Q3 2025 Cactus Inc Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to the Cactus Quarter . Three , 2025 Earnings Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speakers presentation , there will be a quick Q&A session . To ask a question during your session , you will need to press star one one on your telephone .
Speaker #1: You will then be advised that your hand is raised . To withdraw your question , please press star one . One again . Please be advised that today's conference is being recorded .
Speaker #1: I would now like to hand the conference over to your first speaker today , Alan Boyd , director of Corporate Corporate Development and Investor Relations .
Speaker #1: Please go ahead .
Speaker #2: 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 .
Speaker #2: And Jay Nutt , our chief financial officer . Also joining us today are Joel Bender , president , Steven Bender , chief operating Officer .
Speaker #2: Steve Tadlock , CEO of Flexsteel . And Will Marsh , our general counsel . Please note that any comments we make on today's call regarding projections or expectations for future events or forward looking statements covered by the Private Securities Litigation Reform Act .
Speaker #2: 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 .
Speaker #2: 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 revise any forward looking statements .
Speaker #2: 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 .
Speaker #2: With that, I'll turn the call over to Scott.
Speaker #3: Thanks , Allen , and good morning . I'm extremely pleased with our third quarter performance . Pressure control margins improved sequentially due to our tariff mitigation and cost reduction efforts .
Speaker #3: While technology sales and margins exceeded expectations on higher international shipments . These outcomes are the result of extensive efforts and focus from our team , and I'm very grateful .
Speaker #3: Some third quarter total company financial highlights include revenue of 264 million , adjusted EBITDA of 80 . 7 million , adjusted EBITDA margin of 32.9% .
Speaker #3: We paid a quarterly dividend of $0.14 per share , and we increased our cash balance to 446 million . I'll now turn the call over to Jay Nutt .
Speaker #3: Our CFO , who will review our financial results following his remarks . I'll provide some thoughts on our outlook for the near term before opening the line for Q&A .
Speaker #3: Jay .
Speaker #4: Thank you . Scott . Scott . Just mentioned total Q3 revenues were 264 million . A sequential 3.5% decline in total adjusted EBITDA was $87 million , approximately flat from the second quarter .
Speaker #4: For our pressure control segment , revenues of $169 million were down 6.2% sequentially , driven primarily by lower frac rental revenues . As we continue to focus on our consumable business .
Speaker #4: Operating income increased 2.2 million , or 5.2% sequentially , with operating margins increasing 290 basis points and adjusted segment EBITDA was 2.1 million , or 3.9% .
Speaker #4: Higher sequentially , with margins increasing by 320 basis points . The margin increase was primarily due to the implementation of cost reduction initiatives .
Speaker #4: Tariff mitigation efforts , and reduced legal expenses for our technology segment . Revenues of $95 million were down 1% sequentially on lower domestic customer activity levels , mostly offset by increased international sales .
Speaker #4: Operating income decreased 2.2 million , or 8% , sequentially , with operating margins decreasing 210 basis points due to higher input costs . Adjusted segment EBITDA decreased $2 million , or 5.2% sequentially , while margins declined by 160 basis points .
Speaker #4: Corporate and other expenses declined to half $1 million to 9.1 million in Q3 , which included 3.2 million of professional fees associated with the announced plan to acquire a majority interest in the surface pressure control business of Baker Hughes .
Speaker #4: Adjusted Depreciation and amortization expense . For the third quarter was $16 million , which includes an ongoing $4 million of amortization expense related to the intangible assets resulting from the Flexsteel acquisition .
Speaker #4: corporate EBITDA was down slightly to 4.2 million of expense on a total company basis . Third quarter adjusted EBITDA was 87 million , flat from the second quarter .
Speaker #4: During the third quarter , the public or class A ownership of the company averaged and ended the period at 86% . GAAP net income was $50 million in the third quarter versus 49 million during the second quarter .
Speaker #4: Book tax expense . During the third quarter was 14 million , resulting in an effective tax rate of 22% . Adjusted net income and earnings per share were $54,000,000.67 per share , respectively .
Speaker #4: During the third quarter, adjusted net income was compared to $53,000,000.66 per share in the second quarter. Net income for the third quarter was net of a 25% tax rate applied to our adjusted pre-tax income, consistent with the prior quarter.
Speaker #4: During the quarter , we paid a quarterly dividend of $0.14 per share , resulting in a cash outflow of approximately $11 million , including related distributions to members .
Speaker #4: We ended the quarter with a cash balance of $446 million . A sequential increase of approximately $40 million . Inventory build is represented a working capital headwind year to date , which has decreased our usual pace of cash flow with most of the increase in the carrying value being due to tariffs rather than increased quantities of inventory on hand .
Speaker #4: Net CapEx was approximately $8.2 million during the third quarter of 2025 . In a moment , Scott will give you our fourth quarter operational outlook .
Speaker #4: Some additional financial considerations when looking ahead to the fourth quarter , include an effective tax rate of 22% and an estimated tax rate for adjusted EPs , continuing at 25% .
Speaker #4: Total depreciation and amortization expense during the fourth quarter is expected to be approximately $16 million , with 7 million associated with our pressure control segment and the remaining $9 million in Spoofable technologies .
Speaker #4: Our full year 2025 net CapEx outlook remains in the range of $40 million to $45 million, including the $6 million equity investment made into Vietnam.
Speaker #4: Additionally , the annual Tra payment and related member distribution was delayed to October of 2025 from our previous plan to settle in the third quarter .
Speaker #4: The payment and related distributions were made earlier this month and totaled approximately $23 million. Finally, the board has approved a quarterly dividend of $0.14 per share, which will be paid in December.
Speaker #4: That covers the Financial Review , and I'll now turn the call back over to Scott .
Speaker #3: Thanks , Jay . I'll begin by touching on our current understanding of the highly fluid tariff situation through the third quarter . There were no substantial changes in the tariff rates applied to our goods , which were detailed on last quarter's call .
Speaker #3: We continue to pay an incremental 70% tariff on most goods imported from China for a 95% tariff rate and a 50% tariff on most goods imported from Vietnam .
Speaker #3: We're seeking further clarity on recent announcements of tariff reductions in the Far East , but based upon the latest information , we expect some reduction in the fentanyl related tariff rate from China .
Speaker #3: That said , the section 232 tariff , which remains at 50% , is far more impactful to our operations at this point . We are several months into our efforts to mitigate the tariff impact to our business .
Speaker #3: I'm proud of the work our team has done to flex the organization and supply chain to improve profitability , and am appreciative of the support of our customers and vendors throughout this process .
Speaker #3: Our Vietnam plant is increasing its pace of shipments , and we still expect substantial displacement of Chinese shipments into the US by mid next year .
Speaker #3: As we await the finalization of our API certification . I'll now move on to our expectations for the fourth quarter of 2025 . By operating segment .
Speaker #3: During the fourth quarter , we expect pressure control revenue to be relatively flat versus the 169,000,000 million . Excuse me , reported in the third quarter , aided by modestly increased activity in our frac rental business , which offsets normal holiday slowdowns .
Speaker #3: We believe that most industry activity declines for 2025 are behind us , and expect the fourth quarter US land rig count to drift modestly lower through the year end adjusted EBITDA margins and our pressure control segment are expected to be in the 31 to 33% for the fourth quarter , staying relatively stable from the third quarter and inclusive of typical seasonal declines in field service utilization .
Speaker #3: This adjusted EBITDA guidance . Excludes approximately $3 million of stock based compensation expense within the segment , shifting to our technology segment , we are particularly pleased with the progress we're making on the international side of the business .
Speaker #3: We achieved our highest international revenue since the acquisition during the third quarter , which served a further our geographic diversification . We expect this momentum to continue .
Speaker #3: We were recently awarded our first gas service order from a major Middle East NOC and shipped a large order for a new customer in Africa.
Speaker #3: Additionally , we recently booked our first commercial order and another major Middle East market for shipment in the first half of 2026 , which is our first sour service order in the region .
Speaker #3: We're further encouraged by customer interest in newly developed products for the fourth quarter , we expect total technologies revenue to be down low double digits sequentially , which is consistent with the typical seasonal pattern in this business .
Speaker #3: We expect we expect adjusted EBITDA margins to be approximately 34 to 36 for Q4 , which excludes $1 million of stock based comp in the segment moderating third quarter levels on lower volume adjusted corporate EBITDA is expected to be in charge of approximately 4 million in Q4 , which excludes 2 million of stock based comp .
Speaker #3: Regarding our planned acquisition of a majority interest in the surface pressure control business of Baker Hughes , integration planning and administration , and administrative legal filings or proceeding smoothly .
Speaker #3: And we expect that transaction will close in early 2026 . In conclusion , the third quarter demonstrated real progress from our actions to enhance our operating results .
Speaker #3: The improvement in pressure control margins reflects the agility of our organization and responding to highly dynamic market conditions . As we've demonstrated through past cycles , the stronger technologies , international revenues are the result of a long term concerted effort to increase our sales force .
Speaker #3: Focus in key global markets , which should be enhanced by the increased footprint offered by our announced acquisition of a majority interest in the Baker used surface pressure control business , domestic activity looks , levels remain subdued , but I'm confident in our ability to continue to outperform and deliver industry leading returns for our shareholders .
Speaker #3: I'd like to close by thanking our associates for their focused commitment on executing for our customers throughout a turbulent market . With that , I'll turn it back over to the operator and we can begin Q&A .
Speaker #3: Operator .
Speaker #1: Thank you . At this time , we will conduct the question and answer session . As a reminder to ask a question . You will need to press star one one on your telephone and wait for your name to be announced .
Speaker #1: To withdraw your question , please press star one . One again . Please stand by while we compile the Q&A roster . Our first question comes from David Anderson of Barclays .
Speaker #1: Your line is open .
Speaker #5: Hey good morning Scott . How are you ?
Speaker #3: Good morning David , how are you ?
Speaker #5: Good . I have a rather broad , rather broad question to start . You probably hate the question , but I'll ask it anyway .
Speaker #5: I was wondering if you could kind of give us a sense as to where you're kind of your US customers are thinking kind of what they're thinking and what they're asking about in the current environment .
Speaker #5: Fork is a little bit softer . There's no sense of urgency out there . You characterize it just now as subdued . I think you've also said customers have been asking if the oil is in the 50s .
Speaker #5: I was just wondering , are your customers concerned that oil prices are going to take another leg down ? Are you seeing more than the usual pricing pressure out there , or is this more of a situation where things where customers are actually kind of fairly bullish , but are just sort of staying flat at these levels , waiting for kind of an oil price signal for next year ?
Speaker #5: I'm just trying to get a handle as to how we should think about upstream spending in 26 from these four Q levels that we're going to see coming out here .
Speaker #5: Some of the puts and takes .
Speaker #3: Yeah , I mean , David , that's obviously a question that that weighs heavily on us . I'm going to give you my personal opinion , and I think that the downside risk of of oil prices is far greater than upside potential .
Speaker #3: If I was a betting man , I'd suggest it was going to be between 55 and 60 . But I also think our customers have taken that into consideration with their plans .
Speaker #3: I can tell you that they are currently far less transparent than they have been in the past because , you know , we're very much in a wait and see environment and a major part of that , David , is , you know , this is not only the surplus availability coming out of OPEC , but it also has to do with questions about the administration's implementation and enforcement of Russian oil sanctions .
Speaker #3: You know , the Russians have proved to be very adept at circumventing sanctions , as have the Iranians . So I think that all of our customers are concerned about that .
Speaker #3: But none of them , I think , are basing their budgets on $65 oil or even $60 oil . The other , I think , important aspect is that we believe that our larger customers who maintain relatively large inventories in core drilling basins and core basins , will be far less susceptible to lower oil prices than some of the privates are independents .
Speaker #5: It's very helpful . Thanks a lot , Scott . Please . I was going to ask about the spoonbill side . You you I was wondering if you could spend a little bit on the International opportunities and kind of talk about kind of what was unusual in this quarter that were higher .
Speaker #5: And also , if you could talk about some of the more attractive markets for this product , I think you said Africa , a couple in the Middle East , you're now you've also talked previously about cross-selling opportunities with SPC in the Middle East , but you're already getting awards ahead of that .
Speaker #5: Could you sort of just talk about a couple of those different markets that you're seeing for Spoonbill and kind of 2026 and 2027 opportunities?
Speaker #3: Sure . I'm going to I'm going to defer to Steve Tadlock .
Speaker #6: Hey , David , I think in Q3 , I mean , really in terms of markets , we're seeing it worldwide , which is which is we're obviously very pleased by that .
Speaker #6: When when I kind of stepped into the role two years ago , we probably had our best concentration in Latin America . And that's just some of the individuals we had down there representing us on the team .
Office service companies that have relatively High fixed costs. So it really is a combination of all those things. It's it's um,
just that team is just on a great job. We've also, you know, redirected our supply chain to
Minimize the impact of tariffs and, um, because we have purchasing power, which, by the way, will only be enhanced. We expect this by the addition of Baker. Use SBC business.
So I, you know, Scott that's not the answer you wanted but it's all I can give you right now.
No, I appreciate it. Appreciate all the color. Um, and I wanted to, to ask about, you know, that, that new Wellhead, uh, system, that that you guys, you know, we're about to introduce, uh, it's kind of 6 to 12 months ago and then the market started softening.
Where do you stand with that now? It seems like we're finding some potential stability in the market. We see where oil prices go. Um but you got your pressure control margins back up. Uh he's kind of worked through the Tariff issue. Just give us your latest thoughts on uh and introducing that that new system uh in 26 or whether that's going to be delayed further.
Yeah, so I can answer that. Question Scott, q1.
Oh great.
Easy answer. Very quick. Appreciate it. Scott. I'll turn it back. Thank you.
Our next question comes from Stephen Jenaro of seafoam. Your line is now open.
I think 2 for me and 1 1 follows up a little bit, a little bounce. Uh on Scott's question, the
I I think in and you correct me if I'm wrong but I think the last quarter you you alluded to
It being harder to support margins with the tariffs. And it sounded like
Part of that was because of lower customer activity.
But but it seems like that tone has changed a bit and the results were clearly very good.
Can can you comment on that at all?
Yeah, take care. You know, Stephen just to remind you what happened to us. Um, in the previous quarter is that the
Tariff rates changed, very unexpected in in, I think it was May or early June.
When the section 232 moved from 25 to 50. So we frankly had not anticipated that and received no indication that that was the case now that and and as a result it made it very difficult for us to make a case.
To suppliers customers, not knowing where we were going to land. Uh, we have greater Clarity on that, which helps us to address our suppliers and, um, and our customers. So, I would think it's, it's more about the increased tariff environment, um, that it is about activity levels that said,
Um, we've been very pleasantly surprised with how our particular customer base has held up. But again, I want to emphasize that our expectations are that those customers.
With.
Holdings in the core areas of our basins. Um,
Because our customers with a larger, uh, publicly held uh, bnp's that we expect that to hold up relative to the rest of the market.
Great, thanks. And and the the, the follow-up to that was without
without asking about market share, but when you think about pressure control, and you think about
Activity levels.
Are you outperforming that right? And I would imagine, as we go forward here, notwithstanding how the recount evolves, you'll continue to outperform that, driven just primarily by the stability of your customers. Is that fair as we think about, and I'm thinking that's like a North America comment, but.
Um yeah, as I as I mentioned, we're not getting a whole lot of clarity in terms of next year. But I think it's also fair to say that, uh,
that our market share is not going to be, is going to be a function of, uh, of new names and, um,
We're seeing some increased interest from some significant players. Um,
we, I believe that's going to continue, uh,
So I'm, you know, I'm, I'm guardedly optimistic that, that we'll be able to to defend and, and potentially expand it. The question is, how big is that pie going to be? And I, you know, I just, I can't estimate that for you. I just think that
our p is going to be, uh,
Significantly larger than some of our, uh, some some of our competitors. I would also say that that, um, you know, we've seen some very large competitors, try to
Uh, increase market share during this period, of of, uh, of anemic growth. Um,
Frankly at the uh, at the expense of their of, I think their margins. So I can't control that.
Right. Good. No, that's good color. I appreciate it.
Thank you.
Our next question comes from Arun, Jaron from JP Morgan Securities. Your line is open.
Good morning. Hey, good morning, gentlemen. Um, I wondered if you could provide any, uh, updated perspective, on the, on the cactus uh, SPC, uh transaction, which you indicated you expect to close in, in in early 2026, how is the integration planning going? But but any updated views would be a, You Know, Much appreciated because that is a an important. A swing Factor as we think about um your earnings power next year.
So specifically, what are you asking me?
Um, yeah, just uh, your thoughts on.
Power of that segment next year. Obviously, there's been some cross currents. Um, in Saudi, although we were on the neighbor's call yesterday and Tony mentioned how, you know, there could be a an improvement in activity as you got into the back half of or, or second half of 2026. Yeah, you know was wondering if you've
Been to the Middle East, uh, recently, and just could offer any kind of data points or, um, you know, fresh perspective. Like I said, there's just been some, um, um,
Um, some cross currents. As we think about, you know, potential spending Trends next year,
yeah, I think I, I was very about 2 weeks ago, um,
so, um,
I I, you know, I, I think this the, the, the, the Saudis,
are are probably projecting, um,
The possibility of increased activity in the second half of 2026. But, um,
That hasn't translated into orders. And, um,
Those are just facts and uh you you know, the international market. Typically when we have a Slowdown in the US, you you normally see about a 12-month lag in the international market. So I I expect the international market even the, the Middle East to, to have a relatively
Weaker 2026 and in 2025. Um, there is no concrete.
Objective evidence.
Which would only be uh manifested by order placements. So um
I I just I can't be terribly optimistic about the committee. So just, you know,
Rent is going to be in the low 60s and uh that's got to somehow translate into reduced activity. Now what we are seeing is some us companies becoming more active in the Middle East, and I think that's which is really good for us because they happen to be our customers. And uh, there is a an absolute undeniable.
Focus on unconventional Drilling.
and um,
They really are welcome, Western companies. And as a result the Western companies bring in the suppliers within their most comfortable.
So, uh, I feel good about that. Well, that offset the overall decline, uh, not likely but it'll, it'll mitigate the impact.
Great. That is helpful. I really appreciate that perspective. Um, maybe just my follow-up. Um, maybe give us an update on...
Your?
Sourcing plans internationally, how is the ramp uh, going and and and Vietnam, um, and and maybe just some thoughts on that.
Yeah, so um, you know I can I can defer to Joel on that piece. He's he's in the room with us. Uh,
Vietnam is progressing. Well Joe I'll let you handle this. Yeah, it's progressing. Well, we're starting to move. Um, some of the Wellhead into the US that we need to be able to assemble and monogram. We're currently in line with API, to get our audit to be monogrammed. We fill the paperwork out and submit it all the required, um, additional documentation. So, we're expecting to have that audit in the next hopefully in the next 90 or so days. So we'll have that done after the first of the year, 1 of our requirements is to be able to provide API monogram equipment from that facility. But on the indoor we have started to move. Well, that housing is in tubing, head bodies into the US. That will be we'll do the assembly at our Boer City facility. So it's progressing well, expanding adding headcount adding fixtures for testing so pretty pleased with the progress.
you know, any any sense, um, you know, once you do get API certification, what kind of mix you know, Vietnam can have
and perhaps next year,
You know, we're going to focus primarily on the wellhead out there towards the end of the year. We'll start bringing some of our gate valves, but the primary focus for the beginning of the year and the end of the year will be getting as many of the wellheads and the tubing head assemblies.
Uh, you know, I would say somewhere in the magnitude of at least half.
Oh, wow. Okay, got it.
Thanks gentlemen.
Thank you.
Johnson rice, your line is open.
Good morning. Good morning guys. Good morning. Thanks for letting me in Scott. I just wanted to ask 1 question on, kind of the macro front. I mean, we're hearing a lot more chatter about unconventional Drilling in in many different countries around the world. Uh, and, and obviously there's a lot more activity kind of moving that direction, but I just wanted to to know from your standpoint. What do you think the time frame would be, um, to to kind of see a material pick up and unconventional around the world and whether it be in turkey or Libya, or, or any of the places that aren't big today. And unconventional, it's just kind of time frame perspective because nobody seems to give that number out.
Well, I can tell you this with absolute certainty: we've seen an exponential increase in unconventional.
Requests.
Uh,
Throughout the Middle East, um, I'm less.
optimistic about Argentina frankly because, um,
They're just not that many rigs running uh, in comparison to the mid East. Um, a lot of interest in Saudi a lot of interest in Abu Dhabi. Um, I would, I would probably tell you that, by the end of 2026, we're going to see in fact, I think we have our first unconventional shipment Joel
Scheduled for.
When?
It's probably going to go January to February. Yeah. So you know and I
It's it's basically a US product. So um I don't anticipate obviously any issues with that. So I think we'll see a steady ramp up the real interest right now on this, to compare the results of using an unconventional, a, a design specifically, addressing unconventional with
What they're using in terms of flange equipment. So
This will be pending the results of the time savings. So at the time savings or anything at all approaching the US, um, I think that, you know, once word spreads and it spreads quickly, uh, I think you're going to see a serious ramped up. So let's call it fourth quarter because they need, they need time to drill these Wells and analyze the efficiency. So I can tell you my gut feeling is 27 will be a a a significant contributor and I think that by the fourth quarter of 26, we're going to see some meaningful shipments.
I appreciate the color. You're always good at the macro stuff. Thank you.
Thank you.
Thank you.
I'm showing no further questions at
This time I would now like to turn it back over to the chairman and CEO Scott Bender for closing remarks.
All right, I want to thank everybody for their participation today.
the company and
I'm really pleased with this team's efforts in terms of dealing with, you know, sort of an anemic Market in a
very uncertain tariff landscape. Um, this really is a reflection of of not only how flexible our team is. But also, uh, the fact that we are
and will always be heavily invested in, consumables, and variable costs businesses. So, thanks again for your interest. Have a good day.
Thank you for your participation. In today's conference, this does conclude the program. You may now disconnect