NOV

Overall Company Performance

• Consolidated Q2 2026 GAAP revenue was $2.13 billion, up 4% sequentially and down 2% year-over-year, with GAAP net income of $112 million (31 cents per diluted share)
• Adjusted EBITDA was $283 million (13.3% of sales), including a $40 million one-time IEPA tariff benefit; excluding the benefit, adjusted EBITDA was $243 million with 80% incremental EBITDA conversion on sequential revenue growth
• The company achieved record safety performance in H1 2026, with total recordable incident rate and lost time incident rate improving year-over-year for the second consecutive quarter
• Since launching its Return of Capital program in Q2 2024, NOV has returned over $1 billion to shareholders via dividends and share repurchases, while cash balances increased by approximately $700 million

Market & Operational Highlights

• Middle East: Activity remained below pre-conflict levels but stabilized after kinetic activity ceased in Q2, with land-based unconventional activity largely stable while offshore activity was curtailed, leading to some order deferrals. Logistics remain unpredictable and more costly, but delivery of delayed Q1 orders was completed, and overall results were in line to modestly better than prior guidance. NOV's global supply chain flexibility allowed it to win work that competitors could not execute.
• North America: Activity improved modestly, with private operators more active than public operators who continue to prioritize capital discipline. Customers increasingly prioritize efficiency-enhancing technologies, which play to NOV's strengths and have driven consistent market share gains.
• International Unconventional Development: Activity is gaining momentum and expanding into new markets including Algeria, Pakistan, and Argentina. NOV delivered 20% sequential and 33% year-over-year revenue growth in Argentina, with broad-based demand across multiple product lines and new digital solution contracts awarded. Activity in Venezuela is also growing faster than expected, with demand expanding beyond pumps to additional technologies.
• Offshore Markets: The outlook remains increasingly constructive, with operators advancing brownfield expansions, ramping exploration, and sanctioning new deepwater developments. Industry forecasts project approximately 10 FPSO awards in 2026, up from 6 sanctioned in 2025, with an increasing mix of gas-rich deepwater projects that play to NOV's technological strengths. Offshore contracting activity grew 32% sequentially, with spare parts backlog up for four straight quarters as rig utilization improves and customers upgrade assets.
• Portfolio Strategy & Earnings Capacity: NOV's diverse portfolio delivered resilient overall performance through years of uneven market conditions, allowing stronger businesses to offset headwinds in weaker segments while the company invested in technology. A conservative analysis of individual business unit peak quarterly performance (excluding seasonally strong Q4s) points to an annualized earnings capacity of $9.8 billion in revenue and ~$1.5 billion in EBITDA, achieved during prior periods of high inflation and constrained supply chains, and does not reflect recent structural improvements including facility consolidation, manufacturing efficiency gains, and portfolio optimization. NOV is a fundamentally stronger company today than it was three years ago, with a portfolio increasingly weighted toward higher-value technologies.
• Cycle Timing: Unlike past cycles where NOV benefited later in the recovery, management expects NOV to see an earlier pickup in capital equipment demand this cycle due to a decade of industry underinvestment, equipment attrition, and limited excess global capacity, leading customers to invest earlier than in prior recoveries.

• Full Year 2026: Maintains expectations for 40% to 50% free cash flow conversion of 2026 adjusted EBITDA, with capital expenditures projected between $340 million and $370 million, and an annual effective tax rate between 34% and 36%
• Third Quarter 2026: Assumes the Middle East operating environment remains consistent with Q2 2026 conditions, projects sequential and year-over-year consolidated revenue growth. No additional IEPA tariff refunds are included in Q3 guidance.
  • Energy Equipment: Expects revenue to be 1% to 3% lower year-over-year, with adjusted EBITDA between $160 million and $190 million
  • Energy Products and Services: Expects revenue to increase 5% to 7% year-over-year, with adjusted EBITDA between $130 million and $150 million
  • Management's base planning case assumes a 10% to 15% sequential increase in Middle East revenue from Q2 to Q3, with risk weighted toward the lower end of the range
• Energy Equipment Full Year 2026 Book-to-Bill: Expects full year 2026 book-to-bill to land between 90% and 100%, up from the Q2 2026 74% level, with book-to-bill expected to meaningfully exceed 100% in 2027
• Longer Term: Targets mid-teens EBITDA margins and mid-teens return on capital employed, up from the ~15% margin and low teens ROCE implied by the conservative high watermark earnings capacity analysis

1. Energy Equipment Segment: Q2 2026 revenue was $1.22 billion, up 2% sequentially and 1% year-over-year, representing 57.3% of total consolidated revenue. Adjusted EBITDA reached $200 million (16.4% of sales), a record quarterly margin for the segment even excluding the $14 million IEPA tariff benefit, driven by operational excellence, favorable mix, and cost reductions. Capital equipment accounted for 63% of segment revenue, up 2% year-over-year led by offshore production businesses including subsea flexible pipe, marine and construction, and process systems. Aftermarket sales and services made up the remaining 37% of revenue, up 3% sequentially but down 2% year-over-year due to Middle East conflict impacts. Capital equipment orders for the quarter were $474 million, up 13% year-over-year, for a book-to-bill ratio of 74%, with end-of-quarter backlog at $4.1 billion. Key sub-segment performance: subsea flexible pipe delivered record EBITDA with a 12-month trailing book-to-bill of 135% and backlog 28% higher year-over-year; process systems achieved record EBITDA with mid-single-digit year-over-year revenue growth; drilling capital equipment was down year-over-year but up mid-single-digit sequentially; marine and construction revenue grew mid-teens year-over-year; intervention and stimulation equipment was down year-over-year but up mid-single-digit sequentially. For Q3 2026, management expects segment revenue to be 1% to 3% lower year-over-year, with EBITDA between $160 million and $190 million.

2. Energy Products and Services Segment: Q2 2026 revenue was $974 million, down 5% year-over-year but up 9% sequentially, representing 45.7% of total consolidated revenue. Adjusted EBITDA totaled $144 million (14.8% of sales), including a $26 million IEPA tariff benefit. The segment revenue mix was 53% services and rental, 30% capital equipment, and 17% product sales. Services and rental revenue declined just 1% year-over-year and improved 4% sequentially, with growth across most business units driven by market share gains in differentiated technologies. Drill bits achieved record U.S. quarterly revenue, with eight consecutive quarters of year-over-year growth; artificial lift posted over 20% sequential growth in installs; digital services grew year-over-year for four straight quarters, with wire drill pipe services revenue nearly doubling. Capital equipment revenue declined 15% year-over-year but grew low-teens sequentially as shipments recovered from Q1 Middle East delays, with healthy bookings: drill pipe bookings hit their highest first half in over 10 years and backlog doubled year-over-year, while fiberglass backlog grew 20% year-over-year. Product sales revenue declined 3% year-over-year but grew mid-single-digit sequentially. For Q3 2026, management expects segment revenue to increase 5% to 7% year-over-year, with EBITDA between $130 million and $150 million.

• Geopolitical uncertainty related to the ongoing Middle East conflict creates significant volatility and unpredictability for regional operations. Logistics remain constrained, and a further escalation of conflict could reduce revenue by $20 to $25 million in EBITDA versus current Q3 guidance
• Commodity price volatility causes customer caution and can delay project final investment decisions (FIDs) and order intake, leading to quarter-to-date volatility in results
• Tariff costs increased $20 million year-over-year in Q2 2026, from $10 million in Q2 2025 to $30 million in Q2 2026, and ongoing trade policy changes create ongoing cost pressure
• Subsea flexible pipe is currently running at near-full capacity, with large new orders mostly pushed to 2028 deliveries until new capacity comes online in early 2029, which could result in lost near-term orders
• Inflationary cost pressures continue to impact operations, though operational efficiency initiatives have begun to outpace these pressures

Q: How is Middle East activity expected to trend in the second half of 2026, and what is the downside risk from the current base guidance? / A: After a $30 million EBITDA impact in Q1, activity stabilized in Q2 once kinetic activity stopped, with land unconventional activity largely stable and offshore activity gradually resuming. The base Q3 guidance assumes conditions remain consistent with Q2, with activity gradually increasing to a 10% to 15% sequential revenue increase, with guidance weighted toward the lower end of that range. If further disruption occurs, the potential downside EBITDA impact versus the current plan is approximately $20 to $25 million.

Q: What is the outlook for full year 2026 energy equipment book-to-bill after Q2 came in at 74%? / A: Management's original expectation of stronger order intake in the second half remains unchanged, as first half 2026 bookings are already up 16% year-over-year. NOV has secured meaningful bookings on half of the six FPSO FIDs year-to-date, and future FPSOs are increasingly in high-gas, deepwater environments that align with NOV's strengths. Full year 2026 book-to-bill is still expected to land between 90% and 100%, and will meaningfully exceed 100% in 2027 as project activity accelerates.

Q: After the conservative high watermark analysis showed ~15% EBITDA margins, what is the long-term margin opportunity and what drivers will get NOV there? / A: The 15% margin from the high watermark analysis was achieved during a period of low activity, high inflation, and rising tariffs, so there is room for further improvement. Volume growth from a broader industry recovery will help, but additional drivers include ongoing operational efficiency initiatives that will continue to push margins higher even without a full recovery, and improved pricing power as activity picks up, which will help offset prior inflationary and tariff headwinds. NOV's long-term goal is to reach mid-teens EBITDA margins and mid-teens return on capital employed.

Q: What is the capacity outlook for the subsea flexible pipe business, which just delivered record EBITDA? / A: Subsea flexible pipe is currently running up against meaningful capacity constraints. While there are small pockets of additional capacity for 2027 deliveries, most large new orders are currently being scheduled for 2028. New additional capacity is on track to come online in early 2029, which aligns with the strong pipeline of future tenders and projects expected in the coming years.

Q: Where does NOV stand on the $100 million annualized cost reduction target, and are more cost cuts coming? / A: The team is ahead of plan on the $100 million target, and by Q2 2026, cumulative cost savings had already begun to outpace ongoing inflation and tariff headwinds. Facility consolidation and real estate sales have already generated $45 million in proceeds from non-operating assets, and there is additional room for further savings from continued process simplification, scale leverage, and ongoing operational efficiency improvements.