ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected aspects of our financial position, results of operations, comprehensive income (loss) and cash flows during the periods included in the accompanying consolidated financial statements. This discussion should be read in conjunction with our Consolidated Financial Statements and related notes thereto presented elsewhere in this Annual Report.
The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “ Cautionary Statement Regarding Forward-Looking Statements ” and “ Part I, Item 1A. Risk Factors .”
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,” “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.
EXECUTIVE SUMMARY
Overview
Innovex designs, manufactures, sells and rents mission critical engineered products to the global oil and natural gas industry. Our vision has been to create a global leader in well-centric products and technologies through organic, customer-linked innovations and disciplined acquisitions to drive leading returns for our investors. Our products are used across the life cycle of the well (during the construction, completion, production and intervention phases) and are typically utilized downhole and consumable in nature. Our products perform a critical well function, and we believe they are chosen due to their reliability and capacity to save our customers time and lower costs during the well lifecycle. We believe that our products have a significant impact on a well’s performance and economic profile relative to the price we charge, creating a “Big Impact, Small Ticket” value proposition. Many of our products can be used in a significant portion of our customers’ wells globally, with our most advanced products providing mission critical solutions for some of the most challenging and complex wells in the world. We have a track record of developing proprietary products to address our customers’ evolving needs, and we maintain an active pipeline of potential new products across various stages of development.
We are a global company, a nd for the year ended December 31, 2025, the NAM market made up approximately 52% of our revenue, while the International and Offshore markets constituted 48%. Within the NAM market, we have a strong presence in both the United States and Canada. The NAM market is core to us, and we maintain a robust sales and distribution infrastructure across the region. Our products have broad applicability in this market, particularly for horizontal or unconventional wells that have become prevalent methods of oil and natural gas development across the region. We are focused on significantly increasing our revenue from the International and Offshore markets, as these regions are typically subject to long-cycle investment horizons and exhibit relatively less cyclicality than the NAM market. The Middle East, and in particular Saudi Arabia, has been a key source of growth for Innovex. We also operate across A sia, Latin America, Europe and the Gulf of America, among other regions. To enhance our global reach, we have complemented our locations across these markets with a network of strategic distribution, sales and manufacturing partners.
We are an innovator and have a development process and culture focused on creating proprietary products for our customers. We seek to work with our customers to solve their operational challenges. We believe that these collaborations have been a source of growth as they have allowed us to develop new products with anchor customers that have served as an initial revenue base from which to scale. We have a unique cultu re that we view as having been critical to our success in the commercialization of new products. We define our culture as “ No Barriers .” Our goal is to remove internal barriers that slow the pace of innovation and empower our employees to be responsive to our customers’ needs, while maintaining a focus on returns for the Company. As a result of our culture and our commitment to customer responsiveness, we believe that we are more agile and able to faster than our larger competitors.
Our organic growth has been complemented by a disciplined acquisition strategy. We view acquisitions as a core competency and have identified a rich opportunity set of acquisition targets that we believe are seeking to transact. We aim to execute a disciplined acquisition strategy fo r high-quality opportunities that meet our stringent investment criteria.
We have a broad customer base, ranging from IOCs, NOCs, and E&P companies to multinational and regional oilfield service companies. Once a new product has been commercialized or acquired, our global sales and distribution infrastructure enables us to scale and drive customer adoption quickly.
Our business has produced strong returns on invested capital. Refer to “ Non-GAAP Financial Measures ” within this section for Return on Capital Employed, which is how we assess the effectiveness of our capital allocation over time. For the year ended December 31, 2025, our net income, income from operations and Adjusted EBITDA were equivalent to 9%, 14% and 19% of revenue, respectively. Over the same period, capital expenditures accounted for 4% of revenue, and we earned $132.6 million in income from operations. For the year ended December 31, 2024, our net income, income from operations, and Adjusted EBITDA were equivalent to 21%, 7% and 21% of revenue, respectively. Over the same period, capital expenditures accounted for 2% of revenue, and we earned $49.1 million in income from operations. We believe that our global sales and distribution network, as well as our manufacturing capacity and vendor network, position us well to drive revenue growth and margin expansion. Refer to “ How We Evaluate our Results of Operations ” within this section for the definitions of Adjusted EBITDA, Adjusted EBITDA Margin, and Return on Capital Employed, and “ Non-GAAP Financial Measures ” within this section for a reconciliation of Adjusted EBITDA, Adjusted EBITDA Margin, and Return on Capital Employed to our most directly comparable financial measures calculated and presented in accordance with GAAP.
We believe that we can create value for our stockholders across the industry cycle and view our “through-cycle playbook” as providing a plan for us to outperform in all market environments. We prioritize protecting the long-term health of the Company through investments in R&D and sustaining engineering in our existing portfolio in all market environments. We seek to maintain a conservative balance sheet to preserve operational and financial flexibility through the industry cycle.
Recent Developments
On February 7, 2025, we acquired SCF in exchange for $17.7 million of cash, subject to post-closing adjustments. SCF is a Canadian-domiciled entity and parent company to SCF Machining Corporation Vietnam Company Limited, a Vietnam-based company that was established to grow Innovex’s low-cost country supply chain by establishing an exclusive manufacturing vendor to provide Innovex with high quality, low price machined goods.
On February 27, 2025, we entered into the Third Amended and Restated Revolving Credit, Guaranty and Security Agreement among the Company, and each party joined thereto from time to time as a guarantor, as guarantors, the financial institutions from time to time party thereto, as lenders, and PNC Bank, National Association, as the agent for lenders (the “Credit Agreement”) to replace the Previous Credit Agreement (as defined herein). The Credit Agreement provides for a $200 million senior secured revolving credit facility, subject to a borrowing base. The Credit Agreement matures on February 27, 2030. The Credit Agreement, among other things, (i) extended the maturity of the agreement from June 2026 to February 2030, (ii) increased the maximum revolving advance amount from $110 million to $200 million, which may, subject to certain conditions, be increased to $250 million, (iii) eliminated the term loan commitment and (iv) provided for an applicable margin for interest on the loans to be based on availability, effective as of April 1, 2025. The applicable margin under the Credit Agreement will range from 0.50% to 1.00% for swing loans and alternate base rate revolving loans and 1.50% to 2.00% for term SOFR revolving loans.
On May 30, 2025, we acquired Citadel for $69.7 million in cash, subject to post-closing adjustments, resulting in Citadel becoming a wholly owned subsidiary of Innovex. Citadel is a leading provider of differentiated downhole technologies, which are designed to improve its customers’ economics by driving reduced cycle times through improved operational efficiencies and production of high-quality, reliable tools that are used globally in the oil and gas sector.
Refer to Note 3. Mergers and Acquisitions of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information with respect to our recent acquisitions.
On September 23, 2025, we completed the sale of our Eldridge facilities located at 6401 North Eldridge Pkwy, Houston, Texas 77041 (the "Eldridge Facility") to BIG Acquisitions LLC. The purchase price for the sale of the Eldridge Facility was $90.0 million, subject to adjustments. We had also entered into a short-term lease of the Eldridge Facility following the closing of the sale, which extended through the end of 2025, at a rate of $650,000 per month. The short-term lease allows for the completion of ongoing facility consolidation initiatives, ensuring no disruption to customer deliveries.
Market Factors and Trends
Our business is driven by the number of oil and natural gas wells drilled worldwide, which is closely tied to global exploration and production spending. As of January 23, 2026, Rystad Energy expects global upstream energy spending, excluding Iran, Venezuela, Cuba, Russia and China, to stay relatively flat over the next few years. Approximately 32,000 wells were drilled in 2025, which number is expected to slightly decline in 2026, and then recover to approximately 32,000 wells annually from 2027 through 2028. The pace of development activity is driven by expected well profitability and returns, which, in turn, are influenced by several factors, including current global oil and natural gas supply and demand balances, current and expected future prices for oil and natural gas and the perceived stability and sustainability of these commodity prices over time.
The oil and natural gas industry has historically been characterized by volatility in commodity prices and in the level of drilling and production activity, which are driven by a variety of market forces, including geopolitical instability, climate related initiatives, OPEC+ actions, among others. We expect that the growing energy demands of data centers, driven by the prevalence of Artificial Intelligence, will continue to contribute to the consumption of natural gas for power generation. The global demand for oil and natural gas has consistently increased historically, and we believe that multiple years of under investment in oil and natural gas development has left the industry with a limited amount of spare production capacity. Additionally, public E&P operators have adopted a more conservative approach to capital spending in response to stockholders’ desire for increased return of capital. We believe that these factors have laid a foundation to support oil and natural gas prices and will lead to a sustained spending cycle and stable activity levels by our customers in the near and medium-term.
HOW WE EVALUATE OUR RESULTS OF OPERATIONS
We use a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our results of operations and profitability and include:
Revenues Our revenues are generated from product sales, renting tools and from providing services related to the utilization of our products. One of our measures of financial performance is the amount of revenue generated quarterly and annually as revenue is an indicator of overall business growth for the Company.
Operating Income We track operating income on an absolute dollar basis and as a percentage of revenue. One of our measures of financial performance is the amount of operating income generated quarterly and annually, as operating income is an indicator of profit derived from our core business operations.
Net Income We track net income on an absolute dollar basis and as a percentage of revenue. One of our measures of financial performance is the amount of net income generated quarterly and annually as net income is an indicator of overall profitability of the Company.
Adjusted EBITDA We utilize Adjusted EBITDA (a non-GAAP measure) to assess the profitability of our business operations and to compare our operating performance to our competitors without regard to the impact of financing methods and capital structure and excluding costs that management believes do not reflect our ongoing operating performance, and for this reason we believe this measure will provide useful information to investors.
We track Adjusted EBITDA on an absolute dollar basis and as a percentage of revenue, which we refer to as Adjusted EBITDA Margin. We define Adjusted EBITDA as net income before interest expense, income tax expense, depreciation and amortization, (gain) loss on sale of assets, impairment of long-lived assets, and other expense (income), net, further adjusted to exclude certain items which we believe are not reflective of our ongoing performance or which are non-cash in nature. For a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, refer to “ Non-GAAP Financial Measures ” below.
Free Cash Flow We utilize Free Cash Flow (a non-GAAP measure) to evaluate the cash generated by our operations and results of operations. We define Free Cash Flow as net cash provided by (or used by) operating activities less capital expenditures, as presented in our Consolidated Statements of Cash Flows. Management believes Free Cash Flow is useful because it demonstrates the cash that was available in the period that was in excess of our needs to fund our capital expenditures. Free Cash Flow does not represent our residual cash flow available for discretionary expenditures, as we have non-discretionary expenditures, including, but not limited to, principal payments required under the terms of our Credit Facility, which are not deducted in calculating Free Cash Flow. For a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, refer to “ Non-GAAP Financial Measures ” below.
Return on Capital Employed We utilize Return on Capital Employed (“ROCE”) (a non-GAAP measure) to assess the effectiveness of our capital allocation over time and to compare our capital efficiency to our competitors, and for this reason we believe this measure will provide useful information to investors. We define ROCE as income from operations, before acquisition and integration costs and after tax (resulting in adjusted income from operations, after tax) divided by average capital employed. Capital employed is defined as the combined values of debt and stockholders’ equity. For a reconciliation of ROCE to income from operations, the most directly comparable GAAP measure, refer to “ Non-GAAP Financial Measures ” below.
Adjusted EBITDA, Free Cash Flow and ROCE do not represent and should not be considered alternatives to, or more meaningful than, net income, income from operations, net cash provided by operating activities or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Our computation of Adjusted EBITDA, Free Cash Flow and ROCE may differ from computations of similarly titled measures of other companies. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure, refer to “ Non-GAAP Financial Measures ” below.
FACTORS AFFECTING THE COMPARABILITY OF OUR RESULTS OF OPERATIONS
Our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, due to recent and future acquisitions. One way in which we have grown, and will continue to grow, our operations and financial results, is through strategic acquisitions. In May 2023, Legacy Innovex acquired 20% of DWS, a company that manufactures and rents engineered downhole tools designed to improve the performance of directional and horizontal drilling operations. In March 2024, Legacy Innovex entered into the Merger Agreement with Dril-Quip, and the Merger was consummated on September 6, 2024. In November of 2024, we acquired the remaining 80% equity interest in DWS. In February 2025, we acquired SCF, a Canadian-domiciled entity and parent company to SCF Machining Corporation Vietnam Company Limited, a Vietnam-based company. In May 2025, we acquired Citadel, a leading provider of differentiated downhole technologies. As a general matter, following an acquisition, our results of operations are affected by the results of the newly acquired business or operations, the purchase accounting for the acquisition, any debt incurred in connection with the acquisition and expenditures made to integrate the newly acquired business or operations. As a result of our acquisitions and the consolidation of our operating subsidiaries’ into our financial results, the periods presented in our historical financial statements may not be comparable to one another and our future results of operations and financial results may differ. Additionally, as a result of the Merger, we expect to incur recurring administrative expenses related to being a publicly traded corporation that are not reflected in the historical Legacy Innovex’s financial statements.
RESULTS OF OPERATIONS
This section of this Annual Report generally discusses fiscal year 2025 and 2024 results and year-to-year comparisons between fiscal year 2025 to fiscal year 2024. Discussions of fiscal 2023 results and year-to-year comparisons between fiscal 2024 and 2023 that are not included in this Annual Report can be found in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024.
The following table presents summary consolidated operating results for the periods presented:
Year Ended December 31,
(in thousands)
$ Change
% Change
Revenues
Cost of revenues (a)
Selling, general and administrative expenses
Gain on sale of assets
Depreciation and amortization
Impairment of long-lived assets
Acquisition and integration costs
Total costs and expenses
Income from operations
Interest expense
Other (income) expense, net
Equity method earnings
Bargain purchase loss (gain)
Gain on consolidation of equity method investment
Income before income taxes
Income tax expense
Net income
(a) Cost of revenues excludes depreciation and amortization.
Revenue by Product Family
The following table presents the percentage of revenue contributed by each of our product families during fiscal year 2025 and 2024:
Year Ended December 31,
Drilling Enhancement
Fishing & Intervention
Production Solutions
Service, Mileage & Other
Subsea Solutions
Surface Wellheads
Well Completion
Well Construction
Total
Revenue by Geography
The following table presents revenues by geography for the years ended December 31, 2025 and 2024. Revenues are attributable to geographies based on the sales destination of the products or services provided.
Year Ended December 31,
(in thousands)
$ Change
% Change
US – Land
US – Offshore
Other – MEAP (a)
Canada (b)
Other – ECAF (a)
Saudi Arabia
Brazil
Mexico
Argentina
Other – LATAM (a)
Total
(a) No single country included in these categories – Middle East and Asia Pacific (“MEAP”), Europe, Caspian, and Africa ("ECAF"), and Latin America ("LATAM") – 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.
Revenue in any one of our geographies or in any one of our product family may fluctuate from period to period based on the mix of products and services sold in a given period and the timing of revenue recognition.
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Revenues Our NAM market revenue for the year ended December 31, 2025 was $511.2 million, an increase of $150.1 million from the year ended December 31, 2024, primarily driven by an increase in market share and incremental business operations due to the Merger and acquisitions of DWS, SCF and Citadel. This was offset by a continued reduction in drilling activity in North America due to a decline in the North America onshore rig count during the comparative period. Our International and Offshore market revenue for the year ended December 31, 2025 was $467.1 million, an increase of $167.4 million from the year ended December 31, 2024, primarily driven by increased business operations due to the aforementioned acquisitions.
Cost of revenues, exclusive of depreciation and amortization Total cost of revenues for the year ended December 31, 2025 was $675.0 million, an increase of $246.8 million from the year ended December 31, 2024. The change was primarily attributable to an increase of $80.1 million in personnel expense, coupled with an increase to our product costs as a result of an increase in sales activity.
Selling, general and administrative expenses Selling, general and administrative expense for the year ended December 31, 2025 was $128.8 million, an increase of $12.6 million from the year ended December 31, 2024. The change was primarily attributable to an increase of $23.4 million in wages and bonuses, driven by an increase in our headcount and business activity attributable to our acquisitions during the period, offset by a decrease of $10.4 million in bad debt expense, due primarily to recoveries of outstanding receivables from our prior agent in Saudi Arabia.
Gain on sale of assets Gain on sale of assets for the years ended December 31, 2025 and December 31, 2024 was $39.8 million and $0.7 million, respectively. The change was driven by the sale of our Subsea Tree product line in June 2025 and the Eldridge Facility assets in September 2025, both of which resulted in a gain, offset by normal variations associated with the sale of property and equipment during the period.
Depreciation and amortization Total depreciation and amortization expense for the year ended December 31, 2025 was $60.7 million, an increase of $29.5 million from the year ended December 31, 2024. The change was primarily attributable to the additional depreciation on assets acquired as part of our acquisitions.
Impairment of long-lived assets Long-lived asset impairment expense for the year ended December 31, 2025 was $3.4 million , a decrease of $0.1 million from the year ended December 31, 2024 . The impairment expense was primarily related to (i) land and a building in Mexico acquired as part of the Merger that was held for sale at March 31, 2025 and marketed at an amount that was lower than the net book value, which ultimately resulted in an impairment expense of $2.9 million and (ii) declining market conditions associated with our anticipated sub-lease of the prior Dril-Quip corporate office . The land and building in Mexico were 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. Refer to Note 17. Assets Held for Sale for further information.
Acquisition and integration costs Acquisition and integration costs for the year ended December 31, 2025 were $17.5 million, a decrease of $15.8 million from the year ended December 31, 2024. The change was due to a reduction of costs incurred attributable to the Merger in 2024.
Interest expense Total interest expense was $2.6 million and $2.4 million for the years ended December 31, 2025 and December 31, 2024. Interest expense is comparable for both periods due to similar average total debt and finance lease obligations during the comparative periods.
Other (income) expense, net Total other (income) expense, net for the year ended December 31, 2025 and 2024 was ($1.8) million and $0.3 million, respectively. The change was primarily attributable to the net change in our foreign currency exchange (gains) losses.
Equity method earnings Equity method earnings for the year ended December 31, 2024 consisted of the net earnings in DWS, along with the amortization of our proportional ownership interest in the step up of the fair value of the intangible assets acquired, during the period that DWS was accounted for as an equity method investee. With the purchase of the remaining 80% equity interest in DWS on November 29, 2024, we did not recognize equity method earnings in 2025.
Bargain purchase loss (gain) Bargain purchase loss (gain) for the year ended December 31, 2025 and 2024 was $3.3 million and $(85.8) million, respectively. The bargain purchase gain recognized in 2024 was related to the Merger, while the bargain purchase loss recognized in 2025 was related to measurement period adjustments recognized subsequent to the Merger. Refer to Note 3. Mergers and Acquisitions of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
Gain on consolidation of equity method investment Gain on consolidation of equity method investment for the year ended December 31, 2024 was $8.0 million, which was entirely related to the step acquisition of DWS that occurred on November 29, 2024. No activity was recognized in 2025.
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 year ended December 31, 2025 was $45.2 million, an increase of $42.7 million from the year ended December 31, 2024. The change was primarily driven by changes in (i) our mix of income before income taxes by geography and tax jurisdiction, (ii) changes in valuation allowances in foreign jurisdictions, (iii) foreign withholding taxes, and (iv) other non-deductible expenses. For the year ended December 31, 2025, income before taxes was $128.5 million, a decrease of $14.3 million from the year ended December 31, 2024 .
Net income Net income for the year ended December 31, 2025 was $83.3 million, a decrease of $57.0 million from the year ended December 31, 2024, as a result of both the bargain purchase gain recognized for the year ended December 31, 2024 and the factors discussed above.
NON -GAAP FINANCIAL MEASURES
Refer to “ How We Evaluate our Results of Operations ” for the definitions of our non-GAAP financial measures.
Adjusted EBITDA and Adjusted EBITDA Margin
The following table presents a reconciliation of the GAAP financial measure of net income and net income as a percentage of revenue to Adjusted EBITDA and Adjusted EBITDA Margin, respectively, for each of the periods indicated:
Year Ended December 31,
(in thousands)
$ Change
% Change
Net income
Interest expense
Income tax expense
Depreciation and amortization
EBITDA
Other non-operating (income) expense, net (1)
Gain on sale of assets
Impairment of long-lived assets
Acquisition and integration costs (2)
Equity method investment adjustment (3)
Bargain purchase loss (gain)
Gain on consolidation of equity method investment
Stock-based compensation
IPO preparation expenses (4)
Adjusted EBITDA
Net income as a % of revenue
Adjusted EBITDA Margin
(1) Primarily represents foreign currency exchange (gain) loss, (gain) loss on lease terminations, and other non-operating items.
(2) For the year ended December 31, 2025, acquisition and integration costs consisted of legal, accounting, advisory fees, move, severance and other integration costs associated with the Merger, the acquisition of the remaining equity interest in DWS, and the acquisitions of SCF and Citadel. For the year ended December 31, 2024, acquisition and integration costs consisted of legal, accounting, advisory fees, move, severance and other integration costs associated with the Merger and the acquisition of the remaining equity interest in DWS. These acquisition and integration costs are one-time in nature and represent expenses that we do not view as normal operating expenses necessary to operate our business.
(3) Reflects the elimination of our percentage of interest expense, depreciation, amortization and other non-recurring expenses included within equity method earnings relating to our previously unconsolidated investment in DWS.
(4) Reflects legal, consulting and accounting fees and expenses related to the preparation of Legacy Innovex’s initial public offering.
Adjusted EBITDA for the year ended December 31, 2025 was $188.3 million, an increase of $49.8 million from the year ended December 31, 2024.
ROCE
The following table presents a reconciliation of the GAAP financial measure of income from operations to adjusted income from operations, after tax to ROCE for each of the periods indicated:
Year Ended December 31,
(in thousands)
$ Change
% Change
Income from operations
Plus: Acquisition and integration costs
Less: Income tax expense
Adjusted Income from Operations, after tax
Beginning debt
Beginning equity
Ending debt
Ending equity
Average capital employed
ROCE
ROCE for the year ended December 31, 2025 was 10%, a decrease from the year ended December 31, 2024 .
Free Cash Flow
The following table presents a reconciliation of the GAAP financial measure of net cash provided by operating activities to Free Cash Flow for each of the periods indicated:
Year Ended December 31,
(in thousands)
$ Change
% Change
Net cash provided by operating activities
Capital expenditures
Free cash flow
Free Cash Flow for the year ended December 31, 2025 was $155.8 million, an increase of $75.9 million from the year ended December 31, 2024.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our existing cash, cash provided by operating activities, and borrowings under the Credit Agreement. We have a share repurchase program in place and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors. As of December 31, 2025 , we had cash and restricted cash of $203.4 million and availability under the Credit Agreement (as defined herein) of $138.0 million. Our total indebtedness was $25.6 million as of December 31, 2025 .
Our principal liquidity needs have been, and are expected to continue to be, working capital, capital expenditures, debt service and potential mergers and acquisitions. Historically, capital expenditures have been relatively modest, with working capital being the predominant use of cash for the Company during periods of growth. We continuously evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including, among other things, prevailing economic conditions, market conditions in the oil and natural gas industry, customers’ forecasts, demand volatility and company initiatives.
We have certain obligations related to debt maturities, finance leases and operating leases. As of December 31, 2025, we had $23.9 million of minimum non-cancelable lease obligations for 2026, comprised of $8.3 million of finance lease maturities and $15.6 million of non-cancelable operating lease obligations. We have an additional $74.1 million of minimum non-cancelable lease obligations for the periods after December 31, 2026, comprised of $24.2 million of finance lease maturities and $49.8 million of non-cancelable operating lease obligations. As of December 31, 2025, interest rates on our lease obligations range from 2.88% to 12.00%. Refer to Note 11. Leases of our Consolida ted Financial Statements included elsewhere in this Annual Report for additional information. In addition, all amounts borrowed under the Credit Agreement become due and payable in 2030. Our effective interest rate on the Term Loan (as defined herein) for the year ended December 31, 2024 was 8.77%; there were no borrowings under the Term Loan as of December 31, 2025, as it was eliminated in connection with the Credit Agreement completed in February 2025. Refer to " Credit Agreement " herein for additional information. Our effective interest rate on the Revolver for the years ended December 31, 2025 and December 31, 2024 was 8.92% and 9.34%, respectively; there were no borrowings on the Credit Agreement as of December 31, 2025. Refer to Note 9. Debt of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
We believe that our exis ting cash on hand, cash generated from operations and available capacity under the Credit Agreement will be sufficient to meet our liquidity needs in the short and long-term. However, if work activity increases, we expect further working capital investment will be required. Our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, market conditions in the oil and natural gas industry, availability and cost of raw materials, and other factors, many of which are beyond our control.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
(in thousands)
$ Change
% Change
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes
Net increase in cash and restricted cash
Statements of cash flows for entities with international operations that are local currency functional exclude the effects of the changes in foreign currency exchange rates that occur during any given period, as these are non-cash changes. As a result, changes reflected in certain lines in our Consolidated Statements of Cash Flows may not reflect the changes in corresponding lines in our Consolidated Balance Sheets.
Operating Activities Net cash provided by operating activities for the year ended December 31, 2025 was $190.9 million, an increase of $97.5 million from the year ended December 31, 2024. The change was primarily attributable to the following:
a decrease in net income of $57.0 million;
changes in non-cash adjustments to net income from the comparative period, including an increase in (i) depreciation and amortization expense of $29.5 million due to an increase in average fixed assets during the comparative periods, (ii) deferred taxes of $38.9 million attributable to timing differences, (iii) amortization of operating lease right-of-use assets of $4.2 million due to an increase in average operating lease balances during the comparative periods, and (iv) gains on property, equipment disposals of $39.1 million, offset by a decrease in the gain on bargain purchase associated with the Merger of $89.2 million; and
the movement in operating assets and liabilities, net of assets acquired as part of our acquisitions.
Investing Activities Net cash used in investing a ctivities for the year ended December 31, 2025 was $18.7 million, a decrease of $97.2 million from the net cash provided by investing activities for the year ended December 31, 2024. The change was primarily attributable to the cash used to fund our acquisitions in 2025, offset by the proceeds from the Eldridge Facility sale in 2025 versus the cash acquired as part of the Merger for 2024.
Financing Activities Net cash used in financing activities for the year ended December 31, 2025 was $44.9 million, a decrease of $58.2 million from the year ended December 31, 2024. The change was primarily attributable to (i) a decrease of $4.8 million in Revolving Credit Facility payments, net of borrowings and (ii) a decrease of $75.0 million in dividend payments given there were no dividends paid in 2025, offset by an increase in common stock repurchases and Term Loan payments of $14.4 million for the twelve months ended December 31, 2025.
Credit Agreement
Legacy Innovex, Tercel Oilfield Products USA L.L.C., Top-Co Inc. and Pride Energy Services, LLC (collectively, the “Original Borrowers”) entered into the Second Amended and Restated Revolving Credit, Term Loan, Guaranty and Security Agreement in June 2022 (as amended in November 2022, April 2023, December 2023, and June 2024, the “Previous Credit Agreement”), with PNC Bank, National Association, as agent, and the lenders party thereto. On September 6, 2024, the Company and TIW Corporation (collectively and together with the Original Borrowers, the “Borrowers”) joined the Credit Agreement as borrowers thereunder. The Previous Credit Agreement provided for (i) a term loan tranche in a principal amount of the lesser of $25.0 million and a certain amount determined based, in part, on appraised values of certain assets of Legacy Innovex and certain of its subsidiaries (the “Term Loan”) and (ii) a revolving credit facility of up to $110.0 million with a $5.0 million sublimit for letters of credit and an $11.0 million swing loan.
The Company, as the borrower, entered into the Third Amended and Restated Revolving Credit, Guaranty and Security Agreement, dated as of February 27, 2025, to replace the Previous Credit Agreement and provide for a revolving credit facility of up to $200.0 million (the “Credit Agreement”), subject to a borrowing base. 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. Refer to Note 9. Debt of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
Amounts borrowed under the Credit Agreement are subject to an interest rate per annum equal to, at our 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) so long as available, 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 December 31, 2025 and December 31, 2024, we had no letters of credit outstanding under the Credit Agreement.
In addition to paying interest on outstanding borrowings under the Credit Agreement, we are 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 revolving loans under the Credit Agreement plus any swing loans plus any undrawn amount of outstanding letters of credit under the Credit Agreement on any day.
We are subject to various covenants under the Credit Agreement, including limitations on the incurrence of debt, granting of liens, investments, dividends, asset sales, and affiliate transactions. Additionally, if at any time an Event of Default (as defined in the Credit Agreement) has occurred and is continuing or if Excess Availability (as defined in the Credit Agreement) is less than 20% of the maximum revolving advance amount, we must maintain a fixed charge coverage ratio of not less than 1.10 to 1.00. As defined by the Credit Agreement, the fixed charge coverage ratio represents the ratio of Adjusted EBITDA (as defined in the Credit Agreement), less certain capital expenditures, dividends and tax payments, to all scheduled debt payments during the applicable period.
If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies. An event of default includes, among other things, the nonpayment of principal, interest, fees or other amounts, the failure of any representation or warranty to be correct when made or deemed made in all material respects, the failure to perform or observe covenants in the Credit Agreement or other loan documents, subject, in limited circumstances, to certain grace periods, a cross-default to certain other indebtedness if the effect of such default is to cause, or permit the holders of such indebtedness to cause, the acceleration of such indebtedness, the occurrence of bankruptcy or insolvency events, the rendering of material monetary judgments, the invalidity of any guaranty, security agreement or pledge agreement and the occurrence of a Change of Control (as defined in the Credit Agreement).
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 us to make mandatory prepayments on the outstanding amount of advances under the Credit Agreement if any Loan Party issues debt other than certain permitted debt or receives proceeds from certain insurance or condemnation claims.
As of December 31, 2024, we had $11.4 million and $14.0 million of borrowings outstanding under the Term Loan and applicable revolving credit facility, respectively. As of December 31, 2025, we had no borrowings outstanding under the Credit Agreement and borrowing capacity available under the Credit Facility was $138.0 million .
Repurchase of Equity Securities
In conjunction with the Merger, effective as of the Closing Date, we maintained the share repurchase plans authorized by the Dril-Quip Board of Directors. Under the share repurchase plans, we were authorized to repurchase up to an aggregate $200 million of our common stock. The repurchase plans had no set expiration date and any repurchased shares were expected to be cancelled. Repurchases under the program were to be made through open market purchases, privately negotiated transactions or plans, instructions or contracts established under Rule 10b5-1 under the Exchange Act. The manner, timing and amount of any purchase were to be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program did not obligate us to acquire any particular amount of common stock and may be modified or superseded at any time at our discretion.
On February 25, 2025, our Board of Directors approved a new share repurchase program (the “New Share Repurchase Program”) that authorizes repurchases of up to an aggregate of $100 million of shares of common stock of the Company with no specified expiration date and terminated all share repurchase plans previously authorized by the Dril-Quip Board of Directors.
For the year ended December 31, 2025, we purchased 625,000 shares under the New Share Repurchase Program for aggregate consideration of $9.3 million. The remaining maximum dollar value of shares that may yet be purchased under the New Share Repurchase Program is $90.7 million as of December 31, 2025. Refer to " Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities " for additional information.
OFF-BALANCE SHEET ARRANGEMENTS
Currently, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
BUSINESS SEGMENTS
We operate in one reportable segment as our chief operating decision maker ("CODM") assesses performance and allocates resources based on financial information presented at a consolidated level.
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operations is derived from the review of our Consolidated Financial Statements prepared in accordance with GAAP, which includes our interpretation of accounting guidance and application through accounting policies. The preparation of financial statements requires the use of judgments and estimates. Our critical accounting estimates are described below to provide a better understanding of how we develop our assumptions and judgments about future events and related estimates and how they can impact our Consolidated Financial Statements. A critical accounting estimate is one that requires our most difficult, subjective or complex judgments and assessments and is fundamental to our results of operations.
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 thereto presented elsewhere in this Annual Report.
Income Taxes
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 against 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 potential for benefits from attribute carrybacks. 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 December 31, 2025, the valuation allowance for deferred tax assets was $60.6 million. We recognize 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.
The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. Our financial statements could be materially affected if: (i) our actual results differ significantly from our forecast estimates; (ii) there are future changes in enacted tax laws with retroactive application; or (iii) tax authorities do not agree with our application of the tax law to our circumstances and the matter is not ultimately resolved in our favor.
Business Combinations and Goodwill
We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date. Goodwill represents the excess of purchase price paid by the Company over the fair market value of the net assets acquired. A bargain purchase occurs when the fair market value of net assets acquired is higher than the purchase price paid. Certain assumptions and estimates are employed in evaluating the fair value of assets acquired and liabilities assumed. These estimates may be affected by factors such as changing market conditions, technological advances in the oil and natural gas industry or changes in regulations governing that industry. The most significant assumptions requiring judgment involve identifying and estimating the fair value of inventory, fixed assets and intangible assets. To finalize purchase accounting for significant acquisitions, we utilize the services of independent valuation specialists to assist in the determination of the fair value of acquired assets.
Impairments
We evaluate our property and equipment and identifiable intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable or if there are potential indicators of impairment. We also perform an annual impairment analysis of goodwill as of December 31st, or whenever there is a triggering event that indicates an impairment loss may have been incurred. Estimating future net cash flows requires us to make judgments regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. In addition, if we are required to determine the fair value of our reporting unit to test goodwill for impairment, we must apply estimates, assumptions, and judgment regarding revenue growth, operating margins, capital expenditures, future market conditions, weighted average costs of capital and terminal growth rate, and we must evaluate the metrics of a deemed set of comparable companies and market earnings multiples. Actual results may not align with these assumptions, and our expectations regarding future net cash flows may change such that a material could result.
We believe that the estimates and assumptions used in our impairment assessments are reasonable. However, if market conditions change dramatically, the impact on our forecasts and projections may be significant which could result in future impairments for our reportable unit with long-term assets including goodwill.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2. Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
