Arun Jayaram: Great. Thanks for the clarification. Appreciate it.
Clay Williams: You bet.
Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Stephen Gengaro with Stifel. Your line is open. Please go ahead.
Stephen Gengaro: Thanks and good morning everybody.
Clay Williams: Hey, Stephen.
Stephen Gengaro: Two for me. I think I’d start, Clay, you mentioned in your prepared remarks, you kind of alluded to new build being a long way off. And I was just curious kind of what your take is on the potential for new build deepwater rigs over time? And maybe as part of that, any sense for kind of what’s in sort of the idle bucket that still any idea for the number of rigs which could realistically come back to the market before we see something like that?
Clay Williams: With respect to reactivating rigs, I’m going to stay focused on offshore, Stephen, I think that’s the context of your question. We’re kind of getting to the bottom of the barrel, frankly, on rig reactivations, new construction projects that were suspended through the past decade that have been restarted and so those opportunities are becoming less and less. And with respect to those individual opportunities, as Jose pointed out, kind of rig by rig, it’s taking a lot more money and capital to get those rigs back into the fleet and serviceable because they’ve been stacked longer. And so the revenue opportunity per rig has been going up for NOV as we start reactivating more rigs. Moving to new builds, it’s getting to be an interesting time.
I do think we’re ways off from compelling new build economics, and that would require day rates to take another leg up and probably a substantial leg up from where they are today. And I would add, there’s additional headwinds in addition to returns, which are, one, Asian shipyards kind of got burned out of the last super cycle and ended up with projects that weren’t completed and customers that went bankrupt. Two, so they’re going to be a little more hesitant to take these demand higher margins. Two, they’re pretty busy with the rising book of business for FPSOs, LNG vessels, wind turbine installation vessels and other things. I think banks are probably a little hesitant to lend into this. But I guess what I would underscore is that’s not necessarily unique for prior up cycles where the industry faced expensive capital and difficulties with capital.
And eventually, what happens is as these assets are fully utilized and very expensive, it’s the oil companies that really need assets to prosecute their development aspirations. And they are the ones that jump into the scene and start prompting either start-ups or incumbents to start thinking about adding capacity, and I would love to tell you when that will happen, but going to beg off. I don’t know when. It’s not next quarter, it’s not next year. But I think if history is a guide, it’s sort of — it’s not if but when. And so that’s just the way the cycles kind of play out here in our space.
Stephen Gengaro: Great. Thanks for the color. And then my follow-up, I know you want to look too far ahead of the fourth quarter. But when we think in next year, we think of maybe a modest rebound in U.S. land and kind of what seems to be this consensus from at least the large service companies around double-digit international growth. In that context, how do you think your revenue performance? You mentioned the outperformance on the top line relative to them over the last couple of years. Just curious your take on that.
Clay Williams: We feel pretty good. Again, quarter-by-quarter, we’re getting more E&P companies interested in the technologies that we can bring. And as we all know, they’re at the top of the food chain here in the oilfield and certainly getting busier in offshore and in international markets. And I think as an organization, we’ve gotten a lot closer to national oil companies to IOCs and they’re liking what they’re seeing. So I think next year we’ll be good. We’re actually in the middle of our annual planning process now and some — to not wrap numbers around that, but I think the outlook for 2024 top line growth continues to be very strong.
Stephen Gengaro: Great. Thank you.
Operator: Thank you. And one moment of our next question. And our next question is going to come from the line of Marc Bianchi with TD Cowen. Your line is open. Please go ahead.
Marc Bianchi: Hey, thank you. I’m curious about the new segmentation and how you expect that to drive better results. How are you going to define success there? And are there any targets that you’d be willing to share with us?
Clay Williams: Yes, it’s a good question, Marc. First, for us, success is always financial, right? We’re a public company and very focused on returns on capital, margin efficiency and the like. The reason for the move is the role of our segments here at NOV have always been to coordinate the cooperation between our business units, our product lines, to enable them to use shared services within our organization and lots of examples of that. But for instance, Wellbore Technologies that segment was able to coalesce a lot of manufacturing activities across multiple business units several years ago to drive efficiencies. And when you go from three segments to two segments, we’re kind of rearranging some business units within that, and I think it’s going to give us opportunities for even greater operation across product lines and business units and avail ourselves of more benefits from shared services and the like.
So we’re believe that’s going to contribute to more efficient operations in the future. It’s part of our $75 million cost reduction annual cost reduction program that we talked about last quarter and I think ultimately, this is going to make us better. But the right measurement is going to be financial.
Marc Bianchi: Okay. Jose, you had talked about healthy free cash flow in the fourth quarter and very strong in 2024. Can you put some — maybe put some brackets around that or help us understand what – what that translates to in dollars, maybe on a conversion of EBITDA, or however you want to talk about it?
Jose Bayardo: Sure, Marc. So yes, we were intentionally vague on that this time around because obviously, we’ve been struggling a little bit from a free cash flow perspective this year for both good and bad reasons. When I say good reasons is that, one, the business has had better top line growth than we anticipated coming into the year. Particularly from international and offshore markets, which have longer cycle times and our — the downside of it is consuming more cash tied up in AR and inventory. The other piece that’s both good news and bad news relates to our challenges with inventory. The good news is that the supply chain has continued to get better and better. Vendors are accelerating deliveries to us. Bad news is obviously the impact that it has on our inventory growth and the cash consumed by that.
