NOV Inc.

Good day and thank you for standing by. Welcome to the second quarter 2026 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 this 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, Amie D'Ambrosio, Director of IR. Ma'am, please go ahead.

Welcome, everyone, to NOV's second quarter 2026 earnings conference call. With me today are Jose Bayardo, our Chairman, President, and CEO, and Rodney Reed, 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 2026, NOV reported revenues of $2.13 billion and a net income of $112 million, or 31 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 Jose.

Thank you, Amie. Good morning, everyone, and thank you for joining us. NOV executed exceptionally well during the second quarter. Our team successfully navigated continued logistical challenges in the Middle East while capitalizing on improving demand for the critical technologies and equipment NOV provides to the global energy industry. We also realized additional benefits from the operational improvements we've been driving across the organization. NOV generated revenue of $2.13 billion during the second quarter, an improvement of 4% sequentially. Adjusted EBITDA totaled $283 million. Excluding the approximately $40 million IEPA tariff benefit recognized during the quarter, adjusted EBITDA was $243 million. reflecting approximately 80% incremental EBITDA conversion on our sequential revenue growth. The strong incremental margins reflect excellent execution on several large projects nearing completion, a more favorable sales mix, improved deliveries into the Middle East, and operational initiatives that are beginning to outpace inflationary pressures. Compared to the second quarter of last year, revenues declined 2.5% while decremental margins were limited to 17%, excluding the impact of the one-time IEPA benefit. We achieved this low decremental margin despite quarterly tariff expense that increased approximately $20 million year over year from roughly $10 million during the second quarter of 2025 to $30 million in the second quarter of 2026. I want to thank NOV's employees for the outstanding execution and the pride they demonstrate every day in taking care of our customers, pursuing operational excellence, and keeping each other safe. As I mentioned last quarter, pride in what you do, accountability, and ownership translate directly into stronger operational and safety performance. During the quarter, our total recordable incident rate and lost time incident rate both improved from a year ago, marking a second consecutive quarter of improvements and record safety performance in the first half of the year. further reinforcing the culture we have worked hard to build throughout NOV. Before moving on, I also want to extend a special thank you to our colleagues in the Middle East who continue to operate through an extraordinarily difficult environment. Their resilience, professionalism, and commitment to one another and our customers have been exceptional. Over the past several quarters, we've consistently talked about two priorities, driving operational efficiencies and positioning ourselves for the next industry investment cycle. This quarter, we began realizing more of the benefits of those efforts, At the same time, we're becoming increasingly confident that the longer term market trends we discussed last quarter are beginning to emerge. We're seeing our operational improvements translate into stronger margins. Our differentiated technologies continue to gain market share and conditions are improving across our largest end markets. While the underlying fundamentals continue to improve, geopolitical uncertainty and commodity price volatility are causing some customers to remain cautious. As a result, and as expected, capital equipment orders in our energy equipment segment remains below 100% book to bill. But we continue to expect a pickup in orders later this year and a more significant increase in 2027. Additionally, orders for our shorter cycle capital equipment offerings in our energy products and services segment, including drill pipe and fiberglass, remain strong. Moving on to what we saw across our major markets during the second quarter. In the Middle East, activity remained below pre-conflict levels. but when the bulk of the quote unquote kinetic activity ceased during the quarter, conditions stabilized and customers adapted their operations to what seemed to become a new normal. Even so, logistics remained less predictable and more costly. Our supply chain and operational teams responded exceptionally well. We successfully delivered orders that had been delayed during the first quarter and continued supporting our customers despite a much more complex operating environment. While our operator customers worked diligently to safely preserve activity, certain operations, particularly offshore, were curtailed, resulting in certain orders being deferred and lower overall activity levels. Notably, activity related to unconventional resource development generally continued unabated. The environment created both challenges and opportunities. Logistical constraints limited our ability to secure commitments from suppliers, affecting certain deliveries and our ability to bid on some projects. At the same time, those same constraints created opportunities where NOV's global supply chain capabilities and operational flexibility allowed us to win work that competitors were unable to execute. Overall, the impact to our business during the second quarter was largely consistent with to modestly better than the expectations we outlined on our last earnings call. Looking ahead, given the uncertainty in both our customers' and suppliers' business activities due to the conflict in the Middle East, It remains difficult to predict how conditions in the region will evolve. Operators have been preparing to quickly restore activity once confidence in the reliability of takeaway capacity improves. Until then, our priorities remain unchanged, keeping our employees out of harm's way, supporting our customers, and continuing to execute safely while hoping for a lasting return to peace throughout the region. Outside the Middle East, we're seeing encouraging momentum across most markets as global oil inventories are depleting and concerns related to energy security escalate. In North America, activity improved modestly. Public operators mostly continued to emphasize capital discipline while private operators became more active. More importantly for NOV, customers continue to prioritize technologies that improve efficiency, enhance reliability, increase production, and lower total well costs. Those priorities play directly into NOV's strengths, and we continue to gain market share as a result. Internationally, we continue to see unconventional development gain momentum and expand into new markets, including Algeria and Pakistan, where we sold several multistage FRAX sleeve systems for development of tight gas resources. We've always asserted that economically developing unconventional resources outside North America would require a lot of the same high spec equipment and technologies This is exactly what we're now beginning to see, and it helped drive 20% sequential and 33% year-over-year revenue growth in Argentina for NOV during the second quarter. Demand in Argentina is broad-based. We're supplying pressure pumping and coil tubing equipment, helping customers reactivate and upgrade high-specification U.S. drilling rigs that will be redeployed in Argentina. assisting customers drill and complete extended lateral wells more efficiently with our drilling and completion tools, helping developers of major infrastructure projects with our pumps, chokes, and composite pipe, and supporting LNG exports by supplying submerged swivel and yoke systems to more and load FLNG vessels. Customers are also increasingly adopting NOV's digital solutions to improve workflows and accelerate operational decision making. During the quarter, we were awarded a significant contract to provide real-time drilling and completion data acquisition, visualization, and analytics across a leading Argentine operators development program. Outside of unconventional markets, but also in Latin America, opportunities in Venezuela continue to develop faster than we originally anticipated. For us, demand has been expanded beyond progressive cavity and reciprocating pumps into fishing tools and completion technologies, and we're quoting an increasing range of drilling and production equipment as customers evaluate longer term redevelopment opportunities. There are a growing number of international markets in early stages of development and we see heightened energy security concerns accelerating growth which should create meaningful additional demand for a broad range of NOV technology and equipment. Turning to the offshore markets where outlook for deep water activity continues to grow increasingly constructive. It's important to remember that the offshore recovery began prior to the conflict in the Middle East and will be one of the clearest beneficiaries of the industry's heightened focus on energy security and plateauing production in North America. Operators continue advancing brownfield expansions, ramping exploration programs, and sanctioning new deep water developments. While continued geopolitical tension and resulting commodity price volatility creates uncertainty and delays, industry forecasts continue to call for approximately 10 FPSO awards this year. a meaningful increase from the sixth sanction during 2025. Projects continue moving forward despite today's uncertainty reflecting the attractive economics of offshore development. We also remain encouraged by how the mix of mid to longer term offshore developments is expected to evolve. Operators are increasingly favoring the development of gas rich reservoirs which require more of NOV's sophisticated processing equipment. We also see the pipeline of anticipated projects shifting toward deeper water and more technically demanding environments, which plays into NOV's strengths. Overall, we believe the future project mix is becoming increasingly favorable for NOV and should continue to support healthy demand for our subsea flexible pipe, gas and water treatment systems, spread and turret mooring technologies, offshore cranes, production chokes and lightweight composite pipe and tanks. Naturally, as demand for offshore production continues to increase, conditions in the offshore drilling market are also improving. Offshore contracting activity increased 32% sequentially, and if published tenders remain on schedule, our customers should see a sizable pickup in project start dates in late 26 and early 27. As a result, demand for our aftermarket services and spare parts remain healthy, driving our fourth straight quarter with an increase in our backlog for spare parts. As rig utilization improves and contract durations extend, drilling contractors are increasingly focused on preparing assets for additional work. that drives demand for aftermarket spare parts, recertifications, automation upgrades, and capital equipment modernization, all high-value areas where NOV has established technology leadership, a large installed base, and longstanding customer relationships. When we step back and look across the markets NOV serves, what's particularly encouraging is that we're seeing improvement almost everywhere, suggesting that the recovery is broadening beyond isolated pockets of activity into a more synchronized investment cycle. That's the type of environment where we believe NOV's operating leverage and the structural improvements we've made in our business over the past several years become increasingly evident. One of the questions we often hear from investors is, what does NOV look like in this type of market environment? To assess the answer to that question, it's important to understand our recent results. Over the last several years, our financial performance has been resilient. Revenue has generally remained between $8.5 and $9 billion per year, while EBITDA has been around a billion dollars with high levels of free cash flow conversion. That stability might suggest that the performance of our underlying businesses has been relatively stable. The reality is almost the opposite. The resiliency of our intentionally diverse portfolio has masked meaningful shifts occurring beneath the surface. Individual businesses have experienced very different performance over the last several years. When one part of our portfolio has faced headwinds due to such things such as three plus years of declining activity in the U.S., or a large number of rigs being suspended in a key international market, another has often performed exceptionally well. The result has been a business that has appeared stable from the outside even though there are often meaningful shifts in the performance of underlying components. During periods of uneven and generally soft market environments, our portfolio allowed stronger businesses to offset weaker ones and deliver resilient cash flow allowing us to continue investing in advancing technology leadership across our portfolio and better positioning all of our businesses for the future. Over the past decade, we have not experienced an environment in which all our businesses can perform well at the same time. As a result, we believe the earnings power embedded within NOV's portfolio remains underappreciated. So back to the question, what is the earnings capacity of NOV when we have a more synchronized global recovery? Simple way to analyze that question is to look at the strongest quarterly performance each of our businesses has delivered over the last several years. If you take a conservative approach and exclude the seasonally stronger fourth quarters, you arrive at an annualized revenue level of approximately $9.8 billion and EBITDA of roughly $1.5 billion. Keep in mind the individual business unit peaks didn't occur during an exceptionally strong industry environment. In many cases, they occurred while inflation, including tariffs, was driving significant cost pressure, supply chains remained constrained, activity levels were declining, and pricing power was limited. In other words, those results were achieved despite a difficult operating backdrop, not because conditions were favorable. We believe the high watermark analysis represents a conservative illustration of our earnings capacity. It's based on what our businesses have already demonstrated they can achieve and does not fully reflect the structural improvements we've made over the last several years. We've been working to simplify the organization, consolidating facilities, improving manufacturing efficiency, and optimizing our portfolio by focusing on areas where we believe we have durable competitive advantages. NOV today is a fundamentally stronger company than it was just a few years ago. While we still have more work to do, we're beginning to see our efforts translate into improving productivity and better margins. Our portfolio also continues to migrate towards higher value technologies. Digital solutions are growing rapidly. International unconventional development is expanding. Offshore production markets are strengthening, and we believe aftermarket demand is positioned for recovery as suspended rigs return to work and customers prepare equipment for the next phase of the cycle. The timing of our earnings progression will ultimately depend on how the market unfolds. Historically, NOV has been viewed as a later cycle company because demand for capital equipment generally accelerated only after activity increased and readily available service capacity became fully utilized. We believe this cycle will be different. After a decade of capital discipline and underinvestment, the industry is not starting from a position of excess capacity. Equipment attrition, the export of underutilized North American equipment into international markets, and years of limited reinvestment have materially tightened the global service complex. As a result, we believe customers will need to begin investing in equipment much earlier this cycle, allowing NOV to more meaningfully participate earlier in the market recovery than investors have traditionally expected. None of this suggests that results will improve in a straight line. Markets rarely work that way, and geopolitical uncertainty, commodity price volatility, and customer restraint will continue to influence the timing of investment. But when we look at the operational improvements we've implemented and the market conditions we believe are beginning to emerge, we're increasingly confident that NOV has substantially greater earnings power than we've been able to demonstrate over the past decade. Our portfolio helped make NOV a more resilient company through one of the most challenging operating environments our industry has experienced. We believe that same portfolio combined with a fundamentally stronger organization and a broadening investment cycle positions NOV to deliver maturely stronger financial performance as more of our businesses begin performing well at the same time. That's the opportunity we see ahead. While the exact timing will ultimately depend on how the market environment and customer spending unfold, we're confident we're taking the right actions to position NOV for the future. And I'm even more confident in this team's ability to execute and deliver maturely stronger results. Rodney?