OIL STATES INTERNATIONAL, INC Q3 FY2026 earnings call

• Strong Financial Results: Reported Q3 revenues of $170 million and adjusted EBITDA of $20 million, both exceeding guidance and showing sequential increases of 8% and 6%, respectively.
• Record Backlog: Consolidated backlog reached $482 million, the highest level in nearly 12 years, up 21% year-over-year. This is supported by a YTD book-to-bill ratio of 1.2x and a quarterly ratio of 1.3x.
• Strategic Shift to Offshore/International: 72% of first-nine-months revenues were driven by offshore and international activity, a significant increase from ~50% in 2023, positioning the company for long-term growth amid Middle East/Europe supply disruptions.
• Product Momentum: Managed Pressure Drilling (MPD) rental project booked in Q3 with a sale order expected in Q4. Deep sea mineral gathering and subsea intervention opportunities are progressing.
• Operational Challenges: Facing headwinds in Downhole Technologies from premium explosive powder availability and rising input costs (tungsten, copper). Completed $38 million in inventory purchases to support growing backlog.
• Capital Allocation: Maintained net cash position and returned capital via $9 million in share repurchases YTD. Approved new $50 million two-year share repurchase authorization expiring October 2028.

Offshore Manufactured Products: Generated $104 million in revenue (61% of consolidated total) with adjusted segment EBITDA of $19 million (EBITDA margin 18%). Revenue growth was driven by production platform, military, and connector products, though margins were tempered by a shift toward lower-margin service offerings. Completion and Production Services: Generated $23 million in revenue (14% of consolidated total) with adjusted segment EBITDA of $6 million (EBITDA margin 26%). Revenue declined 5% sequentially due to changes in U.S. land customer activity, but the segment maintained strong margins through high-grading efforts focused on proprietary extended reach tools and international markets. Downhole Technologies: Generated $42 million in revenue (25% of consolidated total) with adjusted segment EBITDA of $4 million. Revenue increased 6% sequentially to its highest level since Q1 2023, supported by stronger completion and perforating product sales, despite headwinds from elevated raw material costs.

• Fourth Quarter Revenue Guidance: $172 million to $184 million.
• Fourth Quarter Adjusted EBITDA Guidance: $20 million to $23 million.
• Free Cash Flow Outlook: Expected range of $15 million to $25 million for Q4, reflecting working capital investment in inventory ($38 million YTD) and seasonal slowdown in customer collections; no asset sale proceeds expected in Q4.
• 2027 Outlook: Management expects revenue growth in line with market estimates, driven primarily by international/offshore markets, with modestly higher U.S. land spending.

• Geopolitical Instability: Ongoing conflicts in the Middle East and Europe cause crude oil price volatility and supply disruptions, though this also drives demand for diversified energy supplies.
• Supply Chain Constraints: Headwinds related to premium explosive powder availability and increased raw material costs (tungsten, copper) impacting Downhole Technologies margins.
• Working Capital Volatility: Significant inventory build-up ($38 million YTD) required to execute growing backlog may pressure near-term free cash flow.
• Customer Activity Fluctuations: Changes in U.S. land market activity impacted Completion and Production Services revenue sequentially.
• Project Timing Risks: Quarter-to-quarter result variations due to customer schedules, project timelines, geopolitical conditions, and timing of contract awards.

Q: Jim Rolison asked about the long-term market opportunity for Managed Pressure Drilling (MPD), noting peers expect adoption to rise to 85-90%. Lloyd Hajdik confirmed strong customer acceptance, stating they model $35-$40 million in MPD revenue going forward at good margins. He noted that operators often require drill ships to be 'MPD ready,' benefiting Oil Estate's integrated riser joint systems, with a rental project booked in Q3 and a sale order expected in Q4.

A: Stephen Gengaro inquired about the burn rate of the record $482 million backlog over the next 12 months, specifically regarding the impact of military products. Lloyd Hajdik explained that military products comprise ~46-50% of the backlog, booked in late 2025. While historical conversion rates are 65-70%, the multi-year nature of these military awards lowers the 4-12 month conversion rate to 50-55%. However, he emphasized this does not negatively impact margins and provides visibility into 2027 offshore momentum.

A: Josh Jane asked if the aggressive $50 million share repurchase program signals contentment with the current portfolio or if M&A remains a priority. Lloyd Hajdik clarified that the capital allocation framework has three pillars: organic CapEx/R&D, opportunistic/selective M&A, and share repurchases. He explicitly stated the company is 'not content' with its existing portfolio and intends to be more aggressive than in the past in pursuing M&A opportunities that fill technology gaps, balanced against cash flow profiles.

A: Chuck Minervino questioned the updated free cash flow guidance, noting it appears weaker than previous expectations (~$35-40M vs. current Q4 estimate of $15-25M). Matt Autenrieth attributed the delta to a $38 million working capital investment in inventory to support the record backlog and raw material demands. Lloyd Hajdik added that this is largely a 'push to the right,' as the working capital bill will convert as businesses grow, and asset sale proceeds likely carry over into 2027 rather than realizing in Q4.