Dril-Quip(DRQ)2024-11-08 21:01Financial Performance - For the nine months ended September 30, 2024, Innovex reported net income, income from operations, and Adjusted EBITDA as approximately 26%, 5%, and 22% of revenue, respectively, with capital expenditures accounting for only 1% of revenue [98]. - Innovex's income from operations for the nine months ended September 30, 2024, was approximately $22.2 million, a decrease from $74.0 million for the same period in 2023 [98]. - Revenues for the three months ended September 30, 2024, were $151.8 million, a 9% increase from $139.1 million in the same period of 2023 [118]. - Net income for the three months ended September 30, 2024, was $82.6 million, a 437% increase from $15.4 million for the same period in 2023 [131]. - Net income for the nine months ended September 30, 2024, was $108.5 million, an increase of $53.0 million, or 95%, from $55.5 million for the same period in 2023 [144]. - Adjusted EBITDA for the three months ended September 30, 2024, was $27.4 million, a decrease of 18% from $33.3 million in the same period of 2023 [164]. - The company reported a Free Cash Flow of $51.1 million for the nine months ended September 30, 2024, an increase of 27% from $40.1 million in the same period of 2023 [168]. Market Contribution - The North America market contributed approximately 63% of total revenue, while international and offshore markets accounted for 37% [94]. - The company aims to significantly increase revenue from international and offshore markets, particularly in the Middle East, which has become its largest international market [94]. - NAM market revenue for the nine months ended September 30, 2024, was $258.3 million, a decrease of $22.5 million from $280.8 million in the same period of 2023 [131]. - International and Offshore market revenue for the nine months ended September 30, 2024, was $151.8 million, an increase of $10.2 million from $141.6 million in the same period of 2023 [131]. Costs and Expenses - Cost of revenues for the three months ended September 30, 2024, was $99.1 million, an 11% increase from $89.2 million for the same period in 2023 [120]. - Selling, general and administrative expenses for the three months ended September 30, 2024, were $38.0 million, a 98% increase from $19.2 million in the same period of 2023 [121]. - Total costs and expenses for the three months ended September 30, 2024, were $165.0 million, a 43% increase from $115.1 million in the same period of 2023 [118]. - Acquisition costs for the three months ended September 30, 2024, were $20.3 million, a significant increase from $0.8 million in the same period of 2023 [125]. - Acquisition costs for the nine months ended September 30, 2024, were $25.5 million, an increase of $23.5 million from $2.0 million for the same period in 2023 [138]. Merger and Corporate Structure - Innovex's merger with Legacy Innovex was completed on September 6, 2024, with the new company name being Innovex International, Inc. [100]. - The merger resulted in Legacy Innovex stockholders receiving 32,183,966 shares of the new company common stock [101]. Cash Flow and Indebtedness - Cash provided by operating activities was $57.1 million for the nine months ended September 30, 2024, compared to $54.5 million for the same period in 2023, reflecting a $2.6 million increase [149]. - Net cash provided by investing activities was $150.4 million for the nine months ended September 30, 2024, compared to $(31.6) million for the same period in 2023, indicating a $182.0 million increase [151]. - Net cash used in financing activities was $(114.2) million for the nine months ended September 30, 2024, an increase of $91.2 million from $(23.0) million for the same period in 2023 [152]. - As of September 30, 2024, total indebtedness was $23.0 million, with cash and restricted cash of $99.9 million and availability under the Revolver of $90.8 million [145]. - As of September 30, 2024, the company had $12.7 million in borrowings under the Term Loan and $31.3 million under the Revolver, compared to $19.0 million and $31.3 million, respectively, as of September 30, 2023 [159]. Tax and Valuation - Income tax expense for the nine months ended September 30, 2024, was $6.9 million, a decrease of $8.5 million from $15.4 million for the same period in 2023 [143]. - The company had a valuation allowance for deferred tax assets of $65.1 million as of September 30, 2024 [173]. Risk Management and Impairment - The company is indirectly exposed to fluctuations in oil and natural gas prices, which may impact drilling and completion activity levels of its customers in the exploration and production industries [181]. - Legacy Innovex performs annual impairment analysis of goodwill as of December 31st, requiring judgments about future revenues and costs related to long-term assets [176]. - The estimates and assumptions used in impairment assessments are considered reasonable, but significant market changes could lead to future impairments [178]. - Credit risk is managed by analyzing the financial condition of counterparties, primarily E&P operators, before accepting new customers [183]. - The company evaluates property and equipment for impairment whenever changes in circumstances indicate that the carrying amount may not be recoverable [176]. Financial Ratios - The company maintained a total leverage ratio of not more than 2.50 to 1.00 as of the last day of each fiscal quarter, in compliance with the Credit Agreement [158]. - The company reported a fixed charge coverage ratio of not less than 1.10 to 1.00 as of the last day of each fiscal quarter, contingent on certain conditions [158]. - The company's Return on Capital Employed (ROCE) decreased to 9% for the twelve months ended September 30, 2024, down from 22% in the previous year [166].