NOV Inc.

Good day, ladies and gentlemen, and welcome to the NOV first quarter 2023 earnings conference call. At this time, all participants 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 and then 11 on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce you to 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 first quarter 2023 earnings conference call. With me today are Clay Williams, our Chairman, President, and CEO, and Jose Bayardo, 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 securities 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 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 first quarter of 2023, NOV reported revenues of $1.96 billion and net income of $126 million, or 32 cents per fully diluted share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as a find 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 permit more participation. Now, let me turn the call over to Clay.

Thanks, Blake. For the first quarter of 2023, NOV reported revenue of $1.96 billion, down 5% sequentially on seasonality and project timing, and up 27% compared to the first quarter of 2022. The company posted fully diluted earnings of 32 cents per share for the first quarter, up 45 cents year-over-year. EBITDA was $195 million, or 9.9% of revenue, up $92 million year-over-year. Demand remained strong. Our consolidated orders exceeded revenue out of backlog for the eighth consecutive quarter, yielding a book-to-bill of 109%. For most of our business units, it was a good quarter, but overall EBITDA came in softer than we expected due to a couple of discrete charges, one related to an environmental accrual top-up and another related to litigation, along with a significant supply chain issue we encountered in our drill pipe business. This led to an EBITDA shortfall and a significant build in inventory for the wellbore technology segment. Revenues in EBITDA for our other two segments, brick technologies and completion and production solutions, were generally in line with our expectations for the quarter. Unplanned events at one of our vendor steel mills within the past few months led to a lack of raw materials for drill pipes, specifically bar stock for tool joint material, which goes into the connections at each end of every joint. Lack of raw materials disrupted our production schedules and impacted our manufacturing efficiency. As we were required to double the number of production line setups we typically perform each quarter in order to conform our manufacturing schedule to the materials we had on hand. Consequently, we lost valuable manufacturing time and faced higher costs as we scrambled to secure more expensive supplies from alternative vendors, which led to far fewer shipments and a roughly $10 million EBITDA shortfall versus our earlier expectations for the unit in the first quarter. Drill pipe inventory increased significantly as green tubes and other raw materials continued to arrive as per our original plan but couldn't be converted. While some disruptions are continuing to affect the unit's second quarter results, we are working closely with our vendor to catch up and expect the situation to be resolved by the time we get to the third quarter. Elsewhere around the business, we are generally seeing steady improvement in supply chain challenges as freight reliability and costs have improved and certain raw material supplies are becoming more reliable. While many exceptions to this remain, engines, electrical components, certain elastomers remain scarce and deliveries elongated, for example, other components are catching up quickly. Rig technology saw inventory rise as castings and forgings, which are needed to support the group's high backlog of spare parts, rig refurbishment, and equipment repair, began to flow at a greater rate. This inventory will support revenue growth in the second quarter and beyond. Much of our inventory growth in the completion and production solution segment came in our flexible pipe manufacturing operation, which was required to buy out the rest of its 2022 allocation from our polymer vendor to secure its 2023 allocation required to meet our 2023 production schedule. These increases, along with other modest growth in wellbore technologies apart from drill pipe, are pegged to specific orders and projects that will contribute positively to the remainder of our 2023 performance. Notwithstanding our drill pipe manufacturing challenges, our wellbore technology segment executed very well and has continued to advance several new technologies leading to market share gains in bits and digital products. Customers running our Kaizen artificial intelligence drilling optimization software are delighted with its results, and we are preparing to spud wells for two new wire drill pipe customers in the Middle East. Interest in our new shell shakers and waste management technologies for drill cuttings is rising, too. as the offshore market puts more rigs back to work. Turning to our later cycle segments, first, Completion and Production Solutions has line of sight on several large projects we are bidding that are tied to higher levels of offshore FIDs expected later this year. We foresee tightening industry capacity in flexible pipe for deepwater developments and rising demand for gas processing technologies from NOV in support of global LNG demand. We continue to see strong demand for intervention and stimulation equipment during the first quarter, with quotations up 31% sequentially, pointing to the need to replenish the industry's toolkit with higher-efficiency, lower-emission technologies. Bookings were up 5%, including a lot of interest in our lower-emission electric equipment. Our new MAX completions product was introduced during the first quarter to rave reviews, as pressure pumpers and their customers are embracing the power of real-time big data to optimize frack jobs. The rig technology segment made significant supply chain strides during the first quarter, with record levels of centrifugal pump shipments. Shipments of spare parts into repair jobs and in support of offshore rig reactivations, as well as spares to support our Arabian rig manufacturing joint venture, all accelerated. The segment continues to see growing activity in the offshore space, with 55 recertification, upgrade and or reactivation projects now underway in shipyards. The segment posted orders of $251 million and a book to bill of 140%, which included $60 million related to an offshore wind turbine installation vessel. Revenues were down sequentially though, as expected, due to high fourth quarter shipments of jacking systems, the completion of a handful of older offshore projects, plus the fourth quarter sale of a land rig out of inventory that did not repeat. Our outlook for the remainder of the year for all three segments is robust, despite recent commodity price weakness. After eight years of capital starvation that saw more than 600 bankruptcies in EMPs and oilfield service companies, the world is getting back to reinvesting in its critical energy infrastructure. The floating rig count has recovered quickly off the bottom it established during the pandemic and has now recovered more than 35% with the current contracting pace and FID outlook indicating many more needed by 2024. Drill ships in good working condition have already been reactivated, and with the low-hanging fruit gone, contractors will have to go deeper into their stack to find rigs to meet growing demand. The complexity and cost of future reactivations will grow, and even more so if the owner wants to add, for instance, a second BOP stack to comply with BESI regulations or our PowerBlade technology to reduce OPEX and greenhouse gas emissions. The rising cost of these reactivation projects has led drilling contractors to require both multi-year contracts at higher rates, as well as operator-provided financing for reactivation capital and mobilization expenses. As the original OEM for the vast majority of these rigs, NOV plays a critical role in these projects, and as more rigs go back to work, the EMP operators are seeing firsthand how impactful new NOV technology developed and launched during the downturn can be. We are pleased to report that, for instance, ExxonMobil has standardized on NOB's toolkit for its offshore rigs in Guyana, including our Novus operating system with multi-machine control, our condition-based monitoring system, and our new automation offerings. We are also pleased to report gathering momentum in the international land market, particularly in the Middle East, and expect this to translate into tangible orders in the near future. Unlike North America, which saw its shale revolution miracle preceded by a complete retooling of its land rigs to AC technology, international land markets have seen very little rig replacement to higher levels of technology going back decades. That began to change with the decision by Saudi Aramco to establish a joint venture with us to build rigs in the kingdom a few years ago, backed by a contract for 50 new build rigs that we are now building. And with production growth targets announced by the national oil companies around the Gulf slated to come from far more complex wells and reservoirs, it is becoming clear to operators that the region has no choice but to upgrade its fleet of rigs, stimulation equipment, bits, and downhole tools. Our customers face lower commodity prices and global recession fears during the first quarter. They show no signs of diminished appetite for the goods we provide. To the contrary, our orders remain strong and customer conversations robust. In all likelihood, North American activity is at best flat for a while, constrained by $2 gas and tepid oil prices. But offshore activity in Brazil, Guyana, the Gulf of Mexico, and West Africa, along with land and offshore activity around the Arabian Gulf, point to strong growth over the next several years, underpinned by expected project FIDs and double-digit E&P CapEx growth plans. The focus of the national oil companies has been on satisfying their own local needs for natural gas, the recovery of global oil demand with the reopening of the Chinese economy. Their growing confidence that U.S. unconventional growth is slowing significantly, and the fact that the world has been under-investing in production for nearly a decade. Thus, we believe we are seeing growing confidence from our NOC customer base to make longer-dated capital investment decisions. As a leading independent manufacturer of equipment and technology to the oil field, our business blossoms later in each upcycle than other business models in the oil patch, as prosperity cascades through the ecosystem. For now, our consolidated margins remain below what we consider normalized levels due to this late cycle nature, along with the residual pandemic-related supply chain disruptions we continue to battle. As the cycle progresses, we expect supply chain issues to abate, lower margin backlog to burn off, and pricing to continue to improve, which will boost our margins and earnings. NOB's installed base of equipment and new automation and digital technology products introduced through the downturn place it in a uniquely advantaged position to drive higher efficiencies for its customers throughout the oil field as capital spending and activity return. Our mission, one that we are intently focused on, is translating that unique competitive advantage into acceptable shareholder returns. We recognize we still have a ways to go on this journey. Before I hand it over to Jose, for those NOV employees listening today, I want to thank you for all that you do to take care of our customers and keep their programs on track despite cost inflation, labor shortages, broken supply chains, and global volatility. You're simply the best, and our customers appreciate you, and I want you to know that I do too. With that, I'll turn it over to Jose.