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Jay Nutt

Thank you for your kind words, Scott. I'm privileged to have the opportunity to join an industry leader such as Cactus. I appreciate the confidence that the leadership team has placed in me, and I look forward to helping guide the company's continued growth while sustaining industry leading returns.
As Scott mentioned, we had a solid quarter resulting in total Q2 revenues of $290 million in total adjusted EBITDA of $104 million. For our pressure control segment revenues of $187 million were up 6.9% sequentially driven primarily by shipments of production equipment to a large customer who had not previously used Cactus combined with customer efficiency improvements leading to increased products sold for rigs followed.
Operating income increased $4 million or 7.7% sequentially with operating margins increasing 20 basis points adjusted segment, EBITDA increased $4.7 million or 7.7% sequentially with margins increasing by 30 basis points.
The operating and adjusted EBITDA margin improvements were due to higher operating leverage on the increased volume for our Spoolable Technology segment revenues were up 4.7% sequentially due largely to the resilience of international shipments and higher domestic customer activity operating income increased $13.6 million sequentially, primarily due to a smaller expense resulting from the remeasurement of the FlexSteel earnout liability. Adjusted segment EBITDA increased $3.7 million or 9.4% sequentially while margins increased by 170 basis points resulting from favorable operating leverage and lower input cost.
Corporate and other expenses were $5.9 million up $400,000 sequentially on higher stock-based compensation on a total company basis.
Second quarter adjusted EBITDA was $104 million up 8.7% from the first quarter adjusted the margin for the second quarter was 35.7% compared to 34.8% for the first quarter.
Adjustments to total company EBITDA during the second quarter of 2024 included non-cash charges of $5.9 million in stock-based compensation and a $2.9 million charge related to the final remeasurement of the FlexSteel earnout liability.
Depreciation and amortization expense for the second quarter was $15 million, which includes $4 million of amortization expense related to the intangible assets booked as part of the FlexSteel acquisition.
During the second quarter, the public or class A ownership of the company averaged 83% and ended the quarter at 84%. GAAP Net income was $63 million in the quarter versus $50 million during the first quarter, the increase was driven by the stronger operational performance on the higher revenue achieved combined with a smaller quarterly change in the remeasurement of the earnout liability.
Book income tax expense during the second quarter was $18 million resulting in an effective tax rate of 22% adjusted net income and earnings per share were $65 million and $0.81 per share respectively compared to $60 million and $0.75 per share in the first quarter. Adjusted net income for the second quarter was net of a tax rate of 26% applied to our adjusted pretax income.
During the quarter, we paid a dividend of $0.12 per share resulting in a cash outflow of approximately $10 million including related distributions to members.
Additionally, we made early cash payments and associated distributions of $18.2 million we elected to make this early payment of the majority of our 2023 TRA liability to minimize the interest expense on the liability and we expect to pay the remaining balance in the third quarter upon completion of our tax filings.
Due to our strong operating earnings and disciplined working capital management during the quarter, we increased our cash and cash equivalent balance by $52 million not with standing the a [fore] mentioned payments and we closed the quarter with a cash balance of $247 million. Net CapEx was approximately $7 million during the second quarter.
In a moment, Scott will give you the operational outlook. Some other considerations when looking ahead to the third quarter include an effective tax rate similar to the second quarter rate of 22% and we estimate that the tax rate for adjusted EPS will continue to be approximately 26%.
Total depreciation and amortization expense during the third quarter is expected to be approximately $15 million with $7 million associated with our pressure control segment and $8 million associated with Spoolable technologies.
We are reducing our full year 2024 net CapEx outlook to be in the range of $35 million to $45 million due to the timing of our international expansion efforts.
As noted, the remeasurement period for the FlexSteel earnout payment is now complete and the final payment of $37 million is expected to be distributed in the third quarter.
Finally, the board has approved an 8% increase in the quarterly dividend to $0.13 per share which will be paid in September that covers the financial review and outlook and I'll now turn the call back over to Scott.

Scott Bender

Thanks Jay and I'll touch on our operational expectations for the third quarter by reporting segment based upon preliminary revenue for July we expect pressure control revenue to moderate mid-single digits versus the second quarter due to the combination of lower average US land drilling activity and less visibility into production equipment, shipments.
From speaking with our customers, we believe that most of the decline in US land drilling activity levels is now behind US. Although the potential for further rig reductions remains as operators continue to pursue and complete consolidating transactions. We may see some offset to the consolidation activity via expected drilling efficiency increases of the newly combined businesses.
Adjusted even on margins in our pressure control segment are expected to be essentially flat at 33% to 35% for the third quarter as cost efficiencies are offset in part by increased ocean freight costs.
This adjusted guidance excludes approximately $3 million of stock-based comp expense within the same.
I'm pleased to announce that the first shipments of our next generation wellhead system have now arrived at our US branches or and are presently being staged for customer shipment. This rolls up will enhance our manufacturing cost profile in the coming quarters while adding features for our customers and maintaining self safe drill status as the industry leading wellhead system.
Regarding our technology segment, we expect third quarter revenue to be flat to slightly down from the second quarter and this guidance reflects our expectations of a stable North American business that continues to outperform year-to-date activity reductions combined with lower international shipments due to the timing of deliveries achieved in a strong second quarter.
We expected to do margins in this segment to be approximately 39% to 41% for the third quarter which excludes a million of stock-based comp in the segment as a result of operating discipline by our team input costs were lower than expected in the second quarter and we're beginning to realize the benefits of using the cactus supply chain to source certain components of our FlexSteel product.
Regarding our international expansion plans, pressure control product qualifications is progressing well, but at a slower pace than we anticipated, we still expect to see to achieve product qualification in 2024 remain focused on established on establishing a made business and are dedicating significant resources to these efforts in both segments.
We will continue to take a disciplined approach to evaluating strategic opportunities. Adjusted corporate EBITDA is expected to be a charge of approximately $4 million in the third quarter which excludes around $1.5 million of stock-based comp. I remain very pleased with the market positioning of Cactus, our portfolio of high margin, high return products and services and the commitment of our organization to exceed customer expectations.
I'm eager to responsibly roll out our latest generation wellhead system and customers and to enable them to achieve reduced drilling times while enhancing safety and reliability.
In addition, we'll complete prototype testing of our new frac valve design which should significantly reduce maintenance costs. As we prepare to make the final earn out payment for the sellers of flex deal. I am reflecting on the value that we've generated for our stakeholders by incorporating that business into Cactus over the last 12 months, our Spoolable technology segment has generated $164 million of adjusted EBITDA which equates to a multiple of approximately four times the total consideration paid for the business including the upcoming final earn out payment.
I continue to believe that we are still in the early phases of growth for that segment. We will remain focused and responsible stewards of capital and are allocating capital and investing in the business with a focus on long term value generation while rewarding shareholders as reflected in our decision to raise the dividend by 8%.
In summary, our primary objectives for the next 18 months include meaningful supply chain contribution from our new non-section 301 manufacturing facility to enhance the cost and risk profile of our supply chain, increased deliveries of our next generation wellhead system introduction of our next generation frac file continued customer edition additions and increases within our existing customer base for our Spoolable business supported by the introduction of new products and services and international expansion in both segments.
And so, with that, I'll turn it over to the operator so that we may begin with Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Luke Lemoine, Piper Sandler.

Luke Lemoine

Hi, good morning.
Scott. You noted the international momentum in Spoolable want to see if you could explain on that a little bit and then also Spoolable if you could just talk about how, what traction you're getting with some of the larger diameter stuff as far as gathering and takeaway lines that that'd be helpful as well.

Scott Bender

All right, very good.
I'm going to let, if you don't mind, Mr. Tadlock, respond to that.

Luke Lemoine

Yes, sure.

Stephen Tadlock

Sure. Luke. On the on the international efforts, we've added key personnel. We're very focused on growth in this area. I think in historically, while, FlexSteel had more of an international presence than Cactus, actually, it really wasn't an area of focus and, it was sort of if the order came, they would certainly take it, but it wasn't something they were really going out and trying to grow.
So, we're changing that philosophy, seeing a lot of increased quoting activity as a result. We're adding installation equipment to facilitate the growth as well. So, we feel like we're just scratching the surface on international.
I think on the on the larger diameter, we are definitely seeing more interest in our larger diameter skews as people recognize the benefits of the rapid installation and the enhanced corrosion resistance. And so, I think that's progressing nicely both in the midstream area, but also even some E&P operators that are sort of changing the way they do their takeaway and gathering.

Luke Lemoine

Okay. And then just follow up Scott, always appreciate kind of your market outlook in the US and I mean, you did note that you think most of the recount is behind us, could you just expand maybe upon the back half of the year. Do you see it pretty flattish, you know, oscillating around this level and any kind of indication maybe for the start of 25 that you see right now.

Scott Bender

Yeah, I know you all have good memories. So last time I told you that, contrary to maybe some of the published reports at the time I saw the US land grid count in the 550 to 575 range, I think. Alan, we bottomed at 560 it rebounded slightly to 568. I absolutely feel like the worst is behind us, but we are scaling our business based upon the 550 range. Do I think we're going to go below 550. No, I see indications from customers that we're going to go below 550. The answer is no as well, but I still very concerned about and you all should be about natural gas prices.
And I'm probably a little less concerned in '24 because I'm getting ready to answer your not 2025 question. I'm a little less concerned about of the reduction in overall recount following consolidation. I think we've really only seen evidence of that in one case and it hasn't been meaningful.
So, I do think that we're going to get better natural gas support in 2025. And but offsetting that I think we're going to see more effect from consolidation efforts. Now, I need to add something about consolidation because from our perspective, it's not all bad news. So, if you see the, I'm giving you a long winded answer, I'm sorry, if you're concerned about rig counts and we've always used that a proxy as a proxy because it's easy.
We've seen shipments of Wellhead equipment per month go up. Hence the comment I made about efficiency. So, sometimes people see efficiencies and they say, well, they're going to be able to drill as well. That's not what I meant. What we do is we measure every month, the number of housings we ship against the number of rigs we service. And we've seen a very meaningful increase. I think a better proxy for our business as well as drilled than our recount. And, just further, I've said before that long term consolidation is probably a friend. On the one hand, on the other hand that customers with larger recounts have much more leverage in terms of pricing.
So, I think it's probably too early, but next quarter, I think I'll have a much better idea. We're just now beginning to hold our customers about their plans for 2025. So, let's if you stand by and I'd rather give you correct information than merely speculation.

Luke Lemoine

Okay. No, perfect. Definitely appreciate all the detail and I'll turn it back.

Operator

David Anderson, Barclays.

David Anderson

Thanks. Hi, good morning.
Hi Scott. So, while I stew over that sort of complicated North American outlook you just provided there, maybe I could follow up a little bit on what Loose question was on the international side. I'm also kind of curious about the international business. How are you kind of driving that.
Are you bundling that with your other kind of with the pressure to control. Are you going to the same market. Just kind of curious about the strategy of building up that international business and kind of secondarily, do you have like a target for us of kind of how much of your business you think will be international. Say, I don't know the end of '25 I know you have this stuff coming on, Saudi. I think that's more of a 26 time frame, but just sort of in your mind, how does international grow as a portion of your business over the next few years. Just kind of bigger picture. Thanks.

Scott Bender

We talk, I assume we're talking about Spoolable.

David Anderson

Well, I was originally talking about Spoolable but I'm kind of bringing to the old the broader kind of your overall international efforts overall. So, I'm curious how Spoolable will fit in but then bigger picture kind of how international overall fit as over the next few years from what you can tell.

Scott Bender

Okay. Steve, you want to talk about Spoolable.

Stephen Tadlock

Yeah. And I think there is a question in there. Are we, are we bundling? We're not really bundling, but we do have some resources that are shared internationally that are in the region. And they have both experience in Wellhead, some of them more experience in Wellhead and some more experience in Spoolable .
So, they work together and obviously you have channel partners in certain areas over there as well. So, they hit up the same ones.
In terms of Spoolable growth, I think we had had a presence in terms of, or we've had sales continuing with, with one large customer who could probably guess in the Middle East. But we feel like we can make further inroads with that customer. Just by being more responsive frankly and dedicating more resources and equipment there and similar in other areas like Latin America and even over in Australia where we have a well head operation, we're looking to grow in that area as well. So, I think it's a holistic approach to how we're trying to grow Spoolable and we're trying to leverage any benefit that we have from the cactus relationships, but we're also bringing in new people and using the existing resources as far as how big it could be. I mean, we really on the Spoolable side there's a lot of potential for growth. There are a lot of large projects, consistent projects. So, I don't see why it couldn't be similar to North America at some point. It's just, it's going to take time to get.

Scott Bender

There I mean and let me just expand upon that because we just had a board meeting, and you won't surprise you. Now, when I tell you, our board asked the same question and I told them that it's my expectation, it remains my expectation that in the next few years, we'll have to expand capacity because there are a lot of international activity and when it comes to international, I think as much as we stand apart, in the US I think we stand apart even more internationally because of the larger diameter and higher pressures.
So, I frankly, I think I told you this when we bought Spoolable that I felt like the runway was even greater and I still feel that the runway is even greater. Notwithstanding our efforts from the wellhead side internationally. So, your question about what do I see in terms of international for the next, did you say '25.

David Anderson

Next couple, you just kind of the next couple of '25 or '26. Just out of curious. So. How much is this growth. Just a bigger picture.

Scott Bender

I'm going to tell you right now. My objective is 40% of our revenue.

David Anderson

My question is all right. So, the US administration, there's a change in US administration it seems like we would see likely increased tariffs on Chinese goods once again, just can you just refresh us a little bit? You have a lot of your manufacturing out of China. I know it impacts some of that in terms of cost. Is there anything you would do differently this time around if this happened again. Do you ramp up us manufacturing. Are there other leverage you can pull or is it really not that much of a big deal because your competitors are faced with the same thing. So, it's all kind of a push in terms of cost.

Scott Bender

Yes, I would say the latter. So that for example, I think I may have mentioned that the plant that we're finishing right now and should begin to ship in the fourth quarter is capable of taking care of our international business.
Although we intend to manufacture in both locations. So, we built a plant with that in mind, in terms of increased tariffs I think worst case scenario, I don't want to make political comments, but likely scenario is maybe, I would, I don't know if it's likely one scenario is that there's a 10% duty on top of everything, which certainly won't hurt us more than it hurts our competitors.
Because, frankly, we make more of what we sell in the US than any of our competitors make in the US and we're more capable of making product in the US. So, I don't like for costs to go up, but I'm not nearly as bothered when it affects our competitors to the same extent. So, worst case scenario is, I mean, I'm sure you all heard that one of the candidates claimed that tariffs were going to go to 60%.
I think that we are much better position to deal with the 60% tariff on Chinese product than anybody else.

David Anderson

Let's hope it doesn't get there. Thanks a lot. Scott. I appreciate it.

Operator

Jeff Leblanc, TPH&Co.

Jeff Leblanc

Thank you for taking my question.
For my first question. I wanted to see if you could expand upon the drilling efficiencies. You previously rush referenced. Particularly given that you have a more holistic view on the market and the fact that operators typically include lateral lengths when they talk about efficiency gains. So, any way you can quantify the magnitude, I know you qualitatively referenced it before.
Thank you.

Scott Bender

I can quantify it to the extent that we track it. Alan, I think over the, was it over the quarter or over the year. It's up about 10%.

Alan Boyd

Yes, quarter over quarter, it was around 10% for us. But that metric is pretty lumpy.

Scott Bender

But what we do is we look at the number of wellheads we ship versus the number of rigs we serve, and we compare that quarter to quarter to measure efficiencies. So, that's why I said the better proxy is wealth that I know that, that everybody believes these longer laterals. And to that certainly is the case takes longer to drill or longer lateral. But I can't argue with the stats. The stats showed the 10% increase in wellhead shipment, just the same number of bricks. So, it's just a fact.

Jeff Leblanc

Well, thanks for that color and I'll turn the call back over to the operator. Thank you.

Scott Bender

Thank you.

Operator

Arun Jayaram, JPMorgan Securities.

Arun Jayaram

Yes, good morning.
I'm intrigued about, you know, one of the drivers of the, of the 2Q beat was a significant order from a large customer who's new to Cactus. I was wondering if you could give us some more details on that. And thoughts on how this relationship is going in and in other follow-on opportunities here.

Scott Bender

Do I have any competitors that are going to have access.

Arun Jayaram

Maybe.

Scott Bender

So, the answer has got to be no, I can't tell you this except to tell you that it's a customer that has historically been Cactus customer for Wellheads but has not historically been a production tree customer. We internally feel like customers are now becoming more discriminating when it comes to production than they were over the last several years.
So, I think it's a question of I mean, they like the fact that we build our own valves, and they like the fact that we control the delivery of those files. Not, just the quality. So, I think that Joel will join me in saying that we're more optimistic about growth in our production segment.

Joel Bender

We've seen a lot more activity, a lot more inquiries for the product. I think a lot of our bigger customers become much more risk averse. So, they're looking for an API monogram product with aftermarket service.

Arun Jayaram

Great, great. And just maybe a follow one of the things we're thinking about, as we think about 2025 and thinking about kind of the margin profile of Cactus, you'll have a new manufacturing facility which I think is going to be low cost. And then you'll have a new frac valve as well as the new generation Well, head product and, and I if we remain in and called a lackluster environment in North America not a huge call on, on shell volumes as we sit here today. How do you think about how margins could behave in this kind of environment with some of the, the self-help and new product introductions.

Scott Bender

Yes, I feel very optimistic but I wanted to say this to you, and I've said it before. So, we are going to roll out particularly the wellhead product in a responsible manner, which means that we need to turn our existing inventory before we open up the tab. So, I think that, Joel, feels like it'll be it's not that the product is not ready because the product is ready. And if we could if we needed to ship it tomorrow, we could but we don't want to create.
We have through our careers, Joel career and my career, we have always been very sensitive to obsolescence. So, we have a great product in our existing product. This is a better product, but we want to make sure that we don't impact financially, our returns. So, you're going to have to bear with us and trust that we're going to introduce it in a responsible fashion, but the short answer is I think that that even in an anemic 2025 that our margins are going to hold up very well.

Arun Jayaram

Great. Thanks for that color.

Operator

Scott Gruber, Citigroup.

Scott Gruber

Good morning, wanted to come back to the question on picking up the production sheet production, tree share, you know, with a, with a large customer in the US i guess my question is when you look at the dozen or so large [E and PS] and majors that are obviously increasingly dominating the industry, you have strong share in wellheads. Can you give us a sense for kind of what percentage of that cohort, Does the production tree share not match the share on the wellhead side.

Scott Bender

So let me just see if, let me clarify your question. You're asking me theoretically if our market share for well heads with these customers is I'm going to and we don't report market share except that if you were in the room, I'd patch on the head and tell you not to worry about it but let's say that that number was 40%. You're asking what our market share is for production valves as comparison as compared to that.

Scott Gruber

Yes, I'm wondering the delta in between those two numbers and how much of an uplift you could get if the share is aligned.

Scott Bender

There is a pretty significant disparity between our market share for production balance. And so, I'm looking at Joel and looking at Steven, we've never really measured it, but I would be surprised if our market share production valves is half agreed.

Scott Gruber

Got you. And then you just theoretically if a customer is using you for wellheads but not for production trees and then they start using you at the same share of their workload for production trees. And what's the approximate revenue opportunity. Does it match the low head side any sense of scale.

Scott Bender

Now, I wouldn't say it matches the well head. It's probably I'm thinking the average production tree and 40% of a well head.

Scott Gruber

That sounds like a good opportunity.
Okay, I'll keep it to one and one follow up. Okay, thanks.

Scott Bender

Hey, by the way you can always call me.

Scott Gruber

Thanks. I appreciate It.

Operator

All right. Thank you so much for that.
I'm showing no further questions at this time. I would now like to turn it back to Scott Bender for closing remarks.

Scott Bender

Okay. Thank you all for participating. I think that what we have 10 times more people than we had last time when we, I guess Patterson, look, I think 2025 for us is an exciting time. Despite the fact that we don't, we're not planning for any sort of explosive growth, but how unpredictable this business is. Here's what I can tell you our costs will be lower, our productivity will be higher and our focus is extremely, I think laser sharp and that's why I summarized, my remarks with I want you to know what our objectives are for this year and everybody in this organization knows what our objectives are so, they're clear.
We remain the largest shareholders and, you can be sure that we're going to do what's best for our shareholders and for the family and, I'll leave it at that but thank you for your continued support. Have a good day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.