HMH Holding Q3 2026 Earnings Call Transcript

HMH Holding (NASDAQ:HMH) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

HMH Holding’s Q3 2026 results were impacted by rig activation delays, Middle East disruptions, and timing of equipment orders, but overall market outlook remains positive with support from increasing Deepwater investments.

New acquisition of Deepwater Riser Services strengthens the company’s position in the Deepwater market, while strategic investments in North American land market show promising growth.

Orders for Q3 were $191 million with a book-to-bill ratio of 1.1, while total revenue was $171 million and adjusted EBITDA stood at $38 million.

Service order intake increased 16% year over year, while spares revenue declined 2% due to regional demand variations.

Guidance for 2026 was revised due to lower-than-expected product volume and regional disruptions, with an expected adjusted EBITDA of $135-$140 million.

Future outlook for 2027 remains optimistic with anticipated increases in floater activity and opportunities in both North American land and Deepwater markets.

Despite near-term challenges, the company is well-positioned for growth, supported by a strong customer backlog and strategic acquisitions.

Full Transcript

OPERATOR

Good morning and welcome to HMH Holding Third Quarter 2026 Earnings Call and webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, the conference call is being recorded. I would now like to turn it over to David Bratton, SVP, Finance. Please go ahead.

David Bratton (SVP, Finance)

Good morning everyone, and thank you for joining us for HMH Holding’s third quarter results. Joining me today are Iris Bergstick, our Chief Executive Officer, and Tom McGee, our Chief Financial Officer. Before we begin, we would like to remind you that this conference call may include forward-looking statements. These statements, which are subject to various risks, uncertainties, and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties, and assumptions are detailed in this morning’s press release as well as our filings with the SEC, which can be found on our website at investor.hmhw.com.

We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. Management’s statements may include non-GAAP financial measures. For reconciliations of these measures, please refer to our earnings release and our SEC filings. Following our prepared remarks, we will open the call for your questions. I will now turn the call over to Eric.

Eric Bergsby (Chief Executive Officer)

Thank you, David, and good morning, everyone. During the third quarter, our results were impacted by several near-term timing and market headwinds, including rig activation delays, continued disruptions in the Middle East, and the timing of certain large equipment orders. Despite these pressures, the underlying market remains constructive, with increasing Deepwater investment supporting activity growth into 2027, and we remain confident in the opportunities ahead of HMH Holding.

The timing of equipment orders also impacted cash flow during the quarter. In anticipation of expected demand, we intentionally procured long-lead materials ahead of purchase orders to shorten delivery lead times, improve our cost position, and ensure we are ready to execute. As these opportunities convert, we continue to maintain our cost base through this temporary slowdown in equipment activity, which reduces the pace of facility cost absorption and working capital liquidation but preserves the capacity we believe will be needed as activity increases.

We also continue to invest strategically in our long-term growth. On September 21st, we announced acquisition of Deepwater Riser Services, expanding our riser service footprint and further strengthening HMH Holding’s position in the Deepwater market. Taken together, while timing-related headwinds have affected our near-term results and cash flow, we remain confident in the underlying demand environment and believe the actions we are taking position HMH Holding well as we move into 2027.

Moving now into the financial highlights, orders for the quarter were $191 million, representing a book-to-bill ratio of 1.1 times in the quarter. Total revenue for the quarter was $171 million, and adjusted EBITDA was $38 million. Looking at revenue composition, spares revenue declined 2% year over year to $57 million, reflecting prior quarters’ reduced order intake. Quarter over quarter, spares orders were up 7% year over year, mainly driven by increase in Europe, offsetting the reduced Middle East demand.

Service revenue in the quarter was $97 million, driven by repairs and digital technology. Importantly, service order intake increased 16% year over year, driven by repairs and field product. Order intake and revenue remained subdued in the third quarter, with order intake of $16 million and revenue of $17 million, reflecting the timing of larger equipment orders we mentioned previously. Turning now to the broader drilling market and what we see developing as we look toward 2027: following a very strong first half of the year, offshore contracting activity moderated during the third quarter in the floater market. However, we view this more as a matter of timing than a fundamental change in outlook. Several tenders remain active across key offshore basins, with some awards taking longer to formalize. Importantly, year-to-date floater contracting remains well ahead of last year through September.

Approximately 110 rig years have been awarded globally, compared with 59 rig years during the same period in 2025. This distinction between the pace of new contract announcements and underlying future activity is important. While contracting activity has moderated during the second half, the outlook for 2027 remains constructive. A number of rigs have already secured future work and will be undergoing contract preparation, shipyard work, and mobilization ahead of those programs, and we see this clearly within the HMH Holding installed base.

Additionally, the recent announcement from RIPCO regarding financing of reactivation of four rigs, including two harsh-environment semis with HMH Holding equipment, is a positive indicator of investment in the market. To be clear, these are long-term investors putting capital into expanding North Sea fleet. The number of HMH Holding key floater currently on contract is broadly stable compared with recent quarters. However, that measure does not fully reflect activity developing beneath the surface.

Several HMH Holding-equipped units are currently being prepared or mobilized for future contracts, creating a meaningful expected increase in activity as we move into 2027. This is particularly relevant for HMH Holding. Bringing a rig back into operation after an extended period of inactivity generates activity ahead of the actual drilling contract through preparation, inspections, equipment refurbishment, shipyard work, and mobilization. Once these rigs begin operating, they also expand activity installed base, supporting recurring demand for HMH Holding products and services.

As we finish 2026, we expect activity across our HMH Holding key floater fleet to be broadly in line with 2025 levels. Looking into 2027, however, we see a meaningful step-up in activity. Approximately 85% of our expected base-case 2027 activity level is already supported by firm customer backlog or contractual options for 2027. This provides a strong foundation for growth even before considering additional contract awards. Importantly, we do expect further contracts to be awarded to HMH Holding-equipped floaters based on our current review.

We therefore expect HMH Holding key floater activity to increase approximately 10% to 25% year over year in 2027, with particular strength in the second half of 2027. The range reflects the timing of contract commencements, option exercises, and additional awards that remain to be secured. The key message for HMH Holding is that the number of rigs operating today does not yet reflect the activity level we expect in 2027. As these units transition from stacked status through preparation and mobilization, and ultimately into drilling operations, we believe that increasing activities should translate into growing opportunities for HMH Holding.

In particular, a larger active installed base should support increased consumption of spare parts, together with additional field service, repairs and maintenance, and equipment upgrade opportunities during 2027. The broader floater fundamentals remain supportive as well. At the end of September, global committed floater utilization stood at approximately 86%, and within the harsh-environment segment, committed market utilization was approximately 89%. Beneath the near-term contracting cycle, we also continue to see healthy investments in future offshore developments. Global offshore greenfield investment commitments for 2026 are projected at approximately $142 billion, with a significant pipeline of projects extending beyond 2026.

Turning briefly to our equipment and project business, order intake has been below our expectations during the last two quarters. This has primarily been driven by timing. Some drilling contractors have secured contracts later than we had anticipated, reducing the availability, lead time, and operational white space to execute larger equipment upgrades. At the same time, we have seen certain larger projects and upgrade decisions move to later periods as customers maintain a disciplined approach to capital deployment.

Importantly, we have not seen these opportunities disappear; rather, the timing of the associated order intake has shifted to the right. We continue to see a healthy pipeline of equipment upgrades and larger project opportunities across our installed base. As customers gain greater visibility on future drilling programs and suitable shipyard and preparation windows become available, we expect this to create opportunities to progress these projects.

We therefore view the recent lower order intake primarily as a timing issue rather than a change in underlying opportunity set for our equipment and our projects business. Turning to the jackup market, the picture remains more challenging. Global jackup contracting is running below last year’s level, with approximately 146 rig years awarded through September, compared with 195 rig years during the equivalent period of 2025. The Middle East continued to be an important contributor to this weakness, with additional Saudi Aramco rig suspensions during the quarter and further delays to tender activity. For HMH Holding specifically, deterioration in Middle East activity has continued to affect our business.

Based on our current expectation, we estimate that lower activity in the region will negatively impact our 2026 order intake by approximately $50 million to $60 million. While we see pockets of improving jackup activity elsewhere, these have not yet been sufficient to offset the broader year-on-year decline in global jackup contracting. As a result, we remain cautious on the near-term outlook for this segment. Turning to our land business, I would also like to highlight an encouraging development in North America. Over the past years, we have been executing a multi-year strategy to expand HMH Holding’s presence in the North American land market. This has included investment in our facilities, including our new, larger facility in Odessa, additions to our product portfolio, and broader efforts to strengthen our offering and position HMH Holding closer to our customers.

We’re now beginning to see those investments translate into results. Although this business remains relatively small for HMH Holding today, we are seeing a significant growth trend across both equipment and service revenues in the North American market. As our equipment presence expands, we also see an opportunity to build associated services and aftermarket business over the life of that installed equipment. This creates the potential for the growth in equipment sales today to support a larger recurring revenue opportunity over time.

We are therefore encouraged by the momentum we are seeing, and we believe it can become an increasingly relevant contributor to HMH Holding’s growth over time. On the Middle East, while we originally believed the impact would be more short-term related for equipment investment, we instead have seen a full push into 2027 for equipment orders. On the service side, in addition to the conflict, we also were impacted by our key customers’ decision to defer maintenance, reducing our 2026 order intake. Stepping back, it’s important to put these developments into the context of HMH Holding’s overall installed base.

While the Middle East remains a near-term headwind, the larger picture for HMH Holding is increasingly constructive. As we enter 2027, our greatest offshore installed base exposure is in floaters, and this is where we expect the strongest increasing activity. We expect anticipated increase in floaters activity, together with the encouraging growth we are seeing in North American land, to mitigate some of the weakness in the Middle East. Importantly, higher activity across our floater installed base should also translate into greater opportunities for spares, services, and equipment upgrades as we move into 2027.

Now, to provide more detail on our financial results and outlook, I will now turn the call over to Tom.

Tom McGee (Chief Financial Officer)

Thank you, Eric. As we work through the third quarter financials, I want to reinforce a few of the factors discussed earlier that influenced our results and cash flow. The timing of certain equipment orders, rig reactivations, and the Middle East continue to affect our financial performance during the quarter. Based on what we see today, we continue to view these as timing shifts rather than a change in the underlying demand environment. That timing also affected our cost absorption, working capital, and cash flow.

During the quarter, we continued to procure certain long-lead materials in advance of purchase orders, consistent with our historical approach of working closely with customers on multi-year equipment upgrade and service plans. While this resulted in higher working capital in the near term, we believe these investments position us to reduce lead times, improve our cost position, and execute efficiently as anticipated orders convert. Which we’ve done effectively in the recent past. Finally, our acquisition of Deepwater Riser Services represents another important deployment of capital to strengthen the business. The acquisition expands our Riser Services capabilities and deepens our exposure to a deepwater market where we continue to see attractive long-term fundamentals. So while the timing of activity created pressure on our third-quarter financial performance and cash conversion, we remain focused on the underlying economics of the business and we believe we are well positioned to benefit as activity and equipment demand progress into 2027.

Moving now to third-quarter results, orders for the quarter were 191 million, up 12% year over year driven by strength in our services product line partially offset by lower product bookings. Sequentially, orders were down 7% reflecting reduced Middle East demand in services and equipment and rig reactivation delays. Despite the quarter-to-quarter variability, orders exceeded revenue resulting in a 1.12 times book-to-bill ratio. Revenue for the quarter was 171 million, substantially flat quarter over quarter as the increase in service volumes were offset by lower spares and equipment revenue.

Adjusted EBITDA in the quarter was 38 million, down 3% year over year with lower product volume partially offset by higher services volume. Sequentially, EBITDA increased 13% driven by service volumes and lower compensation expense. The adjusted EBITDA margin was 22.3% in the quarter, favorable due to mix and lower variable compensation expense reflecting updated expectations for full-year performance. Turning to cash flow, free cash flow, defined as cash flow from operating activities less purchase of property, equipment and development costs, was negative at 12 million in the quarter. As previously mentioned, the timing of equipment orders negatively impacted cash flow this quarter. Now I’ll walk you through the product line results in more detail. In Aftermarket Services, revenue was 97 million in the quarter, down 7% year over year, driven by contract services partially offset by increase in repairs and Digital Technology, and increased 9% quarter over quarter driven by increased demand for repairs.

Aftermarket Services order intake was 115 million in the quarter, up 16% year over year driven by repairs and field services, and down 3% quarter over quarter primarily due to lower Digital Technology orders following strong prior-quarter activity. Spares revenue was 57 million in the quarter, down 2% year over year and down 6% quarter over quarter, reflecting the pace of order intake and regional mix. Spares order intake was 60 million, up 7% year over year, driven by increasing European topside demand offset by reduced Middle East demand, and down 7% quarter over quarter driven by lower pressure control spares, partially offset by higher topside spares. Product revenue in the quarter was 17 million, down 69% year over year and down 19% quarter over quarter, reflecting both the lower backlog and lower intake for the quarter. At 17 million in the quarter, we were not able to fully absorb the global cost base supporting the business which negatively impacted us in the quarter.

Regarding the Middle East impact for the nine months ended September 30, 2026, the revenue and adjusted EBITDA impact from the Middle East conflict is roughly 17 million and 8 million respectively. Moving to our capital structure, we ended the quarter with 90 million in cash and cash equivalents and total liquidity, including the revolving credit facility, of approximately 165 million. We have no bond maturities until December 2028, with our revolving credit facility extending through June 2028.

Capital expenditures and development costs during the quarter were 5.4 million, primarily supporting aftermarket capabilities, service reliability and ongoing product development initiatives. We continue to operate an asset-light business model and manage capital intensity carefully while preserving flexibility to support growth as activity levels recover. On the M&A front, on September 21st we announced the acquisition of Deepwater Riser Services, expanding our Riser Services footprint. The deal expands our aftermarket capabilities with riser inspection, recertification, refurbishment and storage services in the U.S. Gulf. Additionally, it allows our operation to centralize in Houma, Louisiana to better serve our customers. In addition to the most recent announcement, we are advancing several additional strategic opportunities.

We are highly encouraged by both the quality of assets under review and the broader opportunities that are available in the market consistent with our disciplined capital allocation strategy. We believe these opportunities will enhance our capabilities, expand our market presence and create meaningful long-term value for shareholders. Looking at the full year 2026, we continue to expect a slower volume than originally anticipated driven by the continued delay in equipment bookings, rig reactivation delays and continued Middle East disruptions before seeing a strong shift upward in 2027. For 2026 guidance, based on our current backlog, order activity and margin visibility, our full-year guidance is now being revised. We now expect the fourth-quarter adjusted EBITDA to be roughly flat to slightly below third-quarter results, resulting in full-year 2026 adjusted EBITDA to be in the range of 135 to 140 million.

As a result, we now expect an effective tax rate of approximately 41% for the third quarter and full year. The higher rate is primarily driven by weaker results from product volume and geographic mix with taxable income across several international jurisdictions. When normalizing for the impact from the Middle East, this would have put the adjusted EBITDA between 147 and 152 million, certainly lighter than expected, with the remaining gap being mainly attributable to the product segment.

Investments in capex are expected to be 2% of revenue for 2026. As we close the financial review, I’d also point you to the strategic roadmap page in our presentation which frames how we’re thinking about the business across the near, medium and long term. In the near term, while project timing, customer capital discipline and disruption in the Middle East are influencing activity, we continue to position the business for the opportunities ahead, including offshore rig reactivations and technology upgrades, as well as evolving requirements in the land market.

Over the medium term, we expect these trends to broaden with increased offshore activity, continued investment in major equipment upgrades and an aging installed base supporting aftermarket demand. While longer laterals and higher torque requirements create additional opportunities on land, and over the long term, we believe increasing adoption of electrification, automation, digital technologies and enhanced well construction solutions can further expand HMH Holding’s addressable opportunity.

When you put those horizons together, we believe HMH Holding has multiple avenues to grow both organically and inorganically to create long-term value for our shareholders. With that, I will turn the call back over to Eric for closing remarks before Q&A.

Eric Bergsby (Chief Executive Officer)

Thank you, Tom. As we conclude, I want to emphasize that while the timing of certain market activity has shifted, our view of the underlying fundamentals has not. We continue to see our constructive outlook for our business and, importantly, increasing visibility to the activity opportunity ahead of us in 2027. In the floater market, contracting activity moderated during the third quarter following a very strong first half of the year, but the underlying indicators remain supportive.

A significant amount of future work has already been secured and several HMH Holding equipment rigs are now moving through preparation, shipyard work and mobilization ahead of contracts expected to commence in 2027. At the same time, while the timing of certain equipment and project opportunities has moved to the right, we continue to see a healthy pipeline and have not seen a fundamental change in the underlying opportunity set. So, as we look toward 2027, we believe HMH Holding is well positioned. Increasing flow-through activity, a larger active installed base, continued investment in deepwater developments and encouraging growth in our North American land business provide multiple avenues for growth.

Together with our differentiated technology portfolio and aftermarket capabilities, we believe these trends position HMH Holding to benefit as the market activity continues to develop. Finally, I want to thank our employees around the world for their dedication and hard work this quarter. Their commitment to our customers and our strategy continues to strengthen the foundation of HMH Holding and position the company for success in the years ahead. Thank you for your continued support of HMH Holding. We look forward to updating you on our progress next quarter. With that, I’ll turn the call back to operator for questions.

OPERATOR

Thank you. As a reminder, to ask a question, please press star-one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star-one again. Our first question comes from the line of Derek Padiser from Piper Sandler. Your line is now open. Please go ahead.

Derek Padiser (Analyst)

Hey, good morning everyone. So you gave us an early indication into 2027. I believe you said key floater activity should increase 10% to 25% year over year. Obviously that’s a pretty wide range. So I was hoping you could talk to us about the low and the high end of the 10% to 25% and maybe some of the assumptions around it as we start to formulate our thoughts for 2027.

Eric Bergsby (Chief Executive Officer)

Yeah, I think when you look at the low end, that would be kind of what we view as already in the bag. And so you look at contracts that have been signed or options we know are going to get exercised. Additional contracting volume, which we absolutely expect in communication with our customers, drives that a little bit higher. The higher end would require some of the reactivations that we’ve seen be pushed off this year. And again, like we said, we quote those reactivations so we know they’re active conversations.

But I think that’s the right way to think about that range.

Tom McGee (Chief Financial Officer)

Just to add that. And I’d also like to add that if you look at the contracted volume so far this year, it’s more than 80% for 2027 compared to last year, which was 60. So it’s quite a much higher contracted fleet going into 2027.

Derek Padiser (Analyst)

Yeah, no, that’s helpful. And then I guess maybe look on products, obviously we’ve seen pretty significant declines here in the orders and on the top line as well. And I understand things are getting pushed out to the right, but how should we think about the shape of recovery for a product and what we need to see from the market? Expect from the market, just some help and color around the product orders specifically?

Tom McGee (Chief Financial Officer)

Yeah, sure. I think that I would break that into three components. One is Middle East, and I think that continued to get pushed off more than we thought. Right. Second is drilling equipment. Third is mining. I think some of the mining orders are back-end loaded and into next year, and those have been pushed off. And so I think we’re going to be watching for that every day on the Middle East side. Yeah, we’d like to see some normalization. There’s going to be a big catch-up when that happens.

I think you can guess where that is. And then we do think next year we start to see recovery of that and a lot of the stuff getting pushed out that we’ve gotten ready for, we’re in regular dialogues with, and we think comes to fruition, and we think that ’27 should be a better year on that front. But again, these are things that, in conjunction with customer calls, we thought would happen this year, and they’ve been pushed a little bit. And I think when you think about the absorption there, that puts—I mean, this quarter it was about a five or six million dollars bottom-line headwind on the absorption. When you step back and say the underlying aftermarket business is looking fairly logical, a little bit light due to some of the reactivations getting pushed off, but kind of consistent with what we’d expect.

That product order does just create a huge drag with the undercapacity. It’s that simple. Thank you.

OPERATOR

Thank you so much. The next question comes from the line of Patrick Willett from Stifel. Your line is now open. Please go ahead.

Patrick Willett (Analyst)

Hey, Pat, on for Steven Giugera. Hey, good morning. So you qualified the year-to-date Middle East impact. Could you just talk maybe about how much occurred in 3Q and how much represents maybe deferred work versus recovered lost activity?

Eric Bergsby (Chief Executive Officer)

I mean, I think most of it is deferred work. I mean, because you’ve got—there was some deferral of maintenance in one area, which is, you know, that’s a difficult one to guess on when that’s coming back. But the main product order is simply a deferral. I mean, that’s—and, you know, we’ve given the example before: there was a piece of equipment coming from China that was stuck in the strait, that we have equipment on the ground for ADNOC today that needs to be completed.

And it finally got there, but it’s taken six to nine months longer than we thought. And we’re waiting on that other equipment that was not under our control to get there before we get that next round of orders. That’s all deferral in the Middle East, and just we need normalization over there where they get comfortable with the transport lanes and they start moving again where people can ship. And then they can—on the large equipment side, not on the spares.

So I think most of it I would call a deferral.

Patrick Willett (Analyst)

All right, great. And then shifting to cash flow. You talked about timing, working capital, cost absorption earlier. Could you just talk about any potential unwind in 4Q and then any working capital required to prepare for the anticipated recovery?

Tom McGee (Chief Financial Officer)

Yeah, I think you’ve seen the preparation, largely speaking. And we would, you know, barring a major project order, you know, like a new-build—something massive new-build project, we would see inventory really more being released Q1 and Q2 next year. And that’s really what we’ve set up for.

Patrick Willett (Analyst)

All right, great. I’ll turn it back. Thank you.

OPERATOR

Thank you so much. The next question comes from the line of Jason King from J.P. Morgan. Jason, your line is now open. Please go ahead.

Jason King (Analyst)

Good morning, Eric and Tom. Thanks for taking my questions. Building on the earlier question about the activity range with floaters, as we build our ’27 estimates, what’s the right underlying EBITDA base to start from? And if we assume only the low end of the range, the activity that’s already contracted, can EBITDA still grow meaningfully off that base? Help us think about that.

Tom McGee (Chief Financial Officer)

Okay, so, yes, let’s look at this. I think what you should be able to do is separate the aftermarket from the product. And if you take the aftermarket revenues, which are following the trajectory that we largely expected, what you do there is that’s really—the activity level will drive that up by a range of percentages, and that’s the right way to kind of think about that model. And then on the product side, like I said, we need to get those conversions in ’27 that we’re expecting—inventory release.

But that’s got to be modeled separately. It doesn’t necessarily follow the same path.

Jason King (Analyst)

Got it. And just shifting gears, you mentioned several additional strategic opportunities beyond Deepwater Riser. Could you give us a sense of your latest thinking around how you’re thinking about prioritizing M&A against further debt reduction ahead of the ’28 maturities and possibly further share repurchases?

Eric Bergsby (Chief Executive Officer)

Yeah, I think right now it’s M and A. We’ve got opportunity to do things really attractive at really attractive rates with high-quality assets, and to try to reach that next level of scale here. I think that’s our primary focus. And then I think we start to look at other alternatives there. You know, we’ve got a capital structure that lets us put capital to work. I’m not overly concerned about, you know, debt maturities in ’28 that we should be able to pay back fairly easily.

And so I think we’ve got extra capacity on the debt side, and I think we want to go ahead and grow the business. And our bias is to do that and take advantage of the assets that are out there at attractive rates and increase the scale of the business.

Jason King (Analyst)

Great. Thank you. I’ll turn it back.

OPERATOR

At this time, I would now like to turn the conference back over to Eric Bergsby for closing remarks. Please go ahead.

Eric Bergsby (Chief Executive Officer)

Thank you all for your support and participation on today’s call, and we look forward to updating you on the fourth quarter results. Thank you.

OPERATOR

This concludes today’s conference call. Thank you for participating. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.