelable operating and finance leases mature as follows:

(1) Interest rates range from 2.88% –12.00%.

We act as a lessor where we lease rental tools to customers on a short-term basis. Rental tools are included within Property and equipment, net in our Consolidated Balance Sheets. Refer to Note 6. Property and Equipment for more information. We recognize revenue from rental payments. Refer to Note 2. Summary of Significant Accounting Policies and Note 4. Revenue for more information.

NOTE 12. INCOME TAXES

The components of income before income taxes are as follows:

The components of income tax expense, presented in accordance with ASU 2023-09 for the year ended December 31, 2025, are as follows:

The components of income tax expense for the years ended December 31, 2024 and 2023 in accordance with guidance prior to the adoption of ASU 2023-09 were as follows:

Upon adoption of ASU 2023-09, the reconciliation of income tax expense computed using the US statutory income tax rate of 21% to the actual income tax expense and resulting effective tax rate for the year ended December 31, 2025 is as follows:

(a) The states that contribute to the majority (greater than 50%) of the tax effect in this category include North Dakota and New Mexico for 2025.

The reconciliation of income tax expense computed using the US statutory income tax rate of 21% to the actual income tax expense and resulting effective tax rate for the years ended December 31, 2024 and 2023 in accordance with guidance prior to the adoption of ASU 2023-09 was as follows:

We recorded tax expense of$45.2 million,$2.5 million and$20.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. For the years ended December 31, 2025, 2024 and 2023, our effective tax rate was 35.2%,1.7% and 21.7%, respectively.

Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, for the year ended December 31, 2025 is as follows:

(a) Cash taxes paid includes withholding taxes withheld by vendors and submitted to the foreign government on our behalf in lieu of income taxes.

Cash paid for income taxes, net of refunds, during the years ended December 31, 2024 and 2023 was$5.6 million and$28.4 million, respectively.

As of December 31, 2025, we had federal net operating losses of$343.2 million, of which$149.3 million are limited under Section 382 of the Internal Revenue Code. Of the federal net operating losses,$76.9 million are set to begin expiring in 2030 if unused, and$266.3 million are available to be carried forward indefinitely. We also had$86.8 million of foreign net operating losses, generally expiring within 5, 10, or 20 years from the year of generation and state net operating loss carryforwards of$27.3 million beginning to expire in 2036, of which$17.2 million are limited by Section 382 of the Internal Revenue Code.

As of each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets. As of December 31, 2025, it was determined that there is sufficient positive evidence to conclude that it is more likely than not that$101.9 million of deferred taxes are realizable. The valuation allowance was$60.6 million and$53.3 million at December 31, 2025 and December 31, 2024, respectively. The change in valuation allowance of$7.3 million was primarily driven by an $8.3 million valuation allowance established in foreign jurisdictions where we do not believe we will be able to realize the deferred tax assets, offset by releases in jurisdictions where we believe we can realize our deferred tax assets.

The changes in valuation allowance during the years ended December 31, 2025, 2024 and 2023 were as follows:

(1) We have adjusted certain valuation allowances as a result of the Merger and purchase price accounting.

(2) We have recorded valuation allowances on deferred tax assets attributable to net operating losses in certain jurisdictions due to uncertainty of our ability to utilize these assets in future periods. During 2025, we recorded valuation allowances of$1.4 million and$9.5 million related to domestic deferred tax assets and foreign deferred tax assets, respectively.

(3) We reverse valuation allowances on deferred tax assets in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. In 2025, reversals were primarily driven by release in foreign jurisdictions where we now believe we will utilize deferred tax assets or restructuring changes.

(4) We have adjusted certain valuation allowances as a result of changes in tax rates in certain jurisd ictions, the expiration of carryforward periods for net operating loss carryforwards, and foreign exchange rate movements.

As of December 31, 2025, federal income tax returns for 2022 through 2024 remain open for examination. The foreign and state statute of limitations vary by jurisdiction but are generally open for examination after 2019.

We have$19.3 million of excess foreign tax credits, of which$16.6 million will expire in years ending 2029 to 2035, while$2.7 million are carried forward indefinitely. We have$8.7 million of general business credits which expire in years ending 2037 to 2045.

We have recorded$2.1 million in uncertain tax positions in 2025, primarily related to uncertainty around federal tax credits. Uncertain tax positions of$0.2 million, if recognized, would affect our effective tax rate. A tabular reconciliation of the total amounts of uncertain tax positions at the beginning and end of the period were as follows:

The amounts above exclude accrued interest and penalties of $0.1 million at December 31, 2025. We classify interest and penalties relating to uncertain tax positions within Income tax expense, net in our Consolidated Statements of Operations and Comprehensive Income.

Except in Brazil, we no longer assert permanent reinvestment. We maintain a deferred foreign tax liability, which had a balance of$2.2 million as of December 31, 2025 and is primarily related to estimated foreign withholding tax associated with repatriating non-U.S. earnings back to the United States. For the earnings we intend to indefinitely reinvest, no deferred tax liabilities for foreign withholding or other taxes have been recorded.

The OECD recently enacted model rules for a new global minimum tax framework, also known as "Pillar Two", and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. We have considered the possible implication of the legislation passed or in consideration of being passed, and we do not believe these rules will have a material impact on our taxes in the near future.

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 have included provisions effective in 2025 in our calculations and will continue to monitor future administrative guidance and regulations that clarify the legislative text of the OBBBA and the bill’s potential effect on our income taxes.

NOTE 13. EARNINGS PER SHARE

Basic earnings per share of Company Common Stock is calculated by dividing the net income attributable to the Company during the period by the weighted average number of shares of Company Common Stock outstanding during the same period. Diluted earnings per share, if dilutive, includes the incremental effect of issuable shares from stock awards, as determined using the treasury stock method. Potentially dilutive shares are excluded from the computation of diluted income per share if they have an anti-dilutive effect in the period.

As a result of the Merger, as discussed in Note 1. Summary of Business, all histo rical per share data, number of shares and number of issuable shares from stock awards were retroactively adjusted by applying the Exchange Ratio to the Legacy Innovex basic and diluted weighted average number of shares. The following table summarizes the basic and diluted earnings per share calculations:

NOTE 14. STOCKHOLDERS' EQUITY

Equity Incentive Plans

In conjunction with the Merger, effective as of the Closing Date, the 2017 Omnibus Incentive Plan of Dril-Quip, Inc. (the “2017 Plan”), as amended, was maintained as our continuing equity incentive plan for the benefit of employees of the Company or any of its subsidiaries and members of the Board of Directors. The 2017 Plan provides for awards of stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units, cash awards and performance awards. The 2017 Plan is administered by the Compensation Committee, which is composed entirely of independent directors, for all employee awards and by the Board of Directors for all director awards.

As described below, certain amounts of restricted stock awards (“RSAs”), restricted stock units (“Dril-Quip RSUs”), performance unit awards (“Performance Units”) and director stock compensation awards (“DSAs”) awarded by Dril-Quip under the 2017 Plan in the pre-combination period vested upon the Merger, and certain amounts of the RSAs, Dril-Quip RSUs, and Performance Units awarded under the 2017 Plan remained outstanding. All such stock-based payments awards are considered modified upon occurrence of the Merger. Compensation expense associated with those awards that have a requisite service period remaining as of the Closing Date will be recognized on a straight-line basis over the remaining requisite service period based on the Closing Date fair value.

On May 14, 2025, at the 2025 annual meeting of our stockholders, upon the recommendation of the Board of Directors, our stockholders approved the Innovex 2025 Long-Term Incentive Plan (the “2025 LTIP”). From and after May 14, 2025, no new grants were made under the 2017 Plan after the effective date. The 2025 LTIP provides for awards of stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, cash awards and performance awards. Up to 5,000,000 shares of common stock may be issued, either made available from authorized and unissued shares, treasury shares, or previously issued shares that have been reacquired by us. The total number of shares available for future issuance under the 2025 LTIP is 4,320,716 shares as of December 31, 2025.

Stock-based compensation expense recorded was$13.8 million,$13.2 million, and$2.0 million for the years ended December 31, 2025, 2024 and 2023, respectively. Total stock-based compensation expense by award type is as follows:

For the years ended December 31, 2025 and 2024, the income tax benefit recognized in net income for stock-based payment awards was$1.7 million and$8.1 million, respectively. No income tax benefit was recognized in net income for stock-based payment awardsfor the year ended December 31, 2023.

Restricted Stock Awards

Under the 2017 Plan, Dril-Quip awarded officers, directors, and key employees RSAs, which is an award of common stock subject to time vesting. These RSAs provide immediate ownership rights but are restricted as to transference, sale, and other disposition. The RSAs vest ratably over a three-year period.

As per the grant agreement, RSAs granted in 2021 become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 60,717 RSAs granted in 2021 outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration based on the fair value on the Closing Date.

RSAs granted in 2022 and 2023 remained outstanding and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. As of September 6, 2024,493,048 shares of Company Common Stock subject to RSAs were outstanding under the 2017 Plan; $4.9 million of their fair value is attributable to post-Merger services and is recognized as equity-based compensation expense in the post-combination period to the extent earned. The fair value of RSAs settled in shares during the year ended December 31, 2025 was$1.8 million. Activity related to RSAs is as follows:

As of December 31, 2025, we expect$0.4 million of unrecognized compensation cost related to RSA grants to be recognized over the weighted–average period of 0.8 years.

Restricted Stock Units

Dril-Quip RSUs—Under the 2017 Plan, Dril-Quip awarded certain employees with key roles related to a prior acquisition Dril-Quip RSUs, which is an unfunded and unsecured promise to deliver common stock subject to time vesting. Dril-Quip RSUs do not provide ownership rights until settlement occurs (i.e., delivery of the underlying shares of common stock). These Dril-Quip RSUs are restricted as to transference, sale, and other disposition, and vest ratably over a two-year period.

Dril-Quip RSUs granted in 2023 and 2024 remained outstanding at the Closing Date of the Merger and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. No additional RSUs from the 2017 Plan were granted in 2025.

Legacy Innovex RSUs—Under the 2016 Legacy Innovex Plan, Legacy Innovex previously granted RSUs subject to vesting and forfeiture conditions during applicable restriction periods, as set forth in an applicable Award Agreements.

When RSUs are originally granted to employees or non-employee directors, they are valued at fair value on the date of grant. We recognize stock-based compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest. The RSUs granted in 2024 have two different vesting schedules. Immediately upon close of the Merger,224,541 RSUs vested; as a result, we recorded $3.9 million of compensation expense related to these RSUs on the Closing Date. The remaining RSUs granted in 2024 will vest over two years beginning from the date of the Merger. RSUs granted in 2023 vest ratably over athree orfour year period. No additional RSUs from the 2016 Legacy Innovex Plan were granted in 2025.

2025 LTIP RSUs—Under the 2025 Long-Term Incentive Plan, we granted RSUs subject to vesting and forfeiture conditions during applicable restriction periods, as set forth in an applicable award agreements. These RSUs are valued at fair value on the grant date, and we recognize stock-based compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest.

The fair value of RSUs settled in shares during the year ended December 31, 2025 was$8.4 million. Activity related to RSUs is as follows:

As of December 31, 2025, we expect$12.2 million of unrecognized compensation cost related to RSU grants to be recognized over the weighted–average period of 1.9 years.

Performance Unit Awards

Under the 2017 Plan, Dril-Quip awarded Performance Units to officers and key employees. Under the terms of the Performance Units, participants may earn from 0% to 200% of their target award based upon the Company’s relative TSR in comparison to the 15 component companies of the Philadelphia Oil Service Index and the S&P 500 Index. Starting with the 2022 grants, the Philadelphia Oil Service Index was replaced by the VanEck Oil Services ETF Index.

As per the grant agreement, Performance Units granted in 2021 become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 74,871 Performance Units granted in 2021 outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration based on the fair value on the Closing Date.

Performance Units granted in 2022 and 2023 remained outstanding and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. The fair value of Performance Units settled in shares during the year ended December 31, 2025 was$0.3 million. Activity related to Performance Units is as follows:

As of December 31, 2025, we expect$0.4 million of unrecognized compensation cost related to Performance Unit awards to be recognized over the weighted–average period of 2.2 years.

Director Stock Compensation Awards

Under the 2017 Plan, a stock compensation program for the directors is authorized whereby the directors may elect to receive all or a portion of their fees in the form of restricted stock awards ("DSAs") in an amount equal to 125% of the fees in lieu of cash. The awards are made quarterly on the first business day after the end of each calendar quarter and vest on January 1 of the second year after the grant date. Effective January 1, 2025, directors may no longer elect to receive restricted stock awards in excess of 100% of their fees in lieu of cash.

As per the grant agreement, DSAs become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 75,537 DSAs outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration. Activity related to DSAs is as follows:

As of December 31, 2025, we expect$0.3 million of unrecognized compensation cost related to DSA grants to be recognized over the weighted–average period of 0.2 years.

Stock Options

Under the 2016 Legacy Innovex Plan, Legacy Innovex previously granted stock options which generally vested in equal increments over four years and had aten-year term. Pursuant to the Merger Agreement, each stock option became fully vested and settled immediately prior to the effective time of the Merger. Due to the accelerated vesting, we recognized all remaining unamortized compensation expense of $0.6 million upon close of the Merger.

During the year ended December 31, 2023, after adjustment for the Exchange Ratio, a total of 835,175 options were granted with a total grant date fair value of$5.0 million. The intrinsic value of options exercised in the year ended December 31, 2024 was$19.8 million. No options were exercised in 2025 or 2023. As of December 31, 2025, we had no unrecognized stock-based compensation expense attributable to stock options.

Performance Stock Units

Under the 2025 LTIP, certain members of senior management were awarded PSUs that are subject to the achievement of certain levels of specified market and performance goals, in addition to time-based vesting requirements. The market goal for PSUs granted is targeted levels of TSR relative to the TSR of the companies in the VanEck Oil Services ETF Index. The performance goal for the PSUs granted is one of our non-GAAP measures, based on the achievement of a targeted Return on Capital Employed (“ROCE”).

Both the performance and market goals are weighted 50% and measured over a three-year period. The number of PSUs that may vest in full after three years ranges from 0% to 200% of the target amount. The awards become eligible to vest only if the goals are achieved and will vest only if the grantee remains employed by us through each applicable vesting date.

The fair value of the portion of the PSUs subject to targeted levels of relative TSR is estimated on the date of grant using a Monte Carlo simulation model. The Monte Carlo methodology that we use to estimate the fair value at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the portion of the PSUs subject to targeted levels of relative TSR at the date of grant must be recognized as compensation expense even if the market condition is not achieved, and is reflected over the service period and reduced for forfeitures as they occur. The weighted average of assumptions used in the valuation model for the year ended December 31, 2025 were as follows:

The risk-free interest rate is obtained as of the grant date with terms matching the performance period. The expected stock price volatility is based on our trading history and the trading history of our peers. The expected life in years is based on the remaining performance measurement period. The expected dividend yield used is 0.0%, as management does not currently intend on paying out dividends in the future.

The fair value of the portion of the PSUs subject to targeted levels of non-GAAP ROCE is estimated on the grant date based on the closing price of our common stock. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion of the awards that is probable to vest and is reflected over the service period. We recognize the effect of award forfeitures as an adjustment to compensation expense in the period the forfeiture occurs. Activity related to PSUs was as follows:

As of December 31, 2025, we expect$1.8 million of unrecognized compensation cost related to PSU grants to be recognized over the weighted–average period of 2.3 years.

Share Repurchase Plan

On February 25, 2025, the Board approved the New Share Repurchase Program that authorizes repurchases of up to an aggregate of$100 million of outstanding Company Common Stock. In connection with the New Share Repurchase Program, all share repurchase plans previously authorized by the Board of Directors of Dril-Quip have been terminated. The New Share Repurchase Program does not require us to repurchase a specific number of shares or have an expiration date. Any shares repurchased under the New Share Repurchase Program will be cancelled.

During the twelve months ended December 31, 2025, we repurchased 625,000 shares at an average price of$14.89 under the New Share Repurchase Program for approximately$9.3 million and have retired such shares. As of December 31, 2025, we had remaining authorization to repurchase up to approximately$90.7 million of our shares.

NOTE 15. RELATED PARTY TRANSACTIONS

Related parties include key management personnel and their close family members having authority and responsibility for planning, directing, and monitoring the activities of the Company directly or indirectly. In the normal course of business from time to time, we receive services and products from, or sell products, services and rentals to, related parties, in transactions that are either not material or approved in accordance with our Related Party Transaction Approval Policy. Such transactions are considered related party purchases or related party revenue only during the period of time in which the customer or vendor had a related party relationship with the Company.

The total of purchases from vendors that were related parties were$0.3 million,$2.2 million and$1.7 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Total revenue earned from customers that were related parties were$1.0 million,$9.3 million and$3.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. In October 2023, we added a new member to Legacy Innovex’s Board of Directors who was an executive of Pioneer Natural Resources, Inc. (“Pioneer”), an established customer of Legacy Innovex. Effective June 2024, this director no longer works for Pioneer and therefore is no longer considered a related party. Of the$9.3 million of revenue earned from related parties for the year ended December 31, 2024,$5.7 million related to Pioneer. At December 31, 2025 we hadno outstanding net trade receivables due from customers that are related parties and at December 31, 2024 we had$0.2 million of outstanding net trade receivables due from customers that are related parties.

NOTE 16. COMMITMENTS AND CONTINGENCIES

Litigation

We are sometimes involved in legal proceedings and certain regulatory matters. We record a liability for those legal proceedings and regulatory matters when we determine it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We also disclose when it is reasonably possible that a material loss may be incurred. From time to time, we may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if we believe settlement is in the best interest of the Company and our stockholders. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

Impulse Litigation

In conjunction with the DWS acquisition,$4.0 million of the purchase price (the “Impulse Litigation Holdback Amount”) was retained by the Company for purposes of funding any post-closing expenses and liabilities related to a patent infringement litigation matter to which DWS is a party, captioned Impulse Downhole Solutions Ltd., and Impulse Downhole Tools USA Ltd (collectively hereto referred to as “Impulse”), v. Downhole Well Solutions, LLC, Civil Action No. 4:23-cv-02954, in the United States District Court for the Southern District of Texas Houston Division (the “Impulse Litigation”). This lawsuit was filed in 2023 by Impulse Downhole Solutions, Ltd and Impulse Downhole Tools USA Ltd. against DWS alleging infringement of several of Impulse Downhole Solutions Ltd. U.S. patents related to friction reduction tools used in directional oil drilling.

We cannot predict with any degree of certainty the outcome of the Impulse Litigation or determine the extent of any potential liability or damages. As of December 31, 2025, we estimate that the remaining Impulse Litigation Holdback Amount will be fully utilized given the amount of legal defense costs incurred on the case. In connection with this litigation matter, as of December 31, 2025, we have an accrual of$5.0 million, consisting of estimated future legal defense costs. It is reasonably possible that the estimate will change in the near term and the effect of the change could be material and therefore we can provide no assurance as to the scope and outcome of these matters. Accordingly, we can provide no assurance that our business, financial position, results of operations or cash flows will not be materially adversely affected. We believe that the case is without merit and we intend to vigorously defend this matter.

NOTE 17. ASSETS HELD FOR SALE

At December 31, 2025, we had no assets identified as held for sale in accordance with ASC 360 in our Consolidated Balance Sheets.

In the first quarter of 2025, we identified a decrease in the market price of long-lived assets related to land and a building in Mexico classified as assets held for sale at March 31, 2025. We determined the carrying values were not recoverable and exceeded their fair values. We then measured the impairment losses by comparing the book values with current third-party quoted market prices, resulting in a total impairment of$2.9 million. The impairment losses recorded are presented as Impairment of long-lived assets in our Consolidated Statements of Operations and Comprehensive Income for twelve months ended December 31, 2025. In the fourth quarter of 2025, after further review by management, we made the decision to retain the land and building in Mexico for use. Thus, the land and building were thereby reclassified at their net carrying amount from Assets held for sale to Property and equipment, net in our Consolidated Balance Sheets at December 31, 2025.

In April 2025, we entered into a purchase and sale agreement to sell our Eldridge Facility for a total sum of$90.0 million, after subsequent contract amendments. In connection with the sale, and in accordance with ASC 360, we identified$40.1 million of land and buildings and$0.7 million of machinery as held for sale at June 30, 2025. In September 2025, we completed the sale of the Eldridge Facility and disposed of the aforementioned assets, resulting in the derecognition of these assets held for sale. The proceeds in excess of book value from the sale are presented in Gain on sale of assets in our Consolidated Statements of Operations and Comprehensive Income for the twelve months ended December 31, 2025.