HMH (HMH) Q1 2026: Orders Jump 10% as Offshore Backlog Signals Multi-Year Growth Inflection
HMH’s first quarter marks a pivotal inflection in offshore drilling demand, with orders up and backlog visibility sharply improved into 2027. Despite anticipated top-line softness, margin resilience and a robust book-to-bill ratio underscore the company’s asset-light model and operational discipline. Management’s constructive tone, coupled with a strengthened balance sheet post-IPO, positions HMH for sustained growth as offshore and mining cycles accelerate.
Summary
- Offshore Recovery Anchors Outlook: Contracting activity surge lifts backlog visibility well into next year.
- Margin Resilience Despite Revenue Dip: Cost controls and favorable mix support profitability through the downcycle.
- IPO Proceeds Bolster Flexibility: Strengthened capital structure enables disciplined growth and targeted M&A.
Business Overview
HMH is a global provider of drilling solutions, specializing in offshore and onshore drilling equipment, aftermarket services, and spare parts. The company generates revenue through three primary segments: aftermarket services (field service, repairs, digital upgrades), spare parts (replacement components for installed rigs), and products/projects (capital equipment and technology upgrades). HMH’s installed base is concentrated in offshore rigs, with expanding exposure to mining and digital solutions.
Performance Analysis
Revenue softness in Q1 was anticipated due to a lower opening backlog, with total revenue at $171 million, down from the prior year. The standout was spare parts, which grew 11% to $67 million, reflecting heightened maintenance and reactivation activity across the installed base. Aftermarket services, while down year-over-year, are positioned for a second-half rebound as offshore and land rigs return to work.
Adjusted EBITDA margin expanded to 17.6%, a notable achievement amid volume headwinds, driven by disciplined cost management and a favorable mix shift toward higher-margin spares. Orders rose 10% year-over-year and 25% sequentially, resulting in a book-to-bill ratio of 1.3x—demonstrating that new business is outpacing revenue recognition and bolstering future visibility. Free cash flow was positive despite seasonal working capital swings, and capex remained low at 2% of revenue, underscoring the asset-light approach.
- Spare Parts Outperformance: Accelerated order flow from customers prepping for second-half activity drove spares growth, a leading indicator for aftermarket revenue.
- Operational Efficiency Gains: Margin durability reflects last year’s cost actions and ongoing mix optimization in services and spares.
- Backlog Visibility: Book-to-bill above 1.0x and contract awards, especially in offshore, extend demand certainty into 2027.
Second-half weighting is pronounced, with management signaling a meaningful ramp in both revenue and EBITDA as customer activity accelerates. IPO proceeds further enhance liquidity and de-risk the balance sheet.
Executive Commentary
"Our first quarter of 2026 results demonstrate resilience and quality of our business model. Orders for the quarter were $218 million, representing a book-to-bill ratio of 1.3 times in the first quarter. Importantly, adjusted EBITDA margins grew year-over-year to 17.6%, driven by disciplined cost execution, favorable product mix in spare parts, and a continued focus on operational efficiency."
Eirik Bersvik, Chief Executive Officer
"Despite lower volumes, we continued to demonstrate underlying margin resilience, supported by disciplined cost execution, favorable product mix, and continued focus on operational efficiency. Orders exceeded revenue in the quarter, resulting in a book-to-bill of 1.3 times. Importantly, quarter-over-quarter order and backlog growth reflects improving customer visibility and positions us well for increased activity levels in the second half of the year."
Tom McKee, Chief Financial Officer
Strategic Positioning
1. Offshore Market Inflection
Offshore contracting activity reached a three-year high, with floater awards in the first four months of 2026 already at 75% of last year’s total volume. HMH’s exposure to high-spec units and a rising utilization rate in its installed base—now in the high 80% range—solidifies its position as the offshore cycle accelerates. Management stressed that many new contracts are long-term, improving revenue visibility and setting the stage for future upgrades and automation projects.
2. Aftermarket and Spares as Leading Indicators
Spares and aftermarket bookings serve as early signals of rig reactivation and future service demand. The close interplay between spares orders and aftermarket services suggests a multi-quarter growth tailwind as rigs return to operation globally. Management expects this dynamic to drive a pronounced second-half revenue ramp.
3. Asset-Light Model and Capital Allocation
HMH’s asset-light strategy, with capex at just 2% of revenue, enables high free cash flow conversion and operational agility. The IPO proceeds have been used to repay shareholder loans and further strengthen liquidity, supporting organic growth and targeted M&A—particularly in adjacent areas like mining and digital solutions.
4. Technology Differentiation and R&D Focus
Development agreements, such as the recent Petrobras partnership on rotating control device technology, reinforce HMH’s positioning in managed pressure drilling (MPD) and automation. Management highlighted ongoing investment in digital upgrades and product capability to capture share as customer needs evolve toward higher power and automation.
5. Geographic and End-Market Diversification
Exposure is increasingly weighted toward offshore and mining, limiting risk from regional disruptions, such as recent Middle East volatility. Management cited “green shoots” in North American onshore and a constructive mining outlook, with copper demand and new projects providing additional growth levers.
Key Considerations
This quarter’s results and commentary highlight a business at the intersection of cyclical recovery and operational discipline. The order momentum and backlog composition provide multi-year visibility, but execution against a back-half loaded year will be critical.
Key Considerations:
- Order Momentum as Growth Signal: Sustained order growth and backlog expansion are translating into higher future utilization and revenue certainty.
- Margin Durability Despite Soft Volumes: Cost actions and favorable mix have insulated margins, but maintaining this as volumes recover will be a key test.
- IPO-Driven Balance Sheet Strength: Enhanced liquidity and no near-term debt maturities provide flexibility for both organic and inorganic growth.
- Technology and Digital Upgrades: Partnerships and R&D investments are positioning HMH to capture higher-value upgrade cycles as rigs are reactivated.
- Mining and Geographic Expansion: Diversification into mining and non-Middle East markets could buffer against regional volatility and extend the growth runway.
Risks
Execution risk is elevated given the back-half weighting of the year and reliance on customer follow-through for rig reactivations and capital spending. Geopolitical volatility, particularly in the Middle East, could disrupt project timing or supply chains. While offshore backlog is strong, any delay in contract conversion or unexpected macro shocks could impair the second-half ramp and margin trajectory. Competition in digital and automation upgrades is intensifying, requiring continued technology investment to defend share.
Forward Outlook
For Q2 2026, HMH expects:
- Order rate to remain strong, with book-to-bill above 1.0x
- Revenue and EBITDA to increase sequentially, as backlog converts and customer activity accelerates
For full-year 2026, management maintained guidance:
- Adjusted EBITDA of $157 million to $177 million, with performance weighted to the second half
Management cited robust backlog visibility, ongoing order strength, and margin discipline as drivers of confidence. Key variables include the pace of rig reactivations, timing of large equipment orders, and the continuation of offshore contracting momentum.
- Second-half ramp in both revenue and EBITDA is expected to be pronounced.
- Capex to remain at 2% of revenue, supporting aftermarket and digital initiatives.
Takeaways
HMH enters the second quarter with rising order momentum, a robust offshore backlog, and a strengthened balance sheet.
- Offshore Cycle Inflection: Contracting activity and backlog gains provide multi-year growth visibility and set the stage for technology-driven share gains.
- Margin and Cash Flow Strength: Asset-light model and cost execution have preserved profitability, even through revenue softness.
- Execution Watch: Second-half ramp and conversion of orders to revenue will be the key investor focus, alongside continued technology innovation and M&A execution.
Conclusion
HMH’s Q1 results signal a clear inflection in offshore market demand, with order growth and backlog visibility positioning the company for sustained multi-year expansion. The asset-light model, strong balance sheet, and technology investments provide a solid foundation, but execution against a back-half loaded year and continued innovation will be critical for realizing the full upside.
Industry Read-Through
The surge in offshore contracting activity and backlog at HMH is a leading indicator for the broader oilfield services sector, confirming that the long-awaited offshore upcycle is gaining traction. Competitors with exposure to high-spec rigs and aftermarket services should see similar tailwinds, while those reliant on short-cycle onshore or Middle East volumes may face more volatility. The renewed focus on digital upgrades and automation reflects a sector-wide shift toward higher-value, technology-enabled solutions. Mining equipment and digital service providers should also watch for increased demand as commodity prices rise and new projects come online, signaling a broader capex recovery across energy and resources.