NOV Inc.

Good day, ladies and gentlemen, and welcome to the NOV second quarter 2021 earnings conference call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.

Welcome, everyone, to NOV's second quarter 2021 earnings conference call. With me today are Clay Williams, our Chairman, President, and CEO, and Jose Vallardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal security laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms, 10-K and 10-Q, filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis for the second quarter of 2021, NOV reported revenues of $1.42 billion and a net loss of $26 million. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA, as defined in our earnings release. Later in the call, we will host a question and answer session. Please limit yourself to one question and one follow-up to prevent more participation. Now, let me turn the call over to Clay.

Thank you, Blake. During the second quarter of 2021, NOV's consolidated revenue increased 8% sequentially, and EBITDA improved to $47 million, excluding the benefit arising from the cancellation of certain offshore rig projects. Operating leverage was strong at 50%, owing to cost reductions in prior periods, while price increases in certain product lines helped offset the inflation we are seeing in most product lines. Coming out of a pandemic which bankrupted many of our customers and eviscerated our backlog, our financial results improved, but remained below acceptable levels. Nevertheless, NOV's execution strengthened through a quarter of continuing supply chain challenges and COVID disruptions. We are pleased to see orders for both our rig technologies and completion and production solution segments rise significantly. Rig technologies posted book-to-bill of 138% on strength in orders for renewables, and completion and production solutions book-to-bill ran 167% in the second quarter. Barring another round of COVID lockdowns, we expect the market to continue to strengthen, underpinned by broad economic growth, higher commodity prices, and the continuing worldwide build-out of an offshore wind power toolkit. The company's portfolio of technologies developed over the past several years positioned extraordinarily well to capitalize both on the oil field recovery underway as well as the enormous energy transition. The next five years look very, very interesting for us. Like global manufacturers across all industries, NOV experienced supply chain disruptions throughout the second quarter, and we expect these challenges to persist into 2022. Many steel mills that supply NOV bespoke metallurgies, along with petrochemical facilities and plants that supply NOV epoxy, resins, thermoplastics, and elastomers, are not fully up and running due to a combination of COVID, the February Texas freeze, and in some cases disruptions in their own supply chains. Furthermore, transportation bottlenecks around the world, port congestion and port closures, and freight costs that have quadrupled are adversely impacting suppliers two and three levels down from us, driving up input costs and lengthening delivery times on everything from steel to computer chips. In certain instances, we have been placed on allocations, but thankfully, NOV's scale has enabled us to elbow our way to the front of the line, so we think we are better positioned than our smaller competitors. Our size and scale generally give us access to a broader range of suppliers, and our teams are managing through these challenges better than our competitors. The U.S. market is also seeing a tightening labor pool, adding pressure to cost and efficiency. Our customers tell us that attracting hands back to their oilfield service operations is very challenging. Interestingly, this is prompting greater customer interest in some of the new automation products we are now introducing to the market, which reduce the need for field labor. But as we get back to growth in our factories, we're finding it challenging to attract workers as well. NOV is trying to stay ahead of the inflation threat brought on by labor and raw material constraints by passing along these costs as price increases. Our success has varied depending largely on the level of excess lower cost inventories remaining in our competitors' hands within these markets. Day by day, however, we know excess capacity within many categories of oil field equipment and consumables, think bits, drilling motors, fluid ends, is approaching depletion, offering the first opportunities in many quarters to heal pricing and profitability as the North American marketplace continues to get more active and offshore and international markets start to recover. The marginal cost of returning idle oil field equipment, much of which has been cannibalized and stripped of consumables during the downturn, grows rig by rig, frack spread by frack spread as the industry steadily goes back to work. COVID measures continue to impact operations around the world. Two of our large composite pipe plants in the Far East were shut down in late second quarter and remain closed until late last week. Operations in India, the Middle East, parts of Europe, and Canada all experienced COVID disruptions of greater or lesser degrees. And generally, NOV did a better job of anticipating and managing through these obstacles in the second quarter. Our second quarter results are an instructive reminder of the cyclical behavior of our segments. Wellbore Technologies is most closely tied to drilling and is an early cycle beneficiary of rebounding drilling activity, having bottomed in the third quarter of last year. Its last two quarters have seen it put up double-digit top-line growth at greater than 50% EBITDA leverage, benefiting from the outstanding execution of cost reductions through the downturn, as well as selected price increases where possible. Our other segments are driven more by capital equipment purchases and are therefore later cycle and lag wellbore technologies by two to three quarters. We believe both completion and production solutions and rig technologies bottomed in the first quarter of 2021 and both posted double digit top line growth in the second quarter. Book-to-bills above 100% for both in the second quarter also support our outlook. All three segments see more or less the same macro environment. North American activity continuing its measured recovery, driven by stronger commodity pricing, while governed by extreme capital discipline on the part of operators. Two, national oil companies returning to work in fits and starts around the world, with tenders being let for, hopefully, a broader resumption of activity in 2022, barring additional COVID drama. And three, cautious optimism in offshore markets, with some limited project approvals flowing in the Gulf of Mexico, Brazil, and Guyana, but many projects facing continuing delays and moving to the right. Overall, excluding the rig cancellation, NOB's consolidated North American revenues increased 22% in the second quarter, and international revenues increased 1%. Consolidated offshore revenues declined 5% sequentially in the quarter. Within completion and production solutions, six of eight businesses posted sequential revenue growth. Every business unit, with the exception of our intervention and stimulation equipment business, posted book-to-bill ratios above 100%. In addition to navigating supply chain issues, the segment made good progress on technical developments within its ideal EFRACT offerings and its renewables portfolio, particularly in the carbon capture space. A little more than half of rig technology second quarter orders came from the offshore wind space, and the outlook for this area points to continued growth. Additionally, the tone from offshore drilling contractor customers is improving as they emerge from bankruptcy with stronger balance sheets. The 11% sequential improvement in spare parts bookings during the quarter, more inquiries around rig reactivations, and more engineering work we are being asked to do around upgrading BOPs, automating pipe handling, and adding crown mounting compensators, gives us confidence that we are seeing more offshore drilling activity on the horizon. In the land rig space, our rig manufacturing JV facility in Saudi Arabia is nearing completion, and work is currently underway on the first rigs. The NOV team continues its development of high-value solutions that support the energy transition, and I wanted to share a couple of updates. During the quarter, we advanced conversations with one of the largest solar EPC providers to develop a solar panel tracking system in the accompanying supply chain. We were also in advanced talks to sell our proprietary mobile tower crane that will enable the construction of significantly taller, more efficient onshore wind farms, which we hope will result in a purchase order soon. This crane underpins a clever new installation method that will facilitate the adoption of taller, lower-cost land towers that we are working with Keystone Tower Systems to manufacture at our facility in Pampa, Texas, that we have described on previous calls. We successfully tested our new inline chain tensioner that will be used to facilitate the offloading of floating wind turbines and entered into an agreement with Cerulean Winds to serve as the exclusive provider of floating and mooring systems for floating wind farms that will decarbonize oil and gas assets in the UK sector of the North Sea. Our NOV Gusto MSC team has been working with a customer to design and deliver a proprietary system that automatically tilts and orients a sailing mast, improving the efficiencies of sails on large vessels. The initial application of this system is for a large cruise ship, but can also be used on large cargo vessels. The wind propulsion technology will supplement conventional propulsion systems and is expected to reduce the ship's carbon footprint by 40 to 50 percent. There's also a lot happening in the geothermal market. A Reed-Heichelog PDC cutter technology continues to drive improvements in economic returns for the geothermal industry. And Tuboscope's TK liner product line is becoming an indispensable piece of large production. geothermal projects internationally as evidenced by a contract award this quarter for approximately 60,000 feet of large diameter product. In fact, we are introducing several new products across many business units that are specifically designed for the geothermal market, which is now seeing strong surge in demand globally now. Our process and flow technologies team has developed a concept design for a full-scale carbon capture module utilizing our expertise in gas processing and treatment built over the last 40 plus years, And we are in discussions with two potential customers for feed studies utilizing this technology in Europe now. The application of NOV's engineering and manufacturing expertise to the energy transition continues to unearth compelling paths to future growth. Turning back to our traditional oilfield markets, despite all the downsizing we've executed over the past several years, our sustained investments in R&D now provide NOV an outstanding portfolio of new products and technologies that position us well as we move into a recovering oilfield market. Our Novos operating system is at work today on 74 drilling rigs with another 84 in backlog, enabling these land and offshore rigs to access 10 different optimization applications written by NOV and third parties. These include optimization apps that utilize high-speed data from the bottom of the hole transmitted through NOV's Intelliserve wire drill pipe network, currently providing higher levels of efficiency and safety to several critical North Sea rigs and a rig in Saudi Arabia. Novos also provides the digital foundation for our new automated drilling and tripping robots that we are introducing later this year. Several customers came out to see our cost-effective industrial robots dope and trip over 25 stands per hour without any human hands touching the pipe or the controls. Offshore, we are seeing continued interest in reducing carbon emissions through our PowerBlade and EcoBoost products, And subscribers to NOV's RIG Century Predictive Analytics product, the oilfield's first commercial product introduced back in 2016, continue to grow. We're continuing to develop our edge computing solutions through our MAX platform, working closely with a handful of EMPs. to scope and develop the beta version. We're also bringing new directional drilling tools like our proprietary agitator friction and friction reduction tools, our select shift downhole adjustable bent sub, our vector series of rotary steerable tools, and market-leading drilling motors and NBBD tools. NOV Reed Hikolog leads the industry in bit and cutter technology, having lifted its market share materially through superior bit performance over the past several quarters. On the frac side, we are excited about the prospects for NOV's ideal e-frac technology, as well as our proprietary quick latch connection systems, FlexConnect frac hoses, and the digital enhancements we are developing around monitoring, controls, and predictive analytics in this space. After several years of cost-cutting, restructuring, pivoting, and innovating, NOV has reset and transformed its business, utilizing new developments in everything from digital to composite materials. We've developed new high-value ways to lift the efficiency and safety of our customers' traditional oil and gas operations. We've developed ways to reduce their carbon impact, and we are winning over new customers who are building out new forms of low-carbon energy. As the world continues to heal from the COVID-19 pandemic and the global economy tries to recapture some sense of normalcy, NOV is poised to benefit in both our traditional oil and gas businesses and our newer ventures in the renewable space. I'm enormously proud of NOV's dedicated, creative, service-minded employees whose hard work through this downturn has enabled the bright future that lies ahead. While our global operational reach, our integrated network of manufacturing assets, And our strong balance sheet and financial resources are all required to cultivate these opportunities. It's our fantastic team of employees who will make them hum. To those of you listening, thank you. With that, I'll turn it over to Jose.