Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NOV Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question at that time, you need to press star one one on your telephone keypad. At this time, I would like to turn the conference over to Ms. Amie D'Ambrosio. Ma'am, you may begin.

Welcome, everyone, to NOV's fourth quarter and full year 2024 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 law. 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 detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-Ks 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 US GAAP basis for the fourth quarter of 2024, NOV reported revenues of $2.31 billion and a net income of $160 million or $0.41 per fully diluted share. For the full year 2024, revenues were $8.87 billion and net income was $635 million or $1.60 per fully diluted share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted. 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, Amie, and good morning, everyone. NOV's fourth quarter marked a strong finish to a good year. Fourth quarter revenues grew 5% sequentially to $2.3 billion and net income was $160 million resulting in fully diluted earnings of $0.41 per share. EBITDA was $302 million or 13.1% of sales. Fourth quarter book to bill was 121%. On shipments out of backlog, were up to 12% sequentially, NOV has achieved greater than one to one book to bill in ten of its last twelve quarters, growing its backlog 22% through the past four years while quarterly shipments out of backlog have risen more than 60% through the same period. The company continued to benefit from rising demand for its critical technology through the fourth quarter despite slowing momentum in E&P spending in several key markets. For full year 2024, in addition to growing backlog year on year, NOV increased revenue, improved profitability, and generated exceptionally strong free cash flow. Revenue for the full year increased 3% to $8.9 billion and EBITDA increased to $1.1 billion or 12.5% of sales. Incremental flow through for the year was strong at 38%. The Energy Equipment segment led the way, growing its revenue by 5% and expanding segment margins by 250 basis points. Recovery of supply chains and lower inflation, together with higher margin contract flowing out of backlog helped the segment improve its performance significantly in 2024. And we expect further improvements in 2025. Offshore investment continued to recover fueled by deepwater exploration and follow-on development, prompting demand for floating vessels to produce, store, and offload oil and to liquefy natural gas. NOV has continued to secure large orders for gas and produced water processing equipment, subsea flexible pipe, chokes, offshore completion, and other production equipment. In fact, nearly 60% of fourth quarter's…

As Clay mentioned, NOV had a solid 2024. During the year when drilling activity was down 9% in North America and flat in international markets, our full year revenue improved 3% with 38% EBITDA flow through. We also generated $953 million of free cash flow and achieved a book to bill of 122%. For the fourth quarter, NOV's consolidated revenue decreased 1% year over year, but EBITDA increased 3% to $302 million with margins increasing 60 basis points to 13.1% of sales. Steadily improving quality of our capital equipment backlog, market share gains from new higher margin technologies and services, and operational efficiencies more than offset the effect of lower activity levels. Cash flow from operations was robust and totaled $591 million in the fourth quarter due to higher levels of profitability. Capital expenditures totaled $118 million resulting in $473 million of free cash flow. For full year 2024, NOV generated $1.3 billion in cash flow from operations, invested $351 million in capital expenditures resulting in the $953 million of free cash flow. We expect capital expenditures in 2025 to be in line with 2024. We achieved an 86% conversion rate of EBITDA to free cash flow in 2024. While we do not expect the exceptional improvement in working capital to repeat this year, we still expect a healthy EBITDA free cash flow conversion rate of more than 50% in 2025. During the fourth quarter, we repurchased 7.5 million shares for $112 million and paid a $29 million dividend returning $141 million to our shareholders. Our repurchases were heavily weighted towards the end of the quarter, so we exited the year with 384 million fully diluted shares outstanding. Six million shares lower than the weighted average number of shares outstanding during the quarter. For the full year, we returned a…

Simply press star one one again. Again, if you have a question or comment at this time, please press star one one on your keypad. Please standby while we compile the Q&A roster. Our first question or comment comes from the line of James Rollyson from Raymond James. Mr. Rollyson, your line is open.

Hey, good morning, guys, and nice way to finish off the year, especially on the free cash flow side.

Thank you, James.

Clay, you went through a lot of puts and takes as you kinda built up to a, basically, flat revenue year for 2025 is kinda your current outlook. But you guys have stated you know, margins for a whole bunch of reasons. Should improve. If I kinda start with one Q guidance where you know, midpoint of that is kind of 65 basis point improvement year over year in margins. Trying to get to how are you thinking about the magnitude of margin increase based on where your backlog sits and and the pricing that's embedded there and what you guys have done internally on cost and efficiencies, etcetera. Like, what kind of magnitude of year over year margin are you thinking that's gonna look like?

At this stage? Well, first, James, you're right in pointing out there are a lot of puts and takes or some emerging headwinds that get in the way of some of the margin improvements. But, nevertheless, we're optimistic margins should continue to rise in 2025. First, I point to clear success that we're achieving in energy equipment that group's margins up over 300 basis points year on year for Q4. Q1 through Q4 rose from 10.1% to 14.4%. The better margins in backlog, the costs that they've taken out, the normalization of the supply chain have all contributed to that. We expect further improvement in margins out of backlog as we move into the first part of 2025. And and the completion of some margin challenge projects we've been dealing with for the past couple of years. And so really good momentum in that group, and that's going the right way. We do expect revenue for that group to be down tad in 2025. And so that's a bit of a of a headwind, but nevertheless, expectation is they're gonna overcome that. The real challenge has been in energy products and services. And we've faced some more marketing more challenging market conditions within that segment. And in 2024, those are likely to persist in 2025. The group is much more exposed to North America and I think 52% of our mix in Q4 in that segment is North America. And so rig count down 9% year over year has certainly been a headwind. They've also faced some mixed challenges year over year for the fourth quarter. We saw drill pipe volumes way down for the full year down about 20% for Q4 to Q4. Down something like almost a third. It's a high fixed kind of high fixed cost type…

James, I I think I mean, ultimately, we'll have to see what kind of market presents itself through the course of 2025. Still a whole lot of macroeconomic and geopolitical uncertainty for the year but but your assumption is not unreasonable. You know, probably somewhere between 50 a 150 basis point possibility for the for for 25. So we'll we'll see. Don't don't take that as official guidance. Other than to say Yeah. You're not being unreasonable in terms of your assumption.

No. That's helpful. It's it's it's kind of a bracket. And then maybe just to to add one more, Sure. You guys have obviously done a lot on the free cash flow and working capital side of things and and and posted really good really strong numbers for the year. As you alluded, you're not gonna keep getting those gains necessarily, but you know, as we think about that continued 50% free cash flow plus flow through from EBITDA and and and how you think about that as far as returning capital? I know the 50% number is kind of the baseline bogey, but if I remember right, Jose, when when we were on the road a a few months ago, know, you were kinda thinking maybe that number gets a bit better in terms of your share of territory visibility now that the working capital has done what you wanted to do, the balance sheet's where you want it to be, etcetera. Just spend a minute on kinda how you're thinking about the level of return of capital as you look in 25 and and maybe even beyond?

Good good question, James. Yeah. So at the beginning of last year when we unveiled our return of capital program, one of the reasons why we did it is as as we sort of looked forward over the next three, four years, we saw a prolonged recovery cycle that would obviously have some ups and downs during the course of the way, but but but our view was and remains that we're still in a fairly early portion of the recovery cycle. And that we should see a little bit less volatility over the next several years. And that combined with significantly improved profitability, the rapid healing of the global supply chain, that gave us a tremendous amount of confidence that we're gonna get back to our old ways of being a a low capital intensity business that would throw off tremendous amount of free cash flow. So we were very statement that we would convert at least 50% of our EBITDA to free cash flow over that time period, and we remain confident in that. Obviously, 2024 things went a lot better than anticipated from a free cash flow conversion standpoint, particularly the fourth quarter. We had a lot of things go our way. Things things with the way that we thought they would from a supply chain and inventory management standpoint. A lot of teams around the company have been really focused on just getting better and capitalizing on that healed global supply chain. That went according to plan. Also, you know, Q3 to Q4, we normally ship a lot of stuff out of the door, which helps us reduce inventory levels. And also usually has the result of reducing our costs in excess or or or our contract assets and our short-term assets and our balance sheet.…

I appreciate all that detail, and I'll turn it back. Thank you, guys.

Thanks, James.

Thank you. Our next question or comment comes from the line of Roger Reid from Wells Fargo Security. Mr. Reid, your line is open.

Hey. Good morning. Yeah. Roger Reid, actually. But what Good morning, Roger.

Nice to hear it from you, Roger.

Same, Clay. Hey. I'd like to to come out kinda how you're looking at the offshore market. I mean, you mentioned, you know, I think it's well known some white space and some of the drillers schedules. But as you're looking at what it might take to to fill that or or what signs there are by I think you said the latter half of the year might look a little better for some of the equipment orders. What are what are some of the signs you're paying attention to? What should we be watching?

Yeah. I would say, it's interesting. All of our offshore drilling contractor customers are talking about it and very focused on it. Some have said, you know, we're gonna defer some projects that we were thinking about doing. And others have said, you know, we're gonna pull forward some projects we were thinking about doing to sorta use this idle time to prepare our rigs for the upturn in 2026. It's sort of a mixed bag out there. Specifically, I'd point to a couple of rigs that are increasing their hook load capabilities that we won last quarter, Q3. We've had some additional orders for pipe handling and automation. It's being done kinda during the the idle idle time. I would say, I think consensus out there, though, is that 2026 is gonna be a much better year for contracting. As you're aware, but not everybody else may be, December was actually a pretty good month for contracting. And so contracting is down year over year, but on, you know, with with respect to floaters, it's down something like 20%. So we made up a little ground in in December. What I think it all speaks to though, is the fact that you've had some very economic discoveries in these new basins around the world. You now have natural gas as a viable economic target offshore with the advent of offshore LNG. There's just a lot more activity going on offshore that's led to higher FIDs. And as I noted earlier, you know, $300 billion a year roughly in FIDs. So past three years for the offshore and the pipeline. Looks like it's still pretty full. We're doing a lot of feed studies on the production side. For FIDs with that we think are coming up in the next couple…

No. It it is helpful. I appreciate it. And given the depth of the answer, I'm gonna turn it back to to y'all rather than hammer another question there. Thanks, guys.

Thank you. And my apologies, Mr. Reid. The next question or comment comes from the line of Dan Kutz from Morgan Stanley. Mr. Kutz, your line is open.

Hey. Thanks a lot. Good morning.

Morning, Dan.

So I just wanted to ask a question that's that's kinda posed similarly to the consolidated revenue question earlier, but but in reference to backlog and book to bill on orders in in 2025, I guess, you know, you guys have given us a ton of components, but if you had to roll everything up on a consolidated basis, just directionally, where would you point us from from kind of a book to bill on perspective?

Yeah. Great question. You know, we're coming off of a lot of momentum. So Q4 book to bill, 121%. Full year book to bill, 122% so a lot of demand. But as you correctly note, it comes from a lot of different sources. So as we look to 2025, I think demand for pressure pumping stimulation equipment in North America certainly going to be challenged. Hopeful that as we get deeper into the depletion of horsepower assets, here later in the year, that turns around, but tougher here. On the other hand, good demand for stimulation equipment in these emerging unconventional plays in South America and in the Middle East, helping offset that somewhat. I just talked a lot about offshore drilling in 2025, and so, you know, directionally, that may be challenging as well. Although, we are pleased to win a jackup rig package in Q4, and so that helped a lot with respect to orders in that area. We see how 2025 shakes out. We're we continue to be most excited about our production equipment into the deepwater. And strong market positions in the supply of subsea flexible pipe and gas processing systems in chokes, valves, manifolds, a whole litany of components that we sell into that. A lot of feed studies underway. A lot of already executed FIDs to kind of move through the planning the PO placement process with the EPCs there. What we don't talk as much about now that could be a real turnaround in 2025 is our wind turbine installation vessel business. That business has been pretty slow on orders the last couple of years. I think in 2024, we had one vessel, Jose, and in 2025, we have a number of conversations underway. There's a consensus out there that there'll be a shortage of those vessels in 2028. And the participants in that construction sector are looking at placing orders for new vessels in 2025 to to be able to sell into that market at that time. And so you know, we we expect a couple of WTIV orders this year, which will help reload that backlog. And we've seen actually pretty good continuing good demand for cable lay vessels. To basically wire up these offshore wind farms that are are still being developed in in Europe in particular, inter array cable vessels, which, connect the individual turbines between each other. And so I think I think wind actually, as a source of orders in 2025 is going to turn around and be pretty good. In addition to that, seeing rising demand for construction vessels broadly as well, including a number that are adding sort of cable weigh optionality to their designs. And so, hopefully, that addresses your question, Dan. Again, a lot a lot of puts and takes in there, but the good news is the diversity of NOV's offering into all those different market segments helped us offset softness in one particular area with strengths and others.

Yep. That's all super helpful. Maybe just one on on kinda shareholder returns and and, you know, your your thoughts around capital allocation. I I guess could you just talk through some of the puts and takes of the decision to have the kind of 50% true up for for, you know, total shareholder returns via supplemental dividend versus maybe the optionality to say we'll true up to 50%, but, you know, component could be supplemental bid dividend component could be incremental buybacks. Can you just talk about the thought process in in coming to that decision? Thanks.

Yeah, Dan. It's Jose. So look. We we we wanted to unveil a return of capital framework that was very clear in terms of what we would do in the decisions that we would make. And so we intentionally put in place the supplemental dividend concept in order to hold us accountable to meet the minimum threshold that we set to the street. And so we very much intend to to live up to that. And so if you do the math, know, that that puts in place an expectation where we should have a supplemental dividend in the order of magnitude of $80 million in the first half of 2025. We're not firmly saying that at this point because, obviously, we need a a board approval to to move things forward or change anything around. But but we intend to live up to that commitment. You know, as as we go forward in time, through the course of 2025, with where the share price has been and and where it is today, we think that it is a compelling value and still anticipate being pretty aggressive as relates to share buybacks. We significantly stepped up our share buybacks in Q4 stepped into it, fortunately, as the market for whatever reason had a a big downdraft in December. So we ended up with an average share price below $15 per share. So we think we'll look back in the future and feel really good feel really good about that. And, like I said, even at current values, we think that the that stock value is compelling. So anticipate continuing to be pretty aggressive with with share buybacks. But framework is what it is. We're gonna live with it. We're gonna live up to it. And think it strikes a really nice balance for our shareholders.

Great. That's really helpful context. I'll turn it back. Thanks again.

Thank you. Our next question or comment comes from the line of Wigar Saeed from ATB Capital Markets. Your line is open, sir.

Thanks for taking my question. Clay or Jose, you know, National Gas is a pretty you know, key team these days in North America. And, you know, if activity for natural gas takes over or you you North America production grows because of or because of gas-fired power plants, how does NOV benefit? Do you provide services? You know, obviously, we are aware of the services on the at products on the D&C side. Could you highlight some of the other products that you could be selling into the midstream market or for power generation or LNG?

You bet, Wigar. Good question, and nice to hear from you this morning. If you look at, for example, the Haynesville as a source of gas, we're hopeful that in the back half of 2025 as LNG exports Haynesville activity picks up. Other other gas drilling picks up across North America. It all starts with horizontal drilling, better bits, better downhole tools. We've emerged as really a strong in those areas, to enable longer laterals with respect to pressure pumping. We're a major provider of pressure pumping, coiled tubing, completion tools that that help enable that that production. We're the leader in in production chokes for those wells, our composite flexible flow lines, again, a market leader in that space. So we really participate mostly on the upstream side of it with respect to midstream. We do sell some some valves and traps and other things to the pipeline industry as well. But and then in addition to all that, I would add natural gas dehydration. NOV is the global leader provision of monoethylene glycol processes to dehydrate dehydrate gas and process gas. And so there's there's so many critical components that go into gas production in North America. The NOV a market leader, and we certainly benefit from a uptick in natural gas drilling in North America. And, again, hopeful that projections for more natural gas activity and production related to power demand and related to LNG exports that the United States will drive a recovery in that area here later in 2025.

Hey. And, Wigar, just to just to just to add a couple of things. And so yeah, we're we're we're pretty excited about the the the appetite and sort of the re recognition that gas is going to be a transition fuel. I think the world is sort of realizing the importance of gas as it relates to powering a lot of the global economy going forward, the base economy as well as all the need for additional incremental sources of power to feed the the AI machine. And you know, just a a couple of other things, you know, related to LNG. You know, obviously, everything that that that Clay talked about, but just a couple of tag on items. You know, as it relates to FLNG, our processing systems for all the gas treatment has been a real source of of really good bookings as of late as we look forward over the next couple of quarters will continue to be a source of strength. And, you know, some of the things that we don't talk about a whole lot a whole lot related to subsea yokes and mooring systems and things of that nature that are necessary for the transport offloading and shipping of of the of of of the large quantities of natural gas are also a big component of some of the things that we're booking right now. So there's a lot of areas where we are really heavily in the entire LNG chain. So we're we're excited about the opportunities in front of us related to that.

Thank you. Just on the the Middle East jackup that you booked, would it be safe to assume that they could be in order, you know, one one year type order coming in for the next couple of years or do you see this to be one off type jackup package?

I'm gonna be careful. I don't wanna I don't wanna overstate this. I I do think there will be future orders. This is a jackup that's being constructed in the kingdom. In a newly constructed shipyard in the kingdom. And so I I I do believe that that this isn't the last rig that that that shipyard will build. Yeah. But I'm gonna I'm gonna beg off predicting a date or any specificity around future orders. We're very pleased to land this one. And very focused on executing it well and confident that we will. And hopeful that our customer there and other customers place additional orders for for jackups. But, yeah, I'd say happy to win this one and hopeful that we will win future orders. But I'm gonna not tell you a particular quarter or year.

Sounds good. Well, thank you very much for your comments. Appreciate it, and best of luck.

Thank you. Thanks for taking my call.

I'm showing no additional questions in the queue at this time. I'd like to turn the call back over to management for any closing remarks.

Thank you, Howard, and thanks to all of you for joining us today. We look forward to discussing our first quarter 2025 results with you in April. And we wish you all a very happy Wednesday. Operator, we can disconnect now.

Alright. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.