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Edited Transcript of NOV earnings conference call or presentation 29-Oct-19 3:00pm GMT

Q3 2019 National Oilwell Varco Inc Earnings Call

HOUSTON Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of National Oilwell Varco Inc earnings conference call or presentation Tuesday, October 29, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blake McCarthy

National Oilwell Varco, Inc. - VP of Corporate Development & IR

* Clay C. Williams

National Oilwell Varco, Inc. - Chairman, President & CEO

* Jose A. Bayardo

National Oilwell Varco, Inc. - Senior VP & CFO

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Conference Call Participants

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* Byron Keith Pope

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research

* Coleman Wayne Sullivan

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Connor Joseph Lynagh

Morgan Stanley, Research Division - Equity Analyst

* Kurt Kevin Hallead

RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research & Analyst

* Scott Andrew Gruber

Citigroup Inc, Research Division - Director and Senior Analyst

* Sean Christopher Meakim

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Vaibhav D. Vaishnav

Scotia Howard Weil, Research Division - Analyst

* William Andrew Herbert

Simmons & Company International, Research Division - Head of Energy Research & Senior Research Analyst of Oil Service

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the National Oilwell Varco Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.

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Blake McCarthy, National Oilwell Varco, Inc. - VP of Corporate Development & IR [2]

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Thank you. Welcome everyone to National Oilwell Varco's Third Quarter 2019 Earnings Conference Call. With me today are Clay Williams, our Chairman, President and CEO; and Jose Bayardo, our Senior Vice President and CFO.

Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to the 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 third quarter of 2019, NOV reported revenues of $2.13 billion and a net loss of $244 million or $0.64 per share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question-and-answer session. (Operator Instructions)

Now let me turn the call over to Clay.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [3]

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Thank you, Blake. In the third quarter of 2019, NOV generated EBITDA of $262 million, up $67 million sequentially despite a modest revenue decline from our second quarter. Our third quarter benefited from credits related to the closeout of the handful of projects in our Completion & Production Solutions and Rig Technologies segments, which contributed nearly $20 million to our improvement. The more important driver behind our improving profitability was our cost savings work, which added over $20 million in EBITDA sequentially.

The balance of the sequential improvement related to favorable product mix shifts, for instance rising revenues in our Rig Technologies aftermarket. NOV made excellent progress on restructuring to drive efficiency, and in a moment, Jose will update you in more detail on our revised cost savings targets. Additionally, we are pleased with the progress on improving cash flow. Cash flow from operations was $352 million in the third quarter, reflecting improving working capital intensity, arising from the organization's heightened focus on receivables, inventory and payables. Despite the challenging market backdrop, NOV's team performed well, and I'm proud of everybody's hard work.

Our third quarter international revenues grew 3% sequentially, fully offset by 5% sequential declines in North America. The U.S. land rig count is now down more than 20% from its recent high in late 2018, and while this will eventually result in decelerating U.S. production growth, it is currently pressuring our domestic customer base and consequently our short-cycle U.S. business lines.

On the other hand, international and offshore activity continues to grow at a modest pace. Both the IOCs and NOCs have used the prolonged down cycle to pull cost out of their planned projects, and FID approvals appear to be increasing.

International and offshore growth helped NOV post an overall book-to-bill ratio north of 1 in the third quarter. As cross currents and deep cyclicality continued to affect the global oil and gas business, NOV continues to benefit from, one, its broad geographic and product diversity, a key strength of our business model; two, its market leadership, which provides numerous scale advantages; and three, its enormous installed base of equipment.

These business model attributes lend NOV the necessary durability to navigate the extreme volatility experienced in oil and gas and are, in my opinion, important to understand with regards to the investment case for NOV at a time when oil and gas is deeply out of favor. I believe there is no single greater determinant of long-term returns than a company's strategic positioning, and NOV is unique among oilfield ecosystem participants.

Our diversity along several dimensions is a great example. We make a broad array of oilfield tools and equipment and consumables, which we sell to more than 8,000 discrete customers, some energy services companies, some producers and even some in unrelated industrial enterprises.

We operate in exploration, development and production phases in both land and offshore markets across 65 countries. Although almost all are affected by oil and gas commodity prices, which were cyclical, rarely do all these subsectors move exactly in lockstep. So as North America cycles down, we can pivot and redeploy assets to areas like the offshore and international markets that are exhibiting growth. Q3 is a good example.

Our business has low capital intensity. NOV's manufacturing assets are generally not specialized even though they are used to make specialized equipment. Machine tools, assembly plants and rig-up yards can be repurposed to areas of highest demand. They are also relatively small capital investments as compared to the revenues that they can generate. Our ongoing maintenance capital investment needs are far lower than most oilfield participants as measured by CapEx as a percentage of revenue.

Over the trailing 12 months, for example, our CapEx has only been 2.8% of sales. Lower capital expenditure requirements equate to higher free cash flows and represent another attractive and differentiating attribute of NOV versus other in the oilfield.

We focus on market leadership. Our size and scale provide us clear advantages in procurement, manufacturing, logistics and distribution. We have built the largest installed base of equipment globally within most of the equipment categories we supply, something that would take many years for our competitors to replicate. This provides NOV the opportunity as OEM to sell spare parts and maintenance services to the owners of this equipment even during downturns. As a result, our Rig Technologies segment saw a higher-margin aftermarket revenue grow to 57% of its mix in the third quarter.

Our installed base also provides proprietary opportunities to develop and sell digital enhancements to the owners of our equipment, like Cerberus and NOVOS operating systems, software optimization tools, condition-based maintenance programs and predictive analytics. These are all digital enhancements we've capitalized on through the downturn, made possible by our enormous installed base.

Market leadership positions NOV best to help our customers achieve standardization, which helps them drive better service, training and procedural consistency across their own operations. All of this improves efficiency, which in turn drives greater financial performance and capital returns for our customers.

Standardizing on technology from the market leader with global support capabilities and strong financial resources is the logical choice for an entrepreneur in the oilfield seeking to profitably grow his or her business. Many in our senior leadership team started our careers in the brutal '80s and '90s, another generational downturn in the oilfield. We know that diversity and strategic positioning are critical to successfully navigating a tough down cycle, but so is executing well on cost savings initiatives and effectively managing working capital to maximize cash flow.

In the third quarter, NOV benefited from all of the above. Pulling oil and gas out of the ground remains one of the most capital intensive activities in the world, one that consumes equipment steadily and one that will continue to be required for decades to come as a key part of the mix of supplying rising global demands for energy.

Eventually, there will emerge a need for sustained reinvestment and retooling across the oil and gas value chain. That said, in the near term, we are focused on the things that are directly within our control in this market, cost and working capital.

Our capital allocation continues to focus on strategic positioning and returns. We are using the current period to review our portfolio of businesses to ensure that we are engaged in activities where we have a clear and demonstrable competitive advantage or where we see a low-risk, capital-efficient opportunity to develop a new business that demonstrates competitive advantage and can be expected to generate solid financial returns within a reasonable time frame. Some of our products won't make the cut and will be divested to free up capital. With respect to capital deployment, we remain committed to maintaining a strong balance sheet to preserve our investment grade credit rating and ample liquidity.

After our CapEx needs, we will continue to execute smaller M&A transactions, which enhance our business positioning and competitive moat, and which can typically be further enhanced by organic investment in technology and product development and integrated into NOV's global network. Overall, despite a very tough 5-year downturn, NOV has materially improved its positioning and its prospects, and I remain optimistic about our long-run success.

Finally, to our employees listening, your hard work, perseverance and professionalism during these rough times humbles me. You are truly what differentiates NOV, and I consider myself fortunate to be a part of your team. Thank you.

With that, I'll turn it over to Jose.

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [4]

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Thank you, Clay. NOV's consolidated revenues were essentially flat sequentially as the continued momentum in our international and offshore operations was offset by deteriorating conditions in the North American market, where revenue decreased 5%. Revenues from offshore markets improved 7% sequentially, bringing the percentage of our consolidated revenue from offshore markets to more than 40% for the first time since the first quarter of 2017.

Improving conditions in the offshore and international markets also helped us achieve our third quarter in a row with a company-wide book-to-bill of over 100%. EBITDA increased $67 million sequentially to $262 million, reflecting great progress on our restructuring efforts, a more favorable business mix and some favorable project completion variances.

As noted, we made great progress on realizing incremental cost savings, which totaled roughly $80 million on an annual basis. To date, we are realizing greater savings than initially anticipated on certain of our restructuring initiatives, and we are continuing to find additional opportunities that will help make the organization more efficient.

We now believe we will realize a total of approximately $200 million in annualized cost savings from our restructuring efforts by the end of 2020. For the fourth quarter, we expect to realize an incremental $40 million of annualized cost savings.

Turning to the third quarter. We also made great strides in our efforts to reduce the capital intensity of our operations by reducing our working capital and improving our cash flow. We generated $352 million in cash flow from operations, and after deducting $69 million in capital expenditures, we netted $283 million of free cash flow.

During the third quarter, we also collected a $65 million note receivable related to a divestiture we completed a few years ago. Even though the $65 million was on our balance sheet as a current asset and therefore part of working capital, it flowed through the cash flow from investing activities on our cash flow statement. If you included the $65 million in our free cash flow number, it would total $348 million. No matter how you look at it, we're well on our way to achieving our target of between $300 million and $500 million of free cash flow in the second half of 2019.

A couple of quick housekeeping items before we jump into our segment results. SG&A declined $124 million during the quarter, returning to a more normalized level relative to the second quarter. Additionally, during the third quarter, our intercompany eliminations fell to a lower-than-normal level due to the timing of projects. In the fourth quarter, we expect eliminations and corporate cost to return to levels in line with what we saw during the second quarter.

Turning to our results of operations. Our Wellbore Technologies segment generated $793 million in revenue in the third quarter, a decrease of $57 million or 7% sequentially. Excluding results from our drill pipe manufacturing business, which tends to behave more like a capital equipment business, revenue in North America declined 7%, in line with the fall off in drilling activity.

EBITDA for the segment was down only $1 million sequentially as cost savings initiatives helped limit decremental margins to approximately 2%, a testament to the effort of our team to flex the size of our operations with the changing market conditions. Our ReedHycalog drill bit business posted a slight revenue decline due to weaker domestic activity, partially offset by growth in international markets. A contracting North American market is causing fierce pricing competition among our competitors, but our ability to deliver superior value to our customers through technology leadership has to date helped insulate our business from the pricing pressures without ceding market share.

Our MD Totco business unit experienced a mid-single digit drop in revenue due to the same North American headwinds affecting the rest of our business. While MD Totco is certainly not immune to the headwinds of the current market environment, we expect our list of close-loop automated drilling and surface optimization projects in North America, the Middle East and offshore Europe will continue to grow as operators around the world look to our digital solutions to improve their ability to generate returns.

Revenues in our Downhole business unit also declined due to lower motor, Agitator and fishing tool sales in the U.S. International revenues were mostly flat, and we are seeing rising demand for our Agitators and other drilling tools in the Middle East and Europe. Part of this growing demand is coming from service companies seeking to drive additional efficiencies in their drilling operations as they execute on lump-sum turnkey contracts. We're also seeing more customers leverage our Agitator technologies to improve efficiencies in completion operations.

Our TerraPULSE coiled tubing Agitator system is enabling customers to meaningfully reduce the time and cost to complete the long, lateral, multi-stage drill out operations. Our Tuboscope business posted results that were roughly flat for both revenue and EBITDA as the fall off in North American operations was offset by growth in international markets. The decline in Tuboscope's U.S. coding revenue was compounded by downtime associated with planned equipment upgrades as well as lost days in our Houston area plant, which resulted from tropical storm Imelda.

Strong demand for coding services and an increase in deliveries of our Thru-Kote sleeves to the Middle East more than offset the falloff in North America. Additionally, the decrease in drilling activity in the U.S. hurt demand from steel mills and pipe processors, resulting in a slight decline in revenue from our inspection service operations.

Our WellSite Services business unit experienced a high single-digit drop in revenue. Like the other business units in the segment, U.S. operations were impacted by slowing activity levels, which will continue to be a near-term challenge, but we did begin startup operations for projects in the Gulf of Mexico, which tend to drive higher revenue and profitability due to the sophisticated technology employed in offshore operations.

We're also excited about a series of additional offshore projects scheduled in 2020, for which the team is currently preparing. Our Grant Prideco drill pipe manufacturing business recorded a double-digit percent decrease in revenue as demand for new pipe has fallen sharply in North America as a result in the falloff of rig count.

The decline in revenue from North America was only partially offset by increasing demand from international and offshore markets. While orders have been solid, international orders typically take more time to convert from bookings into revenue. However, for the first time in quite a while, Grant Prideco's top line is more than 50% offshore, and while the business unit's revenue declined in Q3, bookings actually improved 30% as international and offshore orders continued to flow in at a welcome pace.

In the fourth quarter of 2019, we expect continued capital restraint across North American E&P complex combined with the holiday season to result in further declines in U.S. activity, while international and offshore markets are expected to continue their measured recovery. We therefore expect revenue for our Wellbore Technologies segment to decline 5% to 7% with continued focus on cost savings limiting our decremental margins to approximately 25%.

Our Completion & Production Solutions segment generated $728 million in revenue in the third quarter, an increase of $65 million or 10% sequentially. Higher revenues, cost savings and favorable adjustments associated with the completion of certain projects drove 46% incremental margins, resulting in a $30 million increase in EBITDA to $82 million or 11.3% of sales. Order intake remained healthy, and we captured $535 million in bookings during the third quarter. Orders exceeded shipments by 24%, providing us with our fourth quarter in a row of a book-to-bill in excess of 100% for this segment.

Backlog at quarter end totaled $1.3 billion. Sharp improvement realized by this segment over the past 2 quarters is a further testament to the diversity of our operations. We've been able to more than offset the rapid deterioration in demand from completions service providers in the U.S. by capitalizing on improving fundamentals in the international and offshore markets, which allowed us to drive sequential revenue improvements in all but one of our business units within this segment.

Our Intervention & Stimulation equipment business experienced a 7% sequential decline in revenue, resulting from the sharp falloff in U.S. completions activities that is, once again, causing customers to delay acceptance of equipment ready for pickup and other customers to request deferrals on more recently placed orders.

Despite the sequential deterioration in performance, the business serves as a great example of how our leadership, breadth and scale enhance our ability to navigate through difficult market conditions and give us the flexibility to pivot where opportunities exist. While the need for new pressure pumping spreads has been virtually nonexistent for the past year, and more recently, we've experienced a sharp decline in orders for new coiled tubing equipment in the U.S., demand from international markets remains robust.

In Q3, we booked orders for 9 coiled tubing units, 24 nitrogen units and a significant amount of other support equipment from a wide range of customers that will deploy the assets in numerous international markets. We also saw an increase in international orders for wireline and flowline, including a sizable order for our Anson 20,000 psi-rated flowline that is destined for China. And despite generally weak demand for pressure pumping equipment and aftermarket support, we were still able to book a few orders for blenders, control systems and support pumps.

Our unparalleled global footprint, service infrastructure, technology, quality and customer base can even create a safety valve or at least some optionality for our customers that can't be obtained from other vendors.

One of our loyal U.S. coiled tubing customers was seeing rapidly deteriorating demand and was able to sell their order slot and associated deposit to an international service company that still sees unmet, pent-up need for more modern equipment in the markets they serve. We believe no other vendor in this space has more customers that standardize on their equipment and has an installed base as large as NOV.

Our market position, global footprint, service infrastructure, technology and quality make us uniquely positioned to help our customers in ways that others cannot. While this type of transaction could temporarily cannibalize our near-term opportunity set, it ultimately creates a healthier market over the long term and did not prevent us from realizing a respectable 92% book-to-bill order intake for our Intervention & Stimulation Equipment business in the third quarter.

Revenue for our Process and Flow Technologies business unit was roughly flat as growing contributions from the execution on projects to build offshore production equipment booked over the past several quarters were mostly offset by a deteriorating North American market that is dampening demand for production chokes and pumps. EBITDA margins improved on a better mix, cost savings and favorable adjustment on a legacy project closeout.

Near term, we expect growth from our Process and Flow Technologies, international and offshore operations to more than offset the challenges associated with North American production and midstream markets that continue to contract in response to tightening E&P CapEx budgets. Tendering activity for our APL and wellstream processing operations remains strong, particularly for large-scale offshore gas development projects, which supported the second sizable award for a submerged turret production system in as many quarters and allowed the unit to post its third quarter in a row with a book-to-bill of more than 100%.

Our Fiberglass business unit posted another strong quarter of growth. Steady improvement in our core composite tubular offerings was supplemented by the first shipments from our new manufacturing plant in Dammam, Saudi Arabia, an acquisition that was completed during the second week of July and rapid growth in demand from shipping companies for marine scrubber system components as they scramble to retrofit vessels to comply with IMO 2020 requirements. Excluding additions from the acquisition, orders for our Fiberglass business unit improved 34%. Lastly, in our Subsea flexible pipe business, bookings were light despite the continuation of a steadily growing opportunity set that allowed us to realize 3 straight quarters of improved bookings prior to Q3 and led to 22% sequential revenue growth.

Looking at the fourth quarter, we expect improved international and offshore directed activity to offset the impact from rapidly deteriorating market conditions in the U.S. completions market, resulting in fourth quarter revenues that are flat with Q3. We also expect Q4 EBITDA to remain in line with third quarter results for our Completion & Production Solutions segment as cost savings realized should make up for the falloff in favorable project closeout settlements.

Our Rig Technologies segment generated $649 million in revenue in the third quarter, a decrease of $22 million or 3% sequentially. Aftermarket revenues, which improved 5%, were more than offset by an 11% decrease in revenues from capital equipment sales. Growing contributions from our naval design, jacking system and pipelay tensioner offerings from our marine construction operations were more than offset by a falloff in drilling equipment project revenues associated with completion of several projects in late Q2 and early Q3.

While revenue declined, we realized a much more favorable shift in our product mix, and when combined with project closeout variances and strong progress on our cost savings initiatives, we realized a $31 million improvement in EBITDA to $105 million or 16.2% of sales. Rig Technologies capital equipment orders totaled $221 million, a sequential decrease of $89 million or 29%.

Shipments of $246 million outpaced bookings, providing us with a book-to-bill of 90%. Total segment backlog at quarter end was $3.14 billion. We continue to see a growing opportunity set in the renewable sector, where we're able to leverage our core expertise in lifting and handling and in naval architecture to serve this rapidly growing industry.

After booking a record-sized order for the jacking system of a European offshore wind construction vessel in the second quarter, we received another large order associated with a 28,000-ton offshore wind turbine installation vessel that will be constructed at Japan Marine United shipyard for Shimizu Corporation. NOV was awarded the design work, a telescopic leg crane and the jacking system for this 142-meter long, 50-meter wide vessel that is being purpose built to efficiently construct the next generation of offshore windmills, which will incorporate turbines with capacities of up to 12 megawatts and rotor diameters of up to 220 meters. NOV's proprietary telescopic leg crane will provide a unique combination of high-elevation hoisting capability for turbine installation and heavy-load capability for foundation installation.

The crane will have a maximum lifting capacity of 2,500 tons and a maximum lifting height of 158 meters. The unique design of the telescopic boom also avoids protrusion outside the hull dimensions during transit, which increases the maneuverability of this vessel. Larger, more economically efficient, ultra-large-scale wind turbines ranging from 9 to 12 megawatts in size will greatly improve the economics associated with the offshore wind industry.

We're excited about this opportunity, which has a dollar value roughly equivalent to a full equipment package associated with a high-spec jack-up rig and see the need for a healthy number of additional vessels over the coming years due to the limited fleet of installation vessels currently capable of installing wind turbines of 8 megawatts or larger.

As offshore rig activity continues to recover at a measured pace, we continue to see steady order intake associated with upgrading and differentiating the performance of offshore rigs with a heavy emphasis on automation and multi-machine control enabled by our NOVOS control platform.

While the number of rig contract tenders has increased, these processes remain very competitive, and operators are increasingly insisting that these capabilities are included in bid packages. We booked 4 NOVOS orders associated with these automation upgrades during the third quarter in addition to 2 NOVOS systems for land rigs, bringing our total number of NOVOS orders to over 130.

While land rig capital equipment orders remain challenged in the Western hemisphere as North American customers cannibalize equipment off their stacked assets and the sharp devaluation of the Argentine peso muddles the near-term outlook in that particular market, we continue to see pent-up demand for cutting-edge drilling technology and equipment in other international markets, including the Middle East, where we were able to secure an order for 2 land rigs during the quarter.

In our Rig Aftermarket business, the positive booking momentum continued with another double-digit sequential increase in orders, yielding our highest order flow since Q1 of 2015. While service and repair work was roughly flat, we continue to maintain a steady backlog of reactivation, upgrade and recertification project volumes.

In addition, we're continuing to realize greater adoption rates of our condition-based monitoring solutions and total cost of ownership service model.

Looking at Rig Technologies' fourth quarter, we expect revenues to improve between 4% to 6% on higher revenues from land rig sales and service and repair work. EBITDA margins are expected to decline between 200 and 400 basis points due to a less favorable mix, a falloff in favorable cost variances on project closeouts and limited incremental contribution from cost savings between now and the first quarter of 2020. While we expect market conditions will remain challenging, we're pleased with the strides our people are making to improve our profitability, our working capital intensity and our already strong competitive positioning.

With that, we'll now open the call up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Byron Pope from Tudor, Pickering and Holt.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [2]

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It is really encouraging to hear that the international recovery continues in steady fashion for you guys, and I was particularly struck by the growth in CAPS. Clay, I won't ask you to speak to specific countries or customers, obviously, but could you just frame for us the -- maybe the regional international drivers for CAPS as you see it as you step through the next 12 or so months?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [3]

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Yes, what's encouraging to us, Byron, is the pickup in activity in the offshore, in particular, and I think that's been driving a lot of orders for us in the Completion and Production Solutions group. So generally, the world's seeing rising demand for LNG and Asian markets and that's contributing to I think some decisions by operators to move forward with development of gas discoveries in places like East Africa and elsewhere. Our customers there, in many of the major basins, have had 5 years of reengineering and focusing on cost in this downturn and have been high-grading their prospects, have been taking advantage of deflation in the supply chain to reduce their cost of development.

I think they're to a point where they're getting more confident about moving forward. I think you have a lot of operators around the globe that are -- have seen normal depletion and declines of the base loads around some offshore infrastructure, gathering hubs and pipelines and things like that, who recognize the need to replace some of that production. And so I think that's kind of giving a little impetus to operators to move forward on some of these developments. So it's really -- it's been a slow but steady recovery, and very pleased to see it continue on through the third quarter.

But really kind of a global phenomenon. We're seeing -- I think Jose in his prepared comments referenced some of the equipment that we expect to go to work in the Gulf of Mexico, in the U.S. a lot of interest in the Mexican side of the Gulf of Mexico, Brazil offshore, North Sea. So again, very steady and slow and encouraging for kind of the outlook in lots of markets around the globe.

Onshore, the Middle East has remained fairly active through the downturn and just continues to be a lot of things going on there, and so we've got a number of tenders that we're looking at with respect to providing equipment into that market. We've opened a number of facilities in the Kingdom of Saudi Arabia that came online, specifically, for instance, our Fiberglass pipe manufacturing plant in Dammam that Jose also referenced. We opened that in April, and it's ramping up production. Now we're making both real pipe and jointed pipe there, and so just a lot -- as opposed to North America, we're facing a lot of headwinds. International offshore seems to be much brighter.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [4]

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That's really helpful, Clay. Appreciate it. And then Jose, just one quick question. I mean the strong free cash flow generation in Q3, but I think I heard you say that the back-half free cash flow target is still intact the way you guys had previously characterized it. Is that fair?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [5]

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It is fair. So yes, obviously, we made some really good progress during the course of the third quarter, made more progress than we had anticipated related to collection of receivables. We're continuing to tighten up and improve our processes. So even as the business mix becomes a little bit more challenging as it relates to collections, organization is doing a great job, getting our arms around the process and squeezing down the days receivable. So as we look at the fourth quarter, we are holding our prior guidance intact, the $300 million to $500 million in free cash flow for the second half of the year. But obviously, we've made great strides in getting there, and so you could be pretty confident that we look at the upper end of that range.

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Operator [6]

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Our next question comes from Bill Herbert from Simmons.

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William Andrew Herbert, Simmons & Company International, Research Division - Head of Energy Research & Senior Research Analyst of Oil Service [7]

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So sticking with the free cash flow theme. So if you're going to hit the upper end of your guidance for free cash flow for the year, that implies yet another significant working capital harvest in Q4 that's not necessarily dissimilar to what was witnessed in Q3. Is that correct?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [8]

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It certainly involves some additional contribution from working capital, and we're confident in our ability to realize that. But later today, once you -- once we issue our Q, you'll be able to see a bit more granularity from the cash flow statement. As I mentioned, we made great progress as it pertains to harvesting cash flow from receivables and other elements of our working capital. We started to get cash from our inventory. However, the contribution in Q3 was pretty light. And so I think you'll see a little bit of shift in terms of where the source of cash is coming from. You'll have continued source just from operational performance, but you'll see a shift from more contribution from inventory versus receivables as we move into the fourth quarter.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [9]

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Yes. We're really going to focus our attentions, I think, on getting better at inventory. So Jose mentioned, it was a source of cash, but that's where the remaining opportunity is for us.

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William Andrew Herbert, Simmons & Company International, Research Division - Head of Energy Research & Senior Research Analyst of Oil Service [10]

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Okay. So we have a shift from receivables to inventories in Q4, but nonetheless, the working capital harvest in Q4 is still fairly considerable?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [11]

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Our expectation is to see continued contribution from working capital.

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William Andrew Herbert, Simmons & Company International, Research Division - Head of Energy Research & Senior Research Analyst of Oil Service [12]

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Got it. And with regard to capital spending, I'm not sure if you touched on this in your commentary, Jose, but what should we expect with regard to Q4? And also if we can just take a look into 2020 and what your expectations would be for capital spending intensity? It's been fairly low, as Clay pointed out, year-to-date, and I'm just curious as to whether it can stay that low.

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [13]

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Yes, sure. I think there are a couple questions mixed in there. One, just a question related to working capital. So yes, as we move forward into the fourth quarter, as we've touched on, we expect to continue continued improvement on the working capital intensity of the business and we're certainly not going to sit still as it pertains to 2020, still think there are more opportunities for improvement through the course of 2020 to bring down that ratio of working capital to our revenue run rate.

Yes. As it pertains to the capital intensity of our business associated with capital expenditures, I think as most folks are well aware, we have a very capital-light business that's operating in a pretty capital-intensive business which is prone to generation of cash flow, and we continue to view our business in that way and manage it that way. As you've highlighted, our capital expenditures for this year are certainly below the plan which we laid out at the beginning of the year. $69 million in CapEx in Q3. Q4 is normally our highest CapEx quarter of the year, but things will probably finish up the year at about $260 million of CapEx full year.

One of the several reasons why our CapEx for 2019 is a little bit below or is a bit below our original plan is, no surprise, that things are going -- we factored the budget around sort of best case scenario in terms of progress associated with the new rig manufacturing plant in Saudi Arabia. Things take a little bit more time, and so we're not surprised that, that's taking a little bit longer when we're building a facility in completely undeveloped territory within Saudi. So some of that CapEx will shift into 2020. And so we can see a little bit of an increase for 2020. But then after that, expect our capital expenditures to get back in line with history, which should be plus or minus 3% of our revenue run rate.

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William Andrew Herbert, Simmons & Company International, Research Division - Head of Energy Research & Senior Research Analyst of Oil Service [14]

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Okay. Fine. So is basically a little bit of an increase for 2020, is that splitting the difference between Q3 and Q4 of this year?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [15]

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Look, we're in the middle of our planning process right now, but I think that's a safe assumption.

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Operator [16]

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Our next question comes from Vebs Vaishnav from Howard Weil.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [17]

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Congratulations on a very good quarter. I guess just following up on last questions. If I think about the CapEx for next year, my sense from what we were talking is it could be flattish. Is that fair way of thinking?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [18]

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No, Vebs. So when we came into this year, our initial expectation was a CapEx plan just a little south of $350 million. So as we move into 2020, we will see that step up associated with the increased spend related to that rig manufacturing plant. So as Bill was kind of indicating, I think you'll see somewhere between through the $260 million that we're calling for now this year and that $350 million number for next year, but subject to revision next quarter, as I mentioned, we're in the middle of our planning process right now.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [19]

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Yes. The plant that Jose referenced in Saudi Arabia is the big piece this year. I think if you recall when we came into 2019, we basically said we're taking 2018's level of CapEx at about $250 million and another $100 million for that plant in Saudi Arabia. The reason we're a little bit hesitant is it depends on how construction's progressing there. And as Jose mentioned, some minor delays there, but on the whole, we're developing kind of our -- and fine-tuning I think our outlook for CapEx as we move into 2020.

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [20]

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Yes. And there is spend that is occurring on that plant. So therefore, we certainly wouldn't expect 2020's CapEx to be in line with what our original plan was for this year, which had assumed everything went as quickly as possible.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [21]

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Yes, got it. And I'm sorry if I missed it, but did you guys call out how much was severance cost in your free cash flow number in 3Q?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [22]

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We did not specifically call that out, but I think in Q2, you saw the noncash charges associated with some of our severance expense, and the majority of that would have flowed through as a real cash expense in the third quarter.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [23]

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And that should decline in 4Q?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [24]

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Yes, it should.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [25]

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Okay. And I guess last question from me. Just if I think about those cost savings, can you just help me think about you went from $160 million to $200 million, like what are the incremental steps that you guys are taking? You have been very proactive at that.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [26]

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Yes. We spent a little time on that on the last couple of calls, Vebs, and we've continued to evolve our plans. But as we've mentioned before, we're kind of more fundamentally reorganizing how we execute our businesses, and as you're well aware, we operate through fairly autonomous business units. But as we entered 2019 and market outlook was diminished a little bit, we said now is the time really to go into, and particularly administrative support functions that support those business units and see where we can capture more savings. And so a lot of the effort that's going on through the summer and now into the fourth quarter has been around that reorganization along with other cost savings measures that we're undertaking kind of business unit by business unit across all 3 of our segments. And so the difference between the $160 million target that we talked about in the second quarter and now the revised $200 million target that we're talking about in the third quarter is just kind of the getting deeper into it and refining of the steps that we can and are taking. And so the savings have continued to mount.

But also I want to add, very, very proud of the organization for stepping up to this challenge and for -- our employees and our managers looking for ways to run our business more efficiently, doing a great job on this.

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Operator [27]

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Our next question comes from Scott Gruber from Citigroup.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [28]

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Just staying on the same line of questioning, the cost-out program now up to $200 million. Is there more to go here? Do you think it could keep moving beyond that $200 million mark in 2020 in the absence of any divestitures? And then as you start to think about that portfolio mix, it sounds like there could be some divestitures on the horizon. Could the cost-out program continue to grow as some businesses come out? Or should we think about those 2 as separate?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [29]

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Yes. That's a great question. I'm -- to compete effectively in oilfield services you always have to be paying attention to cost and efficiencies, and I think it's kind of in our DNA to continue to look for cost savings efforts. And so I think that really is part of the reason we have overachieved on cost savings around our plans. But as I mentioned in my prepared remarks, we are reviewing parts of our portfolio products and services around the globe to see kind of where there may be opportunities to further improve our returns on capital. In fact, I'm going to ask Blake to comment on that process. But one of the things we got to think about is what -- if you take some product or revenue stream out of a business, then how do you adjust the fixed cost to support that business so you don't run into an absorption.

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Blake McCarthy, National Oilwell Varco, Inc. - VP of Corporate Development & IR [30]

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Right. And Scott, I think we're looking at this more from a returns basis than just a pure cost standpoint. And we're being pretty methodical about it as more than just a math exercise. We're looking at it from a qualitative basis as well, right, where we don't want to sell businesses that we feel we have a real competitive advantage on, and we're just looking at a trailing 12 months' return where it's been bouncing along the bottom of the down cycle. So we're looking at both from the numbers standpoint and where we stand in the business, and we're looking at across all of our different product lines and taking our time on this. As we look to either exit whether it's through divestiture or whether we just have to close a product line, we'll obviously take a long hard look at the RemainCo fixed cost structure.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [31]

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Yes, and I think there may be some opportunities coming out of that, but too early to say.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [32]

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Got it. And then just a follow-up on the portfolio review. Great to hear the returns focus. Are you guys starting to think about the mix of businesses within the portfolio, like mix of kind of upstream, downstream, other industrial? You've taken on some contracts to access the renewables market in a bigger way with those vessels. Is that part of the review?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [33]

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I would say I think we're more of a bottoms-up sort of analysis than a top-down. We don't sort of think of what's an optimal mix of exposures for NOV in as much as we think about, "Hey, here's a really interesting business that has demonstrable competitive advantage." To me, I think, and I think I said it in my opening remarks, I think the strategic positioning of businesses is critically important to returns. And so kind of understanding how businesses can outperform competition in a space and can carve out long-term returns that are very attractive, it's more of a granular sort of thinking through what sort of competitive advantage or what sort of moat does this particular business have. And that tends to guide our decisions more than, "Hey, I would like the optimal mix to be 20% midstream," and something like that. If that makes sense. So it's less of a view on kind of a sector exposure, more of a view of, "Hey, how do you got sort a classic competitive advantage?" And I think over the years, that's probably been much more of an important guide in terms of our strategic capital allocation decisions here at NOV.

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Operator [34]

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Our next question comes from Kurt Hallead from RBC.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research & Analyst [35]

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Congrats. Great job, guys. The question, a follow-up, given the cost saving dynamics you guys have put in place, just curious as to whether or not you'll give us an update as to the incremental margin profile for the respective segments as we kind of move forward from here. In the past, I think you've kind of given some indications on what they were maybe on a pre-cost savings dynamics. So just curious as to how these cost savings may change that incrementals on a go-forward basis.

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [36]

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Sure, Kurt. Yes, so the prior guidance that we have provided related to what we believe normalized incrementals are for each of the segments still stands. But as you've touched on, you've got to adjust for the nuances that take place from quarter-to-quarter, and right now as we're undergoing our cost savings initiatives, you could expect incrementals to be bigger than that prior guidance and you can expect decrementals to be smaller, right? And then you also have those individual nuances quarter-to-quarter, such as pricing dynamics, et cetera, that come into play. But so if you look at the guidance that we provided for Q4 in our prepared remarks, those factor in the impacts of cost savings that we anticipate will materialize during the fourth quarter.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research & Analyst [37]

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Okay. Great. Appreciate that color. And then, Clay, I was just kind of curious as you've had a variety of discussions with a number of different customers and things are pretty uncertain as it relates to the North American market going into next year. But I wanted to get your sense as to how you might see this thing evolving given your experience in prior cycles? And kind of what's similar? What's different? And then what we, from the outside looking in, can potentially draw and determine what kind of growth rate we could see from this business over the next 3 to 5 years potentially?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [38]

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Yes. I think -- it's a great question, Kurt. I think that the challenge through the first 5 years in this downturn is that every time we start to see the signs of a recovery, there is another big production report coming out of West Texas. And you've had unconventional shale surprise to the upside on production through this 5-year period, which I would characterize as a lot of entrepreneurial, aggressive, smaller E&P companies in kind of a Land Rush phase still of securing acreage and drilling it up. And as the Permian basin and other unconventionals across North America evolve to move to a handful of larger players who I think are going to be steadier in kind of their drilling and production, then maybe the possibility of big production surprises to the upside diminishes a bit, and it's kind of a steadier more workmen-like undertaking at developing that acreage.

I think that could basically provide maybe a little more confidence in other E&Ps around the globe, more confidence to their price decks and lead to the return to normalcy over the next few years in terms of development that's more balanced in international markets and offshore markets. I think we're starting to see the early signs of that perhaps in 2019. But certainly in '20, the near term looks -- in North America looks pretty challenging in Q4. 2020 remains opaque. But what's been missing through the 5 years of the downturn really is the offshore and the international markets. And so we're pleased to see progress over the last several quarters, slow and steady in those marketplaces. But kind of like more levelized level of production out of the Permian and North American unconventionals I think could help maybe accelerate that just a tad and we could get back to a greater level of prosperity globally, which is really what we've all been seeking.

The other big factor, too, which has really come to bear here in 2019 is the fact that a lot of the North American producers responsible for those production outperformances are finding it much more challenging to get capital. And the level of capital austerity and discipline, it's going into the drilling programs and living with cash flows and so forth. I got to think that's going to affect U.S. production growth going forward and I think be one of the building blocks for a healthier industry.

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Operator [39]

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Our next question comes from Cole Sullivan from Wells Fargo.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [40]

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Congrats on a good quarter, guys. Within Wellbore, the North American decline kind of hit in 3Q and obviously fell out a lot more over the September time frame, and you guys held in pretty well on the margin side, actually kind of beat guidance, obviously, on cost savings. And the fourth quarter guidance looks like it's holding in as well pretty strongly. Is that cost savings that's really driving that stronger performance expected in 4Q there in Wellbore?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [41]

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Yes, there's certainly an element of cost savings, but I think really the contributions we provided from a consolidated standpoint is consistent with what we're seeing across each of the segments, where the contribution from cost savings in the fourth quarter will be a little bit less than what we experienced in Q3. So we're also seeing mix shifts across all of our businesses, which contribute to the performance. And I'm not entirely clear I got your question precisely right, but one of the things to recall is that Wellbore Technologies is still 46% of its revenues is coming from the international market.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [42]

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Yes. That'll help, but so in the third quarter coming from the second quarter, top line was down 7%, and the group there did a fantastic job managing decremental leverage to only 2% sequentially, really basically holding EBITDA flat despite a 7% top line decline. Going from the third quarter to the fourth quarter, we're guiding down. I think Jose said -- you said 5%, 6%, 7%...

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [43]

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Yes.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [44]

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In the top line. Decrementals more like 25%.

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [45]

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25%.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [46]

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So -- which is lower than you'd otherwise expect normal operating leverage or normal variable margins to be in that space, which are probably 35% or something like that. So that's where the kind of cost savings show up. But to be clear, we are guiding down, again, in Q4 around -- on the top line of Wellbore Technologies.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [47]

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Right. That's helpful. On C&P. Revenues were guided to kind of flattish for revenues. Can you help us think about the backlog conversion there with the higher orders that have been flowing through this year that are, I guess, implied in the fourth quarter number? And then how to think about the non-backlog revenue side for the shorter-cycle items in 4Q guidance?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [48]

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Yes. So Cole, that's a good question. So with the shift in the mix that we're seeing, you're right, we are guiding to effectively a flat quarter in the fourth quarter, but an increasing proportion of that revenue will be from more backlog-oriented businesses. So we expect that revenue from backlog to pick up just a little bit from Q3 to Q4.

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Operator [49]

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Our next question comes from Connor Lynagh from Morgan Stanley.

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Connor Joseph Lynagh, Morgan Stanley, Research Division - Equity Analyst [50]

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Was wondering if you could just characterize -- we've spent a fair bit of time on it already, I know. But just what drove the cost-out to surprise to the upside? What specifically were the things that moved along faster than you expected?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [51]

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Hard to generalize, honestly, other than just really -- I mean, I've said it before, and it's probably worth repeating, it's a pretty volatile business, and you've got to be able to downsize when called upon, and I think our teams are really good at sort of moving quickly and acting decisively and taking cost out. And so we entered this latest round in the first quarter of 2019 and began to get traction in the second quarter, and then in the third quarter, I think you're seeing a lot of the results of steps that had been taken. And I can't say this enough, we have a great team, who really understands we have to constantly size our business to market requirements.

And in a downmarket, you're downsizing, but in an upmarket, we're also pretty good at flexing upwards to meet market demand, which can rise pretty sharply in this place -- in this space as well. So just really good execution all the way around, and again, difficult to generalize other than to say I think it's embedded in our DNA here. And the good news is we're continuing to take the steps necessary to position the company and making good progress on that.

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Connor Joseph Lynagh, Morgan Stanley, Research Division - Equity Analyst [52]

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Got it. That's helpful. Maybe to pivot a little bit since we were talking about the portfolio, I would assume that you will still be active on the billing portfolio as well where you see opportunities. I was wondering if you could just characterize how you see the M&A market right now. And just any portions of your portfolio that you find interesting to add on to in the current market environment?

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [53]

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I'm going to hand that off to Blake to speak to.

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Blake McCarthy, National Oilwell Varco, Inc. - VP of Corporate Development & IR [54]

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Yes, I mean, there's definitely, as we've mentioned in the past, like the buyer universe, running parallel with the limited access to capital in the space, is definitely getting smaller, and so we find -- we think we're in a pretty opportunistic situation. The others, there are some business lines that we definitely think we can augment through M&A over the next year. But also, like, I think we're in a pretty good spot when I look at the overall portfolio. There is no huge gaps that I think that we need to fit -- to fill. So we're definitely going to be very disciplined and take our time. I think patience is the name of the game right now.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [55]

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I'd add, too, in contrast with prior eras, we are more -- we're using M&A in conjunction with organic investments in technology. And kind of these are smaller, more rifle shots sort of acquisitions we are mostly doing and then investing internally to enhance our technology to take their products through the NOV infrastructure to really -- we think that's the most efficient use of capital now. But it is -- to Blake's point, it's becoming more of a buyers' market. So watching that intently.

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Operator [56]

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Our next question comes from Sean Meakim from JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [57]

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So Clay or Jose, just one point of clarification. I was curious how much did or to what extent did the write-downs of inventory in the second quarter aid the margins in 3Q across any of your segments. Can you maybe give us a sense of magnitude, if there is one, and to the extent, is that a tailwind for you going forward?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [58]

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Yes, there really is not a contribution or any sort of tailwind that comes from us writing down our inventory. So we have been very consistent in terms of our approach related to how we've dealt with items that go through our P&L or come out of our P&L via other items. And well, first of all, the vast majority of inventory that we write down is heading for the scrap heap. And really over the last 3 years, we've scrapped over $700 million of the inventory. There are times where we are writing things down to a lower cost of market, and occasionally, those do sell. And usually, they are at 0 margin.

To the extent they are at any sort material margin, we will actually reverse the write-down through our other items. And so if you go back and you look at some of our prior quarterly press releases and 10-Qs and you study those other items, you can actually see that there are places where we are reversing those charges because there have been a couple areas, I think, Q1 of 2018 and Q2 of 2017, specifically, you can go back and look and see that there are reversals of some of those charges. And that's why that's happening is because we were pleasantly surprised with the outcome on a couple of those write-downs, but we do not take that back to the P&L to inflate our margin.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [59]

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Yes, that's really rare for us to write something down and then be able to sell it for our margin. But when it does happen, we're pretty consistent in taking it to other item.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [60]

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That's really helpful. The other point on working capital. You're targeting free cash flow back half of the year. Obviously, in very good shape there. Could you maybe just give us your latest thoughts on working capital to sales? Maybe actually to 2020 because, again, you've made significant progress there. Has that changed? And maybe just, Jose, how you think about DSOs, DSIs, DPOs? What's kind of the normalized run rate that you're trying to accomplish from that angle?

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Jose A. Bayardo, National Oilwell Varco, Inc. - Senior VP & CFO [61]

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Yes, Sean, I think as we're sort of going through our planning process and trying to determine what all the right metrics are for 2020, it's probably a little bit premature for us to give you precise guidance. But pleased with the progress that we have made so far in the back half of 2019, getting extremely close to the targets that we set at the beginning of this year, and we look for continued improvement moving into 2020.

And so as I mentioned earlier, it is about focus on all of the blocking and tackling details associated with improving our processes. We have made considerable strides, but there's still meaningful room for improvements. So with our DSOs, I think at about 77 days, I think we can get a little bit better than that. Our turns, as I mentioned earlier, we've made some progress but not nearly enough progress in terms of inventory turns, so we can do better with that in 2020. And so we'll be working on setting that guidance, but needless to say, we're going to continue to squeeze it down and get as efficient as we possibly can as it pertains to working capital intensity in our business.

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Operator [62]

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This concludes our Q&A session. At this time, I'd like to turn the call over to Clay Williams, CEO, for closing remarks.

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Clay C. Williams, National Oilwell Varco, Inc. - Chairman, President & CEO [63]

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Thank you, sir. Thank you for doing it, and thank you all for joining us this morning. Also thanks to our employees that are listening. We look forward to updating you on our fourth quarter and full year results in early 2020. Thank you. Goodbye.

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Operator [64]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Good day.