Group 1 - Cactus (NYSE: WHD) has shown solid earnings power and an interesting deal, indicating a promising start to 2023 [1] - The investing group "Value In Corporate Events" focuses on capitalizing on major corporate events such as IPOs, mergers & acquisitions, and earnings reports [2] - The group provides coverage of 10 major events per month, aiming to identify the best investment opportunities [2]

Summary of Cactus (WHD) M&A Announcement Conference Call Company and Industry - **Company**: Cactus, Inc. (WHD) - **Industry**: Oilfield Equipment and Services - **Acquisition Target**: Baker Hughes Surface Pressure Control (SPC) business Core Points and Arguments 1. **Acquisition Announcement**: Cactus announced the acquisition of a 65% controlling stake in Baker Hughes' SPC business for approximately $344.5 million, establishing a joint venture with Baker Hughes [6][12][10] 2. **Strategic Rationale**: The acquisition aims to create a global, capital-light oilfield equipment company, enhancing Cactus's geographic presence, particularly in the Mideast, a key growth market for oilfield services [6][10][8] 3. **Financial Metrics**: The transaction values the SPC business at approximately $530 million, with a purchase price representing a multiple of about 6.7x 2024 transaction-adjusted EBITDA [12][10] 4. **Revenue and Market Presence**: SPC generated nearly $500 million in revenue in 2024, with 85% of its revenue coming from the Mideast. The business has a strong backlog exceeding $600 million, indicating stable revenue potential [16][18][10] 5. **Operational Synergies**: Cactus expects to achieve approximately $10 million in annual cost synergies within one year post-acquisition, despite initial dis-synergies due to corporate infrastructure expansion [14][15] 6. **Market Dynamics**: Cactus aims to leverage its existing knowledge and relationships to enhance SPC's performance and capture market share in the Mideast, where it currently faces competition from major players like Schlumberger [48][50][49] 7. **Long-term Strategy**: The acquisition is seen as a pathway to expand Cactus's international footprint, with plans to pursue opportunities beyond the Mideast while maintaining a strong U.S. presence [53][52] Other Important Content 1. **Risk Factors**: The call included a disclaimer regarding forward-looking statements and the inherent risks associated with such projections [4][3] 2. **Financial Flexibility**: Cactus plans to maintain a conservative balance sheet and significant financial flexibility post-acquisition, with little to no net debt anticipated at closing [14][10] 3. **Cultural Integration**: Cactus emphasizes the importance of instilling its operational excellence culture within SPC to drive performance improvements [26][57] 4. **Market Share Potential**: There is significant room for market share growth in the Mideast, particularly in Saudi Arabia and Oman, where Cactus sees opportunities to improve SPC's competitive position [48][49] 5. **Aftermarket Services**: Over 30% of SPC's revenue comes from aftermarket services, providing a stable revenue stream that is less dependent on new drilling activities [18][16] This summary encapsulates the key points discussed during the conference call regarding Cactus's acquisition of Baker Hughes' SPC business, highlighting the strategic, financial, and operational implications of the deal.

Transaction Overview - Cactus will acquire 65% of Baker Hughes' Surface Pressure Control (SPC) business for $344.5 million, valuing SPC at $530 million on a cash-free, debt-free basis[9] - The upfront purchase price of 65% represents approximately 6.7x 2024 Transaction Adjusted EBITDA[9] - Cactus expects to achieve annualized cost synergies of approximately $10 million within 12 months of closing[9] SPC Business Highlights - SPC's 2024 revenue was $498 million with an Adjusted EBITDA of $87 million, resulting in a 17% Adjusted EBITDA Margin[10] - SPC had a backlog of over $600 million as of December 31, 2024[9, 10] - Approximately 85% of SPC's revenues come from the Middle East[10] - SPC's 2024 Aftermarket Service Revenue was over $150 million[10] Pro Forma Financials (2024, Excluding Synergies) - Combined Cactus and SPC revenue would be $1,628 million ($1.13 billion from Cactus and $498 million from SPC)[22] - Combined Adjusted EBITDA would be $479 million ($392 million from Cactus and $87 million from SPC)[22] - The combined Adjusted EBITDA Margin would be 29% (35% from Cactus and 17% from SPC)[22]

Core Viewpoint - Baker Hughes has announced a joint venture with Cactus, Inc., where Baker Hughes will contribute its surface pressure control product line, with Cactus owning 65% and Baker Hughes retaining 35% [1][6]. Group 1: Joint Venture Details - The joint venture will operate independently from Cactus' existing Pressure Control business and will focus on maintaining leadership in the international market for surface wellhead and production tree systems [2]. - The transaction is expected to close in the second half of 2025, subject to customary conditions including regulatory approvals [4]. Group 2: Strategic Alignment - This joint venture aligns with Baker Hughes' strategy to enhance earnings durability and cash flow, allowing for capital reallocation towards higher-return opportunities [3]. - The CEO of Baker Hughes emphasized that this transaction is a significant step in optimizing the company's portfolio, focusing on core growth areas and driving higher returns for shareholders [4]. Group 3: Company Background - Baker Hughes is an energy technology company providing solutions to energy and industrial customers globally, with operations in over 120 countries [5].

Core Viewpoint - Cactus, Inc. (WHD) has seen its shares increase by approximately 5.5% over the past month, outperforming the S&P 500, but there are concerns about whether this positive trend will continue leading up to the next earnings release [1]. Group 1: Earnings Report and Estimates - The consensus estimate for Cactus has shifted downward by 6.22% over the past month, indicating a negative trend in estimates revisions [2]. - The stock has received a Zacks Rank of 4 (Sell), suggesting expectations of below-average returns in the coming months [4]. Group 2: VGM Scores - Cactus currently holds a Growth Score of B, but has a low Momentum Score of F, indicating weak performance in that area [3]. - The stock has a Value Score of D, placing it in the bottom 40% for this investment strategy, leading to an overall aggregate VGM Score of D [3].

Core Insights - National Fuel Gas (NFG) is currently viewed as a better value opportunity compared to Cactus, Inc. (WHD) based on various financial metrics and Zacks Rank [1][3][7] Valuation Metrics - NFG has a forward P/E ratio of 12.01, while WHD has a forward P/E of 14.86, indicating that NFG is potentially undervalued [5] - The PEG ratio for NFG is 0.59, suggesting a favorable earnings growth outlook compared to WHD's PEG ratio of 5.09, which indicates a less attractive growth perspective [5] - NFG's P/B ratio stands at 2.63, compared to WHD's P/B of 2.69, further supporting NFG's valuation advantage [6] Earnings Outlook - NFG is experiencing an improving earnings outlook, which enhances its attractiveness in the Zacks Rank model, contrasting with WHD's weaker outlook [3][7]

Core Insights - Cactus, Inc. reported revenue of $280.32 million for the quarter ended March 2025, reflecting a 2.3% increase year-over-year and a 4.67% surprise over the Zacks Consensus Estimate of $267.82 million [1] - The company's EPS was $0.73, down from $0.75 in the same quarter last year, with a surprise of 4.29% over the consensus estimate of $0.70 [1] Revenue Performance - Spoolable Technologies revenue was $92.58 million, exceeding the average estimate of $89.61 million, but showing a decline of 6.6% compared to the previous year [4] - Pressure Control revenue reached $190.28 million, surpassing the average estimate of $178.44 million, and increased by 8.7% year-over-year [4] Operating Income - Operating income for Pressure Control was $54.33 million, above the average estimate of $51.71 million [4] - Corporate and other expenses reported an operating loss of $9.60 million, worse than the average estimate of -$6.43 million [4] - Operating income for Spoolable Technologies was $23.88 million, slightly above the average estimate of $23.29 million [4] Stock Performance - Cactus shares have returned -2.3% over the past month, compared to a -0.5% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Revenue Performance - For the three months ended March 31, 2025, total revenues increased to $280.3 million, a rise of 3.0% from $272.1 million in the previous quarter[92]. - Total revenues for Q1 2025 were $280.3 million, an increase of $6.2 million or 2.3% compared to Q1 2024[99]. - Pressure Control segment revenue was $190.3 million, up 7.7% from $176.7 million in the fourth quarter of 2024, driven by increased sales of wellhead and production-related equipment[93]. - Pressure Control segment revenue increased to $190.3 million, up $15.2 million or 8.7% from Q1 2024, driven by higher sales of wellhead and production-related equipment[99]. - Spoolable Technologies segment revenue decreased to $92.6 million, down 3.6% from $96.1 million in the previous quarter, primarily due to reduced customer activity levels[94]. - Spoolable Technologies segment revenue decreased to $92.6 million, down $6.5 million or 6.6% from Q1 2024, primarily due to reduced customer activity levels[100]. Income and Expenses - Operating income for the Pressure Control segment increased to $54.3 million, a 6.9% rise from $50.8 million in the previous quarter[93]. - Total operating income decreased to $68.6 million, down 2.6% from $70.5 million in the fourth quarter of 2024[92]. - Total operating income for Q1 2025 was $68.6 million, an increase of $6.1 million or 9.7% from Q1 2024[99]. - Net income attributable to Cactus Inc. was $44.2 million, a decrease of 5.3% from $46.7 million in the previous quarter[92]. - Net income attributable to Cactus Inc. was $44.2 million, an increase of $5.3 million or 13.5% compared to Q1 2024[99]. - Corporate and other expenses rose to $9.6 million, a 62.7% increase from $5.9 million in the previous quarter, primarily due to professional fees associated with growth initiatives[96]. - Corporate and other expenses increased to $9.6 million, up $4.1 million or 73.9% from Q1 2024, largely due to professional fees associated with growth initiatives[102]. Cash Flow and Investments - Net cash provided by operating activities was $41.5 million for Q1 2025, a decrease of $44.8 million from $86.3 million in Q1 2024[110]. - Net cash used in investing activities increased to $15.5 million in Q1 2025, primarily due to a $6.0 million investment in a joint venture in Vietnam[111]. - As of March 31, 2025, the company had $347.7 million in cash and cash equivalents and $222.6 million of available borrowing capacity under its Amended ABL Credit Facility[105]. - Estimated net capital expenditures for the year ending December 31, 2025 are projected to range from $40 million to $50 million, focusing on rental fleet investments and manufacturing plant enhancements[108]. Market Conditions - Average WTI oil price for the three months ended March 31, 2025, was $71.78 per barrel, compared to $77.50 per barrel in the same period of 2024[84]. - Average natural gas price increased approximately 70% from the fourth quarter of 2024 to $4.14 per MMBtu[84]. Strategic Initiatives - Cactus Inc. acquired a 40% ownership in a forging manufacturing facility in Vietnam for $6 million to diversify its supply chain[86].

Financial Data and Key Metrics Changes - Total Q1 revenue was $280 million, up 3% sequentially, with adjusted EBITDA of $94 million, an increase of 1.2% sequentially [9][11] - GAAP net income for Q1 was $54 million, down from $57 million in the previous quarter, primarily due to professional fees incurred at corporate [12] - Adjusted net income and earnings per share were $59 million and $0.73 per share, respectively, compared to $57 million and $0.71 per share in the fourth quarter [12] Business Line Data and Key Metrics Changes - Pressure Control segment revenues were $190 million, up 7.7% sequentially, driven by customer drilling efficiencies [9][10] - Spoolable Technologies segment revenues were $93 million, down 3.6% sequentially due to lower domestic customer activity, partially offset by increased international shipments [10][11] - Operating income for Pressure Control increased by $3.5 million or 6.9% sequentially, while Spoolable Technologies saw a decrease of $1.6 million or 6.5% sequentially [10] Market Data and Key Metrics Changes - International sales in the Spoolable Technologies segment increased by 30% quarter over quarter, driven by robust demand in Canada [22] - The company expects U.S. land drilling activity to decline slightly in the second quarter, with approximately 30 fewer land rigs operating than at the end of Q1 [20] Company Strategy and Development Direction - The company is focused on mitigating tariff impacts by increasing alternative sourcing and ramping up production from its Vietnam facility [16][17] - There is a commitment to international expansion, although no specific updates were provided during the call [26] - The company plans to reduce full-year 2025 net CapEx outlook to a range of $40 million to $50 million while maintaining critical investments [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining profitability despite macroeconomic uncertainties and tariff impacts [27] - The company anticipates a decline in pressure control revenue in Q2 but expects spoolable technologies revenue to increase due to seasonal expansion [20][21] - Management noted that downturns historically create opportunities for new customer acquisition and that they are already seeing such opportunities [90] Other Important Information - The company paid a quarterly dividend of $0.13 per share, resulting in a cash outflow of approximately $11 million [13] - The cash balance at the end of the quarter was $348 million, reflecting a sequential increase of approximately $5 million [13] Q&A Session Summary Question: Transition to Vietnam and cost advantages - Management clarified that Bossier City is not a low-cost operation but offers fast turnaround and robust manufacturing, protecting market share [30] Question: Customer behavior regarding tariffs - Management confirmed that customers have requested to pull forward purchases, but these requests have been denied to maintain fairness among all customers [39] Question: Customer loyalty during downturns - Management indicated that major customers are sticking with the company, emphasizing the importance of supply chain sustainability [42] Question: M&A opportunities in the current environment - Management noted that private equity firms are willing to sell oil field service investments at attractive prices, but the focus remains on the current industry [46] Question: Impact of tariffs on margins - Management acknowledged that there will be some margin compression in the second half of the year due to tariffs, but diversification efforts will help mitigate impacts [68] Question: Ongoing Section 232 investigation - Management expressed that the U.S. lacks adequate steelmaking capacity, which could lead to inflationary pressures [81]

Financial Data and Key Metrics Changes - Total Q1 revenues were $280 million, up 3% sequentially, with adjusted EBITDA of $94 million, up 1.2% sequentially [7][10] - GAAP net income for Q1 was $54 million, down from $57 million in the previous quarter, primarily due to professional fees incurred at corporate [11] - Adjusted net income and earnings per share were $59 million and $0.73 per share, respectively, compared to $57 million and $0.71 per share in the fourth quarter [11] Business Line Data and Key Metrics Changes - Pressure Control segment revenues were $190 million, up 7.7% sequentially, driven by customer drilling efficiencies [7][8] - Operating income for the Pressure Control segment increased by $3.5 million or 6.9% sequentially, while operating margins decreased by 20 basis points [8] - Spoolable Technologies segment revenues were $93 million, down 3.6% sequentially due to lower domestic customer activity [9] Market Data and Key Metrics Changes - International shipments in the Spoolable Technologies segment increased, partially offsetting the decline in domestic activity [9][22] - Sales to international locations were up 30% quarter over quarter, driven by robust demand in Canada [22] Company Strategy and Development Direction - The company is focused on mitigating tariff impacts by increasing alternative sourcing and ramping up production from its Vietnam facility [15][16] - The company expects to neutralize increased tariff expenses by mid-next year, maintaining profitability despite potential margin compression [19][20] - The company remains committed to international expansion and is evaluating further reductions in planned capital expenditures due to market uncertainty [13][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong cash flows despite a clouded industry outlook, citing a supportive customer base and diverse supply chain [26] - The company anticipates a decline in pressure control revenue for Q2 due to moderating levels of products sold per rig followed [20] - Management noted that major customers are sticking with the company due to its reliability and sustainability of supply chain [42] Other Important Information - The company paid a quarterly dividend of $0.13 per share, resulting in a cash outflow of approximately $11 million [12] - The company ended the quarter with a cash balance of $348 million, a sequential increase of approximately $5 million [12] Q&A Session Summary Question: Transition from China to Vietnam - Management confirmed that transitioning sourcing to Vietnam will largely neutralize tariff impacts, maintaining absolute profitability despite margin percentage declines [33] Question: Customer Behavior During Downturns - Management noted that customers are attempting to pull forward purchases, but the company has denied these requests to maintain fairness among all customers [39] Question: M&A Opportunities - Management indicated that private equity firms are currently offering attractive prices for oil field service investments, but the focus remains on existing business operations [45] Question: Impact of Tariffs on Margins - Management acknowledged that while there may be some margin compression in the second half of the year due to tariffs, diversification of the supply chain will help mitigate impacts [65] Question: Market for Sour Flexible Pipe - Management expressed optimism about the growing market for sour flexible pipe, particularly in the Middle East, where demand is expected to increase [82]