Cactus (WHD) Q4 FY25 earnings call: guidance and Q&A

Cactus, Inc. concluded Q4 FY25 with strong overall performance, reporting $261 million in revenue and $85 million in adjusted EBITDA, achieving a 32.7% adjusted EBITDA margin. The Pressure Control segment saw revenues increase 5.8% sequentially to $178 million, driven by higher product sales per rig and improved rental revenues, with operating margins expanding 90 basis points.

The U.S. Pressure Control business is noted to be performing at its highest level since the company's inception. Spoolable Technologies, however, experienced a seasonal decline, with revenues decreasing 11.6% sequentially to $84 million, leading to a 220 basis point compression in operating margins, though it maintained strong profitability.

The company successfully closed the acquisition of a majority interest in Baker Hughes' Surface Pressure Control business, now referred to as Cactus International, on January 1, 2026. This transformational acquisition significantly expands Cactus's footprint in key international oil and gas markets, particularly the Middle East.

While the backlog for Cactus International declined from over $600 million at the end of 2024 to $550 million at the end of 2025, and 2026 revenue and adjusted EBITDA are expected to align with 2024 results due to an order slowdown and Saudi de-stocking, management anticipates increased order activity in the second half of 2026 and into 2027, with 2027 revenue projected to be north of the midpoint between 2025 and 2026.

Cactus targets $10 million in annualized synergies from the Cactus International acquisition within one year of closing. Management has identified meaningful supply chain savings for 2027, which were not initially incorporated into the budget, by leveraging the U.S. operational model.

These savings are expected to lead to substantial margin enhancement for Cactus International starting in 2027, given the long-cycle nature of order placements. The company is also focused on improving the business's technology and customer execution, particularly in the Middle East, where its market share is currently below potential.

Despite continued North American seasonality impacting Q1 FY26 revenue, the Spoolable Technologies segment finished 2025 with a record level of international product sales. The company is introducing several new SKUs designed to enhance market share and strengthen its technological moat.

Pilot programs for these new SKUs are expected with a large Middle Eastern customer in 2026, with a projected impact on 2027 revenues. This strategic focus aims to capitalize on accelerating international demand for spoolable products.

For North America, Cactus anticipates stable drilling and completion activity in Q1 FY26, though with modestly softer sales due to lower products sold per rig compared to Q4 FY25. Scott Bender expressed a personal view that the U.S. onshore rig count could exit 2026 around 490, down from 530, primarily due to the ongoing impact of industry consolidation.

Despite this, management remains bullish on increased drilling efficiencies, which translate to more wells drilled per rig, a key driver for their business.

Cactus International plans to significantly expand its sales team and focus on regions previously underserved by its predecessor, including Sub-Saharan Africa and the Far East. A key strategic priority is to gain substantial market share in Saudi Arabia, where the legacy Vetco Gray business has a significant installed base but current market penetration is low.

The company is intensely focused on the high-margin aftermarket services segment, identifying substantial opportunities in regions with large existing installed bases that have been historically overlooked.

The company's Vietnam manufacturing facility is ramping up production in Q1 FY26, with API certification expected in early Q2 FY26. This certification is crucial for displacing higher-tariff imports from China (75% tariffs under Sections 301 and 232) with products from Vietnam, which faces a lower 50% tariff under Section 232.

This shift is expected to lead to significant margin improvements, particularly in 2027, as Vietnam offers inherently lower manufacturing costs in addition to the tariff differential.