CACTUS Q3 2026 EARNINGS CALL - CACTUS INC

Financial Performance:

• Total Q3 2026 revenue was $431 million, a 4% sequential decline.
• Adjusted EBITDA was $132 million (flat sequentially), resulting in a margin of 30.6%, up from 29.5% in Q2.
• Adjusted net income was $78 million (96 cents per share), up from $75 million in Q2.
• Cash balance closed at $354 million; $12 million cash outflow for quarterly dividends ($0.15/share).
• Cactus International (Pressure Control) revenue fell 11% sequentially to $305 million due to Middle East shipment declines, though U.S. sales increased.
• Spoolable Technologies revenue surged over 20% sequentially to $127 million.
• Total company backlog reached $615.6 million, an increase of ~$160 million from Q2.
• Net CapEx for the quarter was $16.1 million; full-year 2026 Net CapEx guidance updated to approximately $65 million.

Guidance and Future Outlook:

• Q4 2026 Pressure Control revenue expected to be flat to up sequentially; adjusted EBITDA margins forecast between 23-25%.
• Q4 2026 Spoolable Technologies revenue expected to grow low single digits sequentially, with adjusted EBITDA margins of 39-41%.
• Full-year 2026 revenue outlook is broad flat relative to 2026 levels, with second-half 2027 projected to be stronger than the first half.
• Middle East Spoolable manufacturing facility expected to commence operations in 2029 with ~$100 million investment funded internally, primarily in 2027-2028.
• Effective tax rate expected to be 24% in Q4 and ~27% for adjusted EPS in Q4.
• Anticipated $25 million annual payment for tax receivable agreements and related member distributions in Q4.

Business Segments and Product Lines:

• Pressure Control (Cactus International): Margins improved to ~28% in Q3 driven by synergies and mix, but Q4 guidance reflects normalization due to lack of tariff refunds and customer mix shifts.
• Spoolable Technologies: Driving growth with record Q3 orders, nearly doubling backlog, and 2026 non-U.S. sales projected to exceed 20% (up from <10% in 2025).
• New Product/Regulatory: Anticipating first substantial midstream shipments following the new FEMSA exemption for large-diameter spoolable pipe.
• Capacity Expansion: Baytown facility expansion underway, expected to add ~20% capacity; Middle East facility will address the 2% revenue penetration in the region.
• Supply Chain: Transformation initiatives and cost savings expected to accelerate in H2 2027, fully benefiting 2028 results.

Market and Competitive Landscape:

• Middle East represents a large, untapped market (2% of current revenue) dominated by steel pipe, with potential for significant growth via local manufacturing.
• U.S. land rig activity remains steady through year-end; company anticipates improved market share in the U.S. through Q4 2026.
• Competitive advantage in Spoolables remains unique with the largest commercial diameters and pressure ratings (Flexsteel products).
• Latin America (LATAM) continues to drive Spoolable order strength.

Risks and Challenges:

• Geopolitical instability in the Middle East, including ongoing conflict and Houthi activity, monitored closely but currently deemed manageable for operations.
• Tariff exposure: Paying ~75% tariffs on most imports from China; tariff refund impacts are non-recurring in Q4, negatively affecting margins.
• Rising input costs for Spoolable Technologies in 2027.
• Seasonal slowdowns and customer mix shifts impacting Q4 Pressure Control margins.
• Forward-looking statements subject to risks that may cause actual results to differ materially from expectations.

Management Commentary and Tone:

• Tone is confident and optimistic, highlighting "resilient and profitable" domestic performance and strong international momentum in Spoolables.
• Management expressed enthusiasm for the Middle East expansion as a "step change" for growth.
• CEO emphasized safety, returns, margins, and customer execution as core operational focus.
• Management confirmed Cactus International bookings have hit their trough and are recovering.

Analyst Questions and Answers:

• Capacity Growth: Baytown expansion adds ~20% capacity; combined with Middle East facility, significantly impacts long-term revenue production capacity. International exposure in Spoolables will not dilute margins due to unique product specs (large diameter/high pressure).
• Cactus International Inflection: Significant recovery in Middle East orders observed in Q3 after H1 destocking; orders (9-15 month delivery) expected to sustain growth through Q4 and normalize in 2027.
• Margin Guidance: Q3 margin beat (28%) attributed to spares/repairs strength and synergy realization; Q4 downgrade to 23-25% driven by non-recurring tariff refunds and customer mix.
• Market Share: While market share data is no longer reported, management asserts Q1 will be a "strong market share quarter" and gains are "sticky."
• Middle East Qualification: Flexsteel products underwent advanced testing well in advance; qualification process is nearing completion by Q1/Q2 of next year.

Other Key Points:

• Deferred revenue and backlog did not include U.S. Pressure Control contributions.
• Legal entity formation for Cactus International acquisition concluded; $91 million in cash dispersed for transaction finalization included in quarter-end balance.
• Stock-based compensation adjustments included in non-GAAP reconciliations: $7.8M (company), $4M (Pressure Control), $1M (Spoolables).
• Inventory step-up amortization reversal of $200k noted in Q3 adjustments.