HMH (HMH) Q3 2026 earnings review
HMH service profit rises, but equipment delays stall its sales
HMH, a supplier of offshore drilling equipment and maintenance services, grew its service profit while equipment delays kept total revenue flat. Third-quarter sales fell 21% from a year ago to $171 million, remaining unchanged from the second quarter as Middle East disruptions and slow customer awards cut equipment revenue by 69%. Chief executive Eirik Bergsvik said large equipment orders shifted to later periods, and by our math the $38 million in Adjusted EBITDA fell 26% short of the quarterly pace needed for the company's prior full-year target.
| Revenue | $171.1M -21% from a year ago, flat from Q2 |
|---|---|
| Adjusted EBITDA | $38.2M -3% from a year ago, +13% from Q2 |
| Order intake | $191M +12% from a year ago (1.12x book-to-bill) |
| Full-year performance outlook | Lowered cut bonus accruals as awards shifted into 2027 |
⚖️ Verdict: 🔴 Bearish
The story got worse because the second-half sales recovery did not arrive and HMH reduced employee bonus accruals on lower full-year expectations. Working capital also drained $33 million in cash, pushing free cash flow to negative $12 million. On the positive side, service orders rose 16% from a year ago and pushed the Adjusted EBITDA margin up to 22.3%.
The question now is whether HMH's growing order backlog will lift revenue in early 2027 or stay trapped by customer delays. Either offshore drillers start spending on rig reactivations as contracts begin, or Middle East disruptions and capital discipline keep pushing equipment deliveries out. Management's updated full-year outlook on the call and fourth-quarter service revenue will tell.
🐂 Bull Case
Service Repairs Lifted Margins Despite Flat Sales
HMH relies on aftermarket services and spare parts to protect its profits when equipment sales slow. In the third quarter, service revenue rose 9% from the second quarter to $97.1 million as offshore drillers ordered more repairs and field work. Service order intake reached $115 million, up 16% from a year ago, even as digital upgrade orders cooled from their second-quarter peak.
- Gross margin: 34%, up 6 percentage points from a year ago as cost of sales fell to 66% of revenue
- Adjusted EBITDA margin (profit before interest, taxes, depreciation and one-offs): 22.3%, up from 19.8% last quarter
- Service gross margin: 34.4% by our math, alongside a 48.8% gross margin in spare parts
That shift toward higher-margin service work kept Adjusted EBITDA at $38.2 million, up 13% from last quarter despite a 21% drop in total sales from a year ago. However, part of the sequential profit gain came from lower employee bonus accruals rather than operations alone.
What to watch: Selling, general and administrative expenses in the fourth quarter. If overhead stays near $33.9 million without another bonus accrual reduction, operating margins will depend entirely on service volume.
Deepwater Riser Acquisition Expands Gulf Aftermarket Work
Chief executive Eirik Bergsvik is expanding HMH's offshore maintenance footprint while customers delay new equipment awards. During the quarter, the drilling equipment supplier paid $14.5 million in cash to buy Deepwater Riser Services. Following the deal, HMH is "consolidating our U.S. Gulf riser operations in Houma, Louisiana" to inspect, recertify, refurbish and store marine risers—the large pipes that connect offshore rigs to the seafloor.
What to watch: Service revenue and order intake in the fourth quarter. Any disclosed revenue contribution from the Houma facility will show how fast the $14.5 million outlay adds recurring maintenance sales.
🐻 Bear Case
Flat Sales Put the Full-Year Target Out of Reach
Entering the quarter, HMH maintained a full-year Adjusted EBITDA outlook of $157 million to $177 million, resting on a second-half recovery. Even though orders have topped sales all year—with a book-to-bill ratio (orders divided by revenue) of 1.12x this quarter—revenue stayed flat from the second quarter at $171.1 million. Management did not repeat the full-year dollar range in the release.
Instead, the oilfield supplier noted that third-quarter profit benefited from "lower variable compensation expense reflecting updated expectations for full-year performance". By our math, nine-month Adjusted EBITDA of $102.1 million leaves $54.9 million needed in the fourth quarter just to reach the bottom of the prior $157 million target, requiring a 44% single-quarter jump.
Cutting bonus accruals for full-year performance while omitting the dollar target signals that the second-half revenue conversion management previously counted on has slipped into 2027. Booked orders are taking longer to turn into recognized sales because customers are delaying project starts.
What to watch: Any formal revision to the full-year Adjusted EBITDA range on the conference call, followed by fourth-quarter revenue. A fourth quarter near $171 million would leave full-year profit well below $157 million.
Equipment Sales Sank on Middle East and Award Delays
"Equipment order activity remained below our expectations in the third quarter as several larger equipment and upgrade opportunities shifted to later periods," Bergsvik said. He added that "we have not seen these opportunities disappear", but the delays hit the equipment division hard. Product revenue fell 69% from a year ago and 17% from last quarter to $16.7 million, while product order intake dropped 27% from last quarter to $16 million.
- Product cost of goods sold: $19.9 million against $16.7 million of sales, a negative 19.2% gross margin by our math
- Middle East conflict impact: roughly $17 million in lost revenue and $8 million in lost Adjusted EBITDA across the first nine months of 2026
By our math, after a roughly $10 million revenue hit in the first half, the Middle East conflict cost HMH another $7 million of revenue in the third quarter. With product orders stuck at $16 million, equipment manufacturing cannot cover its fixed factory costs.
What to watch: Product order intake in the fourth quarter. Until quarterly equipment orders rebound well above $16 million, the product line will keep dragging down company gross profit.
Working Capital Outflows Pushed Free Cash Flow Below Zero
After generating $22.2 million of free cash flow in the second quarter, HMH burned cash in the third. Operating cash flow swung to an outflow of $6.2 million, and free cash flow fell to negative $11.6 million. Bergsvik noted that the group is "investing in long-lead materials to improve delivery readiness", which tied up cash on the balance sheet.
Working capital changes consumed $33.4 million during the quarter, pushing other current assets up 11% from June to $586.3 million by our math. Because HMH builds inventory ahead of delayed customer deliveries, order delays hurt cash flow before they hurt the income statement.
What to watch: Inventory and receivables in the third-quarter 10-Q filing. That breakdown will show whether the $33.4 million cash drain came from deliberate material purchases or slower customer collections.
Risks this quarter didn't answer
Several standing concerns and one prior driver received no updated figures in the third-quarter earnings release and await the 10-Q filing or conference call.
- 2027 rig-year visibility: Bergsvik noted that "Continued Middle East disruptions and rig reactivation delays remain near-term headwinds", leaving open whether 2027 contracted floater rig visibility held near last quarter's 80%.
- Backlog and remaining performance obligations: Total backlog (reported at $414.4 million in June) was omitted from the release, though orders exceeded sales by $19.9 million by our math.
- Customer concentration and principal stockholders: The 10-Q will show whether two customers still account for roughly 30% of receivables and whether Baker Hughes and Akastor changed their 73% voting stake.
- Pricing vs reserve releases: The 10-Q notes will show whether gross margin gains included further warranty or inventory reserve reversals.
💲 Other KPIs
Spare parts sales slipped 1.7% from a year ago and 6.5% from the second quarter. Order intake for spares reached $60 million, up 7% from a year ago on European demand but down 8% from last quarter as Middle East and pressure-control demand cooled. By our math, spares gross margin remained high at 48.8%.
Net debt (total debt minus cash) rose by $30.0 million from the second quarter by our math, as cash balances dropped from $119.7 million to $90.1 million. The cash decline funded the $14.5 million Deepwater Riser acquisition and covered the $11.6 million free cash flow deficit. Total liquidity ended at roughly $165 million, with no debt maturing until June 2028.
Combined spending on property, plant and equipment ($1.7 million) and product development ($3.7 million) rose slightly from $5.2 million in the second quarter. By our math, property and equipment spending alone equaled 1.0% of revenue, tracking below management's previously stated 2% full-year ceiling, while development costs consumed another 2.2% of sales.
🔮 Guidance
Cut. HMH did not repeat its $157–177 million full-year Adjusted EBITDA target or its call for higher second-half activity, stating instead that lower third-quarter bonus expenses reflected "updated expectations for full-year performance" as equipment awards shifted toward 2027. By our math, reaching even the $157 million low end would require $54.9 million in the fourth quarter, up 44% from the third quarter.
❓ Key Questions
What is the new full-year 2026 Adjusted EBITDA range?
The release cited updated full-year performance expectations to explain lower variable compensation costs but gave no numbers. Reaching the old $157 million floor requires a 44% fourth-quarter profit jump.
What drove the $33.4 million working capital cash outflow?
Other current assets climbed by $53.7 million over the first nine months while revenue stayed flat near $171 million. Investors need to know how much sits in unbilled receivables versus long-lead inventory.
Where did remaining performance obligations end the third quarter?
HMH reported $414.4 million of contracted backlog in June, supposedly converting within 12 months, yet third-quarter revenue did not budge. The updated backlog figure and its expected conversion schedule are missing.
How much revenue and profit will Deepwater Riser Services add?
HMH spent $14.5 million in cash to buy Deepwater Riser Services and consolidate its Gulf of Mexico operations in Houma, but disclosed no historical revenue, backlog or expected cost savings for the business.
Has the Mexico facility reorganization under the restructuring plan finished?
HMH booked another $2.2 million in restructuring and other charges this quarter after $5.0 million in the second quarter. Management has not yet confirmed whether the Mexico workforce and facility changes are complete.