Executive Summary / Key Takeaways

• NOV Inc. is leveraging its deep technological expertise and growing backlog in offshore and international markets to offset softness in North America and navigate macroeconomic uncertainty and trade tensions.
• The Energy Equipment segment, benefiting from higher-margin projects flowing out of backlog and strong execution, achieved significant year-over-year margin expansion in Q1 2025 despite a slight revenue decrease.
• Technological differentiation, particularly in high-performance drill bits, downhole tools, digital solutions, subsea flexible pipe, and unconventional completion equipment, is driving market share gains and contributing to profitability, especially in international unconventional plays and deepwater.
• Despite near-term caution due to trade war effects and OPEC decisions potentially impacting activity in the second half of 2025, management expects modest sequential revenue and EBITDA growth in Q2 2025 and remains focused on operational efficiencies and cost management.
• A strong balance sheet and robust free cash flow generation support a commitment to returning at least 50% of excess free cash flow to shareholders, including an expected supplemental dividend in mid-2025, while also enabling strategic investments and opportunistic M&A.

Forging Resilience in a Volatile Energy Landscape

NOV Inc. stands as a foundational provider of equipment and technology to the global energy industry, a role it has cultivated over 160 years. From its origins supporting traditional oil and gas development, the company has consistently evolved, pioneering solutions for frontier resources like unconventional and deepwater plays, and more recently, applying its expertise to alternate energy sources. This long history of innovation has culminated in an extensive portfolio of proprietary technology spanning drilling, completion, and production, establishing NOV with significant cross-segment capabilities and scale.

The past decade, particularly following OPEC's 2014 market strategy shift, tested the industry, driving a relentless focus on efficiency, especially within North American shale. NOV adapted by intensifying its own technological development and operational efficiency efforts, introducing products that improved performance, safety, and environmental impact. This period saw the maturation of its digital offerings, advanced downhole tools, and specialized equipment critical for unconventional plays. Today, this legacy of adaptation and innovation forms the bedrock of NOV's strategy: to deliver value through technological leadership, operational excellence, disciplined capital allocation, and leveraging its diverse portfolio across traditional and emerging energy markets.

The company operates through two primary segments: Energy Products and Services (EPS) and Energy Equipment (EE). EPS focuses on shorter-cycle products and services tied closely to drilling, intervention, completion, and production activity levels, including drill bits, downhole tools, composite pipe, and digital solutions. EE, conversely, is more capital-equipment intensive, providing integrated systems for drilling and production (onshore and offshore), well intervention, and serving marine and renewable energy markets, supported by a significant aftermarket business. This segment structure positions NOV to participate across the energy value chain, from well construction to production and decommissioning, and increasingly in energy transition projects.

In the competitive arena, NOV faces formidable global players like Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BKR), and TechnipFMC (FTI), each with distinct strengths. While competitors like SLB and HAL often lead in integrated services and digital ecosystems, and FTI in subsea project execution, NOV differentiates itself through specialized, high-performance equipment and automation technologies. For instance, NOV's high-performance drill bits with the latest cutter technology have driven market penetration, resulting in over 20% revenue growth in the U.S. in Q1 2025 despite a 6% decline in the U.S. rig count. Its Alpha Shale Shaker offers 20% to 30% higher cuttings handling capacity than alternatives. In downhole tools, technologies like the Series 55 drilling motor and friction reduction tools are gaining share by enabling more efficient drilling in complex wells, including longer laterals. This technological edge is crucial, providing a competitive moat that allows NOV to command pricing premiums and capture market share even in challenging environments. While competitors may boast higher overall profitability margins (e.g., SLB's operating margin around 14% vs. NOV's 11.31% TTM), NOV's targeted technological advantages contribute directly to its gross and operating margins, enhancing its financial performance in specific niches.

NOV's strategic focus is increasingly aligned with broader industry trends pointing towards deepwater and international unconventional resources as the primary sources of future incremental oil and gas supply. Deepwater developments, with breakevens around $40 per barrel, are seeing renewed investment, driving demand for NOV's subsea flexible pipe (backlog nearly doubled since Q1 2024), process systems (booking gas dehydration packages for NOCs), and capital equipment upgrades (BOPs, hook load capacities, robotics). International unconventional plays in the Middle East and Argentina are adopting technologies honed in North America, creating demand for high-spec land rigs, coiled tubing, wireline, chokes, and composite pipe – areas where NOV holds leading positions and is seeing accelerated adoption of its advanced tools. The company's investment in and acquisition of Keystone Tower Systems, with its spiral welding technology, exemplifies its strategic push into renewable energy infrastructure, aiming to reduce wind tower manufacturing costs and enable taller towers for improved wind farm economics.

Performance Amidst Shifting Tides

NOV's recent financial performance reflects the interplay of these strategic drivers and prevailing market conditions. For the three months ended March 31, 2025, consolidated revenue was $2.10 billion, a 2% decrease compared to the same period in 2024. This modest decline was primarily attributed to lower industry activity impacting the shorter-cycle EPS segment and reduced aftermarket demand in EE, partially offset by increased revenues flowing out of backlog in EE and continued market adoption of newer technologies in EPS.

Despite the slight top-line dip, consolidated Adjusted EBITDA increased 5% year-over-year to $252 million, resulting in an 80 basis point margin expansion to 12.0%. This margin improvement was largely driven by the Energy Equipment segment, which saw its operating profit surge by $39 million to $134 million (11.7% margin) and Adjusted EBITDA increase by $46 million to $165 million (14.4% margin). This significant profitability jump in EE, a 430 basis point increase in Adjusted EBITDA margin year-over-year, underscores the impact of strong execution on higher-margin projects within its growing backlog ($4.41 billion as of March 31, 2025, up 12% YoY) and ongoing operational efficiency efforts. The EPS segment, while seeing a 2% revenue decrease to $992 million, experienced a larger profitability decline, with operating profit falling $38 million to $83 million (8.4% margin) and Adjusted EBITDA decreasing $29 million to $145 million (14.6% margin). This was primarily due to reduced activity levels and a less favorable sales mix, despite gains from newer technologies and acquisitions like Artificial Lift.

The company's liquidity remains robust. As of March 31, 2025, cash and cash equivalents stood at $1.16 billion, with total debt of $1.74 billion. The net debt-to-capitalization ratio was a healthy 23.6%, well below the 60% covenant limit.

Net cash provided by operating activities was $135 million in Q1 2025, contributing to positive free cash flow ($51 million after $84 million in capital expenditures), a notable achievement for a typically cash-consumptive first quarter.

This strong cash generation supports NOV's capital allocation framework, which prioritizes maintaining a strong balance sheet, investing in the business (CapEx expected to be in line with 2024), pursuing opportunistic M&A, and returning excess free cash flow to shareholders. The company repurchased $81 million in shares and paid $28 million in dividends in Q1 2025 and plans a supplemental dividend of around $80 million in mid-2025 to meet its commitment of returning at least 50% of 2024 excess free cash flow.

Outlook and Navigating Uncertainty

Management's outlook for the near term is characterized by caution due to intensifying geopolitical and macroeconomic uncertainties. The emerging trade war, its potential impact on the global economy, and OPEC's decision to increase supply are expected to lead to lower oilfield activity in the second half of 2025, particularly affecting North America, Mexico, and conventional Saudi Arabia. The outlook is described as uncertain, with clearer downside risk than upside.

Despite these headwinds, management expects Q2 2025 to remain solid, guiding for consolidated revenue down 1% to 4% year-over-year, expecting $2.07 billion to $2.14 billion. For the full year 2025, the base case points to a flattish revenue environment. However, management anticipates further margin improvement in 2025, driven by the improving quality of margins rolling out of backlog, continued operational efficiency efforts, and market share gains from new, higher-margin products. The estimated tariff impact, net of mitigation efforts, is expected to increase to approximately $15 million per quarter beyond Q2 2025, assuming costs can be passed through.

The longer-term outlook remains positive, anchored by the expectation that international and offshore markets will drive incremental supply growth and the continued application of technology to improve efficiency. NOV is well-positioned to capitalize on these trends through its deepwater production equipment, international unconventional technologies, and digital solutions.

Key risks to this outlook include the severity and duration of the anticipated slowdown in the second half of 2025, the unpredictable impact of evolving trade policies and tariffs on supply chains and costs, potential delays or cancellations of customer projects due to economic uncertainty, and the outcome of ongoing litigation related to drill bit technology royalties. NOV is actively mitigating these risks through cost management, supply chain diversification, leveraging its global manufacturing footprint, and focusing on winning high-margin work.

Conclusion

NOV Inc. is navigating a complex energy market characterized by near-term macroeconomic headwinds and regional slowdowns, particularly in North America. However, the company's investment thesis is underpinned by its deep technological differentiation, strategic positioning in resilient international and offshore markets, and a growing backlog of higher-margin projects, particularly within its Energy Equipment segment.

While Q1 2025 results showed a slight revenue dip, the expansion in Adjusted EBITDA margin highlights the positive impact of operational efficiencies and improved backlog quality. The company's robust balance sheet and commitment to returning capital provide a solid financial foundation. Looking ahead, the key for investors will be monitoring the execution on the significant Energy Equipment backlog, the continued market adoption and margin contribution from new technologies in both segments, the effectiveness of tariff mitigation strategies, and the timing and strength of the anticipated recovery in offshore drilling and international unconventional activity beyond the near-term uncertainty. NOV's ability to leverage its technological leadership and operational discipline will be critical in translating these strategic advantages into sustained financial performance and value creation amidst evolving market dynamics.