Oil States International, Inc. Q2 FY2026 earnings call

• Overall 2Q26 Financial Results

  • Consolidated revenues of $157 million and adjusted EBITDA of $19 million, up 8% and 14% sequentially, respectively
  • Reported net income of $6 million (10 cents per share); adjusted net income (excluding one-time charges/credits) was $8 million (14 cents per share)
  • Full company book-to-bill ratio of 1.2x for 2Q26
  • Over 70% of consolidated revenue in H1 2026 came from offshore and international activity, up from ~50% in 2023, reflecting the company's completed strategic business mix shift

• Operational Highlights

  • Offshore manufactured product segment growth was driven by strong Production Platform and Connector Products demand, plus higher service activity
  • Completion and production services growth and strong margins are the result of portfolio high-grading for technologies and service lines
  • Downhole Technologies performance improved on higher perforating and completion product sales, though elevated raw material costs (tungsten, explosive powder, copper) continue to pressure margins; continued pricing discipline and inventory management are key priorities
  • The company ended 2Q26 with $20 million cash on hand and $18 million outstanding debt, with a strong liquidity position that supports organic growth, R&D investment, and shareholder returns; $5 million of common stock was repurchased in 2Q26, and the company will remain opportunistic on future repurchases
  • 48% of current total backlog is tied to multi-year U.S. military product contracts awarded in 2025, which will convert to revenue over 4-5 years

• Strategic Direction

  • Core long-term strategy is focused on higher-margin, differentiated products and technologies in offshore, deepwater, subsea, and international markets, aligned with growing global demand for secure, diversified energy supply
  • The company continues to make targeted R&D investments to improve product performance, efficiency, and reliability in complex operating environments
  • Prudent capital allocation and cash generation remain core management priorities

1. Offshore manufactured product segment: Generated $93 million in revenues (59% of total consolidated 2Q26 revenue) and $18 million in segment EBITDA, with a segment EBITDA margin of over 19%. Backlog reached $451 million as of June 30, 2026, up 5% sequentially and 24% year-over-year, marking the highest backlog level in over 10 years. The segment achieved a 1.2x book-to-bill ratio in 2Q26.
2. Completion and production services segment: Generated $24 million in revenues (15% of total consolidated 2Q26 revenue) and $7 million in segment EBITDA, with a segment EBITDA margin of approximately 27%. Revenue increased 13% sequentially and segment EBITDA increased 7% sequentially.
3. Downhole Technologies segment: Generated $40 million in revenues (26% of total consolidated 2Q26 revenue) and $4 million in segment EBITDA. This was the segment's highest revenue level since 2Q23, with material improvements driven by stronger product demand and favorable product mix.

• Full-year 2026 guidance is revised to a revenue range of $640 million to $660 million and adjusted EBITDA range of $77 million to $83 million, driven by delays in non-military contract awards that will push some 2026-expected revenue recognition into 2027
• 3Q26 guidance calls for revenues of $157 million to $167 million and adjusted EBITDA of $18 million to $20 million
• Management reaffirms that the full-year 2026 book-to-bill ratio is expected to be 1.0x or greater
• Full-year 2026 free cash flow is expected to be $35 million to $40 million, not including potential additional asset sale proceeds that could add $5 million to $10 million in incremental free cash flow
• Offshore manufactured product segment EBITDA margins are expected to reach 22% to 23% in 2027 and beyond as backlog grows, from ~19% in 2Q26 and a 2026 target of 20%
• Downhole segment performance in H2 2026 will depend on continued pricing discipline, product mix, and raw material availability
• Working capital investments made in H1 2026 are expected to begin unwinding in H2 2026, driving improved free cash flow generation

• Near-term commodity price volatility driven by geopolitical conflict (specifically the ongoing Middle East conflict), global supply disruptions, moderated global growth expectations, and evolving OPEC Plus production policies
• Geopolitical uncertainty and Middle East conflict have caused repeated delays to contract awards for non-military offshore products, particularly orders for delivery to the Middle East, leading to delayed revenue recognition
• Elevated and volatile raw material input costs for Downhole Technologies (including tungsten, explosive powder, and copper) pressure segment margins
• Customer project sanctioning and contract award timing varies significantly due to ongoing near-term market uncertainty, leading to quarter-to-quarter earnings volatility
• U.S. land operator activity is constrained by commodity price volatility, as operators maintain strict capital discipline amid unpredictable WTI price swings

Q: With backlog at a 10+ year high and growing industry optimism for an offshore ramp, how are pricing and margins trending on new offshore orders, and what is the long-term margin outlook for the segment? / A: Current backlog margins align with the segment's 20% full-year 2026 target, coming in at 19.3% in 2Q26. When backlog grows further over the next few years, improved manufacturing capacity absorption is expected to push EBITDA margins to the 22-23% range, a level the segment reached a decade ago when backlog was similarly high. This improvement is not expected before 2027.

Q: Downhole Technologies posted its strongest revenue in years this quarter. How much of this gain comes from prior restructuring vs. an improving U.S. land market, and how sustainable are current margins? / A: Most of the current improvement comes from a recovering U.S. land market, with higher fract spread counts and rig counts driving a quarter-over-quarter doubling in volume for core perforating products. Product line revamps and new differentiated perforating products have also driven strong customer uptake. Management expects current activity levels to continue through H2 2026, with sustained growth going forward.

Q: What is the expected order flow for offshore manufactured products in H2 2026, and how much of the current backlog will convert to revenue this year vs. future years? / A: Delayed drilling connector and production facility orders expected for H2 2026, pushed back by Middle East geopolitical uncertainty, are still expected to arrive in 3Q or 4Q 2026, with no change to the underlying demand fundamentals for these awards. Roughly 48% of current backlog is multi-year military orders that convert over 4-5 years, bringing the near-term (12-month) backlog conversion rate down to ~55% from the historical 65-70% range, which management still considers strong.

Q: What is the order outlook for the military products segment for H2 2026 and 2027? / A: Large block military orders (such as the $100+ million 2025 Block 6 award) only occur every 3-5 years. Ongoing annual military orders typically total $25-30 million per year, which will continue through H2 2026 and 2027. The large 2025 Block 6 award will begin generating meaningful revenue starting in 2027.