Cactus, Inc. Class A Stock

Good day, and thank you for standing by. Welcome to Cactus Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Alan Boyd, Treasurer and Director of Development and Investor Relations. Please go ahead.

Thank you, and good morning. We appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer; and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President; Steven Bender, Chief Operating Officer and CEO of Spoolable Technologies; Steve Tadlock, CEO of Cactus International; and Will Marsh, our General Counsel.

Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.

Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements. In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

With that, I'll turn the call over to Scott.

Thanks, Alan, and good morning to everyone. The second quarter was an excellent quarter for Cactus. Pressure Control revenues performed beyond expectations, largely on higher shipments and aftermarket service in the Mid East as the team worked diligently through conflict-related disruptions. The Spoolable Technologies business accelerated domestically and continued its international market shipments and order momentum. I'd like to thank all of our associates for their focus and commitment, allowing Cactus to safely achieve this high performance level through the quarter. Some second quarter total company financial highlights include: revenue of $450 million, adjusted EBITDA of $133 million, adjusted EBITDA margin of 29.5%. We closed the quarter with a cash balance of $366 million. And yesterday, we announced that our Board approved a 7% increase in our quarterly dividend to $0.15 per share.

I'll now turn the call over to Jay Nutt, our CFO, who will review our financial results. And following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. So Jay?

Thank you, Scott. As Scott mentioned, total Q2 revenues were $450 million or 15.8% higher sequentially. Total adjusted EBITDA of $133 million was up 32.5% sequentially. For our Pressure Control segment, revenues of $344 million were up 14.6% sequentially, driven primarily by stronger backlog conversion in the Middle East as the team was able to execute more deliveries than anticipated despite the continued conflict disruption and associated logistics challenges. U.S. revenues also improved sequentially as customer activity strengthened in response to higher commodity prices.

Operating income increased $20.5 million or 53.2% sequentially with operating margins improving 430 basis points. Operating income included approximately $20 million of purchase price accounting adjustments, which were approximately flat from the first quarter. Adjusted segment EBITDA of $95.9 million was 33.5% higher sequentially, with margins increasing by 400 basis points. Margins improved on higher operating leverage, synergies and tariff cost recovery efforts, including the receipt of initial reciprocal and fentanyl-related tariff refunds. These refunds in the second quarter totaled approximately $10 million, which represents less than 15% of the total tariffs paid over the relevant period.

For our Spoolable Technologies segment, revenues of $106 million were up 17.4% sequentially, reflecting expanding domestic activity in the seasonally strong quarter and continued resilience in international markets. Operating income increased $8.6 million or 36.5% sequentially with operating margins increasing 430 basis points. Adjusted segment EBITDA of $42.1 million increased 21.8% sequentially, while margins expanded by 330 basis points as sales mix and operating leverage both improved. Corporate and other expenses decreased by $4.9 million to $7.7 million in Q2, including $200,000 of transaction and integration costs. Adjusted corporate EBITDA was $5.3 million of expense.

On a total company basis, second quarter adjusted EBITDA was $133 million, up $32.7 million from Q1. Adjusted EBITDA margin for the second quarter was 29.5% compared to 25.8% for the first quarter. Adjustments to total company EBITDA during the second quarter include non-cash charges of $7.4 million in stock-based compensation, $9.5 million of inventory step-up amortization due to the purchase price accounting, $200,000 for transaction-related professional fees and $4.9 million of severance and integration expenses, predominantly incurred in continuing actions to rightsize the Cactus International organization.

Total company remaining performance obligations or backlog ended the quarter at $455.8 million. As a reminder, backlog reflects remaining performance obligations for our global Pressure Control and Spoolable Technologies businesses, but a majority of these obligations are associated with our Cactus International Pressure Control business. Backlog in the Cactus International business decreased from the first quarter more than anticipated due to strong second quarter project deliveries and the continuation of contract negotiations with a large Middle East customer. We expect material orders from multiple large customers in the Middle East in the third quarter. The decline in backlog was partially offset by an increase in backlog from our Spoolable Technologies business as both domestic and international order momentum continue.

Depreciation and amortization expense for the second quarter was $36.6 million, which includes $9.5 million of amortization of the step-up of inventory values resulting from the Cactus International acquisition and a combined $14.6 million of amortization expense related to intangible assets that arose from the Cactus International and FlexSteel acquisitions. During the second quarter, the public or Class A ownership of the company averaged and ended the period at 87%.

GAAP net income was $61 million in the second quarter versus $40 million during the first quarter. The increase was largely driven by higher operating earnings and lower transaction-related expenses, which offset higher severance and integration expenses. Book tax expense during the second quarter was $23 million, resulting in an effective tax rate of 27%. Adjusted net income and earnings per share were $75 million and $0.93 per share, respectively, during the second quarter compared to $56 million and $0.70 per share in the first quarter. Adjusted net income for the second quarter was net of a 27% tax rate applied to our adjusted pretax income.

During the quarter, we paid a quarterly dividend of $0.14 per share, resulting in cash outflow of approximately $11 million, including related distributions to members. We ended the quarter with a cash balance of $366 million. This amount includes $92.5 million of cash held to finalize Cactus International legal entity restructuring transactions with Baker Hughes in one jurisdiction, which will be facilitated by Baker Hughes in the third quarter. The offset to the $92.5 million is reflected in our accounts payable balances. The quarter end cash balance represented a sequential increase of $74 million, including the negative impacts of severance and integration spending, along with spending associated with certain restructuring transactions facilitated by Baker Hughes. Net CapEx was approximately $15.6 million during the second quarter of 2026.

In a moment, Scott will give you our third quarter operational outlook. Some additional financial considerations when looking ahead to the third quarter include an effective tax rate of 24% and an estimated tax rate for adjusted EPS of approximately 27%. Total depreciation and amortization expense during the third quarter is expected to be approximately $27 million, lower than the run rate for the first half as we've completed the amortization of the step-up of fair values of Cactus International inventory as of the end of the second quarter. $18 million of the amortization expense is associated with our Pressure Control segment and $9 million is in Spoolable Technologies. These amounts include approximately $10 million of intangible amortization due to purchase price accounting in our Pressure Control segment and $4 million in our Spoolable Technologies segment.

We're increasing our full year 2026 net CapEx guide to $55 million to $65 million. The increase is primarily due to expected capacity investments at the Spoolable Technologies Baytown facility to meet increased demand, particularly from international and midstream customers. We expect this Baytown plant expansion to cost approximately $40 million in total, with the majority of the spend occurring in 2027. The additional capacity and revenue benefits from this expansion could start to be realized toward the end of next year.

We are also evaluating further investments related to our Spoolable Technologies business in the Eastern Hemisphere to meet additional global demand, which could impact our CapEx this year and beyond. We'll share more on this potential initiative as our plans are finalized. Finally, the Board has approved a 7% increase in the quarterly dividend to $0.15 per share, which will be paid in September. Our increasingly diversified and highly cash-generative business has provided the confidence to consistently increase our dividend over the past several years.

That covers the financial review, and I'll now turn the call back over to Scott.

Thanks, Jay. I'll now touch on our expectations for the third quarter by reporting segment, starting with our Pressure Control business. During the third quarter, we expect total Pressure Control revenue to be down approximately 10% as shipments from our Cactus International business reverts towards first quarter levels following a particularly strong second quarter. The decline in international shipments is expected to more than offset growth in the domestic market. As the second quarter progressed, we found that our teams in the Mid East were largely able to continue planned deliveries despite the evolving conflict in the region. Although uncertainty remains, I'm very thankful that our personnel remains safe, and I'm encouraged by customer conversations in the region, which indicate continued appetite to expand long-term regional production and spending once the impact of the conflict abates.

Adjusted EBITDA margins in our Pressure Control segment are expected to be in the 22% to 24% range in the third quarter. This guidance excludes approximately $4 million of stock-based comp expense within the segment. Margins are expected to decrease on lower Cactus International operating leverage, a reduced contribution of international aftermarket service and lower tariff recovery, which more than offsets higher operating leverage in the domestic market. Our annualized synergies target for the first year post-close has now increased by a further 33% from $15 million to $20 million due to substantially completed organizational restructuring actions. Our work continues on supply chain-related synergies that we believe will further enhance the future profitability of Cactus International. But I remind you that we still need to work through the backlog of material order pre-close to realize these synergies. We expect more meaningful impact from these efforts in the back half of 2027 as we have new orders to execute and we'll provide more detail as our work progresses.

The tariff situation in the U.S. remains highly dynamic. We continue to pay a 75% total tariff on the import of most of our goods from China, which represents 25% Section 301 introduced in 2018 and 50% Section 232 tariffs. Just last week, the administration introduced additional Section 301 tariffs in the range of 10% to 12.5% for 60 countries designed to provide a more durable replacement for the 10% Section 122 tariffs, which expired last week. These tariffs will impact certain of our imports in a similar manner as the previous 122 tariffs, but not -- but do not additionally apply to goods already captured under Section 232 and will not materially change our overall tariff burden.

In the second and third quarters, we've also received refunds related to the International Emergency Powers Act and other tariffs implemented and subsequently ruled unconstitutional, and we believe we've received nearly all refunds we are entitled to at this time. As Jay mentioned, refund amounts in the second quarter represented only 15% of the tariffs paid over the relevant period and are limited in comparison to our continuing and past total tariff burden. Our Vietnamese facility continues to expand shipments to reduce our tariff burden, and we expect that approximately 15% of our total Pressure Control imports into the U.S. will source from Vietnam in the third quarter and continue to modestly increase thereafter. Leveraging our higher purchasing power with suppliers has led to a further lowering of costs in China this year relative to our earlier expectations.

Shifting to our Spoolable Technologies segment. I cannot be more pleased with the outlook for this business. We expect that revenues will increase a further 15% to 20% in the third quarter as we've accelerated the shipment of a large portion of the previously discussed Latin America orders and domestic activity is expected to increase as well. Additionally, we received incremental international orders of over $80 million in July with planned shipments beginning in the fourth quarter and extending through the middle of next year. Together, these orders fundamentally changed the international market contribution to our Spoolable business as order momentum continues in many markets around the globe, particularly in Latin America and the Mid East. While the international booking trajectory has rapidly advanced this year, our sales in the U.S. also continues to expand, led by strength with E&Ps and midstream customers who require our larger diameter, higher pressure products.

We expect Spoolable Technologies adjusted EBITDA margins to be approximately 39% to 41% in the third quarter, which excludes $1 million of stock-based comp expense. We continue to closely monitor input costs, which have been impacted by increases in both steel and HDPE. That said, HDPE prices have recently reduced from the Mid East conflict-induced tides, although any blockade could reverse this trend. Adjusted corporate EBITDA is expected to be a charge of approximately $5 million in the third quarter, which excludes $2 million of stock-based comp.

In closing, we're very pleased with the growth trajectory of the business right now. Elevated commodity prices have led to modestly increased customer activity levels, which benefits our core U.S. business and generate substantial cash flow. In addition, we're devoting increasing resources to interesting Latin America Pressure Control opportunities as we have combined our sales efforts with Spoolable Technologies. Although impacted by the conflict, the Cactus International joint venture is being quickly reshaped by our team into a leaner, more responsive organization. We're just beginning to see the benefits of these costs and process improvement actions and order inflow. It will take time, but I'm confident there are additional supply chain enhancements we can enact to increase returns in the coming year.

As noted, our Spoolable Technologies International business is accelerating at such a rapid rate as to justify manufacturing capacity expansion. As in our Pressure Control business, we're now focusing on additional opportunities in the Eastern Hemisphere. We're blessed with an exceptional team who welcomes these further challenges. All of this momentum has provided the Board the confidence to increase our dividend for the fourth straight year.

And with that, I'll turn it back over to the operator, and we can begin Q&A. Operator?

[Operator Instructions] Our first question comes from Stephen Gengaro from Stifel.

Can we start -- I mean, you've obviously had a lot of traction on the Spoolable side. Can you talk a little bit about 2 things? One is, in the U.S. market, the growth that you're seeing, is it increased adoption? Is it -- and share gain? Or is it sort of expanding markets? Because I know you mentioned midstream. But how do we think about kind of the drivers of that business in the U.S. and how that evolves over the next year or 2 in your view?

Yes, it's both. It's far better, I think, results in the midstream sector, which -- much of which was brought about, and I don't want to go into detail, but you can look it up by a new FEMSA regulation change, which made it easier to use our product in midstream than before. So that's a boost that we're seeing now and we think will accelerate in the future. In addition, we are getting greater adoption from E&P customers.

Okay. And then as a follow on, when you think about the combination of more midstream and then more -- clearly it looks like a lot more international. How does that impact the margin profile in Spoolables? Is it significantly accretive? Is it neutral? How do we just think about as those 2 pieces ramp, what it means for margins in the segment?

Yes. In general, Stephen, I don't like to talk about margins because of our competitors. But let me just say we're optimistic about margin. Can I leave it at that?

I can't force you to say more. No, that's fine. That's fine. We can talk more offline, but that is helpful. And then just maybe just one other quick one. When you think about the -- just so I understand it, Jay, the cash around the Baker sort of international piece that's, I guess, sort of captive, that will go out the door in the third quarter in all likelihood?

That's correct, Stephen. One deferred closing was accomplished in Q2 and the second one is imminent. So that will happen in the third quarter.

Our next question comes from Derek Podhaizer from Piper Sandler.

I want to keep going on the Spoolable Technologies commentary. You talked U.S., but maybe expand more on the international opportunities you're seeing and what's driving the investment to expand your footprint there and also look at potentially expanding your footprint in Eastern Hemisphere? You had the additional, I think, $80 million of additional orders after the quarter ended. So clearly, you're having a big change in the earnings profile of this company. I know you don't want to get into margins, but if you just look at the model and the run rate that we've seen over the past couple of years, really since you bought the business or FlexSteel a few years back, I mean, what -- how can this really transform with these additional investments in the expansion in Latin America and Eastern Hemisphere as we start thinking about '27, '28 for Spoolables, just given the momentum that you're seeing?

Well, the expansions that are currently being undertaken will add -- and this is just -- it's a Baytown facility, can add as much as 20% to our capacity in Baytown. So if you look at our Baytown revenues, you can add 20%. The expansion in the Mid East could add substantially more than that. And the reason for this step change is, I think, twofold. The first, of course, is activity in Latin America. It's activity, of course, in the U.S. due to midstream. But more importantly, not more importantly, but as importantly, we've been underrepresented in the Mid East, because frankly, the previous owner had sort of retracted a bit from their international focus, and we've been spending the last couple, 2, 3 years trying to reestablish a footprint internationally.

So what we do know is that we can't tap into the potential internationally from our Baytown facility. We really believe that this increase in 20% capacity in Baytown will be totally and maybe possibly even more absorbed by the Western Hemisphere. So think about expansion in the Eastern Hemisphere, and I don't think we're ready right now to tell you what that can mean. We haven't reflected it in our CapEx. But I think 40% for international is probably a good number if you think about the revenue increase.

Great. Okay. Super exciting. So you mentioned in your opening comments around the strength of PC, you had aftermarket services in the Middle East. And I know you discussed it on the call a couple of quarters ago around casting that around the legacy Vetco Gray assets and seeing real upside to that business given the accretive margin for aftermarket. So maybe just expand on that as far as what you saw in the quarter with the increase in aftermarket and how we should think about what the aftermarket services business of Cactus International means for you guys going forward?

Well, that's a good question. Most of the aftermarket surge in the quarter was related to our large operation in Saudi Arabia and to some extent, in Norway. So we haven't really begun to see yet the aftermarket surge from what we consider to be underserved legacy Vetco Gray markets like West Africa, North Africa and the Far East. But we believe that's coming.

Our next question comes from David Anderson from Barclays.

Maybe just kind of continue on that last question there. So one of the big questions on Middle East recovery is sort of that workover intervention maintenance opportunity for production to recover. Can you talk a little bit about Cactus International's opportunity? This is all part of the aftermarket, I'm assuming. Can you just sort of talk about this opportunity? Is this something you're starting to talk about and starting to think about for 2027? Because it seems like it's one of the big unknowns out there.

So your question has to do with workovers?

Well, the whole idea about recovering production and that whole side. I'm just curious if there is much opportunity for you on that side with that whole business. Because you're talking about the aftermarket. I'm just wondering, is that all kind of part of that theme, potential activity increase in '27. I was wondering if you could talk about that a little bit.

A lot of the aftermarket activity in the second quarter had to do with getting our customer property equipment repaired because the Mid East having had their revenue curtailed, began to focus on their better utilizing what they had in stock. So I think that what we're looking forward to actually is just simply more drilling activity. So ADNOC is going to be much more aggressive. They dropped out of OPEC, but we're seeing much greater plans, much higher plans in the other major markets that we service in the Mid East. But really, that's from new drills.

Got it. All right. So that would be -- so one of the things that we've talked about Cactus International is that order book, it's like that kind of like a 12-month cycle time of your backlog. So can you sort of talk about how that's shaped up so far in kind of the first half of this year? There's so much going on left and right here. I'm just kind of curious, is it below pace of what you're thinking? Would you expect a surge later? Just kind of how do you see that order book right now shaping up? Obviously, it's kind of driving into '27 pace.

It has been below pace, but we do expect to see a surge going into the end of the third, beginning of the fourth quarter and first quarter of next year.

Our next question comes from Arun Jayaram from JPMorgan Securities.

Arun Jayaram from JPMorgan. I was wondering if you could maybe give us a sense of how your negotiations are going with your large customer in the Middle East and perhaps talk a little bit about some of the efforts to, call it, diversify the customer base in Pressure Control at Cactus International. It sounds like you anticipate some large awards in the third quarter, which are not levered to perhaps your large customer there.

Yes. I mean I think on the -- similar to what Scott -- this is Steve, by the way. Similar to what Scott just mentioned to David, the first half with all the disruption, I think people naturally customers over there have focused on inventory on hand, unlike the U.S., where we basically provide all the inventory for our U.S. Pressure Control customers over there. There's definitely stocking that goes on. So they've been really focused on destocking and repairing customer property and things of that sort. So I think naturally, it reaches a point where late this year and early next year, you would expect that to shift.

And then as part of that, with all the retrenchment, it's sort of a natural time to negotiate with customers on contracts. And so we've been working through that. So we think we're at the tail end of that and should hopefully, like Scott said, see the benefit going forward of some releases of orders to help the backlog grow again as we come out of this -- hopefully, as we come out of this conflict. As far as diversification, we're very focused on diversifying from what was traditionally very Middle Eastern focused business to other areas like Scotts said, Asia or Africa or Latin America and kind of revise the Vetco Gray legacy and Wood Group legacy in those areas. So we don't have a lot to report in that area, but it's -- we're seeing positive traction as we kind of get back into those areas and refocus both in the services and aftermarket and then ultimately new equipment.

Great. My follow-up is I was wondering, you guys mentioned this just in response to Derek's question, but maybe elaborate on your capacity expansion plans at Spoolables. You mentioned that you're planning to increase the capacity at Baytown by 20% or so. If I heard you correct, you're contemplating a sister facility internationally that could further increase your capacity by 40%. I just wanted to make sure I got those numbers correctly. And if you did kind of move forward with an international expansion, what would be some of the timing thoughts on getting that additional capacity available to ship product?

Okay. Let me answer your last question first. It's about 2 years from start to finish for an international expansion. So with this international expansion, we would expect that our Eastern Hemisphere revenue will be 40% of our total revenue. So take our current estimated revenue, use a 20% capacity expansion. And we hope to have a little bit of spare capacity in that 20%. So you need to be a little conservative. And then of that total, you can divide that by 0.6.

Our next question comes from Keith Beckmann from Pickering Energy Partners.

I just wanted to check, I mean, we've talked -- just thinking on Spoolables here, the key regions that we've thought of kind of internationally that you guys brought up is Latin America seems better. The Middle East is also -- it sounds like it's going to be a lot better. Are there any other regions internationally that you guys are excited about or think they can grow beyond that, that maybe wasn't brought up yet?

We've got a lot of inbound inquiries right now, but the large orders are going to be Latin America and the Mid East. They're really substantial orders. You got a lot of unconventional work ramping up throughout the Middle East. And you're going to see some unconventional work ramping up in North Africa, primarily in Algeria. We've made a shipment into West Africa. It's -- we're just gaining traction because we have far greater sales exposure today than we had 18 months ago. And if you call on people, you tend to get inquiries. If you don't call on, you tend not to get inquiries. So -- but again, I think our focus is going to be Mid East and Latin America.

Awesome. That's really helpful. And then my follow-up question, just a little bit more around tariffs. So it sounds like you guys have gotten the refunds that you're expecting to get for the most part. I wanted to get a sense of -- I mean, do you guys have kind of the latest math or thoughts around -- it sounds like Vietnam is ramping a little bit more, but maybe Vietnam versus China, kind of the cost savings annualized there if you ran it on some number? Just trying to get a sense on maybe the latest math around tariffs there.

So you're trying to get a sense for the impact of the tariff differentials?

Yes. And then potentially also just what do you think that total kind of percentage coming out of Vietnam could be? Like what can that increase to? You guys kind of brought it up a little bit in the prepared remarks, what it's at today?

No, I mean it could increase to 40% of our total Far East shipments. This is just for U.S. Pressure Control, not for international. But what we've witnessed over the last 90 days, maybe longer than 90 days, is that because of the purchasing power that has been augmented by Cactus International.

The combined entities.

Yes, the combined entities, Cactus International and Cactus, we're getting even better pricing out of China. So even post tariffs, China is becoming considerably more attractive for us. At the end of the day, it's all good. China is going to go -- China costs will go down, and we also believe that Vietnam's costs will chip in as well because of the lower. So the tariff in Vietnam is 50%. The tariff in China is 75%. But I can't really quantify that for you.

Our next question comes from Jeffrey LeBlanc from TPH.

I wanted to see if you could talk about Latin America and Argentina specifically and whether you think it represents a greater opportunity for Pressure Control or Spoolable Technologies.

I didn't hear you very well. Jeff, can you speak up?

Sure. I'm sorry. I wanted to see if you could talk about Latin America and Argentina more broadly and whether you think it represents a greater opportunity for Pressure Control or Spoolable Technologies moving forward?

Well, I would say that the opportunities in Latin America have already begun to crystallize for FlexSteel. In terms of -- and the awards are large. So we're just now beginning to experience some inquiries for Latin America for Pressure Control. But I think that places like Venezuela offer a lot of upside because we have so much installed base between Vetco Gray, the old Ingram Cactus and Wood Group so that I think we're anticipating quite a bit of activity for Pressure Control as well. Argentina is a U.S. unconventional market. And while we haven't done anything in Argentina yet, clearly, it has potential. But Argentina still doesn't have that many rigs. And if you had all the business, it would be like the U.S. But I think it could be significant for us. So we're not there yet. We're not approved. But obviously, we'd be foolish not to look at Argentina. So think about Venezuela for Pressure Control primarily. And I really can't quantify which segment has the greater upside. But the greatest near-term upside is going to be with our Spoolable Technologies.

This concludes the question-and-answer session. I would now like to turn it back to Scott Bender, Chairman and CEO, for the closing remarks.

All right. Thank you, operator. Thank you to all who participate in today's call. We appreciate your interest, your continued interest and look forward to talking to you soon. Have a good day.

Thank you for participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Cactus Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alan Boyd, Treasurer, Director of Corporate Development and Investor Relations.

Thank you. Good morning. We appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer; and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President; Steven Bender, Chief Operating Officer; and Will Marsh, our General Counsel.

Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements.

In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. With that, I'll turn the call over to Scott.

Thanks, Alan. Good morning to everyone. I'm very proud of our team's achievements in the first quarter and the current momentum in the business, which reflects our focus on delivering premium, highly engineered products and services to our customers. Pressure Controls revenues remained resilient despite the impacts of the conflict in the Middle East and our Spoolable Technologies business outperformed in what is usually a seasonally slow quarter on continued international shipment strength.

I'd like to extend a thanks to our team, particularly those in the Mid East for sustaining a high level of performance during this challenging period. Some first quarter total company financial highlights include revenue of $388 million, adjusted EBITDA of $100 million, adjusted EBITDA margin of 25.8%. We paid a quarterly dividend of $0.14 per share, and we closed the quarter with a cash balance of $292 million.

I'll now turn the call over to Jay Nutt, our CFO, who will review our financial results. Following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. Jay?

Thank you, Scott. As Scott mentioned, total Q1 revenues were $388 million and total adjusted EBITDA was $100 million, both sequentially much higher than the fourth quarter, largely due to the contribution of Cactus International for our first quarter of ownership. For our Pressure Control segment, revenues of $300 million were up nearly 70% from the fourth quarter due to the acquisition. Revenues and operating income in the Middle East were modestly impacted by the outbreak of the conflict in Iran, but impacts of delayed shipments were offset by strength in the U.S. market.

Operating income decreased $10 million or 20.7% sequentially with operating margins decreasing approximately 14%. Operating income improved sequentially due to the inclusion of Cactus International, but of course, as reported, it was reduced by approximately $19 million due to purchase price accounting adjustments. These noncash charges are added back to our adjusted operating results. Accordingly, adjusted segment EBITDA was $12.7 million, higher sequentially with margins decreasing by 930 basis points. The margin decrease was primarily due to the inclusion of Cactus International operating results.

For our Schoolable Technologies segment, revenues of $90 million were up 6.8% sequentially, reflecting higher customer activity supported by increased sales across domestic and international markets. Operating income increased $2.6 million or 12.6% sequentially, with operating margins increasing 130 basis points due to improved operating leverage and lower stock-based compensation expense. Adjusted segment EBITDA increased $1.8 million or 5.9% sequentially, while margins decreased by 30 basis points as the improved operating leverage was offset by increased input costs.

Corporate and other expenses increased by $2.9 million to $12.7 million in Q1, including $5.8 million of transaction and integration costs. Adjusted corporate EBITDA moved favorably to $4.7 million of expense. On a total company basis, first quarter adjusted EBITDA was $100 million, up $14.6 million from Q4. Adjusted EBITDA margin for the first quarter was 25.8% compared to 32.7% in the fourth quarter. Adjustments to total company EBITDA during the first quarter included noncash charges of $7 million in stock-based compensation, $10.4 million of inventory step-up amortization due to purchase price accounting, $5.8 million for transaction-related professional fees and $900,000 of severance primarily incurred in initial actions to rightsize the Cactus International organization.

Total company remaining performance obligations or backlog ended the quarter at $537 million. Backlog reflects remaining performance obligations for our global Pressure Control and Spoolable Technologies businesses, but a significant majority of these obligations are associated with our international Pressure Control business. As a reminder, our Pressure Control and Spoolable Technologies operations are predominantly short-cycle businesses where backlog levels at any time may not be indicative of future revenues beyond the near term. Pressure control operations in the U.S. do not contribute meaningfully to our backlog as the business is driven by call-out orders.

Backlog in the Cactus International business decreased from year-end as multiyear contract negotiations continued with one large Middle East customer, resulting in lower-than-normal order activity. And orders were partially impacted late in the quarter due to the outbreak of the conflict in Iran. Backlog could continue to decrease in the second quarter, considering the conflict in the Middle East and the impact of contract renegotiation timing. Depreciation and amortization expense for the quarter was $36.8 million, which includes $12.5 million of amortization expense related to intangible assets and $10.5 million of amortization of the step-up of inventory values resulting from the Cactus International and FlexSteel acquisitions.

During the first quarter, the public or Class A ownership of the company averaged 86% and ended the period at 87%. GAAP net income was $40 million in the first quarter versus $48 million during the fourth quarter. The decrease was largely driven by purchase price accounting. Book tax expense during the first quarter was $10 million, resulting in an effective tax rate of 19% -- adjusted net income and earnings per share were $56 million and $0.70 per share, respectively, during the first quarter compared to $52 million and $0.65 per share in the fourth quarter. Adjusted net income for the first quarter was net of a 22% tax rate applied to our adjusted pretax income and now also includes deductions for noncontrolling interest related to Baker Hughes ownership in the Cactus International joint venture, combined with a noncontrolling partners' ownership in our business in Saudi Arabia.

During the quarter, we paid a quarterly dividend of $0.14 per share, resulting in a cash outflow of approximately $12 million, including related distributions to members. We ended the quarter with a cash balance of $292 million. This amount includes $98 million of cash held to finalize Cactus International legal entity restructuring transactions with Baker Hughes in certain jurisdictions. We expect those restructurings to be completed by Baker Hughes in the coming months. The offset to this cash is currently reflected in our accounts payable balances. These balances and other legal restructuring-related items impacted our cash from operations in the quarter.

Cash decreased from year-end due to the acquisition outflow. Net CapEx was approximately $9 million during the first quarter of 2026. In a moment, Scott will give you our second quarter operational outlook. Some additional financial considerations when looking ahead to the second quarter include an effective tax rate of 19% and an estimated tax rate for adjusted EPS of approximately 22% Total depreciation and amortization expense during the second quarter is expected to be approximately $37 million. $28 million of this expense is associated with our Pressure Control segment, including approximately $10 million of expected amortization of the step-up of inventory and $8 million of intangible amortization because of purchase price accounting.

And finally, $9 million of this expense is within Spoolable Technologies. Our full year 2026 CapEx outlook remains in the range of $40 million to $50 million. Finally, the Board has approved a quarterly dividend of $0.14 per share, which will be paid in June. That covers the financial review, and I'll turn the call back over to Scott.

Thanks, Jay. I'll now touch on our expectations for the second quarter, our reporting segment, starting with our Pressure Control business. During the second quarter, we expect total Pressure Control revenue to be approximately flat from the first quarter, reflecting increased customer optimism in the domestic market, offset by a full quarter impact of the conflict in Iran on our Cactus International JV's results. We assume that the status quo will continue throughout the full second quarter, even considering an opening of the Strait of Hormuz, which is impacting our customer activity and presenting numerous logistic challenges to our Middle East manufacturing operations.

I'm extremely thankful that our personnel in the region have remained safe, and we'll continue to prioritize their safety as the situation changes. Our team has done an incredible job mitigating the impacts of logistics challenges and minimizing the impact on revenues so far in the second quarter by utilizing alternative shipping methods whenever possible, while also personally navigating an extremely trying time for them and their families. We remain hopeful for an expeditious and nonkinetic resolution to the conflict soon.

Adjusted EBITDA margins in our Pressure Control segment are expected to be in the 22% to 24% range in the second quarter. This guidance excludes approximately $5 million of stock-based comp expense within the segment and the amortization of the write-up of Cactus International inventory due to purchase price accounting. We expect this will be the last quarter for this inventory amortization expense. Margins are expected to decrease slightly as resilience in the U.S. market and increased imports of lower-cost goods from Vietnam are more than offset by elevated logistics expenses and lower manufacturing absorption in our Cactus International business due to the conflict.

I'm also pleased to announce we're increasing the expected synergies targets for our Cactus International acquisition by 50% from an annualized amount of $10 million to $15 million. The increase follows our work to further flatten and rightsize the organization to match our operating model. The actions necessary to lock in these savings have already been completed, which are expected to support higher profitability leading into next year. Additionally, we are increasingly confident in supply chain-related synergies. However, we have much work to do to crystallize the amount and timing of these savings. In any event, this is a project-driven business, most -- in any rate as this is a project-driven business, most material is ordered was ordered when the orders received for delivery approximately 9 to 15 months from placement. As a result, we do not expect to see meaningful supply chain-related savings before the second half of '27.

More to come as we continue to work on this topic. I'd also like to provide a brief update on the tariff situation in the U.S. as it applies to our imports, which remain highly fluid. We still pay a 75% total tariff on the import of most of our goods from China, which consists of 25% Section 301 and 50% Section 232. There were no meaningful changes to the basis of calculations of our rates as a result of the recent U.S. Supreme Court rulings regarding the IEEPA tariffs or changes to the more impactful Section 32 tariffs announced in early April. We are also now paying a 10% tariff implemented under Section 122, which impacts certain goods we import but not those captured under Section 232.

While we've not gained much from tariff relief on China-sourced product, I'm pleased to share that our Vietnam facility is now tentatively API approved, and we're proceeding to increase shipments from this facility, which will attract a lower 50% import tariff under Section 232 only. Finally, the recent Supreme Court ruling provided that certain tariff payers may claim refunds for IEEPA and other tariffs previously remitted that were ruled unconstitutional. We filed for a refund of such payments, but the amount is relatively small compared to the overall tariff burden that we incurred as a result of Section 232 and Section 301, both of which remain in place. There is no certainty as to the amount or timing of the tariff refunds.

Shifting to our Spoolable Technologies segment. I'm extremely pleased with the performance in the quarter. We achieved a record quarter of non-U.S. revenues buoyed by strength in the Middle East and Latin America. International order momentum is increasing due to our multiyear effort to further develop our global footprint and customer relationships. Domestic activity in the first quarter was also higher than expected in what is typically a seasonally slow quarter. Continued growth with midstream customers who demand our larger diameter high-specification products was an additional source of domestic strength.

This momentum is continuing into the second quarter as we expect revenues to increase mid-single digits percentage-wise, primarily driven by an increase in North American activity. Recent commodity price strength has increased customer optimism and adoption. We're excited about the trajectory of the segment where bookings have improved sequentially in every month this year. Internationally, we've seen a step change in inbound interest since quarter end, particularly from Latin America, where we were recently awarded several incremental orders totaling approximately $30 million for delivery this year.

Further, we shipped our first sour service equipment order to the Mid East in April, as previously shared. We expect Spoolable Technologies adjusted EBITDA margins to be approximately 36% to 38% in the second quarter, which excludes $1 billion of stock-based comp expense and is increasingly -- is increasing modestly on improved operating leverage. With regards to our Spoolable Technology supply chain, the Middle East conflict has led to improved commodity prices for our customers, but also to a recent material increase in the price of polyethylene, one of our primary input costs. I'm confident in our team's ability to proactively address these inflationary pressures through cost mitigation and recovery efforts.

Adjusted corporate EBITDA is expected to be a charge of approximately $5 million in the second quarter, which excludes $2 million of stock-based comp. In conclusion, the outlook of the oil and gas market has fundamentally changed in the last few months from one of supply abundance and customer unease to supply concerns and guarded optimism. We are extremely well positioned to capitalize on this momentum shift with our premium global customers once the conflict abates. Although not seen in domestic activity levels as of yet, our customers have increased the pace of their activity and urgency with which they are bringing production online into a highly supportive commodity prices.

As our SafeDrill and FlexSteel products are both specifically engineered to allow our customers to drill wells and bring production online faster, we are receiving increasing inquiries for new activity. Although we remain in the early stages of the transformation necessary for our Cactus International business to improve the margins and returns consistent with our long-term expectations, we're very pleased to have a broader geographic footprint and participate fully in the expected upcoming investments required to reestablish supply for the disruption in the Middle East.

So with that, I'd like to turn it back over to the operator, and we can begin Q&A. Operator?

[Operator Instructions]Our first question comes from Arun Jayaram from JPMorgan Securities.

Team, I wanted to get your thoughts. You've had your hands around the Cactus International assets for 4 months or so. Obviously, a very volatile time since late February. But I was wondering if you could frame some of the self-help opportunities you see with that business as we think about '27 and beyond.

Are you really referring to what we see in terms of synergy opportunities?

Exactly, exactly. As you think about things such as optimizing the supply chain and things like that.

Well, as we discussed, that the $15 million in synergies relates primarily to making the organization far more efficient. So I think there was some bloat in the way it was organized, and we're trying to reduce that to be more like Cactus. Potentially, the larger prize here is going to be supply chain. And our early indications are that there's quite a bit of room there for improvement. So I would really tell you that it's primarily based upon improving the processes in the business to require fewer headcount and then the supply chain aspect of the business. Our supply chain is considerably lower cost.

Got it. Got it. And would -- how much time do you think it will take to kind of get the Cactus cost optimal supply chain kind of embedded in those in that business?

It won't take that long. However, it will take a while to get rid of the inventory that has already been ordered in fulfillment of the current backlog. So our best estimate will be sometime by the end of the second quarter, leading into the third quarter as we begin to replenish this inventory with lower-cost product.

Got it. Got it. And maybe one for Jay because I did get some questions this morning -- you highlighted and you mentioned this in your script, the $98 million of cash held for the legal restructuring transactions with Baker. Can you provide a little bit more color? I know that Cactus spent around $355 million for the 65% stake in the JV, and you put $70 million of cash -- operating cash in the JV as part of your piece. How does this $98 million compare to that? And maybe just some color around that.

Yes, Arun, this $98 million is for a couple of legal entities where the restructuring has not been completed, and that's Baker Hughes' responsibility to complete that. So these will be -- this will be cash that's necessary to execute those transactions and restructurings. And it's really -- we're not calling it restricted cash because it's sitting in our bank accounts, but that cash is designated to complete those legal entity restructurings, and we believe it's going to take several more months to complete that.

Okay. But that is being paid for kind of from the Baker standpoint?

Yes. The cash is sitting with us. And as I point out, we really show that as a payable on our balance sheet back to Baker because that cash is designated for those restructuring activities.

Our next question comes from Stephen Gengaro from Stifel.

That's only slightly easier than Arun's last name, I think. So I think 2 things for me. The first, when you think about the U.S. land market and kind of the potential for improvement, and I'm thinking at least we're hearing completions probably lead and then maybe drilling activity picks up a bit. Are you seeing -- and what you've seen in your activity, is that playing out in that manner? And how do you think drilling activity evolves as we go through the year based on what you see right now?

Okay. Well, let me tell you that although customers are eager, I mean, I think you've read to reduce their DUCs right now and take advantage, we haven't really seen any meaningful or significant evidence of that, although it's expected. But what we have seen is far more optimism on the part of our larger customers in addition to our privates. So if you recall last quarter, I was probably the outlier when I forecasted a U.S. onshore count of 490. And of course, the world has changed since then. So we're now thinking we're going to be in the 5.25% range, 525. And I personally believe that we'll get our -- more than our share of that. I think that from what we see in terms of activity increases, many of them are within our customer base. So I feel much better about it. That's the short answer. Stephen.

Great. Okay. And the other question I had, it pertains to the selling the SafeDrill product internationally and how the JV with Baker will potentially help the sales of your Safe drill product to some of the nonconventional markets, either in the Middle East or in other areas. Can you just talk a little bit about that and how you see that evolving?

Yes. So I think that -- let me tell you that our first shipment of Safe Thrill will be to a historic Cactus customer and will be -- that shipment and the resulting contribution margin will be the property of your old Cactus and not the JV. But in terms of the JV's ability to leverage our unconventional, they're very active in areas that you know are going to be active in unconventional such as Saudi, the rest of Abu Dhabi that's managed by ADNOC, Kuwait, Algeria. Those areas are where we expect to see the greatest benefit from the JV. They're there, they're approved, and we have the products.

Our next question comes from Derek Podhaizer from Piper Sandler.

Maybe just sticking on Cactus International. I appreciate all the comments around optimizing the supply chain, driving the efficiencies, you just up the target there. But maybe some comments or your thoughts around what an activity recovery could look like in the Middle East in the post-war environment. I'm assuming that there's been a bit of a destocking in Saudi and UAE, but when we think about restocking going back into the region, how should that impact Cactus International? And what do you see some upside from that?

Yes. I would say because of the deliveries, the extended deliveries and the destocking, I'm thinking -- we're all thinking second quarter, third quarter of '27. But I think we're going to see a pretty good increase in what has historically been demand from that area. And I'm a little concerned about Qatar, frankly, because having lost their -- most of their ability to export and Qatar has been a really good market for us. I'm not sure how much more gas -- and I believe this is only my opinion, how much more gas Qatar is interested in producing right now with limited avenues for export. But for the rest of the Mid East, particularly, I'm seeing that we're going to see a lot...

Got it. Okay. That's great. So middle of next year, along with all the efficiencies on the cost side of things, so setting up for some good upside, it appears. I guess maybe switching over to the free cash flow. Obviously, a pretty big quarter. Obviously, a lot of impact from working capital where that ties back to the $98 million payable with Baker. But I think when you guys closed the deal on SPC Cactus International, there was a pretty high working capital balance, particularly around AR, and I think you can benefit from harvesting that cash. So maybe just some thoughts around that and when we can really see that showing up in force as we work through this year and into next year. Just some color around the free cash flow generation.

Derek, you're correct. There was a high level of unbilled AR at the end of year-end. We made some progress in Q1, but we continue to have a an elevated level of unbilled AR. So we're going to work on some processes about improving and accelerating the timing of being able to get that bill to our customers so that we can start increasing the velocity of cash flow. It's going to take a couple of quarters to make that happen because we have to work closely with our customers to get them to take invoicing a little more rapidly than what they're used to right now.

Our next question comes from Keith Ekman from Pickering Energy Partners.

I wanted to ask around -- you guys have been pretty clear, I think, that second, third quarter 2027 is whenever we could see potentially a little bit of margin inflection due to your supply chain. So I think maybe right now, I think you mentioned 9 to 15 months is kind of like the order placement. Whenever you get your own supply chain in place, do you expect that lead time to go down on orders potentially at all? Or do you think that that's still the right way to think about it that 9 to 15 months whenever you get your own supply chain in place?

No, our lead times are much lower than that. What are our lead times right now? 4 to 6 months depending upon the product.

Okay. Perfect. No, that makes a lot of sense. That's really helpful. And then the second question I wanted to ask around is maybe could you speak more specifically maybe you touched on your prepared remarks, just what the particular -- some of the logistics disruptions you're dealing with right now as it pertains to the Middle East or potentially anything on the tariff side of things? I think you highlighted that as well, maybe the potential size of refunds that you think you could see and maybe what goes to the customer versus what you guys could potentially harvest from that?

Well, I would tell you I'm not going to -- I don't want to comment on the magnitude of the potential tariff refund just because there is a lot of confusion about the applicability of non-liquidated versus liquidated tariffs, and I can let Joel go into detail about that. It's not an insignificant amount of money, but it is modest in comparison to how much we actually spend on tariffs because it does not impact the majority, which are 232 and 301. It's more related to --...

It's really just -- they refer to them as these emergency, but it's really what you think of as reciprocal tariffs and fit all. That's all that this address. So as Scott mentioned, the 50% steel tariff, it remains in place. And the way the process works right now is you're in Phase 1 of what they refer to as the tariff refunds and it would be on entries that have not been liquidated, which essentially means that have not been processed by CBP and then any that were liquidated in the last 80 days. You submit the list, it's a case declaration, you get a confirmation that it was accepted and then you wait for your claim number. And they tell us you can expect something maybe in 90-plus days, but there was no confidence in that particular date because, again, this is just Phase 1. They expect that there will be at least the second, possibly third phase in which they address liquidated entries, but that has not been confirmed. So again, it's still very unclear as to what the outcome of this is going to be.

Our next question comes from Jeffrey LeBlanc from TPH.

Ironically, it's going to be about the alternative shipping methods you're using in the Middle East. And then additionally, how quickly do you think shipping can return to normal means once the strait reopens?

Right now, we're having to take a very circuitous route around the Arabian Peninsula and trying to get some stuff in by land, but it's incredibly problematic. I don't know how much -- it's probably -- I don't know. I don't want to tell you something that's not true, but it's got to be a good 30 days more longer than it had before. When is it going to return? You got a huge backlog of vessels, like almost 1,600 vessels that have to be cleared. And so I think the priority is going to be to try to get oil out of the region and of course, get food into the region. So it's going to take months and months. I think during its peak, what do we clear 100-plus ships a day, 120 or so, and you got almost 1,600 that have to be cleared. And then on top of that, you're going to have food that's coming in. I just -- Jeff, I don't know. It's going to be a good while.

Our next call is coming from Don Crist from Johnson Rice.

I wanted to ask a more macro question because I know you like to pontificate on such things. But just in your conversations with your customers, we're hearing more and more dislocation between the financial oil markets and paper oil markets and the back end of the strip coming up. Is that what you're hearing from your larger customers out there and as that relates to activity in '27?

Well, I mean, obviously, they're looking at the forward market much more than the spot market, although their balance sheets right now are blowing up with spot market sales. But you know that in terms of drilling, they're looking at the market next year. And I think the best way to characterize this is that whatever they were assuming, they're now assuming probably in the neighborhood of at least $15 higher in the futures market. They're always very reluctant to share that with us for fear that we're going to see that as an opportunity to raise prices, frankly.

So they always -- they -- they're not seeing poverty as they were before, but they're not highlighting how much cash they're building on their balance sheets. So they're unlikely to share that. But look, I can tell you from talking to maybe 6 or 7 or 8 already, they're feeling a heck of a lot better about '27 than they were prior to this conflict. How that translates, I think it really depends upon people like you. If you're not supportive of these increases, then they won't proceed. It really takes one of the big ones to open up, and I think the rest will follow. There's no question in my mind, they all look to drill more wells right now.

I tend to agree with you. And just one on Vietnam. It sounds like you got tentative approval of API. Any parameters around how much that could improve margins once you ship fully out of China and come into the U.S. or shift more out of China come into the U.S. and more from Vietnam?

Well, we're hoping that Vietnam by the end of the year will be what, about 40% -- we haven't really -- all we know is it 40% of it is going to be at a tariff rate that goes from 75% down to 50%. But to tell you that we've quantified that. I don't think we've actually quantified it because what difference is going to make, we're going to do it, and it's going to benefit us. But before the next call, Alan, can we quantify that?

Yes. Yes, we'll quantify that for you.

This concludes the question-and-answer session. I would now like to turn it back to Scott Bender, CEO, for closing remarks.

I want to thank everybody for their continued support and interest in the company. I think we have a very exciting remainder of the year. And although I didn't receive any questions, I'm particularly excited about our Spoolable product. I think that we've just -- we've had a transformation in that particular area. So anyway, I hope to report more on that next quarter. Everybody, have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Cactus Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alan Boyd, Treasurer and Director of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good morning. We appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer, and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President; Steven Bender, Chief Operating Officer; Steve Tadlock, CEO of Cactus International, and Will Marsh, our General Counsel.

Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements.

In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. With that, I will turn the call over to Scott.

Thanks, Alan. Good morning to everyone. We finished 2025 with strong performance in both segments. Pressure Control revenues and margins exceeded expectations on a strong mix of product sales and a more resilient rig count than anticipated, while Spoolable Technologies declined seasonally as expected, but maintained strong profitability, thanks to all of our associates for remaining customer-focused and for delivering excellent performance to close a year, that was challenging from a macro perspective and transformational for the company.

Some fourth quarter total company highlights include revenue of $261 million, adjusted EBITDA of $85 million, adjusted EBITDA margins of 32.7%. We paid a quarterly dividend of $0.14 per share, increased our total cash balance to $495 million. And on January 1, we closed on the acquisition of the majority interest of Baker Hughes Surface Pressure Control business which we will refer to as Cactus International. I'll now turn the call over to Jay Nutt, our CFO, who will review our financial results. Following his remarks, I'll provide some thoughts on our outlook for the near term, including the Cactus International business before opening up the lines for Q&A. So Jay?

Thank you, Scott. As Scott mentioned, total Q4 revenues were $261 million, which were lower 1% sequentially. Total adjusted EBITDA of $85 million was down 1.7% sequentially. For our Pressure Control segment, revenues of $178 million were up 5.8% sequentially, driven primarily by higher levels of products sold per rig followed and improved rental revenues on an increased customer activity.

Operating income increased $4.1 million or 9.3% sequentially with operating margins expanding 90 basis points. Adjusted segment EBITDA was $4 million or 7.2% higher sequentially, with margins improving by 50 basis points. The margin increase was due to a fuller benefit of cost reduction initiatives as compared to the third quarter. We believe our U.S. Pressure Control business is performing at its highest level, since the inception of the company.

For our Spoolable Technologies segment, revenues of $84 million declined 11.6% sequentially as anticipated due to the lower U.S. customer activity levels in the seasonally slow quarter. Operating income decreased $4.9 million or 18.9% sequentially, with operating margins compressing 220 basis points due to reduced operating leverage. Adjusted segment EBITDA decreased $4.9 million or 13.6% sequentially while margins declined by 90 basis points.

As a reminder, Q2 and Q3 are usually our strongest periods.

Corporate and Other expenses were $9.7 million in Q4, up $700,000 sequentially due to increased transaction and integration costs. Adjusted corporate EBITDA moved unfavorably in Q4 by $0.5 million to $4.7 million of expense. On a total company basis, fourth quarter adjusted EBITDA was $85 million, down 1.7% from $87 million during the third quarter. Adjusted EBITDA margins for the quarter were 32.7% compared to 32.9% for the third quarter. Adjustments to total company EBITDA during the fourth quarter included, a noncash charge of $6 million in stock-based compensation, $3.3 million for transaction-related professional fees and expenses, $164,000 for additional restructuring actions to rightsize the organization in response to the lower activity levels and a $1 million loss related to the revaluation of the TRA liability.

Depreciation and amortization expense for the fourth quarter was $16 million, which included $4 million of amortization expense related to the intangible assets resulting from the FlexSteel acquisition. During the fourth quarter, the public or Class A ownership of the company averaged and ended the quarter at 86%.

GAAP net income was $48 million in the fourth quarter versus $50 million during the third quarter. The decrease was largely driven by lower operating income and the loss booked for the revaluation of the TRA. Book income tax expense during the fourth quarter was $14 million, resulting in an effective tax rate of 22%. Adjusted net income and earnings per share were $52 million and $0.65 per share, respectively, during the fourth quarter versus $54 million and $0.67 in the third quarter. Adjusted net income for the fourth quarter and the full year 2025 were net of a 25% tax rate applied to our adjusted pretax income.

During the fourth quarter, we paid a quarterly dividend of $0.14 per share, resulting in a cash outflow of approximately $11 million, including related distributions to members. We also made a cash TRA payment of $23 million following completion of the 2024 tax filings during the fourth quarter. We ended the quarter with a cash balance of $495 million, including $371 million of cash held in escrow to facilitate the closure of the Baker SPC acquisition on January 1. The cash balance represented a sequential increase of $49 million, despite the TRA payment and transaction-related disbursements associated with the acquisition.

Net CapEx was approximately $4 million during the fourth quarter, and net CapEx for the full year 2025 was $39 million, just under the range guided to, in October. In a moment, Scott will give you our first quarter operational outlook. Some additional financial considerations when looking ahead to the first quarter include, an effective tax rate of approximately 20% and an estimated tax rate for adjusted EPS of approximately 24%. Our tax rates will be impacted by the ongoing purchase price allocation exercise that will affect reported earnings.

I would also like to further explain our reporting structure following the Cactus International acquisition. Full results of Cactus International on a 100% basis will be included in our Pressure Control segment going forward. Additionally, a pro forma illustrated balance sheet and income statement as of September 31 -- as September 30, 2025, will be filed before the end of the first quarter, including the initial purchase price accounting-related adjustments and details.

Total depreciation and amortization expense during the first quarter is expected to be $21 million, $12 million of which is associated with our Pressure Control segment, including Cactus International and $9 million in Spoolable Technologies. The Pressure Control D&A guide includes our preliminary estimates regarding purchase price accounting write-ups to fixed assets and intangible assets. Our full year 2026 net CapEx expectations are in the range of $40 million to $50 million, including our investments at Cactus International. Continued manufacturing efficiency investments in FlexSteel, routine U.S. branch facility upgrades and the completion of our Saudi Arabia Wellhead facility enhancements initiated in 2025 are the primary drivers of the planned spend. 2026 anticipated CapEx is largely in line with 2025 spend despite the addition of Cactus International.

Finally, as previously announced, the Board approved a quarterly dividend of $0.14 per share, which will be paid in March. That covers the financial review, and I'll now turn the call back over to Scott.

Thank you, Jay. I'll now touch on our expectations for the first quarter by individual reporting segment and provide some introduction to historical and future trends in our Cactus International business.

During the first quarter, we expect total Pressure Control revenue to be approximately $295 million to $305 million. In North America, we see stable drilling and completion activity, and we expect modestly softer sales on lower levels of products sold per rig, following the high rates achieved in the fourth quarter of last year. International sales are expected to contribute approximately $130 million to $140 million to Pressure Control in the first quarter. Adjusted EBITDA margins in our Pressure Control segment are expected to be 23% to 25% for the first quarter. This adjusted EBITDA guidance excludes approximately $4 million of stock-based compensation expense within the segment and the expected amortization of the write-up of Cactus International inventory due to purchase price accounting.

Margins are expected to decline from those achieved in the fourth quarter due almost entirely to the inclusion of Cactus International. The tariff environment as it applies to our imports in the U.S. had stabilized over the last several months, while future costs now appear to be trending down slightly but remain far from certain. To be clear, tariffs implemented under Sections 301 and 232 still totaled 75% on the majority of goods imported from China. Our Vietnam facility, where Section 232 tariffs remain at 50% is ramping up in Q1 with API certification now expected early in the second quarter. This should allow us to progress the displacement of shipments into the U.S. from China later this year as planned.

I'd also like to take this opportunity to explain trends in the Cactus International business over the course of 2025 and through early 2026. As previously disclosed, the company closed 2024 with over $600 million in backlog. In 2025, the company recorded $627 million of revenue, including a substantial amount associated with unbilled revenue and the backlog ended 2025 at approximately $550 million. Considering this order slowdown, we see the full year 2026 as being more in line with previously announced 2024 results from both the revenue and adjusted EBITDA perspective. We are anticipating increased order activity in the second half of 2026 and into 2027.

Having owned Cactus International business for nearly 2 months at this point, we remain very pleased with our decision to pursue this transformational acquisition. As we shared since announcing the agreement in June of last year, we believe there are even more opportunities to improve the business, which currently lags its largest competitors in the Mid-East from a technology and customer execution standpoint. We believe that our U.S. conventional expertise and execution focus, will benefit clients throughout the Mid-East and are encouraged by early customer responses in the region. More on this next quarter.

You may recall, we announced a target for $10 million of annualized synergies within 1 year of transaction close. And we now have far better visibility into meaningful supply chain savings into 2027, not incorporated into our original budget as we leverage our U.S. model. Such actions will take more time to achieve due to the timing of order placements in this long-cycle business. We intend to share more on this topic over the next 2 quarters.

Switching over to Spoolable Technologies. We are proud of how we finished 2025 with another strong quarter of international shipments, which led to a record level of international products sold in 2025. Despite accelerating strength in international orders, we expect first quarter revenue to be down mid-single digits relative to the fourth quarter on continued North American seasonality, similar to what we saw in 2025 as our customers have been slow to increase activity through January and early February. We expect adjusted EBITDA margins to be approximately 33% to 35% in Q1, which excludes $1 million of stock-based comp in the segment. Lower operating leverage and somewhat higher input costs are the primary contributors to the expected step-down in margin.

In addition, we are introducing several new SKUs, which we expect will enhance our market share and improve the moat around our technology in the future. We expect to pilot several of these new SKUs with a large Mid-East customer in 2026, which should impact 2027 revenues. Adjusted corporate EBITDA is expected to be a charge of approximately $5 million in Q1, which excludes approximately $2 million of stock-based comp.

In closing, our team and I are energized by the formation of the Cactus International joint venture, and we're pleased to have a strong footprint in the most important oil and gas service markets in the world, North America and the Mid-East. The near-term outlook for domestic and international markets remains soft, which presents short-term challenges to our business. However, we will continue to deliver industry-leading margins and returns with a focus on the fundamentals of our business and by introducing our responsive, agile customer-focused culture into the Cactus International operations. With that goal in mind, I'm pleased to confirm that Steve Tadlock has been appointed CEO of Cactus International. Steve has been highly successful in leading our FlexSteel segment and integrating it into Cactus these past several years, which gives me the utmost confidence in this continued success in leading the joint venture through similar culture shifts.

With that, I'll turn it back over to the operator so we may begin Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Stephen Gengaro of Stifel.

I have two things for me. The first on the Cactus International side, you talked a little bit about the synergies. When you think about sort of applying the Cactus way to that business, any guidance on how we should think about margin progression in that business over the next 3, 4, 5 quarters?

Well, I think you will see -- let me start again.

And Baker is not listening.

How do you know that?

I'm joking.

I think that, we're going to see very, very meaningful supply chain savings as we begin to use our own supply chain. The problem with that, Steve, is that most of the orders have been placed for 2026. So we won't begin to see that margin enhancement until 2027, at which time I think it will be fairly substantial. In terms of flattening the organization, we can discuss that more, perhaps in the next call, but you have to understand that after only 2-months, we're still feeling our way through that. I can tell you that although my team may kick me under the table, I'm very optimistic that we'll exceed our projected synergies even for 2026.

Okay. That's helpful. And then the other quick question was on the U.S. Wellhead side. When you think about just kind of the rig count progressions that we've seen, can you just give us kind of your view of how you see the U.S. activity evolving? You generally have a very good insight into activity in the U.S. So I'm curious what you're thinking?

You mean my unpopular insight into the progression of it. I think that most analysts are around $510 million exiting 2026, from $530 million. This is onshore only. So we're at $530 million now. Most of them have an exit rate of $500 million to $510 million. I think the outlier would be TPH at $475 million. My personal opinion is we're going to be in the range of probably $490 million because we have yet to see the full impact of consolidation.

And I'm always very, very concerned when prices are supported largely by geopolitical factors because they can change so rapidly. I don't know what premium our current oil price places on Iran and Russia, but they're having talks today. And I really can't predict the outcome of that. But that lack of perhaps clarity on that subject makes me nervous. We all prefer to rely upon supply and demand. So call it high 400s.

Our next question comes from the line of Scott Gruber of Citigroup.

I wanted to ask about the International segment. Congrats on the close. Scott, you mentioned orders likely picking up later this year. I would assume that likely reflects some increased activity in Saudi. But we're also hearing about additional tenders outstanding across the region. So just how do you think about the growth prospects for the International segment over the next, call it, 3 years or so?

Yes. Well, Scott, everything is relative. So I think that you're going to see far greater growth prospects, particularly in the Middle East, you know that, then we're going to see in the U.S. So we're in a period now, particularly in Saudi with some de-stocking. The Saudi's ordered far in advance, and they're on a program right now to increase their cash flow. So you can be sure they're going to be using what they have in stock and moderating, and we're already seeing some evidence of that moderating their forward purchases. But they are adding 70 rigs, and that's why I'm so optimistic that 2027 is going to be considerably better than 2026.

In Abu Dhabi, it looks to be very stable. I think that Qatar has prospects of improving. I think Kuwait has prospects of improving. I think that as we begin to expand our sales team, at International, you're going to see some additional revenue coming out of Sub-Saharan Africa. We're also -- these are areas that were chiefly -- I wouldn't say ignored, but they were sidelined, by our predecessor. So look to see some improvement from the Far East and for Sub-Sahara Africa. So in general, I feel much better about it.

Good, good. And then you're starting to answer my second question, but I wanted to just hear your thoughts around share capture in the Middle East. Obviously, in the U.S., you guys are on a pretty steady trajectory for a decade, and you guys operated in the Middle East in the past life. So just some thoughts around the puts and takes of picking up share in the region, the kind of the strategy -- some thoughts on strategy to go about doing so? I know you don't want to reveal too much, but just some thoughts about it.

Yes. I think that we see a huge opportunity in Saudi because our market share there is well below what it should be at roughly 1/3. And that has -- there are a lot of reasons for that, all of which we've identified and are addressing right now. So look to Saudi to be a large market share gain for us going forward.

In Abu Dhabi, we shared that contract 50-50 with FMC. But throughout the Mid-East, we have quite a bit -- quite a few new opportunities. And frankly, these were opportunities that just were not prioritized by the previous management. So we've always been really great salespeople at Cactus, and we intend to pursue that strategy in the Mid-East as well.

Our next question comes from the line of Derek Podhaizer of Piper Sandler.

I guess sticking with the Cactus International, maybe some comments around the aftermarket services piece of Cactus International SPC. I believe North Sea, you have a pretty good footprint there. Just hoping to hear some color on how impactful this is to the business as your installed base grows? I would imagine it's margin accretive. Just maybe some more thoughts and outlooks around the aftermarket piece of the business.

That's an excellent question and one we are intensely focused upon. Legacy Vetco Gray has a huge installed base. So let's forget about increased market penetration and let's think about installed base. So right now, we're undergoing an extensive exercise into identifying where Vetco Gray had the largest installed base, that particular area has been -- has not been a focus of Baker. They talk about it. It's the highest margin part of the business, but we see very substantial opportunities, particularly in West Africa and in the Far-East, where Vetco Gray had dominant positions. So we're going to be focusing our attention on that. It's honestly been ignored.

Got it. No, that's helpful. And then maybe just -- I know you've already provided some color and comments around the forward outlook. But just to clarify, '26 should look more like 2024. Are you hoping '27 then looks like what we heard from Baker on their previous call around the 2025 financials? Just trying to think about how we ramp back to the 2025 levels and when that could come?

Yes. So let me just qualify my statement by telling you that, although Baker provided their financial reporting in accordance with GAAP, we differ in how we report our financials. So if you look at their full year 2025, we underwrote a number substantially below that amount, to account for the way we approach our financials. So you have to temper your expectations a bit. But to answer your question, I think that 2027 will probably be north of the midpoint between 2025 and 2026. The substantial improvement in EBITDA will come from supply chain initiatives. This is a big number for us.

Our next question comes from the line of Jeffrey LeBlanc of TPH.

I just wanted to see if you could talk about how you're thinking about U.S. drilling efficiencies because it seems like every year, operators continue to find ways to improve cycle times. And what inning you think we are, though, for you all? It's somewhat agnostic given that you're well count levered, but just kind of curious your thoughts on continued drilling efficiencies.

I get asked this question, it seems like every year. And we all think that increased drilling efficiencies are behind us, and we're always very surprised. So we are seeing greater efficiencies. We certainly saw them in 2025, which translates, frankly, into more wells per rig. So the best proxy for our business is really wells drilled, not rig count. And when we do our budget, we think about wells drilled. It's just that, it's so much easier to use rig count as a proxy.

Where we go from here? I don't know. But I think that some of our very large customers have deployed some very interesting technology. And I think that you'll see over time that some of the smaller operators will mimic that. So I'm actually pretty bullish on increased efficiencies.

Our next question comes from the line of Don Crist of Johnson Rice.

I wanted to ask about Vietnam and kind of API certification. I know it's been a quarter or 2 since you talked about that. And what kind of margin impact that could have as you're importing those pieces and parts to the U.S. today that have to be -- go through a different step before they're actually sold. Can you talk about that, [ Tom ]?

Well, keep in mind that in the ever-changing landscape of tariffs, Vietnam is going to be -- we expect about 25% percentage points lower than the tariffs out of China. So if you consider -- I don't know, can we talk about how much we paid in tariffs?

No. Well, if you consider the volumes that we were bringing in from China and as we displace that from Vietnam, I think it's going to be pretty substantial, particularly in 2027. In terms of API certification, we have already begun to move product from Vietnam into the U.S. and then we're applying the necessary value added in Bossier City to apply the Bossier City monogram. We've already gotten through the first stage of our API certification in Vietnam. And Joel, now we expect the second part of the audit to occur when?

It's in process as we speak. It's supposed to finish this week. And then we'll get reports back from API. So I would say pending the results, another 30 to 60 days before we actually have the monogram.

Okay. So once we -- we're still operating as quickly as we can, but we're constrained by not having that monogram in place.

That should boost the margins, right?

Absolutely. So Vietnam is inherently lower cost than China and then you apply the tariff differential and that boosts the effective margin even higher.

Okay. That's what I thought. Good to hear. And one quick one on North Africa. I know you talked about Sub-Saharan Africa. But we're hearing a lot of operators start to talk about Algeria and Egypt and other places, Turkey, et cetera, in that area. Do you all have an installed base that you got with the international acquisition that could grow that meaningfully over the next couple of years?

Yes, indeed.

I'm showing no further questions at this time. I'll now turn it back to Scott Bender, Chairman and CEO, for closing remarks.

Okay. Everybody, I want to thank you very much for your attention, and we look forward in the coming quarters of giving you more visibility into what we expect on a go-forward basis with Cactus International. Thanks a lot. Have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Cactus Quarter 3 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Alan Boyd, Director of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good morning. We appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer; and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President; Steven Bender, Chief Operating Officer; Steve Tadlock, CEO of FlexSteel; and Will Marsh, our General Counsel.

Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements.

In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

With that, I will turn the call over to Scott.

Thanks, Alan, and good morning. I'm extremely pleased with our third quarter performance. Pressure Control margins improved sequentially due to our tariff mitigation and cost reduction efforts, while Spoolable Technologies sales and margins exceeded expectations on higher international shipments. These outcomes are the result of extensive efforts and focus from our team, and I'm very grateful. Some third quarter total company financial highlights include revenue of $264 million, adjusted EBITDA of $87 million, adjusted EBITDA margin of 32.9%. We paid a quarterly dividend of $0.14 per share, and we increased our cash balance to $446 million.

I'll now turn the call over to Jay Nutt, our CFO, who will review our financial results. Following his remarks, I'll provide some thoughts on our outlook for the near term before opening the line for Q&A. Jay?

Thank you, Scott. As Scott just mentioned, total Q3 revenues were $264 million, a sequential 3.5% decline and total adjusted EBITDA was $87 million, approximately flat from the second quarter. For our Pressure Control segment, revenues of $169 million were down 6.2% sequentially, driven primarily by lower frac rental revenues as we continue to focus on our consumable business.

Operating income increased $2.2 million or 5.2% sequentially, with operating margins increasing 290 basis points and adjusted segment EBITDA was $2.1 million or 3.9% higher sequentially, with margins increasing by 320 basis points. The margin increase was primarily due to the implementation of cost reduction initiatives, tariff mitigation efforts and reduced legal expenses.

For our Spoolable Technologies segment, revenues of $95 million were down 1% sequentially on lower domestic customer activity levels, mostly offset by increased international sales. Operating income decreased $2.2 million or 8% sequentially, with operating margins decreasing 210 basis points due to higher input costs. Adjusted segment EBITDA decreased $2 million or 5.2% sequentially, while margins declined by 160 basis points. Corporate and other expenses declined $0.5 million to $9.1 million in Q3, which included $3.2 million of professional fees associated with the announced plan to acquire a majority interest in the surface Pressure Control business of Baker Hughes.

Adjusted corporate EBITDA was down slightly to $4.2 million of expense. On a total company basis, third quarter adjusted EBITDA was $87 million, flat from the second quarter. Adjusted EBITDA margin for the third quarter was 32.9% compared to 31.7% for the second quarter. Adjustments to total company EBITDA during the third quarter of 2025 include noncash charges of $6.1 million in stock-based compensation and $3.2 million for transaction-related professional fees and $247,000 for continued severance actions to right size the organization for lower activity levels.

Depreciation and amortization expense for the third quarter was $16 million, which includes an ongoing $4 million of amortization expense related to the intangible assets resulting from the FlexSteel acquisition. During the third quarter, the public or Class A ownership of the company averaged and ended the period at 86%. GAAP net income was $50 million in the third quarter versus $49 million during the second quarter. Book tax expense during the third quarter was $14 million, resulting in an effective tax rate of 22%.

Adjusted net income and earnings per share were $54 million and $0.67 per share, respectively, during the third quarter compared to $53 million and $0.66 per share in the second quarter. Adjusted net income for the third quarter was net of a 25% tax rate applied to our adjusted pretax income, consistent with the prior quarter.

During the quarter, we paid a quarterly dividend of $0.14 per share, resulting in a cash outflow of approximately $11 million, including related distributions to members. We ended the quarter with a cash balance of $446 million, a sequential increase of approximately $40 million. Inventory build has represented a working capital headwind year-to-date, which has decreased our usual pace of cash flow with most of the increase in the carrying value being due to tariffs rather than increased quantities of inventory on hand.

Net CapEx was approximately $8.2 million during the third quarter of 2025. In a moment, Scott will give you our fourth quarter operational outlook. Some additional financial considerations when looking ahead to the fourth quarter, include an effective tax rate of 22% and an estimated tax rate for adjusted EPS continuing at 25%.

Total depreciation and amortization expense during the fourth quarter is expected to be approximately $16 million, with $7 million associated with our Pressure Control segment and the remaining $9 million in Spoolable Technologies.

Our full year 2025 net CapEx outlook remains in the range of $40 million to $45 million, including the $6 million equity investment made into Vietnam. Additionally, the annual TRA payment and related member distribution was delayed to October of 2025 from our previous plan to settle in the third quarter. The payment and related distributions were made earlier this month and totaled approximately $23 million.

Finally, the Board has approved a quarterly dividend of $0.14 per share, which will be paid in December. That covers the financial review, and I'll now turn the call back over to Scott.

Thanks, Jay. I'll begin by touching on our current understanding of the highly fluid tariff situation. Through the third quarter, there were no substantial changes in the tariff rates applied to our goods, which were detailed on last quarter's call. We continue to pay an incremental 70% tariff on most goods imported from China for a 95% total tariff rate and a 50% tariff on most goods imported from Vietnam. We're seeking further clarity on recent announcements of tariff reductions in the Far East. But based upon the latest information, we expect some reduction in the fentanyl-related tariff rate from China. That said, the Section 232 tariff, which remains at 50% is far more impactful to our operations. At this point, we are several months into our efforts to mitigate the tariff impact to our business.

I'm proud of the work our team has done to flex the organization and supply chain to improve profitability, and I'm appreciative of the support of our customers and vendors throughout this process. Our Vietnam plant is increasing its pace of shipments, and we still expect substantial displacement of Chinese shipments into the U.S. by mid-next year as we await the finalization of our API certification.

I'll now move on to our expectations for the fourth quarter of 2025 by operating segment. During the fourth quarter, we expect Pressure Control revenue to be relatively flat versus the $169 million, excuse me, reported in the third quarter, aided by modestly increased activity in our frac rental business, which offsets normal holiday slowdowns. We believe that most industry activity declines for 2025 are behind us and expect the fourth quarter U.S. land rig count to drift modestly lower through the year-end.

Adjusted EBITDA margins in our Pressure Control segment are expected to be in the 31% to 33% for the fourth quarter, staying relatively stable from the third quarter and inclusive of typical seasonal declines in field service utilization. This adjusted EBITDA guidance excludes approximately $3 million of stock-based comp expense within the segment.

Shifting to our Spoolable Technologies segment. We are particularly pleased with the progress we're making on the international side of the business. We achieved our highest international revenue since the acquisition during the third quarter, which served to further our geographic diversification. We expect this momentum to continue. We were recently awarded our first gas service order from a major Middle East NOC and shipped a large order for a new customer in Africa.

Additionally, we recently booked our first commercial order in another major Middle East market for shipment in the first half of 2026, which is our first sour service order in the region. We're further encouraged by customer interest in newly developed products.

For the fourth quarter, we expect total Spoolable Technologies revenue to be down low double digits sequentially, which is consistent with the typical seasonal pattern in this business. We expect adjusted EBITDA margins to be approximately 34% to 36% for Q4, which excludes $1 million of stock-based comp in the segment, moderating third quarter levels on lower volume. Adjusted corporate EBITDA is expected to be a charge of approximately $4 million in Q4, which excludes 2 million of stock-based comp.

Regarding our planned acquisition of a majority interest in the Surface Pressure Control business of Baker Hughes, integration planning and administrative legal filings are proceeding smoothly, and we expect that transaction will close in early 2026.

In conclusion, the third quarter demonstrated real progress from our actions to enhance our operating results. The improvement in pressure control margins reflects the agility of our organization in responding to highly dynamic market conditions as we've demonstrated through past cycles. The stronger Spoolable Technologies international revenues are the result of a long-term concerted effort to increase our sales focus in key global markets, which should be enhanced by the increased footprint offered by our announced acquisition of a majority interest in the Baker Hughes Surface Pressure Control business.

Domestic activity looks -- levels remain subdued, but I'm confident in our ability to continue to outperform and deliver industry-leading returns for our shareholders. I'd like to close by thanking our associates for their focused commitment on executing for our customers throughout a turbulent market.

With that, I'll turn it back over to the operator, and we can begin Q&A. Operator?

[Operator Instructions] Our first question comes from David Anderson of Barclays.

I have a rather broad question to start. You'll probably hate the question, but I'll ask it anyways. I was wondering if you could just kind of give us a sense as to where your kind of your U.S. customers are thinking -- kind of what they're thinking and what they're asking about in the current environment. 4Q is a little bit softer. There's no sense of urgency out there. You characterized it just now as subdued.

I think you've also said customers have been acting as oils in the 50s. I was just wondering, are your customers concerned that oil price is going to take another leg down? Are you seeing more than the usual pricing pressure out there? Or is this more of a situation where things -- where customers are actually kind of fairly bullish or are just sort of staying flat at these levels, waiting for kind of an oil price signal for next year? I'm just trying to get a handle as to how we should think about upstream spending in '26 from these 4Q levels that we're going to see coming out here, just some of the puts and takes.

Yes. I mean, David, that's obviously a question that weighs heavily on us. I'm going to give you my personal opinion. And I think that the downside risk of oil prices is far greater than upside potential. If I was a betting man, I'd suggest it was going to be between $55 and $60, but I also think our customers have taken that into consideration with their plans. I can tell you that they are currently far less transparent than they have been in the past because we're very much in a wait-and-see environment. And a major part of that, David is, you know this is not only the surplus availability coming out of OPEC+ but it also has to do with questions about the administration's implementation and enforcement of Russian oil sanctions.

The Russians have proved to be very adept at circumventing sanctions as have the Iranians. So I think that all of our customers are concerned about that. But none of them, I think, are basing their budgets on $65 oil or even $60 oil. The other, I think, important aspect is that we believe that our larger customers who maintain relatively large inventories in the core drilling basins and core basins will be far less susceptible to lower oil prices than some of the privates or independents.

I was going to ask about the Spoolable side. I was wondering if you could expand a little bit on the international opportunities and kind of talk about kind of what was unusual in this quarter that Spoolables were higher. And also if you could talk about some of the more attractive markets for this product. I think you said Africa, a couple in the Middle East. You're now -- you've also talked previously about cross-selling opportunities with SPC in the Middle East, but you're already getting awards ahead of that. Could you sort of just talk about a couple of those different markets that you're seeing for Spoolable and kind of '26 and '27 opportunities?

Sure. I'm going to defer to Steve Tadlock.

David, I think in Q3, I mean, really, in terms of markets, we're seeing it worldwide, which is -- we're obviously very pleased by that. When I kind of stepped into the role 2 years ago, we probably had our best concentration in Latin America, and that's just some of the individuals we had down there representing us on the team. And since then, we've expanded personnel and put them -- we've utilized the Cactus Wellhead Australia team. They've done a great job. We got our first delivery in Q3 to Australia.

We added another individual in Southeast Asia, who's seeing some traction. We've added somebody in the Middle East who's -- as Scott mentioned, we had our first sour service order for next year for a Middle East region -- we've never done -- a country we've never done business in. So it's really across the board. We're just seeing a lot of interest in the product.

I think the introduction of the sour service product in the past year has really opened up the worldwide market just given the larger sour needs overseas versus the U.S. So I think that's kind of fundamentally what's happening. It's increased focus, more personnel and the orders kind of build on themselves. So more traction, somebody moves to another company or they hear about another company using our product, and it's spreading.

Our next question comes from Scott Gruber of Citigroup.

Really excellent margin performance here in Pressure Control during the quarter. Can you just unpack that a bit more for us? Was that greater acceptance of tariff surcharges than anticipated? Or did you pull the cost lever harder during the quarter? Just unpack that Pressure Control margin beat a bit for us.

Mr. Gruber, you know I'm not going to comment on price changes. Don't you? Yes, you do.

I tried.

You always try. Let me just say it's a combination, but I'm not going to focus on the relative contributions. So think about this. We really are blessed to have the best supply chain guy in the industry. He happens to be my brother, but I'm still objective about that. So he's done a great job of getting -- receiving cooperation from our suppliers. That's the first point.

I think the second point is that we have some -- we do have some very understanding customers because we've supported them, and they continue to support us. And then we're very aggressive in terms of flexing the organization in terms of activity. Keep in mind, and I've said this before, that because we're primarily in a variable cost business, it's much easier for us to flex down than it is for oilfield service companies that have relatively high fixed costs.

So it really is a combination of all those things. It's -- the team has just done a great job. We've also redirected our supply chain to minimize the impact of tariffs and because we have purchasing power and which, by the way, will only be enhanced, we expect by the addition of Baker Hughes SPC business. So Scott, it's not the answer you wanted, but it's all I can give you right now.

No, I appreciate all the color. And I wanted to ask about that new wellhead system that you guys were about to introduce kind of 6, 12 months ago and then the market started softening. Where do you stand with that now? It seems like we're finding some potential stability in the market. We'll see where oil prices go. But you got your Pressure Control margins back up. You've kind of worked through the tariffs issue. Just give us your latest thoughts on introducing that new system in '26 or whether that's going to be delayed further.

Yes. So I can answer that question, Scott, Q1.

Our next question comes from Stephen Gengaro of Stifel.

I think 2 for me and one follows up a little bit on Scott's question. The -- I think -- and you can correct me if I'm wrong, but I think last quarter, you alluded to it being harder to support margins with the tariffs. It sounded like part of that was because of lower customer activity. But it seems like that tone has changed a bit and the results were clearly very good. Could you comment on that at all?

Yes. Because Stephen, just to remind you, what happened to us in the previous quarter is that the tariff rates changed very unexpectedly in I think, it was May or early June when the Section 232 moved from 25 to 50. So we frankly had not anticipated that and received no indication that, that was the case. Now that -- and as a result, it made it very difficult for us to make a case to suppliers, customers not knowing where we were going to land. We have greater clarity on that, which helps us to address our suppliers and our customers.

So I would think it's more about the increased tariff environment than it is about activity levels. That said, we've been very pleasantly surprised with how our particular customer base has held up. But again, I want to emphasize, Stephen, that our expectations are that those customers with holdings in the core areas of our basins, because our customers are the larger publicly held E&Ps that we expect that to hold up relative to the rest of the market.

Great. And the follow-up to that was without asking you about market share. But when you think about Pressure Control and you think about activity levels, you've been outperforming that, right? And I would imagine as we go forward here, notwithstanding how the rig count evolves, you'll continue to outperform that, driven just primarily by the stability of your customers. Is that fair as we think about? And I'm thinking like a North America comment?

Yes. As I mentioned, we're not getting a whole lot of clarity in terms of next year. But I think it's also fair to say that our market share is not going to be -- is going to be a function of new names. And we're seeing some increased interest from some significant players. I believe that's going to continue.

So I'm guardedly optimistic that we'll be able to defend and potentially expand it. The question is, how big is that pie going to be? And I just -- I can't estimate that for you. I just think that our pie is going to be significantly larger than some of our competitors. I would also say that we've seen some very large competitors try to increase market share during this period of anemic growth, frankly, at the expense of, I think, their margins. So I can't control that.

Our next question comes from Arun Jayaram from JPMorgan Securities.

I wondered if you could provide any updated perspective on the Cactus SPC transaction, which you indicated you expect to close in early 2026. How is the integration planning going? But any updated views would be much appreciated because that is an important swing factor as we think about your earnings power next year.

So specifically, what are you asking me?

Yes. Just your thoughts on kind of the earnings power of that segment next year? Obviously, there's been some crosscurrents in Saudi, although we were on the Nabors call yesterday, and Tony mentioned how there could be an improvement in activity as you got into the back half of -- or second half of 2026. So yes, I was wondering if you've been to the Middle East recently and just could offer any kind of data points or fresh perspective. Like I said, there's just been some cross currents as we think about potential spending trends next year.

Yes. I was there about 2 weeks ago. So I think the Saudis are probably projecting the possibility of increased activity in the second half of '26, but that hasn't translated into orders. And those are just facts. And the international market typically, when we have a slowdown in the U.S., you normally see about a 12-month lag in the international market. So I expect the international market, even the Mid East to have a relatively weaker 2026 than in 2025. There is no concrete objective evidence, which would only be manifested by order placements.

So I just -- I can't be terribly optimistic about the Mid East. It just Brent is going to be in the low 60s, and that's got to somehow translate into reduced activity. Now what we are seeing is some U.S. companies becoming more active in the Mid East. And I think that's -- which is really good for us because they happen to be our customers. And there is an absolute undeniable focus on unconventional drilling. And they really are welcoming Western companies. And as a result, the Western companies bring in the suppliers with whom they're most comfortable. So I feel good about that. Will that offset the overall decline? Not likely, but it will mitigate the impact.

Great. That's helpful. I really appreciate that perspective. Maybe just my follow-up. Maybe give us an update on your sourcing plans internationally. How is the ramp going in Vietnam? And maybe just some thoughts on that.

Yes. So I can defer to Joel on that. He's in the room with us. Vietnam is progressing. Well, Joel, I'll let you handle it.

Yes, it's progressing well. We're starting to move some of the wellhead into the U.S. that we need to be able to assemble and monogram. We're currently in line with API to get our audit to be monogrammed. We filled the paperwork out. We submitted all the required additional documentation. So we're expecting to have that audit in the next -- hopefully in the next 90 or so days. So we'll have that done after the first of the year.

One of our requirements is to be able to provide API monogram equipment from that facility. But in the interim, we have started to move wellhead housings and tubing head bodies into the U.S. that we'll do the assembly at our Bossier City facility. So it's progressing well, expanding, adding headcount, adding fixtures for testing. So pretty pleased with the progress.

Any sense once you do get API certification, what kind of mix Vietnam can have perhaps next year?

We're going to focus primarily on the wellhead out of there towards the end of the year. We'll start bringing some of our gate valves. But the primary focus for the beginning of the year and the year will be getting as many of the wellheads and the tubing head assemblies. I would say somewhere in the magnitude of at least half.

Our next question comes from Don Crist of Johnson Rice.

Scott, I just wanted to ask one question on kind of the macro front. I mean we're hearing a lot more chatter about unconventional drilling in many different countries around the world. And obviously, there's a lot more activity kind of move in that direction. But I just wanted to know from your standpoint, what do you think the time frame would be to kind of see a material pickup in unconventional around the world, whether it be in Turkey or Libya or any other places that aren't big today in unconventionals. Just kind of a time frame perspective because nobody seems to give that number out.

Well, I can tell you this with absolute certainty that we've seen an exponential increase in unconventional requests. throughout the Middle East. I'm less optimistic about Argentina, frankly, because there's just not that many rigs running in comparison to the Mid East. A lot of interest in Saudi, a lot of interest in Abu Dhabi. I would probably tell you that by the end of 2026, we're going to see -- in fact, I think we have our first unconventional shipment, Joel, scheduled for when?

It's probably going to go January to February.

Yes. So it's basically a U.S. product. So I don't anticipate, obviously, any issues with that. So I think we'll see a steady ramp-up. The real interest right now is to compare the results of using an unconventionally -- a design specifically addressing unconventional with what they're using in terms of flashed equipment. So this will be pending the results of the time savings.

So if the time savings or anything at all approaching the U.S., I think that once word spreads and it spreads quickly, I think you're going to see a serious ramp-up. So let's call it fourth quarter because they need time to drill these wells and analyze the efficiency. So I can tell you, my gut feeling is '27 will be a significant contributor. And I think that by the fourth quarter of '26, we're going to see some meaningful shipments.

I'm showing no further questions at this time. I would now like to turn it back over to the Chairman and CEO, Scott Bender, for closing remarks.

All right. I want to thank everybody for their continued interest in the company, and I'm really pleased with this team's efforts in terms of dealing with sort of an anemic market and a very uncertain tariff landscape. This really is a reflection of not only how flexible our team is, but also the fact that we are and will always be heavily invested in consumables and variable cost businesses. So thanks again for your interest. Have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.