Cactus, Inc. Q3 FY2026 earnings call

• Strategic Expansion in the Middle East: Announced plans to construct a spoolable technologies manufacturing facility in the Mideast to capitalize on a large, untapped market opportunity where steel pipe currently dominates. The investment is estimated at approximately $100 million, funded internally, with operations expected to commence in 2029.
• Operational Resilience and Margin Improvement: Despite a 4% sequential decline in total revenue, adjusted EBITDA remained flat at $132 million due to improved cost control, synergy realization, and better product mix in spares and repairs. Total backlog grew significantly by ~$160 million to $615.6 million.
• Baytown Facility Expansion: Continued expansion of the Baytown facility is underway, which will add approximately 20% to production capacity, supporting future volume growth in the spoolable technologies business.
• International Growth Momentum: Non-U.S. sales for spoolable technologies are projected to represent approximately 20% of sales for full-year 2026, more than doubling from sub-10% in 2025, driven by strength in Latin America and other international markets.
• Supply Chain Transformation: Accelerating efforts to transform the supply chain for Cactus International to achieve cost savings in the back half of 2027, benefiting 2028 results.

• Pressure Control Segment: Revenue was $305 million, a decrease of 11% sequentially, driven by lower shipments in the Middle East offset by increased U.S. sales. This segment contributed approximately 70.8% to total company revenue ($431 million). Adjusted segment EBITDA was $9.8 million (down 10% sequentially), with margins improving by 40 basis points.
• Spoolable Technology Segment: Revenue was $127 million, an increase of over 20% sequentially, reflecting strong domestic activity and international expansion. This segment contributed approximately 29.5% to total company revenue. Adjusted segment EBITDA increased by 23% sequentially to support the higher revenue growth.

• Fourth Quarter Pressure Control Revenue: Expected to be flat to up slightly from the third quarter.
• Fourth Quarter Pressure Control Margins: Adjusted EBITDA margins expected to be in the 23% to 25% range, down from Q3's >28% performance, primarily due to the non-recurrence of tariff recovery benefits and unfavorable customer/equipment mix.
• Fourth Quarter Spoolable Technologies Revenue: Expected to increase by low single digits from Q3, supported by North American seasonality and large shipments into Latin America.
• Fourth Quarter Spoolable Technologies Margins: Adjusted EBITDA margins expected to remain stable at approximately 39% to 41%, despite higher input costs and holiday-related inefficiencies.
• Full Year 2026 Net CapEx: Revised estimate is approximately $65 million, including orders for long-lead equipment for the Middle East facility and ongoing Baytown expansion.
• Long-Term Outlook: Expects 2027 revenue levels to be broadly flat with 2026, with H2 2027 stronger than H1 2027.

• Geopolitical Instability: Ongoing conflict and increased tensions in the Middle East continue to impact the region, though manufacturing operations have remained largely uninterrupted. The company monitors the situation closely, including recent hostilities.
• Input Cost Inflation: Elevated input costs are being closely monitored as they may affect the cost structure in the coming year.
• Tariff Impact: The company continues to pay approximately 75% total tariffs on imports from China, which impacts margins, although some tariff refunds were realized in Q3.
• Market Adoption Speed: The midstream spoolable pipe market is still in early stages of adoption, particularly regarding larger diameter pipes regulated by FEMSA processes.

Q: Analyst asked how Baytown capacity expansion plus the new Middle East facility will drive multi-year volume growth in spoolables and what margin profile to expect internationally. / A: CEO stated Baytown expansion adds ~20% capacity, significantly impacting revenue potential. He emphasized that unlike pressure control, spoolable margins will not suffer from international exposure because the company produces unique large-diameter, high-pressure pipe that commands premium pricing consistent with North American margins.

Q: Analyst asked about the timing of order inflection in Cactus International following Middle East security challenges and destocking. / A: CEO noted the inflection has already begun this quarter. COO Steve Tadlock explained that while H1 saw destocking due to conflict, Q3 showed significant recovery across multiple Middle Eastern countries. These new orders have 9-15 month delivery terms, suggesting continued strength in Q4 and normalization in 2027.

Q: Analyst asked why Q3 pressure control margins beat guidance (>28%) but Q4 guidance reverted to 23-25%. / A: CFO Jay Nutt attributed the Q3 beat to better-than-expected spares/repair margins and additional synergy realization from Q2 actions. He clarified that Q4 margins are expected to degrade due to the non-recurrence of tariff recovery benefits and a shift toward less favorable customer and equipment/service mixes.

Q: Analyst asked if qualification processes are easier for spoolables vs. pressure control in the Middle East and how U.S. market share trends against private operators. / A: CEO stated spoolable qualification is further along; testing is planned to finish by early 2027 without hiccups, aided by relaxed customer requirements compared to pressure control. Regarding U.S. share, he indicated Q1 would be a strong share quarter, anticipating improved metrics by end of Q1 as private operators ramp.