NOV (NYSE: NOV), a leading provider of technology and equipment to the energy industry, has reported a solid start to 2024 with a 2% revenue increase in its first quarter, compared to the same period in 2023. The company announced a net income of $119 million, or $0.30 per fully diluted share, and an adjusted EBITDA of $241 million. NOV also highlighted the growth in its Energy Products and Services and Energy Equipment segments, with optimistic views on the offshore and international markets. Additionally, the company has outlined a robust return of capital program, including a 50% dividend increase and a $1 billion share repurchase program.
Key Takeaways
- NOV's first-quarter revenue increased by 2% year-over-year to $2.16 billion.
- Net income stood at $119 million, with earnings of $0.30 per fully diluted share.
- Adjusted EBITDA was $241 million, equating to 11.2% of revenue.
- The Energy Equipment segment's backlog reached $3.96 billion as of March 31, 2024.
- NOV completed two acquisitions and announced a 50% increase in base dividend and a $1 billion share repurchase program.
- The company expects to return approximately $1.5 billion to shareholders by 2027.
Company Outlook
- NOV anticipates modest improvements in industry activity, especially in international and offshore markets.
- A strong performance is expected as the industry cycle matures, with high levels of free cash flow generation annually.
- Capital allocation priorities include defending the balance sheet and investing in organic growth opportunities, among others.
Bearish Highlights
- Soft activity is expected in the US market until 2025.
- The gradual winding out of lower-margin contracts and projects will continue through the end of 2024.
Bullish Highlights
- Strong demand and an increase in offshore FIDs and FPSOs signal optimism in the offshore market.
- NOV sees potential in providing production-related offshore equipment and opportunities in the floating wind sector.
Misses
- Seasonal decline of 16% in the Energy Equipment segment's capital equipment sales from the fourth quarter.
Q&A Highlights
- CEO Clay Williams discussed rig reactivation plans, the Saudi CapEx shift, and the company's role in renewable energy, particularly floating wind projects.
- The company is not directly addressing the data center build-out but sees opportunities as a customer in the renewable energy sector.
NOV's earnings call provided a comprehensive overview of the company's financial health and strategic direction. With a steady increase in revenue and a positive net income, NOV is looking to capitalize on the growing demand in the offshore and international markets. The company's solid backlog in the Energy Equipment segment and plans for capital return to shareholders demonstrate confidence in its future performance. While challenges remain, particularly in the US market, NOV's strategic acquisitions and focus on innovation in areas like floating wind projects position it well for the evolving energy landscape. Investors and market watchers will be keen to observe how NOV's strategies unfold in the coming quarters.
InvestingPro Insights
NOV has shown resilience in its first quarter of 2024, with a revenue increase and a robust capital return program. The company's performance is further illuminated by key metrics from InvestingPro:
- The Market Cap of NOV stands at 7460M USD, reflecting the market's current valuation of the company.
- An attractive Price/Earnings (P/E) Ratio of 7.61, which has slightly adjusted to 7.25 in the last twelve months as of Q1 2024, indicates that the stock may be undervalued compared to earnings.
- With a Revenue Growth of 14.7% in the last twelve months as of Q1 2024, NOV is demonstrating a solid capacity to increase its sales figures.
InvestingPro Tips that are particularly relevant to NOV's current situation include:
1. NOV has maintained dividend payments for 16 consecutive years, showcasing a commitment to shareholder returns even through market fluctuations.
2. The company's liquid assets exceed its short-term obligations, providing financial stability and the ability to invest in growth opportunities.
For those looking to delve deeper into NOV's financials and future prospects, there are 5 additional InvestingPro Tips available at https://www.investing.com/pro/NOV. These tips could provide valuable insights for investors considering NOV's stock for their portfolio.
To access these insights and more, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a comprehensive analysis tool for informed investment decisions.
Full transcript - Ntl Oilwell Varc (NOV) Q1 2024:
Operator: Good day, ladies and gentlemen, and welcome to the NOV First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is recorded. I would now like to introduce your host for today's conference, Ms. Amie D'Ambrosio, Director of Investor Relations. Ma'am, please go ahead.
Amie D'Ambrosio: Welcome, everyone, to NOV's first quarter 2024 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 our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, for the first quarter of 2024, NOV reported revenues of $2.16 billion and a net income of $119 million or $0.30 per fully diluted share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now let me turn the call over to Clay.
Clay Williams: Thank you, Amie. For the first quarter of 2024, NOV generated revenue of $2.16 billion, an increase of 2% compared to the first quarter of 2023. The company generated fully diluted earnings of $0.30 per share for the first quarter, down $0.02 compared to the prior year first quarter. Pre-tax profit increased 14% year-over-year, but a higher effective tax rate and lower income from our post LP [ph] joint venture in the first quarter led to lower earnings per share year-over-year. Adjusted EBITDA was $241 million or 11.2% of revenue, a $46 million increase from the first quarter of 2023, representing 24% leverage year-over-year. NOV's first quarter EBITDA and EBITDA margin were its highest in 9 years and overall, it was a solid start to 2024. We began the year with several new business leaders across our organization and began operating under two new segments: Energy Products and Services and Energy Equipment. Revenue from Energy Products and Services grew 8% compared to the pro forma first quarter of 2023 despite lower global rig count year-over-year. The segment continued to realize good adoption of its portfolio of technologies and a rising demand for the tools and consumables that manufacturers, particularly in the international and offshore markets. Year-over-year top line growth was broad based as all, but one of its businesses posted increased sales with completion tools, drill pipe and rig instrumentation in particular, posting strong double-digit gains. Our new Energy Equipment segment revenues grew even more, up 12% year-over-year on a pro forma basis. Rising offshore activity fuel demand for equipment tied to deepwater developments, FPSOs and drilling rig reactivations and recertifications, which enabled the segment to overcome lower sales of pressure pumping equipment to North America year-over-year. As part of our new structure, we are reporting a March 31, 2024 backlog for Energy Equipment segment of $3.96 billion, which is comprised of NOV's contracted longer-cycle manufacturing and project work. Backlog declined 5% through the quarter as bookings of $390 million represented a book-to-bill of 77%. We, nevertheless, see strong demand and have started the second quarter off with some big wins. While we won a $250 million-plus order for energy equipment for offshore work in Latin America during the first quarter, a required technical clarification delayed signing of the contract until April. Capital equipment orders are typically lumpy, but we feel confident in the outlook and strength of the market. Solid and stable commodity prices and exploration successes in new basins provide a foundation for growing offshore activity, a foundation, which is expected to drive offshore FIDs over $100 billion per year for the next few years and a 50% plus uplift in FPSOs ordered in the next 5 years compared to the previous five in spite of Saudi Arabia trimming or postponing its maximum sustainable capacity ambitions in the offshore. We are also optimistic about onshore international developments, particularly in Middle East, where dozens of rigs are being tendered and a couple of national oil companies are pursuing unconventional developments in earnest. Our optimism and confidence continued to grow. That's why last night, we announced a significant expansion of our return of capital program including our plan to increase our base dividend by 50% and a $1 billion share repurchase authorization. Jose will go into more details of the program in a few minutes. Our investments over the past several years in new digital edge compute optimization fueled by artificial intelligence, mechanization and automation, software control systems and remote monitoring, equipment electrification, emissions reductions, drill cuttings processing, artificial lift and downhole drilling technologies are leading to new promising customer conversations and a growing number of users of these new products. Together with the recovery of oilfield activity in key offshore and international markets, new NOV products and businesses underpin our buoyant outlook for the next decade and our plan to substantially ramp our return of capital to our shareholders. After a challenging few years, we expect to continue to improve our profitability to drive EBITDA margins into the 14% to 15% range as we exit 2024 and to generate more cash as working capital moves past first quarter seasonality and normalizes through the remainder of the year. Continued cost reductions are an important part of our plan, too. And our new segment structure is facilitating additional efficiency improvements as we consolidate more manufacturing locations, centralized certain supply chain functions, engage engineering talent more collaboratively and benefit from greater marketing coordination across business units and segments. We expect the $75 million cost reduction initiative we announced last July to continue to roll out through the remainder of the year, having achieved about 30% so far and expecting it to accelerate during the second quarter. Strategically, through the last decade, NOV has reinvented itself with new products and technologies that I mentioned earlier, recognizing that organic innovation occasionally supplemented by targeted acquisition here or there, was the most capital efficient way to reposition our franchise to meet the evolving needs of the oil field. The two acquisitions we closed during the first quarter are good examples of this approach. Notably, these acquisitions were made at multiples well below the multiple of our second quarter sale of our Pole Products business and below multiples where NOV trades in effect, reallocating capital across our portfolio to improve profitability and returns. During the first quarter, we acquired [indiscernible], which brings us the technology underlying our NovaTherm cuttings processing unit. This technology works in concert with dryers and centrifuge [ph] technologies we developed internally to process drill cuttings for safe environmental disposal. We've deployed edge compute and condition-based monitoring to optimize this on site process, which dramatically lowers greenhouse gas emissions for offshore operators who are expressing high demand. We expect our fleet of units on rent to grow from four in the first quarter to seven by the end of the second quarter. Our acquisition of the extract electric submersible pump business brings an opportunity to deploy our organically developed Max edge computing platform to artificial lift and production optimization. As operators extend their well profiles from 2-mile laterals to 3-mile lateral, initial gross volumes produced through each individual wellhead will increase significantly, too, a market trend that we expect to additional tailwinds to ESP demand. It also complements our existing artificial lift choke, separation, pumping and processing products, and we believe we can leverage NOV's scale and footprint to grow this business. We are delighted that these two strong businesses are now part of the NOV family and should benefit from complementary technologies developed organically within NOV. The Max Edge platform also provides the foundation for other new products as well, like Max completions, which has been adopted by dozens of companies and thousands of individual users. In fact, revenues from the Max family of products increased 35% sequentially and 2.5 fold from the first quarter of last year. Other new technology developments range from new products like our PosiTrack/Torginal vibrational mitigation tool to our ATOM RTX rig robotic system and our downhole broadband solutions to our investments in start ups, like Keystone Tower Systems, where we aim to revolutionize onshore wind tower construction. Innovation takes time and, frankly, start up costs, which vary across these initiatives. Nevertheless, our success in innovation are what will continue to differentiate our business and drive improved profitability over the next several years. We expect improving margins in our backlog to contribute to higher profitability as well, particularly in 2025 and beyond as lower-margin frame agreements signed during the pandemic lows expire. For instance, one of our energy equipment business units foresees a roughly 800 basis point improvement in margins from 2024 to 2025 due to its steady high grading of contracts with improved inflation risk protection. We’ve been systematically working towards higher margin, lower risk contracts, walking away from opportunities where we see insufficient margins or too much risk. The key to success for NOV is to demonstrate value as it always has been. Our new technologies do that. And our customers' programs and developments are evolving to benefit even more from this value. That's what's changing. International and offshore operators are going back to work, and they want operational efficiencies obtainable with new NOV technologies. They want to reduce their environmental impact. They want to drive better safety. We can help consolidation in North America is being led by operators who value technology and are focused on continuous improvement. Again, we can help. Competitive pricing dynamics and inflation continue to be a headwind for margin improvement. But as our technologies roll out day-by-day, customer-by-customer, our value proposition becomes clearer, and that's a great place to reset pricing discussions. Before I hand it over to Jose, I want to say thank you to all our employees listening today. NOV continues to transform this industry in so many ways, and that is directly due to your ingenuity and your hard work. We appreciate you. Jose?
Jose Bayardo: Thank you, Clay. NOV's EBITDA increased 24% year-over-year to $241 million, with margins improving 131 basis points to 11.2% of sales. Cash flow used by operations was $78 million during the first quarter, driven primarily by seasonal build in working capital and annual payments made in the first quarter. Working capital increased $395 million sequentially due primarily to the decrease in accrued liabilities associated with the annual payments made during the first quarter and the two acquisitions we completed, which accounted for $106 million of the $127 million increase in inventory. While operations consumed cash, the use was well below what we consumed in the first quarters of the last 2 years, which reflects the turn in our business that gives us confidence in our ability to generate a substantial amount of cash flow over the next several years. We believe NOV is well-positioned to deliver strong performance as the cycle matures from a nascent recovery and evolves into an environment where later cycle equipment and technology businesses will outperform. As Clay noted, an improved market environment, differentiated technologies that we've developed over the last several years and our focus on operational efficiencies will continue to push margins and cash flow throughout 2024 and beyond. Our base forecast contemplates a sustainable multiyear period with modestly improving industry activity led by the international and offshore markets. We expect soft activity in the U.S. through 2024, but anticipate a recovery in 2025 aided by increasing gas exports. However, we expect improvements in oil-directed activity in the U.S. to be modest with international and offshore activity, providing most of the incremental supplies required to fuel the growth of the world's economies. As a result, we expect a little less volatility in NOC and IOC drilling activity over the next several years versus what we’ve seen from North American independents over the past decade. Against this backdrop, we anticipate generating high levels of free cash flow on an annual basis for each of the next several years. I want to stress the word annual when I talk about free cash flow because of the seasonality we experienced during each year and the fact that we view our capital allocation activities on an annual multiyear basis. Our priorities for capital allocation remain consistent: One, defend the balance sheet; two, maintain our asset base; three, invest in organic growth opportunities that drive superior risk adjusted returns; four, pursue M&A that accelerate strategic growth initiatives at attractive returns; and five, return capital to our shareholders. Our balance sheet is currently in solid shape, with gross debt to EBITDA below our target level of 2:1. We intend to continue to use a portion of our free cash flow to return our net debt-to-EBITDA ratio below 1x. We have appropriately invested in our assets and expect a base level of investment to maintain and modernize our existing asset base over time of between $200 million and $250 million per year. Incremental to this base level of spend or attractive organic investment opportunities primarily related to the commercialization of many of the technologies we deployed over the last several years, which could range from $50 million to $150 million per year. All of this is consistent with our expected $330 million capital expenditure plan for 2024. We will continue to look for compellingly valued strategic acquisitions that can accelerate our growth initiatives. We anticipate we will complete occasional small bolt-on transactions similar to what we've done over the last several years. While the likelihood of larger acquisitions remains low, we intend to maintain the flexibility to pursue such a transaction. With a healthy balance sheet, well maintained asset base, the expectation of smaller rifle shot acquisitions and a high-level of confidence in our outlook, where NOV's capital light business model will generate substantial amounts of free cash flow, we are ready to increase the return of capital to our shareholders. Last night, we announced a plan to return at least 50% of our excess free cash flow, defined as cash flow from operations, less capital expenditures and other investments to our shareholders going forward. To balance the interest of all NOV stakeholders, our framework utilizes a steady base dividend, opportunistic stock buybacks and a supplemental dividend to true up returns to our shareholders on an annual basis. Specifically, we intend to return this capital through a combination of the following: One, we expect to increase our quarterly dividend from $0.05 to $0.075 per share, a 50% increase beginning in the second quarter of 2024, resulting in an annual dividend payment of roughly $118 million going forward. We believe base dividends provide an immediate direct benefit to all shareholders. Two, we plan to opportunistically repurchase shares under our new $1 billion, 36-month share repurchase authorization. With our share price trading below what we consider a fair value, we believe using some of our excess free cash flow to repurchase our shares will drive long-term value. Three, at the end of each year, we plan to utilize the supplemental dividend that would be payable in May, starting in 2025 and to coincide with our Annual Shareholders Meeting to true up our total annual return of capital to at least 50% of our excess free cash flow generated during the preceding calendar year. We believe this approach serves and balances the interest of all of our shareholders. We will not compromise the health of our balance sheet or our ability to invest in the business. Having experienced several routine industry cycles and one recent and very severe pandemic induced cycle, we understand our business can change in a hurry. However, our capital return framework reflects our confidence in NOV's outlook and our commitment to delivering superior returns to our shareholders. Finally, acknowledging that none of us can control or accurately predict the future, I want to try to frame what we think is possible over the next 4 years associated with our base industry outlook. Assuming continued operational and financial execution, what we believe is a reasonable EBITDA growth profile and sticking to the minimum level of returns at 50% excess free cash flow, we estimate the aggregate capital to return to shareholders through 2027 could be in the range of $1.5 billion. Under this scenario, approximately 30% or $470 million of shareholder return would be provided through our base dividend and the remaining $1.03 billion would be split between share buybacks and supplemental dividends. I'll now move on to segment results. Our new Energy Products and Services segment generated revenue of $1.017 billion in the first quarter, an 8% increase compared to the first quarter of 2023. EBITDA increased $20 million to $174 million or 17.1% of sales, representing flow-through of 26% compared to the first quarter of 2023. Revenues for the segment are comprised of service rentals sales of consumable products and sales from generally shorter lived or consumable capital assets such as drill pipe, composite products, conductor pipe and solids control equipment that tend to see demand rise and fall more or less with activity. Sales mix for the segment during the first quarter was as follows: Service and rental 49%; product sales, 20%; and capital equipment sales, 31%. As noted, the largest share of our Energy Products & Services segment's revenues come from service and rentals, including rentals of our technologically advanced downhole tools and drill bits, coatings and inspection services, solids control services and drilling data acquisition, analytics and optimization services. With the exception of coating and inspection services, which tend to somewhat move with demand for drill pipe and other tubular goods, the remainder of our service and rental revenues tend to move in line with industry activity plus or minus, usually plus changes in market share. First quarter revenue for the segment service and repair revenues increased in the low to mid single digits sequentially and year-over-year with growing demand from offshore and international markets, particularly the Middle East, more than offsetting lower activity in North America. Product sales are the segment's second category revenues and are derived from sales of drill bits, completion tools, composite sleeves and liners, artificial lift products, shaker screens and downhole tools, among others. Note that several of these products, such as drill bit and downhole tools are also rental items, which I will cover in a moment. Product sales tend to be less volatile, less seasonal and track activity a little more closely than revenue and capital equipment, although sales of products can also lag activity increases as our customers frequently stock inventories of these products. While individual sales are typically small and frequent, each operation can have occasional individually large shipments that may be requested by certain large NOCs who sometimes take bulk shipments 1 or 2 times per year. The segment has steadily increased product sales every quarter over the last year with the first quarter of 2024, up 8% sequentially and 19% year-over-year, and we expect product sales to increase in the mid to upper single digits again in the second quarter. Looking at specific product lines, drill bits are capitalizing on increasing activity in the Middle East and offshore markets. Our completion tools business is also realizing solid levels of demand in the Middle East, more than offsetting softness in North America. Sales of our Tuboscope through coat sleeves, Zap-Lok connections and Tector's thread protectors have remained solid, and we expect to see a significant increase in the second quarter from shipments to customers in the Middle East, Western Africa and Latin America. Sales of our downhole tools decreased 20% sequentially after large shipments to Asia and Europe in the fourth quarter did not repeat. Finally, sales of the segment's capital equipment offerings, which include drill pipe conductor pipe, fiberglass products, managed pressure drilling equipment, shield shakers and other equipment tend to be seasonal and volatile, often lagging activity a bit. In the first quarter of 2024, revenues from capital equipment in our Energy Products and Services segment increased 8% year-over-year, but declined 23% sequentially due to the seasonal effect of customers making a big push to receive their equipment at year-end. Our drill pipe business unit experienced a greater-than-average seasonal decline, given outsized fourth quarter shipments to international markets, partially offset by increased U.S. land deliveries. New orders, however, had a more favorable international and offshore waiting and included an award for an offshore completion and workover riser destined for offshore Brazil. Capital equipment sales for our solid controls offerings were down in the mid 20% range sequentially due to the ordinary increase in year-end shipments. Revenues increased in the upper teens percent range year-over-year on growing adoption of our Alpha shaker and sales of other innovative drilling solutions, such as our TUNDRA MAX Mud chilling systems. Our two most seasonally volatile capital equipment offerings are our conductor pipe and our managed pressure drilling equipment. After a strong fourth quarter for the two product lines, both realized substantial sequential revenue drops and yet both also have very strong outlooks resulting from the increase in offshore activity. conductor pipe casing orders achieved a book-to-bill of over 200% with solid demand coming from projects in the North Sea, West Africa, Gulf of Mexico and South America, which will allow for a much improved second quarter. We are expecting revenues from both conductor pipe and MPD to more than double from the first quarter to the second quarter of 2024. Our composite product offerings tend to be our least volatile capital equipment line in the segment due in part to the diverse set of end markets served, which include midstream oil and gas, fuel handling, chemical, industrial and marine. Demand for composite products is still seasonal and sales declined in the low single-digit range sequentially, but are up mid single digits year-over-year. Outlook for all end markets remain solid with particularly robust demand for oil and gas products in the Middle East and a recent pickup for orders for flexible pipe and composite tanks in the Permian. For the second quarter, we expect revenues for our Energy Products and Services segment to improve between 1% and 5% from the second quarter of 2023 with EBITDA in the range of $180 million to $190 million. Our Energy Equipment segment, which is comprised of our longer cycle capital equipment oriented businesses, generated revenues of $1.178 billion in the first quarter, a 12% increase compared to the first quarter of 2023. EBITDA was $119 million or 10.1% of sales, up 27% compared to the first quarter of 2023. Clay covered our bookings for the quarter, but I want to emphasize that capital equipment business is inherently more volatile than other businesses. In this case, despite orders that slipped from the first to second quarter, we foresee a generally bright outlook and now expect an outsized order book in the second quarter. As a pure capital equipment business, our operations have two revenue streams: capital equipment sales and aftermarket sales and services. During the first quarter, equipment sales, which includes both revenue added backlog as well as quicker turning equipment sales that do not meet our criteria to qualify as backlog, accounted for 52% of the segment's revenues. Aftermarket sales and service accounted for the remaining 48%. Similar to what we experienced in our Energy Products and Services segment, sales and orders for capital equipment tend to be more volatile and are much more affected by seasonality than aftermarket sales. The segment's capital equipment sales were up 7% year-over-year, but had a seasonal decline from the fourth quarter of 16% due to the typical year-end push by customers to take deliveries. Aftermarket revenues tend to have a little less seasonality and are much less volatile. Aftermarket revenue improved 18% since the first quarter of 2023 and was off approximately 1% from the fourth quarter. The vast majority of our aftermarket revenue comes from our drilling equipment and intervention and stimulation businesses. Our drilling equipment business generates three quarters of its revenues from aftermarket sales and services. And in the first quarter, its aftermarket revenues improved 27% year-over-year as the business continued to improve throughput and capitalize on a very healthy level of reactivation and recertification projects and spare part orders. High levels of activity around the world are increasing the number of NOV equipped rigs turning to the right, requiring more demand for NOV's parts and services. Additionally, as we dig deeper into the stack for reactivations and the average age of the operating fleet increases reactivations, recertifications and upgrades become more complex. During the first quarter of 2024, we saw the total value of projects in execution, having a value of greater than $2 million, continue its steady rise, now up 175% from the first quarter of 2023 and reaching an average size of $20 million per project, up from a $9 million average in the first quarter of 2023. With robust offshore operator drilling plans and current day rates allowing drilling contractors to generate significant cash, but not high enough to justify new builds, contractors have incentive to keep their aging assets in good working condition. Being the OEM with the largest installed base, our Rig Technologies aftermarket business will continue to play a larger role for our customers who rely on NOV to provide reliable service and quality for these critical assets. Our Intervention and Stimulation Equipment business units relatively stable aftermarket revenues reached 63% of the unit's mix in the first quarter of 2024. Despite a soft North American market, we expect our aftermarket operations to remain busy providing consumables and replacement components as well as upgrades and refurbishments of equipment both domestically and overseas. Moving to the capital equipment side of the business. Our drilling equipment capital sales improved in the mid 20% range year-over-year. Book-to-bill was well north of 100%, led by a 20,000 psi BOP upgrade for a drillship and deepwater Gulf of Mexico. This will be the industry's fourth 20,000 psi BOP with NOV building all four systems and demonstrating our leadership in cutting-edge pressure control technology that allows our customers to reach previously inaccessible reservoirs. Utilization for offshore rigs remains high and increased towards the end of the first quarter. The news from the Saudi scaling back their offshore fleet will put some pressure on jack up utilization near-term, but we believe those rigs will eventually be absorbed by other projects around the world and will drive more activity into onshore unconventional gas fields. This will increase demand for our land rig equipment and aftermarket support, which we are very well-positioned to provide in Saudi as well as for intervention and stimulation equipment business, which has already seen an increase in orders for completion and intervention equipment as a result of rapidly improving activity in the Jafurah [ph] unconventional field. Sticking with our Intervention & Stimulation Equipment business, capital equipment deliveries were down in the 20% range from the first quarter of 2023 due primarily to strong deliveries of e-frac and conventional pressure pumping equipment in early 2023 that did not repeat. Capital equipment orders declined due to lower demand for new pressure pumping kit, but the unit still posted a book-to-bill greater than 1 as a result of solid demand for equipment destined for international markets, including the order for Saudi that I just mentioned. While we anticipate bookings for new pressure pumping equipment will remain soft in the second quarter, there continues to be a high-level of interest for alternative energy equipment, specifically e-frac and CNG units and the business's backlog remains healthy with meaningful shipments of DGB and e-frac units slated for the second quarter. In international markets, the business is seeing solid demand from Africa and Europe in addition to strong demand from the Middle East. Our offshore wind and construction business achieved year-over-year revenue growth in the mid-20% range from strong execution on the unit's backlog of offshore wind projects. Bookings include an inter-array cable lay vessel for a Japanese construction company, which will be used to connect wind turbines within an offshore development. Outlook for the unit's core market is positive with improving sentiment in the offshore wind space and the potential for a couple of new wind installation orders later this year. Wellstream Processing operations achieved solid year-over-year revenue growth from strong execution on the operations backlog of processing equipment projects, which continues to grow with increasing opportunities to support new FPSOs. The operation also continues to realize more opportunities to leverage its gas and fluids processing expertise into large-scale energy transition projects and received an order for a hydrogen dehydration and deoxygenation package in Australia after having completed an engineering study for the customer over the last year. Our production in midstream business saw an upper single-digit decline in revenue compared to the first quarter of 2023. Challenging conditions in North American gas markets impacted demand for chokes and other equipment, but was partially offset by strong international activity, particularly in the Middle East. Bookings remained robust, driven by choke orders in the Middle East, where demand, over the last 5 months, exceeded orders for the preceding 11 months with units quickly improving backlog and ramping deliveries, we expect solid growth from this operation in the second quarter. Notwithstanding the low level of bookings in the first quarter, our subsea flexible pipe business unit posted solid results and its mid to longer term outlook is very strong. The unit posted mid teens year-over-year revenue growth. And despite the large orders slipping out of the quarter, the business secured a contract to deliver its first actively heated flexible pipe system for a deepwater gas field development in the Black Sea. The pipeline of future tenders for subsea flexible pipe is robust with considerably improved pricing. We expect lower margin contracts to continue to be replaced by higher margin projects, which will drive a significant improvement in margins during 2025. For the second quarter, we expect revenues for our Energy Equipment segment to improve between 1% and 5% from the second quarter of 2023 with EBITDA in the range of $135 million to $145 million. With that, we'll now open the call to questions.
Operator: Thank you, Jose. [Operator Instructions] Our first question is going to come from the line of Jim Rollyson with Raymond James. Your line is open. Please go ahead.
Jim Rollyson: Hey, good morning, Clay and Jose.
Clay Williams: Good morning, Jim.
Jim Rollyson: Nice quarter first of all.
Clay Williams: Thank you.
Jim Rollyson: And, Jose, you talked about free cash flow again and kind of the outlook over the next handful of years. You obviously got the negative quarter out of the way for the year seasonally, but is that -- in the past, you have talked about this kind of EBITDA to free cash flow conversion rate in the plus 50% range. And as you think about just -- I want to state that for '24, but as you think about how that transcends over this '24 to '27 timeframe that you kind of laid out, is that still the right range of conversion rate to use?
Jose Bayardo: Yes, thanks for the question, Jim. First of all, yes, as it relates to 2024, we continue to expect that we will convert at least 50% of our EBITDA to free cash flow during the year. And [indiscernible] more confident about our ability to achieve not exceed that. And then really I think the bulk of your question was related to the out years. Obviously, we are not ready to provide explicit guidance. We did provide kind of a little bit of information related to that from the standpoint of our return of capital program and plan. Bottom line is, as we look forward in time with sort of the base case scenario that I laid out where we expect slightly less volatile environment than we've been on over the past decade and steady, gradual improving activity levels, there's no reason why we shouldn't be able to maintain that level of free cash flow as a percentage of our EBITDA.
Jim Rollyson: Got you. That's just helpful for modeling and how to think about this. And that takes me just glad to see the framework for the capital return program. I think, a quarter earlier than you guys had promised, so even better. But as we look at you mentioned from the share repurchase program of $1 billion that, that's going to be opportunistically driven, maybe how you think about or how the Board thinks about where to allocate capital to that part of the equation versus your kind of supplemental catch up at year-end? What drives the decision to move capital between those two means of returning capital to shareholders?
Jose Bayardo: Yes. As you pointed out, the program is intended to be opportunistic. And as also I mentioned in the prepared commentary, we are really viewing our return on capital plan, and frankly, just the way that we look at cash flow across the board on an annual and then a multiyear basis. And so what we wanted to do was provide a very clear framework and assure our investors that every year we will return at least 50% of our excess free cash flow. And so we intend to be opportunistic. We intend to, as we mentioned, increase the base dividend and then opportunistically buy back shares throughout the course of the year. And then depending on as to whether or not we are able to return the entire 50% plus of excess free cash flow during the course of the year or not, we would have the supplemental dividend early the following year to true up that return of capital to our shareholders. Some of the other variable that goes into the definition of excess free cash flow is sort of what we are seeing from an acquisition standpoint, and there could be times such as right now, we are -- there are a couple of small acquisitions that we've sort of factored into what we expect to be our excess free cash flow during the course of the year. acquisitions are never done until they're done. And so if they don't materialize, if they don't transact, they don't close, we'll have extra capital at the end of the year that we would certainly need to return via that supplemental dividend. So hopefully, that helps frame how we are thinking about things.
Jim Rollyson: That does. I appreciate the color, guys. Thank you.
Jose Bayardo: You bet. Thanks, Jim.
Operator: Thank you. One moment as we move on to our next question. And our next question is going to come from the line of Stephen Gengaro with Stifel. Your line is open. Please …
Stephen Gengaro: Thanks. Good morning, everybody.
Clay Williams: Hi, Stephen.
Stephen Gengaro: I think the first question for me is when you think about the announcement of the return of capital framework, what's changed over the last couple of months that gives you the confidence to put it in place? I mean, Jose, you talked a little bit about sort of the visibility on free cash, but it did come earlier than we expected. I'm just kind of curious what sort of drove the decision to announce this today as opposed to after maybe seeing more progress on free cash generation?
Clay Williams: Before Jose answers, can I just say, Stephen, frankly, putting 2023 in a rearview mirror was a big plus for us. We've been very frustrated here with our supply chain disruptions and lack of free cash flow and got Q1 behind us and that -- I think that really -- looking forward, we think our shareholders need to know how we are thinking about return to capital. And we said 90 days earlier than we had indicated before, it would be better off for all parties.
Jose Bayardo: Yes. I think Clay summed it up pretty well. I think the only other thing that I would really add to that is that, obviously, we had -- we got through the typical ordinary course burn of cash from an operating cash flow and free cash flow standpoint in Q1, which is a big milestone that we wanted to get through. Also during the quarter, we had the $243 million that we spent on acquisitions. And then one of the items that allowed us to really gain additional level of confidence in addition to just what we are seeing from an operating environment going forward is the fact that we were able to close the divestiture early in Q2 to replenish our cash balance and really allow us to go ahead and start moving forward with the return of capital program. So feeling great about things from an operational standpoint. Great about the balance sheet and where we sit and feeling good about where the stock price is, that it will be a good accretive value proposition for our shareholders to buy back shares at this point in time.
Stephen Gengaro: Great. Thank you. That's helpful. And then just one follow-up on the free cash side. We've talked historically about kind of working capital as a percentage of revenue and kind of where that has been historically versus in '23. How should we think about that unfolding over the next year or two?
Jose Bayardo: Yes, good question, Stephen. So I think last quarter, I mentioned that at the end of this year, we expected that working capital as a percentage of our revenue run rate to see some modest improvement, basically 100 to 200 basis points. Now that's changed a little bit here with the completion of the recent acquisitions, which had a -- the acquisition had a very high load of working capital. As I pointed out in my prepared remarks, the bulk of the increase in inventory that we saw from Q4 to Q1 was a result of the acquisition. And we actually view that as a positive. We think that they like every other manufacturer had, had challenges from supply chain standpoint and built up some inventory to work through those challenges. And I think we will be the beneficiary of that as we sort of normalize inventory levels over the coming months and quarters, not quite prepared to sort of give you a pinpoint answer as to what the new metric will be at the end of 2024. We've only had this under our belt for a couple of months now. But needless to say, we're more optimistic about converting working capital to cash during 2024 than we were a quarter ago as a result of this item.
Stephen Gengaro: Great. Thank you for the color.
Jose Bayardo: Yes, thanks, Stephen.
Operator: Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of James West with Evercore. Your line is open. Please go ahead.
James West: Hey, good morning, Clay and Jose.
Clay Williams: Good morning, James.
Jose Bayardo: Good morning, James.
James West: So I love to hear both your perspectives actually on this. Given that we've got an enormous number of offshore rigs that are going to turn to the right or our turn to the right now and will be turning to the right as we go through this year and next year for pretty long-term contracts and duration is extending we are going to need, obviously, spare parts, but we are going to need a lot of offshore just equipment to be built, whether it's platforms and TLPs [indiscernible], all the kind of stuff that you guys do. And so how are you thinking about the visibility? And secondarily, what kind of innovations because you guys are constantly innovating these products as equipment. Are you introducing to the market to make them more efficient; to decarbonize the operations, et cetera, as we see this long duration cycle play out here offshore.
Clay Williams: Great question, James, and we appreciate you pointing out the fact that NOV has been a major innovator in the offshore market. And you -- more than anybody know the outlook for the offshore is very, very bright. There are lots of discoveries and developments things going on in multiple basins around the world, including some new exploration basins that have emerged in the past few years with discoveries in Namibia and Guyana and [indiscernible] and places like that, that are fueling all that demand giving rise to a pretty bright outlook for FIDs around those projects and much higher level of offshore activity, which has pretty much lacking through the last decade. And so just to recount how we participate in that, yes, we do support the bulk of the world's offshore drilling fleet because we built most of those rigs, and there is a rising demand for aftermarket support of those. We are reactivating a number now. Jose, went through some statistics on that. I also pointed out the strong results in aftermarket in our rig business there, and we are well-known for that. Those rigs need drill pipe. They need spare parts. They need solids control services. They need bits, they need downhole tools, whole openers, all of which NOV provides. And then on the production side, I think we are probably less well-known for what we are, but through the past 10 -- 10, 15 years, we've added a lot to what we sell into FPSOs. And so the outlook for floating production storage and offloading vessels, FPSOs is similarly bright in the deepwater basins. And I think a disproportionate level of offshore activity is going to be focused on the deepwater, which will drive demand for FPSOs and there's some industry forecasts out there that have them in the range of 50 to 60 vessels needed over the next 5 years, a significant increase over the preceding 5 years. And there we provide everything from hole designs and cranes to fire water piping systems and ballast piping systems to gas processing and dehydration to choke the separators to tutoring systems, spread mooring systems to flexible pipe that's used to connect those vessels to the wellheads on the sea floor. And if you add all that up, it can range anywhere from $100 million per vessel for NOV's kit [ph] all the way up to as much as $700 million per vessel for NOV's kit. And so that's another area where NOV can participate. With respect to innovation and kind of the next generation of drilling everything from wired drill pipe, high-speed data connections to the bottom of the hole to artificial intelligence that's making meaningful impacts on drilling optimization through our KAIZEN offering to rig automation, which now a couple of large IOCs are using our new ATOM RTX robotics on offshore rigs in Brazil. We have an offshore drilling contractor that's now ordered their second set. They're so pleased with it and a lot of interest really across numerous operators in bringing more automation to that, that process as well, along with digital support. And then on the production side, we also continue to innovate and offer a lot in a way of edge compute and condition based monitoring to optimize production. And we are very excited about our new extract ESP products as well. It's a new place for us to deploy our edge compute capabilities to drive better efficiencies and automation through the production process.
James West: That sounds great. Thanks. Thanks, Clay. And then maybe just a quick follow-up for me. With the rigs that are working today and about to go to work, clearly, over the last decade, it was a tough time, and they dramatically reduced the number of amount of spare parts and stuff on the rigs. Are the rigs back up to kind of the normalized level of spare parts on the rigs that they usually require. I think for a deepwater rig, it's $50 million, $60 million or so worth of equipment? Or are they still a little understaffed?
Clay Williams: Good question. The reason that we are -- the reason that we are reactivating, we've got close to 30 now that we are working on now part of their reactivation plan. will be to replenish those spare parts that they depleted and our customers are really, really good at cannibalizing and going to their unutilized rigs and cold stacked and even 1 stacked rigs to source spare parts, both land and offshore. And so most of these rigs have been picked over already. So part of the reactivation plan for the rigs that we're working on now includes replenishing spare parts and so they can go back to work. And I guess probably to fill in the rest of the picture, too. It's interesting though a lot of rigs that were delivered 2014, 2015, 2016, 2017 on the back end of the last kind of capital super cycle. Those rigs are facing their 10-year purpose survey. And so they have to come into a shipyard and be inspected and that's a pretty major point in their lives and an opportunity for NOV, too. Again, rebuild equipment, replace equipment, add additional capabilities maybe their oil and gas operator customers who want to add while those rigs are in the shipyards. And so we are kind of coming up to that for a lot of rigs in the fleet right now.
James West: Got it. Thanks, Clay.
Clay Williams: You bet. Thanks, James.
Operator: Thank you. And one moment as we move on to our next question. And Our next question is going to come from the line of Tom Curran with Seaport Research Partners. Your line is open. Please go ahead.
Tom Curran: Good morning, guys.
Clay Williams: Hi, Tom.
Jose Bayardo: Good morning, Tom.
Tom Curran: Clay, within that masterful expansive refresher you just gave us on all of the exposure in areas that NOV participates in, right, from growing all the way through down the production infrastructure, capital equipment services. If we were to see a significant step-up in offshore orders coming out of 2024 into 2025, where would you most likely expect it to come from? Would it be, do you think, on the offshore drilling front in the form of upgrades or cold stacked reactivations? Would you expect it to be the ramp in FPSO projects, maybe subsea infrastructure like Flexpipe and other subsea hardware. Could you just give us an idea of sort of what the sequence of acceleration could look like to the extent we get some? Like I get the difference with this recovery, it's slower, steadier. But if we get an acceleration within offshore, where would you expect it?
Clay Williams: First, the rig reactivation offshore is underway. As I mentioned, we are reactivating a lot of rigs right now. Although never say never in this industry at some point in the future, we will see a new round of rig building. That's not in our near-term forecast. What I think is more likely to surprise to the upside is all the other more production related offshore kit that NOV can provide to the FPSOs, including the flexible pipe and all the things that I just went through. And we have a very large and meaningful opportunity there. And that's a little bit later. These companies pull the trigger on their FIDs, projects that are kind of typically move to EPCs for more detailed plannings and drawings and purchasing and so, the [indiscernible] a little later in that sort of cycle. I think that's kind of what's next for NOV. But I also want to say shifting over to renewables, we have a fantastic opportunity that we haven't talked much about in the past, but it's around floating wind, in particular, in the North Sea, where we are working closely with kind of a partner over there or a party that's pursuing development. And that's a multibillion dollar kind of opportunity for NOV and then has implications for [indiscernible] and deepwater areas in Asia as well. So not in the traditional oil and gas space, but in renewables, so we could see some help from that that area as well. And then that's on top of the wind turbine installation in shallow waters, the fixed wind installation vessels that Jose mentioned. We wouldn't be surprised to see a couple of orders for WTIBs in 2024, plus sort of growing demand for Cable A vessels that also support those offshore shallow water installations as well. So there's a lot happening offshore, and that's really good for NOV given our high mix and high-level of participation and expertise in that area.
Tom Curran: Got it. Got it. And thanks for highlighting what's happening on the renewable side as well. Just as a follow-up here then, you had mentioned that Jose has some stats with regards to where you're at currently with reactivation, recertification and upgrade projects. I believe your backlog around this time last year stood at I have 83 projects. Could you just give us an update then on where you're at?
Clay Williams: Yes, when I -- I think I mentioned just a moment ago, 30 offshore rig reactivation projects. Those are all that are north of the $2 million number each. We have a lot smaller rigs that we also do work on that we also logged in this project.
Tom Curran: Thanks for taking my questions.
Clay Williams: You bet. Thank you.
Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Scott Gruber with Citigroup. Your line is open. Please go ahead.
Scott Gruber: Yes, good morning.
Clay Williams: Good morning, Scott.
Scott Gruber: Clay, I'm curious how the Saudi CapEx shift impacts NOV? I imagine when these jackets go down, there's eventually a hit to Grant Prideco and potentially some other product lines. But then you have a greater quantum of onshore rigs going to work over the next few years, which all require new pipe and bids, et cetera, at start up. So if you put the new builds to the side, which have long been contracted, how should we think about the Saudi CapEx shift towards onshore impacting NOV?
Clay Williams: Yes, it's a good question, Scott. We would prefer that we keep both sets of rigs running, but that doesn't fit their plans. We understand the energy ministries directing Aramco (TADAWUL:2222) to back off adding 1 million barrels per day, given that the natural gas liquids coming from the gas developments are going to add liquids to the Kingdom and as well, they'll displace black oil that they were burning for electricity generation over there. And so it makes sense, I guess. That's led -- as you know, to the suspension of -- I think they've announced 20 jackups, contract suspended, maybe a couple more to come. The good news is six of those that have been suspended so far have either secured work elsewhere or very close to securing elsewhere, a couple in the Arabian Gulf, couple in India, I think one in Africa, one in the Asia Pacific area. And so they're finding homes elsewhere. And so we are hoping we'll continue to support those rigs as they move to other markets. On the positive side of that ledger though, we continue to be very excited about the Kingdom's goal to lift their gas production 2.5 Bcf per day, mostly coming from their unconventional Jafurah field development, which the FID, I think, back in 2020. The rig count there has continued to grow. They are securing new rigs for both that as well as, I think, additional gas production out of South [indiscernible] and just a couple of weeks ago celebrated 23 new rigs bringing into the Kingdom. And that's in addition to the rigs that we are building in the Kingdom for [indiscernible] that are going to work. What's interesting to us about that -- there's a couple of things are. First of all, the rigs they're bringing in are all AC powered. They're all available to be more closely controlled with electronics and software. It's really a step up in technology. And I think that speaks to Aramco's desire as well as other NOCs around the Kingdom -- around the Gulf, we're seeing the same desire to bring in better technology rigs and to help sort of bridge the performance gap between the rig fleet that they have versus the rig fleets that what they can do. And so that's, I think, a good development for us. And then the other way, NOV can and is participating in that is through the supply of all of the production equipment and kit that I mentioned earlier. We manufacture chokes in the Kingdom. We are provider production chokes worldwide, the largest provider of composite piping systems worldwide, and we are seeing big orders and a lot of demand in the Kingdom to support gas production in both of those areas in addition to separators to gas dehydration technologies. Again, we are the largest provider of that. And so there's a lot of ancillary kits to get pulled through those gas developments that would benefit NOV as well.
Scott Gruber: And then as the jackups go back to work, is that feeding upgrades to equipment? Are there dollars flowing to NOV as those rigs mobilize elsewhere?
Clay Williams: It may. It depends on what their operator in these new markets once. I would say most upgrades to drilling equipment today are really prompted by the operator of customer requiring that. There's not a lot of speculative investment by offshore drilling contractors, given what most of them just went through around adding equipment. But the operators are stepping up and helping them out by paying higher moat fees or paying for new equipment through the day rate. And they're also offering longer terms I think for both jackups and floaters, you're seeing fixtures extend out to be longer contracts, so that both parties have a shot at getting payback on these new capital investments and new capabilities in there. That's kind of the dynamic at work there. So it depends on what the operators in these new markets want.
Scott Gruber: Got it. Appreciate the color, Clay. Thank you.
Clay Williams: You bet.
Operator: Thank you. And one moment for our next question. And our last question is going to come from the line of Kurt Hallead with Benchmark. Your line is open. Please go ahead.
Kurt Hallead: Hey, good morning, everybody.
Clay Williams: Hi, Kurt.
Jose Bayardo: Good morning, Kurt.
Kurt Hallead: I always appreciate the color and the insight very informative. Thank you. So I got one big picture question and then one financial question. So let me hit the financial question up first, right? You guys referenced you still have more coming on the cost reduction front. So I appreciate that dynamic. As we get out beyond 2024, I'm just kind of curious as to what do you see the primary driver for margin improvement? Do you think is it going to be more internal? Or is it going to be external, for example, like pricing power or those dynamics? Just a little -- how -- I'd like to get your sense on how you're thinking about the margin improvement once you get beyond '25 -- or '24, excuse me.
Jose Bayardo: Hey, Kurt, thanks for the good question. I'll start off and Clay will, I'm sure, will want to chime in on this one as well. But I think what we see is there are several opportunities continue to see an improvement in our margin over the next several years. So obviously, you touched on the cost out program. We are still in the relatively early phases of that $75 million cost out program really got started at the very end of last year, and we probably worked about -- we have worked our way through about 30% of that at this point in time. We expect that to pick up a bit into Q2, which is why you see an improvement in the incremental margins. But -- and we are always going to be -- but really expect that to wind out as we work our way through Q3 and Q4. We are going to continue to look for other opportunities. We are always looking to streamline and optimize the operations within the company. But the work we've done -- obviously done a tremendous amount of heavy lifting over the last several years, and this is another small step relatively speaking, from a cost out standpoint that we'll have wrapped up in '24. As we get into '25 and beyond, you're going to see the continued progression of lower margin contracts and projects winding out of the system. We've been seeing that over the last several quarters. We'll see that gradually take place through the remainder of '24. And then as Clay touched on expectations for one of our businesses, in particular, to really come to an end of some of those contracts quite suddenly really at the end of '24, and should more or less be a step change in '25, which should allow more margin improvement. That's one out of many businesses, but still makes a difference. Also, we'll continue to see improved absorption across the entire footprint. I think when we get into '25, we will see continued strong activity in international and offshore markets and we expect North America to be much healthier. Right now, we have cross currents with international more than offsetting what's happening in North America, but North America is certainly a drag. And if we can get all 8 cylinders firing that's another step up from a margin improvement standpoint, just from a throughput point of view. And then lastly, pricing, as the cycle progresses and advances and matures, that's really when we’ve a better opportunity once capacity is fully absorbed and it becomes more of a conversation of how quickly can I get something versus what's the price. That's sort of the final leg up that we are looking forward to and counting on in the not-too-distant future.
Kurt Hallead: That's great color. And then, Clay, bigger picture dynamic, right? We've had a lot of discussion of late increasing [indiscernible] discussion around the data center build out and what that's going to mean for grid demand, et cetera, right? So I guess I'm curious on two fronts. Number one, do you see an opportunity for NOV to provide some element of equipment into the data center build out infrastructure and/or what do you think the ultimate pull is going to be with respect to your customer base, right, in terms of drilling activity, track activity and so on.
Clay Williams: Yes. I think we are probably, frankly, more likely to be a customer of those data centers is our digital offering continues to grow. I mean we are employing artificial intelligence in a lot of sophisticated edge compute and cloud offerings, which is growing pretty rapidly here. But kind of the second order implications for our business as we both know, these data centers are going to drive up electricity demand across the U.S., which is going to require more natural gas, require more sources, electricity, including renewables. And Kurt you're aware, we are pursuing disruptive technology in the land win space that we are pretty excited about through our Keystone efforts and making good progress there. And so I think NOV's participation in that phenomenon of U.S. electricity demand rising sharply is going to be more around helping our customers actually provide that electricity, both renewables as well as in the traditional natural gas space. And so really kind of interesting developments in that area.
Kurt Hallead: Okay. That’s great guys. Thank you. Appreciate it.
Clay Williams: Thank you, Kurt.
Jose Bayardo: Thanks, Kurt.
Operator: Thank you. And I would now like to hand the conference back to Clay Williams for further remarks.
Clay Williams: Thank you, Michelle. Appreciate everyone joining us this morning, and we look forward to speaking to you again in July when we report our second quarter earnings. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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