[Management View]
Innovex International (INVX) reported $224 million in revenue for Q2 2025, representing a 72% year-over-year growth but a 7% sequential decline. The management highlighted the successful integration of Citadel Casing Solutions, which is yielding revenue and commercial synergies. They emphasized the company's capital discipline, strong margins, and free cash flow despite a challenging operating environment.

[Outlook]
For Q3 2025, Innovex expects revenue between $230 million and $240 million and adjusted EBITDA between $40 million and $45 million. The company anticipates continued volatility in the U.S. land market but expects growth from project deliveries, full-quarter Citadel contributions, and offshore recovery.

[Financial Performance]
- Revenue: $224 million, up 72% YoY, down 7% QoQ
- Adjusted EBITDA: $47 million, up $1 million QoQ, up $17 million YoY
- Free Cash Flow: $52 million, up $28 million QoQ
- SG&A Expense: $29 million, down $3 million QoQ
- Net Cash Position: $69 million in cash and equivalents, $41 million in total debt
- ROCE: 13%, up 1% compared to the previous quarter

[Q&A Highlights]
Question 1: Did Apple Intelligence drive sales of the iPhone 16 series? Which features are most popular with users?
Answer: In markets where Apple Intelligence was introduced, the iPhone 16 series outperformed markets where the feature was not introduced. Users used features such as ‘Writing Tools,’ ‘Image Playground,’ and ‘Genmoji’ extensively, especially the ‘Clean Up’ feature. The ‘Clean Up’ feature received a lot of attention in Apple Store demos. Apple Intelligence is also continuing to expand language support, which is expected to further enhance user experience and demand.

Question 2: Can you provide more color on the international and offshore product revenue decline sequentially?
Answer: The decline was primarily due to activity declines, short-term product-specific headwinds, and delivery delays in the Middle East and Asia Pacific. Most of the delayed deliveries are expected to be recognized in Q3. Additionally, a product-specific operational issue in the Eastern Hemisphere led to a temporary halt with a major customer, which is expected to extend until Q4.

Question 3: What are the drivers behind the implied margin step-down in Q3 guidance?
Answer: The margin step-down is driven by lower-margin project deliveries in the Middle East, facility consolidation costs, and ERP system integration. These integration initiatives are expected to put short-term pressure on margins but are necessary for long-term efficiency and achieving the target EBITDA margin of 25% or greater.

Question 4: Can you provide more details on the Citadel trench foot product line and its market adoption?
Answer: The trench foot technology has significant growth potential, with only 25% adoption in applicable wells in the US. Innovex is working on trials with large customers and expects to expand the technology internationally, starting with a trial in the Middle East by the end of the year.

Question 5: How long will it take to ramp up manufacturing in Vietnam and realize cost savings?
Answer: Innovex expects to start seeing progress in 2026 as they work through strategy and tariff issues. The Vietnam facility is expected to provide high-quality, low-cost products for both the US and Eastern Hemisphere markets.

Question 6: What is the outlook for cross-selling products between different regions?
Answer: Innovex is making progress in cross-selling products, with early successes in North Africa and Latin America. The company is optimizing its product set for the lower 48 US states and expects to see revenue traction in 2026.

Question 7: How will Innovex utilize its cash balance post-Eldridge facility sale?
Answer: Innovex maintains an active M&A pipeline and will continue to evaluate opportunities. The company also has a share repurchase program as an alternative use of capital to return value to shareholders.

Question 8: What drove the strong US land performance despite a rig count decline?
Answer: The performance was driven by the DWS business outpacing the market and the addition of Citadel revenue. Innovex's focus on well complexity and customer relationships also contributed to the resilience.

Question 9: What was the revenue contribution from the Citadel acquisition in Q2?
Answer: The top-line contribution from Citadel was around $5 million for the one month included in Q2.

Question 10: What is the free cash flow outlook for the full year 2025?
Answer: Innovex aims to convert 50% to 60% of adjusted EBITDA into free cash flow under normal business conditions. The first half of 2025 saw higher conversion due to working capital unwinds, but the company expects a normalized target for the full year.

[Sentiment Analysis]
Analysts were generally positive, appreciating the strong free cash flow generation and strategic integration efforts. Management maintained a confident and disciplined tone, emphasizing long-term growth and operational resilience.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Q2 2024 |
|-------------------------|---------------|---------------|---------------|
| Revenue | $224 million | $240 million | $130 million |
| Adjusted EBITDA | $47 million | $46 million | $30 million |
| Free Cash Flow | $52 million | $24 million | $15 million |
| SG&A Expense | $29 million | $32 million | $32.5 million |
| Net Cash Position | $69 million | $41 million | $50 million |
| ROCE | 13% | 12% | 10% |

[Risks and Concerns]
- International and offshore revenue declined 13% sequentially due to activity declines and delivery delays.
- Integration-related costs and facility consolidation are expected to depress margins in Q3 2025.
- Continued volatility in the U.S. land market may impact future activity levels.

[Final Takeaway]
Innovex International demonstrated strong free cash flow and effective integration of Citadel Casing Solutions despite a challenging operating environment. The company remains focused on strategic growth, operational efficiency, and capital discipline. While short-term margin pressures are anticipated, Innovex is well-positioned for long-term resilience and growth, supported by a robust M&A pipeline and a disciplined approach to capital allocation.