Executive Summary / Key Takeaways

• Oil States International is strategically pivoting towards higher-margin, longer-cycle offshore and international projects, which now constitute 75% of consolidated revenues, while aggressively optimizing its U.S. land-based operations.
• The company has achieved record backlog levels, reaching $399 million by Q3 2025, driven by robust bookings and strong demand for its differentiated offshore production infrastructure and new technologies like Managed Pressure Drilling (MPD) systems.
• Despite U.S. land market headwinds and tariff impacts on its Downhole Technologies segment, OIS projects strong financial performance, with full-year 2025 EBITDA guidance maintained at $88 million to $93 million and cash flow from operations expected to exceed $100 million.
• OIS is committed to enhancing shareholder value through organic growth investments, debt reduction (including the 2026 convertible senior notes), and opportunistic share repurchases, leveraging its robust free cash flow generation.
• The company's technological differentiators, such as its flex joint technology and low-impact workover package, provide a competitive moat, enabling superior performance and market share gains in specialized, high-value segments.

A Strategic Reorientation Towards Deepwater Resilience

Oil States International, Inc. (NYSE:OIS), established in 1995, has evolved into a specialized provider of engineered capital equipment and consumable products for the global energy, industrial, and military sectors. The company's recent history is defined by a deliberate and aggressive strategic reorientation, moving away from commoditized U.S. land-based services towards higher-margin, longer-cycle offshore and international projects. This pivot is not merely a response to market conditions but a foundational shift designed to build a more resilient and profitable enterprise. By the third quarter of 2025, offshore and international operations accounted for a significant 75% of consolidated revenues, a notable increase both sequentially and year-over-year. This strategic emphasis positions OIS to capitalize on the growing global focus on exploration and offshore development, where operators seek more cost-efficient, lower-carbon resources with higher production and slower decline curves.

The company's strategic journey in 2024 involved significant restructuring, including the realignment of certain short-cycle consumable products from Offshore Manufactured Products into the Downhole Technologies segment. This move, while resulting in a $10 million goodwill impairment charge, aimed to better align operations with demand drivers and management structure. Further optimization in U.S. land operations saw the exit of underperforming services like flowback and well testing, along with the closure of multiple leased facilities. These actions, which continued into 2025, generated non-cash impairment charges but were critical for streamlining the business and improving overall profitability. A key divestiture in Q4 2024, the sale of an idled facility, generated $24.8 million in cash and a $15.3 million pre-tax gain, underscoring the commitment to asset optimization.

Technological Edge and Innovation Driving Growth

Oil States International's competitive advantage is deeply rooted in its technological differentiation and continuous innovation, particularly within its Offshore Manufactured Products segment. The company's core differentiated technologies offer tangible benefits that set it apart in demanding environments. Its proprietary flex joint deepwater riser connector technology, for instance, is a key leading solution for production infrastructure, particularly in regions like Brazil, where it addresses critical deepwater development needs. This technology contributes to superior performance under challenging conditions, translating into enhanced pricing power and robust growth through long-term contracts.

The company's Managed Pressure Drilling (MPD) systems, introduced in early 2024, have garnered strong customer acceptance, including key approvals to operate in South America. These systems exemplify OIS's commitment to improving operational safety and performance levels, earning the company a FellSafe Technology Award for advanced safer MPD operations in collaboration with Seadrill (SDRL). Another significant innovation is the low-impact workover package, which enhances subsea plug and abandonment operations and ensures the integrity of aging wells. This unique and improved technology, recognized with a 2025 Meritorious Engineering Award from Hart Energy, represents a strategic investment in equipment built for future revenue streams.

In the Downhole Technologies segment, the Tempress product line stands out as a market-leading technology for the drill-out of plugs during completion operations. OIS is also introducing new technologies in its U.S. land operations, such as active seats gate valves for fracking isolation and automation equipment, aiming for market share gains in a highly selective approach to this market. The strategic investment in a new manufacturing facility in Batam, Indonesia, is designed to expand market share in Southeast Asia for connector products by leveraging a lower cost base and facilitating increased manufacturing in the region. These R&D initiatives and technological advancements are crucial for OIS's competitive moat, contributing to higher average selling prices, lower operational costs, better margins, and a stronger market position for long-term growth.

Financial Performance and Liquidity: A Story of Transformation

Oil States International's financial performance in 2025 reflects the ongoing impact of its strategic transformation. For the third quarter of 2025, the company reported revenues of $165.18 million, operating income of $4.75 million, and net income of $1.90 million. Over the first nine months of 2025, consolidated revenues were $490.52 million, with operating income at $15.66 million and net income at $7.87 million. While consolidated revenues in Q3 2025 decreased 5% year-over-year, excluding the impact of exited operations, revenues increased 5%, demonstrating the underlying strength of its core businesses. Similarly, for the first nine months of 2025, excluding exited operations, consolidated revenues increased $14.1 million year-over-year.

Profitability metrics highlight the benefits of the strategic refocus. The Offshore Manufactured Products segment reported an adjusted EBITDA margin of 21% in Q3 2025. The Completion and Production Services segment, after significant restructuring, achieved an impressive adjusted EBITDA margin of 29% in Q3 2025, with management targeting high twenties to low thirties EBITDA margins once the transition is complete. This represents a substantial improvement from prior periods and underscores the effectiveness of cost reduction initiatives. The Downhole Technologies segment, however, faced challenges, reporting an adjusted EBITDA loss of $1 million in Q3 2025, primarily due to higher tariff costs on imported gun steel and lower international activity.

Cash flow generation has been a significant highlight. The company generated $31 million in cash flow from operations in Q3 2025, a 105% sequential increase, and $23 million in free cash flow. For the first nine months of 2025, cash flow from operations totaled $55 million, a substantial increase from $27.7 million in the same period of 2024. This robust cash generation strengthens the balance sheet, which, as of September 30, 2025, showed cash and cash equivalents of $67.1 million and no outstanding borrowings under its Asset-Based Lending (ABL) Facility, with $73.2 million available to be drawn. OIS also has $102.8 million in principal amount of 4.75% convertible senior notes due April 1, 2026, classified as current debt, which it intends to repay in cash. The company is actively returning capital to shareholders, having repurchased $16.2 million of common stock in the first nine months of 2025, with $25.1 million remaining under its authorization.

Outlook and Competitive Positioning

Oil States International's outlook is anchored by its strong backlog and strategic positioning in resilient offshore and international markets. The company's backlog reached a decade-high of $399 million as of September 30, 2025, with Q3 2025 bookings of $145 million yielding a book-to-bill ratio of 1.3x. Management anticipates continued strength in future bookings, expecting the Q4 2025 book-to-bill ratio to again exceed one. For Q4 2025, consolidated revenues are projected to increase 8% to 13% sequentially, with adjusted EBITDA expected to range from $21 million to $22 million. The full-year 2025 revenue guidance has been updated to $685 million to $700 million, reflecting the streamlining of U.S. land operations, while full-year EBITDA guidance is maintained at $88 million to $93 million. Crucially, annual cash flow from operations is now expected to exceed $100 million, a significant increase from earlier projections, with planned capital expenditures of approximately $30 million for 2025.

In the competitive landscape, OIS holds a solid position, particularly in specialized segments, but operates alongside larger, more diversified players like Halliburton (HAL), Schlumberger (SLB), and Baker Hughes (BKR). OIS's strengths lie in its niche expertise, operational flexibility, and specialized products that offer notably better performance and durability in challenging offshore environments. For instance, its proprietary designs in flexible bearings and blowout preventers can lead to superior margins and recurring revenue from long-term contracts. This allows OIS to differentiate itself from Schlumberger's R&D focus by offering greater reliability in subsea applications, potentially exploiting higher operational costs of larger rivals.

However, OIS's smaller scale compared to these industry giants presents vulnerabilities, potentially leading to higher procurement and R&D costs and longer lead times for new product development. This can make it challenging to compete on cost efficiency with Halliburton's global scale or match the technological advancements and digital integrations of Baker Hughes. The company's strategic response involves focusing on high-end, differentiated technology and selective capital allocation, particularly in its U.S. land operations, where commoditization is a significant challenge. OIS expects to pass on tariff-related cost increases in its Downhole Technologies segment, assuming competitors face similar supply chain challenges.

Risks and Challenges

Despite a compelling investment thesis, Oil States International faces several risks. The ongoing uncertainty surrounding U.S. trade tariffs and potential retaliatory measures poses a significant threat, particularly to the Downhole Technologies segment, which has already experienced substantial cost increases on imported gun steel. The outcome of the U.S. Supreme Court case regarding presidential powers to levy tariffs, expected at the end of 2025, could further impact the company's cost structure and ability to pass on these costs.

Commodity price volatility, driven by geopolitical conflicts, global economic conditions, and OPEC+ production decisions, remains a fundamental risk, influencing customer capital investment and demand for OIS's products and services. Supply chain disruptions, such as the recent explosion at a major U.S. supplier of explosive powders, could adversely affect the production and marketing of perforating products. While OIS is actively mitigating these risks through alternative sourcing and strategic pricing adjustments, their ultimate impact remains uncertain.

Conclusion

Oil States International is undergoing a profound strategic transformation, refocusing its business on high-value, long-cycle offshore and international markets while aggressively optimizing its U.S. land-based operations. This pivot, underpinned by a strong portfolio of differentiated technologies like MPD systems and flex joint connectors, is yielding tangible results in the form of record backlog, improving margins, and robust cash flow generation. The company's commitment to innovation, coupled with disciplined capital allocation towards organic growth and shareholder returns, positions it favorably for sustained value creation.

While macroeconomic headwinds, particularly U.S. land market subdued activity and tariff-related cost pressures, present challenges, OIS's strategic clarity and operational agility are proving effective. The expected significant increase in cash flow from operations, alongside a healthy balance sheet, provides the financial flexibility to navigate these complexities and execute its capital allocation priorities. For discerning investors, Oil States International offers a compelling opportunity to invest in a company that is not merely adapting to a dynamic energy landscape but actively shaping its future through strategic repositioning and technological leadership.