Cactus (WHD) Q1 FY26 earnings call: guidance and Q&A

What self-help opportunities and synergy potential do you see in the Cactus International business, particularly regarding supply chain optimization, looking towards 2027 and beyond?

Scott Bender stated that the increased $15 million synergy target primarily comes from making the organization more efficient, reducing headcount to be more like Cactus. He identified supply chain optimization as a potentially larger prize, with early indications of significant room for improvement due to Cactus's lower-cost supply chain. He noted it would take until the end of Q2 or early Q3 2026 to cycle through existing inventory before lower-cost product replenishment begins.

“Well, as we discussed, that the $15 million in synergies relates primarily to making the organization far more efficient. So I think there was some bloat in the way it was organized, and we're trying to reduce that to be more like Cactus. Potentially, the larger prize here is going to be supply chain.”

asked by Arun Jayaram · answered by Scott Bender

Can you provide more color on the $98 million of cash held for legal restructuring transactions with Baker Hughes, and how it relates to the acquisition and operating cash in the JV?

Jay Nutt clarified that the $98 million is for legal entities where restructuring with Baker Hughes has not been completed. This cash is designated for those transactions and is reflected as a payable on Cactus's balance sheet back to Baker Hughes. He expects the restructurings to be completed by Baker Hughes in the coming months.

“Yes, Arun, this $98 million is for a couple of legal entities where the restructuring has not been completed, and that's Baker Hughes' responsibility to complete that. So these will be -- this will be cash that's necessary to execute those transactions and restructurings.”

asked by Arun Jayaram · answered by Jay Nutt

Are you seeing completions leading drilling activity in the U.S. land market, and how do you expect drilling activity to evolve through the year?

Scott Bender stated that while customers are eager to reduce DUCs, no meaningful evidence of increased activity has been seen yet, though it's expected. He noted increased optimism from larger customers and revised the expected U.S. onshore rig count to 525, up from a prior forecast of 490, believing Cactus will gain more market share within this activity.

“So we're now thinking we're going to be in the 5.25% range, 525. And I personally believe that we'll get our -- more than our share of that. I think that from what we see in terms of activity increases, many of them are within our customer base.”

asked by Stephen Gengaro · answered by Scott Bender

What could an activity recovery look like in the Middle East post-conflict, and how would it impact Cactus International, considering potential destocking and restocking?

Scott Bender anticipates a pretty good increase in demand from the Middle East, likely in Q2 or Q3 2027, due to extended deliveries and destocking. He expressed concern about Qatar's gas production interests given limited export avenues but sees significant activity increases for the rest of the Middle East.

“I'm thinking -- we're all thinking second quarter, third quarter of '27. But I think we're going to see a pretty good increase in what has historically been demand from that area.”

asked by Derek Podhaizer · answered by Scott Bender

Can you discuss the potential for harvesting cash from the high working capital balance, particularly unbilled AR, in Cactus International, and when that might show up in free cash flow?

Jay Nutt confirmed an elevated level of unbilled AR in Cactus International and stated that the company is working on processes to improve and accelerate billing to increase cash flow velocity. He expects this process to take a couple of quarters to fully implement, as it requires close collaboration with customers.

“Derek, you're correct. There was a high level of unbilled AR at the end of year-end. We made some progress in Q1, but we continue to have a an elevated level of unbilled AR. So we're going to work on some processes about improving and accelerating the timing of being able to get that bill to our customers so that we can start increasing the velocity of cash flow.”

asked by Derek Podhaizer · answered by Jay Nutt

What are your customers saying about the dislocation between financial and physical oil markets, and how does that relate to activity expectations for 2027?

Scott Bender noted that customers are looking at the forward market, and are now assuming at least $15 higher in the futures market for 2027 compared to previous assumptions. This has led to significantly increased optimism, and while customers are reluctant to share specific numbers, they are feeling much better about 2027 and are likely to drill more wells.

“I think the best way to characterize this is that whatever they were assuming, they're now assuming probably in the neighborhood of at least $15 higher in the futures market. They're always very reluctant to share that with us for fear that we're going to see that as an opportunity to raise prices, frankly.”

asked by Donald Crist · answered by Scott Bender