Q4 2024 NOV Inc Earnings Call

Okay.

Speaker Change: Good day, ladies and gentlemen, and thank you for standing by walking to the N O V fourth quarter 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: Answer a question at that time, you will need to press star one one on your telephone keypad at this time I would like to turn the conference over to MS. Amy Dambrosio Ma'am you may begin.

Speaker Change: Welcome everyone to <unk> fourth quarter and full year 2024 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo, Our senior Vice President and CFO.

Speaker Change: Before we begin I would like to remind you that some of today's comments are forward looking statements within the meaning of the federal securities laws. They involve risks and uncertainty and actual results may differ materially.

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

Speaker Change: For a 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.

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

Speaker Change: On a U S GAAP basis for the fourth quarter of 'twenty 'twenty, four and nobody reported revenues of $2 three $1 billion and a net income of $160 million or <unk> 41 cents per fully diluted share.

Speaker Change: For the full year 2024 revenues were $8 $87 billion in net income was $635 million or $1 60 per fully diluted share our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.

Speaker Change: 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.

Clay Williams: Now, let me turn the call over to clay.

Clay Williams: Thank you Amy and good morning, everyone.

Clay Williams: <unk> fourth quarter marked a strong finish to a good year fourth quarter revenues grew 5% sequentially to $2 3 billion.

Clay Williams: And net income was $160 million, resulting in fully diluted earnings of 41 per share.

Clay Williams: EBITDA was $302 million or 13, 1% of sales.

Clay Williams: Fourth quarter book to Bill was 121% on shipments out of backlog that were up 12% sequentially.

Clay Williams: <unk> has achieved greater than one to one book to Bill and 10 of its last 12 quarters growing its backlog of 22% through the past four years, while quarterly shipments out of backlog have risen more than 60% through the same period.

Clay Williams: The company continued to benefit from rising demand for its critical technologies through the fourth quarter. Despite slowing momentum in E&P spending in several key markets for full year 2024. In addition to growing backlog year on year, we increased revenue improved profitability and generated exceptionally strong free cash flow revenue for the full year increase.

Clay Williams: <unk>, 3% to $8 9 billion and EBITDA increased to $1 1 billion or 12, 5% of sales.

Clay Williams: Incremental flow through for the year was was strong at 38% the energy equipment segment led the way growing its revenue by 5% and expanding segment margins by 250 basis points.

Clay Williams: Recovery of supply chains, and lower inflation together with higher margin contracts flowing out of backlog helped the segment improved its performance significantly in 2024, and we expect further improvements in 2025.

Clay Williams: Offshore investment continued to recover fueled by deepwater exploration and follow on development pumping demand for floating vessels to produce store and offload oil and to liquefy natural gas <unk> has continued to secure large orders for gas and produce water processing equipment subsea flexible pipe.

Clay Williams: Folks offshore completion and other production equipment.

Clay Williams: Nearly 60% of fourth quarter's reported orders were for production equipment provides.

The balance of our fourth quarter orders included a complete drilling package for a newbuild jackup rig to be constructed in Saudi Arabia, which helped drive a 20% plus sequential improvement in orders for drilling equipment for.

Clay Williams: For the full year drilling capital equipment within energy equipment segment totaled 8% of our consolidated <unk> revenues.

Clay Williams: Our shorter cycle segment energy products and services also grew revenue in 2024, though modestly margins fell 120 basis points year over year due mostly to large declines in drill pipe demand in related pipe coating services. The segment's top line growth came despite lower global drilling activity, which was down 5% year over year.

Clay Williams: Sales growth was helped by increasing adoption of <unk>, new organically developed technologies, along with acquisitions and setting tools and artificial lift made during the year.

Clay Williams: These digital services continued to gain traction with users of our Max data aggregation visualization and analytics platform more than doubling through 2024, our Max edge platform is a key component of the connected digital network, we have developed which spans high speed data measured at the bit and transmitted through our proprietary wire drill pipe to AI application.

Clay Williams: That work in conjunction with <unk> machine controls to optimize safety and performance, while feeding data real time into the cloud and into our customers command centers. We are continuing to develop new digital products built on Max edge platform for new areas of the development lifecycle like well completions and production optimization <unk>.

Clay Williams: <unk> unique proprietary data transmission capability, along with its large installed base of equipment and chokes separation processing completions and drilling create a unique and interesting opportunity for our company.

Clay Williams: <unk> energy products and services segment also benefited from strong share gains with new downhole technologies continued innovations in cutter technology enabled <unk> to capture the leading position in the supply of drill bits are new downhole drilling motors friction reduction tools and torsional vibration mitigation tools are proving critical.

Clay Williams: To shale drillers, pushing laterals out to three and even four miles leading to 89% year over year growth for these downhole technologies in the fourth quarter.

Clay Williams: And as operators invest in new unconventional shale opportunities in the Middle East and Latin America, we see further growth ahead.

Clay Williams: Overall share gains with organically developed technologies and backlog resilience enabled <unk> to post a solid 2024, despite headwinds which began to emerge in the second half of the year.

Clay Williams: Concerns regarding potential near term oversupply or making everybody nervous so many producers and service companies are more cautious in their near term spending plans. Nevertheless, higher revenue profit and improve working capital efficiency resulted in full year free cash flow of $953 million or 86% of EBITDA.

Clay Williams: Demand continues to grow as it has for the 166 year history of the oil and gas industry secure and reliable energy supports economic growth and improves the lives of people globally, while macroeconomic and geopolitical uncertainty persists.

Clay Williams: <unk> 2025, with a strong foundation.

Clay Williams: We expect North America activity to remain subdued probably flat at best.

Clay Williams: Continued capital discipline, among more consolidated E&P operators together with some pretty astounding efficiency gains due in no small part to Nov's technologies.

Clay Williams: We'll continue to be a headwind for short cycle drilling and completion activity in the United States. However, we expect <unk> technology leadership and strategic market positioning to continue to enable us to outperform activity levels in the region.

Clay Williams: We are actively increasing our fleet of proprietary drill bits and downhole tools in response to market demand and we expect further share gains to offset the softness in north American activity within energy products and services. We also expect weak demand for pressure pumping and stimulation equipment from North America, which will weigh on energy equipment results in 2025.

Clay Williams: Looking to international markets, we believe activity will be flattish year over year.

Clay Williams: The middle East will see declines in Saudi Arabia, offset by increases in Kuwait, UAE and Oman Latin America should remain strong led by Brazil, and we continue to view unconventional development in the bank of America in Argentina that you further afield in our Saudi Arabia, and unconventional as elsewhere in the middle East as bright spots for future Adobe demand.

Clay Williams: Conventional shale plays need high spec land rigs coiled tubing and completions kit chokes separators and corrosion resistant flow lines, all categories, where <unk> provides global market leadership.

Clay Williams: And we continue to see signs of building demand from these emerging unconventional basins.

Clay Williams: Turning to offshore despite a pickup in contracting in December our offshore drilling customers remain concerned about lower utilization or white space in their schedules in 2025 nearly.

Clay Williams: Nearly $300 billion in offshore and.

Clay Williams: In the past three years up about 50% from the preceding year period.

Clay Williams: Has led to the filling of Asian shipyards about 60, new conversion or construction projects for floating production storage Liquefacient and regasification vessels have resulted in higher congestion and costs something we talked about last quarter as the vessel supply chain has filled delivery dates have elongated a bit which is called the urgency by deepwater E&P operators to <unk>.

Clay Williams: Drew.

Clay Williams: Some of our drilling contractor customers are facing temporary gaps in utilization due to delayed production plans. They tell us, though they expect contracting activity to pick up possibly as early as the second half of 2025 in anticipation of higher deepwater drilling in 2026. Their view is supported by the emergence of offshore natural gas as an economic tar.

Clay Williams: For E&P operators, along with success in exploration in Latin America, West Africa, the eastern Mediterranean and the Paleogene in the Gulf of Mexico Economics have been helped by greater industrialization and standardization throughout the subsea production and at DSO supply chains, which we believe will help normalize supply chain more quickly to facilitate higher levels of offshore drilling.

Clay Williams: During the fourth quarter, we saw slowdowns in spare parts demands from offshore drillers as a result of the white space phenomenon. However, these were almost fully offset by higher service and repair revenues.

Clay Williams: Resulting in a modest 1% sequential decline in rig aftermarket.

Clay Williams: Rig aftermarket within energy equipment totaled 18%.

Clay Williams: Consolidated mix in 2024.

Clay Williams: The number of offshore projects. We are engaged in is roughly flat year on year with a higher mix of longer term more revenue intensive re certifications than last year, but offset by fewer rig reactivation.

Clay Williams: Despite several examples of offshore drillers, using white space to upgrade and repair rigs for 2026 activity, we expect to see rig aftermarket activity down mid to upper single digits and rig equipment down low single digits in 2025.

Clay Williams: Notably we may see a stronger recovery in the latter half of the year as I mentioned as drillers prepare for a more robust 2026.

Clay Williams: Our growing backlog within energy equipment reflects the high demand for <unk> production equipment arising from the sharp expansion of deepwater.

Clay Williams: And the developments I noted earlier, particularly in offshore production processing and subsea flexible pipe.

Clay Williams: We are well positioned to support the next phase of deepwater expansion offering critical technologies and gassy hydration produced water and Cotwo emissions reduction more complex offshore wells will continue to drive demand. Likewise, we foresee growing international onshore adoption of unconventional drilling and completion techniques, creating additional avenues for growth across our comprehensive port.

Clay Williams: <unk> overall, we expect energy equipment revenue declined low single digits in 2025, as lower demand for offshore drilling support and North American stimulation equipment more than offset growth in production equipment.

We expect modest growth in energy products and services revenue to more or less offset these declines to summarize our base case across different markets points to a flattish environment.

Clay Williams: In 2025.

Clay Williams: We acknowledged that OPEC excess supply continued strong shale efficiency gains in the U S and growing non OPEC offshore production, which appears to be supplanting U S. Shale is a swing source of oil supply could unleash greater commodity price driven headwinds in 2025. Nevertheless in the absence of a significant downturn in activity, we expect <unk> margins to.

Clay Williams: To improve further in 2025 margin expansion will be driven by the improving quality of margins rolling out of backlog our focus on driving further efficiencies in our business and continued market share gains of our new products that have gained adoption and pricing premiums.

Clay Williams: As always <unk> remains committed to delivering value to our shareholders, our disciplined capital allocation strategy, maintaining a strong balance sheet, while balancing reinvestment in high return opportunities with shareholder returns will continue to guide our decisions in 2024, we meaningfully increased our return of capital accelerating share buybacks and increasing our dividend to <unk>.

Clay Williams: <unk> $337 million to shareholders during the year as we look forward, we remain steadfast in our approach to delivering consistent and sustainable financial performance.

Clay Williams: In closing 2024, it was a year that demonstrated nov's resilience and strategic strength, despite market and macro headwinds that emerged through the year, we delivered strong operational execution capitalize on offshore and international tailwind and maintained a disciplined approach to cost control and capital deployment as we move into 2025, and <unk> is well positioned to build on the momentum of this year.

Clay Williams: <unk> capitalize on growing opportunities and drive strong returns for our stakeholders.

I want to tell all of the <unk> employees listening today. Thank you.

Speaker Change: Appreciate you Youre.

Speaker Change: Your strong commitment to innovation execution and service excellence is what drives <unk> success are customers, telling you and me for the critical solutions that enhance efficiency safety and sustainability and thanks for your hard work and it will be will continue to exceed their expectations in the coming years.

Speaker Change: Jay.

Speaker Change: As Clay mentioned, we had a solid 2024 during a year when drilling activity was down 9% in North America and flat in international markets. Our full year revenue improved 3% with 38% EBITDA flow through we also generated $953 million of free cash flow and achieved a book to bill of 122.

Speaker Change: <unk>.

Speaker Change: For the fourth quarter Nov's consolidated revenue decreased 1% year over year, but EBITDA increased 3% to $302 million with margins, increasing 60 basis points to 13, 1% of sales.

Speaker Change: Steadily improving quality of our capital equipment backlog and market share gains from new higher margin technologies and services and operational efficiencies more than offset the effect of lower activity levels.

Cash flow from operations was robust and totaled $591 million in the fourth quarter due to higher levels of profitability and improved working capital efficiencies capital expenditures totaled $118 million, resulting in $473 million of free cash flow for full year 2024, and <unk> generated one three.

Speaker Change: Billion dollars in cash flow from operations and invested $351 million in capital expenditures, resulting in the $953 million of free cash flow, we expect capital expenditures in 2025 to be in line with 2024.

Speaker Change: We achieved an 86% conversion rate of EBIT out of free cash flow in 2024, while we do not expect the exceptional improvement in working capital to repeat this year, we still expect a healthy EBITDA to free cash flow conversion rate of more than 50% in 2025.

Speaker Change: During the fourth quarter, we repurchased seven 5 million shares for $112 million and pay that $29 million dividend, returning $141 million to our shareholders. Our repurchases were heavily weighted towards the end of the quarter. So we exited the year with 384 million fully diluted shares outstanding 6 million shares lower than the weight.

Speaker Change: The average number of shares outstanding during the quarter for.

Speaker Change: For the full year, we returned a total of $337 million to our shareholders or 41% of our excess free cash flow. We remain committed to returning at least 50% of our excess free cash flow to our shareholders on an annual basis, and therefore expect a true up to that threshold to a supplemental dividend in the first half of 2025.

Speaker Change: Our exceptionally strong cash flow also allowed us to improve our cash balance by $414 million during 2024 with a robust balance sheet. We now expect to return well over 50% of our excess free cash flow in 2025, excluding the supplemental dividend related to our 2020 for return target.

Speaker Change: Moving on to segment results.

Speaker Change: During the fourth quarter of 2020 for our energy products and services segment generated revenue of 1.06 billion, a modest decrease compared to the fourth quarter of 2023.

Speaker Change: EBITDA decreased $20 million to $173 million or 16, 3% of sales the decrease in revenue and profitability was due to lower global drilling activity and the effect of heightened geopolitical and macroeconomic uncertainty, which had a disproportionate effect on demand for the segments shorter cycle capital equipment offerings.

Speaker Change: For the fourth quarter, the sales mix for energy products and services was 49% services and rentals, 19% product sales and 32% shorter lived capital equipment.

Speaker Change: <unk> capital equipment decreased 15% year over year due to strong deliveries of drill pipe managed pressure drilling equipment and conductor casing connections in the fourth quarter of 2023, which did not repeat while demand for these offerings decreased year over year. Each product line has seen solid orders as of late.

Partially offsetting the overall decline in capital equipment sales was a strong increase in revenue from the segment's composite pipes fittings and structures. We continue to experience robust demand for fiberglass pipes and tanks in support of production infrastructure for international development and recently shipyard seem to have found a new sense of urgency and taking deliveries from composite.

Speaker Change: <unk> ducks and ballast tanks for floating production storage and Offloading vessels.

Speaker Change: Segments revenues from service and rentals improved 4% year over year due primarily to contributions from our artificial lift and setting tool acquisitions, excluding the acquisitions service and rental revenue was up slightly year over year as market share gains offset lower drilling activity levels.

Speaker Change: Despite steady declines in drilling activity revenue from rentals of our drill bits in the U S has increased four straight quarters, a result of our industry, leading cutter technologies and close engineering coordination with operators to provide optimal bit for this specific hole application.

Speaker Change: Demand for our solids control services remains robust with year over year revenue up in the low double digit percent range led by demand for our latest generation of technologies.

Speaker Change: Over the past year, we've realized rapid market adoption of our alpha shakers, which can process, 20%, 30% more cuttings and other shakers on the market and our <unk> thermal desorption systems, which efficiently removes oil based waste from cuttings, eliminating or significantly decreasing transport cost associated with waste disposal.

Speaker Change: Our digital services operation, which includes our legacy <unk> business, our Max digital service offerings, and our wired drill pipe enabled downhole broadband solutions declined in the upper single digit percent range due to lower drilling activity levels impacting demand for electronic drilling data recorders and spud.

Speaker Change: Dates for DBS projects in the middle East sliding to the right.

Speaker Change: Both of which more than offset contributions from the continued growth in the user base of our Max digital solutions platform.

Revenue from our tubular coating and inspection services were flat year over year with steady demand for coating services in North America offsetting declines in higher margin coating services and the eastern Hemisphere and Latin America.

Speaker Change: Revenue from inspection services was down slightly due to lower activity in North America, mostly offset by higher demand from Latin America.

Speaker Change: We're realizing strong growth in downhole tool rentals from international markets by capitalizing on opportunities to expand the use of our leading edge extended lateral tools into unconventional fields in international markets, including Saudi Arabia, UAE and Argentina.

Speaker Change: In the Middle East, we began executing on a contract to provide complete bottom hole assemblies, including our advanced drill bits motors and measurement, while drilling tools for a large service provider drilling extended lateral wells in an unconventional field.

Speaker Change: We have already helped the customer set or rate of penetration record for the 16 inch section in the field.

Speaker Change: We're also seeing accelerated adoption of our friction reduction and torsional vibration mitigation tools and the middle East and pushing those products along with our advanced drilling motors and power sections into the Bakken more to field in Argentina.

Speaker Change: The strong demand for our downhole tools and international markets and market share gains in the U S are mostly offsetting the decline in drilling activity and an increase in direct sales of our products to operators more of whom are starting to build out their own fleet of high spec drilling tools.

Speaker Change: Revenues from product sales increased in the low double digits compared to the fourth quarter of 2023.

Speaker Change: Artificial lift franchise continues to see healthy demand in the Permian, while pursuing growth in additional regions exclude.

Speaker Change: Excluding the acquisition of our artificial lift business revenue from consumable products was down in the low to mid teen percent range strong shipments of downhole drilling and fishing tools to customers in India, Indonesia, and China were more than offset by lower shipments of tubular liners and sleeves, MPD consumables and a falloff of drill bits.

Speaker Change: <unk> in Saudi Arabia during the last couple of months of the year.

Speaker Change: For the first quarter of 2025, we expect our energy products and services segment to realize a seasonal decline that is in line with what the segment experienced last year translating into revenue that is flat to down 2% year over year with EBITDA between 145 and $165 million.

Speaker Change: Moving to our energy equipment segment revenue for the fourth quarter of 2024 was $1 9 billion down 1% from the fourth quarter of 2023 EBIT.

EBITDA increased $38 million to $185 million, resulting in a 310 basis point increase in margin to 14, 4% of sales.

Speaker Change: The fourth quarter of 2024 marked the 10th straight quarter of year over year margin growth for this segment, resulting from the continued improvement in the quality of our backlog and improvements in operational efficiencies.

Speaker Change: During the fourth quarter sales of capital equipment accounted for approximately 57% of the segment's revenues unchanged from the fourth quarter of 2023, but up three percentage points from the third quarter of 2024 due to the typical seasonal pickup in year end capital equipment deliveries.

Speaker Change: Aftermarket sales and services accounted for the remaining 43% of revenue in the fourth quarter of 2024, which declined 3% year over year due primarily to a mid single digit percentage decrease in aftermarket support for intervention and stimulation equipment and a 1% decrease in our drilling equipment aftermarket operations.

Speaker Change: Revenue from aftermarket parts and services for intervention and stimulation equipment in the U S decreased in the mid teen percent range year over year with a steady decline of completions activity, causing customers to idle and stacked frac spreads and other equipment.

Speaker Change: Partially offsetting the lower revenue from North America was a mid teen percent increase in demand for aftermarket services in the middle East we're growing activity in unconventional resources is requiring more aftermarket support for our growing base of service equipment.

Clay Williams: And our drilling equipment business lower demand for spare parts was mostly offset by higher revenues from service and repair work as clay mentioned, we have started to experience softening demand for aftermarket parts and services as our offshore drilling contractor customers prepare to navigate through white space in 2025.

Clay Williams: We anticipate and are beginning to see a larger effect on demand for spare parts versus service and repair with many customers taking advantage of the lull in activity to complete upgrades and re certifications.

Clay Williams: Despite a lower number of re certification is expected in 2025, the offshore rig fleet is getting older and we expect our average recertification project will have a larger scope than what we saw in 2024.

Clay Williams: Our expectation is that we will have fewer drillship reactivation and re certifications, but we should see a meaningful number of upgrades and a larger scope per recertification project, resulting in aftermarket revenue that will decline in the mid to upper single digit percent range for the full year.

Clay Williams: With the expectation for significantly higher offshore activity in 2026, we expect aftermarket orders to bottom in the second quarter and revenues to trough in the third quarter before results improve in the fourth quarter of 2025.

Clay Williams: Turning to the capital equipment portion of the energy equipment segment higher sales of drilling production and completion equipment more than offset lower year over year revenue from wind turbine installation vessels.

Fourth quarter bookings remained strong with the segment posting a book to bill of 121%.

Clay Williams: Backlog ended 2024 at $4 43 billion up 7% from year end 2023, despite the negative impact of strengthening U S. Dollar had on our heavily international market weighted backlog revenue in our offshore production oriented businesses improved slightly year over year with higher progress on process system projects partially.

Clay Williams: Offset by a decline in our subsea flexible pipe operation after an extraordinarily strong Q4 of 2023 outlook for offshore production offerings remains very strong we secured new orders for equipment packages associated with three Newbuild Fpss that we'll operate in Brazil and West Africa.

Clay Williams: The scope includes advanced natural gas dehydration, cotr handling and produced water treatment systems.

Clay Williams: Our subsea flexible pipe business had another strong bookings quarter and backlog is at a record high up 62% from the end of last year importantly, the backlog consists of projects with much improved pricing, which should drive meaningfully higher margins for the operation in 2025.

Clay Williams: Sales of intervention stimulation capital equipment improved high single digits over the fourth quarter of 2023 with strong sales of coiled tubing and wireline equipment in the middle east more than offsetting sharp decrease in demand for pressure pumping equipment in North America as.

Clay Williams: As activity declines and operators are doing more with less we expect to see more attrition of the service equipment base over the next couple of quarters before our customers will need to resume replacing worn out assets with our latest generation of equipment, which offers greater operational efficiencies and a lower total cost of ownership.

Clay Williams: While rig curtailments in conventional Saudi fields are causing some cautiousness, we expect the middle East region will continue to be a solid source of demand for completion equipment that is needed to speed. The development of the service intensive unconventional plays that is now underway.

Clay Williams: Revenue from drilling capital equipment grew mid single digits year over year due to increased progress on offshore projects, including a 20000 Psi upgrade we announced in 2024 and.

Clay Williams: And we continue to execute well on our sizeable backlog newbuild rigs in Saudi where we recently delivered our 10th rig.

Our operations remain busy building equipment for offshore upgrades and we recently booked a drilling equipment package for a new jackup rig, but the outlook for rig equipment looks modest in 2025 as clay mentioned, we expect revenues to decrease in the low single digit percent range in 2025 due to the offshore white space and macroeconomic.

Clay Williams: Longer term, we see building pent up demand for high spec rigs and emerging international unconventional basins and more opportunities to upgrade offshore rigs with the latest capabilities.

Clay Williams: Our marine construction business experienced a steady decline in revenues through 2024 as higher revenue from pipe and cable lay vessels could not offset the completion of <unk> projects that occurred through the course of the year.

Clay Williams: While orders for <unk> have been somewhat sparse over the last two years, our customers in Western Europe continued to project a shortage of vessels by 2028 and are beginning to initiate tenders with shipyards, giving us optimism that we could realize a couple of orders during 2025.

Clay Williams: We also see the potential for additional pipe lay vessels and expect demand for cranes in deck machinery to remain solid.

Clay Williams: With increasing macroeconomic and geopolitical uncertainty, we expect the energy equipment segment to realize a slightly larger than usual seasonal decline, resulting in revenue that will be down 3% to 5% year over year with margins improving between 150 to 250 basis points to yield EBITDA in the range of 135 to 150 million.

Clay Williams: <unk>.

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

Clay Williams: Yes.

Clay Williams: Okay, ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad if.

Clay Williams: If your question has been answered or you wish to remove yourself from the queue simply press star one again.

Clay Williams: Again, if you have a question or comment at this time. Please press star one one.

Clay Williams: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question or comment comes from the line of Jim Rollyson from Raymond James Mr. Robison. Your line is open.

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

Speaker Change: Thank you Jim.

Speaker Change: Clay you went through a lot of puts and takes that you've kind of built up to basically flat revenue year for 2025 is kind of your current outlook.

Speaker Change: But you guys have stated.

Speaker Change: Margins for a whole bunch of reasons.

Speaker Change: And in Peru.

Speaker Change: I kind of start with one key guidance we're mid.

Speaker Change: The midpoint of that is kind of a 65 basis point improvement year over year in margins just trying to get to how are you thinking about the magnitude of margin increase based on where your backlog fits in the pricing that's embedded there and what you guys have done internally on cost and efficiencies et cetera, what kind of magnitude of.

Speaker Change: Year over year margin are you thinking that's going to look like at this first first Jim you are right in pointing out there are a lot of puts and takes there are some emerging headwinds.

Speaker Change: Get in a way of.

Speaker Change: Some of the margin improvements, but nevertheless, we're optimistic margins should continue to rise in 2025.

Speaker Change: First I would point to a clear success that we're achieving in energy equipment.

Speaker Change: That group's margins up over 300 basis points year on year for Q4.

Speaker Change: Q1 through Q4 rose from 10, 1% to 14, 4% the better margins in backlog the costs that they've taken out.

Speaker Change: Normalization of the supply chain have all contributed to that we expect further improvement in margins out of backlog as we move into the first part of 2025 and <unk>.

Speaker Change: <unk>.

Speaker Change: Completion of some margin challenged projects that we've been dealing with for the past couple of years and so really good momentum in that group and that's going the right way.

We do expect revenue for that group to be down a tad in 2025 and so.

Speaker Change: That's a bit of a headwind, but nevertheless expectation is theyre going to overcome that.

Speaker Change: The challenge has been in energy products and services and we faced some.

Speaker Change: Some more marketing challenge more challenging market conditions within that segment in 2024.

Speaker Change: Those are likely to persist in 2025.

Speaker Change: The group is much more exposed to North America, and I think I think 52% of our mix.

Speaker Change: In Q4 in that site and that segment is North America, and so rig count down 9% year over year has certainly been a headwind.

Speaker Change: <unk> also faced some mix challenges year over year for the fourth quarter, we saw drill pipe volumes way down for.

Speaker Change: For the full year down about 20% for Q4 to Q4 down something like almost a third and it's a high fixed cost.

Speaker Change: The fixed cost type business and so one of the steps towards improving margins.

Speaker Change: Working on the cost of manufacturing drill pipe and so theres a number of initiatives underway there to improve our workflows at our plant here in Navistar to Texas and also.

Speaker Change: Reorganize our Asian manufacturing and so.

Speaker Change: We will see progress on that through the first half of 2025.

Speaker Change: The other.

Speaker Change: Area that we're very focused on improving costs and energy products and services within our <unk> business.

Speaker Change: <unk> seen lower lower volumes in North America tied to the rig count.

Speaker Change: And also some <unk>.

Speaker Change: Opportunities to further debottleneck its coding operations here on the Gulf Coast and so it's.

Speaker Change: Moving to improve operations out of coding, which will drive better margins here.

And and.

Speaker Change: Very excited about kind of the outlook for improvements.

Speaker Change: And that business.

Speaker Change: And so those are the kind of the two.

Speaker Change: Cost initiatives, we have underway on the other side of the ledger for energy products and services.

Speaker Change: Note it in our prepared remarks, we have a number of new products that we've introduced.

Speaker Change: We are demonstrating real value to our E&P operators and <unk>.

Speaker Change: If you focus in on our downhole tools offerings for example.

Speaker Change: Our bits offerings.

Speaker Change: We are introducing new products with a significant double digit price premium that also have lower operating cost for us and so they are very accretive to our margins and we're continuing to grow those in response to market demand and so if we can continue to shift the mix of our offering and EPS over towards those more.

Speaker Change: Accretive higher margin products, that's going to help margins in 2025, and then the last thing I would point to is.

Speaker Change: We're seeing good demand for our downhole wired drill pipe.

Speaker Change: Downhole broadband services.

Speaker Change: And we.

Speaker Change: We've been carrying some startup costs around a number of rigs spuds that we expect some of those have pushed to the right a bit not related to our service, but for other reasons. Those are going to work now we expect the volume in that area to pick up and so we will do a better job of absorbing some of the costs of that in 2025 as those programs get under.

Speaker Change: And so that's kind of a tailwind within.

Speaker Change: Energy products and services.

Speaker Change: I think either Iron Jose noted.

Speaker Change: A few minutes ago.

Speaker Change: We do expect share gains despite a kind of a flattish environment a lot of puts and takes we expect share gains to drive a little bit of revenue growth and energy products and services to more or less offset the declines in energy equipment.

Speaker Change: Sure.

And if you add all that up and it might be Jose question.

Speaker Change: That kind of gives you a 50 to 100 basis point type of potential margin improvement year over year do you think are or is that too high.

Speaker Change: Jim I think I mean, ultimately we will have to see what kind of market presents itself through the course of 2025 is still a whole lot of macroeconomic and geopolitical uncertainty for the year.

Speaker Change: But your assumption is not unreasonable, yes, its probably somewhere between 50 to 150 basis point possibility for the FERC for 25, So we'll say that don't take that as official guidance other than to say youre not being unreasonable in terms of your assumptions.

Speaker Change: No that's helpful.

A bracket and then maybe just to add one more.

Speaker Change: Sure you guys have obviously done a lot on the free cash flow and working capital side of things and posted really good.

Speaker Change: A really strong numbers for the year and as you alluded youre not going to keep getting those gains necessarily but.

Speaker Change: As we think about that continued 50% free cash flow plus flow through from EBITDA and.

Speaker Change: And how you think about that as far as returning capital I know that 50% number is kind of the baseline bogey, but if I remember right Jose when we were on the road.

Speaker Change: A few months ago, you were kind of thinking maybe that number gets a bit better in terms of your share of capital returns I think go into 25, because <unk> got visibility now that the working capital has done what you wanted to do the balance sheets, where you want it to be et cetera, maybe just spend a minute on kind of how youre thinking about the level of return of capital as you can.

Speaker Change: Look in 'twenty, five and maybe even beyond.

Speaker Change: Good question Jim.

Speaker Change: So.

At the beginning of last year, when we unveiled our return of capital program. One of the reasons why we did it as we sort of looked forward over the next three or four years, we saw.

Speaker Change: A prolonged recovery cycle.

Speaker Change: That would obviously have some ups and downs during the course of the way, but our view was and remains that we're still at a fairly early portion of the recovery cycle.

Speaker Change: And that we should see a little bit less volatility over the next several years and that combined with significantly improve profitability. The rapid healing of the global supply chain that gave us a tremendous amount of confidence that we're going to get back to our old ways of being a.

Speaker Change: Yes.

Speaker Change: A low capital intensity business that would throw off a tremendous amount of free cash flow.

Speaker Change: So we were very confident with our statement that we would convert.

Speaker Change: At least 50% of our EBIT to free cash flow over that time period.

Speaker Change: And we remain confident that obviously 2024 things.

Speaker Change: Things went a lot better than anticipated from a free cash flow conversion standpoint, particularly the fourth quarter. We had a lot of things go our way things things went the way that we thought they would from a supply chain and inventory management standpoint, a lot of teams around the company have been really folk.

Speaker Change: Based on just getting better and capitalizing on that healed global supply chain that went according to plan.

Speaker Change: Q3 to Q4, we normally ship a lot of stuff out of the door, which helps us reduce inventory levels and also usually has the result.

Speaker Change: Reducing our cost and excess.

Speaker Change: Our contract assets and our short term assets on our balance sheet that usually flips into build in receivables during the fourth quarter, but at this time around we had exceptional collections and frankly, it's a result of won some work by our teams, but to the general improved health of our.

Speaker Change: Our customer base, the vast majority of which is paying on time for the first time in.

Speaker Change: While so really really healthy free cash flow in Q4, as a result of about a $397 million improvement in working capital from Q3 to Q4.

Speaker Change: Ended the year at about 25% working capital to revenue run rate.

Speaker Change: It's going to be challenging to eke out improvements in 2025 still confident we're going to get better from an inventory management standpoint, but overall expectation is that working capital intensity will remain kind of flattish and so that kind of gets us to <unk>.

Speaker Change: Do you consider.

Speaker Change: EBITDA or capex load are inter.

Speaker Change: Interest payments and tax.

Speaker Change: You kind of get to.

Speaker Change: Ed.

Speaker Change: A conversion of EBITDA to free cash a little bit north of 50%. So that's kind of where we feel like will be for 2025 and don't see any reason why that wouldn't continue to be the case as we go forward in time, but ultimately that kind of ties back to the market environment as well topline growth rate.

Speaker Change: But feel really really good about free cash flow generation going forward now as it relates to our return of capital.

Speaker Change: As I mentioned in our prepared remarks.

Speaker Change: As a result of that really strong free cash flow, we improved our cash balance by $414 million year over here.

Speaker Change: Our target of returning at least 50% of our excess free cash flow during the course of 2024.

Speaker Change: What set in order to help rebuild some of those cash balances that got a little lower than where we wanted them to be at the end of last year.

Speaker Change: Cash balances.

Speaker Change: Back up to where we think it should be and so as we look at 2025 I would expect us to return.

Speaker Change: The majority the vast majority of our excess free cash flow to our shareholders. During the course of the year. So.

Speaker Change: The way, we're looking at things.

Speaker Change: I appreciate all that detail and I'll turn it back. Thank you guys. Thanks, Jim.

Speaker Change: Thank you. Our next question or comment comes from the line of Roger read from Wells Fargo Securities. Your line is open.

Roger Read: Hey, good morning, Roger read actually.

Speaker Change: Good morning, Roger Roger.

Roger Read: Just to hear from you Roger.

Clay Williams: Same clay.

Roger Read: Hey, I'd like to come out.

Roger Read: How youre looking at the offshore markets I mean, you mentioned and I think it's well known some white space and some of the drillers.

Roger Read: Schedules, but as Youre looking at what it might take to.

Roger Read: Phil that are or what signs are our bi I think you said the latter half of the year might look a little better for some of the equipment orders what are some of the signs you are paying attention to what should we be watching.

Roger Read: Yes, I would say.

Speaker Change: It's interesting our <unk>.

Speaker Change: All of our drilling offshore drilling contractor customers are talking about it and very focused on it.

Speaker Change: Some have said, we're going to defer some projects that we were thinking about doing and others have said, we're going to pull forward. Some projects. We were thinking about doing to sort of use this idle time to prepare our rigs for the upturn in 2026, and so it's sort of a mixed bag out there.

Speaker Change: Specifically I'd point to.

Speaker Change: A couple of rigs that are increasing their hook load capabilities that we won last quarter Q3.

Speaker Change: Had some additional orders for.

Speaker Change: Pipe handling and automation, it's being done kind of during the idle idle time.

Speaker Change: I would say I think consensus out there, though is that 2026 is going to be a much better year for contracting.

Speaker Change: As youre aware, but not everybody else may be December was actually pretty good months for contracting and so contracting is down year over year, but.

Speaker Change: With respect to floaters, it's down something like 20%.

Speaker Change: So we've made up a little ground in December.

Speaker Change: What I think it all speaks to the.

Speaker Change: The fact that you have had some very economic discoveries in these new basins around the world now have natural gas as a viable economic target offshore with the advent of offshore LNG Theres, just a lot more activity going on offshore that's led to higher <unk> and as I noted earlier 300.

Speaker Change: $1 billion a year roughly in diesel past three years for the offshore in the pipeline. It looks like it's still pretty forward. We're doing a lot of feed studies on the production side for what.

Speaker Change: That we think are coming up in the next couple of years.

Speaker Change: And so theres drilling to be done out there.

Speaker Change: It's just sort of one part of the supply chain slowing which is drilling when activity is slowing down a bit to allow the other part of the supply chain, which is the dsos to get caught up and come online and kind of matching those activities together I think thats the root cause of the white space phenomenon. So theres a lot of discussion out there.

Speaker Change: I know offshore drillers or in the aggregate, saying, they're reducing their capex in 2025, well aware of that.

Speaker Change: Just want to point out that their capex spans a lot of different activities beyond what <unk> sells to them if I share with you kind of a snapshot of what we see today versus what we saw last year, it's actually pretty flat. So the number of rigs that were working on a number of projects that we're working on.

Speaker Change: Basically flat.

Speaker Change: With where it was last year 53 rigs right now versus 55 last year. The number of projects. We are discussing with our customers upcoming is a little over 100 now it was a little over 100 last year.

Speaker Change: And so we haven't seen a big diminishment in demand tied to the white space phenomenon, yet other than as we've noted spare parts orders in the fourth quarter fell.

Speaker Change: Once again, they fell in the third quarter two but in January they picked back up and the good news is our rig aftermarket business in the fourth quarter was able to replace almost all of that with additional service and repair.

Speaker Change: Revenues, so sequentially I think our aftermarket rig aftermarket business was down only 1%.

Speaker Change: A little more color on this the projects, we're working on and I think I was they talked about this earlier, we're seeing a higher mix of Sps is versus reactivation.

Speaker Change: Generally.

Speaker Change: The Sps re certifications are lower revenue opportunities for us, but the good news is the mix of longer term, meaning 10 year and 15 year Sps's is much much higher than if you are five year Sps and the magnitude of expenditures within ov on a 10 year Sps is double for a drillship.

Speaker Change: What it is on a five year Sps and a 15 year Sps as some multiple of five years or so and so anyway.

Speaker Change: Theres a lot of there's a lot of information in there.

Speaker Change: Right now we are sort of expecting.

Speaker Change: Rig business to be down a little bit with the white space production continues to go up a lot of great highlights this quarter with respect to orders and activity in the <unk> World and in the last several years has added a lot of market leading products to be able to help our customers execute those projects and so.

Speaker Change: Hopefully that answers your question.

Speaker Change: No. It is helpful. I appreciate it.

Speaker Change: Given given the depth of the answer I'm going to turn it back to you all rather than a hammer question. There. Thanks, guys. Thank you Robert.

Speaker Change: Thank you and my apologies Mr Reed.

Speaker Change: Our next question or comment comes from the line of Dan Kutz from Morgan Stanley. Mr. Cook. Your line is open.

Cook: Hey, Thanks, a lot good morning.

Speaker Change: Morning, Dan.

Speaker Change: So I just I wanted to ask a question that's kind of pose similarly to the consolidated revenue question earlier, but but in reference to backlog in <unk>.

Speaker Change: Book to Bill on orders in 2025, I guess, you guys have given us a ton of components, but if you had to roll everything up on a consolidated basis, just directionally, where would you point us from from kind of a book to Bill.

Speaker Change: Perspective.

Speaker Change: Yes.

Speaker Change: Great question, we're coming off of a lot of momentum. So Q4 book to Bill of 121% full year book to Bill of 102% I think the fourth straight year of growing our backlog. So a lot of demand, but as you correctly note. It comes from a lot of different sources. So as we look to 2025 I think demand for pressure pumping.

Speaker Change: <unk> stimulation equipment in North America is certainly going to be challenged hopeful that as we get deeper into the depletion of horsepower assets. Here later in the year that turns around but but but tougher here on the other hand, good demand for stimulation equipment in these emerging unconventional plays in South America and <unk>.

Speaker Change: The middle East.

Speaker Change: Helping offset that somewhat.

Speaker Change: <unk> talked a lot about offshore drilling in <unk>.

Speaker Change: 2025, and so directionally.

Speaker Change: It may be challenging as well, although we were pleased to win a jackup rig package in Q4, and so that helped a lot with respect to orders in that area, we'll see how 2025 shakes out.

Speaker Change: We continue to be most excited about our production equipment into the deepwater and strong market positions in the supply of subsea flexible pipe and gas processing systems, and chokes valves manifolds, the whole litany of.

Speaker Change: Components that we sell into that a lot of feed studies underway a lot of activity underway. So I think good momentum going into 2026.

Speaker Change: <unk> already executed.

Speaker Change: Just kind of move through the planning the placement process with the Epc's there what we don't talk as much about now that could be a real turnaround in 2025 is our wind turbine installation vessel business that business has been pretty slow on orders. The last couple of years I think in 2024, we had one vessel Jose.

Speaker Change: And.

Speaker Change: In 2025, we have a number of conversations underway.

Speaker Change: Consensus out there that there'll be a shortage of those vessels in 2027 2028 and the participants in that construction sector are looking at at <unk>.

Speaker Change: Placing orders for new vessels in 2025% to be able to sell into that market at that time and so we.

Speaker Change: We expect a couple of WT IV orders this year, which will help reload that backlog and we've seen actually pretty good continuing good demand for cable lay vessels.

Speaker Change: Basically wire up these offshore wind farms that are still being developed in Europe and in particular intra array cable vessels, which connect the individual turbines between each other and so I think I think wind actually as a source of orders in 2025 is going to turnaround and be and be pretty good in addition to that.

Speaker Change: Seeing rising demand for construction vessels broadly as well, including a number that are adding sort of cable way optionality to their designs and so hopefully that addresses your question Dan.

Speaker Change: Again, a lot of puts and takes in there, but the good news is the diversity of nov's offering into all of those different market segments helped us helps.

Speaker Change: Helps helps us offset softness in one particular area with strengths in others.

Speaker Change: Yes, that's all Super helpful.

Speaker Change: Just one on kind of shareholder returns in.

Speaker Change: Thoughts around capital allocation I guess did.

Speaker Change: Could you just talk through some of the puts and takes of the decision to have the kind of 50% true up.

Speaker Change: Four four total.

Speaker Change: Total shareholder returns via supplemental dividend versus maybe the optionality to say, we'll true up to 50% but.

Speaker Change: <unk> can be supplemental dividend component can be incremental buybacks can you just talk about the thought process.

And coming to that decision.

Speaker Change: <unk>.

Yes, Dan it's Jose.

Dan Kutz: So look we wanted to unveil a return of capital framework that was very clear in terms of what we would do and the decisions that we would make and so.

Dan Kutz: We intentionally put in place the supplemental dividend concept in order to hold us accountable to meet the minimum threshold that we set to the street and so we very much intend to.

To live up to that and so if you do the math.

Dan Kutz: That puts in place an expectation, where we should have a supplemental dividend in the order of magnitude of $80 million in.

Dan Kutz: In the first half of 2025.

Dan Kutz: Well I firmly stating that at this point, because obviously we need.

Dan Kutz: <unk> approval to move things forward or change anything around but we intend to live up to that commitment.

As we go forward in time through the course of 2025.

Dan Kutz: With where the share price has been and where it is today.

Dan Kutz: We think that it is a compelling value and still anticipate.

Dan Kutz: Being pretty aggressive as it relates to share buybacks, we significantly stepped up.

Dan Kutz: Our share buybacks in Q4 stepped into it Fortunately as the market for whatever reason had a big downdraft in December. So we ended up with an average share price below $15 per share. So we think we will look back in the future.

Dan Kutz: Good.

Really good about that.

Dan Kutz: And like I said, even at current values.

Dan Kutz: Think that the stock value is compelling so anticipate.

Dan Kutz: <unk> to be pretty aggressive.

Dan Kutz: With share buybacks.

Dan Kutz: <unk> framework is what it is we're going to live with it we're going to live up to it and think it strikes a really nice balance for our shareholders.

Speaker Change: Great. That's really helpful context, I'll turn it back thanks, Ken Thank you Dan.

Dan Kutz: Thank you.

Speaker Change: Question or comment comes from the line of Waqar Syed from <unk> capital markets. Your line is open Sir.

Waqar Syed: Thanks for taking my question.

Clay Williams: Clay or Jose.

Speaker Change: That's all gas.

Speaker Change: Keith team these days in North America and Tech.

Speaker Change: If activity for natural gas take so.

Speaker Change: <unk>.

Speaker Change: North America production growth because of LNG because of gas fired power plants.

Speaker Change: How does <unk> benefit you provide services.

Speaker Change: Obviously, we are aware that the services on the progress on the D&C side, but could you highlight some of the other products that you could be selling into the midstream market for power generation of LNG.

Waqar Syed: You bet Waqar good question and nice to hear from you. This morning.

Waqar Syed: If you look at for example, the Haynesville as a source of gas we're hopeful that in the back half of 2025 as LNG exports come more into focus haynesville activity picks up other other gas drilling picks up across North America. It all starts with horizontal drilling better bits better downhole tools.

Waqar Syed: We've emerged as really a strong technical leader.

Waqar Syed: And those areas to enable longer.

Waqar Syed: Laterals.

Waqar Syed: With respect to pressure pumping.

Waqar Syed: Major provider of pressure pumping coil tubing.

Waqar Syed: <unk> tools.

Waqar Syed: That help enable that that production.

Waqar Syed: We're the leader in and production chokes for those wells are composite flexible.

Waqar Syed: Flow lines.

Waqar Syed: Again, a market leader in that space.

Waqar Syed: So we really participate mostly on the upstream side of it with respect to midstream, we do sell some some valves and.

Waqar Syed: Traps and other things to the pipeline industry as well.

Waqar Syed: But.

Waqar Syed: And then in addition to all that I would add natural gas dehydration Nov's global leader provision of mono ethylene glycol processes to dehydrate dehydrate gas.

Waqar Syed: And processed gas and so there's there's so many critical components that go into gas production in North America that <unk> as a market leader in.

Waqar Syed: Certainly benefit from a uptick in natural gas drilling in North American and again hopeful that projections for <unk>.

Waqar Syed: More natural gas activity and production related to power demand and related to LNG exports out of United States will drive.

Recovery in that area here later in 2025.

Waqar Syed: And we'll just.

Waqar Syed: Just to add a couple of things and so we're pretty excited about that.

Waqar Syed: Advertising and sort of the re recognition that gas is going to be.

A transition fuel I think the world is sort of realizing the importance of gas as it relates to powering a lot of the global economy going forward.

Waqar Syed: This economy as well as all of the.

Waqar Syed: Need for additional incremental sources of power.

Speaker Change: The AI machine and yes, just a couple of things related to LNG.

Speaker Change: Obviously, everything that I talked about but just a couple of tagged on items.

Speaker Change: As it relates to EF LNG our.

Speaker Change: Processing systems for all the gas treatment.

Speaker Change: Been a real source of really good bookings.

Speaker Change: Of late as we look forward over the next couple of quarters and it would be.

Speaker Change: A source of strength in some of the things that we don't talk about a whole lot.

Speaker Change: A whole lot related to <unk>.

Speaker Change: Subsea jokes and mooring systems and things of that nature that are necessary for the transport off loading and shipping of the.

Speaker Change: Large quantities of natural gas are also a big component of some of the things that we're booking right now so there's a lot of areas, where we are really heavily.

Speaker Change: The entire LNG chain. So we're excited about the opportunities in front of us related to it.

Speaker Change: Thank you and just on the <unk>.

Speaker Change: Middle East Jackup that you've booked.

Speaker Change: Would it be.

Speaker Change: Sure.

Speaker Change: Safe to assume that there could be an order.

Speaker Change: When they get that order coming in for the next couple of years.

Speaker Change: And do you see this to be one off type.

Speaker Change: Jackup package.

Speaker Change: I want to be careful I don't want to I don't want to over state. This I do think there will be future orders. This is a jackup that's being constructed in the kingdom and a newly constructed shipyard in the kingdom and so I.

Speaker Change: I do believe that this isn't the last rig that debt that shipyard will build.

Speaker Change: But I'm going to I'm going to.

Speaker Change: Beg off predicting a date or any specificity around future orders were very pleased to land. This one and very focused on executing it well and confident that we will.

Speaker Change: Hopeful that our customer there and other customers place additional orders for for Jackups, but.

Speaker Change: I would say happy.

Speaker Change: Happy to win this one and hopeful that we will win future orders, but I am going to tell.

Speaker Change: Tell your particular quarter or year.

Speaker Change: Well. Thank you very much for your comments I appreciate it and best of luck.

Speaker Change: Thank you thanks for taking a car.

Speaker Change: Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.

Speaker Change: Thank you Howard and thanks to all of you for joining US today, we look forward to discussing our first quarter 2025 results with you in April and we wish you all a very happy Wednesday.

Speaker Change: Operator, we can disconnect now alright, ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: Good day, ladies and gentlemen, and thank you for standing by walking to the N O V fourth quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change: The speaker's presentation, there will be a question and answer session.

Speaker Change: Ask a question at that time, you'll need to press star one one on your telephone keypad at this time I would like to turn the conference over to MS. Amy Dambrosio Ma'am you may begin.

Speaker Change: Welcome everyone to <unk> fourth quarter and full year 2024 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo, Our senior Vice President and CFO.

Speaker Change: Before we begin I would like to remind you that some of today's comments are forward looking statements within the meaning of the federal securities laws. They involve risks and uncertainty and actual results may differ materially.

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

Speaker Change: For a 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.

Speaker Change: On a U S GAAP basis for the fourth quarter of 2024, I know, we reported revenues of $2 three $1 billion and a net income of $160 million or <unk> 41.

Speaker Change: Fully diluted share.

Speaker Change: For the full year 2024 revenues were $8 $87 billion in net income was $635 million or $1 60 per fully diluted share.

Speaker Change: Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.

Speaker Change: 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.

Clay Williams: Now, let me turn the call over to clay.

Clay Williams: Thank you Amy and good morning, everyone.

<unk> fourth quarter marked a strong finish to a good year fourth quarter revenues grew 5% sequentially to $2 3 billion.

Clay Williams: And net income was $160 million, resulting in fully diluted earnings of 41 per share.

EBITDA was $302 million or 13, 1% of sales.

Clay Williams: Fourth quarter book to Bill was 121% on shipments out of backlog that were up 12% sequentially.

Clay Williams: <unk> has achieved greater than one to one book to Bill and 10 of its last 12 quarters growing its backlog, 22% through the past four years, while quarterly shipments out of backlog have risen more than 60% through the same period.

Clay Williams: The company continued to benefit from rising demand for its critical technologies through the fourth quarter. Despite slowing momentum in E&P spending in several key markets for full year 2024. In addition to growing backlog year on year increased revenue improved profitability and generated exceptionally strong free cash flow revenue for the full year increase.

Clay Williams: 3% to $8 9 billion and EBITDA increased to $1 1 billion or 12, 5% of sales.

Clay Williams: Criminal flow through for the year was was strong at 38% the energy equipment segment led the way growing its revenue by 5% and expanding segment margins by 250 basis points.

Clay Williams: Cover your supply chains, and lower inflation together with higher margin contracts flowing out of backlog helped the segment improve its performance significantly in 2024, and we expect further improvements in 2025.

Clay Williams: Offshore investment continued to recover fueled by deepwater exploration and follow on development, prompting demand for floating vessels to produce store and offload oil and to liquefy natural gas <unk> has continued to secure large orders for gas and produce water processing equipment subsea flexible pipe.

Clay Williams: <unk> offshore completion and other production equipment.

Clay Williams: Fact, nearly 60% of fourth quarter's reported orders were for production equipment be provides.

Clay Williams: The balance of our fourth quarter orders included a complete drilling package for a newbuild jackup rig to be constructed in Saudi Arabia, which helped drive a 20% plus sequential improvement in orders for drilling equipment for.

Clay Williams: For the full year drilling capital equipment within energy equipment segment totaled 8% of our consolidated <unk> revenues.

Clay Williams: Our shorter cycle segment energy products and services also grew revenue in 2024, though modestly margins fell 120 basis points year over year due mostly to large declines in drill pipe demand in related pipe coating services. The segment's top line growth came despite lower global drilling activity, which was down 5% year over year.

Clay Williams: Sales growth was helped by increasing adoption of <unk>, new organically developed technologies, along with acquisitions and setting tools and artificial lift made during the year.

These digital services continued to gain traction with users of our Max data aggregation visualization and analytics platform more than doubling through 2024, our Max edge platform is a key component of the connected digital network, we have developed which spans high speed data measured at the bit and transmitted through our proprietary wire drill pipe to AI application.

Clay Williams: That work in conjunction with Nov's machine controls to optimize safety and performance, while feeding data real time into the cloud and into our customers command centers. We are continuing to develop new digital products built on Max edge platform for new areas of the development lifecycle like well completions and production optimization <unk>.

Clay Williams: <unk> unique proprietary data transmission capability, along with its large installed base of equipment and chokes separation processing completions and drilling create a unique and interesting opportunity for our company.

Speaker Change: <unk> energy products and services segment also benefited from strong share gains with new downhole technologies continued innovations in cutter technology enabled <unk> to capture the leading position in the supply of drill bits are new downhole drilling motors friction reduction tools and torsional vibration mitigation tools are proving critical.

Speaker Change: To shale drillers, pushing laterals out to three and even four miles leading to 89% year over year growth for these downhole technologies in the fourth quarter and.

Speaker Change: And as operators invest in new unconventional shale opportunities in the Middle East and Latin America, we see further growth ahead.

Speaker Change: Overall share gains with organically developed technologies and backlog resilience enabled <unk> to post a solid 2024, despite headwinds which began to emerge in the second half of the year.

Speaker Change: Concerns regarding potential near term oversupply or making everybody nervous so many producers and service companies are more cautious in their near term spending plans. Nevertheless, higher revenue profit and improve working capital efficiency resulted in full year free cash flow of $953 million or <unk>, 86% of EBITDA.

Speaker Change: Energy demand continues to grow as it has for the 166 year history of the oil and gas industry <unk>.

Speaker Change: Secure and reliable energy supports economic growth and improves the lives of people globally, while macroeconomic and geopolitical uncertainty persists.

Speaker Change: <unk> 2025, with a strong foundation.

Speaker Change: We expect North America activity to remain subdued probably flat at best.

Speaker Change: Continued capital discipline, among more consolidated E&P operators together with some pretty astounding efficiency gains due in no small part to Nov's technologies.

Speaker Change: We will continue to be a headwind for short cycle drilling and completion activity in the United States. However, we expect <unk> technology leadership and strategic market positioning to continue to enable us to outperform activity levels in the region.

Speaker Change: We are actively increasing our fleet of proprietary drill bits and downhole tools in response to market demand and we expect further share gains to offset the softness in north American activity within energy products and services. We also expect weak demand for pressure pumping and stimulation equipment from North America, which will weigh on energy equipment results in 2025.

Speaker Change: Looking to international markets, we believe activity will be flattish year over year, the middle East will see declines in Saudi Arabia, offset by increases in Kuwait, UAE and Oman Latin America should remain strong led by Brazil, and we continue to view unconventional development in the bank of America in Argentina that you for revealed in our Saudi Arabia and unconventional as elsewhere in the middle.

Speaker Change: <unk> is bright spots for future <unk> demand unconventional shale plays need high spec land rigs coiled tubing and completions kit chokes separators and corrosion resistant flow lines, all categories, where <unk> provides global market leadership.

Speaker Change: And we continue to see signs of building demand from these emerging unconventional basins.

Speaker Change: Turning to offshore despite a pickup in contracting in December our offshore drilling customers remain concerned about lower utilization or white space in their schedules in 2025, nearly $300 billion in offshore <unk> in the past three years up about 50% from the preceding year period has led to the filling of Asian shipyards about six.

Speaker Change: New conversion or construction projects for floating production storage Liquefacient regasification vessels have resulted in higher congestion and costs something we talked about last quarter as the vessel supply chain has fill delivery dates have elongated a bit which is called the urgency by deepwater E&P operators to drill some of our drilling contractor customers are.

Speaker Change: <unk> temporary gaps in utilization due to delayed production plans they tell us, though they expect contracting activity to pick up possibly as early as the second half of 2025 in anticipation of higher deepwater drilling in 2026. Their view is supported by the emergence of offshore natural gas as an economic target for E&P operators along.

With success in exploration in Latin America, West Africa, the eastern Mediterranean and the Paleogene in the Gulf of Mexico Economics have been helped by greater industrialization and standardization throughout the subsea production and at DSO supply chains, which we believe will help normalize supply chains more quickly to facilitate higher levels of offshore drilling during the fourth quarter we saw.

Speaker Change: Slowdowns in spare parts demands from offshore drillers as a result of the white space phenomenon. However, these were almost fully offset by higher service and repair revenues.

Speaker Change: Resulting in a modest 1% sequential decline in rig aftermarket.

Speaker Change: Rig aftermarket within energy equipment totaled 18% of <unk>.

Speaker Change: <unk> consolidated mix in 2024.

Speaker Change: The number of offshore projects. We are engaged in is roughly flat year on year with a higher mix of longer term more revenue intensive re certifications than last year, but offset by fewer rig reactivation.

Despite several examples of offshore drillers, using white space upgrade and repair rigs for 2026 activity, we expect to see rig aftermarket activity down mid to upper single digits and rig equipment down low single digits in 2025.

Speaker Change: Notably we may see a stronger recovery in the latter half of the year as I mentioned as drillers prepare for a more robust 2026.

Speaker Change: Our growing backlog within energy equipment reflects the high demand for <unk> production equipment arising from the sharp expansion of deepwater.

Speaker Change: And the developments I noted earlier, particularly in offshore production processing and subsea flexible pipe.

Speaker Change: We are well positioned to support the next phase of deepwater expansion offering critical technologies and gassy hydration produced water and Cotwo emissions reduction more complex offshore wells, we will continue to drive demand. Likewise, we foresee growing international onshore adoption of unconventional drilling and completion techniques, creating additional avenues for growth across our comprehensive port.

Speaker Change: <unk> overall, we expect energy equipment revenue declined low single digits in 2025% as lower demand for offshore drilling support and North American stimulation equipment more than offset growth in production equipment.

Speaker Change: We expect modest growth in energy products and services revenue to more or less offset these declines to.

Speaker Change: To summarize our base case across different markets points to a flattish environment.

Speaker Change: In 2025.

Speaker Change: We acknowledged that OPEC excess supply continued strong shale efficiency gains in the U S and growing non OPEC offshore production, which appears to be supplanting U S. Shale is a swing source of oil supply.

Speaker Change: Unleashed greater commodity price driven headwinds in 2025, Nevertheless in the absence of a significant downturn in activity, we expect <unk> margins to improve further in 2025 margin expansion will be driven by the improving quality of margins rolling out of backlog our focus on driving further efficiencies in our business and continued <unk>.

Share gains of our new products that have gained adoption and pricing premiums.

Speaker Change: As always <unk> remains committed to delivering value to our shareholders, our disciplined capital allocation strategy, maintaining a strong balance sheet, while balancing reinvestment in high return opportunities with shareholder returns will continue to guide our decisions in 2024, we meaningfully increased our return of capital accelerating share buybacks and increasing our dividend.

Speaker Change: Returned $337 million to shareholders during the year as we look forward, we remain steadfast in our approach to delivering consistent and sustainable financial performance in closing 2024. It was a year that demonstrated nov's resilience and strategic strength, despite market and macro headwinds that emerged through the year, we delivered strong operational execution capitalize on it.

Speaker Change: Offshore and international tailwind and maintain a disciplined approach to cost control and capital deployment as we move into 2025, and it will be as well positioned to build on the momentum of this year capitalize on growing opportunities and drive strong returns for our stakeholders.

Speaker Change: I want to tell all of the <unk> employees listening today. Thank you.

Speaker Change: I appreciate you.

Speaker Change: Our strong commitment to innovation execution and service excellence is what drives <unk> success are customers, telling you and me for the critical solutions that enhance efficiency safety and sustainability and thanks for your hard work and it will be it will continue to exceed their expectations in the coming years.

Speaker Change: Hey.

Clay Williams: As Clay mentioned <unk> had a solid 2024 during a year when drilling activity was down 9% in North America and flat in international markets. Our full year revenue improved 3% with 38% EBITDA flow through we also generated $953 million of free cash flow and achieved a book to bill of 122.

Speaker Change: <unk>.

Speaker Change: For the fourth quarter Nov's consolidated revenue decreased 1% year over year, but EBITDA increased 3% to $302 million with margins, increasing 60 basis points to 13, 1% of sales steadily improving quality of our capital equipment backlog market share gains from new higher margin technologies and serve.

Speaker Change: <unk> and operational efficiencies more than offset the effect of lower activity levels.

Speaker Change: Cash flow from operations was robust and totaled $591 million in the fourth quarter due to higher levels of profitability and improved working capital efficiencies capital expenditures totaled $118 million, resulting in $473 million of free cash flow for full year 2024, and <unk> generated one three <unk>.

Speaker Change: And cash flow from operations and invested $351 million in capital expenditures, resulting in the $953 million of free cash flow, we expect capital expenditures in 2025 to be in line with 2024.

Speaker Change: We achieved an 86% conversion rate of EBITDA to free cash flow in 2024, while we do not expect the exceptional improvement in working capital to repeat this year, we still expect a healthy EBITDA to free cash flow conversion rate of more than 50% in 2025.

Speaker Change: During the fourth quarter, we repurchased seven 5 million shares for $112 million and pay that $29 million dividend, returning $141 million to our shareholders. Our repurchases were heavily weighted towards the end of the quarter. So we exited the year with 384 million fully diluted shares outstanding 6 million shares lower than the weighted.

Average number of shares outstanding during the quarter for.

Speaker Change: For the full year, we returned a total of $337 million to our shareholders or 41% of our excess free cash flow. We remain committed to returning at least 50% of our excess free cash flow to our shareholders on an annual basis, and therefore expect a true up to that threshold to a supplemental dividend in the first half of 2025.

Speaker Change: Our exceptionally strong cash flow also allowed us to improve our cash balance by $414 million during 2024 with a robust balance sheet. We now expect to return well over 50% of our excess free cash flow in 2025, excluding the supplemental dividend related to our 2020 for return target.

Speaker Change: Moving on to segment results.

Speaker Change: During the fourth quarter of 2024 or energy products and services segment generated revenue of 1.06 billion, a modest decrease compared to the fourth quarter of 2023.

Speaker Change: EBITDA decreased $20 million to $173 million or 16, 3% of sales the decrease in revenue and profitability was due to lower global drilling activity and the effect of heightened geopolitical and macroeconomic uncertainty, which had a disproportionate effect on demand for the segments shorter cycle capital equipment offerings for the fourth quarter the sale.

Speaker Change: <unk> mix for energy products, and services was 49% services and rentals, 19% product sales and 32% shorter lived capital equipment.

Speaker Change: Sales of capital equipment decreased 15% year over year due to strong deliveries of drill pipe managed pressure drilling equipment and conductor casing connections in the fourth quarter of 2023, which did not repeat.

Speaker Change: While demand for these offerings decreased year over year each product line has been solid orders as of late.

Speaker Change: Partially offsetting the overall decline in capital equipment sales was a strong increase in revenue from the segment's composite pipes fittings and structures. We continue to experience robust demand for fiberglass pipes and tanks in support of production infrastructure for international development and recently shipyard seem to have found a new sense of urgency and taking deliveries from composite pipe.

Speaker Change: Ducks and ballast tanks for floating production storage and Offloading vessels.

Speaker Change: Segments revenues from services and rentals improved 4% year over year due primarily to contributions from our artificial lift and setting tool acquisitions, excluding the acquisitions service and rental revenue was up slightly year over year as market share gains offset lower drilling activity levels.

Speaker Change: Despite steady declines in drilling activity revenue from rentals of our drill bits in the U S has increased four straight quarters, a result of our industry, leading cutter technologies and close engineering coordination with operators to provide optimal bit for the specific hole application.

Demand for our solids control services remained robust with year over year revenue up in the low double digit percent range led by demand for our latest generation of technologies.

Speaker Change: Over the past year, we've realized rapid market adoption of our alpha shakers, which can process, 20%, 30% more cuttings and other shakers on the market.

Speaker Change: And <unk> thermal desorption systems, which efficiently removes oil based waste from cuttings, eliminating or significantly decreasing transport cost associated with waste disposal.

Speaker Change: Our digital services operation, which includes our legacy <unk> business, our Max digital service offerings, and our wired drill pipe enabled downhole broadband solutions declined in the upper single digit percent range due to lower drilling activity levels impacting demand for electronic drilling data recorders and spa.

Speaker Change: Dates for DBS projects in the middle East sliding to the right.

Speaker Change: Both of which more than offset contributions from the continued growth in the user base of our Max digital solutions platform.

Speaker Change: Revenue from our tubular coating and inspection services were flat year over year with steady demand for coating services in North America offsetting declines in higher margin coating services and the eastern Hemisphere, and Latin America revenue.

Speaker Change: Revenue from inspection services was down slightly due to lower activity in North America, mostly offset by higher demand from Latin America.

Speaker Change: We're realizing strong growth in downhole tool rentals from international markets by capitalizing on opportunities to expand the use of our leading edge extended lateral tools into unconventional fields in international markets, including Saudi Arabia, UAE and Argentina.

Speaker Change: In the Middle East, we began executing on a contract to provide complete bottom hole assemblies, including our advanced drill bits motors and measurement, while drilling tools for a large service provider drilling extended lateral wells in unconventional field.

Speaker Change: We have already helped to customers at a rate of penetration record for the 16 inch section in the field.

Speaker Change: We're also seeing accelerated adoption of our friction reduction and torsional vibration mitigation tools and the middle East and pushing those products along with our advanced drilling motors and power sections into the Bakken more to field in Argentina the.

Speaker Change: Strong demand for our downhole tools and international markets and market share gains in the U S are mostly offsetting the decline in drilling activity and an increase in direct sales of our products to operators more of whom are starting to build out their own fleet of high spec drilling tools.

Revenues from product sales increased in the low double digits compared to the fourth quarter of 2023.

Speaker Change: Artificial lift franchise continues to see healthy demand in the Permian, while pursuing growth in additional regions exclude.

Speaker Change: Excluding the acquisition of our artificial lift business revenue from consumable products was down in the low to mid teen percent range strong shipments of downhole drilling in our fishing tools to customers in India, Indonesia, and China were more than offset by lower shipments of tubular liners and sleeves, MPD consumables and a falloff of drilled that.

Speaker Change: Sales in Saudi Arabia during the last couple of months of the year.

Speaker Change: For the first quarter of 2025, we expect our energy products and services segment to realize a seasonal decline that is in line with what the segment experienced last year translating into revenue that is flat to down 2% year over year with EBITDA between 145 and $165 million.

Speaker Change: Moving to our energy equipment segment revenue for the fourth quarter of 2024 was $1 9 billion down 1% from the fourth quarter of 2023.

Speaker Change: EBITDA increased $38 million to $185 million, resulting in a 310 basis point increase in margin to 14, 4% of sales.

Speaker Change: The fourth quarter of 2024 marks the 10th straight quarter of year over year margin growth for this segment, resulting from the continued improvement in the quality of our backlog and improvements in operational efficiencies.

Speaker Change: During the fourth quarter sales of capital equipment accounted for approximately 57% of the segment's revenues unchanged from the fourth quarter of 2023, but up three percentage points from the third quarter of 2024 due to the typical seasonal pickup in year end capital equipment deliveries.

Speaker Change: After market sales and services accounted for the remaining 43% of revenue in the fourth quarter of 2024, which declined 3% year over year due primarily to a mid single digit percentage decrease in aftermarket support for intervention and stimulation equipment and a 1% decrease in our drilling equipment aftermarket operations.

Speaker Change: Revenue from aftermarket parts and services for intervention and stimulation equipment in the U S decreased in the mid teen percent range year over year with a steady decline of completions activity, causing customers to idle and stacked frac spreads and other equipment.

Speaker Change: Partially offsetting the lower revenue from North America was mid teen percent increase in demand for aftermarket services in the middle East we're growing activity in unconventional resources is requiring more aftermarket support for our growing base of service equipment.

Clay Williams: And our drilling equipment business lower demand for spare parts was mostly offset by higher revenues from service and repair work as clay mentioned, we have started to experience softening demand for aftermarket parts and services as our offshore drilling contractor customers prepare to navigate through white space in 2025.

Clay Williams: We anticipate and are beginning to see a larger effect on demand for spare parts versus service and repair with many customers taking advantage of the lull in activity to complete upgrades and re certifications.

Clay Williams: Despite a lower number of recertification is expected in 2025, the offshore rig fleet is getting older and we expect our average recertification project will have a larger scope than what we saw in 2024.

Clay Williams: Our expectation is that we will have fewer drill ship reactivation and re certifications, but we should see a meaningful number of upgrades and a larger scope per recertification project, resulting in aftermarket revenue that will decline in the mid to upper single digit percent range for the full year.

Clay Williams: With the expectation for significantly higher offshore activity in 2026, we expect aftermarket orders to bottom in the second quarter and revenues to trough in the third quarter before results improve in the fourth quarter of 2025.

Clay Williams: Turning to the capital equipment portion of the energy equipment segment higher sales of drilling production and completion equipment more than offset lower year over year revenue from wind turbine installation vessels.

Clay Williams: Fourth quarter bookings remained strong with the segment posting a book to bill of 121%.

Clay Williams: Backlog ended 2024 at $4 43 billion up 7% from year end 2023, despite the negative impact of strengthening U S. Dollar had on our heavily international market weighted backlog revenue in our offshore production oriented businesses improved slightly year over year with higher progress on process system projects partially.

Clay Williams: Offset by a decline in our subsea flexible pipe operation after an extraordinarily strong Q4 of 2023 outlook for offshore production offerings remains very strong we secured new orders for equipment packages associated with three Newbuild Fpss that we'll operate in Brazil and West Africa.

Clay Williams: The scope includes advanced natural gas dehydration, Sidoti <unk> and produced water treatment systems.

Clay Williams: Our subsea flexible pipe business had another strong bookings quarter and backlog is at a record high up 62% from the end of last year importantly, the backlog consists of projects with much improved pricing, which should drive meaningfully higher margins for the operation in 2025.

Clay Williams: Sales of intervention stimulation capital equipment improved high single digits over the fourth quarter of 2023 with strong sales of coiled tubing and wireline equipment in the middle east more than offsetting sharp decrease in demand for pressure pumping equipment in North America as.

Clay Williams: As activity declines and operators are doing more with less we expect to see more attrition of the service equipment base over the next couple of quarters before our customers will need to resume replacing worn out assets with our latest generation of equipment, which offers greater operational efficiencies and a lower total cost of ownership.

Clay Williams: While rig curtailments in conventional Saudi fields are causing some cautiousness, we expect the middle East region will continue to be a solid source of demand for completion equipment that is needed to speed. The development of the service intensive unconventional plays that is now underway.

Clay Williams: Revenue from drilling capital equipment grew mid single digits year over year due to increased progress on offshore projects, including a 20000 Psi upgrade we announced in 2024.

Clay Williams: And we continue to execute well on our sizeable backlog newbuild rigs in Saudi where we recently delivered our 10th rig.

Clay Williams: Our operations remain busy building equipment for offshore upgrades and we recently booked a drilling equipment package for a new jackup rig, but the outlook for rig equipment looks modest in 2025 as clay mentioned, we expect revenues to decrease in the low single digit percent range in 2025 due to the offshore white space and macroeconomic.

Clay Williams: Longer term, we see building pent up demand for high spec rigs and emerging international unconventional basins and more opportunities to upgrade offshore rigs with the latest capabilities.

Clay Williams: Our marine construction business experienced a steady decline in revenues through 2024 as higher revenue from pipe and cable lay vessels could not offset the completion of <unk> projects that occurred through the course of the year.

Clay Williams: While orders for <unk> have been somewhat sparse over the last two years, our customers in Western Europe continued to project a shortage of vessels by 2028 and are beginning to initiate tenders with shipyards, giving us optimism that we could realize a couple of orders during 2025.

Clay Williams: We also see the potential for additional pipe lay vessels and expect demand for cranes in deck machinery to remain solid.

Clay Williams: With increasing macroeconomic and geopolitical uncertainty, we expect the energy equipment segment to realize a slightly larger than usual seasonal decline, resulting in revenue that will be down 3% to 5% year over year with margins improving between 150 to 250 basis points to yield EBITDA in the range of 135 to 150 million.

Clay Williams: <unk>.

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

Speaker Change: Okay, ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one again.

Speaker Change: Again, if you have a question or comment at this time. Please press star one one.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question or comment comes from the line of Jim Rollyson from Raymond James Mr. Robison. Your line is open.

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

Speaker Change: Thank you Jim Thanks, Jim Good morning.

Speaker Change: Clay you went through a lot of puts and takes as you kind of built up to basically flat revenue year for 2025 is kind of your current outlook.

Speaker Change: You guys have stated.

Speaker Change: Margins for a whole bunch of reasons.

Speaker Change: To improve if I start with one key guidance we're mid.

Speaker Change: The midpoint of that is kind of a 65 basis point improvement year over year in margins just trying to get to how are you thinking about the magnitude of margin increase based on where your backlog fits in the pricing that's embedded there and what you guys have done internally on cost and efficiencies et cetera, what kind of magnitude of.

Jim Rollyson: Year over year margin are you thinking that's going to look like at this first first Jim you are right in pointing out there are a lot of puts and takes there are some emerging headwinds.

Speaker Change: Get in a way of.

Speaker Change: Some of the margin improvements, but nevertheless, we're optimistic margins should continue to rise in 2025.

Speaker Change: First I would point to a clear success that we're achieving in energy equipment.

Speaker Change: That group's margins up over 300 basis points year on year for Q4.

Q1 through Q4 rose from 10, 1% to 14, 4% the better margins in backlog the costs that they've taken out.

Speaker Change: Normalization of the supply chain have all contributed to that we expect further improvement in margins out of backlog as we move into the first part of 2025 and <unk>.

Speaker Change: <unk>.

Speaker Change: Completion of some margin challenged projects that we've been dealing with for the past couple of years and so really good momentum in that group and Thats going the right way.

Speaker Change: We do expect revenue for that group to be down a tad in 2025 and so.

Speaker Change: Thats a bit of a headwind, but nevertheless expectation is theyre going to overcome that.

Speaker Change: The challenge has been in energy products and services and we faced some.

Speaker Change: Some more marketing challenge more challenging market conditions within that segment in 2024.

Speaker Change: Those are likely to persist in 2025.

Speaker Change: The group is much more exposed to North America, and I think I think 52% of our mix.

Speaker Change: In Q4 in that site and that segment is North America, and so rig count down 9% year over year has certainly been a headwind.

Speaker Change: <unk> also faced some mix challenges year over year for the fourth quarter, we saw drill pipe volumes way down.

Speaker Change: The full year down about 20% for Q4 to Q4 down something like almost a third and it's a high fixed cost high fixed cost type business and so one of the steps towards improving margins.

Speaker Change: Working on the cost of manufacturing drill pipe and so theres a number of initiatives underway there to improve our workflows at our plant here in NAV, So to Texas and also.

Speaker Change: Reorganize our Asian manufacturing and so.

Speaker Change: We'll see progress on that through the first half of 2025.

Speaker Change: The other.

Speaker Change: The area that we're very focused on improving costs and energy products and services within our <unk> business.

Speaker Change: <unk> seen lower lower volumes in North America tied to the rig count.

Speaker Change: And also some.

Speaker Change: Opportunities to further debottleneck its coding operations here on the Gulf Coast, and so it's moving to improve operations out of coding, which will drive better margins here.

Speaker Change: And and.

Speaker Change: I'm very excited about kind of the outlook for improvements.

Speaker Change: In that business.

Speaker Change: And so those are kind of two two.

Speaker Change: Cost.

Speaker Change: Initiatives, we have underway on the other side of the ledger for energy products and services as we noted in our prepared remarks, we have a number of new products that we've introduced that are demonstrating real value to our E&P operators and.

Speaker Change: If you focus in on our downhole tools offerings for example.

Speaker Change: Our bits offerings.

Speaker Change: We are introducing new products with a significant double digit price premium that also have lower operating costs for us and so they are very accretive to our margins and we're continuing to grow those in response to market demand and so if we can continue to shift the mix of our offering and EPS over towards those four.

Speaker Change: Accretive higher margin products.

Speaker Change: Going to help margins in 2025, and then the last thing I'd point to is.

Speaker Change: We're seeing good demand for our downhole wired drill pipe.

Speaker Change: Downhole broadband services.

Speaker Change: And we.

Speaker Change: We've been carrying some startup costs around a number of rigs spuds that we expect some of those have pushed to the right a bit not related to our service, but for other reasons. Those are going to work now we expect the volume in that area to pick up and so we will do a better job of absorbing some of the cost of that in 2025 as those programs get under.

Speaker Change: And so that's kind of a tailwind within.

Speaker Change: Energy products and services.

Speaker Change: I think either I or Jose noted.

Speaker Change: Few minutes ago.

Speaker Change: We do expect share gains despite a kind of a flattish environment a lot of puts and takes we expect share gains to drive a little bit of revenue growth and energy products and services to more or less offset the declines in energy equipment.

Jose Bayardo: If you add all that up and it might be Jose question.

Jose Bayardo: Kind of give you a 50 to 100 basis point type of potential margin improvement year over year do you think are or is that too high.

Jose Bayardo: Jim I think I mean, ultimately we will have to see what kind of market presents itself through the course of 2025 still a whole lot of macroeconomic and geopolitical uncertainty for the year.

Jose Bayardo: But your assumption is not unreasonable, yes, its probably somewhere between 50 to 150 basis point possibility for the 25. So we'll say that don't take that as official guidance other than to say youre not being unreasonable in terms of your assumptions.

Speaker Change: No that's helpful.

Jose Bayardo: A bracket and then maybe just to add one more.

Speaker Change: Sure you guys have obviously done.

A lot on the free cash flow and working capital side of things and posted really good.

Really strong numbers for the year and as you alluded youre not going to keep getting those gains necessarily but.

Speaker Change: As we think about that continued 50% free cash flow plus flow through from EBITDA.

And how you think about that as far as returning capital I know that 50% number is kind of the baseline bogey, but if I remember right Jose when we were on the road.

Speaker Change: A few months ago, you were kind of thinking maybe that number gets a bit better in terms of your share of capital returns that can go into 25, because <unk> got visibility now that the working capital has done what you wanted to do the balance sheets, where you want it to be et cetera, maybe just spend a minute on kind of how youre thinking about the level of return of capital as you can.

Speaker Change: Look in 'twenty, five and maybe even beyond.

Jim Rollyson: Good question Jim.

Speaker Change: So.

Speaker Change: At the beginning of last year, when we unveiled our return of capital program. One of the reasons why we did it as we sort of looked forward over the next three four years we saw.

Speaker Change: A prolonged recovery cycle.

Speaker Change: That would obviously have some ups and downs during the course of the way, but our view was and remains that we're still at a fairly early portion of the recovery cycle.

Speaker Change: And that we should see a little bit less volatility over the next several years and that combined with significantly improve profitability. The rapid healing of the global supply chain that gave us a tremendous amount of confidence that we're going to get back to our old ways of being a.

Speaker Change: A low capital intensity business that would throw off a tremendous amount of free cash flow.

Speaker Change: So we were very confident with our statement that we would convert.

Speaker Change: At least 50% of our EBITDA to free cash flow over that time period.

Speaker Change: And we remain confident that obviously 2024 things.

Speaker Change: Things went a lot better than anticipated from a free cash flow conversion standpoint, particularly the fourth quarter. We had a lot of things go our way things things with the way that we thought they would from a supply chain and inventory management standpoint lot of teams around the company have been really folk.

Speaker Change: Based on just getting better and capitalizing on that healed global supply chain that went according to plan.

Speaker Change: Q3 to Q4, we normally ship a lot of stuff out of the door, which helps us reduce inventory levels and also usually has the result.

Speaker Change: Reducing our cost and excess.

Speaker Change: Our contract assets and our short term assets on our balance sheet that usually flips into a build in receivables during the fourth quarter, but this time around we had exceptional collections and frankly, it's a result of one some work by our teams but to the general improved health of our.

Speaker Change: Our customer base, the vast majority of which is paying on time for the first time.

Speaker Change: While so really really healthy free cash flow in Q4, as a result of about $397 million improvement in working capital from Q3 to Q4.

Speaker Change: Ended the year at about 25% working capital to revenue run rate.

Speaker Change: It's going to be challenging to eke out improvements in 2025 still confident we're going to get better from an inventory management standpoint, but overall expectation is that working capital intensity will remain kind of flattish and so that kind of gets us to <unk>.

Do you consider.

Speaker Change: EBITDA or capex load are.

Speaker Change: <unk> payments and tax.

Speaker Change: You kind of get to.

Speaker Change: A conversion of EBITDA to free cash a little bit north of 50%, So thats kind of where we feel like it will be for 2025 and don't see any reason why that wouldn't continue to be the case as we go forward in time, but ultimately that kind of ties back to the market environment as well topline growth rate.

Speaker Change: But feel really really good about free cash flow generation going forward now as it relates to our return of capital.

Speaker Change: <unk>.

Speaker Change: As I mentioned in our prepared remarks.

As a result of that really strong free cash flow, we improved our cash balance by $414 million year over year.

Speaker Change: Our target of returning at least 50% of our excess free cash flow during the course of 2024.

Speaker Change: What set in order to help rebuild some of those cash balances that got a little lower than where we wanted them to be at the end of last year.

Cash balances.

Speaker Change: Back up to where we think it should be and so as we look at 2025 I would expect us to return.

Speaker Change: The majority the vast majority of our excess free cash flow to our shareholders. During the course of the year. So.

Speaker Change: The way, we're looking at things.

Speaker Change: I appreciate all that detail and I'll turn it back. Thank you guys. Thanks, Jim.

Roger Read: Thank you. Our next question or comment comes from the line of Roger read from Wells Fargo Securities. Your line is open.

Roger Read: Hey, good morning, Roger read actually.

Roger Read: Good morning, Roger.

Roger Read: Nice to hear from you Roger.

Same clay.

Roger Read: Hey, I'd like to come out.

How youre looking at the offshore markets I mean, you mentioned and I think it's well known some white space and some of the drillers.

Roger Read: Schedules, but as Youre looking at what it might take.

Roger Read: Phil that are or what signs there are by I think you said the latter half of the year might look a little better for some of the equipment orders what are some of the signs you are paying attention to what should we be watching.

Roger Read: Yes, I would say.

Roger Read: It's interesting.

Roger Read: All of our drilling offshore drilling contractor customers are talking about it and very focused on it.

Roger Read: Some have said, we're going to defer some projects that we were thinking about doing.

And others have said, we're going to pull forward. Some projects, we were thinking about doing to sort of use this idle time to prepare our rigs for the upturn in 2026, and so it's sort of a mixed bag out there.

Specifically I'd point to.

Roger Read: A couple of rigs that are increasing their hook load capabilities that we won last quarter Q3.

Roger Read: Had some additional orders for.

Pipe handling and automation, it's being done kind of during the idle idle time.

I would say I think consensus out there, though is that 2026 is going to be a much better year for contracting.

Roger Read: As youre aware, but not everybody else may be December was actually pretty good months for contracting and so contracting is down year over year, but.

Roger Read: With respect to floaters, it's down something like 20%.

So we've made up a little ground in December.

Roger Read: What I think it all speaks to is.

Roger Read: The fact that <unk> had some very economic discoveries and these new basins around the world you would now have natural gas as a viable economic target offshore with the advent of offshore LNG Theres, just a lot more activity going on offshore that's led to higher <unk> and as I noted earlier 300.

Roger Read: $1 billion a year roughly in past three years for the offshore and the pipeline looks like it's still pretty full we're doing a lot of feed studies on the production side for what we think are coming up in the next couple of years and so theres drilling to be done out there.

Roger Read: It's just sort of one part of the supply chain slowing which is drilling when activity is slowing down a bit to allow the other part of the supply chain, which is the dsos to get caught up and come online and kind of matching those activities together I think that's the root cause of the white space phenomenon. So theres a lot of discussion out there.

Roger Read: I know offshore drillers or in the aggregate, saying, they're reducing their capex in 2025, well aware of that.

Roger Read: Just want to point out that their capex spans a lot of different activities beyond what <unk> sells to them if I share with you kind of a snapshot of what we see today versus what we saw last year, it's actually pretty flat. So the number of rigs that were working on a number of projects that we're working on.

Roger Read: Basically flat.

Roger Read: With where it was last year.

Roger Read: 53 rigs right now versus 55 last year. The number of projects. We are discussing with our customers upcoming is a little over 100 now it was a little over 100 last year.

Roger Read: And so we haven't seen a big diminishment in demand tied to the white space phenomenon, yet other than as we've noted spare parts orders in the fourth quarter fell.

Roger Read: Once again, they fell in the third quarter two but in January they pick back up and the good news is our rig aftermarket business in the fourth quarter was able to replace almost all of that with additional service and repair.

Roger Read: Revenues, so sequentially I think our aftermarket rig aftermarket business was down only 1%.

Jose Bayardo: A little more color on this the projects, we're working on and I think Jose talked about this earlier.

Jose Bayardo: Being a higher mix of Sps is versus reactivation.

Jose Bayardo: Generally.

Jose Bayardo: The Sps re certifications are lower revenue opportunities for us, but the good news is the mix of longer term, meaning 10 year and 15 year Sps is much much higher than if you are five year, Sps and the magnitude of expenditures within <unk>.

Jose Bayardo: 10 year Sps is double for a drillship what it is on a five year Sps and a 15 year SBS as some multiple over five years. So.

Jose Bayardo: So anyway.

Jose Bayardo: There's a lot of there's a lot of information in there but.

Jose Bayardo: Right now we are sort of expecting our rig business be down a little bit with the white space production continues to go up.

Jose Bayardo: What a great highlights this quarter with respect to orders and activity in the <unk> World and Adobe in the last several years has added a lot of market leading products to be able to help our customers execute those projects and so.

Jose Bayardo: Hopefully that answers your question.

Speaker Change: No. It is helpful. I appreciate it.

Speaker Change: Given given the depth of the answer I'm going to turn it back to you all rather than a hammer.

Speaker Change: And there thanks guys. Thank you.

Speaker Change: Thank you and my apologies Mr Reed.

Dan Kutz: Next question or comment comes from the line of Dan Kutz from Morgan Stanley Mr. Chris Your line is open.

Speaker Change: Hey, Thanks, a lot good morning.

Speaker Change: Good morning, Dan.

Speaker Change: So I just I wanted to ask a question that's kind of pose similarly to the consolidated revenue question earlier, but but in reference to backlog and book to Bill in orders in 2025, I guess, you guys have given us a ton of components, but if you had to roll everything up on a consolidated basis.

Speaker Change: Just directionally, where would you point us from from kind of a book to Bill on perspective.

Speaker Change: Yes, yes.

Speaker Change: Great question.

Speaker Change: Coming off of a lot of momentum. So Q4 book to Bill of 121% full year book to Bill, 122% I think the fourth straight year of growing our backlog. So a lot of demand, but as you correctly note. It comes from a lot of different sources. So as we look to 2025, I think demand for pressure pumping stimulation equipment.

Speaker Change: In North America is certainly going to be challenged hopeful that as we get deeper into the depletion of horsepower assets. Here later in the year that turns around but but but tougher here on the other hand, good demand for stimulation equipment in these emerging unconventional plays in South America and in the Middle East.

Speaker Change: Helping offset that somewhat.

Speaker Change: Talked a lot about offshore drilling in.

Speaker Change: <unk> 2025, and so directionally.

Speaker Change: That may be challenging as well, although we were pleased to win a jackup rig package in Q4, and so that helped a lot with respect to orders in that area, we'll see how 2025 shakes out.

Speaker Change: We continue to be most excited about our production equipment into the deepwater and strong market positions in the supply of subsea flexible pipe and gas processing systems, and chokes valves manifolds, the whole litany of.

Speaker Change: Components that we sell into that a lot of feed studies underway a lot of activity underway. So I think good momentum going into 2026.

Speaker Change: <unk> already executed <unk> kind of move through the planning the placement process with the Epc's there what we don't talk as much about now that could be a real turnaround in 2025 is our wind turbine installation vessel business that business has been pretty slow on orders. The last couple of years I think in 2024, we have one vessel.

Speaker Change: Jose.

Speaker Change: And.

Speaker Change: 2025, we have a number of conversations underway.

Speaker Change: Consensus out there that there'll be a shortage of those vessels in 2027 2028 and the participants in that construction sector are looking at at <unk>.

Speaker Change: Placing orders for new vessels in 2025% to be able to sell into that market at that time and so we.

Speaker Change: We expect a couple of WT IV orders this year, which will help reload that backlog and we've seen actually pretty good continuing good demand for cable lay vessels.

Speaker Change: Basically wire up these offshore wind farms that are still being developed in Europe and in particular inter array cables vessels, which connect.

Speaker Change: Individual turbines between each other and so I think I think wind actually as a source of orders in 2025 is going to turnaround and be and be pretty good in addition to that.

Speaker Change: Seeing rising demand for construction vessels broadly as well, including a number that are adding to the cable lay optionality to their designs and so hopefully that addresses your question Dan.

Speaker Change: Again, a lot of puts and takes in there, but the good news is the diversity of nov's offering into all of those different market segments helped us helps.

Speaker Change: Helps helps us offset softness in one particular area with strengths in others.

Speaker Change: Yes, that's all Super helpful.

Speaker Change: Just one on kind of shareholder returns in.

Speaker Change: Thoughts around capital allocation I guess did.

Speaker Change: Could you just talk through some of the puts and takes of the decision to have the kind of 50% true up.

Speaker Change: Four four.

Speaker Change: Total shareholder returns via supplemental dividend versus maybe the optionality to say more true up to 50% but.

Speaker Change: Component can be supplemental dividend component can be incremental buybacks can you just talk about the thought process.

Speaker Change: And coming to that decision. Thanks.

Jose Bayardo: Yes, Dan it's Jose.

Jose Bayardo: So look we wanted to unveil a return of capital framework that was very clear in terms of what we would do and the decisions that we would make and so.

Jose Bayardo: We intentionally put in place the supplemental dividend concept in order to hold us accountable to meet the minimum threshold that we set to the street and so we very much intend.

Jose Bayardo: To live up to that and so if you do the math.

Jose Bayardo: That puts in place an expectation, where we should have a supplemental dividends in the order of magnitude of $80 million.

Jose Bayardo: In the first half of 2025.

Jose Bayardo: Well I firmly stating that at this point, because obviously we need.

Jose Bayardo: <unk> approval to move things forward or change anything around but we intend to live up to that commitment.

Jose Bayardo: As we go forward in time through the course of 2025.

Jose Bayardo: With where the share price has been and where it is today.

Jose Bayardo: We think that it is a compelling value and still anticipate.

Jose Bayardo: Being pretty aggressive as it relates to share buybacks, we significantly stepped up.

Jose Bayardo: Our share buybacks in Q4 stepped into it Fortunately as the market for whatever reason had a big downdraft in December. So we ended up with an average share price below $15 per share. So we think we will look back in the future.

Jose Bayardo: Good.

Jose Bayardo: Feel really good about that.

Jose Bayardo: And like I said, even at current values.

Jose Bayardo: Think that the stock value is compelling so anticipate.

Jose Bayardo: <unk> to be pretty aggressive.

Jose Bayardo: With share buybacks.

Jose Bayardo: <unk> framework is what it is we're going to live with it.

Jose Bayardo: To live up to it and think it strikes a really nice balance for our shareholders.

Jose Bayardo: Great. That's really helpful context ill turn it back thanks, Ken Thank you Dan.

Speaker Change: Thank you. Our next question or comment comes from the line of Waqar Syed from <unk> capital markets. Your line is open Sir.

Waqar Syed: Thanks for taking my question.

Speaker Change: Clay or Jose.

Waqar Syed: Natural gas is it.

Waqar Syed: Keeping these days in North America and tick.

Waqar Syed: If activity for natural gas take so.

Waqar Syed: <unk>.

Waqar Syed: North America production drilling because of LNG because of gas fired power plants.

Waqar Syed: How does <unk> benefit you provide services.

Waqar Syed: Obviously, if even if the services on the progress on the D&C side, but could you highlight some of the other products that you could be selling into the midstream market of power.

Waqar Syed: Power generation of LNG.

Bet Waqar good question and nice to hear from you. This morning.

Waqar Syed: If you look at for example, the Haynesville as a source of gas we are hopeful that in the back half of 2025 as LNG exports come more into focus haynesville activity picks up other other gas drilling picks up across North America. It all starts with horizontal drilling better bits better downhole tools.

Waqar Syed: We've emerged as really a strong technical leader in those areas to enable longer.

Waqar Syed: Laterals.

Waqar Syed: With respect to pressure pumping.

Waqar Syed: Major provider of pressure pumping coiled tubing.

Waqar Syed: Completion tools.

Waqar Syed: That help enable that that production.

Waqar Syed: We're the leader in production chokes for those wells are composite flexible.

Waqar Syed: Flow lines.

Waqar Syed: Again, a market leader in that space.

Waqar Syed: So we really participate mostly on the upstream side of it with respect to midstream, we do sell some some valves and.

Waqar Syed: Traps and other things to the pipeline industry as well.

Waqar Syed: But.

Waqar Syed: And then in addition to all that I would add natural gas dehydration visa global leader provision of mono ethylene glycol processes to dehydrate dehydrate gas.

Processed gas and so theres there are so many critical components that go into gas production in North America that <unk> as a market leader and we certainly benefit from uptick in natural gas drilling in North America, and again hopeful that projections for <unk>.

Waqar Syed: More natural gas activity and production related to power demand and related to LNG exports out of the United States will drive.

Waqar Syed: A recovery in that area here later in 2025.

Waqar Syed: And we'll go I'll just just.

Waqar Syed: Just to add a couple of things and so we're pretty excited about that.

Waqar Syed: The appetite and sort of the re recognition that gas is going to be.

Transition fuel I think the world is sort of realizing the importance of gas as it relates to powering a lot of the global economy going forward.

Waqar Syed: <unk> economy as well as all of the.

Waqar Syed: Need for additional incremental sources of power.

Waqar Syed: The AI machine and yes, just a couple of things related to LNG.

Obviously everything.

Waqar Syed: <unk> talked about but just a couple of tag on items.

Waqar Syed: As it relates to EF LNG, our processing systems for all the gas treatment.

Waqar Syed: It's been a real source of really good bookings as of late as we look forward over the next couple of quarters that will continue to be.

Waqar Syed: A source of strength in some of the things that we don't talk about a whole lot.

Waqar Syed: Whole lot related to.

Waqar Syed: Subsea jokes and mooring systems and things of that nature that are necessary for the transport off loading and shipping of the.

Waqar Syed: Large quantities of natural gas are also a big component of some of the things that we're booking right now so there's a lot of areas, where we are really heavily.

Waqar Syed: The entire LNG chain. So we're excited about the opportunities in front of us related to it.

Waqar Syed: Thank you and just on that.

Speaker Change: Middle East Jackup that you booked.

Waqar Syed: Would it be.

Waqar Syed: Safe to assume that there could be an order.

Waqar Syed: When they get that order coming in for the next couple of years.

Waqar Syed: Do you see this to be one off type.

Waqar Syed: Jackup package.

Waqar Syed: I want to be careful I don't want to I don't want to over state. This I do think there will be future orders. This is a jackup that's being constructed in the kingdom and a newly constructed shipyard in the kingdom and so I do believe that this isn't the last rig that debt.

Waqar Syed: That shipyard will build.

Waqar Syed: But I'm going to I'm going to.

Waqar Syed: Beg off predicting a date or any specificity around future orders were very pleased to land. This one and very focused on executing it well and confident that we will and hopeful that our customer there and other customers place additional orders for for Jackups, but.

Waqar Syed: I would say happy.

Waqar Syed: Happy to win this one and hopeful that we will win future orders, but I am going to tell.

Waqar Syed: Tell your particular quarter or year.

Well. Thank you very much for your comments I appreciate it and best of luck.

Waqar Syed: Thank you thanks for taking <unk>.

Speaker Change: Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.

Speaker Change: Thank you Howard and thanks to all of you for joining US today, we look forward to discussing our first quarter 2025 results with you in April and we wish you all a very happy Wednesday.

Speaker Change: Operator, we can disconnect now.

Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.