NOV Inc (NOV) Q3 2025 Earnings Call Transcript

NOV Inc (NYSE: NOV) Q3 2025 Earnings Call dated Oct. 28, 2025

Corporate Participants:

Amie D Ambrosio — Director, Investor Relations

Clay C Williams — Chairman and Chief Executive Officer

Rodney Reed — Senior Vice President and Chief Financial Officer

Jose Bayardo — President and Chief Operating Officer

Analysts:

Jim Rollyson — Analyst

Marc Bianchi — Analyst

Arun Jayaram — Analyst

Stephen Gengaro — Analyst

Douglas Becker — Analyst

Presentation:

Operator

Good day, and thank you for standing-by. Welcome to NOV Third Quarter 2025 Earnings Conference Call. At this time, all participants in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. To ask a question during the session, need to press Star-1 on your telephone. You will then hear an automated message advising your hand is raised. To your question, please press star again. Please be advised that today’s conference is being recorded. I would now like to turn the call over to Amy Ambrosio, Director of Investor Relations. Please go-ahead.

Amie D Ambrosio — Director, Investor Relations

Welcome, everyone, to NOV’s 3rd-quarter 2025 earnings conference call. With me today are Clay Williams, our Chairman and CEO; Jose Billardo, our President and COO; and Rodney 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 US GAAP basis for the 3rd-quarter of 2025, NOV reported revenues of $2.18 billion and a net income of $42 million or $0.11 per fully-diluted 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.

Clay C Williams — Chairman and Chief Executive Officer

Thanks, Amy, and good morning. NOV executed well in the 3rd-quarter. Revenues of $2.2 billion were down just slightly, less than 1% year-over-year and sequentially despite a challenging macro-environment and softening oilfield activity. EBITDA was $258 million or 11.9% of revenue, up sequentially despite rising tariff and inflationary headwinds. Cost-control and strong project execution allowed NOV to lift margins sequentially while increasing free-cash flow to $245 million.

Energy Equipment saw strong demand for its growing production-related portfolio, leading to higher backlogs and record revenues from our Subsea flexible pipe and our gas focused process systems businesses. These businesses as well as our marine construction and production and midstream units all achieved their highest EBITDA in five years, expanding segment year-over-year margins for the 13th consecutive quarter. Our drilling activity-driven Energy Products and Services segment once again outperformed the underlying global rig count declines of 8% year-over-year, aided by our growing share of efficiency enhancing downhole technologies and strong demand for drill pipe, including NOV’s proprietary wire drill pipe data telemetry system.

But generally activity continued to soften. In North-America, E&Ps once again trimmed short-cycle oil activity, which is likely to slow further seasonally in the 4th-quarter. Internationally, those Saudi rig suspensions appear to be behind us and while spending there remains low, expectations are building for a few more rigs to go back to work-in 2026. Elsewhere in the Middle-East, demand from the UAE, Qatar and Kuwait remain healthy as customers Continue to invest to meet production goals. Many are pursuing unconventional shale developments. Argentina, Saudi Arabia and the UAE are leading the way, but interest is emerging elsewhere around the globe, as I’ll speak to in a moment. Offshore, our customers expect a meaningful exploration and development drilling ramp to begin in late 2026. Offshore FIDs are expected to pick-up over the next few years following a lull in 2025 and our discussions with customers around deepwater feed studies support this view. Bookings tied to offshore development are already up double-digits year-over-year. Further out, NOV’s prospects through the next decade are extraordinarily bright. Why? Step-back from the near-term noise created by OPEC quota unwinding, oil oversupply, commodity price pressures, tariffs, inflation and geopolitical uncertainty, and you will see two major structural shifts that are setting up a powerful decade of opportunity for our company. First, the globalization of unconventional shale development. Oil and gas are commodities and the winners and losers in all commodity industries live and die based on costs, development costs and marginal production costs. The clear winner in the race to lower marginal production costs since about 2012 or so has been North American unconventional shale, which has arguably provided more than 80% of global supply growth since then. It’s been the winner of the horse race to lower costs and as the winner, it has attracted the most capital. Technology, capital and ingenuity led marginal costs for the shale juggernaut lower and lower, outpacing the marginal cost reductions secured for offshore and other sources of oil and gas. And these competing sources saw capital investment fall sharply through the same-period. But as North American shell producers have chipped away at Tier-1 inventory locations, production growth is flattening here and may well be peaking now. And as the mix of lower-quality Tier-2 locations rises, marginal cost per barrel for North American unconventional shales is creeping up as comments from producers in the past few Dallas-Fed surveys note. After 20 plus years of refining the technology that enabled North American shale revolution, these same technologies are now being deployed at-scale internationally because international E&Ps see opportunity to develop lower marginal cost sources of oil and gas elsewhere. The advantage international shales have at this point is that they will benefit from decades of advancement and several 100,000 shale wells that have been drilled and experimented with and continuously optimized here in North-America and these learnings will now be applied to new Virgin international rock. The near-term challenge they have is they lack the necessary tools and equipment. That’s where NOV comes in. Since prosecuting a successful unconventional shale play requires pretty much everything NOV makes, we’re pretty excited about this. Recall that the US shale Miracle started with a complete retooling of its land rig fleet and the build-out of a lot of frac, coil tubing, wireline completion and production equipment. These tools and technologies are squarely in our wheelhouse, and we see the emerging build-out of infrastructure to support international shale development is driving demand for us for years to come. Second, the reemergence of deepwater and offshore development. After years of second place finishes in the marginal cost horse race, deepwater is back to winning. Deepwater has quietly but steadily gotten better since 2012. NOV supplied offshore drilling rigs are drilling more efficiently, higher hook load capacities are enabling more cost-effective casing programs, the standardization of subsea production kit and FPSO designs have all served to steadily reduce the marginal cost of deepwater barrels and make its economics more compelling. Simply put, we believe that deepwater broadly has brought marginal costs below North American sales and it is now winning the marginal cost horse race. This is a big deal. We believe this inflection, this leadership change will drive many more investment dollars into deepwater in the coming decade to satisfy growing global energy demand. Evidence of this is apparent in exploration success stories in new basins in Guyana, Surinam, Namibia, Senegal, the Eastern Mediterranean, the in the Gulf of America. Industry forecast call for offshore oil output to rise to roughly 13 million-barrels a day-by 2026, making deepwater the leading source of incremental supply growth. The pivot in spin is further helped by the emergence of profitable floating LNG, which adds natural gas as another viable target for offshore E&Ps. NOV’s technology portfolio from subsea flexible pipe and process systems to mooring solutions and rig aftermarket and automation is critical to enabling this expansion. Customer performance expectations favor selection of NOV technology, providing NOV a strong competitive advantage in deepwater operations. Finally, I’ll stress that this 166-year-old horse race is never over. Innovative North American shale operators have an amazing track-record of honing costs to improve competitiveness. But honestly, all operators in all basins do and they have to given the business they’re in. But right now, we see deepwater pulling into the lead and international shales entering the race as a serious contender. We believe these two will define the next decade-plus of oil and gas development and both depend on the tools, equipment and technology that NOB delivers. Back to the near-term, however, as I said, we expect market conditions to remain soft through the next few quarters. Tariffs and inflation uncertainty will continue to weigh on margins in the near-term and global drilling activity is likely to drift lower, but looking further ahead, we see the back-half of 2026 and beyond as a period of strengthening demand across both offshore and international land markets. As deepwater projects ramp and unconventional development expands globally, NOV’s technology leadership and global platform will enable us to capture the growth efficiently and profitably. That’s why I’m so excited about NOV’s future. To my NOV teammates listening this morning, thank you for all that you do to strengthen and improve and lower the marginal cost of the operations of all of our customers globally. You’ve helped build NOV to perform through cycles and to lead-in the next phase of global energy development. And I’m grateful for the way that you get up every day, put your boots on and make this industry better. Now let me turn it over to Rodney.

Rodney Reed — Senior Vice President and Chief Financial Officer

Thank you, Clay. Consolidated revenue was $2.18 billion, down slightly year-over-year and sequentially. Operating profit was $107 million or 4.9% of sales. Net income was $42 million and the company recorded $65 million within other items. Adjusted EBITDA totaled $258 million, representing 11.9% of sales. Sequentially, EBITDA margins improved as strong operational execution and cost controls offset the effects of softening oilfield activity and higher sequential tariff expense. Free-cash flow generation remained robust at $245 million.

Over the last nine months, NOV converted 53% of EBITDA to free-cash flow and achieved a 95% conversion rate during the quarter, which was a result of strong cash collections on projects and a focus on systematic structural working capital efficiency improvements. During the quarter, we repurchased 6.2 million shares for $80 million and paid dividends of $28 million, bringing total capital return to shareholders year-to-date to $393 million, which includes a supplemental dividend of approximately $78 million paid-in the second-quarter. During 2025, we expect to significantly exceed our minimum threshold of returning 50% of excess free-cash flow to our shareholders.

For the quarter, tariff expense came in just under $20 million, increasing approximately $6 million sequentially. For the 4th-quarter, we expect our tariff expense to be around $25 million. We continue to realign our supply-chain and execute strategic sourcing initiatives to reduce tariff impacts. We also remain focused on removing structural costs to improve margins and returns, including consolidating facilities, standardizing internal processes and rationalizing product lines or regions that don’t meet our profitability requirements. These programs are on-track to deliver over $100 million in annualized cost-savings by the end of 2026, although tariffs and other inflationary impacts remain headwinds.

While we expect the near-term environment to remain choppy, we’re executing well, managing what we can control and positioning NOV well for the future. With that, I’ll turn to segment results. Starting with our Energy Equipment segment. 3rd-quarter revenue was $1.25 billion, up 2% from the 3rd-quarter of 2024. EBITDA increased by $21 million to $180 million, resulting in a 140 basis-point increase in EBITDA margins to 14.4% of sales, driven by strong execution in our capital equipment business, more than offsetting lower aftermarket revenue.

Capital equipment sales accounted for 63% of the segment’s revenue in the 3rd-quarter of 2025, increasing 20% year-over-year due to strong growth in offshore production equipment. Aftermarket sales and services accounted for the remaining 37% of energy equipment revenue with sales declining year-over-year by 19%. Capital equipment orders of $951 million for the quarter more than doubled sequentially, reaching our second-highest quarterly bookings in the last 18 quarters.

Orders represented a book-to-bill of 141% for the quarter and 103% book-to-bill over the trailing-12 months. Continued strength in-demand for our offshore related production equipment offerings led the order book with multiple orders for subsea flexible pipe, a monoethylene glycol processing module and our second order for a large submerged swivel and yolk system for LNG offtake in Argentina. Backlog at the end-of-the 3rd-quarter was $4.56 billion, the highest since we started reporting energy equipment as a segment. Our Subsea flexible pipe business had another exceptional quarter with solid year-over-year and sequential revenue growth. The operation also continues to improve profitability due to strong execution on projects. The business delivered record quarterly revenue and bookings with project backlog achieving an all-time high. While the business is performing exceptionally well, our team continues to identify ways to further optimize our manufacturing processes to accelerate production and improve operational efficiencies. Our Process Systems business continued its strong performance both for offshore production and onshore gas fields with revenue growing high-double digits year-over-year, finishing the quarter with record revenue and EBITDA. Offshore production market forecast remain robust, which should continue to drive demand for gas processing and produced water treatment opportunities. Additionally, the build-out of FLNG and FSR use is driving opportunities for our fluid and gas transfer systems like the order I previously mentioned for the submersible swivel and yolk system for an FLNG project in Argentina. Our Marine and construction business experienced a sharp increase in revenue compared to the 3rd-quarter of 2024, driven by a significant increase in-progress on crane and projects, partially offset by lower activity related to wind turbine installation vessels. The outlook for offshore supply vessels, which provides opportunities for our subsea cranes remains strong and we continue to see tenders for vessels. The fixed wind market remains challenging. However, we see the potential for another award later this year or early next year with the continued need for larger new-build vessels in Europe and Asia. Over toSeveral countries are still planning to expand offshore wind supply, which could lead to a shortage of WTIVs around the end-of-the decade and therefore should drive incremental new-build demand over the next few years. Revenue for our intervention and stimulation capital equipment fell double-digits year-over-year due to a steep drop-in demand for pressure pumping equipment in North-America, partially offset by strong and growing demand for coil tubing and wireline equipment. This growing demand related to the development of unconventional resources in international markets and to offshore activity has led to three straight quarters of bookings growth and trailing 12-month book-to-bill of over 100%. Revenue from drilling capital equipment decreased high-single-digits year-over-year due to-market uncertainty and contracting gaps from some offshore drillers. Capital equipment orders improved sequentially, but the demand remained soft as offshore drilling contractors preserve capital while navigating through white space in their contract portfolio. Outlook for the offshore drilling appears to be improving for the second-half of 2026 and beyond, as Clay mentioned, leading to a more constructive dialog regarding opportunities to support recent and upcoming tender awards, including higher hook load capacities, ground compensators, managed-pressure drilling and BOP upgrades. Additionally, demand for automation and robotics continues to gain momentum for land and offshore rigs due to improved safety and operational efficiencies provided by our Adam RTX robotics packages. In our drilling aftermarket business, revenues were down significantly compared to prior year. The decrease is the result of lower spare parts bookings over the last few quarters as customers slowed spending in response to gaps in contracting activity, but we did see a mid-teens percentage increase sequentially in spares bookings, which should lead to a stronger 4th-quarter revenue for the drilling aftermarket business. For the 4th-quarter, we anticipate a less pronounced than usual seasonal increase in our Energy Equipment segment due to timing of capital equipment deliveries. As a result, we expect revenue to decline 2% to 4% year-over-year with EBITDA in the range of $160 million to $180 million. Our Energy Products and Services segment generated revenue of $971 million, a 3% decrease compared to the 3rd-quarter of 2024, reflecting lower global activity levels and delayed capital equipment orders for infrastructure projects, partially offset by technology-driven share gains. EBITDA was $135 million or 13.9% of sales. Higher decrementals resulted from an unfavorable sales mix, pricing pressures in North-America and increased tariff expense. We’re focused on reducing structural costs, including consolidating facilities and exiting product lines or regions that don’t meet our return requirements. North-America represented 57% of segment revenue and grew 7% year-over-year on higher drill pipe sales compared to a 10% decline in rig count. Segment revenue decreased 15% year-over-year in international markets due to some activity declines in the Middle-East and Latin-America. For the quarter, the sales mix for energy products and services was 51% services and rental, 31% capital equipment and 18% product sales. Services and rentals revenue declined 4% year-over-year as demand for our solids control services declined in the mid-teens due to lower international activity. However, increased traction for our efficiency enhancing technologies in North-America as well as in unconventional and tight gas applications internationally helped partially offset the impact of an 8% global rig count decline. In North-America, drill bit revenue rose mid-single digits due to-market share gains tied to superior performance and reliability, and we realized growing demand for our drill bits, downhole tools and tubular coatings from the increase in gas-directed drilling, particularly in high-temperature applications in the Haynesville. Internationally, our downhole drilling motors were deployed in the first unconventional wells drilled by an independent in Bahrain and rentals of our downhole technologies increased in Argentina supporting unconventional development. Tubular coating and inspection revenue was down modestly year-over-year with strong growth in North-America coating sales, partially offset by lower demand in Latin-America and the Eastern Hemisphere. Capital sales increased 5% year-over-year, supported by mid-teens percentage growth in drill pipe sales as customers replenished inventories. Drill pipe bookings reached their highest-level since early 2022. However, composite pipe and tank sales declined primarily due to delays in infrastructure projects affecting timing of orders. Orders for infrastructure projects stepped-up late in the 3rd-quarter and included an order for two large fuel storage tanks for our data center and nine miles of 55-inch glass reinforced plastic pipe in Brazil. The strong order intake for our drill pipe and fiberglass businesses positions us well for improved capital equipment revenues in the 4th-quarter. Product sales decreased in the mid-teens percentage range year-over-year with higher downhold tool sales in Asia more than offset by fewer international book sale deliveries. Additionally, we are seeing an increase in international customers changing their preference from purchasing to renting drill bits, more in-line with predominant customer preferences in North-America. Looking to the 4th-quarter, we expect a modest sequential pickup in capital equipment sales from our Energy Products and Services segment to be more than offset by softer market conditions. As a result, we expect 4th-quarter segment revenue to decline 8% to 10% year-over-year with EBITDA between $120 million and $140 million. With that, I’ll turn the call over to Jose.

Jose Bayardo — President and Chief Operating Officer

Thank you, Rodney. NOV executed well during the 3rd-quarter in a challenging market environment. While we expect near-term activity levels to remain soft, we also believe that growing demand, natural decline rates and a decade-plus of underinvestment in exploration will drive a meaningful recovery potentially beginning as soon as late 2026. We have a very constructive view regarding the industries and NOVs outlook over the medium to longer-term as a result of the market backdrop and how we are positioning the company.

We remain sharply focused on improving operational efficiencies while positioning NOV to capitalize on key secular trends, including offshore production supplanting US unconventional resources as the dominant incremental source of global oil supply, accelerating activity in international unconventional basins, natural gas becoming the fuel of choice for power generation and the application of technology to drive efficiencies. These trends are driving actions we see from our oil and gas operator customers and are driving how we invest in and position our business.

Clay highlighted that we provide many of the critical tools, equipment and technology required to meet the growing needs of our customers. NOV has a unique but broad portfolio of solutions and serves multiple end-markets that often move through cycles at different rates. The diversity in our business along with our technology and service-driven market leadership are intentional and strategic and provide operational and financial resilience. Let me explain what I mean. In 2023 and 2024, NOV generated roughly $1 billion in adjusted EBITDA, and we expect that we’ll deliver about that same amount in each of 2025 and 2026.

While our earnings appear stable at the consolidated level, our mix can change meaningfully from year to year. Following the pandemic, we realized a rapid recovery in-demand for shorter-cycle activity-driven products and services, particularly in North-America. As a result, our Energy Products and Services segment drove our growth and contributed roughly 62% of our adjusted EBITDA in 2023. Since then, we’ve seen slowing activity in North-America, which has been offset by growing demand for capital equipment in offshore and international markets.

As a result, we expect Energy Equipment’s contribution to EBITDA to rise from 38% in 2023 to approximately 55% in 2025, while Energy Products and Services EBITDA contribution moves to about 45%. While we have seen a sizable shift in the contributions from our two reporting segments, some of our businesses have realized a greater than 40% increase in the revenues and significantly Higher percentage movements in EBITDA, which offset declining activity in North-America. The diversity in our portfolio provides resilience during times when market cycles are out of phase as we’ve seen over the last decade. And when, not if cycles align, likely driven by higher commodity prices and a more sustained global upcycle. The amplitude of NOV’s earnings will be materially higher even without an offshore rig newbuild cycle. While our business is intentionally diverse, we are extremely deliberate about how we position our portfolio and how we compete. Each of our operations leverages NOV’s energy expertise-driven core competencies in engineering, material science, manufacturing, service delivery and supply-chain management. We also focus on participating in businesses where we can be market leaders and establish and advance competitive advantage often achieved by harnessing our core competencies and world-class R&D capabilities. Additionally, we focus on markets that have high barriers-to-entry, typically due to complex technological hurdles and the associated capital requirements. Market leadership in high-barrier to entry markets enable scale. Scale across multiple product and technology-oriented businesses that can leverage common manufacturing, engineering and supply-chain resources further advances competitive advantage and provides resiliency during market cycles, allowing us to continue investing in innovation regardless of market conditions. You will find market leadership across our product portfolio. We pioneered numerous technologies that helped unlock the shale revolution by enabling efficient drilling and completions of ultra long lateral wells. As Clay noted, these technologies are now realizing accelerated adoption in emerging international unconventional markets. We’ve also pioneered numerous technologies that unlocked major efficiencies associated with the exploration and development of deep-water resources. Our game-changing leached PVC cutter technology dramatically increased thermal stability and wear resistance of drill bits, leading to substantially higher rates of penetration and longer runtimes with fewer trips. While the bulk of the industry now uses our technology, we continue to leverage our material science expertise to further advance cutter technology that drives improvements in rate of penetration and reduces costs. These advances have allowed our REITHIC log drill bit business to gain share in many markets, including the US, where its revenue grew 11% year-over-year against an 8% decline in drilling activity. Another game-changing downhole technology we pioneered was our agitator friction reduction tool, which enables operators to drill farther and faster. We continue to advance our technology to build better fit-for-purpose versions of the tools such as our Agitator ZP and our agitator rage friction reduction tools. The ZP is a zero-pressure drop friction reduction tool that allows customers to maintain maximum flow rates in pressure limited drilling situations. On the opposite end-of-the spectrum, our agitator rage leverages the high-pressure capabilities of super-spec drilling and pump packages to produce extreme levels of friction reduction for tight curves, U-turns and ultra-long laterals in the most demanding environments. Revenue from new downhole drilling technology, which includes our latest agitator offerings is up over 30% year-over-year comprising almost 20% of our downhole tools businesses revenue with more room to run. Even in areas where many people may not think technology plays a big role, such as in tubulars, innovation drives our market leadership. After setting the global standard for premium high torque drill pipe with our XT connection that can handle 70% more torque and improve hydraulics with up to a 50% reduction in internal pressure loss in comparison to standard API connections or engineers developed or Delta connection. Delta can handle 20% higher torque than the XT connection for extended length drilling applications and its proprietary design prevents galling, reducing total cost of ownership and enabling up to 50% faster makeup than other premium connections, reducing tripping time. We also recently introduced wear-resistant drill pipe to address accelerated body wear in extreme drilling environments and insulated coatings to protect against extreme well temperatures that cause premature failures of bottom hole assemblies. Additionally, we are a leader in providing subsea flexible pipe for deep-water production. We have won the Supplier of the Year award from the largest global consumer of subsea flexible pipe two years in a row as a result of our technology execution and service. We continuously advanced technology that addresses our customers’ most pressing needs. This quarter, we received an order for our active heated flexible riser system, which combines flexible pipe and heating technology to address flow assurance challenges in environments where heavier oils become even more viscous in cold deep-water conditions. We also offer our Optiflex condition monitoring system that utilizes embedded fiber-optics to continuously measure temperature and fatigue and we’re undergoing qualifications for what we believe is the leading contender to cost-effectively mitigate CO2 stress corrosion cracking, which is a costly issue in Brazil’s pre-salt fields. We’ve been investing in our solution for the CO2 stress corrosion cracking challenge since 2019, reflecting our commitment to invest in critical solutions for our customers throughout the cycle. I could go on all day covering the technology leadership across our product portfolio, but you probably detect the pattern here. NOV pioneers technologies that provide meaningful advancements for the industry, then we continue advancing our technologies, allowing us to maintain our competitive advantage and market leadership. While we focus on rapid innovation and continuously improve our products, R&D efforts that drive potentially revolutionary changes like our CO2 stress corrosion solution and our industry-first 20,000 PSI BOP take place over longer periods of time, sometimes over a decade, an investment horizon that few in this industry have the fortitude to stomach. We continue to be relentlessly focused on several other potentially revolutionary long-term R&D initiatives and would like to highlight a couple of our ongoing efforts to digitize and automate the energy industry. Over a decade ago, we commercialized wire drill pipe that can transmit data at up to 58,000 bits per second compared to the five to 15 bits per second for standard mud pulse telemetry. Since our initial commercialization, we have significantly improved connection reliability, lowered costs and built a portfolio of advanced sensors and tools that harness the capabilities of real-time broadband data transmission. Additionally, we’ve invested in a software stacked aggregate, visualize and contextualize data to drive more value for our customers through better analytics, decision-making and automation. During the 3rd-quarter, our downhole broadband solutions team helped the customer drill an important exploration well in the North Sea. Our wire drill pipe technologies enabled advanced geosteering for ultra-long horizontal sections at unprecedented speeds reaching up to 200 meters per hour and precision accessing significantly more reservoir than the customer previously thought possible. The operator stated that a typical exploration well might intersect a few hundred meters of reservoir, but we helped our customer drill a multilateral multi-target exploration well that exceeded 20 kilometers of reservoir exposure. This complex well drilled with leading-edge technology cost a bit more than a conventional exploration well, but it accessed a very large multiple of the amount of reservoir a conventional well would have encountered. Additionally, with the quality and quantity of data collected, we help the customer meaningfully reduce uncertainty and accelerate their timeline from discovery to development. Lastly, I want to highlight the success we’re having with drilling automation. Our Novus drilling automation system was designed to automate repetitive drilling activities and more importantly, to serve as a platform that would allow multi-machine control and rig floor automation. Leveraging this platform, we developed our Adam RTX robotic system, which we commercialized in January 2024 on a rig working for an IOC in Canada. Our Adam RTX system completely automates the vast majority of operations without human intervention on the rig floor, significantly improving safety and drilling performance while providing high levels of consistency. We now have a total of six operational robotics packages, three on land and three offshore and the IOC using our robotic system in Canada recently shared with us that the automated rig is their best-performing rig in the region. We’re hearing more-and-more of our customers describe our robotic system as the next top drive for the industry, which by the way was another revolutionary technology that NOV pioneered for the industry. Excitingly, the backlog for our Adam RTX system is growing at a healthy clip. NOV’s technology and market leadership and business diversity drives operational and financial resilience. This resilience enhances our ability to leverage our core competencies and invest through cycles to further advance our competitive advantage, but none of this would be possible without our fantastic people. NOV will play a key role in the emergence of international unconventional resource development and the coming growth of deepwater production. Our technologies from downhole tools to advanced digital solutions are developed through intensive collaboration among multidisciplinary teams and close engagement with our customers to improve the efficiencies and lower the marginal cost of energy production. Few organizations outside NOV possess the breadth of capabilities required to commercialize solutions of this complexity. The people of NOV continuously demonstrate a remarkable ability to design, manufacture and service essential technologies for our clients. Every member of NOV plays an important role in putting customers first and making NOV better every day. And I’d like to thank our team for their dedication and their unwavering focus. With that, we’ll open the call to questions.

Questions and Answers:

Operator

Thank you. As a reminder, if you would like to ask a question, please press Star-1 on your telephone. You will then hear an automated message your hand is raised. If you would like to remove yourself, press star again. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question today will be coming from the line Of Jim of Raymond James. Your line is open.

Jim Rollyson

Hey, good morning, everyone. Nice results and obviously great bookings and ending backlog. And I guess, Clay, nothing like starting — going into a little bit of slowness before we get to the nice vision you have for where this is all going down the road with a record backlog. And maybe if I can ask about that, your energy equipment business, looking at it the way things have trended this year, you’ve had pretty solid growth year-on-year every quarter in capital equipment and then you had aftermarket kind of be a drag. And I’m wondering with the backlog you have and kind of the timing and that as you look out, can you continue to put up pretty decent year-over-year growth like through ’26 even in a maybe a bit of a softer near-term market because of that backlog?

Clay C Williams

Yeah. I think it will certainly help. On that side, what we’re concerned about, Jim, and we referenced this in our prepared remarks is the general softness in the — everybody — look, everybody in the oilfield is worried about the overhang of OPEC barrels and as those come in, what they’re going to do to commodity prices. So I think quicker turn items like aftermarket and spares and that I think people are going to be very circumspect about what they spend in that area.

But yeah, so-far so good on the capital equipment side of energy equipment and which as we also noted is really driven by our production-related equipment. That’s risen in our mix from south of 20% of the mix to now north of 30% of the mix for the segment revenues and has really dominated our orders, something like 80% of our orders for the past few quarters have been in the production side of things. So the drillers are still very cautious on capital spend, but this is really an engine that’s fueled by demand for production equipment.

AbsolutelyBut as we look into 2026, we do foresee a pickup in deepwater late in the year. That’s a very consistent theme we’ve heard from offshore drillers and IOCs both. But I also think that the year — the year’s results are likely to be tempered by continued slowing of activity here in North-America and otherwise. But as you rightly point out, once we get into late 2026, 2027, once we get through the excess barrels that OPEC is putting back on the market and kind of that gets behind us. I think it’s really setting up for a much stronger market for NOV. Absolutely.

Jim Rollyson

And as a follow-up, just maybe sticking with EE, the other issue you’ve had this year is probably not what we thought nine, 12 months ago, but margins have actually been pretty strong there and kind of bounced around this 13 something to 14-plus percent. And I’m curious, as you look into ’26, just on the mix of capital equipment versus aftermarket, the types of stuff like more production-related equipment, how do you think about the margin profile? Like is kind of ’25 margin profile something we could see again in ’26 when you throw in the tariffs and then the cost offsets that you’re also doing.

Jose Bayardo

Hey, Jim, this is Jose. I’ll start-off on this one. You know, really we’ll have to see how things play-out during the course of the year. So I think Clay did a nice job at sort of sort of describing the scenario that we envision for 2026 in general, but the timing of how things play-out is always difficult to pin down. So as you pointed out, we’ve had really nice steady improvement in terms of the overall quantity of the of the backlog, but we’ve also seen continued improvement in terms of the mix and really embedded pricing and margin within that backlog as well.

So feel really good about our positioning from a capital equipment standpoint going into 2026. The real variable is going to be as it relates to a lesser extent book and turn type items. Bigger driver is obviously going to be the aftermarket piece. But really, as we sit here today, we feel pretty good about the way that is shaping up. And I think as Rodney touched on in his prepared remarks, line-of-sight towards recontracting a lot of the offshore fleet is looking more-and-more promising. When those rigs are recontracted, keep in mind that once contract is signed, it’s typically nine to 12 months before they start turning to the right.

But once those contracts are signed, they’re typically picking-up the phone and calling us for additional spare parts to replenish those rigs and get them ready to get back to work and also doing any potential upgrades. But so the setup is very good, but the timing is a little bit uncertain. So it really just depends on what happens through the course of the year. But as Clay mentioned, what’s really exciting to us is the setup for 2027.

We talked about the — when sort of these cycles in our various components of our business converge, you know, significant increase in the amplitude of our earnings when that happens. And what we’ve seen happen over the last several years is we start-off with North-America, the North-America trends down, then we saw a reactivation cycle for the offshore rig drilling space. And that sort of tapered off, but we got a pickup in offshore production-related equipment and that’s the bright spot in the portfolio right now.

And towards the latter part of 2026 and the latter part and into 2027, that’s when we sort of see those more of those cycles converge, particularly as it relates to all things offshore, but also think we could see a really nice continued activity for international sales. And do think that North-America will have to run a little bit harder as well just to maintain flat production, if not sort of grind things just a little higher. Sorry, it’s a long-winded response, but I think the setup for NOV is really good over the next couple of years.

Jim Rollyson

Appreciate all the insight guys. Thank you.

Operator

Thanks, Jim. Lisa, do we have another question

Marc Bianchi

Hello Lisa, are you there hello operator

Operator

Hey Mark are you on the line Mark being.

Marc Bianchi

I’m here. Hey, there you go. Hey, good morning. Hey, guys. How’s it going? Yeah, I wasn’t hearing anything on my end either. But yes, thanks for taking the question. I guess you had a really strong quarter of orders in energy equipment. How are you thinking about 4th-quarter and beyond? Can we see clicking along at a one or better book-to-bill from here on or what’s the general outlook?

Clay C Williams

Mark, what I’d tell you is, orders here are always lumpy. We’re always very hesitant to give too much guidance because a lot depends on some large orders. Going into the 4th-quarter so-far, we’ve got line-of-sight on a couple of large interesting orders. One, we feel pretty good about, another may be a longer put. What I’d tell you is that kind of given the caution, I think that’s out there, my expectation is for the 4th-quarter orders probably will slip a little bit below 100% book-to-bill right now. But if we do — if we do land that second order, I think that may help put us over 100% book-to-bill.

But my best guess right now is probably just a tad short. But I’ll stress again, we’ve had four years of great quarters. I think our backlog is up 40-something percent, 43% since 2020 and over 100% book-to-bill trailing-12 months. And obviously, Q3 is very strong at 141% book-to-bill. So we don’t get too worried about one particular quarter. What’s more important is longer-term trend and the longer-term trend for NOV for the past few years has been very solid.

Marc Bianchi

Yeah. Yeah, indeed it has. The other question I had was just on the — there was $65 million of other items and I think you know, write-down of long-lived assets and inventory were mentioned. Can you say how much of that was the inventory? And how much of a benefit to margin was that in 3rd-quarter, if at all and how much is it benefiting kind of going-forward?

Rodney Reed

Yeah. Thanks, Mark. Our other items were really an output as we mentioned in our last quarter earnings call, that we’re going through some detailed business process reviews. We’re looking at product lines, sub-product lines, business units, facilities for high-return opportunities under a return lens. And as we continue to go through that process over the last 90 days, we have had Some facility consolidations, facility closures, some exiting of certain sub-product lines, which to your point, the output was some was some inventory charges that those inventory charges don’t have any impact to margins going-forward those that inventory is scrapped and does not have any margin impact going-forward.

Marc Bianchi

Got it. Got it. Thanks for that, Rodney. I’ll turn it back guys.

Rodney Reed

Thank you.

Operator

Thank you. Thank you. Our next question comes from the line of Arun Jayaram of JPMorgan. Please go-ahead,

Arun Jayaram

Arun. Yeah, good morning, gentlemen. Clay and Tim, I was wondering if you could maybe elaborate a little bit about the build-out of unconventional is that you’re seeing, you mentioned Argentina, the UAE and Saudi. Maybe you could talk a little bit about what you’re seeing there. I think you highlighted increased coil tubing and wireline types of orders, but talk about the early build-out there and perhaps other countries or regions where you’re seeing unconventionals get gain share?

Clay C Williams

Yeah. Let me talk about that and then I’ll hand it over to Jose to talk about maybe our demand for intervention and stimulation equipment. What I’d tell you is this most interesting to us is you’ve got very well-known programs in Saudi Arabia with the Jafura field, with America in Argentina and unconventional fuels in the UAE that are being prosecuted in earnest by the oil companies that control those that are they’re moving forward. But what’s interesting to me is a number of really successful North American shale entrepreneurs now that are prospecting and looking for kind of the next basin to move to.

And so there are — this is, I think a wave of unconventional prospecting underway in places like Algeria and Turkey and Oman. And, we mentioned in our press release, Australia. And so these are really interesting technologies or transformative technology. They have the potential to catalyze new low-marginal cost sources of production. And so we’re pretty excited about what this means for NOV in the future.

Jose Bayardo

Yeah. And Arun, just to pick-up on that. So yeah, there’s a broad-spectrum of practically NOCs in countries that are at different stages of the development. As Clay touched on, Argentina, Saudi are sort of at the more mature end-of-the spectrum. And then you have folks like Pakistan and Turkey that are really just starting to get started and everybody else is somewhere in-between. And this is an exciting backdrop for NOV and all of these markets tend to start in a pretty similar way. And in some of these less mature very early-stage markets, we’re seeing a big pickup in-demand for our core services as you might imagine, as people try to delineate the boundaries of what these unconventional plays look like,

Then you typically translate from that type of work to a little bit of a of probing the formations, but that quickly, assuming everything goes according to plan, that quickly moves to realizing that a lot of investment is necessary in order to make things go and that translates into investments in infrastructure, which has been driving a lot of demand for businesses like our fiberglass business, a lot of build-out of a flexible pipe and rigid pipe as well to transport fluids and gas to and from locations. Also things such as chokes, manifolds, things of that nature also get going.

And that as it relates to once things get a little bit more mature, that’s when we start to see a big pickup in-demand for effectively more traditional service equipment, whether it’s drilling equipment or intervention and stimulation related equipment. I guess what I will say related to intervention stimulation equipment business in general is, obviously that’s been a pretty tough business for us over the last couple of years. Historically, that was very much a North American-centric business. Obviously, there hasn’t been a lot of demand here over the last couple of years.

But what we have seen here really over the last year is steadily increasing demand from our intervention and stimulation equipment business entirely related to demand from overseas unconventionals, particularly for large-diameter coiled tubing units, new wireline equipment, all, all the things that are really necessary in order to enter into development mode from an unconventional standpoint. And so to put things in perspective, we had a greater than slightly greater than 150% book-to-bill this quarter, but really for the last four quarters, we’ve seen a steadily improving book-to-bill in that business. And while we’re still down quite a bit from where we were over the trailing 12-month period, we’re now back to being over a 100% book-to-bill for that business.So things definitely heading in the right direction and see a lot more opportunities to come.

Arun Jayaram

Yeah, great. My follow-up is just wondering if you could just discuss what you’re seeing in terms of FPSOs, maybe provide a context of how many of FIDs do you see in 2025 and maybe thoughts on how that could progress in ’26 and ’27 because typically that could include chunkier types of awards for NOV.

Clay C Williams

Yeah. So we’ve seen — I think everybody has been affected by this OPEC of overhang of production. And so there continues to be a little caution out there. And as a result of that, as we progress through 2024 and 2025, estimates for FIDs and for the number of FPSOs to be ordered has been kind of walking down a little bit. Year-to-date, I think there have been three awarded and I think there are likely a couple of more to come here at year end. But what we’re excited about is by — by — as we get into late 2026 and 2027 and we get this oil overhang behind us. Again, I think it’s a much brighter outlook and I think we’ll see demand pick-up again.

Arun Jayaram

Great. Jose, congratulations and appreciate it.

Clay C Williams

Thanks,.

Operator

Thank you. Our next question comes from the line of Steven Zengara of Stifel. Please go-ahead, Steven.

Stephen Gengaro

Thanks. Good morning, everybody. I think my first question, I think it was about a year-ago. It may have been a little longer, but you had talked about sort of better price backlog that was sort of primed to start flowing through the — through the income statement and we’ve seen some of that. And I’m just curious if you could talk a little bit about the current backlog, recent orders and how we should think about the margin impact at a high-level in ’26 and maybe beyond?

Rodney Reed

Yeah. So good, good point there, Steven. So as you mentioned, really throughout ’25, we’ve seen — seen a couple of different cross currents in particular for the EE business. One, as Clay mentioned, a significant number of our — of our bookings throughout the year have been in the offshore production space. As we have strong, strong technological advant advantages there, high barriers-to-entry, our margin profile is able to continue to increase. In addition to good operational efficiencies over the last 12 months and some of that offshore production area, which has really driven revenue and margins up in that particular area.

Offsetting some of that has been a decline in some of our aftermarket business. So we mentioned during the quarter sort of a high-teens decline in our aftermarket business and that sort of spans across the full portfolio, principally in the in the drilling space. I think as Jose mentioned on the question earlier, as we look into 2026, we’re still able to have strong margins on what we’re quoting in our offshore production of equipment and also the team is working diligently to continue to improve operational efficiencies. So that sort of strong backlog heading into ’26 should be positive on the margin side.

And then part of the — part of the other equation is sort of timing of when some of the rig aftermarket, some of the offshore piece happens. And we mentioned that’s probably more in the second-half of ’26 than in the first-half. So put those — put those pieces together and put the glimpse into some of the 2026 margins.

Clay C Williams

Steven, Rodney said it well. I’m going to add to what he — what he went through the fact that I think our processes and our controls around the risks on signing new contracts in terms of very thoughtfully going through how we’re going to execute, how we Can improve our operations, how we can make sure that the scope that we’re taking on is clear and we are the right company to handle that scope, the payment terms, all the above. I think the quality of the backlog is as high as it’s ever been today. And so that’s — that’s why you’ve seen margins continue to walk-up there in energy equipment and that’s strong clear contract provisions with our customers and then just an outstanding team executing these contracts after we win them is a great combination.

Stephen Gengaro

Great. Thanks. Thanks for the detail. And my second question is more high-level and we’ve all been doing this a long-time. And when we start — when we start hearing about US production plateauing, we’ve been hearing that sort of theme from a couple of companies and that activity is not high enough to sustain production. Do you guys see that? And do you think that is a critical sign towards maybe getting up stabilization and ultimately recovery in US land?

Clay C Williams

Yeah, I’m going to caveat this in just full disclosure. I’ve been wrong on this before, so I’m hesitant to call US production peak. What I would say is though it’s becoming clearer and clearer that growth is decelerating and it ain’t what it used to be. 2023, US production grew almost 1 million-barrels a day and the EIA now is forecasting 2026 growth to be zero. And so it’s been steadily declining. The level of activity has been strengthening.

I think you have not seen production declines quite as meaningful as people have forecast, but that’s because what activity is going on out there is being done at very-high levels of efficiency and all that longer laterals and continuing to improve completion techniques and the like. But it’s just — I think it’s becoming more-and-more evident to a lot of people in the industry that US shale, North American shale is kind of approaching the twilight that Tier-1 locations or are being exhausted otherwise why would you drill a horseshoe shaped well?

Why would you do a refrac? I think why would you go to Turkey and look for opportunities or Algeria? So I think that all sort of signals the behavior in the industry. The production numbers points to the fact that, I mean this has been a fantastic horse in the horse race I described earlier, and it’s produced a lot of oil and gas. 8.5 million-barrels per day have been added from US shields from since 2008 on a $1 trillion capital investment campaign and has done a lot of good for humanity around the globe to provide oil. But I think we’re seeing this basin begin to roll-over. And as all basins have always done in the entire history of the oil and gas industry, and I think it’s inevitable now that this technology gets supplied to other basins elsewhere around the world.

Stephen Gengaro

Great. No, thanks for the color.

Clay C Williams

Thanks, Stephen.

Operator

Thank you. Our next question comes from the line of Doug Becker of Capital One. Please go-ahead, Doug.

Douglas Becker

Please go-ahead. Thank you. So EBITDA to free-cash flow conversion was 95%, even with a bit of an increase in capex sequentially. And so it seems like some of the structural changes in working capital management are having an effect. So I wanted to get some color on what’s the outlook for capex and free-cash flow-in the 4th-quarter, but more importantly, just do these structural changes put a little bit more of a upside bias to free-cash flow conversion as we think in, I think in 2026 and 2027.

Rodney Reed

Yeah. Thanks. Thanks, Doug. This is Rodney. I appreciate the highlight of the team’s effort on free-cash flow conversion for the quarter, 95% and as we mentioned, 53% on a year-to-date basis. So strong, strong performance there. And that’s been — that’s been predicated on a couple of different points. One, strong, strong project execution, as Clay mentioned earlier, good contractual terms, good collections. So when you look at things from a DSO perspective, overall AR, contract assets, liabilities, we’ve seen some good improvement there. And over the last 12 months, some good improvement on the — on the inventory and inventory turn side of things.

So that’s led to where we’re at right now and working capital as a percentage of revenue for the quarter, just a touch under 28%, 27.9%. Just a couple of pieces of commentary to help on Q4, think that working capital percent may just get a touch better, so call that in that sort of 27% to 28% range. And really on kind of flat revenue Q3 to Q4, working capital may improve just a touch. As you mentioned, you know, our capex is up just a bit year-on-year as we’ve had some good organic opportunities on higher-return investments.

And so that’s — so that’s continues to sort of flow-through during Q4. And overall, feel-good about 2025 sort of being in that ballpark of 55% free-cash flow conversion. As we look out into ’26, still early as we look at our budgets and composition of the different revenue streams. But with some of the structural improvement that we’ve made in working capital, think that sort of ballpark of about 50% conversion is sustainable in the future.

Douglas Becker

Got it. And then Clay, I really appreciate the reluctance to talk too much about orders on a go-forward basis because they are so lumpy. But a lot of constructive commentary about the intermediate-term outlook. And is it a fair way to think about this if we see the offshore drilling pickup that seems to be widely expected in late ’26, maybe early ’27. Is that a point where we’d start to see book-to-bill pretty consistently above one? Is that a reasonable way to think about it?

Clay C Williams

Yeah. I think it is, Doug. I think that will be additive to the demand we’re seeing for production equipment. And honestly, right now within energy equipment, it’s the demand for offshore drilling equipment that’s really missing. And I think that comes back-in late 2026, that will be additive and I think that’s a good thing for us. I also think, again, I can’t say too many times, the clearing of OpEx overhang and a more constructive commodity price outlook, I think that will help in all categories of equipment demand.

Douglas Becker

Makes sense. Thank you, Claire.

Clay C Williams

You bet. Thanks, Doug.

Operator

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

Clay C Williams

Thank you, operator. Thank you, operator, and thank you all for joining us this morning. The company looks forward to discussing its 4th-quarter results with you in February. Operator, you may close the call.

Operator

Thank you, sir. This concludes today’s conference call. Thank you for participating. You may now disconnect