Q1 2025 NOV Inc Earnings Call
Yeah.
Speaker Change: Good day and welcome to the Q1 2025 and no V Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear.
Speaker Change: Automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Ms. Amy Dambrosio director of Investor Relations. Please go ahead.
Speaker Change: Welcome everyone to Nov's first quarter 2025 earnings conference call with me today are clay Williams, our chairman and Chief Executive Officer, Jose Bayardo, Our President and Chief operating Officer, and Rodney read our senior Vice President and Chief Financial Officer.
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.
Speaker Change: 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 were later in the year.
Speaker Change: For a more detailed discussion of the major risk factors affecting our business. Please refer to our latest forms 10-K, and 10-Q filed with the Securities and Exchange Commission.
Speaker Change: Our comments also include non-GAAP measures.
Speaker Change: 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 first quarter of 2025, and <unk> reported revenues of $2 1 billion and a net income of $73 million or <unk> 19 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.
Speaker Change: Now, let me turn the call over to Kelly. Thank you Amy for the first quarter of 2025, we reported net income of $73 million or <unk> 19 per fully diluted share revenue was $2 1 billion and EBITDA was $252 million or 12% of sales a margin increase of 80 basis points year on year.
Speaker Change: Strong demand for deepwater production equipment and cost reductions enabled our energy equipment segment to achieve significant improvement increasing margins by 430 basis points compared to the first quarter of 2024 revenues for our shorter cycle segment energy products and services outperformed the 5% reduction in global drilling activity year on year as you know these high performance technology.
Speaker Change: Apologies continued to gain share, but these were offset by lower sales of drilling related capital equipment, which drove segment margins lower.
Speaker Change: Both segments continuing to take costs out and their efforts are accelerating and view of the macroeconomic headwinds that are emerging right now our second quarter looks solid with sequential revenues and EBITDA expected to grow modestly, but we expect things to get tougher after that perhaps much tougher the emerging trade war its effect on the broad economy and OPEC.
Speaker Change: The decision to add barrels to a balanced market, where almost certainly lead to lower oilfield activity LNG demand and natural gas helped notwithstanding.
Speaker Change: Accordingly, we continue to focus on operational efficiencies and careful cost management.
Speaker Change: Lower commodity prices have north American E&ps running more downside scenarios and we believe activity here is most at risk along with a few other markets like Mexico, and Saudi Arabia conventional activity on the other hand, so far we see most international and offshore customers pressing ahead with their strategic plans. These are typically long duration.
Speaker Change: Barring a longer view and projects continue to move forward in places like the Arabian Gulf in Brazil, and in unconventional plays like Saudi Arabias refer a gas field in Argentina is rocket America region were areas, where it will be technologies play a critical role.
Speaker Change: <unk> is well positioned to weather. This latest storm our teams have streamlined operations and improve working capital efficiency, we have a solid balance sheet and our cash flow has been strong we've introduced dozens of new products that demonstrably improve the efficiency safety and environmental impact of our customers' operations. These products have gained significant share our backlog of capital equip.
Speaker Change: <unk> and projects has grown steadily over the preceding four years with margins that have moved up meaningfully.
Speaker Change: Despite near term macro challenges <unk> is well positioned for the market is going longer term U S. Shales had been the most extraordinary phenomenon ever witnessed in this industry.
Speaker Change: It accounted for almost all incremental global production through the past decade, adding about 7 million barrels of oil per day, and crowding out offshore investments along the way.
Speaker Change: If north American shale activity slowed meaningfully in the second half of the year. It would exhibit high decline rates just like it did during COVID-19 either way U S production will peak sooner or later and in the coming decade, we believe incremental production growth will come from a combination of deepwater and international shales.
Speaker Change: Both will need technologies and picks and shovels that <unk> is uniquely positioned to supply.
I know many of you have questions about the impact of tariffs on our operations frankly, we do too as the tariff regimes in trade negotiations evolve and shift daily in a moment Jose will provide you more color, but the upshot is that we believe that this will be manageable for <unk> and our teams will be able to significantly reduce 80% or more but probably not fully.
Speaker Change: Nate the full effect of known tariffs.
Speaker Change: About half of Nov's manufacturing capacity is in the United States with the remainder spread out in various countries around the world and we have a lot of options to adjust our supply chains, we're working closely with vendors and customers to mitigate the effects more importantly, we have terrific supply chain managers, who successfully navigated disruption from tariffs and.
Speaker Change: 2017, and again during Covid. They are steely veterans of this kind of thing.
Speaker Change: Before Rodney takes you through our first quarter results. Let me say, thank you to our employees did a great job during the first quarter and I. Appreciate the way you take care of our customers and each other we expect business to be more challenging as the year progresses.
Speaker Change: But we will weather this storm, you're part of a strong and critical team that the world's energy infrastructure Council.
Speaker Change: Rodney.
Rodney Read: Thank you clay for the first quarter of 2025, Nov's consolidated revenue decreased 2% year over year and adjusted EBITDA was $252 million, an increase of 5% EBITDA margins expanded 80 basis points to 12%, resulting in our 14th straight quarter of year over year EBITDA margin improvement.
Rodney Read: Strong execution improved pricing on projects in our backlog growing adoption of our new higher margin technologies and focus on operational efficiency more than offset the impacts of reduced global activity higher EBITDA and better working capital efficiency improved our operating cash flow and allowed us to generate positive free cash flow in the first quarter.
Speaker Change: It is typically a cash consumptive free cash flow quarter, Adobe generated $135 million in cash from operations during the first quarter and $51 million in free cash flow when considering our capital expenditures of $84 million.
Speaker Change: During the first quarter, we repurchased five 4 million shares for $81 million and paid $28 million in dividends.
Speaker Change: Over the last 12 months, we have increased our cash balance by $689 million converted over 100% of our EBITDA to free cash flow and returned $426 million to our shareholders through dividends and share repurchases.
Speaker Change: As a reminder, through 2024, we returned 41% of our excess free cash flow based on our return of capital framework, we expect to pay a supplemental dividend of around $80 million to true up our returns to 50% of our 2020 for excess free cash flow subject to the approval of our board of directors we.
Speaker Change: The timing of the supplemental dividend payment to be in mid June.
Speaker Change: Our first quarter consolidated net income of $73 million or <unk> 19 per fully diluted share was impacted by lower equity income unfavorable discreet items to our tax rate and an increase in unallocated corporate costs. During the second quarter of 2025, we expect eliminations and corporate costs to return to a range of 45 million.
Speaker Change: Dollars to $55 million and we still expect our full year tax rate to be between 26 and 28% for the year.
Speaker Change: Moving on to segment results, our energy product and services segment generated revenue of $992 million, a 2% decrease compared to the first quarter of 2024 due to lower global activity, partially offset by growing adoption of our new performance technologies.
Clay Williams: EBITDA declined $29 million to $145 million or 14, 6% of sales the higher Decrementals were primarily the result of a decline in the shorter cycle capital equipment sales that contributed to a less favorable sales mix across our portfolio as clay mentioned, our teams continued to execute.
Clay Williams: A number of initiatives to reduce cost and improve operational efficiencies for the first quarter. The sales mix for energy products and services was 52% services and rentals.
Clay Williams: 30% capital equipment, and 18% product sales services and rentals improved 4% year over year due to a full quarter contribution from our artificial lift business and growing market share in our drill bit and downhole tool businesses, excluding our 2024 acquisitions revenues from services and rentals were.
Clay Williams: Flat outpacing global drilling activities, which declined 5% or high performance drill bits with our latest cutter technology continue to drive increased market penetration, resulting in revenue growth of over 20% year over year in the U S against the 6% rig count decline over the same period.
Clay Williams: Our downhole business also continued to gain share with more customers recognizing the benefits of our series 55 drilling motors <unk> power sections in the latest generation of our friction reduction tools revenue.
Clay Williams: Revenue from product sales decreased 13% compared to the first quarter of 2024. The decline was primarily driven by lower activity in Saudi Arabia, and Mexico, partially offset by a solid increase in sales of Nov's Teekay glass reinforced epoxy liners in the middle East.
Clay Williams: Turning to capital equipment sales decreased 5% year over year due to reduced drill pipe and managed pressure drilling equipment sales, partially offset by increased demand for offshore conductor pipe connections and continued strength in demand for composite pipe to build out infrastructure necessary for the development of unconventional.
Clay Williams: Resources in the Middle East, we also realized mid to upper single digit growth in sales of solids control equipment, resulting from the continued market adoption of our alpha shale Shaker.
Clay Williams: For the second quarter, we expect revenues from our energy products and services segment to be down 5% to 8% when compared to the second quarter of 2024 with EBITDA between $140 million and $160 million.
Clay Williams: Moving to energy equipment segment revenue for the first quarter of 2025 was one $1 5 billion down 3% from the first quarter of 2024, despite slight decline in revenue EBITDA increased $46 million to $165 million, resulting in a 430 basis points increase in <unk>.
Clay Williams: <unk> <unk> thousand 14, 4% of sales driven by higher margin backlog and continued focus on operational efficiencies. This was the 11th straight quarter of year over year margin growth for the energy equipment segment.
Clay Williams: Capital equipment sales accounted for 57% of the segment's revenues in the first quarter of 2025 with aftermarket sales and services accounting for the remaining 43%.
Clay Williams: Starting with capital equipment revenue grew mid single digits year over year led by growth in drilling equipment and subsea flexible pipe.
Clay Williams: Bookings for the first quarter were $437 million, an increase of 12% year over year book to Bill for the quarter was 80% backlog of 441 billion increased 12% from the first quarter of 2024 supported by our trailing 12 months book to Bill of 122% we continue to have.
Clay Williams: Constructive dialogue with customers, who have given us a line of sight to opportunities that could lead to a book to bill of around one for the year. However, we would not be surprised to see projects pushed to the right given heightened uncertainty and deteriorating market conditions are.
Clay Williams: Our subsea flexible pipe business continues to have strong performance revenues grew year over year, and low teens percentage range with significant margin improvement due to strong execution on higher margin backlog.
Clay Williams: Backlog for the business at the end of the current quarter has almost doubled since the end of the first quarter of 2024.
Clay Williams: Our process systems business had another strong quarter with revenue growing high single digits year on year, including the booking of a gas dehydration package for a national oil company in the Middle East the outlook for offshore production remains robust with 2025 showing potential to have more awards for <unk> in 2023 or two.
Clay Williams: <unk> 24, which drives demand for process systems flexible pipe tort and spread more systems cranes, chokes and boarding valves and composite solutions.
Clay Williams: Revenue for intervention and stimulation capital equipment improved high single digits over the first quarter of 2024 led by sales of coiled tubing and wireline equipment more than offsetting the lower demand for pressure pumping equipment in North America internationally, Argentina, Brazil, and the middle East remain bright spots specifically for our advanced wireline.
Clay Williams: In coiled tubing product lines.
Clay Williams: Revenue from sales of drilling equipment increased in the mid teens percentage range year over year due to increased progress on both land and offshore projects, including initial work on the Newbuild Jackup, We announced previously we delivered our 11th Newbuild high spec land rig in Saudi Arabia during the first quarter with <unk>.
Clay Williams: To have discussions with customers for certain capital equipment upgrades, including the op.
Clay Williams: Increased hook load capacities and robotics.
Clay Williams: Our marine and construction business experienced high single digit decrease in revenue compared to the first quarter of 2024 as higher revenue from pipe and cable lay vessels did not offset lower activity for wind turbine installation vessels.
Clay Williams: Given the macroeconomic uncertainty and unclear impact of tariffs, we may see a slowdown in project <unk> pushing the expected shortage of WT east out of the year. However, we continue to have active dialogue with several customers and still see the potential up to two orders later in the year the cable lay vessel Mark.
Clay Williams: <unk> is continuing to show strength as we booked an additional enter array cable equipment package. During the first quarter of 2025. Additionally, the multipurpose support vessel market remains healthy driving additional demand for cranes in deck machinery.
Clay Williams: Turning to aftermarket revenues declined 11% year over year, and our drilling equipment business aftermarket revenues decreased low double digits year over year, driven by lower spare parts bookings in the second half of 2024 compared to the first half of 2020 for spare parts bookings.
Clay Williams: During the first quarter increased 17% sequentially, which is about flat to our average of the prior four quarters demand for re certifications and upgrades remains solid we are seeing some delays to recertification projects in the middle East due to announced suspension. Some jackups and we continue to anticipate a small decrease in the number of research.
Clay Williams: Artificial as year over year. However, we expect the average scope of these projects to increase as the rig fleet ages, which should partially offset those declines.
For the second quarter, we expect energy equipment segment revenue to be flat to up 1% compared to the second quarter of 2024 with EBITDA in the range of $155 million to $175 million.
Speaker Change: On a consolidated basis, we expect revenue to be down 1% to 4% compared to the second quarter of 2024 with EBITDA in the range of $250 million to $280 million Jose. Thank.
Thank you Rodney.
Speaker Change: <unk> had a solid first quarter and continues to execute well in a highly complex environment.
As we look forward, we expect the geopolitical and macroeconomic uncertainty to remain high near term, while there are conceivable scenarios for which there could be some upside for the industry related to the potential for Iranian and Venezuelan or Russian barrels to come off the market.
Speaker Change: Our outlook is cautious and skewed to the downside. So the obvious question is what are we doing about it.
Speaker Change: As it pertains to tariffs the situation remains fluid with each of our businesses, having different exposures and we believe some will actually realize improved competitive positioning as a result of.
Speaker Change: I'll highlight two representative examples that illustrate the impacts tariffs can have on our businesses are.
Speaker Change: Our downhole tools operation manufacturers rents and sells a wide array of drilling technologies and has a wide base of global suppliers and manufacturing sites. Additionally, the operation has a book of business is more skewed to North America, given the businesses emphasis on providing leading edge technologies that improve drilling efficiencies for extended lateral wells.
Speaker Change: Based on the tariff regimes that exist today, if we took no action the business would realize a material reduction to its EBITDA margins.
Speaker Change: But we have not been sitting idle in fact, we began taking actions to diversify our supply chains away from higher risk markets beginning back in 2022 by finding new vendors and by pushing some existing suppliers to open manufacturing operations and lower risk countries.
Speaker Change: The majority of downhole businesses manufactured parts are sourced from outside the U S. So the sources of tariff exposures are one parts consumed to assemble products for sale and rental in the U S and two parts that are assembled into finished tools in the U S. That are then exported for sales in the international markets.
Speaker Change: Most of the businesses in our portfolio have the same types of supply chain exposure. So our playbook is pretty consistent and includes one leveraging nov's substantial U S manufacturing footprint to Richard as much content as possible for products destined for U S customers to utilizing the U S. MCA to the full extent to also leverage <unk>.
Speaker Change: These manufacturing capabilities in Mexico and Canada.
Speaker Change: Three rerouting manufacturing and assembly operations for products destined for non North American markets to our international manufacturing plants for sourcing raw materials from the U S or from lower tariff countries when possible and five to the extent, we can't yet find suitable alternate suppliers negotiating discounts with vendors.
Speaker Change: Higher tariff countries to share costs.
Speaker Change: It takes substantial time and effort to incorporate new vendors into our supply chain, we must ensure that they meet our quality specifications and remap scheduling to account for what may be longer lead times and shipping distances.
Speaker Change: In certain areas, we've been able to work with vendors to have them stock inventory in the U S. Prior to tariffs coming into play, giving us a little more time to navigate through the significant changes our supply chain and compliance personnel have been working nights and weekends as we navigate through these changes efficiently and effectively for our customers and for our shareholders.
Speaker Change: I'd like to extend my sincere gratitude to them for the great work they are doing.
Speaker Change: We expect the actions that are currently in motion for a downhole business should eliminate more than two thirds of the currently known tariff costs.
Speaker Change: We are developing and implementing additional plans to further reduce the exposure.
Speaker Change: If we're unable to eliminate the higher costs, we expect to pass them onto our customers near.
Speaker Change: Near term, we will not be able to outrun the impact of tariffs on shipments that are in transit and there will be unanticipated second order effects, including the inflationary impact and extended lead times caused by all global manufacturers simultaneously trying to rewire their supply chains.
Speaker Change: We've already seen some U S vendors increased prices for steel and other components that now have reduced competition from foreign sources due to tariffs. Our best estimate is that Nov's consolidated results in the second quarter will include $8 million to $10 million in tariff expense that we may be unable to avoid.
Speaker Change: Beyond the second quarter, we estimate the tariff impact net of our mitigation efforts will increase to approximately $15 million per quarter. These.
Speaker Change: These estimates assume we are able to pass cost from the second order effects I just described onto our customers.
Speaker Change: The actions, we're taking that I've described so far our defensive but there are areas, where we expect to play offense, which brings me to the second example, in our drill pipe business. We have long resisted the temptation to offshore all of our operations and supply chain to low cost countries, because we did not want to risk sacrificing the quality of our premium products are.
Speaker Change: Pipe manufacturing plant in Texas is the largest in the world and produce the highest quality most technically advanced drill pipe that has enabled super extended lateral in ultra deepwater drilling.
Speaker Change: Our U S manufacturing along with our Voest Alpine tubular is joint venture, which we believe provides the highest quality green tubes that we used as raw material allows us to produce the best drill pipe on the planet.
Speaker Change: Today, we are the only provider of drill pipe in the U S that is not heavily dependent on supplies from China for any portion of our supply chain.
Speaker Change: If today's tariff regime remains in place customers will be able to purchase our premium drill pipe, which offer superior technology and quality at prices that are much more competitive. So we're looking forward to having a more even playing field.
Speaker Change: We arent just working to mitigate tariff costs, we're using this as an opportunity to continue making and it will be better as a whole as we reorganize our supply chain, we're driving better coordination across our groups to mitigate tariff impacts and to better leverage Nov's consolidated spending power. We're also pushing even harder on other initiatives to lower costs and become more efficient.
Speaker Change: We're applying more automation and artificial intelligence technologies in our manufacturing operations as well as employing more traditional methods for driving efficiencies, including one eliminating layers within parts of the organization, reducing costs and making the organization more agile.
Speaker Change: <unk> consolidating manufacturing operations, which allows us to improve utilization of our assets increase throughput and reduce overhead three pushing more of our back office processes into shared services and for focusing on continuous improvement with more frequent good old fashion Kaiser walk throughs, where we worked to debottleneck and optimize and improve process.
Speaker Change: And our manufacturing operations, we're focused on getting more efficient every day. The goal is to make sure. We can provide our customers with the critical equipment they need at compelling value.
Speaker Change: While we improved results for our shareholders.
Speaker Change: To provide that compelling value cost is only one side of the equation. We're also relentlessly focused on making sure we have the right technology and offerings for our customers. We're in this for the long haul we positioned the company to weather any storm and to invest in the future regardless of where we are in the cycle.
Speaker Change: We don't know exactly how the current geopolitical and macroeconomic issues will play out over the near term, but we're confident and focused on the longer term outlook and on three trends that we believe will drive the industry over the next decade, one offshore production supplanting U S unconventional resources as the dominant incremental source of global oil supply.
Speaker Change: <unk>.
Speaker Change: Too outsized demand for natural gas driving meaningful growth from global unconventional gas resources and three the application of modern digital and AI technology is driving additional efficiencies in oilfield operations.
Speaker Change: These trends will not only drive the business long term, but will also be areas of strength near term regardless of the broader market environment.
Speaker Change: We spent a good bit of time on our recent calls talking about our digital solutions and how we are supporting the rapid expansion of activity in international unconventional resources. So today I want to focus on the offshore.
Speaker Change: Clay noted U S unconventional resources have accounted for almost all incremental oil production, but it is plateauing. It has been amazing and while we aren't ready to call for a peak in U S production don't ever discount what this industry can do the declining number of remaining tier one drilling locations and firmly entrenched capital discipline should prevent the type of.
Speaker Change: Growth, we've seen over the past decade and a half.
Speaker Change: Our offshore operator customers share this view, which is giving them the confidence to make significant long term bets deepwater offshore projects.
Speaker Change: Unlike investments in U S shale wells, which can deliver cash flow within a year of making an investment decision of $5 million to $10 million deepwater developments can cost billions of dollars and typically have minimum investment horizon of five to 10 years.
Speaker Change: Deepwater shares a common trait shales is that technological advancements have delivered material improvements in drilling and production efficiencies. These advancements are allowing the industry to push into highly prolific frontiers that were unimaginable to produce from a couple of decades ago.
Today were drilling deeper wells in deeper water and harsher conditions with higher pressures through tighter pore pressure windows and we're doing this with amazing efficiencies much of what the deepwater industry is developing today has break evens in the $40 per barrel range. The result of an incredible technology and industrialization.
Speaker Change: It doesn't get the attention it deserves but deepwater drilling efficiency gains are not dissimilar to those realized in the U S land market.
Speaker Change: High spec seventh generation rigs are drilling at rates, 30% to 40% faster than they were a decade ago. Thanks in large part to the equipment and technology that <unk> has been delivering our control systems automation machine learning and AI algorithms now robotics dramatically improve drilling efficiencies and safety.
Speaker Change: Today, we have 22 automation upgrades and process and many other customers are evaluating such upgrades.
Speaker Change: Our downhole broadband services that utilize wired drill pipe for high speed data transmission, along with our managed pressure drilling equipment allow operators to safely and efficiently navigate through high risk zones with tight pore pressure windows. In these formations operators are high risk of unintentionally fracturing of zone, resulting in well control or lost circulation.
Speaker Change: An issue or ruining well economics by not being able to drill a sufficiently long lateral through a pay zone.
Speaker Change: Our 20000 Psi blowout preventer, the only equipment of its kind in the market has enabled safe development of the Paleogene and the U S. Gulf and is driving exploration and similar previously untouchable extremely high pressure reservoirs and other parts of the world.
Speaker Change: Even our more basic sounding lifting and handling upgrades for ultra deepwater drilling have been critical to the industry success. These upgrades required to handle the intense stress are pushing or pulling a rotating string of high spec drill pipe to over 7000 feet of water and another few miles below the seafloor, we've been extremely busy helping our customers upgrade hook load.
Speaker Change: Capacities up to 1400 tons replace cranes with our new ultra heavy lift electric active heave compensation units and replace rotating machinery, all of which allow rigs to efficiently handle heavier pipe strings and drill deeper while leveraging the latest automation capabilities.
Speaker Change: Operator demand for rigs with upgraded capabilities at high utilization of our highest spec seventh generation rigs is effectively at 100%.
Speaker Change: So despite the transient white space, our drilling contractor customers are contending with today, we're not only executing on existing projects, but we're having active dialogues with customers regarding additional upgrades.
Speaker Change: Better technology industrialization and standardization of production related equipment have also led to improved offshore economics here. We've also pioneered new technologies and have established leadership positions in providing gas and liquids processing capabilities chokes and boarding valves sophisticated turret mooring systems deck machinery subsea.
Speaker Change: Flexible pipe and other equipment.
Speaker Change: We continue to innovate and invest in R&D and as highlighted in our press release, we were excited to sign an agreement with Petrobras to finish the development of our flexible pipe solution that will address the growing problem of stress corrosion cracking in high <unk> deepwater wells.
Speaker Change: We've previously highlighted that the maximum revenue opportunity to <unk> per <unk> is between 100 $700 million, depending on the size scope and working environment the vessel.
Speaker Change: Today, we're following 14 potential <unk> opportunities up to 12, which could lead to awards for <unk> during 2025.
As Rodney mentioned, we could see some project awards slipped a bit to the right. However, if we are correct in assuming offshore production will supplant U S land as the provider of incremental supply to the global market given the extremely long timeline for deepwater projects the industry cannot afford to put these projects on a shelf for any extended period. So the outlook related to the <unk>.
Speaker Change: Offshore and international unconventional resources remains bright as does the central role that the people and technology from <unk> bring to the industry to enable safe and efficient operations with that we'll open the call to questions.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again due to time, which James we ask you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: And our first question will come from the line of Jim Rollyson with Raymond James Your line is open.
Conor Jensen: Hey, guys. This is Conor Jensen and place a gym.
Speaker Change: Thanks for taking my call today.
Speaker Change: Good morning Gautam.
Speaker Change: So given the guidance on comments around potentially a weaker second half or are you thinking about 2025 margins relative to 2020 or and the past commentary looking at up.
Speaker Change: Data 150 basis points.
Speaker Change: Yes.
Rodney Read: Hey, this is Rodney so just to give some color in terms of.
Speaker Change: We're looking at 2025, so you have obviously Q1 actuals we provided.
Speaker Change: Detailed guidance on Q2, so what I will try to do is kind of walk through the second half compared to the first half.
Speaker Change: 2025.
Speaker Change: So as we look at our two different segments energy equipment as you know, it's a little bit more backlog driven business and as we look at the.
Speaker Change: The moving parts there both in terms of a strong backlog on some of our offshore production processing equipment and our rig aftermarket business first half to second half for the Es segment overall will look to be about flat from a revenue perspective.
Speaker Change: On the EPS side, we would look to have some growth first half the second half.
Speaker Change: The ballpark of 3% to 5% generally in the second half of the year, we have more product capital equipment sales and also some businesses in there, including our composite pipe for fiberglass business, which is still growing primarily from infrastructure build out in the middle East So put those together.
Speaker Change: 3% to 5% growth on the east side, and then from a consolidated perspective first half second half.
Speaker Change: In the ballpark of 1% to 2% growth.
Modest growth on the second half of the year.
Speaker Change: From from an overall margin standpoint to answer that 0.1st.
Speaker Change: First half the second half a lot of moving parts here, obviously doing the best we can with all the macroeconomic uncertainty geopolitical risk tariffs, which we've.
Speaker Change: Tried to quantify and jose's remarks, but sort of put those moving pieces together, including some some risk factor and margins.
Speaker Change: EBITDA margins looked to be about flat ish kind of first half the second half so hopefully that answers your question.
Speaker Change: Yes that is very helpful. Thanks, and then just one more thought international revenues.
Speaker Change: Down from 65% to 61%, so just kind of a seasonal pullback, but given the commentary on the international and offshore market I suppose.
This portion of the business.
Speaker Change: We'll continue to grow as a share of the business going forward.
Speaker Change: Yes got it.
Speaker Change: Your professor right. Obviously, there is a good seasonal falloff from Q4 to Q1 and that typically is more heavily oriented towards.
Speaker Change: International product shipments and capital equipment deliveries.
Speaker Change: We go forward in time as.
Speaker Change: It's worse or looking at the rest of the year, we touched on it's very very fluid there is a lot of uncertainty.
Speaker Change: But our expectation is that.
Speaker Change: North America is always the quickest market to respond to any sort of changes in market conditions. That's gotten incrementally worse last quarter, we were thinking that the full year North America would be down.
Down in the low to mid single digit range, that's now likely in the.
Speaker Change: And the double digit vicinity, and then from an international standpoint.
Speaker Change: Continue to expect international to hold up quite a bit better than North America for the points that you touched on really good resilience that we expect from.
Speaker Change: Increasing activity and unconventional shale gas resources, and then also continued strength and particularly deepwater offshore activity. So while the outlook for international land has gotten incrementally a little bit worse.
Speaker Change: We're still feeling pretty good about international overall.
Speaker Change: Great. Thanks, I'll turn it back.
Speaker Change: Thank you Scott.
Speaker Change: One moment for our next question.
Speaker Change: And that will come from the line of Arun Jairam with Jpmorgan Securities. Your line is open.
Speaker Change: Yes, good morning, gentlemen.
I wanted to see if you could elaborate on your thoughts on.
Speaker Change: Capital equipment order activity I think you've mentioned that you still see potential.
Speaker Change: To say capital equipment orders of a book to Bill around one obviously caveat with some risks just given the macro and tariff.
Speaker Change: Impacts I was wondering if you could maybe elaborate on that commentary and as well as.
Speaker Change: It sounds like there is quite a few potential orders on the Fpss side. So maybe you can elaborate on that.
Speaker Change: Yes.
Speaker Change: Yes, so Ryan did a good job of touching on it.
Speaker Change: His prepared commentary so again just to reiterate a lot of uncertainty and that type of environment. It is not one where people get really excited pulling a trigger on a big capital equipment purchase but.
Speaker Change: Having said that particularly if you look at the deepwater offshore market place.
Speaker Change: These are short term, but they are making they are making massive.
Speaker Change: Multiyear investment decisions.
Speaker Change: With very low expected breakeven cost so the confidence and conviction that we're seeing from our customers offshore.
Speaker Change: Water market side of the equation continue.
Speaker Change: Continues to be very strong and so it also talked about.
Speaker Change: So.
Opportunity if Rodney touched about it touched on in his commentary as well the outlook there still looks very strong.
Speaker Change: Yeah, as I mentioned potentially.
Speaker Change: <unk> different <unk> from which we can receive awards.
Speaker Change: In 2025, I wouldn't be surprised if some of those slipped a little bit and you talked about some potential for things to push to the right, but I don't think these things are going away none of our customers are giving any indication that these things are going away.
Speaker Change: So feel really good about the outlook overall related to.
Speaker Change: The offshore environment.
Speaker Change: Obviously, if we look at some other components of our capital equipment business.
Speaker Change: North America is very challenged right. So we're not anticipating much of anything related to orders for pressure pumping or even really completion related equipment outside of the occasional replacement.
Speaker Change: <unk> piece, particularly related to pressure control equipment for the North American marketplace, but if we look at international markets.
Speaker Change: Conventional resources in the <unk>.
Speaker Change: At least.
Speaker Change: And in Argentina, those are driving good healthy demand for completion equipment I think we sold five coil tubing units. This last quarter four of which destined for middle East unconventional resources one for.
Speaker Change: For Latin America, so that demand continues to be to be strong still actively engage with other customers about additional completion equipment for the middle East unconvinced malls, and even seeing really good conversations related to potential.
Speaker Change: Demand for new build land drilling rigs within within the Middle East. So while there certainly have been some challenges with some suspensions of.
Speaker Change: Rigs, particularly within within Saudi.
Speaker Change: The high spec modern rigs.
Speaker Change: They are working they are recognizing the.
Speaker Change: The performance and the impact that that has happened to having that is really important with unconventional manufacturing type development. So.
Speaker Change: We're talking to multiple customers in the middle East about about new rigs, we will see how that plays out but right now things are things are looking pretty good.
Speaker Change: And then if you go to the.
Speaker Change: The other parts of the business I think Rodney touched on kind of what the dynamics that are happening with offshore wind economics.
Speaker Change: Economics for offshore wind still look really good within western Europe.
Speaker Change: Asia.
Speaker Change: But there is a little bit of a reaction related to all the disruption that's taking place from trade developments and uncertainties. So we've tempered our enthusiasm a little bit for the number of <unk>.
<unk>.
Speaker Change: That will that will transpire and therefore, we kind of pushed back that really critical point in time, when we think there'll be.
Speaker Change: Really unparalleled tightness in terms of supply demand for <unk>.
Speaker Change: But we are still actively engaged with multiple customers for <unk> vessels.
Speaker Change: This year, we think that that will still likely translate into a couple of orders.
Speaker Change: Essentially in the second half of <unk>.
Speaker Change: 2025, and then also youre talking about.
Speaker Change: Yes.
Speaker Change: Process systems, a lot of demand fitting into the Fps as I touched on earlier so.
Speaker Change: Really good outlook for capital equipment overall again, there will be puts and takes but generally things are heading in the right direction.
Speaker Change: Great I have a quick follow up Jose and team in place.
Speaker Change: I wanted to see if you could talk a little bit about <unk> exposure to the flexible market. Obviously, it's a market that you compete in versus FTA.
Speaker Change: And Baker.
Speaker Change: A big of a business is that for you and I wanted to see if you could talk about this agreement with Petrobras because I know one of the Holy Grail is down there is to try to.
Combat some of the stress corrosion and the flexible.
Speaker Change: Could this be a needle mover for Adobe.
Speaker Change: Absolutely we're actually we're really really pleased with our team that's in there.
Speaker Change: The creative solution that they've come up to help Petrobras addressed or stress corrosion cracking problem.
Speaker Change: The fluids.
Speaker Change: There are sub salt basin down there have a high.
Speaker Change: Percentage of Cotwo, which is pretty tough on steel.
Speaker Change: So we've got an approach that's different than our competitors and we think it's going to be.
Speaker Change: Very fruitful for us and for Petrobras, but yes. This has been a terrific business for us.
Speaker Change: As you are aware have been working through some more challenged contracts signed several years ago, we've largely got those in the rearview mirror, we've seen really good.
Speaker Change: Efficiency improvements drive higher profitability for that business overall for us but it's.
Speaker Change: In terms of mix, it's on the order of 10 to 15 set of our energy equipment.
Speaker Change: Revenues and I think it has the potential to grow.
Speaker Change: Really really strong business.
Speaker Change: Great. Thanks, a lot.
Speaker Change: You bet. Thanks, Ron Thanks.
Speaker Change: One moment, our next question and that will come from the line of Scott Gruber with Citigroup. Your line is open.
Scott Gruber: Yes, good morning.
Scott Gruber: I appreciate all the tariff color.
Scott Gruber: Interesting times.
Scott Gruber: Your tariff mitigation efforts require additional capex.
Scott Gruber: Sure.
Scott Gruber: Line or invest in fabrication equipment normally I think you'd be looking to trim capex in the second half with this backdrop is that possible or the mitigation efforts.
Speaker Change: Yes, Hey, Scott most of most of the mitigation plans that we have in motion and additional ones that are planned really do not have.
Scott Gruber: A meaningful.
Speaker Change: Capex component to it we've got a lot of flexibility in terms of.
Speaker Change: In terms of our footprint. So it's really about getting things positioned in the right place at the right time and working closely with our vendors.
Speaker Change: To make sure that we are mitigating the cost.
Speaker Change: As best.
Speaker Change: As we can so it's really a lot of blocking and tackling.
Speaker Change: As I touched on.
Speaker Change: Sort of five or six that are really common elements in terms of what we're doing with each of our businesses and again most of those don't really involve much in the way of Capex now there's kind of a blurry line between mitigation efforts and ongoing improvements to improve the operational efficiency within our.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: Which does take some capital investment.
Speaker Change: Automation, and robotics and things of that nature within our own operations, but sort of view that as a separate and things that we're going to do any way regardless of.
Speaker Change: The tariff mitigation.
Speaker Change: And then to your point related to.
Kind of the environment that we're in thinking outside of tariff mitigation.
Speaker Change: Cost control.
Speaker Change: Our Capex program, you can sort of think of two very large buckets for 2025, when we sort of came into the year.
Speaker Change: One is.
Speaker Change: Really the build out of.
Speaker Change: Some expansion opportunities growth capital opportunities in these unconventional resources and basins, we are seeing tremendous demand for investments.
Speaker Change: Particularly related to <unk>.
Speaker Change: Midstream infrastructure, that's driving a lot of demand for our fiberglass business. So we have some localization efforts we have some.
Speaker Change: Additions to manufacturing lines that are underway and those will continue full speed ahead the.
Speaker Change: The other part really relates to the.
Speaker Change: The build out of our rental tool fleet.
Speaker Change: So as stated with this great latest generation of tools and technologies that we're that we're bringing to the market.
Speaker Change: We're continuing to see really rapid adoption of those tools.
Speaker Change: So.
Speaker Change: And you could see us maybe slow things down a little bit if that appetite flows down later on this year, but at this point in time, we're not saying that but certainly capex as we get in the second half of the year might be skewed a little bit lighter than what we were originally thinking three months ago.
Speaker Change: Got it I appreciate all that color.
Speaker Change: Follow up on M&A this economic soft patch.
Speaker Change: Because it really manifest.
Speaker Change: I'll take the opportunities available for and if you think about the areas that you could target from an M&A perspective would you want to beef up more on the production side.
Speaker Change: Look more for expansion into various industrial segments, either niche technologies of interest just some broader color on M&A, especially given that the.
Speaker Change: Backed up here is very different from four or five years ago, yes.
Yes. This is this is rodney.
Speaker Change: Just to give a couple of comments there so.
Speaker Change: One from a from an overall.
Speaker Change: Product portfolio perspective, now very pleased with with our businesses.
Speaker Change: We have and what their exposure or two in there.
Speaker Change: The end market, so really really like what our portfolio is.
Speaker Change: Right now I don't think we necessarily have to add anything to that.
Speaker Change: Second point really around M&A starts with our ability to continue to generate strong cash flow and.
Speaker Change: Touched on that in prior quarters.
Speaker Change: In terms of our expectation to continue to generate.
Speaker Change: I have a 50% free cash flow conversion of EBITDA and still feel good about that throughout the year. So that continues to allow us to have flexibility and our overall cash.
Speaker Change: Return program and we've laid that out before in terms of maintenance Capex growth Capex.
Speaker Change: And return to shareholders.
Speaker Change: With M&A being an element to that too in the current environment.
Speaker Change: Your point perhaps.
Speaker Change: It generates some some opportunities but also.
Speaker Change: In a more volatile time periods, sometimes it's harder to get deals done. So we're always looking for opportunistic.
Speaker Change: Opportunities too.
Deploy capital in high return higher.
Speaker Change: High return environments, and so if we if we see something out there thats a good fit for us that's a good value that returns that returns.
Speaker Change: A higher return to our shareholders, we'll definitely take a look at it yes, yes, Scott as you know two we've always been guided by and we're big believers in the need for deals to make a lot of sense industrially, we really need to be.
Speaker Change: A better owner in addition to seeing really good value. It certainly has brought the prices down for everything, including our stock, but and we continue to look.
Speaker Change: <unk> been active in M&A space here for the past several years I expect will continue to be but to reiterate what Rodney just said, which is sometimes it's harder than it is.
Speaker Change: Environment like this getting the other parties to agree.
Speaker Change: Alright got it appreciate the color you bet. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Stephen <unk> with Stifel. Your line is open.
Speaker Change: Hi, Thanks, good morning, everybody.
Speaker Change: Two questions I'll start with <unk>.
Speaker Change: One is you've given a lot of detail on the second half of 'twenty five.
Speaker Change: When we think about the guidance for the second quarter, you are guiding margins up.
Speaker Change: Pretty nicely and energy products in the second quarter can you just talk about the drivers of that.
Speaker Change: Yes so.
Speaker Change: On the EPS side, just repeat a couple of points there so.
Speaker Change: Revenue down five 8% and Thats really sort of North America activity.
Speaker Change: Driven as well as a couple of key international markets and some mix.
Speaker Change: As it relates to.
Speaker Change: So the margin side of things.
Speaker Change: It really is.
Speaker Change: It's also kind of mix mix related so we've had a couple of headwinds as it relates to.
Speaker Change: Our product in capital equipment sales, which generally have sort of a higher higher fixed cost element to that and then secondarily on the volume side. So I think I think those are the those are the main drivers in terms of the of the.
The delta period over period.
Speaker Change: Great. Thanks, and the other question and this is.
Speaker Change: Probably a little hard to answer I know Jose touched a little bit on this but when you think about the tariff mitigation efforts.
Speaker Change: How you sort of try to work to mitigate the impacts.
Speaker Change: How do you sort of assess investments debt that may be longer term in nature, but.
Speaker Change: Our addressing a situation, which may not be in existence in three months.
Speaker Change: Understand.
Speaker Change: Are you strategically make these decisions and remain flexible when there is.
Speaker Change: Fluctuations at the White house and how they are addressing these things.
Speaker Change: That's a great question, Steven and then a day, we do the best we can right, where we pride ourselves on being very nimble.
Speaker Change: And adaptive to changing.
Speaker Change: Environments that create challenges, but also.
Speaker Change: Create opportunities and.
Speaker Change: The uncertainty does make it different does make it difficult to make long term.
Speaker Change: Investment decisions and that's why we're pretty cautious as it relates to the precise timing on not only exactly what we're doing but but but we put ourselves in our customers' shoes.
Speaker Change: Difficult environment to make capital investment decisions.
Speaker Change: Some things that you know and have great confidence in that with kind of the forces that are at play there shouldnt be a material impact. So you plow ahead and move forward. There are other things that cause you to rethink okay, well should I be building. This plant here or should I build it somewhere else around the world or should I just wait another.
Speaker Change: Three months to see how how the world shakes out. So these are all very active discussions that we along with.
Speaker Change: Layers of the organization are having on a regular basis working very closely.
Speaker Change: With our compliance teams and our supply chain folks and our customers to understand what are we going to need in the future and how are these tariffs and other changes that are taking place in the world go into effect.
Speaker Change: Our operations so it's.
Speaker Change: Carefully thoughtfully.
Speaker Change: As the bottom line answer, but we feel like.
Speaker Change: Our teams have done a great job of getting their arms around everything.
Speaker Change: Mentioned, we've got a lot of people have been working really hard keeping up with the day to day movements of all the changes and potential changes that might occur.
Speaker Change: I would add to I think one of the real strengths of <unk> coming into this is the diversity of our manufacturing footprint, our supply chains and all that experience that Tina Jose was just talking about as I did a lot of hard work and heavy lifting through the first Trump administration.
Speaker Change: All of the section 232, and three are two tariffs came into effect again during COVID-19.
Speaker Change: We have been making a general move to.
Speaker Change: Do more near shoring post COVID-19, but at the end of the day, we're entering this with.
Speaker Change: Pretty good American.
Speaker Change: Our manufacturing footprint.
Speaker Change: 2% of our machine tools or here in the United States, a little more than half of our assembly space here in United States and so I guess, just a lot of optionality.
Speaker Change: Yes, and I think thats.
Speaker Change: Going to be.
Speaker Change: <unk> really important as these tariffs come into effect and are going to be a real benefit to adobe.
Speaker Change: Great. Thank you for the details.
Thanks, David.
Speaker Change: Thank you one moment our next question.
Roger Read: And that will come from the line of Roger read with Wells Fargo Securities. Your line is open.
Roger Read: Yes, thanks, good morning.
Speaker Change: Roger.
Speaker Change: Good morning, guys.
Speaker Change: I was hoping to get a little more in your view here on the offshore.
Speaker Change: Yes.
Speaker Change: Ultimately we're in.
Speaker Change: The growth's going to come from and maybe how you think about some of the milestones we should watch for for that signal is it going to be that companies are hesitant to cut here in the near term is it going to be.
Speaker Change: We just need to watch you just kind of curious not so much the white space here in 'twenty five, but as we look to the back half of this year and forward.
Speaker Change: First of all I think the economics. This is what our customers tell us the economics in the deepwater in particular are very strong very competitive vis vis shale and thats. The economic engine behind this but yes, I think fid's are going to continue in the deepwater.
Speaker Change: Been pleased over the past few years to ramp up in exploration.
Speaker Change: The number of new basins that have emerged from the Orange basin maybe.
Speaker Change: To continue.
Speaker Change: Continued success in Guyana.
Speaker Change: Eastern Mediterranean the emergence of natural gas is a viable offshore target all of those things are contributing to the activity in the offshore and as we've talked about on prior calls.
Speaker Change: It's been said about the white space in the drilling side of things, but.
Speaker Change: Our view is and our customers view us.
Speaker Change: It has to do with the fact that the FPA. So supply chain is where to catching up with the capability to drill and I think thats going to continue to.
Speaker Change: Work towards a more balanced and higher levels of drilling activity in 2026, one of our customers made a nice announcement yesterday with respect to new contracts and so I think.
Speaker Change: Pass through an extraordinarily unique time, when you had sort of.
Speaker Change: One one style in one source of incremental oil for the global supplies effectively supply all of it through the past decade and of course, I'm talking about U S shales and and that is close we believe some rolling over and it's not just us the EIA says that.
Speaker Change: Production is going to peak in 2027, and we can debate, whether it'll be earlier or later than that but I think generally.
Speaker Change: Emerging consensus you as U S shales are going to rollover here soon.
Speaker Change: Sooner rather than later and when that happens I think deepwater is going to emerge as the next source of production I think our customers get that and Thats why.
Speaker Change: Like Jose So that's why we believe they're going to continue to move forward with these projects they've got nice discoveries they've got better technology. This whole level of industrially industrialization that is going on in the deepwater driving better efficiencies and so thats going to be a great engine for future demand.
Speaker Change: If you sort of apply that due to our own financials. We we have had great margin progression for our energy equipment up 430 basis points year over year.
Speaker Change: Yes.
Speaker Change: Our EPS business has been more challenge a lot of that has to do with just exposure to the deepwater.
Speaker Change: The engine around margin improvement and top line growth in energy equipment really has been around these production technologies. There that we've got better demand for were getting better margins for us.
Speaker Change: And and.
Speaker Change: I think our rules.
They sort of illustrate within our own financial results the level of demand Thats out there for this and we see this continuing in spite of some near term headwinds.
Speaker Change: So our view continues to be for the long term.
Speaker Change: Very bullish on deepwater.
Speaker Change: I appreciate that I'll turn it back thank you. Thanks Roger.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Marc Bianchi with TD Cowen Your line is open.
Speaker Change: Okay. Thank you.
Speaker Change: I wanted to ask a little bit more on the second half outlook Clay you opened the call talking about how second quarter look solid, but things could get tougher perhaps much tougher.
Speaker Change: And I look at your <unk>.
Speaker Change: EPS guidance for the second half for 3% to 5% growth I generally think of that business as being a bit more kind of rig count sensitive.
Speaker Change: So its activities maybe has some risk to the downside in the back half how confident do you feel in that sort of 3% to 5% growth outlook. There, yes, well first Mark let me qualify all of this is saying we're sort of guiding into the unknown right. So since we had our last call in February we've had some pretty rough economic news, we have this sort of emerging.
Speaker Change: <unk> tariff trade situation.
Speaker Change: Come to the floor, we've had OPEC, bringing back barrels.
Speaker Change: So incrementally down and so I want to stress that our guide for the second half is more directional than it is precise.
Speaker Change: But.
Speaker Change: Yes.
Speaker Change: I think as I said earlier I think so.
Speaker Change: The larger deepwater sorts of projects are going to be more resilient more insulated, where we're going to see the greatest effect really is around the rig count driven.
Speaker Change: Parts of our business the quicker turn.
Speaker Change: Sort of things that are tied to activity in the second half.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Other question I had was related to cash flow and some of these sort of tariff mitigation efforts that you're doing.
The tariffs in general my understanding is.
Speaker Change: A bit of an upfront cash payment for the tariff and then hopefully.
Speaker Change: That flows through P&L down the road, but can you just kind of talk to the next couple of quarters, how we should be thinking about cash flow and if theres anything to considering related to all this tariff stuff.
Speaker Change: Yes.
Rodney Read: Thanks, Mark this is Rodney so.
Speaker Change: As we mentioned Q1 and as you saw started out on a on a good note free cash flow $51 million generally more cash cash consumptive and the first in the first quarter and that was driven by good operational results plus.
Speaker Change: Year on year improvement working capital as a percentage of net working capital as a percent of revenue as we look in Q2.
Speaker Change: Generally throughout the year, we see some moderate improvement on the net working capital side last year full year.
Speaker Change: Were 26, 3%.
Speaker Change: Obviously.
Clay Williams: Clay mentioned, a lot of puts and takes out there but.
Clay Williams: As we look at our free cash flow conversion as I mentioned earlier still feel.
Clay Williams: That will generate.
Clay Williams: Convert 50% of our EBITDA and free cash flow so throughout the year that will continue to.
Clay Williams: Progress progress and in that manner.
Clay Williams: Got it thanks, so much I'll turn it back.
Speaker Change: Thanks, Mark Thanks, Mark. Thank you that is all the time, we have for a question and answer session I would now like to turn the call back over to Mr. Clay Williams for any closing remarks. Thank.
Clay Williams: Thank you Sherry and thanks to all of you for joining US. This morning, we look forward to discussing our second quarter results with you in July and we wish you all a wonderful day.
Speaker Change: Yes.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
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