Q1 2022 Nov Inc Earnings Call

April 29, 2022

Good day, ladies and gentlemen, and welcome to the <unk> first quarter 2022 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.

Yeah.

Welcome everyone to <unk> first quarter 2022 earnings conference call with me today are clay Williams, our chairman President and CEO Jose Bayardo 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 security laws.

Involve risks and uncertainty and actual results may differ materially.

No one should assume these forward looking statements remain valid later in the quarter or later in the year for a more detailed discussion of the major risk factors affecting our business. Please refer to our latest forms 10-K, and 10-Q filed with the Securities and Exchange Commission.

Our comments also include non-GAAP measures reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website.

On a U S GAAP basis for the first quarter of 2022, <unk> reported revenues of $1 55 billion and a net loss of $50 million our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.

Later in the call we'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 first quarter of 2022, <unk> revenue of $1 $548 million grew 2% sequentially and EBITDA increased $34 million to $103 million or six 7% of revenue year over year revenues were up 24% at 34% leverage reflecting positive impacts of aggressive cost reduction.

And some recent pricing recovery offset by continued inflation and supply chain disruptions helped by continued high demand for offshore wind renewables, along with rising oil and gas demand orders were strong across the board as we put up a consolidated book to bill of 115% in the first quarter.

The organization's execution against shifting challenges and supply chain freight and labor improved during the first quarter in part by broadening our base of suppliers as well as recovering escalating costs through higher pricing.

Our cost for certain raw materials like resins appear to be easing. Unfortunately, a lot of components got worse during the quarter steel forgings polymers fiberglass electronics stainless steel and switch gear, most notably great challenges intensified in eastern hemisphere, owing to the conflict in Ukraine and continued COVID-19 impacts in the quarter recent standard cost rules on many of our products moved up.

<unk>, reflecting the higher costs, we face thus considering all these extraordinary challenges we were pleased to see improved execution and better financial results for the quarter.

Our results were still below acceptable levels, our outlook is constructive given the steady tightening of oilfield services capacity that is driving accelerating demand for nov's core oilfield products. This uplift is giving us improved line of sight towards healthier returns for our shareholders for reasons I'll go into in just a moment I believe this up cycle will last a while.

First however, I'd like to take a minute and speak to some oilfield fundamentals.

Constructing an oil or gas well takes much more than good reservoir rocks in a drilling rig.

Oil and gas companies rely on highly specialized geo technical talent to identify and delineate drilling locations in our petroleum and processing engineers, who design wells production systems and processing and transportation facilities. The business requires investments in expensive lease holds wells and fabrication of platforms processing plants gathering systems in refineries that make oil and gas production one of the most.

Capital intensive industrial undertakings, the extra well construction is performed by oilfield service companies that in term operate very expensive highly engineered fit for purpose equipment fleets, which probably make it the second most capital intensive industrial undertaking around all this plant equipment in well construction process utilizes a lot of steel as well as exotic metals.

<unk> polymers resins computer chips electric motors and electronics.

The work is performed by hard Scrabble men and women from rough next to drillers to truck drivers working long hours in remote locations for usually above average pay in tandem with talented geoscientists and engineer supporting these complex operations.

One way to think about our industry is a finely tuned and optimize machine into which goes capital a lot of capital highly skilled engineering talent hard work by experienced oilfield hands full acreage identified by Geoscientists that holds the promise of profitable production and a lot of highly spec pipe plastics engineered engines resins.

And computer chips.

Out of this oil and gas machine comes your high standard of living the high standard of living that your family and my family and millions of others enjoy along with a hope of a better standard of living for literally billions of people in lesser developed economies around the world out of this machine comes the food that we eat in the fertilizer made from natural gas at the farmer uses to achieve amazing Agra.

Cultural productivity from fields, plowed and harvested using diesel powered equipment all air travel most transportation on demand plus all ocean going freight and rail that brings food and products into our lives. The plastics that doctors used to deliver our medical care in a thousand other things that make our lives better.

From construction to transportation to petrochemicals to pharmaceuticals to consumer goods to you name it the oil and gas industry connects with and supports 100 industries that form the foundation of our modern lives.

This leads me to our current predicament.

Two years ago remarkably we faced negative oil prices today. The world is confronting triple digit crude prices in all time high global natural gas prices. While this rapid shift is drawing and damaging to global economies frankly, it should not have been entirely unexpected.

Over the past few years governments and capital Allocators had been playing a dangerous game with respect to energy and the global economy will transition to lower carbon renewable sources of energy for the world is required for the long term good of the planet. It seems we've gotten ahead of ourselves as we've attempted to pivot away from fossil fuels, which are inherently reliable and energy dense versus a power to lower density forms of <unk>.

With intermittency issues, an inferior economic profiles.

Pivots to new energy sources were accomplished over decades think about the shift from firewood coal through the 18th and 19th centuries, the shift from coal to oil to the 20th century, the emerging shift to natural gas over the past 25 years. These were driven by economics superior energy density and value for lower cost to supply rising per capita energy demand and.

Fortunately the lower carbon energy transition today lacks a robust economic engine driving it forward, while L. See oes have fallen for solar wind and other forms of renewable energy I believe El Coes will continue to fall through technical advancements that EOG and others are making renewables are still expensive and suffer from intermittency challenges that require storage solutions that add to their all in <unk>.

<unk> frequently not accounted for ALC OE calculations to Axa.

All right. This transition in the absence of a compelling economic driver governance regulatory agencies and media decided it would be a good idea to demonize the oil and gas industry and let's be honest you know what I'm talking about I think the motives behind this are pretty evident to bring about the acceleration of a desired energy transition outcome, namely a more rapid pivot to renewables, specifically the oil and gas industry is.

Under tagma political bureaucratic and media leadership that have been very effective in choking off the inputs into the oil and gas machine I described earlier.

Now, let's turn back to those starting with capital unrealistic near term peak oil demand narratives built on the promise of rapid substitution of renewable energy have significantly dampened equity investor interest in oil and gas stocks both in public markets for energy weighting of the S&P 500, bottomed recently at less than 2% compared to 14% in 2008 and more than 20% in the 19th.

<unk>.

And in private equity with little or no terminal value expectation due to a broadly accepted narrative that oil and gas goes away. Soon it's easy to understand why equity investors had been reticent to invest here and with a relentlessly negative PR. The industry receives we understand why it's been fashionable for college endowments and other institutions to trumpet there divestitures out of the space. Meanwhile, commercial banks are being pressured by <unk>.

Both our shareholders and regulators to trim lending to the sector and short capital in all forms of become way more expensive to oil and gas next the industry needs engineering talent again, unrealistic peak demand scenarios and negative PR have frustrated efforts by the oil and gas industry to recruit young talented engineers, who worry about investing their careers in a sunset industry and us.

Recruiting effort is becoming more urgent as the industry needs to replace its experience, but aging baby Boomer workforce soon referred to by industry insiders as the great crew change.

Don't feel work has provided high wages and high standards of living in small towns in remote areas for generations of blue collar workers, but it's not for the faint of heart deep deep cyclicality requires painful significant cuts during wolf-eel downturns, which can be brutal as the U S rig count dropped to record low levels in the summer of 2020, following the global government decisions to shut down economies the.

Phil did the difficult task that we are unfortunately called to do from time to time, we laid off a lot of good employees.

This was very very tough on many good people and families and they remember it when we fast forward to today when the broader economy is growing unemployment is low attractive job opportunities are available outside the oil patch and family balance sheets are in much better shape and when did the pandemic stimulus checks. It is extremely difficult to track direct labor back to the oil patch and frankly it requires much higher.

Wages.

Oil field services also cut investments in its hard assets the downturn saw companies cannibalize underutilized oilfield equipment for spare parts rather than spend precious cash needed to survive on properly maintaining fleets required for more normal levels of activity as industry activity ramps oilfield service companies are swimming upstream against the congested supply chains as they scrambled.

Put incremental equipment back in shape to work the physical inputs required for these equipment overhauls bearings and hoses engines and transmissions polymers resins chips and circuit boards are incredibly tight while U S is back to growing production off of 2020 lows by drawing down DUC inventories. We are the only such country, that's growing global crude inventories are well below.

Average and still trending the wrong direction, because we are no longer the just in time industry. We were in the prior decade the.

The oil and gas machine needs promising acreage as well our E&P customers tell us that the current regulatory environment continues to get more expensive and challenging orchestrated in their view by agencies that are all trying to effect a more rapid energy transition while while in other developed countries. They faced outright bans on oilfield activity by the way geoscientists need years to find and delineate for Lakers through.

Operations. Unfortunately global exploration was severely cut following the downturn of 2015.

Meaning the pipeline prospects to develop is very limited after seven years of under exploring.

To summarize when we survey the inputs required to construct oil and gas wells from capital to Labour to workable regulations to prospect development pipelines to.

Engineering talent to consumables and equipment, all face significant hurdles put in place by politicians regulators and media.

My question is this is it's been a good idea has been a good policy to demonize the industry that quite literally powers all other industries.

Political leaders across the globe had not been honest with voters and consumers about the cost feasibility difficulty inconvenience and time required to fully pivot.

Two renewable sources of energy in my view I'm not questioning the need to make the pivot, but rather the plan to get there the de facto policy of choking off inputs of a critical industry not just yours, but decades before we have a good alternative as a very bad policy.

Will suffer as a result.

To make matters worse, the enormous economic stimulus that accompanied the forced shutdown of the global economy. During the pandemic massively increased money supply across developed economies as governments printing money at a breathtaking rate. The U S. M. Two money supply is up over 40% for example, historically inflation roll directly into commodity markets like oil and gas. This time I believe it will be amplified by input constraints that our catalog.

Earlier and to this productivity gains from workforce demographics, and globalization that offset money supply growth in power generation that today are going the other direction and it's no surprise that dollar inflation is at 40 year highs and rising in summary, I could not have scripted a more compelling set up for an energy crisis.

All this points to rising demand for equipment and services and Ob brings to the oil patch over the coming quarters and years. It also points to pre dark view of economic challenges, we face as we undo the mess created the world now now finds itself in critical need of an industry that it had written off as a sunset industry and reconstructing this industry will not be easy seven years of E&P underinvestment of oilfield.

Services effectively dismantling much of its capacity and drastically shrinking its workforce in order to survive together with the additional hurdles created by the vilification of oil and gas make what is required of us a very heavy lift. According to a recent research report the industry habits resource life since 2014 and fewer <unk> in recent years will potentially lead to approximately 10.

<unk> barrels of loss production by 2020 for the prospect pipeline continues to shrink while ESG measures drive operating and financing costs higher skilled labor markets are tightening inflation and supply chain disruptions are pushing large project cost curve significantly above the levels seen in the prior decade, and accelerating global decline rates adds further risk of global production shortfalls.

We need and thankfully, we are starting to see both short cycle shale oil and longer cycle offshore development of petroleum resources, the low rates charged by oilfield service participants over the past several years did not reflect the physical consumption of capital equipment used in operations much less earn a decent return for oilfield service shareholders. However that overhang is diminishing rapidly.

Ian has been replaced with tightening schedules and lean if not bare shelves pricing is beginning to move across the oilfield after years of services industry subsidizing its customers by cannibalizing its own capital base.

While the moves thus far have been small mainly to keep pace with inflation. Our oilfield service customers report net pricing momentum is beginning to grow.

Nevertheless, while all the foregoing is worrisome for the global economy, I am confident our company our industry and the producers. We serve are up to the extraordinary task of growing production to provide energy security and better standards of living for humanity. Just as we have done for 163 years. The oilfield is nothing if not resourceful and resilient.

Since 2014, our organization has shrunk dramatically to make it to the other side of the seven year down cycle, but we never took our eye off the ball and technology development initiatives.

<unk> continues to invest in and lead in both oil and gas technologies, along with the emerging renewable technologies that we've spoken of through the downturn.

While the energy transition to a lower carbon futures required. The world is finally waking up to the fact that oil and gas is still absolutely essential to a modern way of life in the oil and gas industry is quickly becoming aware that it can't continue to meet the world's demand for its products without significant further investment in Ob as enabler of what still is the most important.

Three in the World and we stand ready to meet the challenges of the coming up cycle to the employees of <unk>, who are listening today. Thank you for all that you've accomplished through this tough historic downturn your hard work and perseverance got US here, we have a lot more hard work ahead and now it's Showtime the world will be counting on us.

With that I'll turn it over to Jose.

Thank you clay Nov's consolidated revenue for the first quarter of 2022 was 1.55 billion, a 2% sequential increase compared to the fourth quarter of 2021, and a 24% increase compared to the first quarter of 2021 rapidly improving market fundamentals growing global drilling activity and actions taken to mitigate.

Operational disruptions more than offset seasonal declines and continued extraordinary supply chain challenges.

Adjusted EBITDA totaled $103 million or six 7% of sales a 220 basis point improvement in EBITDA margin compared to the fourth quarter and a 670 basis point improvement compared to the first quarter of 2021, representing 34% EBITDA flow through our GAAP results for the first quarter of 2022.

Included $45 million of other items, which were primarily due to the partial impairment of assets and other charges associated with our operations in Russia, Belarus and Ukraine.

Working capital increased $163 million, primarily due to a disproportionate number of shipments that occurred late in the quarter and intentional inventory builds to mitigate operational disruptions.

Working capital was also affected by the normal increase in Q1 tax employee benefit and other payments, which further contributed to a 103 million dollar use of cash from operations capital expenditures totaled $46 million for the quarter.

While we've become more adept at navigating through the unprecedented number of ever changing supply chain challenges all of our businesses remain constrained by raw material shortages with significantly protracted and growing lead times for sub assemblies castings, forgings electronics and motors.

As a result, our throughput is constrained and we are not fully keeping up with inflicting demand during the second quarter, we plan to build additional inventory buffers to position the organization to meaningfully improve throughput and operational results in the second half of the year.

Moving on to segment results our.

Our Wellbore technologies segment generated $608 million in revenue during the first quarter, an increase of $32 million or 6% compared to the fourth quarter and 47% compared to the first quarter of 2021.

[noise] growing global activity led by North America, and the Middle East drove solid revenue growth across the segments portfolio of businesses. Despite headwinds from supply chain disruptions pricing gains and an improved product mix offset inflationary pressures to drive incremental margins of 41%, resulting in a $13 million sequential improvement in EBITDA.

$101 million or 16, 6% of sales.

Impaired to the first quarter of 2021, EBITDA improved $67 million, representing 34% EBITDA flow through.

Our REIT HEICO log drill bit business posted revenue growth in the upper single digits, driven by strong performance in the U S and middle East.

A less favorable mix limited sequential EBITDA flow through however, the business unit realized a mid 40% incremental margin relative to the first quarter of 2021.

Despite intense inflationary pressures on several key material inputs. The business has secured net pricing gains in most markets and its leading edge technology has positioned the business to continue its strong performance in the second half of the year.

Our downhole business reported a low single digit percentage improvement in revenue as solid growth in North America was offset by large Q4 shipments into international market that did not repeat.

This business unit has been disproportionately impacted by supply chain challenges with difficulties accessing elastomers and special grades of steel using a high spec products, resulting in growing backlogs for our tools.

And our primary North American manufacturing facility backlog for our power sections increased 38% in Q1 due to staters awaiting re lines despite and in part due to these difficulties the business has been able to push pricing to partially offset the supply constraints and is executing on plans to significantly increase throughput during the second half of <unk>.

2022.

Our well site services business posted mid teens sequential revenue growth with strong incremental margins the business realized a solid full quarter contribution from its recent managed pressure drilling acquisition and strong contributions from the unit's core solids control operations as activity increases and more rigs are reactivated this business is particularly.

Well positioned as we expect drilling contractors will look to differentiate their rigs with the latest generation of solids control and MPD equipment.

<unk> business posted low single digit sequential revenue growth with negative incremental margins due to the seasonal falloff in capital equipment sales into international markets and a less favorable sales mix.

Despite the soft quarter, the business unit achieved 41% revenue growth with incremental margins in the 70% range in comparison to the first quarter of 2021 and had several recent commercial successes, which should drive wider adoption of the units newer technology offerings.

Working in tandem with more rig business. The unit initiated a trial project with a key NFC and the middle East utilizing archives on intelligent drilling optimizer running on our <unk> platform. The project demonstrated notable drilling improvements reducing average days to drill by 35% in comparison to offset wells. Additionally, empty tacos evolve broadband.

Wired drill pipe solution was commended by key offshore customer for helping avoid a well control event when the operator encountered an unexpected change in downhole conditions and subsequent loss of well circulation and he tacos wired drill pipe and distributed a long string measurements continue to provide real time annual or pressure readings, which would not have been possible with mud pulse telemetry.

This allowed the operator to effectively manage the situation and backfill the annulus. The operator estimated solution helped avoid of lost in hole incident, if not a full blow out we expect adoption of empty tacos technologies to accelerate among leading operators as we continue to demonstrate meaningful improvements in drilling efficiencies well productivity and safety.

Our <unk> business delivered a sequential revenue increase in the mid single digits, driven primarily by improving demand in our U S inspection in eastern Hemisphere coating businesses. Despite continued inflationary pressures on raw materials and labor incremental flow through for the business materially improved as demand is now driving opportunities to ratchet pricing at a rate.

That should outpace the combined effect on inflationary costs and operational disruptions.

Our grant <unk> drill pipe business posted mid single digit revenue growth with outsized incremental margins as the business realized a 15% increase in the mix of large diameter premium pipe sales, which more than offset a dip in volume, while we expect supply chain disruptions inflationary costs and a slight deterioration in sales mix to result in softer Q2 <unk>.

<unk>, new order outlook and pricing are growing increasingly favorable with attract pipe inventories at near record lows.

For our Wellbore technologies segment, we expect the continued improvements in global oilfield activity to drive revenue growth. Despite ongoing supply chain challenges, resulting in a sequential revenue improvement of 1% to 5% during the second quarter, while we expect pricing for many of well bores businesses will gain momentum inflationary pressures will limit incremental flow through.

To the mid to upper teens. We believe this segment is on track to achieve EBITDA margins in the high teens by year end, our completion and production solutions segment generated revenues of $530 million in the first quarter of 2022, a decrease of 3% from the fourth quarter of 2021, but an increase of 21% compared to the first quarter of 2021.

The sequential decline in revenue was driven by continued supply chain challenges along with typical seasonal declines. Despite the sequential decrease in revenue adjusted EBITDA increased $8 million due to better execution against ongoing supply chain disruptions improved product mix and a better absorption in our manufacturing plants, while orders declined sequentially.

Book to Bill was 110% the fifth straight quarter in which the segment has achieved a book to bill greater than one.

Quarter, ending backlog increased 6% sequentially to $1 36 billion, which is up 68% from the first quarter of 2021 and reached its highest level in more than five years.

Q1 bookings were solid, but a number of our offshore customers took a step back and deferred new orders, while they work with suppliers to get their arms around the unprecedented disruptions delays and rising costs in shipyards around the world disk.

Despite this temporary pause the outlook remains robust as improved commodity prices have significantly enhanced project economics, despite rising costs.

Our process and flow technologies unit posted mid double digit sequential revenue growth in the first quarter as progress improved on several projects that experienced COVID-19 related disruptions over the last few quarters.

Profitability for this business improved margins remain at unacceptable levels due to cost overruns caused by shutdowns and quarantines driven delays at shipyards and engineering cost overruns, resulting from the inability to efficiently collaborate on complex projects, while in remote work settings, we expect the magnitude of disruptions to decline, but the effect.

We will continue to pressure results through the second half of the year.

Our subsea flexible pipe business recorded a sequential revenue decline in the low single digits, but was able to achieve a modest improvement in profitability through a higher margin sales mix and through herculean efforts to control costs throughout the quarter to make up for a three week shutdown in one of our two manufacturing plants caused by a lack of raw materials.

While the primary issue has been resolved we expect profitability to remain challenged for this unit for at least the next quarter or two.

Our intervention and stimulation equipment business experienced a low double digit drop in sequential revenue driven by strong Q4, coiled tubing equipment sales and a late 2021 push to sell lower margin prior generation capital equipment that did not repeat in Q1.

Profitability improved due to a better product mix higher pricing and incremental cost savings achieved during the first quarter, which more than offset continued inflation and supply chain challenges bookings increased 44% sequentially and included strong orders for our hydro rig 61, 20 large diameter coiled tubing injector that provides 120000 pounds of continues.

Lifting capacity and 60000 pounds of continuous snubbing capacity.

While we're not yet seeing demand for new units in North America customers are realizing much improved pricing and are now upgrading existing units with better technology.

This means the aftermarket activity continues to drive our Isd business. However, during Q1, we saw a pickup in demand for wireline equipment in international markets and cementing equipment in the U S. As we are also saying U S pressure pumper purchased additional pump units to supplement current fleets as horsepower demand per spread continues to increase with.

Our service company customers beginning to realized net pricing for the first time in several years and high spec equipment nearing full utilization, we expect to see increasing sales of capital equipment moving forward.

Our fiberglass systems business posted a sequential revenue decline in the upper single digits due to seasonality in our fuel handling systems operation and continued supply chain issues, which has made operations for this business, particularly noisy.

Many of our key inputs such as glass resin and epoxy, we're primarily sourced from Asia with a dramatic increase in shipping costs and the inability to predict delivery times. The business is worth to diversify and reallocate it supply chain to better insulate it from disruptions.

Spite the challenges faced by this business and sequential revenue decline the team was able to improve profitability in Q1 through a focus on cost control and pushing price to make up for increased costs associated with raw materials and operational disruptions.

After a difficult 2021, the business is now saying its sales pipeline grow at a rapid pace, particularly in the middle East pretending improved results for the business in the second half of the year.

While supply chain challenges and inflationary pressures will persist through the second quarter execution from our completion and production businesses should continue to improve as a result, we expect completion of production solutions segment to achieve a 10% to 15% increase in revenues with incremental EBITDA margins in the 15% to 20% range. We continue to believe.

The segment can achieve mid to upper single digit EBITDA margins by year end.

Our rig technology segment generated revenues of $441 million in the first quarter, an increase of $10 million or 2% sequentially. The modest topline growth was a result of rapidly improving market fundamentals, which are driving a growing backlog in both capital equipment and aftermarket offerings, mostly offset by seasonal declines in supply chain challenges.

Is that a restraining our ability to ramp production in lockstep with inflicting demand in our aftermarket business.

Adjusted EBITDA improved $15 million to $36 million or eight 2% of sales due to a more favorable sales mix improved pricing and cost savings initiatives.

New orders totaled $236 million, representing a book to Bill of 124%. We also posted an additional $80 million positive adjustment to our backlog primarily related to an annual inflationary price index adjustment associated with our Saudi Newbuild rig program as a result total backlog for the segment at quarter end was two <unk>.

Eight 9 billion the highest level the segment achieved since Q1 of 2020.

Demand for wind power installation vessel equipment remains robust and we booked a large equipment package for our new wind power installation vessel during the first quarter. The award includes jacking system heavy lift crane and a special feeder boards handling system, which is designed to provide a cost effective Jones act compliant solution that can improve installation process efficiencies by up.

<unk> to 30% compared to conventional vessels.

The offshore wind power installation equipment market remains a compelling near term opportunity and we see the potential for five to six additional vessels, reaching F. I D. Over the next 12 months to 18 months, we're equally excited about nov's mid to longer term opportunities within the wind power space. We've previously discussed our taller tower thesis, which.

To be the primary driver for improving economics in the wind power space and continues to drive our R&D efforts and the proprietary solutions, we are developing for the market with.

We previously described our patented technology in which we've invested spiral world tapered wind tower sections via an automated process, allowing for infield manufacturing, thereby eliminating the many logistical limitations transporting the larger diameter sections necessary for tall tower developments.

We're pleased to announce that production of the first commercial tower sections is now underway at our Pampa, Texas facility.

While this system will address the logistical challenges and costs associated with delivering toller wind turbine towers to location.

Stalling towers in the cells with higher hub Heights presents other challenges and opportunities.

We're in the process of finalizing the design of our fit for purpose onshore mobile wind tower erection system, leveraging our core design and manufacturing competencies for large industrial capital equipment and experienced developing complex control systems. This patent pending system should significantly improve the safety reliability and efficiency of Tau.

Tower installations.

Longer term, we are seeing the emerging floating offshore wind market as a compelling opportunity for N O V.

Floating wind turbines will be key to unlocking the massive renewable energy potential in many markets around the world that don't have access to large areas of shallow coastal waters beyond our existing product portfolio, which includes cranes winches mooring systems cable lay systems balancing systems and chain connectors intentions were leveraging our deep expertise in.

Marine and offshore engineering design and manufacturing to actively develop new products and technologies to support this nascent opportunity our patent pending try floaters semi submersible floating system has a cost advantage shallow draft design that reduces steel requirements capital expenditures and overall project execution risk we're.

We're also designing several proprietary lifting and handling tools to streamline the installation and commissioning of offshore wind turbine components.

To date, we've completed several pre feed and feed studies related to potential deepwater wind development projects and we were recently awarded a pre feed study for a project in South Korea.

We're also working with partners on several other potential projects around the world, including opportunities within the perspective, 25 gigawatt, Scott Wind development area, where 17 E bad blocks, covering 2700 square miles where recently auctioned.

Of the 17 blocks awarded 11 will utilize floating wind systems and <unk> has been actively engaged in discussions with the winners of six of the 11 license fees.

There is no guarantee that <unk> will be selected to equip these developments we are well positioned for this large long term opportunity, which could result in pre feed activities taking place over the next two years full feed studies during 2024 and 'twenty five and construction beginning in 2026 with first power by 2030.

We're enthusiastic about <unk> long term prospects within the wind space, but remain extremely focused on our current wind power construction vessel opportunities and on the growing demand for more conventional rig equipment business.

Orders for rig capital equipment in Q1, 2022 were up 83% over Q1 of 'twenty one they remain light by historical measures. However, we're seeing accelerating improvement in underlying fundamentals in the U S land market, leading edge day rates for top tier rigs are up to $30000 up from the low 20, thousands just a few.

Quarters ago in the active rig count continues to March higher we expect to see similar day rate dynamics for top end rigs in international markets with improving activity.

Leading edge offshore day rates have climbed into the three to $400000 range levels that are encouraging reactivation and reinvestment activities to accelerate and generating orders for both our aftermarket and capital equipment businesses. During Q1, we were awarded multiple contracts to help customers ready equipment for upcoming drilling campaigns.

Including an agreement with an international drilling contractor to reactivate three jackup rigs and recertify, an additional eight we've seen a dramatic change in the sense of urgency among our customers last quarter. We described a rise in inquiries for top drives high torque handling equipment and pressure control gear, which which are now converting into orders during most of two.

2021 customers wouldn't have had any qualms incurring downtime to recertify pressure control gear.

But we're now seeing customers buy spare sets a blowout preventer to eliminate downtime during the re certifications avoiding the need to miss out on much improved day rates.

While we welcome this newfound urgency and how it is creating opportunities to strip away. The last vestiges of price discounts. We offered during the depths of the downturn major supply chain bottlenecks have frustrated and we will continue to frustrate our efforts to ramp our output in step with surging aftermarket demand for at least another quarter.

Supply chain constraints are impacting all of our businesses, but are most acute within our rig aftermarket operation, while aftermarket revenues improved roughly 5% sequentially and growing demand from recertification reactivation and upgrade projects in North America, and Europe allowed us to avoid the typical seasonal declines in service and repair work revenues from spare part.

Sales declined but not due to a lack of demand in fact spare part bookings increased 16% achieving its highest level since Q1 of 2020 and was 67% higher than the low we saw in Q4 of 2020.

Unfortunately supply chain constraints led to a decline in revenue from spare part sales and resulted in our backlog increasing 31% over Q4, we expect throughput to remain constrained through at least the second quarter as supply chain remains challenged and lead times continue to stretch the supply chain bottlenecks are numerous and include difficulties procure.

All sorts of raw materials castings, forgings electronic circuits electric motors gearboxes, and even large bearings, while most of the difficulties are due to lead times from third party providers blowing out. We also made some of our own missteps related underestimating how rapidly demand would begin to inflect.

Over the past 18 months, we've been working to consolidate the operations of a large manufacturing facility in Orange, California, where we produce the bulk of our top drives into other plants in Houston and Mexicali. While this was a high degree of difficulty endeavor, the consolidation will generate meaningful cost savings.

Prior to the moves we built buffers of finished goods that we expected to carry us through the consolidation, but the moves and associated manufacturing startups took longer than anticipated and occurred while demand was beginning to inflect.

As a result, we expect operational headwinds will keep financial results for our rig technology segment flat with those of the first quarter.

However, we're growing increasingly confident in a much stronger second half of 2022 and in our belief that our rig technologies segment can achieve EBITDA margins of 10% by year end.

With that we'll now open the call up for questions.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

Joe Your question press the pound key.

Our first question comes from Ian Macpherson with Piper Sandler.

Thank you good morning, Clay and Jose and I appreciate the opening remarks that that was.

That was a really.

Spot on overview of our recent history and I'm sure that you'll be you'll.

You will be treated to drinks at the bar this afternoon after that.

That was my goal.

Well exactly.

There is always so much on the platter within Avi.

This might be a questions too hard to pin down but.

Everything is heating up in congested right now are there two or three categories of products or within your main segments that are maybe the biggest catalyst for improvement with your throughput overall as we get into the second half inside of this.

Supply chain gets unstuck at the offshore the big chunky offshore rig reactivation projects that move the needle the most.

More on the on the offshore wind vessels I think you said, maybe five or six more that looked like the one that you booked in Q1 or is it the shorter cycle stuff. That's that's accumulating and still has more of a congested backlog right now or otherwise.

I'll, let jose offer his opinion.

Just off the cuff I would say I think the shorter cycle catching up.

Improving the situation around our very very constrained supply chain challenges.

Challenges.

Meeting sort of the near term demand of supporting rigs and Frac fleets and stimulation equipment going back to work both land and offshore.

I think that's kind of the biggest near term needle mover for four <unk> as Jose mentioned in the guidance, we're facing some constraints can rig around catching up our spare parts backlog and working through that.

But the other two segments as well are battling.

Through but longer term yes.

I think I think these larger projects will contribute and we're going to continue to see good demand for.

Renewables and offshore wind.

Revenue opportunities for <unk> and so.

What I like about where we are today is in my opening remarks kind of reflected this I feel like we're sort of energy crossroads, and it's going to take all forms of energy and <unk>.

<unk> has I think we've improved the optionality embedded in the portfolio of what we bring to not just traditional oil and gas and LNG, but also to the renewable space as.

As well.

Yes.

Yes, absolutely agree with what was.

What place out in the prepared remarks, we attempted to highlight a couple of the areas that are more constrained from a near term standpoint in our downhole tools business that our rig aftermarket operations. We've got some real constraints there, but really we've got the same kind of constraints all across the organization. So we have <unk>.

Correct it throughput due to supply chain challenges that we've been having across the organization.

I think one of the things that play also touched on in his prepared remarks basically.

The need is for.

Well from all sources.

Around the world.

And we're starting to see that in our conversations with our customers and so it's hard to single out any one specific business that over the mid to longer term as guys, you, particularly bedroom because right now it feels like demand is on the cusp of an reflecting all across the board.

So clearly wellbore has had a really nice recovery to date, but that recovery has been disproportionately weighted towards the north American marketplace International market starting to come on so I still see a lot of running room in terms of well bores ability to continue to generate really good growth good incrementals going forward.

The other two segments being much more capital oriented.

We're really just starting to get up and going and we've got to really resolve some of these supply chain.

Chan constraints that we think will get much better we'll be able to manage much better as we get into the second half.

Okay.

And then.

Along that same vein Jose I think one thing that everyone in <unk> and equipment has had in common this quarter has been more working capital intensity in the beginning of the year.

Sure.

I sent them a better growth for the year.

I don't know Im sorry, if I missed this in your in your comments.

Does that impact your prior view on getting to positive free cash flow for the full year or does it move it out to next year or do you see the swings coming back your way too.

Deposit free cash for the full year.

Yes, it's a good question and it's really.

To be determined to some extent and I'll explain what I mean by that but really.

The use of cash in Q1 really shouldnt have been a surprise typically that's what happens during Q1 due to.

Seasonality associated with employee benefit costs tax payments.

Other annual type payments to take place early in the year and Additionally, as I mentioned during our prepared comments.

We.

Had quite a large amount of our sales and product ship late in the quarter, which resulted in a bigger slightly bigger than anticipated build in AR, but also began taking much more proactive measures to build.

<unk> within our inventory base to mitigate to attempt to mitigate those supply chain disruptions.

So as we look forward, we will not focus certainly we've always been very focused on free cash flow generation throughout the cycle right, but there are times in the cycle when things are going really well, meaning revenues growing at a rapid pace to where that becomes a little bit more challenged and so.

Combination of our view of.

A much higher exit rate to 2022, and the need to continue building buffers and our supply chain through the course of the year.

Not really extremely focused on making sure that we're free cash flow positive.

For the full year.

But what ultimately happens there will be determined will be dependent on the trajectory of the business.

Anticipating.

There will be a place trajectory going into 2020.

Yes, and I would add too I think longer term the organization has done a really good job.

Developing muscles around working capital intensity, if you look at our.

I think we are 27% of annualized revenue working capital intensity at year end were 25% those are.

Materially lower than they were a year or two ago getting a lot better at this but as Jose said in response to sort of making our supply chain a little more bulletproof in response to vendors for instance, having.

Increasing their minimum order quantities things like that.

That's pushing us up a little bit, but I think longer term that that better management of working capital is going to translate to higher cash flow in the future.

Noted thank you both very much I appreciate it.

Thanks, Dan.

Our next question comes from Scott Gruber with Citigroup.

Yes, good morning.

Scott Scott.

So coming back.

The outlook for well bore well beyond the second quarter. If we do start to see some of the supply chain issues affecting that segment begin to fade.

Another period.

Growth in Wellbore in the U S that would be next.

Some of the rig count or.

Or are we at the point of the cycle, where those begin to converge.

Then thank you on the international side of the business, obviously early innings Big service companies are discussing 15% growth in the second half.

Just wanted to see if you guys would expect expect something similar.

Well below the international sale.

Yes, I think a couple of things that are helping wellbore grow beyond sort of the rate of.

The rig count number one.

I think we need to continue to get sort of real pricing increase across what we provide to.

To the space and number two a lot of the technologies. We've invested in are coming into the north American market and in other markets as well, particularly around things like drill bit cutters that are are demonstrating much better efficiency number three drilling contractors are moving towards.

Larger drill pipe, so theres been a big push by operators.

To utilize five five inch drill pipe, which is a little bit bigger than more conventional five inch drill pipe and the reason that the operators are pushing for that or better hydraulics and so we are starting to see this need to swap out drill strengths.

Supporting the industry's drilling efforts across North America.

And you can add to that a number of sort of downhole tools.

Orders and things that again, we've invested in technology that demonstrates better productivity. So I think that's a pretty good tailwind to outperform rig count growth in Wellbore technologies.

I'll also tell you probably want to mentioned our digital offerings in the space for MD Taco group within Wellbore technologies is getting really good traction on.

The number of things that theyre doing with their edge computing solutions.

As well as their wired drill pipe.

Drilling optimization offerings.

Thanks Scott.

Yes.

Look if you sort of.

We don't necessarily expect everything to play out the way that it has in the past, but sort of looking at sort of recent performance of <unk>.

Wellbore segment, you go back to the prior dip in 2016, which was sort of the prior low mark for the business. He was about $511 million in revenue for the segment were roughly 19% above that level right now and you go back to sort of the 2018 2019 timeframe for that segment.

And we're pushing over 800 million a quarter in revenue for that segment and as you recall back then we saw a nice recovery in the North American marketplace, but really never fired on all cylinders with a strong international market and here as we're sort of looking at.

A prolonged multiyear up cycle I think there's still a tremendous amount of upside over the long term for the Wellbore technology segment.

That's a good lead into my follow up question, which is on the international side.

Unduly large technology gap between onshore drilling in the U S and the rest of the world.

Think about the retooling cycle here or is this just going to yet.

Typical retail cycle internationally.

A real appetite to meaningfully enhance the technology deployed thinking about material upgrades to rigs potentially newbuild rigs.

Digital application.

Side of things.

Turning to central appetite too.

Maybe if we step up the technology deployed internationally.

It's a great question I think a lot of operators around.

The Arabian Gulf are watching sort of what's happened in North America with respect to.

Big gains in drilling efficiency in leaps and bounds the industry <unk> been able to accomplish and then looking at their own rig fleets and capabilities, it's different rocks different set of challenges, but recognizing.

There is a lot of improvement that can be brought to bear in that region and it really needs to be.

Brought because a lot of those countries around the middle East are now looking at.

They need to produce more natural gas or looking at unconventional technologies to make that happen and that really rests squarely on much better drilling efficiency. So that was that all kind of went into the calculus I think around our joint venture with Aramco in the kingdom to build out rig manufacturing capabilities.

These are going to be much higher capability rigs that we're producing there we delivered the first one in January .

We will soon have the second one ready to go and so that's going to bring new technology and I would add this is pretty important and it was in our release as well as Jose his prepared remarks, we've had recent pilot projects around that the middle East region.

We're now the national oil companies are trying our new digital products and our our machine learning artificial intelligence capabilities to optimize drilling.

One of the seas is getting ready to spud its third.

While it with dish with wired drill pipe and so theres a lot of interest in the possibilities that.

New technology, a lot of interest in what <unk> can bring.

Two they are drilling efforts there to make them not only more efficient, but safer more predictable and so I think I think we're really set now for a meaningful sort of retooling of capabilities across the middle East region.

I appreciate the color. Thank you.

Yes, Thanks Scott.

Our next question comes from Arun Jairam with Jpmorgan.

Yes, good morning, Clay I wanted to get your thoughts on how the long cycle part of your business could play out from here.

We see a couple of divergent trends one.

The high commodity prices and energy security concerns, particularly post Russia, Ukraine, but on the other hand, your traditional fess clients.

Appear to be being much more measured on spending growth capital or adding incremental capacity with most of their capex now focused call. It on Refurbishments and reactivation. So wanted to see if you could offer some thoughts there.

Yes.

Really good question I mean, I would say all up cycle sort of start this way people come out of the bottoms, having just reduce a lot of costs and had to.

Shrink their workforce and being very stingy with our expenditures.

We're careful about reinvesting in the business, but.

As I mentioned I think we're facing some pretty significant structural challenges getting production really back to growth on a global basis.

And I think what we're going to run into is that they are going to run out of rigs to reactivate frac.

Frac fleets to put back in the field the ones that are left have been cannibalized and and so that just it takes capital.

And I think I think as they gain pricing power, which this quarter. It's been really interesting you kind of hear their reports of how their first quarter look it feels like to us theyre getting a lot more purchasing.

Pricing power across your businesses that sort of paved the way for reinvestment in their fleets and to kind of build out the infrastructure required.

At the end of that you have to put heavy assets back in the field to drill wells and bring production on and so I think this will all follow.

We get kind of deeper into this.

Supply addition, structural challenges become more.

More evident.

The thing that really has to happen and this is now kind of shifting to the offshore.

Sure.

Capital availability to the offshore.

Public drillers have just come out of bankruptcy.

But as I said I think it's.

Production is going to be required from really all sources as we as we move through the next few years and so so we see rising day rates, then becoming more supportive of higher cash flows that will that will reduce the cost of capital to those drillers and so we'll kind of get back to.

To growth, which is which is something I think the world is sorely needed.

Great and just my follow up Jose just looking at.

Kind of the numbers.

Essentially was able to delivered Q1 what the street was modeling in terms of <unk> in terms of EBITDA.

Getting just some questions around you provided some some.

Some color on revenue growth and some some rough margin comments, we kind of stuck in your wellbore caps in rig tech guidance on our model and we were getting call. It EBITDA in the low $1 <unk> and I was wondering if you could maybe give us maybe a range of views on if our math is in the ball.

Park.

Around ticket.

Yes.

I think we're pretty.

Clear in terms of the.

The typical guidance that we give by segment.

For each of the three segments.

Our remarks and as usual we'll be posting.

A copy of the prepared remarks immediately following the call. So you can get additional clarity on that but in terms of where you are coming out I think if you take.

The midpoint of the range that we provided youre not for youre not far off of that guidance.

Great. Thanks, a lot. Thank you.

Brian .

Our next question comes from Marc Bianchi with Cowen.

Hey, thanks.

Wanted to go back to the kind of order outlook.

Had some prepared remarks about and it was just discussed in the prior conversation about customers, having a lot of pricing power now.

Rig rates getting back to 30000 Bucks are getting up to 30000 Bucks a day.

<unk>.

That would seem like a level, where they should be pursuing new builds but if you go back to all the public company calls they were all saying, we're not going to build we're going to be capital disciplined and so forth like our customers. So I'm curious is your your view more based on what they should be doing or are you getting feedback and doing rfps for.

For potential new belts, maybe maybe it's from the private so I'm just curious if you could help square that for us.

Well first if you look at the absolute Rick how let's talk about North America first absolute rig count still is not to where it was pre pandemic rates. So theres still a lot of ire, that's underutilized out there.

And as Jose mentioned, we are supporting their efforts to reactivate rigs put them in the field.

As well as if you compare today's market versus the pre pandemic market their costs are higher and so forth. So they need a higher day rate to attract.

Newbuild, so our outlook for Newbuild rigs.

Land rigs in North America.

Yes that could come.

Yes at least several quarters out if not longer.

But if you pivot to look at international markets, particularly in Middle East for the reasons I just mentioned I think thats, where we really start to see a lot more interest in just outright new builds and so thats kind of how I would see the next call.

Call It 18 months playing out Mark.

Okay that makes sense, but I guess in that vein then.

Everybody is kind of curious when we're going to see the real inflection in orders I guess second quarter of last year things started to get back on track, but then we have sort of been stuck in this range for several quarters now.

I would suspect that maybe there is inflation is making it difficult. There's a lot of rewriting of terms and things like that as you try to get get orders booked but.

What does that look like over the next several quarters, noting I mean, we've had five quarters in a row of book to Bill North of one so.

Orders have been going the right way and our backlog has been building.

My prior answer referred to obviously to rig land land rig demand.

Hitting the caps caps backlog I think is roughly doubled year over year.

And.

Our outlook is really really good at.

It did orders went down sequentially for caps, but book to Bill at 110%, we're still north of one right. So we're still building backlog and backlog was up a few percent sequentially with the completion of production solutions one of the near term headwind.

I'll just we got to work through for Cats, It's more obviously more production related and so these are large projects for the offshore that there.

Tendering and looking at booking.

Some of the owners of those projects in the first quarter are getting revised cost estimates from our groups right is as we look back on our recent experience fabricating projects in Asian shipyards, and all the headaches, we've been battling through with Covid and supply chain disruptions and so forth along with other vendors in that ecosystem doing the same thing along with the fact that a lot of.

The shipyards are saying.

When demand has picked up as LNG demand has picked up there.

We're looking at a little higher cost on these projects and so in the first quarter.

A few of them are drawn a deep breath and just sort of.

Revisiting their conviction around higher price decks offsetting the higher cost I think the economics are still good I think orders are going to flow, but here in the near term I think thats been a little bit of a.

Break on on recent orders, but nonetheless.

Let's don't let's don't over complicate this oil is trading at a really high price.

There's been a lot of reengineering a lot around a lot of these big projects around the globe. They are needed by the globe I think that'll become more evident as the year and next year unfolds and so I think these projects are going forward and thats going to translate to higher orders for <unk>.

Great. Thanks, so much clay I'll turn it back.

Thank you.

That concludes today's question and answer session I would like to turn the call back to Clay Williams for closing remarks.

Thank you I appreciate everyone joining us this morning, and we look forward to discussing our second quarter results with you in late July so have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Okay.

[music].

<unk>.

Yes.

And then.

Okay.

[music].

Okay.

Sure.

Yes.

Okay.

Yes.

[music].

Yes.

Okay.

No.

Yes.

Sure.

[music].

Yes.

[music].

Good day, ladies and gentlemen, and welcome to the <unk> first quarter 2022 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> first quarter 2022 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo 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 security laws.

They involve risks and uncertainty and actual results may differ materially no.

No one should assume these forward looking statements remain valid later in the quarter or later in the year for.

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.

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

Thank you Blake for the first quarter of 2022, <unk> revenue of $1 $548 million grew 2% sequentially and EBITDA increased $34 million to $103 million or six 7% of revenue year over year revenues were up 24% at 34% leverage reflecting positive impacts.

Of aggressive cost reductions and some recent pricing recovery offset by continued inflation and supply chain disruptions helped by continued high demand for offshore wind renewables, along with rising oil and gas demand orders were strong across the board as we put up a consolidated book to bill of 115% in the first quarter.

Cost for certain raw materials like residence appear to be easing. Unfortunately, a lot of components got worse during the quarter. The steel forgings polymers fiberglass electronics stainless steel and switch gear, most notably great challenges intensified in eastern hemisphere, owing to the conflict in Ukraine and continued COVID-19 impacts in the quarter recent standard cost rules on many of our products moved up more.

<unk>, reflecting the higher costs, we face thus considering all of these extraordinary challenges we were pleased to see improved execution and better financial results for the quarter.

While results were still below acceptable levels, our outlook is constructive given the steady tightening of oilfield services capacity that is driving accelerating demand for nov's core oilfield products. This uplift is giving us improved line of sight towards healthier returns for our shareholders for reasons I'll go into in just a moment I believe this up cycle will last a while.

First however, I'd like to take a minute and speak to some oilfield fundamentals.

Constructing an oil or gas well it takes much more than good reservoir rocks in a drilling rig oil and gas companies rely on highly specialized geotechnical talent to identify and delineate drilling locations in our petroleum and processing engineers, who design wells production systems and processing and transportation facilities. The business requires investments in expensive lease holds.

Wells in fabrication of platforms processing plants gathering systems in refineries that make oil and gas production one of the most capital intensive industrial undertakings. The actual well construction is performed by oilfield service companies that in term operate very expensive highly engineered fit for purpose equipment fleets, which probably make it the second most capital intensive industrial undertaking around.

All this plant equipment in well construction process utilizes a lot of steel as well as exotic metallurgy polymers resins computer chips electric motors and electronics.

Work is performed by Hardscrabble men and women from rough next to drillers to truck drivers working long hours in remote locations for usually above average pay in tandem with talented geoscientists and engineer supporting these complex operations.

One way to think about our industry is a finely tuned and optimize machine into which goes capital a lot of capital highly skilled engineering talent hard work by experienced oilfield hands for all acreage identified by Geoscientists that holds the promise of profitable production and a lot of highly spec pipe plastics engineered engines resins.

<unk> computer chips.

Out of this oil and gas machine comes your high standard of living the high standard of living that your family and my family and millions of others enjoy along with a hope of a better standard of living for literally billions of people in lesser developed economies around the world out of this machine comes the food that we and the fertilizer made from natural gas at the farmer uses to achieve amazing Agra.

This leads me to our current predicament.

Two years ago remarkably we faced negative oil prices today. The world is confronting triple digit crude prices in all time high global natural gas prices. While this rapid shift is drawing and damaging the global economies frankly, it should not have been entirely unexpected.

Over the past few years governments and capital Allocators had been playing a dangerous game with respect to energy in the global economy, while transition to lower carbon renewable sources of energy for the world is required for the long term good of the planet. It seems we've gotten ahead of ourselves as we've attempted to pivot away from fossil fuels, which are inherently reliable and energy dense versus a power to lower density forms of <unk>.

With intermittency issues, an inferior economic profiles.

Fortunately the lower carbon energy transition today lacks a robust economic engine driving it forward, while LTE oes have fallen for solar wind and other forms of renewable energy I believe <unk> will continue to fall through technical advancements that EOG and others are making renewables are still expensive and suffer from intermittency challenges that require storage solutions that add to their all in <unk>.

<unk> frequently not accounted for ALC OE calculations to accelerate this transition in the absence of a compelling economic driver governments regulatory agencies and media decided it would be a good idea to demonize the oil and gas industry and let's be honest you know what I'm talking about I think the motives behind this are pretty evident to bring about the acceleration of a desired energy transition outcome named.

A more rapid pivot to renewables, specifically the oil and gas industry has been under attack by political bureaucratic and media leadership that have been very effective in choking off the inputs into the oil and gas machine I described earlier.

Now, let's turn back to those starting with capital unrealistic near term peak oil demand narratives built on the promise of rapid substitution of renewable energy at significantly dampen equity investor interest in oil and gas stocks, both in public markets, where energy weighting of the S&P 500, bottomed recently at less than 2% compared to 14% in 2008 and more than 20% in the 19th.

<unk>.

And in private equity with little or no terminal value expectation due to a broadly accepted narrative that oil and gas goes away. Soon it's easy to understand why equity investors have been reticent to invest here and with a relentlessly negative PR. The industry receives we understand why it's been fashionable for college endowments and other institutions to Trump there divestitures out of the space. Meanwhile, commercial banks are being pressured by <unk>.

Accruing effort is becoming more urgent as the industry needs to replace its experience, but aging baby Boomer workforce soon referred to by industry insiders as the great crew change.

Oil field work has provided high wages and high standards of living in small towns in remote areas for generations of blue collar workers, but it's not for the faint of heart deep deep cyclicality requires painful significant cuts during oilfield downturn, which can be brutal as the U S rig count dropped to record low levels in the summer of 2020, following the global government decisions to shut down economies.

Oilfield did the difficult task that we are unfortunately call to do from time to time, we laid off a lot of good employees.

Wages.

Put incremental equipment back in shape to work the physical inputs required for these equipment overhauls bearings and hoses engines and transmissions polymers and resins chips and circuit boards are incredibly tight while U S is back to growing production off of 2020 lows by drawing down the DUC inventories.

We're the only such country, that's growing global crude inventories are well below average and still trending the wrong direction. Because we are no longer the just in time industry. We were in the prior decade the.

The oil and gas machine, each promising acreage as well our E&P customers tell us that the current regulatory environment continues to get more expensive and challenging orchestrated in their view by agencies that are all trying to effect a more rapid energy transition while while in other developed countries. They faced outright bans on oilfield activity by the way geoscientists need years define and delineate fertile acreage through.

Operations. Unfortunately global exploration was severely cut following the downturn of 2015.

The pipeline of prospects to develop is very limited after seven years of under exploring.

To summarize when we survey the inputs required to construct oil and gas wells from capital to Labour to workable regulations to prospect development pipelines to.

Engineering talent to consumables and equipment, all face significant hurdles put in place by politicians regulators and media.

My question is this as it has been a good idea has been a good policy to demonize the industry that quite literally powers all other industries.

Political leaders across the globe have not been honest with voters and consumers about the cost feasibility difficulty inconvenience and time required to fully pivot.

Two renewable sources of energy in my view I'm not questioning the need to make the pivot, but rather the plan to get there the de facto policy of choking off inputs of a critical industry not just years, but decades before we have a good alternative as a very bad policy.

We will suffer as a result.

To make matters worse, the enormous economic stimulus that accompanied the forced shutdown of the global economy. During the pandemic massively increased money supply across developed economies as governments printing money at a breathtaking rate. The U S. M. Two money supply is up over 40% for example, historically inflation roll directly into commodity markets like oil and gas at this time I believe it will be amplified by input constraints that our catalog.

All this points to rising demand for equipment and services and it will be breached the oil patch over the coming quarters and years. It also points to pre dark view of economic challenges, we face as we undo the mess created the rollout now finds itself in critical need of an industry that it had written off as a sunset industry and reconstructing this industry will not be easy seven years of E&P underinvestment of oilfield.

Services effectively dismantling much of its capacity drastically shrinking its workforce in order to survive together with the additional hurdles created by the vilification of oil and gas make what is required of us a very heavy lift. According to a recent research report the industry habits resource life since 2014 and fewer <unk> in recent years will potentially lead to approximately 10.

In order for the world to avoid an energy crisis, the likes of which we haven't seen since the 19 seventies, we need a synchronized global oil and gas super cycle of some duration and we needed to start yesterday, we need and thankfully we are starting to see both short cycle shale oil and longer cycle offshore development of petroleum resources, the low rates charged by oilfield service.

Over the past several years did not reflect the physical consumption of capital equipment used in operations much less earn a decent return for oilfield service shareholders. However that overhang is diminishing rapidly and has been replaced with tightening schedules and lean if not bare shelves pricing is beginning to move across the oilfield after years of services industry subsidizing.

Its customers by cannibalizing its own capital base.

While the moves thus far have been small mainly to keep pace with inflation. Our oilfield service customers report net pricing momentum is beginning to grow.

Since 2014, our organization has shrunk dramatically to make it to the other side of the seven year down cycle, but we never took our eye off the ball and technology development initiatives.

<unk> continues to invest in and lead in both oil and gas technologies, along with the emerging renewable technologies that we've spoken of through the downturn.

While the energy transition to a lower carbon futures required. The world is finally waking up to the fact that oil and gas is still absolutely essential to our modern way of life in the oil and gas industry is quickly becoming aware that it can't continue to meet the world's demand for its products without significant further investment in <unk>.

As the enabler of what still is the most important industry in the world and we stand ready to meet the challenges of the coming up cycle to the employees of <unk>, who are listening today. Thank you for all that you've accomplished through this tough historic downturn your hard work and perseverance that got US here, we have a lot more hard work ahead and now it's Showtime the world.

We'll be counting on us with that I'll turn it over to Jose.

Thank you clay Nov's consolidated revenue for the first quarter of 2022 was 155 billion, a 2% sequential increase compared to the fourth quarter of 2021, and a 24% increase compared to the first quarter of 2021 rapidly improving market fundamentals growing global drilling activity and actions taken to mitigate.

Operational disruptions more than offset seasonal declines and continued extraordinary supply chain challenges.

Our GAAP results for the first quarter of 2022 included $45 million of other items, which were primarily due to the partial impairment of assets and other charges associated with our operations in Russia, Belarus and Ukraine.

Working capital increased $163 million, primarily due to a disproportionate number of shipments that occurred late in the quarter and intentional inventory builds to mitigate operational disruptions.

Working capital was also affected by the normal increase in Q1 tax employee benefit and other payments, which further contributed to a $103 million use of cash from operations capital expenditures totaled $46 million for the quarter.

Moving onto segment results.

Growing global activity led by North America, and the Middle East drove solid revenue growth across the segments portfolio of businesses. Despite headwinds from supply chain disruptions pricing gains and an improved product mix offset inflationary pressures to drive incremental margins of 41%, resulting in a $13 million sequential improvement in EBITDA.

$101 million or 16, 6% of sales compared to the first quarter of 2021, EBITDA improved $67 million, representing 34% EBITDA flow through our <unk> drill bit business posted revenue growth in the upper single digits driven by strong performance in the U S and middle East.

Favorable mix limited sequential EBITDA flow through however, the business unit realized a mid 40% incremental margin relative to the first quarter of 2021.

Our downhole business reported a low single digit percentage improvement in revenue as solid growth in North America was offset by large Q4 shipments into international market that did not repeat.

And our primary North American manufacturing facility backlog for our power sections increased 38% in Q1 due to state or awaiting re lines, despite and in part due to these difficulties the business has been able to push pricing to partially offset the supply constraints and is executing on plans to significantly increase throughput during the second half of two.

2022.

Well positioned as we expect drilling contractors will look to differentiate their rigs with the latest generation of solids control and MPD equipment.

Our <unk> business posted low single digit sequential revenue growth with negative incremental margins due to the seasonal falloff in capital equipment sales into international markets and a less favorable sales mix. Despite the soft quarter. The business unit achieved 41% revenue growth with incremental margins in the 70% range in comparison to.

First quarter of 2021 and had several recent commercial successes, which should drive wider adoption of the units newer technology offerings.

Wired drill pipe solution was commended by key offshore customer for helping avoid a well control event.

When the operator encountered unexpected change in downhole conditions and the subsequent loss of wall circulation, Andy Tacos, wired drill pipe and distributed a long string measurements continue to provide real time annual or pressure readings, which would not have been possible with mud pulse telemetry is allowed the operator to effectively manage the situation and backfill the annulus the operator estimated solution.

Helped avoid of lost in hole incident, if not a full blowout, we expect adoption of empty tacos technologies to accelerate among leading operators as we continue to demonstrate meaningful improvements in drilling efficiencies well productivity and safety.

Paste, the combined effect on inflationary costs and operational disruptions.

<unk>, new order outlook and pricing are growing increasingly favorable with tracked pipe inventories at near record lows.

Book to Bill was 110% the fifth straight quarter in which the segment has achieved a book to bill greater than one.

Quarter, ending backlog increased 6% sequentially to $1 36 billion, which is up 68% from the first quarter of 2021 and reached its highest level in more than five years.

Despite this temporary pause the outlook remains robust as improved commodity prices have significantly enhanced project economics, despite rising costs.

We will continue to pressure results through the second half of the year.

Our subsea flexible pipe business recorded a sequential revenue decline in the low single digits, but was able to achieve a modest improvement in profitability through our higher margin sales mix and through herculean efforts to control costs throughout the quarter to make up for a three week shutdown in one of our two manufacturing plants caused by a lack of raw materials.

While the primary issue has been resolved we expect profitability to remain challenged for this unit for at least the next quarter or two.

Profitability improved due to a better product mix higher pricing and incremental cost savings achieved during the first quarter, which more than offset continued inflation and supply chain challenges bookings increased 44% sequentially and included strong orders for our hydro rig $61 20 large diameter coiled tubing injector that provides 120000 pounds of continuing.

Lifting capacity and 60000 pounds of continuous snubbing capacity.

While we're not yet seeing demand for new units in North America customers are realizing much improved pricing and are now upgrading existing units with better technology.

This means aftermarket activity continues to drive our Isd business. However, during Q1, we saw a pickup in demand for wireline equipment in international markets and cementing equipment in the U S. As we are also saying U S pressure pumper purchased additional pump units to supplement current fleets as horsepower demand per spread continues to increase with.

Our fiber glass systems business posted a sequential revenue decline in the upper single digits due to seasonality in our fuel handling systems operation and continued supply chain issues, which has made operations for this business, particularly noisy.

Many of our key inputs such as glass resin and <unk> were primarily sourced from Asia with a dramatic increase in shipping costs and the inability to predict delivery times. The business is worth to diversify and reallocate it supply chain to better insulate it from disruptions.

After a difficult 2021, the business is now seeing its sales pipeline grow at a rapid pace, particularly in the middle East pretending improved results for the business in the second half of the year.

While supply chain challenges in an inflationary pressures will persist through the second quarter execution from our completion and production businesses should continue to improve as a result, we expect completion and production solutions segment to achieve a 10% to 15% increase in revenues with incremental EBITDA margins in the 15% to 20% range. We continue to believe.

The segment can achieve mid to upper single digit EBITDA margins by year end.

Is that a restraining our ability to ramp production in lockstep with inflicting demand in our aftermarket business.

Adjusted EBITDA improved $15 million to $36 million or eight 2% of sales due to a more favorable sales mix improved pricing and cost savings initiatives.

Eight 9 billion the highest level the segment achieved since Q1 of 2020.

<unk> to 30% compared to conventional vessels.

The offshore wind power installation equipment market remains a compelling near term opportunity and we see the potential for five to six additional vessels, reaching over the next 12 months to 18 months. We're equally excited about nov's mid to longer term opportunities within the wind power space. We've previously discussed our taller tower thesis, which.

<unk> to be the primary driver for improving economics in the wind power space and continues to drive our R&D efforts and the proprietary solutions, we are developing for the market with.

We previously described our patented technology in which we've invested spiral world tapered wind tower sections via an automated process, allowing for infield manufacturing, thereby eliminating the many logistical limitations of transporting the larger diameter sections necessary for tall tower developments.

We're pleased to announce that production of the first commercial tower sections is now underway at our Pampa, Texas facility.

While this system will address the logistical challenges and costs associated with delivering toller wind turbine towers to location.

Stalling towers in the cells with higher hub Heights presents other challenges and opportunities.

Tower installations.

Longer term, we are seeing the emerging floating offshore wind market as a compelling opportunity for <unk>.

We're also designing several proprietary lifting and handling tools to streamline the installation and commissioning of offshore wind turbine components to.

To date, we've completed several pre feed and feed studies related to potential deepwater wind development projects and we were recently awarded a pre feed study for a project in South Korea. We're also working with partners on several other potential projects around the world, including opportunities within the perspective, 25 gigawatt, Scott wind development area, where <unk>.

<unk> EBIT blocks, covering 2700 square miles where recently auctioned.

Of the 17 blocks awarded 11 will utilize floating wind systems and <unk> has been actively engaged in discussions with the winners of six of the 11 license fees.

There is no guarantee that <unk> will be selected to equip these developments we are well positioned for this large long term opportunity, which could result in pre feed activities taking place over the next two years full feed studies during 2024 and 25 and construction beginning in 2026 with first power by 2030.

Quarters ago in the active rig count continues to March higher we expect to see similar day rate dynamics for top end rigs in international markets with improving activity.

Leading edge offshore day rates have climbed into the 3% to $400000 range levels that are encouraging reactivation and reinvestment activities to accelerate and generating orders for both our aftermarket and capital equipment businesses. During Q1, we were awarded multiple contracts to help customers ready equipment for upcoming drilling campaigns.

Including an agreement with an international drilling contractor to reactivate three jackup rigs and recertify, an additional eight we've seen a dramatic change in the sense of urgency among our customers last quarter. We described to ryzen inquiries for top drives high torque handling equipment and pressure control gear, which which are now converting into orders during most of two.

2021 customers wouldn't have had any qualms incurring downtime to recertify pressure control gear, but we're now seeing customers buy spare sets a blowout preventer to eliminate downtime during re certifications avoiding the need to miss out on much improved day rates.

Sales declined but not due to a lack of demand in fact spare part bookings increased 16% achieving its highest level since Q1 of 2020 and was 67% higher than the low we saw in Q4 of 2020.

Unfortunately supply chain constraints led to a decline in revenue from spare parts sales and resulted in our backlog increasing 31% over Q4, we expect throughput to remain constrained through at least the second quarter as supply chain remains challenged and lead times continue to stretch the supply chain bottlenecks are numerous and include difficulties procure.

For the past 18 months, we've been working to consolidate the operations of a large manufacturing facility in Orange, California, where we produce the bulk of our top drives into other plants in Houston and Mexicali. While this was a high degree of difficulty endeavor, the consolidation will generate meaningful cost savings.

While we are now ramping production the challenges, we're facing with access to raw materials castings, and forgings, along with our own manufacturing bottlenecks will constrain our ability to keep up with demand through the second quarter. As a result, we expect operational headwinds will keep financial results for our rig technologies segment flat with those of the first quarter.

We're growing increasingly confident in a much stronger second half of 2022 and in our belief that our rig technologies segment can achieve EBITDA margins of 10% by year end.

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

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

All your question press the pound key.

Our first question comes from Ian Macpherson with Piper Sandler.

Thank you and good morning, Clay and Jose and I.

I appreciate the opening remarks.

That was a really.

Spot on overview of our recent history and I'm sure that you'll be.

Youll be treated the drinks at the bar this afternoon after that.

That was my goal.

Exactly.

There is always so much on the platter within <unk>.

This might be a question is too hard to pin down but.

Everything is heating up in congested right now.

Are there two or three categories of products or within your main segments that are maybe the biggest catalyst for improvement with your throughput overall as we get into the second half incentive.

Supply chain gets unstuck at the offshore the big chunky offshore rig reactivation projects that move the needle the most.

More on the on the offshore wind vessels I think you said, maybe five or six more that looked like the one that you booked in Q1 or is it the shorter cycle stuff.

Accumulating and still has more of a congested backlog right now.

Or otherwise.

I'll, let jose offer his opinion.

Just off the cuff I would say I think the shorter cycle catching up.

Improving the situation around our very very constrained supply chain Chan.

Challenges.

Meeting sort of the near term demand of supporting rigs and Frac fleets and stimulation equipment going back to work both land and offshore.

I think thats kind of the biggest near term needle mover for four <unk> as Jose mentioned in guidance.

We're facing some constraints can rig around catching up our spare parts backlog and working through that.

But the other two segments as well are battling.

But longer term yes.

I think I think these larger projects will contribute and we're going to continue to see good demand for.

Renewables and offshore wind.

Revenue opportunities for <unk> and so.

What I like about where we are today is in my opening remarks kind of reflected this I feel like we're sort of energy crossroads and it's going to take all forms of energy and I think <unk> has I think we've improved the optionality embedded in the portfolio of what we bring to not just traditional oil and gas.

Now LNG, but also to the renewable space.

As well.

Yes.

Yes, absolutely agree with what with what Clay said in the prepared remarks, we attempted to highlight a couple of the areas that are more constrained from a near term standpoint in our downhole tools business that our rig aftermarket operations. We've got some real constraints there, but really we've got the same kind of constraints all across the organization. So we have.

Constricted throughput due to supply chain challenges that we've been having.

Across the organization.

I think one of the things that quite also touched on in his prepared remarks basically.

The need is for.

Well from all sources.

Around the world.

And we're starting to see that in our conversations with our customers and so it's hard to single out any one specific business that over the mid to longer term as guys, you, particularly better because right now it feels like demand is on the cusp of an reflecting all across the board.

So clearly wellbore has had a really nice recovery to date.

That recovery has been disproportionately weighted towards the North American marketplace International market starting to come on so we still see a lot of running room in terms of well bores ability to continue to generate really good growth good incrementals going forward.

The other two segments being much more capital oriented.

Are really just starting to get up and going and we've got to really resolve some of the supply chain.

Chan constraints that we think will get much better we will be able to manage much better as we get into the second half.

Okay.

And then.

Along that same vein Jose I think one thing that everyone in <unk> and equipment.

This quarter has been more working capital intensity in the beginning of the year.

I sent them a better growth for the year.

But I don't know Im sorry, if I missed this in your in your comments.

That impact your prior view on getting to positive free cash flow for the full year or does it move it out to the next year or do you see the swings coming back your way too.

Deposit free cash for the full year.

Yes, it's a good question Ian it's really.

To be determined to some extent and I'll explain what I mean by that but really.

The use of cash in Q1 really shouldn't have been a surprise typically that's what happens during Q1 due to.

Seasonality associated with employee benefit costs tax payments other annual type payments to take place early in the year and Additionally, as I mentioned during our prepared comments.

Wei.

<unk> had quite a large amount of our sales and product ship late in the quarter, which resulted in a bigger slightly bigger than anticipated build in.

But also began taking much more proactive measures to build.

Buffers within our inventory base to mitigate to attempt to mitigate those supply chain disruptions.

And so as we look forward, we're not focused certainly we've always been very focused on free cash flow generation throughout the cycle right, but there are times in the cycle when things are going really well, meaning revenues growing at a rapid pace to where that becomes a little bit more challenged and so they are a combination of our view of.

A much higher exit rate to 2022, and the need to continue building buffers and our supply chain through the course of the year.

Not really extremely focused on making sure that we're free cash flow positive.

For the full year.

But what ultimately happens there will be a determinant will be dependent on the trajectory of the business. We're in.

Anticipating.

<unk> to be a place.

You have to really going into 2023.

I would add too I think longer term the organization has done a really good job.

Developing muscles around working capital intensity, if you look at our.

This quarter I think we are 27% of annualized revenue working capital intensity at year end were 25% those are mature.

<unk> lower than they were a year or two ago, we've gotten a lot better at this but as Jose said in response to sort of making our supply chain a little more bulletproof in response to vendors for instance, having.

Increasing their minimum order quantities things like that.

That's pushing us up a little bit, but I think longer term that that better management of working capital is going to translate to higher cash flow in the future.

Noted thank you both very much appreciate it.

Thank you Ken.

Our next question comes from Scott Gruber with Citigroup.

Yes.

Yes, good morning, Hi.

Hi, Scott Scott.

So coming back.

The outlook for well bore well beyond the second quarter.

We started seeing some of the supply chain issues affecting that segment begin to fade.

Another period.

Growth in Wellbore in the U S that would be in excess of the rig count.

Or are we at the point the cycle, where those begin to converge and then taking on the international side of the business. Obviously early innings Big service companies are discussing 15% growth in the second half.

Just wanted to see if you guys with respect expect something similar for.

The level of international sale.

Yes, I think a couple of things that are helping wellbore grow beyond sort of the rate of.

The rig count number one.

We need to continue to get sort of real pricing increase across what we provide.

To the space number two a lot of the technologies, we've invested in are coming into the north American market and in other markets as well, particularly around things like drill bit cutters that are demonstrating much better efficiency number three drilling contractors are moving towards.

Larger drill pipe, so theres been a big push by operators.

To utilize five five inch drill pipe, which is a little bit bigger than more conventional five inch drill pipe and the reason that the operators are pushing for that or better hydraulics.

So.

We are starting to see this need to swap out drill strains.

Supporting the industry's drilling efforts across North America.

And then you can add to that a number of sort of downhole tools.

Boaters and things.

We've invested in technology that demonstrates better productivity. So I think that's a pretty good tailwind to outperform rig count growth in Wellbore technologies also to probably want to mentioned our digital offerings in this space for MB Taco group within Wellbore technologies is getting really good traction on.

Number of things that theyre doing with their edge computing solutions as well as their wired drill pipe.

Drilling optimization offerings.

Yes got it.

Look if you sort of.

We don't necessarily expect everything to play out the way that it that it has in the past, but sort of looking at sort of recent performance of <unk>.

Wellbore segment, you go back to the prior dip in 2016, which was sort of the prior low mark for the business. It was about $511 million in revenue for the segment were roughly 19% above that level right now and you go back to sort of the 2018 2019 timeframe for that segment.

And.

We were pushing over 800 million a quarter in revenue for that segment.

And as you recall back then we saw a nice recovery in the North American marketplace, but really never fired on all eight cylinders with a strong international market and here as we're sort of looking at.

A prolonged multiyear up cycle I think there's still a tremendous amount of upside over the long term for the Wellbore technology segment.

That's a good lead into my follow up question, which is on the international side.

Unduly large technology gap between onshore drilling in the U S and the rest of the world.

Think about the.

Retooling cycle here or is this just going to be a typical retail cycle internationally.

A real appetite to meaningfully enhance the technology deployed thinking about material upgrades to rigs potentially newbuild rigs.

Digital application.

Thank you.

Are you starting to sense real appetite to lend.

If we step up the technology deployed internationally.

That is a great question I think a lot of operators around.

The Arabian Gulf are watching sort of what's happened in North America with respect to.

Big gains in drilling efficiency in leaps and bounds the industry <unk> been able to.

<unk> and then looking at their own rig fleets and capabilities, it's different rocks different set of challenges, but recognizing.

There's a lot of improvement that can be brought to bear in that region and it really needs to be.

Brought because a lot of those countries around the middle East are now looking at.

They need to produce more natural gas or looking at unconventional technologies to make that happen and that really squarely on much better drilling efficiencies and so that was that all kind of went into the calculus I think around our <unk>.

Joining venture with Aramco in the kingdom to build out rig manufacturing capabilities.

These are going to be much higher capability rigs that we're producing there we delivered the first one in January .

We will soon have the second one ready to go and so that's going to bring new technology and I would add and this is I think pretty important and it was in our release as well as Jose his prepared remarks, we've had recent pilot projects around that the middle East region.

We're now the national oil companies are trying a new digital products and our machine learning artificial intelligence capabilities to optimize drilling.

One of the CES was getting ready to spud its third.

Pilot with with Wired drill pipe and so theres a lot of interest in the possibilities that.

A new technology, a lot of interest in what <unk> can bring.

Two theyre drilling efforts, there to make them not only more efficient but safer.

A more predictable and so I think I think we're really set now for a meaningful sort of retooling of capabilities across the middle East region.

I appreciate the color. Thank you.

Thanks, Scott and Scott.

Our next question comes from Arun Jairam with Jpmorgan.

Yes, good morning, Clay I wanted to get your thoughts on how the long cycle part of your business could play out from here.

We see a couple of divergent trends one is.

Obviously high commodity prices and energy security concerns, particularly post Russia, Ukraine, but on the other hand, your traditional fess clients.

We're being much more measured on spending growth capital or adding incremental capacity.

With most of their Capex now focused call it on Refurbishments and reactivation. So wanted to see if you could offer some thoughts there.

Yes, so it's a really good question I mean, I would say all up cycle sort of start this way people come out of the bottoms, having just reduce a lot of costs and had to.

Shrink their workforce and been very stingy with our expenditures.

We're careful about reinvesting in the business, but.

As I mentioned I think we're facing some pretty significant structural challenges getting production and really back to growth on a global basis.

And I think what we're going to run into is that they are going to run out of rigs to reactivate frac.

Frac fleets to put back in the field the ones that are left have been cannibalized and and so that just it takes capital.

Pricing power across your businesses that sort of paved the way for reinvestment in their fleets and to kind of build out the infrastructure required.

At the end of that you have to put heavy assets back in the field to drill wells and bring production on and so I think this will all follow as.

We get deeper into this.

Supply addition, structural challenges become more more evident.

The other thing it really has to happen and this is kind of shifting to the offshore.

Yes.

Capital availability to the offshore with many of the public drillers have just come out of bankruptcy.

But as I said I think it's.

The production is going to be required from really all sources as we as we move through the next few years and so so we see rising day rates, then becoming more so.

<unk> have higher cash flows that will that will reduce the cost of capital to those drillers and so we'll kind of get back to two.

Growth, which is which is something I think the world is sorely needed.

Yes.

Great and just my follow up Jose just looking at.

Kind of the numbers.

Adobe essentially was able to delivered Q1 what the street was modeling in terms of <unk> in terms of EBITDA.

Getting just some questions around you provided some some.

Some color on revenue growth and some some rough margin comments, we kind of stuck in your wellbore caps in rig tech guidance on our model and we were getting call. It EBITDA in the low 100, Twenty's and I was wondering if you could maybe give us maybe a range of views on if our math is in the ball.

Park.

Alright and ticket.

Yes.

I think we're pretty.

Clear in terms of the.

The typical guidance that we give by segment.

For each of the three segments.

Our remarks and as usual we'll be posting.

A copy of the prepared remarks immediately following the call. So you can get additional clarity on that but in terms of where you are coming out I think if you take.

The midpoint of the range that we provided you or not for you are not far off of that guidance.

Great. Thanks, a lot.

Thank you Ryan.

Our next question comes from Marc Bianchi with Cowen.

Hey, thanks.

I need to go back to the kind of order outlook.

Had some prepared remarks about and it was just discussed in the prior conversation about customers, having a lot of pricing power now.

Rig rates getting back to 30000 Bucks are getting up to 30000 Bucks a day.

For.

For potential new belts, maybe maybe it's from the privates I'm just curious if you could help square that for us.

Well first if you.

Look at the absolute Rick how let's talk about North America first absolute rig count still is not to where it was pre pandemic rates. So theres still a lot higher this underutilized out there.

And as Jose mentioned, we are supporting their efforts to reactivate rigs put them in the field.

As well as if you compare today's market versus the pre pandemic market their costs are higher and so forth. So they need a higher day rate to attract.

Newbuild, so our outlook for Newbuild rigs in land rigs in North America.

Yes that could come.

Yes at least several quarters out if not longer.

Call It 18 months playing out Mark.

Okay that makes sense I guess in that vein then.

I would suspect that maybe there is inflation is making it difficult. There's a lot of rewriting of terms and things like that as you try to get get orders booked but.

What does that look like over the next four quarters, noting I mean, we've had five quarters in a row of book to Bill North of one so orders have been going the right way and our backlog has been building.

My prior answer referred to obviously to rig land land rig demand.

Getting to catch catch backlog I think is roughly doubled year over year.

And.

Our outlook is really really good.

It did orders went down sequentially for caps, but book to Bill at 110% was still north of one right. So we're still building backlog and backlog was up a few percent sequentially for the completion of production solutions one of the near term headwind challenges, we've got to work through for cats, It's more obviously more production related and so these are large pre.

<unk> for the offshore that their tinder.

Tendering and looking at bookings.

Some of the owners of those projects in the first quarter are getting revised cost estimates from our group's writers as we look back on our recent experience fabricating projects in Asian shipyards, and all the headaches, we've been battling through with Covid and supply chain disruptions and so forth along with other vendors in that ecosystem doing the same thing along with the fact that a lot of the <unk>.

<unk> are saying.

When demand has picked up as LNG demand has picked up.

They're looking at a little higher cost on these projects and so in the first quarter.

I know a few of them are drawing a deep breath and just sort of.

A break on on recent orders, but nonetheless.

Let's don't let's don't over complicate this oil is trading at a really high price.

There's been a lot of reengineering a lot around a lot of these big projects around the globe. They are needed by the globe and I think that will become more evident as the year next year unfolds and so I think these projects are going forward and thats going to translate to higher orders for <unk>.

Great. Thanks, so much clay I'll turn it back.

Thank you.

That concludes today's question and answer session I'd like to turn the call back to Clay Williams for closing remarks, great. Thank you I appreciate everyone. Joining us this morning, and we look forward to discussing our second quarter results with you in late July so have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Nov Inc Earnings Call

Request a DemoDemo

NOV

Earnings