Q3 2021 Nov Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the N V third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.

As a reminder, this conference call is being recorded I would now like to introduce your host for today's conference. Mr. Blake Mccarthy, Vice President of corporate development and Investor Relations. Sir you may begin.

Welcome everyone to <unk> third quarter 2021 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo, Our senior Vice President and CFO.

Four we begin I would like to remind you that some of today's comments are forward looking statements within the meaning of the federal securities laws.

They involve risks and uncertainty and actual results may differ materially.

No one should assume these forward looking statements remain valid later in the quarter or later in the year for 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 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 2021, and it would be reported revenues of 1.34 billion and a net loss of $69 million or use of the terms EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.

Later in the call we'll host a question and answer session. Please limit yourself to one question and one follow up to permit more participation now let me turn the call over to clay. Thank you Blake.

For the third quarter ended September 32021, and it will be once again posted strong orders with consolidated book to bill of over 150% reflective of steadily strengthening commodity prices and oilfield activity. However.

However, in obese reported consolidated revenue declined 5% sequentially and EBITDA fell to $56 million during the third quarter I'll.

I'll start by reminding everyone that our second quarter financials included credits related to a project cancellation settlement within rig technologies, which contributed $74 million in revenue and $57 million in EBITDA.

We excluded those credits from our discussion on our last call and excluding these credits again from the sequential comparison today points to consolidated third quarter revenues that were essentially flat.

Only $2 million sequentially and EBITDA that was up with EBITDA margins on this basis rising from three 5% to four 2%.

Through the quarter, we continued to face logistical and supply chain challenges, which our teams are managing pretty effectively day to day.

Nevertheless, these weighed on certain results in certain areas, most notably in southeast Asia.

We recognized a $12 million charge stemming from a combination of COVID-19 disruptions and execution challenges on a large offshore project within our completion and production solutions segment, which I'll describe more fully fully in a moment.

If we look beneath the surface the trajectory of our business is somewhat more positive in our view than the headline numbers suggest and our outlook for 2022 and beyond continues to strengthen.

In fact, given one stronger oil and natural gas prices lately.

To the emergence of many of our key offshore drilling customers from bankruptcy three the significant reduction in Costa in Ob is achieved through the past two years for our third quarter in a row of sequential double digit topline growth and solid flow throughs for our Wellbore technologies segment, and five book to bills in excess of 100% for the second.

Jordan a row for both the completion and production solutions and rig technology segments I'm decidedly more positive about the outlook for the coming year. Nevertheless, global supply chain issues are making business challenging in the short run which leads me back to the project for which we took charges.

Our completion and production solutions segment has been working on a large project in southeast Asian shipyard that ran into Covid related operational disruptions, specifically, a combination of shipyard shutdowns labor quarantines and shortages of critical components.

Additionally, our sub suppliers in the region have faced similar disruptions, which also affect project execution.

Our team is working closely with our customer to figure out how to get this vessel built in online as efficiently and as safely as possible, while recognizing the need to be resilient as challenge of shift and change daily.

Across the company, we are intently focused on executing effectively in the face of persistent supply chain challenges globally.

Covid operational disruptions have been in southeast Asia and continue to disproportionately affect the completion and production solutions segment, owing to its large base of operations there.

Similar to other industrial manufacturers that you read about in the financial press, we are facing inflation in labor raw materials and components that we buy from subcontractors, but our teams have been diligent in pursuing alternate supplies and we are generally able to offset most of the cost inflation with higher pricing to customers.

Supplies of resin epoxy fiberglass integral to our composite pipe and tube tubas scope tubular coating businesses remain critically low and in some instances have nearly doubled in cost.

Lead times for forgings have extended out from six weeks to 18 weeks and while prices for plate steel and coiled steel are now up more than 240% year over year at least we appear to be seeing some stability in steel pricing as iron ore prices have declined.

We are hopeful that the worst of the steel inflation is behind us.

Outside of steel at Foxy fiberglass and other raw materials I'd say, we have generally seen low double digit cost increases on other finished or semi finished components that we buy semiconductor boards chips electric motors gearboxes and other sub assemblies remain in very tight supply.

Freight has also been challenging spot container shipping rates from Asia to the U S are now five times what they were this time last year 14 times, what they were in 2019. Additionally, ocean freight reliability is down to 38% about half of where it was historically, which has led to more use of expensive airfreight, it's more rely.

And ocean freight, but it drives costs up whenever O V business unit went two months without steel deliveries because our European steel mill supplier cannot secure a vessel into port without guaranteeing it a full load in North America trucks and drivers can be tough to secure and hotshot drivers are dropping book shipments to take higher price jobs, making even even domestically.

Land deliveries less reliable les.

Labor availability, particularly in the U S is very tight in certain areas and we have stepped up recruiting and are redeploying some workers.

Into new assignments.

Our customers are also encountering these challenges in fact, we are hearing of many instances of crew availability delaying planned equipment reactivation in west, Texas and elsewhere.

These challenges are affecting our customer behavior and other ways to be products like fuel handling pipes and tanks pumps and mixers et cetera. They go into large construction projects are facing headwinds in certain instances because our customers can't secure other complementary components or can't secure construction crew to install and so they're delaying project launch and delaying orders to us.

I want to stress thus far in obese team has done a good job covering inflationary cost pressures in the form of price increases as market leader in many categories of equipment, we benefit from scale with our suppliers vis vis our competition and we have moved raw material across our manufacturing plants to maximize value. Some of our businesses are achieving price driven margin expansion as they recur.

[noise] discounts given during the downturn of 2020, and while a few products with longer production cycles like drill pipe have struggled to stay up with raw material cost increases on orders taken in early 2021, resulting in some margin compression most or at least able to hold margins through pricing, but all are intently focused on managing inflation risks that continue to Mount.

Our businesses are reducing costs completion and production solutions identified another $50 million of annual cost reductions, including shuttering another half dozen facilities over the next few quarters, while volumes and margins are clearly not where they need to be to generate sufficient returns. The organization's intent focus on downsizing of the past several years together with higher orders in oilfield activity.

The horizon gives us confidence that we're moving in the right direction.

We share the view expressed by others that the world is moving into a multiyear up cycle in commodity prices. The combination of significant money supply growth economies emerging out of pandemic lockdowns underinvestment in oil and gas exploration and development over several years, our cost of capital for E&ps and flattening efficiency gains for North American shale producers will lead to tightenings petroleum supply and demand in RV.

In its current shape the oilfield will struggle initially to respond to calls for increasing production. So far incremental drilling activity has been cautious and measured our land drilling customers tell us that they find it very difficult to crew rigs, even though the rig count is still well below pre pandemic levels and the green crews that they hire cost more than or less productive the industry will have to pay.

More to get back the expertise that it has lost.

The industry is also paying more for cap the capital and employees falling opec's decision to let market forces rule Thanksgiving 2014 U S. Shales emerged as the swing source of oil characterized by fairly rapid responsiveness to commodity prices.

This was made possible by two things the resourcefulness technology efficiencies of the U S oil and gas industry as well as large easily accessible pools of low cost capital in the form of both equity and debt from Wall Street. However.

However, poor returns on capital investments came in decreased increased focused by 2019 and this coupled with a widespread move to decarbonize investments by many capital providers led to sharply higher cost of capital for the very capital intensive oil and gas industry. Consequently, the U S. Operator base has necessarily embrace capital discipline as its new ethos.

Going forward a chance to reason that the U S unconventional market will be more challenged to fulfill its role as the world's quick cycle oil supplier now that its constituents are more focused on returning capital to shareholders and reducing reinvestment rates for.

Further we believe rising utilization of oilfield service assets depletion of consumables and higher labor costs will drive up pricing by oilfield service providers.

Hearing stories from the field of drilling contractors, not willing to reactivate incremental rigs unless they can secure contracts at higher dayrates and a pressure pumper is not adding incremental crews unless they can achieve certain degree of net pricing improvement, which is required to get payback on incremental cost of equipment reactivation higher well construction costs made worse by overall diminishment of efficiency is green.

Cruise man incremental units going to work will impact returns on shale wells, which will reduce the industry's responsiveness to higher commodity prices in our view.

As economies and demand recover OPEC spare capacity trickles back into the market and oil supply demand gap becomes more evident we think the industry response will be more broad based than just U S shale ramping up activity.

Much of the world's international offshore oilfield equipment has been stacked and neglected for some time and will require significant investment to bring it back to work working order.

One of the most interesting trends that we observed in the third quarter was a rising number of inquiries around potential offshore rig reactivation disc.

Despite the level of contracted offshore rigs declining sequentially and I'll add a low level of actual offshore equipment orders for us outside of the 20000 P. S high pressure control equipment order for Transocean.

We are being quietly asked to quote on several stacked rigs that are looking at coming back to the market.

This is being driven by high rig tenders currently being floated by N O sees and others, who are also looking at higher levels of activity onshore in certain international markets.

So to sum up where the industry is now E&P operators worldwide are enjoying newfound prosperity is or existing production commands higher prices, but they will certainly pay more for constructing new well bores and bring on more production in the near future oilfield service providers, which are in obese primary customer base are just now starting to claw back discounts given last year, while south.

Tenuously facing higher labor and component costs and constraints, we see them raising their prices materially over say the next 18 months as prosperity trickles down to this level in the food chain.

And are these late cycle manufacturing businesses will follow suit as prosperity continues to trickle down as a reminder, all three of our segments engaged in manufacturing, which blossoms a bit later in the oilfield up cycles, given the trickle down nature of our ecosystem rig technologies has benefited strongly from its exposure to offshore wind development, which has helped offset some of the weakness it has seen in.

Demand for traditional drilling equipment.

Completion and production solutions has felt the brunt of the oilfield downturn, but its recent additions to backlog point to a brighter future and although wellbore technologies manufacturers from capital equipment like drill pipe it tends to behave more like a traditional oilfield service provider and it is clearly recovering quickly.

Throughout the downturn Adobe has continued to invest in technologies that improve efficiency reduce labor and optimize operations.

Whether it's through automated drilling processes through its novo's operating system, accompanied by a new drill floor robotics, delivering downhole data in real time through our wire drill pipe, reducing the emissions profile of the completion site with our ideal E Frac fleet in.

In obese oilfield product portfolio continues to evolve to enable our customers to achieve better operational performance.

Concurrently we are also developing operate offerings that will help our customers in their pursuit of a low carbon future. Our offshore wind installation vessel business won two packages from catalog and remains on track to achieve revenue run rate of $400 million a year by Q4 of next year. In addition, we were awarded our first feed study for a <unk>.

Carbon capture system aboard in F. P. S O in Asia, utilizing our extensive gas processing expertise.

And as our other efforts in onshore and offshore wind solar geothermal biogas and carbon capture utilization and storage continue via is positioning itself as a leading technology provider to the energy transition just as it is to traditional oil and gas.

On the whole we are increasingly confident that adobe is approaching an inflection point, where the hard work. Our team has put in over the past several years will bear fruit in a big way to the employees of Inova, who are listening today. Thank you for your extraordinary efforts your hard work creativity and dedication has set us up for success and the opportunities that are coming our way. Thank you.

With that I'll turn it over to Jose. Thank you Clay Nov's consolidated revenue in the third quarter of 2021 was 1.34 billion, a 5% decrease compared to the second quarter. Adjusted EBITDA was 56 million or four 2% of sales.

Excluding the credits from the rig cancellation in the second quarter revenues were essentially flat with cost reductions more than offsetting charges taken for our project in southeast Asia.

During the third quarter, we generated $105 million from cash flow from operations and 66 million of free cash flow.

We ended Q3 with net debt of 36 million comprised of long term debt of 1.70 billion and cash and cash equivalents of 1.67 billion.

Moving to segment results.

Our Wellbore technologies segment generated $507 million in revenue during the third quarter, an increase of $44 million or 10% sequentially revenue improved 6% in North America, and 13% in international markets as the momentum of the global recovery continued to build in all major geographical regions.

EBITDA improved 14 million to $77 million or 15, 2% of sales as inflationary pressures and a less favorable mix limited incremental margins to 32%.

Our REIT HEICO logged drill bit business posted another quarter of double digit revenue growth, primarily driven by strong performance across the western hemisphere, and middle East are leading edge cutter designs and bit technologies continue to drive revenue growth that exceeds the rate of improving global drilling activity.

While this business faces many of the supply chain issues faced by all global manufacturing businesses and at times has been forced to substitute higher cost materials to meet delivery schedules management has been successful in raising prices to offset cost with minimal customer pushback as the efficiencies gained by REIT hike walks technology more than justify higher pricing.

Our downhole tools business realized a 5% improvement in revenue during the third quarter topline growth was constrained by shortages of key materials and therefore did not fully reflect the demand we're seeing for our downhole technologies, which continues to enable record setting drilling performance. Our agitator system was recently used to help.

A customer establish a new rate of penetration benchmark in Colombia, delivering a field record rate of penetration of 201 feet per hour.

Our select shift downhole adjustable motor was used by a large operator in the northeast U S. During a 12, well drilling campaign and drove a 30% reduction in average drill times due to the tools ability to change been settings downhole saving trips out of the hole.

Our well site services business posted double digit revenue growth, primarily driven by growing demand for solids control services and equipment sales in international markets.

While the business unit saw improvements in all regions, the North Sea and Latin America were particularly strong in offshore job counts improved by 17% sequentially. Despite the impact of hurricanes in the Gulf of Mexico during the quarter.

Recent tendering activity points to continued improvement in the outlook for our well site services business unit.

Our MD <unk> business realized double digit sequential revenue growth with strong incremental margins.

Higher global drilling activity levels drove demand for sales and rentals of our surface sensor data acquisition systems, and we saw a sizable pickup in revenue from our digital solutions.

We were recently awarded an additional three year contract from a customer in the North sea for our evolved digital drilling optimization services, which leverage high speed telemetry from our <unk> wired drill pipe.

We also secured several international contracts for a well data remote drilling monitor solution, which allows operators to easily analyze well performance against offset wells identified potential upcoming trouble spots and oversee drilling efficiency across all wells from any location.

Looking forward, we anticipate our legacy data acquisition offering will continue to benefit from rising activity levels and market share gains and we expect our digital offerings will continue to gain greater market adoption by operators looking to extract additional operational efficiencies to offset inflationary pressures.

Our tuba scope business experienced a mid single digit sequential increase in revenue driven by improving demand for our coating and inspection services.

While demand is strong and our backlog of inspection and coating projects has grown revenue growth was hindered in the third quarter by operational disruptions related to Hurricanes, Ida and Nicholas and a COVID-19 outbreak at a key coating facility.

Additionally, constrained supplies of raw materials limited our ability to capitalize on our backlog and resulted in higher costs. As we were required to airfreight resin from Asia to the U S to meet certain customer delivery requirements.

In the fourth quarter, we expect operational challenges to subside, allowing for the business unit to capitalize on this growing backlog and improved pricing to drive better results.

Our grant Pride co drill pipe business posted solid top line growth on higher volumes.

EBITDA flow through was restrained due to a less favorable sales mix and inflationary pressures new orders remained solid with a notable improvement in demand for larger diameter premium pipe.

U S operators are showing an increasing preference for five and a half inch drill pipe, which unlike smaller diameter pipe sizes is unlimited supply.

Additionally, operators are specifying specific grades of drill pipe and recent offshore rig tenders driving additional demand for premium pipe.

While fourth quarter results will be muted by ongoing supply chain challenges and cost inflation recent orders growing global drilling activity and improved pricing have us increasingly optimistic regarding 2022.

For our Wellbore technologies segment, improving global activity levels, partially offset by lingering supply chain challenges should allow for sequential revenue growth between 3% to 6% in the fourth quarter.

We expect improving absorption in our manufacturing facilities and better pricing to be partially offset by supply chain challenges and continued inflationary pressures limiting incremental margins to around 20% in the fourth quarter.

Our completion and production solutions segment generated $478 million in revenue during the third quarter, a decrease of $19 million or 4% sequentially EBITDA for the quarter was a loss of $5 million or 1% of sales.

Orders during the third quarter were 384 million, yielding a book to bill of 144% with all but one business realizing a book to bill greater than one.

Backlog for the segment ended at approximately $100 million higher sequentially to end the quarter at $1 1 billion.

A second consecutive quarter of strong order intake along with constructive ongoing customer dialogue gives us growing confidence in the sustainability of this higher level of orders as we head into 2022.

Our intervention and stimulation equipment business experienced a double digit sequential decline in revenue on lower capital equipment sales impact.

Impact to EBITDA was limited primarily due to an improved sales mix, resulting from steady global aftermarket sales activity.

New capital equipment orders remained light, but improved sequentially.

In North America, we're seeing higher quoting activity, particularly around dual fuel conversions reactivation and rebuilds with the average size of quotes increasing as the industry is now preparing to take its last mile of inventory off the fence line.

We're also seeing more inquiries on bulk cementing and pumping equipment to support increasing drilling activity levels.

Prospects for the international markets are equally if not more compelling as well.

One of our customers described on its conference call lower spending by service companies in international markets for more than a half decade, and improving activity is resulting in tightening supply of equipment.

Although orders remain light, we're seeing growing inquiries for pressure control equipment in many regions around the world and greater inquiries around next generation coiled tubing equipment, particularly for the middle East and in the former Soviet Bloc countries.

Our fiberglass business unit saw relatively flat sequential results as improving demand across the businesses end markets was offset by continued supplier disruptions global supplies of key raw materials, such as resins and glass remain extremely tight a condition.

We expect to extend over the next few quarters.

Additionally, while we are experiencing fewer direct effects of COVID-19 such as government mandated lockdowns were now working through derivative effects in the form of ongoing logistical challenges and even power shortages, which are occasionally shutting down our operations in China.

Despite these headwinds the outlook for the business is strengthening driven by increasing oil and gas activity in the middle east improving marine and offshore activity in southeast Asia and continued strong demand for our fuel handling products.

Our process and flow technologies business realized a high single digit sequential decrease in revenue Clay described the significant operational challenges this business faced during the quarter and while operational challenges will linger into the fourth quarter, we remain optimistic regarding the longer term outlook outlook for this business.

We're seeing growing demand for chokes and pumps for gas processing equipment and for F. P. S O process modules and as clay highlighted we anticipate additional opportunities to showcase the carbon capture usage and storage skill set we've been cultivating within this business unit.

Our subsea flexible pipe business realized a low double digit percentage sequential increase in revenue with strong EBITDA flow through due to solid execution and a better sales mix.

Indicative of the improving outlook for offshore activity orders improved sequentially, achieving their highest level since 2019, resulting in a book to bill that exceeded 140% for the second straight quarter outlook for orders remained solid and we expect to continue replenishing the businesses backlog and move prices higher.

For the fourth quarter of 2021, we anticipate our completion and production solutions segment will continue to face COVID-19 and supply chain challenges, but improved backlogs and growing aftermarket activity should allow for segment revenues to improve 10% to 15% with incremental margins in the mid 30% range.

Our rig technology segment generated revenues of $390 million in the third quarter, a decrease of $97 million or 20% sequentially.

Excluding the $74 million in revenue recognized in the second quarter from the settlement of the offshore rig project cancellation revenues declined 23 million sequentially, primarily due to the timing of certain projects nearing completion during the third quarter.

Adjusting for the impact of the offshore rig project cancellation EBITDA increased $7 million on an improved sales mix and cost savings.

Orders for the segment increased to $300 million, yielding a book to bill of 190% once again wind installation vessel equipment orders comprised over half our bookings as we continue to establish ourselves as the most trusted provider of vessel designs jacking systems and heavy lift equipment to the offshore wind industry.

As Clay mentioned, we remain on track to achieve an annualized revenue run rate of $200 million by the end of this year and a run rate of approximately $400 million by the end of 2022.

Additionally, we remain optimistic that the number of offshore wind installation vessel projects will continue to grow.

Rig capital equipment orders improved for the second straight quarter highlighted by an award for our third 20000 P. S. I P. O P project last quarter, we noted a growing sense of optimism from our offshore driller customer base, which we believe continues to build.

The global offshore rig count is trending higher and rig tendering activity is growing more active in Brazil, West Africa, the middle East and Southeast Asia.

One of our customers recently indicated that it expects to have the entirety of its fleet under contract by the end of 2020, one a remarkable feat considering where the industry was just 12 months ago.

With fleets of hot rigs approaching full utilization and operators unwilling to accept rigs that are not in near perfect condition.

<unk> customers have approached us about rig recertification upgrades and potential reactivation projects.

Most of the upgrade conversions have centered around B O P equipment automation and emissions, reducing technology like our power blade offering we expect most near term reactivation to be centered around rigs that are in relatively good shape and will only require modest overhauls, but as we get deeper into the stack. The scope of these rig reactivation projects will grow significantly.

And in turn so will the revenue opportunity for Adobe.

Demand for land drilling equipment remains low, but we are seeing positive developments in land markets as the rig count recovers in the U S. There is a clear preference for rigs that have leading edge torque flow rate and pressure capabilities, along with larger setbacks to efficiently handle larger diameter drill pipe operators.

They're also demanding the latest control systems and automation capabilities with interest in our Novus and multi machine controls growing stronger by the day.

The domestic rig fleet is quickly approaching full utilization of rigs meeting the desired specifications and day rates are rising leading to increasing inquiries for land rig upgrades that will bring currently idle rigs into this ultra premium rig class.

In our aftermarket business, we realized our third straight quarter of improved spare part bookings and based on what we've seen to date. We expect this trend to continue into the fourth quarter after more than a half a decade of rationed maintenance spending is beginning to normalize as offshore drilling customers gain more confidence in their capital structures and business outlook.

We also saw 30% sequential increase in the number of quotations by our field Engineering group predominantly driven by the customers I described earlier who'd like help for more engineers in determining the requirements to reactivate their stacked rigs.

Looking ahead, we find ourselves becoming increasingly optimistic around the prospect of improved financial results from our rig technology segment in 2022.

Due to several specific segment tailwind one improving maintenance spend for more contract drilling customer base to a growing pipeline of potential rig activation projects three ramping production from our rig manufacturing operations in Saudi and for an increasing rate of converting wind installation vessel backlog.

Revenue.

Near term our rig technology segment must contend with the same headwinds currently faced by all global manufacturers, primarily supply chain and labor shortage issues, which will likely blunt and incremental operating leverage for the fourth quarter. We expect revenues for this segment to grow 8% to 12% with incremental margins in the mid teens.

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

Thank you.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question just press the pound key.

Your first question comes from the line of Stephen getting Carroll with Stifel. Your line is now open.

Thanks, Good morning, everybody.

Hi, Stephen Stephen.

A couple of things.

Sure.

On the rig and the rig Tech orders side, you highlighted in the release and I think earlier, the two offshore wind installation vessels.

Can you talk a little bit about the market in terms of the opportunity you see there unfolding over the next couple of years.

Yeah. In addition to those two we also had the jacking system for a third vessel in the third quarter that we book Steven.

As we set a pretty strong level of orders for the wind installation vessels for Q3.

Q4, I think it's going to be down a little bit given kind of our pipeline of opportunities, but when we get into 2022.

We're pretty optimistic that.

It will probably be another I don't know 456 vessels ordered including.

Likely another Jones Act vessel qualified rig.

Vessel for the U S market, so that looks pretty strong.

Underpinned by like the Biden administration's announcement of its aspirational ambitions of 30 Gigawatts in U S waters.

Wind power generation capability.

Continued bright outlook for further offshore installations in Europe, and Asia and elsewhere. So on the whole we're in pretty good position in that market segment.

Thanks, as we think about 2022 and I know, there's a lot of moving pieces with with costs and COVID-19 disruptions still lingering et cetera.

How are you guys thinking about.

Getting back to <unk>.

More normal incremental margins as you look at 2022 of the different segments. Do you think we're closer do you think you still have.

Some transition as you go through the year.

It's a good question a lot and my view depends on how we sort of battle our way through all of these supply chain challenges that we talked about it's still kind of a wildcard out there but the world.

We do think at some point it gets back to normal.

Things even out economies open up fully demand for crude grows underinvestment in crude and natural gas over the past few years I think sets up a really interesting backdrop. So.

The situation, we find ourselves in I think is pretty constructive with respect to how we can do in 2022 and beyond and then that's on the heels of <unk>.

Significant cost out effort that we've had underway here for a couple of years.

Now north of $800 million and headed closer to 900 and so.

We think the business is really really well positioned.

To put up better better margins better profitability going forward. So that's where we find ourselves can't speak to how quickly that unfolds, but I think it stands to reason that the world does get back to normal.

We get the Covid disruptions economic disruptions behind us and I think that spells good things for Nov's future.

Is there a segment, that's leading the way or not necessarily.

Yeah, well, you're already seeing in Wellbore technologies right, Okay double digit growth three quarters in a row 15, 2% EBITDA margins.

In Q3.

By the way that's in spite of some it's only sort of COVID-19 supply chain issues too so it's sort of overcoming those.

But as you know that's a little earlier cycle.

<unk> two completion of production solutions and rig technology, a little less capital equipment driven.

And so.

It's on its way and then with respect to the other two.

I'll touch on this in my prepared remarks prosperity rolls downhill through the oilfield and it starts with high commodity prices that help restore the oil and gas producers balance sheets and gets them back to a little higher levels of activity and then it shows up in the services segment and I think they are going to be quickly realizing.

Higher day rates and margins and then it will flow into higher demand for for capital equipment, but big picture, where on the heels of several years here.

Depleting the stocks of capital equipment that perform oil well wellbore construction.

<unk> activities in the oilfield and and so theres been underinvestment in that equipment wears out and it's <unk>.

Utilization rises activity rises I think I think there will be a call on.

Some of the things that that Adobe Max.

You bet. Thanks Steven.

Your next question comes from the line of Ian Macpherson from Piper Sandler Your line is now open.

Good morning, good morning, Clay and Jose good morning.

Clay I know that you have.

Said that some of the.

Offshore rigs that come out first will be relatively less coal, but I know that you never like to let a reactivation go without selling opportunity on on upgrades as well and we are not.

Other upgrades that could apply to the remaining U S land rigs that need to come out and get to Super spec could you compare and contrast, what that that delta of opportunity is for <unk> near term between land rigs offshore rigs between.

Fairly minimalistic reactivation versus what youre upgrading up sell opportunities.

It's hard to it's hard to generalize Ian because it depends on the specific rig and so it's kind of how long is a piece of rope question.

But starting with the offshore what we're seeing is.

The oil companies that rig has been stacked for more than a year offshore.

The oil companies now are requiring.

A survey to establish class so the classification side come in they survey the rig and that also involves the Oems checking out equipment.

The oil companies want to know that what they are.

Contracting has the capabilities as advertised and so we're seeing that drive.

It's more rigs in the shipyard, so I think that the rigs at shipyards, probably up to half a dozen or so quarter on quarter.

And were roped into that to provide OEM certification of equipment. The other thing that we're seeing in the offshore is more.

Stepped up requirements around pipe sharing capability by the BOP and so that typically involves adding accumulator bottle capacity to the BOP.

Maybe some other changes to the ramps and so forth more.

More interest in pipe handling capability, which.

That's up rig efficiency enables rig to trip the rig pipe faster and in the third big area.

There's a lot of interest and as emissions reduction and so right now.

Talked about our power Blake Prada.

Product to reduce offshore emissions on prior calls.

The result of that the first one that we've installed offshore is being actually measured for emissions reductions.

Right now and a lot of customers watching that closely and so in terms of upgrade opportunities that would go along with this rig reactivation.

Opportunity those categories of equipment I think our most <unk>.

Pharmacy, and most near term of course every rig again every rig looking around what their capabilities are trying to set themselves apart from <unk>.

Competitive field will also look at other areas too.

The improved capabilities, but but that's what we're seeing most predominantly right now.

As part of that recertification process offshore.

To onshore.

As Jose mentioned, yes, there's a lot of interest rising.

Rising interest from land Drillers now as utilization is starting to rise and sort of the highest capacity rigs and and it ties to the phenomenon that he also referenced around demand for five five inch drill pipe. So.

North American shale drillers are really looking more towards larger diameter five five inch drill pipe for a couple of reasons has better hydraulics is larger IDC hydraulics going down with the mud.

And then that five five inch drill pipe coupled with our Delta premium connection enables a smaller o'dea tool joy and you get better hydraulics of the mud coming back up the hole unless turbulent flow washout and to handle five drill pipe requires higher torque iron Roughnecks and so we haven't quite seen it yet, but we think there'll be.

Rising level of inquiries around upgrading iron roughnecks to handle the bigger pipe to handle the higher torque that it requires along with engineering around higher set back on those rigs. So you can you can set back 25000 feet or whatever five five inch pipe, which takes a little more.

Substructure and drill four capability and so.

Near term.

We see opportunities there.

I would add to continued growth in interest in our <unk> operating system, which is really we're really pretty jazzed about because this is the digital operating system on on <unk> rigs that is going to be the foundation for rig floor robotics, which we're going to have on rigs in Q4.

And this is a cost effective way to really get reduced the labor requirements on a drilling rig to get people away from wealth center to let the machine's actually trip the pipe and what we found is that they can they can trip. The same number stands basically as a human crew can.

And do that in a in a cost effective upgrade in combination with this sort of digital operating system support for these land rigs, so pretty pretty excited about that as well so.

All fronts <unk> right there with the technology that we've continued to make better through the past several years and to continue to upgrade capabilities to make us safer and more efficient and so we stand ready to do whatever our customers need us to both land and offshore.

Good stuff. Thank you clay.

They had a good quarter for free cash flow in the third quarter I was just going to invite you to refresh the.

The full year free cash outlook, if it needs to be or or just.

Kind of leave it where it is.

Yes, it was a.

Good quarter from from a free cash flow standpoint, so we continue to get better and better in terms of managing working capital.

No no real revision too.

Full year cash flow, we're obviously well within the original targets that we have.

Had originally provided I would say that typically.

Q4 tends to be our best cash flow generation quarter of the year. If you look back at the last several years.

And certainly hope to generate a little bit more free cash flow in Q4, but it might be a little bit different. This time around so if you look closely at the balance sheet you saw.

That we had good release of cash from working capital of about $108 million with the majority of that coming from sort of the difference between our contract assets and contract liabilities.

And if you look forward to Q4 that probably goes a little bit the other direction plus if you look at.

The guidance that we provided and you do the math, there's a pretty sizable step up in the top line. So it could be a little bit of a buildup in AR and then lastly, as we sort of went on and a great bit of detail related to the supply chain challenges that.

That we've been having and expect to continue into Q4, we are building buffers.

Certain parts of our supply chain to try to better withstand some of the potential disruptions that we see on the horizon.

So long way of saying that.

We're still optimistic in terms of our future cash flow generation, not just Q4, but certainly into 2022, we're getting better in terms of where working capital management.

But don't expect another very large windfall free cash flow in Q4, but overall feel fantastic about the condition of the balance sheet.

Great. Thank you Jose I'll pass it.

Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open.

Hey, good morning, guys, if I could ask a strategic question here around M&A and the company hasn't pursued.

Transaction in some time, but you are evolving the business and you're focusing on some new growth areas, including offshore wind.

Do you think you can build the business organically as you diversify or do you think there is a role for bolt on M&A and your strategy, yes, great Great question, Neil and to clear the record yes, we have been engaged in an M&A for consistently.

Find everything too expensive, particularly in renewables and particularly with all the capital was apparently very low cost of capital chasing some of these transactions and so.

Yes, we feel very comfortable pursuing these opportunities organically you step back and look at the companies.

Capabilities, our assets, our global footprint, our fantastic engineers that are super creative.

Our deep expertise in materials metallurgy robotics.

Digital I mean, you name it.

We think we've got the toolkit here to pursue these things organically.

And watch with.

A few steps ahead of competition in many of these areas and so.

Yes, that's the plan we have made a couple of small investments we've talked in the past about R. R.

Our investment in a land wind tower manufacturing technology that were.

We've bought a lot of the skills that I just referenced to bear on helping them achieve their strategic goals and we're pretty excited about that and then we've also developed complementary products.

Specifically, our mobile tower crane lifting system for that.

Technology that we'll be bringing to market in early 2022.

But I'm pretty pretty excited about I feel pretty good about being able to move forward.

Organically, mostly but nevertheless, just want to be clear, we're always looking always looking.

On the acquisition side for for opportunities to strengthen what we do.

In the energy transition space as well as our traditional oil and gas space, which we continue to invest inorganically as well.

That's great and maybe you could talk about how youre seeing the offshore opportunity and quantify for us what the opportunity with the cash flow or EBITDA opportunity set would look at as we look at your slides you do talk about 240 gigawatts of offshore wind capacity over time by 2030.

Big.

It's a big prize, but help tie that back into what it means for your model yes.

Offshore specifically we've talked.

Earlier than before about.

Installation vessels that are required to install these these leading edge wind turbines and theyre just gigantic pieces of equipment.

The $14 15 megawatt turbines, which are sort of leading edge.

Our 500 foot hub heights, So thats, a 50 story building.

And then blades that are.

100 yards or more long and assembling that at altitude is a major undertaking. So the vessel requirements has continued to rise with the heights and the weights involved in installing these things as well as the industry installation industries aspirational goals around making it.

<unk> more efficient taking cost out of installation, which really plays well into nov's capabilities in terms of.

Equipment handling sort of.

Time and motion studies around that process.

Bringing some pretty creative minds to bear on improving that.

But the outlook remains good because we don't think the industry is going to stop at 15 megawatts I think I think 20 megawatts or more.

Probably on the horizon, a few a few years out and so that space looks pretty good.

<unk>.

And so we're glad to be a part of it but shifting gears or potentially even more interesting space further out which is in the euro area of floating wind and so when you think about it in fixed when you require shallow water and we are building the tool kit and the same way we built drilling rigs. We are building these installation vessels in deepwater.

The wind power generation industry is going to have to move to floating wind turbines and there we've got some very clever.

Hull designs that are Cousteau MSC group has developed they've been in this in and around this space for 20 years.

And that we think can be manufactured industrially with less steel.

Working in concert with shipyards and just as a reminder, we've done that a lot building 400 offshore rigs.

Through the last 20 years and so we've worked closely with most of the world's leading shipyards around the world. We think we can help them industrialized processes to make these.

These vessels at scale and then in Ov proprietary kit around mooring fairly so sorts of things that would anchor those vessels.

Our discrete items, we could sell into that in addition to working with the shipyards to fabricate the halls and the difference between that opportunity in the fixed when opportunity is we would we would participate economically in each individual asset. So it's a little different and I think that makes the total addressable market in the floating space.

In the long run far larger than the fixed run does that does that answer your question, yeah and going back to the fixed offshore you had talked about a $400 million of annual run rate by I think it was fourth quarter of 2022 does that still feel like a good number and is there an upward or a downward bias to that.

I think that's right down the middle of the fairway I think thats it fits with the orders that we've won up through the third quarter that we just announced.

And.

We're on that trajectory to be able to hit that by the end of 2022 as you can appreciate Neil these vessels.

Take sort of several months of gestation and so forth. We're working closely with these customers to get the specs right.

The plan right to execute these projects and so line of sight on that is has been pretty decent and so the $400 million guidance that we gave a couple of quarter ago quarters ago kind of fits that pipeline of sales opportunities alright, great color guys. Thank you. Thank you.

Your next question comes from the line of Marc Bianchi from Cowen. Your line is now open.

Hi, Martin Thank you.

Hey, guys.

I wanted to start with the charge that you took on the on the vessel projects in the third quarter just to clarify is this a charge on a percentage of completion type project. So so you're recognizing all the expected higher costs for the project here in third quarter, and we really shouldnt have any any of that effect in the fourth quarter of <unk>.

Beyond assuming things don't get any worse.

That is correct. It's a POC project, we've roped in all of the extraordinary costs that we have encountered there.

And.

We're fairly far along getting it done, but we still have a ways to go and.

Just worth noting there still COVID-19 challenges out there, but this is our latest and best view on cost to get to think get this.

The vessel completed.

Right. Okay. So then if I sort of exclude that from.

Kind of put that back into third quarter and caps. It would look like the implied incremental is.

Maybe in the mid teens.

And I know theres lots of supply chain issues, and so forth, but maybe you could talk to.

Maybe what's going on in the fourth quarter that could be holding back incrementals and how you see that progressing beyond fourth quarter.

Well.

First you are right if you sort of except for that then you see completion and production solutions revenue down $19 million, but EBITDA actually up three in Q3.

Through that through that math, but looking forward to Q4, our guidance with low Incrementals frankly is just the acknowledgment that.

The state of the global supply chain is in a place it's really never been before.

And we're battling through.

Sort of shifting.

Constraints and challenges and fleet freight issues et cetera, et cetera et cetera. So.

I'll confess where maybe there's some conservatism in Q4 that I think is appropriate frankly, given what we just saw in Q3 and the fact that the COVID-19 supply chain disruptions arent going away I will note in terms of color that we've seen over the last couple of quarters.

Q1, Q2, when we are talking about Covid. It was much more around moving our workforce around the globe. So we have service technicians across international boundaries they'd have to face potential quarantines to go offshore to come back to their home countries et cetera et cetera.

That is probably getting a little better.

But through the third quarter, what we're seeing are more of the second order effects, where our sub suppliers of them were disrupted by supply chain issues freight is getting more challenging.

<unk>.

Raw material constraints and allocations in some instances that sort of thing. So the nature of this is shifting but it's just it's an uncertain time and as the world tries to get out of this pandemic.

Reckon with.

The economic.

Disruption that the shutdown last year and early this year cost.

Yes.

Makes sense.

On the order outlook.

I didn't quite catch because you've got so many moving pieces within the segment that Jose was discussing but just if you look overall like rig tech and overall caps orders strong performance here in the last few quarters, how do you see that shaping up over the next quarter or two.

How does how do the supply chain issues in fluids that do they hold back orders do they caused customers to pull orders forward because they want to get ahead of potential supply chain issues. Just if you could talk talk through that a little bit.

Market.

It's a good question so as it relates to the order outlook. Yes, we were talking about we feel really good about sort of the sustainability of this new level of orders that were receiving.

Within our <unk>.

Order book.

And so see that sort of continuing to build some momentum into 2022, but for a lot of the things that we're booking right now, particularly within our cap segment.

Our cap segment as you might imagine.

Order intake for sort of the smaller type items IAA pieces of completion related equipment are still pretty light and so we're talking about big chunky orders that are coming in and if those slip or pull one quarter.

I can make a pretty big difference.

But the good news is that what we're seeing right now is things are kind of either pushing or pulling they're not going away right momentum continuing to build.

The order book, So I'd say, all and things are going really well, but you talked about the current supply chain dynamics I think does add some wrinkles and to the precise timing of when these things.

When these things come in.

So there is a little bit of uncertainty that's never good.

For order intake.

But I think some of that is starting to get resolved people are getting more confident and they are cognizant of inflationary forces and the potential impact of what might take place going forward. So in some instances customers are trying to move forward very quickly and lock in pricing and built in that type of certainty.

In other instances in this range as the gamut from the very large projects to small one off orders even that we stay within our Wellbore technology space.

As you know somebody asked for a bid.

We quote them a price they sit on their hands for a little while and come back for an updated price and they are not happy with it so they may choose to wait.

<unk> that what we're seeing in terms of steel costs.

To a certain extent, so it's a little bit of a mixed bag, but overall heading in the right direction.

Super Thanks, so much I'll turn it back.

Thanks Mark.

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is now open.

Yes, Thanks for squeezing me in here, So I guess, firstly I wanted to.

To ask about was really just when you think about the cost pressures that you've seen we're still calls container rates and just overall kind of supply chain friction.

Can you talk about how much of that is actually flowing through numbers in <unk>.

And like for example, like container rates kind of are they flowing through at the leading edge.

You said Youre doing some air freight instead of that and then HRC in steel cost and everything.

Seeing kind of those costs up a lot.

So.

Costs that are running through in the third quarter or are they kind of really reflective of what the costs are today and then you talked about increasing prices I don't know if you're doing surcharges.

And so when do those really start flowing through so just trying to understand the moving pieces of those two.

Yeah. Good good question Chase.

I would say that it felt like freight kind of got a little worse through the quarter.

Hard to say, what it looks like in Q4.

Necessarily be anecdotal.

Impossible for us to do is sort of a big hit of course of course stuff as you can appreciate but but freight wise.

Things are getting more backed up.

More difficult to get vessels.

<unk> costs are pretty high we.

We certainly felt a lot in Q3, whether that's up or down going into Q4 really hard to speculate on I do think in the long run this does sort of dissipate and the world gets back to normal but here in the short run we're kind of we're kind of bearing.

The impact of freight on the inflation front as I mentioned earlier.

It also felt like it started to melt.

In most areas I would say other than steel.

Steel rose a lot in Q2.

It's kind of one raw material that a couple of our business units pointed to and said that they are feeling like theres, a little more stability there I know iron ore prices have.

Have moved down sharply.

One hand, but coking coal is way up on the other hand and.

<unk>.

But time.

Time will tell but but that's on the heels of some really big moves I mentioned, 200% sort of price increases on hot rolled coil in play.

Less so on other other types of steel, but still $25, 30% on seamless screen tubes that sort of thing.

We understand casing.

Is up probably 25% to 30% something like that so.

So big moves recently, so hopefully steel are stabilizing and we are there.

The worst is behind us.

But other sort of petrochemicals that we buy resins epoxy as you've heard us talk a lot about those things we use them in our fiberglass business. We also use them in our threat protector business, we use them in our two the scope internal wining tubular lining coating business.

And so it's affecting us in those areas too so.

Just a lot happening out there.

And.

Again, I'm confident we'll get it all sorted out and get it behind us and just really proud that our our folks are on.

On top of it they're passing.

This onto through through either price increases or surcharges are a combination of both.

And really trying to minimize our risk exposure to inflation as best that we can.

And then maybe just a little bit more color on the tag onto what clay was saying.

Certainly from overall pricing perspective in terms of our pricing from our vendors enterprises or our customers, it's a little bit of a mixed bag. So much. So in some instances we have fixed pricing for our raw materials for an extended period of time and so we are extremely well situated in that in that situation.

In other instances, we have provided fixed pricing to our customers for a period of time and we may not have been perfectly matched up from a cost perspective, but just quite mentioned our team is managing it extremely well. So it is a mixed bag across the portfolio and I think quite touched on it a little bit in his prepared remarks and then another.

Bit of color that might help from the impact of freight.

It's really remarkable because obviously one of the benefits. We have is our is our size and scale and our diversified footprint that we have around the world and so over the last couple of quarters. There are several of our business is that over the last several years, we have done what makes sense right, which is to locate.

A lot of our manufacturing in low cost regions around the world, but we preserved.

Manufacturing within North America, as part of diversifying our overall supply chain and manufacturing footprint and what we've seen over the last quarter or two or three is that freight costs are getting to be so excessive debt the benefit of that low cost manufacturing.

It doesn't work for us and so we have actually repatriated a lot of our manufacturing back to North America, while we're dealing with these massive freight charges.

And good to have options in our manufacturing footprint to be able to do that to respond. So yes, absolutely one quick follow up here.

I didn't hear anything mentioned about the Saudi facility.

Just kind of talk about talk about how that ramps going as saw them looking to slow down and do less than five per year near term because crude off are they looking to accelerate it. So just kind of talk about.

What's going on with a facility there no. Thank you Chase I was just here a few weeks ago, it's going really really well.

The Saudis are accelerating you probably have heard about their unconventional gas development aspirations along with their aspiration is to develop more.

Crude productive capacity and very excited about we're going to have the first rig.

Commissioning going on there by the end of the year and the second one will fall off just a couple of months afterwards so.

Almost completely done with the facility very close but very excited about the outlook for that for that region. So thank you for asking.

Okay, perfect I'll turn it over thanks, everybody. Thank.

Thank you guys.

Thank you. This concludes today's Q&A session I will now turn the conference back over to Clay Williams.

Hello, and thanks to everybody for joining us today, I'm going to hand again by thanking.

Thanking our terrific employees for your diligence your hard work your creativity and particularly the care that you show for our customers and for each other so thank you all for what Youre doing and those of you listening. We look forward to speaking to you on our fourth quarter results in February have a good day.

This concludes today's conference call. Thank you.

You may now disconnect.

Okay.

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Yeah.

Good day, ladies and gentlemen, and welcome to the N V third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch.

Tom telephone as a reminder, this conference call is being recorded I would now like to introduce your host for today's conference. Mr. Blake Mccarthy, Vice President of corporate development and Investor Relations. Sir you may begin.

Welcome everyone to <unk> third quarter 2021 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo, Our senior Vice President and CFO before we begin I would like to remind you that some of today's comments are forward looking statements within the meaning of the federal securities laws.

The 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 GAAP basis for the third quarter of 2021, and it'll be reported revenues of 1.34 billion and a net loss of $69 million.

Our use of the terms EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release later in the call. We'll host a question and answer session. Please limit yourself to one question and one follow up to permit more participation now let me turn the call over to clay. Thank you Blake.

For the third quarter ended September 32021, and it will be once again posted strong orders with consolidated book to bill of over 150% reflective of steadily strengthening commodity prices and oilfield activity.

However, in obese reported consolidated revenue declined 5% sequentially and EBITDA fell to $56 million during the third quarter.

I'll start by reminding everyone that our second quarter financials included credits related to a project cancellation settlement within rig technologies, which contributed $74 million in revenue and $57 million in EBITDA.

We excluded those credits from our discussion on our last call.

And excluding these credits again from the sequential comparison today wants to consolidated third quarter revenues that were essentially flat.

Down only $2 million sequentially and EBITDA that was up with EBITDA margins on this basis rising from three 5% to four 2%.

Through the quarter, we continued to face logistical and supply chain challenges, which our teams are managing pretty effectively day to day.

Nevertheless, these weighed on certain results in certain areas, most notably in southeast Asia.

We recognized a $12 million charge stemming from a combination of COVID-19 disruptions and execution challenges on a large offshore project within our completion and production solutions segment, which I'll describe more fully fully in a moment.

If we look beneath the surface the trajectory of our business is somewhat more positive in our view than the headline numbers suggest and our outlook for 2022 and beyond continues to strengthen.

In fact, given one stronger oil and natural gas prices lately to the emergence of many of our key offshore drilling customers from bankruptcy three the significant reduction in cost that <unk> has achieved for the past two years for our third quarter in a row of sequential double digit topline growth and solid flow throughs for our well bore.

Our technology segment, and five book to bills in excess of 100% for the second quarter in a row for both the completion and production solutions and rig technology segments I'm decidedly more positive about the outlook for the coming year. Nevertheless, global supply chain issues are making business challenging in the short run which leads me back to the project for which we took charge.

Yes.

Our completion and production solutions segment has been working on a large project in South East Asian shipyard. It ran into Covid related operational disruptions, specifically, a combination of shipyard shutdowns labor quarantines and shortages of critical components.

Additionally, our sub suppliers in the region have faced similar disruptions, which also affect project execution.

Our team is working closely with our customer to figure out how to get this vessel built in online as efficiently and as safely as possible, while recognizing the need to be resilient as challenge of shift and change daily.

Across the company, we are intently focused on executing effectively in the face of persistent supply chain challenges globally.

Most COVID-19 operational disruptions had been in southeast Asia and continue to disproportionately affect the completion and production solutions segment, owing to its large base of operations there.

Similar to other industrial manufacturers that you read about in the financial press, we are facing inflation in labor raw materials and components that we buy from subcontractors, but our teams have been diligent in pursuing alternate supplies and we are generally able to offset most of the cost inflation with higher pricing to customers.

Supplies of resin epoxy and fiberglass integral to our composite pipe and tubular tubes, scoped tubular coating businesses remain critically low and in some instances have nearly doubled in cost.

Lead times for forgings have extended out from six weeks to 18 weeks and while prices for plate steel and coiled steel are now up more than 240% year over year at least we appear to be seeing some stability in steel pricing as iron ore prices have declined.

We are hopeful that the worst of the steel inflation is behind us outside of steel at Foxy fiberglass and other raw materials I'd say, we have generally seen low double digit cost increases on other finished or semi finished components that we buy semiconductor boards chips electric motors gearboxes and other sub assemblies remain in very tight supply.

Freight has also been challenging spot container shipping rates from Asia to the U S are now five times what they were this time last year 14 times, what they were in 2019. Additionally, ocean freight reliability is down to 38% about half of where it was historically.

Which has led to more use of expensive airfreight, it's more reliable than ocean freight, but it drives costs up whenever <unk> business unit with two months without steel deliveries because our European steel mill supplier could not secure a vessel into port without guaranteeing it a full load in North America trucks and drivers can be tough to secure and hotshot drivers are dropping.

Book shipments to take higher price jobs, making even even domestic land deliveries less reliable.

Labor availability, particularly in the U S is very tight in certain areas and we have stepped up recruiting and are redeploying some workers.

Enter new assignments.

Our customers are also encountering these challenges in fact, we are hearing of many instances of crew availability delaying planned equipment reactivation in west, Texas and elsewhere.

These challenges are affecting our customer behavior and other ways to be products like fuel handling pipes and tanks pumps and mixers etcetera. They go into large construction projects are facing headwinds in certain instances because our customers can't secure other complementary components or can't secure construction crew to install and so they're delaying project launch and delaying orders to us.

I want to stress thus far in obese team has done a good job covering inflationary cost pressures in the form of price increases as market leader in many categories of equipment, we benefit from scale with our suppliers vis vis our competition and we have moved raw material across our manufacturing plants to maximize value. Some of our businesses are achieving price driven margin expansion as they recur.

Discounts given during the downturn of 2020, and while a few products with longer production cycles like drill pipe have struggled to stay up with raw material cost increases on orders taken in early 2021, resulting in some margin compression most or at least able to hold margins through pricing, but all are intently focused on managing inflation risks that continue to Mount.

Our businesses are reducing costs completion and production solutions identified another $50 million of annual cost reductions, including shuttering another half dozen facilities over the next few quarters, while volumes and margins are clearly not where they need to be to generate sufficient returns. The organization's intent focus on downsizing over the past several years together with higher orders in oilfield activity on.

The horizon gives us confidence that we're moving in the right direction we.

We share the view expressed by others that the world is moving into a multiyear up cycle in commodity prices. The combination of significant money supply growth economies emerging out of pandemic lockdowns underinvestment in oil and gas exploration and development over several years, our cost of capital for E&ps and flattening efficiency gains for North American shale producers will lead to tightenings petroleum supply and demand in RV.

Hugh.

In its current shape the oilfield will struggle initially to respond to calls for increasing production. So far incremental drilling activity has been cautious and measured our land drilling customers tell us that they find it very difficult to crew rigs, even though the rig count is still well below pre pandemic levels and the green crews that they hire cost more than or less productive the industry will have to pay more to get back.

The expertise that it has lost.

The industry is also paying more for the capital and employees falling opec's decision to let market forces rule in Thanksgiving 2014 U S. Shales emerged as the swing source of oil characterized by fairly rapid responsiveness to commodity prices.

This was made possible by two things the resourcefulness technology efficiencies of the U S oil and gas industry as well as large easily accessible pools of low cost capital in the form of both equity and debt from Wall Street.

However, poor returns on capital investments came in increased increased focused by 2019 and this coupled with a widespread move to decarbonize investments by many capital providers led to sharply higher cost of capital for the very capital intensive oil and gas industry. Consequently, the U S. Operator base has necessarily embrace capital discipline as its new ethos.

Going forward. It stands to reason that the U S unconventional market will be more challenged to fulfill its role as the world's quick cycle oil supplier now that its constituents are more focused on returning capital to shareholders and reducing reinvestment rates.

Further we believe rising utilization of oilfield service assets depletion of consumables and higher labor costs will drive up pricing by oilfield service providers were hearing stories from the field of drilling contractors not willing to reactivate incremental rigs unless they can secure contracts at higher day rates and a pressure pumper is not adding incremental crews unless they can achieve certain degree of net pricing.

Which is required to get payback on incremental cost of equipment reactivation higher well construction costs made worse by overall diminishment of efficiency as green crews man incremental units going to work will impact returns on shale wells, which will reduce the industry's responsiveness to higher commodity prices in our view.

As economies and demand recover OPEC spare capacity trickles back into the market and oil supply demand gap becomes more evident we think the industry response will be more broad based than just U S shale ramping up activity.

Much of the world's international offshore oilfield equipment has been stacked and neglected for some time and will require significant investment to bring it back to work working order.

One of the most interesting trends that we observed in the third quarter was a rising number of inquiries around potential offshore rig reactivation. Despite the level of contracted offshore rigs declining sequentially and I'll add a low level of actual offshore equipment orders for us outside of the 20000 Psi pressure control equipment order for Transocean.

We are being quietly asked to quote on several stacked rigs that are looking at coming back to the market.

This is being driven by high rig tenders currently being floated by N O sees and others, who are also looking at higher levels of activity onshore in certain international markets.

So to sum up where the industry is now E&P operators worldwide are enjoying newfound prosperity as their existing production commands higher prices, but they will certainly pay more for constructing new well bores and bring on more production in the near future oilfield service providers, which are in obese primary customer base are just now starting to claw back discounts given last year, while Simon.

Tenuously facing higher labor and component costs and constraints, we see them raising their prices materially over say the next 18 months as prosperity trickles down to this level in the food chain.

These late cycle manufacturing businesses will follow suit as prosperity continues to trickle down as a reminder, all three of our segments engaged in manufacturing, which Boston a bit later in the oilfield up cycles, given the trickle down nature of our ecosystem rig technologies has benefited strongly from its exposure to offshore wind development, which has helped offset some of the weakness it has seen in demand.

And for traditional drilling equipment complete.

Completion and production solutions has felt the brunt of the oilfield downturn, but its recent additions to backlog point to a brighter future and although wellbore technologies manufacturers from capital equipment like drill pipe it tends to behave more like a traditional oilfield service provider and it is clearly recovering quickly.

Throughout the downturn Adobe has continued to invest in technologies that improve efficiency reduce labor and optimize operations.

Whether it's through automated drilling processes through its novo's operating system, accompanied by a new drill floor robotics, delivering downhole data in real time through our wire drill pipe or reducing the emissions profile of the completion site with our ideal E Frac fleet and.

Nov's oilfield product portfolio continues to evolve to enable our customers to achieve better operational performance.

Concurrently we are also developing operate offerings that will help our customers in their pursuit of a low carbon future. Our offshore wind installation vessel business won two packages from catalog and remains on track to achieve revenue run rate of $400 million a year by Q4 of next year. In addition, we were awarded our first feed study for a <unk>.

Carbon capture system aboard in F. P. S O in Asia, utilizing our extensive gas processing expertise.

And as our other efforts in onshore and offshore wind solar geothermal biogas and carbon capture utilization and storage continue obvious positioning itself as a leading technology provider to the energy transition just as it is to traditional oil and gas.

On the whole we are increasingly confident that adobe is approaching an inflection point, where the hard work. Our team has put in over the past several years will bear fruit in a big way to the employees of <unk>, who are listening today. Thank you for your extraordinary efforts your hard work creativity and dedication has set us up for success and the opportunities that are coming our way. Thank you.

With that I'll turn it over to Jose. Thank you Clay Nov's consolidated revenue in the third quarter of 2021 was 134 billion, a 5% decrease compared to the second quarter. Adjusted EBITDA was 56 million or four 2% of sales.

Excluding the credits from the rig cancellation in the second quarter revenues were essentially flat with cost reductions more than offsetting charges taken for our project in southeast Asia.

During the third quarter, we generated 105 million from cash flow from operations and $66 million of free cash flow.

We ended Q3 with net debt of $36 million comprised of long term debt of 170 billion and cash and cash equivalents of $1 67 billion.

Moving to segment results.

Our Wellbore technologies segment generated $507 million in revenue during the third quarter, an increase of $44 million or 10% sequentially revenue improved 6% in North America, and 13% in international markets as the momentum of the global recovery continued to build in all major geographical regions.

EBITDA improved 14 million to $77 million or 15, 2% of sales as inflationary pressures and a less favorable mix limited incremental margins to 32%.

Our REIT HEICO log drill bit business posted another quarter of double digit revenue growth, primarily driven by strong performance across the western hemisphere, and middle East are leading edge cutter designs and bit technologies continue to drive revenue growth that exceeds the rate of improving global drilling activity.

While this business faces many of the supply chain issues faced by all global manufacturing businesses and at times has been forced to substitute higher cost materials to meet delivery schedules management has been successful in raising prices to offset cost with minimal customer pushback as the efficiencies gained by REIT hike logs technology more than justify higher pricing.

Our downhole tools business realized a 5% improvement in revenue during the third quarter topline growth was constrained by shortages of key materials and therefore did not fully reflect the demand we're seeing for our downhole technologies, which continue to enable record setting drilling performance. Our agitator system was recently used to help.

Our customer establish a new rate of penetration benchmark in Colombia, delivering a field record rate of penetration of 201 feet per hour.

Our select shift downhole adjustable motor was used by large operator in the northeast U S. During a 12, well drilling campaign and drove a 30% reduction in average drill times due to the tools ability to change Ben settings, downhole saving trips out of the hole.

Our well site services business posted double digit revenue growth, primarily driven by growing demand for solids control services and equipment sales in international markets.

While the business unit saw improvements in all regions, the North Sea and Latin America were particularly strong in offshore job counts improved by 17% sequentially. Despite the impact of hurricanes in the Gulf of Mexico during the quarter.

Tendering activity points to continued improvement in the outlook for our well site services business unit.

Our <unk> business realized double digit sequential revenue growth with strong incremental margins.

Higher global drilling activity levels drove demand for sales and rentals of our surface sensor data acquisition systems, and we saw a sizable pickup in revenue from our digital solutions.

We were recently awarded an additional three year contract from a customer in the North sea for our evolve digital drilling optimization services, which leverage high speed telemetry from our <unk> wired drill pipe.

We also secured several international contracts for a well data remote drilling monitor solution, which allows operators to easily analyze well performance against offset wells identified potential upcoming trouble spots and oversee drilling efficiency across all wells from any location.

Looking forward, we anticipate our legacy data acquisition offering will continue to benefit from rising activity levels and market share gains and we expect our digital offerings will continue to gain greater market adoption by operators looking to extract additional operational efficiencies to offset inflationary pressures.

Our <unk> business experienced a mid single digit sequential increase in revenue driven by improving demand for our coating and inspection services.

While demand is strong and our backlog of inspection and coating projects has grown revenue growth was hindered in the third quarter by operational disruptions related to Hurricanes, Ida and Nicholas and a COVID-19 outbreak at a key coating facility.

Additionally, constrained supplies of raw materials limited our ability to capitalize on our backlog and resulted in higher costs. As we were required to airfreight resin from Asia to the U S to meet certain customer delivery requirements.

In the fourth quarter, we expect operational challenges to subside, allowing for the business unit to capitalize on this growing backlog and improved pricing to drive better results.

Our grant <unk> drill pipe business posted solid topline growth on higher volumes.

EBITDA flow through was restrained due to a less favorable sales mix and inflationary pressures new orders remained solid with a notable improvement in demand for larger diameter premium pipe.

U S operators are showing an increasing preference for five and a half inch drill pipe, which unlike smaller diameter pipe sizes isn't limited supply.

Additionally, operators are specifying specific grades of drill pipe and recent offshore rig tenders driving additional demand for premium pipe.

While fourth quarter results will be muted by ongoing supply chain challenges and cost inflation recent orders growing global drilling activity and improved pricing habits increasingly optimistic regarding 2022.

For our Wellbore technologies segment, improving global activity levels, partially offset by lingering supply chain challenges should allow for sequential revenue growth between 3% to 6% in the fourth quarter.

We expect improving absorption in our manufacturing facilities and better pricing to be partially offset by supply chain challenges and continued inflationary pressures limiting incremental margins to around 20% in the fourth quarter.

Our completion and production solutions segment generated $478 million in revenue during the third quarter, a decrease of $19 million or 4% sequentially EBITDA for the quarter was a loss of $5 million or 1% of sales.

Orders during the third quarter were 384 million, yielding a book to bill of 144% with all but one business realizing a book to bill greater than one.

Backlog for the segment ended at approximately $100 million higher sequentially to end the quarter at $1 1 billion.

A second consecutive quarter of strong order intake along with constructive ongoing customer dialogue gives us growing confidence in the sustainability of this higher level of orders as we head into 2022.

Our intervention and stimulation equipment business experienced a double digit sequential decline in revenue on lower capital equipment sales impact.

Impact to EBITDA was limited primarily due to an improved sales mix, resulting from steady global aftermarket sales activity.

New capital equipment orders remained light, but improved sequentially.

In North America, we're seeing higher quoting activity, particularly around dual fuel conversions reactivation and rebuilds with the average size of quotes increasing as the industry is now preparing to take its last mile of inventory off the fence line.

We're also seeing more inquiries on bulk cementing and pumping equipment to support increasing drilling activity levels.

Prospects for the international markets are equally if not more compelling.

One of our customers described on its conference call lower spending by service companies in the international markets for more than a half decade, and improving activity is resulting in tightening supply of equipment.

Although orders remain light, we're seeing growing inquiries for pressure control equipment in many regions around the world and greater inquiries around next generation coiled tubing equipment, particularly for the middle East and in the former Soviet Bloc countries.

Our fiberglass business unit saw relatively flat sequential results as improving demand across the businesses end markets was offset by continued supplier disruptions global supply of key raw materials, such as resins and glass remain extremely tight a condition, we expect to extend over the next few quarters.

Additionally, while we are experiencing fewer direct effects of COVID-19 such as government mandated lockdowns were now working through derivative effects in the form of ongoing logistical challenges and even power shortages, which are occasionally shutting down our operations in China.

Despite these headwinds the outlook for the business is strengthening driven by increasing oil and gas activity in the middle east improving marine and offshore activity in southeast Asia and continued strong demand for our fuel handling products.

Our process and flow technologies business realized a high single digit sequential decrease in revenue Clay described the significant operational challenges this business faced during the quarter and while operational challenges will linger into the fourth quarter, we remain optimistic regarding the longer term outlook outlook for this business.

We're seeing growing demand for chokes and pumps for gas processing equipment and for F. P. S O process modules and as clay highlighted we anticipate additional opportunities to showcase the carbon capture usage and storage skill set we've been cultivating within this business unit.

Our subsea flexible pipe business realized a low double digit percentage sequential increase in revenue with strong EBITDA flow through due to solid execution and a better sales mix.

Indicative of the improving outlook for offshore activity orders improved sequentially, achieving their highest level since 2019, resulting in a book to bill that exceeded a 140% for the second straight quarter outlook for orders remained solid and we expect to continue replenishing the businesses backlog and move prices higher.

For the fourth quarter of 2021, we anticipate our completion and production solutions segment will continue to face COVID-19 and supply chain challenges, but improved backlogs and growing aftermarket activity should allow for segment revenues to improve 10% to 15% with incremental margins in the mid 30% range.

Our rig technology segment generated revenues of $390 million in the third quarter, a decrease of $97 million or 20% sequentially.

Excluding the $74 million in revenue recognized in the second quarter from the settlement of the offshore rig project cancellation revenues declined 23 million sequentially, primarily due to the timing of certain projects nearing completion during the third quarter.

Adjusting for the impact of the offshore rig product project cancellation, EBITDA increased $7 million on an improved sales mix and cost savings.

Orders for the segment increased to $300 million, yielding a book to bill of 190% once again wind installation vessel equipment orders comprised over half of our bookings as we continue to establish ourselves as the most trusted provider of vessel designs jacking systems and heavy lift equipment to the offshore wind industry.

As Clay mentioned, we remain on track to achieve an annualized revenue run rate of $200 million by the end of this year and a run rate of approximately $400 million by the end of 2022.

Additionally, we remain optimistic that the number of offshore wind installation vessel projects will continue to grow.

Rig capital equipment orders improved for the second straight quarter highlighted by an award for our third 20000 Psi BOP.

Project last quarter, we noted a growing sense of optimism from our offshore driller customer base, which we believe continues to build.

The global offshore rig count is trending higher and rig tendering activity is growing more active in Brazil, West Africa, the middle East and Southeast Asia.

One of our customers recently indicated that it expects to have the entirety of its fleet under contract by the end of 2021, a remarkable feat considering where the industry was just 12 months ago.

With fleets of hot rigs approaching full utilization and operators unwilling to accept rigs that are not in near perfect condition.

<unk> customers have approached us about rig recertification upgrades and potential reactivation projects.

Most of the upgrade conversions have centered around <unk> equipment automation and emissions, reducing technology like our power blade offering we expect most near term reactivation is to be centered around rigs that are in relatively good shape and will only require modest overhauls, but as we get deeper into the stack. The scope of these rig reactivation projects will grow significantly.

And in turn so will the revenue opportunity for <unk>.

Demand for land drilling equipment remains low, but we are seeing positive developments in land markets as the rig count recovers in the U S. There is a clear preference for rigs that have leading edge torque flow rate and pressure capabilities, along with larger setbacks to efficiently handle larger diameter drill pipe operators.

They're also demanding the latest control systems and automation capabilities with interest in our Novus and multi machine controls growing stronger by the day.

The domestic rig fleet is quickly approaching full utilization of rigs meeting the desired specifications and day rates are rising leading to increasing inquiries for land rig upgrades that will bring currently idle rigs into this ultra premium rig class.

In our aftermarket business, we realized our third straight quarter of improved spare part bookings and based on what we've seen to date. We expect this trend to continue into the fourth quarter after more than a half a decade of rationed maintenance spending is beginning to normalize as offshore drilling customers gain more confidence in their capital structures and business outlook.

We also saw a 30% sequential increase in the number of quotations by our field Engineering group predominantly driven by the customers I described earlier who'd like help from our engineers and determining the requirements to reactivate their stacked rigs.

Looking ahead, we find ourselves becoming increasingly optimistic around the prospect of improved financial results from our rig technology segment in 2022.

Due to several specific segment tailwind one improving maintenance spend for more contract drilling customer base to a growing pipeline of potential rig activation projects three ramping production from our rig manufacturing operations in Saudi and for an increasing rate of converting wind installation vessel backlog.

Revenue.

Near term our rig technology segment must contend with the same headwinds currently faced by all global manufacturers, primarily supply chain and labor shortage issues, which will likely blunt and incremental operating leverage for the fourth quarter. We expect revenues for this segment to grow 8% to 12% with incremental margins in the mid teens.

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

Thank you.

As a reminder, so that's a question you will need to press star one on your telephone to withdraw.

A question just press the pound key.

Your first question comes from the line of Stephen getting Garro with Stifel. Your line is now open.

Thanks, Good morning, everybody.

Hi, Stephen Stephen.

A couple of things, but can we start.

On the rig and the rig tech orders side, you highlighted in the release that I think earlier, the two offshore wind installation vessels.

Can you talk a little bit about the market and sort of the opportunity you see there unfolding over the next couple of years.

Yeah. In addition to those two we also had jacking system for a third vessel in the third quarter that we book Steven.

Ed.

We set a pretty strong level of orders for the wind installation vessels for Q3.

Q4, I think it's going to be down a little bit given kind of our pipeline of opportunities, but when we get into 2022.

We're pretty optimistic that.

It will probably be another I don't know 456 vessels ordered including.

Likely another Jones Act vessel qualified rig.

Vessel for the U S market. So so our outlook is pretty strong.

Underpinned by like the Biden administration's announcement of its aspirational ambitions of 30 Gigawatts in U S waters.

Wind power generation capability.

Continued bright outlook for further offshore installations in Europe, and Asia and elsewhere. So on the whole we're in pretty good position in that market and market segment.

Thanks, as we think about 2022 and I know, there's a lot of moving pieces with with costs and COVID-19 disruptions still lingering et cetera.

How are you guys thinking about.

Getting back to.

More normal incremental margins.

Look at 2022 of the different segments do you think we're closer do you think you still have.

Some transition as you go through the year.

It's a good question a lot and my view depends on how we sort of battle our way through all the supply chain challenges that we talked about it's still kind of a wildcard out there, but the world.

We do think at some point it gets back to normal.

Things even out economies open up fully demand for crude grows underinvestment in crude and natural gas over the past few years I think sets up a really interesting backdrop. So.

Just the.

The situation, we find ourselves in I think is pretty constructive with respect to how we can do in 2022 and beyond and then that's on the heels of <unk>.

Very significant cost out effort that we've had underway here for a couple of years.

Now north of $800 million and headed closer to 900.

So we think the business is really really well positioned to put up better better margins better profitability going forward. So that's where we find ourselves can't speak to how quickly that unfolds, but I think it stands to reason that the world does get back to normal.

Get the Covid disruptions economic disruption is behind us.

I think that spells good things for Nov's future.

Is there a segment, that's we've no way or not necessarily yes, yeah, well you're already seeing in Wellbore technologies right, Okay double digit growth three quarters in a row 15, 2% EBITDA margins.

In Q3.

And that's by the way that's in spite of some it's only sort of COVID-19 supply chain issues too. So it's sort of overcoming those.

But as you know that's a little earlier cycle.

Compared to completion of production solutions and rig technology, a little less capital equipment driven.

And so it's.

It's on its way and then with respect to the other two.

I touched on this in my prepared remarks prosperity rolls downhill through the oilfield and it starts with high commodity prices that help restore the oil and gas producers balance sheets and gets them back to a little higher levels of activity and then it shows up in the services segment and I think they are going to be quickly realizing.

Higher day rates and margins and then it will flow into higher demand for for capital equipment, but big picture, where on the heels of several years here.

Depleting the stocks of capital equipment that perform oil well wellbore construction activities in the oilfield and and so theres been underinvestment in that equipment wears out and that's <unk>.

Utilization rises activity rises I think I think there will be a call on.

Some of the things that that Adobe Max.

Excellent. Thank you.

You bet. Thanks Steven.

Your next question comes from the line of Ian Macpherson from Piper Sandler Your line is now open.

Good morning, good morning, Clay and Jose good morning.

Clay I know that you have.

Said that some of the.

The offshore rigs that come out first will be relatively less coal, but I know that you never like to let a reactivation go without an up selling opportunity on on upgrades as well and others.

So there's upgrades that could apply to the remaining U S land rigs that needs to come out and get to Super spec could you compare and contrast, what that that delta of opportunity is for <unk> near term between land rigs in offshore rigs between.

Yes, fairly minimalistic reactivation versus what youre upgrading up sell opportunities.

Yes, it's hard to it's hard to generalize Ian because it.

So on the specific rig and so it's kind of how long is a piece of rope question.

But starting with the offshore what we're seeing is.

The oil companies that rig has been stacked for more than a year offshore.

The oil companies now are requiring.

A survey to establish class so the classification societies come in they survey the rig and that also involves the Oems checking out equipment and so.

The oil companies want to know that what they are.

Contracting has the capabilities as advertised and so we're seeing that drive.

It's more rigs in the shipyard, so I think that the rigs at shipyards, probably up a half a dozen or so quarter on quarter.

And were roped into that to provide OEM certification of equipment. The other thing that we're seeing in the offshore is more.

Stepped up requirements around pipe sharing capability by the BOP and so that typically involves adding accumulator bottle capacity to the BOP.

Maybe some other changes to the ramps and so forth more.

More interest in pipe handling capability, which.

Depths up rig efficiency enables rig to trip the rig pipe faster and then the third big area.

There's a lot of interest and as emissions reduction and so right now.

Talked about our power blade.

Product to reduce offshore emissions on prior calls.

The results of that the first one that we've installed offshore is being actually measured for emissions reductions.

Right now and a lot of customers watching that closely and so in terms of upgrade opportunities that would go along with this rig reactivation.

Opportunity, though those categories of equipment I think our most <unk>.

Pharmacy, and most near term of course every rig again every rig looking around what their capabilities are trying to set themselves apart from <unk>.

Competitive field, we will also look at other areas too.

The improved capabilities, but but that's what we're seeing most predominantly right now.

As part of that recertification process offshore.

Turning to onshore.

As Jose mentioned, yes, there is a lot of interest.

Rising interest from land drillers, now as utilization starting to rise and sort of the highest capacity rigs.

And it ties to the phenomenon that he also referenced around demand for five five inch drill pipe. So.

North American shale drillers are really looking more towards larger diameter five five inch drill pipe for couple of reasons has better hydraulics is larger IDC hydraulics going down with the mud.

And then five five inch drill pipe coupled with our Delta premium connection enables a smaller o'dea tool joy and you get better hydraulics of the mud coming back up the hole and less turbulent flow washout.

To handle five drill pipe requires higher torque iron roughnecks and so we haven't quite seen it yet, but we think there'll be.

Rising level of inquiries around upgrading iron roughnecks to handle the bigger pipe to handle the higher torque that it requires along with engineering around higher set back on those rigs. So you can you can set back 25000 feet or whatever five five inch pipe, which takes a little more.

Substructure and drill four capability and so near term.

We see opportunities there.

I would add to continued growth in interest in our <unk> operating system, which is really we're really pretty jazzed about because this is the digital operating system on on <unk> rigs that is going to be the foundation for rig floor robotics, which were.

We're going to have on rigs in Q4, and this is a cost effective way to really get reduced the labor requirements on a drilling rig to get people away from well center to let the machine's actually trip the pipe and what we found is that they can they can trip.

Number stands basically as a human crew can and do that in a in a cost effective upgrade in combination with this sort of digital operating system support for these land rigs so pretty pretty excited about that as well. So on all fronts <unk> right. There with the technology that we've continued to make better through the past several years and to continue to upgrade capabilities.

So <unk> safer and more efficient and so we stand ready to do whatever our customers need both land and offshore.

Good stuff. Thank you clay.

Jose you had a good quarter for free cash flow in the third quarter I was just going to invite you to refresh the.

The full year free cash outlook, if it needs to be or or just kind.

Kind of leave it where it is.

Yes, it was a.

Good quarter from from a free cash flow standpoint, so we continue to get better and better in terms of managing working capital.

No no real revision too.

Full year cash flow, we're obviously well within the original targets that we have.

Had originally provided I would say that typically Q4 tends to be our best cash flow generation quarter of the year. If you look back at the last several years.

And certainly hope to generate a little bit more free cash flow in Q4, but it might be a little bit different. This time around so if you look closely at the balance sheet you saw.

That we had good release of cash from working capital about $108 million with the majority of that coming from sort of the difference between our contract assets and contract liabilities.

And if you look forward to Q4 that probably goes a little bit the other direction plus if you look at.

The guidance that we provided and you do the math, there's a pretty sizable step up in the top line. So it could be a little bit of a buildup in AR and then lastly, as we sort of went on and a great bit of detail related to the supply chain challenges.

That we've been having and expect.

To continue into Q4, we are building buffers.

Certain parts of our supply chain.

To better withstand some of the potential disruptions that we see on the horizon.

So long way of saying that.

We're still optimistic in terms of our future cash flow generation, not just Q4, but certainly into 2022, we're getting better in terms of working capital management.

But don't expect another very large windfall of free cash flow in Q4, but overall feel fantastic about the condition of the balance sheet.

Great. Thank you Jose I'll pass it.

Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open Hi, Neal.

Hey, good morning, guys, if I could ask a strategic question here around M&A and the company hasn't pursued.

Transaction in some time, but you are evolving the business and you're focusing on some new growth areas, including offshore wind do you think you can build the business.

Organically as you diversify or do you think there is a role for bolt on M&A and your strategy, yes, great Great question, Neil and to clear the record yes, we have been engaged in an M&A for consistently.

We just found everything too expensive, particularly in renewables and particularly with all the capital with apparently very low cost of capital chasing some of these transactions and so.

Yes, we feel very comfortable pursuing these opportunities organically you step back and look at the companies.

Capabilities, our assets, our global footprint, our fantastic engineers that are super creative.

Our deep expertise in materials metallurgy robotics.

Digital I mean, you name it.

We've got the toolkit here to pursue these things organically.

And watch with with <unk>.

A few steps ahead of competition in many of these areas and so.

That's the plan we have made a couple of small investments we've talked in the past about R.

Our investment in a land wind tower manufacturing technology that were.

We've bought a lot of the skills that I just referenced to bear on helping them achieve their strategic goals and are pretty excited about that and then we've also developed complementary products.

Specifically on mobile tower Crane lifting systems for that.

Technology that we'll be bringing to market in early 2022.

But I'm pretty pretty excited about I feel pretty good about being able to move forward.

Organically, mostly but nevertheless, just wanted to be clear, we're always looking always looking.

On the acquisition side for for opportunities to strengthen what we do.

<unk>.

Energy transition space as well as our traditional oil and gas space, which we continue to invest inorganically as well.

That's great Clay, maybe you could talk about how youre seeing the offshore opportunity and quantify for us what the opportunity with the cash flow or EBITDA opportunity set would look at as we look at your slides you do talk about 240 gigawatts of offshore wind capacity over time by 2030.

Big.

It's a big prize, but help tie that back into what it means for your model yes.

<unk> offshore specifically we've talked.

Earlier than before about the installation vessels that are required to install these these leading edge wind turbines and theyre just gigantic pieces of equipment.

$14 15 megawatt turbines, which are sort of leading edge or 500 foot hub heights. So thats, a 50 story building.

And then blades that are.

100 yards or more long and assembling that at altitude is a major undertaking. So the vessel requirements has continued to rise with the heights and the weights involved in installing these things as well as the industry installation industries aspirational goals around making.

Installation more efficient taking cost out of installation, which really plays well into nov's capabilities in terms of.

Equipment handling sort of.

Time and motion studies around that process.

And really bringing some pretty creative minds to bear on improving that.

But the outlook remains good because we don't think the industry is going to stop at 15 megawatts I think I think 20 megawatts or more probably.

On the horizon, a few years out and so that space looks pretty good.

And so we're we're glad to be a part of it but shifting gears or potentially even more interesting space further out which is in the euro area of floating wind and so when you think about it in fixed when you require shallow water and we are building the tool kit and the same way we built drilling rigs. We are building these installation vessels in deepwater.

The wind power generation industry is going to have to move to floating wind turbines and there we've got some very clever.

Hull designs that are Cousteau MSC group has developed they've been in this in and around this space for 20 years and that we think can be manufactured industrially with less steel.

Working in concert with shipyards and just as a reminder, we've done that a lot building 400 offshore rigs.

Through the last 20 years and so we've worked closely with most of the world's leading shipyards around the world. We think we can help and then the industrialized processes to make these.

These vessels at scale and then in Ov proprietary kit around mooring fairly so sorts of things that would anchor those vessels.

Our discrete items, we could sell into that in addition to working with the shipyards to fabricate the halls and the difference between that opportunity in the fixed when opportunity is we would we would participate economically in each individual asset. So it's a little different and I think that makes the total addressable market in the floating wind space.

In the long run far larger than the fixed run does that does that answer your question, yes, and Craig going back to the fixed offshore you had talked about $400 million of annual run rate by I think it was fourth quarter of 2022 does that still feel like a good number and is there an upward or downward bias to that.

I think that's right down the middle of the fairway I think thats it fits with the orders that we've won up through the third quarter that we just announced.

And.

We're on that trajectory to be able to hit that by the end of 2022 as you can appreciate Neil these vessels.

Take sort of several months of gestation and so forth. We're working closely with these customers to get the specs right.

The plan right to execute these projects and so line of sight on that is has been pretty decent and so the $400 million guidance that we gave a couple of quarter. It goes quarter to go kind of fits that pipeline of sales opportunities alright, great color guys. Thank you. Thank you.

Your next question comes from the line of Marc Bianchi from Cowen. Your line is now open.

Hi, Martin Thank you.

Hey, guys.

I wanted to start with the charge that you took on the on the vessel projects.

In the third quarter just to clarify is this a charge on a percentage of completion type projects. So youre recognizing all the expected higher costs for the project here in third quarter, and we really shouldnt have any any of that effect in the fourth quarter and beyond assuming things don't get any worse.

That is correct. It's a POC project, we've roped in all of the extraordinary costs that we have encountered there.

And we are.

Fairly far along getting it done, but we still have a ways to go and then.

Just worth noting there is still COVID-19 challenges out there, but this is our latest and best view on cost to get to think get this vessel completed.

Right. Okay. So then if I sort of exclude that from.

Kind of put that back into third quarter and caps. It would look like the implied incremental.

Maybe in the mid teens.

And I know theres lots of supply chain issues, and so forth, but maybe you could talk to.

Maybe what's going on in the fourth quarter that could be holding back incrementals and how you see that progressing beyond fourth quarter.

Well.

First you are right if you sort of except for that then you see completion and production solutions revenue down $19 million, but EBITDA actually up three in Q3.

Through that through that math, but looking forward to Q4, our guidance with low Incrementals frankly is just the acknowledgment that the.

The state of the global supply chain is in a place it's really never been before.

And we're battling through.

Sort of shifting.

Constraints and challenges and fleet freight issues et cetera, et cetera, et cetera, and so.

I'll confess where maybe there's some conservatism in Q4, but I think as appropriate frankly, given what we just saw in Q3 and the fact that the COVID-19 supply chain disruptions arent going away I will note in terms of color that we've seen over the last couple of quarters.

Q1, Q2, when you're talking about Covid. It was much more around moving our workforce around the globe. So we have service technicians across international boundaries that have to face a potential quarantines to go offshore to come back to their home countries et cetera et cetera.

That is probably getting a little better.

But through the third quarter, what we're seeing are more of the second order effects, where our sub suppliers are more disrupted by supply chain issues freight is getting more challenging.

<unk>.

Raw material constraints and allocations in some instances that sort of thing. So the nature of this is shifting but it's just it's an uncertain time and as the world tries to get out of this pandemic.

And reckon with.

The economic.

Disruption that that the shutdown last year and early this year cost.

Yes.

Makes sense.

On the order outlook.

I didn't quite catch because you've got so many moving pieces within the segment that Jose was discussing but just if you look overall like rig tech and overall caps orders strong performance here in the last few quarters, how do you see that shaping up over the next quarter or two.

How does how do the supply chain issues influence that do they hold back orders do they cause customers to pull orders forward because they want to get ahead of potential supply chain issues. Just if you could talk talk through that a little bit.

Market.

It's a good question so as it relates to the order outlook as we're talking about we feel really good about sort of the sustainability of this new level of orders that were receiving.

Within our <unk>.

Order book.

And so see that sort of continuing to build some momentum into 2022, but for a lot of the things that we're booking right now, particularly within our cap segment.

Our cap segment as you might imagine.

Order intake for sort of the smaller type items IAA pieces of completion related equipment are still pretty light and so we're talking about big chunky orders that are coming in and if those slip or pull one quarter.

That can make a pretty big difference.

But the good news is that what we're seeing right now is things are kind of either pushing or pulling they're not going away right momentum continuing to build.

The order book, So I'd say, all and things are going really well, but you talked about the current supply chain dynamics I think does add some wrinkles and to the precise timing of when these things.

When these things come in.

So there is a little bit of uncertainty that's never good.

For order intake.

But I think some of that is starting to get resolved people are getting more confident and they are cognizant of inflationary forces and the potential impact of what might take place going forward. So.

Instances customers are trying to move forward very quickly and lock in pricing and built in that type of certainty and other instances and this ranges the gamut from the very large projects to small one off orders even that we stay within our Wellbore technology space.

So you know somebody asked for a bid.

And we quote them a price they sit on their hands for a little while and come back for an updated price and they're not happy with it. So they may choose to wait hoping that what we're seeing in terms of steel costs.

To a certain extent, so it's a little bit of a mixed bag, but overall heading in the right direction.

Super Thanks, so much I'll turn it back.

Thanks Mark.

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is now open.

Yes, Thanks for squeezing me in here, So I guess, firstly I wanted to.

To ask about was really just when you think about the cost pressures that you're seeing still calls container rates and just overall kind of supply chain friction.

Can you talk about how much of that is actually flowing through numbers in <unk>.

And like for example, like container rates kind of are they flowing through at the leading edge.

You said youre doing some airfreight instead of that and then HRC in steel cost and everything that you're seeing kind of those costs up a lot.

So.

Costs that are running through in the third quarter or are they kind of really reflective of what the.

Costs are today, and then you talked about increasing prices I don't know if you're doing surcharges.

And so when did those really start flowing through so I'm just trying to understand the moving pieces of those two.

Yes, good good question Chase.

I would say that it felt like freight kind of got a little worse through the quarter.

Hard to say, what it looks like in Q4.

Necessarily be anecdotal.

Is impossible for us to do sort of a big of course of course stuff as you can appreciate but but freight wise.

Things are getting more backed up.

More difficult to get vessels.

<unk> costs are pretty high we saw.

Certainly felt a lot in Q3, whether that's up or down going into Q4.

Really hard to speculate on I do think in the long run this does sort of dissipate and the world gets back to normal but here in the short run.

We're kind of we're kind of bearing the.

The impact of freight on the inflation front as I mentioned earlier.

It also felt like it started to melt.

In most areas I would say other than steel.

Steel rose a lot in Q2.

It's kind of one raw material that a couple of our business units pointed to and said that they are feeling like theres, a little more stability there I know iron ore prices have.

Have moved down sharply.

On the one hand, but coking coal is way up on the other hand and.

But but.

Time will tell but but that's on the heels of some really big moves I mentioned, 200% sort of price increases on hot rolled coil in play.

Less so on other other types of steel, but still 25% to 30% on seamless screen tubes that sort of thing.

We understand casing.

Probably 25% to 30% something like that so.

So big moves recently, so hopefully steel are stabilizing and the worst is behind us.

But other sort of petrochemicals that we buy resins epoxy as you've heard us talk a lot about those things we use them in our fiberglass business. We also use them in our threat protector business, we use them in our two the scope internal lining tubular lining coating business.

And so it's affecting us in those areas too so.

Just a lot happening out there.

And and.

Again, I am confident we will we'll get it all sorted out and get it behind us and just really proud that our our folks are.

On top of it they're passing.

This onto through through either price increases or surcharges are a combination of both and really trying to minimize our risk exposure to inflation as best that we can.

Maybe just a little bit more color on the tag onto what clay was saying.

Yes, certainly from overall pricing perspective in terms of our pricing from our vendors enterprises or our customers, it's a little bit of a mixed bag. So much. So in some instances we have fixed pricing for our raw materials for an extended period of time and so we are extremely well situated in that in that situation right.

Their instances, we have provided fixed pricing to our customers for a period of time and we may not have been perfectly matched up from a cost perspective, but quite mentioned our team is managing it.

Streaming well so it is a mixed bag across the portfolio and I think quite touched on it a little bit in his prepared remarks, and then I had a little bit of color that might help from <unk>.

Impact of freight.

It's really remarkable because obviously one of the benefits. We have is our is our size and scale and our diversified footprint that we have around the world and so over the last couple of quarters. There are several of our business is that over the last several years, we have done what makes sense right, which is to locate.

A lot of our manufacturing in low cost regions around the world, but we preserved.

Some manufacturing within North America, as part of diversifying our overall supply chain and manufacturing footprint and what we've seen over the last quarter or two or three is that freight costs are getting to be so excessive debt the benefit of that low cost manufacturing.

<unk> work for us and so we have actually repatriated a lot of our manufacturing back to North America, while we're dealing with these massive freight charges, yes, yes, and good to have options in our manufacturing footprint to be able to do that to respond. So yes, absolutely one quick follow up here I.

I didn't hear anything mentioned about the Saudi facility.

Yes, just kind of talk about talk about how that ramps going is solidly looking to slow down and do less than five per year near term because crude off are they looking to accelerate it. So just kind of talk about.

What's going on with a facility there no. Thank you Chase I was just here a few weeks ago, it's gone really really well.

The Saudis are accelerating you probably have heard about the unconventional gas development aspirations along with their aspiration is to develop more.

Crude productive capacity and very excited about we're going to have the first rig.

Commissioning going on there by the end of the year and the second one will fall off just a couple of months afterwards so.

Almost completely done with the facility very close but very excited about the outlook for that for that region. So thank you for asking.

Okay, perfect I'll turn it over thanks, everybody. Thank.

Thank you guys.

Thank you. This concludes today's Q&A session I will now turn the conference back over to Clay Williams.

Hello, and thanks to everybody for joining us today I'm going to end again by.

Thanking our terrific employees for your diligence your hard work your creativity and in particular, the care that you show for our customers and for each other so thank you all for what Youre doing and those of you listening. We look forward to speaking to you on our fourth quarter results in February have a good day.