What are your assumptions for the Middle East impact in Q2, given the Q1 figures of $54 million revenue and $32 million EBITDA impact?

The Q2 impact is expected to be slightly larger than the total Q1 impact, but not a huge difference. This assumes the Strait remains closed, but ground conditions improve from the peak of the conflict. While some delayed Q1 deliveries will fall into Q2, new logistics delays and rerouting manufacturing will cause other items to slide into Q3, making it effectively a wash. “And so our assumption in Q2 is that the straight remains closed. However, conditions on the ground otherwise are in line with what we're seeing right now, which again is the resumption of trade activity kind of getting a bit more steady and a little bit more of a constructive environment that we saw at the peak of the conflict.”

How do you see the unfolding market changes, particularly from the Middle East conflict, translating into increased activity and a broad-based recovery for NOV, especially considering past comments about the company not firing on all cylinders?

The market outlook has dramatically shifted from an oversupply to a deficit, accelerating and amplifying the need for investment. NOV expects all its businesses to benefit, with all '8 cylinders' firing in late 2026 and into 2027. This includes deepwater, unconventional markets, and offshore drilling, leading to significantly higher earnings power than in recent years. “It's going to be very, very high demand. And I think late this year and into 2027, as you touched on, we could finally be in that environment where all 8 cylinders of NOV's engine can fire and we can demonstrate significantly higher earnings power than what we've been able to show in a really limited market over the last several years.”

How will lingering Middle East impacts affect the cost and margin outlook, especially with cost-out programs and tariffs, and what is the margin progression expected into 2027 and beyond?

NOV's cost reduction efforts (8% headcount cut, 40+ facilities exited) have improved the cost structure, though headwinds like tariffs and inflation have largely offset these savings. Margins are expected to improve in H2 2026 and 2027 due to the market setup, particularly in production equipment and aftermarket. Tariffs are expected to remain around $30 million per quarter. “So the cost out, good hard work by the team. That's what we can control. And then I think the setup from the market from what we've seen already on the EE side on production equipment, what we're seeing in the aftermarket business and where EPS is heading leads to better margins in the second half of '26 and in '27.”

NOV

NOV (NOV) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Energy· Apr 28, 2026

Source: earnings call transcript

Executive summary

NOV Inc. Q1 FY26 — Market Shift Accelerates Capital Equipment Cycle Amidst Middle East Conflict

NOV Inc. navigated a challenging Q1 FY26 marked by significant disruption from the Middle East conflict, which impacted revenue and EBITDA. Despite these headwinds, the company saw strong order intake in its Energy Equipment segment and record performance in key offshore-related businesses. Management believes the conflict has accelerated and amplified the need for increased investment across the energy industry, positioning NOV for a new capital equipment cycle and a broad-based recovery in the mid-to-longer term.

Highlights

Energy Equipment segment bookings totaled $520 million, representing the strongest first quarter order intake since 2019 and an increase of $83 million year-over-year.
Subsea flexible pipe business achieved record quarterly EBITDA for the third consecutive quarter, with a quarterly book-to-bill over 100%.
Process Systems business achieved record EBITDA for the quarter, with revenue up more than 50% compared to Q1 2025.
ReedHycalog business gained market share in the U.S., growing revenue 8% compared to a 7% decline in the U.S. rig count.
Drill pipe orders were strong, outpacing the average quarterly bookings for the past 3 years, with backlog at its highest level in 2.5 years.

Concerns

The Middle East conflict negatively impacted Q1 revenue by an estimated $54 million and EBITDA by $32 million.
Energy Equipment segment reported a book-to-bill of 80% for the quarter.
Q1 margins were negatively impacted by a $30 million increase in tariff cost year-over-year.
Energy Products & Services segment revenue decreased 10% year-over-year, with adjusted EBITDA of $96 million or 10.7% of sales, experiencing larger than normal decrementals.
Aftermarket sales and services in the Energy Equipment segment experienced a 12% reduction year-over-year.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Energy Equipment book-to-bill	near 100% high materiality	FY26	High
Full-year 2026 results (conditional)	broadly in line with 2025 high materiality	FY26	Medium
Q2 FY26 Energy Equipment segment revenue	down 2% to 4% year-over-year medium materiality	Q2 · FY26	High
Q2 FY26 Energy Equipment segment EBITDA	$135 million to $155 million medium materiality	Q2 · FY26	High
Q2 FY26 Energy Products & Services segment revenue	decrease between 6% to 8% year-over-year medium materiality	Q2 · FY26	High
Q2 FY26 Energy Products & Services segment EBITDA	$100 million to $120 million medium materiality	Q2 · FY26	High
Full-year 2026 Capital expenditures	$340 million and $370 million high materiality	FY26	High
2026 EBITDA to free cash flow conversion	between 40% to 50% high materiality	FY26	High
Cost reductions offsetting tariffs and inflation	beginning in the second half of 2026 medium materiality	H2 FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Energy Equipment Revenue growth led by offshore production-related businesses. EBITDA margins negatively impacted by a lower mix of aftermarket revenue and higher costs from Middle East disruptions. Subsea flexible pipe and Process Systems achieved record EBITDA. Drilling capital equipment declined due to prior year's large BOP project. Marine and Construction driven by cranes and pipe/cable systems. Aftermarket activity impacted by Middle East conflict and lower service/repair work. Capital equipment sales: 63% of segment revenueCapital equipment sales growth YoY: 16%Aftermarket sales and services: 37% of segment revenueAftermarket sales and services reduction YoY: 12%Capital equipment orders: $520 millionBook-to-bill: 80%Ending backlog: $4.23 billionSubsea flexible pipe quarterly book-to-bill: over 100%Drilling capital equipment revenue decline YoY: around 10%Marine and Construction business revenue increase YoY: high teens percentageIntervention stimulation capital equipment revenue decline YoY: approximately 20%Drilling equipment aftermarket revenue decline YoY: mid-teens percentageDrilling equipment aftermarket revenue decline sequentially: 12%Spare parts bookings: robust, higher than 4-quarter rolling averageSpare parts backlog: highest level in 7 quartersAftermarket projects: roughly 35% more compared to last yearIntervention stimulation aftermarket revenue sequentially: essentially flatIntervention stimulation aftermarket revenue YoY: down mid- to upper single-digit percentage	$1.19 billion	4%	—	$131 million or 11% of sales
Energy Products & Services Results negatively impacted by Middle East disruptions and lower global activity, which more than offset market share gains in drill bits and digital services adoption. Lower volumes, absorption impacts, higher tariffs, and inflationary pressures led to larger decrementals. Digital services expanded significantly. Fiberglass revenue declined but achieved record bookings. Drill pipe sales increased with strong orders. Service and rentals: 54% of sales mixCapital equipment: 29% of sales mixProduct sales: 17% of sales mixServices and rentals decline YoY: mid- to upper single-digit percentage rangeReedHycalog revenue growth in US: 8% (vs 7% decline in US rig count)Sales of capital equipment decline YoY: low double-digit percentage rangeFiberglass record quarterly bookings: driven by demand for produced water transport, fuel handling, co-related applicationsFiberglass backlog: highest level in 10 quartersDrill pipe orders: strong, outpacing average quarterly bookings for past 3 yearsDrill pipe sales increase YoY: mid-teens percentage rangeDrill pipe backlog: highest level in 2.5 yearsProduct sales decline YoY: mid-teens percentage range	$897 million	-10%	—	$96 million or 10.7% of sales

Orderbook & backlog

Energy Equipment ending backlog $4.23 billion Q1 FY26

Subsea flexible pipe backlog extending into 2028 Q1 FY26

Fiberglass backlog highest level in 10 quarters Q1 FY26

Drill pipe backlog highest level in 2.5 years Q1 FY26

Spare parts backlog highest level it has been for the last 7 quarters Q1 FY26

Deals & partnerships

Brazil Large subsea flexible pipe order

Supported healthy offshore production-related equipment bookings in Q1.

Unnamed Large FEED study for harsh environment FPSO

Reflective of increasing confidence in long-term market outlook for offshore production-related equipment.

Unnamed Semisubmersible rig reactivation project for North Sea

Includes mud systems, a crane, and a BOP stack, supporting higher levels of future activity.

Guyana Contract to deploy thermal treatment technology

First deployment of the technology in Latin America, supporting efficient drilling cuttings management.

Capital programs

Subsea flexible pipe manufacturing facility expansion approved $200 million

Benefit:doubling capacity

This investment is intended to address what we believe is a developing capacity shortfall in the industry as offshore activity increases.

Risks & headwinds

Middle East conflict disruption Q1 FY26, ongoing into Q2 FY26

Negatively impacted Q1 revenue by $54 million and EBITDA by $32 million. Freight costs increased by as much as 3 to 4x normal levels.

Mitigation:Rerouting manufacturing for customers outside the region to facilities elsewhere in the global network; supply chain and operations teams are taking action to mitigate risk.

Supply chain constraints Q1 FY26, more pronounced in March

Experienced delays in receiving raw materials and critical components; unpredictability of logistics introduced additional cost and complexity, impacting manufacturing throughput.

Mitigation:Rerouting manufacturing to reduce risk; experienced supply chain and operations teams managing disruption.

Inflationary environment Ongoing

Contributes to higher operating costs; medical costs and certain raw materials (e.g., tungsten carbide up approximately 400% since end of 2025) are inflationary pressures.

Mitigation:Focused on improving operational efficiency, cost reductions (headcount, facilities, shared services), sourcing, pricing, and operational actions to mitigate higher costs.

Tariff costs Q1 FY26, ongoing

Q1 margins negatively impacted by a $30 million increase in tariff cost year-over-year. Expected to be around $30 million quarterly going forward.

Mitigation:Cost-out program expected to begin to more than offset the tariff and other inflationary costs beginning in the second half of 2026 (excluding Middle East impacts).

What to watch in Q2 FY26

Middle East conflict impact on revenue and EBITDA

Next quarter (Q2 FY26 results) and H2 FY26

Current Q1 revenue -$54M, EBITDA -$32M. Q2 expected slightly larger impact.

Target Resolution of conflict, reopening of Strait, return to normal logistics.

Why it matters

The conflict has a significant impact on financial results and the overall market outlook. Its resolution could allow NOV to achieve its prior full-year expectations.

Rodney will cover second quarter guidance, which assumes conditions in the Middle East remain consistent with where they are today, meaning that these fire holds, but the straight remains closed, which continues to constrain logistics and increase both the time and cost of doing business. While that is our current assumption, the situation remains extremely fluid.

Find out whether NOV delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you elaborate on the Flexibles business, its current top line performance, and the progression expected with the capacity doubling in Brazil?

The subsea flexible pipe business shows strong performance with robust bookings and lead times extending into 2028. Brazil offers significant growth from new projects and an aging infrastructure replacement cycle. New capacity is also needed for CO2 corrosion resistance. The offshore deepwater environment is aligning for growth, with an anticipated industry capacity shortfall in a few years, which NOV aims to address.

“Everything looks really good from a demand perspective. And as we sort of map out our own capacity as well as our competitors, it's pretty clear to us that in a few years, the industry is going to be short on capacity, and we see a great opportunity to step into that and support our customer base.”

asked by Arun Jayaram · answered by Jose Bayardo

2 min read 5 chapters

Detailed narrative

Impact of Middle East Conflict

The Middle East conflict significantly disrupted NOV's Q1 operations, leading to an estimated $54 million negative impact on revenue and $32 million on EBITDA. Challenges included rerouted shipments, extended transit times, increased freight costs (up to 3-4x normal levels), and delays in factory acceptance testing.

Supply chain constraints became more pronounced in March, affecting raw material receipts and manufacturing throughput. Aftermarket operations faced difficulties in spare parts delivery and reduced customer activity, though much of the impact is timing-related with deliveries now occurring or delayed rather than canceled.

Shift in Global Market Outlook

The global oil market has dramatically shifted from an expected 2-3 million barrels per day oversupply to a meaningful deficit due to the Middle East conflict, which has resulted in approximately 10 million barrels per day of shut-in production. This requires drawdowns of strategic reserves and indicates a market that will remain undersupplied for an extended period, necessitating a significant increase in investment.

An estimated 10,000 wells are offline in the region, with potential for 0.5-2.5 million barrels per day of permanent capacity loss, driving demand for intervention, workovers, and incremental drilling.

Accelerated Investment Urgency

The combination of supply disruption, tighter market conditions, and a renewed focus on energy security is increasing the urgency for investment across the industry. After years of underinvestment, the industry lacks excess capacity. NOV is seeing early indications of this in customer conversations, with North American operators accelerating DUC completions and backing away from rig releases.

International land markets, including Argentina and Venezuela, are also seeing continued growth and increased demand for equipment.

Offshore Upcycle and Capacity Expansion

NOV anticipates a sustained offshore upcycle, supported by improved project economics and standardization, making deepwater developments increasingly competitive. The company approved a $200 million expansion of its subsea flexible pipe manufacturing facility in Brazil to address an anticipated industry capacity shortfall.

Offshore drillship contracts are expected to reach their highest level since 2015 by 2027, driving reactivations, upgrades, and increased spare part sales. The outlook for increased deepwater investment and project activity is becoming more compelling.

Cost Reduction Initiatives and Margin Focus

NOV has implemented significant cost reduction initiatives, including an 8% reduction in global headcount and the exit of over 40 facilities since Q1 2025. The company also established a global service center in India and increased IT system investments to improve efficiency.

While these efforts have been largely offset by tariff costs and inflationary pressures (e.g., tungsten carbide up 400%), management expects cost reductions to more than offset these headwinds starting in the second half of 2026, excluding Middle East impacts.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.