Strategic Pivot to Offshore and International Markets
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Management attributed the 8% sequential revenue growth to its Offshore/Manufactured Products and Downhole Technologies segments, noting that the latter benefited from higher U.S. activity levels despite a broader strategic shift toward offshore and international markets., which now accounts for 72% of consolidated revenue compared to approximately 50% in 2023.
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The Offshore/Manufactured Products segment achieved its highest backlog in nearly 12 years at $482 million, driven by a 1.3x quarterly book-to-bill ratio and sustained demand in Brazil, Guyana, and Asia.
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Performance in the Downhole Technologies segment improved due to expanded product portfolios and higher U.S. activity, despite significant headwinds from premium explosive powder shortages and rising raw material costs for tungsten and copper.
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The Completion and Production Services segment maintained a 26% adjusted EBITDA margin by high-grading service lines to focus on proprietary extended reach tools and international markets, experiencing a modest sequential decrease in revenue due to changes in customer activity within U.S. land markets.
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Management noted that global supply disruptions and conflicts in the Middle East and Europe have reinforced the multi-year outlook for offshore investments as operators seek secure and diversified energy supplies.
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Operational results were tempered by a shift in revenue mix toward lower-margin product and service offerings within the Offshore segment, though military and connector products provided a positive uplift.
Backlog Conversion and 2027 Growth Outlook
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Fourth quarter guidance assumes revenues between $172 million and $184 million, with adjusted EBITDA ranging from $20 million to $23 million, subject to project timelines and geopolitical conditions.
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Management expects the 12-month backlog conversion rate to moderate to the 50% to 55% range, down from the historical 65% to 70%, due to the multi-year nature of recent military product awards.
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The company anticipates that headwinds related to explosive powder availability and raw material costs will begin to moderate in the first and second quarters of 2027.
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Strategic growth initiatives for 2027 include scaling differentiated platforms like managed pressure drilling (MPD) systems and subsea intervention solutions for well maintenance and decommissioning.
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Capital allocation will prioritize organic R&D, selective M&A to fill technology gaps, and opportunistic share repurchases under a new $50 million authorization.
Working Capital Dynamics and Capital Allocation
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The company invested $38 million in inventory during the first nine months of 2026 to support the execution of its growing backlog and secure Downhole consumable product lines.
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A new $50 million two-year share repurchase authorization was approved by the Board, effective through October 2028, following the expiration of the previous plan.
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Management identified $14 million in remaining assets held for sale, with monetization proceeds now expected to carry over into 2027 depending on market conditions.
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The company strengthened its balance sheet by retiring the balance of its outstanding convertible senior notes and establishing a new cash flow-based credit facility.
Q&A Session Insights
Market adoption and revenue potential for MPD systems
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Management reported strong customer acceptance of their managed pressure drilling (MPD) technology, with deepwater operators increasingly requiring drillships to be 'MPD-ready'.
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The company has modeled approximately $35 million to $40 million in annual MPD revenue at attractive margins, supported by both rental and sales models.
Backlog composition and visibility into 2027
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While 2025 bookings were heavy on military products, nearly 90% of the $333 million in bookings year-to-date are related to offshore energy products.
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This shift provides high visibility into 2027, aligning with projected increases in global EPCI spending over the next five years.
Pricing power and margin sustainability amidst inflation
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Management stated they have not made pricing concessions on capital equipment despite industry-wide inflation.
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They continue to target a 20% EBITDA margin for the Offshore/Manufactured Products segment, viewing current project mix shifts as temporary.
Free cash flow expectations and working capital timing
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Fourth quarter free cash flow is projected between $15 million and $25 million, though management cautioned that year-end customer collections can be seasonally slow.
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The significant year-to-date inventory build is characterized as a 'push to the right' that will convert to cash as long-cycle projects are delivered.
