S-1/A: HMH Holding Inc. Files S-1/A for IPO Amidst Energy Market Shifts

HMH Holding Inc., a leading provider of drilling equipment and services, filed an S-1/A for its initial public offering, detailing its Up-C structure, financial performance, and strategic focus on offshore and adjacent mining markets.

Summary

• HMH Holding Inc. (HMH Inc.) is pursuing an initial public offering (IPO) of Class A common stock, with an estimated price range between $ and $ per share.
• The company will operate under an Up-C structure, where HMH Inc. will be a holding company owning a % equity interest in HMH B.V., which holds all operating assets.
• Principal Stockholders (Baker Hughes and Akastor) will collectively own all Class B common stock, representing % of total voting power, and all B.V. Non-Voting Shares, representing a % equity interest in HMH B.V.
• Net proceeds from the IPO will be used to purchase B.V. Voting Class A and B shares from Baker Hughes and/or Akastor, and to repay $137.3 million in outstanding Shareholder Loans as of June 30, 2025.
• For the six months ended June 30, 2025, total revenue was $401.9 million, a slight increase of 0.2% from $401.3 million in the same period of 2024.
• Net income for the six months ended June 30, 2025, decreased by 38.0% to $15.6 million from $25.2 million in the prior year period.
• Adjusted EBITDA for the six months ended June 30, 2025, was $62.7 million (15.6% of revenue), an 11.8% decrease from $71.1 million (17.7% of revenue) in the same period of 2024.
• For the year ended December 31, 2024, total revenue increased by 7.4% to $843.4 million from $785.4 million in 2023.
• Net income for the year ended December 31, 2024, significantly increased by 198.6% to $52.0 million from $17.4 million in 2023.
• Adjusted EBITDA for the year ended December 31, 2024, was $158.4 million (18.8% of revenue), a 29.3% increase from $122.6 million (15.6% of revenue) in 2023.
• Aftermarket services and sales of spare parts accounted for 43.8% and 27.9% of revenue, respectively, for the six months ended June 30, 2025, and 43.4% and 29.4% for the year ended December 31, 2024.
• The company has identified material weaknesses in internal control over financial reporting, specifically related to insufficient qualified personnel, risk assessment, IT general controls, business process controls, and segregation of duties, but has remediated most of these in 2024.
• A new material weakness was identified in operational finance activities in certain subsidiaries, leading to ineffective process level controls, including revenue cutoff, due to insufficient capacity.

Sentiment

Score: 6

Explanation: The company presents a strong strategic position in a recovering market with innovative technology and a resilient business model. However, recent financial performance (H1 2025) shows a notable decline in net income and Adjusted EBITDA, and the presence of a new material weakness in internal controls, along with significant related party transactions and potential tax liabilities from the Up-C structure, introduce considerable caution. The long-term outlook is positive, but short-term financial results are concerning.

Positives

• The company is a leading global provider of highly engineered, mission-critical drilling equipment and services with a 125-year history and recognizable brands like Hydril, VetcoGray, Wirth, and Maritime Hydraulics.
• Approximately 80% of the installed equipment base serves the offshore drilling market, which is highly regulated and technologically sophisticated, driving demand for specialized equipment and aftermarket support.
• Aftermarket services and sales of spare parts constitute a substantial and recurring portion of revenue (43.8% and 27.9% respectively in H1 2025), providing earnings resilience.
• The company has a large, scalable, and geographically diverse footprint with over 1,100 equipment installations globally across 15 countries and sales in over 90 countries in 2024.
• Strong expected growth in offshore and international onshore oil and gas drilling markets, with global greenfield and brownfield oil and gas capital expenditures projected to exceed $700 billion annually from 2025-2027, a nearly 60% increase from 2020.
• Rystad Energy forecasts a compounded annual growth rate of over 6% for floater rigs between 2024 and 2027, and offshore production is expected to grow 16% between 2024 and 2030.
• The company operates an asset-light business model, allowing for low incremental investment and capital expenditures (1.7% of revenue in H1 2025, 2.2% in 2024) while generating strong Adjusted ROCE (8.3% in H1 2025, 19.7% in 2024).
• Experienced management team with over two decades in the drilling segment and a proven track record of scaling revenue, developing new technologies, and executing over 100 M&A transactions.
• Active investment in R&D, developing cutting-edge technologies like a fully electric BOP (first of its kind), 20,000 psi BOP capability, and advanced digital solutions (DrillPerform, RiCon, DrillCERT, SeaLytics, DEAL) for operational optimization, safety, and efficiency.
• Expanding into adjacent industries like onshore and subsea mining, leveraging existing engineering and manufacturing expertise, with increasing demand for equipment like slurry pumps due to critical mineral needs for renewable energy.
• Successful bond refinancing in November 2023, placing a new $200.0 million senior secured bond at a reduced cost of capital, leading to a decrease in interest expense in 2024.
• Remediation of previously identified material weaknesses in internal control over financial reporting by hiring qualified personnel, providing training, utilizing third-party consultants, and enhancing monitoring procedures in 2024.

Negatives

• Net income decreased by 38.0% for the six months ended June 30, 2025, to $15.6 million from $25.2 million in the prior year period.
• Adjusted EBITDA decreased by 11.8% for the six months ended June 30, 2025, to $62.7 million from $71.1 million in the prior year period.
• Cost of sales as a percentage of revenue increased to 73.0% in H1 2025 from 67.6% in H1 2024, primarily due to a higher proportion of product revenue and lower utilization of service and spares facilities.
• Spare parts revenue decreased by 13.7% for the six months ended June 30, 2025, due to lower volume from current market conditions.
• Related party revenue significantly decreased by 90.1% for the six months ended June 30, 2025.
• Interest expense increased by 7.9% for the six months ended June 30, 2025, due to interest rate and balance variability on the revolving credit facility.
• Income tax expense increased by 19.9% for the six months ended June 30, 2025, due to increased profit and a change in geographic mix of revenues.
• Free Cash Flow was negative $(13.5) million for the six months ended June 30, 2025, and $(14.9) million for the six months ended June 30, 2024, indicating cash usage from operations.
• Adjusted ROCE decreased significantly to 8.3% for the six months ended June 30, 2025, from 53.0% in the prior year period, primarily due to decreased net income and lower intangible asset amortization.
• A new material weakness was identified in internal control over financial reporting related to operational finance activities in certain subsidiaries, specifically ineffective process level controls over revenue cutoff, due to insufficient capacity.

Risks

• The cyclical nature of the oil and natural gas E&P industry and volatility of oil and natural gas prices directly affect demand for products and services.
• Dependence on a limited number of significant customers (top five accounted for 43.6% of revenue in H1 2025, with two customers accounting for 14.2% and 10.3%).
• Competition in the oilfield services industry is high, with numerous small companies and larger companies possessing greater financial resources, potentially leading to market share loss or price reductions.
• Risks associated with certain contracts for products and services, including financial challenges for customers, failure to obtain timely payments, inability to meet technical requirements or delivery timelines, and unexpected cost increases.
• Exposure to unforeseen interruptions and hazards inherent in the oil and natural gas industry, such as equipment defects, accidents, natural disasters, and environmental damage, which may not be adequately insured.
• Potential liabilities from warranty claims if products fail to perform, which could adversely affect reputation, future business, and earnings.
• Loss of senior management or technical personnel could materially adversely affect operations due to high demand and limited supply of skilled workers.
• Existing international operations and expansion into new geographical markets are subject to political, social, and economic instability, war, terrorism, public health crises, export controls, and currency fluctuations.
• Failure to comply with export and import controls, economic sanctions, and other international trade laws could result in government investigations, fines, penalties, and reputational harm.
• Operations may be impacted by changing macroeconomic conditions, including inflation, leading to increased costs for goods, services, and personnel, which may not be offset by price increases.
• Deterioration in global economic conditions and adverse developments affecting the financial services industry could impair access to funding sources and credit arrangements.
• Default by customers and counterparties, especially in a low commodity price environment, could result in nonpayment or nonperformance, leading to write-downs of receivables or assets.
• Estimates of market potential and forecasts of market growth may prove inaccurate, leading to failure to grow at similar rates.
• Growth through acquisitions exposes the company to risks such as unanticipated costs, integration difficulties, loss of key employees/customers, and increased leverage.
• Equipment failures or production curtailments/shutdowns at manufacturing facilities could adversely affect manufacturing capability, leading to significant capital expenditures or contractual penalties.
• Unionization efforts, labor interruptions, and labor regulations could have a material adverse effect on operations, leading to additional costs or limitations on service provision.
• Environmental liabilities and complex environmental laws and regulations (e.g., Clean Air Act, Clean Water Act, RCRA, CERCLA, EU Taxonomy, CSRD, CS3D, NTA) could increase costs, delay projects, or result in penalties.
• Risks related to climate change, including physical risks (adverse weather) and transition risks (evolving regulations, alternative fuels, shifting consumer preferences, negative market perception), potentially increasing operating/capital costs or decreasing resources.
• Imposition of laws, executive actions, or regulatory initiatives to restrict, delay, or cancel leasing, permitting, or drilling activities in deepwaters could reduce demand for services and products.
• Increased activism against oil and natural gas exploration and development activities could lead to decreased drilling, increased focus on sustainability, reduced access to capital markets, and reputational harm.
• New technology may cause the company to become less competitive if it cannot develop, implement, or acquire new technologies at a substantial cost.
• Intellectual property rights may be inadequate to protect the business, with risks of challenges, invalidation, circumvention, and difficulty enforcing rights in foreign jurisdictions or international waters.
• Inability to obtain and retain licenses to intellectual property owned by third parties may negatively impact prospects and financial results.
• Potential involvement in intellectual property litigation, which can be costly, divert management resources, and result in loss of competitive advantage.
• Errors or failures of proprietary software may result in liability or reputational damages, or disrupt customer drilling operations.
• Cybersecurity attacks, IT system failures, and network disruptions may result in potential liability, reputational damage, or adversely affect the business, exacerbated by remote work and AI advancements.
• Indebtedness could materially adversely affect financial condition, limiting ability to obtain additional financing and requiring substantial cash flow for debt service.
• Inability to generate sufficient cash to service indebtedness may force actions like reducing investments, selling assets, or restructuring debt, which may not be successful.
• Restrictions in existing and future debt agreements could limit growth and ability to engage in certain activities, with potential for acceleration of debt if covenants are violated.
• An increase in interest rates would increase the cost of servicing variable-rate indebtedness, reducing net income and cash flows.
• The company is a holding company, dependent on distributions from HMH B.V. to pay taxes, Tax Receivable Agreement payments, and corporate expenses, subject to restrictions from debt instruments or applicable law.
• No existing public market for Class A common stock, and an active, liquid trading market may not develop, causing shares to trade at a discount and making sales difficult.
• Obligation to make substantial payments under the Tax Receivable Agreement for certain tax benefits, which could be significant and potentially accelerated upon change of control, exceeding actual benefits or cash on hand.
• The Principal Stockholders (Baker Hughes and Akastor) will initially control a majority of voting power, and their interests may conflict with other stockholders.
• A significant reduction in ownership by Principal Stockholders could adversely affect the company's ability to implement business strategies.
• Risk of HMH B.V. becoming a publicly traded partnership for U.S. federal income tax purposes, leading to significant tax inefficiencies and inability to recover prior Tax Receivable Agreement payments.
• If deemed an investment company under the Investment Company Act of 1940, applicable restrictions could make it impractical to continue business.
• Immediate and substantial dilution for new investors purchasing Class A common stock in the IPO.
• Stock price may change significantly and be volatile due to various factors, including market conditions, operational results, and future sales by existing stockholders.
• Anti-takeover provisions in organizational documents could delay or prevent a change of control, limiting stockholders' ability to obtain a premium for shares.
• Dividends may not be declared or paid in the foreseeable future, as the company intends to retain earnings for growth, and existing debt agreements restrict dividend payments.

Future Outlook

The company has an overall positive outlook for global oil and gas activity, with a specific emphasis on tailwinds in global offshore E&P spending and onshore E&P spending in the Middle East. It believes increased E&P activity, particularly offshore, will be required to meet expected growth in global demand, as current low levels of E&P capital spending are unsustainable. The company expects to benefit from an anticipated 20% growth in offshore and international spending from 2023 to 2030. It anticipates aftermarket services and spare parts sales will continue to represent a substantial portion of revenue due to increased drilling activity and wear-and-tear on the large installed base. Opportunities for newbuild offshore rigs may arise as rig demand increases and the market tightens. The company plans to continue enhancing customer offerings through R&D in existing technologies, increased digitalization (e.g., fully electric BOP, remote drilling automation), and expansion into additional offshore services. It also aims to capture growth and market share in onshore drilling, especially in the Middle East, and expand into adjacent markets like subsea mining and other oil and gas related equipment (completion, intervention, production). The company expects to continue growing through strategic acquisitions, focusing on targets with ongoing aftermarket components, proprietary technology, and asset-light business models.

Management Comments

• We are well-positioned to continue supporting and building our presence in the offshore drilling market as a result of our full, integrated suite of mission-critical drilling solutions, highly technical expertise, aftermarket services offerings and long experience providing and maintaining equipment in this industry.
• Our asset-light business model through the leveraging of our existing operating footprint and original equipment manufacturer (OEM) business model and are well positioned to grow and scale our business with low incremental investment and capital expenditures.
• We believe that we have been, and will continue to be, at the forefront of technological and digital innovation in the drilling industry.
• Our management team has a proven track record of profitably scaling revenue across a global portfolio through the cultivation of long-standing customer relationships, development and successful commercialization of new technologies and optimization of international manufacturing capabilities, supply chain networks and corporate processes.
• We believe there is a substantial opportunity set of potential acquisition candidates that will be available over the next several years.
• Our management team has established conservative financial principles to guide us through decision-making in any potential commodity cycle.

Industry Context

The company operates in the highly cyclical oil and natural gas E&P industry, which is experiencing a rebound after years of underinvestment. Global energy consumption is projected to increase significantly by 2050, with oil and gas remaining critical components. Offshore drilling, where the company has a strong presence, is expected to see substantial capital expenditure increases (over $700 billion annually from 2025-2027) and floater rig growth (over 6% CAGR 2024-2027). This shift is driven by declining rates in existing wells, recovery from COVID-19 impacts, and the need to meet increasing global demand. The industry is also seeing a focus on lower emissions intensity, favoring deepwater offshore production. Beyond oil and gas, the company is expanding into the critical minerals industry, which is experiencing high demand due to renewable energy technologies (e.g., lithium, cobalt, nickel for EVs and wind power). Geopolitical events and inflation continue to impact supply chains and costs across the energy sector.

Comparison to Industry Standards

• The company is one of the few global OEMs capable of delivering comprehensive drilling equipment packages for harsh offshore environments, meeting stringent requirements of major international oil and gas E&P companies and national oil companies.
• Within the global offshore drilling fleet, the company has the second-largest installed base of topside drilling equipment and risers, and the third largest installed base within main pressure control equipment categories (including BOPs and diverters), positioning it favorably against competitors like NOV Inc. and Schlumberger Limited's Cameron International.
• The company's asset-light business model, with capital expenditures representing only 1.7% of revenue in H1 2025 and 2.2% in 2024, is a competitive advantage compared to more capital-intensive industry players, allowing for greater operating margin expansion.
• The company's focus on recurring aftermarket services (43.8% of revenue in H1 2025) provides a more stable revenue base compared to companies heavily reliant on new equipment sales, especially in a cyclical industry.
• The development of a fully electric BOP is highlighted as a 'first of its kind' technology, potentially paving the way for safer, more efficient, and environmentally sustainable drilling operations, differentiating it from traditional hydraulic systems offered by competitors.

Management Changes

Corporate Governance

Legal Proceedings

• Multiple lawsuits have been filed challenging the SEC's new climate rules, which have been consolidated in the U.S. Court of Appeals for the Eighth Circuit. The SEC has voted to end the defense of these rules in litigation, and the Eighth Circuit has held the cases in abeyance.
• The company is a party to ongoing legal proceedings in the ordinary course of business, but does not believe the results will have a material adverse effect on its business, financial condition, results of operations, or liquidity.

Related Party Transactions

• HMH B.V. was formed on October 1, 2021, as a joint venture between Baker Hughes (50% ownership) and Akastor (50% ownership).
• Shareholder Loans: HMH B.V. entered into a loan agreement on October 1, 2021, with Baker Hughes Holdings LLC ($80.0 million term loan) and Akastor AS ($20.0 million term loan). As of June 30, 2025, $137.3 million (including accrued interest) was outstanding, bearing 8.0% interest per annum. These loans mature on October 1, 2026, or upon a liquidation event like the IPO.
• Shareholder Note: On March 17, 2023, HMH B.V. extended credit in the principal amount of $3.45 million to Baker Hughes Holdings LLC and $3.49 million to Akastor AS, maturing October 1, 2026, or upon a liquidation event, accruing 8.0% interest.
• Baker Hughes License Agreements: On October 1, 2021, HMH B.V. entered into worldwide, fully paid, nontransferable, and non-sublicensable license agreements with a Baker Hughes subsidiary for limited use of 'Vetco' and 'VetcoGray' trademarks and other intellectual property related to the Subsea Drilling Systems business. The IP license is perpetual, and the trademark license has a renewable five-year term.
• Baker Hughes Remarketing Agreement: On October 1, 2021, HMH B.V. agreed to provide services to Baker Hughes for the sale, leasing, or remarketing of certain BOPs and associated equipment returned by a third-party lessor, in exchange for reimbursement of out-of-pocket costs.
• Baker Hughes Transition Services Agreement: From October 1, 2021, for up to 12 months, Baker Hughes provided transitional administrative, finance, and digital services to HMH B.V. for a monthly fee, totaling $15.8 million. All obligations are now complete.
• Baker Hughes Servicing Agreement and Long-Term Incentive Offset: On October 1, 2021, HMH B.V. agreed to service and collect on $54.6 million of Baker Hughes' account receivables. On March 17, 2023, Baker Hughes assigned $6.8 million of remaining receivables to HMH B.V. as full payment for a $2.5 million excess long-term incentive liability.
• Akastor Step Oiltools: Akastor's subsidiary, Step Oiltools B.V., was to be contributed to HMH B.V. on a delayed basis. Due to the Russian invasion of Ukraine, Step Oiltools was liquidated. Parties settled a sellers credit of approximately $16.0 million payable by Akastor to HMH B.V. in exchange for liquidation proceeds. HMH B.V. remeasured the receivable to zero as of December 31, 2024 and 2023.
• Akastor Payment of Pension Benefits: As part of HMH B.V.'s formation, Akastor agreed to pay certain carved-out pension liabilities of MHWirth AS until Akastor owns less than 5% of HMH B.V.'s equity. HMH B.V. recorded a receivable of $19.9 million and $21.9 million as of December 31, 2024 and 2023, respectively.
• Akastor Financial Guarantees: As of June 30, 2025, Akastor had issued financial guarantees of approximately $5.0 million in favor of MHWirth AS for performance under operational support frame agreements. As of December 31, 2024, this was $35.1 million for lease obligations and operational support.
• Akastor Transition Services Agreement: From October 1, 2021, for a term concluding at the end of 2023, Akastor provided transitional finance, IT, and treasury services to HMH B.V. for an hourly fee, totaling $0.4 million. All obligations are now complete.
• Tax Receivable Agreement: HMH Inc. will enter into an agreement with Principal Stockholders to pay them 85% of net cash savings in U.S. federal, state, local, and foreign income/franchise tax resulting from tax basis increases due to the IPO and future exchanges of B.V. Non-Voting Shares, and utilization of certain NOLs. Payments are expected to be substantial and continue for more than 16 years.

Stakeholder Impact

• Shareholders: New investors will experience immediate and substantial dilution. The Principal Stockholders will retain significant voting power, potentially influencing corporate decisions. Future sales by existing stockholders could cause price declines. Dividends are not expected in the foreseeable future.
• Employees: The company is committed to investing in human capital, offering flexible work arrangements, wellness programs, and professional development. However, a restructuring plan announced in January 2025 will impact 100 individuals in Norway and Germany through workforce reductions and reorganization. Phantom equity awards for key employees are contingent on a liquidity event (IPO or change of control).
• Customers: The company's asset-light model and focus on aftermarket services aim to provide reliable, cost-effective solutions, increasing equipment availability and reducing operational costs. However, dependence on a limited number of customers and potential financial distress of customers pose risks. Increased tariffs and geopolitical tensions could affect costs and supply chain, impacting customer pricing.
• Suppliers: The business relies on a broad range of raw materials and components, with risks of shortages, long lead times, and price increases due to supply chain disruptions and inflation. Nonperformance by key vendors could raise costs and interfere with operations.
• Creditors: The company's indebtedness could affect its financial condition and ability to obtain additional financing. Restrictive covenants in debt agreements limit certain activities, and failure to meet obligations could lead to debt acceleration. The IPO proceeds will be used to repay $137.3 million in Shareholder Loans, reducing related party debt.

Next Steps

• Complete the initial public offering (IPO) and list Class A common stock on The Nasdaq Global Select Market (Nasdaq) under the symbol HMH.
• Implement the corporate reorganization, including the stock split and recapitalization of HMH B.V. shares.
• Utilize IPO net proceeds to purchase B.V. Voting Class A and B shares from Principal Stockholders and repay Shareholder Loans.
• Continue to remediate the new material weakness in internal control over financial reporting by adding qualified personnel to operational finance in certain subsidiaries.
• Continue R&D efforts on cutting-edge technologies like the fully electric BOP, rotating control devices for managed pressure drilling, and enhanced pressure assisted shearing for BOPs.
• Pursue organic and inorganic growth investments to leverage global footprint and installed base in offshore drilling, enhance customer offerings, and expand into onshore drilling and adjacent mining markets.
• Assess the full impact of the One Big Beautiful Bill Act and other changes to the Code on operations, prospects, and financial statements.
• Comply with new accounting standards, including ASU 2023-09 (Income Tax Disclosures) and ASU No. 2024-03 (Disaggregation of Income Statement Expenses), effective in 2026.

Key Dates

Recommendation

While HMH Holding Inc. operates in a recovering and growing market segment (offshore drilling, critical minerals) with a strong installed base, recurring aftermarket revenue, and innovative technology, recent financial performance shows a concerning decline in net income and Adjusted EBITDA for the first half of 2025. The identified material weakness in internal controls, though partially remediated, and the complex Up-C structure with significant related party transactions and potential tax liabilities, introduce considerable uncertainty. The concentration of voting power with Principal Stockholders also presents a governance risk. Given the mixed financial signals and inherent risks of the industry and the IPO process, a 'hold' recommendation is appropriate for seasoned investors. It suggests waiting for more consistent financial performance post-IPO and clearer indications of the effectiveness of internal control remediation and strategic execution before making a 'buy' or 'sell' decision.

Keywords

Oil and Gas Drilling, Offshore Drilling, Drilling Equipment, Aftermarket Services, Pressure Control Systems, Blowout Preventers (BOPs), Topside Equipment, Digital Solutions, Subsea Mining, IPO, S-1/A, SEC Filing, Up-C Structure, Tax Receivable Agreement, Baker Hughes, Akastor, Energy Technology, Oilfield Services, Capital Expenditures, Adjusted EBITDA, Free Cash Flow, Corporate Governance, Risk Management, Environmental Regulations, Climate Change, Intellectual Property, Debt Agreements, Shareholder Loans, Nasdaq Listing