Q2 2025 Halliburton Co Earnings Call
Good day, ladies and gentlemen, and thank you for standing by. Welcome to The Halliburton second quarter 2025 company 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 to ask a question during the session, you will need to press star 1 on your telephone.
Speaker Change: At this time, I would like to turn the conference over to Mr. David Coleman, sir. Please begin
David Coleman: Hello. And thank you for joining the health and second quarter 2025 conference call. We will make the recording of today's webcast available for 7 Days on halbert's website. After this call.
Joining me today are Jeff Miller, chairman president and CEO and Eric Corey Executive, Vice President and CFO.
David Coleman: Some of today's comments may include forward-looking statements that reflect how albertans views about future events.
These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements.
David Coleman: 10 Q for the quarter ended. March 31st 2025 recent current reports on Form 8K and other Security and Exchange Commission. Filings.
David Coleman: We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
David Coleman: Our comments today also include non-gaap Financial measures additional details and Reconciliation to the most directly comparable. Gaap, Financial measures are included in our second quarter earnings release and in the quarterly results and presentation section of our website. Now, I'll turn the call over to Jeff.
Jeff: Thank you, David and good morning, everyone.
Jeff: I will open today's call with a discussion of the oil field services Market, which appears very different today than it did only 90 days ago.
Jeff: In the second quarter.
Commodity markets were volatile driven by trade and tariff uncertainty geopolitical, unrest, and the accelerated return of OPEC plus production cuts.
Jeff: Against this backdrop.
Jeff: Here's what I observe in the market today, which directly influences my Outlook.
Jeff: In North America, multiple operators even large in established customers are now planting meaningful schedule gaps in the second half of 2025.
Jeff: In international markets, particularly among some large, nocs, we continue to see reductions in activity and lower discretionary, spend typical of much lower commodity price environments.
and finally,
Jeff: we've seen several well-publicized reorganizations and cost reduction efforts by large independent operators and ioc's.
Jeff: To put it plainly. What I see tells me the oil field, services Market will be softer than I previously expected over the short to medium term.
We will, of course, take action to address this near-term softness.
Jeff: That said I believe the demand fundamentals, remain strong for both oil and gas.
Jeff: I expect conditions will improve as additional OPEC plus, production is absorbed by the market and operators around the world work to replace declining production and meet increasing demand.
As I look ahead.
Jeff: I believe that Halliburton is well aligned with the themes that I expect will Define the next several years.
Jeff: First unconventional, will continue to be a critical component of the supply picture.
Jeff: I expected advanced technology to maximize recovery and returns will expand both in the United States and around the world.
Jeff: Second.
Jeff: Production related services like intervention and stimulation along with artificial lift will grow alongside increased Global production of both oil and gas.
Jeff: Third, I expect demand will rise for complex Drilling and well Construction Services to access available resources.
Jeff: This requires Advanced tools and automation Technologies for efficient development and delivery.
Jeff: I believe our strategic alignment with these themes positions, Halliburton to deliver industry-leading returns.
Jeff: I fully expect that the Strategic execution that delivered performance in recent markets will continue to deliver outperformance in the future.
Jeff: Now, let's move on to our Geographic results.
Jeff: I'll start with the international markets, where Haysbert and delivered quarterly revenue of 3.3 billion.
The second quarter demonstrated 2% sequential growth with activity increases in Latin America and Europe Africa offset by activity reduction in Saudi Arabia.
As we look at the full year 2025, I expect our International Revenue will contract by mid single digits year-on-year. Primarily driven by activity reductions in Saudi Arabia and Mexico.
Despite the ongoing softness in these large markets, I do expect Halliburton to demonstrate growth in Brazil and Norway as well as offshore Frontier basins, where we secured key wins last quarter through our technology. Operational excellence and collaborative approach.
Thinking broadly about our international business, going forward.
Jeff: Our growth engines, unconventional, drilling Production, Services, and artificial lift.
Jeff: Remain key to our International strategy. And we believe Halliburton has unique opportunities to grow in each of these areas as evidenced by our recent progress.
Jeff: In Argentina, we achieved a record quarterly stage, count and performed. Our first sensory, fiber optic fracture, monitoring service, a milestone and expanding our leading unconventional Technologies outside of North America.
Jeff: In Australia, we recently completed a 67 stage stimulation, the largest job to date in the beetaloo basin.
Jeff: And in the Middle East, we drilled the longest well in the Region's largest unconventional play.
Jeff: Turning to drilling Services, High Crews, logic's Automation. And the AR platform delivered strong performance and introduced unique capabilities in several technically demanding markets.
Jeff: Globally. We surpassed half a million feet drilled with logic's closed loop Automation and completed. An important trial with a customer in the Middle East.
Jeff: In Norway, we recently utilized, I Crews and Logics to drill the longest. Well, in the Norwegian, continental shelf to a measured depth of over 10 kilometers.
Jeff: in Reservoir mapping, we launched Earth star 3DX,
Jeff: it builds on our leading Earth star, X and bright star, mapping Technologies, and provides a 3-dimensional map ahead of the bit while Drilling
This unique capability allows proactive, steering around hazards and precision. Well War placement for Optimum drilling, efficiency and Recovery.
Jeff: Next in Production Services we had several activity highlights during the second quarter.
Jeff: In Brazil, we began operations on our largest integrated well-intervention contract, which highlights the expansion of our collaborative model from well, construction to production.
Jeff: in Norway, we expanded our riserless, Coil Tubing Services, beyond our initial pilot and completed a 3-well intervention campaign for a customer
Jeff: Finally, an artificial lift. Halliburton secured, its largest International ESP contract to date from a Middle East NOC.
Jeff: Middle East Asia remains our largest and fastest growing International lift region with strong year-over-year. Growth. Also achieved in Latin America and Europe Africa.
Jeff: We expect International artificial lift Revenue to grow over 20% this year and plan to double the installed base of intellivate, our remote operations and automation platform.
Jeff: It has been a strong start to the year and I expect to exit the year with an international franchise that is larger than all of summit. At the time of acquisition, a significant milestone in our growth Journey,
To conclude my thoughts on the international market while activity reductions in a few large markets will likely overshadow the solid performance of other geographies. I am confident, our strategy is the right 1 and our growth engines. Remain key to that strategy.
Jeff: Now, let's turn to North America, where our second quarter revenue of 2.3 billion dollars was roughly flat to first quarter.
Jeff: Seasonal improvements in completions were offset by lower Service, pricing and reduced. Artificial lift activity.
Jeff: As we look at the remainder of the year in North America, we expect that Revenue in the second half will decline due to lower Drilling and completion activity.
Jeff: This comes in the form of more white space in our Frac calendars, the full period of effects of recent Service, pricing reductions and the stacking of Frac fleets that do not meet our returns threshold.
All increases in gas activity are likely to absorb some service capacity this year. It is unlikely to offset the decreases in oil directed activity.
Jeff: We now forecast, full year, North America Revenue to decline, low double digits year-over-year.
Jeff: In this environment, differentiation has never mattered more.
Jeff: Haliburton's leading technology remains an important differentiator for us.
This quarter, we were pleased to see Chevron announced their Zeus IQ closed loop fracturing milestone, in the Rockies.
Jeff: Customer enthusiasm is strong and we are actively deploying Zeus IQ across our us operations.
I expect up to 1/3 of our Zeus electric fleets to operate with Zeus IQ by year, end a strong endorsement of a technology that debuted only a quarter ago.
Jeff: Longer Wells.
This performance is driven rapid growth. In our us, land rotary steerable business and double-digit revenue growth in North America drilling Services even amid rig count, declines,
Jeff: To finish my thoughts on North America activity, reductions will affect the oil field services Market this year.
Jeff: I am confident in our plans to take the necessary actions to address these headwinds
Jeff: My customer conversations, tell me technology and service, execution are key to maximizing, the value of their assets. And I believe Halliburton has unmatched capability to deliver both of these at scale, which is why I am confident, we will deliver returns in North America, that outpace our competitors.
Jeff: For both the international and North America markets. Here's how I plan to address the near-term softness.
first, we will not work equipment where it does not earn economic returns and this includes North America Frac fleets
Jeff: Second. We will reduce our variable and fixed cash costs, over the quarters ahead to size our business to the market. We see
Jeff: And finally, we will remain focused on free cash flow and returns and will remain diligent stewards of capital.
Eric: Before I turn it over to Eric, let me close with this.
I am confident in haliburton's future.
Today we are more differentiated with deeper technology, advantages to address our customers requirements and more collaborative than ever before.
Eric: I believe our value proposition to collaborate and engineer solutions to maximize asset value. For our customers is a powerful driver of both customer and shareholder value.
Eric: With that, I'll turn the call over to Eric to provide more details on our financial results.
Eric.
Eric: Thank you, Jeff and good morning.
Our Q2 reported net income per diluted share was 55 cents.
Eric: Total company revenue for Q2, 2025 was 5.5 billion dollars, an increase of 2% when compared to q1 2025,
Eric: operating income was 727 million and the operating margin was 13%.
Eric: Our Q2 cash flow from operations was 896 million and free cash flow was 582 million.
During Q2 we repurchased approximately 250 million of our common stock.
Eric: Now, turning to the segment results.
Eric: Beginning with our completion and production division Revenue in Q2 was 3.2 billion an increase of 2% when compared to q1 2025.
Eric: Operating income was 513 million. A decrease of 3%, when compared to q1 2025 and operating income margin was 16%
Eric: Revenue, increased largely due to seasonal Improvement in pressure, pumping activity in the Western Hemisphere. The decline in operating income was primarily driven by lower pricing for stimulation services, in usland.
Eric: in our Drilling and evaluation division Revenue in Q2 was 2.3 billion, an increase of 2% when compared to q1 2025,
Eric: Operating income was 312 million. A decrease of 11% when compared to q1 2025 and operating income margin was 13%.
Eric: Revenue increased due to higher drilling related Services globally.
Operating income decreased due to seasonal, rolloff of software, sales and increased startup and mobilization costs across multiple product service lines.
Eric: Now, let's move on to Geographic results.
Eric: our Q2 International Revenue, increased 2%, sequentially,
Eric: Europe, Africa Revenue in Q2 was 820 million, an increase of 6% sequentially.
Eric: This increase was primarily driven by higher activity across multiple product service, lines in Norway.
Eric: Middle East, Asia Revenue in Q2 was 1.5 billion a decrease of 4% sequentially.
Eric: Latin America Revenue in Q2 was 977 million a 9% increase sequentially.
Eric: This increase was primarily due to improve activity across multiple product service. Lines in Mexico and Brazil and increased well-intervention services in Argentina.
Eric: in North America, 22 Revenue was 2.3 billion relatively flat when compared to q1 202025
Eric: Slightly higher, well, construction activity, completion tool, sales and stimulation activity in the region were offset by lower artificial lift activity, and software sales.
Eric: Moving on to other items in Q2 or corporate and other expense was 66 million. We expect our Q3 corporate expenses to increase by about 5 million dollars.
Eric: In Q2, we spent 32 million on saps for migration which is included in our results for Q3. We expect sap expenses to be about flat
Eric: Net interest expense for the quarter was 92 million for Q3. We expect net interest expense to be approximately flat.
Other net expense for Q2 was 24 million for Q3. We expect this expense to be about 45 million.
Eric: Our effective tax rate for Q2 was 21.4%.
Eric: Based on our anticipated Geographic earnings mix. We expect our Q3 effective tax rate to be approximately 23.5%.
Capital expenditures for Q2 were 354 million for the full year. 2025, we expect Capital expenditures to be about 6% of Revenue.
Eric: In Q2 tariffs, impacted our business by 27 million.
Eric: For Q3, we currently expect a negative impact of about 35 million or about 4 cents per share, which is included in our guidance.
Eric: Now, let me provide you with comments on our Q3 expectations.
Eric: In our completion and production division, we anticipate sequential Revenue to decrease 1 to 3%. And the margins to decrease 150 to 200 basis points.
Eric: In our Drilling and evaluation division.
Eric: We expect sequential Revenue to also decline 1% to 3% and margins to improve 125 to 175 basis points.
I will now turn the call back to Jeff.
Jeff: Thanks Eric.
Jeff: Let me summarize. The key takeaways from today's discussion,
Jeff: First, we are aligning our business with the current market conditions. We will reduce costs and retire stack or reallocate underperforming assets.
Jeff: Next internationally, we see strong performance in our growth engines, unconventional, drilling Production, Services, and artificial lift.
We secured key wins last quarter through our technology. Operational excellence and collaborative approach.
Jeff: In North America, the Zeus platform. And I Crews continue to differentiate Halliburton by delivering unique value to our customers.
Jeff: Combined with our ability to execute at scale, they reinforce our position as the leading Services Company.
And finally, we remain focused on returns Capital discipline and free cash flow.
And now let's open it up for questions.
ladies and gentlemen, if you have a question or comment at this time, please press star 1 1 on your telephone keypad,
Jeff: If your question has been answered, or you wish to remove yourself from the queue simply press the pound key. Again, if you have a question or comment, please press star 1, 1 on your telephone keypad,
Please stand by while we compile the Q&A roster.
Our first question or comment comes from the line of Neo ma from Goldman Sachs, your line is open.
Back in the right direction.
Jeff: Yes, uh, Neil. It's, uh, it's Eric. So, let me, I'll, I'll give you a couple of colors on the, uh, CNP margins. Versus what we guided for Q2. And then I'll, I'll give a little more color around the Q3 guide, uh, for Q3 so starting with, uh, Q2, we actually, uh, were kind of on guidance in terms of Revenue margins, uh, was, uh, a bit lower than, uh, the guidance on flat where I think 80 bits, uh, below the guide. So what really happened in terms of the, uh, Revenue side, uh, we were up in most region and most product lines across the CNP division with uh, 2, major exception, uh, 1 Saudi and also the artificial lift business in North America. The reduction in Saudi is actually a reduction in Frac but also on the related services.
Jeff: As a lot of the Frac in japura was slowed down ahead of the award of the new tender. Uh, the other
Jeff: Uh, element that contributed to software margins are obviously the pricing, uh, headwinds in US land and also the reduction in the, uh, Saudi activity. Uh, I talked about some of that was, uh, uh, offset by the performance of our cementing and completion tool product lines. But overall it resulted in a, uh, slight Miss from a margin perspective. So that's the color on uh the performance versus uh, the Q2 guide. Now if we move to Q3. So our guidance is 1 to 3% uh reduction in revenue and 150 to 200 basis. Point reduction in margin. There are really 3 main elements that contribute to the guidance. The first 1 is the reduction of activity and reduction or softness in pricing in North America. And pressure pumping, which is both Frac. And also cementing
Jeff: The second element is the reduction of completion tool deliveries in most International Market partially offset by increase in completion. Deliveries in the, uh, Gulf of America. And these are essentially just operation the cycle of drilling versus completion, Etc. And the third element, which is the 1 I mentioned, uh, that affected also Q2 is a reduction in activity, uh, of frac
Jeff: Saudi.
Yeah. Thanks Eric. And so maybe Jeff for for you, question is just can you help us walk through your customer conversations about the white space? As you think about the back half of the year in North America, for the practice side of the business and any early thoughts in 26? I know it's a really volatile macro but, uh, you, you probably have some great perspective as you talk to your most important customers. Um, yeah, certainly. And, and you know, well, I think that
You know, conserving cash. We we look and we see that.
Jeff: Uh you know, there's as I mentioned in my prepared remarks quite a bit of reorganization and activity going on around that and so I would say customers are fairly cautious and conserving budget. Um, they also say though that you know, the most important thing is technology and service quality performance which um,
you know, certainly good for Halliburton and you know, we we'll probably talk more about it. But sort of the technology steps we've taken have been important. And so, um, as I as I look out to 26, it's really early with the volatility that we see and uh, you know, that just
Jeff: You know what, what what precisely they're going to do for 2026 is sort of on hold. Um, but what I would expect
Jeff: is that we would see, you know, activity, the earlier in the year, pick up above what it is and
Jeff: Certainly Q3 and 4. Um, but as far as sort of doubling down, I think that I don't see that that happening soon until we see some catalysts that change trajectory on sort of price Outlook.
Speaker Change: Thank you, Jeff.
Jeff: Thank you.
Jeff: We've seen a pretty steady decline in oil recount the last 2 months. So we'd be thinking about kind of a 4 q bottom and then related to that, if you could give us maybe a little bit more color on pricing. I know at the end of last year, concessions were made to keep keep fleets contracted the situation. Today. I'm curious. Are they coming back for another bite of the apple? And sounds like you've walked away from some work. Uh, I'm curious is, does that mean you're getting rid of the final diesel fleet? Sorry through a lot of that first question? Yeah, fair enough. Well uh, couple questions in there, Dave. All good questions. So let me just start with
Jeff: Outlook on, you know, where are we in sort of the cycle or where are we relative to a bottom? Uh, and I really think we have to look at the, you know, supply and demand fundamentals here and you know, we we we project it, I think broadly is projected, there's solid growth and oil demand. Um
Jeff: But we also have spare capacity coming into the market. Uh, we and, and sort of the US producing at a fairly high level. And so I think, as Supply consumes, excuse me, as demand starts to consume, uh, spare capacity. And we also start to see sort of
Production roll over, and some key markets, which it likely will. I mean, the decline curve is still working? I think those are the signposts. We look for in terms of, where do we things come, you know, where where do we see sort of a bottom versus a recovery. What I do know though, is that, uh, you know, the
Jeff: It's a becomes a question of duration, duration, and sort of depth. And so, if it, you know, comes off hard, it comes back on pretty hard and, uh, are pretty quickly and and and you know, that's what we see. So we need to look for those sign posts, but seeing that we're below maintenance level today in North America certainly below maintenance level in Mexico and a few other key markets around the world. So um I think we're you know, from a trajectory standpoint that recovers
from a price standpoint.
Jeff: Uh, yeah. I mean, we
Jeff: At a place where I would describe it as we get to make Choice. Um, and so we are making Choice around equipment working or not working, and, uh, well, clearly stacks and fleets. Um, just because, uh,
Jeff: Yeah, it does. It just we're not going to work it on economic levels and and it's a commitment its strategic for us, and it takes some equipment out of the market as well.
Jeff: Um, but, you know, from our perspective working at, you know, uneconomic levels is literally burns up, equipment, creates HSE risk, and all sorts of things that we just don't want to do. Um,
Jeff: and so so, so that's those are steps we're taking now. Um,
Jeff: broadly, uh, you know, from a
Jeff: Uh, a anyway, I'll stop there. That's that's kind of where we are.
Speaker Change: No, that makes sense. That makes sense. Jeff. And maybe, if we could shift it to International markets, you, you mentioned unconventional the number of times, you Argentina, Australia. And obviously Saudi, um, which is the big 1. We're all kind of watching here. I was wondering if you could give us a sense as to kind of how big this. Now, right now is in your International portfolio and how big it could actually be in a couple of years, just trying to get a sense, is it like 10% of International Revenue if that's at this point? Like kind of where does it go from here? Just a little bit of relative sense here in terms of the opportunity, thank you.
Yeah, let's um, look, I think there's opportunity in certainly Argentina as you described also, uh, Saudi Arabia, but it's well beyond that, in terms of sort of a trajectory and like, all things that start slowly and then gains gains legs, which I would how I would describe, probably Argentina more. So just because of the sort of a broad group of customers, all investing in a market, and it got a lot of legs. And, uh, now today that is a meaningful Market a very meaningful Market, um, and a technology driven Market, um,
Speaker Change: You know, I think that uh, you know, we expect growth Beyond just those 2 countries and I think that's what's important. Um,
Speaker Change: You know, as we go forward, you know we've seen pretty solid growth year on year. I would say double digits. Growth year on year with our International Frac business, non us Frac business.
Of North Africa, actually presents. Pretty good opportunities for unconventional and also having the markets. Um, and yeah, and I think, you know, and gas demand is going to drive in a number of these markets, you're going to see unconventional is driven more by
Speaker Change: Gas, demand than anything else.
Speaker Change: That makes sense. Thanks Jeff.
All right. Thank you.
Speaker Change: Thank you. Our next question to comment comes from the line of Aaron Jr. From JP Morgan. Your line is open, sir.
Speaker Change: Good morning, Jeff. Eric. Um, I wanted to maybe elaborate
Uh good morning. Uh I wanted to see if you could maybe elaborate on that commentary on unconventional. Uh and wondering if we could focus on the Middle East. Uh I know I cover EOG and there there will be testing an unconventional uh play Concept in the UAE
Speaker Change: And perhaps, you know, wanted to see if you could comment on how, how is positioned in the upcoming japura tender. I know that that tender will include called a tripling of the amount of stages. So, it's a large tender. Uh, Jeff, how important do you think technology will be, uh, within that tender? And when do you expect to see activity kind of rebound? Um, in Saudi
Speaker Change: Yeah. Look I'm
from an unconventional perspective, we're well positioned in the Middle East for unconventional both
Speaker Change: from an equipment standpoint, and technically, and we have work starting
Speaker Change: Q4 is uh in UAE and we're happy with that and that'll be, you know, a technology showcase I expect in terms of what we can do with Zeus IQ and some other things.
um,
Speaker Change: you know, I I'm not going to comment on japura other than to say um, you know, it's in process now. It's uh,
Speaker Change: We've got a very disciplined approach to bidding work and I think that's what needs to be remembered here. Um,
Speaker Change: And we're centered on that, that whole process is centered around returns. And long-term returns, not just volumes and uh, and I think we know quite a bit about this, how to price, Frac Etc. Um, and so, from that perspective, look by the time we're talking about name, tenders on calls and things of that nature. You can bet they've gotten pretty competitive. Uh, but that said we do like to track work, we're doing internationally and I really like the interest in the technology uh Beyond interest to actually buying the technology in Argentina, for example, uh that we're able to do with, you know, how to place fracks where the sand is going. How to improve recovery
Speaker Change: Great, just my follow-up, just on the portfolio. Uh, I know in the in the last 10 key you come into on, you know, the focus on howbert and maybe to Market a, a portion of its chemicals business but just thoughts on, um, you know, pruning of the portfolio.
Speaker Change: Look, we we want to be investing in the thing. We, we are investing in the things that we believe show the best.
Speaker Change: Returns for us and the best sort of opportunity for growth and returns. Uh and so we do we bring the portfolio from time to time. We really like what we're doing with Lyft. Uh, and we think that ESP lift in particular is
Speaker Change: You know the most attractive certainly for us and as we look at other parts of our portfolio where we don't see necessarily we don't see the opportunity for the kind of a creative returns that we would like, you know, we take a hard look at it.
Speaker Change: Great. Thanks a lot.
Thank you.
Speaker Change: Thank you. Our next question and a comment comes from the line of Roger Reid from Wells. Fargo Securities. Your line is officer.
Speaker Change: Yeah, thank you. Good morning.
Good morning, Roger.
Coming back to the, let's just call it the North American outlook here. Um, then I recognize, you know, a lot of things are are kind of going against us here. In terms of rig count, Frac count. All that we did get some tax reform with the big better, bill or big, beautiful bill, whatever the heck Triple B. Um, and uh we've heard a number of the INTP companies talk about. It will be favorable to their free cash flows. So when we think about your outlook as it is today kind of through year end
Speaker Change: Of your outlook. In other words is, is that something that could help?
Meaningfully or do you feel? You know hey visibility is actually pretty, you know, pretty solid here and and we've got a good view and to end of year, end of of significant softness.
Speaker Change: look, I
Speaker Change: I don't think the big beautiful Bill necessarily factors into the plans, in terms of what customers do. I think that's going to be, uh, quite a bit more, sort of budget and commodity driven, and returns driven for them, but what I what? But, but when I look at the market, I mean, we have a fantastic group of customers and
Uh, really good customers. And so, um, you know, they, they are serious about this work. Got good strategies and, you know, if there's white space appearing, it's to manage budget, you know, the plan for 2026 is far from set for them at this point, um, but they're the kind of customers that we know will be active in this market and so, um, you know, when we see whites space like this, you know, in some cases we will stack for a short time and then come back or we will um,
Speaker Change: No re reallocate things in a way that we think is best from a returns perspective or we will, you know, in some cases make the determination to stack and keep something stacked. Um, so I think that from an activity Set, uh we really need to watch supply and demand. And as I said, those signposts around, you know, what does production overall do in North America? I think will be a key driver in terms of what 26 looks like.
Speaker Change: Yeah, that makes sense and then in terms of your comments about, you know, not wanting to chase uneconomic work. Uh, historically. This has been a sector that, you know, sometimes gets more market share rather than let's call it a returns or margin focused is that
Speaker Change: we should think it's a little different. This time you are going to be focused on maintaining call it margins and returns as opposed to uh you know, a market share uh fight.
Speaker Change: Look, we are.
Speaker Change: Strategically, we're about maximizing value in North, America maximizing returns in North America, and that includes not working at uneconomic rates. And so,
Speaker Change: Um, this is exactly what we did, what we did a year ago and the gas markets and, um, something we will continue to do. I mean, the, uh, the fact is we won't get equipment when it snaps back, we want to make money with the equipment and, uh,
That's just the approach. We're going to take, we've taken it before, so it should not be um, you know, it's not something we're going to do. It's something we've done and and and we'll certainly do again.
Appreciate that clarification, thanks. Yeah no thank you.
Thank you. Our next question to comment comes from the line of SOB punk. From Bank of America is the your line is open.
Speaker Change: Hi, good morning. Uh Jeff and Eric.
Speaker Change: Good morning.
Speaker Change: Uh Jeff uh or Eric maybe, uh, maybe I want to spend a little time on the cost side of things. Uh, I know you have worked hard to variable as your cost structure in North America and if you did speak to reducing your variable and fixed costs, right? But how should we think about what kind of, uh, level of activity that you would be using to frame? What you think you can take out of your cost structure or put differently? How should we think about uh protecting margins? Maybe overall maybe be any and CNP however you want to talk about that?
Yeah. Look I
Speaker Change: uh,
Speaker Change: you know, we we
Speaker Change: are looking at a market where we
Speaker Change: Want to take action around variable cost. Clearly, it's not a perfect science, but as activity slows down, we want to, you know, take equipment and cost out of the market, not a perfect science, but, you know, we've seen some moves in the market that cause us to do that. So that's 1 half of the equation. Uh, what? I get to the other half of the equation, uh, around structural costs, um,
Speaker Change: you know we're still relatively busy around the world that said um you know contributing to margins or maintaining you know taking actions that
Uh, Drive efficiency, no different than what our customers are doing. Is right in our wheelhouse, and we've done that before also and expect to do that again, uh, to frame that, um, look, it's, uh,
Ranged sort of type thing is early days as we get started. Uh, and it may be a couple of quarters as we get right sized around what we see, in terms of the market. Uh, you know, it's a bit of a dynamic market today. So we're, you know, targeting what we see, I think we probably uh got a pretty good handle on where we need to get from uh, reduction standpoint. Uh, but we'll need to let that play out.
Got it, got it. Okay. Yes, no, thank you for that. Uh, and uh, and then the other 1 I have just for you is uh, on the Saudi Market. Uh, we have all seen the account uh in the country come down, right? It's it's too speculative for me at this point to say, where it goes, right? But 1 thing, I've been hearing this that maybe the Saudi Market becomes more, an SDK over time as active, he comes back or even if it doesn't come back, right? But look I don't know, right? But just to philosophical question, if that's what happens, right? The Saudis more realistic. Okay? Middle East. In general, is more realistic.
Speaker Change: How does Halo button play in that market? Is it to Halo buttons advantage? Or, uh, do you have to adapt the way you do things? Maybe just a, a high level comment on that.
Well, look, we've got very strong muscles in that area and we've been successful doing that. Um, you know, I I would say, our project management organization is the strongest. It's been, we do a lot of collaborative work, and we do LSD work today, uh, you know, in fact today that type of work LST game and collaborative.
Speaker Change: Type work that we describe represent more than 20% of our international business.
Speaker Change: so clearly, I think it, uh,
Speaker Change: Is it? It's in our wheelhouse to do and it's a strength for us. And so I would see that. As advantageous though, I will start to all of that. With what I said earlier, around our tendering process, which is highly disciplined, and is geared towards returns. And so, uh, again volume and market share at the expense of returns is not not not, doesn't help the cause at all. And so, uh, what you'll see is B is very sharp around how we look at those things and make sure that we can make a return. But the capability to do it, we do a lot of it today and uh really pleased with actually where that whole business is.
Right. Got it. Okay. No, that's fantastic color. And by the way, uh, good update and good progress, on the summit, tsp side of things, Jeff, uh I'll turn it back. Thank you.
Speaker Change: Thank you.
Thank you. Our next question or comment comes from the line of Mark. Biyani from TD. Cowen, your line is open.
Speaker Change: Hey thanks. Um I I guess I wanted to ask about um uh sir. Doing some math here, from the 32 guide you gave in the Outlook. He gave for the year for for North American International. It seems to imply a pretty big step down in 42 um, to kind of get to the numbers that you talked about and I guess I'm, I'm curious.
Speaker Change: Um, how much visibility you have to that at this point, um, and how are you thinking about, you know, is it more pronounced in, um, in international versus North America? When, when we look at fourth quarter,
Speaker Change: Yeah, Mark, it's a, it's Eric. So we're, we're not going to give you an exact guide on, uh, what Q4 looks like. There are a lot of moving parts that we touched on today. Uh, is what the US activity is going to look like the uh, amount of white space, uh the activity in Saudi uh, you know, Mexico is kind of being on and off Etc. So a lot of things can happen, uh, between now and Q4 that will shape you for, uh, how Q4 looks like, but directionally, uh, to give you some color where looking at, uh, probably kind of flat is revenue, uh, at best. It would seem, uh, we'll see a reduction in CNP Revenue an increase in DNA Revenue, uh, margin will continue to soften probably in CNP because of the amount of white space in the uh us Frac Market. Uh, Jeff talked about we will see a continued uh, strength.
Listening of the any margin on top of what we did in Q3, and we'll see the usual seasonality that we see Q4 over Q3. So, uh, fracking the US tends to come down. Uh, software sales will pick up materially and then typically, uh, uh, completion tools in the CNP division, go up as well. So that's kind of how we look at Q4 at this point in time.
Speaker Change: Full digits as we exit the year.
Speaker Change: Uh, yes, yes, yeah, no, for sure. Yeah. Very much like that. Yeah.
Speaker Change: Great. Thanks so much. I'll turn it back.
Speaker Change: Thank you. Our next question to comment comes from the line of Scott Gruber. From Citigroup Mr. Gruber. Your line is open.
Yes, good morning. Um, just want to follow that last, uh, line of questioning. Uh, Eric, the uh margin Improvement. Uh, you mentioned a DNA in 4 q, is that can be largely, uh, just seasonal factors, you know, some more software sales, Etc, or you know, is there any of the mobilization expense and contract startup cost, you know, that weight on 2q or is there an element of those costs still impacting 3Q or or most of those uh, in the rearview mirror now?
Speaker Change: No. I mean, I if we look at, uh, so I, I think Q4 will be a continuation of Q3 with a, uh, material impact in terms of improvement in margin coming from the software sales, part of the business. Now, if we, uh, kind of peel the onion a little bit in, uh, the Q3 guide for DNA, uh, and the Improvement there. Uh, so we guided an improvement of 125, to 175 basis points. So, the different factors that are
Speaker Change: Are coming into play there. Uh is 1, the reduction in activity in Saudi, which is uh kind of a headwind for us, in terms of DNA.
Uh, the second element is on, is a bit of a change in uh, the drilling versus completion. Uh, Cycles. We talked about it in completion with the Gulf of Mexico completions coming up. But the the the offset of that is that like drilling drilling fluid, which is a really big business for us in the Gulf of Mexico and in Europe is uh coming down a bit. Uh the 2 largest drivers or 3 largest drivers of margins in Q3 though uh is the the the start of the Improvement in software, a global improvement in our directional, drilling business and the elimination of mobilization costs that drag margins down in Q2. So that's a little bit of color on Q3 and Q4 from a DNA perspective,
So, I appreciate that. Um, I appreciate the details on how you're responding to the, the current environment. Um, you know, capex, uh, you know, should should now be sliding with with, uh, with lower sales. But is there a plan to, to pause the, uh, the Zeus, uh, Fleet expansion either in the second half or or next year. And, you know, if we think about, uh, that investment on an annual basis. Um, you know how much uh, what capex
Speaker Change: Come down, if if that program is paused.
Speaker Change: Yeah, look, I think that that program has always been demand driven in terms of, we've only Built equipment for contracts that we had in hand. And so it's been less of a program and more of a demand driven activity. And so, the extent to which we don't see demand for new equipment that obviously will come in. Um, and so and then with respect to anything else, you know, we will expect to bring down, you know, capex to the lower end of that range as we go into 2025. Um,
Speaker Change: or 2026 certainly and um, but from a, from a
Zeus build standpoint, you know, I I would expect that slows down just because we've retrieved the 50% of our Fleet
Speaker Change: They're there abouts of.
Speaker Change: Uh, Zeus fleets. And, uh, you know, like the portfolio that we have.
And is it got a 40 45 million Fleet in terms of what you'd say? It's it's no, I'm upset.
Speaker Change: Capex for capex. Capex. Perfect.
Okay. Okay, thank you. I'll turn it back. Appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question to comment comes from the line of Derek Pazer from Piper Sandler. Your line is open sir.
Speaker Change: Just some maybe some caller on artificial, Lift Us Versus International.
Speaker Change: Yeah, look the internet, the demand for artificial, lift is around accelerating production. And so it's not as much an unconventional, story internationally, as it is just great technology, in conventional Wells to produce more oil. And, uh, you know, we
Speaker Change: when we acquired,
Speaker Change: Summit. They had no footprint internationally. And so we've been quite successful in growing that business into markets on the back of just the technology and performance and automation that Summit has developed and has taken to New Markets. Um, you know, in the US market it is going to be, you know, somewhat affected, by just activity levels that we see. And then, uh, secondly, from a, you know, tariffs do they have an impact? Yes, they do.
Speaker Change: Yeah, on on on the terrorist side of things, as we said, Derek, we expect uh, tariffs School uh, up a bit in Q3. Uh uh, artificial lift is probably the uh, largest component of the tariffs uh, for us today. So our team in uh, Summit and our supply chain team are working hard. Um you know trying to kind of rewire part of the supply chain around what they Source from China but uh
Speaker Change: You know, it's going to take a couple of quarters to work through.
Speaker Change: Got it, uh, very helpful, appreciate it. Um, and then, just, just a question on 2 regions. So, talk about Mexico being a source of strength here in the quarter, with a lot of them up 9%. I was surprised with that. So maybe, can you just give us an update on Mexico? We've seen a lot of news, a lot of the country and where, where we are with that and then separately Kuwait, you pointed as a sign of a bit of softness, which I was surprised about given, uh, I it was 1 of the bright spots, that's been talked about over the last quarter. So maybe just your thoughts on where you see for Mexico go forward and and co wait,
Speaker Change: look co wait overall is uh, solid market and uh
You know, it it'll bounce around from month to month, quarter to quarter. But ultimately, we see growth in Kuwait, no question about growth in Kuwait. And we do important work in Kuwait today, and expect to do more of that in the future. Um, from a Mexico perspective, you know, we saw a solid Improvement in, in, in, in last time, but it was not Mexico. And so, you know, solid performance in Mexico. Uh, I mean, uh,
Speaker Change: It was the issues in Mexico, in my view aren't settled. And so I think we see s starts and stops in Mexico. Um,
Speaker Change: And uh you know, I've been to Mexico. I've met with the management team there. I think what we're going to see is, you know, decline rates at a at a pace that, you know, create sort of pressure to to reactivate the business there. Um, and oil and gas is obviously critical to the economy of Mexico and I think that'll drive recovery.
Okay, appreciate the comments. I'll turn it back.
Speaker Change: Thank you. Our next question to comment comes from the line of Steven gangaru from stifel. Your line is open.
Uh, thanks. Good morning everybody.
Um,
Speaker Change: So, so 2 for me and and I think the first Eric, I'm not sure you're you're coming on this afternoon after the the guidance color you gave kind of for the different geographies and segments. It feels like cmps. Got to step down. Like double digits, in 4 q.
Speaker Change: To get there. Is that, is that?
Speaker Change: Accurate.
Speaker Change: Uh, yes that's about right.
Okay. Okay, thank. Thank you for that. Um, the the other question, when, when we start thinking about, you know, kind of the pricing in US pressure pumping particularly as we kind of get into the fourth quarter, uh, and then thinking about 2026 H, how do you approach the customers for, you know, obviously the service quality and the quality assets your delivery?
Ing and what clearly is going to be kind of a soft market and as you kind of contract these out into 26, what is sort of the pricing strategy to kind of maintain margin in that environment.
Speaker Change: well, look, I
Speaker Change: Situation where we can make economic returns, then we just say, no, I mean and that's where I say, we get to exercise some choices. Well, uh, in terms of, you know, what the market looks like for us.
Thanks and just 1 quick 1. We we've heard kind of maybe Fleet attrition is accelerating a bit. Are are you seeing that in the overall Market?
Speaker Change: I'm sorry, repeat the question whether whether you're seeing Fleet attrition across the industry, accelerating at all, or expect to accelerate in this market.
Speaker Change: Yeah, I do expect that to accelerate in this market and it is, you know, to a certain degree. It's always sizing to the market that's there. I mean, that's what happens. And so it's, uh,
Speaker Change: You know, equipment, uh, will get retired and then it will be in many cases, uh, harvested to for spares and other things. And that's how it goes. It gets concerned. Uh, at the same time, fracking and gas is just harder on equipment than it is in oil. It's just higher pressures, uh, which means it's harder on the equipment. That means the equipment wears out more quickly. Uh, and so we're really thoughtful about pricing, and where we put equipment to work for those very reasons.
Speaker Change: Great, thank you for the details.
Yeah, thank you.
Speaker Change: Thank you. Our next question or comment comes from the line of Doug. Becker from Capitol 1, Mr. Becker, your line is open.
Speaker Change: Thank you, Jeff. Eric just giving the update Outlook, wanted to get your thoughts on free cash flow this year and does the commitment to the cash returns framework. Explicitly mean the 1.6 billion cash, return targets still intact.
Speaker Change: Yes, I mean the the update is we, as we talked about a bit of a softening in the market. So we've revised our outlook for free, cash flow in 25. And, uh, right now, uh, the range that we're looking at is anywhere between 1.8 and 2 billion. That's kind of how we're setting things, uh, that's how we're seeing things evolved, um, on the free cash flow for 25. Uh, now we're not seeing anything, uh, that really changes our perspective on the cash return to shareholders. I mean, when we're through, uh, Q2 a few accounts for the second half of the Year dividend will be, uh, over our 50% return already. Uh, now we're probably maintain the pace at, which we have been, um,
Speaker Change: Going so yeah, that's kind of how we look at that free, cash flow and and returns.
Speaker Change: Are we good at that? Thank you.
Thank you. I'm sure. No additional questions. Indicate that at this time, I'd like to turn the conference back over to management for any closing remarks.
Speaker Change: Uh, thank you Howard. Uh, look before we wrap up today's call, let me leave with you, leave you with a few thoughts. Um, despite industry Cycles, I believe the demand fundamentals, remain strong for both oil and gas. Uh, today. However, since more differentiated with deeper technology advantages to address our customers requirements and more collaborative than ever before, those are powerful drivers of both customer and shareholder value, uh, throughout the Cycles Haysbert and will remain focused on free cash flow and returns. I look forward to speaking with you next quarter. Uh, Howard, please close out the call.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect everyone have a wonderful day.