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Mergers and Acquisitions | 12 Months Ended
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Dec. 31, 2024
Business Combinations [Abstract] |
Mergers and Acquisitions | NOTE 3. MERGERS AND ACQUISITIONS The Company’s acquisition of business and equity method investments consisted of the following transactions during the years ended December 31, 2024, 2023 and 2022. Acquisition costs within the Condensed Consolidated Statements of Operations and Comprehensive Income consist of legal, accounting, advisory fees, and other integration costs related to the Merger, the acquisition of Pride Energy Services, LLC, the acquisition of Rubicon Oilfield International, LLC in March of 2021, and the step acquisitions of DWS. 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 ASC 805, Business Combinations (“ASC 805”), where Legacy Innovex, the legal acquiree, is determined to be the accounting acquirer of Dril-Quip based upon an evaluation of the following primary factors: • Although the pre-combination stockholders of Legacy Innovex held approximately 48% of the Combined Company, the largest pre-combination stockholder of Legacy Innovex, Amberjack Capital Partners, L.P. (“Amberjack”), held the largest minority voting interest of approximately 44% in the Company after the Merger closed, whereas Dril-Quip’s pre-combination ownership was widely dispersed among stockholders. • Legacy Innovex surpassed Dril-Quip in size as measured in key performance metrics including Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA for the year ended December 31, 2023. • The Company’s board consists of nine directors, including: • four continuing directors of the pre-combination Dril-Quip board of directors; • four directors, each a member of the pre-combination Legacy Innovex board of directors; and • the Chief Executive Officer of Legacy Innovex as of immediately prior to the Closing Date. • Legacy Innovex’s pre-combination senior management team constitutes the majority of the senior management of the Company, including the Chief Executive Officer, Chief Financial Officer, and the President of North America. • Upon consummation of the Merger, the Company’s headquarters are located at Legacy Innovex’s headquarters, the Company’s name has been changed to Innovex International, Inc., and the ticker symbol of the Company has been changed to “INVX.” 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):
Fair value of shares transferred to Dril-Quip shareholders (1) |  | $ |  | 530,909 |
Fair value of replacement Dril-Quip stock-based payment awards attributable to the purchase price |  |  |  | 6,364 |
Total purchase price consideration |  | $ |  | 537,273 |
(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. Preliminary Purchase Price Allocation In accordance with ASC 805, identifiable assets acquired and liabilities assumed from Dril-Quip were recorded at their estimated fair values on the Closing Date. 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. The Company expects to finalize these amounts as soon as possible but no later than one year from the Closing Date. The Merger resulted in a gain on bargain purchase recognized on the Company’s Consolidated Statement 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 preliminary assessment, the Company 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 the Legacy Innovex stockholders’ ownership of the Combined Company, as stipulated in the Merger Agreement, remained the same. The table below presents the preliminary allocation to the estimated fair value of identifiable assets acquired and liabilities assumed, and the resulting 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 that, if known, would have affected the measurement of the amounts recognized at that date. We have adjusted our deferred tax asset as a result of measurement period adjustments due to a refinement of our estimated deferred tax positions by jurisdictions.
(in thousands) |  |  | Preliminary Purchase Price Allocation |  |  | Measurement Period Adjustments |  |  | Preliminary Purchase Price Allocation (as Adjusted) |
Cash and restricted cash |  | $ |  | 154,312 |  |  |  | - |  |  |  | 154,312 |
Trade receivables |  |  |  | 125,155 |  |  |  | - |  |  |  | 125,155 |
Contract assets |  |  |  | 8,675 |  |  |  | - |  |  |  | 8,675 |
Inventories |  |  |  | 148,958 |  |  |  | - |  |  |  | 148,958 |
Assets held for sale |  |  |  | 1,535 |  |  |  | - |  |  |  | 1,535 |
Prepaid expenses and other current assets |  |  |  | 20,023 |  |  |  | - |  |  |  | 20,023 |
Property and equipment, net |  |  |  | 133,690 |  |  |  | - |  |  |  | 133,690 |
Right of use assets – operating |  |  |  | 21,358 |  |  |  | - |  |  |  | 21,358 |
Deferred tax asset, net |  |  |  | 124,634 |  |  |  | (6,847 | ) |  |  | 117,787 |
Other long-term assets |  |  |  | 5,461 |  |  |  | - |  |  |  | 5,461 |
Total assets |  |  |  | 743,801 |  |  |  | (6,847 | ) |  |  | 736,954 |
Accounts payable |  |  |  | 48,887 |  |  |  | - |  |  |  | 48,887 |
Accrued expenses |  |  |  | 28,906 |  |  |  | - |  |  |  | 28,906 |
Contract liabilities |  |  |  | 14,332 |  |  |  | - |  |  |  | 14,332 |
Operating lease liabilities - current |  |  |  | 2,080 |  |  |  | - |  |  |  | 2,080 |
Current portion of long-term debt and finance lease obligations |  |  |  | 595 |  |  |  | - |  |  |  | 595 |
Other current liabilities |  |  |  | 213 |  |  |  | - |  |  |  | 213 |
Long-term debt and finance lease obligations |  |  |  | 1,645 |  |  |  | - |  |  |  | 1,645 |
Operating lease liabilities - noncurrent |  |  |  | 15,397 |  |  |  | - |  |  |  | 15,397 |
Other long-term liabilities |  |  |  | 1,814 |  |  |  | - |  |  |  | 1,814 |
Total liabilities |  |  |  | 113,869 |  |  |  | - |  |  |  | 113,869 |
Net assets acquired |  |  |  | 629,932 |  |  |  | (6,847 | ) |  |  | 623,085 |
Gain on bargain purchase |  |  |  | (92,659 | ) |  |  | 6,847 |  |  |  | (85,812 | )
Total purchase consideration |  | $ |  | 537,273 |  |  |  | - |  |  |  | 537,273 |
The Company 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 costs in the Company’s Consolidated Statement of Operations and Comprehensive Income. Revenue and Earnings 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 (“DWS”) Acquisition 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, the Company 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 the Company’s 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 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. Transaction costs recognized in connection with the acquisition were $0.7 million and were capitalized as part of the equity investment. For the period from January 1, 2024 to November 29, 2024, the Company recorded its 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 the equity investment. For the year ended December 31, 2023, the Company recorded its 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 the equity investment. As noted above, on November 29, 2024, the Company 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. An additional $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-related litigation matter to which DWS is a party. Refer to Note 16. Commitments and Contingencies for further details. Because Innovex acquired control of DWS in the 2024 purchase, the acquisition was accounted for as a step acquisition in accordance with ASC 805. The Company remeasured its 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 on the Condensed Consolidated Statements of Operations and Comprehensive Income. The following table summarizes the consideration for the acquisition (in thousands, except stock price and shares):
Cash consideration |  | $ |  | 75,051 |
Impulse litigation holdback |  |  |  | 4,000 |
Fair value of equity consideration (1) |  |  |  | 31,215 |
Previously held interest |  |  |  | 27,567 |
Total purchase price consideration |  | $ |  | 137,833 |
(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. 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. The Company expects to finalize these amounts as soon as possible but no later than one year from the Closing Date. 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 November 29, 2024. Goodwill is primarily attributable to the anticipated synergies expected from the integration of DWS. Based on the current tax treatment, $26.1 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.
(in thousands) |  |  | Preliminary Purchase Price Allocation |
Cash and restricted cash |  | $ |  | 9,530 |
Trade receivables |  |  |  | 9,864 |
Property and equipment, net |  |  |  | 16,426 |
Right of use assets – operating |  |  |  | 2,392 |
Intangibles, net |  |  |  | 75,100 |
Total assets |  |  |  | 113,312 |
Accounts payable |  |  |  | 3,682 |
Accrued expenses |  |  |  | 1,656 |
Operating lease liabilities - current |  |  |  | 423 |
Current portion of long-term debt and finance lease obligations |  |  |  | 237 |
Long-term debt and finance lease obligations |  |  |  | 588 |
Operating lease liabilities - noncurrent |  |  |  | 1,969 |
Deferred income taxes |  |  |  | 3,168 |
Total liabilities |  |  |  | 11,723 |
Net assets acquired |  |  |  | 101,589 |
Goodwill |  |  |  | 36,244 |
Total purchase consideration |  | $ |  | 137,833 |
The Company 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 costs in the Company’s Consolidated Statement of Operations and Comprehensive Income. The table below represents the detail of the intangible assets acquired and the respective amortization periods (amounts in thousands):
Intangible Type | Weighted Average Amortization Period |  | Value |
Customer relationships | 12.0 Years |  | $ | 67,800 |
Trade names | 10.0 Years |  |  | 7,300 |
Total intangibles acquired | 11.8 Years |  | $ | 75,100 |
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. Refer to Note 7. Intangible Assets and Goodwill for further discussion of accounting treatment for goodwill and other intangible assets recognized from these acquisitions. Pride Energy Services, LLC (“Pride”) Acquisition On August 23, 2022, Legacy Innovex acquired Pride by purchasing all of Pride’s outstanding voting stock. Pride is a leading provider of spooling services and artificial lift logistics in the Permian and Delaware Basins of Texas and New Mexico, the Bakken in North Dakota, and the North Slope of Alaska, expanding the Company’s offerings with complimentary services. The acquisition was accounted for as a business combination under ASC 805, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date. Legacy Innovex issued 320,820 shares of Legacy Innovex Common Stock and paid $30.0 million in cash as consideration for the acquisition of Pride stock, with an acquisition date fair value of $40.0 million. The total purchase price was allocated to the Company’s acquired net tangible and intangible assets based on their fair values established as of August 23, 2022. The excess of the consideration transferred over the fair value of the net assets acquired was recorded as goodwill of $7.3 million. Transaction costs recognized in connection with the acquisition were immaterial. Goodwill is primarily attributable to the anticipated synergies expected from the integration of Pride. All Pride goodwill is deductible for tax purposes. Unaudited Supplemental Pro Forma Financial Information The unaudited supplemental pro forma information presented below has been prepared for the Company as if the Merger and the acquisition of DWS had occurred on January 1, 2023.
| Year Ended December 31, |
(in thousands) | 2024 |  |  | 2023 |
Revenues | $ | 1,043,946 |  |  | $ | 1,051,429 |
Net income | $ | 86,138 |  |  | $ | 111,479 |
The unaudited supplemental pro forma financial information uses estimates and assumptions based on information available at the time. The Company believes 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 Merger and acquisition of DWS been completed as of the beginning of the periods as indicated, nor does it purport to project the Company’s 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 acquisition related costs incurred directly in connection with the transactions as if it had occurred January 1, 2023, (iv) adjustments to reflect the bargain purchase gain as if the Merger occurred on January 1, 2023, (v) elimination of the previous equity method investment in DWS, and (vi) the tax-related effects as though the transactions had occurred on January 1, 2023.

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