NOV Inc. Q3 FY2025 earnings call

• Clay Williams noted NOV executed well in Q3 with revenues of $2.2 billion, down slightly YOY despite a challenging macro environment. EBITDA was $258 million, up sequentially with cost control and strong project execution. Energy Equipment had strong demand for production-related portfolio, and Energy Products and Services outperformed rig count declines.
• Rodney Reed mentioned consolidated revenue $2.18 billion, net income $42 million. Adjusted EBITDA was $258 million. Free cash flow was $245 million. Tariff expense was ~$20 million in Q3, expected ~$25 million in Q4. Focus on supply chain realignment and cost savings.
• Jose Bayardo highlighted NOV's diverse portfolio, technology leadership, and resilience. Emphasized international unconventional shale development and deepwater growth. Mentioned drilling automation and digital solutions advancements, with ongoing R&D efforts to drive competitive advantage.

For the third quarter of 2025, NOV's Energy Equipment segment had revenue of $1.25 billion, up 2% year-over-year. EBITDA was $180 million, a 140 basis point increase in EBITDA margins to 14.4% of sales. Capital equipment sales accounted for 63% of the segment's revenue, increasing 20% year-over-year due to strong growth in offshore production equipment. Backlog at the end of the third quarter was $4.56 billion, the highest since reporting Energy Equipment as a segment. The Energy Products and Services segment generated revenue of $971 million, a 3% decrease compared to the third quarter of 2024. EBITDA was $135 million or 13.9% of sales. North America represented 57% of segment revenue and grew 7% year-over-year, while international markets saw a 15% year-over-year decline.

Expect near-term market softness, but back half of 2026 and beyond to see strengthening demand in offshore and international land markets. Energy Equipment expects Q4 revenue to decline 2%-4% year-over-year with EBITDA in the range of $160 million to $180 million. Energy Products and Services expects Q4 revenue to decline 8%-10% year-over-year with EBITDA between $120 million and $140 million.

• Macro environment and softening oilfield activity. - Tariffs and inflationary headwinds. - Overhang of OPEC barrels affecting commodity prices and spending.

Q: Nice results and obviously, great bookings and ending backlog. And maybe if I can ask about that, your energy equipment business, looking at it the way things have trended this year, you've had pretty solid growth year-on-year every quarter in capital equipment and then you had aftermarket kind of be a drag. And I'm wondering, with the backlog you have and kind of the timing and that as you look out, can you continue to put up pretty decent year-over-year growth like through '26 even in a maybe a bit of a softer near-term market because of that backlog?

A: Yes. I think it will certainly help on that side. What we're concerned about, Jim, and we referenced this in our prepared remarks, is the general softness in -- every -- look, everybody in the oilfield is worried about the overhang of OPEC barrels. And as those come in, what they're going to do to commodity prices. So I think quicker turn items like aftermarket and spares and that, I think people are going to be very circumspect about what they spend in that area. But yes, so far, so good on the capital equipment side of energy equipment and which is we also noted, is really driven by our production-related equipment. That's risen in our mix from south of 20% of the mix to now north of 30% of the mix for the segment revenues and has really dominated our order, something like 80% of our orders for the past few quarters have been in the production side of things. So the drillers are still very cautious on capital spend, but this is really an engine that's fueled by demand for production equipment. But as we look into 2026, we do foresee a pickup in deepwater late in the year. That's a very consistent theme we've heard from offshore drillers and IOCs both. But I also think that the year's results are likely to be tempered by continued slowing of activity here in North America and otherwise. But as you rightly point out, once we get into late 2026, 2027, once we get through the excess barrels that OPEC is putting back on the market and kind of that gets behind us, I think it's really setting up for a much stronger market for NOV.

Q: I wasn't hearing anything on my end either. I guess you had a really strong quarter of orders in Energy Equipment. How are you thinking about fourth quarter and beyond? Can we see clicking along at a 1 or better book-to-bill from here on? Or what's the general outlook?

A: Marc, what I'd tell you is orders here are always lumpy. We're always very hesitant to give too much guidance because a lot depends on some large orders. Going into the fourth quarter so far, we've got line of sight on a couple of large interesting orders. One, we feel pretty good about, another may be a longer but. What I'd tell you is that kind of given the caution, I think, that's out there, my expectation is for the fourth quarter, orders probably will slip a little bit below 100% book-to-bill right now. But if we do land that second order, I think that may help put us over 100% book-to-bill. But my best guess right now is probably just a tad short. But I'll stress again, we've had 4 years of great orders. I think our backlog is up 40-something percent, 43% since 2020 and over 100% book-to-bill trailing 12 months. And obviously, Q3 is very strong at 141% book-to-bill. So we don't get too worried about one particular quarter. What's more important is the longer-term trend and the longer-term trend for NOV for the past few years has been very solid.

Q: Clay and team, I was wondering if you could maybe elaborate a little bit about the build-out of unconventionals that you're seeing. You mentioned Argentina, the UAE and Saudi. Maybe you could talk a little bit about what you're seeing there. I think you highlighted increased coiled tubing and wireline types of orders, but talk about the early build-out there and perhaps other countries or regions where you're seeing unconventionals get gain share.

A: Yes. Let me talk about that, and then I'll hand it over to Jose to talk about maybe our demand for intervention and stimulation equipment. What I'd tell you that's most interesting to us is you've got very well-known programs in Saudi Arabia with the Jafurah field with Vaca Muerta in Argentina, unconventional fuels in the UAE that are being prosecuted in earnest by the oil companies that control those that are moving forward. But what's interesting to me is a number of really successful North American shale entrepreneurs now that are prospecting and looking for kind of the next basin to move to. And so there are, I think, a wave of unconventional prospecting underway in places like Algeria and Turkey and Oman and Bahrain we mentioned in our press release, Australia. And so these are really interesting technologies or transformative technologies. They have the potential to catalyze new low marginal cost sources of production. And so we're pretty excited about what that means for NOV in the future.

Q: I think my first question, I think it was about a year ago. It may have been a little longer, but you had talked about sort of better priced backlog that was sort of primed to start flowing through the income statement, and we've seen some of that. And I'm just curious if you could talk a little bit about the current backlog, recent orders and how we should think about the margin impact at a high level in '26 and maybe beyond?

A: Yes. So good point there, Stephen. So as you mentioned, really throughout '25, we've seen a couple of different cross currents in particular for the EE business. One, as Clay mentioned, a significant number of our bookings throughout the year have been in the offshore production space. As we have strong technological advantages there, high barriers to entry, our margin profile is able to continue to increase in addition to good operational efficiencies over the last 12 months in some of the offshore production area, which has really driven revenue and margins up in that particular area. Offsetting some of that has been a decline in some of our aftermarket business. So we mentioned during the quarter, sort of a high teens decline in our aftermarket business, and that sort of spans across the full portfolio, principally in the drilling space. I think as Jose mentioned on the question earlier, as we look into 2026, we're still able to have strong margins on what we're quoting in our offshore production equipment. And also the team is working diligently to continue to improve operational efficiencies. So that sort of strong backlog heading into '26 should be positive on the margin side. And then part of the other equation is sort of timing of when some of the rig aftermarket, some of the offshore piece happens. And we mentioned that's probably more in the second half of '26 than in the first half. So put those pieces together and put a glimpse into some of the 2026 margins.

Q: So EBITDA to free cash flow conversion was 95%, even with a bit of an increase in CapEx sequentially. And so it seems like some of the structural changes in working capital management are having an effect. So I wanted to get some color on what's the outlook for CapEx and free cash flow in the fourth quarter. But more importantly, just do these structural changes put a little bit more of an upside bias to free cash flow conversion as we think in 2026 and 2027.

A: Yes. Thanks, Doug. This is Rodney. I appreciate the highlight of the team's effort on free cash flow conversion for the quarter, 95% and as we mentioned, 53% on a year-to-date basis. So strong performance there. And that's been predicated on a couple of different points. One, strong project execution, as Clay mentioned earlier, good contractual terms, good collections. So when you look at things from a DSO perspective, overall AR, contract assets, liabilities, we've seen some good improvement there. And over the last 12 months, some good improvement on the inventory and inventory turn side of things. So that's led to we're at right now. And working capital as a percentage of revenue for the quarter, just a touch under 28%, 27.9%. Just a couple of pieces of commentary to help on Q4. I think that working capital percent may just get a touch better, so call that in that sort of 27% to 28% range. And really on kind of flat revenue Q3 to Q4, working capital may improve just a touch. As you mentioned, our CapEx is up just a bit year-on-year as we've had some good organic opportunities on high-return investments. So that continues to sort of flow through during Q4. And overall, feel good about 2025 sort of being in that ballpark of 55% free cash flow conversion. As we look out into '26, still early as we look at our budgets and composition of the different revenue streams. But with some of the structural improvement that we've made in working capital, I think that sort of ballpark of about 50% conversion is sustainable in the future.