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 uncertainties, 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.

Thank you, Amie. For the first quarter of 2024, NOV generated revenue of $2.16 billion, an increase of 10% 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. Pretax profit increased 14% year-over-year, but a higher effective tax rate and lower income from our 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 2 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 fueled 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 nonetheless see strong demand and have started the second quarter off with some big wins. We won a $250 million-plus order for energy equipment for offshore work in Latin America during the first quarter, although 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 that is expected to drive offshore FIDs worth 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 5, despite Saudi Arabia trimming or postponing its maximum sustainable capacity ambitions in the offshore. We are also optimistic about onshore international developments, particularly in the Middle East, where dozens of rigs are being tendered and a couple of national oil companies are pursuing unconventional developments in earnest. Our confidence continues to grow. 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 spurred by artificial intelligence, mechanization and automation, software control systems, remote monitoring, equipment electrification, emissions reductions, drill cuttings processing, and downhole drilling technologies are leading to 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 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 generate more cash as working capital normalizes throughout the remainder of the year. Continued cost reductions are an important part of our plan. Our new segment structure is facilitating additional efficiency improvements as we consolidate more manufacturing locations, centralize 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, recognizing that organic innovation occasionally supplemented by targeted acquisitions, was the most capital-efficient way to reposition our franchise to meet the evolving needs of the oilfield. 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 poles and products business and below multiples where NOV trades, effectively reallocating capital across our portfolio to improve profitability and returns. During the first quarter, we acquired a technology that underlies our iNOVaTHERM cuttings processing unit. This technology works in concert with dryers and centrifuge 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 express high demand. We expect our fleet of units on rent to grow from 4 in the first quarter to 7 by the end of the second quarter. Our acquisition of the 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 laterals, significantly increasing initial gross volumes produced through each individual wellhead, a market trend that will provide 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're 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, 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 Torsional Vibration 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 can involve varying start-up costs across these initiatives. Nevertheless, our success in innovation 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, particularly in 2025 and beyond as lower-margin frame agreements signed during the pandemic lows expire. The key to success for NOV is to demonstrate value, as it always has been. Our new technologies do that. Customers' programs and developments are evolving to benefit even more from this value. International and offshore operators are returning to work, seeking operational efficiencies obtainable with new NOV technologies, while aiming to reduce their environmental impact and drive better safety. Competitive pricing dynamics and inflation continue to be headwinds for margin improvement, but as our technologies roll out, our value proposition becomes clearer, resetting pricing discussions. Before I hand it over to Jose, I want to thank all our employees listening today. NOV continues to transform this industry in numerous ways, and that is directly due to your ingenuity and hard work. We appreciate you. Jose?

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 two years, reflecting the turn in our business that gives us confidence in our ability to generate substantial amounts 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 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 compared to what we have 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 accelerates 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 are 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 acquisitions, and high confidence in our outlook, NOV's capital-light business model will generate substantial amounts of free cash flow, and we're 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 to our shareholders going forward. This is defined as cash flow from operations, less capital expenditures and other investments. 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 shares will drive long-term value. Three, at the end of each year, we plan to utilize the supplemental dividend, which will be payable in May, starting in 2025, 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 shareholders. We will not compromise the health of our balance sheet or our ability to invest in the business. Having experienced several industry cycles, we understand our business can change quickly. However, our capital return framework reflects our confidence in NOV's outlook and our commitment to delivering superior returns to our shareholders. 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, a reasonable EBITDA growth profile, and sticking to the minimum level of returns at 50% excess free cash flow, we estimate the capital returned to shareholders through 2027 could be in the range of $1.5 billion. Under this scenario, approximately $470 million of shareholder return would be through our base dividend and the remaining $1.03 billion will 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 and 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, 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, usually plus changes in market share. First quarter revenue for the segment's 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 of the segment's second category revenues are derived from sales of drill bits, completion tools, composite sleeves and liners, artificial lift products, shaker screens, and downhole tools. Note that several of these products, such as drill bits and downhole tools, are also rental items. Product sales tend to be less volatile, less seasonal, and track activity more closely than revenue from capital equipment. While individual sales are typically small and frequent, each operation can have occasional large shipments requested by certain large NOCs who sometimes take bulk shipments once or twice 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 realizing solid demand in the Middle East, more than offsetting softness in North America. Sales of our Tuboscope Thru-Kote sleeves, Zap-Lok connections, and Tector thread protectors have remained solid, and we expect 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, shale 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 pushing 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 favorable international and offshore component and included orders 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 innovative drilling solutions like our TUNDRA MAX mud chilling systems. Our two most seasonally volatile capital equipment offerings were our conductor pipe and managed pressure drilling equipment. After a strong fourth quarter for the two product lines, both realized substantial sequential revenue drops; yet both have strong outlooks 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 improved second quarter. We're 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, including 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 remains 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, 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 and 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 services 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 affect seasonality much more 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 majority of our aftermarket revenue comes from our drilling equipment and intervention and stimulation businesses. Our drilling equipment business generates three-quarters of its revenue from aftermarket sales; in the first quarter, its aftermarket revenues improved 27% year-over-year as the business continued to improve throughput and capitalize on a 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 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 an 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, 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 in the 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 and cutting-edge pressure control technology that allows our customers to reach previously inaccessible reservoirs. Utilization for offshore rigs remains high and increased toward 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 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, which has already seen an increase in orders for completion and intervention equipment as a result of rapidly improving activity in the regional fields. 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 eFrac and conventional pressure pumping equipment in early 2023 that did not repeat. Capital equipment orders declined due to lower demand for new pressure pumping kits, but the unit still posted a book-to-bill greater than 1 as a result of solid demand for equipment destined for international markets. While we anticipate bookings for new pressure pumping equipment to remain soft in the second quarter, there is a high level of interest in alternative energy equipment, specifically eFrac and CNG units, and the business's backlog remains healthy with meaningful shipments of DGB and eFrac 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 potential for 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 is also realizing 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 completing an engineering study for the customer over the past year. Our production and 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 exceeded orders for the preceding 11 months, quickly improving our 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. 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.

Our first question will be from Jim Rollyson with Raymond James.

Nice quarter, first of all. Jose, you discussed free cash flow again and the outlook for the next few years. You've managed to get the negative quarter out of the way for the year seasonally, but in the past, you have mentioned this EBITDA to free cash flow conversion rate being in the plus 50% range. As you consider this for 2024 and how it carries over into the 2024 to 2027 timeframe that you outlined, is that still the appropriate conversion rate to expect?

First of all, yes, as it relates to 2024, we continue to expect that we'll convert at least 50% of our EBITDA to free cash flow during the year. If anything, we are 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're 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 with kind of the base case scenario that I laid out where we expect slightly less volatile environment than the past decade and steady, gradually 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.

Got you. That's just helpful for modeling and how to think about this. I'm glad to see the framework for the capital return program is being shared a quarter earlier than expected, which is even better. As we look at the $1 billion share repurchase program, you mentioned that it will be driven opportunistically. How does the Board decide on capital allocation between that program and your supplemental catch-up at year-end? What factors influence the decision to shift capital between these two methods of returning capital to shareholders?

Yes. As you pointed out, the program is intended to be opportunistic. And as I also mentioned in the prepared commentary, we're really viewing our return on capital plan, and frankly, just the way we look at cash flow across the board on an annual and then a multiyear basis. What we wanted to do was provide a clear framework and assure our investors that every year, we will return at least 50% of our excess free cash flow. We intend to be opportunistic. We intend to, as we mentioned, increase the base dividend and then opportunistically buy back shares throughout the year. Depending on whether we're able to return the entire 50% plus of excess free cash flow during the course of the year or not, we would implement the supplemental dividend early the following year to true up that return of capital to shareholders. Some of the other variables that factor into the definition of excess free cash flow include what we're seeing from an acquisition standpoint, and there could be times, such as right now, when a couple of small acquisitions are factored into what we expect to be our excess free cash flow during the year. Acquisitions are not finalized until they are closed, so if they don't materialize, we'll have extra capital at the end of the year to return via that supplemental dividend.

Our next question is going to come from the line of Stephen Gengaro with Stifel.

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?

Before Jose answers, I just want to say, Stephen, that moving past 2023 was a significant relief for us. We have been quite frustrated with our supply chain issues and the lack of free cash flow. With Q1 behind us, we believe it's important for our shareholders to understand our thoughts on returning capital. We announced this earlier than we had originally planned, which we believe is beneficial for everyone involved.

Yes. I think Clay summed it up pretty well. The only other thing I would really add to that is that we got through the typical burn of cash from an operating cash flow and free cash flow standpoint in Q1, which was a big milestone that we wanted to get through. During the quarter, we had the $243 million that we spent on acquisitions. One item that gave us confidence, in addition to the operating environment moving forward, is that we were able to close the divestiture early in Q2 to replenish our cash balance, allowing us to start moving forward with the return of capital program. So we're feeling great about things from an operational standpoint, the balance sheet, and where we sit. We're optimistic about the stock price being an accretive value proposition for our shareholders to buy back shares at this point.

Great. That's helpful. And then just one follow-up on the free cash side. We've talked historically about working capital as a percentage of revenue and where that has been historically versus '23. How should we think about that unfolding over the next year or two?

Good question, Stephen. I think last quarter, I mentioned that at the end of this year, we expected working capital as a percentage of our revenue run rate to improve moderately, basically 100 to 200 basis points. Now that's changed a little bit with the completion of the recent acquisitions, which had a very high load of working capital. As I pointed out in my prepared remarks, the bulk of the increase in inventory we saw from Q4 to Q1 was a result of the acquisition. We actually view that positively. Like every other manufacturer, they had challenges from a supply chain standpoint and built up some inventory to work through those challenges. I think we'll benefit from that as we normalize inventory levels over the coming months and quarters. I'm not quite prepared to provide an 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 due to this variable.

Our next question is going to come from the line of James West with Evercore.

So I'd love to hear both your perspectives actually on this. Given that we've got an enormous number of offshore rigs that 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're going to need, obviously, spare parts, but we're going to need a lot of offshore equipment to be built. Whether it's platforms or all kinds of stuff that you guys do. How are you thinking about the visibility? Secondly, what kind of innovations are you introducing to the market to make them more efficient and to decarbonize operations as we see this long-duration cycle play out offshore?

Great question, James, and we appreciate you pointing out the fact that NOV has been a major innovator in the offshore market. You, more than anybody, know the outlook for offshore is very bright. There are lots of discoveries and developments 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 fueling demand and giving rise to a bright outlook for FIDs around those projects and much higher levels of offshore activity, which was lacking over the last decade. To count how we participate in that, we 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're reactivating a number now, with strong results in our aftermarket in the rig business, and we're well known for that. Those rigs need drill pipe, spare parts, solids control services, bits, downhole tools, all of which we provide. Based on our experience, we know that floating production storage and offloading vessels' (FPSOs) demand is equally bright in deepwater basins. Industry forecasts suggest that approximately 50 to 60 FPSOs will be needed in the next 5 years, significantly increasing beyond the previous 5 years. We provide everything from hole designs to cranes, fire-water piping systems and ballast piping systems, gas processing and dehydration, choke, and separators to flexible pipes connecting those vessels to underwater wellheads, which can cost between $100 million to $700 million per vessel. Regarding innovation and the next generation of drilling, everything from wired drill pipes and high-speed data connections to the bottom of the hole to artificial intelligence, which is making meaningful impacts on drilling optimization through our automation offerings, is being adopted. We have an offshore drilling contractor that has now ordered their second set of our new automation systems with large interest from numerous operators in bringing automation to that process as well as digital support. In terms of production, we continue to innovate with our edge compute and condition-based monitoring to optimize production, and we're very excited about our new extract ESP products as well. It’s a new area for us to deploy our edge compute capabilities to drive better efficiencies and automation.

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 amount of spare parts and equipment on the rigs. Are the rigs back to the normalized level of spare parts they usually require? For example, for a deepwater rig, it's typically around $50 million to $60 million worth of equipment. Are they still a little understaffed?

Good question. The reason that we're reactivating around 30 rigs now is part of the reactivation plan that includes replenishing spare parts they depleted. Our customers are excellent at cannibalizing and sourcing spare parts from unutilized land and offshore rigs. So most of these rigs have been picked over already. The part of the reactivation plan includes replenishing these spare parts for them to go back to work. Additionally, many rigs delivered between 2014 and 2017 are nearing their 10-year purpose survey. They need shipyard inspections, which is a crucial point in their lives and an opportunity for NOV to rebuild, replace and add capabilities.

Our next question is going to come from the line of Tom Curran with Seaport Research Partners.

Clay, within that extensive refresher you just gave us, if we were to see a significant step-up in offshore orders from 2024 into 2025, where would you expect it to come from? Do you think it would be from upgrades or cold-stacked reactivations in offshore drilling? Would you expect it to be a ramp in FPSO projects, maybe subsea infrastructure or other subsea hardware? Could you just give us an idea of the sequence of acceleration if we get some?

First, the rig reactivation offshore is underway. As I mentioned, we're reactivating a lot of rigs now. Although you never say never in this industry, at some point in the future, we will see a new round of rig building. That is not in our near-term forecast. I think it is more likely that the more production-related offshore kit that NOV can provide to FPSOs, including flexible pipes and equipment, will see increased demand. There’s a very large opportunity there; it's a little later in the cycle as these companies pull the trigger on their FIDs, moving projects to EPCs for more detailed execution. We have a fantastic opportunity in renewables that we haven't discussed much before, particularly in floating wind, especially in the North Sea, where we’re working closely with partners on development. This is a multibillion-dollar opportunity for NOV, also with implications for floating wind in deepwater areas in Asia. So not only in traditional oil and gas space but also in renewables, we expect to see support from that area.

Thanks for highlighting both sides. Just as a follow-up here, you mentioned that Jose has some stats with regards to where you're at currently with reactivation, recertification, and upgrade projects. Could you provide an update on those?

Yes, I mentioned earlier that there are 30 offshore rig reactivation projects that are north of the $2 million mark. We also have smaller rigs undergoing similar work.

Our next question is going to come from the line of Scott Gruber with Citigroup.

Clay, I'm curious how the Saudi CapEx shift impacts NOV? I imagine as jack-ups go down, there's potentially a hit to Grant Prideco and 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 equipment at startup. If you set new builds aside, how should we think about the Saudi CapEx shift towards onshore impacting NOV?

That's a good question, Scott. We would prefer that both sets of rigs remain operating, but we understand the energy ministry's directive to Aramco to back off adding 1 million barrels per day, since the natural gas liquids from gas developments will displace black oil currently burned for electricity generation. Six of the 20 jackups that have been suspended so far have either secured work elsewhere or are close to doing so, including a couple in the Arabian Gulf, India, and Africa. We hope to support those rigs as they move to different markets. On the positive side, we are excited about the Kingdom's goal to lift their gas production by 2.5 Bcf per day, mainly from their unconventional Jafurah gas field development. The rig count there has continued to grow, with 23 new rigs brought into the Kingdom recently. There's a trend toward more technologically advanced rigs, as evidenced by the new AC powered rigs, which are controllable through software and electronics. We see that interest as being driven by Aramco and other NOCs, showcasing their desire for better technology. We also participate in supplying production equipment and other materials that NOV manufactures in the Kingdom, such as production chokes, composite piping systems, and separators. We see rising demand in Saudi for those products. As the jack-ups return to work, there may be upgrades to equipment. However, most upgrades are driven by operator requirements rather than speculative investment by offshore drilling contractors, given their recent history. Operators are offering longer term contracts to help both parties recoup investments in new equipment and capabilities.

Our last question is going to come from the line of Kurt Hallead with Benchmark.

I always appreciate the color and insight; very informative. So I got one big-picture question and one financial question. So let me hit the financial question first. You referenced you still have more coming on the cost reduction front. As we get out beyond 2024, I'm just curious as to what do you see as the primary driver for margin improvement? More internal or external dynamics, like pricing power? Just how do you think about the margin improvement post-2024?

Kurt, thanks for the good question. I'll start off and Clay, I'm sure, will want to chime in on this as well. There are several opportunities to continue improving our margins over the next several years. You touched on the cost-out program; we are still in the early phases of that $75 million cost-out initiative. We've achieved about 30% of that so far. We expect to see it pick up a bit into Q2, which is why we're seeing improvement in incremental margins. With the heavy lifting done over the last several years, this is a small step from a cost-out standpoint that will wrap up in '24. Starting in '25 and beyond, we expect the continued progression of lower-margin contracts we signed during the pandemic to phase out slowly. We have been gradually seeing that the last several quarters, and we anticipate a step change in '25 because of better contracts. We expect continued improvement in throughput as international and offshore markets remain strong, and North America becomes healthier. Currently, we have mixed conditions, with international markets offsetting issues in North America, but if all segments perform well, there will be more margin improvement due to increased volumes. Additionally, as the cycle matures and capacity becomes fully absorbed, we expect more opportunities for pricing discussions, which will be the final leg up for margin improvement.

That's great color. And then, Clay, bigger-picture dynamic: We've had a lot of discussions recently about the data center build-out and what it means for grid demand. Do you see an opportunity for NOV to provide equipment into the data center infrastructure or any impact on your customer base regarding drilling activity?

We're likely more of a customer of those data centers as our digital offerings grow. We're employing artificial intelligence and sophisticated edge compute and cloud offerings, which is growing rapidly. The rise in electricity demand across the U.S. from data centers will require more natural gas and renewable sources of electricity. We're pursuing disruptive technology in the land wind space and making good progress. Our participation in the rising U.S. electricity demand will likely involve helping our customers to provide that electricity, whether through renewables or traditional natural gas.

Thank you. I would now like to hand the conference back to Clay Williams for further remarks.

Thank you all for joining us this morning. We look forward to speaking again in July when we report our second-quarter earnings. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.