Innovex International, Inc. 10-Q

Item 4. Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the fiscal quarter ended September 30, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were not effective because of the material weaknesses identified in our internal control. We previously identified two material weaknesses for Legacy Innovex due to deficiencies identified in the operating effectiveness of controls over financial reporting wherein we did not design and maintain effective controls related to the accounting for income taxes at a sufficient level of precision or rigor and failed to employ personnel with adequate expertise to identify and evaluate complex income tax accounting matters. In addition, Dril-Quip identified a material weakness wherein we did not design and maintain effective controls over the financial statement classification of inventory write-downs related to restructurings. Our management has implemented remediation steps to improve our internal control over financial reporting. Specifically, for the material weaknesses for Legacy Innovex, which relates to the accounting for income taxes at a sufficient level of precision, we have (i) designed and implemented new controls for the preparation and review of the income tax provision, related to income tax assets and liabilities and the corresponding valuation allowance, and the income tax disclosures in our consolidated financial statements to ensure the mathematical accuracy and completeness of information underlying the income tax provision and that conclusions are sufficient to timely identify potential misstatements, and (ii) employed personnel with adequate expertise to identify and evaluate complex income tax accounting matters. For the material weakness for Dril-Quip, which relates to the financial statement classification of inventory write-downs related to restructurings, we plan to (i) perform an evaluation of the design and implementation of certain internal controls impacted by the material weakness; and (ii) enhance the design of those identified controls. 34 Changes in Internal Control over Financial Reporting Except as described above, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has determined that there were no changes in the Company’s control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the period covered by this quarterly report. With the closing of the Merger on September 6, 2024, there was a change in management and a process was initiated to integrate Legacy Innovex and Dril-Quip. We expect these changes to have a significant impact on internal control over financial reporting going forward. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business post-Merger, but cannot assure you that such actions will be sufficient to provide us with effective internal control over financial reporting. 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings. Refer to “Note 15. Commitments and Contingencies” of our unaudited condensed consolidated financial statements for further information regarding our legal proceedings.