Good day, ladies and gentlemen, and welcome to the NOV Fourth Quarter and Full Year 2023 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 is being recorded. I would now like to introduce your host for today's conference, Ms. Amie D'Ambrosio, Director of Investor Relations. Ma'am, please begin.

Welcome, everyone, to NOV's fourth quarter and full year 2023 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 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 US GAAP basis, for the fourth quarter of 2023, NOV reported revenues of $2.34 billion and a net income of $598 million or $1.51 per fully diluted share. For the full year of 2023, revenues were $8.58 billion and net income was $993 million. 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.

Thanks Amie. NOV continued its strong sales growth through the fourth quarter of 2023 with revenues of $2.3 billion, up 7% sequentially, completing a year in which the company generated $8.6 billion in sales. Full year revenues increased 19% from 2023 versus 2022, driven by strong offshore and international demand, continued supply chain improvement and increasing uptake in the new technologies NOV has been introducing to its customers. Fourth quarter EBITDA increased to $294 million or 12.5% of revenue, up 30 basis points from the prior quarter and up 140 basis points from the fourth quarter of last year. Despite the higher than expected sales for the fourth quarter, EBITDA leverage was lighter than expected at 17%, falling short of our forecast due in part to continuing activity declines in North America and in part to some unexpected charges. Revenues for North America land declined 5% sequentially, hitting our Wellbore Technology Services businesses disproportionately hard. Additionally, we had an approximately $20 million impact on EBITDA in the quarter due to the 55% devaluation in the Argentine peso in December, higher US medical costs and workman compensation insurance accruals. Fourth quarter offshore revenue grew 7% sequentially, a large increases in manage pressure drilling, equipment sales, flexible pipe, conductor pipe and aftermarket spares for offshore rigs. NOV’s international land revenues grew by more than 20% sequentially on stronger shipments of drill pipe, composite pipe, stimulation equipment and drilling equipment for the Middle East. The company's offshore and international revenue strength more than offset North America, leading to consolidated sequential sales growth of 7%. Free cash flow improved significantly during the fourth quarter to $301 million. The inflection in free cash flow signaled relief from the supply chain challenges of the first half of 2023 as additional inventory enabled higher flush year-end shipments,…

Thank you, Clay. NOV's consolidated revenues for the fourth quarter totaled $2.34 billion, and revenues for the full year 2023 totaled $8.58 billion, an increase of 19% or $1.35 billion from 2022. EBITDA increased 10% sequentially to $294 million, or 12.5% of sales. As Clay mentioned, flow-through was limited in part due to larger-than-anticipated year-end adjustments to our medical and workers' comp accruals and the devaluation of the Argentine peso. For the full year, EBITDA increased 47% to $1 billion, or 11.7% of sales. During the fourth quarter, we recorded $55 million in other items primarily related to a voluntary early retirement program. Additionally, NOV's effective tax rate was favorably impacted by the release of $485 million in valuation allowances resulting from the company's assessment of the carrying value of its deferred tax assets and future projections of taxable income. We estimate that our tax rate for 2024 will be approximately 26%. Cash flow from operations totaled a healthy $377 million in the fourth quarter, supported by a reduction in working capital, but partially offset by $42 million in cash severance charges associated with the voluntary early retirement program and other restructuring-related actions. Capital expenditures totaled $76 million in the fourth quarter, and when netted against cash flow from operations, resulted in $301 million in free cash flow. During 2024, we expect to generate free cash flow in excess of 50% of EBITDA with a seasonal use of cash in the first quarter and steadily improving cash flow through the remainder of the year. Our capital allocation hierarchy remains the same as it has been. First and foremost, we prioritized compelling organic investment opportunities, which historically provide us with the greatest risk-weighted returns. As Clay discussed, the new products that we've recently introduced are gaining rapid adoption in the market,…

Thank you. [Operator Instructions] And our first question comes from the line of Arun Jayaram with JPMorgan Securities. Your line is open. Please go ahead.

Yes, good morning, gentlemen. I wanted to get your thoughts on -- you gave us some outlook comments on 1Q. But Clay, you mentioned, revenue growth for NOV has been really, really strong relative to the Big 3, yet margin gains have lagged. And so I wanted to see if you could give us thoughts on how margins could trend in 2024, just given how the revenue uptick has been quite strong? And perhaps you can give us a sense of what type of margins do you see in your backlog versus what you printed in 2023, which I think you did a 12.5% EBITDA margin consolidated in 4Q, just under 12% for the full year?

Yes, it's a good question, Arun. And I appreciate it. Obviously, we've been very focused on margins and leverage here for quite some time. Taking a lot of costs out since 2019, and more planned for -- as we get into 2024. But we faced a lot of headwinds with respect to supply chain disruptions more so than, I think, anybody else in oilfield services along with inflation. And so a lot of kind of headwinds against our battle to push margins up. Nevertheless, we've made good progress, made good progress again in 2023 when margins in the first quarter were a touch below 10% and finishing up, as you point out, at 12.5% EBITDA margins in Q4. Looking forward to 2024, we expect that to continue. The normalization of supply chain is going to help a lot. Inflation appears to be calming down a bit, at least here in the United States, and I think that's going to help a lot. We've been adding accretive work to our backlogs. We ended up with some large frame agreements and things that were signed in the depths of the pandemic that inflation took a much bigger toll on. And so we're quarter-by-quarter working through that stuff. And so I think that all points to improving margin performance as we kind of work our way through 2024. The other part of my answer would be around some of the new products and technologies and things that we have going on. You're -- I know very familiar with what we're doing in renewables, for instance, with these new products and technologies. So there's a lot of -- and it's not terribly material overall, but it does add up a lot of sort of start-up costs around things that we're doing in carrying. And for instance, our Keystone Tower Systems business. Very excited about that. It could be hugely transformational in the wind tower space. But there are quarter-by-quarter start-up costs that we carry with that. So, nevertheless, it's not lost on us. We can do better on leverage and margins. Very focused on that. And it all starts with the top line, and now we're focused on translating that really strong top line growth that we have been putting up into better profitability for our shareholders.

Great. My follow-up, Clay, you mentioned that you may be shedding one to two businesses. And you also announced an acquisition of Extract, I guess, after the quarter closed. Maybe just some thoughts on the portfolio repositioning? And how does this -- how do these moves impact your thoughts on return of capital later this year? Increasing that?

Yes, again, with stronger -- or stronger outlook for cash flow in 2024 and a much higher conversion rate of EBITDA to free cash flow, I think we're going to have more options available to do both return capital to shareholders as well as act on some interesting opportunities we see developing out there. We continually review our portfolio. We continually remain engaged in looking at acquisition opportunities. But we've actually been pretty quiet on that front. I don't think we closed anything in 2023, despite looking at almost three dozen different opportunities. Only one of those -- or actually two of those translated into acquisitions here, Extract being one, and we expect to close another here in a couple of days. And what we see there are businesses that fit very, very well with us strategically that we can get a good value that are immediately accretive to EBITDA and cash flow and earnings for our shareholders. And then on the other hand, we also have businesses that have been in our portfolio, they are terrific businesses, but frankly, might be worth more to someone else than what they're capitalized at given NOV's multiple, if that makes sense. And so we're looking at the value of the individual components in our portfolio, and we've got one process underway that we're pretty excited about. And we think net-net, buying low and selling high is good for our shareholders.

Great. Thanks a lot.

You bet. Thanks, Arun.

Thank you. And our next question is going to come from the line of Jim Rollyson with Raymond James. Your line is open. Please go ahead.

Hey, good morning guys.

Hi, Jim.

If I did my math right from what Jose said on revenue growth and incremental margins, kind of implies your range of EBITDA margins for 2024 full year somewhere in the mid-12% range to almost the mid-13% range. Curious, in the recent past, you guys have talked about getting a 15% EBITDA margin number possibly sometime in 2024. Is that pared back maybe because of the kind of what's happening in North America not being quite as strong as maybe everyone was thinking here three to six months ago? Just kind of curious how you think of margins stepping up between higher-margin backlog and obviously, the cost moves that you're making as we progress through this year and into next, actually.

Yes. You said 15, I think, more accurately we said mid-teens. But incrementally, since that call, as we were, I think, pretty clear in our comments this morning, we're incrementally just a little more cautious on North America now calling for expenditure -- E&P CapEx to be down in 2024 versus 2023. And so that's certainly shading our view. Again, I'll stress, I hope we're wrong. I hope natural gas fuels some additional drilling here later in the year. But that's certainly influencing our exit margins at this point. But the thing is, Jim, we got a long way to go before we get to the end of the year. And we're going to continue to work to maximize margins, whatever the market gives us. And so that's really our focus.

Yes. No, I'm trying to make sure that I was understanding the components there. And then just as a follow-up, you spent a bit of time talking about your edge products on the AI side, and it sounds like that's actually gaining quite a bit of traction. Any sense of magnitude of how meaningful is that to NOV as a whole? And how you're thinking about that from a growth rate perspective, given the--

Yes, it's a great question, Jim, and I'm very excited about it. I'm going to steer clear of quantifying just yet. These are all new products we've been introducing, some just this past quarter. But the approach that we've had for the past few years here has been to develop our Max Edge platform as a corporate resource and enable our business units to develop products off of that. So, we're not reinventing that wheel. And what we have come up with is a very robust platform that facilitates the Internet of Things and edge computing, obviously, a lot of interest in that across the producer space. And a lot of application of that platform to products that we offer through several different business units at NOV, and there's a lot more to come. And so within the drilling world, pleased to be celebrated by one of the major Middle Eastern national oil companies, as I mentioned, for streaming data from 100 rigs at a much higher rate than their previous service provider. In the completion space, our Max Completion is gaining a lot of interest amongst pressure pumpers and their customers in enabling more optimization of frac jobs. We're also continuing to improve that product. And so 3,500 -- more than 3,500 users now, and it's growing pretty dramatically. And then there are several other areas where we're using that in conjunction with artificial intelligence to drive better results. So, our KAIZEN drilling optimization program, our new drilling beliefs and analytics, which has been, as -- I think I mentioned in my prepared remarks was adopted by a couple of large independents shortly after our introduction just a couple of months ago. And so really pleased with how all of this is going.

Yes. Understood. Sounds exciting.

Thanks Jim.

Thank you. And our next question is going to come from the line of Ati Modak with Goldman Sachs. Your line is open, please go ahead.

Hi, good morning guys.

Good morning.

You mentioned some divestiture plans. Can we get some more color on what the size of those proceeds could look like? And how should we think about the nature of those asset sales?

We prefer not to disclose anything more, other than we think this is prudent. We think this is prudent stewardship of our capital and see an opportunity to reposition, adding a product line and then capitalizing on the fact that others value another product line more highly than us. And so I'm kind of just going to leave it at that.

Okay, got it. And then you provided a range for your revenue growth for the full year. Can you help us understand the drivers of the low and high end there and the subsequent impact on EBITDA? How should we think about the drivers?

Yes. Ati, it's Jose. Yes, really, the way that we're looking at it, provide the guidance by sort of major region, North America versus international. And just to repeat it because I know it's hard to catch everything during the course of the call. We said low to mid-single-digit percent range for North America and for international markets, low double-digits. And so those are percentages that I would apply generally across the segments to sort of get to a notional range of where we think the revenues will be for each of the three segments. And basically, those ranges are a little bit more optimistic than what we expect will occur in the marketplace from an E&P CapEx standpoint. So, what we're generally saying is that we think we will continue to outpace the rate of global spend due to all the things that Clay highlighted related to the technology innovation that's continuing to gain more and more traction out there and the positioning that we have, frankly, in the higher growth regions of the world. I also said that the EBITDA flow through, we expect to be in the mid-30% range. So, a step up from kind of where we have been. As we continue to get a better quality of mix in our backlog, better pricing and also some of the cost save -- the effects of cost savings that we've been working diligently to push through the system. So, that's sort of it in a nutshell.

Thank you. I'll turn it over.

Thanks Ati.

Thank you. And our next question is going to come from the line of Doug Becker with Capital One. Your line is open, please go ahead.

Thanks. I didn't catch any update on the cost-out program, the $75 million. Just -- any update on how that played into the fourth quarter and expectations as we go through this year?

Yes, Doug. Yes, as you heard in the commentary, and I think in the press release as well, the major initial catalyst for our cost savings program is really the -- we start with the voluntary early retirement program and also the restructuring of the segment structure. So, going from the three segments down to the two segments. So, all of that really just happened and just got underway. So, very minimal impact from our cost savings efforts through Q4. Expect a little bit in Q1, but really expect to see that gain steam during the remainder of 2024.

Another piece of that, too, is the closure of facilities. So, we just closed a couple of facilities in South America and Europe as well. And so those savings will be flowing in a little -- midyear or so.

Got it. And no change to the $75 million?

No, I think we're on track for that.

Got it. And then, Clay, you mentioned still expect growth in Saudi Arabia. Just trying to get any context here, have your internal expectations changed given the renewed -- and then just how do you think about 2025 or 2026, if you end up having fewer jack-ups working offshore Saudi Arabia?

Yes, it's a good question. Let me caveat my answer by saying I don't -- certainly don't want to speak on behalf of our good customer, Aramco, and I think we'll be seeing more about this in coming weeks. With that caveat, what we think -- and I'll be there a week after next in the Kingdom. What we think they are referring to is really around probably the FID of Safinaya, which is a very large offshore field development that they have not yet FID'd. It's north of $20 billion. And so it doesn't really impact 2024. With respect to 2025 and 2026, I think even without Safinaya, the Kingdom would continue to grow revenues because they continue to press ahead with development drilling to offset declines of conventional oil wells to add production to existing offshore fields that they've already FID'd to add gas production, which is a critical strategic priority for the Kingdom to support domestic gas production and move forward with their unconventional Jafurah development. And so that all adds up to be, I think, a region that is going to continue to grow for the next few years, probably several years in the absence of one or two large offshore fields that get postponed a bit. So, we're still very bullish on the outlook for the Kingdom. And in fact, just yesterday, won an award for a nonmetallic liner -- lined steel tubing business for our Tuboscope plant there in the Kingdom. And really across our portfolio, foresee continued activity supporting all that other work that's going on there. With respect to the jack-ups, just to level set for everybody, they've dramatically grown their jack-up drilling fleet going from about 50 rigs on up to I think about 78 or 80 or so are turning to the right, and then there's another dozen or so that are under contract to come online. So, you add all that up, it's about 91 jack-ups, up from about 50 not long ago. So, a big, big step-up in drilling activity. Those are new contracts. Good rigs. We're working efficiently. I don't know precisely what their announcement -- how it might impact that. But at this point, we're all kind of speculating. But nevertheless, we continue to support all those rigs and continue to remain active on some that are contracted that we're reactivating to put into that market.

Thank you very much.

Thanks Doug.

Thanks Doug.

Thank you. Our next question is going to come from the line of Kurt Hallead with Benchmark. Your line is open, please go ahead.

Hey, good morning, everybody.

Hi, Kurt.

Good morning, Kurt.

Interesting time as always, right?

No doubt.

Yes. So look, I -- the -- your commentary around AI and the growth and utilization of that across multiple functions really definitely caught my attention, and I know that still kind of early stages. But maybe we've been doing this a long time, Clay. Is the adoption rate -- what's your sense on the adoption rate as we go forward? Is the industry on board with this and you think they're going to accelerate it? And then just couple that with the value proposition as you see it evolving.

Yes, good question, Kurt, and I appreciate it. I think the outlook here is really good. It's early days, I'll stress, a lot of these are new products being introduced, but the attention they're getting is good. In fairness, it's a crowded space. There's a lot of people aiming at stuff like this. And it's sort of sometimes challenging to sort of rise above the competitive field. I think in the products that we've introduced, though, we've got really good traction because we are demonstrating value. A number of these, we've developed with customer engineers, oil and gas company engineers that have been seconded to us for a period of time to sit by our developer and say, hey, add this, subtract this. This is really what I want. So it's a lot of a lot of dialogue with our customers around what do you really want and need and how can we add value? And I think that's helped us land on products that really do add a lot of value. The other thing to think about here is the fact that a lot of these digital products, like, for instance, our NOVOS operating system, which is now operating on something like 125 rigs globally, both land and offshore, it really provides kind of a digital foundation for follow-on sales. And rig is a good example. Both land and offshore, our NOVOS operating system facilitates our new ATOM RTX rig automation package that we're now -- is working on a rig in South America offshore. We will -- we've got a customer that will be spudding this quarter onshore. We've got another one that's using it at their training facility. And it really, I think, is going to be very transformative, a lot of interest in this technology. Not just by drilling contractors, by the operators who have seen it who say, wow, this is something that's dramatically better. And so this digital family of products that we're introducing aren't being launched in isolation. They really sort of tie in to our more traditional product lines. And I think they facilitate future sales in those areas. And so there's a lot of pull-through that comes with them as well. But on the whole, I'd say, very proud of what our team has been able to accomplish very robust computing capabilities on the edge. And by the way, edge in the oilfield is a lot tougher than a lot of other edges around the industrial space because rigs work in really remote areas and spotty communications are kind of the norm. They always have been throughout my career. And so we've done a lot to address that and bring the power of big data analytics, artificial intelligence algorithms to oilfield operations. And so I think a lot more to come.

Just a follow-up just in the context of the pause that the Saudis are putting on the expansion of the Safinaya and Manifa fields. Do you think the -- what do you think is there more likely to do? Do you think you're going to pause their new build program? Do you think they're just going to move forward with the new build program and let some of these other rigs roll off contract? What's your instinct telling you?

Well, there's two new build programs. One is the land rig program, which is -- should be unaffected by that. They work in the offshore. And we're continuing to execute those rigs very well and understand they're operating really well. And the other is offshore. And a few years ago, they announced their plans to build a total of 20 jack-ups for the Kingdom. Since then, they've been constructing a shipyard in Ras Al-Khair, next door to our facility. And I think the contracting there has been somewhat gated by the progress on that shipyard to execute future work there. But for right now, I'd say -- the short answer to your question, I don't know. We're still optimistic they're going to move forward with their plans, but I'm going to, again, let Aramco speak for Aramco.

Of course, yes. Got it. Hey, thanks. I appreciate the insight.

You bet. Thank you.

Thank you. And our last question is going to come from the line of Stephen Gengaro with Stifel. Your line is open, please go ahead.

Thanks. Good morning everybody.

Hi Stephen.

So, the re-segmentation chart, Jose, do I need a protractor? Like is this to scale?

You might need a magnifying glass for the table. But no, the chart is not -- is obviously not to scale. But just wanted to make it really clear as to which business units went into which segment. So, hopefully, that's a little bit helpful. And then with the tables, we -- I wanted to give you guys plenty of data to tune up your model. So, five years of pro forma information on the second page of that, if you haven't yet gone through that.

Great. It's very helpful. So, when we think about the free cash flow expectations and then just kind of combine that with sort of return on capital plans, should we think -- I guess, two parts to the question, one on working capital. Should we think about that drifting kind of back towards historical norms? And then how do you think about kind of what's going to drive the decision when it's maybe time to accelerate a return of capital program?

Yes. So, from a free cash flow and working capital perspective, first of all, we were very pleased to finally turn the corner in Q4 and generate really healthy free cash flow. I think that's reflective of the potential that we have in 2024 and beyond. Historically, this company has been low capital intensity business, capitalizing on a high capital intensity industry, which tends to lead to very strong free cash flow. And that's our expectations going forward, notwithstanding Q1, which is, as you know, is almost always a good cash consumption quarter due to the seasonality of the payments that really impacts us in Q1. So, the trajectory of the cash flow, use of cash in Q1, and then steady improvement in terms of free cash flow generation through the remaining three quarters of the year, due in part to the improvement in profitability that we've had to-date, more of that expected into 2024 and beyond. And then also continued progression in terms of normalizing our working capital. So, we finished the year at roughly 29% working capital as a percentage of revenue run rate. That will take a step back in the first quarter due to what we just talked about, and then we should get back to steady improvement. And my expectation is the normalization process will take some time. But really sort of as we get into the -- to the end of 2024, I would expect our working capital as a percentage of revenue run rate to improve, call it, 100 to 200 basis points versus where we are right now. And so put all that together, it presents a pretty good picture for free cash flow in 2024. And as we talked about in the prepared commentary, we're optimistic about increasing our return of capital as we get further into 2024. So, as we've said before, first and foremost, we wanted to get the balance sheet metrics where they should be, we're there. Then we need to get cash balances and more importantly, outlook related to resiliency and consistency in terms of our expectations in free cash flow. And so we think -- putting all that together, it's probably a midyear-type timeframe where we really look at leveraging up that return of capital. But that's been an ongoing discussion with our Board over the last several quarters, and it certainly will be over the next few quarters.

Okay, great. No, that's great color. Thank you, Jose. That's all for me.

Thanks Stephen.

Great. Thanks Stephen.

Thank you. And I would now like to turn the conference back to Clay Williams for closing remarks.

Thank you, Michelle, and thanks to all of you for joining us today. We look forward to reviewing our first quarter results in April. And I hope everyone has a nice day. Thank you. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.