Executive Summary / Key Takeaways

• Strategic Pivot to Global Growth: NOV is strategically shifting its focus to capitalize on the globalization of unconventional shale development and the reemergence of deepwater and offshore production, which are poised to be the primary drivers of incremental global energy supply in the coming decade.
• Technology as a Core Differentiator: The company's extensive portfolio of proprietary technologies, including advanced drill bits, automation systems like ATOM RTX robotics, and specialized subsea solutions, provides significant competitive advantages by enhancing efficiency, safety, and cost-effectiveness for customers.
• Resilient Financial Performance Amidst Headwinds: Despite near-term macroeconomic uncertainties, geopolitical conflicts, and increasing tariffs, NOV demonstrated financial resilience in Q3 2025 with $2.18 billion in revenue and $258 million in Adjusted EBITDA, supported by strong backlog in its Energy Equipment segment and aggressive cost reduction initiatives.
• Strong Backlog and Cash Flow Generation: The Energy Equipment segment's backlog reached a record $4.56 billion as of September 30, 2025, driven by offshore production equipment orders. NOV continues to generate robust free cash flow, with $245 million in Q3 2025, and maintains a commitment to returning over 50% of excess free cash flow to shareholders.
• Outlook for Strengthening Demand: While near-term market conditions are expected to remain soft, management anticipates a meaningful recovery beginning in the latter half of 2026 and beyond, as deepwater projects ramp up and international unconventional development expands, positioning NOV for profitable growth.

The Enduring Power of Innovation: NOV's Strategic Foundation

NOV Inc. (NYSE:NOV) stands as a testament to enduring innovation in the global energy industry, with a rich history spanning over 160 years. Since its founding in 1862, the company and its predecessors have been instrumental in transforming oil and gas development, consistently pioneering technologies that enhance the economic viability of frontier resources, including unconventional and deepwater oil and gas. More recently, this deep expertise has extended to developing solutions for alternate energy sources, reflecting a strategic evolution in response to the changing global energy landscape. This long-standing commitment to technological advancement has forged an extensive proprietary portfolio supporting drilling, completion, and production needs across its two primary segments: Energy Products and Services, and Energy Equipment.

The industry is at an inflection point, with North American unconventional shale, a dominant force for over a decade, showing signs of plateauing as Tier 1 inventory locations diminish and marginal costs rise. In parallel, deepwater development has re-emerged as a highly competitive source of supply, driven by significant technological improvements. NOV is strategically positioned at the nexus of these shifts, leveraging its foundational strengths and diversified offerings to address the evolving demands of a global energy market. The company's overarching strategy is to provide critical tools, equipment, and technology that lower the marginal cost and environmental footprint of energy production, thereby advancing its competitive position across all market environments.

Technological Edge: Fueling Efficiency and Future Energy

NOV's competitive moat is deeply rooted in its differentiated technology, which consistently delivers tangible benefits to its customers. The company's innovation spans across its product lines, from downhole tools to advanced automation systems.

A prime example is NOV's Leach PDC cutter technology, which has dramatically increased the thermal stability and wear resistance of drill bits. This translates into substantially higher rates of penetration and longer run times with fewer trips, directly reducing drilling costs and improving operational efficiency for operators. While much of the industry now utilizes this foundational technology, NOV continues to invest in material science to further advance cutter technology, driving continuous improvements in performance. This commitment has enabled its ReedHycalog drill bit business to gain market share, including an 11% year-over-year revenue growth in the U.S. against an 8% decline in drilling activity.

In downhole drilling, NOV's Agitator friction reduction tool enables operators to drill farther and faster. The Agitator ZP, a zero-pressure drop variant, allows customers to maintain maximum flow rates in pressure-limited drilling situations. Conversely, the Agitator RAGE leverages high-pressure drilling capabilities to achieve extreme friction reduction for challenging well geometries like tight curves and ultra-long laterals. Revenue from new downhole drilling technology, including these Agitator offerings, is up over 30% year-over-year, now comprising almost 20% of the downhole tools business' revenue, indicating strong market adoption and significant growth potential.

NOV's leadership extends to tubulars, where its XT connection sets the global standard for premium high-torque drill pipe, handling 70% more torque and improving hydraulics with up to a 50% reduction in internal pressure loss compared to standard API connections. The newer Delta connection further enhances this, offering 20% higher torque capacity than the XT connection and a proprietary design that prevents gulling, reducing total cost of ownership and enabling up to 50% faster makeup times. These advancements, alongside wear-resistant drill pipe and insulated coatings, directly address critical operational challenges like accelerated body wear and premature failures from extreme well temperatures.

In subsea flexible pipe, NOV is a recognized leader, having won "Supplier of the Year" from the largest global consumer for two consecutive years. Its OptiFlex condition monitoring system utilizes embedded fiber optics to continuously measure temperature and fatigue, providing real-time insights for enhanced operational safety and longevity. Furthermore, NOV is actively developing a CO2 stress corrosion cracking solution for Brazil's pre-salt fields, an issue the company has been investing in since 2019. This initiative, if successful, could be a significant needle-mover, offering a cost-effective mitigation for a costly industry problem.

Digitalization and automation are also central to NOV's technological roadmap. Over a decade ago, the company commercialized wired drill pipe, capable of transmitting data at up to 58,000 bits per second, vastly superior to the 5-15 bits per second of standard mud pulse telemetry. This technology, combined with advanced sensors and a software stack for data aggregation and visualization, enables advanced geosteering for ultra-long horizontal sections at unprecedented speeds and precision. In one instance, NOV's downhole broadband solutions helped a customer drill a multilateral, multi-target exploration well that exceeded 20 kilometers of reservoir exposure, significantly reducing uncertainty and accelerating time from discovery to development.

Building on this, the NOVOS drilling automation system automates repetitive drilling activities and serves as a platform for multi-machine control. In January 2024, NOV commercialized its ATOM RTX robotic system, which completely automates the vast majority of rig floor operations without human intervention, significantly improving safety and drilling performance. By Q3 2025, six ATOM RTX packages were operational (three land, three offshore), with another eleven in the pipeline. Customers are already describing the ATOM RTX system as "the next top drive for the industry," highlighting its revolutionary potential.

For investors, these technological differentiators translate into a robust competitive moat. NOV's ability to consistently deliver solutions that improve efficiency, reduce costs, and enhance safety allows it to command pricing premiums and gain market share, even in challenging environments. This technological leadership underpins its strategic positioning in both traditional and emerging energy markets, driving long-term growth and profitability.

Segment Performance: A Dynamic Shift in Contribution

NOV operates through two segments, Energy Products and Services (EPS) and Energy Equipment (EE), each responding to distinct market dynamics. The company's financial performance in Q3 2025 reflects a strategic pivot and operational adjustments to a volatile global energy landscape.

Energy Equipment: Backlog-Driven Strength

The Energy Equipment segment has been a significant driver of NOV's recent performance. In Q3 2025, the segment generated revenues of $1.25 billion, a 2% increase year-over-year. Operating profit rose to $130 million, or 10.4% of sales, while Adjusted EBITDA increased by $21 million to $180 million, representing 14.4% of sales. This marks the 13th consecutive quarter of year-over-year Adjusted EBITDA margin expansion for the segment. This improved profitability was primarily a result of strong execution on its backlog, effective cost controls, and increased operational efficiencies.

The segment saw robust demand for its growing production-related portfolio, leading to higher backlogs and record revenues from its subsea flexible pipe and gas-focused process systems businesses. New orders booked during Q3 2025 totaled $951 million, resulting in a strong book-to-bill ratio of 141%. As of September 30, 2025, the backlog for capital equipment orders reached a record $4.56 billion, an increase of $77 million from Q3 2024. Notably, approximately 58% of this backlog was for offshore products, with 94% destined for international markets, underscoring the segment's alignment with the re-emerging deepwater and international growth trends.

Energy Products and Services: Outperforming Activity Declines

The Energy Products and Services segment, more exposed to shorter-cycle drilling activity, faced greater headwinds. In Q3 2025, revenue was $971 million, a 3% decrease year-over-year. Operating profit declined to $38 million, or 3.9% of sales, and Adjusted EBITDA was $135 million, or 13.9% of sales. The revenue decline was primarily attributed to lower global drilling activity levels and delays in infrastructure projects, compounded by a less favorable sales mix, tariffs, and inflationary pressures.

Despite an 8% year-over-year decrease in the worldwide rig count, the segment "outperformed the underlying global rig count declines," aided by growing market share in efficiency-enhancing downhole technologies and strong demand for drill pipe. North America, which accounted for 57% of segment revenue, saw a 7% year-over-year growth in revenue due to higher drill pipe sales, even as the regional rig count declined by 10%. Conversely, international revenue for this segment decreased by 15% year-over-year, impacted by activity declines in the Middle East and Latin America. Management is actively focused on reducing structural costs within this segment, including facility consolidations and exiting unprofitable product lines, to improve profitability.

The company's EBITDA contribution mix is notably shifting. In 2023, Energy Products and Services contributed roughly 62% of Adjusted EBITDA, with Energy Equipment at 38%. For 2025, Energy Equipment's contribution is projected to rise to approximately 55%, while Energy Products and Services is expected to account for about 45%. This shift highlights the increasing importance of capital equipment and offshore-related demand in NOV's overall financial profile.

Financial Strength and Capital Allocation

NOV maintains a robust financial position, characterized by strong cash flow generation and a disciplined approach to capital allocation. As of September 30, 2025, the company held $1.207 billion in cash and cash equivalents against total debt of $1.726 billion. Its $1.50 billion revolving credit facility remains undrawn, with a healthy debt-to-capitalization ratio of 23.50, providing ample liquidity and financial flexibility.

Cash flows from operating activities for the nine months ended September 30, 2025, were $678 million. In Q3 2025 alone, NOV generated $245 million in free cash flow, achieving an impressive 95% conversion of EBITDA to free cash flow for the quarter and 53% year-to-date. This strong performance is attributed to effective cash collections on projects and ongoing structural improvements in working capital efficiency. The company anticipates its working capital as a percentage of revenue to remain around 27-28% for Q4 2025, with a sustainable EBITDA to free cash flow conversion rate of approximately 50% for 2026.

NOV is committed to returning capital to shareholders. In Q3 2025, the company repurchased 6.2 million shares for $80 million and paid $28 million in dividends. Year-to-date, total capital returned to shareholders amounted to $393 million, including a $78 million supplemental dividend paid in Q2 2025 as a true-up to its 2024 target. Management expects to "significantly exceed our minimum threshold of returning 50% of excess free cash flow to our shareholders" in 2025, excluding the 2024 true-up dividend, signaling a continued focus on shareholder value. Capital expenditures for the nine months ended September 30, 2025, were $274 million, reflecting targeted investments in high-return organic growth opportunities.

Competitive Positioning: Differentiated in a Dynamic Market

NOV operates in a highly competitive global energy equipment and services market, facing rivals such as Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BKR), and TechnipFMC (FTI). NOV's competitive standing is primarily defined by its diversified portfolio, technological leadership in specific niches, and strong operational execution, though it faces challenges in areas like digital integration and overall financial efficiency compared to some peers.

NOV's technological advantages are a significant differentiator. Its Leach PDC cutter technology, Agitator friction reduction tools, and advanced drill pipe connections (XT and Delta) offer superior performance, durability, and efficiency, allowing NOV to gain market share and command pricing premiums. For instance, the Agitator ZP and RAGE tools enable drilling farther and faster, directly impacting customer economics. Similarly, the ATOM RTX robotic system is lauded by customers as "the next top drive for the industry," highlighting its potential to revolutionize drilling safety and performance. These innovations provide NOV with a strong competitive edge in deepwater operations and emerging unconventional plays, where customer performance expectations favor NOV technology.

In comparison to Schlumberger (SLB), a leader in digital oilfield solutions, NOV's offerings in wellbore technologies and rig systems are competitive but may lag in digital integration and advanced analytics. While SLB excels in technology-driven segments with faster innovation cycles, NOV's focus on hardware durability and comprehensive project delivery provides a unique value proposition, especially in customizable rig systems and renewable energy components. NOV's operational execution in manufacturing and service delivery is robust, but SLB often demonstrates stronger cash flow generation and higher margins due to its scale and digital revenue streams.

Against Halliburton (HAL), a major player in drilling, evaluation, and production with a strong focus on completion technologies, NOV compares favorably in rig technologies and automation services, where its solutions offer greater reliability in harsh environments. HAL's aggressive market positioning in high-demand fracturing services can lead to faster revenue growth and cash flow, but NOV's diversified ecosystem, including integrated solutions for renewable energy, offers broader resilience.

When contrasted with Baker Hughes (BKR), which specializes in oilfield services, equipment, and digital solutions across the energy value chain, NOV's subsea production and industrial pumps offer greater versatility for mixed energy applications. However, BKR's emphasis on turbomachinery and digital twins often results in faster innovation cycles. NOV's market positioning as a comprehensive provider for drilling and production contrasts with BKR's focus on specialized, high-tech components.

Finally, compared to TechnipFMC (FTI), a leader in integrated subsea solutions, NOV's offerings in subsea production may provide better integration for floating production systems, while FTI's strategic focus on end-to-end project delivery gives it a strong position in complex offshore ventures. NOV's broader diversification into rig technologies and renewables differentiates it from FTI.

NOV's competitive advantages are further reinforced by high barriers to entry in its industries, such as significant capital requirements and regulatory hurdles. These factors help maintain its market position and financial performance by limiting new entrants. However, NOV faces vulnerabilities from its dependence on commodity prices and supply chain exposures, which can lead to higher operational costs, particularly in the current environment of increasing tariffs. The company's ongoing litigation regarding drill bit technology royalties also presents a risk, with recent court rulings impacting its ability to collect payments.

Outlook and Risks: Charting the Course Ahead

NOV's outlook is characterized by a near-term cautious stance, followed by strong optimism for the medium to long term. Management anticipates market conditions to remain soft through the next few quarters, with global drilling activity likely to drift lower. This is primarily due to elevated macroeconomic uncertainties, geopolitical conflicts, and OPEC's decision to return larger-than-anticipated quantities of oil to the market, leading to lower oil prices and increased market volatility.

For Q4 2025, NOV expects its Energy Equipment segment revenue to decline 2% to 4% year-over-year, with EBITDA in the range of $160 million to $180 million, reflecting a less pronounced seasonal increase due to capital equipment delivery timing. The Energy Products and Services segment is projected to see revenue decline 8% to 10% year-over-year, with EBITDA between $120 million and $140 million, as softer market conditions offset a modest sequential pickup in capital equipment sales. Total tariff expense is expected to rise to approximately $25 million in Q4 2025, up from just under $20 million in Q3 2025, adding to margin pressures.

Despite these immediate headwinds, NOV's management expresses strong confidence in the long-term outlook, particularly from the back half of 2026 and beyond. This optimism is driven by two major structural shifts: the globalization of unconventional shale development and the reemergence of deepwater and offshore development. As North American shale production flattens, international unconventional plays in regions like Argentina, Saudi Arabia, and the UAE are expected to drive significant demand for NOV's tools and infrastructure. Concurrently, deepwater development, with its improved economics and exploration successes, is projected to become the leading source of incremental global oil supply, with offshore oil output potentially rising to 13 million barrels a day by 2026.

NOV's strategic initiatives, including aggressive cost reduction programs targeting over $100 million in annualized savings by the end of 2026, are designed to mitigate near-term challenges and enhance long-term profitability. The company also expects continued growth in energy transition markets, including wind, geothermal, and carbon capture and sequestration projects. The remaining performance obligations for NOV totaled $5.037 billion as of September 30, 2025, with approximately $1.796 billion expected to be recognized in 2026, $1.109 billion in 2027, and $1.588 billion thereafter, providing a clear revenue runway.

Key risks include ongoing macroeconomic uncertainties, the impact of OPEC's production decisions on commodity prices, and the fluid nature of trade policies and tariffs. The royalty litigation also poses a financial risk, as recent court rulings have challenged NOV's ability to collect payments, leading to a $24 million non-cash discount charge in Q3 2025. Foreign currency exchange rate fluctuations also present a risk, with a 10% movement potentially impacting net income by $45 million. However, NOV's diversified business model, strong balance sheet, and technological leadership are expected to provide resilience against these challenges.

Conclusion

NOV Inc. is a company in transition, strategically positioning itself to capitalize on profound shifts in the global energy landscape. While the immediate future presents a complex tapestry of macroeconomic uncertainties, geopolitical tensions, and inflationary pressures, the company's deep history of innovation, diversified technological portfolio, and robust financial management provide a strong foundation. The pivot towards international unconventional shale and the re-emergence of deepwater development represent significant long-term growth engines, where NOV's advanced drilling, completion, and production technologies are indispensable.

The company's commitment to technological differentiation, exemplified by its cutting-edge drill bits, automation systems, and specialized subsea solutions, not only enhances operational efficiency and safety for its customers but also fortifies its competitive standing against industry giants. Despite near-term softness and specific challenges like royalty litigation and rising tariffs, NOV's record backlog in Energy Equipment, strong free cash flow generation, and disciplined capital allocation underscore its resilience. Investors should monitor the progression of deepwater FIDs and the build-out of international unconventional infrastructure, as these will be critical indicators of NOV's ability to translate its technological leadership and strategic positioning into sustained profitable growth from late 2026 onwards.