Cactus, Inc. (WHD) Earnings

Management highlights

### Overall Company Performance - Q2 2026 total company revenue hit $450 million, up 15.8% sequentially; adjusted EBITDA reached $133 million, up 32.5% sequentially, with an adjusted EBITDA margin of 29.5%, up from 25.8% in Q1. - GAAP net income was $61 million in Q2, up from $40 million in Q1; adjusted net income was $75 million ($0.93 per diluted share), up from $56 million ($0.70 per diluted share) in Q1. - The company ended the quarter with $366 million in cash, up $74 million sequentially; the board approved a 7% increase in the quarterly dividend to $0.15 per share, the fourth consecutive year of dividend increases. - Total end-of-quarter backlog (remaining performance obligations) was $455.8 million, with a majority tied to Cactus International's pressure control business. Backlog decreased more than expected in Q2 due to strong project deliveries and paused contract negotiations with a large Middle East customer, partially offset by Spoolable Technologies backlog growth from strong order momentum. ### Pressure Control Operations - Strong Q2 performance was driven by better-than-expected backlog conversion in the Middle East, where teams executed more deliveries than planned despite ongoing regional conflict and logistics disruptions, plus stronger U.S. activity from higher commodity prices. - Q2 included $10 million in tariff refunds, representing less than 15% of total tariffs paid over the relevant period; the company's Vietnamese facility is expanding shipments to reduce U.S. tariff exposure, with 15% of U.S.-bound pressure control imports expected to come from Vietnam in Q3, with further gradual increases planned. - Annualized synergy targets for the Cactus International acquisition have increased 33% from $15 million to $20 million following completed organizational restructuring; additional supply chain synergies are expected to deliver meaningful profitability improvements starting in H2 2027. ### Spoolable Technologies Operations - Revenue growth in Q2 came from expanding seasonally strong domestic activity and resilient international demand, with order momentum accelerating across both domestic and international markets. - Incremental international orders exceeding $80 million were received in July, with shipments scheduled to begin in Q4 2026 and extend through mid-2027; demand is particularly strong in Latin America and the Middle East, while U.S. demand grows driven by midstream and E&P customers needing large-diameter, high-pressure products. - The company plans to expand capacity at its Baytown facility to meet growing demand, with a total expected cost of ~$40 million, majority of spend occurring in 2027; the company is also evaluating additional Eastern Hemisphere capacity investments to meet growing global demand.

Guidance

- **Q3 2026 Segment Guidance**: Pressure control revenue is expected to decline ~10% sequentially, as strong Q2 Cactus International shipment levels revert toward Q1 levels, with this decline more than offsetting domestic growth. Pressure control adjusted EBITDA margins (excluding $4 million segment stock-based compensation) are expected to be 22% to 24%. Spoolable Technologies revenue is expected to grow 15% to 20% sequentially, driven by accelerated shipments of large Latin American orders and growing domestic activity. Spoolable adjusted EBITDA margins (excluding $1 million segment stock-based compensation) are expected to be 39% to 41%. Adjusted corporate EBITDA is expected to be a $5 million charge (including $2 million in corporate stock-based compensation). - **Full Year 2026 Capex Guidance**: Full year 2026 net capex guidance has been increased to $55 million to $65 million, up from prior levels, to accommodate planned capacity expansion at the Spoolable Technologies Baytown facility. - **Q3 2026 Corporate Financial Guidance**: The effective tax rate is expected to be 24%, with an adjusted EPS estimated tax rate of ~27%. Total depreciation and amortization is expected to be ~$27 million, down from first half run rates following completion of Cactus International inventory step-up amortization at the end of Q2. - **Order Expectations**: Management expects material new orders from multiple large Middle East pressure control customers to be booked in Q3 2026, following the completion of ongoing contract negotiations.

Segment performance

1. Pressure Control Segment: Q2 2026 revenues were $344 million, representing a 14.6% sequential increase. This segment contributes 76.4% of total company revenue in the quarter. Operating income increased $20.5 million (53.2% sequentially), with operating margins improving 430 basis points. Adjusted segment EBITDA was $95.9 million, up 33.5% sequentially, and adjusted EBITDA margins expanded 400 basis points. 2. Spoolable Technologies Segment: Q2 2026 revenues were $106 million, representing a 17.4% sequential increase. This segment contributes 23.6% of total company revenue in the quarter. Operating income increased $8.6 million (36.5% sequentially), with operating margins improving 430 basis points. Adjusted segment EBITDA was $42.1 million, up 21.8% sequentially, and adjusted EBITDA margins expanded 330 basis points. 3. Corporate & Other: Q2 2026 expenses decreased $4.9 million sequentially to $7.7 million, with adjusted corporate EBITDA recorded as a $5.3 million expense.

Risks & headwinds

- Ongoing conflict in the Middle East creates continued logistics disruptions, uncertainty for delivery schedules, and potential volatility for input costs (including HDPE prices, which have declined from conflict-driven highs but could rise again if blockades are reinstated). - The company remains subject to a 75% total tariff on most pressure control imports from China, and while new recently introduced replacement tariffs do not materially change the overall tariff burden, the U.S. tariff environment remains highly dynamic. - Capacity expansion projects, particularly any international expansion, will take multiple years to complete and come online, creating timing risk for meeting unexpected surges in customer demand. - Cactus International's order entry has been below planned pace in the first half of 2026, and the expected order surge in late 2026/early 2027 may not materialize as projected. - Forward-looking results are subject to general market and commodity price volatility, as higher activity levels are tied to sustained elevated oil and gas commodity prices.

Analyst Q&A

• Q: What is driving U.S. Spoolable Technologies growth, and how will shifting growth to more midstream and international business change the segment's margin profile? /

  A: U.S. growth comes from both increased adoption/share gain and market expansion. A recent FEMSA regulatory change made it easier to use the company's spoolable products in midstream, creating an immediate boost that will accelerate over time, while adoption from E&P customers is also growing. Management declined to share detailed margin commentary but stated they are optimistic about margin trends as the business mix shifts.

• Q: What is the scale of the international growth opportunity for Spoolable Technologies, and why is additional capacity needed? /

  A: The planned 20% Baytown capacity expansion will be fully absorbed by Western Hemisphere demand, driven by growing U.S. midstream demand and Latin American orders. The company has been rebuilding its international footprint after the prior owner reduced international focus, and rapidly growing Mideast demand justifies evaluating an additional Eastern Hemisphere manufacturing facility. Management estimates international revenue could grow to represent roughly 40% of total Spoolable segment revenue long-term, following capacity expansion.

• Q: What is the near-term opportunity for Cactus International's pressure control backlog and Middle East aftermarket activity, and when will growth materialize? /

  A: Cactus International order entry was below planned pace in H1 2026 as customers focused on repairing existing inventory and destocking amid regional conflict disruptions. Management expects an order surge to begin in Q3 2026 and extend into early 2027 as activity recovers, with growth driven primarily by new drilling from large national oil companies in the region. Q2's aftermarket growth was concentrated in Saudi Arabia and Norway, and the company has not yet begun capturing upside from underserved legacy markets in West Africa, North Africa, and Asia.

• Q: How are negotiations progressing with Cactus International's large Middle East customer, and what progress has been made on diversifying the pressure control customer base? /

  A: Contract negotiations with the large customer are in the final stages after a period of paused discussions during regional destocking and conflict disruption, and management expects order awards to resume shortly. The company is actively focused on diversifying beyond its traditional core Middle East footprint by reviving the legacy business in Asia, Africa, and Latin America, targeting both aftermarket services and new equipment sales, and has already seen early positive traction in these new markets.