NOV Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NOV fourth quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To answer a question at that time, you'll need to press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Ms. Amy D'Ambrosio. Ma'am, you may begin.

Welcome, everyone, to NOV's fourth quarter and full year 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 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 fourth quarter of 2024, NOV reported revenues of $2.31 billion and a net income of $160 million or 41 cents per fully diluted share. For the full year 2024, revenues were $8.87 billion and net income was $635 million or $1.60 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, and good morning, everyone. NOV's fourth quarter marked a strong finish to a good year. Fourth quarter revenues grew 5% sequentially to $2.3 billion, and net income was $160 million, resulting in fully diluted earnings of 41 cents per share. EBITDA was $302 million, or 13.1% of sales. Fourth quarter book-to-bill was 121% on shipments out of backlog that were up 12% sequentially. NOB has achieved greater than one-to-one book-to-bill in 10 of its last 12 quarters, growing its backlog 22% through the past four years, while quarterly shipments out of backlog have risen more than 60% through the same period. The company continued to benefit from rising demand for its critical technologies through the fourth quarter, despite slowing momentum in E&P spending in several key markets. For full year 2024, in addition to growing backlog year-on-year, NOV increased revenue, improved profitability, and generated exceptionally strong free cash flow. Revenue for the full year increased 3% to $8.9 billion, and EBITDA increased to $1.1 billion, or 12.5% of sales. Incremental flow-through for the year was strong at 38%. The energy equipment segment led the way, growing its revenue by 5% and expanding segment margins by 250 basis points. Recovery of supply chains and lower inflation, together with higher margin contracts slowing out of backlog, helped the segment improve its performance significantly in 2024, and we expect further improvements in 2025. Offshore investment continued to recover, fueled by deepwater exploration and follow-on development, prompting demand for floating vessels to produce, store, and offload oil and to liquefy natural gas. NOV has continued to secure large orders for gas and produced water processing equipment, subsea flexible pipe, chokes, offshore completion, and other production equipment. In fact, nearly 60% of fourth quarter's reported orders were for production equipment NOV provides. The balance of our fourth quarter orders included a complete drilling package for a new-build jackup rig to be constructed in Saudi Arabia, which helped drive a 20%-plus sequential improvement in orders for drilling equipment. For the full year, drilling capital equipment within the energy equipment segment totaled 8% of our consolidated NOV revenues. Our shorter cycle segment, energy products and services, also grew revenue in 2024, though modestly. Margins fell 120 basis points year over year, due mostly to large declines in drill pipe demand and related pipe coating services. The segment's top-line growth came despite lower global drilling activity, which was down 5% year over year. Sales growth was helped by increasing adoption of NOV's new organically developed technologies, along with acquisitions and setting tools in artificial lift made during the year. InnoV's digital services continue to gain traction with users of our max data aggregation, visualization, and analytics platform more than doubling through 2024. Our max edge platform is a key component of the connected digital network we have developed, which spans high-speed data measured at the bit and transmitted through our proprietary wire drill pipe to AI applications that work in conjunction with InnoV's machine controls to optimize safety and performance while feeding data real-time into the cloud and into our customers' command centers. We are continuing to develop new digital products built on the MaxEdge platform for new areas of the development lifecycle, like well completions and production optimization. NOV's unique proprietary data transmission capability, along with its large installed base of equipment and chokes, separation, processing, completions, and drilling create a unique and interesting opportunity for our company. NOV's energy products and services segment also benefited from strong share gains with new downhole technologies. Continued innovations in cutter technology enabled NOV Reed Hikolog to capture the leading position in the supply of drill bits. Our new downhole drilling motors, friction reduction tools, and torsional vibration mitigation tools are proving critical to shale drillers pushing laterals out to three and even four miles, leading to 89% year-over-year growth for these downhole technologies in the fourth quarter. And as operators invest in new uncommissionable shale opportunities in the Middle East and Latin America, we see further growth ahead. Overall share gains with organically developed technologies and backlog resilience enabled NOV to post a solid 2024 despite headwinds which began to emerge in the second half of the year. Concerns regarding potential near-term oversupply are making everybody nervous, so many producers and service companies are more cautious in their near-term spending plans. Nevertheless, higher revenue, profit, and improved working capital efficiency resulted in a full-year free cash flow of $953 million, or 86% of EBITDA. Energy demand continues to grow, as it has for the 166-year history of the oil and gas industry. Secure and reliable energy supports economic growth and improves the lives of people globally. While macroeconomic and geopolitical uncertainty persists, NOV enters 2025 with a strong foundation. We expect North America activity to remain subdued, probably flat at best. Continued capital discipline among more consolidated EMP operators together with some pretty astounding efficiency gains, doing no small part to NOV's technologies, will continue to be a headwind for short-cycle drilling and completion activity in the United States. However, we expect NOV's technology leadership and strategic market positioning to continue to enable us to outperform activity levels in the region. We're actively increasing our fleet of proprietary drill bits and downhole tools in response to market demand, and we expect further share gains to offset the softness in North American activity within energy products and services. We also expect weak demand for pressure pumping and stimulation equipment for North America, which will weigh on energy equipment results in 2025. Looking to international markets, we believe activity will be flattish year over year. The Middle East will see declines in Saudi Arabia offset by increases in Kuwait, UAE, and Oman. Latin America should remain strong, led by Brazil, and we continue to view unconventional development in the Baca Merida in Argentina, the Jafura Field in Saudi Arabia, and unconventionals elsewhere in the Middle East as bright spots for future NOV demand. Unconventional shale plays need high-spec land rigs, coiled tubing and completions kit, chokes, separators, and corrosion-resistant flow lines, all categories where NOV provides global market leadership. And we continue to see signs of building demand from these emerging unconventional basins. Turning to offshore, despite a pickup and contracting in December, our offshore drilling customers remain concerned about lower utilization or white space in their schedules in 2025. Nearly $300 billion in offshore FIDs in the past three years, up about 50% from the preceding year period, has led to the filling of Asian shipyards. About 60 new conversion or construction projects for floating production, storage, liquefaction, and regasification vessels have have resulted in higher congestion and costs, something we talked about last quarter. As the vessel supply chain has filled, delivery dates have elongated a bit, which has cooled the urgency by deepwater EMP operators to drill. Some of our drilling contractor customers are facing temporary gaps in utilization due to delayed production plans. They tell us, though, they expect contracting activity to pick up, possibly as early as the second half of 2025, in anticipation of higher deepwater drilling in 2026. Their view is supported by the emergence of offshore natural gas as an economic target for EMP operators, along with success and exploration in Latin America, West Africa, the Eastern Mediterranean, and the Paleogene in the Gulf of Mexico. Economics have been helped by greater industrialization and standardization throughout the subsea production and FPSO supply chains, which we believe will help normalize supply chains more quickly to facilitate higher levels of offshore drilling. During the fourth quarter, we saw slowdowns in spare parts demands from offshore drillers as a result of the white space phenomenon. However, these were almost fully offset by higher service and repair revenues for NOV, resulting in a modest 1% sequential decline in rig aftermarket. Rig aftermarket within energy equipment totaled 18% of NOV's consolidated mix in 2024. The number of offshore projects we are engaged in is roughly flat year-on-year, with a higher mix of longer-term, more revenue-intensive recertifications than last year, but offset by fewer rig reactivations. Despite several examples of offshore drillers using white space to upgrade and repair rigs for 2026 activity, we expect to see rig aftermarket activity down mid to upper single digits and rig equipment down low single digits in 2025. Notably, we may see a stronger recovery in the latter half of the year, as I mentioned, as drillers prepare for a more robust 2026. Our growing backlog within energy equipment reflects the high demand for NOV production equipment arising from the sharp expansion of deepwater FIDs and the developments I noted earlier, particularly in offshore production processing and subsea flexible pipe. We are well positioned to support the next phase of deep water expansion, offering critical technologies in gas dehydration, produced water, and CO2 handling and emissions reduction. More complex offshore wells will continue to drive demand. Likewise, we foresee growing international onshore adoption of unconventional drilling and completion techniques, creating additional avenues for growth across our comprehensive portfolio. Overall, we expect energy equipment revenue to decline low single digits in 2025 as lower demand for offshore drilling support and North American stimulation equipment more than offset growth in production equipment. We expect modest growth in energy products and services revenue to more or less offset these declines. To summarize, our base case across different markets points to a flattish environment in 2025. We acknowledge that OPEC excess supply, continued strong shale efficiency gains in the U.S. and growing non-OPEC offshore production, which appears to be supplanting U.S. shale as a swing source of oil supply, could unleash greater commodity price-driven headwinds in 2025. Nevertheless, in the absence of a significant downturn in activity, we expect NOB's margins to improve further in 2025. Margin expansion will be driven by the improving quality of margins rolling out of backlog, our focus on driving further efficiencies in our business, and continued market share gains of our new products that have gained adoption and pricing premiums. As always, NOV remains committed to delivering value to our shareholders. Our disciplined capital allocation strategy, maintaining a strong balance sheet while balancing reinvestment in high return opportunities with shareholder returns, will continue to guide our decisions. In 2024, we meaningfully increased our return of capital, accelerating share buybacks and increasing our dividend to return $337 million to shareholders during the year. As we look forward, we remain steadfast in our approach to delivering consistent and sustainable financial performance. In closing, 2024 was a year that demonstrated NOV's resilience and strategic strength. Despite market and macro headwinds that emerged through the year, we delivered strong operational execution, capitalized on offshore and international tailwinds, and maintained a disciplined approach to cost control and capital deployment. As we move into 2025, NOV is well-positioned to build on the momentum of this year, capitalize on growing opportunities ahead, and drive strong returns for its stakeholders. I want to tell all of the NOV employees listening today, thank you. I appreciate you. Your strong commitment to innovation, execution, and service excellence is what drives NOV's success. Our customers count on you and me for the critical solutions that enhance efficiency, safety, and sustainability. And thanks to your hard work, NOV will continue to exceed their expectations in the coming years. Jose?