Cactus, Inc. Forges Global Resilience Amidst Domestic Headwinds (NYSE:WHD) - WHD Stock Research Report

## Executive Summary / Key Takeaways * Cactus, Inc. (WHD) is strategically transforming its business through international expansion and supply chain diversification, notably with the acquisition of a majority interest in Baker Hughes (TICKER:BKR)'s Surface Pressure Control business and the ramp-up of its Vietnam manufacturing facility. * Despite a challenging U.S. onshore market characterized by declining rig counts and tariff pressures, Cactus demonstrated operational agility, achieving sequential margin improvement in its Pressure Control segment in Q3 2025 and strong international sales in Spoolable Technologies. * The company maintains a robust financial position with $445.6 million in cash and no outstanding bank debt as of September 30, 2025, supporting its capital allocation strategy, including dividends and strategic investments. * Technological differentiation, such as the new H2S service pipe for Spoolable Technologies and an upcoming new wellhead design, enhances Cactus's competitive moat and addresses expanding global market needs. * While near-term domestic activity remains subdued and tariff impacts persist, management's guidance for Q4 2025 suggests stabilization in Pressure Control revenue and continued international momentum for Spoolable Technologies, with the Baker Hughes (TICKER:BKR) transaction expected to close in early 2026. ## A Story of Strategic Evolution and Operational Agility Cactus, Inc. (NYSE:WHD), an equipment solutions provider primarily for onshore oil and gas markets, is undergoing a significant strategic evolution, transforming from a U.S.-centric wellhead specialist into a globally diversified energy equipment and services powerhouse. Founded in 2011 by a management team with deep industry roots, Cactus rapidly established itself as a leading provider of wellhead solutions in the U.S. onshore market. This foundational strength, built on a low fixed-cost base and a flexible supply chain, has enabled the company to consistently outperform industry activity levels, even amidst softening market conditions. The company's journey of diversification accelerated with the February 2023 acquisition of FlexSteel, a leading provider of spoolable pipe technologies. This strategic move expanded Cactus's exposure from production trees to the transportation of oil, gas, and other liquids, including midstream applications. The FlexSteel acquisition was a pivotal step, enhancing Cactus's position as a premier manufacturer of highly engineered equipment for the exploration and production (E&P) industry. Cactus operates in two distinct business segments: Pressure Control and Spoolable Technologies. The Pressure Control segment designs, manufactures, sells, and rents wellhead and pressure control equipment for drilling, completion, and production phases of onshore unconventional wells. Its manufacturing facilities are located in Bossier City, Louisiana, Suzhou, China, and Vietnam. The Spoolable Technologies segment, under the FlexSteel brand, manufactures and sells spoolable pipe and fittings for production, gathering, and takeaway pipelines, with its manufacturing facility in Baytown, Texas. ### Technological Edge and Innovation Driving Future Growth Cactus's competitive advantage is deeply rooted in its differentiated technology and continuous innovation. In the Pressure Control segment, systems like Cactus SafeDrill and SafeLink emphasize ease of installation and field services, offering greater operational reliability for onshore unconventional wells. This integrated product-service model is a key differentiator, reducing downtime for clients and fostering strong customer loyalty. The company is also rolling out a new wellhead design, expected to be introduced in Q1 2026, as part of its ongoing efforts to enhance efficiency and mitigate tariff impacts. The Spoolable Technologies segment is at the forefront of product innovation. In April 2025, Cactus produced and shipped its first commercial order of sour service pipe for high H2S applications. This new product is a significant development, opening up new addressable markets, particularly in the Middle East, where much of the oil production has high H2S content. This expansion into sour service applications, combined with existing strengths in larger diameter and higher-pressure pipe for deeper, longer laterals, positions FlexSteel favorably against competitors who may struggle with the technical demands of such applications. The company's focus on reliability and robustness for its spoolable pipe often commands a premium, which customers are willing to pay for enhanced performance. These technological advancements are not merely incremental improvements; they are strategic pillars that contribute to Cactus's competitive moat, enabling higher average selling prices, lower operational costs for customers, and ultimately, better margins and long-term growth. The company's commitment to R&D and new product development is a direct response to evolving industry needs and a proactive measure to expand its market reach and solidify its leadership in specialized applications. ### Navigating a Dynamic Market: Performance and Strategic Responses The year 2025 has presented a complex operating environment for Cactus, marked by fluctuating commodity prices, U.S. trade policy shifts, and a subdued domestic activity outlook. Despite these headwinds, the company has demonstrated remarkable operational agility and strategic foresight. For the nine months ended September 30, 2025, Cactus reported total revenues of $817.8 million, a decrease of 4.6% from $857.7 million in the same period of 2024. Net income attributable to Cactus Inc. for this period was $126.2 million, down from $138.7 million in the prior year. However, a closer look at the third quarter of 2025 reveals signs of resilience and effective mitigation strategies. Total revenues for Q3 2025 were $264.0 million, a sequential decline of 3.5% from Q2 2025, but adjusted EBITDA remained approximately flat at $87.0 million, leading to an improved adjusted EBITDA margin of 32.9% compared to 31.7% in Q2 2025.

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The Pressure Control segment generated $168.7 million in revenue in Q3 2025, a 6.2% sequential decrease, primarily due to lower frac rental revenues as the company focused on its consumable business. However, operating income for this segment increased by 5.2% sequentially to $44.5 million, with operating margins expanding by 290 basis points. This margin improvement was a direct result of implemented cost reduction initiatives, tariff mitigation efforts, and reduced legal expenses. Management noted that the unexpected doubling of Section 232 tariffs on steel in June 2025, leading to an incremental 70% tariff on Chinese imports and a 50% tariff on Vietnam imports, initially impacted margins. However, through extensive efforts to flex the organization and supply chain, including redirecting sourcing and gaining cooperation from suppliers and customers, the company has begun to neutralize these impacts. The Spoolable Technologies segment reported revenues of $95.2 million in Q3 2025, a modest 1% sequential decrease. This was driven by lower domestic customer activity, largely offset by a significant increase in international sales, which reached their highest level since the FlexSteel acquisition. Operating income for the segment was $25.8 million, a sequential decrease of 8%, attributed to lower volume and reduced margins from higher input costs. The international momentum is a key highlight, with new orders from the Middle East and Africa, including the first gas service order from a major Middle East NOC and a sour service order for shipment in the first half of 2026. ### Financial Strength and Capital Allocation Cactus maintains a robust financial position, characterized by strong liquidity and a disciplined capital allocation strategy. As of September 30, 2025, the company held $445.6 million in cash and cash equivalents and had no bank debt outstanding. This strong cash position, combined with $223.2 million in available borrowing capacity under its Amended ABL Credit Facility, provides substantial financial flexibility.

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Management is confident that existing liquidity will be sufficient for at least the next 12 months to cover working capital, the cash purchase price for the Baker Hughes (TICKER:BKR) transaction, debt service, capital expenditures, share repurchases, Tax Receivable Agreement (TRA) payments, and dividends.

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The company's capital expenditure outlook for the full year 2025 is estimated to be in the range of $40 million to $45 million. These investments are strategically directed towards rental fleet enhancements, international expansion, diversification of the low-cost supply chain for Pressure Control, and manufacturing plant enhancements and deployment equipment for Spoolable Technologies. The Board's approval of an $0.14 per share quarterly dividend, reflecting an 8% increase in Q2 2025, underscores confidence in the durability of the company's cash flows.

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### Strategic Expansion and Competitive Positioning A cornerstone of Cactus's long-term strategy is international expansion and supply chain diversification. The company's investment in a Vietnam forging manufacturing facility, with an initial $6 million capital contribution in January 2025, is a critical step in mitigating tariff costs and diversifying its manufacturing capabilities. This Vietnam facility is expected to substantially displace Chinese shipments into the U.S. by mid-2026, once API certification is finalized. The ultimate goal is for Vietnam to supply nearly 100% of U.S. demand previously met by China, allowing the Chinese operation to focus on international markets. While Vietnam imports are still subject to tariffs, the rate is significantly lower than for Chinese imports, providing a strategic advantage. The most transformative strategic initiative is the agreement to acquire a 65% controlling interest in Baker Hughes (TICKER:BKR)'s Surface Pressure Control (SPC) business for $344.5 million, expected to close in early 2026. This joint venture is a significant move to diversify Cactus's geographic footprint, particularly with a strong focus on the Middle East. While the international market, including the Middle East, is expected to be relatively weaker in 2026 compared to 2025 due to a typical lag after U.S. slowdowns and lower Brent oil prices, the acquisition is anticipated to mitigate this impact. The SPC business is performing well, and Cactus plans to leverage its flatter organizational structure, supply chain philosophy, and focused approach to enhance the business. In the competitive landscape, Cactus distinguishes itself through its operational efficiency, service-centric model, and specialized product offerings. Against larger, more diversified competitors like Baker Hughes (TICKER:BKR), Dril-Quip (TICKER:DRQ), Forum Energy Technologies (TICKER:FET), and Oil States International (TICKER:OIS), Cactus's focus on onshore unconventional applications and its extensive network of U.S. service centers provide a qualitative edge in customer relationships and service delivery. WHD's gross profit margin of 50.66% and EBITDA margin of 30.77% (TTM) demonstrate strong profitability compared to some peers. For instance, Dril-Quip (TICKER:DRQ)'s gross profit margin for 2024 was 0.35 (35%), and its operating profit margin was 0.07 (7%). WHD's asset-light, variable-cost business model enables greater flexibility in responding to market cycles, a characteristic that management believes allows it to outperform and deliver industry-leading returns. The company's high-quality customer base in Spoolable Technologies, with approximately 70% of revenue from majors, large E&Ps, and NOCs, further enhances its resilience in volatile commodity price environments. ### Risks and Outlook Despite a strong strategic trajectory, Cactus faces several risks. The ongoing U.S. trade policies, particularly the unexpected and elevated Section 232 tariffs, continue to pose a challenge, impacting profitability to the extent that cost increases cannot be fully offset. Management acknowledges that the U.S. does not have adequate steel-making capacity to avoid imports, and domestic forging capacity has largely pivoted to military applications, making additional tariffs inflationary. Furthermore, the company is involved in a patent infringement lawsuit with Cameron International Corporation regarding its SafeLink frac flow system, the outcome of which is unpredictable and could have a material financial impact. Looking ahead to Q4 2025, management expects Pressure Control revenue to be relatively flat sequentially, supported by modestly increased frac rental activity offsetting holiday slowdowns. Adjusted EBITDA margins for Pressure Control are projected to be between 31% and 33%. Spoolable Technologies revenue is anticipated to be down low double digits sequentially, consistent with seasonal patterns, with adjusted EBITDA margins of 34% to 36%. Management believes that the majority of industry activity declines for 2025 are behind them, with the U.S. land rig count expected to drift modestly lower through year-end. The Baker Hughes (TICKER:BKR) transaction is on track to close in early 2026, promising significant international diversification. ## Conclusion Cactus, Inc. is executing a compelling strategy of diversification and operational excellence that positions it for sustained long-term growth, even as it navigates a complex and often volatile energy market. The company's historical foundation as a leading U.S. onshore wellhead provider has been significantly bolstered by the FlexSteel acquisition and the impending Baker Hughes (TICKER:BKR) SPC joint venture, which collectively expand its product portfolio and geographic reach. Its technological differentiators, including specialized wellhead systems and innovative sour service spoolable pipe, are critical enablers of efficiency and reliability for its customers, reinforcing its competitive moat. While facing near-term challenges from domestic activity slowdowns and tariff pressures, Cactus's agile operational responses, robust balance sheet, and disciplined capital allocation underscore its resilience. The strategic shift towards international markets, particularly the Middle East, and the continuous optimization of its global supply chain through facilities like Vietnam, are crucial steps in mitigating regional market cyclicality and enhancing profitability. For discerning investors, Cactus represents a compelling opportunity in the oilfield services sector, driven by a clear strategic vision, a commitment to technological leadership, and a proven ability to generate strong returns through market cycles.