Oil States International, Inc. Stock

Thank you. Hello, everyone. Thank you for joining us, and welcome to the Oil States second quarter 2026 earnings call. [Operator Instructions] I will now turn the conference over to Ellen Pennington, Senior Counsel and Vice President of HR. Ellen, please go ahead.

Thank you, Trevor. Good morning, and welcome to Oil States' second quarter 2026 earnings conference call. Our call today will be led by our President and CEO, Lloyd Hajdik, and Matthew Autenrieth, Oil States' Executive Vice President and Chief Financial Officer.

Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be considered in the context of the many factors that affect our business, including those risks disclosed in our 2025 Form 10-K, Form 10-K/A, along with other recent SEC filings.

This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available 2 hours after the completion of this call and will continue to be available for 12 months. I'll now turn the call over to Lloyd.

Thanks, Ellen, and good morning, everyone. Thank you for joining our conference call today, where we will discuss our second quarter of 2026 results and provide our thoughts on market trends, in addition to discussing our company-specific strategy and outlook for the remainder of the year. As we progress through 2026, our end markets continue to be influenced by a combination of constructive long-term fundamentals and ongoing near-term uncertainty.

During the second quarter, commodity prices remained volatile, driven largely by geopolitical developments, supply disruptions, and moderated expectations for global economic growth. Conflict in the Middle East region continues to impact our operations and again contributed to certain contract award delays. Notwithstanding these and other award delays, we achieved a book-to-bill ratio of 1.2x. While these dynamics have tempered near-term revenue conversion in our project-driven businesses, they do not change our long-term offshore and international opportunity set.

The need for secure and diversified energy supply continues to drive longer-cycle deepwater investment as well as incremental land-based activity levels. We believe that national oil companies and major operators will refocus on increasing production capacity, making multi-year investments to meet global energy demand once the Middle East disruptions settle down. In the United States, customer activity rose modestly as operators continued to demonstrate capital discipline and prioritize operational efficiency and return of capital to stockholders.

During the second quarter, we generated revenues of $157 million and adjusted EBITDA of $19 million, up 8% and 14% sequentially. These increases were driven in large part by growth within our Downhole Technologies and Completion and Production Services segments, favoring mix and disciplined execution. Our strategy remains focused on higher-margin, differentiated products and technologies within the markets we serve. Over 70% of our consolidated revenues generated in the first half of 2026 were driven by offshore and international activity, which is a substantial increase from around 50% in 2023.

This strategic shift in business mix has positioned Oil States well for sustained growth in future months and years. Our Offshore Manufactured Products segment generated sequential revenue growth with strong segment EBITDA margins. Production platform and connector products, as well as higher service activity, provided positive uplift in the quarter. Backlog increased to its highest level in more than a decade, totaling $451 million, supported by bookings of $114 million, and a quarterly book-to-bill ratio of 1.2x. Based on our bidding, quoting, and order visibility, we reiterate our view that our full-year book-to-bill ratio should be 1x or greater.

Our Completion and Production Services segment reported sequential revenue and segment EBITDA growth coupled with a strong margin profile, which is the direct result of our efforts to high-grade the portfolio of technologies and service lines within this segment. In our Downhole Technologies segment, revenue and segment EBITDA improved materially, supported by stronger perforating and completion product sales and favorable product mix.

Headwinds remain elevated related to charge powder availability and raw material cost increases, which are pressuring margins. Continued pricing discipline and inventory management remain priorities. With our extensive portfolio of differentiated technologies and a diversified footprint across the major global basins, we believe we are well positioned to support our customers' evolving needs. They will continue to invest selectively in technologies that improve performance, efficiency, and reliability in increasingly complex operating environments. Matthew now will review our operating results along with our financial position in more detail.

Thank you, Lloyd, and good morning, everyone. During the second quarter, as Lloyd mentioned, we generated revenues of $157 million and adjusted EBITDA of $19 million, representing sequential increases of 8% and 14% respectively. We reported net income of $6 million, or $0.10 per share, which included charges associated with the extinguishment of our convertible senior notes, facility exit charges, and executive transition costs, partially offset by a gain on the disposal of a facility held for sale. Excluding these charges and credits, our adjusted net income totaled $8 million, or $0.14 per share.

Turning to the segment performance, our Offshore Manufactured Products segment generated revenues of $93 million and segment EBITDA of $18 million in the second quarter, resulting in a segment EBITDA margin above 19%. Our backlog totaled $451 million as of June 30, an increase of 5% sequentially, and 24% from June 30, 2025. This is our highest reported level of backlog in over 10 years.

We achieved a 1.2x book-to-bill ratio in the quarter. Our growing backlog continues to reflect a diversified mix of offshore and international energy projects as well as military programs. Our Completion and Production Services segment generated $24 million in revenues and segment EBITDA of $7 million in the second quarter, resulting in a segment EBITDA margin of approximately 27%. Revenue and segment EBITDA increased 13% and 7% sequentially.

In our Downhole Technologies segment, we generated revenues of $40 million and segment EBITDA of $4 million. Second quarter revenues were at the highest level since the second quarter of 2023. Results improved significantly on stronger perforating and completion product demand and favorable product mix. Input costs for our shaped charges remain elevated, particularly the cost of tungsten, explosive powder, and copper.

Second half trajectory will depend on continued pricing discipline, product mix, and raw material availability. Cash used in operating activities totaled $6 million in the second quarter, reflecting continued working capital investments tied to anticipated growth, the execution of backlog, especially for military product awards, and increasing demand for our downhole consumable products. Investing activities provided a cash flow benefit of $4 million during the quarter. Proceeds from asset sales totaled $7 million, which more than offset the $3 million of capital investment made during the quarter.

We remain focused on continuing to monetize our remaining assets held for sale, which currently total $19 million. As discussed on our first quarter earnings call, Oil States retired the remaining $53 million of principal amount of our convertible senior notes on April 1 with a combination of cash, borrowings under the credit facility, and the issuance of our common stock. As of June 30, the company had $20 million of cash on hand and $18 million of outstanding debt.

Our strong balance sheet and ample liquidity continue to provide flexibility to invest in organic growth and R&D, and to return capital to stockholders. During the second quarter, we repurchased $5 million of our common stock, and we will remain opportunistic with additional share repurchases as we continue to prioritize returns to stockholders. Now Lloyd will offer some market outlook and concluding comments.

Thanks, Matt. As we look ahead, the broader energy backdrop continues to support our strategic focus. Near-term operator timing can vary, particularly in our project-driven offshore and international businesses. We continue to see customers sanctioning new field developments and investing in project opportunities where Oil States has built deep expertise and a strong competitive position. With ongoing supply disruptions, commodity prices remain volatile, reflecting geopolitical uncertainty and evolving OPEC+ production policies.

Inventories in several regions remain well below historical norms, and spare production capacity remains concentrated among a limited number of producers. Longer term, energy security concerns are expected to continue supporting investments in domestic resource development, offshore and international production, export infrastructure, and LNG projects. Taken together, these factors continue to reinforce our core strategy of offshore, deepwater, subsea, and international investment.

We believe these markets will remain constructive for Oil States over the longer term. Our strategy remains unchanged: partner closely with our customers, solve their technical problems, and deliver differentiated engineered products, services, and technologies that support reliable energy supply. Across our portfolio of products and services, we continue to make targeted investments in technologies and capabilities that strengthen execution, improve operating efficiency, and enhance reliability in the environments where our customers operate.

As we carry out this strategy, we will remain disciplined in how we manage the business for our stakeholders, with continued attention to cash generation and prudent capital allocation. Our focus is on leveraging our technologies to drive growth, converting firm backlog into revenue, continuing to improve margins, and working capital conversion. While our bookings and backlog continue to grow to decade-high levels, a large part of the bookings awarded over the last year have been tied to multi-year military product contracts.

Conversely, certain drilling, connector, and production facility product orders have lagged from a timing perspective. We expect to receive these orders in the third and fourth quarters of 2026, but the delay in receiving these awards will push some revenue recognition into 2027 that was originally expected in 2026. With that in mind, our third quarter guidance calls for revenues in the range of $157 million to $167 million, and adjusted EBITDA of $18 million to $20 million. Our full-year guidance is expected to range from $640 million to $660 million of revenue and $77 million to $83 million of adjusted EBITDA.

Customer schedules and timelines, geopolitical conditions, and the timing of the contract awards continue to create quarter-to-quarter variations in our results. Even so, our current backlog and the breadth of opportunities across numerous business lines support our confidence in future earnings growth. We see compelling opportunities to strengthen customer relationships and continue shaping the portfolio toward higher-value, technology-driven offerings.

The longer-term offshore deepwater subsea and international opportunity set remains constructive, and our backlog continues to reflect that demand. Incremental land-based activity could also provide an uplift. Oil States is well positioned with a focused portfolio, a resilient operating base, and a strong capacity to generate cash. Supported by a disciplined strategy, a healthy balance sheet, and meaningful exposure to long-cycle markets, we believe the company has a solid foundation for continued progress. This concludes our prepared remarks. Trevor, please open the call up for questions.

[Operator Instructions] Your first question comes from the line of Connor Jensen with Raymond James. Connor, your line is open.

It was nice to see the backlog reach its highest level since 2015. Given the optimism across the industry around a ramp in offshore heading into the next few years, we'd love to hear about how pricing and margins are trending across those new orders you guys are picking up.

Yes, so thanks, Connor. Good question. I would say in terms of the margins, they're accretive to the existing awards that are in backlog. Overall, and for the segment, we guide to an overall EBITDA margin of around 20%. A little bit lighter this quarter, 19.3%, but kind of right at that 20% level. Historically, if you look back where we had higher levels of backlog, even dating back, call it 10 years ago, we had reached quarterly EBITDA margins of the low 20s, so 22%, 23%, and I could see us achieving that, not this year, but certainly in 2027 and beyond as our backlog continues to grow, buoyed by the more traditional production facility pipeline and drilling-type content.

Got it. And then it was impressive to see Downhole Technologies post its strongest revenue in several years this quarter. How much of that improvement reflects the restructuring benefits you guys had in the segment versus an improving U.S. land market? And then how sustainable are those margins from here?

Yes, I think it's more currently an improving land market. Frac spread count was up quarter-over-quarter, rig count was up, so you think about completion-related activity. And in terms of volumes for us, when I looked at our shaped charges and our [ short guns ], which are largely sold in the U.S. as well as international, those volumes doubled quarter-over-quarter. The restructuring efforts that we've done over the, call it the prior year or 2, and I wouldn't call them restructuring, is more a revamp of our product line within perforating and coming up with our new Flex Precision Guns and Flex Orbit have had really tremendous customer uptake. So the demand for both perforating and completion tools, which is effectively plugs and toe valves, really ramped up in the second quarter. And we're really expecting for the third and fourth quarter kind of that, not continued ramp, but certainly at these levels that we've experienced in the second quarter.

Got it. I'll just sneak 1 more in here. You noted working capital was a headwind to free cash flow in the quarter. How do you expect the free cash flow to trend in the second half? And then what are the key drivers to getting that back to positive free cash flow?

Yes, Lloyd, I'll jump in on that one. Connor, we expect free cash flow for the full year to be $35 million to $40 million. Now, that includes proceeds from asset sales in the first half of the year. What it doesn't include is any incremental asset sales in the second half of the year, which could provide an additional $5 million to $10 million of free cash flow. And with regards to working capital, in the first half of the year, we invested $27 million in inventory. That's primarily 2 things. 1, it's long lead time materials that we invested in for the execution of projects from our backlog. And 2, it's rising costs, input costs for raw materials in our Downhole Technologies segment.

And we expect that working capital investment to begin to unwind here in the second half of the year. That's going to be a critical driver of free cash flow generation here in the back half of the year.

Great, very helpful. I'll turn it back. Thanks.

Our next question comes from the line of Jawad Hossain Bhuiyan with Stifel. Jawad, your line is open.

Could we just understand your guys' expectations for order flow for the balance of the year for the offshore manufacturing piece? And I guess, how should we think about the backlog conversion rates for that business? And how much of that existing backlog is likely to convert to revenue this year and also next year?

Yes, sir, absolutely. So in terms of our bookings for the second half of the year, we're watching certain drilling connector products and production facility type orders that we expect to come in. And I mentioned in the notes, here in the third and fourth quarter. Those have been delayed, quite frankly, since the beginning of the year. The Middle East disruptions have caused some of these award delays, specifically connector products orders that we'd expected to sell into the Middle East. We have not received those orders yet. We do expect to receive those. I think that's all just basically based on timing.

Nothing underlying in the fundamentals of the business in terms of whether or not we'll receive these awards. In terms of backlog conversion, I mentioned this on our first quarter call and said this in the notes here, but we did receive over $100 million of military products awards in the third and fourth quarter of last year, third quarter, fourth quarter of 2025. Those are multi-year orders that will unwind or convert to revenue over the next 4 to 5 years. So today about half of our backlog, exactly actually it's 48% of our backlog, is tied to military. Historically, our conversion rate of backlog converting over the forward 12 months has been in that 65% to 70% range. Now with these multi-year military products orders, that's going to weight down to, let's just say it's about 55% currently, but that's still strong given we have these multi-year orders that are rolling out and converting to backlog, as well as anticipation of these other orders coming into backlog for the year, which drives my commentary of a book-to-bill ratio of above 1 for the full year.

That's very helpful. Thank you. I'll pass it on.

Our next call comes from the line of Jeff Robertson with Water Tower Research, LLC. Jeff, your line is open.

Lloyd, you mentioned getting back to around 22% potentially in the OMP segment and adjusted EBITDA margin. What is the mix of products that could drive that? And how does that relate to what you're seeing in or what you expect to see in your order book?

Yes, I just want to be clear. We're guiding to our goal for this year of a 20% EBITDA margin. I don't want to construe that we're guiding to a higher margin. My commentary is at higher levels of backlog, which drives better absorption in your manufacturing facilities, could drive the EBITDA margins above 20%. And that mix of backlog, I'd say it's in our traditional energy subsea and energy production products, and now drilling products with our introduction of our new managed pressure drilling system over the last 2 years. Those type of products and new technologies that we've developed, as well as one of the newer markets that we're bringing to the market here, more in development, but should bring it into the market next year, accretive, very good margins, you could see the margins start to move above 20%. I'm not guiding that this year. I want to be very clear about that.

Thank you. And with respect to your customer conversations, do you get any sense that customers might be trying to move projects around within their portfolios given what's going on in the Middle East, or is it still too new with people trying to figure out how that situation settles?

Yes, there's a shorter-term, medium-term, longer-term conversation to be had there. I would say focusing on the medium-term, the national oil companies and the other major operators are really focused on finding, or not finding, but developing those resources that are in a much more secure environment outside of maybe the Middle East and the disruptions that we have there. So that favors deepwater. And with our product set specifically in Offshore Manufactured Products, we're well suited to participate in that. We expect to see a deepwater upcycle over the next 3 to 4 years, really kind of rolling out 2027 through 2030, and some of the third-party research that we subscribe to certainly supports that. But energy security is front and center for these operators. I mentioned that spare production capacity is limited to a handful of operators. So deepwater, because it's long-life reserves, typically lower break-evens than some of the land resource plays, I think certainly the operators will be focusing on deepwater.

Thank you. Our next question comes from the line of Joshua Jayne with Daniel Energy Partners. Josh, your line is open.

I wanted to go back to the military business. Could you speak to your outlook specifically for orders for that business, not only for the second half of this year, but also into 2027? You just alluded to the strength that you had in Q3 and Q4 of last year, but what's the outlook for orders over the back half of this year and into 2027, and your conversations [ balkan ] for incremental orders?

Yes, Josh, great question. So I'll give a little bit of a background. So our military products orders are what we refer to as large block type orders. The military, specifically U.S. Navy, will let out orders over a block. We are now in Block 6. And these are multi-year, 4 to 5 year orders. That's why you see large dollar amount of awards that will come into backlog every, call it, 3 to 5 years. But ongoing-wise, we have military product orders every week.

They're not likely to be at the magnitude of $100 million to $110 million like we booked last year as a large block award, but there's ongoing $25 million to $30 million a year, if not a little bit more on military products orders. But the large set of the awards, again, sit in backlog, convert to revenue over the next 4 to 5 years. These Block 6 awards will really start generating revenue in 2027. We're wrapping up the last vestiges of the Block 5 awards that we booked probably 5 years ago.

Okay, thanks. And then it sounds as if, just listening to your calls over the last couple of years, as confident or more increasingly confident in the non-offshore business maybe at any point over the last 2 years? Could you just speak to your outlook for the U.S. land businesses, where geographically you're seeing pockets of strength, and if oil basically doesn't move from here, does the outlook still continue to improve for that business over the next 12 to 18 months? Thanks.

Yes, Josh, great question. We believe it does. I mean, it was up modestly in the second quarter, really modestly the first half of the year. Now operators, both privates and publics, are being very careful. They're not rushing to increase capital spending on private, really on the volatile levels of WTI that we've seen. We've been as low as $74, as high as back as $95, now back around in that $80, $85 range. So a lot of volatility in pricing is driving careful considerations by the operators, but again, I just want to be clear, in the U.S. land regions in which we operate, and this is Completion and Production Services, service business, we really operate in 1 region up in the Bakken where we have great customers, great people, and great equipment. So we're obviously committed to that land basin.

Outside of that, within Downhole Technologies, obviously we sell products, perforating products and completion products, tools and toe valves into the U.S., and the demand has clearly picked up there as well. So I'd say demand's rising modestly. It's, you know, U.S. land is still 25% of our overall revenues, consolidated revenues, so it's still very important to us. We do see growth in the business. We see growth in the U.S., certainly at these prices, as the U.S. continues to increase production, not only traditional oil, but natural gas with expectations of LNG exports to start increasing pretty significantly starting next year.

Understood. Thanks. I'll turn it back.

[Operator Instructions] I will now pass the call back to Lloyd for closing remarks.

Thanks, Trevor. Thank you again for joining us today and for the thoughtful questions. We appreciate the continued engagement and interest in our company. Looking ahead, we remain focused on the execution of our core strategy to drive consistent performance and maintain a disciplined approach to capital allocation. We believe these efforts strategically position Oil States well for the opportunities ahead.

Thanks again, and have a great rest of your day. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Oil States' First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Ellen Pennington, VP of HR. Ellen, please go ahead.

Thank you, Melissa. Good morning, and welcome to Oil States' First Quarter 2026 Earnings Conference Call. Our call today will be led by our President and CEO, Lloyd Hajdik; and Matt Autenrieth, Oil States' Executive Vice President and Chief Financial Officer.

Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2025 Form 10-K and Form 10-K/A, along with other recent SEC filings. This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available 2 hours after the completion of this call and will continue to be available for 12 months.

I will now turn the call over to Lloyd.

Thanks, Ellen. Good morning, and thank you for joining our conference call today, where we'll discuss our first quarter 2026 results and provide our thoughts on market trends in addition to discussing our company-specific strategy and outlook for 2026. During the first quarter, the global energy backdrop shifted meaningfully due to escalating geopolitical tensions in the Middle East, leading to severe restrictions imposed on maritime vessels transiting through the Strait of Hormuz. These events introduced near-term volatility in commodity markets, leading to elevated supply and logistics challenges and increased costs overall. Longer term, these geopolitical events reinforce the strategic importance of energy security, supply diversification, and long-term offshore and international development.

We saw commodity prices strengthen throughout the quarter, with crude oil prices increasing significantly late in the period, reflecting diminishing inventories and a growing supply risk premium. Our global customer base facing market uncertainty delayed existing projects and awards of new projects. During this volatile period, operators maintained capital discipline, prioritizing free cash flow generation and returns to shareholders over incremental activity. Given the recent drawdown in global inventories, the global oil and gas sector is poised for growth.

During the quarter, we generated revenues of $145 million and adjusted EBITDA of $17 million. The sequential decline was attributable to seasonal factors, timing of revenue recognition for our percentage of completion projects, certain Middle East-related delays, and continued softness in U.S. land markets. The current conflict in the Middle East, along with ongoing market uncertainty, contributed to contract award delays, reduced revenues, and increased costs. These disruptions have not changed our strategy or offshore and international growth thesis. The macro drivers actually serve to further strengthen our primary markets as the need increases for energy security, demand for offshore and deepwater developments, LNG, military, and highly engineered technologies. We believe operators stand poised to increase production in other lower-risk global offshore basins.

We strive to implement a consistent strategy. Approximately 72% of our first quarter revenues and 74% of our revenues generated over the last 12 months were derived from offshore and international projects. This is an increase from 66% in the first quarter of 2025 and up substantially from a few years ago. This strategic shift in business mix positions the company for sustained and durable higher-margin work. We remain focused on cost control, monetization of exited facilities and equipment, and supporting our customers' critical energy infrastructure programs, which play an increasingly important role in creating a more stable and affordable future energy supply.

Our Offshore Manufactured Products segment continued to lead the performance of our company, with revenues of $91 million and adjusted segment EBITDA of $19 million, with adjusted segment EBITDA margins of approximately 20%. Backlog remains near a decade-high level, at $430 million, supported by bookings of $84 million, yielding a quarterly book-to-bill ratio of 0.9x. Based on our order visibility, we reiterate our view that our full year book-to-bill ratio should be 1x or greater.

In our Completion and Production Services segment, our continued focus on high-grading technologies and service lines has again resulted in improved adjusted segment EBITDA margins year-over-year. In our Downhole Technologies segment, we remain focused on market introductions of our upgraded technology domestically, along with international expansion of our full product suite. We are also focused on improving profitability given impacts of higher raw materials and shipping costs. Despite the geopolitical headwinds encountered in certain international markets, revenues remained relatively flat sequentially. The duration of the Middle East conflict may influence the timing of future international expansion for the segment's products.

Reinforcing our technology leadership position, we are pleased to receive 2 2026 Spotlight on New Technology Awards from the SPE Offshore Technology Conference for our GeoLok geothermal wellhead and our managed pressure drilling, or MPD, Drill Ahead Tool. The GeoLok geothermal wellhead leverages field-proven oil and gas technology to solve the inherent challenges encountered in conventional high-temperature geothermal applications. The MPD Drill Ahead Tool complements the operational efficiency of our existing MPD system, saving drilling contractors additional time and money. Both technologies reinforce the strength of our engineering capabilities for developing critical applications to enable our customers to solve complex challenges. With our extensive portfolio of differentiated technologies and a globally diversified footprint across major offshore and international basins, we believe we are well positioned to support our customers' evolving needs.

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

Thank you, Lloyd, and good morning, everyone. During the first quarter, as Lloyd mentioned, we generated revenues of $145 million and adjusted EBITDA of $17 million. We reported net income of $1 million, or $0.02 per share, which included facility exit charges, an impairment on assets held for sale, and valuation allowances established on deferred tax assets. The noncash impairment on additional assets moved to assets held for sale, together with related exit costs, were recorded in our corporate call center. Excluding these charges, our adjusted net income totaled $5 million, or $0.09 per share.

Turning to segment performance. Our Offshore Manufactured Products segment generated revenues of $91 million and adjusted segment EBITDA of $19 million in the first quarter, resulting in an adjusted segment EBITDA margin of 20%. Our backlog totaled $430 million as of March 31, a small decrease from year-end, but an increase of $73 million, or 20%, from March 31, 2025. We achieved a 0.9x book-to-bill ratio in the quarter. Our backlog continues to reflect a diversified mix of offshore and international energy, as well as military programs. We believe current global events may encourage sustained energy infrastructure and military spending. Backlog strength and execution continue to support earnings visibility into the balance of 2026 and beyond.

Our Completion and Production Services segment delivered $21 million in revenues and adjusted segment EBITDA of $6 million in the first quarter, resulting in an adjusted segment EBITDA margin of 29%. In our Downhole Technologies segment, we generated revenues of $32 million with adjusted segment EBITDA of $1 million. Planned growth initiatives have been delayed due to the Middle East conflict, yet we are seeing signs of increased customer adoption of our upgraded and expanded product portfolio. Our first quarter cash flow performance was indicative of normal increases in working capital that we experienced early in the year, which included the investment of $13 million in working capital associated primarily with inventory purchases to support future backlog execution.

Investments in net CapEx totaled $3 million in the quarter. Free cash flow is expected to improve over the balance of 2026 as working capital normalizes through backlog conversion and assets held for sale are monetized. In January, we entered into an amended and restated 4-year cash flow-based credit agreement, which provides for borrowings of up to $75 million under a revolving credit facility and $50 million available under a multi-draw term loan facility, which replaced our asset-based lending credit agreement. We ended the quarter with $59 million of cash on hand. As of March 31, 2026, the company had no borrowings outstanding under the cash flow credit agreement and $13 million of outstanding letters of credit, leaving $112 million available to be drawn. We retired the remaining $53 million principal amount of our convertible senior notes on April 1 with a combination of $25 million of cash on hand, borrowings of $25 million under the revolving credit facility, and the issuance of 529,000 shares of our common stock. We expect our strong balance sheet, ample liquidity, and strong free cash flows to provide us with enhanced strategic flexibility to continue to invest in organic growth, R&D, and to opportunistically repurchase additional common stock.

Now, Lloyd will offer some market outlook and concluding comments.

Thanks, Matt. As we look ahead, the broader energy landscape continues to evolve in ways that we believe are increasingly aligned with Oil States' strategic positioning. Global markets are being shaped by a combination of supply risk, energy security priorities, and the need for long-cycle, reliable sources of hydrocarbon production. While near-term activity levels, particularly in U.S. land, are still expected to be restrained, we are seeing growing evidence that customers are considering expansions to existing plans. Together, these factors should drive an increased focus on offshore and international developments, subsea infrastructure, military products, and other high-specification engineered solutions, all areas where Oil States has built deep expertise and a strong competitive position.

Our strategy remains consistent. We're focused on partnering closely with our customers to understand their evolving needs and to deliver engineered products, services, and technologies that solve complex challenges and enable access to reliable sources of energy. We believe differentiation comes from the combination of our technical capabilities, our operational experience, the longevity of our products in the market, and our ability to collaborate with customers to develop practical, high-performance solutions. Across our portfolio, we are continuing to invest in technologies and capabilities that enhance performance, improve efficiency, and support the safe and reliable delivery of energy in increasingly complex environments.

As we continue to consistently implement this strategy, we will remain disciplined in how we operate the business, maintaining a focus on margin performance, cash flow generation, and prudent capital allocation. Our second quarter guidance calls for revenues in the range of $157 million to $162 million and EBITDA of $18 million to $20 million. Given limited visibility as to the duration and magnitude of the current conflict in the Middle East, we do not have sufficient insight into the demand environment to adjust our full year guidance. We believe that an expedient resolution to the conflict could still support our guidance. However, a longer drawn-out conflict puts that at risk.

We see meaningful opportunities to further expand our presence in offshore and international markets, deepen our customer partnerships, and continue to evolve our portfolio toward higher-value, technology-driven solutions. In summary, Oil States today is a more focused, more resilient, and more cash-generative company with a clear strategy, a strong balance sheet, and increasing exposure to the long-cycle markets that are expected to drive the next phase of industry growth.

That concludes our prepared remarks. Melissa, please open the call for questions.

[Operator Instructions] The first question comes from the line of Jawad Bhuiyan with Stifel.

I'm on for Stephen Gengaro. I guess to start off, can you talk a little bit about what you're seeing in the offshore markets in terms of order flow? And I guess more particularly when you look at the growth in offshore activity, are there any markets where you have greater exposure to than others? Or is that, I guess, pretty level on a global scale?

Yes. No, great question, and good morning. The markets that we participate in are global in scope and scale. So we have, within our Offshore Manufactured Products segment, manufacturing really across the globe. The markets that we're seeing an uptick in activity, no surprise, the Latin American markets, Guyana, Brazil, Suriname, et cetera. But we are starting to see more activity starting to pick up in markets such as West Africa, Southeast Asia, even some activity in the North Sea, as well as some level of activity in the Gulf of America.

And maybe just a little bit more on the Iran war and, I guess, the broader Middle East conflicts. I guess, do you guys think that, that will lead to a material rise in U.S. land activity? Or do you think E&P operators and their capital discipline is too strong? And maybe some commentary on pricing within the U.S. land. Do you think that pricing would probably increase or rise in the near term? Just any commentary on that would be really helpful.

Yes, I do. In my earlier comments, I certainly believe that we're going to see some increased activity in U.S. land. Some of the anecdotes we're starting to see is that the private operators are increasing activity. They'll start -- they'll lead it and then the public E&Ps come behind that. For us, U.S. land has been lesser levels of activity or revenue base. Again, about 75% of our revenues are now generated from markets outside U.S. land, international, and offshore. So U.S. land uplift is really incremental upside for us because our strategy is primarily anchored in the offshore and international markets. But we do believe U.S. land is poised for increase and for pricing. The services that we still provide in the U.S. are in our Completion and Production Services business, our frac work and also our extended reach technology through our Tempress business. Within Downhole Technologies, we do supply frac plugs and perforating into that market as well, and we are expecting to see -- and are seeing -- increased levels of activity.

The next question comes from the line of John Daniel with Daniel Energy Partners.

Just one this morning. Let's assume the business clicks in the second half and the growth cycle really shapes up for next year, can you speak to what you all might need to do to be ready for such an upwards pivot? That is speak to what the labor issues, constraints, [indiscernible] facilities, supply chain, just it all looks really good. What's the playbook?

Yes. Thanks, John. Good morning. So from a -- I'll say, from a manufacturing roofline perspective, we have plenty of manufacturing capacity today. Just as a frame of reference, we opened a new facility in the Heartlands in the U.K. about 10 years ago. So it's a special purpose-built facility that has plenty of engineering and manufacturing capability. We just completed our new manufacturing facility in Asia, in Batam, Indonesia, after exiting Singapore. In terms of the labor side, it's adding shifts where we need to, but we have plenty of capacity in terms of roofline and likely the ability to increase the throughput and absorption with the existing labor base.

[Operator Instructions] The next question comes from the line of Connor Jensen with Raymond James.

I was just wondering what the confidence level is for revenue conversion for the recent backlog and if you think that will hit in the second half of 2026, specifically in Offshore Manufactured Products with the increased macro uncertainty.

Yes. Thanks, Connor. Good morning. Historically, the conversion to revenue in the backlog within the Offshore Manufactured Product segment has generally been about 70%. Now we did book these military products orders that we talked about on our fourth quarter call, both in the third quarter and in the fourth quarter. And those are longer durations, so timing can extend over a longer period with those -- that particular contracts about 5 years. So again, historically, we've converted about 60% to 70%. I think with these longer-duration military products contracts, that gets elongated somewhat. So I would say it's probably 50% to 60% backlogs converts over the forward 12 months. I have no concerns about the overall conversion and the quality of backlog. Again, we've historically had virtually no cancellations. And I think more importantly is we reiterate our view on the backlog book-to-bill ratio for 2026 at 1x or greater. And I will point out over the last 5 years, going back to even to 2021 and each year thereafter, that we have achieved a 1x book-to-bill or better on higher and increasing levels of revenue. So we're very confident in our backlog conversion.

I was going to ask about the military, but you already answered it. So it's all for me.

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Lloyd for closing remarks.

Thanks, Melissa, and thank you all for your time today and for the thoughtful questions. We do remain focused on consistently implementing our strategy, partnering with our customers to address technical challenges in complex energy environments, strengthening our portfolio, and maintaining a disciplined approach to capital allocation. Before we conclude, I want to recognize Cindy Taylor regarding her illustrious career with Oil States these past 25 years, the last 19 of which as our CEO. Cindy's leadership, integrity, and steady hand have had a profound impact on Oil States, positioning our company for long-term success, but her influence extends well beyond our organization. Through her thoughtful leadership and deep industry engagement, Cindy has been a highly respected voice across the energy industry, and we are grateful for the lasting contributions she's made to our company and to the industry as a whole. Thanks again, everyone, for joining us today, and have a great week.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time, I would like to welcome you to the Oil States International Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I'll now turn the call over to Ellen Pennington, Vice President of Human Resources and Senior Counsel. You may begin.

Thank you, Colby. Good morning, and welcome to Oil States' Fourth Quarter 2025 Earnings Conference Call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer.

Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protection supported by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2024 Form 10-K, along with other recent SEC filings.

This call is being webcast and can be accessed at the Oil States' website. A replay of the conference call will be available 2 hours after the completion of this call and will continue to be available for 12 months.

I will now turn the call over to Cindy.

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our fourth quarter 2025 results and provide our thoughts on market trends in addition to discussing our company-specific strategy and outlook for 2026.

We are pleased to report strong fourth quarter results with adjusted EBITDA exceeding our guidance and quarterly cash flows from operations at historically high levels. We generated $50 million of cash flows from operations, which was used to retire an equivalent amount of our outstanding convertible senior notes. Following the repayment, our cash on hand exceeded outstanding debt by $15 million at year-end.

We continue to progress our multiyear strategy to optimize Oil States' business mix in favor of operations focused in the offshore and international markets. Our consolidated fourth quarter results were driven by backlog conversion, disciplined execution and improved margins in our Completion and Production Services and Downhole Technologies segments as both segments are showing positive trends following restructuring.

Fourth quarter consolidated revenues increased 8% both sequentially and year-over-year, with revenue growth tempered by our strategic decisions to exit certain underperforming U.S. land-based operations. These actions have resulted in a shift in our business mix with 77% of our revenues generated from offshore and international markets in the current quarter compared to 72% in the prior year period. Going forward, our sharpened focus on more differentiated product and service lines should provide sustained incremental margins and cash flows to support returns to our stockholders.

Our Offshore Manufactured Products segment delivered another standout quarter with revenues and adjusted segment EBITDA increasing 13% and 12% sequentially. Backlog continued to increase, totaling $435 million [indiscernible] level since March 2015, supported by bookings of $160 million, yielding a quarterly book-to-bill ratio of 1.3x. Importantly, backlog growth included a diversified mix of offshore energy, international projects and military product awards. In contrast, U.S. land activity remained at subdued levels during the fourth quarter.

In our Completion and Production Services segment, our recent focus on high-grading technologies and service lines, has translated into improved adjusted EBITDA margins and cash flow.

In our Downhole Technologies segment, we are focused on market introductions of our revamped technology domestically, along with international expansion of our full product suite. Despite it being early days into these strategies, we realized improved contributions from our perforating and completion products during the quarter.

During 2025, Oil States secured multiple new contracts and successfully deployed advanced offshore technologies that reinforce our leadership in high specification offshore and international markets. Continued adoption of our managed pressure drilling systems and the first successful deployment of our low-impact workover package demonstrated meaningful operational improvements for our customers including reduced nonproductive time, enhanced safety and improve project efficiency.

In addition, following quarter end, Oil States' Merlin Deepsea Mineral Riser Systems achieved a record deployment in water depth of over 18,000 feet or 3.5 miles below the surface of the water, underscoring our differentiated engineering capabilities and strong positioning in emerging ultra deepwater and offshore resource applications.

With our extensive portfolio of differentiated technologies, expanding margins and strong cash generation, we believe we are well positioned to support disciplined capital allocation and to continue returning capital to stockholders. These attributes taken together reflect a company that is more focused, more resilient and better positioned to generate sustainable returns across industry cycles.

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

Thanks, Cindy, and good morning, everyone. During the fourth quarter, we generated revenues of $178 million, up 8% sequentially from the third quarter and adjusted consolidated EBITDA of $23 million representing a 9% sequential increase and at the top of the guided consolidated EBITDA range that we provided on our third quarter 2025 earnings call.

We reported a net loss of $117 million or $2.04 per share, which included long-lived asset impairments, restructuring charges and valuation allowances established on U.S. deferred tax assets. Noncash impairments of our long-lived assets and inventory were recorded in our Downhole Technologies segment, principally related to intangible assets recorded at the date of acquisition in 2018. Our adjusted net income totaled $8 million or $0.13 per share after excluding these charges.

For the full year, we generated adjusted consolidated EBITDA of $83 million, adjusted net income of $22 million and adjusted EPS of $0.37 per share.

Cash flow performance was a clear highlight during the fourth quarter and the full year, reflecting solid underlying operational performance of the company. During the quarter, we generated $50 million of cash flow from operations, up 63% sequentially. Investments in CapEx totaled $3 million in the fourth quarter, offset by $6 million in proceeds from asset sales.

For the full year, cash flow from operations totaled $105 million and free cash flow totaled $94 million, representing increases of 129% and 92%, respectively, year-over-year and exceeding the full year cash flow guidance we provided last quarter. We ended 2025 with cash on hand, exceeding our total debt by $15 million.

Turning to segment performance. Our Offshore Manufactured Products segment generated revenues of $123 million and adjusted segment EBITDA of $25 million in the fourth quarter resulting in an adjusted segment EBITDA margin of 20%. Our backlog totaled $435 million as of December 31. We achieved a 1.3x book-to-bill ratio in the fourth quarter and for the full year. Our backlog continues to reflect a diversified mix of offshore energy, international and military programs. Backlog strength and execution continue to support earnings visibility into 2026 and beyond, a significant portion of our backlog expected to convert to revenues within the year.

Our Completion and Production Services segment delivered $23 million in revenues and adjusted segment EBITDA of $7 million in the fourth quarter with adjusted segment EBITDA margins expanding to 32% from 29% in the third quarter, reflecting benefits of the restructuring actions taken in 2025. During the quarter, the segment recorded facility exit and other restructuring charges totaling $5 million. These quarterly charges will reduce in 2026 once the underlying equipment and facilities are sold.

In our Downhole Technologies segment, we generated revenues of $32 million, up 11% sequentially and grew adjusted segment EBITDA to $1.3 million. During the fourth quarter, the Downhole Technologies segment recorded noncash long-lived asset and inventory impairment charges totaling $112 million. Older product technology is being abandoned in favor of our revamped products. Intangible assets established at the acquisition date in 2018 have been written down to reflect current estimates of fair market values.

In January, we entered into a full year cash flow-based credit agreement, which provides for borrowings of up to $75 million under a revolving credit facility and $50 million available under a multi-draw term loan facility, which replaced our asset-based lending credit agreement. We had $53 million in principal amount of our convertible senior notes outstanding at December 31 and cash on hand of $70 million. We intend to use U.S. cash on hand and borrowings under our new credit agreement to retire these notes on or before their maturity on April 1, 2026.

In addition to purchasing $71 million in principal amount of our convertible senior notes in 2025, we also repurchased a total of $17 million of our common stock, representing about 5% of shares outstanding as of January 1, 2025. We will remain opportunistic with additional purchases of our common stock as we continue to prioritize returns to shareholders.

Now Cindy will offer some market outlook and concluding comments.

Thank you, Lloyd. Before looking ahead, I want to briefly reflect on what we delivered in 2025. Over the year, we executed according to our strategic priorities by expanding our offshore and international exposure, growing backlog to a decade high level, strengthening margins and generating substantial free cash flow while deleveraging the balance sheet. Our results and accomplishments reflect disciplined execution across the organization with meaningful progress in repositioning Oil States for more durable performance across industry cycles.

As we look ahead into 2026, we believe we are well positioned to build on that progress. Our Offshore Manufactured Products segment backlog continues to grow and our business mix is increasingly weighted towards offshore and international markets with longer cycle visibility, stronger margins and more favorable cash flow characteristics. Our balance sheet strength provides additional flexibility, allowing for prudent capital allocation. While U.S. land activity is expected to remain relatively subdued, we believe the actions we have taken over the last couple of years, including high-grading our portfolio, sharpening our technology focus and maintaining disciplined execution have provided a more resilient operating model.

Now let's discuss guidance for the full year 2026 and the first quarter individually. We expect 2026 full year revenues to range between $680 million and $700 million, and full year EBITDA to range between $90 million and $95 million, both metrics up meaningfully year-over-year. As a reminder, our first quarter is historically our weakest quarter in terms of revenue, EBITDA and cash flows due to the timing of order releases, material deliveries and working capital uses. Our first quarter guidance called for revenues in a range of $150 million to $155 million, and EBITDA of $18 million to $19 million.

Cash flows from operations are expected to remain strong in 2026 in a range of $60 million to $65 million, down from 2025 due to expected working capital build. Investments in CapEx of $20 million to $25 million are planned for 2026.

Across the business, our priorities remain consistent, advancing differentiated technologies and services aligned with customer needs, driving margin durability, generating free cash flow and delivering long-term stockholder value creation. We entered 2026 as a more focused, financially flexible and cash-generating company, which is being recognized by investors, leading to stock price appreciation as the market has begun to understand and embrace our strategic initiatives. With a strong balance sheet, expanded margins and a growing offshore and international footprint, we are confident in our ability to continue the momentum achieved in 2025.

That concludes our prepared remarks, Colby. Please open the call up for questions.

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

So two for me. One, I think, is probably pretty straightforward. On the Completion and Production side, has the restructuring or at least -- that's the wrong word, but the exiting of underperforming businesses. Is that completely reflected in kind of the 4Q revenue run rate levels?

I think the answer to that is yes. I'm going to let Lloyd kind of do a little back of the envelope for me as we talk about that. Just to make a comment. We have reported and you have seen fairly significant EBITDA add backs throughout the year on a quarterly basis. And just think of that as runoff of operations, closing of facilities, severance costs, et cetera, as you exit facilities.

And so one of the key things I'm focused on is mitigating that and reducing that as we go forward. Those adjustments will continue probably through the first half that would be much lower than what you have seen. And two comments there, you'll see probably an increase overall in assets held for sale. That's clear messaging that those facilities have now been exited, the workforce, the machinery, the equipment, the inventory has been relocated and those are being prepped for sale and disposition. But as you know, there's going to be ongoing property taxes, insurance, utilities until we monetize those.

And so on the balance sheet, I think it separates assets held for sale, which approximate $17 million. And then there's still a handful of operating facilities yet to be fully exited. Just know there's a lot of inventory and equipment yet to be monetized. But we are in process. And again, that will be much less significant than what we have seen in the past.

And importantly, Stephen, if you look at our year-over-year EBITDA margins, you should notice material improvement as we have progressed, you have to look at adjusted EBITDA, obviously, because we've had the drag of exiting these -- but I believe, Lloyd, what were our EBITDA margins in Q4?

32%.

32%. And again, much more indicative of the go-forward level of activity that we have. And I'll also point out what -- generally, what we have left is our extended reach technology, which is very differentiated in the marketplace. And that is largely, of course, a land-based operations, not only in the United States but also in Canada supporting operations there, our Gulf of Mexico operations, which is wireline and production services, support activity and then our international equipment as well, largely dedicated to the Middle East, and we do have residual operations in the Bakken area that is a bit more -- a bit less competitive, I will call it.

And so that is our focus going forward. And again, revenues will be down, but you've already seen that margins go up, indicating the very marginal nature that we were getting from both previously in 2023, '24 flowback operations in some of our frac and isolation assets that we felt compelled to exit. And the good thing is you're not only reducing some of the low margin or no margin activity, you're going to mitigate CapEx, achieve higher margins and free cash flow in the process. So I'll let Lloyd add anything to that.

Yes. Thanks, Cindy. So Stephen, your question. So in the fourth quarter, there's about $1 million of revenues from the exited operations. And just as a frame of reference, for the full year 2025, the $669 million of consolidated revenues, about $21 million were derived from those exited operations.

Great. That helps. And then you created more questions in my mind, Cindy, but I'll ask 1 and then get back in line. When we think about the backlog levels in the Offshore and Manufactured Products business. Obviously, you had great order flow, overhead absorption should clearly help. Is the embedded margin profile materially better right now than it was exiting the year -- 12 months ago?

I just look at -- we've had -- if you look through our decades of history in that business, we have consistent, I would call it, overall margin improvement. But as you know, there's a lot of things that go into that. One is the mix that you have across your global operations. Again, we're not a single product-focused company. Some enjoy higher margins than others depending upon the competitive landscape and the proprietary nature of the equipment. The second one, of course, is absorption and utilization of our various facilities around the world.

Now those -- that being said, we are targeting fairly consistent margins on a blended basis for 2026, but on strong revenues at the end of the day. And so mix could alter that to the benefit, as an example, absorption could create some upside there as well. And we have taken initiatives to -- for the long term to improve our overall margin performance, particularly with the new facility that we now have up and running in [ Baton, ] Indonesia that has -- got kicked off last year, but certainly, it's not yet at the revenue run rate that we think it's capable of.

And then in addition to that, we are evaluating bringing in a broader range of products being manufactured out of that facility. And again, it's hard to say that there's no such thing as just next quarter it's going to be up to the right. But these are all embedded strategies that over the course of time, we'll elevate that overall. And I think most importantly, as you point out, it's a backlog-driven business. And despite growing revenues, we had a book-to-bill in 2025 of 1.3x that we're very proud of. And our indications and our outlook are that we will exceed a onetime book-to-bill again in 2026.

And so again, I think the trends are there, but this business is not the cyclical up and down that you see in North American-based businesses. But I think if you look at our performance over a continuum of 5 to 10 years, you're going to say it's been rather impressive.

Yes. We've had a book-to-bill in excess of 1 for the past 5 years on a year-by-year basis.

Okay. Great. And just one quick one and I'll get back. The C&P margins in the quarter, is there anything funky in that 32% that we should be thinking about? I know you have seasonality in the first quarter, but that's a fairly healthy number and a fairly good number to kind of base forward assumptions off of?

I think it is in reality. Now we may have had a one-off facility or equipment sale gains. Honestly, I don't remember in that level of detail quarter-by-quarter. There have been some facility sale gains of some consequence every quarter as we've exited all of this. But we are comfortable with EBITDA margins for that business and kind of the 30% to, I don't know, 33%, 34% range.

Your next question comes from the line of Jim Rollyson with Raymond James.

Great job on the way you finished out the year for sure. Curious just to circle back to your answer on Stephen's question. He was talking about backlog margins. And obviously, in part of that answer, you talked about just book-to-bill being north of 1x 5 years in a row.

And it's interesting because offshore spend kind of took a little bit of a dip as we kind of went through the last 18 months or so, and yet you guys have continued to crank out well above 1x type of order flow. And as we maybe pulse back up in offshore, at least that's the expectation as we go into late '26, '27, '28, I'm just curious, you go back look at historical levels, you're at 10-year highs, but you've been higher. I'm curious if the revamp of spend offshore over the next couple of years or so, continues to drive well north of 1x backlog to where 2, 3 years out, you're back to the old highest from several years ago.

I was kind of curious how things are shaping up with the macros trending, the spend levels trending, your product line is trending. Like are we just going to keep going up into the right for the next couple of few years?

Well, all I can say is I certainly hope so. But no, I want to drill down and give you a little more color on that answer. And I would say, first of all, it seems like our -- I can't even remember the last peak backlog is probably 2014 at the peak market time frame, so well over a decade ago.

$600 million.

And I would go and say, number one, we have the same global footprint that we had been. Two, we actually have added two very new enhanced facilities, one being in our U.K. operations. It's near Edinburgh and two, our new [indiscernible] facility. And so one could say that from a facility and manufacturing footprint perspective, we're actually more capable than we were a decade ago. Limitations could be some amount of labor, but typically, we've been able to flex over time. It all depends on timing and magnitude of the ramp that we are hypothetically talking about.

But I want to point out, 2025, it's easy to say, "Well, how did you do the 1.3 book-to-bill in what was not a heroic spending environment." I think that's your question. And I want to remind everybody, we have brought new products to market and in particular, our MPD assets that didn't exist a decade ago. and we are continually trying to enhance the offering we provide to our customers globally.

That being one, and I point on to the MPD, I could also point to our mineral riser system. This is a completely new operation that didn't exist 10 years ago, dedicated to trying to find these rare earth metals and minerals to support electrification basically at the end of the day. And so those things are additive, and they both could absolutely grow as we progress into the next 5 to 10 years.

We have invested in things that have no revenue yet or not substantial revenue, including our offshore wind platform. We are doing a lot of bidding and quoting, and we don't have any anticipation in our '26 results that we would have revenue at this point in time. So it creates some long term, I will call it, upside potential for the business.

I may -- Lloyd reminded me, we -- just with increased defense spending, as you know, Jim, we oftentimes had a military revenue stream. It's generally been in the range of kind of 10% of the segment, O&P segment revenues, and we got a healthy amount of military awards this year, particularly late in the year that was non-oil and gas spending related. So again, I've kind of spoken to the broad base of the product line and the exposures that we have. I think our facilities are in good place. And importantly, we just recently, we're seeing some larger bid opportunities come in that in the past, you might say, well, what's the CapEx required, what's the working capital investment that you have to make. But having the strength of our balance sheet as we move into the next decade is also, I think, going to prove beneficial to us.

Appreciate all that color. And that actually brings up my follow-up question, which is on the balance sheet and cash flow. So you're in a position now you have more cash than you have debt with that coming due April 1. You'll be in -- basically close to debt free, certainly net debt free here soon. And if I did my math right, Lloyd, you're kind of zeroing in around $40 million of free cash flow, and I presume that's before asset sales because, Cindy, you talked about the assets held for sale growing to $17 million. So you could very well be depending on the timing of that, somewhere in the $50-plus million free cash flow range.

I'm curious, as you just get passed the debt repayment on the convert, do you deploy the majority of your free cash flow back to shareholders and share repurchases? Or do you go on offense at all just now that you're in it's much better shape than you were 2 or 3 years ago. Just curious kind of how you think about the balance sheet and the ability to use that.

Yes. Thanks, Jim. And your math is correct. About the $40 million is free cash flow, excluding potential proceeds from asset sales could boost that. And in terms of deploying the free cash flow, share repurchases, we've been very public. We had $17 million last year. After we pay the debt off, we should be opportunistic in buying back more shares and obviously have more optionality to look at M&A as a result.

I'll tag into Lloyd's comment. I mean as you get more globally diversified, we're going to look to -- look, comparable companies would be on our target list more so than anything that's obviously kind of land-based U.S. because that's the pivot we've made. We've made some good, very good small tuck-ins there, but they are kind of viewing far between.

So I think in the near term, you're going to see us focused on shareholder returns via share repurchases, but no, and you know us, we're continually looking for good tuck-ins across the globe that fit our product suite and our capabilities, and that won't stop, obviously. But it is nice to have a currency that is not a deterrent to getting things done.

Correct.

Yes, absolutely. And then just 1 last thing, just for a little color, just we don't often talk about military products because that's not your core focus, but it's clearly been a beneficiary to your bookings and even your free cash flow, thanks to timely government payments. With an administration that's seemingly willing to spend more money on the defense side, maybe just a reminder of kind of what you provide there and maybe how you think about the outlook given the strong back half of '25 as we go into '26 and '27.

Well, these are legacy products that we supplied to the military for as long as I've been here quite frankly. But it's an adaptation, honestly, of some of our FlexJoint technology that these are used in sound and vibration dampening applications on submarines. So it's exposed to the Navy, obviously.

And again, there's -- we -- I'm always like, how do I grow this base even more. And the Navy has been very good about doing R&D and engaging with us on R&D on different technologies. And so we do hope to work together to expand that product offering, but I think the main thing is this is what I will call a legacy product we've had for many years. There is ebbs and flows depending upon the defense spending and the investments made by the U.S. government, but we also have some small orders that we are beginning to get from the Australian dividend sector.

And so hopefully, ways to grow that even further. But it's a good little base of business for us that -- and working for the government requires really, really high standards. So I think that's a testament to the strength of our quality processes and our manufacturing overall.

Your next question comes from the line of Josh [indiscernible] with Daniel Energy Partners.

First one, Cindy, maybe you could just give us a walk through the offshore world geographically, where you see the most opportunities and how you're positioning yourself for continued growth given that backdrop and maybe even highlighting some of the facilities that you've mentioned and how increasing utilization there could ultimately play into growing your market share moving forward? That's my first question.

Yes. Well, the great thing we do have a global base of operations. And the first thing I'd say is it's not going to shock you at all and saying that Brazil has been and will continue to be a very strong base. And Petrobras is the larger kind of deepwater player and investor in the world right now. We've got a great base there, good strong leadership in country, and we've been there for over 20 years. So it's not like a new market entrant that experiences the [indiscernible] of working internationally. And so we feel very good about that. And we're really trying to expand all of our capabilities and bring all of our total company products and services into that market.

Again, I won't shock you that Guyana is another strong base of operations when I look to the south. Southeast Asia has been a legacy foothold for us for decades from Singapore and now more manufacturing in [ Batam, ] Indonesia, but that you also pick up Australia with that kind of presence, I will call it, emerging activity, not really emerging, probably recovering activity beginning in West Africa. I'm trying to think of any real basin that is not showing more activity. I would say most of our Middle Eastern activity right now is on land, really not offshore. Anything else I missed there?

Actually for Southeast Asia for [indiscernible] product side.

Yes. Yes, Southeast Asia, again, and that's not just O&P. We're trying to do the best that we can. And Middle East, as an example, and introduce our frac equipment into the market, our [indiscernible] into the market and perforating across the world, there's been a dual strategy on recovering the perforating market. One is an improved product offering that we can offer to the domestic market, and I will check the box. It's kind of been hard to get into the market given the weakness we've seen on land U.S. over the last 2 years. But the technology is there. And so thankfully, we're positioning well going forward, and then international expansion has been the second tier of that.

And I'd say right now, there's various target markets internationally, but the lead for our perforating equipment is going to be Middle East and likely both Brazil and Southeast Asia, but that will evolve over a few years. It won't happen immediately. But we're going to -- we're optimistic to show improvement there in that perforating business as well. But just think of us as doing the best that we can to expand the full breadth of our product and service offering on a global basis through the installed base that we have in the market.

That's helpful. And as my follow-up, just I want to follow up on one of the questions about the 2015 backlog. So maybe offer your thoughts on where you believe we stand in the offshore cycle for your business because we've obviously had some white space over the last couple of years. But do you think where you sit today is more a reflection of the lull of activity in the last 18 to 24 months and some catch-up there? Or do you believe we are sort of in the early stages of 5-, 7-, 10-year offshore cycle just with where capital is moving? Because I also see -- and you mentioned it in your -- in one of the answers when you have riser systems, MPD, military, that also wasn't in your backlog back then. So it seems like you do have a lot of room to grow run just in that business from where we were previously.

Yes. No. I mean, I think to be in this business, you have to believe in the macro, i.e., the long-term demand for crude oil and natural gas, which I do, always have. Again, the U.S. land inflects quicker, up and down. And so the reduced activity you've seen to date is simply because crude prices have dipped close to or below $60 a barrel. And so that has put a dampening effect on international and deepwater activity, too. And I think that's where the "white space" has come in. I think the different recognition though is that we are clearly underinvesting for the long term, if you believe in the ultimate demand for crude oil, and I think everybody recognizes that.

And the second thing I'll tell you, there's just such a long lead time when you talk about particularly deepwater and international activity that I think there's a recognition, we've got to get going. And a lot of it's very public to follow the offshore rig companies. And you see white space on the drilling cycle, you take that as an indication of weaker activity. We're beginning to see those white spaces' gaps be filled in. And so rig equipment will tend to lead the recovery, and that can be riser systems, MPD systems for us, the things that we offer as well as kind of the upgrade and service cycle around that equipment, but it all feeds deepwater infrastructure, which, again, that's kind of a bread and butter for us, that plays into our more proprietary products.

And so it's kind of a long-winded way of answering a question that I believe we've underinvested. We're going to have to commit capital. And then you're going to argue where does it come from? The last 20 years, all of the increased production has come from U.S. shale efficiency or I can't say all, but I bet 90% has been. And there is the perception that those incremental -- that incremental growth is waning. And therefore, you've got to look at other basins around the world to provide the supplies. And I think that plays into our manufacturing capabilities and the equipment that we offer over the long term.

And then I'll just squeeze 1 more in, if I may, just because the news is out this morning. It sounds as though the Supreme Court struck down Trump's sweeping tariffs. And so there could be -- I mean, I guess, there are a lot of things up there, but there could be an impact reversing the tariffs coming in 2026 or 2027. Could you just remind us what your impact was? And then that will be my final question.

Yes. I would just say that so much of what we do in the Offshore Manufactured Products segment is destined for international locations that we benefit from temporary import bonds. I'll just say it's incredibly difficult to claim those. But generally, O&P hasn't suffered too much in the way of tariffs, the one that it hit us front and center and particularly midyear, 2025 was on perforating because we and everybody else source, done still, out of China. We do bring it in the U.S. The value add from the machining and finishing is done here in the U.S., much more difficult to one, identify whether those guns are going domestically or internationally, how much of that gun body would be subject to tariffs.

And so we really got hit pretty hard on our cost of goods sold because of orders in place that all of a sudden, the tariff rate went from 25% to 98% about mid-year. And so part of our improvement in kind of our perforating operation was delayed because of tariffs.

So I'll just call it welcome news that the go forward might be a more predictable cost structure going forward. And again, with weaker market in the U.S. and a lot of competition that came into the market, it was very hard to pass those costs on to our customers. So again, more stability in our supply chain and lower tariff costs would be favorable, but it would really be reflected predominantly in our perforating side of our business.

Your next question comes from the line of Stephen Gengaro with Stifel.

Just I know this came up a little bit earlier, Cindy. When we think about potential additions to your portfolio. Is there any geographic region we should be thinking about? Would it have to be offshore or international? Or would you do something on U.S. land that made sense -- and I'm not sure it's common product lines, but how should we think about it?

Well, what we're looking for is just differentiated -- technology differentiated opportunities, whether that's an organic investment or through M&A. And you and I have been doing this a long time. It's real hard for me to think of the things that are truly differentiated on land that can't be replicated in short order. And it's always been a challenge for us because we do all the diligence, all the upfront R&D work, patent the technology, and then it is amazing how quickly company come in. And then you like -- do I sue them, it's going to cost me probably $5 million to $10 million to do so. It's just a tough business to have long-standing differentiated technology. And so I'm not saying no. I'm saying it'd be very selective.

And with no further questions in queue, I'd like to turn the conference back over to Cindy Taylor for closing remarks.

Thank you all for your time today and for all the thoughtful questions. We remain focused on executing our strategy, strengthening our portfolio and maintaining discipline around future capital allocations. We look forward to catching up with all of you as the year progresses. And I'll just offer thanks again for joining us today.

This concludes today's conference call. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Oil States Third Quarter 2025 Earnings Call. [Operator Instructions]

I'd now like to turn the call over to Ellen Pennington, Vice President of Human Resources and Senior Counsel. Please go ahead.

Thank you Jordan. Good morning, and welcome to Oil States' Third Quarter 2025 Earnings Conference Call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer.

Before we begin, we would like to list -- like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond.

Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2024 Form 10-K, along with other recent SEC filings. This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available 2 hours after the completion of this call and will continue to be available for 12 months.

I will now turn the call over to Cindy.

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our third quarter 2025 results and provide our thoughts on market trends in addition to discussing our company-specific strategy and outlook.

In a quarter marked by lower crude oil prices, uncertainty about the oil macro and fluctuating U.S. trade policies U.S. shale-driven activity slowed further, while offshore and international markets demonstrated resilience, benefiting from long-cycle project investments. With this backdrop, the company performed well, finishing the quarter within our guided EBITDA range but with weaker contributions from our U.S. operations due to completion activity declines experienced during the quarter. Our consolidated results in the third quarter were driven by backlog growth achieved over recent quarters, along with solid execution of existing projects. Oil States remains well positioned to benefit going forward as oil and gas operators favor capital allocation to offshore projects with higher production, slower decline curves and lower breakeven commodity prices. During the third quarter, 75% of our consolidated revenues were generated from offshore and international projects, a percentage that is up both sequentially and year-over-year. This continued shift in revenue mix reflects our multiyear strategy to grow our offshore and international project-driven content, which generally comprises longer cycle, higher-margin work.

Our offshore manufactured products segment continued to deliver strong performance. Revenues increased 2% sequentially, while adjusted segment EBITDA rose 6% due to product and service mix. Backlog increased to $399 million, again, allowing us to achieve our price level since June 2015. Robust bookings of $145 million, which represents a 29% quarter-over-quarter increase was boosted by strong military orders, yielding a quarterly book-to-bill ratio of 1.3x. The strength and diversity of our backlog supports our outlook for total company incremental revenue and earnings growth as we move into 2026. U.S. land completion activity declined significantly during the period, with the average U.S. frac spread count down 11% sequentially. These U.S. activity reductions stem from weaker crude oil prices and OPEC+'s decision to rapidly unwind over 2 million barrels per day of previous production cuts.

Our Completion and Production Services and Downhole Technologies segment, which represent a smaller portion of our business mix, experienced sequential quarter revenue declines of 6% and 1%, respectively, primarily due to the significant industry-wide reduction in U.S. land-based activity. Sustained margin benefits stemming from our U.S. land-based optimization efforts, which were initiated in 2024 and have continued in 2025, have led to year-over-year EBITDA growth in our Completion and Production Services segment despite weaker industry activity levels. During the third quarter, we grew our cash flow from operations to $31 million, an increase of 105% sequentially, and we generated $23 million of free cash flow. Our ongoing deleveraging efforts should unlock additional equity value for our stockholders as we pay off our convertible senior notes at their maturity in April of 2026. We are committed to optimizing our operations and making targeted investments in our highest-performing businesses while leveraging cutting-edge technologies to drive growth. Our industry-leading managed pressure drilling or MPD system exemplifies this commitment to improve operational safety and performance levels.

During the quarter, Oil States was honored with 2 Energy Workforce & Technology Council Safety Awards, including the President's Gold Award for health, safety and environment incident rate improvement during the 2023 to 2024 period, and the Failsafe Technology Award for advancing safer MPD operations in collaboration with Seadrill, a global leader in high-spec offshore drilling rigs. Along with our safety culture, we remain focused on 3 core priorities: growing our offshore and international presence, managing volatility inherent in U.S. land activity and driving meaningful cash flow generation.

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

Thanks, Cindy. Good morning, everyone. During the third quarter, we generated revenues of $165 million and adjusted consolidated EBITDA of $21 million. Net income totaled $2 million or $0.03 per share which included facility exits, severance and other charges totaling $4 million, the majority of which related to our U.S. land restructuring efforts. Our adjusted net income totaled $5 million or $0.08 per share after excluding these charges.

Our Offshore/Manufacturers Products segment generated revenues of $109 million and adjusted segment EBITDA of $22 million in the third quarter. Adjusted segment EBITDA margin was 21% in the third quarter. In our Completion and Production Services segment, we generated revenues of $28 million and adjusted segment EBITDA of $8 million in the third quarter. We achieved an adjusted segment EBITDA margin of 29%. During the quarter, the segment recorded facility exit and other restructuring charges totaling $3 million. In our Downhole Technologies segment, we generated revenues of $29 million and an adjusted segment EBITDA loss of $1 million in the quarter due to the impact of higher costs due to tariffs and lower international activity levels.

Turning to cash flow. We generated $31 million of cash flow from operations in the third quarter, double the amount we generated in the second quarter. Our cash flows were used to fund $8 million of net CapEx. During the quarter, we repurchased $4 million of our common stock under our share repurchase authorization. In addition, we purchased $6 million of our convertible senior notes at a slight discount. Further, as a testament to our strong financial position, as of September 30, we maintained a solid cash-on-hand position with no borrowings outstanding under our asset-based revolving credit facility. Given our strong free cash flow outlook, we intend to remain opportunistic with additional purchases of our common stock and convertible senior notes, and we will continue to prioritize returns to stockholders.

Now Cindy will offer some market outlook and concluding comments.

Despite recent economic volatility and continued uncertainty around trade tariffs, we continue to see solid demand for our offshore and international products and services. Our backlog is at a decade high level, and we anticipate continued strength in future bookings with our fourth quarter book-to-bill ratio, again expected to exceed onetime. Industry analysts have suggested that while U.S. land-based activity may remain subdued into 2026, offshore and international markets are expected to improve. Analysts point to a growing global emphasis on exploration and offshore development as operators seek more cost-efficient lower carbon resources, which place oil states in the center of this secular growth opportunity, given our business mix and global base of operations.

Regarding our outlook, based on what we know today, our fourth quarter consolidated revenue should increase 8% to 13% sequentially, and our fourth quarter adjusted EBITDA is expected to range from $21 million to $22 million. Our cash flows from operations were very strong in the third quarter and are expected to improve in the fourth quarter bringing the annual amount to $100 million plus. Our business mix and capital allocation strategies are purpose-driven. We are investing in innovation that provides meaningful technology advancements to the industry, driving solid results through project execution, generating significant cash flows that strengthens our balance sheet while returning cash to our stockholders through share buybacks. The decisions we make are focused on building a stronger, more resilient company that drives meaningful results for those we serve.

Our business mix positions us strategically for market opportunities that develop. We have continued the journey to shift our business mix with a focus on generating differentiated cash flow conversion rates and an industry-leading free cash flow yield by advancing next-generation technologies, building backlog with strong margins, executing with discipline, reducing debt, and returning cash to stockholders, we believe that we offer a compelling investment opportunity. That completes our prepared comments.

Jordan, would you open up the call for questions and answers at this time, please?

[Operator Instructions] Your first question comes from the line of James Rollyson from Raymond James.

Cindy, as I kind of listened through earnings season so far this quarter, the drillers, offshore drillers, I should say, are all kind of talking about kind of mid late next year rebound and maybe near-term bottom in activity, the guys in the infrastructure side of things or kind of talking about FIDs picking up next year and beyond? And -- and obviously, you guys had a great bookings quarter and I think your commentary suggests that should continue. But I would love to just get kind of color on how conversations are going, kind of the flow of conversations, the maybe margin profile and impact of tariffs there and just kind of timing of how this backlog kind of rolls off as you go forward.

Thank you for the question. I think it's a fantastic one. I mean, what you're hearing from offshore exposed companies is that we've had a good year, but throughout the year with lower crude prices, some of the optimism for spending has shifted to the right a bit. That's both for contracting rigs as well as kind of new incremental projects, which hits everybody to a certain degree. And that's why we kind of highlighted that we had a good base bookings quarter, but it was augmented by military. And so I just want to say that's kind of consistent with what you're hearing on the oil and gas side of the market. There is every thought that we're going to have an improved year in 2026, especially because some of this has slipped to the right.

As it relates to our fourth quarter, we are going to -- again, I told you I think we're going to have a book-to-bill north of 1. That's predicated on projects that are very close to the award stage, and that is both production infrastructure for us and kind of NPD type systems. Those are the drivers. And so it's always a question of the macro versus company-specific, but our company-specific looks good, but maybe not quite as robust thought coming into the year with crude prices at $60. Now all those just shift to the right and therefore, '26 starts looking better. So I do think that what we're seeing is consistent. We just had a better bookings year possibly than others for various reasons, maybe it's the best way I look at that.

I'm going to pivot to what I think was your second question, which was the tariffs situation. And because so much of our projects that are value add in the U.S. go into international plays, there is less impact on our primary segment, which is the Offshore/Manufactured Products segment, where it's hit us harder, and you see that in our results. This quarter was on the downhole -- the consumable side of the business, the Downhole Technologies, which is largely on the perforating side because we import gun steel like we believe most other companies do in the space from foreign sources, particularly China. You heard some of the issues that Cactus and others are dealing with they commented on a 95% tariff rate and big increases that hit in June, the exact same thing happened to us and somewhat unexpectedly. So the third quarter unequivocally has on the Downhole side with higher tariff costs. We, like everybody else, is trying to manage through and understand it. And there was a kind of a temporary agreement between the U.S. and China yesterday, but it really had a very small impact on the overall tariff rate. We believe that our 98% rate came down to 88% for perspective. And if you go back 2 or 3 years, that tariff rate was 25%. So these are material increases in gun steel cost.

Now it is also our belief that everybody has the same supply sources, which are generally formed. We're all experiencing the same thing, but there's also been a buildup of inventory as activity has slowed. And so I think the industry has to work through the pre-tariff inventory. But then it is my view that the tariffs hold, they're going to have to be passed on to customers. It's one of timing. That's the best impact or information I can give you is tariffs are really not an issue for the Completion and Production Services segment. So not a great impact to us, but it certainly has hit the consumable side of the Downhole Technologies piece of the business, if that answers your question.

It absolutely does. I appreciate all that color. And maybe just a follow-up there, Cindy, on Downhole Technologies. If you kind of back out the tariff impact, would you -- because it was the first quarter you had negative EBITDA in that segment since COVID. I'm assuming that was almost -- activity was lower, sure, but your margins at CPS stayed very strong, given all the things you've been working on for the past year plus. I'm assuming that tariffs were almost the entire extent of what drove that EBITDA negative. And so -- and then maybe any question or thoughts you have on the timing of how long that takes to actually flow through the inventory that sits there and then pass through like when do you get back to positive EBITDA?

Yes. You're absolutely correct in your assessment. Now I will add to that, however, that even our plug demand was very weak in the quarter, not negative EBITDA, but there -- in other words, there was no offset for the other portion of the consumables that we have in the mix or not sufficient offset, I'll call it. And we believe we may even see improved demand even in fourth quarter is always weak because of holidays. Everybody knows that. we think we're going to see a little bit of an improved demand on the plug side simply because of inventory drawdowns during the quarter. So it's a little bit of a combination. But if I look at a negative impact, yes, I'm going to put it on tariffs. And then to your point, how long it takes? I'm guessing it'll be early next year. I think the strategy for us is the same, which is leverage and grow your international content and therefore, have greater overall demand and cost absorption. And as you say, we've got to start passing through the tariff impact. if it's not mitigated or reduced from the levels that we have now. And we're like everybody else, we're looking at every supply source around the world, both domestically and internationally to get the cost down. You've heard those comments from other people in this space, but it's not immediate.

We're also evaluating do we just start doing gun assemblies in our Batam facility in Indonesia so that we can support the international demand that we had with a lower tariff burden again, give us probably 6 months to work through some of these things, but we're doing our best not to allow it to deter activity too much from a consolidated basis. for the company.

Your next question comes from the line of Stephen Gengaro from Stifel.

Yes. The -- I guess 2 things for me, Cindy. The first, you've made -- you've done a lot on the U.S. land side to kind of high-grade the portfolio. And -- and control and cut costs were necessary. Can you talk about -- when we think about the margin side of that business, especially C&P, do you think we're seeing the full impact of that in the margins? I know it gets masked by kind of underlying activity, et cetera. But do you think you're starting to see the full impact of that? Or how does that unfold over the next 12 months?

It's a very good comment. And I'll just tell everybody, I think we'll be through a lot of this transition by the end of the year, which makes the results a little bit cleaner going forward. once we get the finalization, I'll call it, you realize we're moving equipment all over the place. going into new basins, new customers, close the facilities, incurring severance. And again, I do probably that we get kind of most of this out of the system by the end of the year and had clean margins going forward. But once we do, we expect, depending on timing of work and everything else, caveat that goes with it, high 20s to low 30s EBITDA margins.

And so again, I think that is in the context of 2024. Lloyd, correct me if I'm not wrong, being in the high teens EBITDA margins?

Mid-teens.

Mid-teens. So what you see, yes, the revenue is going to be a bit lower, and we'll give you very specific guidance on that. as we move forward into 2026, but it will be at higher margins and greater free cash flow because the business is -- this is part an EBITDA drag, but more importantly, it's a cash flow drag. And so we're really making step changes in that segment focus specifically on free cash flow generation over the long term.

And just 2 other things. One is a follow-up to that. Again, outside of underlying activity levels, have we seen -- I think we've seen the majority of the revenue impact already. from businesses that have been pared down or divested as you high grade the portfolio?

The majority, yes.

Okay. Good. The other quick one is, I think at the end of last year, I think you said in the K, I think the number was 70% of the backlog was going to convert over the next 12 months. I think that was right for last year. Your -- you've had very good order flow this year. Do you expect -- is it fair to assume that your current backlog is in a similar spot from a realization perspective over the next 12 months? Or is that elongate at all? How should we think about that?

It's a little bit elongated with the military awards that we got. Those are typically multiyear kind of deliveries that span over period of time. The awards we expect to get in Q4 will probably leverage that back towards the longer-term kind of trends that you see on product rollout. If I look at a point in time, the point in time with the military would be down just a little bit in terms of that percentage roll-off in the forward 12 or 15 months, that can change, obviously, with the mix of things coming in the backlog and what we expect in Q4 moves it back the other direction if that makes sense.

Your final question comes from the line of Joshua James from Daniel Energy Partners.

First question for you, I'm going to stick on the offshore theme. A number of the customers you deal with have exposure to both U.S. land and offshore and as there's been sort of a massive wave of E&P consolidation over the last couple of years. When you talk to those customers on capital, do you view this as a structural shift offshore versus U.S. land spending? And does -- do you think this consumes a greater share of their budgets moving forward? Or is this just sort of what happens in a weak commodity environment as offshore breakevens have continued to come down?

I do think it's more of a secular trend. And of course, we have a mix of customers that some do have both exposure to U.S. land and offshore others like Petrobras, as an example, is much more just focused on offshore deepwater. And so it's a mix there. Just -- there always different reasons for the investments that are made. But we can all debate whether we're at Tier 1 acreage, Tier 2 acreage. It all comes down, what are the breakevens and how attractive are they are $60 to $70 a barrel, right, which is kind of the environment we see going forward, but you get below $60. And I think those marginal investments tend to ship just a bit. I made those comments on my call. And the flip side is there's kind of lower AFE costs, shorter time to first production on land. So there's oftentimes reasons to drill wells on land without question, but they also -- the decline curves are much higher. So it's really hard to isolate on one versus the other for someone that has dual exposure. I just think that the macro trend with greater success in deepwater they are longer lived reserves, and the time from discovery to first production has shortened that, that just definitely seems to be a more of a secular trend in our view. .

And of course, a lot of the decisions we make are based on product differentiation, history in the marketplace, technology differentiators. And we just have a lot more, quite frankly, that we deliver to the offshore and international market. It's much harder to not have commoditization on U.S. land, that's just reality. And so we are trying to really focus on areas that we think bring value to the company and bring value to our shareholders.

So on that point, Cindy, could you expand a little bit more? You highlighted some of the safety awards, at least one of which was around MPD. Could you elaborate more on some of the products that have been driving your backlog build offshore. And I assume a lot of them have to do with not only safety, but making operations more efficient for the customers we hear about efficiency a lot in U.S. land. But maybe just speak to the things you're doing there and the specific products that have really driven this outside of the military rewards, the strength in the backlog offshore.

We have some, honestly, just ongoing recurring backlog that comes from our key connector products in many basins. We have crane operations. There's a number of, call it, just base orders. But what has really augmented our orders outside of the military awards that really came in Q3 has been production infrastructure most of which is high technology. It's our leading flex joint technology. You know very well. The industry knows very well, and much of that has gone into the demand environment in Brazil, not surprisingly, Petrobras has by far a leading position in offshore activity and investment. And so that is really kind of what has led. Now we are augmenting that with new technology, including the MPD systems we brought to market early last year. It's working well, getting strong customer acceptance, and we expect that to continue to grow. .

There is the hope that we'll get incremental new demand from things like the mineral recovery system that we have in place for subsea minerals recovery. We've had pilots that have been in backlog but not much this year. And then we -- as you know, we have that offshore wind kit. We're still bidding and quoting and working with companies on budgets and planning, but nothing's really come in to bear at this point in time. So it could be some upside outside of our standard oil and gas and military awards long term. But right now, I just think ongoing recurring demand that the general industry consumes married with production infrastructure investments.

Okay. And then I'd like to sneak in one quick U.S. land question, if I might, just thinking about the cycle. So it's been talked about a little bit on the call, but your ability to expand margins in a pretty tough market has been impressive over the last 12 to 18 months. Michael, just when I think about customers living within cash flow, but at some point, they don't want their production to roll. It will be interesting to see at what level of activity is necessary to maintain production. But how do you view where we are? And how do you avoid cutting too much in the U.S. land business to make sure that when the business improves, you can take advantage of knowing that there seems to be a structural shift towards natural gas activity over the next 3 to 5 years, that's going to be coming? And then I'll turn it back.

Yes. No, I think it's a great question. And what we have done is this is not a 1-year decision. It's been a multiyear look back where have our technology held up where have our margins held up and importantly, what has been the free cash flow generation at 560 rigs working or 1,000 rigs working, and we are being selective in saying some of the businesses are so commoditized now. They weren't really generating returns in much higher rig count environment, and they're certainly not doing in low. So the point is that trend going to be different if the rig count goes up 100 rigs or completion count, we concluded the answer is not for selected product line.

So this is not a view of U.S. land never coming back. It is a view of what product lines we want to offer to the U.S. land market long term. and that's really what it was because you can look at our margins that there's really good margins in selected businesses. Most of those are in our extended reach technology, our Gulf of Mexico operations and our international they were less so -- you all know we got into flowback, thinking it was a cash flow generating a return. Well, it turned out not to be a very good business. And we just don't want to be in that business, right? And so I think that's kind of more -- we're being -- not getting out of land. We're just being very selective about the ones we pursue long term.

We have our final question from Jim Rollyson from Raymond James.

Sorry to come back in. But Cindy, I want to make sure I heard something right. Did you say with your guidance that you guided 4Q revenues and EBITDA, and that was a little bit lower maybe than what the full year original guidance was as a lot of guidance have come down throughout the year. But did I hear you right that your cash flow from operations is supposed to be $100 million for the full year?

We had, in our view, a very strong Q3, and we're going to have an even stronger Q4. We -- in our these project businesses that are long term, the timing of receivables and inventory purchases, ebbs and flows, we are confident when we say that it will be $100 million plus for the year, which is a very significant number, as you know.

Yes. So just doing math on that, you've done $55 million year-to-date, so it kind of implies a $45 million plus number. And Lloyd, correct me if I'm wrong, but your CapEx is supposed to be a little bit on the lower end in 4Q. So like it puts you on track for a very big 4Q free cash flow number and probably something north of $75 million for the year. Do I have that math right?

You do.

Okay. Just want to make sure I wasn't missing something because that didn't register when you first said it until I went back and looked at the numbers and that I would only compliment. So I appreciate that.

There are no further questions. I would now like to turn the call back over to Cindy Taylor for closing remarks.

I appreciate it, Jordan, and thanks to all of you for your time today. We believe we are focused on the right end markets. We're getting leaner by design, and we're being more selective about our capital allocation priorities. With that backdrop, we expect to see higher EBITDA margins and enhance cash flows as we move into 2026. And all efforts that should benefit our stockholders. Thanks for dialing in today, and have a great weekend.

This concludes the meeting. You may now disconnect.