CACTUS Q3 2026 EARNINGS CALL - CACTUS INC

Explicit Guidance:

• Q4 2026 Revenue: Pressure Control revenue expected flat to up sequentially; Spoolable Technology revenue expected up low single digits sequentially.
• Q4 2026 Margins: Pressure Control adjusted EBITDA margins guided to 23–25% (excluding ~$4M stock-based comp); Spoolable Technology adjusted EBITDA margins guided to 39–41% (excluding ~$1M stock-based comp); Corporate adjusted EBITDA expected to be a charge of ~$6M (excluding ~$2M stock-based comp).
• Full Year 2026 Capital Expenditures: Net CapEx expected to be approximately $65M, including orders for the Middle East facility and Baytown expansion.
• Full Year 2026 Tax Rates: Effective tax rate expected at 24% for the full year; adjusted EPS tax rate expected at approximately 27%.
• Dividend: Quarterly dividend of $0.15 per share approved and paid in December 2026.
• Tax Receivable Agreement: Annual payment and related member distributions expected in Q4 totaling approximately $25M.
• Depreciation & Amortization (Q4 2026): Total expense expected at ~$27M ($18M for Pressure Control, $9M for Spoolable Technology), including $10M intangible amortization in Pressure Control and $4M in Spoolable Technology.

Business-Segment Outlook:

• Pressure Control (Cactus International): Sales expected to remain in line with Q3 levels through Q4; revenue levels for 2027 anticipated broadly flat vs. 2026, with the second half of 2027 expected to be stronger than the first half. Revenue growth is expected to accelerate in 2028 driven by diversification into regions with legacy Vetco Gray equipment install bases and supply chain transformation cost savings.
• Spoolable Technology: Non-U.S. sales projected to represent ~20% of total sales in 2026, more than doubling from <10% in 2025. First substantial shipments to midstream customers expected in Q4 2026 following the FEMSA exemption process. Demand underpins the Baytown facility expansion.
• Middle East Operations: Pressure control manufacturing operations described as largely uninterrupted despite conflict; monitoring recent Houthi activity impacts.
• Backlog: Backlog expected to continue growing in Cactus International as customers resume order placements post-destocking; Spoolable Technology backlog nearly doubled in Q3 supporting capacity expansion.

Market and Competitive Outlook:

• Demand Trends: U.S. land rig counts expected to remain steady in Q4 at levels higher than Q3 average, supporting resilient domestic revenue.
• Market Share: Management anticipates an improved market share metric for U.S. Pressure Control through Q4 2026, driven by strong activity among private operators.
• Pricing & Mix: Pressure Control margins in Q4 expected to decrease due to the non-recurrence of tariff refunds and unfavorable customer mix (equipment vs. service) in Cactus International. Spoolable margins expected to remain relatively stable in Q4 despite higher input costs and holiday inefficiencies, supported by large-diameter product differentiation.
• Structural Shifts: Spoolable pipe adoption in midstream applications expected to accelerate due to regulatory fast-tracking (FEMSA exemption); Spoolables market in the Middle East remains "essentially untapped" (approx. 2% of revenue), representing a step-change opportunity.

Macro / Industry Outlook:

• Tariffs: U.S. tariff environment described as stable, with ~75% total tariffs on imports from China continuing.
• Geopolitical Risk: Ongoing conflict and increased tensions in the Middle East are being monitored for impacts on operations and order timing; destocking in the region is viewed as concluded.
• Input Costs: Elevated input costs are being closely monitored and are expected to potentially affect the cost structure in 2027.

Strategic Initiatives:

• Middle East Facility: Plans to construct a $100M spoolable technologies manufacturing facility in the Middle East. Investment split primarily between 2027 and 2028, with modest spend in 2026. Facility expected to commence operations in 2029, funded by internal cash generation.
• Baytown Expansion: Ongoing expansion to increase North American capacity; current expansion expected to add 20% to Baytown capacity, with management estimating total potential revenue capacity impact based on a multiple of the capacity increase.
• Supply Chain Transformation: Accelerating supply chain transformation in Cactus International to capture cost savings in the back half of 2027, with benefits fully realizing in 2028.
• Product Qualification: Flexsteel products are fully qualified by key Middle East customers; testing for new regional penetration expected to complete by Q1/Q2 2027.

Risks and Headwinds to Outlook:

• Margin Pressures: Q4 Pressure Control margins expected to decline due to the non-recurrence of tariff refunds and unfavorable customer mix.
• Input Costs: Potential upward pressure on 2027 cost structure due to elevated input costs.
• Geopolitical Instability: Ongoing conflict and Houthi activity in the Middle East could disrupt operations or alter the pace of order activity.
• Customer Mix: Shifts in the ratio of service/spares versus new equipment sales in Cactus International could unfavorably impact margins.
• Capacity Ramp: Realization of full revenue capacity from Baytown and Middle East expansions is subject to successful execution and market acceptance timelines (2027–2029).

Management Tone on the Future:

• Confidence: Management expresses high confidence in the differentiated, engineered nature of their products and their ability to outperform in a dynamic global market.
• Optimism: Tone is enthusiastic regarding the Middle East opportunity ("step change"), the trajectory of midstream spoolable sales, and the resilience of the U.S. domestic business.
• Transformation: Acknowledgment that both segments are undergoing transformational initiatives (full integration of Cactus International, expansion of Spoolable footprint).
• Hedges: No specific hedges to guidance other than standard risk factors (geopolitics, input costs, tax rate fluctuations).

Miscellaneous:

• Dividend History: $0.15/share quarterly dividend paid in Q3 2026 ($12M cash outflow including distributions).
• Cash Position: Ended Q3 2026 with $354M cash balance ($91M net of transaction-related outflows); net increase of $79M excluding transactions.
• Legal: All legal entity formations and deferred closing activities for Cactus International acquisition concluded.
• Market Share Reporting: Discontinued formal public market share reporting but management indicates "improved market share statistic metric" expected by year-end 2026.