NOV Inc. Q3 FY2024 earnings call

• Strong execution in Q3 2024 led to higher EBITDA and margins sequentially and year-over-year, with cash flow improving vs Q3 2023. Rising long-cycle capital equipment revenues offset declines in drill pipe and shorter-cycle products. - Global macro environment concerns affecting oil and gas spending, but long-term demand for oil and gas remains bullish. - Offshore production equipment demand growing, while drilling equipment demand may decline in early 2025 but recover later. - International land markets seeing unconventional development opportunities, with NOV leading in related technologies. - North America land activity subdued, but NOV outperforming due to new technologies. - Profitability improved, but achieving 2024 exit margin target challenging; focus on operational efficiency and cost structure optimization. - Completed acquisition of Fortress Downhole Tools, complementing existing completion tools portfolio.

Energy Products & Services segment: Generated revenues of $1 billion in Q3 2024, a 3% decrease compared to Q3 2023. EBITDA decreased $25 million to $172 million year-over-year or 17.1% of sales. Sales mix was 51% service and rentals, 29% capital equipment sales, and 20% product sales. Energy Equipment segment: Revenue was $1.219 billion in Q3 2024, a $24 million or 2% increase year-over-year. EBITDA improved $35 million year-over-year to $159 million or 13% of sales. Orders totaled $627 million, resulting in a book-to-bill of 111%, and ending backlog was $4.5 billion, the highest in over 5 years.

• Energy Products & Services segment expects Q4 revenues down 1-3% y-o-y, up mid-single digits sequentially, EBITDA $170M-$185M. - Energy Equipment segment expects Q4 revenues flat to slightly up sequentially, EBITDA $155M-$165M. - Confident in generating healthy free cash flow, targeting to return at least 50% of excess free cash flow to shareholders.

• Global macro environment concerns affecting oil and gas operators' spending. - Offshore contract drillers facing white space leading to potential delays in spending plans. - North America land activity subdued, impacting short-cycle activity. - Uncertainty in commodity prices and economic growth.

Q: Jim Rollyson asked about subsea flexible orders and future demand.

A: Clay Williams said strong demand for subsea flexible pipes, with deliveries pushing out to 2026 and beyond due to supply chain constraints.

Q: Marc Bianchi inquired about margin progression in Q4.

A: Clay Williams explained mix shifts in both segments, with certain high-margin shipments not recurring in Q4 and lower margin shipments replacing them.

Q: Arun Jayaram asked about production equipment offsetting softer rig capital equipment demand.

A: Clay Williams and Jose Bayardo discussed growing orders for production equipment like turret mooring systems and gas processing technologies, which will offset drilling equipment demand declines.

Q: Neil Mehta asked about free cash flow progression and return of capital.

A: Jose Bayardo said NOV expects healthy free cash flow, on track to convert at least 50% of EBITDA to free cash flow, and focused on returning excess capital to shareholders.

Q: Kurt Hallead asked about cost savings and digital applications.

A: Clay Williams talked about cost savings initiatives and digital applications driving internal improvements and external revenue opportunities.

Q: Stephen Gengaro asked about working capital and Artificial Lift business.

A: Jose Bayardo discussed working capital improvement goals, and Clay Williams provided an update on the Artificial Lift business, noting near-term headwinds but positive long-term prospects.