NOV - Earnings Call - Q2 2025

Executive Summary

• Revenue modest beat but EPS essentially in-line: Q2 revenue was $2.19B (+4% q/q, -1% y/y) vs S&P consensus $2.15B*, while diluted EPS was $0.29 vs $0.295*; Adjusted EBITDA was $252M (11.5% margin) with mix pressure from lower aftermarket and consumables.
• Segment divergence: Energy Equipment delivered 5% q/q revenue growth and 12th straight y/y margin expansion, offset by a sharp decline in aftermarket demand; Energy Products & Services (EPS segment) grew 3% q/q but faced tariffs, inflation, and Latin America charges.
• Orders/book-to-bill slowed: Energy Equipment orders were $420M (vs $977M y/y); book-to-bill 66%; backlog stood at $4.30B (slightly down y/y), reflecting slower FIDs and deferred decisions, not cancellations.
• Q3 guidance implies softer earnings near term: management guides Q3 revenue down 1–3% y/y and Adjusted EBITDA of $230–$250M; segment guides: EPS $130–$150M, EE $145–$160M; tariff headwinds expected to rise to $20–$25M in Q3 and $25–$30M in Q4.
• Capital returns and balance sheet remain supportive: $176M returned in Q2 (buybacks + regular and supplemental dividends); cash $1.08B, total debt $1.73B; free cash flow $108M in Q2.

Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Energy Equipment execution: 5% sequential revenue growth; 12th straight quarter of y/y margin expansion on higher‑margin backlog, despite an unfavorable mix from weaker aftermarket.
• Strong production-oriented businesses: Subsea flexible pipe and process systems hit record or near‑record revenues with robust margin flow‑through; tight capacity and solid tendering backdrop support outlook.
• Digital and automation traction: Multi‑year instrumentation/digital services award in U.S. land; 4 offshore automation packages commissioned including robotic systems; growing uptake of NOVOS/MMC and Kaizen; digital revenue +25% y/y.

What Went Wrong

• Aftermarket slowdown and consumables: Sharp drop in aftermarket parts (especially drilling) and lower consumable demand in North America, Saudi Arabia, and Latin America compressed margins; segment mix shifted away from higher‑margin aftermarket.
• Orders decelerated: Energy Equipment orders fell to $420M vs $977M y/y; book‑to‑bill of 66% as customers delayed decisions amid macro/geopolitical uncertainty and tariff issues; backlog edged down to $4.30B.
• Tariff and inflation headwinds: ~$11M tariff expense in Q2; expected step-up to $20–$25M in Q3 and $25–$30M in Q4; mix pressure and certain Latin America charges weighed on EPS segment profitability.

Transcript

Rodney Reed (CFO)

Good day, and thank you for standing by.

Welcome to NOV Inc. second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amy D’Ambrosio, Director of Investor Relations. Please go ahead.

Amy D'Ambrosio (Director of Investor Relations)

Welcome everyone to NOV’s second quarter 2025 earnings conference call. With me today are Clay Williams, our Chairman and Chief Executive Officer, Jose Bayardo, our President and Chief Operating Officer, and Rodney Reed, our Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind you that some of today’s comments are forward-looking statements which, within the meaning of the federal securities laws, 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 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.

On a GAAP basis for the second quarter of 2025, NOV reported revenues of $2.2 billion and net income of $108 million, or $0.29 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 one question and one follow-up to permit more participation. Now, let me turn the call over to Clay.

Clay Williams (CEO)

Thank you, Amy. For the second quarter of 2025, revenue of $2.2 billion was up 4% from the first quarter of 2025 and down 1% from the second quarter of 2024. EBITDA was $252 million, or 11.5% of sales. Our Energy Equipment segment grew revenues 5% sequentially as strong execution of capital equipment sales was able to more than offset a significant reduction in demand for aftermarket parts and services. However, the resulting unfavorable mix shift drove margins sequentially lower. Nevertheless, the segment delivered its 12th straight quarter of year-over-year margin expansion. Energy Products and Services’ solid 3% sequential top line growth handily outperformed a 6% decline in global drilling activity, buoyed by higher capital equipment sales and greater penetration of our efficiency-enabling technologies in key markets.

That strength was partially offset by sharply lower demand for quick-turn consumable drilling and completion products in North America, Saudi Arabia, and Latin America, along with tariff-related and inflationary cost pressure factors that together compress segment margins. Against this backdrop, both segments remain focused on structural cost reduction and process improvement. Jose will provide additional detail on these initiatives later in the call. The 6% sequential decline in global drilling activity underscores market conditions that are growing more challenging. Macroeconomic uncertainty, the rapid unwinding of OPEC production quotas, and conflict in the Middle East have made customers more cautious. In North America, exploration and production companies moved decisively to curtail short-cycle activity. The U.S. oil-directed rig count declined roughly 9% since March, and modest gas rig additions could not fully offset the drop. Pricing pressure is intensifying. Internationally, conventional activity also eased.

Saudi Arabia suspended additional onshore rigs, and Argentina operators shifted focus from mature Comodoro operations toward the unconventional Vaca Muerta play. In offshore markets, tariffs and cost inflation are prompting some operators to slow-walk certain projects, which will probably delay some final investment decisions. Importantly, we aren’t seeing these projects canceled, and we are continuing to advance discussions and FEED studies on multiple deepwater programs. Our offshore drilling contractor customers expect their white space utilization challenges to ease in 2026. On the whole, the remainder of 2025 will be tough. We expect North American shale activity to drift modestly lower through year-end. While Saudi conventional drilling may not reaccelerate before 2026, we think global drilling activity will slow further through the second half.

Nevertheless, we expect NOV’s backlog and fourth-quarter seasonal bulk tool purchases from international markets to support second-half sales that are flat to up modestly compared to the first half. For the third quarter, we forecast year-over-year consolidated revenue to decline between 1% and 3%, with adjusted EBITDA to land in the range of $230 million to $250 million. Looking past near-term turbulence, NOV’s opportunity landscape is compelling. We expect offshore activity to accelerate in 2026, and our healthy pipeline of prospective FPSO awards should drive demand for NOV’s production technologies. Globally, the push for secure, affordable energy is accelerating investment in LNG and unconventional gas—areas where our composite pipe, high-pressure, high-temperature solutions and gas processing equipment excel. Our expanding digital automation platform is delivering measurable efficiency gains for customers.

Importantly, our significant backlog and strong balance sheet give us the confidence and capacity to invest in these technologies. Overall, growing offshore drilling and development activity, stabilizing rig counts in the Middle East, and incremental growth in Middle Eastern and Latin American unconventionals set up a more favorable market for 2026 in our view, assuming commodity prices are reasonably well behaved. To all my fellow NOV employees listening today, I want to thank you for the terrific job that you are doing. Our customers count on you and me every day to help them navigate tough market conditions. Jose, Rodney, Amy, and I appreciate all that you do to support them and each other. With that, let me turn it over to Rodney to review the results for the second quarter.

Rodney Reed (CFO)

Thank you, Clay. Second quarter consolidated revenue increased 4% sequentially and decreased 1% year over year. These results reflect strong execution on our capital equipment backlog that was largely offset by lower aftermarket spare parts and consumable product sales due to softer oil and gas activity, all of which drove an unfavorable change in mix across our businesses. Consolidated adjusted EBITDA was $252 million, or 11.5% of sales. Margins were pressured by this less favorable sales mix, higher tariffs and inflation-driven cost headwinds, and certain charges in Latin America. During the quarter, we generated free cash flow of $108 million, resulting in our team converting 83% of our EBITDA to free cash flow over the last 12 months.

We continue to execute well on structural improvements to our working capital, including improved cash conversion cycle and inventory turns, which have resulted in a 300-basis-point improvement year over year in working capital as a percentage of revenue. Over the first half of 2025, we repurchased 10.9 million shares for $150 million. Since we announced our share repurchase program during the second quarter of 2024, we’ve repurchased approximately 25 million shares. Also during the quarter, we paid a quarterly base dividend of $0.075 per share and a supplemental dividend of $0.21 per share, resulting in dividends paid year to date of $135 million. Between share buybacks and dividends, we’ve returned $602 million to our shareholders while increasing our cash balance by $612 million since March 31, 2024. That’s a total of over $1.2 billion in free cash flow during the last five quarter.

Our tariff expense for the second quarter was approximately $11 million. Since our April earnings call, there have been many announcements impacting trade policy, including a June increase in the rate of Section 232 steel tariffs from 25% to 50%. We continue to leverage our supply chain experience, versatile manufacturing footprint, and opportunities to apply USMCA to further reduce our tariff expense. Assuming current tariff policies, we expect the impact of tariffs in the third quarter will rise to between $20 million and $25 million and then to between $25 million and $30 million in the fourth quarter, where it should level out. Of course, the trade policy situation remains very fluid, and the impact could be greater if tariffs go higher. Operationally, we’re heavily engaged in rewiring our supply chain to whittle down the impact as a result of tariffs and persistent inflation in our supply chains.

We're implementing cost reduction initiatives across the organization. Jose will cover specific actions we're taking. We expect the results of these initiatives will remove over $100 million in annual cost by the end of 2026. However, increasing tariffs and inflation remain headwinds which will offset a portion of the savings. During the quarter, our tax rate was positively impacted by certain discrete items. We expect our full year tax rate to be between 26% and 28%. Also, we expect eliminations in corporate costs during the third quarter to remain in line with the second quarter of 2025. Moving on to segment results, our energy products and services segment generated revenue of $1.03 billion, a 2% decrease compared to the second quarter of 2024 due to lower global activity levels, which are partially offset by higher sales from the segment's capital equipment offerings.

Adjusted EBITDA declined $38 million to $146 million, or 14.2% of sales. The higher decrementals were primarily the result of less favorable sales mix, tariffs, and inflationary pressures, along with certain charges. In Latin America, year over year, product sales declined 20%, offset by improved sales of capital equipment. Sequentially, segment revenues were 3% higher with stronger results from capital equipment sales, including our drill pipe and composite solution businesses. For the second quarter, the sales mix of Energy Products and Services was 50% services and rental, 34% capital equipment, and 16% product sales. Revenue from services and rentals held flat year over year due to market share gains and new product expansions, offsetting the impact of reduced rig counts. Our downhole tools business grew rental revenue low single digits compared to the prior year.

Growing adoption of our high-performance drilling motors and our downhole setting tools in North America, along with increased rentals and international unconventional developments, helped to overcome the effect of drilling activity declines in other markets. Similarly, rentals of our drill bits grew low double digits year over year as operators in the U.S. continue to achieve higher rates of penetration and longer runs per bit using our high-performance bit cutter technology. U.S. land drill bit revenues grew over 30% year over year compared to a U.S. rig count decline of 5%. Tubular coating and inspection had a solid quarter, with service revenue up mid-single digits year over year. Increased tubular coating throughput and growing traction of NOV’s high-temperature TK Dracon coating drove a low-double-digit percentage increase in North America coating revenue for Tuboscope year over year.

The improvement in North America coating operations was partially offset by lower inspection revenues in Latin America. Solids control and waste management services declined by mid-single digits versus the prior year, primarily due to reduced activity in Mexico and Argentina’s Comodoro conventional play. Higher solids control service and rental revenue in Africa and increased drilling activity in the UAE partially offset these declines. Capital equipment sales increased low single digits year over year, primarily due to strong growth in NOV’s composite solutions business, which more than offset a managed pressure drilling capital sale in the prior year that did not repeat. Composite solutions for oil field infrastructure in the Middle East and North America, FPSOs, and underground fuel handling tanks all realized robust sales.

We expect increased growth in our composite solutions business due to continued infrastructure buildout and in international unconventional markets and fuel handling markets in North America. Turning to product sales within Energy Products and Services, revenue decreased 20% compared to the second quarter of 2024, primarily driven by market uncertainty, which amplified the effects of the decline in global market activity, with customers pumping the brakes on relatively quick-turn consumable purchases mostly related to drilling. For the third quarter, we expect revenues from our Energy Products and Services segment to be flat to down 2% when compared to the third quarter of 2024, with EBITDA between $130 million and $150 million. Moving to our Energy Equipment segment, revenue for the second quarter of 2025 was $1.21 billion, nearly unchanged from the second quarter of 2024.

Despite the flat revenue, EBITDA increased $16 million to $158 million, resulting in a 130-basis-point increase in EBITDA margins to 13.1% of sales, driven by higher-margin backlog and operational efficiencies that more than offset an unfavorable mix shift resulting from a sharp decline in aftermarket sales. As Clay mentioned, this was the 12th straight quarter of year-over-year margin growth for the Energy Equipment segment. Capital equipment sales accounted for approximately 62% of the segment’s revenue mix in the second quarter of 2025, up nearly 8 percentage points year over year, driven by production and drilling equipment. Aftermarket sales and services accounted for the remaining 38% of Energy Equipment revenue in the second quarter. In our drilling equipment business, aftermarket revenues were down sharply year over year due to customers reducing spending. In response to global trade uncertainty and lower oil prices, spare parts bookings fell sharply during the quarter.

We do not expect these levels of spare parts bookings are sufficient for the industry long term, despite the pullback we’ve seen in rig counts globally. Additionally, service utilization fell due to a slowdown of projects in China, but recertifications and upgrades remain active in Europe, Africa, the U.S., and Brazil. We’re seeing automation upgrade opportunities, which Jose will cover in more detail. Revenue from aftermarket parts and services for intervention stimulation equipment was down high single digits year over year due to the decline in North America completion activity. Turning to the capital equipment portion of the Energy Equipment segment, revenue grew low double digits year over year, led by growth from our process systems, subsea flexible pipe, and marine and construction businesses. Bookings declined 4% sequentially to $420 million.

Customers are trying to assess the longer-term impact of recent volatility in commodity prices, geopolitical conflicts, cost inflation, and trade policy uncertainty, which have resulted in certain projects pushing to the right. While uncertainty may continue to impact the timing of investment decisions, we’re not currently seeing projects being canceled. Second quarter revenue in our subsea flexible pipe business reached an all-time high, growing significantly year over year with robust EBITDA flow-through resulting from higher-margin projects. The capacity in the market remains tight, and the outlook for our subsea flexible pipe business remains constructive. Our process systems business also achieved record-high revenues with significant year-over-year growth. Bookings were solid and included a monoethylene glycol unit for an operator in the Eastern Mediterranean in support of the global gas infrastructure buildout. While forecasts for FPSO FIDs in 2025 have moderated, the outlook remains encouraging.

The onshore production market continues to be active for large international gas fields, and we’re actively pursuing several projects that we expect to be awarded over the next 12 months. Our process systems and subsea flexible pipe businesses combined have booked $1.6 billion in orders over the last five quarters. Our production and midstream business also reached its highest quarterly revenue since 2019 due to growth in unconventional gas markets and strong execution. Targeted R&D and investments in our production-related offerings have resulted in our SPC flexible pipe, process systems, and production midstream business revenues increasing from less than 20% of Energy Equipment revenue in 2021 to approximately 30% of the segment’s revenue in 2025, evidence that our innovation is driving growth and delivering solutions.

These industries depend on capital equipment sales from our intervention stimulation equipment business, which decreased double digits year over year due to a steep drop in demand for pressure pumping equipment in North America, partially offset by solid demand for coiled tubing and wireline equipment in international markets. We continue to see a growing number of opportunities for sales of completion equipment into international markets, particularly for the growing unconventional plays in the Middle East and Latin America. Revenue from our drilling capital equipment increased in the mid-teens year over year due to greater progress on projects. The outlook for drilling capital equipment orders remains modest given market uncertainties. Our marine and construction business experienced a high single-digit increase in revenue compared to the second quarter of 2024, driven by greater progress on crane and cable A projects.

After booking an order for a cable A vessel in the first quarter, we received an order for a wind turbine installation vessel in the second quarter. We continue to have active dialogue with customers for both cable A vessels and wind installation vessels, and we see a healthy demand for our electric cranes driven by new build activity for multipurpose supply vessels. For the third quarter, we expect Energy Equipment segment revenue to decrease between 1% and 3% compared to the third quarter of 2024, with adjusted EBITDA in the range of $145 million to $160 million. With that, I’ll turn the call over to Jose.

Clay Williams (CEO)

Thank you,, Rodney. As we respond to a softening global marketplace, we remain focused on positioning the company to capitalize on three longer-term trends that we believe will drive the industry over the next decade. One, offshore production supplanting U.S. unconventional resources as the dominant incremental source of global oil supply; two, accelerating demand for natural gas driving meaningful growth from global unconventional gas resources; and three, the application of modern technologies to drive additional efficiencies in oilfield operations. Today, uncertainty is driving extreme fiscal austerity and a greater emphasis on operational efficiencies. Customers are pushing their procurement teams to negotiate better pricing but are also looking to and willing to invest in solutions that improve recovery rates, lower costs, improve safety, and reduce environmental footprint in offshore markets.

IOC and NOC customers remain confident in the mid- to longer-term outlook due to plateauing North American production, offshore break-evens that are below $50 per barrel, and growing demand for cost-effective, secure, and reliable sources of energy. Existing projects continue to move forward at a healthy rate, and as Rodney mentioned, our businesses are executing exceptionally well on our healthy backlog of offshore production-related projects—projects driving a 9% sequential and 6% year-over-year increase in revenues from offshore markets entering 2025. Our customers had ambitious expectations regarding offshore FIDs and were planning to advance 13 FPSOs during the year. Supply constraints, including long lead times for gas turbines and compressors, congestion in shipyards, inflation, and macroeconomic uncertainties, have caused customers to delay certain FIDs. We are collaboratively sharpening our pencils to help offset project costs that have increased 10% to 15% through more standardization and better coordination of order timing.

These actions would allow us to build the same structures for multiple projects in one production run, improving efficiencies, throughput, and cost. While we’ve seen FIDs push to the right, to our knowledge none have been canceled, and the mid- to longer-term outlook remains bright. Industry forecasts call for more offshore FIDs this year and see the potential for up to 50 FPSOs through the end of the decade. Additionally, demand related to LNG projects remains solid, as evidenced by a sizable award NOV received during the second quarter for a large submerged swivel and yoke system for a floating LNG project in Argentina. Delays of offshore production vessel deliveries continue to have knock-on effects in the drilling space, resulting in the near-term white space utilization challenge that our customers face over the next couple of quarters.

As Rodney mentioned, our aftermarket business experienced a double-digit percentage decrease in revenues driven by a sharp reduction in spare parts bookings during the second quarter. Customers tapped the brakes while digesting the macroeconomic and geopolitical volatility and after some of them gave themselves a little breathing room after making extra purchases in the first quarter to get ahead of higher tariff costs. While this pullback was sharper than anticipated, we expect a slight rebound in the third and fourth quarters. For the full year, we now expect our drilling equipment aftermarket business revenue to decline in the mid-teens percentage. While near-term expectations have been tempered, our offshore drilling contractor customers remain confident in a meaningful recovery beginning in the second half of 2026, which would spur additional demand for spare parts, upgrades, and other projects as rigs prepare to move on to new contracts.

We’re already seeing some signs of this through a growing number of projects we are planning to execute in the second half of the year. Consistent with the themes I previously mentioned, customers are investing in enhanced capabilities that drive operational efficiencies, such as increasing hook load capacity and automation. There’s strong demand for deepwater rigs that have seventh-generation high-spec capabilities, including hook load capacities of 1,400 tons or more and enhanced automation. We’ve had quite a few inquiries regarding additional hook load upgrades, and we recently commissioned four automation packages, including one with our robotic system that allows for completely hands-free tripping. We now have robotic systems active on four rigs with another 11 in the pipeline, and we continue to see growing interest from our customer base. International land markets remain mixed in the Middle East.

Growing activity in the UAE, Qatar, and Oman, along with demand for investments in infrastructure and capital equipment for the emerging unconventional basins, are offsetting a stronger-than-anticipated deceleration in Saudi Arabia. The increasing number of rig suspensions in Saudi has led to a sharp decline in revenues for our shorter-cycle Energy Products and Services segment in the Kingdom. Similar to other markets, customers across the Middle East are looking for ways to become more efficient, while procurement groups are pushing on pricing through competitive tenders. They are more open to direct awards related to differentiated solutions that drive operational efficiencies, such as the order we received for several surface automation systems that use our NOVOS Multi-Machine Control System and Kaizen Drilling Optimizer.

Additionally, while NOCs are increasingly leaning on major OFS companies for lump-sum turnkey work, those OFS companies are increasingly turning to NOV for access to our technology to lower their R&D expenses and reduce investments in their asset base. Demand for capital equipment in the Middle East remains resilient as customers continue to invest in upgrading and modernizing drilling and completion equipment needed to efficiently develop unconventional resources. Investment in production infrastructure needed for future development also remains strong, driving healthy demand for our composite pipes and our chokes. Despite the potential for additional rig suspensions, continued investments in equipment and infrastructure, along with some early discussions related to upcoming tendering, leave us optimistic for a potential rebound in activity by mid-2026. Similar to the Middle East, conditions in Latin America are also mixed. Mexico, Colombia, and Ecuador remain challenged.

In Argentina, we are seeing a slowdown in the mature conventional Comodoro field and a shift to the unconventional resources of the Vaca Muerta and the Nicoine Basin, which, as Rodney Reed touched on, required us to incur some charges as we repositioned our operations in the country. While the slowdown in Comodoro has had a negative effect on our business over the past year, the longer-term outlook in Argentina remains very promising. We continue to see solid demand for our completion equipment and our downhole tools that drive efficiencies in extended lateral wells, which recently enabled our customer to achieve multiple drilling and completion records in the Vaca Muerta. In North America, operators have moved decisively to curtail oil-directed activity, only partially offset by an increase in gas-directed drilling.

Our businesses outperformed changes in activity levels through continued market share gains, but the environment is becoming more challenging, with many North American service companies and operators implementing restructuring and cost-savings programs. Land-focused oilfield service customers are limiting capital equipment purchases while running equipment extremely hard and cannibalizing stacked equipment as a source of spare parts, potentially setting up an inevitable replacement cycle. E&Ps are shrinking capital plans and are seeking pricing concessions, but they continue to prefer best-in-class products that drive efficiencies. They are designing well construction plans to achieve the lowest possible cost per foot. We’ve recently seen a push by multiple operators to reduce hole sizes and clearances to optimize hydraulics, drill faster, lower material costs, and reduce environmental impact.

This shift created opportunities for us to gain share with several customers who took the time to reassess the effectiveness of the components in their bottom hole assemblies. They recognized the superior performance of NOV’s offerings and ultimately standardized on our kit. Customers are also looking to gain an edge through the use of better digital solutions. During the quarter, a major land drilling contractor decided to standardize on NOV’s next-generation electronic drilling recorder and remote drilling monitoring applications powered by our MAX data platform, which will enable the customer to reduce complexity and offer advanced digital capabilities to its customers. As mentioned, the decline in oil activity in the U.S. has been partially offset by an increase in gas-directed drilling as operators target deeper, higher-pressure wells with higher bottom hole temperatures, particularly in the Haynesville and Eagle Ford.

We're seeing increasing adoption of our Dracon thermal-insulated pipe coating and our Tundra Max mud chillers, each of which significantly enhance the performance and longevity of bottom hole assemblies. While our latest generation of performance-enhancing technologies is commanding solid demand with accretive margins, the market environment has grown more price competitive over time. Our better technologies have taken share from competitors, and some are now using price concessions to try to win back work in a market where tariffs are increasing product costs. Our team has done an outstanding job managing through the complexities of continuously changing tariff policies, and we continue to do all we can to mitigate as much of the roughly $300 million in annual tariff costs that we would incur if we sat still.

As Rodney mentioned, we recognized a total of $11 million in tariff expense during the second quarter, with roughly 70% of this expense hitting our Energy Products and Services segment. We expect tariff expense to step up over the next two quarters and level off between $25 million and $30 million during the fourth quarter. We’ll continue to identify additional measures to mitigate these costs or pass them on to our customers, but this will continue to be challenging given current market dynamics. In order to offset these margin pressures, we’re ramping up efforts to drive internal efficiencies and reduce costs across NOV. We’ve identified over $100 million of savings that we expect to capture by the end of 2026 through: one, simplifying, standardizing, and centralizing business processes.

Sinc late last year, we have been developing plans to redesign certain business processes across NOV with the goal of lowering costs, reducing time, and further improving our customers’ experience doing business with NOV. This will be a multiyear effort, but we have begun executing process changes and expect to begin realizing savings from this initiative later this year.

Two.

Strategic sourcing—tied into the efforts to standardize our processes, we are working to further leverage our spend across the organization to maximize our economies of scale through high-quality, low-cost sourcing, which is shifting under evolving trade policies. Business and facility consolidations—during the second quarter, we began consolidating our Completion Tools operation into our Downhole Tools business, and we merged our Grant Prideco and XL Systems Conductor Pipe casing connector businesses into a new unit called Tubular Products. The consolidations allow us to better share resources between product lines and drive efficiencies and cost savings within other business units. We’re consolidating facilities to unlock further efficiencies from lower overhead, rent, and utilities, and better utilization of our asset base.

Four.

Exiting product lines in certain markets—we’re exiting product lines in markets in which we do not see a near-term path to generating an appropriate rate of return. While exiting markets will reduce total revenue and EBITDA, these actions will be accretive to NOV’s margins and return on capital. We also continue to work on plant-level operational efficiencies with a relentless focus on operational excellence. For example, in one of our plants, we’re investing in an initiative where we expect to take our manufacturing cycle time down from 60 days to less than 20, which should lower our costs, free up working capital, and allow us to be more responsive to demand. Near term, it will be difficult for these actions to outpace the effect of lower activity, higher tariffs, and other inflationary costs.

Over time, our efforts to better harness the power of NOV’s platform will drive higher profitability, allow us to continue to generate significant levels of free cash flow, and further improve responsiveness to our customers. Technology and innovation remain core to NOV, and the actions we are taking will increase collaboration across our businesses, enabling us to better leverage the unique combination of capabilities and data that reside under NOV’s roof. I’m confident our efforts will accelerate innovation and pioneer technologies to address the most pressing needs of our customers. As Clay mentioned, NOV’s future is compelling. The incredibly smart, talented, and dedicated people of NOV are continuously driving improvements across the organization, positioning us exceptionally well to capitalize on longer-term trends that will require more of NOV’s technology and services to develop affordable, secure, reliable, and cleaner sources of energy to power the world. With that, we’ll open the call to questions.

With that, we'll open the call to questions.

Rodney Reed (CFO)

Thank you, ladies and gentlemen.

If you have a question or a comment at this time, please press Star one one on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press Star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Jim Rawlson with Raymond James. Your line is open.

Jim Rawlson (Analyst)

Hey, good morning guys, and thanks for all the detail as usual. Clay, when you kind of step back and look at all the changes that have been going on, it seems like nonstop for several quarters and the things you've been doing.As I look at margins, they.

Obviously have come down from kind of

Rodney Reed (CFO)

The trajectory we were hoping to be getting towards mid-teens and kind of indicated to go down a bit further.

Jim Rawlson (Analyst)

At least through 3Q, I'm just curious as you stand back.

Revenues were actually pretty decent this quarter relative to the range.

You look at kind of mix changes that have been going on, and maybe where that leads you into 2026.

You look at the cost stuff.

Jose and Rodney just spent a bunch of time going over and the impact that has. How are you thinking about where margins maybe could possibly bottom here in the next handful of quarters, and then what?

Ultimately gets you to starting to ramp.

That back up, do you think? Not like we're completely lacking potential.

Clay Williams (CEO)

It's a great question, Jim. Appreciate you asking. It has been a little frustrating. We were making progress in margins. The company basically tripled its margin from 2021 up through full year 2024. Despite some headwinds in our Energy Products and Services group, with its high North American mix and sliding activity in North America, overall consolidated margins were increasing. Of course, with the developments that we've seen through the first half of 2025, with OPEC announcing 2+ million barrels coming back on the market, with all the tariff drama and concern about economic growth and so forth, it's obviously gotten a lot tougher. Rodney and Jose stepped you through the actual tariff impact on our results. Importantly, Jose really stepped you through our plan to address, which is to continue to take costs out.

I'm very optimistic about that. I think that's going to forestall further margin declines for the second half of the year. Most importantly, set us up for recovery in 2026 when the offshore goes back to work and we can get back on making better margin progress. If you step back, we kind of get out of all of the headwinds and the drama around tariffs and economic growth and excess supply of oil. I could not be more excited about the future of this company. There are two big things going on in the oil field that are really going to drive NOV's fortunes in the next decade.

The first is after 20 years of honing unconventional technology in North America and extending laterals from a few thousand feet out to a mile, out to 2 miles to 3 miles and now 4 miles, based on technology that NOV and others have provided on really honing the unconventional technologies that's made the shale revolution possible, you're really seeing this applied to shale basins in international markets in earnest by serious expert E&P unconventional drillers. People like EOG and Oxy and Continental going to a lot of different places. This isn't just Saudi Arabia and Argentina. Now we've got a lot of people applying this amazing technology to places like Turkey and Oman and Australia to Pakistan to UAE to Bahrain to Algeria. A successful unconventional development requires a lot of infrastructure buildout, which is right in NOV's wheelhouse.

I think that's really setting us up to support that effort and very excited about that. Of course, the other big thing that is going to drive our fortunes is the reemergence of deepwater activity, which has sort of been AWOL for the past decade or so. As Exxon has proved in Guyana and others are starting to prove, there's still a lot of very economic reserves to find in deepwater basins. You've seen serious exploration and discoveries that are going to be developed in Namibia, in Senegal and Suriname, eastern Mediterranean, you're seeing more gas activity in Asia, the Paleogene in the Gulf of America. All of this also requires the sophisticated tools and technology that's right in NOV's wheelhouse as well, and it's going to continue to grow.

Strong economics, you know, economic below $50 a barrel, as Jose said, expectation is, deepwater is going to continue to grow up to 13 million barrels a day or so by the end of 2026, it's going to support plant North America shale as the new incremental source of production. I think we have much, much brighter days ahead. We do have some drama in the next few quarters, margin challenges with tariffs and inflation, et cetera, but very confident we're going to power through that and see rising demand in these other areas. I guess I'll shift gears since you just laid that out.

Jim Rawlson (Analyst)

I presume the deepwater market is the

Bigger of the two next five to ten year opportunity sets for you.

Clay Williams (CEO)

Probably, but both? Yeah, probably. I think both big trends will require a lot of NOV technology and tools, and we're here to make that happen.

Jim Rawlson (Analyst)

I appreciate that.

Thanks, Clay.

Clay Williams (CEO)

You bet.

Thanks, Jim.

Rodney Reed (CFO)

One moment for our next question. Our next question comes from Stephen Gengaro with Stifel. Your line is open.

Stephen Gengaro (Analyst)

Thanks. Good morning everybody. I was curious at a high level, Clay, like when we think about the macro, we're constantly trying to find a bottom and look for signs. What are you focused on over the next 2, 3, 4 quarters? That kind of signifies to you that things are turning a corner. How do you sort of think about the market? Maybe, I know it's maybe a little hard, but how does it compare to prior cycles?

You've seen.

Clay Williams (CEO)

Nothing terribly surprising given the pressure on commodity prices and so forth. This is what our customers do. We've become really good at hunkering down in the face of downturns. I think that's what portions of our customers are doing, others aren't. In terms of what's needle moving for NOV, I think as offshore drillers in particular lean into new contracts and expected increases in activity in the second half of 2026, we're going to start getting more inbound calls around equipment, projects, spare parts. We'll see that in the drilling side of our business, the production side of our business. In energy equipment, despite low orders in Q2, which contributed a little book to bill, the production side of our business is super healthy and executing very, very well. We expect that'll continue.

For right now we're just in a market that with pressure on commodity prices, uncertainty in demand growth, OPEC bringing back so many barrels, it's taken a lot of urgency out of our customers' plans and that's what we're seeing. I think that will start to come back once we get into 2026. The excess barrels are cleared, the industry continues to prosecute the LNG projects that it's working on and I think things will have a, like I said, I think it will have a much better outlook.

Stephen Gengaro (Analyst)

Great, thanks. The other question I had was around cash generation, can you sort of share kind of an updated thoughts on how we should think about working capital as the year evolves and maybe kind of a normalized level of CapEx we should be thinking about over the next couple of quarters?

Rodney Reed (CFO)

Yes. Stephen, this is Rodney.

Thanks for that question.

Clay Williams (CEO)

Really, really proud of the.

Rodney Reed (CFO)

Team's efforts over the last 12 months. We highlighted really strong free cash flow conversion on a trailing twelve month basis of over 80%. Q3 working capital as a percentage of revenue at 30%, about a 300 basis point improvement year on year. As we look at the second half of the year, the couple of data points we mentioned previously, CapEx to be relatively consistent to last year, maybe slightly up. We've mentioned working capital as a percentage of sales for a full year basis to be in the range of 27% to 29%.

Clay Williams (CEO)

As we look at that in.

Rodney Reed (CFO)

terms of free cash flow conversion on a full year basis, sort of getting to the top end of that range in terms of 29% of working capital as a percent of revenue, that would get us to a free cash flow conversion of EBITDA to a little over 50%. If we're a little bit better on the working capital side, closer to sort of 28%, 27%, that free cash flow conversion would move up higher from there. You know, good outlook on cash flow for the second half of the year.

Stephen Gengaro (Analyst)

Great.

Clay Williams (CEO)

Thanks for the details.

Stephen Gengaro (Analyst)

Yeah, you bet.

Rodney Reed (CFO)

One moment for our next question. Our next question comes from Doug Becker with Capital One. Your line is open.

Doug Becker (Analyst)

Thank you. Clay, you've taken a lot of cost reduction steps over the last several years.

Was just hoping to get some context.

About what size market you're preparing for. Is it one with slightly higher activity than today, a little bit lower, and maybe it's some mix with more active offshore?

Little less active onshore, just trying.

To get a sense for what you're.

Prepared for what else might be.

Available on the cost reduction initiative?

Clay Williams (CEO)

We are prepared for and hoping for a much larger market in all these categories. Again, going back to what I said earlier, Doug, we see demand for unconventional technology and tools growing in international unconventionals. We see demand for technology tools growing in deepwater. I think that's out there in the future. We are also realistic. I know our customers right now face some concerns about commodity prices and the like. In the meantime, as Jose said, we're continuing to focus on becoming more efficient, combining facilities where we can, closing locations where, hey, we're not making money in this market, we probably need to exit. It's really all about, you know, the market is what the market is, and we got to manage to that. It's about becoming the best company we can be given kind of, kind of what's out there.

Like I said, I do think there is growth out there in our future. I think there's this pivot from North America shale, which was just amazing in its ability to add barrels to the market through the past decade. I think that's, you know, I'm not calling the peak, but I think we're certainly a lot closer to the peak than we would have been a few years ago. I think the industry is finding that deepwater barrels are sort of the next economic barrel to supply incremental demand requirements for oil. They're also finding that offshore is a nice place to find gas and convert it to LNG. That's another sort of growth driver. NOV is here to adjust to the needs of our customers and demand for our products and technologies. That's our plan.

Yes.

Doug, it's.

to tag on to that. As Clay touched on, this isn't sort of a radical downsizing that we're going through because we think that the market has fundamentally changed. I think, look, when we came into 2024, we were pretty optimistic about the outlook for the next several years and how well the company was positioned for where the market was heading with plateauing with American production, more activity going to the international and offshore. What has changed is an acceleration of the unwinding of OPEC plus the trade uncertainty and the tariff costs that have come into that. It's all created a lot of geopolitical macroeconomic uncertainty. The way I look at it is these are transitory type items. The rapid unwind of OPEC is painful.

Near term, probably positive for the.

Overall industry longer term. As it relates to the actions that we're taking, this is really just a continuation and maybe a slightly harder lean into the actions that we have been taking over the last several years to really position ourselves to capitalize on where we see the market going into the future. The things that I talked about related to the structural cost savings on driving process improvements and efficiencies are things that we've been working on for some time. Also, we've been making a lot of investments in our manufacturing capacities overseas, knowing that that's where the market is heading. There's really just a shift that's underway and a repositioning of the business. Don't take it as, hey, we're downsizing because future activity will be lower. No, we don't think that's the case. We just think that activity will be positioned in different markets going forward.

Frankly, we've been working on that.

For the last four or five years, that makes a lot of sense. Maybe just sticking with the cost.

Doug Becker (Analyst)

The $100 billion just kind of spread evenly between fourth quarter of this year and through 2026.

Amy D'Ambrosio (Director of Investor Relations)

Yeah, I think that's a safe assumption. We're not getting into specifics on each dollar per quarter. Honestly, as I mentioned, there have been efforts underway for the last couple of quarters and you've seen some small restructuring charges over the last couple of quarters with some of the things that we've been doing. Now we are, as I mentioned, leaning into it harder. Also, the last two or three quarters we've been making plans for these changes. I think a ratable implementation over the coming quarters is a reasonable assumption. As we mentioned in the prepared commentary, we also have some of these cost savings efforts being offset here near term over the next couple quarters, more than offset by the increase in tariff expense.

Clay Williams (CEO)

As we move through 2026, hopefully we make up all that lost ground and we end up really well.

Positioned to drive much higher margins.

Doug Becker (Analyst)

I think I got it. Thank you very much.

Rodney Reed (CFO)

Thanks, Doug. One moment for our next question. Our next question comes from Grant Hines with JPMorgan Securities. Your line is open.

Grant Hines (Analyst)

Hey, morning team. Morning, Grant. You provide a pretty encouraging update on the flexible side and maybe was just wondering if you could highlight some of the outperformance. There looks like $1.6 billion of orders the last five quarters across process systems and subsea flexible pipe. I think you know that I would be recently participating in that Petrobras flexible contract. Over $1 billion in total is that we could expect in bookings kind of in 3Q or I guess how we should think about timing there.

Thanks.

Clay Williams (CEO)

I'm going to stay away from specific guidance on specific order if you don't mind. I will say broadly the flexibles pipe business, which sells into deepwater development, is doing very, very well. Outstanding execution, really strong orders for the group over the past year plus, and we've been very pleased with that. You might be a little bit surprised to hear though that when we look back at the second quarter orders for the energy equipment group, it actually had very low orders because those orders tend to be really large and lumpy. The 66% book to bill, which came in below kind of our expectations, we didn't expect to hit one, but we expected it to be closer. The 66% that we actually put up was because we had pretty low orders for flexible pipe in the second quarter.

While I'm on that, let me just go ahead and provide some additional color around that. A lot of a wide diversity, let's say, book to bills across the products in the end markets that the energy equipment segment serves. Elsewhere within deepwater production, you know, we make gas processing equipment, cranes, swivel stacks, and turret mooring systems for FPSOs. The swivel stack turret mooring system business, APL, did over 200% book to bill in the second quarter, so very strong orders there. Likewise, the gas processing business, well over 100% in that business. The rest of the offshore production space, we saw pretty good demand in the second quarter. You might be surprised to hear that demand for intervention and stimulation equipment, which mostly goes into North American frac, traditionally also put up 100% book to bill.

What we're seeing there is very, very low demand in North America, but rising demand for unconventionals overseas and in international markets. I think its prospects are rising. The last or last two pieces of that offshore drilling, pretty low levels of bookings in the second quarter, less than 30% book to bill for rig due to the white space challenges over the next quarter or two. Finally, in wind and offshore construction, north of 150% book to bill, really strong demand there. The four main end markets that we see in energy equipment all vary pretty widely in the quarter, but they're all going to be a little bit volatile because our orders tend to be lumpy. When I turn and I look to the future, the third quarter back to flexible pipe, we're pretty encouraged.

We've already landed an order north of $100 million in that business unit in the first few weeks of Q3. I think that business stands a pretty good chance of getting back over 100% book to bill in the third quarter. Really strong pipeline projects out there. Likewise, gas processing, some large projects out there. The tendering activity is actually up for gas processing year over year. Nevertheless, I think Q3 they've had strong shipments. I think it's likely to be a little bit below 100% book to bill. I think shifting to drilling rig is going to continue to be pressured on orders, probably pretty low in the third quarter even though there's some interest in improving hook load capacities and 20,000 psi pressure capabilities. Possibility of a new jackup in the second half of the year, but we're not counting on that.

Less than 100% book to bill in Q3, and I think stimulation equipment actually may surpass 100% book to bill in Q3. You've got all these different. Lastly, let me cover off wind and offshore construction. It continues to be really strong. We do expect a cable, a vessel, and a wind turbine installation vessel sometime in the second half of the year. We've seen really strong demand for subsea cranes as well. I think that business should have a pretty decent second half with respect to bookings. We've got these businesses and end markets with sort of different levels of demand. Back to your original question, flexible pipe has really been executing super well and seeing really high levels of demand. Appreciate the in-depth color there.

Grant Hines (Analyst)

Maybe just as a follow up, I think you'd mentioned commissioning of some automation platforms and the robotic system sort of in the pipeline. As we think about the recovery in offshore, could you maybe give us a sense of what the rate of adoption has looked like on some of this technology? Thanks. Yeah. Hey, it's Jose.

Clay Williams (CEO)

We're really excited about what's happening from an automation standpoint. Really good traction in the marketplace and a pipeline that is extending. First of all, this all started with our commercialization of our NOVOS platform a number of years ago and that adoption continues to take place at a pretty rapid clip. That's the multi-machine control system that enables all the other automation that happens within the rig. To date, we sold about 220 of those NOVOS systems and we've had about 134 systems that have been installed and commissioned. Obviously, we've got a good pipeline of systems that we're waiting to get implemented. Robotics has been extremely promising, something that is really getting a lot of attention and a lot of excitement. We've got four systems that are now commercial, a combination of both land and offshore rigs, and we've got another 11 in the pipeline.

We're getting really positive feedback from our customers on that. In fact, some of our customers are now telling us they think this is going to be the next top drive for the industry. That's super exciting to see, really.

Good prospects for that offering.

Amy D'Ambrosio (Director of Investor Relations)

Plus we have all of our digital services that support drilling and, frankly, more and more completion and now production-related services. You know, across our platform, you.

Clay Williams (CEO)

We continue to see really good uptake.

Sequentially, revenue from our digital products offering is up 7%. It's up 25% year over year. Just a couple of quarters ago, we introduced our MAX production addition to our MAX data platform for our artificial lift business. We're getting really strong reviews from our customers on that front, and we saw installations and adoption for that basically double over the last quarter. Everything's heading in the right direction from an automation and digital standpoint, and we see a lot of running room

John Daniel (Analyst)

to go in the future.

Grant Hines (Analyst)

Appreciate it.

Rodney Reed (CFO)

Thanks, Grant. One moment for our next question. Our next question comes from John Daniel with Daniel Energy Partners. Your line is open.

John Daniel (Analyst)

Good morning, guys. Thank you for including me, Clay. This morning Ranger announced that they're going to build out a couple electric rigs. That follows out. I know this might be small for you guys, but in your mobile rig business, can you speak to the opportunity you see for sort of retrofitting the U.S. well service fleet and just the outlook for that?

Clay Williams (CEO)

I would say, first of all, as a matter of policy, I don't like to comment on any particular customer or project, but I will say a lot of categories across fit-for-purpose oil field equipment have converted to electrical over the past couple of decades. Drilling rigs moved from mechanical, converted to DC electric, and then to AC electric.

As you make that progression, I would add in we've done the same in wireline units and coiled tubing units in all categories. There's interest in continuing to advance the technology towards AC electric, which enables better controls electronically. As a category, well service rigs—and you know this better than anyone—well service rigs across the U.S. tend to be old and fairly basic. I think there is a real potential there to get better, more precise control with newer, more modern assets that are electric. I think there's a potential to make those service rigs safer by making them electric and provide more real-time monitoring, which enables condition-based monitoring and predictive analytics that can enhance maintenance programs and extend the lives of those assets and things like that. It's one more category of oil field equipment that I think can benefit by migrating to electric.

John Daniel (Analyst)

Okay, I won't name the customer, but one company has ordered a 2.875 unit coil. I'm just curious, do you think that the 2.875 market, could we see some sort of structural redefinition in terms of size of CT? Units seem to keep getting bigger and just what maybe Jose is saying there.

Clay Williams (CEO)

Yeah.

Hey, John.

Yeah, there's a lot of things going on consistent with the commentary and the theme. The primary theme that we're seeing across all markets is that folks are willing to pay for things that can drive improvements to their economics.

Right.

There has always been the challenge of okay, how deep and how far out can you go from a coiled tubing drill out standpoint, which is the quickest, most efficient way to do the drill outs. We've seen tubing sizes get bigger.

Strings get longer, equipment getting bigger.

Amy D'Ambrosio (Director of Investor Relations)

Bigger, and the need for frankly better technologies to continue that trend of going from one mile laterals to two miles to three miles. Now at times we're seeing four miles. Bigger tubing diameter, along with frankly, one of the things that we're really excited about is our downhole tools business has pioneered an agitator system not just for the BHA of a coiled tubing string, but has a really proprietary connection that can be used to join two separate strings of pipe and connect them to be able to enable even longer lateral usefulness related to coil tubing drill out. There are a lot of innovative things that continue to go on within NOV. We're going to continue to be on the front end of those things.

John Daniel (Analyst)

Thank

you for allowing me to ask a couple nuanced questions. I'll turn it back over.

Rodney Reed (CFO)

You bet, John. I turn the call back over to Clay for any further remarks.

Clay Williams (CEO)

Thank you, Kevin. Thanks to all of you for joining us this morning. We look forward to discussing our third quarter 2025 results with you in October. Kevin, you may wrap up the call now.

Rodney Reed (CFO)

Thank you.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.