Oil States International's Q3 2025: Contradictions Emerge on Offshore Project Timing, Tariff Impact, and Cash Flow Projections

Date of Call: October 31, 2025

Financials Results

• Revenue: $165.0M (3Q25 consolidated revenues reported)
• EPS: Net income $0.03 per share (3Q25; includes ~$4M of facility exit, severance and restructuring charges); adjusted net income $0.08 per share (3Q25, excluding those charges)

Guidance:

• Q4 consolidated revenue expected to increase 8% to 13% sequentially.
• Q4 adjusted EBITDA expected to be $21M to $22M.
• Full-year cash flow from operations expected to be $100M+.
• Q4 book-to-bill expected to be above 1.0.

Business Commentary:

• Revenue and EBITDA Performance:
• Oil States International reported revenues of $165 million for Q3 2025, with adjusted consolidated EBITDA of $21 million.

• The company's performance was driven by backlog growth, solid execution of existing projects, and resilience in offshore and international markets despite a decrease in U.S. land-based activity.

• Offshore and International Revenue Shift:

• 75% of Oil States' consolidated revenues were generated from offshore and international projects, indicating a shift in revenue mix compared to previous periods.

• This trend is attributed to the company's strategic focus on growing its offshore and international project-driven content, which generally comprises longer cycle, higher-margin work.

• Backlog and Bookings Growth:

• The company's backlog increased to $399 million, with robust bookings of $145 million in Q3 2025, representing a 29% quarter-over-quarter increase.

• The growth in backlog was bolstered by strong military orders, which contributed to a quarterly book-to-bill ratio of 1.3x.

• U.S. Land Activity and Margin Optimization:

• U.S. land completion activity declined significantly during the period, with the average U.S. frac spread count down 11% sequentially.

• Despite weak industry activity levels, sustained margin benefits from optimization efforts have led to year-over-year EBITDA growth in the Completion and Production Services segment.

• Tariff Impact and Cash Flow Management:

• The company experienced higher costs due to tariffs in the Downhole Technologies segment, affecting its adjusted segment EBITDA.
• Despite these challenges, Oil States managed to generate $31 million in cash flow from operations, with plans to increase this further in the fourth quarter and reach an annual total exceeding $100 million.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a decade-high backlog, execution-driven results and strong cash generation ("$31M" cash from operations in Q3, up 105% sequentially), noted offshore/international mix growth (75% of revenues), and stated expectations for higher EBITDA margins and enhanced cash flows into 2026.

Q&A:

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): Color on customer conversations about timing of offshore rebound, margin profile, tariff impact and timing of backlog roll-off?
  Response: Company expects offshore spending to improve in 2026 as some projects slipped later, booked strongly (book-to-bill >1) driven by production infrastructure and military work; tariffs materially pressured Downhole consumables and will need to be passed through over time.

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): If you back out tariff impact, was tariffs the main driver of Downhole negative EBITDA and when will EBITDA recover?
  Response: Yes — tariffs were the primary driver of the Downhole negative EBITDA (plus weak plug demand); recovery expected early next year as inventory normalizes and tariff costs are passed through; pursuing alternative sourcing and potential gun assembly in Indonesia (~6 months timeline).

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Have U.S. land restructuring and cost actions largely been realized in margins, and how does this unfold over next 12 months?
  Response: Most of the transition will be complete by year-end; expect C&P EBITDA margins to move to high-20s/low-30s (from mid-teens) and deliver better free cash flow as actions finalize.

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Outside of activity levels, have you seen the majority of revenue impact from pared-down businesses?
  Response: Yes — the majority of the revenue impact from portfolio high-grading has already occurred.

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Is current backlog expected to convert at a similar rate as last year (~70% over 12 months) or is it elongated?
  Response: Backlog is slightly elongated due to multiyear military awards, but expected Q4 awards could shift conversion back toward historical levels.

• Question from Joshua Jayne (Daniel Energy Partners): Do you view customer capital allocation as structurally shifting offshore versus U.S. land, and will offshore take a greater share going forward?
  Response: Management views it as more secular toward offshore—lower breakevens, longer-lived reserves and faster project cycles favor offshore—though mix depends on each customer; company is positioned to benefit given product mix.

• Question from Joshua Jayne (Daniel Energy Partners): Can you elaborate on products driving offshore backlog (e.g., MPD, FlexJoint) and how they improve safety/efficiency?
  Response: Backlog driven by recurring connector products and production infrastructure (notably FlexJoint), plus growing MPD adoption; Petrobras and other offshore projects are key demand drivers; subsea mineral recovery and offshore-wind opportunities remain potential upside but are early-stage.

• Question from Joshua Jayne (Daniel Energy Partners): On U.S. land, how do you avoid cutting too much so you can scale when activity recovers?
  Response: Decisions were multiyear and selective: retain high-margin, cash-generative land product lines and exit commoditized businesses so the company can scale where economics and returns justify it.

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): Did you confirm full-year cash flow from operations of $100M and implied Q4/free cash flow math?
  Response: Confirmed — management expects full-year cash flow from operations >$100M, implying a strong Q4 and free cash flow likely north of ~$75M for the year.

Contradiction Point 1

Offshore Project Activity and Timing

It involves differing expectations regarding the timing and magnitude of offshore project activity, which can impact revenue and cash flow projections.

Are offshore drillers projecting a mid-to-late next year rebound with near-term activity bottoming, and when will infrastructure FIDs accelerate? Given your strong bookings and continued momentum, could you clarify the progress of client discussions, margin impacts from tariffs, and the timing of backlog execution? - James Michael Rollyson(Raymond James & Associates, Inc., Research Division)

2025Q3: We're going to have a book-to-bill north of 1. That's predicated on projects that are very close to the award stage, and that is both production infrastructure for us and kind of NPD type systems. Those are the drivers. - Cindy Taylor(CEO)

Can you discuss recent offshore project activity and the impact of economic uncertainty on offshore investments? - James Michael Rollyson(Raymond James & Associates, Inc., Research Division)

2025Q2: Our offshore projects are more focused on production infrastructure, which is less affected by short-term macroeconomic issues. These are long-term, multi-decade developments rather than discretionary investments like drilling rig equipment and consumables. We anticipate a book-to-bill ratio north of 1 for the rest of the year. - Cynthia B. Taylor(CEO)

Contradiction Point 2

Tariff Impact on Operations

It involves differing assessments of the impact of tariffs on the company's operations, which can affect financial performance and cost management strategies.

What was the primary driver of the first-quarter negative EBITDA in the CPS segment excluding tariff impacts, and when do you expect EBITDA to return to positive as tariff effects flow through inventory? - James Rollyson(Raymond James & Associates, Inc., Research Division)

2025Q3: You're absolutely correct in your assessment. Now I will add to that, however, that even our plug demand was very weak in the quarter, not negative EBITDA, but there -- in other words, there was no offset for the other portion of the consumables that we have in the mix or not sufficient offset, I'll call it. And we believe we may even see improved demand even in -- fourth quarter is always weak because of holidays. Everybody knows that. We think we're going to see a little bit of an improved demand on the plug side simply because of inventory drawdowns during the quarter. - Cindy Taylor(CEO)

What is the potential impact of tariffs on your operations? - James Michael Rollyson(Raymond James & Associates, Inc., Research Division)

2025Q2: We anticipate a modest cost increase only in our Downhole Technologies segment due to tariffs. Our diverse global supply sourcing and flexible manufacturing locations help mitigate any significant impact. - Cynthia B. Taylor(CEO)

Contradiction Point 3

Cash Flow and Financial Projections

It involves differing expectations regarding cash flow projections, which are crucial for understanding the company's financial health and performance.

Did you mention that your Q4 revenue and EBITDA guidance were lower than the original full-year guidance and that full-year operating cash flow is expected to reach $100 million? - James Rollyson(Raymond James & Associates, Inc., Research Division)

2025Q3: We had, in our view, a very strong Q3, and we're going to have an even stronger Q4. We -- in our -- these project businesses that are long term, the timing of receivables and inventory purchases, ebbs and flows, we are confident when we say that it will be $100 million plus for the year, which is a very significant number, as you know. - Cindy Taylor(CEO)

Can you update your CapEx and cash flow outlook? - Patrick John Ouellette(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: We are guiding CapEx to $30 million for the year, reflecting higher spending due to the completion of the Batam facility and low-impact workover riser equipment versus our previous guidance of $25 million. This spending is pursuant to customer contracts. - Lloyd A. Hajdik(CFO)

Contradiction Point 4

CPS Margin Improvements

It involves differing expectations on the timeline and magnitude of CPS margin improvements, which are critical for financial performance and investor expectations.

What steps has Cindy taken to upgrade the U.S. land portfolio? - Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: We'll be through a lot of this transition by the end of the year... Once we do, we expect, depending on timing of work and everything else, caveat that goes with it, high 20s to low 30s EBITDA margins. - Cindy Taylor(CEO)

Can you clarify the sequential improvement in the CPS business due to cost efforts and Gulf benefits? - Unknown Analyst (Daniel Energy Partners)

2025Q1: First quarter CPS EBITDA margin at 25%, targeting 20% for the full year. - Cindy Taylor(CEO)

Contradiction Point 5

Capital Expenditure and Cash Flow Allocation

It involves changes in the company's strategy regarding capital expenditure and cash flow allocation, which are crucial for financial planning and investor expectations.

Cindy, did you confirm that your 4Q revenue and EBITDA guidance is lower than the original full-year guidance, and that the full-year operating cash flow remains at $100 million? - James Rollyson (Raymond James & Associates, Inc., Research Division)

2025Q3: We had, in our view, a very strong Q3, and we're going to have an even stronger Q4. We -- in our -- these project businesses that are long term, the timing of receivables and inventory purchases, ebbs and flows, we are confident when we say that it will be $100 million plus for the year, which is a very significant number, as you know. - Cindy Taylor(CEO)

Will free cash flow prioritization favor share buybacks over debt reduction in 2025, and how is the $40–50 million allocation determined? - Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division)

2024Q4: We feel very comfortable with our debt levels. We executed on share repurchases in Q4 and have net debt of approximately $60 million at the end of the year, which was reduced to $45 million in January. We're not focused on debt reduction but rather on prudently focusing on shareholder returns. - Cindy Taylor(CEO)