Cactus, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and good morning.

We appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer, and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President, Steven Bender, Chief Operating Officer and CEO of Spoolable Technologies, Steve Tadlock, CEO of Cactus International, and Will Marsh, our General Counsel. Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.

Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements. In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. With that, I will turn the call over to Scott.

Thanks, Alan, and good morning, everyone. Pressure Control sales declined as expected, but bookings accelerated and margins exceeded expectations on improved cost control, synergy realization, and strong domestic performance. Our Spoolable Technologies business grew sales and backlog substantially as international and domestic market momentum continued. Although the global market remains highly dynamic and uncertain, I'm confident that our business, which focuses on differentiated, highly engineered products, will continue to outperform. Some third quarter total company financial highlights include revenue of $431 million, adjusted EBITDA of $132 million, adjusted EBITDA margins of 30.6%. We closed the quarter with a cash balance of $354 million and paid a quarterly dividend of $0.15 per share. Yesterday, we announced that we're planning to construct a Spoolable Technologies manufacturing facility in the Mid East.

I'll now turn the call over to Jay Nutt, our CFO, who will review our financial results, and following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A.

Jay? Thank you, Scott. As Scott noted, total Q3 revenues were $431 million, down 4% sequentially.

Total adjusted EBITDA of $132 million was flat from the second quarter, despite the lower volume and lower contributions from tariff refunds. For our Pressure Control segment, revenues of $305 million were down 11% sequentially, driven primarily by lower product shipments in the Middle East, which more than offset an increase in U.S. sales as domestic customers increased activity. Operating income increased $2.4 million or 4% sequentially, with operating margins increasing approximately 3%. Operating income was reduced by approximately $9 million due to purchase price accounting adjustments that we add back to our adjusted operating results, which declined from $20 million in the second quarter.

Adjusted segment EBITDA was $9.8 million or 10% lower sequentially, with margins increasing by 40 basis points. Margins improved slightly on better mix and strength in spares and repair margins in our Cactus International business, combined with strong cost control and synergy realization, all of which offset lower operating leverage and lower tariff refunds in the quarter. Our refunds totaled approximately $6 million in the quarter, and we've received the vast majority of the refunds that we anticipate are due. For our Spoolable Technologies segment, revenues of $127 million increased over 20% sequentially, reflecting expanding domestic activity in a seasonally stronger quarter and continued expansion in international markets. Operating income increased $9.4 million or 29% sequentially, with operating margins increasing 230 basis points.

Adjusted segment EBITDA increased $9.8 million or 23% sequentially, while margins increased by 110 basis points as operating leverage improved. Corporate and other expenses increased by $1.3 million to $9.1 million in Q3, including $600,000 of transaction and integration cost. Adjusted corporate EBITDA moved unfavorably from $5.3 million to $6.1 million of expense on higher personnel expenses. On a total company basis, third quarter adjusted EBITDA was $132 million, down $800,000 from Q2. Adjusted EBITDA margin for the third quarter improved to 30.6% compared to 29.5% for the second quarter.

Adjustments to total company EBITDA during the third quarter included non-cash charges of $7.8 million in stock-based compensation, $200,000 of inventory step-up amortization reversal due to purchase price accounting, and $600,000 for transaction-related professional fees, and $2.8 million of severance, primarily associated with continuing actions to rightsize the Cactus International organization in support of our previously communicated synergy target. Total company backlog ended the quarter at $615.6 million, an increase of approximately $160 million from the end of the second quarter. Backlog in Cactus International business increased sequentially as anticipated, as certain customers had destocked inventory in the first half of the year and commenced order placements. Backlog in our spoolable business expanded meaningfully in the third quarter, primarily driven by continued order strength in the LATAM market. As a reminder, backlog does not include any U.S. Pressure Control contribution. Depreciation and amortization expense for the third quarter was $26.8 million, which included $200,000 of amortization reversal of the step-up in inventory values resulting from the Cactus International acquisition, and a combined $13.6 million of amortization expense related to intangible assets that arose from both the Cactus International and FlexSteel acquisitions.

During the third quarter, the public or Class A ownership of the company averaged and ended the period at 87%. GAAP net income was $74 million in the third quarter versus $61 million during the second quarter. The increase was largely driven by lower purchase price accounting related adjustments in the period. Book tax expense during the third quarter was $21 million, resulting in an effective tax rate of 22%.

Adjusted net income and earnings per share were $78 million and $0.96 per share, respectively, during the third quarter, compared to $75 million and $0.93 per share in the second quarter. Adjusted net income for the third quarter was net of a 27% tax rate applied to our adjusted pre-tax income. During the quarter, we paid a quarterly dividend of $0.15 per share, resulting in a cash outflow of approximately $12 million, including related distributions to our members. We ended the quarter with a cash balance of $354 million. This amount is net of $91 million of cash disbursed through accounts payable to finalize the Cactus International legal entity formation transactions with Baker Hughes during the quarter. We have now concluded all legal entity formations and deferred closing activities related to the Cactus International acquisition.

The quarter end cash balance represented a sequential increase of $79 million, excluding the transaction-related outflows in the period. Net CapEx was $16.1 million during the third quarter of 2026. In a moment, Scott will give you our fourth quarter operational outlook. Some additional financial considerations when looking ahead to the fourth quarter include an effective tax rate of 24% and an estimated tax rate for adjusted EPS of approximately 27%. Total depreciation and amortization expense during the fourth quarter is expected to be approximately $27 million. $18 million of the amortization expense is associated with our Pressure Control segment, and $9 million is in the Spoolable Technologies segment. These amounts include approximately $10 million of intangible amortization due to purchase price accounting in our Pressure Control segment and $4 million in our Spoolable Technologies segment. We now expect our full year 2026 net CapEx to be approximately $65 million.