NOV Inc.

Good day, ladies and gentlemen, and welcome to the NOV fourth quarter and full year 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. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Amy D'Ambrosio, Director of Investor Relations. Ma'am, please begin.

Welcome everyone to NOV's fourth quarter and full year 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 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 US GAAP basis for the fourth quarter of 2023, NOV reported revenues of $2.34 billion and a net income of $598 million, or $1.51 per fully diluted share. For the full year of 2023, revenues were $8.58 billion and net income was $993 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 permit more participation. Now, let me turn the call over to Clay.

Thanks, Amy. NOV continued its strong sales growth through the fourth quarter of 2023, with revenues of $2.3 billion up 7% sequentially, completing a year in which the company generated $8.6 billion in sales. Full-year revenues increased 19% from 2023 versus 2022, Driven by strong offshore and international demand, continued supply chain improvement and increasing uptake in the new technologies NOV has been introducing to its customers. Fourth quarter EBITDA increased to $294 million or 12.5% of revenue, up 30 basis points from the prior quarter and up 140 basis points from the fourth quarter of last year. Despite the higher than expected sales for the fourth quarter, EBITDA leverage was lighter than expected at 17%. falling short of our forecasts due in part to continuing activity declines in North America and in part to some unexpected charges. Revenues for North America land declined 5% sequentially, hitting our wellbore technology services businesses disproportionately hard. Additionally, we had an approximately $20 million impact on EBITDA in the quarter due to the 55% devaluation of the Argentine peso in December, higher U.S. medical costs, and workman compensation insurance accruals. Fourth quarter offshore revenue grew 7% sequentially on large increases in managed pressure drilling, equipment sales, flexible pipe, conductor pipe, and aftermarket spares for offshore rigs. NOB's international land revenues grew by more than 20% sequentially on stronger shipments of drill pipe, composite pipe, stimulation equipment, and drilling equipment for the Middle East. The company's offshore and international revenue strength more than offset North America, leading to consolidated sequential sales growth of 7%. Free cash flow improved significantly during the fourth quarter to $301 million. The inflection in free cash flow signaled relief from the supply chain challenges of the first half of 2023, as additional inventory enabled higher flush year-end shipments, including strong double-digit sequential growth for the rig technology segment and spare parts and drilling equipment. While 2022 was characterized by the recovery of activity in North America, 2023 saw continuing momentum in offshore and international markets that is underpending the steady upcycle we believe will continue to unfold over the next several years, Aramco's Safinaya plans notwithstanding. Despite postponement of plans to grow production capacity to 13 million barrels per day, we still expect the kingdom to remain quite busy as it drills to stem declines in conventional oil wells and it drills to develop unconventional gas. We expect our revenues in 2024 there to continue to grow. Broadly speaking, rising activity in critical global offshore and international markets is leading to purchases of the tools and kit needed for our oilfield customers to execute development plans. We remain constructive in our global outlook over the next several years because there are so many areas that look so strong. 2023 saw the reentry of IOC customers into the deep water market after a decade-long hiatus, with several basins seeing renewed energy and focused on exploration, like Namibia and Suriname, brownfield developments like Norway, West Africa, and the Gulf of Mexico, and greenfield developments like Brazil, Guyana, and Australia. Although we view U.S. permitting constraints on further LNG export growth as unwise from an energy security standpoint, such a move would drive additional calls on LNG production from offshore Australia and Qatar, in our view. Increasing offshore activity is tightening the market for floating rigs, leading to a doubling of day rates, with high spec floaters utilizing sophisticated NOV technologies benefiting the most. Likewise, growing offshore drilling in the Arabian Gulf has materially improved utilization and day rates for jackups. Despite some white space in specific rig contracts popping up in 2024, arising from the completion of older, shorter, well-to-well contracts, our customers are using this idle time to accomplish maintenance and SPS surveys. They also report rising operator interest in longer three- to five-year term contracts. This bodes well for future NOV rig technology demand, as customers can achieve payback on incremental CapEx upgrades on their rigs, giving them greater visibility in their future utilization. We are more subdued in our 2024 outlook for North America. The euphoria of 2022 has matured into a phase of consolidation and strict capital discipline in 2023, exacerbated by continued volatility in oil prices and depressed domestic natural gas prices. I believe E&P CapEx will likely decline slightly year over year. Nevertheless, North America production will remain vital to global supply and energy security. The expected commissioning of incremental U.S. LNG export capacity in 2025 could spark additional North American gas drilling activity later in the year, to prove me wrong. Against this market backdrop of growing offshore international markets offset by declining North American activity, NOV is posting much improved results. driven by projects aimed at reactivating and upgrading offshore rigs and significant uptake of our new advanced technology to meet operators' demands for more efficient operations. There remains room for improvement in our profitability and return profile, and we are focused on improving our margins by executing our cost reduction plan and continuing our commitment to improve pricing where we can. NOV's investments in technologies over the past several years have focused squarely on providing solutions that drive improved economics for our customers, utilizing new robotics and digital advancements to expand and enhance our traditional product portfolio. We have very intentionally repositioned ourselves to support future energy investments of all kinds. With continued traction in North America and the Middle East, our edge compute, edge to cloud, and cloud-based solutions are equipping drilling, intervention, and completions operators on the front lines with more information to make better decisions. The fourth quarter saw two independents adopt our new artificial intelligence edge compute technology to identify critical downhole events like washouts hours earlier than traditional methods. We are also seeing gains in our one-click cloud data delivery and our new high-frequency data services. In December, NOV was celebrated by a major NOC for providing high-speed data streaming from over 100 rigs from a dozen drilling contractors to enable its big data scientists and algorithms to identify and act on opportunities to drive better efficiency. Our completions customers are also seeing the benefits of real-time interaction with aggregated field data. We ended the year with more than 3,500 active users of our remote monitoring tools for completion operations, up 70% compared to the first half of 2023. And we are introducing new FRAC monitoring capabilities through our MaxEdge platform this year. Overall, fourth quarter max edge product revenue more than tripled versus the fourth quarter of 2022. NOB's proprietary wire drill pipe high-speed data delivery system has seen widespread adoption in the North Sea over the past few years, and now a major NOC in the Middle East is reporting 30% improvement in well placement on its pilot drill last year, significantly improving well economics. Strong results arising from better data prompted another Arabian Gulf operator to spud with the technology a few days ago. with several others planning to adopt the technology in the region later this year. We believe we are pioneering a new and better way to drill. Wire drill pipe technology combined with NOV's new managed pressure drilling offering will provide unprecedented control and performance, and I believe this technology will become standard in the offshore arena in coming decades. Better drilling performance enabled by NOV's cutters drove significant market share gains in drill bits in several regions throughout 2023. and revenue from new downhole tools grew 27% sequentially. Our new Positrack torsional vibration mitigation tool completed its 100th run during the quarter, enabling a doubling of rate of penetration for a customer in Indonesia, where our new Agitator ZP friction reduction tools are enabling operators to move to three-mile laterals in the Permian. Bits, motors, and NWD failures are the leading causes of expensive unplanned trips for horizontal drillers, which has led many E&P operators to rent this equipment directly from NOV because of our exceptional reliability and performance, rather than delegate the supply of these to their directional drillers as they have traditionally done. NOV is very, very well positioned in performance drilling sector for future share gains. Similarly, in high-temperature basins like the Haynesville and Eagle Ford, we are receiving repeat orders for our Tuboscope TK340TC coating, which insulates drill pipe, and our Tundra Max mud chiller to help reduce downhole temperatures that can damage downhole electronics. Again, operators are buying directly from NOV and are reporting fewer equipment failures and improved cost savings as a result. Leveraging our existing expertise in harsh environment drilling, we are addressing the high temperature hard rock challenges facing the growing geothermal market. Our portfolio of drill bits, MWD tools, composite pipe, liner hangers, and corrosion resistant pipe liners combat the tough challenges faced in geothermal wells, and we've seen strong demand, particularly in Europe. Oil and gas producers are committed to reducing the environmental impact of their operations. NOV's proprietary Inovatherm cuttings treatment technology is seeing strong demand, particularly in areas like Angola and the Arabian Gulf, which are tightening drill cuttings discharge requirements. Treating drill cuttings on the rig reduces the high CO2 footprint associated with shipping these to shore. Operators are also demanding drilling contractors cut CO2 emissions, driving interest in NOV's new PowerBlade and Maestro engine management technologies. Committing to a cleaner future, operators are applying their expertise to carbon capture and storage and using NOV's deep experience in this area as well. We secured the dehydration package for a large carbon capture and storage project in Louisiana aimed at reducing emissions from industrial processes, and we are pursuing several additional CCUS opportunities. Our sustained investments in new products and technologies help drive our strong top line results as fourth quarter 2023 revenues have increased nearly 90% from the first quarter of 2021 low, which compares to the big three average of about 60% over the same time period, equating to approximately 26% compound annual growth rate for NOV versus 19% for the big three. And we believe we have room to run as more EMPs try wire drill pipe, max edge compute solutions, AI powered optimization software, and more sophisticated drilling tools and robotics. We expect our adaptation to the reality of the industry and the strong results these technologies provide will continue to drive improving top line results. As part of NOV's repositioning of its product portfolio, we also continue to review and optimize our shareholders' capital employed across the portfolio. We expect to divest one or possibly two businesses in the coming year and redeploy capital into higher performing opportunities like electrical submersible pumps, which we added this week through an acquisition. Additionally, we expect that improved cash flows in 2024 following supply chain normalization will enable us to increase our return of capital to shareholders in the coming year. In sum, NOV is well positioned to capitalize on the world's need to invest in energy of all forms. We have a lot of work ahead of us, and I'm grateful for NOV's team and their extraordinary professionalism their intense focus on the critical needs of our customers, the creativity and innovation they apply to technology to meet those needs, and above all, their ability and willingness to get the job done. Many thanks to all of you who are listening. With that, I will turn it over to Jose.