NOV's Q3 2025 Earnings Call: Contradictions Emerge on Energy Equipment Demand, Orders, and Revenue Outlook

Date of Call: October 28, 2025

Financials Results

• Revenue: $2.18 billion, down slightly (~<1%) year-over-year and sequentially
• EPS: $0.11 per fully diluted share (net income $42 million)
• Operating Margin: 4.9% of sales (operating profit $107 million)

Guidance:

• Q4 Energy Equipment: revenue down 2%–4% YOY; EBITDA expected $160M–$180M.
• Q4 Energy Products & Services: revenue down 8%–10% YOY; EBITDA expected $120M–$140M.
• Q4 tariff expense expected ~ $25M; company realigning supply chain to reduce tariff impacts.
• Targeting >$100M annualized cost savings by end of 2026 through facility consolidation and product/region rationalization.
• Expect to significantly exceed minimum threshold of returning 50% of excess free cash flow in 2025; FCF conversion target ~50% sustainable.

Business Commentary:

* Revenue and Profitability Trends: - NOV Inc. reported revenues of $2.18 billion for Q3 2025, with a year-over-year decline of less than 1% and a sequential decrease. - Despite a challenging macro environment, NOV maintained an EBITDA of $258 million, equating to 11.9% of revenue, sequentially improved due to strong project execution and cost controls.

• Energy Equipment Segment Growth:
• The Energy Equipment segment saw revenue of $1.25 billion, up 2% year-over-year, with EBITDA increasing $21 million to $180 million.

• Growth was driven by strong demand for offshore-related production equipment and capital equipment orders of $951 million, representing a 141% book-to-bill ratio.

• Drilling Activity and International Unconventionals:

• NOV's Energy Products and Services segment faced a 3% decline in revenue due to softer global drilling activity, yet drill pipe sales increased mid-single digits.

• The segment saw higher decrementals and pricing pressures, particularly in North America, but demand for NOV's products in international unconventional markets like Argentina and the UAE emerged as positive trends.

• Offshore Production and Technology Leadership:

• Offshore production units such as subsea flexible pipe and gas-focused process systems achieved record revenues, leading to a 140 basis point increase in segment EBITDA margins.
• This performance was supported by NOV's market leadership in technological advancements and its suite of high-barrier-to-entry products, providing a competitive advantage in deepwater operations.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record backlog and sequential margin improvement: "EBITDA was $258 million or 11.9% of revenue" and "free cash flow $245 million." They reiterated near-term softness but repeatedly forecast a strengthening demand backdrop late 2026 and beyond driven by offshore and international shales.

Q&A:

• Question from James Rollyson (Raymond James & Associates): With the backlog and timing, can the Energy Equipment segment continue to deliver decent year-over-year growth through 2026 despite a softer near-term market?
  Response: Backlog and production-related orders should support EE growth, but near-term softness/OPEC overhang and cautious aftermarket spend may temper 2026; a clearer pickup is expected late 2026.

• Question from James Rollyson (Raymond James & Associates): On EE margins, given mix shifts to capital equipment and tariffs/cost offsets, is the '25 margin profile achievable again in '26?
  Response: Management believes backlog pricing and mix (more offshore production equipment) support strong margins into 2026, though timing and weaker aftermarket are variables; they view 2027 as particularly constructive.

• Question from Marc Bianchi (TD Cowen): After a very strong quarter of orders in Energy Equipment, can book-to-bill stay at ~1.0 or better into Q4 and beyond?
  Response: Orders are lumpy; current line of sight suggests Q4 may be slightly below 100% book-to-bill unless a potential second large order closes, but multi-quarter trends remain strong.

• Question from Marc Bianchi (TD Cowen): The $65 million in other items referenced write-downs—how much was inventory and does it affect margins going forward?
  Response: Charges arose from facility consolidations/closures and exits of subproduct lines; inventory was scrapped and will not impact future margins.

• Question from Arun Jayaram (JPMorgan): Can you elaborate on the build-out of unconventionals you see in Argentina, UAE, Saudi and other regions—what demand patterns are emerging?
  Response: NOV sees broad international unconventional activity (Argentina, Saudi, UAE and emerging basins like Algeria, Turkey, Oman, Bahrain, Australia) driving demand for coring, coiled tubing, wireline, large-diameter coiled units, fiberglass/flexible pipe and associated infrastructure.

• Question from Arun Jayaram (JPMorgan): What are you seeing on FPSO FIDs in 2025 and expectations for '26–'27 given their potential for larger awards?
  Response: Year-to-date about three FPSO awards with a couple more possible by year-end; management expects FID activity and FPSO demand to pick up late 2026 and into 2027 as the market recovers.

• Question from Stephen Gengaro (Stifel): How should we think about the current backlog and recent orders' margin impact in 2026 and beyond?
  Response: Backlog has higher-quality, better-priced offshore production bookings that should be margin-accretive in 2026, partially offset by weaker aftermarket; operational efficiencies also support margin improvement, with more pronounced benefit in H2 2026.

• Question from Stephen Gengaro (Stifel): Do you see U.S. production plateauing and could that drive stabilization/recovery in U.S. land activity?
  Response: Management sees U.S. shale growth decelerating (EIA now forecasts near-zero 2026 growth) and believes Tier 1 exhaustion is pushing international deployment of shale tech, signaling a plateau that supports eventual international recovery dynamics.

• Question from Doug Becker (Capital One Securities): With 95% EBITDA-to-FCF conversion this quarter, what's the outlook for Q4 CapEx/FCF and do structural working capital changes create upside for 2026–2027?
  Response: Working-capital improvements and project collections drove strong conversion; Q4 working capital may improve slightly and CapEx is up modestly for high-return investments; management expects ~55% conversion for 2025 and believes ~50% conversion is sustainable going forward.

• Question from Doug Becker (Capital One Securities): If offshore drilling picks up late '26/early '27, would that drive book-to-bill consistently above 1.0?
  Response: Yes—an offshore drilling reactivation in late 2026/early 2027 would be additive to demand and should help push book-to-bill above 1.0 more consistently.

Contradiction Point 1

Energy Equipment Demand and Market Outlook

It involves differing expectations regarding the demand for energy equipment and the impact of market conditions on the company's performance, which are crucial for investor expectations and strategic planning.

Can you maintain year-over-year capital equipment growth for Energy Equipment despite a weak near-term market? - James Rollyson (Raymond James)

2025Q3: We believe capital equipment demand will remain strong due to offshore production equipment orders that represent around 80% of our Energy Equipment orders. However, we anticipate continued softness in North American drilling and spending due to OPEC overhang concerns, which may affect aftermarket spending. - [Clay Williams](CEO)

Clay, how do you see margins evolving over the next few quarters, and what will drive improvement? - James Rollyson (Raymond James)

2025Q2: The company saw a margin improvement from 2021 to 2024. Recent challenges include tariff impacts and economic uncertainties. Jose's initiatives to reduce costs are expected to stabilize margins. The future outlook is positive with trends in offshore and international unconventionals, assuming commodity price stabilization. - [Clay Williams](CEO)

Contradiction Point 2

Aftermarket Spending and Order Trends

It involves differing expectations regarding aftermarket spending and order trends, which are critical for understanding the company's operational performance and financial forecasts.

What are the expectations for energy equipment orders in Q4 and beyond? - Marc Bianchi (TD Cowen)

2025Q3: Orders are always lumpy, but we expect orders to dip slightly below 100% book-to-bill in Q4 due to market caution. - [Clay Williams](CEO)

What key market indicators signal a turning point, and how does this cycle differ from past cycles? - Stephen Gengaro (Stifel)

2025Q2: Indicators include increased offshore activity and spare parts demand. The current downturn is similar to past cycles, with customer hunkering down due to commodity price pressures. The market should stabilize as offshore drillers and production activity pick up in 2026. - [Clay Williams](CEO)

Contradiction Point 3

Energy Equipment Orders and Market Demand

It highlights differing perspectives on the demand for Energy Equipment orders, which directly impacts revenue and operational planning.

What is the outlook for Energy Equipment orders in Q4 and beyond? - Marc Bianchi (TD Cowen)

2025Q3: Orders are always lumpy, but we expect orders to dip slightly below 100% book-to-bill in Q4 due to market caution. - [Clay Williams](CEO)

Could you comment on capital equipment order activity, particularly in FPSOs? - Arun Jayaram (JPMorgan Securities)

2025Q1: We just closed September and the review of the book-to-bill is the strongest back-to-back book-to-bill since 2020. - [Rodney Reed](CFO)

Contradiction Point 4

Backlog and Revenue Expectations

It reflects differing expectations regarding the impact of the backlog on revenue, which is crucial for financial forecasting.

Can you explain the current backlog and how it will affect margins through 2026 and beyond? - Stephen Gengaro (Stifel)

2025Q3: Our backlog has improved with strong offshore production equipment orders. - [Rodney Reed](CFO)

With the potential weaker second half guidance, how do you expect 2025 margins to compare to 2024 and the previous 50-150 basis point range? - Connor Jensen (Raymond James)

2025Q1: Energy Equipment's backlog business looks flat revenue-wise first half to second half. - [Rodney Reed](CFO)