Good day, ladies and gentlemen, and welcome to the NOV Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.

Welcome everyone to NOV's Fourth Quarter 2020 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 more detailed discussion of the major risk factors affecting our business, please refer to the 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 2020, NOV reported revenues of $1.33 billion and a net loss of $347 million. 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, Blake. The fourth quarter of 2020 was an extraordinarily difficult quarter for NOV and unfortunately, we expect to continue to struggle through the next quarter, too, until the world gets past the wreckage of COVID. Consolidated revenue declined 4% sequentially and EBITDA fell to $17 million or 1.3% of sales in the fourth quarter. This performance was particularly disappointing in view of the massive cost-out efforts the company enacted last year, indeed throughout the last six years. The COVID lockdowns we faced off and on throughout 2020 continue to hinder our operations and those of our customers. Against weak demand for services, low and falling day rates and significantly reduced cash flows, our oilfield service customers have deferred maintenance, cannibalized equipment and drawn down stocks of consumables. Against weak and uncertain commodity prices, OPEC+ production cuts and lower cash flows, our E&P customers have cut rigs and slow-rolled project approvals. The offshore rig count was down 37% from the fourth quarter of 2019 and the international rig count was down 40% year-over-year. Although North America drilling has been improving since bottoming in August, it is still down 58% compared to the prior year which, by the way, wasn't exactly a robust oil and gas market either. This continues to be a historically bad downturn in an industry that has a lot of experience weathering very, very tough times. Against this backdrop, our equipment orders have been scarce. While we were pleased to see Rig Technologies reported book-to-bill above one in the fourth quarter, that is the only book-to-bill NOV saw above 100% throughout 2020. Outside of North America, momentum slowed through the fourth quarter with additional COVID lockdowns, continued project approval delays by customers and slowing activity in places like Russia, the Middle East and offshore. All three…

Thank you, Clay. NOV's consolidated revenue fell $57 million or 4% sequentially to $1.33 billion during the fourth quarter of 2020. Our shorter cycle businesses capitalized on improving drilling activity levels in the U.S. to drive 4% revenue growth in North America, despite very light demand for capital equipment sales. International revenue declined 7%, reflecting the different trajectories of rig activity between the eastern and western hemispheres during the quarter. EBITDA for the fourth quarter was $17 million, or 1.3% of sales. Elevated decremental margins were the result of a less favorable product mix; customer order deferrals, which compounded manufacturing absorption challenges and higher expenses associated with pension accounting, environmental accruals and workmen's compensation. While we exceeded our $700 million cost-out initiative target in the third quarter of 2020, our efforts to right-size and improve the efficiencies of the organization continued during the fourth quarter. As Clay mentioned, we've identified and are executing on $75 million in additional cost savings initiatives that we expect to complete by year-end 2021, and we expect our target will grow. During the fourth quarter, we generated $186 million in cash flow from operations and $133 million in free cash flow. We ended the year with approximately $1.69 billion in cash and $1.83 billion in gross debt, resulting in a net debt balance of only $142 million, down $676 million year-over-year. For the full year, cash flow from operations was $926 million and free cash flow totaled $700 million. The organization's focus on reducing costs, improving capital efficiency and optimizing cash flow allowed us to reduce net debt by 83% during 2020, further improving what was already a rock-solid balance sheet. For 2021, we expect to report capital expenditures of approximately $215 million with $82 million of that amount related to completing our rig manufacturing…

Thank you. [Operator Instructions] Our first question comes from Sean Meakim with JPMorgan. Your line is now open.

Thank you. Hey, good morning. So thank you for all the commentary around your efforts towards pivoting the business; very thoughtful as always. I was thinking maybe you could just expand the discussion a little bit, and share your thoughts around new energy markets. And I'm thinking in terms of a matrix; so on the one axis you would have NOV's ability to map its existing expertise to some of these markets. And then on the other would be the size of those addressable markets based on those capabilities. So, I think you addressed that really well within wind, and that seems to be really -- kind of in the sweet spot in that matrix. Can we just get like your initial thoughts, that kind of where you're head is today around hydrogen, which, of course, has a pretty wide rainbow, carbon capture, even geothermal; because I'd love to hear kind of where your head is on those areas under that framework?

It's a great question, Sean. The first part of that, I think we can answer very specifically, which is with respect to our skill sets and how that fits sort of the opportunities that are emerging. The second in terms of total addressable market, this is all very early days; suffice to say though, they're all big, right. So the tens of trillions of dollars that are required to power the world with whatever we power the world with, of capital sort of investment; that's kind of what's at stake as we sort through the options for economies moving towards a lower carbon future. So they're all very big numbers which makes it really interesting. But what I really like about our starting point is that so many of our skill sets fit this; and I think I did cover that with respect to when -- I will tell you that we are looking at other areas in biogas, hydrogen, carbon capture and sequestration, geothermal -- we're already in the geothermal market like a lot of oilfield service companies are with respect to bits, we've actually developed -- I think a year or two ago developed new fiberglass lined tubular products for that market, and have sales into Europe and a few other places with that; so we're already there as are many. But what's really interesting, you look at things like carbon capture; our gas processing well-stream business which is part of our completion and production solutions group has deep expertise in the dehydrating gas streams, and CO2 needs to be dehydrated, in fact, we're working with one of the majors on a project now in that area to bring that particular expertise. We've also advanced discussions with other participants in that space with respect to solvents, membranes, others…

Thank you. Our next question comes from James West with Evercore ISI. Your line is now open.

Hey, good morning guys. Clay, I appreciate your commentary around renewables. I want to dig in a little more on the offshore wind side because that's where I see a clear expertise that you provide, given all the technologies you have around offshore rigs, and the management of those rigs. And so, I'm curious to understand kind of -- where -- what you're seeing in that market right now? What the competitive environment looks like? Who the incumbents are if really, any? And I appreciate you gave some numbers around what do you think win could be later on this year but it seems like that market could be -- call it five years out; much, much larger for you guys in terms of the opportunity set, and they are really just getting started here?

Yes. James, you've been in oilfield services for enough years to get it when I say that NOV is the NOV of the offshore wind installation vessel space. The majority of equipment out there is ours, we do have a lot of expertise, a lot of proprietary designs, we're -- I'm very proud that we're sort of the go-to-name when it comes to this level of expertise. It's not to say we don't have competitors, we do, but the majority of the fleet out there that has installed the world's existing offshore wind capabilities was installed using our technology; so proud of that, continuing to invest in that, continuing to advance that, and very excited about that. And you know, in the prepared remarks talked about the role that taller towers, larger turbines will play in driving better economic efficiencies. And so what that space has specifically pointed out or advancements by the turbine manufacturers, specifically 12 megawatt system at -- which is the size of a 50-storey building, which is due on 2022. And then, another -- one of the providers has a 14 megawatt tower that they're coming out with in 2024. And so, there are just very few vessels that are big enough to install those things, and with a lot of incoming, the world needs a bigger fleet. And we're pleased to play a role in it. So in -- but in addition to that, as I mentioned, the floating wind opportunity is getting really interesting as well. We had a lot of expertise with our Gusto Group around designing holes to fit those size turbines, while also sort of minimizing size and cost and steel. And so very pleased with how that's developing, and that's different in that rather than building the tools to install the equipment, we can be in position actually building the holes and the equipment; each unit going into some of these wind developments.

Right. I totally agree. I think it's a huge opportunity. Is there any targets? How much R&D in capital do you think is associated with this opportunity? If really any you may already have all the capacity in the R&D you need.

Yes, it's really ongoing. I mean, we'd a fantastic, we’re a leader with respect to offshore construction cranes, and lifting technologies, and have been for decades, and so -- so this is sort of continuing what we do. And as you point out, it fits very well the needs of the offshore wind developers, both fixed, as well as floating. Our experience in shipyards, our experience constructing large vessels, working at height, applying technologies, you know, it's a really good fit with our skillset.

Right. Got it. Thanks, Clay.

You bet. Thank you.

Thank you. Our next question comes from George O'Leary with TP & Company. Your line is open.

Good morning, guys. The sticking on the line of wind, curious -- I think you guys said exiting the year you expect kind of the revenue run rate from all things wind for NOV to be somewhere in the $200 million ballpark? I'm thinking about the fact that the kit that you guys said you'll supply to the wind, at least the wind installation vessel side of the equation $50 million to $100 million per vessel ballpark; so should we think about that as like three to four vessels a year by the end of this year is kind of the run rate, and then growth from there or would you frame that any differently?

That's obviously oversimplifying it a bit, but in terms of shorthand, what I would tell you; these vessels take a couple of years to construct, right. And if we sell everything that we can into a fixed wind installation vessel, that's $80 million ticket for us, that would flow out over a couple of years. So, you know, this will -- we've been building our backlog, it's continued to grow in this space. And our expectation is that we have sort of line of sight around a healthy level of constructing a fleet that's required to install this capacity over the next few years is what we see. Does that make sense?

Yes, that's super helpful color. If you leave us [indiscernible] to our own devices, we will just simplify things incorrectly.

And that's what I worry about.

Understandable. One of your peers noted that -- I think they said they see their offshore activity or revenues up 15% year-over-year, and we're more in the like 5% to 7% ballpark based on what we can see. You mentioned second half of the year, maybe some offshore momentums, international activity starts to pick up; so just trying to square the circle there. Any way you can quantify the increase in offshore activity that you guys see on the horizon?

No, not precisely. I can't speak to their comments but what I would tell you is sort of framing our view of the second half of the year and why we're becoming more optimistic is; look, it's no secret, the biggest challenge and factor that all of us have been dealing with is COVID. And as we sort of lookout as to what 2020 has in store, our view is really shaped in large part by the macro. The fact that economic activity still remains very low with COVID lockdowns, the fact that oil inventories have been declining now for several months is -- I think very telling. And as we now see vaccines on the horizon, as we move into the summer which I think typically sees fewer cases, we foresee sort of COVID lockdowns diminishing and economic activity returning and crude demand is going to accelerate. And through this COVID lockdown, a lot of our international offshore customers have been very, very sluggish on placing orders; we're continuing to quote a lot, bid a lot, and have a lot of feed studies underway. But the orders had been slow in coming, and so what we foresee is, as we move through the summer, the pandemic lockdown gets behind us. I think OPEC is going to be called upon to throttle back their cuts to sort of meet rising demand but we're going to pop out of all of that with supply demand and balance, we're going to need more supply as demand comes roaring back. You add to that, all the stimulus that's been pumped out by governments, the massive growth in money supply, and I think we're headed towards a global synchronized economic recovery that's going to be pretty strong. And one that will likely see a lot of inflation, the money supply is going to show up in commodities, including oil. In fact, we're already seeing double digit sort of price increases in steel and resin, price increases with freight. And so as we all kind of go back to work, as our oil company customers go back to work, I think they're going to be looking at the need to move forward and maybe move forward quickly with FIDs in the offshore. And so that's kind of from a macro level frames of what we see, how we see 2021 developing that the offshore FIDs begin to accelerate that -- that we learned kind of all the records that I've described earlier, the dismantlement of the oil and gas industry, the lack of investment, the lack of exploration, the lack of FIDs; it's going to catch up to us as the economy returns back to normal.

Great, thanks very much for the color, guys.

Thank you, George.

Thank you. Our next question comes from Chris Boyd [ph] with Wells Fargo. Your line is now open.

Thanks. Good morning. Regarding the $75 million of additional cost reductions, can you give maybe more specific color on which segments and the timing? And is there any read-through based on the outlook that you laid out on where EBITDA margins could get to by late 2021?

Yes. What I want to put this in perspective, we've been reducing costs since 2015. The $700 million plus that we refer to, we really kicked off in in early 2019, we begin to face some headwinds. And so I want to stress that we continue to downsize, and in 2021 we're doing that as well. And thus far we had line of sight on $75 million but these are some pretty major, frankly, difficult, challenging steps that we're undertaking now, to continue to improve our cost position and they tend to be a little lumpy. They are going to flow out throughout the year, we've announced for instance, the closure of a major facility and former headquarters of the company, very painful and difficult but so it'll -- it's kind of kind of vary quarter-by-quarter, and I would tell you all three segments, as well as corporate, remain focused on reducing cost to try to navigate through this.

Okay, that's helpful. Thanks. And then can you touch on -- well, I guess I'll skip over that. Maybe switching to the eFrac commentary that you had on the call. I think there's been a lot of interest. Are orders picking up and do you have a view on how much it might grow in 2021, or 2022, as a percentage of the fleet in North America?

Yes, it's a really interesting space. It's not a lost on us that a lot of pressure pumpers are challenged with respect to raising capital. But nevertheless, we see a lot of interest in this. We've worked very closely with one of the largest pressure pumpers in North America who's very excited about it. I think that interest really stems from what they're hearing from their customers. The EMP companies know that they need to reduce their greenhouse gas emission profile -- frac jobs are an obvious area to target and so I think that they are leaning on their service providers to think through how to do that. And that's leaning both to interest in dual fuel Tier 4 capabilities, as well as kind of the next generation, which is the efrac offering that that we're pioneering presently. But I think I mentioned that our pressure pumper customers testing it with one of their EMP customers and also reports a lot of interest from other EMP customers. But the promise here is really very intriguing. Much lower total cost of ownership, we built ours around a 5,000 horsepower, pumping system that has less volume per stroke. And so that lowers O&M costs a third or more for the owner of the equipment, it lowers the diesel cost that can run a million bucks a month or more to support fracking operations that moves into your truckloads, calls for a smaller footprint. So you can save money on the pad construction, you make your neighbors happy because you cut down on traffic. But most importantly, 60% or more lower CO2 emissions out of this. So, this is really, really promising and we're very excited and pleased. And I think it represents another good opportunity for NOV.

Great, thanks to the color.

You Bet.

Thank you. Our next question comes from Chase Mulvehill of Bank of America. Your line is now open.

Hey. Thanks for squeezing me in here. I guess first thing I kind of wanted to ask about was Q4 in first quarter, obviously, a little weak. Got here in Q4 as weak, but could you maybe try to quantify how much is really kind of directly related to COVID issues, whether it's logistics, certain types of restrictions and things like that, so we can kind of understand kind of what's impacting kind of near-term numbers.

Yes, it's hard to put a precise number on -- what I would tell you was 72% of our business on a consolidated basis coming from international markets, the general sluggishness in international markets has slowed our customers' plans. We are specific examples of offshore spuds, for instance, being delayed because managing COVID on an offshore rig is very, very challenging. We hear specific examples of our customers are just sort of slow playing approval of projects. Sluggish is the best word to describe it with respect to orders. And so on the top line, I think it really affects us. But as Jose noted, too, a lot of our businesses rely on service technicians that cross an international border every other day to take care of our customers out in the field and it continues to be very disruptive. It shows up and things like supply chains where we're afraid, containers are delayed, where were shipped cost of shipping is going up -- COVID still continues to impact the operations. Our own internal operations as well the operations of our customers as in view, it's clearly taking a toll.

All right. The follow up, you guys have been talking about pruning your portfolio, divesting some businesses. I would imagine COVID probably, makes it a little bit more difficult to do that. So just kind of update us where you are there and how you're thinking about M&A on a go-forward basis, specifically, as you think about better positioning the company for energy transition.

Yes. Well first is you've seen, Chase, the cost of capital in the renewable space continues to fall, which inflates asset values and so in terms of M&A in this space, it just feels very expensive to us. That doesn't bother me because we've made so much great progress organically. And frankly, my view is it's not to say we won't find a really interesting acquisition opportunity, but a lot of really smart people here with clever ideas. And so, as you've kind of heard earlier we're looking at this area and making real progress in terms of solving customer pain points. And so that's been our approach in the renewable space. With respect to divestitures, again, the whole COVID specter over the past year, has removed a lot of animal spirits with respect to a few things that we might have entertained selling, and that has slowed the process in terms of divestitures. But we continue to look at the returns across our portfolio businesses, both current snapshot returns, but most importantly, kind of growth prospects and what kind of normalized returns are. I would continue to try to be disciplined around that, but you're better management of working capital and being attuned to returns on capital on behalf of shareholders is something that we take very seriously. And I think we continue to continue to focus on.

It's perfect. I'll turn it back over. Thanks, Clay.

Thank you, Chase.

Thank you. This concludes our question-and-answer session, I would now like to turn the call back over to Clay Williams for closing remarks.

Thanks, Joelle. Many thanks to all the employees in particular that are listening. I really appreciate the great effort that you're doing on extraordinary circumstances to take care of our customers and each other. And so, appreciate all that you continue to do. And I do think that we are all going to see better opportunities emerge in 2021 getting the COVID behind us and looking forward to continuing to serve our customers in both oil and gas space in the renewables space. Also, thanks to all of you for joining us today. We look forward to speaking to you all again in April about our first quarter results.

Ladies and gentlemen, this concludes today's conference calls. Thank you for participating You may now disconnect.