Good day and thank you for standing by. Welcome to Third Quarter 2024 Tenaris S.A. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna. Please go ahead.

Thank you, Gigi, and welcome to the Tenaris 2024 Third Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied during this call. With me on the call today are Paolo Rocca, our Chairman and CEO; Alicia Mondolo, our Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Luca Zanotti, President of our U.S. Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our quarterly results. Our sales in the third quarter of 2024 reached $2.9 billion, down 10% compared to those of the previous year, and down 12% sequentially, mainly due to lower prices in the Americas and lower demand in the USA, Mexico, and Saudi Arabia, as well as lower line pipe shipments to Argentina. Average selling prices in our tubes operating segment decreased 14% compared to the corresponding quarter of last year and 2% sequentially. Our EBITDA for the quarter was up 6% sequentially to $688 million, as the previous quarter was affected by an extraordinary provision recorded for an ongoing litigation related to the acquisition of participation in Usiminas in 2012. Without this extraordinary provision in the previous quarter, the EBITDA for the quarter would have declined 16% sequentially. However, our EBITDA margin at 23.6% was only marginally lower compared to the margin recorded last quarter on a comparable basis. With operating cash flow of $552 million and capital expenditure of $179 million, our free cash flow for the quarter was $373 million. After share buybacks of $182 million, a net cash position amounted to $4 billion at the end of the quarter. Our Board of Directors approved the payment of an interim dividend of $0.27 per share or $0.54 per ADR to be paid on November 20. The interim dividend is up 35% compared to the interim dividend we paid last year. In addition to the dividend, the Board of Directors also approved a share buyback of $700 million to be executed within the next five months. Now I will ask Paolo to say a few words before we open the floor for questions.

Thank you, Giovanni, and good morning to all of you. In the third quarter, we successfully carried out our extensive program of plant stoppages. We have now largely concluded an important cycle of investment in the maintenance and modernization of our industrial system, incorporating innovative technology for steelmaking and heating furnaces and further automation. Steel ongoing is an investment at our U.S. Steel Shop to modernize the dust collection system and expand capacity, which will be concluded this month. This investment will contribute to significant improvement in productivity and environmental performance with lower emissions. We're confident that we will see the benefit of these investments over time. We have expanded our relationship with international oil companies and consolidated our positioning in complex offshore projects. This is being reflected in a number of recent awards that will support our offshore order backlog for 2025 and 2026. The Guyana-Suriname Basin, where we are already serving ExxonMobil casing requirements under a long-term agreement. Saipem awarded us a line pipe and insulation coating package for the total Grand Morgue development, recognizing the benefit of our Tenaris-Shawcor integration. In Brazil, we were awarded a riser and floor line package with thermal insulated coatings for Petrobras - Buzios 9 development, as well as the conductor casing and super chrome tubing for the Sepia and Atapu project, which we are currently delivering, the export pipeline riser and coating for the Equinor Raia project. In West Africa, ExxonMobil awarded us the casing for their Block 15 development in Angola. We also secured the offshore line pipe for Shell Bonga project in Nigeria. In the United States, where drilling activity has stabilized, OCTG imports are coming down. Imports from Thailand have come to a halt after being found to have violated trade rules. For this year, the Korean import quota has been reduced by 50,000 tons, which will also apply for 2025. The pipe logic index of U.S. OCTG prices has started to rebound with increases over the past two months, and we expect that this trend will continue in the coming months. In Canada, trade action implemented in recent months has limited unfairly traded Chinese OCTG imports. We are being successful in showing the value of our RIG Direct Service Program by extending the coverage and duration of our service agreement among the larger Canadian operators. This includes Petronas, which awarded us a three-year contract for their OCTG requirement in the Montee, as they prepare for the startup next March of the LNG Canada project. In Argentina, economic conditions are improving, and investments are starting to move forward in Vaca Muerta, where there are plans to increase oil exports from the country to 1 million barrels a day before the end of the decade. We were awarded the supply contract and received a down payment for the first phase of the Vaca Muerta Sur oil pipeline, which will connect production in the shale to a new deep-water port, Punta Colorado, in Rio Negro province. In the Middle East, while gas drilling activity remains at a stable level, we are seeing some softening in oil drilling activity. In Saudi Arabia, we have just completed deliveries and a special stock replenishment program, and now Aramco is looking to reduce stocks and increase cash flow. Even if in the third quarter, our shipments remain relatively high, stocking will have an impact on our sales for the fourth quarter. Our free cash flow remains strongly positive, even if with the transition to the new government, Pemex in Mexico has further delayed payments. Free cash flow has amounted to $1.9 billion in the nine months, and our net cash position at September 30th amounted to $4 billion. In this situation, our Board of Directors decided to increase our interim dividend by 35% to $0.27 per share and to authorize a follow-on share buyback program of around $700 million using the authority granted at the annual general shareholder assembly in June 2020. With this interim dividend and extension of our share buyback program, we will return close to $2 billion to our shareholders in this calendar year. We are now opening for any questions you may have.

Thank you. Our first question comes from the line of Alessandro Pozzi from Mediobanca.

Good afternoon. Thank you for taking my questions. I have three, if I may. The first one is, we've seen the results of the U.S. elections. I was wondering if you can give us your thoughts on how the new administration could have an impact on your business, could create opportunities for you in the U.S. I'm thinking about a potential more protectionist approach with higher tariffs or lower quotas, or maybe even on the M&A side, whether potentially now you're looking at acquisitions that may not have been available in the past with the previous administration. We know that in 2023, the acquisition of Benteler was terminated. So any thoughts around the impact that the new administration could be really helpful. The second one, if you can just give us maybe a view on what we should think about the share buyback into next year. You just announced $700 million until March, but I was wondering beyond March, what sort of, let's say, share buyback program we could envisage? Should we assume on a steady state, $1.2 billion for next year, let's say, same as last year? And also a final question on the outlook for the activities in North America. Some of your peers have suggested potential flat, if not down activities coming down next year, but it feels like you are more constructive for the U.S. next year, and I was wondering if you can give us your thoughts on how we should see activities into 2025. Thank you.

Thank you, Alessandro, for your question. Well, to begin with, regarding the impact of the U.S. election, I think it's very early to understand the changes that may be relevant for us. Let me say that one first point is that we reduce the level of uncertainty. At least we know today where we are, and everybody in the world, the governments of different countries, knows which will be the new government. In this sense, we are reducing the level of uncertainty, which is always something positive and constructive for deciding strategy and the actions from the part of the company and the different governments. Now in terms of areas that could be of impact, I think, in general, the election of Donald Trump as the President, even if it materializes, will take charge only in January, but has been perceived positively for the energy sector. We may expect that the policies of the new administration will be favorable for the energy sector in facilitating development oriented toward the export of gas in particular. We may expect some permitting speed up that would allow improved evacuation in the region. So in general, I think there is a perception that the new administration should have a positive impact on investment in the energy sector in the United States. The second point is on China. The new administration will have a policy of restraining the aggressiveness of the Chinese industrial sector in imports into the state. The position on China may reduce the penetration of steel and other materials from China in the United States and maybe in other regions. In this sense, we perceive that this may be something positive for a company like us that operates in this market. The third area that is important is the question of tariffs. This is more difficult to answer because, in the end, we don't know which will be the policy of the new administration in relation to Mexico or the rest of the world. I think we have to wait until we have a more clear understanding of the setup of the relation and the decisions concerning tariffs. In general, we may expect that the new administration will defend industrial activity in the U.S., and in my view, also in the USMCA because, in the end, the repositioning of the supply chain into the Western countries and into the U.S. should have a positive impact on companies like us that mainly operate in this space. But this is something that we will understand better in the future. From the point of view of relations, for instance, something that is also important for us, with Argentina, the new administration should have a positive view and a positive outlook on the relationship with Argentina. From the viewpoint of Argentina, the election and the new administration is positive news, which should support investment in the energy sector in Argentina and will also have an impact, like the one that we have seen just yesterday, in reducing the risk associated with Argentina. The country risk will possibly be reduced by the strong relation that has been established in the past, and I think it is possible to influence the relationship and the ability of Argentina to have access to the international financial model. I think these are the areas in which we are observing and we expect that the change in administration may have a positive impact on a company like Tenaris that operates in this environment.

And what about potential new M&A opportunities in the U.S.?

We need to wait to see the decisions the new administration will make, especially concerning policies that might affect antitrust regulations or other areas that could influence M&A opportunities for a company like Tenaris. Regarding the share buyback, we have announced a decision made by the board, and in February, the board will review the situation and consider the share buyback policy then. We cannot predict how the board or the special assembly might approach the expansion of our share buyback program at this time. As for the outlook for North America, I know you’re referencing comments from other oil service companies in the region. I will have Luca share his insights on the level of activity. The upcoming election in the United States might also play a role in this. Luca, it's your turn.

Yeah, thank you, Paolo. Good morning, Alessandro. So I understand that you're referring to Q1 2025. And if this is the case, here we need to see that our activity in the U.S. will increase, and this is going to be mainly driven by three factors. One; our customers are resetting the budget and are going to add a few rigs, I mean not big things, but they're going to slightly increase. We will complete the roll-over of our contracts to the company that have been acquired by our legacy customer. This is another component. And there are a few small operators that used to be traditionally our legacy customers that went out of activity for a certain period and now they are returning right now, and we're going to see the effect of them deploying at full speed in the first quarter of 2025. So in terms of activity, we see an increase. Obviously, also in terms of price, we see an increase. As you know, our prices have some lag. So we want to see the increase that we have seen in the PipeLogix recently. And I think we're going to see another one going ahead, fully reflected into the first quarter of 2025.

Okay, very clear, thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaram from JP Morgan Securities LLC.

Good morning and good afternoon. Paolo, my first question is a follow-up regarding the implications of the new administration. I would like to hear your thoughts on a hypothetical scenario where the new administration raises tariffs on imports. What impact would that have on Tenaris? Specifically, could you provide some insight into the proportion of your North American revenues or volume that comes from domestic products compared to sourcing from Veracruz or Argentina?

Thank you. First of all, we need to understand the policy that will be adopted in the new administration. I think the new administration has a strong drive in repositioning the supply chain out of China. They will consider not necessarily only in the United States, but there will be, I imagine, a policy oriented towards this repositioning of the supply chain that will also include considerations for the USMCA relating to the American industry, and also for relations with countries that are within the area of influence of the U.S. and Western countries. In this sense, I don't expect that this will be analyzed carefully and taking into consideration the existing contractual relations. Now, in case of an increase in general tariffs within this space, you have to take into consideration that today we basically can produce everything we are selling into the United States with the capacity that we have installed in the U.S. We may complement some specific products for some specific clients, but in general, we have the largest production capability in the United States. So we will be able to react and serve the market in any scenario in different conditions. But as I repeat, I think we need to wait for this policy to be clarified before having a clear understanding of it. In general, I think the orientation of Tenaris is to defend the domestic industry and to promote industrial activity in the states; Tenaris is a company that will be basically favored by this because we have capacity in it and we will be able to supply our clients in the present condition from within.

Great. That's exactly what I wanted to have answered. My follow-up is just thoughts on volumes and EBITDA margins. It does look like, Paolo, the second half of 2024 is matching what you mentioned at the recent Investor Day, but maybe the shape is a little bit different with higher Q3 results versus Q4. I was wondering if you could give us your thoughts on how EBITDA margins could look in Q4 and if you had any visibility about trends into the first half of 2025.

Well, you are right. We are in line with the expectation for the second semester of 2024. Now in the fourth quarter, we will have the volume will be slightly lower, something in the range of the mid-teens compared to the third quarter. The same will be basically for the sales, and the margin will remain more or less in line with the margin that we had in Q3. So, as you say, the third quarter will be stronger than the fourth quarter. On average, the semester's second half will not be far from what we anticipated. Now, in the first quarter of 2025, we expect to have an increase around the low-teens for volume and revenue, and the margin will remain more or less again in line with the second half of 2024.

Thank you very much.

2024 - sorry, 2024. In line with this time.

Thank you. One moment for our next question. Our next question comes from the line of Marc Bianchi from TD Cowen.

Hi, thank you. I was curious to hear some more about the upside you see in Argentina and Mexico. I think I heard you say that there was a pipeline award that you have now for Argentina. Maybe talk to us about when that starts to flow through results and then just any sense of the magnitude of what kind of increase from those countries could be flowing through to Tenaris.

Thank you, Marc. Well, in Argentina, as you have followed, the changes in the economy are moving in the right direction. Exploitation is going down, the deficit is under control, and the set of laws that have been approved is introducing changes in the hydrocarbon sector in the labor area. So the transformation is advancing. The country risk is going down substantially, and Argentina is moving in the right direction. Now, we are starting to see also investment coming into the energy sector at the pace that is allowed by the need to launch projects. You have seen also that the sales of Exxon assets in Vaca Muerta have taken an important step. Exxon decided to assign this to one of the bidders. So now we may expect also that in this case, a project will start to be developed. In the case of the pipeline, we received an order for the first phase of the Vaca Muerta Sur, which is the largest pipeline for evacuation of oil. It is the key to opening the door to additional production of oil in Vaca Muerta. We will start to see, let's say, delivery of this pipeline at the end of the first quarter of 2025 because now we received the advance payment that will allow us to start the cycle of buying steel and start producing. So we will start to deliver at the end of the first quarter. But I also expect that with the different moving parts in the economy and in the energy sector, some new rigs will start to be added in the months ahead. Gradually, the capacity of the system will increase to be prepared for the expansion of the evacuation capacity of oil. I think we will see this during 2025; rigs may increase in my view, in the range of 40 or more rigs compared to what we have today. Possibilities will take, let's say, 2025 to materialize. But gradually, by the end of 2025, we should arrive in Argentina with an increased number of rigs, I expect between 40% or 50% more than what we have today.

That's very good. Yes, and in Mexico?

Mexico, the second point concerning Mexico. The situation we see in Mexico is influenced by the change in government. We do not know yet how the new administration in Mexico will intervene on the energy policy and on the refinancing of Pemex. Probably, I think this quarter has been a very low quarter in terms of activity from Pemex and the rest of the system. There is, let's say, expectation for the decision that the new government may take in refinancing Pemex and deciding how to promote investment in the energy sector. We are positive on this because we see that the new administration is sending signals that they will promote investment in the energy sector, not only in oil and gas, but also in renewable. I think we will see the policy to be articulated and give some visibility in the first quarter of 2025.

Okay. Very good. Thank you for all that. I just had one other. As it relates to the capital return, and I know well, you'll formalize this plan in May, but as we think about your willingness to maybe dip into the cash balance to support capital return, what sort of cash balance does the company need to just run the business because certainly, the current level is much more than you probably need?

Well, before getting into this, let me do a correction because I was reviewing the note here. I may have made an error before answering the question of Arun. I was saying that in the fourth quarter, the level - the volume reduction will be in the level of mid-teens. This is not correct; it will be single-digit down compared to the third quarter. I don't want to be misunderstood on this. So the volume reduction will be single-digit up.

Okay, but still double-digit up.

Sorry, not in double digits, but will be double-digit up in the first quarter of 2025. We expect to increase by around 10% or something like that.

Thank you for the clarification.

Yes, sorry for the clarification, because I have here. Now on the question of the cash, I think this is up to the shareholder to decide and to the Board to indicate. I think that now when we look at the $4 billion and without a visible target for M&A of major operations, it is logical and rational to proceed with buybacks and increase the dividend. But this is also something that we need to evaluate over time. I think that at the beginning of 2025, we will have a better understanding of potential opportunities that we may have around the world and expanding our level of activity, and this will be an important factor to consider in determining capital allocation for Tenaris. I don't think we are now in a position to determine what the best capital allocation is looking ahead, especially in the situation that has so many uncertainties in the different areas in which we operate.

Thank you very much, I will turn it back.

Thank you. One moment for our next question. Our next question comes from the line of Stephen Gengaro from Stifel.

Thanks, good morning. Good afternoon everybody. I think two for me. The first one, and it gets to kind of cash usages and maybe even the M&A side. When we think about what you have done over the last 20 years in M&A, right, everything from Maverick on through recent deals, it all seems to be kind of in the same line of business. I'm just curious how you think internally about would you go outside of those product lines at all? And maybe kind of how far outside you'd go from kind of a manufacturing versus service business?

Well, when we look at M&A, we consider where we can leverage our know-how, our local presence, and our positioning. So usually, we look at the potential for creating a competitive advantage through M&A. We do not look at this from a point of view of diversification. Our goal is to maximize the potential and capability of the company. This is the approach we are taking. We have limitations sometimes coming from antitrust regulations because of the size of our operation or from risk perceptions that may be different from what we are prepared to accept. But these are the criteria we use to evaluate where to move and how to move.

Great. Thank you. And the other question I had at maybe a higher level, but you've alluded to this in the past, and I'm curious what your current thinking is on the EBITDA margin front. You've done a great job over the last couple of years, right, getting margins high and maintaining at a pretty healthy level. Where do you see margins flowing out on a normalized basis? Should we think about low to mid-20s as a pretty good normalized run rate? Or how do you think of that?

I think that Tenaris is a highly differentiated company. So really, within our realm, which is the realm of oil and gas service companies, we are a highly differentiated company. And if you look at how things evolved in the last 20 years, we extended our differentiation, first on product, then on regional deployment, and then on service. This differentiation translates into higher margins compared to other companies operating in the same field. I don't think we have ended our journey in this direction. We are continuously looking at how we can create a competitive advantage for our clients. You see here, for instance, in the acquisition of Shawcor and some of the awards that we received this year. We have been able to build solid relations with our clients, creating value for them and differentiation for us. In this sense, if you consider the change also in the administration and the position taken about China, it is, from our point of view, to some extent, increasing our differentiation. Because it allows us to focus and, in some cases, to present to the client excellent reason from the viewpoint of quality, service deployment, and also from the perspective of the environment. We are the most low-carbon company with aggressive plans for decarbonization. By the end of 2025, we will operate 100% on renewable energy. We are investing in this. So, this differentiation should allow us to look for margins that, in my view, should be higher than where we are today.

Great. That's great color. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Rodrigo Almeida from Santander.

Hi, everyone. Sorry, I thought I was on the line up. So I just have a couple of follow-ups here. I think the first one is related to the outlook that we talked about regarding the short term. I wanted to get an update on the $200 million cost-saving project that you guys are working on, whether this is already included in the sort of guidance that we're discussing for Q4 and Q1. And what is the progress of this cost-savings project? And then some additional color on South America, where we talked about Argentina a little bit and then we mentioned the project in Brazil, the project with Petrobras and the projects with Equinor as well. How soon could we expect these volumes, especially for RAIA to kick in? And what would be the impact from these projects on your revenues for South America, especially for 2025, I would say, because RAIA, I guess, it's going to come online very soon at some point. I'd be next two, three years? Thank you.

Thank you, Rodrigo. Well, on the first question, we are advancing in our plan. We set the target of the $200 million reduction in our cost. We are advancing in it. We reached the first stage of this plan. The second stage will come from the investment we have done in our facility in the last quarter. But we are proceeding in line with our expectation, and we are doing well on this. I expect that this will materialize around more than one-third in the second semester of 2024 and the rest in the first semester of 2025. Now, regarding the project that we are getting in Argentina and Brazil on RAIA and also in other parts of the world, these are large line pipe projects. I will ask Gabriel to comment on this and when we will be delivering some of this?

Yes. Thank you, Paolo. Regarding some color that you're asking on Latin America, in addition to what Paolo already explained on Argentina and Mexico, let me tell you that in Brazil, we are proceeding very well with the production and shipment of the RAIA pipeline. These shipments for this project started in the last quarter and will be concluded in the second quarter of 2025. So production of the pipe and concrete coating is proceeding favorably. This will be a positive impact on Brazil. Regarding the deep-water flow lines rise and insulation coating, Paolo also commented on the Buzios 9 deepwater project. This is something that will be delivered in the later part of 2025. So this will also be an important contributor to our revenues in offshore Brazil. And there, we have regular call-offs for our contracts of conductors and stainless steel completions as well in Petrobras. So overall, we expect that deep-water Brazil will be an important engine for growth in the fourth quarter of 2025 and beyond. Regarding onshore Colombia and Ecuador, these areas have been subdued during 2024, and we don't expect any recovery in the drilling activity in these areas, which is probably about half of what they used to be a couple of years ago. So we don't expect any rebound in the short term. If you go to the Guyana-Suriname Caribbean region, it continues to expand production, especially in the Guyana, ExxonMobil development, where we participate with large ODE conductors and casing tubulars and insulation coating for pipeline demand in that area. That continues at a steady state. Six drilling rigs are operating in the area, and this will continue to be the case into 2025. As Paolo commented, the important award of the pipeline and coding regarding the total new development in Suriname, a new FID that is opening a new basin. This is a pioneering development that we will start delivering in the later part of 2025. This is important because it's the first phase, but probably not the last one. This award is significant, as Paulo was saying, it's a combination that includes tubulars and coating, with the strong track record of Shawcor going to Tenaris. Also, from the tubular point of view, this has been a very complicated and sophisticated spec to meet. So it's a testament to our R&D and production capability. These offshore awards are going to give us good visibility in the backlog for 2025 and even some of them into 2026.

Thank you, Gabriel. These are very important for us because they confirm our ability to engage in very complex projects in a differentiated way. Building a backlog over the long term is also very important for us.

Perfect. Thank you so much for the call, very helpful.

Thank you. Our next question comes from the line of Arun Jayaram from JP Morgan Securities, LLC.

Yes. Paolo, sorry to double dip here, but I just wanted to see if we could get a little bit more clarification just sensing a little bit of confusion from the buy side on your outlook comments for Q4 and Q1 '25. So could you just help us understand what you think the sequential impacts will be to revenue in Q4 and Q1? And just trying to think about revenues versus volume in both of those quarters.

Yes, I apologize for the confusion regarding the teams. In the fourth quarter, we anticipate that volume and sales will decrease compared to the third quarter, by approximately 7% to 8%. In the first quarter of 2025, we expect a rebound in the range of about 10%. We are discussing the numbers here, but these are estimations that reflect our expectations. Volume and revenue are expected to move in tandem, and as I mentioned, the margin should remain at a similar level to what we experienced in Q3.

Great. Thank you for clarifying that.

Is it clear now?

Super clear. Thank you.

At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Thank you, Gigi. And if there are no other questions, we would like to thank you for joining us for our call, and we hope to see you soon. Thank you.

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