NOV (NOV) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Oct. 28, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Amie D'Ambrosio
• Chairman, President, and Chief Executive Officer - Jose A. Bayardo
• Senior Vice President and Chief Financial Officer - Rodney Reed

TAKEAWAYS

• Revenue -- $2.23 billion, representing 4% sequential growth and 2% year-over-year growth.
• Net Income -- $90 million, or $0.25 per diluted share.
• Adjusted EBITDA -- $281 million, which includes a $5 million benefit related to tariff refunds.
• Energy Products and Services Revenue -- $1.06 billion, increasing 9% both sequentially and year over year.
• Middle East Performance -- Revenue growing over 20% year over year despite security challenges and logistical disruptions.
• Free Cash Flow -- A use of $47 million during the quarter, driven by delayed milestone billings and elevated inventory buffers.
• Energy Equipment Adjusted EBITDA -- $187 million, or 15.3% of sales, representing a 90 basis point year-over-year margin expansion.
• Capital Equipment Bookings -- $577 million, resulting in a book-to-bill ratio of 91%.
• Argentina Revenue -- Achieving double-digit year-over-year growth for three consecutive quarters driven by Vaca Muerta development.
• Fiberglass Systems Backlog -- Increasing 30% year over year, with four consecutive quarters of a book-to-bill ratio above 100%.
• Drill Pipe Backlog -- Rising 50% year over year, with a trailing 12-month book-to-bill ratio of 120%.
• Consolidated Q4 Guidance -- Adjusted EBITDA forecasted between $260 million and $300 million with roughly flat year-over-year revenue.
• Energy Equipment Q4 Guidance -- Revenue expected to decrease 4% to 6% compared to the fourth quarter of 2025.
• Energy Products and Services Q4 Guidance -- Revenue expected to increase 6% to 8% year over year.
• Offshore Floater Rates -- Approaching $500,000 per day for high-specification rigs, supporting increased demand for upgrades.
• Spare Parts Backlog -- Increasing in the high teens percentage range year over year.
• Capital Returns -- Returning $47 million to shareholders in the third quarter through $32 million in dividends and $15 million in share repurchases.
• Full-Year CapEx Guidance -- Projected between $340 million and $360 million.
• EBITDA Conversion Target -- Management targeting a return to a 50% EBITDA-to-free-cash-flow conversion rate in 2027.

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RISKS

• Bayardo stated, "maritime security continued to deteriorate. Creating logistical disruptions and higher costs that affected deliveries of equipment and spare parts and delayed certain tenders," regarding operations in the Middle East.
• Reed reported that freight costs are up approximately 20% year over year, contributing to inflationary headwinds.
• Bayardo warned that management expects Middle East activity to moderate through year end as customers adjust drilling programs in response to regional tensions.

SUMMARY

NOV Inc. (NYSE:NOV) reported growth in international and offshore markets while managing logistical challenges and security risks in the Middle East. Management stated that the company is focusing on operational efficiency and the deployment of high-specification technologies to support unconventional resource development. The company reported record quarterly revenue for its digital segment and highlighted strong demand for offshore production equipment and drilling upgrades. Management indicated that drawing down global inventories could necessitate up to two years of increased investment to replenish supplies, supporting a constructive long-term outlook for equipment demand.

• Deepwater activity is accelerating, with floater contract days awarded year to date more than doubling compared to the same period last year.
• The median water depth for FPSOs in the development pipeline is approximately 1,400 meters, which requires more sophisticated production systems than the current active fleet.
• Bayardo noted that the Middle East holds roughly half of the world's proven oil reserves and stated, "markets can diversify suppliers, they cannot diversify geology."
• Management reported a record quarter for its drill bit business, with 30% year-over-year growth in U.S. land revenue driven by Permian Basin activity.
• The company secured a contract to provide digital services across more than 30 rigs for a U.S. operator to standardize data capture and improve operational visibility.
• Bayardo indicated that the company's portfolio has demonstrated the capacity to generate $1.5 billion of annual EBITDA based on recent performance across its business units.
• Management finalized a frame agreement in Oman for up to 300 kilometers of Fiberspar composite linepipe to support expanding pipeline infrastructure.

INDUSTRY GLOSSARY

• FPSO: Floating Production, Storage, and Offloading vessel used by the offshore oil and gas industry to process and store hydrocarbons.
• FID: Final Investment Decision, the stage in a capital project when the decision to proceed with the investment is formally made.
• Vaca Muerta: A major shale formation in Argentina that is a significant source of unconventional oil and gas.
• Max Platform: NOV's digital foundation for real-time data aggregation, visualization, and automation deployment.
• Book-to-bill: The ratio of orders received to units shipped and billed for a specific period, where a ratio above 1.0 indicates growing demand.
• Unconventional resources: Hydrocarbons, such as shale gas or oil, that require specialized technologies like hydraulic fracturing to extract.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 26 NOV Inc. 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amie D'Ambrosio, Director of Investor Relations. Ma'am, please go ahead.

Amie D'Ambrosio: Welcome everyone to NOV's Third Quarter 2026 Earnings Conference Call. With me today are Jose A. Bayardo, our Chairman, President and CEO and Rodney Reed, 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. 1 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 our 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 third quarter of 26 NOV reported revenues of $2.23 billion and a net income of $90 million or $0.25 per fully diluted share. 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 1 question and 1 follow-up to permit more participation. Now let me turn the call over to Jose A. Bayardo.

Jose A. Bayardo: Thank you, Amie. Good morning, everyone, and thank you for joining us. NOV delivered another strong quarter. Our teams continued to execute well and build on the operational momentum we established earlier this year. With improving performance across much of our portfolio. NOV generated revenue of $2.23 billion during the third quarter, an increase of 4% sequentially and 2% year-over-year. Solid incremental margins on the increase in revenue resulted in $281 million of adjusted EBITDA. Over the past several calls, we have talked about 2 priorities for NOV. First, improving profitability and returns by operating more efficiently. Simplifying how we work and better leveraging the capabilities and scale of the broader NOV organization.

Second, positioning NOV to capitalize on attractive growth opportunities where we have durable competitive advantages and provide products and services that drive higher value for our customers. We are making meaningful progress on both fronts. This quarter, both reporting segments delivered improved margins reflecting better execution, continued efficiency gains and the benefits of the actions we have been taking across the company. At the same time, the industry outlook continues to improve, especially in markets where NOV is particularly well positioned while years of limited investment have left relatively little excess capacity across important parts of the service and equipment supply chain. Let me start with The Middle East.

As we discussed on our last call, activity in the region had settled into what appeared to be a new operating norm following the disruptions earlier in the year. While takeaway capacity and operating conditions generally improved through most of the third quarter, maritime security continued to deteriorate. Creating logistical disruptions and higher costs that affected deliveries of equipment and spare parts and delayed certain tenders. Despite these challenges, our team in The Middle East delivered sequential and year over year growth of over 20%, during the quarter. We remain focused first and foremost on the safety of our people and on serving the needs of our customers.

I want to thank our employees and our customers in the region who continue doing critical work to maintain the essential flow of energy to the world in an extraordinarily difficult environment. As tensions escalated late in the quarter, we began to see some moderation in regional activity, which we expect will continue through at least year end. While these challenges will likely persist over the medium term, we remain focused on the importance of the region to the global energy markets over the long term.

The disruption of Middle East supply has required significant draws on global inventories, and experts suggest that replenishing those inventories while also meeting ongoing demand could take up to 2 years after flows out of the region normalize. Rebuilding global inventories will require increased investment some of which is beginning to take place in other regions as countries and producers seek to strengthen energy security and diversify sources of supply. But there are limits to how far supply can diversify. The Middle East holds roughly half of the world's proven oil reserves, and as Amin H.

Nasser recently put it, markets can diversify suppliers, they cannot diversify geology. that is why we continue to view The Middle East as 1 of the most important and attractive markets for NOV over the long term. Maintaining and ultimately increasing production from the region will require significant investment. Particularly as unconventional resources become a larger part of the production mix. Economically developing those resources requires many of the same higher specification drilling, completion and production technologies that we perfected to help enable The U. S. Shale revolution. We are already seeing increased investment in these technologies as unconventional development expands across the region. Similar pattern is developing across a number of other international land markets.

In Argentina, we are capitalizing on attractive growth opportunities as development of the Vaca Muerta continues to scale. Our revenue in the country has now grown double digits year over year for 3 consecutive quarters as operators moved toward increasingly industrialized development programs. We are seeing greater demand for higher performance motors and other drilling technologies and we are introducing new completion and drill out solutions to help operators improve efficiency as lateral length and completion intensity increase. And importantly, there is still considerable opportunity for us to help operators improve costs and efficiencies with better equipment and technology. We are also benefiting from investment in the infrastructure required to support growing production.

During the quarter, we secured orders for production and midstream equipment associated with natural gas infrastructure in the Vaca Muerta illustrating the breadth of NOV's opportunity as development scales. Argentina is just 1 example, and we are also capitalizing on opportunities developing in other emerging international unconventional resource markets including Algeria, Australia, Egypt and Pakistan. Customers in these countries are increasingly incorporating the technologies we have developed and proven in more mature resource plays. In Venezuela, we are also seeing activity and customer engagement increase. With growing interest across a range of NOV businesses, including production and midstream equipment, artificial lift and pumping technologies, drilling systems and digital solutions.

While still small, our revenue from Venezuela is growing at a high rate, and we see the potential for it to materially increase given the need to reinvest in the country's asset base. More broadly, as international development programs scale and become more technically demanding, they require greater technology content, creating a long runway of opportunity for NOV. North America presents a somewhat different opportunity. Activity continued to improve during the quarter, led by private operators and the normal seasonal increase in Canada. Public operators remain disciplined with capital and, at least for now, they are not making a broad push to materially increase activity. We are seeing a similar dynamic among service companies and drilling contractors.

For the most part, they remain very disciplined and want to see meaningful sustained improvement in pricing and returns before committing significant capital to their fleets. Importantly, there is little excess high specification equipment capacity available today. As a result, we believe even a modest increase in operator activity could tighten the market fairly quickly, improving utilization, pricing and ultimately, the returns required to support broader fleet reinvestment. Today, we are seeing a few more agile private customers begin investing ahead of what they and we soon believe will be higher utilization and pricing.

During the quarter, we booked the sale of 2 new 2,000-horsepower high spec land rigs, a major upgrade to another rig that included a DC to AC conversion and an order for our new TDS 1.4 thousand top drive, which provides the higher torque and horsepower required to drill increasingly demanding ultra long lateral wells. At the other end of the spectrum, major operators are making selective investments in leading edge technologies that can structurally improve safety and efficiency. Including robotic systems and fully electric well servicing rigs. So while capital equipment investment in North America remains constrained, the customers who are investing, are generally focused on higher specification solutions that lower total well costs, improve reliability and enhance safety.

Customers' relentless focus on improving efficiency also continues to drive demand for our shorter cycle technologies, tools and services. For example, our drill bit business delivered a record quarter with particularly strong growth in the Permian, while our downhole Tools business generated record motor revenues and continued to gain traction with several differentiated drilling technologies. The performance and reliability of these products are helping us deepen penetration with customers and gain share. Digital is becoming an increasingly important part of that same efficiency equation. During the quarter, we were awarded a contract to provide digital services across more than 30 rigs for a large U. S.

Operator, combining electronic drilling recorders and remote monitoring to standardize data capture, improve operational visibility and support more consistent decision making across the fleet. North America remains 1 of the most important technology markets in the world, and an extraordinary proving ground for NOV as customers continue pushing the limits of lateral length drilling speed, automation and capital efficiency. That creates opportunities for us to provide more technology and value on each active rig, and many of the solutions proven in North America will ultimately help us drive growth in the international unconventional markets we just discussed.

Finally, turning to offshore, where we continue to see some of the strongest industry momentum and some of the most attractive opportunities for NOV. In offshore drilling, contracting activity has accelerated meaningfully this year. Floater contract days awarded year to date have more than doubled compared to the same period last year. Utilization remains high and leading edge day rates for high specification rigs are approaching $500 thousand per day. Levels that support greater investment in upgrading the existing fleet. These improving conditions are translating into stronger demand across our drilling equipment and aftermarket businesses.

As rigs prepare for new contracts, and return to work, customers need spare parts, recertifications and equipment upgrades, and increasingly, they are investing in automation and robotics. Our offshore aftermarket business strengthened again during the quarter with spare parts backlog increasing for the fifth consecutive quarter. Also secured additional upgrade opportunities, including an award to increase a drillship's hook load capacity to over 1.4 thousand tons and add multi machine control functionality. We continue to see growing customer adoption of our automation and robotic systems as operators and drilling contractors look to improve safety, consistency and efficiency. The longer term outlook is increasingly promising.

The offshore fleet is aging at the same time it is being asked to drill more efficiently in deeper water and increasingly challenging operating environments. We believe that combination will continue to create attractive aftermarket and equipment upgrade opportunities and over time should increase the need for new high specification rigs. The outlook on the production side of the offshore market is, in many respects, even more compelling. As shown on Slide 7 of the earnings slide deck we posted on our website this morning, offshore investment is expected to remain at very strong levels through the end of the decade.

South America will remain a significant market led by Brazil, Guyana and Suriname, while investment is expected to increase meaningfully across Africa, Asia, Australia and Europe. Much of that incremental activity is also moving into deeper water, harsher operating environments and more gas intensive developments. Creating a particularly favorable mix of opportunities for NOV. As Slide 8 illustrates, the median water depth for FPSOs in the development pipeline is approximately 1.4 thousand meters compared with roughly 24 meters for the active fleet today. They are also increasingly gas intensive. Average gas handling capacity for the development pipeline is approximately 36 million cubic feet per day compared with 189 million cubic feet per day for the existing fleet.

Deeper water, greater gas processing requirements and increasingly harsh operating environment translate into larger and more sophisticated production systems, That plays very well to NOV's capabilities as illustrated on Slide 9. When we look at both the breadth of the market and the increasingly demanding technical requirements of the projects being developed, we feel very good about the offshore production opportunity over the next several years. If you look at Slide 10, you can see that there is an important lag between when an offshore development reaches FID and when NOV ultimately receives orders for much of the equipment we supply. As projects move through engineering, contracting and procurement, our orders generally follow FIDs by a few quarters.

With the exact timing varying by project and equipment package. You can see that higher FPSO FIDs in 2023 and 2020 contributed to elevated NOV offshore bookings in the periods that followed. The moderation in FIDs during 2024 and 2025 is reflected in the slightly muted pace of production equipment bookings we are experiencing in 2026. Importantly, the investment cycle is turning higher. FPSO project sanctioning is accelerating meaningfully in 2026, and the pipeline for 2027 remains very strong. Consistent with the historical lag shown on Slide 10, we expect those projects to increasingly move into equipment procurement as we progress through 2027 and into 2028.

We are already seeing that development in our sales pipeline, with a growing number of projects moving through engineering, tendering and commercial discussions across our businesses. Large offshore awards are inherently lumpy and their timing can move between quarters. The more important point is that today's bookings largely reflect yesterday's project sanctioning environment. While the acceleration in FIDs we are seeing today represent a broader opportunity set developing in front of us. Given the strength of the project pipeline, the increasingly attractive technical requirements of future development and NOV's strong positions across many of the critical technologies those projects require, we have growing confidence in a robust offshore production equipment opportunity over the next several years.

That brings me back to the earnings potential we discussed last quarter. As a reminder, we looked at the strongest quarterly performance each of our businesses had delivered over the past several years, excluding the seasonally strong fourth quarters. Annualize those results and concluded that NOV's portfolio has demonstrated the capacity to generate $1.5 billion of annual EBITDA. This was not a forecast with a defined time line. The point was that none of our businesses needed to achieve performance they had not recently demonstrated. What is needed is a reasonably constructive, broad based market environment that allows more of them to perform near their potential at the same time.

Our confidence in our ability to achieve and exceed this level is increasing, and we see 3 things moving in our favor. First, we are beginning to see broader improvement across global energy markets. Second, we expect a disproportionate share of supply growth to come from areas where NOV is particularly well positioned including deepwater offshore and international unconventionals. And third, we continue to drive operational efficiencies, We are simplifying how we operate, improving manufacturing productivity, better leveraging our global infrastructure and supply chain and reducing duplication across the company.

Importantly, our path to $1.5 billion of EBITDA can be supported by the capacity we already have in place, creating the opportunity to drive attractive incremental earnings cash flow and return on capital employed. The timing will depend on how customer investment develops and the path will not be perfectly linear. But the improving performance within NOV and the market opportunities we discuss today give us increasing confidence in our ability to demonstrate materially greater earnings power over the coming years. We have been positioning the company for the market conditions we anticipate ahead and we are committed to delivering stronger margins, greater cash flow and higher returns.

The NOV employees listening today, thank you for everything you do to serve our customers keep 1 another safe, and make NOV better every day. Rodney Reed.

Rodney Reed: Thank you, Jose A. Bayardo. Consolidated revenue for the quarter was $2.23 billion an increase of 4% sequentially and 2% year-over-year. Net income was $90 million or $0.25 per fully diluted share, Operating profit was $142 million which included $28 million in pretax other items and an $18 million net write down of fixed assets. Primarily related to facility closures. Adjusted operating profit was $188 million or 8.4% of sales, and adjusted EBITDA totaled $281 million or 12.6% of sales. During the quarter, we paid dividends of $32 million and repurchased 800 thousand shares for $15 million bringing our total shares repurchased over the past 10 quarters to 44.5 million shares for $689 million over 10% of shares outstanding.

For the full year, we have returned $242 million to shareholders excluding the $32 million supplemental dividend in the second quarter. Free cash flow for the quarter was a use of $47 million the ongoing conflict in The Middle East delayed certain milestone billings and collections, and our supply chain teams continue to maintain inventory buffers given ongoing disruptions to logistics. We expect a significant improvement in free cash flow with working capital to percentage of fourth quarter annualized revenue to be around 25%. We also anticipate our conversion of EBITDA to free cash flow in 2027 will return to the 50% range.

Full year capital expenditures should be between $340 million and $360 million and we forecast our annual effective tax rate to be around 30%. We delivered 35% sequential incremental EBITDA margins in the third quarter after delivering 80% incremental margins the second quarter due to our improving cost structure and operational efficiencies. Including our fourth quarter guidance, we expect the team will deliver around 7% revenue growth from the first half to the second half of 26 with strong incremental EBITDA margins in the mid 40% range, excluding tariff refund benefits. Moving to our segments, starting with energy equipment. Third quarter revenue was $1.22 billion flat sequentially and down 2% year-over-year.

EBITDA increased to $187 million or 15.3% of sales, a year over year improvement of around 90 basis points. Driven by strong operational execution and improved margins in backlog. Capital equipment sales accounted for 63% of the segment's revenue with increased demand for drilling and production equipment, partially offsetting the higher contribution of certain offshore projects in the prior year that have been completed. Aftermarket sales and services were 37% of segment revenue, essentially flat compared to the prior year as improving drilling aftermarket activity offset lower aftermarket revenue from our Intervention and Simulation equipment business. Capital equipment orders for the third quarter were $577 million a 22% increase sequentially, resulting in a book to bill ratio of 91%.

Orders reflected solid demand for offshore production and marine construction equipment. We continue to expect our order intake in the second half of the year to outpace the first half but anticipate our book to bill ratio will remain below 1x. However, as Jose discussed, given the robust outlook for offshore FIDs, we expect 2027 bookings to meaningfully exceed 2026 and 2025. Our subsea flexible pipe business achieved its seventh straight quarter of year over year revenue EBITDA and margin growth, supported by strong execution on a higher margin backlog. Outlook for the business remains bright, and we continue to anticipate industry demand for flexible pipe to exceed supply through the end of the decade.

Additionally, the business is expanding solutions for customers booking the first award of our proprietary subsea automated pig launcher which enables remote automated pipeline inspection or pigging without a vessel. A subsea tiebacks lengthen, and vessel availability tightens, we see future opportunities for these systems. Revenue in our process systems and marine construction business declined year over year reflecting higher prior year contribution from projects that were recently completed. Strong execution on higher margin backlog resulted in improved EBITDA margins. We continue to see strong demand for our processing technologies, Morgan Gas offloading equipment, and offshore construction cranes which drove the majority of the segment's orders this quarter.

Looking ahead, as Jose mentioned, we see very positive trends in the offshore development pipeline with deeper, higher gas and gas condensate reservoirs and in some cases, harsh met ocean conditions. These trends expand the need for advanced and larger gas processing equipment, turret mooring systems, and subsea flexible pipe. All of which are critical technologies where NOV has strong competitive advantages. Our production and midstream business unit achieved double digit year over year growth, reaching its highest quarterly revenue ever. The business also recorded record orders supporting the build out of pipeline capacity in Argentina, and production optimization projects in Oman, Nigeria, and Venezuela.

The team also realized over 20% growth in North America from higher sales of production chokes and pumps. Our drilling capital equipment revenue increased double digits both sequentially and year over year, led by strong execution from our Saudi rig manufacturing team, improving demand for our latest drilling equipment and automation technologies. Turning to our aftermarket business. Revenue from drilling aftermarket increased in the low single digit percentage range both sequentially and year over year. Supported by improved spare parts sales and higher service and repair work improving day rates and floater utilization, supporting demand for services, repairs, and upgrades.

After 2 straight quarters of year over year double digit growth in spare parts bookings, backlog for spare parts increased in the high teens percentage range compared to the third quarter of 2025. In summary, Energy Equipment continues to deliver strong financial results with margins expanding for 4 straight years. And given what we anticipate through year end, we expect that to extend to 5 years. Additionally, with offshore FIDs in 2026 and 2027, expected to exceed 2024 and 2025 by around 50%, we anticipate strong bookings in 2027 and 2028 which combined with driller floater utilization that should reach a 12-year high, positions the segment well for growth.

For the fourth quarter, we expect revenue in our Energy Equipment segment to decrease 4% to 6% compared to the fourth quarter of 2025. As growth in drilling aftermarket will be more than offset by the completion of certain offshore production related projects. Expect EBITDA to be in the range of $175 million to $205 million. Moving to the Energy Products and Services segment. Our energy products and services segment generated revenue of $1.06 billion an increase of 9% both sequentially and year over year. Adjusted EBITDA totaled $153 million or 14.5% of sales. Excluding tariff refund benefits, third quarter EBITDA incrementals were 39%, led by strong performance from our drill pipe drill bits, fiberglass, and artificial lift businesses.

The third quarter, the sales mix within energy products and services was 50% service and rental, 32% capital equipment, and 18% product sales. The segment's service and rental revenue increased mid single digits both year over year and sequentially. NOV Digital achieved record quarterly revenue increasing by double digit percentage year over year and sequentially from market share gains and growing adoption of our digital completion technologies. Our Reed Hycolog drill bit business delivered another strong quarter revenue growing over 20% year over year. Growth was led by additional market share gains in U. S.

Land, where revenue grew 30% year over year in addition to greater adoption of higher performance cutters in international unconventionals, revenue growing in Latin America and The Middle East. Our Downhole tools business followed similar trends, delivering low double digit percentage growth year over year and sequentially, The business unit benefited from strong year over year revenue growth in Latin America and The Middle East, from increased rentals of drilling motors, supporting our customers' focus on efficiency developing their unconventional resources. Our wellsite services business had essentially flat revenues However, EBITDA margins improved both sequentially and against the prior year.

Higher margins were the result of accelerating adoption of our TerraTherm processing technology, which provides more efficient handling of drilling cuttings. And increased utilization of TundraMax temperature control systems, as well as exiting lower margin markets. Capital equipment revenue for the segment increased mid to high single digit percentage range year over year and sequentially. Revenue from our fiberglass systems business increased mid teens percentage year over year and low double digits sequentially led by strong demand from oil and gas markets and record sales for our fuel handling products.

In the Middle East, we realized strong growth in demand for our spoolable pipe for the build out of production infrastructure, while in The US, we significantly increased deliveries for larger diameter composite pipe for produced water systems in West Texas. Strong bookings momentum continued with the business unit achieving its 4th straight quarter of book-to-bill greater than 100%. With a backlog 30% higher than last year and demand increasing, we expect to see continued growth for this business. Our drill pipe business also had a strong quarter with revenue up around 20% year over year. Trailing 12 month book to bill exceeds 120% with increasing demand for offshore and larger diameter pipe. And backlog improved 50% year over year.

Product sales increased 5% year over year and low teens percentage sequentially. Growth was led by increased sales of drill bits and drilling tools, in the Eastern Hemisphere and ESPs in the U.S. In summary, increasing adoption of our digital solutions, higher performance technologies that enable efficiencies and longer laterals, and improving manufacturing throughput on a growing backlog of capital equipment led to strong top line growth with solid incremental margins. For the fourth quarter, we expect Energy Products and Services segment revenue to be up 6% to 8% year over year and EBITDA in the range of $140 million to $160 million With that, I will turn the call back to Jose A. Bayardo.

Jose A. Bayardo: Thanks, Rodney. Before we open the call for questions, I will leave you with a few thoughts. We are seeing a broad recovery across many of our key markets. Particularly in areas NOV has strong technology positions and significant opportunity to participate. And we are pleased with the progress we are making against the 2 priorities I mentioned at the beginning of the improving profitability and positioning NOV to capitalize on attractive growth opportunities. That combination gives us increasing confidence in our ability to deliver materially stronger earnings cash flow and return on capital over the coming years.

Our focus remains on execution, serving our customers well and converting the opportunities in front of us into long term value for our shareholders. With that, we will open the call for questions.

Operator: Thank you. In fairness to all, we ask that you please limit yourselves to 1 question and 1 follow-up. 1 moment while we compile our Q and A roster. Our first question will come from the line of Arun Jayaram with J.P. Morgan Securities. Your line is open. Please go ahead.

Arun Jayaram: Yes. Good morning. Yeah. Good morning, Jose and Rodney. I wanted to see if we could kind of zero in on thoughts around energy equipment as we approach, 2027. We see 2 kind of trends, Jose A. Bayardo. As Rodney mentioned, you know, book to bills have been trending, you know, below 1 for just a few quarters. But you did highlight you know, expectations around strong order momentum in 2027. You know, with flexibles and offshore. Production equipment Could you just talk to us about how you think those 2 kind of forces will play out as we think about 2027?

I know we ourselves are modeling low single digit growth in energy equipment next year, but just wanna get your thoughts on that.

Jose A. Bayardo: Yeah. Appreciate the question, Arun Jayaram. Look, as we spent a bit of time in the prepared commentary really talking about the outlook for 2027 and kind of what we see the pipeline. And short takeaway is looks fantastic, to us. And really wanted to spend a little bit of extra time this morning highlighting what we see and why we, and quite frankly, I think the rest of the offshore equipment community is so optimistic about the outlook for 2027.

So, you know, really, as it relates to the overall performance of this segment and of the business as a whole, offshore production is just 1 component, but it has been and continues to be a large component of our bookings and our revenue base going forward. So probably helpful to talk just a little bit more about sort of the bookings, cadence, not just 2027, but kind of what we have seen, year to date and where we see it going.

First of all, as we anticipated and as we have been communicating for really since the end of last year, we saw a nice step up in bookings, from the rate of intake that we saw in the first half of the year. So 91% book to bill, in Q3. The question is, and as we kinda touched on, that, we really see a lot of excitement around 2027 Let's talk about Q4 a little bit because I know it is it is top of mind for a lot of folks. You know, for us to hit the range that we are talking about previously, the 90% to a percent range, we would need to hit.

Obviously, it is simple to do the math around $750 million or so in bookings in Q4. And with what we are seeing, in terms of timing, it is projects, at this point, we think that range is probably a little bit ambitious. So the best estimate right now is that we will finish the year at the book-to-bill of. Book to bill of between call it, 80% to 85%. And, you know, we obviously see that moving considerably higher in 2027. Look. I do not wanna downplay, the importance of bookings, but 1 of the things I wanna remind folks of is that we currently have $4 billion in backlog.

So, we are we are we are in great shape. Also, keep in mind, that only about 28% of our revenue comes from the formerly reported capital equipment backlog. And you know, as we have, tried to highlight, we obviously have other parts of the business that do not formally report backlog, but those are still capital equipment businesses, and they are doing great right now. Right? So rig aftermarket, also within the energy equipment segment, 5 straight quarters of a building backlog. Our fiberglass systems business 4 quarters in a row with a book to bill of greater than 100%, backlog up 30% versus last year. And our drill pipe business 120% book-to-bill over the last 12 months.

And backlog up over 50% year over year. Put those 3 components together, and that is effectively more than another $1 billion of backlog. And so, feel really good, about the direction of the business going forward. And I think specifically as it relates to the e segment in 2027, we have seen really good performance from that segment over the last 4 years with improving margins over that time frame, improving backlog, improving revenue, improving throughput through our manufacturing operations, and obviously, if our Rodney highlighted, if we meet the midpoint of our guidance for Q4, will be 5 straight years of margin improvement.

You know, as we get into 2027, we certainly see order intake picking up significantly with what we see in the pipeline. We try to show. Cast a light on that. You know, how much the growth and revenue out of backlog improves during the course of 2027, will depend on the timing of when those orders land, and usually there is a slow start up on projects. So anticipate momentum to continue to build through the second half of the year. But, really, as we look at EE's upside potential, for 2027 versus 2026, the thing that we are most excited about is what we are seeing in. Is in our, drilling aftermarket business.

Where, you know, as we highlighted, backlog has been improving steadily. And as you have heard from our customers, including 1 yesterday, the pace of, deepwater, drilling tenders has accelerated significantly. Day rates have reached, $500 thousand a day. Leading edge. that is driving, a lot more rigs that will be turning to the right in second half of 27. More opportunities for just routine spare part sales, more opportunities for upgrades. And probably a few large reactivation projects. And, you know, really, if we look at our rig, project backlog, it is been, growing, at a at a pretty healthy clip.

And right now, I think it is the highest level of project related that we have since, since 2024. So I feel really good about the outlook for the for the EE segment in 2027 and sorry for, providing probably more detail than you wanted.

Arun Jayaram: We always appreciate the color. Jose, we have we have observed from a different. A number of different OFS conference calls, maybe a different perspective on how The Middle East will move forward thinking about Q4 and maybe in. Into 2027. Can you maybe just highlight what you are seeing on the ground? You did mention that there are some impacts to drilling activity from the, call it, the security situation. But love to hear what you are seeing and embedding in terms of your Q4 outlook.

Jose A. Bayardo: Yeah. I would say, first and foremost, hope and pray for a very quick resolution to all the tensions in the region. But secondly, I wish I had a crystal ball where I could tell you exactly what is going to happen, Arun, but it is it is it is really not possible right now. You know, I was in The Middle East, the last week of September, visiting, with customers and it is a. And it is a. it is an interesting environment. And frankly a very constructive environment from the operators in the region. Look, they understand the importance of what they do for the global community.

And they are, obviously struggling right now from a logistics standpoint, both in terms of getting what they need, into the region, but also very importantly getting commodity out of the region to provide that energy flow that the rest of the world, really needs. But they are intense on making sure that they can quickly and efficiently respond when conditions present themselves to when they can, ramp up production activity in the flow of oil and gas. Out of the region. So 1 of the things I wanted to prepared commentary is just the, importance and the long term value of, the region. To the world and to NOV's business.

Specifically to us, short term, as we touched on, is embedded within the guidance Due to, rigs that have been suspended and customers that have adjusted their drilling programs here, near term. What we are currently seeing is that we expect The Middle East to be down in the mid single digit range for Q4, and hard to predict what happens beyond that at this point, Arun Jayaram.

Arun Jayaram: Thank you very much.

Jose A. Bayardo: Thanks, Arun Jayaram.

Operator: Thank you. And our next question will come from the line of James Rollyson with Raymond James. Your line is open. Please go ahead.

James Rollyson: Hey. Good morning, everyone. I was, Jose, when we were on the road last month, you know, you talked a bit about aftermarket. Rig aftermarket, and you just in answering Arun Jayaram, talked about it a little bit more. You know, my math is you are probably on track to be down about $400 million or so of revenues this year versus 24, which is when the offshore rig count last peak. And when you kinda look at what some of your know, customers are saying, what you guys have said, Rodney talking about getting back to a 12-year high in the floater market.

Just maybe help us understand a little bit how we should think about the timing of aftermarket ramping back up as the offshore activity ramps back up.

Jose A. Bayardo: Yeah. Good question, Jim. And, yeah, directionally, you are you are right with kind of where we sit today. And that really presents the opportunity for the, for the upside and that we are. That we are talking about. As I tried to convey in the response to Arun Jayaram, we are seeing this gradual improvement. And Rodney gave some in terms of the percentage increase 5 straight quarters in a row of effectively, continued modest improvements in that in that backlog that set us up really well for the coming year, but expect that to continue to move forward as more and more rigs come online. Right?

So the number of rigs that will be turning to the right in the second half of the year will be a bit higher than certainly where we where we sit today. We think we will continue to see a steady progression in terms of demand for spare parts. And, over time, as those day rates continue to tick up, that will create, more incentive for people to not only, drive more, upgrade opportunities to us, but also some of the last remaining and, frankly, somewhat sizable reactivation, projects. So there is already more talk of those, taking place.

But, basically, we expect to continue to see a steady ramp with second half of the year being a good improvement over the first half.

James Rollyson: Appreciate that color. And as a follow-up, I do not know if you have an easy answer to this, but you talked a lot about this, you know, kind of unconventional opportunity that is that is blossoming internationally. And kinda following on all the technologies that you have developed in North America from. You know, over the past decade plus. How do you put the scale of that international unconventional opportunity maybe relative to what you have been able to generate over time through the North American side of things?

Jose A. Bayardo: Yeah. To be determined exactly how large that becomes, James, but it is gonna become an increasing mix. Of the energy market going forward. Right? As we as we look forward, our best view is that there are going to be 2 primary drivers of incremental production to meet the world's growing demand for oil and gas. And you have got deepwater offshore, which has incredibly compelling economics. But those are huge investment opportunities and longer cycle barrels. And then you have, international unconventional resources, which are still quite frankly, in the very early days but ramping, pretty quickly.

Right now, obviously, a lot of momentum international unconventionals has been down in Argentina with Vaca Muerta, which is full speed ahead and continuing to accelerate. The other most mature area and rapidly accelerating area was the Middle East. To be determined how things evolve within that region given what we just discussed with Arun Jayaram's question. But over the long run, that will continue to ramp think, in a in a pretty meaningful way. And as we touched on, other areas of the world, North Africa, Australia, There will be more in Asia that will that will move forward.

So, you know, over time, I would not be surprised if that sort of, supply base started to get in line with what we are seeing in North America over the distant future. Now we will see exactly how that how that, how that works. Obviously, North America came online first and most quickly and efficiently. For an important reason that we have to keep in mind, and that is you know, ownership rights, entrepreneurship, and the amazing efficiencies that the industry in North America brings to the table. And that is hard to replicate in other parts of the world, but a lot of good progress is being made.

Ultimately, how much market share unconventionals gain overseas will ultimately depend on the adoption of incredibly efficient leading edge high spec equipment, which will be in their favor because we are getting better and better every single day at what we do. And then the cultural element, I think the wheels in motion to make significant improvements on both of those fronts. So we are obviously optimistic about that opportunity, for us and for the global community to continue to have more sources of reliable, and economic sources of energy.

James Rollyson: Appreciate your thoughts.

Jose A. Bayardo: Thanks.

Operator: Thank you. And our next question will come from the line of Marc Bianchi with TD Cowen. Your line is open. Please go ahead.

Marc Bianchi: Thank you. First question, hey, guys. Good morning. First question on EE and on this guidance here for fourth quarter. If I look at sequentially, revenue is up a little bit. And if I kinda strip out the tariff recovery there in third quarter, it looks like you are not getting a ton of margin leverage. I guess, perhaps that is mixed, but I do not know if there is anything else going on there. I would thought that maybe you get better margin leverage on that revenue increase.

Rodney Reed: Yeah. Yeah. it is it is. Marc, it is. It really is mix. I mean, obviously, things shift from quarter to quarter. And, we obviously saw a favorable mix and also, frankly, really good execution here over the last few quarters to drive, really healthy incremental margins across the board, not just in EE, but in both segments. As we go into, Q4, our anticipate. We anticipate that will be a little bit less favorable.

And, also, you know, while we do have a big pickup in our aftermarket business, it tends to be more service and repair, which is a little bit lower margin than, what we get from just a large, ramp up in terms of the spare parts sales. So. Yeah. Those are the those are the couple pieces I think, Marc, is 1 you typically have a little bit more Eastern Hemisphere products sales into the fourth quarter. However, with this in this fourth quarter, for some of the reasons that Jose laid out earlier, that is probably a little bit more moderated, Q3 to Q4. And, also, the other thing that we are seeing, still is, is high freight cost.

So freight cost year over year are up about 20%. And just with our anticipation on where things are right now, we think that sort of Q3 to Q4 costs are probably a little bit more elevated too.

Marc Bianchi: Okay. And maybe building on that as we think of it as perhaps a you know, a starting point for thinking about 2027. You know, do you think mix changes a lot? You know, we have got this the offshore stuff that you guys have been talking about so much already on the call. How does that contribute? And then do you get recovery of the freight costs at some point? Is there a lag in pushing price through recover that? Maybe just try to talk about how much of a good reflection of the normal business this is and how we should think about it building up to 27?

Jose A. Bayardo: Yeah. Well, morning. I think we talked a bit 1 of the prior answers related to the expectation in 2027 and pace of improvement and general mix. As we mentioned, capital equipment will continue, to grow some of that growth. Will be dependent on the timing of when orders come in. But what we see is more of a growth opportunity in the EE segment into 2027. Is the aftermarket business, which should drive margins higher, right? Now as it relates to inflationary forces, so broadly speaking, outside of The Middle East, we have gotten to a point where the severe headwinds that we saw over the last few years from, inflation, as well as tariffs, hopefully is behind us.

And, we are now at the point where we are starting to outpace that inflation and drive margins higher from the most part. For the most part. Pricing is the next leg. Right? As we think about, the state of the industry today, while things are much improved and the outlook is really fantastic, I think whether it is us in the equipment space or the more traditional service space, there really has not been much in the way of pricing yet. And while I hate the compressed spring type analogy, I cannot think of a more of an environment that applies to more than it does today.

So as I have mentioned, a couple of times, I think we are nearing a point where excess supply of the type of desirable equipment that is out there is at its limit. that is gonna require, our service company contractor customers to invest more in their asset bases, but they are not gonna do so without good improvement in pricing. I think we are very close for the market to see that. Nobody wants to speculate on the precise timing of that. They will be very surprised if we do not see material improvement in 2027.

Specifically related to The Middle East, obviously, challenged from an inflationary standpoint due to logistics element that you are that you are asking about. And, obviously, in an environment in which activity levels are coming down, due to those changes in drilling programs that we that we touched on. All of a sudden, that market has a little bit of excess capacity. So that hurts demand. And it also hurts the ability to continue making, progress on pricing and makes it difficult to offset some of the inflationary costs associated with logistics. However, we are making progress on it.

And have been pleased with how constructive the dialogue has been with certain customers related to them, absorbing those additional, logistics costs. But in general, still a headwind right now, but, feel pretty good about the direction things are headed.

Marc Bianchi: Great. Thanks for that, Jose A. Bayardo. I will turn it back.

Jose A. Bayardo: Thanks, Marc Bianchi.

Operator: Thank you. And 1 moment for our next question. Our next question will come from the line of Alex Boni with Goldman Sachs. Your line is open. Please go ahead.

Analyst: Hey, good morning team and thanks for taking our question. Just wanted to ask about free cash flow. Can you talk about some of the moving pieces there? And then as we look into 2027, how should we think about that normalized conversion rate? And is there any opportunity for that to structurally improve?

Rodney Reed: Yes. Thanks for that, Alex Boni. This is Rodney. So yes, I would say free cash flow impact for Q3 and really for the first 9 months of the year. Has really been affected by 2 discrete items. Number 1 is milestone billings. So that really relates to some projects that are ongoing in The Middle East. So if you look at our free cash flow that was really a reflection of some working capital build. This sort of contract asset, contract liability, piece is about a third of that. I think that starts to turn around and improve in the fourth quarter. Quite frankly. Number 2, the other discrete item is really related to inventory.

And we have talked about this 1 before, just with the ongoing logistical challenges where there is more variability and on time delivery our teams have built in a little bit more of a buffer into safety stock levels and just into the supply chain overall. So that will continue to take a little bit more time to, to moderate. You know, I think we will see a little bit of improvement in Q4, but that will continue into the first half of the year. And then the other part on inventory is, as Jose mentioned earlier, you look at our, Grand Prix field drill pipe business, backlog is up about 50% year over year.

Our fiberglass business is up 30% year over year. So a little bit more inventory levels there. As Q4 and Q1 have higher revenue growth. So it is really those 2 discrete items. I would call them more transitory than structural. Nothing structurally changed with our business. it is really the milestone billings and inventory. As we look into 2027, which is the other part of your question, we do think we get back to that you know, 50% range on EBITDA to free cash flow. Conversion. So as I mentioned, I think most of the milestone billings, start to make some progress in Q4. A little bit more in Q1. Inventory levels start to normalize.

Then the other thing that helps in 2027 is what Jose had laid out earlier in terms of some bookings opportunities. And that means that, you know, along the way, on some milestones, you are typically, you know, pretty cash flow positive, throughout those projects, in particular, in the first part. So that is where we where we kind of, you know, stack up 2027.

Analyst: Okay. that is very helpful. And then just as a follow-up, understand it is tricky to make a call on Middle East activity from here, but would just love to dig deeper on some of the other regional commentary As we kind of think ex Middle East, how are you thinking about 2027 shaping up? You have talked about some key regions, including Latin America and elsewhere. Just curious, any other thoughts?

Jose A. Bayardo: Yeah, Alex Boni, it is Jose A. Bayardo. Look, obviously, there is been a lot of commentary by our peers related to 2027 outlook And I think our messaging will be somewhat similar. Which is that it is really premature to talk about that overall. However, you know, we can talk about things in the. With the framework that others have applied, feels like consensus for the space seems to be shaking out around mid single digit growth for next year. Obviously, there is some there is some puts and takes to that. And I think related to your question, it is hard provide any sort of real visibility into in The Middle East.

So I think that mid single digit is implying sort of flattish activity, with the Middle East region, meaning more healthy activity elsewhere around the globe. Which makes sense based on what we are seeing around the world. We obviously spend lot of time talking about the deepwater, environment, which is going to experience continue experiencing very robust growth. But also anticipate we will continue to see North America, move higher as well as really all other, producing, regions of the world.

And in that environment, again, premature to talk about specifics related to 2027, but with what we see in terms of the tightness in the market on the capital equipment side, ex Middle East right now, we think we should be able to, outpace that sort of general, industry rate. But it will be as we touched about and touched on within several of our businesses, steady improvement. Second half, weighted higher than the first half. And we expect to continue to drive more process improvement efficiencies across the organization and drive margins, a little bit higher. So I think that is really all we can say at this point. I mean, generally, the industry backdrop is very constructive.

And next quarter, you will you will obviously receive or Q1 guidance and probably some more detailed commentary related to 2027. However, as you guys know, we do not typically provide full year guidance. We will turn it back. Thank you. Thank you.

Operator: Thank you. And 1 moment for our next question. Our next question will come from the line of Stephen Gengaro with Stifel. Your line is open. Please go ahead.

Stephen Gengaro: Thanks, and good morning, everybody. 2 things for me. The first. This follows up, I think, on Marc's question earlier. You mentioned pricing, I think, Jose, in your response to Marc's question on margins. You give us just kind of an overview of kind of where pricing currently sits versus sort of the recent troughs and maybe in some context historically? On some of these. Just some of the bigger product lines?

Jose A. Bayardo: Gosh, Stephen. It. it is it is impossible to answer that with perfect precision given the explosive inflation that we have seen over the last 5 years or so. Right? So obviously, today, we sit here, we are at meaningfully higher pricing than when we were, in the past.

However, as has been reflected in our margins, particularly within our EPS segment, what you have seen is that we have not things have changed so quickly just from an inflationary standpoint, but also the emergence of tariffs that over the last couple of years you know, the inflationary forces combined with deterioration in terms of overall industry activity levels have eroded our margins, not because we have not moved our pricing up, but just we have not moved pricing up quickly enough given the market environment. Over the last couple of quarters, I think you are starting to see our pricing and, frankly, our internal efficiencies beginning to outpace those inflationary forces.

So feel really, really good about where things are headed. And really good about our ability to get back to the type of margin levels that we saw in the past. I know your remark questions seem to be revolving around, the EE segment. Which is which is obviously important. However, EE has been doing fantastic. I mean, we are about to hit 5 straight years of improved margin performance and see. Certainly see the potential to drive that higher with higher aftermarket activity in the 2027. And beyond. You know, the real opportunity for us, though, to drive. To drive some more meaningful improvement is within our EPS segment. We are starting to demonstrate that capability.

But look, you know, you go back to the 2024 type time frame, and we were at upper teens margin in that business. So segment's currently at 14.5%, margins. If we are able to drive that up 300 basis points back up to 17 and a half, percent, which would be a little bit lower than sort of the recent peak. You know, that is that is another $120 million of EBITDA that we can drive. And so 1 of the reasons why we are so optimistic related to our ability to hit that $1.5 billion in EBITDA, there is really 3 primary components and buckets to think about there.

1 is certainly the rig aftermarket opportunity, which is probably roughly $100 million of that we can drive if we get back to recent high watermarks. $120 million from, the EPS segment, which will really come from the form of, yes, some pricing, but also some more volume, better mix as we are seeing more and more growth from the capital equipment components of that segment. And then continued operational efficiencies so we do not really need any 1 single component, to get us there. They are all. But they all seem to be moving in the right direction right so give us a lot of confidence there.

And then there is an additional $180 million on top of, today's current run rate, that we need to achieve and think we can do that through some modest improvement in volume driving more efficiencies in other components of the business, and, again, more pricing, across the portfolio. And so we feel really good about our ability to drive earnings, margins, and return on capital meaningfully higher over the coming years.

Stephen Gengaro: Thanks, Jose A. Bayardo. You basically answered my second question because 1 of the things we hear is can you get to $1 billion of sort of that I would say, basically, target you have laid out. And it sounds like you can get there without kind of anything heroic from an activity level perspective.

Jose A. Bayardo: Absolutely right, Stephen. that is that is the scenario that we tried to build for everybody last quarter. And every quarter, every month, every week, every day that goes by, we are getting increasingly confident. About our ability to hit it. Great.

Stephen Gengaro: Thank you, Jose A. Bayardo.

Jose A. Bayardo: Thanks, Stephen.

Operator: Thank you. And this will conclude today's question and answer session. And I would now like to hand the conference back over to Jose A. Bayardo for closing remarks.

Jose A. Bayardo: You, Michelle, and thank you, everybody, for joining us this morning. Appreciate your participation in the call. And look forward to talking to you again in about 3 months.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.

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