Q2 margin holds at 20%, TCO acquisition adds consumable technology, and subsea awards point to 2027 growth.
DRQ · Earnings Call · 2026-08-04
A New Phase
Innovex (DRQ) delivered a second quarter that was 'at the high end of our guidance ranges' for revenue ($245 million) and adjusted EBITDA ($48 million, a 20% margin). The quarter marks a clear inflection point: on July 1, the company closed the acquisition of TCO Group, a specialist in laminated glass plugs that create reliable gas-tight downhole barriers, and it is seeing growing commercial traction across its subsea and international businesses. As Adam Anderson put it,
Stepping back, I believe the second quarter demonstrates that Innovex is entering a new phase.
The TCO deal fits the platform indelibly, adding differentiated, largely consumable technologies that require limited sustaining capital. Kendal Reed highlighted its strategic fit: “TCO is an excellent example of our acquisition strategy in action.” — Kendal Reed, CFO · 2026-08-04
Subsea and International Momentum
Beneath the headline numbers, the real signal is the build-out of subsea and international opportunities. Innovex secured an additional $20 million subsea tension riser package in Malaysia, completed the first XPak trial with a major international operator in Asia Pacific, and deployed its ArgoLATCH Subsea Release Plug in Brazil—combining capabilities from both legacy Innovex and legacy Dril-Quip. Adam Anderson describes the overall offshore backdrop as highly constructive: “I think across the board, we see both a really robust pipeline of activity. And I'm really pleased with the commercial momentum of both our ability to convert some of these legacy contracts...” — Adam Anderson, CEO · 2026-08-04 This commercial readiness is translating into tangible awards. The company announced three big Asia projects totaling $60–$80 million of revenue, with meaningful revenue expected in 2027. In Saudi Arabia, market share gains in expandable liner hangers and a first direct contract through the Innovex Saudi entity underscore the international growth engine. Mexico also rebounded strongly, with completion activity through Q2 already exceeding all of 2025.
Margins, Tariffs, and Guidance
The margin story is more nuanced. The consolidated EBITDA margin of 20% was flat sequentially and year-over-year, but management is confident that a consistent north-of-20% level is sustainable after exiting the Eldridge facility. The near-term drag is the Middle East conflict, which has inflated logistics costs. As Kendal Reed explained on the call, 'we had around $1.5 million of increased freight expense related to air freight or just additional costs of moving things around.' He expects that to weigh on Q2 and Q3, with resolution offering a potential margin tailwind.
On tariffs, while many peers are booking large IEEPA refunds, DRQ's exposure is more muted. Adam and Kendal clarified that the more meaningful tariff for the company is Section 232 on raw materials steel, which was not part of the refund program. However, they did acknowledge receiving some modest refunds: “we have applied for and received some, I would say, modest tariff refunds that we'll see coming in the door in Q3 here.” — Kendal Reed, CFO · 2026-08-04 The broad IEEPA refund headlines are therefore less relevant to DRQ's P&L than to other industrials.
Looking ahead, guidance for Q3 calls for revenue of $260–$270 million and adjusted EBITDA of $51–$57 million. The guide includes $15 million of revenue and $3 million of EBITDA from TCO, implying a conservative start for the acquisition. Prior quarters highlighted the same volatility: on the May 2025 call, Adam referenced Mexico's outsized drag, and on the February 2026 call, he noted the company would 'still have a couple of low-margin subsea deliveries Q1, Q2 that will weigh margins down a little bit.' The current quarter's execution suggests those headwinds are clearing.
The combination of TCO's consumable products, subsea awards, and declining integration costs positions DRQ for a strong 2027. As the company continues to 'leverage the Innovex platform' and execute on a robust M&A pipeline, the stock's story is shifting from cost-out to growth.