Oil States Q3 2026 Earnings: Downhole Growth Lifts Revenue as EBITDA Slips

Oil States (NYSE: OIS) reported Q3 2026 revenue of $169.8 million for the quarter ended September 30, up 3% year over year, while diluted EPS increased to $0.05 from $0.03. Downhole Technologies drove the revenue increase, but adjusted EBITDA declined 3% as Offshore Manufactured Products and Completion and Production Services generated lower year-over-year contributions.

Core Financial Results

Revenue increased modestly, while GAAP operating income and net income grew at faster rates. Lower depreciation and amortization expense, which fell to $8.0 million from $12.1 million, helped the operating-income comparison, although the quarter also included $5.5 million of executive-transition, facility-exit, and related charges.

Adjusted EBITDA moved in the opposite direction, slipping to $20.1 million. This divergence indicates that the increase in operating income did not reflect broad-based EBITDA growth across the business.

Adjusted operating income, adjusted net income, and adjusted EBITDA are non-GAAP measures. Adjusted EPS was $0.15 for Q3 2026.

Business and Segment Performance

The segment results were sharply divided. Downhole Technologies expanded substantially and returned to profitability from a year-earlier loss, while revenue declined in the other two operating segments.

Offshore Manufactured Products remained the largest segment. Its adjusted segment EBITDA declined 16% to $18.8 million, but near-term order indicators improved sequentially: bookings rose 18% to $135 million, the book-to-bill ratio reached 1.3 times, and backlog increased 7% to $482 million, its highest level since December 2014. Within the segment, lower project-driven product revenue more than offset increases in project services and military and other products.

Completion and Production Services posted adjusted segment EBITDA of $6.1 million, down 23% year over year. Revenue and adjusted EBITDA also declined sequentially, with the adjusted EBITDA margin easing to 26% from 27%.

Downhole Technologies provided the main growth contribution. Adjusted segment EBITDA improved to $3.6 million from a loss of $0.7 million a year earlier, while operating income swung to $2.1 million from a $4.7 million loss. Sequentially, however, its adjusted EBITDA margin fell to 8% from 11% despite revenue growth.

Lower-Margin Downhole Growth Limited EBITDA Conversion

Downhole Technologies added approximately $13.2 million of year-over-year revenue, more than accounting for the consolidated increase as the Offshore and Completion segments contracted. However, Downhole’s 8% adjusted EBITDA margin remained below Offshore’s 18% and Completion and Production Services’ 26% margins.

That mix shift helps explain why consolidated revenue rose 3% while adjusted EBITDA fell 3%. Offshore and Completion adjusted EBITDA declined by a combined $5.4 million, more than offsetting Downhole’s approximately $4.3 million improvement and a modest reduction in the corporate adjusted EBITDA loss.

Profitability, Cash Flow, and Financial Position

The reported corporate operating loss widened to $14.1 million from $9.1 million, primarily reflecting the quarter’s $5.5 million of executive-transition and facility-related charges. Excluding charges and credits, the corporate operating loss improved slightly to $8.6 million from $8.8 million. Income tax expense was $2.1 million on pretax income of $5.3 million, including valuation-allowance changes, discrete tax items, and nondeductible expenses.

Oil States generated $5.3 million of operating cash flow during the quarter despite $9.6 million of net working-capital investment. After $3.2 million of capital expenditures, quarterly free cash flow calculated as operating cash flow less capital expenditures was approximately $2.1 million. Asset-sale proceeds provided another $5.1 million.

For the nine months ended September 30, operating cash flow was negative $2.8 million, compared with positive $55.0 million in the prior-year period. Inventory used $37.5 million of cash and deferred revenue used $12.4 million during the 2026 period. Inventory stood at $220.4 million at quarter-end, up from $183.4 million at the end of 2025.

Cash declined to $22.9 million from $69.9 million at year-end, while total current and long-term debt fell to approximately $20.0 million from $55.0 million. The nine-month cash flow statement included $50.5 million used to extinguish convertible senior notes and $9.1 million of treasury-stock purchases. Oil States repurchased $4.0 million of shares in Q3, and the board subsequently approved a new $50.0 million repurchase authorization extending through October 2028.

Management Perspective

President and CEO Lloyd Hajdik attributed sequential revenue growth to demand in Offshore Manufactured Products and Downhole Technologies. Management emphasized the expansion of offshore backlog, profitable growth, cash generation, and disciplined capital allocation, while describing the offshore and international investment cycle as constructive over multiple years.

Risks Investors Should Watch

• Weak EBITDA conversion: Revenue growth did not translate into adjusted EBITDA growth because the expansion was concentrated in lower-margin Downhole Technologies while the two higher-margin segments contracted.
• Working-capital demands: Q3 operating cash flow was limited by $9.6 million of working-capital investment, and nine-month operating cash flow remained negative as inventory increased.
• Backlog execution: Offshore backlog and bookings improved, but segment revenue and adjusted EBITDA were still below the prior-year quarter. The pace and profitability of converting the $482 million backlog remain important.
• Ongoing segment pressure: Completion and Production Services revenue fell 16%, while adjusted EBITDA margins declined sequentially in all three operating segments.
• GAAP charges: Executive-transition and facility-related costs widened the gap between reported and adjusted operating results during the quarter.

Summary

Oil States delivered modest revenue growth and higher GAAP earnings in Q3 2026, led by a significant Downhole Technologies recovery. The central issue was earnings quality and mix: adjusted EBITDA declined as Offshore and Completion weakened, while working-capital requirements continued to constrain cash generation. Future results will depend on profitable conversion of the expanded offshore backlog, stabilization in Completion and Production Services, and improved cash conversion.