NOV - Earnings call transcript Q3 2018

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Operator

Good day ladies and gentlemen and welcome to the National Oilwell Varco third quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

As a reminder, this conference call is being recorded. to host like Mr. today's now would introduce for your conference, I Singletary, Relations Industry Investor Loren and Officer. Chief you Sir, may begin.

Loren Singletary

Chairman, are Welcome everyone conference Williams, Officer today earnings Financial Bayardo, and our quarter third Chief Senior our and Clay Vice Jose to National call. Oilwell With Varco's President Executive and Chief President XXXX Officer. me

and meaning these some later uncertainty should They are forward-looking comments we I like would today's may laws. results begin, actual assume quarter year. remain securities to within and of later of the differ Before involve one or federal in the the risk remind forward-looking you that No valid the statements, in materially. statements that

our Securities the filed more discussion of latest risk and a XX-K to detailed major with and Exchange XX-Q affecting our Commission. the factors For Forms business, refer please

also GAAP corresponding and NOV on GAAP of Our million. of third the measures. release measures $X net website. quarter are non-GAAP basis, On comments to available $X.XX our billion a revenues US of earnings the our Reconciliations nearest income include for reported in XXXX,

EBITDA a the limit to corresponds Later Our permit to our one the and release. with will as defined throughout adjusted Please term this in earnings morning's use in we one follow-up call, the question-and-answer of session. term, host call EBITDA, question yourself more participation.

me let over the turn Clay. Now, to call

Clay Williams

increased to revenue Oilwell million Varco's increased third EBITDA quarter and the of National in Loren. you Thank million $XX or revenue. XXXX X% $XXX XX.X% of

of pressure customers which late generally pumping Jose in a solutions of services or fixing. This performance these into anticipated short posted saw segment execution sharper the coiled and product tubing few quarter of self-inflicted but completion more sequential units, September minutes, quarter just go strings in headwinds North markets on our consolidated into a expectations. arose which we were slow completion in combination due a America. than our company and and detail in was couple focused in fell will deliveries the offshore America, falloff a challenges, improvement, of spares production third our sales in to While market North

fiberglass group improved revenues was were quarter, These significantly Some higher revenues the expected in later deferred weeks. with pushed It American shifted revenue equipment revenue the on partially nevertheless, were also cutting offset roughly passing X% lower equipment pricing. make The didn't the that on which despite expected lower are and but group of third expectations Technologies are recognize costs gains offshore tools we segment's than the The customers to as ship higher by completion reactivation and land rig, pushing quarter. on associated back manage and offset owing cash offset a technologies been a on the owing better projects. and of forces of as labor margins than production to their are did much offshore than offshore by as mix over Overall fourth that sequential units pipe margin Rig day NOV's aftermarket drill North periods. expected were revenues, some few delivered inflationary quarter, mix rates which quarter and revenues increases. rig land sales different not products tool completion to guidance our lower for these with showed acceptance the sequentially. of below a into at began shipments third by by hard to for EBITDA were expectations this successful as out around incrementals well the fluid better revenue, out at past solutions wellbore but order on compared but demand expenditures its to sales, of activities lower end pipe for facing flows slowing We it good posted achieved our and anticipated throughout was to and higher Margins less drilling we lower due higher customers sales. mix execution price rig which steel. to which in

While which on position future EBITDA results are we right in continue direction, focused expect for better we to is to going growth, company we in the the delivering unfold as XXXX.

I beginning for revenues into growth America results consolidated with XX% during increased financial color like reflecting NOV's XX% produced minutes detailed Canada. X% our major improvement a geographic into of sequential America. Seasonal goes growth. quarter, quarter, third North markets, or spend to would the $XX the North Jose offering Before third in million. U.S. some few revenues came of sequential from X% of sequentially our

America the sales and saw bits in both motors. Within downhole North share directional gains downhole market, tools drilling increase with drilling

are power seeing as more us directional from Our ERT supply relying motors share rent win high flow to torque, providers opposed high operators we motors rate on drilling and service appear increase directly them. at and to continued The to be strong section a to led has performance of our holding, our least these for first year-to-date in sales half to products. motors XX% price increases

global eroding we third below revenue But quarter Drill premium demand lower on quarter sales despite averages focused hand, since third for at we the spares pipe pipe Delta's the jobs pipe rise, margin performance saw inventory $XX been to pipe of the of at quarter able and rig are Delta being price from growth our owned Higher ownership seen connection services. are U.S. lower-cost and inspection steel achieved compared of revenue resume America Drill customer levels strong are cost and America as increases highest buying. in services, remains sequential steel solids North rods, from have to-date North and first the our as customers double-digit in price gains materially used new. other our still for instrumentation businesses. level coating driving its reclamation control both many and get XXXX. services. long-term sucker rental sucker prices costs tubing for they million. U.S. the and of that we were our have across to which lowest selective XX% bookings in markets Tuboscope increased demand sales gains On drill after American into increases MWD in as posted half. to labor slowed North through provide Nevertheless, the continuing the rod X%

hurt replacement businesses the and this everything were super equipment down repeat generally unconventional costs. XX rigs, and from American still and to North million We unit higher the horsepower tubing except land mass but the steel XX another in the I sold third high string SandBank we customers reach interested secured new sales proppant seeing see to processing America. top declined quarter at for orders pumps new a our we X,XXX within Technologies by quarter, about taller only North as torque this intervention America are our silo and wells. deliveries from pound We units mentioned, our quarter. comparatively blenders in Within laterals workover units are sales quarter spec well high longer interest tubing our fell strong drilling we our to mixers demand in characterizing saw for decrementals saw of solutions new for for and Rig in well to of equipment Pumping coiled orders add rig drives. were for XX% overall system, land introducing X.X quarter partly in as completion spares lower as for quarter demand. improvements in high capital like to AC which the land for in contractors. production As and tubing segment land North our well markets, support customer third second DC high-capacity units as rig conversions third horsepower units in XX,XXX coiled Coil

spend drillers, that to complete smaller rates retrenching super drilling a very securing promote while Overall, be systems. around NOVOS day quarter. but they us challenging. North to interested that contractor as with willing Higher rigs are North from are their pumpers pressure in continue day America remains the very seem spec $XX,XXX operators operating We hard to fourth enter American our America financing mean North to to drilling we tell increase customers

On shift the are Higher is to very flowlines global leader. the steel for demand helping America where North West strong, more Texas. costs in are fiberglass particularly revenues production composite NOV side, fiberglass flowlines

group quarter for business pump completion quarter. new Canada major third and order packages Our sold tools in as liner into pipeline for lift. Midstream lower more PFT are lift The PFT products U.S. many by for American separators the also its the in group demand operator hanger closures appear be are offset in during market market demand pipeline sand to product as elsewhere our producers the little XX and traps first North moving high within a for seeing and the gas seeing brisk North artificial valves a well. and for reciprocating interest won a we nice the group towards American

due mix with to been of technologies for by and National wellbore lower third production quarter equipment revenues has rig sequentially East and totaled revenues. steady. lower sequentially, Africa higher Turning roughly Varco's North mostly East declined consolidated flat to Overall revenues Middle X% international XX% activity our offshore were markets. the sales. offset Oilwell NOV's Middle

across a North well. total our into North overshot the fishing the quarter, tool third as grow support reamers and large pipe sales we saw Catch orders quarter, we but from East, drilling the in were drill Algeria and programs second Middle Kuwait North did quarter region. of in our third following demand to drilling Bit the region. tender Africa Africa and Middle improved three-year East, third Africa sales strong During for during MWD quarter new the there motors, including roller sales global packages, Wide XX% large declined win

for for of quarter the However, pipe a into aftermarket quarter. wired pumping Middle tubulars one slip demand spud of Pressure region Demand But by sales the appears to higher pipe across offset in actually the we helped by pushed stimulation lower composites. the is high, it's fiberglass fourth the back also East rising. operator region saw generally sale into improved costs to sequentially be this tubing date drill coiled again string equipment the sales. as shifting steel somewhat demand for

our Arabia. in Saudi new fiberglass are plant commissioning production We tubular currently

the a oil business Middle quarter during Kuwait into Unfortunately Asia, tools the Nearby, burst i-Frac offerings order our for system by so test tools. subs national again runs port skid but was into its shipments of completed and MWD steerable completion PFT quarter, to were East revenue new after deferred we large delayed. rotary successful planned Our in the of in and pumps a company Central though, end these were had QX. the sold

be MWD of and Russia will China expect and sales steerables into We slow bit sales rotary QX while to seasonally. strong

fiberglass of into Russia and in shipments FX Our completion strong under remains hangers, and though Russia China region. port sequential pipe solutions market around to Within benefited has operators we production the tools segment burst subs business are Technologies, liner from pressure been and higher Caspian are also Rig as constraints. pursuing budget our larger completion and our even the oilfield opportunities adopting related

well address Latin Mexico, steerable we a leasing the are the owing Argentina, peso, sold us that America. drilling gains an made related we Tuboscope Turning for motors we its Mexico area Despite but revenue formation. were offset in to drilling and pressure completion and third to the In of declined order and our fiberglass Muerta of sequential nevertheless X% there in key XX% tools seek devaluation replicate Jose will Argentina three able for sales were to rig up American benefiting wells there about saw Gains equipment site i-Frac focus challenges to MWD from and quarter. the significant as services remains region. directional and independent successes pipe to in in the on post the first North in tools firm. And NOV's In the services a country FX by consolidated unconventional to into declines operators rotary revenues during mix. Vaca sequentially moment, Brazil. shipments

down revenues mix offshore. XX% or revenues to turning decline the about X% our $XXX Finally to of driving NOV million. sequentially offshore consolidated saw

is with on tenders, given bookings fits FIDs reactivations After operators, they oil particularly million more including to for in from what growth back is for our having times large in pipe like improved bookings success quarter, products for in activity, rising but positive diameter higher offshore fourth rig, This XXXX, to see SPS and heavy rising sequentially of offshore who complex quarter to Overall, XXX%. activity, today pipe low instance, of as on costs As lead early rig stable future continue row X% row demand towards tell XXXX, that more hearing for Systems, through levels volumes businesses, Technologies needs XL prices. many business, of drilling for of connections, levels offshore from a plans offshore, years international quarter seeing higher of inquiries the moving conductor we of higher are we Orders This last mills. in jackups. the mixed fifth Rig drilling. pricing, given these north growing steel get rising higher spares are late are of us for are other work a recovery. of bookings market specialized spares posted work. a to larger for increased few wall, indicator expected seeing which reactivations. speak offshore only and clear a of recouping book-to-bills noted makes we signs $X rig contractors its

seeing and to inquiries accelerating. We of urgency but and appear yet, studies lot are here a not be tenders

wellstream for meantime, offshore is group in Africa, development field competition Likewise, Group, Systems our the quarter doing price continue into Mooring projects Turret pipe flexible the skids same. the to our which within pressure. won the order processing nice West and So processing bidding fluids in projects we a of PFT our tough pursue is Jubilee face several unit in in Field subsea and this

invest recovery point the still While works level their for recovery. subsea of oil increases the stages demand, ourselves from automation by to in of probably growing new offshore, customers' significant our technologies, all drilling an we in early offshore and prices and the technologies global higher energy we continue couple actions fluids processing are while treatment production to underpinned and in activity water away quarters coming position technologies a to

navigated constraints international see North by also producers are that It reverse American capital the will to near-term and and logistical after their while Although and challenges, companies embraced needs cautious crude discipline are to now have to fund while their in have a struggling clouded basins. and returning global XXXX term returning we broad-based and more with in tripled. by recovery. outlook and is nearly activity facing per in prices budgets and is measured in many capital And commodity cash XXXX also coming cash bring doubled, clear extraordinarily oil to Globally, costs restraint outdated think fact exhibiting their Meanwhile, this the rig development are oil more fleets drilling all American and takes. evaporated year likely more offshore cutting development since challenging certain barrel inadequate their government half declines. through shareholders. shareholders, offshore continuing CapEx are unconventional overhangs to have flows been reduce NOC's difficult regions facing short downturn IOC's inventory and as drilling North they and methods, have price both

see more I employees challenging, doing of tailwinds by stronger think been are we price all tell our much want around also bolstered appreciate customers the how signs decks. you you. be we who and improving quarters macro on you take that globe our couple to depend To that listening, have the care of I will of next to While recovery

part and very, and proud. you NOV are Thank Jose Loren very team of You make a great you. me,

turn it over Now, to will Jose. I

Jose Bayardo

EBITDA by million to NOV's quarter, million. $XX Clay. To $XXX the improved Thank $XX operating and profit recap increased you $XX to million million

higher of declined which from million, divestiture associated to tax from increased non-core of tax expense Argentine us and peso on totaled tax continuing ledgers million. that prevent impact expense effect $X currency due $XX $XX primarily small designated However Pre-tax between income other inflationary to FX $XX income us and as rate. primarily amplifying of result small in the million the due dollar losses The a reflects movements U.S. a sequentially the recognizing reported million the change an income against was higher during functional Argentina non-deductible requiring peso unintended tax fully Other devaluation net valuation economy outsized and income a to to other U.S. dollar the increases functional a quarter, with our Other third the of has loss dollar. U.S. change to peso highly the of expense allowances, we the a Argentine expenses. the our a provision and statement. credits also operation. of is income expense

employee rate pre-tax out higher assessments. As One workers' increase an mentioned, tax until we levels SG&A, sequentially we we significant previously in have will consolidated and costs reporting property effective which compensation due P&L our worth to tax pointing of increased higher to volatility item income. other on is benefit $XX the in million begin and continue

sequential in expect to We increase the in report fourth a slight SG&A quarter.

EBITDA our sales at decrease reduction an compensation resulted along $XX service Looking led or corporate line. in revenue in units sequential in inter-company one need Most third-party million to business are eliminations. a $XX our lower fairly decrease of inter-company Lower the at services segment operating at million an and This cost other sell detail. expense the products to business sales and with NOV our costs obvious. eliminations improvement and least for within

rig and drill the drill orders wants pipe, if unit pipe a example, will send customer. drilling business one string invoice a of our the customer it equipped operation new For a to full that string rig with to will our sell

globe revenue in most segment for to less and in Frequently, quarter-to-quarter that the from as to The water production in we and manufacture between completion sales efficient. be inter-company lines. Rig inter-company bit a of results around did associated subsea and or by Some engineering, diversity the scale obvious, fluctuate such operations system this components in QX, our segment. due manufacturing quite it fabricate Technologies across Seabox the solutions may leverage amount providing our large CAPS. certain be as sales treatment Rig or our regularly a and with of where Technologies We procurement transactions sold decrease can plants can assemble products is

revenue results. total profit you As reflected consolidated all is of and know, in our third-party

the $XXX quarter, we operations to expect $X revenue flow capital costs remain expenditures fourth the line and million. will and For corporate in increase was approximately from Cash eliminations QX with million not the early the for totaled $XX the during million. in any We and fourth XXXX. acquisitions see potential complete transaction part third but of quarter quarter, several attractive did opportunities

to results operations. Turning for

row technology an third increase in million with million segment meaningfully line to peso, devaluation million growth the Hemisphere. $XX Latin by Argentine in count emerging XXXX, percent of growth second mostly in the post double-digit of the growth XX% of XX.X% resulting markets to are signs $XXX in X%, QX. Segment in the More the but quarter outpace Western wellbore expectations. this sales. increased international in a generated sequentially rig of in continued the or the U.S., of life our revenue other was XX% million decline quarter of America, $XXX for the a to offset Our to at EBITDA allowing or in revenue segment partially due X% Eastern Hemisphere in in $X

to America. in While rising inflationary that call North our had we expected than through in customers success impacting we were our on passing business, lower last costs noted forces

world, Texas to from increase and takeaway that the America, tools X% from mix management is is their resulting all driving are Latin demand Even from offshore unit tools seeing offshore is to providers. The two department service sequential not changes in technologies. tell for they mid-XXXX. orders also concessions business for slowdown a first constraints XXXX difficult rigs, also our also growth downhole department team activity completions impacted We solid regions business the fellow of more overall. unit EBITDA of resulting Clay continues been major on an business accepting the completion outside such activity, of that orders and their price increases by though completion E&P the make realized poor new while markets and to mentioned boasting West units materially price advance used received executive drilling in TorqueMaster received The threaded break had in connections flow-through. since has it downhole the drilling

vibration, completed XXX should substantial tool downhole SelectShift is trials effectively offers the tool business XX,XXX which can bend customers. our Our motor been motor its adjustable earlier economics also undergoing the significantly The in for is downhole. The which the motor, feet penetration of Agitator. and coiled next it inch can bend ability is the Use setting field important, extended and product. distance downhole the which unit completed the adjust changes tool Bakken. the over XX in than runs, and designed laterals. field higher for increases while mill for rate delivering Permian coiled of has drilled tubing to while trials in over to generation pressure recently significantly two-and-seven-eighths began of new This because generate plugs meaningfully in tubing improve reach The increase generations pulses reductions

in in increased offset sales sales business revenue of is by into UAE, X% cutter Canadian in QX in partially success related seasonal directional the hurricane offset slowdowns businesses and by the breakup segment, growth and sequential were Eastern this tools. saw its improvement for achieving downhole the in a after Turkey were prior This sequential ReedHycalog drilling in revenue with the quarter. group slightly Improved gains Qatar other Gulf measurement decrease Share other during into after activity Mexico. third realizing Our bits the in the Hemisphere Unlike fixed quarter. strong countries. decreased

of We driller. ongoing Two steerable the in sale VectorEXAKT of successfully but three steerable kits the directional the have rotary field are one resulting rotary two completed recently commenced trials countries. to trials in

tool we LWD the to tool. tool portfolio filled directional directional a we and our holes on in capitalize commercialization now resistivity these our critical for symmetric Additionally, drilling we With are two positioned have have received of our orders products, first compelling successful opportunity. propagation market drilling

a expected by executing activity American We North our preparing are jobs with begin also selectively major for several to advancing Sea systems, projects year-end. our automation North and in drilling closed ramp-up land loop

pipe decreased business revenue, sequential limited drill during for business acquisition second our recorded quarter a costs Bookings over slightly noted, integration in but quarter $XXX row. Vallourec's its pipe straight in third million the percent QX. double-digit of remained the but from increase associated with Clay our drill As second flow-through EBITDA

customers a exhausted capital for inventory in seasonal traditional We anticipated expand believe quarter XXXX. their pipe QX orders, expect Notwithstanding drill pipe budgets the have many in drill will slowdown as continue pullback bookings XXXX to levels budgets customers decline. in one we as

sequential services, America Our revenue Tuboscope that revenues record in did global North QX pipe, a Strong by business inspection Tuboscope's was not realized due driven in for decreasing increase in decrease inspection sales offset X% offset partially Latin America coating to by in tubular sleeve increasing sales services of currency by drill service devaluations. repeat. Thru-Kote revenue demand slightly.

currency against well posted revenue, by offset were of services in revenues strong lower America U.S., U.S. America solids and X% for as for challenged. our sales sequential drilling control a well led increase dollar. devaluations result higher services in Lastly, solids and volumes control of offshore fluids North in services business markets remains containment site sales the Latin Improved in systems the our on by spill a partially Europe. Demand and

reliably replaced that work, efficiently. control preparing operate needs ago. clear Clay solids informs performance increase repaired, the assessments quarter. drilling management This services management our and waste fluid ensure equipment prime to are contractors packages Prime our The contractors third for be inspection order and of service what waste to or processing back solids jobs mentioned indication are and to condition we two a in to during XX control, systems drilling detailed from and is upgraded on offshore minutes backlog as few offshore However services the of to rigs. saw get inspection of another

XX% For resulting quarter, a Wellbore Technologies any XX% better mix customers, activity increase on of our fourth to fourth of a business margins anticipate incremental and X% we quarter expect to in in softness inflationary and our X% sequential EBITDA strong revenue. during in resulting in cost the in slightly more momentum between fourth to We than most increased passing success levels, in improved the offset a businesses quarter.

production Slowing businesses completion in than decrease our segment and improved quarter. fiberglass EBITDA in offshore million offset demand sequentially. for completion in Shipments quarter, growth and third tools pumping of in increase bookings product in to more of the the Our sales fell pressure An than stimulation of generated million in providing anticipated $X backlog $X a was a mix book-to-bill. or strong million. $XXX solutions sharper equipment million focused and us declines in intervention equipment $XX XX.X% revenue our of $XXX $XXX million segment with late business of at sharply exceeded sales. Sales million to quarter-end and XX% led our our million, Total an $XXX third businesses.

support The on combination tubing aluminum, tubing in in steel, resulting a demand strong from significantly units book-to-bill revenue and business deliveries several customer unit's to sales. sequentially, modest offset the pressures as pumping and seeing backup pressure but equipment tubing also coiled inflationary extent other in quarter. manufacturing compounded hydraulic coiled equipment aftermarket in sales and into resulted and mentioned, pumping reduced we fourth for than high primarily components also coiled bookings The due decremental spreads As the more of fell equipment equipment associated additional on by opportunities for pump challenges. increased remained pressure the short limited steady of the anticipated, sales a for pressure bookings for equipment for replacements or units. and, remain wireline coiled sequentially challenges. orders decrease expectations skids for Demand was wireline Demand Wireline as Clay tubing quarter. not equipment XX% revenue growth large to remained declined as full we margins globally. for are unit expected deliveries strong labor QX slipped sales, several still XX% of change

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So while the QX additional expect to see the the ship in may in quarter. we pushback unit fourth we deferrals fourth quarter,

and jointed materials incremental delivered revenue systems pipe increase shipped and a the composite U.S. sequential major XX% of inflationary posted and raw projects large orders business our despite fiberglass Texas Oman Russia wages. with spoolable of Our The into China, in Argentina, margins on West and pipe business unit into strong Fiberspar unit pressures

As quarter the XX% QX. returned an $XXX of over threshold, expected, bookings uncharacteristically for an above million the low increase

there expect composite we into total for supplier resin, levels backlog by this our demand in plant to make to manufacturing experienced which decremental a were absorption unit remains to had is anticipate critical the in is plants. solid, that quarter. December. flexible additional notified revenues strong to falling of persist major associated a pipe of corrosion-proof we business resin the we Fiberspar we failure Consequently, pipe result due in global global our our will with our and While recently a it used challenges revenue our the expect back will high We the face which decline shortage margins second saw significant

market quarter and as product its business and tools result leverage innovative row of world relationships. It customer posted completion Our double-digit NOV's of global our our a in offering number gains around garnering ability infrastructure in the share of percentage to is a second growth. a markets

the America, pumps Canada, and delayed the packages saw and stream in sequentially. Our spherical reciprocating operation. and processing Asia business process X% Southeast offshore for and were and Strong in oriented well challenging offset into deliveries Nigeria decline Russia unit's weakness separation conditions applications by demand Africa in chokes market and U.S. flow pump from equipment midstream revenues equipment unit in North technologies for business

ongoing with our sequential soft are business delivery quarter production than in a planned. businesses the and revenue, unit systems significant was unit segment. coming due offshore later which Notwithstanding for expected than in production challenges, to subsea and a solutions remained decrease the book-to-bill there XX% greater much in delayed business customer new data the orders project Our the Bookings quarter. encouraging posting completion an points during also the in saw

in Our unit systems the realized a and floating during increase production book-to-bill importantly a revenue quarter of third slight in excess business sequential XXX%. had more

highest business. Our XL the backlog Systems' unit ever this achieved connector pipe conductor for recorded

of in last it segment Lastly, today at than tendering is time higher activity this each within offshore was businesses year. materially this our

the we mentioned, customer urgency offshore our for are from we market recovery well not base, yet the improving believe positioned dynamics Clay in inevitable While and much do operations offshore. our are as see

we expect sales in equipment and the raw our in offset at pickup our and offshore operations. conductor coiled supply material related midstream a roughly from the from fiberglass which in Looking operations, slowdown production demand QX impacts should fourth in improvements higher the Texas and tubing deliveries to see completion deferred modest pipe more wireline quarter, equipment, West of of challenges activity

EBITDA decreased improved $XXX $XX Our revenue million orders Revenue bookings, decreased segment or a in billion XX% mix. three orders the $XX quarter in in decline came new million row million XX.X% $X.X billion excluding the quarters with of in quarter. a Saudi to second segment. of decrease in a rig better million backlog million to of Margins of decreased backlog After million $X.X the for achieving million, to We sequential $XXX in received rig of sales. the or exited technology $X guidance revenue, and out as of result generated X%. $XX $XXX a than

capital softer rigs the Africa. and the to through by equipment upgrades in market operators advance into bookings of these providing East, growing for international rigs to continue North the support markets, spec customers rigs land rigs opportunities QX, XXX%. in Asia While Middle American and tenders In existing remains near where occasional utilization North sales to we our super of land see for were

for are drilling contractors. that our growing operating system. We a rapidly XX sold land base five offshore To-date, to we includes realizing have demand XXX customer and NOVOS NOVOS packages

performing this NOVOS recently sales installation written E&P with for the from along system. more one over and commissioned pull-through first seeing have it We of on We, these our are for customers, system is applications recognize operators XX floater who offshore value of the automation unique certain control and also well. contractors an process

While term offshore contracting apart slowly but opportunities customers remains the rig we from upgrade potential builds niche is help few oversupplied opportunities newer for improving, applications, and see we anticipate to fleets. growing our and reactivate new market

to orders which a three significant activity third amount such work. is driving sure demand in additional seeing As are Systems, tendering are well Crown working as This Clay back our work of we customers Motion rigs an the and go make quarter. to booked mentioned, offshore Compensation for positioned to are for items our

and the a X% market. we and in progress For continued U.S. which of seasonal expect drive to rig margins in to for repair increase the fourth ship pickup our work slipped Land on service offshore upgrades land a projects quarter, aftermarket and X% to QX in EBITDA rigs, operations incremental from mid-teens. revenue with the

sequential with we Clay away improvement a And, we are While constraints results. in basins, there significantly for will in fundamentals quarter recovery broader our consolidated capital take in setting currently stage fourth U.S. to improved operating realize as difficulties expect a believe exhaustion macro year-end slight be the associated and certain mentioned, budget near-term XXXX.

now open questions. will to call We the

Operator

James [Operator from question ISI. Instructions]. with And Mr. Evercore our comes West first

James West

Good guys. morning Hi.

Clay Williams

Good morning James.

Jose Bayardo

Good morning James.

James West

spares these I like are went see could does we drillers offshore the had of that I the of Jose, to wondering bracket starting us, barrel what for, kind rig markets or downturn, bottom to for you offshore to. share in cost if things the because you and and bullishness it really the that around on they Clay think was the the during reactivations

stacked So jackup be NOV? what floater, can would a give it's terms cold revenue or to today, a of for that some idea whether us reactivate a in of rig you

Clay Williams

frequently, like piece James, question It's depends things. long but rope, of how it's a get asking it Yes. lot a a of we is hence of on kind

run two, have dehumidifiers it to has then, exponentially. you of First, what Were that starts sort conditions under? How periodically? stacked reactivating after prior? a welded thirdly, was it bumping it Secondly, hard that how long up going shut? years, condition of so, cycling crew was We been was stacked? rig go the rig cost equipment when the around onboard? put doors what was stacked? were And that it believe the Did and three through And electronics in

So us this though, it be air here. is, equipment is, is to XX, have know. map. And have across the there difficult what how of tell it you designed equipment over we are XX in of salt is stacked. a complex we I costs given and that this it lot to Generally store None would all been last seen variables really what building really wasn't years, the through

million generally I that's ticket an of on offshore the one that point data have $XX rig now over. take working So We do we to would us. basically are a

going put to industry find out work. goes there's as So and to for rigs our do the But I to these to NOV think work work. back it back is to competitors a lot of

James West

would but speaking, some to your the overruns, back cost that base, a because to going you is But think some of be out are probably Okay. been from work, going overruns? of have those to generally the going probably customer of say do to is now? that there over really likely estimates investors, you rig not matter It's more the series

Clay Williams

Yes. we I comment seeing the am the or I more of and think into equipment not off estimate prepared that. a going uncertainty data in minutes There's Until customer, this. around know. really even I world beach really had putting several and still But and the a think any by ago wouldn't have do generally acknowledge some specific we are to specific that, referring more taking there. in and under reactivated move what's a this. but it any rigs hood And few a to points remarks get opening just and to towards our nevertheless, drilling shipyard us none contractors where you continue

last of saw We alluded build the is through it kind We And where starts. quarter. it quarter. kind this third of it so to

robust a are And a at begins we contractors hard about that thinking long but reactivating rigs and of so many it still clear it. again, with are are signs way drilling really from looking them seeing recovery, we

James West

when do back the talk working? should supposed it is to, about what's the Clay, you be on to a on and the to And rigs timeline contract reactivation? need When they equipment versus

Clay Williams

the better. sooner, The

James West

am I sure.

Clay Williams

responsive. have certainly are We We some slack capacity. pretty

However in of it lot lot actually And engineering a more the our what take customers, a that hearing are effort of we does tangibly these lines goes along into of rigs. it's time, of from terms that.

they upfront to a now, usually back And trivial and doing through usually of engineering that's the around more starting door not like projects stacked to sharply add at inflect when come are what's some when over am history into do tend I but would run actually quite our in stacking, guide do tend way these see these to stacking same or out I undertaking. anything We pretty cold inflect, over needed work and But in now, a ubiquitous, if shipyards time. we and slack virtually the also get rigs is go warm go. going right and it's and the but reactivated have rigs that, time. it's budget to portfolio capabilities people things

arises, tight because that that little a the looking we So of talking things addressing things point. we a to But will and will a are about is that expand And good worrying how we that one happen do in when problem get about some already hurry. certain bit forward challenge. capacity, to is we are are have it at

James West

it. Got guys. Thank Sure.

Clay Williams

Thanks James.

Operator

you. Thank

with Wicklund question Credit Suisse. comes from James next Our

Clay Williams

Hi Jim.

James Wicklund

either do Hi for of terms Is in Which or best by is growth. grows you better who guys. is you think XX%? Good guys the in benefits grows U.S. recover, double-digit to by single-digit note if international morning. The NOV? one one there expected for high U.S. you grows which International expectations guys be wins race that. or fastest? Which to low out seem XX% the the And the it most? XXXX

Clay Williams

hard Jim. a question, That's

James Wicklund

ones, don't we Clay. Well, the easy have

You know that.

Clay Williams

good news exposed No. The certainly NOV to is is, both.

introducing to new technologies are We both.

have with lot a We respect optionality of both. to

all I so think And that's good.

past said, technologies in have continued think outpacing other am years I We unconventional happy. Like for to three or areas. with the portfolio. anywhere that in and happy good activity we have I four ourselves been the that's position are I clearly growth gains around

employing I look in their see think XXXX, international operation. more to these customers at you going continue are areas of respective to

Argentina. in that seeing already are We

seeing growing Middle are in the interest We East.

I of move so, think to kind ahead. And that going trend steadily is

fact big replacing still NOV share in and the new the North respect. America of rig revolution opportunity modern AC all started a by is go other technology The overseas the unconventional that older in way to Eastern that long with Hemisphere long, has for rigs the

that of as kind early in innings are very we of well. think I so, And happen seeing

do don't I I win. one wins. they which So both it. hope I can't know

James Wicklund

The tie of high numbers.

Clay Williams

we XXXX past the oil than and is good prices oil a a global are had materially pretty kind for of recovery. again, XXXX. up years under-investment But infrastructure and positioning over the rolling And across of sort NOV into for of couple really, of that gas setting with have recognition we higher backdrop

James Wicklund

in versus the floaters? floaters sell more of you the I there? terms I know just whole to know more a have but helpful. limited we deepwater. equipment at between out to workflow been are lot the somewhat That's for of to deepwater the season, water and more really talk a as talk updating the but you But over going expensive, about in into budget Okay. lot just scale floaters, very it. some shallow IOC for improvement the of couple we from into when and rigs. do doing, you can been work transition terms jackups so on differences about are submission. And be There about you least of has we tenders work Can reactivations that appreciate has and the far shallow I offshore, difference budget years? jackups of talk the you see next floaters jackup

Clay Williams

well. opportunity more jackups got as Yes. is Clearly floaters bigger good equipment around are we reactivations. a sophisticated lot There onboard, with but a nevertheless the have opportunities

just be we jackups for capabilities. improve of fact, that special retrofitted their that purpose is for of kind kind design new In and fit a crane introduced can

but the the is bigger arenas, typically both us. opportunity little for So floaters in item a are ticket

James Wicklund

you much. thank Gentlemen, Okay. very

Clay Williams

you Jim Thank

Operator

Thank you.

Pope Our next Byron comes Holt. from question Tudor, Pickering, with

Byron Pope

guys. Good morning

Clay Williams

Good morning Byron.

Byron Pope

of you tools your using having of some some good being growth by there. that you Clay, service seems topline downhole international on wellbore terms it through independent continued But technology are regard, to of enabler that companies in guys are to as for opposed The with like some success the struck was purchasing directly suggest touched drillers. U.S. it I something directional customers

that provide in sustainable Could So more one early thought your and a just process you is stages? on that's some trend there? its color

Clay Williams

Yes. found it too. interesting I

But in a directional previously accessed tool that the on seeing to way, by there hole being and what of kind American sort are And a and quality best the I markets, that that of breaking by of the bottom were by terms North companies package. and this out either. it recognized that are some buying of the longevity are disaggregating -- more motors directly components gas to we oil we to probably of assembly lumped speaks drilling is drilling being happy in We think, the customers that's certain into out E&P sell the and bit I little are think of provide value. companies packages. And

And of from interesting so disaggregation the just service. the away trend kind an around tools of

Byron Pope

to and your as then though it prepared surcharges And through relates cost seems to steel it's And you most Okay. the easier. acute ability about some be thinking some remarks, broad-based in guys the that? at more the one than wellbore would technologies? just though it way there. point additional seems is Or described the question impacts in as From get it as it

you that --? in of terms So think do about how

Clay Williams

Yes.

and to higher wellbore think cost this here are a terms solutions. in we also of little way. tubing, three XL of passing of I their pipe the first and along drill All with There are costs is sort by technologies, of regards both out steel higher dealing deeper we we and tariffs. going steel as to But it, coiled in level units affected of to but connections success string three business Systems' in adjust I full production are the into which achieve completion are work higher results most which the pricing. a kind our conductor quarter Section are little with pipe, having think mixed quality of that arising on business, are customers tubing XXX

are One comes actually seeing of board. of the steel this is irrespective of the the steel of prices across where outcomes we all that higher from, much

most all I to product in acute. are would so really three does three lines that And some but I those degree segments mentioned it say show up

so are services actually On gosh, Tuboscope rods, steel sucker the provides and tubulars helping are and new used new are much that side, costs rods around positive tubulars our used reclamation expensive. saying, higher business sucker because more customers

tubulars then out longer. of cost there more demand to our business reclaim is tends more composite much and as for the fiberglass that's become can and and attractive. steel last are to to when composite tend likewise, which we rods still they the that not sucker inspect wells more they benefits And they corrosion so tubulars pipe incrementally, rises offer, expensive, so much, incrementally pipe is, towards and but are typically shift of And and benefit coming and susceptible reuse existing fiberglass

Byron Pope

it. That's really helpful, I Clay. appreciate

you see all will We soon.

Clay Williams

you right. All Byron. Thank

Operator

you. Thank

Bill Our with next Simmons. question comes from Herbert

Bill Herbert

Notwithstanding to strong. slowdown in QX the still cash relative morning. flow or expectations, Good

Clay have lot give are thought you overcapitalized can return your you thinking Please. your So and Thank are latest of mentioned that you becoming giving that you to a just you. front? of on regard options. on Jose, way cash to and us with

Jose Bayardo

has that as the Bill. nothing changed described, business. cash generation Sure, Jose. will healthy are really It's flow way And I front you say just on our that with a continued from except closer, we inching

have balance realm the that XX years investing in of over that. the transactions, We as at, about to sort put on we growth the compelling sheet, tiny, last opportunities, over number before, ample we sheet a those but we wanted quarter talked debt-to-EBITDA, cash this be. debt-to-EBITDA to very that. X.XX basis. sure and Gross with the everything are certainly far in be. the higher in times, about direction do spent several organic flow million that M&A. again, active making the X.XX, into annualized about Net with But little right we M&A that. heading which right an Then is It's in probably on by than it's front us comfortable of as heading to look obviously it is one on exhaust opportunities So we so great were where condition have very needs direction. priority balance the that the we Outside $XXX we about of is

to don't As be we that's something in long-lived. that's soft of going the was knew to talked M&A but QX, about a last we quarter, we little that that sort going think environment be

that we more they are optimistic interesting here if and part of if But and in opportunities XXXX. into and years, last do early pretty will even then spend look they been and shareholders. we over more an capital emerging don't excess QX are emerge pace have We to emerge to spending we at see which the return the we several ourselves having same of

Bill Herbert

final two me. And Okay. quick ones from

First, then challenges, Clay, tech those? of should future? execution for Thank secondly, expected in QX. the ameliorate What Jose, out revenues mentioned you. you And were rig foreseeable backlog for which

Clay Williams

Yes.

didn't First, go of get out. really and didn't delivery Bill, and we accept building things that the in of customers want of. American We stimulation North world by had a number in the the our the intervention units had that we quite particularly some done quarter frankly didn't end they

disappointed go didn't So QX. that's that. done a little had we so that they news really a not few get are we on good is, us, but and quite and in in But done should

So issues. we those through working are

Jose Bayardo

looking for rig, we are just fourth tiny it a quarter, million. just to at relates as backlog Bill, out of And for bit $XXX revenue the over

Bill Herbert

Thank you.

Clay Williams

All Thanks right. Bill.

Operator

you. Thank

Our next question comes from UBS. with Sasha Sanwal

Sasha Sanwal

you guys morning. and Thank good

Clay Williams

Good morning.

Sasha Sanwal

to without wellbore, specifics, for overall into fair dilutive above on Prideco just downhole to bits maybe while margins, are maybe significantly and too much Grant be it average? So that getting margins still are say the would

Clay Williams

pipe. Yes. challenges We We quite year was an had acquisition drill that large. this some in had earlier

we the that drags consolidated And integration a on challenge. through basis, in so but Not cost big out one one some more had in QX the that was the third really flow quarter. break to was on drill fact of pipe enough

a that's lot at is second there backlog The of that inherited margin. we very low

steel kind into part to we particular own more are through was pipe tubes third our costs that work And than go a we have came have our that that and raw And business. diluted that's in to in a for was the reason pipe the that got that tool so the expensive And is that drill of out. drill of base the business up the and green at business. joints pipe in the that and ship materials, that manufacturing

quarter was for business drill traditional With have the for the business, mentioned, and new through businesses flow of to it business. flow been, really bits have across have continued pipe technologies Prideco more products up or had and we that and referenced less different but we as outpacing of in more pretty could a we typical introducing tools we that been now several to So nearly the those sort downhole the third count. grow Grant strong mix in the several not our respect through had business quarters, what was growth rig the

really are velocity, really more getting new sweet that spots And towards delivering with geosteered wellbores those. precisely designed base some torch that so good of into are technologies lower formations that of real have and traction

the a in So things going right business. of tools direction for lot downhole our

Sasha Sanwal

Thank you. to just follow-up, maybe briefly well. then to And on touch just pricing as

environment. that you of through kind pricing So the of point kind it's difficult made to in push this

be back to E&P till think turnaround the have just those does wait that reset before So half easier, going we drive those does the Feb, pricing year we see that activity the as make maybe conversations discussions? of what might Or in are Jan, kind about budgets, of a to we the catalyst more in meaningful to might help?

Jose Bayardo

of chime is in I it's as start on can in prepared environment right right. will to now, and Sasha, But Clay one referred comments unusual one this an maybe well. my I things that just

to technologies are see wellbore demand products for in our segment. outpaced in drilling related growth We continuing our

passing contractors. mentioned, I core typically But in completion place which our be the be would an on for successful it's customers. on least the very environment decline just to E&P as pricing with that that's in side unusual inflationary taking we cost very on, at So passing our could

sort very is transitory this temporary think we So and a of thing.

a of. know, lot services all, approaching that think more and place stabilization pumping to probably that pressure prices in completion can we confident of first our terms get As optimistic other and are once we those concessions takes pricing and be of we you ability deserving are

Clay Williams

and of And are oversimplifying ultimately as in the it's tracing path as is on from and a oil highly markets price much so a the to mean all of most that of exploration sort your and scarcity and I focused cycle, are wells. bottom cyclical at costs. your we like services time, of have well and that, on Yes. begins critical to spud products, you most and it is you into everyone develop flips everyone development much focused have all emerge to to switch about risk the field become kind more provide to activities you

North on are I world is the had like first feels the focused door on time. And price that that world of everyone it world transitioning is from knocking this kind so some very world in the And quarter. towards where we keenly where is setbacks moving on scarcity. think generally, industry of well of everybody American completion we focused the But more into

burning through stocks are burning inventory and rigs. their drill customers components, downhole spare are burning parts are that of pipe. through their Our provide. we through They through They

steel of moving can I do we and cost. think better overcoming pricing place And so, generally we job back leverage more into a where higher tailwind have got have a steady a fairly

Operator

question? answer that your does Sasha,

Sasha Sanwal

you. Thank

Operator

you. Thank

question comes with next Our James. from Adkins Raymond Marshall

Marshall Adkins

am how gentlemen. liberally. Good doing I ask to term bit to I I And here. much morning use little you like know you that that. Clay, speculate going a

wouldn't in better your roughly it Let's roughly meaningfully not again how oil am XXXX, you where Brent levels, these would playing see it assume $XX-ish on playing oil in you WTI, generically? in next out XXXX? now? for is years. but subgroup asking for XXXX XXXX than just stays businesses, prices $XX-ish stay And assuming then, the do I few How see in out specifics generically be a

Clay Williams

Yes.

restraint activity the I think, that's all oil around years oilfield demand. the than turn of oil continue discipline and of to four premise that am But generally going going premise in more given in the to underspending provide prices to space, a question. in capital that's figure on have to little to the to I of to to think replace bullish After the how First, have growing the are companies I reserves. out your more question,

after the particular. are going developing to to I think more in in have they offshore, get reserves

away of unconventional the couple to basins think even think XXXX. in I North across I work are with take themselves going up, XXXX constraints is agree a America that through think better. I I in And you, sets

Marshall Adkins

late XXXX? or XXXX early that is XXXX, in But

Clay Williams

terms of In improvements?

Marshall Adkins

Yes.

Clay Williams

this lot are here mean I of kind people I XXXX. in early the out running from think others, I of of near have term you a heard budgets. think XXXX and

E&P Wall up think I their tell Street until with get XXXX companies don't want CapEx budgets. to they that XXXX they want to into

And quarter in are little people term are get that. here think back fourth we But I of think to once you XXXX, pressure a the into so I we buying. budgets, going bit get see to near facing around reload do

that sell. different products for customers different several from this heard have We we

I And on into more so kind to to back we of going growth. path get once think the are XXXX, get we

Marshall Adkins

second kind here I shift here. lot things on where tech. neat are one, business, I oil starting we of a know as My want surprise all guess bullish is, gears that of the prices kind are in rig the on all think, see Okay. going you are. to U.S. of We the pretty to But I

of attention that there, XXXX of paying are pressure drilling some So are help of obviously reactivations, or of to in heart paint those forgot and those XXXX on that aren't seems here a that in three, how maybe people and I relevant aftermarket? restocking terms me the be rig all in going the hadn't importance then relative forward? a picture and put to managed bigger you So, to of deal a lot between

Clay Williams

in Yes. It's We move mix a our respect higher margin think, for up growth. opportunity outlook a although is us. upwards quarters orders three continue see really, of did for setting were with down third better which I the to to for quarter aftermarket, after rig,

with offshore have mix third rig it quarter of little And little of XX% our of fact, quarter, In a than flavor at quarter. drillers work. the a fourth it was we offshore their in in higher look had the more the lot bookings parts a reflects spares rigs more back a to of think lot they third and fact, spare I which the depleted putting these the to have

justifying which spec build got outlook for North $XX,XXX cusp So super rates right at in to kind have the sum around the rig, new up you America, of is of rigs. day

larger of converting You have very rig upgrading got super at now moving to is high drillers DC utilization. AC level category, which the the from towards spec rigs, some and of a

Argentina, across lot we East, more health into the major on lot of tenders Internationally, opportunities three North So talked Africa, going India a Middle there's and modern have the East currently. you going a got Middle North in drillers. rigs four American or across financial about

picking that's And up. so

So got on but will both if a which we know a show rig that on we have better the don't in QX, land in whole, if couple better and we going and I are about. I QX, of up in is think, this up offshore And offshore. too, much the I the business, happen opportunities Hemisphere, within footing large Eastern they in the to early are think show firmer don't XXXX feeling

monitoring, operating we a our So cost of aspects of on the good of aftermarket of acceptance with reduces rigs. equipment in whole, total ownership, certain system, upgrading where about pretty NOVOS I good feel acceptance that condition-based are our Good rigs. interest maintenance

on whole, of have the been a here. years So couple as good in for I in think, as are a we position we

Marshall Adkins

Thanks guys.

Clay Williams

Marshall. you Thank

Operator

concludes this for would our the Q&A like ladies you. today. to gentlemen, any call and back session remarks. Thank to turn I And, for final management

Clay Williams

and all Goodbye. joining Carmen you you thanks to us. for of Thank

Operator

for thank gentlemen, and ladies in conference. all the wonderful concludes disconnect. program Have And you with a today's we and participating This that, you may weekend.

NOV (NOV) 26 Oct 182018 Q3 Earnings call transcript