NOV Inc. Q2 2026 Earnings Call

Good day. Thank you for standing by. Welcome to the second quarter 2026 NOV Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amie D'Ambrosio, Director of IR. Ma'am, please go ahead. Welcome everyone to NOV's second quarter 2026 earnings conference call.

With me today are Jose Bayardo, our Chairman, President, and CEO, 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. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website.

On a U.S. GAAP basis for the second quarter of 2026, NOV reported revenues of $2.13 billion and a net income of $112 million, or $0.31 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. Let me turn the call over to Jose.

Thank you, Amie. Good morning, everyone. Thank you for joining us. NOV executed exceptionally well during the second quarter. Our team successfully navigated continued logistical challenges in the Middle East while capitalizing on improving demand for the critical technologies and equipment NOV provides to the global energy industry. We also realized additional benefits from the operational improvements we've been driving across the organization. NOV generated revenue of $2.13 billion during the second quarter, an improvement of 4% sequentially. Adjusted EBITDA totaled $283 million. Excluding the approximately $40 million IEEPA tariff benefit recognized during the quarter, adjusted EBITDA was $243 million, reflecting approximately 80% incremental EBITDA conversion on our sequential revenue growth. The strong incremental margins reflect excellent execution on several large projects nearing completion, a more favorable sales mix, improved deliveries into the Middle East, and operational initiatives that are beginning to outpace inflationary pressures.

Compared to the second quarter of last year, revenues declined 2.5%, while decremental margins were limited to 17%, excluding the impact of the one-time IEEPA benefit. We achieved this low decremental margin despite quarterly tariff expense that increased approximately $20 million year-over-year from roughly $10 million during the second quarter of 2025 to $30 million in the second quarter of 2026. I want to thank NOV's employees for the outstanding execution and the pride they demonstrate every day in taking care of our customers, pursuing operational excellence, and keeping each other safe. As I mentioned last quarter, pride in what you do, accountability, and ownership translate directly into stronger operational and safety performance.

During the quarter, our total recordable incident rate and lost time incident rate both improved from a year ago, marking a second consecutive quarter of improvements and record safety performance in the first half of the year, further reinforcing the culture we have worked hard to build throughout NOV. Before moving on, I also want to extend a special thank you to our colleagues in the Middle East who continue to operate through an extraordinarily difficult environment. Their resilience, professionalism, and commitment to one another and our customers have been exceptional. Over the past several quarters, we've consistently talked about two priorities: driving operational efficiencies and positioning ourselves for the next industry investment cycle. This quarter, we began realizing more of the benefits of those efforts. At the same time, we're becoming increasingly confident that the longer-term market trends we discussed last quarter are beginning to emerge.

We're seeing our operational improvements translate into stronger margins. Our differentiated technologies continue to gain market share, and conditions are improving across our largest end markets. While the underlying fundamentals continue to improve, geopolitical uncertainty and commodity price volatility are causing some customers to remain cautious. As a result, and as expected, capital equipment orders in our Energy Equipment segment remained below 100% book-to-bill. We continue to expect a pickup in orders later this year and a more significant increase in 2027. Additionally, orders for our shorter cycle capital equipment offerings in our Energy Products and Services segment, including drill pipe and fiberglass, remain strong. Moving on to what we saw across our major markets during the second quarter. In the Middle East, activity remained below pre-conflict levels.

When the bulk of the "kinetic activity" ceased during the quarter, conditions stabilized and customers adapted their operations to what seemed to become a new normal. Even so, logistics remained less predictable and more costly. Our supply chain and operational teams responded exceptionally well. We successfully delivered orders that had been delayed during the first quarter and continued supporting our customers despite a much more complex operating environment. While our operator customers worked diligently to safely preserve activity, certain operations, particularly offshore, were curtailed, resulting in certain orders being deferred and lower overall activity levels. Notably, activity related to unconventional resource development generally continued unabated. The environment created both challenges and opportunities. Logistical constraints limited our ability to secure commitments from suppliers, affecting certain deliveries and our ability to bid on some projects.

At the same time, those same constraints created opportunities where NOV's global supply chain capabilities and operational flexibility allowed us to win work that competitors were unable to execute. Overall, the impact to our business during the second quarter was largely consistent with, to modestly better than the expectations we outlined on our last earnings call. Looking ahead, given the uncertainty in both our customers' and suppliers' business activities due to the conflict in the Middle East, it remains difficult to predict how conditions in the region will evolve. Operators have been preparing to quickly restore activity once confidence in the reliability of takeaway capacity improves. Until then, our priorities remain unchanged, keeping our employees out of harm's way, supporting our customers, and continuing to execute safely while hoping for a lasting return to peace throughout the region.

Outside the Middle East, we're seeing encouraging momentum across most markets as global oil inventories are depleting and concerns related to energy security escalate. In North America, activity improved modestly. Public operators mostly continued to emphasize capital discipline while private operators became more active. More importantly for NOV, customers continued to prioritize technologies that improve efficiency, enhance reliability, increase production, and lower total well costs. Those priorities play directly into NOV's strengths, and we continue to gain market share as a result. Internationally, we continue to see unconventional development gain momentum and expand into new markets, including Algeria and Pakistan, where we sold several multi-stage frac sleeve systems for development of tight gas resources. We've always asserted that economically developing unconventional resources outside North America would require a lot of the same high-spec equipment and technologies that NOV developed during the U.S. shale revolution.

This is exactly what we're now beginning to see, it helped drive 20% sequential and 33% year-over-year revenue growth in Argentina for NOV during the second quarter. Demand in Argentina is broad-based. We're supplying pressure pumping and coil tubing equipment, helping customers reactivate and upgrade high-specification U.S. drilling rigs that will be redeployed in Argentina, assisting customers drill and complete extended lateral wells more efficiently with our drilling and completion tools, helping developers of major infrastructure projects with our pumps, chokes, and composite pipe, and supporting LNG exports by supplying submerged swivel and yoke systems to moor and load FLNG vessels. Customers are also increasingly adopting NOV's digital solutions to improve workflows and accelerate operational decision-making. During the quarter, we were awarded a significant contract to provide real-time drilling and completion data acquisition, visualization, and analytics across a leading Argentine operator's development program.

Outside of unconventional markets, also in Latin America, opportunities in Venezuela continue to develop faster than we originally anticipated. For us, demand has been expanded beyond progressive cavity and reciprocating pumps into fishing tools and completion technologies, we're quoting an increasing range of drilling and production equipment as customers evaluate longer-term redevelopment opportunities. There are a growing number of international markets in the early stages of development, we see heightened energy security concerns accelerating growth, which should create meaningful additional demand for a broad range of NOV technology and equipment. Turning to the offshore markets, where outlook for deepwater activity continues to grow increasingly constructive. It's important to remember that the offshore recovery began prior to the conflict in the Middle East and will be one of the clearest beneficiaries of the industry's heightened focus on energy security and plateauing production in North America.

Operators continue advancing brownfield expansions, ramping exploration programs, and sanctioning new deepwater developments. While continued geopolitical tension and resulting commodity price volatility creates uncertainty and delays, industry forecasts continue to call for approximately 10 FPSO awards this year, a meaningful increase from the six sanctioned during 2025. Projects continue moving forward despite today's uncertainty, reflecting the attractive economics of offshore development. We also remain encouraged by how the mix of mid to longer-term offshore developments is expected to evolve. Operators are increasingly favoring the development of gas-rich reservoirs, which require more of NOV's sophisticated processing equipment. We also see the pipeline of anticipated projects shifting toward deeper water, harsher, and more technically demanding environments, which plays into NOV's strengths.

If published tenders remain on schedule, our customers should see a sizable pickup in project start dates in late 2026 and early 2027. Overall, we believe the future project mix is becoming increasingly favorable for NOV and should continue to support healthy demand for our subsea flexible pipe, gas and water treatment systems, spread and turret mooring technologies, offshore cranes, production chokes, and lightweight composite pipe and tanks. Naturally, as demand for offshore production continues to increase, conditions in the offshore drilling market are also improving. Offshore contracting activity increased 32% sequentially. As a result, demand for our aftermarket services and spare parts remain healthy, driving our fourth straight quarter with an increase in our backlog for spare parts. As rig utilization improves and contract durations extend, drilling contractors are increasingly focused on preparing assets for additional work.

That drives demand for aftermarket spare parts, recertifications, automation upgrades, and capital equipment modernization, all high-value areas where NOV has established technology leadership, a large installed base, and long-standing customer relationships. When we step back and look across the markets NOV serves, what's particularly encouraging is that we're seeing improvement almost everywhere, suggesting that the recovery is broadening beyond isolated pockets of activity into a more synchronized investment cycle. That's the type of environment where we believe NOV's operating leverage and the structural improvements we've made in our business over the past several years become increasingly evident. One of the questions we often hear from investors is: What does NOV look like in this type of market environment? To assess the answer to that question, it's important to understand our recent results. Over the last several years, our financial performance has been resilient.

Revenue has generally remained between $8.5 and $9 billion per year, while EBITDA has been around $1 billion, with high levels of free cash flow conversion. That stability might suggest that the performance of our underlying businesses has been relatively stable. The reality is almost the opposite. The resiliency of our intentionally diverse portfolio has masked meaningful shifts occurring beneath the surface. Individual businesses have experienced very different performance over the last several years. When one part of our portfolio has faced headwinds due to such things such as three-plus years of declining activity in the U.S., or a large number of rigs being suspended in a key international market, another has often performed exceptionally well. The result has been a business that has appeared stable from the outside, even though there are often meaningful shifts in the performance of underlying components.

During periods of uneven and generally soft market environments, our portfolio allowed stronger businesses to offset weaker ones and deliver resilient cash flow, allowing us to continue investing in advancing technology leadership across our portfolio and better positioning all of our businesses for the future. Over the past decade, we have not experienced an environment in which all our businesses can perform well at the same time. As a result, we believe the earnings power embedded within NOV's portfolio remains underappreciated. Back to the question: What is the earnings capacity of NOV when we have a more synchronized global recovery? Simple way to analyze that question is to look at the strongest quarterly performance each of our businesses has delivered over the last several years.

If you take a conservative approach and exclude the seasonally stronger fourth quarters, you arrive at an annualized revenue level of approximately $9.8 billion and an EBITDA of roughly $1.5 billion. Keep in mind, the individual business unit peaks didn't occur during an exceptionally strong industry environment. In many cases, they occurred while inflation, including tariffs, was driving significant cost pressure, supply chains remained constrained, activity levels were declining, and pricing power was limited. In other words, those results were achieved despite a difficult operating backdrop, not because conditions were favorable. We believe the high-water mark analysis represents a conservative illustration of our earnings capacity. It's based on what our businesses have already demonstrated they can achieve and does not fully reflect the structural improvements we've made over the last several years.

We've been working to simplify the organization, consolidating facilities, improving manufacturing efficiency, and optimizing our portfolio by focusing on areas where we believe we have durable competitive advantages. NOV today is a fundamentally stronger company than it was just a few years ago. While we still have more work to do, we're beginning to see our efforts translate into improving productivity and better margins. Our portfolio also continues to migrate towards higher-value technologies. Digital solutions are growing rapidly. International unconventional development is expanding. Offshore production markets are strengthening. We believe aftermarket demand is positioned for a recovery as suspended rigs return to work and customers prepare equipment for the next phase of the cycle. The timing of our earnings progression will ultimately depend on how the market unfolds.

Historically, NOV has been viewed as a later cycle company because demand for capital equipment generally accelerated only after activity increased and readily available service capacity became fully utilized. We believe this cycle will be different. After a decade of capital discipline and underinvestment, the industry is not starting from a position of excess capacity. Equipment attrition, the export of underutilized North American equipment into international markets, and years of limited reinvestment have materially tightened the global service complex. As a result, we believe customers will need to begin investing in equipment much earlier this cycle, allowing NOV to more meaningfully participate earlier in the market recovery than investors have traditionally expected. None of this suggests that results will improve in a straight line. Markets rarely work that way, geopolitical uncertainty, commodity price volatility, and customer strength will continue to influence the timing of investment.

When we look at the operational improvements we've implemented and the market conditions we believe are beginning to emerge, we're increasingly confident that NOV has substantially greater earnings power than we've been able to demonstrate over the past decade. Our portfolio helped make NOV a more resilient company through one of the most challenging operating environments our industry has experienced. We believe that same portfolio, combined with a fundamentally stronger organization and a broadening investment cycle, positions NOV to deliver materially stronger financial performance as more of our businesses begin performing well at the same time. That's the opportunity we see ahead. While the exact timing will ultimately depend on how the market environment and customer spending unfold, we're confident we're taking the right actions to position NOV for the future, and I'm even more confident in this team's ability to execute and deliver materially stronger results. Rodney? Thank you, Jose. Consolidated revenue for the quarter was $2.13 billion, an increase of 4% sequentially and down 2% year-over-year.

Net income was $112 million, or $0.31 per fully diluted share. Operating profit was $193 million, which included $17 million in pre-tax other items, primarily related to severance and facility closures, and $20 million in gain on sales of fixed assets. Adjusted operating profit was $190 million, or 9% of sales, and adjusted EBITDA totaled $283 million, or 13.3% of sales. During the quarter, we recorded a benefit of approximately $40 million related to IEEPA tariff refunds, which is included in adjusted operating profit and adjusted EBITDA. On a segment basis, our Energy Products and Services segment received approximately $26 million of the benefit, while our Energy Equipment segment accounted for the remainder.

The net benefit from tariff refunds on year-over-year financial results is slightly more than $20 million, as our overall tariff expense has increased from the second quarter of 2025. We collected approximately $17 million of these refunds during the quarter. As Jose mentioned, second quarter results for our Middle East operations were generally consistent with our expectations. For the third quarter, our guidance assumes that the operating environment remains consistent with the conditions during the second quarter. During the quarter, we repurchased 3.2 million shares for $63 million and paid dividends of $64 million, which included a supplemental dividend of $0.09 per share related to the true up of our 2025 return of capital program. Since implementing our return of capital program during the second quarter of 2024, we've returned over $1 billion to shareholders through share repurchases and dividends, while cash has increased approximately $700 million.

Free cash flow for the quarter was negative $64 million, impacted by the timing of certain milestone billings and slightly elevated inventory as our supply chain teams implemented more buffers given the ongoing conflict. We expect working capital to benefit cash generation during the second half of the year, consistent with trends experienced in both 2024 and 2025, and we still anticipate converting between 40%-50% of 2026 EBITDA to free cash flow. We continue to expect capital expenditures to be between $340 million-$370 million, and our annual effective tax rate to be between 34%-36%. Stepping back, our team's second quarter operational performance was excellent. We're advancing efforts to simplify and standardize business processes to drive efficiencies that reduce operating costs, improve customer experience, and support on-time delivery. Sequentially, we delivered strong EBITDA incrementals of 130%, or 80% excluding tariff refunds.

For the third quarter, we expect sequential and year-over-year revenue growth, and we expect to deliver healthy free cash flow in the second half of the year. Moving to our segments, starting with Energy Equipment. Second quarter revenue was $1.22 billion, up 2% sequentially and up 1% year-over-year. Adjusted EBITDA increased $42 million year-over-year to $200 million, or 16.4% of sales, representing the highest quarterly EBITDA margin since the segment was established. Excluding the second quarter tariff benefit, margin still reached a record level, driven primarily by operational excellence across several business units, favorable pricing and mix, and cost reductions. The segment also delivered its fifth straight quarter of year-over-year revenue growth.

Capital equipment sales accounted for approximately 63% of the segment's revenue in the second quarter of 2026, improving 2% year-over-year, led by continued strength in our offshore production-related businesses, including subsea flexible pipe, marine and construction, and process systems. Aftermarket sales and services accounted for the remaining 37% of segment revenue and improved 3% sequentially as our teams continue to navigate the operating environment in the Middle East. Compared to the prior year, aftermarket revenue was down 2%, primarily reflecting the effects of the Middle East conflict. Capital equipment orders for the second quarter were $474 million, a 13% increase year-over-year, resulting in a book-to-bill of 74% for the quarter. Backlog at the end of the quarter was $4.1 billion. Orders during the quarter were led by subsea flexible pipe and offshore production equipment.

First half 2026 orders exceeded the first half of 2025. Strong operational execution resulted in shipments improving almost 10%. Similar to 2025, we expect order intake in the second half of the year to meaningfully outpace the first half, supported by our discussions with key customers and strong pipeline of projects. Our subsea flexible pipe business delivered another outstanding quarter, achieving record EBITDA performance. Margin expansion reflected exceptional execution, favorable project mix, and progress on higher-margin backlog, supported by relentless focus on quality, safety, and on-time delivery. Demand outlook for flexible pipe and bookings remain strong. On a trailing 12-month basis, book-to-bill was 135%, and quarter-ending backlog was 28% higher than 12 months ago. Second quarter orders primarily included various projects in the North Sea. Our team recently celebrated a significant milestone, the delivery of a cumulative 1,000 km of flexible pipe from our facility in Brazil.

Our process systems revenue increased mid-single digit percent year-over-year, reaching another quarter of record EBITDA performance, reflecting strong demand in offshore production and international gas markets. Margins improved year-over-year, supported by strong operational execution on projects nearing completion. During the quarter, the business booked orders supporting an offshore gas project in Indonesia and a gas dehydration package for an operator in West Africa. Also, leveraging our NOV Max Platform, the business deployed an AI model supporting a North Sea operator's program to optimize their sulfate removal unit. Outlook for gas processing applications, produced water treatment, and brownfield applications remains robust. Revenue from our drilling capital equipment business declined versus the prior year, but improved in the mid-single digits sequentially, driven by strong performance from our Saudi manufacturing facility and improving bookings activity. Orders during the quarter included robotics packages, offshore BOP, and NOVOS automation packages.

Bookings in the first half of 2026 exceeded the first half of 2025 by over 40%. Looking forward, we continue to have a constructive outlook on the offshore drilling market, with floater utilization and day rates improving, providing an opportunity for stronger capital equipment orders in the second half of 2026 and into 2027. Our Marine and Construction business revenue improved in the mid-teens percentage range year-over-year, driven by higher demand for lifting and handling equipment, as well as mooring and fluid transfer systems. The market outlook for Marine and Construction remains constructive, supported by strong offshore development activity with a value of offshore FIDs in 2026 already around full year 2025 levels and further growth expected in 2027. These industry trends drive demand for turret mooring systems, offshore cranes, subsea construction equipment, and pipelay equipment, as well as provide positive demand for several other NOV business units.

Revenue for intervention and stimulation equipment declined year-over-year, reflecting lower overall demand in North America, but was up mid-single digit sequentially, led by Middle East wireline and coiled tubing equipment deliveries. Interest in coiled tubing and frac equipment in the Middle East and Argentina remains strong, supported by expanding unconventional developments. In the U.S. land market, quoting activities also improved, driven by higher frac utilization. Turning to the aftermarket portion of Energy Equipment segment, revenue from parts and services for drilling equipment was impacted by the Middle East conflict due to suspended rig operations, logistical challenges, and delays in upgrade projects. While activity was down year-over-year, sequentially revenue was higher as spare parts shipments improved. Service utilization increased. Bookings and backlog for spare parts and repair grew, reflecting higher customer demand.

Increasing offshore floater utilization and improving day rates will continue to drive stronger demand for our rig aftermarket business, which we expect to grow meaningfully in the second half of 2026 compared to the first half. Intervention and stimulation equipment aftermarket revenue was effectively flat sequentially and down mid-single digit percentage year-over-year. The drop year-over-year was led by lower activity in North America and the Middle East. Customer inquiries and quoting activity have increased in North America and Argentina and stabilized in some areas of the Middle East. For the third quarter, we expect Energy Equipment segment revenue to be between 1%-3% lower year-over-year, as growth in our drilling capital equipment and aftermarket business is offset by certain projects nearing completion during the second quarter. We expect EBITDA to be in the range of $160 million-$190 million. Moving to the Energy Products and Services segment.

Our Energy Products and Services segment generated revenue of $974 million, down 5% compared to the second quarter of 2025, while sequentially, revenue improved 9%. Adjusted EBITDA totaled $144 million or 14.8% of sales. Year-over-year growth in drill bits, Digital Services, and artificial lift, supported by improving demand across many of our key markets, did not fully offset lower composite pipe shipments, partially impacted by the conflict in the Middle East. Compared to the prior quarter, the segment experienced increased demand across nearly all of its businesses. For the second quarter, the sales mix of Energy Products and Services was 53% services and rental, 30% capital equipment, and 17% product sales. Revenue from services and rentals remained resilient, declining just 1% year-over-year as market share gains across several of our product lines largely offset lower U.S. and Middle East drilling activity.

Sequentially, revenue for services and rentals improved 4% with a significant majority of our business units and regional markets experiencing growth, especially U.S. land. Our drill bit business gained market share across the U.S. and Canada, supported by continued innovation in our cutter technology that is improving rates of penetration and extending bit life to drive operational efficiency. In the U.S., these gains drove record quarterly revenue and marked the eighth consecutive quarter of year-over-year revenue growth. Likewise, our downhole tools business delivered a strong quarter with higher activity in the U.S., Europe, and Africa, while demand in the Middle East remained below prior year levels. Drilling motor rentals achieved their strongest U.S. revenue in over six years with market share gains of our slim hole power sections supporting drilling efficiencies and longer laterals.

The business also saw increased adoption of our Agitator Rage friction reduction tool across U.S. land, as well as our PosiTrak torsional vibration mitigation technology expanding in offshore applications. Our artificial lift business also benefited from higher activity and market share gains of our electric submersible pump technologies across the Permian and Bakken, posting strong revenue growth as the number of installs during the quarter increased over 20% compared to the prior two quarters. Customers are increasingly adopting technologies to improve runtime, such as our Integrated Gas Processor and Contra-Helical Pump, which improves system performance for wells with high gas-to-liquid ratios. Within our well site services business, higher rentals of our Alpha Shakers across the U.S. drove double-digit growth in the region year-over-year, while adoption of our iNOVaTHERM thermal treatment technology continued. Together, these advances largely offset lower activity in the Middle East.

NOV Digital Services continued its trend of four straight quarters of year-over-year revenue growth. Revenue from our wired drill pipe services nearly doubled, and during the quarter, we deployed our Max Completions remote service rig monitoring solution for a super major, providing centralized oversight of workover operations through real-time monitoring and improved reporting capabilities. This award, along with the win Jose mentioned for a leading Latin America operator, reflect growing customer demand for NOV's digital technologies that improve operational efficiencies and decision-making. Capital equipment revenue for Energy Products and Services segment declined 15% year-over-year, primarily reflecting strong deliveries of composite solutions for FPSOs in the prior year that did not repeat, lower demand in the Middle East, and reduced deliveries of conductor pipe connectors. Sequentially, capital equipment revenue increased in the low teens percentage range as shipments recovered from the first quarter delays related to the Middle East conflict.

Bookings remained healthy across the segment's capital equipment businesses. Our drill pipe business achieved its strongest first half bookings in over 10 years, and our drill pipe backlog is roughly doubled from 12 months ago. Our fiberglass business also recorded healthy bookings during the quarter, despite reduced demand in the Middle East, resulting in 20% year-over-year growth in backlog. Strong bookings, increasing customer demand for differentiated technologies, and increased backlog positions these businesses for improved performance during the second half of the year. Our fiberglass systems business continued working through the effects of the conflict in the Middle East, where the timing of certain infrastructure projects reduced manufacturing absorption during the quarter. Demand across most other end markets remained resilient. Our underground composite fuel handling tank business matched record quarterly revenue as continued investment in domestic fuel infrastructure drove strong customer demand.

Reflecting that momentum, bookings for fuel handling tanks have doubled over the past 18 months compared to the preceding 18-month period. The business also sees growing opportunities to support a rising number of FPSO projects. Additionally, the continued adoption of larger diameter composite pipe for produced water projects in North America and the Middle East provides long-term demand for the business. Turning to product sales, revenue remained relatively stable, declining 3% year-over-year, reflecting lower drilling activity in the Middle East, partially offset by bulk drill bit deliveries into Algeria. Sequentially, improved demand for drill bits and artificial lift equipment in the U.S., along with the second quarter deliveries of drill bits and downhole tools into the Eastern Hemisphere, resulted in mid-single-digit revenue growth.

Looking to the second half of the year, we expect seasonal downhole tool sales into the Eastern Hemisphere, increased shipping from improved backlog across our drill pipe and composite solutions businesses, and market share gains of our differentiated technologies to drive strong top-line growth compared to the first half of 2026. Continued structural cost initiatives should further improve margins. For the third quarter, we expect Energy Products and Services segment revenue to increase between 5%-7% year-over-year, with EBITDA in the range of $130 million-$150 million. With that, I'll turn the call back to José.

Thank you, Rodney. As we've discussed this morning, we're encouraged by what we're seeing across the business. Our operational initiatives are translating into stronger execution and improving margins. At the same time, we're seeing encouraging signs that customer investment is beginning to broaden across the markets we serve. While uncertainty remains and we continue to expect volatility from quarter to quarter, we believe the underlying fundamentals are moving in the right direction. We spent the last several years improving our operations, investing in technologies across our portfolio, and positioning the company for the type of market that is emerging. We believe NOV is well-positioned to drive earnings much higher over the coming years and create meaningful value for both our customers and our shareholders.

I'd like to once again thank all members of the NOV team around the world for their continued commitment to safety, operational excellence, and taking care of our customers. With that, we'd like to open the call to questions.

Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. In fairness to all, we ask that you please limit yourselves to one question, one follow-up. One moment while we compile our Q&A roster. Our first question comes from the line of Arun Jayaram with J.P. Morgan Securities. Your line is open. Please go ahead.

Hey, Arun, are you there?

Arun, your phone might be on mute.

Yeah, sorry about that. I was on mute. Sorry about that. No worries.

It's been a few calls today. I was wondering if you could help us think about how you see things kind of progressing in the Middle East over the back half of the year. A couple of your big cap oil service peers noted how they would expect, call it, in the fourth quarter for—obviously, a little bit of uncertainty maybe for top line to be down, call it 5%-10% year-over-year. Just wanted to see if you had any thoughts on how Middle East could trend for NOV in the second half.

Sure thing, Arun. Thanks for the question. Look, obviously, there's a lot of uncertainty related to the Middle East right now. As I mentioned in the prepared remarks, certainly hope and pray for a quick resolution to the conflict and lasting peace. Maybe a little bit of commentary would help just sort of frame how to think about operations in the Middle East. Obviously, we had a significant impact in Q1, about a $30 million impact in EBITDA. Conflict began in late February and significantly impacted March. Then early in the second quarter, we began to see sort of the quote unquote, "kinetic activity" stop.

Tensions remain high, and logistics remain extremely constrained in and out of the Strait, which limited ability to deal with logistics from our business standpoint and ability to get takeaway of commodity out of the region on the part of our customers. Nevertheless, operators in the region started adapting to kind of what was starting to feel like a new normal during that time period and began bringing activity back. First of all, just say, for the most part, land-based activity was pretty stable throughout the entire time period, particularly in the unconventional gas plays. It was more the offshore that was impacted for a material period of time. Things slowly started resuming during the second quarter, and that sort of gets us to where we are today.

As I mentioned in prepared remarks, impact in the second quarter was in line to maybe just slightly better than what we were anticipating with that stability in the Middle East, but still very challenged from a logistical standpoint. As we mentioned in our press release, our outlook reflects a scenario in which conditions on the ground in the Middle East, during the third quarter, remain consistent with what we saw in the second quarter. That doesn't mean activity remains exactly the same. It means the trends that we saw emerging during that time period continue, meaning gradually higher levels of activity with more rigs coming back to work during that time period. When we did our bottoms-up roll-up of our forecasts for the third quarter, that was translating into between a 10%-15% increase from Q3 to Q2.

Just another data point that might be helpful, from Q1 to Q2, we saw about a 5% sequential increase. Obviously, we risked that slightly, but that's the scenario that we're planning for, is roughly 10%-15%. With that risking, you could assume more towards the lower end of that. For us, Middle East currently is approximately 15% of total company revenue. If you assume that there is more disruption, hard to determine how severe a disruption, but if you have one that's sort of more in line with maybe potentially not quite as bad as what we saw in Q1, with that 10%-15% increase and 15% of total revenue, if that doesn't materialize, then you're looking at an impact of $20 million-$25 million of EBITDA. Look, it could obviously be better than that, and that's what our guidance reflects.

Could obviously be significantly worse than that, depending on what happens in the Middle East. Hopefully, that helps, again, not put bookends around it, but gives you at least some data points that you can think through as you develop your own scenarios around what could happen in the Middle East. Well, we'll leave it there.

Okay. That is helpful, Jose. My second question. In EE, you had a 0.74 book-to-bill. You and Rodney both mentioned kind of optimism on second half order trends in Energy Equipment. Can you just maybe help us think about framing any expectations around book-to-bill? Do you still expect to approach one for the full year? Maybe a little bit of order or commentary you can unpack there.

Sure thing, Arun. I think when we came into the year, we set the expectations based on the project timeline that we saw and the timeline associated with the expected FIDs that we developed in coordination with our discussions with our customers, that we were anticipating Q1 bookings to be fairly light and then picking up pretty significantly in the second half, and that is still our expectation. If you look at first half bookings, let's look at this last quarter. Bookings were up $54 million year-over-year. Year-to-date bookings up 16% year-over-year. Directionally heading in the right direction. More importantly, view us as having had a good bit of success and things materializing the way that we anticipated that they would.

We've seen six FPSO FIDs year-to-date, of which we've had meaningful bookings associated with those FPSOs on half of those, and really look back over the last 24 FIDs on FPSOs. We've had sizable bookings on 11 of those 24. Maybe more encouragingly, as we sort of look forward at the shift in mix that we anticipate late this year and more so in 2027, we're seeing the FPSOs that are going to reach FID are slated for higher gas condensate markets, deeper waters, harsher environments. That really plays into our strength, and we see a higher concentration of those going forward. Offshore production isn't the only component of our business.

As we mentioned in the prepared remarks, encouraging green shoots effectively all places in the world, including the emerging unconventionals and more and more activity in deep water offshore on the drilling side. The other thing that I should mention is that, there's a big component of our business that is not EE backlog driven. We have a large capital equipment portion of the business within the EPS segment. As Rodney touched on, our Grant Prideco business had its best bookings quarter since Q1 of 2023, and that's after a couple of other good quarters preceding that. Our fiberglass backlog is up 24% year-over-year. As we sort of look around the world and see the state of the industry's asset base, there's going to be a need for a whole lot more investment.

We don't get too worked up over a single quarter or two booking environment. It's taking a look at the whole picture of what's going on in the marketplace today, and more importantly, where it's headed, and 2027 and beyond certainly look bright. As it relates to the full year 2026, as you know, these orders are big and chunky. Commodity price volatility, geopolitical uncertainty, certainly doesn't help things push and pull one way or the other. Our current expectation is still to get at least close to the 100% book-to-bill, but probably more in the vicinity of 90%-100% for 2026 and meaningfully above that in 2027 and beyond.

Great. Thanks, Jose. Thanks, Arun Jayaram.

Thank you. One moment for our next question. Our next question is going to come from the line of Marc Bianchi with TD Cowen. Your line is open. Please go ahead.

Hey, thank you. Morning, Mark.

Hey, Jose. On the outlook for the second half here, Rodney, you were mentioning about the rig aftermarket business starting to pick up in the back half of the year. I'm curious why it looks like Energy Equipment revenue is guided to be pretty much like flat quarter-over-quarter. Are there some cross currents with the offshore activity in the Middle East that's driving that? Maybe along with it, you could sort of remind us what kind of drawdown we've seen in that rig aftermarket business from prior peak and maybe how much room it's got to go to recover.

Yeah, sure. Thanks for the question, Mark, I'll just give some color overall for some of the moving parts sequentially, in particular Q2 to Q3. If you look at our EPS segment, really strong revenue growth, quarter-to-quarter, they're up 5%-7%. As Jose was just mentioning, a lot of that's driven off of the capital equipment backlog that we have and the strong conversion opportunity that we have in the second half of the year in our composite pipe, our composite tank, and our drill pipe business. That should lead to strong incrementals. If you look at the incrementals, Q2 to Q3 on the EPS business, strong there at 40% when you normalize for the tariff benefit in Q2. When you look at the EE business, really kind of flat revenue going from Q2 to Q3.

Those changes are really kind of mix-related. As you mentioned, Mark, I think when we look at the first half of the year overall, the second half, and the progress that our rig equipment and rig aftermarket business is making, when you look at rig count, just a pure number of rig count increasing throughout the year, utilization increasing, day rates have improved. With our position there, we do expect meaningful pickup first half to second half in the rig business. That's probably in that sort of mid-teens range, first half to second half revenue. Another piece of color commentary for Q3 on EE, couple more points. One, really strong operational performance. You saw the strong incrementals from Q1 to Q2 for EE, the outperformance compared to our expectations on revenue.

A lot of that was due to just really strong progress, operational execution for some of our production equipment projects. As some of those projects kind of start to near the end and new projects pick back up, there's that timing issue there. That kind of gets to the mix point. Just the last point on incrementals, kind of Q2 to Q3 for EE. When you're dealing with a small change on the denominator side, roughly flat, really any change on small mix or a few extra pieces of freight cost coming in Q2 to Q3 can impact some of the incrementals. To Jose's point, I think fundamentally on the equipment side, see very good momentum into the second half of the year, and into 2027.

Okay, thanks for that, Rodney. Hopefully you guys won't count this one as a question, just real quick, the guidance for 3Q, does that include any tariff IEEPA refund?

No. Okay, great. Jose, the other one was you kind of laid out the watermark analysis there, and that, as you said, doesn't really reflect the full capability.

If I worked that out, I think the margin was like 15%, which would seem like there's a lot more room to go. When things turn and we get into the upcycle more meaningfully, what is the margin opportunity? Is it really just volume that gets you there at this point, given all the actions that you've taken, or are there other things you need to do?

Yeah, great question, Marc. Look, what I wanted to do today was provide just a framework in terms of how to think about things, and I appreciate you picking up on that important component, which is, hey, these are high water marks effectively over the last four years, within our current portfolio. The last four years have not been a great environment for the broader industry and particularly for a provider of capital equipment. Getting to your question, certainly volume helps. There are a couple of other components that come into play. One is, even without Let's say we're completely wrong on a market recovery. Don't think we are. Highly confident we're not. We're going to continue to drive margins higher.

We continue to have initiatives underway that are driving operational efficiencies higher across the organization. I think you'll see more of that come through over the coming year or so. Really excited about the good work the team is doing in terms of just making us better every single day. Another component is pricing, right? Obviously, you look over the last several years, it's been a downpour as it relates to, or I should say, there's been really significant headwinds from a highly inflationary environment, plus the advent of really significant tariffs, all taking place during an environment where activity was actually coming down. Very difficult to offset those inflationary costs with pricing during that environment. Now that we've turned the corner from an activity standpoint, yes, volume helps, but pricing helps a whole lot, too.

Where that ultimately takes us from a margin standpoint, to be determined. Yes, I care a whole lot, we care a whole lot about margins. Care a whole lot more about return on capital employed. Look, the base scenario that you referred to in our prepared remarks, yes, that was kind of a 15%-ish margin. With everything that I'm saying, I think you could take away that our expectation, and certainly our goal, is to get to mid-teens EBIT type margins, but more importantly, return on capital employed. I think that base high-water mark analysis, you'd probably be approaching low teens % range. We want to get to a minimum of mid-teens % range. Hopefully that helps a little bit more with how to think about that.

Great. Thanks so much, Jose. I'll turn it back. Thanks, Omar.

Thank you. One moment for our next question. Our next question comes from the line of Jim Rollyson with Raymond James. Your line is open. Please go ahead.

Hey, good morning, guys. Morning.

I want to follow up on Marc's questions a little bit. Obviously, you don't have a perfect crystal ball, I will take mid-teens margins before we get to something higher, since you haven't seen that at any point in the recent past. Given the outlook you kind of laid out at the beginning, Jose, what do you think a realistic potential timeline is to get to this kind of $9.8 billion revenues, 15% margin kind of profile? Is that something that we could see a run rate late next year, early 2028, or is it two, three years down the road, do you think? Just kind of curious on how things are shaping up for you.

Marc, I'm not going to pinpoint the precise timing of it. There are obviously a whole lot of variables related to the macro environment. What I will say is our confidence level is high. You look around the world in terms of what's going on, it's pretty obvious to us that this cycle that we are entering into is very different. We've had 10 years of a down cycle with little investment across the board, whether that's service-based or whether that relates to exploration on the part of operators. Oil company reserve replacement ratios have declined, the asset base and service complex is in pretty rough shape as it relates to its ability to significantly expand activity. You look at the big driver here, which is demand for energy.

I don't know about you, but I certainly don't see the demand for energy declining anytime soon. If anything, I see it accelerating here near-term. Certainly data centers are going to pull a lot of demand that everybody talks about, but we can't forget about the 7 billion people in non-OECD countries that consume a fraction of the amount of energy that those of us fortunate enough to be in the OECD get to consume. Demand is going to continue to drive higher. Okay, let's talk about the other side of the equation, the supply equation. Obviously, we've got a tremendous amount of geopolitical risks, and you've got a maturing North American shale environment. You've got a lot of barrels off the market. You've seen substantial depletion of strategic petroleum reserves around the world. I think the U.S. SPR is at a 30-year low.

Haven't seen it since, I think, 1984. OECD stocks at a 20-year low. You know all this stuff better than I do. China suppressing their imports. How long can that really go on? I don't think very long. There's going to be a huge amount of demand created by just restoring production and then replacing those lost barrels from SPRs. Pretty much every country on the planet, I think, is going to work on enhancing their security, whether that's through developing their own resources or at least expanding reserves. You've got countries like India that have already announced that they're planning to increase their SPR by three and a half times. You also have gas challenges with a fifth of Middle East LNG off the market. As we look at the market, where's the supply going to come from?

Clearly, we're short on supply right now, despite what commodity price signals were telling us just several weeks ago. Didn't make a whole lot of sense to me. There's going to be a lot of demand that's not currently apparent where that supply is coming from. We've got North America production plateauing. That doesn't mean we're peaking in North America, but it supplied virtually all supply over the last 15 years. It's not going to continue to do that going forward. We're going to have to run really hard in North America to drive incremental growth. Barrels are going to come from other places. As we talked about before, it appears that deepwater offshore is winning the battle for low marginal cost of supply.

Again, I think the deepwater offshore operators understood that the call is on them, and they could see what was coming over the next couple of years. Pre-conflict, looked like we had a couple of years to work through a supply overhang. That's gone. At that point in time, they were already starting to ramp exploration and FIDs and see that obviously continuing. A lot of demand is going to come from the offshore. Our offshore drilling contractors are saying that with 95% of the marketed deepwater fleet effectively under contract today. Huge amounts of open tender activity, and more FIDs coming. Then you look elsewhere around the world, the advent of international unconventionals, they're emerging all over, mostly gas-directed at this point in time.

As we talked about in the prepared remarks, that is going to drive a lot of demand for capital equipment as well as the proprietary tools and technologies that we've developed to significantly enhance the efficiencies associated with drilling and completing ultra-long laterals. A whole lot there to not answer your question directly. We're not going to pinpoint a specific time, but it's hard to see how we don't get there over the coming years. Again, this cycle is different. The availability of assets are not there, and that's going to call demand from NOV sooner rather than later.

Got it. Just one follow-up on subsea flexibles. Obviously, you guys have been talking about this for a while. You noted record EBITDA in that business today. Kind of maybe just what the opportunity set is there? Are you running up against capacity from a generating standpoint, EBITDA generating standpoint, before you get your expansion plans completed, or do you still have room to run there?

Jim, essentially, we are running up against capacity constraints. There are pockets of opportunity to drive things a little bit higher. I think we've talked about for a couple of quarters now that if we have sizable orders at this point, we're looking at 2028 deliveries for the most part. As I mentioned, there are some pockets of opportunity to provide more in 2027. Really, excited about the opportunity set that is in front of us and excited about the timing of when our additional capacity comes on, hopefully in early 2029, because the outlook continues to look really promising as it relates to future tenders and opportunities that are coming up related to subsea flexible pipe.

Appreciate your thoughts. Thanks. Thank you, Jim.

Thank you. One moment for our next question. Our next question is going to come from the line of Doug Becker with Capital One. Your line is open. Please go ahead.

Thank you. Morning, Doug. Good morning.

Coming into the year, you were talking about $100 million of annualized cost reductions. Your comments today suggest there might be more to come. Where do we stand relative to the $100 million target? At a high level, what might the next iteration of structural cost savings include?

Thanks, Doug. This is Rodney. Appreciate you giving us a chance to really brag on the team's effort over the last 12 to 15 months since we initially put out that $100 million cost-saving target. When we put that out, we laid out a lot of the factors that was going to be driven by and also discussed some of the headwinds that were really in front of us over the next 12 months in terms of tariffs and other inflationary factors. We mentioned at the time as well that at some point during 2026, those cost savings would start to overlap some of the headwinds on the cost inflation. As we made it through the second quarter, we started to get slightly more positive, in terms of the cost savings outrunning some of the inflation that we've seen over the last 12 months.

Really good efforts by the team. You continue to go see that in several areas, just with the operational efficiencies that are driving better results throughout many parts of our business. Incremental to that, just with some of the hard work and facility utilization analysis that we've done over the last 6 months to 12 months, you see that we sold about $45 million worth of real estate and buildings. Teams put a lot of work in. As we look to the second half of the year, I think we still have more room to run in terms of taking those same programs from a simplifying and standardizing certain business processes, better leveraging our scale, and then just operationally to what Jose mentioned in some of his prepared remarks, just operationally efficiency, getting better at everything that we do.

I think the second half of the year and into 2027, we're going to continue to go find more, really kind of through that tranche of the $100 million. Not at a point where we kind of set a next target, but that's just kind of in our DNA, continuing to go drive efficiencies.

Definitely sounds encouraging. I will leave it at that. Thank you. Thank you. I would now like to hand the conference back over to Jose Bayardo for closing remarks.

Thank you, Michelle, and thank you everybody for joining us this morning. Look forward to talking to everybody again in October.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.