OIS Q3 2025: Offshore Backlog Hits $399M as US Land Margins Pivot Higher
OIS delivered a decade-high offshore backlog and robust cash flow, even as US land activity slumped. The company’s strategic shift toward offshore and international projects is accelerating, with margin expansion and cash generation now at the core of the business model. Management’s focus on disciplined capital allocation and technology-driven differentiation sets the stage for stronger results as the market pivots into 2026.
Summary
- Offshore Mix Surges: Offshore and international revenue now dominate, reflecting a structural business model reset.
- Cash Flow Inflection: Free cash flow and operational discipline are unlocking balance sheet strength and buyback capacity.
- Margin Expansion Focus: US land restructuring and portfolio high-grading aim to sustain higher margins through volatility.
Performance Analysis
OIS’s Q3 marked a clear inflection in business mix and financial discipline. Offshore manufactured products, the company’s largest segment, drove 75% of total revenue this quarter, up sequentially and year-over-year, underscoring a decisive pivot away from volatile US land exposure. Segment backlog reached $399 million, the highest since 2015, with a book-to-bill ratio of 1.3 and strong military orders supplementing core oil and gas demand.
US land-facing segments, including completion and production services and downhole technologies, saw revenue declines of 6% and 1% respectively, reflecting broad-based industry softness as frack spread counts fell 11%. However, cost optimization and restructuring efforts in US land enabled margin resilience, with completion and production services segment EBITDA margins reaching 29% despite revenue pressure. Downhole technology margins were hit by unexpected tariff spikes on imported steel, resulting in a segment EBITDA loss, but management expects this to be a temporary drag as inventory and pricing adjust.
- Backlog Leverage: Offshore backlog at $399 million provides multi-quarter revenue visibility and margin stability.
- Cash Generation: $31 million in operating cash flow—up 105% sequentially—funded both buybacks and debt reduction.
- Tariff Impact: Higher tariffs on downhole consumables compressed margins, but are expected to be passed through or mitigated by early 2026.
OIS’s business model is now structurally more resilient, with higher-margin, longer-cycle offshore projects offsetting US land cyclicality. The company is positioned to compound cash flow and margin expansion as secular offshore demand persists into 2026.
Executive Commentary
"During the third quarter, 75% of our consolidated revenues were generated from offshore and international projects, a percentage that is up both sequentially and year-over-year. This continued shift in revenue mix reflects our multi-year strategy to grow our offshore and international project-driven content which generally comprises longer cycle, higher margin work."
Cindy Taylor, President and CEO
"Our ongoing deleveraging efforts should unlock additional equity value for our stockholders as we pay off our convertible senior notes after maturity in April of 2026. We are committed to optimizing our operations and making targeted investments in our highest performing businesses while leveraging cutting-edge technologies to drive growth."
Lloyd Hodgic, Executive Vice President and CFO
Strategic Positioning
1. Offshore and International Pivot
OIS’s business mix is now structurally weighted to offshore and international projects, with 75% of revenue from these segments. This shift is not cyclical but reflects a deliberate move to capture longer-cycle, higher-margin work and reduce exposure to US shale volatility. Management expects this trend to persist as global operators allocate capital to offshore assets with lower decline rates and improved break-evens.
2. Backlog Strength and Visibility
Backlog reached $399 million, its highest in a decade, driven by robust oil and gas project bookings and significant military orders. The book-to-bill ratio of 1.3 signals ongoing demand momentum. While military awards have elongated backlog conversion timelines, upcoming oil and gas project awards are expected to revert realization rates to historical norms, supporting revenue stability into 2026.
3. US Land Rationalization and Margin Focus
OIS has actively high-graded its US land portfolio, exiting commoditized, low-return product lines and concentrating on differentiated, cash-generative niches. Margin improvement in completion and production services—despite revenue headwinds—validates this approach. Management targets high 20s to low 30s EBITDA margins for this segment post-restructuring, up from mid-teens in prior years.
4. Technology and Safety Differentiation
Technology leadership, particularly in managed pressure drilling (MPD) systems and flex joint infrastructure, underpins OIS’s offshore backlog growth. Recent industry awards for safety and innovation further strengthen the company’s value proposition with blue-chip customers and support premium pricing in a competitive landscape.
5. Capital Allocation and Deleveraging
Disciplined capital allocation is central to OIS’s strategy. Strong free cash flow is being used to buy back stock and reduce convertible debt, with no borrowings outstanding on the revolver. Management is prioritizing shareholder returns while maintaining flexibility for targeted innovation investments.
Key Considerations
OIS’s Q3 results reflect a company in strategic transition, balancing near-term macro headwinds with long-term positioning for secular offshore growth. Investors should weigh the following:
Key Considerations:
- Offshore Demand Resilience: Multi-year investment cycle in global offshore projects is driving backlog and margin expansion, even as US land remains soft.
- Tariff Headwinds in Consumables: Elevated tariffs on imported steel for downhole products have created a temporary EBITDA drag, but industry-wide pass-throughs and supply chain shifts are underway.
- US Land Margin Upside: Portfolio rationalization and cost discipline are unlocking structurally higher EBITDA margins and improved cash conversion.
- Backlog Realization Mix: Military orders lengthen backlog conversion, but upcoming oil and gas project awards will restore near-term revenue cadence.
Risks
OIS faces several risks, including continued volatility in crude prices, unpredictable US trade policy, and further escalation of tariffs on imported inputs. Extended softness in US land activity could limit near-term upside, while delays in offshore project awards or execution could pressure backlog realization. Management’s ability to sustain margin gains and pass through cost inflation remains critical in a competitive landscape.
Forward Outlook
For Q4 2025, OIS guided to:
- Sequential consolidated revenue growth of 8% to 13%
- Adjusted EBITDA of $21 to $22 million
For full-year 2025, management expects:
- Operating cash flow to exceed $100 million
Management highlighted:
- Backlog strength and further bookings expected to keep book-to-bill above 1.0 in Q4
- Continued focus on offshore, technology-driven projects and disciplined US land participation
Takeaways
OIS’s strategic pivot is crystallizing in the numbers, with offshore backlog, margin expansion, and free cash flow all trending higher into 2026.
- Offshore Leverage: Backlog and revenue mix now structurally favor long-cycle, higher-margin offshore projects, reducing cyclicality risk.
- Margin and Cash Flow Reset: US land restructuring and portfolio high-grading are producing higher cash conversion and margin stability, even in a weak activity environment.
- Execution Watch: Investors should monitor tariff pass-through, backlog realization cadence, and the pace of new offshore project awards as key drivers into 2026.
Conclusion
OIS’s Q3 results demonstrate a business model that is now more resilient and strategically focused. Offshore and international growth, disciplined capital allocation, and operational optimization position the company for margin and cash flow expansion as market conditions evolve. Execution on backlog and continued technology differentiation will be critical as the industry enters a new investment cycle.
Industry Read-Through
The OIS quarter reinforces a sector-wide pivot to offshore and international investment, as US land remains structurally challenged by commodity price volatility and tariff-driven cost inflation. Equipment and service providers with differentiated technology and global backlog are best positioned to capture secular growth. Tariff pressures on consumables are an industry-wide margin headwind, and the ability to pass through costs or re-engineer supply chains will separate winners from laggards. The market’s focus is shifting to backlog visibility, cash conversion, and margin durability as the investment cycle resets into 2026.