Oil States International, Inc. (OIS) 2026 Q3 法說會逐字稿

Hello everyone.

Thank you for joining us and welcome to the Oil State's third quarter 2026 earnings call.

(Operator Instructions)

I will now hand the conference over to Brian Mizell, Vice President, Investor Relations, Business Development and Marketing. Brian, please go ahead.

Good morning and welcome to Oil State's third quarter 2026 earnings conference call.

Our call today will be led by our President and CEO, Lloyd Hajdik and Matt Autenrieth, Oil State's Executive Vice President and Chief Financial Officer.

Before we begin, we would like to caution listeners regarding forward-looking statements. The extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law.

No one should assume that these forward-looking statements remain valid later in the quarter or beyond.

Any such remarks should be weighed in the context of the many factors that affect our business, including those risks that closed in our 2025. Form 10-K and Form 10-K/A, along with other recent SEC filings. This call is being webcast and can be accessed through Oil State's website.

A replay of the conference call will be available two hours after the completion of this call and will continue to be available for 12 months. I will now turn the call over to Lloyd.

Thanks, Brian, and good morning, everyone.

Thank you for joining our conference call today, where we will discuss our third quarter 2026 results. And share our thoughts on the market trends in addition to discussing our company specific strategy and opportunities ahead as we finish the year.

As we approach the end of 2026, our industry continues to be influenced by a combination of strengthening long-term fundamentals and ongoing near-term uncertainties.

Crude oil prices remain elevated and volatile, driven largely by supply disruptions. And inventory reductions resulting from the ongoing conflicts in the Middle East and Europe.

The sustained disruption of access to Middle East exports has emphasized the global need for secure, reliable and diversified energy supplies and continues to strengthen the multi-year outlook for offshore and international investments, particularly in Brazil, Guyana and across the Asia region.

While we remain cautious regarding the timing of a broader recovery in the Middle East.

We believe the underlying investment drivers remain firmly intact.

These favorable macro fundamentals are demonstrated by our continued backlog bookings momentum with a year-to-date book-to-bill ratio of 1.2 times in our offshore manufactured product segment.

Given the higher commodity price environment, we believe operator spending in the U.S. Should strengthen as well in 2027.

During the third quarter, we generated revenues of $170 million and adjusted EBITDA of $20 million, up 8% and 6% sequentially, respectively.

We are pleased that these results exceeded our guidance with revenue growth led by our offshore manufactured products and downhill technology segments.

We are encouraged by this progress and continue working to improve the profitability of our differentiated products and services.

72% of our consolidated revenues generated in the first nine months of 2026 were driven by offshore and international activity, which is a substantial increase from around 50% in 2023.

This strategic shift in business mix has positioned oil states well for sustained long-term growth.

Our offshore manufactured products segment generated sequential revenue growth and higher adjusted segment EBITDA.

Although project and service mix tempered margins, production platform, military, and connector products, as well as higher service activity provided positive uplift in the quarter.

Backlog increased to its highest level in almost 12 years, totaling $482 million, supported by bookings of $135 million, which resulted in a quarterly book-to-bill ratio of 1.3 times.

Our Completion and Production Services segment maintained a strong margin profile despite a modest sequential decrease in revenue.

Changes in customer activity within the US land markets in which we operate impacted quarterly results.

We are responding by closely monitoring costs and pursuing additional opportunities in both international and domestic markets.

Third quarter adjusted segment EBITDA margin of 26% reflects the recent high grading of our service lines that are now more concentrated on our proprietary extended reach tools, Gulf of America service operations and certain international markets.

In our downhole technology segment, revenue continued to improve, supported by stronger completion and perforating product sales.

Revenue and adjusted segment EBITDA were both substantially higher than a year ago, reflecting significant progress achieved with our expanded product portfolio and higher U.S. Activity levels.

These improvements were achieved despite the significant headwinds faced in the current period associated with premium explosive powder availability and increased raw material costs.

We believe that our focus on international growth, product design improvements. And inventory procurement plans should provide support for long-term revenue growth and margin expansion.

Looking ahead, we remain enthusiastic about prospects for our differentiated technologies, including our managed pressure drilling system.

The booking of another MPD rental project during the quarter further reflects our continued momentum in customer adoption.

We also see future subsea intervention opportunities. That will support long-term growth with solutions that leverage our proven riser, connector, and pressure control capabilities for well maintenance, workover, and decommissioning applications.

Further, deep sea mineral gathering system opportunities also continue to progress.

With our strong backlog and extensive portfolio of differentiated technologies, Oil States is well positioned to support our customer's evolving requirements.

We will continue to invest selectively in technologies that improve performance, efficiency and reliability in increasingly complex operating environments.

Matt will now review our operating results along with our financial position in more detail.

Thank you, Lloyd, and good morning, everyone.

During the third quarter, as Lloyd mentioned, we generated revenues of $170 million and adjusted EBITDA of $20 million. Representing sequential increases of 8% and 6%, respectively.

We reported net income of $3 million, or $0.05 per share, which included executive transition, facility exit, and other charges.

Excluding these charges are adjusted net income totaled $8 million, or $0.15 per share.

Turning to segment performance, our offshore manufactured product segment generated revenues of $104 million and adjusted segment EBITDA of $19 million in the third quarter, resulting in an adjusted segment EBITDA margin of 18%. The modest decrease in margins sequentially was driven by a third quarter shift in revenue mix toward lower margin product and service offerings.

We achieved a 1.3 times book to bill ratio in the quarter and 1.2 times year to date.

Our backlog totaled $482 million as of September 30th, an increase of 7% sequentially and 21% from a year ago. This is our highest reported level of backlog in almost 12 years.

Our growing backlog continues to reflect a diversified mix of offshore and international energy projects.

As well as military programs.

Our completion and production services segment generated $23 million in revenues and adjusted segment EBITDA of $6 million in the third quarter, resulting in an adjusted segment EBITDA margin of 26%. Revenue and adjusted segment EBITDA declined 5% and 7% sequentially due to changes in customer activity within our US land-based operations.

We continue to focus on growing our higher-margin core service lines, both domestically and abroad.

In our downhaul technology segment, we generated revenues of $42 million and adjusted segment EBITDA of $4 million.

Third quarter revenues increased 6% sequentially with growth across all major product categories. As further evidence of sales momentum within the segment, revenues reached the highest level since the first quarter of 2023.

The sequential adjusted segment EBITDA comparison was impacted by a non-recurring tariff refund benefit recognized in the prior quarter and a shift in sales mix.

Input costs for our shape charges remained elevated, particularly the cost of tungsten, explosive powders, and copper.

During the first nine months of 2026, we invested $38 million in inventory purchases necessary to support the execution of our growing backlog, as well as strategic longer-term inventory purchases to support increasing demand for our downhole consumable product lines.

We invested $10 million in capital expenditures year to date to support our growth and generated proceeds of $13 million from asset sales.

Our remaining $14 million in assets held per sale will continue to be monetized with timing subject to market conditions and transaction completion.

Across the first three quarters of the year, we put a new cash flow-based credit facility in place, retired the balance of our outstanding convertible senior notes. And maintained a net cash position.

Our strong balance sheet and ample liquidity continued to provide us with the flexibility to make accretive investments while returning capital to our stockholders.

During the first nine months of 2026, we purchased $9 million of our common stock. With the expiration of our prior share repurchase authorization on October 24th, our board of directors approved a new $50 million.

Two-year share repurchase authorization yesterday that runs through October of 2028.

Now Lloyd will offer some market outlook and concluding comments.

Thanks, Matt.

As we look ahead, we are encouraged by this quarter's progress, growing our backlog and continuing positive customer engagement while exceeding our market guidance.

Our priorities include growing our order book, converting existing backlog into profitable revenue through reliable delivery, and efficiently executing across our core businesses.

The broader energy backdrop continues to support our strategic vision. We believe offshore and international markets offer an attractive multi-year opportunity even as activity varies across regions.

Strengthen the core, scale differentiated customer-backed growth platforms, and pursue selective acquisitions that fill technology gaps, while also returning cash to stockholders through opportunistic share repurchases.

Cash conversion, returns on invested capital, and balance sheet flexibility govern each of these priorities.

As we carry out our strategy, we will remain disciplined in managing the business for our stakeholders.

With the continued attention to backlog conversion, cash generation, and prudent capital allocation.

Our focus is on commercializing customer-backed technologies, converting our growing backlog into profitable revenue, streamlining execution, and maintaining working capital discipline as we scale the business.

With that in mind, our fourth quarter guidance calls for revenues in the range of $172 million to $184 million. And adjusted EBITDA of $20 million to $23 million.

Customer schedules and project timelines, geopolitical conditions, and the timing of contract awards continue to create quarter-to-quarter variations in our results.

Even so, our current backlog and the breadth of opportunities across numerous business lines support our confidence in future earnings growth.

Boyle States is well positioned with a focused portfolio, a resilient operating base, and a clear pathway to solid cash conversion.

Supported by a disciplined strategy, a healthy balance sheet, and meaningful exposure to long-cycle markets, we believe the company has a strong foundation for continued progress and long-term stockholder value creation.

This concludes our prepared remarks. Caleb, will you please open the call for questions.

(Operator Instructions)

Jim Rollyson with Raymond James.

I guess, Lloyd, to start with, one of your larger peers talked last week about MPD and obviously you guys made another booking this quarter, but talking about approximately 70% of drill ships are either have MPD or installing MPD. And the thought was expressed that they could that could grow to 85%, 90% over time. Just kind of curious how you see that and how that's unfolding for you because you guys have obviously been successful since introducing your system, just maybe market opportunity over time.

Yeah, great question, Jim, and thanks and good morning to you as well. So since we rolled out our MPD technology a couple of years ago.

We've had really great customer acceptance of the newer technology. And really, our opportunity includes that integrated riser joint, both rental systems as well as cell systems. So we do both. We did book an MPD rental project in the third quarter and expect a sale order here in the fourth quarter. So in terms of kind of our market outlook for our business, our MPD business, we generally have built in about $35 million to $40 million of NPD revenues into our model going forward at very good margins, obviously.

And these are systems that if you're talking to the deepwater drillers, if they do not have MPD systems on them, a lot of their customers, the operators are requesting or requiring that they be at least MPD ready, which obviously benefits us in the long-term.

Appreciate that.

And if I kind of step back and look a little bigger picture, quite impressive to see, despite all the geopolitical challenges going on this year, that your book-to-bill continues to be above one and your backlog is back to 2014 levels.

Maybe a little color around what's driving that specifically, just kind of mix of products and timing of runoff and maybe more importantly. Just how the conversations levels are going into next year, given all the optimism around kind of the multiyear uptick in offshore spend?

Yeah, we're very excited about our backlog build. Again, in our prepared comments, I think it's we're up 7% sequentially, but more importantly, 21% year-over-year and the bookings in the third quarter.

A 1.3 book time book to bill. But when I just take a step back, we had great bookings last year in 2025 on our military products awards, right? But this year, of the $333 million of bookings in the first nine months of the year, almost 90% of that is related to the offshore energy product. So think about the deep water. So as backlog is increasing, that's given us great visibility into the forward mainly starting in 2027.

With momentum in the offshore as we expect. So it's very constructive about the opportunities ahead. Most of it's focused on offshore and deepwater. And as I kind of think about next year in terms of bookings, we're not going to give any guidance on that, but I don't see any change in the momentum there, especially with the projections on EPCI type spending over the next five years. Starting with next year. So it's a multi-year, the multi-year offshore backdrop certainly remains and it remains and is very constructive for deepwater.

Stephen Gengaro with Stifel.

A couple of things, maybe, Lloyd. The first, when we think about your business in the U.S. Land market, and you've done a lot to sort of high-grade the business, how should we think about your growth in 2027 relative to whatever assumptions we make for underlying drilling and completion activity?

Yes, maybe not specific to US land, but in general terms, again, our outlook will give kind of full guidance on our fourth quarter call in mid-February, but where we sit today and starting our kind of budget process there in the next couple of weeks, just looking at kind of an overall very high-level forecast, we certainly believe that we're going to, revenues are going to grow and kind of in line with these market estimates that are out there today.

Very clear, most of that growth is coming from international and offshore. U.S. Land spending, we do expect to be up.

Whatever data you want to use, it's SPEERS data or other internal data sources that you have.

I think that frack spread count is up year over year, expect it to go up a little bit next year as well, modestly.

I think for us, as we start our budget process, again. Little timid or tepid on giving any outlook for 2027, but we expect to be in line growth in line kind of with the current estimates.

Great, thanks. And when we look at the very strong backlog that you've secured now and we kind of think about the next 12 months, how should we think about.

I know there was a little bit of change based on the mix, but how should we think about sort of the burn rates of that backlog over 12 months?

Yeah, absolutely. So military products that I mentioned in the previous couple of questions, our military products comprises about 46%, almost 50% of our current backlog. And those were the bookings that we booked in third quarter and fourth quarter of 2025.

Historically, the conversion rate in the four 12 months, in other words, backlog converting to revenue in the four 12 months, has been about, call it 65% to 70%. With the heavier weighting of the multi-year military products in our backlog, that's probably in the 50% to 55% range on the four 12 months, October, call it October to October, or September to September now.

So these multi-year military projects awards have reduced that conversion rate. But again, it doesn't reflect any change in the margin profile. If anything, it's accretive.

Josh Jayne with Daniel Energy Partners.

I believe one other capital equipment provider this quarter has talked about the increase in discussions and bookings. And obviously, you guys reflected that in your numbers. But they said that they're not really seeing it yet in price.

Just with the whole industry dealing with inflation across a number of different ways, I'm just curious how pricing discussions are going today against that backdrop. And is there anything embedded in the recent orders today that may lead to sort of higher pricing or margins moving forward?

Yeah, if you specifically talk about bookings, so that's centered around our offshore manufacturer products segment, right? So we continue to guide to, even though margins were a little bit lighter than.

We had guided to previously, we still guide to an overall margin, EBITDA margin in that business of 20% and potential for growth beyond this year and next year. So there hasn't been any reduction or concessions really in the pricing in the capital equipment side that we've been tendering and bidding and quoting and the orders that we've secured.

And then as a follow-up, just to highlight the $50 million repurchase program, that's roughly 10% of the market cap of the business, pretty significant.

There's also been a decent amount of M&A for international and offshore levered businesses this year. Is the repurchase program sort of a signal that you're content with the product portfolio today or the things in the market that you see that are available that could be interesting to oil space, maybe just talk through your capital allocation framework and how you're thinking about things moving forward?

Yeah. So from our perspective, capital allocation framework is centered on three kind of pillars. One would be your organic deployment of CapEx and R&D. We do that all day long. Secondly would be opportunistic on M&A and selective M&A. And no, we are not content with our existing portfolio of assets. We are continually looking and probably being a little bit more aggressive than we have been in the past at looking at M&A opportunities going forward.

Balance that with our cash flow profile, we should also be able to execute opportunistic share repurchases given the new share repurchase authorization plan program that we have in place.

Chuck Minervino with Susquehanna.

Hey, I was hoping you can update us on your free cash flow guidance.

If I remember correctly, it was around $35million to $40 million this year, plus $5million to $10 million of asset sales. It looks like maybe around break even at this point year to date. So just wondering if you can kind of give us a little bit of an update there.

Yeah, good morning. I'll take that one. We continued to invest in working capital during the third quarter and built an additional $11 million of inventory, and that was really to support the projects in our decade-high backlog and for the purchase of raw materials to meet the increasing demands for our perforating projects.

We continue to expect a release of working capital here in the fourth quarter, but I do want to caution you regarding the normal seasonal slowdown of customer collections as we approach year end.

For the fourth quarter, we think the free cash flow could range in the $15 million to $25 million range.

And I will add that we still have $15 million of assets held for sale, but we're not expecting to recognize the cash from any of those sales here in the fourth quarter.

That's not a material amount.

Those assets help or sell proceeds likely carry over due in 2027.

Okay. And is the delta between kind of what you were thinking before on free cash flow and kind of what you're thinking now, is that really just a kind of a delay? I guess that's working capital that you guys will kind of eventually generate and turn into free cash flow next year, kind of like a push to the right situation.

Yes, it is.

A little bit of customer project delays, et cetera.

But the working capital bill, primarily the inventory bill year to date, $38 million, $31 million of that is coming out of, or $31 million working capital bill is coming out of offshore manufactured products, which is where our long cycle projects are, where we have our long cycle projects. Current working capital will turn. There's no issues with the build in working capital. If our businesses are growing, which they are, you're going to build working capital.

And then I know one of the things you talked about in Downhole Tools the past couple of quarters.

Was these raw material cost headwinds that kind of, I guess, really got fairly aggressive in recent quarters.

Is that improving or are you still having to manage through that? I just was wondering if you can give us an update on that.

Yeah, we're really still having to manage through that, but based upon kind of our operational update with our board and operations themselves. We do believe that that starts to moderate some here coming in the first and second quarter of next year as we get better access to primarily to explosive powders. So yes, it has continued to be a headwind this year and probably will be in fourth quarter, but we do believe it begins to moderate early next year.

There are no further questions at this time. I will now turn the call back to Lloyd Hajdik, CEO, for closing remarks.

Thank you again for joining us today and for the thoughtful questions. We appreciate the continued engagement and interest in our company. I also want to thank our employees for their contributions and our customers and stockholders for their continued support.

Looking ahead, we remain focused, executing our core strategy to deliver profitable growth and maintain a disciplined approach to capital allocation.

We believe these efforts strategically position Oil States well for the opportunities ahead.

Thank you all and enjoy the rest of your day and have a great weekend.

This concludes today's call.

Thank you for attending. You may now disconnect.