Drilling services company Nabors Industries (NYSE: NBR) announced better-than-expected revenue in Q3 2026, with revenue up 7.1% year on year to $876.3 million. Its non-GAAP loss of $1.24 per share was significantly below analysts’ consensus estimates.

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Mr. Petrello concluded, "Our third quarter results demonstrate the earnings power of our diversified portfolio. We expect further sequential adjusted EBITDA growth in the fourth quarter, led by U.S. Drilling. We remain on track to achieve an annualized adjusted EBITDA run rate of approximately $1 billion heading into 2027."

Revenue growth

Cyclical sectors like energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Nabors Industries’s revenue grew at a decent 11.3% compounded annual growth rate over the last five years. Its growth was slightly above the average energy upstream and integrated energy company and shows its offerings resonate with customers.

Energy cycles can be long enough that a single five-year period can still reflect one price environment, which is why an additional, decade-long view can help capture through-cycle performance. Nabors Industries’s annualized revenue growth of 3% over the last ten years is below its five-year trend, but the results were still good.

This quarter, Nabors Industries reported year-on-year revenue growth of 7.1%, and its $876.3 million of revenue exceeded Wall Street’s consensus estimates by 2.3%.

Adjusted EBITDA margin

Adjusted EBITDA margin reflects the operating profitability of an energy producer by removing accounting effects related to depletion and capitalized drilling costs. It reveals how much cash the asset base generates before capital structure and reinvestment requirements shape reported earnings.

Nabors Industries was profitable over the last five years but held back by its large cost base. Its average EBITDA margin of 28.5% was weak for an upstream and integrated energy business.

On the positive side, Nabors Industries’s EBITDA margin rose by 2.2 percentage points over the last year, as its revenue growth provided operating leverage.

In Q3, Nabors Industries generated an EBITDA margin of 28%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable. Adjusted EBITDA beat Wall Street’s consensus estimates by 3.2%.

Free cash flow

Adjusted EBITDA shows how profitable a company’s existing wells are before financing and reinvestment decisions, but free cash flow shows how much value remains after paying the cost of replacing those wells. In upstream energy, production naturally declines over time, so companies must continuously reinvest just to stand still. A producer can report strong EBITDA margins yet generate little or no free cash flow if its wells decline quickly or if new drilling is expensive. Free cash flow therefore captures not only how efficiently a company produces hydrocarbons today, but also how costly it is to sustain that production into the future.

Nabors Industries has shown weak cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2%, below what we’d expect for an upstream and integrated energy business.

The level of free cash flow is important, but its durability across cycles is just as critical. Consistent margins are far more valuable than volatile swings driven by commodity prices.

Nabors Industries’s ratio of quarterly free cash flow volatility to WTI crude price volatility over the past five years was 22.2 (lower is better), indicating that its cash generation is far more sensitive to commodity-price swings than most peers. This elevated volatility limits its access to capital in downturns and makes it unlikely to act as a consolidator when weaker competitors come under pressure.

The stability analysis focuses on free cash flow relative to commodity prices. Why not compare revenue or EBITDA to WTI in the case of Nabors Industries? Because what ultimately matters is not how much revenue or profit a company earns when prices are high but how much cash it can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging effectiveness to growth and maintenance capex to management behavior during good times and bad.

Nabors Industries’s free cash flow was $74.52 million in Q3, equivalent to an 8.5% margin. This was a positive result as its margin was 8.8 percentage points higher than in the same quarter last year, but short-term results warrant caution because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Key takeaways from Nabors Industries’s Q3 results

Nabors Industries’ quarter was weaker overall: revenue and EBITDA topped consensus estimates, but EPS fell short. Shares remained flat at $80.51 immediately after the release.

When deciding whether to invest in this stock, the latest quarterly results matter, but longer-term business quality and valuation matter more. Read our full research report here for more on those factors (it’s free).