NOV Inc.

Good day, ladies and gentlemen, and welcome to the NOV first quarter 2024 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 call 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 go ahead.

Welcome, everyone, to NOV's first quarter 2024 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 U.S. GAAP basis, for the first quarter of 2024, NOV reported revenues of $2.16 billion and a net income of $119 million, or 30 cents per fully diluted share. 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.

Thank you, Amy. For the first quarter of 2024, NOV generated revenue of $2.16 billion, an increase of 10% compared to the first quarter of 2023. The company generated fully diluted earnings of $0.30 per share for the first quarter, down $0.02 compared to the prior year first quarter. Pre-tax profit increased 14% year-over-year, but a higher effective tax rate and lower income from our post-Alpine joint venture in the first quarter led to lower earnings per share year-over-year. Adjusted EBITDA was $241 million, or 11.2% of revenue, a $46 million increase from the first quarter of 2023, representing 24% leverage year-over-year. NOV's first quarter EBITDA and EBITDA margin were its highest in nine years, and overall it was a solid start to 2024. We began the year with several new business leaders across our organization and began operating under two new segments, energy products and services and energy equipment. Revenue from energy products and services grew 8% compared to the pro forma first quarter of 2023, despite lower global rig count year over year. The segment continued to realize good adoption of its portfolio of technologies and a rising demand for the tools and consumables that manufacturers, particularly in the international and offshore markets. Year-over-year top-line growth was broad-based as all but one of its businesses posted increased sales, with completion tools, drill pipe, and rig instrumentation in particular posting strong double-digit gains. Our new energy equipment segment revenues grew even more, up 12% year-over-year on a pro forma basis. Rising offshore activity fueled demand for equipment tied to deepwater developments, FPSOs, and drilling rig reactivations and recertifications, which enabled the segment to overcome lower sales of pressure pumping equipment to North America year over year. As part of our new structure, we are reporting a March 31, 2024 backlog for energy equipment segment of $3.96 billion, which is comprised of NOV's contracted longer cycle manufacturing and project work. Backlog declined 5% through the quarter as bookings of $390 million represented a book-to-bill of 77%. We nevertheless see strong demand and have started the second quarter off with some big wins. While we won a $250 million-plus order for energy equipment for offshore work in Latin America during the first quarter, a required technical clarification delayed signing of the contract until April. Capital equipment orders are typically lumpy. But we feel confident in the outlook and strength of the market. Solid and stable commodity prices and exploration successes in new basins provide a foundation for growing offshore activity, a foundation which is expected to drive offshore FIDs over $100 billion per year for the next few years and a 50% plus uplift in FPSOs ordered in the next five years compared to the previous five, in spite of Saudi Arabia trimming or postponing its maximum sustainable capacity ambitions in the offshore. We are also optimistic about onshore international developments, particularly in the Middle East, where dozens of rigs are being tendered and a couple of national oil companies are pursuing unconventional developments in earnest. Our optimism and confidence continue to grow. That's why last night we announced a significant expansion of our return of capital program, including our plan to increase our base dividend by 50% and a $1 billion share repurchase authorization. Jose will go into more details of the program in a few minutes. Our investments over the past several years in new digital edge compute, optimization fueled by artificial intelligence, mechanization and automation, software control systems and remote monitoring, equipment electrification, emissions reductions, drill cuttings processing, artificial lift, and downhole drilling technologies are leading to new promising customer conversations and a growing number of users of these new products. Together with the recovery of oilfield activity in key offshore and international markets, new NOV products and businesses underpin our buoyant outlook for the next decade and our plan to substantially ramp our return of capital to our shareholders. After a challenging few years, we expect to continue to improve our profitability to drive EBITDA margins into the 14% to 15% range as we exit 2024 and to generate more cash as working capital moves past first quarter seasonality and normalizes through the remainder of the year. Continued cost reductions are an important part of our plan, too, and our new segment structure is facilitating additional efficiency improvements as we consolidate more manufacturing locations, centralize certain supply chain functions, engage engineering talent more collaboratively, and benefit from greater marketing coordination across business units and segments. We expect the $75 million cost reduction initiative we announced last July to continue to roll out through the remainder of the year, having achieved about 30% so far and expecting it to accelerate during the second quarter. Strategically, through the last decade, NOV has reinvented itself with new products and technologies that I mentioned earlier, recognizing that organic innovation, occasionally supplemented by a targeted acquisition here or there, was the most capital-efficient way to reposition our franchise to meet the evolving needs of the oil field. The two acquisitions we closed during the first quarter are good examples of this approach. Notably, these acquisitions were made at multiples well below 1%. The multiple of our second quarter sale of our pole products business and below multiples were NOV trades. In effect, reallocating capital across our portfolio to improve profitability and returns. During the first quarter, we acquired Helenus, which brings us the technology underlying our InnovaTherm cuttings processing unit. This technology works in concert with dryers and centrifuge technologies we've developed internally to process drill cuttings for safe environmental disposal. We've deployed edge compute and condition-based monitoring to optimize this onsite process, which dramatically lowers greenhouse gas emissions for offshore operators who are expressing high demand. We expect our fleet of units on rent to grow from four in the first quarter to seven by the end of the second quarter. Our acquisition of the extract electric submersible pump business brings an opportunity to deploy our organically developed max edge computing platform to artificial lift and production optimization. As operators extend their well profiles from two-mile laterals to three-mile laterals, their initial gross volumes produced through each individual wellhead will increase significantly, too, a market trend that we expect to provide additional tailwinds to ESP demand. It also complements our existing artificial lift, choke, separation, pumping, and processing products, and we believe we can leverage NOV's scale and footprint to grow this business. We're delighted that these two strong businesses are now part of the NOV family and should benefit from complementary technologies developed organically within NOV. The MaxEdge platform also provides the foundation for other new products as well, like MaxCompletions, which has been adopted by dozens of companies and thousands of individual users. In fact, revenues from the MAX family of products increased 35% sequentially and two-and-a-half-fold from the first quarter of last year. Other new technology developments range from new products like our Positrac torsional vibrational mitigation tool to our Atom RTX rig robotic system and our downhole broadband solutions to our investments in startups like Keystone Tower Systems, where we aim to revolutionize onshore wind tower construction. Innovation takes time and, frankly, startup costs, which vary across these initiatives. Nevertheless, our success and innovation are what will continue to differentiate our business and drive improved profitability over the next several years. We expect improving margins in our backlog to contribute to higher profitability as well, particularly in 2025 and beyond, as lower margin frame agreements signed during the pandemic lows expire. For instance, one of our energy equipment business units foresees a roughly 800 basis point improvement in margins from 2024 to 2025 due to its steady high grading of contracts with improved inflation risk protection. We have been systematically working towards higher margin, lower risk contracts, walking away from opportunities where we see insufficient margins or too much risk. The key to success for NOV is to demonstrate value, as it always has been. Our new technologies do that, and our customers' programs and developments are evolving to benefit even more from this value. That's what's changing. International and offshore operators are going back to work, and they want operational efficiencies obtainable with new NOV technologies. They want to reduce their environmental impact. They want to drive better safety. We can help. Consolidation in North America is being led by operators who value technology and are focused on continuous improvement. Again, we can help. Competitive pricing dynamics and inflation continue to be a headwind for margin improvement, but as our technologies roll out day by day, customer by customer, our value proposition becomes clearer, and that's a great place to reset pricing discussions. Before I hand it over to Jose, I want to say thank you to all our employees listening today. NOV continues to transform this industry in so many ways, and that is directly due to your ingenuity and your hard work. We appreciate you. Jose?