Innovex International, Inc. (INVX) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to Innovex's Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Jason Doan. Please go ahead

Good morning, everyone, and thank you for joining us. An updated investor presentation has been posted under the Investors tab on the company's website, along with the earnings press release. This call is being recorded, and a replay will be made available on the company's website following the call. Before we begin, I would like to remind you that Innovex's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause Innovex's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the third quarter financial and operational results announcement that we released yesterday for a discussion of forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer; and Kendal Reed, Chief Financial Officer. I'll now turn the call over to Adam Anderson.

Thanks, Jason. Good morning, and thank you for joining us today. First off, I want to begin by thanking our employees for another quarter of strong commercial, operational and financial execution. Our teams continue to serve our customers exceptionally well, develop innovations that address their needs and work across the Innovex platform to drive organic growth. That collaboration reflects our no barriers culture and shapes how we operate every day. On today's call, I'll begin with our third quarter performance and then walk through several important commercial developments across our North American offshore and international businesses before turning the call over to Kendal for a more detailed review of our financial results, capital allocation priorities and outlook for the fourth quarter. Starting with performance. We delivered a strong third quarter. Revenue totaled $265 million and adjusted EBITDA totaled $55 million, representing an adjusted EBITDA margin of 21%. Our investments in technology, our global platform and acquisitions are helping us win new businesses and grow faster. Four things stood out to me this quarter. First, our North America land business performed very well, driving modest market share gains. Second, our offshore order book continues to grow, which sets us up nicely for 2027 and 2028. Third, the Middle East delivered a good quarter in a really challenging environment, where we continue to invest in local infrastructure and new product qualifications. Fourth, Venezuela is rapidly developing, and we believe the opportunity there could be meaningful for Innovex across our portfolio. In North America, our U.S. land business had a very strong quarter with share gains driven by our cementing tool business. We secured 2 significant awards in the Permian Basin, one that expands our market share with a large independent and the second displaces a competitor with a large IOC we've not previously done significant work for. Together, these wins are expected to add approximately $1 million in monthly revenue beginning late in Q4. Turning to offshore. Our Subsea business continued to build commercial momentum. In U.S. offshore, we successfully installed the first of our 20,000 BigBore IIe subsea wellhead systems for a major IOC with more scheduled in the coming weeks. Our work for this operator demonstrates the power of our no barriers culture with 100% on-time deliveries and 99% uptime across more than 4,500 hours of offshore operations for them during the quarter. In Malaysia, we secured follow-on awards for the subsea tension riser package we announced last quarter, along with the subsea wellhead award covering an additional 9 to 10 wells. This second example demonstrates how our strategic alliance with OneSubsea creates opportunities we would not have been able to access otherwise. In Indonesia, we were awarded a 5-year subsea wellhead contract with a major IOC valued at more than $30 million. In the North Sea, we signed a global master service agreement for fishing equipment with a major drilling contractor displacing the incumbent supplier. We expect that agreement to significantly improve our market share in the North Sea for this product line. Our Middle East business delivered a solid quarter despite disruptions across the region. We signed our first direct corporate purchase agreement with a major national oil company, direct sales to one of the largest operators in the world without the use of a local agent, simplifying our business and bringing us closer to the customer. While we delivered solid results, activity in the region has been impacted by the regional conflict, and we now expect reduced activity and higher freight and logistics costs to impact our results next quarter. Despite these short-term impacts, we continue to invest in new product qualifications in both Saudi Arabia and Abu Dhabi and expect these investments to position us for sustained long-term growth in the region. In Latin America, we're particularly encouraged by Venezuela. As international investment returns, we expect activity there to increase significantly. During the third quarter, we reentered the market with an award of more than $5 million for large diameter tubulars and connectors supporting an offshore development. Looking ahead, we see a very exciting opportunity in thermal wellheads. Much of Venezuela's production comes from heavy oil, which requires thermal wellhead systems, an area where our legacy Great North team and product line is well established. We expect that demand to generate a significant amount of work for us in the future. While these opportunities have not yet translated into meaningful revenue, we believe we are well positioned to participate as activity builds through 2027 and '28. Importantly, our capital-light business model allows us to participate in that recovery without committing significant fixed assets in the country. Stepping back, this quarter showed what the Innovex platform can do. We're winning share and scaling the technologies we have acquired, all while moving closer to our customers by investing and expanding our platform. Even as we grow, we continue to focus on the same playbook we have followed since we founded the company. We continue to invest in differentiated technologies and provide a delightful customer experience. We continue to focus on consumable products that have high gross margins, low capital requirements and fit our big impact small ticket value proposition. We believe this approach positions Innovex to continue gaining share, growing profitability and generating cash flow for our shareholders. I'll now turn the call over to Kendal to review our financial results and outlook in more detail.

Thanks, Adam, and good morning, everyone. I'd now like to review our third quarter 2026 financial results. For the third quarter of 2026, revenue totaled $265 million, up 8% sequentially from the second quarter of 2026 and up 10% year-over-year. Adjusted EBITDA totaled $55 million, resulting in an adjusted EBITDA margin of 21% compared to 20% in Q2 2026 and 18% in Q3 2025. We were pleased to deliver revenue at the midpoint and adjusted EBITDA in the upper half of our guidance range. We are encouraged by the trajectory of our margins as the benefits of our operating model and commercial execution continue to build. NAM land revenue for the third quarter was $146 million, up 11% sequentially from $131 million in the second quarter. As Adam mentioned, this strong quarter-over-quarter growth reflects the revenue impact of increased drilling and completion activity levels as well as continued incremental market share gains in U.S. land. We are very pleased with the trajectory and competitive position of our North America business heading into 2027. International and offshore revenue was $119 million, an increase of 5% sequentially, driven primarily by the addition of TCO, partially offset by a decrease in subsea deliveries in the Eastern Hemisphere due to project timing. Importantly, our Subsea business continues to secure additional project awards, increasing our confidence in a positive trend over the next 2 years. For example, we secured follow-on awards on 3 subsea projects in the Far East during the quarter, bringing our total expected revenue on those projects over the next 12 months to approximately $53 million, up from $41 million at the end of Q2. For context, we have recognized less than $2 million of revenue to date on these 3 projects combined, illustrating the earnings potential currently being built within this product line. Although project timing will create some quarter-to-quarter variability in our reported revenues, we remain very positive on the outlook for our international and offshore business in 2027 and 2028, driven by the expected strength of our Subsea product line, contributions from new markets such as Venezuela and a return to growth in the Middle East. Cost of sales, excluding depreciation and amortization, was approximately $169 million during the quarter. Gross margins continued their positive trajectory with Q3 margins of 36%, representing a slight increase from the first half of 2026 and a significant step-up from 2025 levels. This trend is a credit to our team's ability to execute on a complex facility consolidation strategy over the past 2 years to unlock the benefits of the Dril-Quip merger as well as the strength of our product portfolio, disciplined pricing and continued operational execution. Selling, general and administrative expenses for the quarter increased by approximately $5 million sequentially to $44 million, driven primarily by the TCO acquisition. As we continue to grow the business, we expect to leverage our existing platform to reduce SG&A as a percentage of revenue over time, while maintaining disciplined cost control across the organization. Free cash flow for the quarter was $32 million, representing 58% of adjusted EBITDA. Our ability to consistently generate strong cash conversion remains a key differentiator of the Innovex business model and reflects our capital-light operating structure, disciplined working capital management and limited capital expenditure requirements. Capital expenditure in the third quarter totaled $6 million, representing approximately 2.4% of revenue within our historical range of 2% to 3% of revenue. We ended the quarter with approximately $189 million in cash and cash equivalents and no bank debt, providing significant financial flexibility. Our Q3 ending cash balance reflects the cash portion of the TCO acquisition paid on July 1st, partially offset by free cash flow generated during the quarter. Our M&A pipeline remains robust and includes a mix of smaller bolt-on acquisitions as well as larger strategic transactions. As always, we will remain disciplined and pursue transactions that fit our big impact small ticket strategy, generate strong margins with low capital requirements and can be acquired at reasonable valuations. Return on capital employed for the 12 months ended September 30th, 2026, was 10%. ROCE was reduced by our net cash balance sheet position. We remain focused on achieving a long-term target of high teens ROCE via margin expansion, high-return M&A and shareholder returns. Looking ahead to the fourth quarter of 2026, we expect revenue in the range of $260 million to $270 million and adjusted EBITDA of $53 million to $58 million. Our outlook reflects a rebound in Eastern Hemisphere subsea deliveries, offset by a modest decline in Saudi Arabia due to lower drilling activity and a slight seasonal decrease in our U.S. land production-related product lines. As we close out 2026, we will remain focused on expanding our acquired technologies across the Innovex platform, capturing operational efficiencies, investing in customer-centered innovation and maintaining a disciplined approach to capital allocation. Our strong balance sheet and free cash flow generation position us well to continue creating long-term shareholder value across a range of market conditions. With that, I'll turn the call back to Adam for closing remarks before we open the line for questions.

Thanks, Kendal. We are pleased with our third quarter performance. We delivered revenue at the midpoint and adjusted EBITDA in the upper half of our guidance ranges, generated strong free cash flow and secured several important commercial wins across our offshore and international businesses. While Innovex is entering a new phase, our formula has not changed. We offer differentiated technologies that are critical to our customers. We're in a capital-light business that converts a high share of earnings into cash and deploys that cash with discipline. As we head into year-end and look ahead to 2027, we are confident in our ability to keep converting these advantages into profitable growth. Thank you again to our employees, customers and shareholders for your continued trust and support. Operator, we can now open the line for questions.

[Operator Instructions] Your first question comes from the line of Scott Gruber with Citi.

So it sounds like there'll be a bit of a slowdown in 4Q. I assume a lot of that is the Middle East. But then the outlook for '27, it sounds pretty good. And we've been receiving '27 market outlooks from the larger service players. They've been talking about mid-single digit, potentially high single-digit spending growth next year, even if the Middle East is flat from the second half of this year. How do you think Innovex trends versus the market given your growth potential offshore, given growth in Venezuela and what sounds like some share gains, at least within [ completion ] equipment in the U.S. Can you kind of wrap that all up for us? How should we think about the Innovex growth potential next year?

Yes. Thanks, Scott. Really good question. So I think maybe just to remind everybody, so the key macro driver for our business is really the number of new wells drilled in the geographies, where we operate. And over the long run, we've consistently focused on slightly outgrowing that metric through market share gains. So that's kind of how we tend to think about the business from a macro standpoint. In terms of 2027, we don't formally give annual guidance, but of course, we are starting to develop a high-level view on revenue for the year. So I'd say with the caveat that there's a lot of factors outside of our control, our assumption would be U.S. land activity is in line to maybe slightly better than current run rates. No changes in the current deepwater activity outlook or major disruptions the Venezuela operating environment, given that we think that's going to be a key growth area next year and probably the Middle East activity to maybe stay more flat to Q3 levels versus the dip that we're looking at in Q4. But under those assumptions, we would expect 2027 revenue to be up roughly 10% compared to full year 2026 results.

That's right. And I want to drill down a bit on Venezuela. It sounds like there's some initial sales in the queue, and it could be a big opportunity for the great North wellhead business. How big could Venezuela be for Innovex in 2 to 3 years? What would it take to get there from an investment perspective? Do you need to open up and operate major facilities down there? Can you kind of keep a light footprint in the country and to sell product? Maybe just some color on the revenue outlook and what it takes from an investment perspective to get there.

Yes. No, good question. We are excited about Venezuela as we've been talking about for a little while now. We were awarded some large OD tubular stuff for offshore that should deliver next year. We've got a couple of small tool delivery awards that will come Ex Works Houston. And then we've got a lot of wellhead work that we're quoting on currently. And as I said on the script, one of the really interesting things about that market is there's a strong thermal wellhead opportunity, and we've got a really great team and set of products in Canada that we can bring in and help grow that market. So we think that will be a nice tailwind for us in 2027 and beyond. We put in the presentation that we dropped overnight that we've seen about $50-ish million worth of tender activity. So a strong pipeline, and that's growing. Next year, I would say, hey, we'll probably be double-digit million dollars all going well, maybe $10-ish million is how we think about it next year with the potential to grow pretty meaningfully from there. And then maybe the last part of your question is the beauty of our business model is we don't need a lot of local infrastructure to deliver on that. Some of that work, like the stuff we've been awarded to date will largely be delivered Ex Works or outside of Venezuela and then only need a light footprint in country. As we ramp up some of the more service-intensive product lines like wellhead, there's some liner hanger opportunities, we will need some folks in Venezuela, and we're adding a few folks, but it's pretty smallish relative to the size of the opportunity. And then just the physical infrastructure and CapEx we need is pretty small. So we actually fortunately, inherited the facility from Dril-Quip in Anaco, which is kind of right in the core of the Eastern Venezuela area. So we'll do -- we'll spend some CapEx dollars next year getting that ready to go. But it's pretty small and will not require a massive investment in infrastructure for us. So yes, we're excited about Venezuela and where that's headed over the next couple of years.

Your next question comes from the line of Derek Podhaizer with Piper Sandler.

I appreciate the walk-through for 2027. That was a great view. You talked about roughly 10% up year-over-year. Maybe can we flip over to margins? I know you've had this kind of longer-term journey back towards 25% and granted you need the market to work and you need pricing to work. But we've already seen pretty considerable margin improvement since the Dril-Quip acquisition. So maybe if you just spend some time on where you're at with margins, where you see the upside to margins, how we think about incrementals on a 10% top line revenue gain, having more deepwater offshore, more opportunities in Venezuela. It seems just like higher-priced areas. So just some thoughts around the margin journey as we try to get back to that longer-term 25% target.

Yes, absolutely. Thanks, Derek. And as you said, I would highlight this, we're extremely pleased with where we are today. It's been a long journey over the last 2 years. We've kind of been saying through self-help, a lot of the benefits out of the merger integration, we felt like we could consistently get into the low 20s EBITDA margins at roughly these revenue levels, and we've really seen that over the last 3 quarters. So very pleased with where we are today. But obviously, we do have this target to get up to 25%, which I think is very achievable. The biggest portion of that, as you pointed out, is going to be on higher revenue. And it will vary a little bit by product mix. But in general, we've seen pretty consistent incrementals in the kind of mid-30s range. So call it, 35% incrementals is what I would be expecting as we kind of grow revenue from here. And then in terms of other things we can do to get more efficient on the current revenue base, we have consolidated subsea manufacturing into our plant in Singapore as we kind of get more volume pushed through there. We'd expect to be more efficient on that product line revenue stream. And then the other thing we've talked about maybe on and off, but we are just completing an expansion of our manufacturing facility over in Vietnam that's more focused on the downhole products. And as we continue to grow that capacity for downhole tool manufacturing, that will really help us lower costs, both to bring some high-volume products into the U.S., but also to serve the Eastern Hemisphere directly, avoiding any tariff impact, those types of things. So I think some of those initiatives now that we have the facility footprint structure in place, we'll be focused on driving some efficiencies through the supply chain in '27 and '28.

That's super helpful. And then switching back over to the Middle East. Adam, you've had pretty incredible share gains over the last 10 years with Innovex. And I think historically, you've been more conventional Middle East. There's a lot more unconventional activity starting to pop up over recent years and it seems like that's going to take more share in the future. You've talked about more of this direct sales to your customer bypassing some of these local agents. So maybe just some thoughts as we start to think about the mix of your conventional versus unconventional opportunities, what this direct-to-customer opportunity gives you and to continue to advance market share there?

Yes. So as we've talked about many times, we're really excited about our infrastructure in the Middle East. Saudi has been an area of particular focus of ours in mine personally for the last decade plus. And we've got a really great team over across the Middle East. And we have really, in the last few years, leaned to building that team out, localizing the team and improving our local content. In Saudi specifically, we inaugurated a manufacturing facility going back a little over a year ago. And as you just referenced there, we signed our first direct to the NOC contract there, which is going to help us in a number of different ways, brings margins up a tick, will help us on the working capital side and this brings us closer to that customer in particular. As you are correct, we first entered that market in the conventional oil. We've diversified over time to more offshore to gas and to unconventional. And that's really our playbook is just to continue to grow that share of wallet, which is happening. So we've gotten in the unconventional space, for example, in the last -- I think it might have been in Q2, but let's say, in the last 6 months, we've gotten the wet shoe system that we got from Citadel fully qualified and across the finish line. We have a flotation valve that's run to help deploy casing a lot of these wells qualified. We've got another cementing tool used for intermediate cementing, which we're not quite across the finish line with, but pretty close. So we'll definitely be expanding our footprint across all the markets there, but specifically in Saudi. Maybe the other thing I would say is I took a trip to the Middle East a month-ish or so ago, and we always, as I said, have a lot of focus on Saudi, but had a really good trip to Abu Dhabi and with the various -- with ADNOC as well as a few other operators there. And I think we've got a really strong potential in Abu Dhabi over the next couple of years as they look to grow their output capability in some pretty technically challenging wells. Some of the -- they drill some of the most complicated wells in the world offshore and a really critical part of that. They're going to grow their unconventional program, and we're already a part of that, both for some of the IOCs that are over there as well as -- or some of the independents that are over there as well as for ADNOC. So I think a lot of opportunity for us in both those markets to grow share over the next few years.

Your next question comes from the line of Keith Beckmann with Pickering Energy Partners.

I just wanted to ask a little bit about the Asia subsea side of things. So we saw some good orders here in Indonesia and Malaysia this quarter, right? I wanted to get a sense on maybe thinking about the order pipeline potentially going forward, where are the biggest opportunities that you guys are seeing? And then beyond that, I mean, what's kind of the typical lead time from the time you receive an order to maybe when number start showing up as revenue?

Yes. So thanks, Keith. Yes, we haven't talked about Asia yet. That's been a really great success and hats off to the team there in Asia. They put in a ton of work over the last year in seeing some of these projects come to fruition. We talked about an expansion of a couple of big projects we've been awarded previously, one with subsea -- one with OneSubsea on subsea wellhead specifically, another an expansion of one of these tension leg platform projects that we've got. And then a big award for us in Indonesia, which is a really exciting emerging market there. And I think there's a lot for us to do in Indonesia over the next couple of years, and that really sets us up well there. So that's really exciting. You'll see that one specifically in Indonesia, that's a 5-year project. So that will take time to really grow -- or that will take time and be kind of a small add-on each year over the next 5. Some of those bigger projects we talked about, we'll see a pretty good chunk of that revenue next year as we make really good progress in manufacturing and ultimately deliver a lot of that. So we'll see a big slug, and that's part of what's driving that 10% growth that Kendal referenced earlier. And then as you look out to '28, we've got some really exciting opportunities we haven't secured yet, but expect to get that's going to drive some growth in '28 as well. So overall, really pleased with where that subsea pipeline is headed and what that team has done. It's been really exciting to see over the last 6, 9 months.

Okay. Awesome. That's really helpful. And then my second question is maybe a little bit more focused around recent M&A with you guys integrated DIS and TCO this year. And just wanted to get a sense maybe on how those businesses have been trending and if there's any additional opportunity you guys have seen since those have come into the fold? And then secondarily, are there any other offshore has been trending in a good way. Just trying to get a sense on if there's any other M&A opportunities out there where you guys think you could maybe grow the business and find ways to add from maybe products you don't have. Any thoughts on that?

Yes, definitely. I mean, as you know, we talk about a lot, M&A is a core part of the strategy. So we keep a really active pipeline there and [indiscernible] is a pretty broad net, onshore, offshore, U.S., international. It tends to be that those international offshore opportunities are a bit fewer and further between, which is why we're so excited about the TCO deal we were able to get done at the start of the quarter. So we'll continue to look for those. But yes, hard to speculate on kind of when things might come together. But I'll just say that we do have a -- continue to have a very active M&A pipeline and be very focused on that. And I guess with respect to the 2 acquisitions we've done this year, I think operationally, the integration has gone extremely well, like we're very excited about all that. We're starting to get the kind of the revenue contribution, let's say, from TCO that we expected in Q3 was basically in line with the $15 million that we talked about. And then I think that -- both of those businesses being more offshore focused are going to be a bit lumpy like the rest of our offshore business kind of based on deliveries and project timing. But from a long-term perspective, I think all the products fit really well within our portfolio will give us opportunities to grow. And we're kind of in the early days of working on cross-selling and pulling those products into new geographies. So maybe a bit early to say, but I think the long-term outlook is still really good for both of those deals.

Your next question comes from the line of Don Crist with Johnson Rice.

I wanted to touch a little bit on the last answer you gave there, Kendal. But as far as cross-selling is concerned, how has that been progressing with all the M&A that you've done recently? I mean it sounds like the cementing awards kind of came from that. Just any thoughts around cross-selling and moving things from one part of the world around the other regions that you operate in?

Yes. No, that's been really good. It's difficult to quantify. I think we've talked previously about one of the major independents out in the Permian Basin that over the last 6 months, we did get that cementing tool work largely as a result of relationships that came over from the DWS side. As I said earlier, really excited about Venezuela, and that is one that probably candidly, we lock into a little bit. I'd like to say we planned it, but we didn't where we have a great team in Canada, great technology there, combined with legacy infrastructure that Dril-Quip had. so we'll be able to take advantage of that. On the TCO side, it's early days, but there is a lot of opportunity for those products outside of the core legacy markets. It takes a little time for that one to come to fruition. That's a long sales cycle product. So I would think that's more '27, '28. But overall, a lot of excitement with each of those, especially TCO, DIS, great technology businesses, fits really well with what we do, well known by customers in their home markets, and it really gives us a good opportunity to see those things flourish globally.

I appreciate that. And then on the offshore side, I mean, obviously, you've been getting a lot of awards lately. But are the awards that you're getting with operators that have long-term programs? Are there kind of more one-off projects, discrete here or there? I'm just trying to get a sense of could this lead to a lot more awards in the future?

It's fair. The big ones we've talked about, we referenced 3 big Asia projects, which are a little bit discrete in nature that we announced -- we've announced in previous calls, one of which we had an add-on that we talked about on this call. That Indonesia award, that's more of a continuous work over multiple years and it's going to allow us to bring more products into Indonesia with that operator as well as other ones. So I think that sets us up. That's more than just discrete. And then I think we've got a couple of other things cooking that are more -- that are exciting that are lead to longer term, more sustainable, less project-driven growth, if you will, in '28 and beyond, not the least of which is our relationship with OneSubsea, which we've seen a couple of smaller wins in Asia, but we haven't really started to see the fruits of that labor yet.

Okay. And then the final one for me is in the Gulf of America, you installed the first 20,000 psi wellhead. It sounds like by my math, we're going to have 3 20,000 psi rigs out there, and I think you are the only one that have a wellhead. Is that the right way to think about it? And can that market be pretty big going forward in the GOA?

So to be clear, this is not the first one that we've done. We did a project about 2 years ago, I probably really drilled we did a project 2 years ago in the 20,000. This is the first one for this particular operator who is really ramping up activity there. So I do think it's going to be big. We're not the only ones that have the 20,000 wellhead, but I think it's -- we have far and away the best technology in that space. So I think, yes, as that 20,000 technology grows in the U.S. offshore, we're going to be really well positioned to see that activity benefit from that activity. So yes, we're excited about that.

Your next question comes from the line of Josh Jayne with Daniel Energy Partners.

First question is on the Lower 48. How are you seeing evolve? I think in your walk-through, you mentioned for next year, you thought activity would be slightly better than the current run rate. But you talked about 2 awards in the Permian to privates versus publics increasing activity next year, who might be driving the incremental activity gains? And then on top of that, are there any geographies that may grow more quickly than others in 2027?

Yes. So Lower 48, great market for us, have really strong market share across basically everything that we do and added to that this quarter with those 2 wins. We are both with -- I mean one is a really big IOC. The other is one of the larger independents out there that's also publicly traded. And we're balanced. We work for both. We're probably a little bit more weighted to the large publics, but see a really good mix of activity. This year, we've seen mostly the smaller guys pick up activity. Next year, I think you'll see that. But I do think we're hopeful that you'll see a little bit more -- these bigger guys adding a few rigs too. But in general, I think we continue to see good growth driven in the U.S. market.

And then the other one to unpack a little bit. You highlighted just the higher freight and logistics costs. I think a lot of people are dealing with that. Maybe you could just talk about that impact a little bit and then when you expect that to resolve and just how you're working through that business would be helpful.

Yes, definitely. I mean it's been an ongoing issue really since Q2. We saw a big jump up. I think we maybe quantified it on that call. It's about $1.5 million in the quarter. It's varied a little bit since then, but the fundamental issue is you're still continue to air freight more things that you would normally be able to see freight given the conflict in the region or send it other routes that just takes longer is a little bit more costly. So it's kind of in that universe, maybe $1 million or so a quarter that when the conflict gets resolved probably is able to come back to the bottom line. So not huge, but definitely a bit of a drag.

Your next question comes from the line of Eddie Kim from Barclays.

So you highlighted several follow-on awards on subsea projects and that you expect more subsea revenue to convert next year than this year. But could you comment on the margins on some of this recent work you've secured? Are these accretive to margins you had in your Subsea backlog, say, a year ago? Or are they fairly consistent? And is kind of margin accretion on recent orders something sort of on the come over the next several years?

Yes. Thanks, Eddie. I would say from what we see in the backlog today, there's nothing like some of those awards we worked through early in '26 that were definitely dilutive to margins. I think the new work that we have in the pipeline, the things we're going to be delivering over the next 12 months are probably more in line, maybe slightly better than our current consolidated gross margins. But I would still think about it as contributing basically those same incrementals on that work, if that makes sense.

Okay. Got it. And then my follow-up is just on Venezuela. You mentioned that you reentered Venezuela. I wasn't aware that you had operations there previously. Could you talk about what product lines and when you were involved in Venezuela previously? And maybe if you could frame the revenue opportunity for us, like how quickly could Venezuela revenue be $20 million? Is that a 2027 event? Or does that seem like a stretch at this point?

Yes. So we -- our Venezuela reentry, so to speak, kind of comes through the legacy Dril-Quip business, specifically a business they acquired TIW, which was a long-time provider of liner hangers as well as other products into Venezuela. There was a facility that had been mothballed some time ago, many years ago, but we retained ownership of that facility, and we're kind of reinvigorating that facility, putting some CapEx into it, hiring a couple of folks, reestablishing a legal entity, doing all that kind of stuff. But that -- when we say reenter, that's really the legacy TIW stuff. As far as the size of the opportunity, I mean, historically, I would say Venezuela was one of the better, if not the best, at some point in time, international market for oilfield services globally. If you go back 20 years ago, just a ton of opportunity, some fairly -- a variety of different kinds of wells, a variety of operators. There's a lot of dynamics that set up well for a strong oilfield service market. As far as size of the opportunity, we did put out this morning that we had something like $50-ish million worth of tenders that we've quoted on. Obviously, only a portion of those will come to fruition. We have a $5 million order already for large OD tubulars that we expect to deliver in '27. And I think '27, we'd be thinking about a $10 million, maybe some upside to that. As far as getting to $20 million, I would say that's probably -- that's possible, but definitely a stretch for 2027. We'd have to have a really good conversion rate on the opportunities we're pursuing. But I think in 2028, all things trending the way that we're seeing it today, I think that's very credible that we get to $20 million in 2028 in Venezuela.

We have reached the end of our Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect.