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Good day, and thank you for standing by, and welcome to the Cactus, Inc. Q4 2024 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Boyd, Director of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good morning. Appreciate you joining us on today's call. Our speakers will be Scott Bender, our Chairman and Chief Executive Officer, and Jay Nutt, our Chief Financial Officer. Also joining us today are Joel Bender, President; Stephen Bender, Chief Operating Officer; Steve Tadlock, CEO of Flexsteel; and Will Marsh, our General Counsel. Note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements. In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. With that, I will turn the call over to Scott.

Alan, and good morning to everyone. As we concluded 2024, our business continued to outperform with revenue and earnings performance for the full year outpacing industry activity levels that have been softening for the past two. Our organization's performance continues to demonstrate inherent characteristics that make Cactus, Inc. one of the most resilient and high-return oilfield service businesses, including a low fixed cost base and a flexible supply chain. Our relentless focus on safety, cost control, and execution for our customers and offering differentiated efficiency-enhancing and highly engineered products and services. We finished the year with solid margin performance in both segments, despite fourth-quarter revenue declines due primarily to seasonality. Fourth-quarter total company highlights include revenue of $272 million, adjusted EBITDA of $93 million, and adjusted EBITDA margins of 34.1%. We paid a quarterly dividend of $0.13 per share, and we increased our cash balance to $343 million. I now turn the call over to Jay Nutt, our CFO, who will review our financial results.

And following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. So, Jay?

Morning. As Scott mentioned, total Q4 revenues were $272 million, which were down 7.2% sequentially. The revenue decline was a bit more than we had anticipated in our spoolable technology segment guidance as a stronger performance experienced in October was not sustained through the end of the year. Total adjusted EBITDA of $93 million was down 7.6% sequentially. For our pressure control segment, revenues of $177 million were down 4.5% sequentially, driven primarily by decreased customer activity and reduced shipments of production equipment as anticipated. Operating income decreased $1.7 million or 3.3% sequentially, with operating margins increasing 40 basis points due to the non-recurrence of miscellaneous charges incurred during the third quarter, offset by lower operating leverage in the quarter. Adjusted segment EBITDA decreased to half a million dollars or 0.8% sequentially, with margins increasing by 130 basis points due to the reasons previously noted. For our spoolable technology segment, revenues of $96 million were down 11.2% sequentially due to lower customer activity levels in the back half of the seasonally slow quarter. Operating income decreased $7.4 million or 22.4% sequentially, with operating margins decreasing 380 basis points due to some ongoing higher input costs and reduced operating leverage. Operating income is inclusive of $4 million of intangible amortization. Adjusted segment EBITDA decreased by $7.3 million or 17.1% sequentially, while margins decreased by 260 basis points. Corporate and other expenses were $5.9 million, down $2.8 million sequentially due to the non-recurrence of professional fees incurred during the third quarter related to growth initiatives. Adjusted corporate EBITDA was flat in Q4 at $4.1 million of expense. On a total company basis, fourth-quarter adjusted EBITDA was $93 million, down 7.6% from $100 million during the third quarter. Adjusted EBITDA margin for the quarter was essentially flat at 34.1%. Adjustments to total company EBITDA during the quarter include a non-cash charge of $6.9 million in stock-based compensation and a $3.2 million gain related to the revaluation of the tax receivable agreement. Depreciation and amortization expense for the quarter was $15 million, including the $4 million of amortization expense related to tangible intangible assets resulting from the Flexsteel acquisition. During the fourth quarter, the public or Class A ownership of the company averaged 85% and ended the quarter at 86%. GAAP net income was $57 million in the quarter versus $62 million during the third quarter. The decrease was largely driven by lower revenues in both segments, which offset the gain related to the revaluation of the TRA. Book income tax expense during the fourth quarter was $19 million, resulting in an effective tax rate of 24%. Adjusted net income and earnings per share were $57 million and $0.71 per share, respectively, versus $63 million and $0.79 per share in the third quarter. Adjusted net income for the fourth quarter and full year 2024 was net of a 26% tax rate applied to our adjusted pretax income. During the fourth quarter, we paid a quarterly dividend of $0.13 per share, resulting in a cash outflow of approximately $10 million, including related distribution to members. We also made the final cash TRA payment of $6.3 million associated with the 2023 taxes during the quarter. Ended the year with a cash balance of $343 million, a quarterly increase of approximately $39 million. The cash build was a little bit lower than our usual cadence, in part due to lower quarterly income, a build of raw material inventory in our spoolable technologies business, following several missed opportunities in the second half of 2024, and in anticipation of robust sales levels in 2025. Additionally, pressure control inventory balances remained elevated as inventory was increased through the third and fourth quarters due to uncertainty regarding potential plant strike activities and the possible implementation of new tariffs. CapEx was approximately $11 million during the quarter, and net CapEx for the full year was approximately $35 million near the midpoint of our guidance provided in October. In a moment, Scott will give you our first-quarter operational outlook. Some additional financial considerations when looking ahead to the first quarter include an effective tax rate of 22% and an estimated tax rate for adjusted EPS of approximately 26%. Additionally, we made a cash tax payment and associated distributions of approximately $25 million in January that was related to deferred 2024 federal taxes. This deferral was allowed under IRS disaster relief provisions after Hurricane Burrell affected the Houston area in June of last year. This deferral benefited our third and fourth-quarter 2024 cash balances. To be $15.5 million with $7 million associated with our pressure control segment and $8.5 million in spoolable technologies. Our full-year 2025 CapEx expectations are in the range of $45 million to $55 million. The increase from 2024 is due to increased spending on equipment upgrades and efficiency improvements at Flexsteel's Baytown manufacturing facility, together with international supply chain diversification efforts, including the $6 million supply chain investment made in January that was originally planned for 2024 to mitigate tariff costs. Finally, the board has approved a quarterly dividend of $0.13 per share, which will be paid in March. This covers the financial review, and I'll now turn the call back over to Scott for his comments about the first-quarter outlook. Thank you,

Pardon me. Thanks, Jay. I'll now touch on our expectations for the first quarter by reporting segment. During the first quarter, we expect pressure control revenue to be flat to up versus the $177 million reported in the fourth quarter. This view is based on strong January results in combination with modestly increasing customer activity levels expected to be at the end of the first quarter. Adjusted EBITDA margins in our Pressure Control segment are expected to be 33% to 35% for the first quarter. This adjusted EBITDA guidance excludes approximately $3 million of stock-based comp expense within the segment. As you would expect, we are closely monitoring the supply chain impact of recently announced tariff adjustments, particularly as they relate to our Chinese production facility. The details remain fluid, making the impact difficult to quantify. But at this time, we believe that our cost profile will be impacted by additional tariffs on goods imported from the US into the US, I'm sorry, from our Chinese facility, which will be incremental to the existing section 301 tariffs. These additional tariff expenses, when implemented, will impact the entire US industry as tariffs will be applied to all steel and derivatives regardless of the countries of origin. As a reminder, our Bossier City manufacturing facility is the industry's largest US manufacturer of ABI 6A equipment, and we currently build approximately half of our equipment at that facility. I'm pleased to share that the location of our new low-cost production facility is in Vietnam. We placed our first orders from this facility and expect modest shipments to begin in the second quarter before ramping up in the back half of the year once we obtain our API 6A accreditation. From our current understanding, this facility will also be impacted by the new tariffs but at a significantly lower rate than our Chinese production facility, demonstrating the benefits of supply chain diversification. We believe our unique combination of production facilities will ensure that we remain a flexible and low-cost producer committed to delivering for our customers. Regarding our spoolable technology segment, we expect first-quarter revenue to be down mid to high single digits relative to the fourth quarter due to extended seasonality. As our customers were slow to increase activity through January. Historically, the first quarter has been the lowest revenue quarter of the year. In 2024, international orders were the primary driver of a sequential increase in the first quarter. We are, however, experiencing a meaningful rebound in order activity in February, and early indications suggest the customer activity is building and that the second and third quarters of 2025 will be strong. This year, we will be introducing a product qualified for H2S service, which will increase our addressable market, particularly in the most active international regions. In addition, we shipped product to a mining customer and a shallow water offshore customer in the fourth quarter. We expect continued opportunities in these areas. Additionally, increased shipments to a major midstream customer contributed to our record sales in 2024, and such shipments are expected to continue to grow in 2025. Finally, our international opportunity list continues to expand and supports our confidence towards achieving our long-term goal of 40% international revenue contribution. We expect EBITDA margins to be approximately 35% to 37% in Q1, which excludes $1 million of stock-based comp in the segment. Lower operating leverage is the primary driver for the anticipated margin decline. As a reminder, 100% of Flexsteel pipe is manufactured in Baytown, Texas, using domestically sourced coils, so we do not expect the same direct tariff cost impacts in this segment, although upstream supply chain impacts are still being determined. Adjusted corporate EBITDA is expected to be a charge of approximately $4.5 million in Q1, which excludes $2 million of stock-based comp. We've made real progress on our international expansion plans and remain focused on establishing an international business in a disciplined manner. We continue to dedicate significant resources in both segments to international revenue diversification. In conclusion, I remain very pleased with both of our business segments' performance. 2024 was a record revenue year for Cactus, Inc., as the first year with a full contribution from Flexsteel, and both segments outperformed lower average industry activity levels year over year. Trade policy uncertainty and customer consolidations still present risks to the US oil and gas industry, but we have successfully addressed such challenges before. Importantly, our customers have historically supported our responses to such matters. In 2025, we remain focused on ramping up our Vietnam production facility, introducing new value-enhancing products in both segments, continuing to win new customers, expanding internationally, and managing our manufacturing cost profile. With that, I'll turn it back over to the operator. And we may begin Q&A. Operator?

Thank you. Our first question comes from the line of Stephen Gengaro of Stifel. Your line is now open.

Thanks. Good morning, everybody.

Good morning to you. How are you? Thanks. I'm well. Thanks. So

I guess two things. I guess I'd start with when we think about, you know, the activity outlook in the US, how are you guys thinking about the activity over the next few quarters in the US market and maybe as part of that, do you think you can outgrow underlying activity? I would

Alright. Let me answer your last question first, and that answer is yes. We're continuing to add new customers, and I feel comfortable that we'll continue to do so. You know, I think that this, of course, my estimate of the US rig count sort of predates what's going on right now with trade policy? And I don't think this trade policy is, I'm sure you'd agree, it's not clearly constructive. You know, we were anticipating overall US onshore rig count in the 550 to 560 range. I was probably, well, I wasn't probably. I was encouraged that there was upside based upon some renewed activity in the natural gas regions, which we've begun to see. And then, believe it or not, in the Bakken and in the mid-continent areas, you know, now we're all concerned about the uncertainty that's gonna follow-up from these ever-changing trade policies. So I guess the short answer is yeah, I'm confident that whatever it is, whatever happens to US activity levels, that we will outperform those.

Great. No. That's good color. Thanks. And then I guess, the other question, it might be harder to kinda crystallize, but at a high level, when you think about the Bossier City facility versus China. Just I know you've had some comments around this in the past. I'm trying to remember sort of the margin headwind that that created a couple of years back. I wanna say it was about one to two hundred basis point margins on the legacy Cactus, Inc. business when you sort of switch over to Bossier versus China. Is that in the ballpark?

You know, Steve was the CFO at that time. I can just tell you, alright. On a comparative basis in terms of cost, oh, is it was at least 35% higher than our Far East supply chain. So keep in mind, that as the tariffs increase for imported steel, Vietnam or wherever, Vietnam or Europe, that US steel prices are also going to increase. And that means Bossier costs are going to increase as well. To what extent, I don't know. But you can anticipate to whatever sort of the weighted average of steel prices is that's that are being imported internationally. But let's face it. That's why the US steel producers have pushed so hard. On steel and aluminum. Make sense. And just a quick think about thirty think about thirty-five percent.

Okay. Thank you. Just a quick follow-up to that and then I'll turn it back is do you think given what you're seeing in the end market and given how public this tariff situation is that you can offset that with, let's call it, cost recovery versus price?

I would be very disappointed if our customers didn't support us in this.

Thank you. It's you know? Okay. But, you know, time will tell.

Exactly. Let's put out the white. You know, I just I just need to add something. Our customers have always been very loyal to us. Because we've been very loyal to them. We've never taken advantage of them. We're very transparent in what we do and why we do it. And I've been gratified by the way they've supported us in the past.

Great. Now, thank you for all the detail.

Thank you so much. And one moment for your next question. Our next question comes from the line of Arun Jayaram of JPMorgan Securities. Your line is now open.

Yeah. Yeah. Good morning. Are you

I'm doing well. Doing well.

I did have maybe a follow-up on the tariff discussion. You know, Jay mentioned that you're going to do a $6 million supply chain investment in Q1 maybe to mitigate, you know, the impact of from, you know, the tariffs. But maybe you could talk about, you know, what the game plan, you know, will be on a go-forward basis just given the fact that you do have flexibility now between Vietnam and Bossier City to kinda mitigate that impact as you move forward.

Well, you know, my answer would probably have to go beyond just simply responding to your question. I think that, yeah, not just Cactus, Inc. Given that we have the largest domestic supply chain capabilities in the industry, there is not a whole lot of spare capacity here. There are not enough people. There is not the domestic forging capacity has gone from this country. And much of it that remains has pivoted towards it won't surprise you to hear the military application. So if you were to go into some of the larger historically oilfield service forgers, you're gonna see things that perhaps you're destined for Ukraine or places like that or could be the Mideast. You're not gonna see a whole lot of oilfield service material for obvious reasons. So there is a just a limit to how much more we can ramp up Bossier. And interestingly enough, although you didn't ask the question, we are busier today in Bossier than we were in 2024. So now let me pivot over to Vietnam. What we expect to see is this is a vertical manufacturing facility that we're putting in. So we would expect to see Vietnam would begin to take over supplying our leads in the US and our Chinese facility will take over responsibility for international demand. So okay. I think I may have mentioned before that when we first designed the facility in Vietnam. I didn't mention Vietnam. We did design a facility that was capable of handling the entirety of our US demand.

Oh, interesting. Interesting. And then maybe the next six to eight question of yeah. Maybe just that $6 million investment that

I was can't no. It was it was it was clear. That $6 million supply chain investment just I like that.

Yeah. So first of all, we already made initial investments in 2024. But the $6 million, this additional $6 million was slated for 2024. So it got postponed to 2025. And it's made right now. This will provide us with vertical manufacturing capabilities. So think about Suzhou the way we develop Suzhou with a modest amount of capital investment. Plus the fact that we're gonna be far more vertical than our supply.

Understood. Did I confuse you again?

No. No. No. That's that's helpful.

Maybe just my follow-up. I wanna get more details. You talked about at Flexsteel the ability now to address H2S solutions. And I was wondering maybe if you could comment, is that product commercialized and maybe discuss maybe some of the growth opportunities from that product. Yeah. I'll let Steve go into the details but it is commercialized. We're shipping with Steve. When's when we're gonna make our first shipment? Our first shipment will be March or April, and that will be to a US customer. And we have some other US customers interested. Really, I mean, the bigger addressable market for us is in the Middle East. 're most oil production at least for our pressures and diameters, it's sour. So our prior Middle East sales have been more in the water injection area and some other, you know, corrosive applications, but not H2S and oil production. So we're excited about that as we mentioned on the call, we think that supports, you know, the eventual 40% international contribution that we're shooting for from Flexsteel in the grand scheme of things.

Great. Thanks, gentlemen.

Thank you so much. And our next question comes from the line of Scott Gruber of Citigroup. Your line is now open.

Yes. Good morning. There, Scott.

How are you doing? Hey. I'm good. I'm good.

Appreciate you guys getting me on.

Yeah. I'm having it. Scott, can you speak up a little bit?

Hi, Matt. Can you hear me?

Yeah. I hear you better now. We that's because Alan just turned the volume up. Thanks.

Great. Great. The thing I'm Can you just, you know, provide a bit of color on how the spool bowls share is evolving in the US you bought the business a couple of years ago, you had talked about, you know, upside to share and production lines and gathering lines. I wanted to see how that's evolving and, you know, if completion activity is kinda flattish this year, how should we think about spoolables growth in 2025 in the US and then, you know, touch on the international growth potential as well.

Yeah. Well, 2024 as a whole was a record revenue. In 2023, at least from a Cactus, Inc. reported standpoint, we didn't have January and February in there. But know, we were up we look back at the prior owners, we were up about 4%. I think, total revenues. And some of that was due to international growth that we talked about on the last call and we just we're talking about now. But that's we're pretty pleased with that. That indicates that we were growing share in the US despite what was this? Recount reduction version? Thirteen thirteen percent or so. Year over year. So we feel very good about our positioning. We continue to expand particularly on the larger diameters. I think with some of the deeper deeper longer laterals, you know, it pushes people probably to higher diameters and pressures where we to have less competition and start running into steel more. So if you're looking for spool of alternatives, it benefits us there. As well as with some of the bigger field developments that we see. So overall, you know, we're we're very pleased with it. We like we said, we had a record fourth quarter. I think obviously, we wish our guide had been a little bit different. We just were projecting off of an extremely strong October and activity fell off further than we anticipated. I guess Q1 is typically our weakest quarter steel construction gets off to a slow start, but we're seeing the ramp up from January to February like we'd expect. So we don't have any true, you know, activity concerns. Customers are telling us that's in many cases, 2025 activity, at least, you know, over the last couple of months, they've been telegraphing that it should be up. And as far as, you know, international awards, they're just lumpier, harder to project. Tend to be, you know, at a minimum, a million dollars, typically on the higher side for us. You know, recently, more in the five to six million dollars. So last year in 2024 in Q1, we benefited from an almost $5 million international order. We don't have that this year. So you know, that's kind of puts us where we are. But overall, I'm feeling very bullish about our prospects. But we're we have to contend with the market. So we just take what the market gives us, but we're trying to expand our portfolio as we talked about and then, you know, target other areas of growth.

Yeah. The H2S product is interesting. How long would it take a product like that to get qualified for sale in the Middle East, and has that process begun?

Yeah. So it is qualified, the API for certain pressure and diameter ranges currently. We're working on further qualification. As far as Middle East qualifications, you always have some, you know, country-specific qualifications, and we're working through those now. But it's not or in the middle of we're in the middle. I mean, it's not a multiyear process. This should be yeah. Working towards this. Good.

I appreciate the call. I'll send it back.

Thank you.

Thank you so much.

One moment, please, for your next question. And we have a follow-up question from Stephen Gengaro of Stifel. Your line is now open.

You Well, thanks for taking thanks for taking another question. The just when we think about the pressure control side, how should we think about the international growth as far as where you stand right now and the opportunities I imagine in, you know, probably in Argentina and also in the Middle East and just kinda where you stand on that progress.

My general counsel is looking at me right now. It's like darts or shit. Don't ask me that question. I you know, I said in a narrative that we made real progress, and we have made real progress. So I really need to leave it at that.

Okay. Okay. I think everybody on this call knows that I've we've never lied to anybody, and we're not gonna start now.

Gotcha. That makes sense. I'm still modeling it as a US business until we sell. But I was just curious if you could give more color, but I appreciate that you can't right now.

Thank you.

Thank you. Thank you so much.

And there are no further questions at this time. I would now like to turn the conference back to Scott Bender, Chairman and CEO, for closing remarks.

Okay. I just wanna thank everybody for your support. Thanks for joining us. This team worked really, really hard this year. Working even harder this year. This my hope is that 2025 will be a transformative year for the company as a whole. And we're doing everything in our power to ensure that that happens. So, anyway, have a good day.

For joining us.