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Mergers and Acquisitions | 3 Months Ended
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Mar. 31, 2025
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 three months ended March 31, 2025 and the twelve months ended December 31, 2024. Acquisition and integration 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 equity interest in DWS, and the acquisition of SCF. SCF Machining Corporation Acquisition. On February 7, 2025, the Company acquired SCF in 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. We believe this acquisition will enhance our supply chain flexibility and provide greater optionality for solutions of our product portfolio. The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting. In accordance with Accounting Standards Codification Topic 805, Business Combinations (“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 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.
(in thousands) |  |  | Preliminary Purchase Price Allocation |
Cash and restricted cash |  | $ |  | 308 |
Inventories |  |  |  | 758 |
Prepaid expenses and other current assets |  |  |  | 722 |
Property and equipment, net |  |  |  | 1,305 |
Right of use assets – operating |  |  |  | 892 |
Other long-term assets |  |  |  | 269 |
Total assets |  |  |  | 4,254 |
Accounts payable |  |  |  | 671 |
Accrued expenses |  |  |  | 372 |
Operating lease liabilities - current |  |  |  | 374 |
Operating lease liabilities - noncurrent |  |  |  | 518 |
Total liabilities |  |  |  | 1,935 |
Net assets acquired |  |  |  | 2,319 |
Goodwill |  |  |  | 15,402 |
Total purchase consideration |  | $ |  | 17,721 |
The Company incurred transaction costs in connection with the acquisition in the amount of $0.1 million. The costs have been expensed as incurred and recognized in Acquisition and integration costs in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income. 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, 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):
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 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 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 Innovex shareholder’s 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 at December 31, 2024 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 |
Downhole Well Solutions, LLC (“DWS”) Acquisition. On May 1, 2023, Legacy Innovex acquired a 20% equity interest in DWS, via purchasing membership 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 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 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 amortized to equity method earnings over the remaining useful life of the related asse t. Transaction costs recognized in connection with the acquisition were $0.7 million and were capitalized as part of the equity investment. For the three months ended March 31, 2024, the Company recorded our proportionate share of DWS’s net income of $0.8 million, adjusted for $0.4 million amortization attributed to intangible assets, and DWS distributed $1.1 million of dividends to the Company, which were recorded as a reduction of the carrying value of the equity investment. Purchase Price Consideration As noted above, on November 29, 2024, the Company acquired the remaining 80% of the issued and outstanding equity 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 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 Consolidated Statements of Operations and Comprehensive Income in our Annual Report for the year ended December 31, 2024. 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. 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. The Company expects 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 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 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 |
Refer to Note 8. Intangible Assets and Goodwill for further discussion of accounting treatment for goodwill and other intangible assets recognized from these acquisitions.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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