Executive Summary / Key Takeaways

• Cactus, Inc. (NYSE: WHD) is a resilient onshore oil and gas equipment provider, excelling in wellhead and pressure control, and increasingly, spoolable pipe technologies, consistently outperforming market activity trends due to its low fixed costs, flexible supply chain, and differentiated products.
• The company maintains industry-leading profitability margins (Q1 2025 Adjusted EBITDA margin of 33.5%) and a robust balance sheet with significant cash ($347.7 million as of March 31, 2025) and no bank debt, enabling strategic investments and shareholder returns.
• Strategic initiatives, including diversifying the supply chain with a new Vietnam facility to mitigate tariff impacts (expected neutralization by mid-2026) and introducing new technologies (next-gen wellhead, H2S spoolable pipe), are enhancing cost structure, expanding addressable markets, and strengthening competitive positioning.
• International expansion, particularly in the Spoolable Technologies segment (targeting 40% international revenue contribution long-term), and the recently announced joint venture with Baker Hughes (BKR)'s Surface Pressure Control business (acquiring 65% control) represent significant growth avenues and portfolio enhancement.
• While facing near-term market uncertainty from moderating US land activity and tariff impacts, management expects modest EBITDA growth in 2025, supported by operational efficiencies, new product adoption, and strategic growth initiatives.

Setting the Scene: Resilience in the Onshore Arena

Founded in 2011 by seasoned industry veterans, Cactus, Inc. quickly established itself as a leading provider of wellhead and pressure control equipment for the demanding U.S. onshore oil and gas market. The company built its reputation on a foundation of safety, reliability, and operational efficiency, underpinned by a low fixed-cost base and a flexible supply chain. This initial focus on core wellhead solutions for unconventional plays laid the groundwork for Cactus's resilient business model.

A pivotal moment in the company's history was the acquisition of FlexSteel in February 2023. This strategic move significantly expanded Cactus's product portfolio beyond wellheads and pressure control to include spoolable pipe technologies. This addition was highly complementary, extending Cactus's reach from the wellhead and production tree to the transportation of oil, gas, and other liquids, and bringing exposure to the midstream sector. The FlexSteel acquisition was not just about product expansion; it was a step towards diversifying the business and enhancing its position as a premier provider of highly engineered equipment.

The onshore oil and gas market, particularly in the U.S., is characterized by cyclicality driven by commodity price volatility and drilling/completion activity levels. Recent periods have seen softening activity, with average U.S. land drilling and completion levels relatively flat in Q1 2025 compared to Q4 2024, and expectations for a slight decline in Q2 2025, potentially exiting the quarter with approximately 30 fewer rigs. Natural gas prices saw a significant increase in Q1 2025 but the overall outlook remains uncertain, compounded by recent OPEC output plans impacting oil prices. Adding complexity are evolving U.S. trade policies, including tariffs on steel and derivatives, which impact input costs for the entire industry. Amidst these dynamics, consolidation among E&P operators is leading to a market increasingly dominated by a few large players, driving a shift towards high-grading suppliers and technical buying.

Cactus operates within this landscape through its two segments: Pressure Control and Spoolable Technologies. The Pressure Control segment focuses on wellhead and pressure control equipment and associated services, while Spoolable Technologies provides flexible pipe solutions. The company's strategic response to market conditions and competitive pressures centers on leveraging its operational strengths, investing in technological differentiation, diversifying its supply chain, and pursuing international growth.

Technological Edge and Innovation: Building a Moat

Cactus's competitive positioning is significantly bolstered by its focus on differentiated technology, particularly within its core Pressure Control segment. The company's wellhead systems, including the SafeDrill technology, are designed to enhance operational efficiency and safety during drilling and completion. While specific quantitative metrics for efficiency gains were noted as "meaningful" and around "10%" increase in wellhead shipments per rig in Q2 2024, the core benefit lies in enabling reduced drilling times and improving reliability in high-pressure environments. This focus on safety and efficiency resonates with customers, particularly larger operators who prioritize risk mitigation and operational performance.

The company is actively investing in research and development to maintain and extend this technological edge. A key initiative is the rollout of the latest generation wellhead system. This new design aims to further enhance the manufacturing cost profile while adding features that improve safety and reliability for customers. Management is committed to a responsible rollout, balancing the introduction of the new technology with managing existing inventory.

Beyond wellheads, Cactus is developing a new frac valve design. Prototype testing is underway, with the stated goal of significantly reducing maintenance costs for operators. This innovation directly addresses a key operational expense in the completion phase and has the potential to improve the economics for customers utilizing hydraulic fracturing.

In the Spoolable Technologies segment, innovation is also expanding the addressable market. The company has introduced a product qualified for H2S service, shipping its first commercial order in April 2025. This technology is particularly relevant in regions with high H2S content in production streams, such as the Middle East. By offering solutions for sour service applications, Cactus is opening up new opportunities and strengthening its competitive standing in international markets where this is a critical requirement.

These technological advancements are not merely product updates; they are strategic investments designed to reinforce Cactus's competitive moat. The quantifiable benefits, such as improved efficiency, reduced maintenance costs, and expanded application capabilities (like H2S service), translate directly into value for customers. For investors, this means higher potential average selling prices, stronger customer loyalty, and the ability to capture market share, contributing to better margins and long-term growth, even in challenging market environments. The focus on technical differentiation positions Cactus favorably against competitors, particularly as the industry shifts towards technical buying driven by operator consolidation.

Performance and Financial Strength: Outperforming the Cycle

Cactus has demonstrated a consistent ability to outperform underlying market activity levels, a testament to its operational execution and strategic positioning. In the first quarter of 2025, the company reported total revenues of $280.3 million, a 2.3% increase compared to Q1 2024. This growth occurred despite relatively flat average U.S. land activity levels quarter-over-quarter and year-over-year.

The Pressure Control segment was a key driver in Q1 2025, with revenue increasing 8.7% year-over-year to $190.3 million. This performance was attributed primarily to increased customer drilling efficiencies, leading to record levels of products sold per rig followed. Segment operating income for Pressure Control was $54.3 million in Q1 2025, up 5.1% from Q1 2024. Adjusted EBITDA margins remained robust, around 34.5% in Q1 2025, although slightly down sequentially and year-over-year due to reserves taken for litigation claims.

The Spoolable Technologies segment saw Q1 2025 revenue decrease by 6.6% year-over-year to $92.6 million, primarily due to reduced customer activity levels in the seasonally slow first quarter. However, sequential performance showed resilience, with record first quarter bookings providing confidence for future quarters. Segment operating income for Spoolable Technologies significantly improved year-over-year, reaching $23.9 million in Q1 2025 compared to $16.4 million in Q1 2024, largely due to the non-recurrence of a significant earn-out liability expense in the prior year period. Adjusted EBITDA margins for Spoolable Technologies were approximately 35.4% in Q1 2025.

On a consolidated basis, Cactus delivered Adjusted EBITDA of $94 million in Q1 2025, resulting in an Adjusted EBITDA margin of 33.5%. This margin performance remains strong, reflecting the company's cost management discipline and the high-margin nature of its products and services.

Financially, Cactus maintains a position of strength. As of March 31, 2025, the company held $347.7 million in cash and cash equivalents and had no bank debt outstanding under its Amended ABL Credit Facility, with $222.6 million of available borrowing capacity. This robust liquidity position provides significant flexibility for strategic investments, managing working capital, and returning capital to shareholders.

The company's capital allocation strategy balances investing in the business for long-term value (CapEx outlook of $40-50 million for FY 2025) with returning cash to shareholders through dividends ($0.13 per share declared for Q1 2025) and share repurchases ($146.3 million remained authorized as of March 31, 2025). Management has even noted having "too much cash," suggesting a potential for increased shareholder returns if expansion opportunities don't materialize as quickly as anticipated.

Strategic Initiatives and Outlook: Positioning for Growth

Cactus's strategic roadmap is clearly defined, focusing on enhancing its competitive advantages and driving growth across its segments. A critical initiative is the diversification of its supply chain to mitigate risks associated with tariffs, particularly on imports from China. The company is ramping up production from its new low-cost facility in Vietnam, which is designed to eventually replace the Chinese facility's supply for the U.S. market. While the transition involves obtaining API 6A accreditation for full shipments, expected by mid-2026, modest shipments began in Q2 2024. This move is expected to neutralize the increased tariff impact by mid-next year and provide a competitive advantage over peers heavily reliant on Chinese imports. An initial $6 million investment was made in January 2025 in a Vietnam forging facility to support this diversification.

International expansion is another primary objective. While Pressure Control international qualification has progressed slower than planned, efforts continue, particularly focused on establishing a Mideast business. The Spoolable Technologies segment has seen significant traction internationally, with 2024 international revenue doubling that of 2023. Management sees substantial long-term potential, targeting 40% of Spoolable revenue from international markets and undertaking preliminary work on capacity expansion to support this growth.

The company is also leveraging its existing supply chain strengths to enhance the Spoolable segment. Utilizing the Pressure Control supply chain to source certain FlexSteel components is expected to improve Spoolable margins by over 100 basis points by the end of 2025.

Looking ahead to Q2 2025, management provided specific guidance reflecting current market conditions and seasonal trends. Pressure Control revenue is expected to be down low to mid-single-digits sequentially, primarily due to moderating product sales per rig after a record Q1 and slightly lower average activity levels. Pressure Control Adjusted EBITDA margins are anticipated to remain stable at 33% to 35%. Spoolable Technologies revenue is expected to be up mid to high single-digits sequentially, driven by normal seasonal expansion and supported by record Q1 bookings, despite lower expected average U.S. land activity. Spoolable Adjusted EBITDA margins are projected to be approximately 35% to 37%. Corporate expenses are expected to be around $4.5 million.

Beyond the immediate quarter, management anticipates activity decline may continue as 2025 progresses due to customer budget resets and tariff impacts. However, they remain confident in delivering modest EBITDA growth for the full year 2025, citing operational efficiencies, new product adoption, and strategic initiatives.

A significant recent development, announced on June 2, 2025, is the agreement to form a joint venture with Baker Hughes, acquiring a 65% controlling interest in Baker Hughes's Surface Pressure Control Business. This move is expected to enhance Cactus's portfolio and international exposure, further solidifying its position in the wellhead and pressure control market.

Competitive Landscape and Positioning

Cactus operates in a competitive environment alongside larger, more diversified oilfield service companies like Weatherford (WFRD), Baker Hughes, Halliburton (HAL), and Schlumberger (SLB), as well as smaller, niche players. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Cactus holds a strong position, particularly in the U.S. onshore wellhead market.

Cactus differentiates itself through its specialized, highly engineered products, focus on safety and efficiency, and responsive service model, supported by strategically located service centers. Compared to larger peers, Cactus typically exhibits higher profitability margins (TTM Gross Profit Margin 42.78%, Operating Profit Margin 26.28%, Net Profit Margin 16.78%, EBITDA Margin 32.15%), indicating a more efficient cost structure and potentially stronger pricing power within its niche. Its balance sheet is also notably strong, with a low Debt/Equity ratio (TTM 0.04) compared to peers like Weatherford (1.39), Baker Hughes (0.36), Halliburton (0.82), and Schlumberger (0.57), providing financial resilience.

However, larger competitors benefit from greater scale, broader service portfolios, and often higher R&D budgets, enabling more integrated solutions and faster technological development in certain areas (e.g., digital tools). The ongoing consolidation among E&P operators is a double-edged sword. While it can lead to potential rig count reductions as combined entities optimize operations, it also drives a "high-grading" of the supply chain. Larger, more sophisticated operators increasingly prioritize technical performance, reliability, and supply chain security over purely relationship-based purchasing. This shift towards technical buying favors companies like Cactus, whose differentiated technology and operational track record are key selling points. Management is already seeing inquiries from new customers in areas not historically serviced, supporting the thesis that downturns and consolidation can create opportunities for high-quality suppliers.

The tariff environment highlights Cactus's competitive advantage in supply chain diversification. Its Bossier City facility is the largest U.S. manufacturer of ABI 6A equipment, handling approximately half of its production. This domestic capacity provides a buffer against import tariffs. Furthermore, the strategic investment in the Vietnam facility positions Cactus to mitigate the impact of tariffs on imported goods more effectively than competitors who remain heavily reliant on Chinese manufacturing. This supply chain resilience is a critical differentiator in the current geopolitical climate.

The Baker Hughes joint venture is set to significantly alter the competitive landscape in surface pressure control. By taking a controlling stake in Baker Hughes's SPC business, Cactus is expanding its scale, potentially gaining access to new customers and international markets, and consolidating its leadership position in its core segment. This move leverages the strengths of both companies and is expected to enhance the portfolio and international exposure at attractive EBITDA multiples.

Risks and Challenges

Despite its strengths, Cactus faces several risks. The primary risk remains the inherent volatility of the oil and gas market, driven by fluctuating commodity prices and activity levels. While management believes the worst of the activity decline may be past, further reductions are possible, particularly as operators finalize budgets and integrate consolidated assets.

Trade policies and tariffs pose a direct challenge, increasing input costs for steel and derivatives. While Cactus is actively mitigating this through supply chain diversification, the transition period may see some margin compression, although management expects to largely preserve absolute profitability. The effectiveness and timeline of the Vietnam facility ramp-up and the ability to pass through cost increases to customers are critical factors.

Litigation, such as the patent infringement case with Cameron International, presents a potential financial risk. An adverse outcome in the June 2025 jury trial could have a material impact on the company's financial position.

Successfully integrating the Baker Hughes SPC business into the joint venture is crucial. While the strategic rationale is strong, execution risks associated with combining operations, personnel, and supply chains could impact performance.

Finally, while international expansion offers significant growth potential, it also involves complexities related to market entry, product qualification, and establishing operational infrastructure in new regions. The slower-than-anticipated progress on Pressure Control international qualification highlights these challenges.

Conclusion

Cactus, Inc. stands out as a fundamentally strong and well-managed company in the onshore oil and gas equipment sector. Its history of operational excellence, coupled with a strategic focus on differentiated technology and supply chain resilience, has enabled it to maintain industry-leading margins and financial health even amidst market volatility. The FlexSteel acquisition has successfully diversified its offerings and opened new growth avenues, particularly in the promising international Spoolable market.

Looking ahead, Cactus is actively positioning itself for future success through key initiatives like the Vietnam manufacturing expansion, the introduction of next-generation products, and aggressive pursuit of international opportunities. The recently announced joint venture with Baker Hughes is a transformative step, poised to significantly enhance its scale and competitive standing in the core Pressure Control business. While the company faces near-term headwinds from moderating activity and tariffs, its strong balance sheet, operational discipline, and strategic vision provide a solid foundation. The shift towards technical buying driven by industry consolidation plays to Cactus's strengths, offering potential market share gains. For investors, Cactus represents a resilient, profitable, and strategically dynamic player with clear pathways for growth, making it a compelling consideration despite the inherent cyclicality of the energy sector.