Good morning and welcome to the National Oilwell Varco Earnings Call. My name is Kevin, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. I will now turn the call over to Mr. Loren Singletary, Vice President, Investor & Industry Relations. Mr. Singletary, you may begin. Loren Singletary - Vice President-Investor & Industry Relations: Thank you, Kevin, and welcome, everyone, to the National Oilwell Varco second quarter 2015 earnings conference call. With me today is Clay Williams, President, CEO and Chairman of National Oilwell Varco. Before we begin this discussion of National Oilwell Varco's financial results for its second quarter ended June 30, 2015, please note that some of the statements we make during this call may contain forecasts, projections and estimates including but not limited to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the Federal Securities Laws based on limited information as of today which is subject to change. They are subject to risk and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information regarding these, as well as supplemental financial information and operating information may be found within our press release or on our website at www.nov.com or in our filings with the SEC. Later on this call, we will answer your questions which we ask you to limit to two in order…

Thank you. We will now begin the question-and-answer session. We ask that you please limit yourself to one question and one follow-up. Our first question comes from Jim Crandell with Cowen. Clay C. Williams - Chairman, President & Chief Executive Officer: Hi, Jim. Jim D. Crandell - Cowen & Co. LLC: Good morning, Clay and Loren. Clay, my first question was about acquisition strategy and you've been great in terms of bolt-on acquisitions, but how is your acquisition strategy changing given the collapse of the industry? And is NOV becoming more proactive in regards to larger acquisitions? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah, I'd say generally in a cyclical downturn, and this is one of many we've been through, our view is that it becomes much more of a buyer's market. The risk, I think, in transactions tends to go down a little bit, but it can be a challenging market to get deals done because most companies don't particularly want to sell at the bottom. And so it's a challenge making bids and the asks come together and to reach a price that all parties view as fair and move forward. So, the way we've kind of adjusted our strategy here is to increase the number of conversations that we're having, and these include both the smaller bolt-on deals that I referenced. I think we've had three close so far this year, and we've got another half dozen letters of intent that we've entered into along with some larger transactions that we've reached out to some companies to begin to explore. So, what we're trying to do is approach this really from a portfolio standpoint. NOV is diverse in terms of what we do. We operate through four reporting segments, 15 business units. And…

Our next question comes from Marshall Adkins with Raymond James. Marshall Adkins - Raymond James & Associates, Inc.: Hey, guys. Clay C. Williams - Chairman, President & Chief Executive Officer: Hey, Marshall. Loren Singletary - Vice President-Investor & Industry Relations: Hey, Marshall. Marshall Adkins - Raymond James & Associates, Inc.: It sounded, Clay, like you're somewhat optimistic about an order recovery in Rig Systems back half of this year and going into next year. We've kind of been running $250 million, $300 million a quarter. Did I hear that right? And if so, could you give us a little more color on why you think things could improve, at least on the order side for Rig Systems? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. A couple things. There's a lot of conversations underway around land rigs. And I think generally, our land rig customers are much more optimistic about recovering commodity prices driving higher levels of activity. And against that, I would add it's almost unanimous now, the drilling contractors that we speak to all want to convert their fleets to AC-powered Tier 1 rigs. And they recognize we're in a cyclical downturn, it gets tough to do. They're cutting CapEx budgets. But longer term, they see, hey, this is where the market is going. And to be relevant and to remain competitive in that market, they really need to offer the latest and greatest technologies. And it's a way for them to differentiate themselves against smaller competitors that can't afford to write a $20 million check to buy an AC Tier 1 land rig. So, I would say that their strategic plans to upgrade their fleets are largely intact in North America. And then, we've also seen that interest in AC land rigs spread to…

Our next question comes from Jeff Tillery with Tudor, Pickering, Holt. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning. Clay C. Williams - Chairman, President & Chief Executive Officer: Hi, Jeff. Loren Singletary - Vice President-Investor & Industry Relations: Morning. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.: Clay, as I think about the more medium-term decremental margin potential within Rig Systems, so the guidance for Q3 would imply something in that high 30%-range decrementals as we... Clay C. Williams - Chairman, President & Chief Executive Officer: Right. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.: ...think about longer-term backlog continuing to erode into 2016. Is that a reasonable range to think about the kind of absorption issues impacting margins? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. There's a wide range of variable margins within the products that Rig Systems sells. You did ask about Rig Systems, right Jeff? Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.: Correct. Clay C. Williams - Chairman, President & Chief Executive Officer: Okay. And so what we foresee in third quarter is we're kind of going to revert to what's a more normal level of operating leverage for the business ex-price pressure and some extraordinary costs, things that were done. So, that's kind of I would say in the essence of all other factors, that business would normally move up and down somewhere in the mid 30% range and our guidance for Q3 really sort of embodies that natural operating leverage. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.: Okay. And then as I think about the potential cash generated out of working capital kind of over the next two or three quarters, what order of magnitude you…

Our next question comes from Kurt Hallead with RBC Capital Markets.

Hey. Good morning. Clay C. Williams - Chairman, President & Chief Executive Officer: Hi, Kurt. Loren Singletary - Vice President-Investor & Industry Relations: Morning.

I was curious, you bought back a chunk of stock here in the quarter, kind of in the 10% I guess was what you stated since you implemented the program; average price, $50. Now, stock price is $40. At what point do you guys kind of maybe think about sitting tight for a little while and maybe gearing it more toward M&A? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. Last quarter, you remember, Kurt, we said we were going to dial back the rate of share repurchases in view of M&A opportunities and we'll be watching it closely through the quarter now too, but working at that more reduced rate. I think we have about a little over $300 million left on our authorization to go. But what we're doing is balancing the opportunities we see on the M&A landscape and other opportunities to deploy capital against what we think is a terrific company trading below book value in an extraordinary buying opportunity. So, that's sort of a judgment call, but that's the calculus we'll continue to be going through.

Great, appreciate that. And then maybe a follow-up on Rig Systems, the guidance range for some decline, a couple hundred basis points or so plus of decline in margins and, again, you're in that mode of excellent execution and delivery on the margin front in Rig Systems, kind of like you were in the prior cycle period. So, what's the thought on the opportunity for your execution to actually deliver better-than-expected margins going forward? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. You probably remember 2009, 2010, where – I hope they're not listening, but our Rig Systems guys are really good at under-promising and over-delivering. You saw it in this quarter, right, in the second quarter. So, just terrific execution by that team. And so, yeah, we're guiding to sort of more normal operating leverage for the third quarter, but they're very good at finding ways to reduce cost and improve efficiency. So, frankly, I wouldn't be surprised if we do a little better than that if history is a guide. But for the time being, we'll stick with our sort of official guidance of margins down.

It's all good. All right. Thanks, Clay. Appreciate it. Clay C. Williams - Chairman, President & Chief Executive Officer: You bet. Loren Singletary - Vice President-Investor & Industry Relations: Thanks Kurt.

Our next question comes from Jud Bailey with Wells Fargo.

Thanks. Good morning. Clay C. Williams - Chairman, President & Chief Executive Officer: Morning. Loren Singletary - Vice President-Investor & Industry Relations: Morning, Jud.

Question on aftermarket. Clay, I think you indicated you believe that your aftermarket business stabilizes in the second half of the year and can potentially grow in 2016. Is that based on an expectation that the offshore rig count stabilizes? Can that still play out if the offshore rig count continues to trend down well into 2016? Clay C. Williams - Chairman, President & Chief Executive Officer: It gets more challenging with the rig count coming down, but really the basis for it, Jud, is the fact that the installed base of NOV equipment is rising. The new rigs that are still being built, I think there's, outside of Brazil, more than 50 floaters coming into the marketplace. The new rigs have a much higher content of high technology NOV equipment that should be more aftermarket consumptive and a better opportunity for us as compared to the old rigs that are more likely to be laid down and scrapped. So, the mix of rigs is the main basis for our optimistic outlook for rig aftermarket in the future. It's not purely a rig count-driven phenomenon.

Okay. Thanks for that. And then my second question is just thinking about your revenue out of backlog and it's a little bit early, but looking into next year – I mean, this year, you'll be pulling less revenue out because of customer delays from Petrobras and some of your other customers. Looking into next year, some of those delays, I'm assuming, could continue as operators or contractors push the rig deliveries out, but you'll also have more, I guess, shorter cycle business maybe flowing through. Do you think your revenue out of backlog increases from that low 50% range, or is it more reasonable to keep it in the low 50%s or does it start to tick up with more shorter cycle businesses? How should we think that through? Clay C. Williams - Chairman, President & Chief Executive Officer: I think you laid out the factors there pretty well. It's all very fluid right now, so I'm hesitant to get too many quarters out in terms of providing guidance around that. But you're right. The component work that should come back after opportunities to cannibalize begin to diminish for contractors, both land and offshore, as well as maybe a little more demand on the land side. Depending on how that all plays out, I think that's going to drive the revenue out of backlog and the size of our backlog.

All right. Thank you. Clay C. Williams - Chairman, President & Chief Executive Officer: You bet. Loren Singletary - Vice President-Investor & Industry Relations: Thank you.

Our next question comes from Sean Meakim with JPMorgan.

Hey. Good morning, guys. Clay C. Williams - Chairman, President & Chief Executive Officer: Morning. Loren Singletary - Vice President-Investor & Industry Relations: Hi, Sean.

So, we've heard quite a bit throughout the earnings season thus far from other parts of offshore talking about greater willingness on the part of E&Ps to reexamine how they're planning offshore projects. You touched on this in your opening remarks, but I guess, can you give us a better sense of how much of a delta have you seen in terms of receptivity from FPSO customers in terms of cost-savings solutions? It seems like maybe it'll take a bit of time before orders come through, but are we seeing a real step change given the commodity price? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. And I would say it's a real step change in attitude. But they're still a ways from signing purchase orders and sanctioning these projects. So, you go back a couple years ago in a $100-a-barrel world. There were problems with returns, I think, on some of the deepwater developments. But, frankly, I think less openness or less willingness on the part of our customers to consider sort of more radical or more revolutionary sort of approaches to changing how those projects are executed. The silver lining of a $50-a-barrel world has been we're now welcomed into those conversations with those customers. We're seeing our volume of engineering work, of feed-study type work around these projects within our FPSO group rising. And that's good, but we're not yet to the point where our oil company customers are necessarily pulling the trigger and sanctioning these projects and moving forward. But the good news is it all starts with kind of a reengineering, retooling, rescoping of these projects. You've heard of lots of examples in the E&P world that you referenced of oil companies taking out 20%, 25% out of their development costs by kind of resetting how they're going to execute these projects. I can only think that's probably helped in a lower-day-rate environment for rigs and a pretty hungry shipyard universe that can fabricate big steel structures for not much above cost these days. So that, I think will all help the economics of the deepwater. But suffice it to say, huge reserves discovered in the deepwater, a lot of smart people at the oil companies now with motivation to find new and better ways to develop those fields. And I think NOV is really well-positioned to help them through. And we're very pleased at the progress that we have in conversations with a few of those oil companies here through the last few quarters.

Right. Yeah, it all makes sense. Just to shift gears to go back to M&A for a second, has the pending Hallibaker merger and the pending divestments changed the strategy towards M&A at all? Does the outcome there delay any other potential deals as folks wait to see what happens? Clay C. Williams - Chairman, President & Chief Executive Officer: Yeah. It's obviously a large merger. It spans a number of different subsectors in oilfield services. And so there's implications for specific spaces within the industry, specific marketplaces, specific geographies. And so, we're watching very closely how that comes together. And so, I would tell you strategically, certainly it's shaded our thinking and what we always try to do is think out three or four moves into the chess game. So, what are the perhaps non-obvious implications of the Halliburton-Baker merger. So, yeah, it's – the short answer is yes, it's certainly shaded our strategic thinking. And we're – but they're both customers, we wish them well and we'll see what happens.

Yeah. Fair enough. All right. Thanks, Clay. Clay C. Williams - Chairman, President & Chief Executive Officer: You bet. Loren Singletary - Vice President-Investor & Industry Relations: Thank you.

Ladies and gentlemen, this does conclude today's question-and-answer portion of the conference. I would now like to turn the call back over to Mr. Williams for closing remarks. Clay C. Williams - Chairman, President & Chief Executive Officer: Great. I want to thank all of you for joining us this morning. And again, in particular, thank our employees for the terrific job that all of them do. And we look forward to updating you on our call in October. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.