NOV Inc.

Good day and thank you for standing by. Welcome to Q2 NOV Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amy D'Ambrosio, Director of Investor Relations. Please go ahead.

Welcome, everyone, to NOV's second 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 second quarter of 2024, NOV reported revenues of $2.22 billion and a net income of $226 million, or 57 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. NOB's second quarter revenues of $2.2 billion increased 6% compared to the second quarter of 2023. as year-over-year double-digit growth in international markets and 6% growth in the offshore easily overcame a modest 1% decline in North American sales. The company posted fully diluted GAAP earnings for the second quarter of $0.57 per share, up $0.18 year-over-year, helped by gains from our divestiture of our pulled products business during the quarter. Second quarter EBITDA improved 15% year-over-year to $281 million. Strong sequential EBITDA leverage of 66% was driven by the impact of cost reductions undertaken over the past several months, along with a pull forward of some work and very good execution. Consolidated EBITDA margin of 12.7% improved sequentially and year over year due to the cost savings and rising margins in NOV's revenue out of backlog, which accounted for about 25% of our revenue mix during the second quarter. Exploration and new offshore basins, greenfield and brownfield offshore development, for both oil and gas, and international development of unconventional resources are emerging as the primary growth drivers for NOV, as the strength and duration of this cycle remains on display. Stable oil prices and strong long-term outlook for natural gas and LNG demand are supporting E&P investments in these. In fact, industry forecasts are calling for several additional final investment decisions, or FIDs, for big offshore projects following this significant ramp of the past three years. which are expected to drive sharply higher demand for offshore production assets like FPSOs. National oil companies or NOCs have been clear about their higher spending plans to achieve ambitious goals to boost production. These trends have important implications for NOV's business. For international land developments, EMP operators need better drilling, stimulation, and production equipment and technologies, like those developed and honed in North America's unconventional shale laboratory through the past two decades. As a reminder, the U.S. shale revolution began with a retooling of its drilling fleet to AC power and high-spec capabilities early in the century. That was step one, followed by the build-out of substantially more and more efficient hydraulic fracturing equipment, two things that never happened across the Middle East, Asia Pacific, or Latin America. New international wells also need miles of corrosion-resistant flow line, plus chokes, valves, processing equipment, and the like. NOV is a leading global provider of all of these. Offshore EMP operators need drilling rigs to be reactivated after long periods of inactivity, which accelerates the corrosion caused by salt air. These also need to be retrofitted with drill pipe bits and drilling tools. Our organization supports the majority of the global offshore drilling fleet as a leading drilling equipment OEM. Drilling rig reactivation activity has been strong over the past few quarters as we've worked to put assets back to work. Offshore operators also need platforms and FPSOs and subsea flow lines and production kit ranging from flexible and composite piping systems to gas treatment pumps, valves, and chokes. Again, NOV is a leading global provider of these, and we are now also seeing rising demand for production technologies we provide, which drove the strong level of orders this quarter. NOV's opportunity per FPSO production vessel ranges from $100 million in benign waters up to $700 million in harsh environments. Book-to-bill was nearly 180% in the second quarter. Driven by strong demand for flexible pipe for deepwater FPSO developments, bookings were also helped by demand for well intervention equipment for both offshore and international markets and a large order for wind towers that Jose will speak to later. Onshore tendering and drilling activity continues to be strong in the Middle East and is rising in Latin America and Asia as NOCs pursue aspirational production targets, particularly around gas. and employ unconventional production technology, many for the first time. Most of these customers understand that the economics of unconventional technology work best with modern AC-powered rigs supported by advanced control systems, with downhole bits and friction reduction tools that enable longer laterals and higher production per well, and with safe and efficient pressure pumping spreads and cold tubing units that de-risk completions. They understand the fluid handling and corrosion challenges of high flow back rates of fluids carrying heavy abrasive loads through their processing plants. They understand that NOV can help them navigate these challenges with our unconventional production technology that enables profitable development of their resources. NOV is well positioned to capitalize on the building offshore and international momentum. On the other hand, in North America, we see a different and more challenging picture to the second half of 2024. Onshore activity in the U.S. continues to slow due to EMP merger integrations and low natural gas prices, as the market awaits more LNG export takeaway capacity slated for 2025. Low natural gas prices and NGL prices, particularly in West Texas, reduce the realized wellhead revenues for operators and diminish their cash flows, their wellbore construction economics, and their appetite to drill. Certain of our North American oilfield service customers are facing more price pressure as fleet utilizations fall, and most are increasingly cautious about their purchases, which led to an 8% decline in energy equipment revenues for the region year over year and drove North American mix down to 25% of segment revenue in the second quarter of 2024. In energy products and services, with 51% of its mix from North America, you'd expect an even bigger impact from this trend, However, with market share gains in North America rising from new products and technologies along with revenues from our first quarter acquisition of extract, North America revenues for our energy products and services segment were actually up 3% year-on-year. So to sum it up, we were very pleased with bookings during the quarter, and 129% booked a bill through the first half. While we are increasingly cautious about continued headwinds in North America, we think continued rising demand in offshore and international space will yield a book-to-bill greater than one for the second half of 2024. As they typically are, though, orders will continue to be lumpy quarter-to-quarter, and we do not expect a repeat of the second quarter's barn burner bookings again in Q3. Turning to cost savings, to date we have substantially achieved the $75 million annualized cost reduction initiatives we announced last year through our new segment structure, our workforce reductions, and our facilities closures. But we recognize we are facing a more challenging market in North America, and to achieve acceptable returns on capital, we can't stop here. So we're developing additional opportunities to further reduce costs and drive better efficiencies, focusing on what we can control. As always, that includes keeping an eye out for emerging technologies that we can bring to bear in our own operations as well as our customers, technologies like AI, artificial intelligence. For the past few years, we've helped our customers optimize their drilling with AI through our Kaizen app, and we've used AI to help write code here for a number of new NOV software products. More recently, we've begun to apply it to our own operations across more than 50 of our manufacturing facilities globally using a proprietary AI platform we call Aridia, that we've developed internally to optimize capacity, improve machine tool utilization, and drive better absorption and efficiency. The platform leverages NOV's proprietary MaxEdge devices to collect real-time data from sensors affixed to manufacturing machinery in our plants. The platform then feeds that data to AI prescriptive models that identify opportunity costs caused by throughput, quality, or reliability issues. These models remove the guesswork to allow our operations teams to quickly respond to issues and opportunities. The platform is highly scalable, and we plan to connect all our manufacturing machines worldwide beyond the several hundred that are using it today to help us improve utilization and results. NOV's ability to quickly scale our operations as cycles dictate is a competitive strength that this system will enhance. We are also using AI to drive better forecasting. The supply chain drama arising from the COVID pandemic highlighted shortcomings in our lead time estimation and planning. In response, we are developing an AI solution to more accurately predict and manage vendor lead times to ensure we have inventory on hand when and where we need it. This will further optimize working capital while maintaining high reliability and logistical efficiency. We think steadily rising market demand in key offshore and international markets, dormant for a decade plus, Together with these technology-driven operating efficiency initiatives, new products and technologies we are bringing to the market, and further cost improvements are the prominent features that will guide NOV's journey to better margins and returns. Our company is very well positioned to support and enhance our customers' operations to drive better efficiency, to reduce emissions, to improve their safety for the next several years. Before I turn the call over to Jose, I want to take a moment to thank our employees who may be listening this morning. As I just noted, we have a big opportunity in front of us as our offshore and international customers get back to work and as our North American customers continue to look to us for solutions to improve their business. They're counting on us to deliver, and I appreciate your hard work and creativity to support them. Thank you for the great job that you do. Jose?