Cactus Inc. (WHD) has demonstrated remarkable resilience and strategic foresight in navigating the dynamic landscape of the oilfield services industry. As a leading provider of highly engineered pressure control and spoolable pipe technologies, the company has consistently proven its ability to adapt and capitalize on evolving market conditions, solidifying its position as a trusted partner for its customers.

Business Overview

Cactus Inc. was incorporated on February 17, 2017, as a Delaware corporation for the purpose of completing an initial public offering of equity, which was successfully achieved on February 12, 2018. However, the company's roots trace back to August 2011 when Cactus Wellhead, LLC was formed by Scott Bender and Joel Bender, who have been involved in the wellhead manufacturing business since the late 1970s.

The company's primary focus is on the design, manufacture, sale, and rental of highly engineered pressure control and spoolable pipe technologies. These products are primarily utilized for onshore unconventional oil and gas wells during the drilling, completion, and production phases. In addition to product sales and rentals, Cactus provides comprehensive field services to assist with the installation, maintenance, and handling of its equipment. The company also offers repair and refurbishment services as needed.

A significant milestone in Cactus's history occurred in 2023 with the acquisition of the FlexSteel business through a merger with HighRidge Resources, Inc. and its subsidiaries. This strategic move was preceded by an internal reorganization in which Cactus Companies, LLC acquired all outstanding units representing ownership interests in Cactus Wellhead, LLC. The FlexSteel acquisition has allowed Cactus to expand its product and service offerings, further diversifying its operations.

Throughout its journey, Cactus has faced various industry challenges, including cyclicality in the oil and gas sector, increased competition, and evolving governmental regulations and policies. The company has successfully navigated these obstacles by maintaining a low fixed cost base, implementing a flexible supply chain, and prioritizing safety, cost control, and customer service.

Cactus operates through a network of service centers and pipe yards located across the United States, Canada, and Australia, as well as providing rental and service operations in the Middle East and other select international markets. The company's manufacturing facilities are strategically positioned in Bossier City, Louisiana, Baytown, Texas, and Suzhou, China, enabling it to maintain a flexible and cost-effective supply chain.

Financial Performance and Ratios

Cactus has consistently demonstrated strong financial performance, with a track record of revenue growth and profitability. In the fiscal year 2024, the company reported annual revenue of $1.13 billion, a year-over-year increase of 3%, and net income of $232.76 million, representing a net profit margin of 20.6%. The company's annual operating cash flow reached $316.11 million, with free cash flow of $276.94 million.

For the fourth quarter of 2024, Cactus reported revenue of $272.12 million, a 7.2% decrease sequentially, and net income of $46.69 million, a 9.6% decrease sequentially. The decline in quarterly performance was primarily attributed to lower customer activity levels and reduced shipments of production equipment.

Financials

The company's balance sheet remains robust, with a current ratio of 4.33 and a quick ratio of 3.06 as of December 31, 2024, indicating a strong liquidity position. Cactus's return on assets (ROA) stood at 10.7%, while its return on equity (ROE) reached 18.0%, showcasing efficient capital utilization and value creation for shareholders.

Liquidity

Cactus has maintained a strong liquidity position, with a cash balance of $342.84 million as of December 31, 2024, and no outstanding debt. The company's debt-to-equity ratio is a low 0.033, further highlighting its solid financial footing. Additionally, Cactus has access to a $225 million revolving credit facility, of which $222.6 million was available as of December 31, 2024. This robust financial position provides the company with ample flexibility to pursue strategic growth initiatives and navigate potential industry challenges.

Operational Highlights and Strategic Initiatives

Cactus has successfully navigated industry challenges, leveraging its diversified product offerings and strategic investments to drive growth. In 2023, the company completed the transformative acquisition of FlexSteel, further strengthening its presence in the spoolable pipe technologies segment.

The integration of FlexSteel has been a key focus, with the company introducing new H2S-qualified products to address the growing demand in international markets, particularly in the Middle East. Cactus has also made strategic investments to enhance its manufacturing capabilities, including the establishment of a vertically integrated production facility in Vietnam, which is expected to mitigate the impact of tariffs and supply chain disruptions.

Moreover, Cactus has demonstrated a commitment to operational excellence, with a relentless focus on safety, cost control, and customer service. The company's flexible supply chain and low-cost manufacturing footprint have enabled it to navigate industry headwinds, such as the ongoing trade policy uncertainties and customer consolidations, while maintaining its competitive edge.

Dividend and Capital Allocation

Cactus has a strong track record of returning capital to shareholders through a consistent dividend program. In 2024, the company paid a quarterly dividend of $0.13 per share, representing a 14% increase from the previous year. This commitment to shareholder value creation is further evidenced by the company's share repurchase program, which has authorized the repurchase of up to $150 million in Class A common stock.

Cactus has also demonstrated prudent capital allocation, investing in strategic growth initiatives, such as the FlexSteel acquisition and the expansion of its manufacturing capabilities, while maintaining a robust cash position of $342.84 million as of December 31, 2024, with no outstanding debt.

Business Segments

Cactus operates through two main business segments: Pressure Control and Spoolable Technologies.

The Pressure Control segment is engaged in the design, manufacture, sale, installation, and service of wellhead and pressure control equipment utilized during the drilling, completion, and production phases of oil and gas wells. This segment's products are sold and rented principally for onshore unconventional oil and gas wells. Key products include wellhead systems and production trees. In 2024, the Pressure Control segment generated $724.04 million in revenue, a 4.3% decrease from 2023. Operating income for this segment was $210.71 million, an 11.1% decrease year-over-year. The decrease in revenue and operating income was primarily due to lower drilling and completion activity by Cactus' customers, leading to decreased sales of wellhead and production-related equipment as well as lower rental demand for drilling and completion equipment.

The Spoolable Technologies segment focuses on the design, manufacture, sale, installation, service, and associated rental of onshore spoolable pipe technologies. These products are primarily used for production, gathering, and takeaway transportation of oil, gas, or other liquids. In 2024, the Spoolable Technologies segment generated $407.04 million in revenue, a 19.6% increase from 2023. Operating income for this segment was $104.86 million, a 68.7% increase year-over-year. The significant increase in revenue and operating income was due to a full year of results from the FlexSteel acquisition, which closed in February 2023. The Spoolable Technologies segment includes $16.32 million in expense related to the change in fair value of the earn-out liability for the FlexSteel acquisition and $16.00 million of intangible amortization expense.

Geographic Markets

Cactus is predominantly a domestic US-focused business, with over 95% of total revenues generated in the United States during each of the past three years. The company has a small international presence, primarily in Australia, Canada, and the Middle East, but does not break out specific geographic segment reporting.

Industry Trends and Outlook

The oilfield services industry that Cactus operates in is cyclical and has historically experienced periodic downturns, which can be characterized by diminished demand for the company's products and services and downward pressure on pricing. Industry analysts expect modest growth in the US onshore rig count in the near-term, but ongoing uncertainty around trade policies and customer consolidation could present risks.

For the first quarter of 2025, Cactus expects pressure control revenue to be flat to up compared to the $177 million reported in Q4 2024, based on strong January results and modestly increasing customer activity expected by the end of Q1. Adjusted EBITDA margins in the Pressure Control segment are expected to be 33% to 35%, excluding $3 million of stock-based compensation.

In the Spoolable Technology segment, Q1 2025 revenue is expected to be down mid to high single digits sequentially due to extended seasonality, but a meaningful rebound in order activity is being experienced in February. EBITDA margins in this segment are expected to be approximately 35% to 37%, excluding $1 million of stock-based compensation, due to lower operating leverage.

Adjusted corporate EBITDA is expected to be a charge of approximately $4.5 million in Q1 2025, excluding $2 million of stock-based compensation. The company's full-year 2025 capital expenditure expectations are in the range of $45 million to $55 million, an increase from 2024 due to investments in equipment upgrades, efficiency improvements, and international supply chain diversification efforts.

Conclusion

Cactus Inc. (WHD) has proven its ability to thrive in the face of industry challenges, leveraging its innovative product portfolio, operational excellence, and strategic investments to drive sustainable growth. The company's diversified business model, strong financial position, and commitment to shareholder returns position it well to capitalize on future opportunities and deliver long-term value for its stakeholders. With a focus on adapting to market conditions and investing in key growth areas, Cactus is well-positioned to navigate the dynamic oilfield services landscape and maintain its competitive edge in the years to come.