Title

Presentation

Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 NOV Inc. Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised, today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Amie D’Ambrosio, Director of Investor Relations. Please go ahead.

Amie D’Ambrosio: Welcome, everyone, to NOV Inc.’s First Quarter 2026 Earnings Conference Call. With me today are Jose A. Bayardo, our Chairman, President and CEO, and Rodney C. Reed, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today’s comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission.

Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, for the first quarter of 2026, NOV Inc. reported revenues of $2.05 billion and net income of $19 million, or $0.05 per fully diluted share. Our use of the term EBITDA throughout this morning’s call corresponds with the term EBITDA as defined in our earnings release. Later in the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now let me turn the call over to Jose.

Jose A. Bayardo: Thank you, Amie. Good morning, everyone, and thank you for joining us. The first quarter of 2026 unfolded against a rapidly changing backdrop due to the conflict in the Middle East, and I would like to start by thanking our team, particularly those in the region, for keeping each other safe while doing everything possible to support our customers in a very chaotic environment. Despite the disruption, NOV Inc. achieved its lowest ever total recordable incident rate and lost time incident rate during the quarter. As I mentioned on our last call, HSE performance reflects pride, accountability and ownership in operations, which translates into higher quality, reduced downtime and better service for our customers.

The actions of our people and the results they achieved demonstrate how deeply these values are embedded in our culture. Turning to our financial results, NOV Inc. generated revenue of $2.05 billion and adjusted EBITDA of $177 million during the first quarter of 2026. As previously disclosed, we estimate that the conflict in the Middle East negatively impacted revenue by approximately $54 million and EBITDA by $32 million. Bookings in our Energy Equipment segment for the quarter totaled $520 million; while this resulted in a book-to-bill of 80%, orders improved by $83 million year over year and represented our strongest first quarter order intake since 2019. We also had strong bookings in our fiberglass and drill pipe businesses within our Energy Products and Services segment where we do not report book-to-bill and backlog figures.

As the conflict escalated during the quarter, the most pronounced impacts were felt across our capital equipment and aftermarket operations, where the movement of goods, access to customer sites and overall logistics became increasingly constrained, significantly affecting quarter-end deliveries. Our service and rental businesses, particularly those supporting land-based operations, experienced substantially less disruption. For our capital equipment businesses, the primary challenges were associated with shipping finished equipment into and out of the region. As shipments were rerouted through alternate ports, transit times were extended and freight costs increased materially. In addition, safety concerns and access limitations prevented customers from visiting facilities or project sites to participate in typical factory acceptance testing and inspections for manufactured equipment and goods, resulting in delayed delivery schedules.

Supply chain constraints became more pronounced as we progressed through the month of March. We experienced delays in receiving raw materials and critical components, and the unpredictability of logistics introduced additional costs and complexity. These disruptions impacted manufacturing throughput, thereby reducing absorption and contributing to higher costs. In our aftermarket operations, the challenges were somewhat different but equally impactful. We experienced difficulties getting spare parts into the region, while safety concerns affected customers’ willingness to pick up or accept orders. At the same time, customer activity was curtailed and certain projects were suspended, deferring demand for parts and limiting service and repair activity.

Offshore projects, in particular, faced disruptions and rig-related slowdowns. Together, these factors created meaningful disruption in the final month of the quarter. Importantly, much of this impact was timing-related and, in many cases, deliveries have now occurred and others have been delayed rather than canceled. Freight costs increased significantly during the quarter, at times by as much as three to four times normal levels, and combined with lower manufacturing absorption contributed to higher operating costs. Outside of the affected region, our businesses performed well and in line with expectations. We remain focused on improving operational efficiency in what continues to be an inflationary environment that may be further pressured by the ongoing supply chain disruptions and knock-on effects to the petrochemical complex.

We will cover second quarter guidance, which assumes conditions in the Middle East remain consistent with where they are today—meaning the ceasefire holds, but the Strait remains closed, which continues to constrain logistics and increase both the time and cost of doing business. While that is our current assumption, the situation remains extremely fluid. Logistics have improved since the height of the conflict; the trade routes are more complex, more costly and carry higher risk of delays. While we cannot predict how conditions will evolve, our supply chain and operations teams have significant experience managing through disruption, and they are taking action to mitigate risk and serve our customers. Our operations in the Middle East serve not only as a regional hub but also support customers across both Eastern and Western Hemispheres.

One of the actions we are taking is to reroute manufacturing for customers outside the region to facilities elsewhere in our global network. While this helps mitigate risk, it may not necessarily improve delivery times and adds additional cost. No one can predict when the conflict will end, so we cannot reliably forecast the second half of the year. What we can say is the market is increasingly primed for a recovery, and if the conflict ended and the Strait reopened in the near term, we could still conceivably achieve our prior expectation of full year 2026 results that are broadly in line with 2025. With that context, let me now step back and talk about what we are seeing more broadly in the market. Coming into the year, the prevailing view was that the global oil market was oversupplied by 2 million to 3 million barrels per day.

This was driven by a wave of non-OPEC production growth from projects sanctioned during the COVID period, combined with the unwinding of OPEC+ production curtailments. As a result, we expected 2026 would be another challenging year as the industry worked through the supply overhang. Against that backdrop, in North America, operators were expected to remain disciplined and focused on maintaining production levels efficiently while returning capital to shareholders. In the Middle East, activity was expected to gradually improve, supported by the reactivation of suspended rigs in Saudi Arabia and continued momentum in the UAE, Kuwait and Oman. Offshore momentum was expected to build steadily, with an increasing need for long-cycle deepwater developments offsetting plateauing short-cycle North American supply as the primary source of incremental production in the coming years.

That was the setup just a few months ago. Today, the world looks dramatically different and the market outlook has shifted materially. The conflict in the Middle East has resulted in approximately 10 million barrels per day of shut-in production and damaged key energy infrastructure, shifting the market from a modest surplus to a meaningful deficit and requiring drawdowns of strategic reserves worldwide. While there is no clear timeline for when trade flows will normalize or when production can fully return, it is increasingly clear that even after the conflict is resolved, the market will remain undersupplied for an extended period of time and will require a significant increase in investment. One industry analysis suggests that approximately 10 thousand wells across the region are currently offline, with up to 3 thousand requiring meaningful intervention to return to normal operations and roughly 1 thousand potentially requiring major workovers or recompletions following extended shut-ins.

Not all this production may return; depending on the duration of the disruption, there is the potential for permanent capacity loss ranging from approximately 500 thousand to as much as 2.5 million barrels per day. Restoring this production will require meaningful activity beginning with intervention and workover operations, followed by incremental drilling to replace lost capacity. In addition, depleted strategic reserves will need to be refilled, and energy security concerns are likely to reinforce the need for exploration, development and production capacity. Many countries are likely to expand or build new reserves over time, creating an additional source of demand. At the same time, reserve lives have declined meaningfully during the last decade, and current conditions likely serve as an additional catalyst for operators to replenish and increase reserves, reinforcing the need for increased exploration and development activity.

While the conflict has clearly created near-term disruption, we believe it will also accelerate and amplify a meaningful new recovery cycle. The work required to restore production alone will drive elevated levels of activity over multiple quarters and potentially longer depending on how conditions evolve. However, the implications extend well beyond the Middle East. We believe the combination of supply disruption, tighter market conditions and a renewed focus on energy security will increase urgency for investment across the industry—not only to restore production but also to secure reliable and diversified sources of supply. For much of the past decade, the industry has operated with constrained investment, limited exploration and reduced greenfield development.

The industry became highly efficient and focused on doing more with less; as a result, reinvestment in assets declined and attrition occurred across the global equipment base. Even prior to the conflict, we saw areas where we expected that a modest increase in activity would require a disproportionate increase in investment in the service complex. However, with the prevailing view just a few months ago, it appeared that the industry would have time to gradually increase investment over the coming years as markets rebalanced. That is no longer the case, and for NOV Inc., this change is particularly meaningful. As a provider of capital equipment and technologies used to drill, complete and produce oil and gas, our business is directly tied to the level of investment across the industry.

After years of underinvestment, the industry is not starting from a position of excess capacity. Demand will not inflect overnight. The events of the past two months have accelerated and amplified the need for investment, and we are beginning to see early indications of this in our customer conversations. In North America, operators remain disciplined, but some are accelerating plans to complete drilled but uncompleted wells that they had previously planned to defer, while others are backing away from plans to release rigs and some will add rigs. The North American service complex is already tight, having experienced significant attrition and the export of excess equipment to international markets. While pricing will need to improve before service providers and drilling contractors materially increase capital spending, the conditions for that to occur are increasingly falling into place.

In international land markets, investment had already begun to increase, driven by the emergence of unconventional development and a growing focus on energy security. As mentioned, a healthy amount of the equipment supporting this growth has come from underutilized assets in North America, but the availability of these underutilized assets has largely been exhausted, meaning new-build equipment will be required for higher levels of activity. Once conditions normalize in the Middle East, we expect a meaningful increase in activity associated with restoring curtailed production, followed by a resumption of longer-term development programs, including unconventional resource development. We also expect continued growth in other international markets including Argentina, where our revenue increased 14% year over year, and Venezuela, where we have already seen a step change in demand for our progressive cavity pumps and are now fielding an increasing number of customer inquiries for additional tools and equipment.

In offshore markets, we continue to see the early stages of a sustained upcycle, supported by improved project economics driven by standardization, industrialization and technology. These factors have materially lowered breakeven costs, making long-cycle offshore developments increasingly competitive and positioning them as key sources of incremental supply. We have seen steady growth in demand for offshore production-related equipment, and we expect—and are preparing for—that trend to accelerate. Consistent with that view and our focus on leaning into high-return growth opportunities, we recently approved a $200 million expansion for our subsea flexible pipe manufacturing facility in Brazil. This investment is intended to address what we believe is a developing capacity shortfall in the industry as offshore activity increases.

Bookings for our offshore production-related equipment remained healthy in the first quarter, supported by a large subsea flexible pipe order for Brazil and a large FEED study associated with a complex harsh environment FPSO, reflective of increasing confidence in the long-term market outlook. In offshore drilling, our customers are seeing an increasing pace of contracting activity, along with a meaningful increase in the duration of those new contracts. We now expect the number of drillships under contract in 2027 to reach the highest level since 2015. Higher levels of future activity drive reactivations and upgrades, such as a large reactivation project we recently received for a rig going to the North Sea, and drive additional recurring spare part sales.

While offshore project timelines are longer and more complex, we believe the outlook for increased activity has become even more compelling. Energy security concerns are increasing the urgency to advance offshore developments, which offer scale, longevity and better economics. Additionally, we are seeing operators beginning to increase exploration budgets and accelerate development activity, including brownfield expansions that leverage existing infrastructure to efficiently increase production. And our pipeline of opportunities is expanding, consistent with improving industry forecasts for new project FIDs. As a result, we expect an acceleration in deepwater investment project activity over the coming years. Looking ahead, while near-term conditions remain fluid, the broader setup is becoming increasingly constructive.

We remain focused on disciplined execution, improving operational efficiency, expanding margins and delivering for our customers as we navigate a dynamic environment. The near term will continue to be influenced by the situation in the Middle East; however, when conditions stabilize, we expect delayed activity to resume and underlying demand trends to become more evident. The industry is entering a period of increased activity and reinvestment to restore production, rebuild capacity and meet future demand. NOV Inc. is extremely well positioned for this environment. Our global footprint, intentional and diverse portfolio and strong market positions will provide meaningful earnings leverage to improving market conditions over time. With that, I will turn the call over to Rodney.

Rodney C. Reed: Thank you, Jose. Consolidated revenue for the quarter was $2.05 billion, a decrease of 2% year over year. Net income was $19 million, or $0.05 per fully diluted share. Operating profit was $47 million, which included $37 million in other items, primarily related to a non-cash stock compensation charge, severance and facility closures. Adjusted operating profit was $85 million, or 4% of sales, and adjusted EBITDA totaled $177 million, or 9% of sales. The conflict in the Middle East resulted in delayed shipments of capital equipment and spare parts and increased operating costs through higher freight expenses and less absorption at our manufacturing facilities, impacting our first quarter revenue and EBITDA by an estimated $54 million and $32 million, respectively.

As we move into the second quarter, our focus remains on the safety of our team and supporting our customers as we work through the delivery of key equipment, parts and services. Adjusting for the estimated impacts from the Middle East conflict that I just mentioned above, year-over-year revenue would have been flat, supported by strong demand for our offshore production equipment, high-performance drill bits and increasing adoption of our digital services, offset by lower global drilling activity levels. First-quarter margins were negatively impacted by about $30 million in tariff costs year over year and a lower mix of aftermarket revenue due to the completion of certain large reactivation projects in 2025. We are focused on improving margins, both through accretive top-line growth—with our Energy Equipment segment achieving four straight quarters of year-over-year revenue growth—and reducing our cost structure.

Let me focus on cost reductions by highlighting our strong efforts to streamline our businesses, increase efficiency, and drive better margins and profitability. Since 2025, we have reduced global headcount by 8%, exited over 40 facilities, established a global service center in Kochi, India to better leverage the use of shared services, and increased our investment in IT systems to improve efficiency of operations and support functions. As we mentioned previously, through the first few quarters of these initiatives, tariff costs, upfront IT investments and inflationary pressure in areas like medical costs and certain raw materials are largely offsetting these cost reductions. As we progress through our cost-out program, we will realize additional cost savings and, excluding impacts from the Middle East, expect our efforts to begin to more than offset the tariff and other inflationary costs beginning in 2026.

We continue to execute on our return of capital program. During the quarter, we repurchased 3.5 million shares for $67 million and paid dividends of $33 million, which reflected our announced 20% increase in the quarterly dividend. We also extended our $1.5 billion revolving credit facility by one year through 2030. Over the past eight quarters, we have returned over $900 million to shareholders through dividends and share repurchases. During the second quarter, we plan to provide shareholders with a supplemental dividend to true up our 2025 return of capital program where we committed to returning at least 50% of excess free cash flow. Additionally, we filed a claim for a refund associated with the Supreme Court’s ruling on AIPA tariffs.

Our first quarter results do not reflect the benefit for this potential refund and we have not factored the refunds into our guidance. Capital expenditures for the year, including our investment in our flexibles facility in Brazil, should be between $340 million and $370 million. We continue to expect to convert between 40% to 50% of 2026 EBITDA to free cash flow, with generation of cash ramping through the remainder of the year. Moving to our segments, starting with Energy Equipment. First-quarter revenue was $1.19 billion, an increase of 4% from a year ago, led by continued strength of our offshore production-related businesses. EBITDA for the first quarter was $131 million, or 11% of sales. EBITDA margins compared to 2025 were negatively impacted by a lower mix of aftermarket revenue, which I will cover in more detail, and higher costs from disruptions in the Middle East.

Capital equipment sales accounted for 63% of the segment’s revenues in the first quarter of 2026, growing 16% year over year, led by strength in our subsea flexible pipe, process systems and marine and construction businesses. Aftermarket sales and services, which accounted for the remaining 37% of Energy Equipment revenue, experienced a 12% reduction year over year, primarily the result of certain large reactivation projects completed in 2025 and the negative impact of disrupted deliveries and reduced offshore rig activity in the Middle East. Capital equipment orders for the first quarter were $520 million, resulting in a book-to-bill of 80% for the quarter and an ending backlog of $4.23 billion. Orders during the quarter were led by subsea flexible pipe awards in Brazil and Europe, a semisubmersible rig reactivation project in the North Sea, and a large FEED study for a harsh-environment turret system.

Offshore activity outlook, bid pipelines, and customer conversations remain constructive, and we continue to expect full-year 2026 book-to-bill to be near 100%. Our subsea flexible pipe business continued its outstanding performance, achieving record quarterly EBITDA for the third consecutive quarter. Margins improved, driven by strong operational execution and progress on higher-quality backlog, and our quarterly book-to-bill was over 100%. Reflecting the strength of offshore development, demand for subsea flexible pipe has been exceptionally strong, exceeding 100% annual book-to-bill for each of the past four years and extending our backlog into 2028. Our Process Systems revenue was slightly below last quarter’s record level and up more than 50% compared to 2025, reflecting robust activity in offshore production and onshore international gas markets.

Record EBITDA for the quarter was supported by a healthy backlog and solid execution. Orders during the quarter included offshore processing equipment and two CO2 treatment projects involving gas dehydration and membrane separation. The Middle East is an important region for this business, and FIDs for several projects could see some temporary delays; however, we expect demand for gas processing systems to remain strong in the region as well as in other international and deepwater markets, where four FPSOs have reached FID so far this year, with the industry forecasting six to eight additional FIDs for the remainder of 2026. Revenue from our drilling capital equipment business declined around 10% year over year, resulting from high progress in the prior year on a large 20 ksi BOP project that was not fully offset by higher revenue from new-build land and jack-up rigs in Saudi Arabia.

During the quarter, the business was awarded a contract to support a semisubmersible reactivation, including mud systems, a crane and a BOP stack. Our marine and construction business revenue increased in the high-teens percentage compared to 2025, driven by higher revenue from cranes as well as pipe and cable lay systems, partially offset by lower activity related to wind turbine installation vessels. Demand for cranes from multipurpose support vessels remains high, which should drive additional orders over the coming quarters. Tendering activity for KBAL vessels also remains active, and we still see the potential for a second-half WTIV order, with the industry forecast continuing to suggest a shortage of future installation capacity. We believe that the disruption to energy markets tied to the conflict in the Middle East is renewing urgency around energy security and supply diversity, which will drive demand for all sources of energy.

Revenue for intervention and stimulation capital equipment declined approximately 20% year over year due in part to delayed wireline and coiled tubing equipment deliveries to customers in the Middle East, where we were awarded coiled tubing data acquisition hardware and software packages and continue to see broad-based opportunities for our pressure control products. While North America-related demand was soft through 2025, in 2026 quoting activity has recently increased for pressure pumping capital equipment, and during the quarter, we booked several coiled tubing equipment orders supporting more efficient operations for longer laterals. Turning to the aftermarket portion of the Energy Equipment segment, revenue from our Drilling Equipment aftermarket business was most acutely impacted by the Middle East conflict due to suspended rig operations, logistical challenges and delays in upgrade projects.

Revenues were down mid-teens percentage year over year and down 12% sequentially. In addition to the impact from lower Middle East activity, the year-over-year decrease is partially related to lower service and repair work due to timing of active projects. Encouragingly, spare parts bookings remained robust during the quarter, higher than their four-quarter rolling average. Given the logistics delays and booking activity, spare parts backlog is at the highest level it has been for the last seven quarters. The business is also executing on roughly 35% more projects compared to this time last year. We expect aftermarket activity to pick up slightly in the second quarter and more materially in the back half of 2026, partially dependent on the timing of the resolution of the Middle East conflict.

Revenue from aftermarket parts and services for intervention and stimulation equipment was essentially flat sequentially and down mid- to upper-single-digit percentage year over year. Compared to 2025, wireline and coiled tubing-related aftermarket rose slightly, more than offset by lower North America pressure pumping activity; however, we are seeing increased activity related to reactivations and consumable parts. For the second quarter, we expect Energy Equipment segment revenue to be down 2% to 4% year over year, with EBITDA in the range of $135 million to $155 million. Moving on to the Energy Products and Services segment. Our Energy Products and Services segment generated revenue of $897 million, down 10% from 2025. Results were negatively impacted by disruptions in the Middle East that delayed deliveries of capital equipment.

Beyond those delays, segment results reflected lower levels of global activity, which more than offset market share gains in our drill bit business and increasing adoption of our digital services. Adjusted EBITDA was $96 million, or 10.7% of sales. Lower volumes, combined with the absorption impact at our manufacturing facilities, higher tariff costs and inflationary pressures affecting raw materials, drove larger-than-normal decrementals. As I previously mentioned, we remain focused on growing market share and reducing costs through rightsizing operations and consolidating facilities to improve profitability. For the first quarter, the sales mix within Energy Products and Services was 54% service and rentals, 29% capital equipment and 17% product sales.

Revenue from services and rentals declined in the mid- to upper-single-digit percentage range year over year as lower global activity more than offset drill bit market share gains in North America and growing adoption of NOV Inc.’s wired drill pipe services, including downhole broadband solutions. Our ReedHycalog bit business continued to gain market share in the U.S., growing revenue 8% compared to a 7% decline in the U.S. rig count since Q1 2025. The business remains focused on supporting our customers and advancing bit performance while also mitigating higher tungsten carbide costs, which have increased by approximately 400% since 2025. In addition to drill bits, our downhole tools, ESPs and production chokes have components that include tungsten carbide.

Our teams are focused on mitigating higher costs through sourcing, pricing and operational actions. Revenue from our digital services business expanded significantly compared to 2025, with strong operational performance from our wired pipe services. Based on customer interest, we expect to see continued growth and adoption of our services that provide real-time broadband data transmission from the bottom of the drill string. Rentals of our downhole technologies were impacted by lower activity in North America and Saudi Arabia, but remained mostly steady across other markets as softer activity was offset by adoption of our new technologies, including our Agitator RAGE and Positrac torsional vibration tools in Asia, the Middle East and offshore Brazil.

Within our wellsite services business, increased rentals of our TundraMax mud chiller systems and solids control equipment were offset by lower activity in the Middle East and Latin America. Additionally, the business was awarded a contract to deploy its InnovaTherm thermal treatment technology in Guyana, supporting more efficient drilling cuttings management. This will be our first deployment of the technology in Latin America. Our tubular inspection business decreased mid-single-digit percentage from lower levels of activity in North America and a temporary slowdown in our Tuboscope operations as activity in Argentina shifts from Comodoro to the Vaca Muerta. Further development of our TK Dracon premium thermal insulated coating partly offset lower coating activity in international markets, which we expect to pick up in the second quarter.

Sales of capital equipment declined in the low double-digit percentage range year over year, primarily due to the Middle East conflict that delayed deliveries of composite pipe. These delayed deliveries, along with lower industrial activity and the timing of composite projects for FPSOs, resulted in a significant decline in revenue versus the prior year for our fiberglass business. While these headwinds weighed on the quarter, the business achieved record quarterly bookings, driven by demand for our produced water transport projects, fuel handling and FPSO-related applications. Given the strong bookings along with production and delivery delays related to the Middle East conflict, backlog is at the highest level in ten quarters. We expect second quarter results to meaningfully improve and revenue in the second half to further increase compared to the first half, supported by robust demand and execution on the strong backlog.

Drill pipe orders were also strong, outpacing the average quarterly bookings for the past three years, with offshore demand leading the bookings mix. These bookings follow strong orders in 2025, which contributed to drill pipe sales increasing in the mid-teens percentage range year over year. Backlog for the business sits at its highest level in two and a half years, and we expect strong backlog conversion in the second quarter. The segment’s product sales declined in the mid-teens percentage range year over year, as reduced drilling activity in the Middle East and Asia decreased demand for certain drilling tools for the quarter. However, we did receive a sizable order for drilling motors destined for Turkey that should support sales later in the year, and we have good visibility into the bulk shipments that typically happen in the second half of the year.

For the second quarter, we expect Energy Products and Services segment revenue to decrease between 6% to 8% year over year, with EBITDA in the range of $100 million to $120 million. With that, I will turn the call back to Jose.

Jose A. Bayardo: Thank you, Rodney. In closing, while the first quarter presented challenges, it also marked a significant shift in the market environment. We believe a meaningful new capital equipment cycle is unfolding, which will cause NOV Inc.’s technology, equipment and expertise to be in great demand over the coming years. We are confident in how we are positioning the company for the future and remain intently focused on delivering long-term value for our shareholders. To the NOV Inc. employees listening today, thank you for your dedication and commitment to safety and execution. We will now open the call for questions.

Operator: If your question has been answered and you wish to remove yourself from the queue, please press star one one again. Our first question comes from Arun Jayaram with J.P. Morgan Securities. Your line is open.

Receive real-time insider trading and news alerts

Arun Jayaram: Jose and Rodney, I was wondering if you could maybe talk a little bit about the flexibles business at NOV Inc. You mentioned how you are doubling capacity over the next several years in Brazil, but I would love to get a little bit of thoughts on where that business is today, perhaps from a top-line basis, and how you see that progression over time as you are increasing capacity there?

Jose A. Bayardo: Yes. Good morning, Arun. Thanks for the question. Our subsea flexible pipe business has had extremely strong performance coming out of the pandemic and continues to crank out really good results. The bookings outlook is very favorable. As we sit here today and take in orders, we are looking at lead times that are already extending into 2028 for some projects with some of our customers. Looking further into the future, Brazil will continue to have a tremendous amount of growth. They are pretty transparent in terms of guidance to the public regarding their future activity, and if anything, things continue to ramp up. It is not only continuation with new project development, but we are also entering a time period in which existing infrastructure is aging, and we are on the cusp of a big replacement cycle for offshore Brazil, in addition to more new capacity that is needed.

Additionally, we have talked about the solution we have been working on for CO2 corrosion resistance that we are feeling very good about. We think we will need some incremental capacity for that. Elsewhere around the world, even last quarter we were talking about steady improvements and building momentum in the offshore space as a logical source of incremental supply to displace what North America has done over the last year in terms of supplying that incremental barrel to meet demand that continues to grow. All the stars are aligning as it relates to economics, need and opportunity in the deepwater environment, and it is consistent with what we are hearing from our customers. Beyond Brazil’s replacement cycle, other markets have similar needs, and more importantly, many markets have both greenfield development and big plans related to infill projects to leverage existing infrastructure from a production facility standpoint.

They are going to need a lot of additional pipe to connect new step-out wells into that infrastructure. Everything looks really good from a demand perspective, and as we map out our capacity and our competitors’, it is pretty clear that in a few years the industry is going to be short on capacity, and we see a great opportunity to step into that and support our customer base.

Arun Jayaram: Yeah. Makes sense. Jose, the guidance was quite clear, but I was wondering if maybe you could help us understand what you and Rodney are embedding for 2Q in terms of the Middle East impact. In 1Q, you highlighted a $54 million revenue impact and, I believe, $32 million of EBITDA. What are you assuming as your base case, understanding there is uncertainty in 2Q?

Jose A. Bayardo: Good question, Arun. As we look at Q2, it is not a matter of taking March times three for us. There are a number of puts and takes, including that in the third month of the quarter we tend to have a lot of deliveries happen toward the end of the quarter. For some reason, that is just the nature of the business—people want to take everything in the last couple of weeks of the quarter. More importantly, while the disruption is still meaningful and significant in terms of impacts on timelines and logistics costs, things are much improved from the height of the conflict. What we are primarily contending with right now is the closure of the Strait. Our assumption in Q2 is that the Strait remains closed; however, conditions on the ground otherwise are in line with what we are seeing now, which is a resumption of trade activity getting steadier and a more constructive environment than at the peak of the conflict.

Putting those pieces together, we are looking at a slightly larger impact than we saw in all of Q1, but not a huge difference.

Operator: One moment for our next question. Our next question comes from James Michael Rollyson with Raymond James. Your line is open.

James Michael Rollyson: Hey, good morning, guys. Lots of interesting commentary to open there, Jose. As you see things unfolding now and based on conversations with customers so far, you mentioned increased activity and amplifying that activity once it settles down. Maybe add a little color around what conversations you are having, how broad that is, and how you expect this to translate. One of the things you have mentioned over the last several quarters is that NOV Inc. has not been firing on all cylinders—it has shifted around from one market to another—and it sounds like what you are saying implies maybe a more broad-based recovery over a period of time. I am trying to fit NOV Inc. into that equation.

Jose A. Bayardo: Thanks for the question, Jim. A quarter ago we felt very good about the mid- to long-term outlook, but we anticipated that 2026 would be another somewhat rough year with the supply overhang. We have seen several years of improving fundamentals within the deepwater space that have driven growth and margin improvement within our Energy Equipment segment. The other big chunk of our Energy Equipment business, our rig business, has been in a more difficult environment over the last 12 to 18 months as our primary customers contended with white space in the offshore environment while the industry waited on FPSOs to come out of shipyards and be put in place to commence drilling campaigns. We saw a wave of those FPSOs launch at the end of the year—about 15 coming into the market—and that has resulted in what we expected: a massive increase in the number of tenders to offshore drilling contractors and a substantial increase in the average duration of those contracts.

That was the setup for later this year and into 2027 that we are excited about. In the interim, we expected North America to remain flattish with significant discipline, and potentially some downward flow due to the supply overhang. Fast forward to today, that overhang is gone. We are at an extreme deficit. There is going to be a need to accelerate activity in the Middle East to bring things back online and resume plans to steadily bring production and activity back up, particularly in Saudi with bringing back the suspended rigs. We already had, and continue to have, good momentum related to development of unconventional resources within the broader Middle East as well as in Latin America. That is continuing, and we expect it to be amplified and move forward with more urgency once things settle down.

First and foremost, we hope for a quick resolution to the conflict in the Middle East so that our employees, customers, vendors and stakeholders can get back to life as usual in a safer environment. Whether we like it or not, the world is very different today than it was three months ago, and that is a more constructive market for a provider of capital equipment and efficiency-enabling tools to enable the production of energy around the world. Demand is going to be very high. Late this year and into 2027, we could finally be in that environment where all eight cylinders of NOV Inc.’s engine can fire, and we can demonstrate significantly higher earnings power than what we have been able to show in a limited market over the last several years.

We are looking forward to demonstrating that capability, and the team has worked incredibly hard to position us for that environment.

James Michael Rollyson: Got it. Appreciate the color. If I transition that into the cost and margin outlook, you have faced a lot over the last few years and still ramped margins until the recent air pocket and the Middle East conflict. You mentioned normalizing tariffs with your cost-out program in the second half of the year, but we also face the Middle East impact. How many lingering impacts might fall out from that, and as we get into 2027 and beyond, how do you think about margin progression given moving pieces on the cost side?

Rodney C. Reed: Thanks, Jim. I really wanted to highlight the hard work from the team on cost reductions throughout the last 12 months. As mentioned in the prepared comments: headcount reduction down 8%, facilities down about 40, and business process improvements including shared service center opportunities in India. All of that has improved our cost structure. Some headwinds over the last 12 months—tariffs and other inflationary items—have offset most of that. Looking at 2026 and into 2027, starting with Energy Equipment: we have had four straight years, 2021 to 2025, of top-line growth and margin improvement, reflecting the strong portfolio. Business units with technological differentiation have more pricing leverage in their markets, lifting margins.

In 2025, our rig aftermarket business, with white space in the market, did not have as much margin impact; as we look to the second half and into 2027, we see a meaningful impact from rig aftermarket going forward. For the Energy Products and Services side, similar story: good market share gains in ReedHycalog—8% up on drill bits in North America versus a 7% decline in rig activity—and highlights in digital services. Over the last 12 to 18 months, as the U.S. market declined about 15% from an activity perspective, that has not been a pricing-rich environment; but as we roll out new technologies to create more efficiencies on longer laterals, those are areas where we can get better pricing leverage. The cost-out is the hard work we control, and the market setup we are seeing on the Energy Equipment side with production equipment, the improving aftermarket, and where Energy Products and Services is heading, leads to better margins in 2026 and then in 2027.

Operator: One moment for our next question. Our next question comes from Marc Bianchi with TD Cowen. Your line is open.

Marc Bianchi: Thank you. Rodney, when you were talking about tariffs, you did not mention the new proclamation from the administration that is going to change the way February works. Should we take that to mean you do not see that being a big change for you?

Rodney C. Reed: Let me give a couple of comments on tariffs. Starting with the positive news: in February, the Supreme Court ruled the AIPA tariffs unlawful. We have started to file claims for a refund associated with that ruling. That is not in our Q1 numbers and not in our Q2 guidance, but, in round numbers, what we paid in under AIPA is about $40 million. The administrative process of filing those claims and working through it will determine the end result, but that is a general ballpark. The other changes during the quarter were some of the exclusions from a February perspective, which has a mixed impact across our businesses—beneficial to some and a detriment to a couple of others—and replacing some of the AIPA tariffs, as you know, is Section 122 tariffs.

Putting those together, as mentioned in Q4, our tariff expense was about $25 million; in Q1, we expected a slight increase, which is what we saw. Going forward, tariffs being in that ~$30 million range—which is reflected in our Q2 guidance—is a good marker. So, on the changes you referred to—one on the refund and two on the February changes—the latter probably adds a touch of incremental cost.

Marc Bianchi: Okay, that is very helpful, thank you. The other one is on the second quarter. The war impact is a little bit more on a dollar basis than in 1Q—recognizing we have three months of disruption, so on a run-rate basis, it is less. There were some deferrals of shipments from 1Q into 2Q, and maybe further deferrals from 2Q into 3Q. What does the run rate of the business look like? Is there help that 2Q is getting from those deferrals, or is it a wash because more gets deferred into 3Q?

Jose A. Bayardo: Mark, I would say it is effectively a wash. Yes, you have the benefit of some delayed deliveries from late Q1 falling into Q2. But we are going to see ongoing logistics delays, and, as noted in prepared remarks, we are rerouting some manufacturing to other facilities around the world to reduce risk, which actually extends lead times in many situations. There are areas where things will continue to slide out quarter to quarter. Overall it should be a wash, but hopefully we will find a way to start catching up a bit as conditions improve.

Operator: One moment for our next question. Our next question comes from Douglas Lee Becker with Capital One. Your line is open.

Douglas Lee Becker: Jose, on the last call, you mentioned leaning harder into M&A and organic growth. We saw the expansion in Brazil, but now we have this underlying shift in the industry. Do these changes make you more aggressive on allocating growth capital or on M&A going forward?

Jose A. Bayardo: Good question, Doug. As highlighted last quarter, we were shifting from a more conservative, defensive mindset given the market environment of recent years to a more offensive mindset. We talked about leaning into compelling organic growth opportunities, including the expansion of our subsea flexible manufacturing facility in Brazil, which we are very encouraged about. The market setup is spurring additional confidence in our outlook and opportunity set. We will remain extremely disciplined, particularly in M&A, but we want to be opportunistic and lean hard into organic growth opportunities out there, and we expect more to emerge as the market tightens. Very encouraged on that front.

Douglas Lee Becker: It was encouraging that the full-year book-to-bill is still expected to be near 100%. Do you think there was any impact to orders in the first quarter from the Middle East conflict? Tough to gauge, but how might orders progress as the year goes forward, assuming the conflict ends relatively soon?

Jose A. Bayardo: There are always puts and takes when a shock like war breaks out, which lends uncertainty for a short period. Our customer base has quickly gotten over the initial shock of disruption, and confidence continues to build around a sustainably higher oil price that will drive more activity and urgency and start pulling FIDs forward. As touched on in the prepared commentary, industry outlooks for FPSOs have increased versus expectations coming into 2026. Looking at the number of offshore opportunities we are pursuing, we are seeing a much wider set of customers than a year ago, more LNG opportunities in Asia, and firmer timelines. To be determined exactly how things play out, but hopefully you get the sense we are more confident about the order outlook going forward.

Operator: One moment for our next question. Our next question comes from Analyst with Barclays. Your line is open.

Analyst: Good morning, Jose. You talked about a new capital equipment cycle starting up. It has been a long time since we have seen one, and the last one likely looks different than what we are about to enter. You gave guidance for this year, but thinking about 2027 and 2028, what does a new capital equipment cycle mean to NOV Inc.? Where are the key drivers you really see—aside from FPSOs—in terms of orders over the next few years?

Jose A. Bayardo: Thanks for the question. It is always hard to predict the future, but it is clear there has been limited investment across the industry, particularly in the service complex asset base. We went from excessive investment to a market that has slowly normalized over about a decade as activity declined. A couple of quarters ago, we started pointing out that the market for equipment is tighter than most appreciate. We thought the oil supply overhang would give the industry ample time to recognize the issue and start investing, but recent events have accelerated and amplified the process. It starts as it usually does: pricing and utilization go up for service companies and drilling contractors, cash flow improves, and they reinvest in their asset bases aligned with activity needs.

I do not think it will be constrained to any one market—this is an environment where all eight cylinders get to fire across our businesses, including capital equipment and enabling tools and technologies across our EPS segment. Expect continuation and amplification of deepwater activity; acceleration and amplification in unconventionals driving pull-through of modern drilling and completion efficiency-enhancing tools; and offshore drilling needed to support offshore development. The marketed utilization of the deepwater fleet is already around 95%, as tight as it has been since the prior cycle. Customers will continue to bring other assets back where possible, but opportunities are limited and costly. That will allow drilling contractors to gain pricing leverage and improve dayrates.

Operators could start getting nervous about availability. I do not want to speculate on a newbuild cycle, but it is not off the table—though a few years away—and that conversation is coming up more frequently. In the interim, there are more upgrade and reactivation opportunities, including upgrades to digital capabilities, automation and robotics, rapid emergency disconnect systems to reduce BOP shear times, and upgrades to 1,400-ton hoisting capacity. Long way of saying: there is material upside across our operations; exactly how far it goes is to be determined, but the outlook is strong.

Analyst: In terms of North America, it looks very tight from attrition and equipment moving out of the U.S. Are you having those conversations yet around unconventionals, or is it still a little early?

Jose A. Bayardo: It is early days, but the conversations are happening. There is more discussion related to reactivating the limited stacked equipment that can come back, and some talk about new capital equipment orders. As Rodney mentioned, we saw demand for coiled tubing equipment in North America this quarter. Large-diameter, extended-reach coil already has some legs. We are seeing some of that translate into orders. That said, this geography has been through difficult conditions with everyone highly disciplined. Pricing for the service complex has not been good; they will focus on getting utilization and pricing up before materially expanding capacity. But I believe that is coming.

Operator: Ladies and gentlemen, this does conclude the Q&A portion of today’s presentation. I would now like to turn the call back over to Jose for any further remarks.

Jose A. Bayardo: Thank you, everybody, for joining us this morning. First and foremost, we really hope and pray for a very quick resolution to the conflict so that our friends and colleagues can get back to life as normal across the Middle East. We are very optimistic about the mid- to longer-term outlook. We remain confident in how we have positioned the company for the future and believe that will present the opportunity for us to demonstrate meaningfully higher earnings power over the coming years. We appreciate everyone joining us this morning and look forward to visiting with you again in late July.

Operator: Thank you, ladies and gentlemen. This concludes today’s presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Receive real-time insider trading and news alerts