Good day, ladies and gentlemen, and welcome to the National Oilwell Varco Q2 2017 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. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Loren Singletary, Chief Investor and Industry Relations Officer. Sir, you may begin.

Welcome, everyone, to National Oilwell Varco's Second Quarter 2017 Earnings Conference Call. With me today are Clay Williams, our Chairman, President and CEO, and Jose Bayardo, 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 risk and uncertainty, 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. 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 corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, in the second quarter of 2017, NOV reported revenues of $1.76 billion and a net loss of $75 million, or $0.20 per share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted 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 Clay.

Thank you, Loren. In the second quarter of 2017, NOV generated $1.76 billion in revenue and $142 million in EBITDA, a strong $37 million sequential EBITDA improvement. Much of our business continued to rise with higher oilfield activity, particularly in North America, leading our Land business 7% higher sequentially in the quarter. But this was largely offset by reductions offshore and certain sluggish international markets, like Asia and Africa, that pushed our consolidated offshore mix down to 39% and our Land mix up to 61%. So NOV continues to pivot to where the action is. Our business unit leaders executed superbly on cost reductions and efficiency improvements. Case in point, the Rig Systems segment posted lower revenues and EBITDA, but the team there once again managed costs remarkably well, as sequential decremental EBITDA margins came in at only 15%. The rest of our segments all posted improved revenues and EBITDA and margins for the second quarter. Rig Aftermarket grew revenues meaningfully, with whopping 60% incrementals driving a 220 basis point sequential improvement in margin. Solid second quarter top-line growth marked the first real sign we've seen through the downturn that many of our customers have depleted their spare parts inventories, which points to stability and future growth for Rig Aftermarket. Our Wellbore Technologies segment revenues improved by over 10% sequentially, with nearly 50% EBITDA incrementals driving a 390 basis point sequential improvement in EBITDA margins. Longer more challenging laterals drove rising demand for NOV sophisticated technologies. Our Completion and Production Solutions segment also achieved strong incrementals on 1% revenue growth, as cost reductions, better-than-expected performance from offshore projects and solid execution across the board drove EBITDA margins up 310 basis points sequentially. Overall, during the second quarter, we were very pleased to see very strong execution by operations as well…

Thank you, Jose. Ladies and gentlemen, we are now open for questions. Our first question is from Marshall Adkins of Raymond James. Your line is open. J. Marshall Adkins - Raymond James & Associates, Inc.: Clay, as tempted as I am to ask about your proprietary elliptical shale shaker G-force control technology...

Feel free. J. Marshall Adkins - Raymond James & Associates, Inc.: ...I think just to keep my sanity here and knowing I wouldn't understand half of it, I'm going to focus on your Completions & Production segment. Phenomenal margins there. Jose, you briefly went through kind of how you got there. But I'd like to get a little more color on what's going on there. It sounds like your growth in the U.S. Completions is offsetting the declines in offshore Production. But more specifically, I'd like to know where are there shortages in the U.S. Completion side? What product lines we've heard about, niche product lines, where you're just out of different stuff? Can you help us understand the landscape on the U.S. Completions side?

You bet. The portion of the Completions & Production Solutions business that's seen the highest levels of activity really is centered on the pressure pumping equipment space right now. So a lot of demand for frac equipment, for coiled tubing, for all of the consumables that go along with that, so valves and seats and so forth. And you've heard from I think a number of pressure pumpers so far through this reporting cycle of all of the reactivations that are underway there. So we're seeing repair services and the like, really strong levels of demand. We went through our fiberglass flowline and pipe offering there. We're also seeing really strong demand in that area as well, along with strong demand for production equipment in our Process & Flow Technologies group, things like production chokes and other items that we sell there, both across North America as well as places like the Middle East. But, yes, our offshore offering that makes up the rest of our Completions & Production Solutions group has been under pressure with low levels of FIDs and so forth. And so that's where we're really seeing the most pressure. I'm very pleased with the pickup in margins this quarter. And, as Jose mentioned in his prepared remarks, a lot of it had to do with exceptional execution on certain offshore projects within that group. J. Marshall Adkins - Raymond James & Associates, Inc.: Are we out of certain things on the U.S. side? Are there exceptionally long lead times for products right now?

Yeah, like I said, we are pretty busy on the pressure pumping equipment. But I would say we're able to deliver new frac equipment, for instance, in a quarter and a half, maybe two quarters. So we're able to get components so far to go into the fabrication of that equipment. What I'd tell you is that in terms of the scarcity that we refer to, really we're seeing that most acutely, though, actually Wellbore Technologies group, and specifically around Downhole Tools and bits, downhole drilling motors, drill bits. The equipment that we supply there is seeing a high level of demand. Rig Instrumentation Systems, our MD Totco unit that Jose referenced, the Solids Control business that I talked about in my prepared remarks. Again, we're seeing a lot of customers burning through existing inventories. The good thing for us is that over 900 rigs running in North America – or in the U.S. right now are consuming a lot of that at a much higher rate than the 350 or so that we bottomed out at last year. And so the rate of consumption has stepped up and that means they have less opportunities to cannibalize inventories and consumables of off idled rigs and have burned through inventories. And so we're starting to see a resumption of demand. J. Marshall Adkins - Raymond James & Associates, Inc.: Great. That's helpful color. Thank you, all.

You bet. Thanks, Marshall.

Thank you. Our next question is from Bill Herbert, Simmons & Company. Your line is open. William A. Herbert - Simmons & Company: Thank you. Good morning. Clay, just trying to reconcile your comments with regard to frac and Jose's earlier comments with regard to the downward flurry in oil prices diminishing the sense of urgency with regard to capital equipment items. Are you making the distinction between large horsepower orders, for example, that you got in Q4 and Q1, 75, 75, and 107.5, something like that, in Q2, versus consumables?

Yeah. Yeah, what I'd say is although we continue to have conversations with a number of customers around new frac spread additions, and I would add new land drilling rigs, the urgency is a bit diminished over the past six weeks, eight weeks with lower oil prices. They're still going on, so we're still having these conversations. We're probably talking to a half a dozen different pressure pumpers, for instance, around new frac spread additions, but the urgency has slowed down a bit. In contrast, on the smaller quicker-turn items, the consumables, the repair services, the reactivation-related things that we're doing within the pressure pumping space and the rig upgrade and repair services that we're offering in the land drilling space, those continue to be really, really strong. William A. Herbert - Simmons & Company: Okay. Great.

Does that makes sense? William A. Herbert - Simmons & Company: Yeah. Yeah, it sure does. Thanks. And then with regard to Wellbore, you guys have been extolling the scarcity theme for a while. And Jose went through a long list of items that generated over 30% sequential growth in the quarter. I'm curious as to whether, one, in the event that activity flattens out here, although oil prices seem to be moving higher, but in the event activity flattens out, how much runway do you have for continued lead lag outperformance on the Wellbore consumables? And then moreover, can you talk about drill-pipe as well, please?

Hey, Bill. It's Jose. Yeah, it's a good question. And one of the things I was trying to get to in some of my prepared remarks is to help folks understand that there is a bit of lead time and backlog that gets built into even the quick-turn portions of our business. So that's kind of what I was getting at. Related to the business taking a little while to ramp up as that excess capacity in the market gets absorbed, but then things snapped back pretty quickly. And our ability to turn serviceable items as well as provide new product, the time period in which we do that has extended quite a bit. And so even with a flattening to potentially a slight downturn in the rig count environment, we expect a good period of time in which we could actually continue to see revenues for those types of products and services continue up and to the right. And also, as we've talked about before, with improving efficiencies, more footage drilled per day, that also is a great driver for us. Probably the last thing I'll mention on that as well is, for our business, it doesn't necessarily take a dramatic pick-up in activity for our business to get better. We saw some glimmers of hope in the international markets. As two-and-a-half plus years of this downturn have gone on, the stuff that we've had out in the marketplace is slowly getting consumed. Those inventories are diminished and depleted and folks have to step back to the table and start ordering more of our products, even at very low activity rates. So we're seeing some positive signs that give us some optimism in some sustainability of those businesses even in a flattening rig count environment. Specific to drill-pipe, we were pretty pleased with the rebound that we saw this quarter in demand for the pipe. We expected last quarter coming into the second quarter that we would slowly start rebuilding a pretty depleted backlog. I think our bookings were better than we anticipated as were volumes through the system and, quite frankly, the performance of our team in terms of not only just getting things through the system but basically creating a lot of operating leverage on that increased volume. So all-in, pretty pleased with the way things shook out.

Yeah, two quarters in a row of book-to-bill north of 1 for drill pipe. The other thing I would add, too, is that we store a fair amount of our customers' inventory. We've seen that tick down about 15% to 20% of the past six months, nine months. So things are going the right way there. William A. Herbert - Simmons & Company: Very good. Thanks, guys.

You bet.

Thank you. Our next question is from Jim Wicklund of Credit Suisse. Your line is open. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Good morning, guys.

Jim. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): We had discussed in previous quarters that Rig Systems may have bottomed as long as there aren't delays in commissioning and launching new deepwater rigs. And this quarter, there seem to be some delays. Can you talk about how is this one off? Is it systematic? It would appear that the oil price weakness of the last couple of months has probably put deepwater back another year. Can you talk about the outlook for the rig commissionings and getting those done so we can finally see Rig Systems bottom sometime in the near future?

Yeah, I think things are stabilizing there, Jim. To be clear, we haven't called bottom on Rig Systems, nor did we do that this quarter. We did call for a slight uptick in revenue on our guidance going into Q3. But when it comes to our offshore construction projects, offshore rig construction projects, we did have a couple things move to the right again. But I would say so far so good. It feels like things are more stable than they were, let's say, this time last year and we're kind of achieving more of something maybe closer to kind of a smoother or more stable level of work on Rig Systems. What's I think most encouraging to me about the outlook for Rig really is our land offering. We saw our land Rig orders rise to 60% of total orders in the quarter. And so although we're still struggling with a book-to-bill significantly below 1, we do think a recovery and demand for land rigs is out there. We've got conversations going on with operators in North America, with operators elsewhere around the globe. They're all looking at Midland, Texas, seeing the extraordinary drilling gains that are happening with super-spec rigs out there. And so I think that will be the engine that fuels future demand for Rig Systems. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. That's helpful. I appreciate that. And, Marshall's question, talking about what's in short supply and we've heard the perforating guns and you mentioned your downhole motors. But it seems to me, and talk about shortage of people and everybody thinks about field people, but we're hearing that machinists in Houston are exceptionally hard to find. Somebody who can operate a CNC machine. And that would seem to be your strength and bailiwick. And I'm just wondering if there is a shortage of people in that category, one we don't pay attention to all the time, and the implications of it.

Yeah, don't think it's an acute shortage. We're fortunate in that we have, as you know, lots of different manufacturing businesses. And as we've talked about some of those businesses are trending up and some are trending up sharply now and others going down. So we have the opportunity to redeploy resources towards our businesses that are growing. So I think NOV's probably unique in our footprint and scope within manufacturing, which gives us more flexibility to navigate labor shortages that arise from time to time in our space. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. Guys, thank you very much.

Thank you.

Thanks, Jim.

Thank you. Our next question is from James West of Evercore ISI. Your line is open.

Hey. Good morning, guys.

Good morning, James.

Thanks for the detail in the prepared comments. I'm very glad Lydia just sent the comments out to everybody so I could read them about five times to figure out everything you said. You guys were talking very fast there.

We're prepared to answer questions on high G-force elliptical shakers, by the way.

Perfect. So my first question on elliptical shakers. Clay, what you said about inventories on offshore rigs caught my attention because we're not nearly as negative as I think as most people are on the offshore markets. I know you guys aren't calling bottom on rig tech orders and things like that. But it seems to me we've seen a large number or at least a better number of FIDs for big offshore projects so far this year. We've seen actually a rig that was smart stacked is going to go back to work, so we're actually seeing some rigs that have been laid up. And have these rig companies, in your opinion, because most of these guys haven't spent money in years I mean on anything, and they've cannibalized assets and that's hurt your Aftermarket business. Have they gone too far? And do you see just outside of just a pickup and a little bit of pickup and demand here for the rigs driving some Aftermarket, do you see some restocking that needs to go on?

Absolutely. And, by the way, offshore hadn't gone to zero, right? So in the second quarter we just reported, 40% of our orders were related to the offshore. We're seeing customers upgrade certain rigs around lifting capacity, around pipe handling and racking capacity and capabilities, and that's helpful. Obviously, the oil and gas companies have the leverage in this kind of market, and so they're becoming a little more vocal in pushing some of those drillers to upgrade rigs before, for instance, they'll roll over contracts. And so that's constructive. But, you're right, James, both categories, jack-ups and floaters, both categories of rigs have seen a very small recent uptick in activity. We're hearing from our customers more conversations that they're having with their customers around tenders and the like. And, frankly, with all the costs we've taken out of our business, relatively small improvements in activity I think are going to drive really outsized performance in rigs. So, I want to be clear, we're not calling for a sharp increase in offshore activity and we remain very, very cautious in this space given all that's going on. But as you correctly point out, yeah, there's a few green shoots out there that are interesting.

Sure. Okay. Great. That's what I expected. And I do want to ask about your shaker business, your Solids Control business. I'm probably not going to get too technical here, but as I think about it, we're adding additional mud pumps to onshore rigs, which is, obviously, necessary for the additional loads of mud going into the wells, which then, of course, hits the shakers as the mud comes out. And that's causing more damage, more needs for shakers and screens, et cetera. To me, is that a linear type of demand driver? Or does that actually go exponential with just the higher pressures and then the size of the wells?

Well, the size of the wells go up by 2 Pi, right?

Right.

So, for every foot of well, you're creating 2 Pi r more circumference and more volume of cuttings that you're drilling up. And so it presents a challenge on the rig, which is driving demand for a third and sometimes a fourth shale shaker. So there's a lot of implications coming out of the way wells are drilled now with longer laterals and larger diameter and more hydraulics on location. And one of them is around the management of drill cuttings that come out of those wells. And so really the purpose of all that was to highlight NOV's exposure to that trend of technologies we bring to that space.

Okay. Great. Thanks, Clay. Thanks, Jose.

You bet. Thanks, James.

Thank you. Our next question is from Jud Bailey of Wells Fargo. Your line is open.

Thank you. Good morning.

Hi, Jud.

A lot of good discussion today over Wellbore, and you guys have given a lot of helpful detail in terms of directionally how some of the product lines are moving. I was wondering if it'd be possible to maybe help us think about the sizing of some of these different businesses. Things have moved so much in the last couple of years. You highlighted Solids Control. I think you said about a fifth of Wellbore revenue. Would it be possible to get some other kind of sizing for some of the other business lines within Wellbore as we – kind of what they were in the second quarter?

Yeah, I tell you what, we're going to probably continue on what we've been doing in the last two calls, which is to highlight a couple of really interesting businesses, one in each of our Wellbore Technologies and Completions & Production Solutions groups, largely because I think a lot of investors out there, they're very familiar with Rig Systems and Rig Aftermarket, but less familiar with Wellbore Technologies and CAPS. And so as we kind of tick through those, we'll provide a little more mix information. The other thing, too, Jud, I would stress is that mix between these product lines and mix across these segments changes period-to-period as well. So I think we prefer to do it that way.

Okay, that's fair. Just thought I'd ask. Just transitioning over to Rig Systems. Jose, if I could follow up on your commentary regarding I guess $1 billion in revenue for Rig Systems. I know you said and stressed that wasn't guidance, but I just want to understand a little bit better the context of how you're thinking about the scenario in which that would be an outcome, I guess. Is it just nothing else from offshore-related activity and just what you're seeing on the land side these days? I just want to understand that a little bit better.

Right. Really, effectively what we're getting at is what's pretty close to the darkest view imaginable on our part, which is, look, we're right at a point in the cycle where demand remains very, very low, although interest is picking up, conversations are picking up and our bookings have increased slightly, but we're still at very low and, in our view, unsustainably low levels of demand right at the moment. And so really what we wanted to provide is just some really, really simple math to say that, in the current environment, if we stay here forever, that Rig Systems is effectively a $1 billion a year business. So that's basically the roughly $120 million to $125 million a quarter that we've been booking here over the last couple of quarters, plus our own internal demand, plus the other little bit of revenue that doesn't really pass through to backlog, which is a pretty small amount. So that basically gets you to about $1 billion a year. But as I stressed and continue to stress a very deep dark scenario. Obviously, folks have to come back, maintain the rigs that are operating. Just by doing that we think there's more opportunities for capital sales growth. And also we do see a good number of new build opportunities that are not too far out on the horizon. So we're much more optimistic about the future than that dire scenario.

Yeah, this is probably the most common question we've been getting for two-plus years from investors is where does Rig Systems bottom and what does it look like. And it's worth noting that that analysis is based on looking back over the preceding four quarters, which includes the lowest rig count scene in the United States in 70 years. So it's a pretty bleak market. But there's sort of, we think, a floor that's in those numbers. We just wanted to – again, we don't think we'll fall to that level, but that would be a worst-case scenario.

Okay. That's helpful. Thank you. I may be pushing my luck here, but if you were to actually, say, generate $1 billion in revenue, would you venture a guess as to what the margin level could be if it was that kind of level?

I would tell you that look back at where that business was in 2014 and see how far it's fallen and see the fact that it did 7.5% EBITDA margins this past quarter. And that team is remarkably talented when it comes to squeezing profitability out of a smaller revenue base. So I certainly would not bet against them. They will get as much profit out of that whatever revenue base we have in Rig as any management team on the planet.

Okay. Great. Thank you. I'll turn it back.

Thank you. Our last question is from Thomas Curran of FBR Capital Markets. Your line is open. Thomas Patrick Curran - FBR Capital Markets & Co.: Thanks for squeezing me in, guys.

Hi, Tom. Thomas Patrick Curran - FBR Capital Markets & Co.: So for Rig Systems, shifting from such a bleak potential take on it to a possible bright spot, in the U.S. land drilling rig market, as the secular two-one rig construction boom matures and your predictive analytics capabilities advance, are you considering or already pursuing any commercial models on the Aftermarket side to further entrench yourself with customers? Is there an opportunity for the type of long-term service and support agreement you just inked with Transocean or some other form of total cost of ownership approach?

Yeah, I absolutely think there is. Maybe a little trickier for our onshore customers. They tend to be a little scrappier and a little more comfortable doing their own maintenance and things. But I think as we continue to pioneer predictive analytics, which we are very successful at. We're on 17 offshore rigs today and have 20 or so instances of where we've warned customers in advance of issues they needed to take care of when it was opportune. So, I mean, this is really a powerful technology. That coupled with things that we're doing in closed-loop automated drilling using machine learning algorithms to better drill, I'm actually very, very excited about really upping our offering into the land space and getting closer with our customers there and doing more to help them manage their fleets. To me, it just makes a lot of sense. I think drilling, being a contract driller, requires being great at managing logistics and drilling operations and talented workforces that can focus on drilling efficiently on behalf of their customers. Whereas as an OEM, I think NOV is very well-positioned to help them manage their fleets and maintain their fleets and so forth. So, yeah, I'm pretty excited about that actually. Thomas Patrick Curran - FBR Capital Markets & Co.: And, Clay, remind us, do you currently manufacture and sell Walking Systems as a stand-alone branded product line? And, if not, is that in offering you'd like to expand into at some point?

Yeah, we offer Walking Systems. In fact, we're seeing decent levels of demand for that, I would say Walking Systems plus a third mud pump plus a fourth generator set plus a high-torque package. Jose reference the ability to upgrade top drives. That really transforms a Tier 1 AC rig to one of these super-spec rigs that are winning a 15% and in some instances 20% premium on day rates. So, yes, we do. Thomas Patrick Curran - FBR Capital Markets & Co.: Okay. And then last one for me. You know, shifting to the frac spread manufacturing and capital equipment market. Following Forum's acquisition of J-Mac, and now Kirby's pending merger with Stewart & Stevenson, would you expect further consolidation in that arena? And how do you think about how the WISE Group and Rolligon are positioned? Is there anything else you might want to add in response to what those competitors have done?

We have a great offering there we're very pleased with. I think our more recent focus has been around enhancing the technology embedded in what we do. And actually, I'm glad you asked the question, Tom, because just last quarter we introduced a condition-based monitoring system the frac spreads. And, in fact, one of our North American customers put that in place for their customer. And their customer, which is a large independent, monitored frac jobs over the course of a couple months, and was very pleased. They monitored those remotely and was very pleased with the reduction in instances of stuck pipe and things like that. So our focus really continues to be around a differentiated offering, a high-tech offering that earns good returns on capital deployed there. Thomas Patrick Curran - FBR Capital Markets & Co.: All right. Thanks for the answers, Clay.

Thanks, Tom.

I think that...

Sorry, Vince. Go ahead.

I'm just handing it back to Mr. Williams for closing remarks.

Great. Thanks very much. I appreciate everyone turning in this morning and we look forward to reporting our third quarter results in October. Thanks to everyone.

Ladies and gentlemen, thanks for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.