But as I said in our prepared remarks, inventory, we believe, peaked in August and has started trending down, and that will help support healthy free cash flow going forward. And so look, if you look at our current working capital metrics, and we’ll start with the one simple high-level one, which is working capital as a percentage of revenue run rate. finished the quarter at about 33%. If you just sort of look back to where we’ve been historically in the not too distant past, we were down to 25%. But let’s not get overly ambitious. We’ll call it, if we get back to 27.5%, that immediately frees up $480 million in cash. So last quarter, I think I said we should see at least a 50% conversion of EBITDA to free cash flow next year. I still think that is easily achievable.
Obviously, the free cash flow breakeven for Q4, I think, is a bit ambitious at this point. It’s not completely out of the question. Look, if you go back to 2019, we had, in the fourth quarter of 2019, we had $473 million in cash flow from operations. If you assume we did the same thing there, we fall about $50 million short on sort of that target. But realistically, I think we’ll probably have best estimate free cash flow in the fourth quarter, somewhere between $100 million and $300 million. But as we’ve seen and frankly, as some of the big three service companies have talked about in their conference calls, pinning down free cash flow in one quarter is a pretty difficult thing to do, highly dependent on the timing of customer payments and other things that come along.
But at the end of the day, we’re in it for the long term. And long term, we think we’re right on the cusp of shifting over to generating extremely healthy free cash flow going forward.
Marc Bianchi: That’s great. I appreciate it. It’s tough to call. So thanks very much for all the commentary on it.
Jose Bayardo: Thanks, Marc.
Operator: Thank you. Our next question comes from the line of Kurt Hallead with Benchmark. Your line is open. Please go ahead.
Kurt Hallead: Hey, good morning.
Clay Williams: Good morning, Kurt.
Kurt Hallead: So Clay, I’m really curious, right, as the cycle evolves and you kind of outlined the historical dynamics of what your customers tend to do, how they behave and kind of what drives your decision making and then how it has a positive impact on your businesses, right? But you guys have like a number of different product lines across a lot of different areas. And I’m just kind of curious, as this cycle evolves, what is the thing that gets your organization most excited? Like for example, in the prior cycle was like a new top drive and along those lines, right? So, what are the two or three product lines that you think are really going to be difference makers.
Clay Williams: It’s a great question. I think edge computing condition-based monitoring, control systems, the whole digital space. We’ve come out with so many new products there, and we’re seeing really good traction and specific application of those digital products with our wired drill pipe hardware, Kurt, coupled with managed pressure drilling, I really think we’re pioneering a whole new way of drilling that 10 years from now, 20 years from now, let’s say, you’re going to see on most rigs. And the customers a great stable customer base in the North Sea, putting us to work with really good results, seven or eight customers there. We’ve got four customers in the Middle East running — getting ready to run trial programs, super excited about that.
Our products that reduce emissions, including cuttings waste management technologies, a lot of interest in the Eastern Hemisphere as operators tighten their cuttings disposal requirements and reduce the oil on cuttings that they’re willing to tolerate. And so that requires a lot of NOV technology. We’ve got new automation products that are couple of dozen customers are looking at. And the first version of that is running for an offshore driller in Brazil. The first land version of that is going to be operating very soon as well. Just across the board, we put a lot of really creative thought and ingenuity and innovation into our product portfolio really kind of outside the whole capital build — and that’s what’s been driving the topline growth for the past two and a half years, and I’m super excited about all that.
Also excited about the old — the good old rig iron that we make and the new versions of that like e-frac and so that — but across the board, the level of creativity and innovation in this organization just amazes me every day. And we’ve got real solutions for our customers to make their operations more efficient, safer and lower emissions. And I think that’s what’s going to drive NOV’s fortunes. While the capital equipment dynamic remains, as I’ve mentioned in my remarks, more optionality at this point. But on the whole, we’re looking forward to the next few years.
Kurt Hallead: That’s great. So, one other thing — all right. So, I guess one thing I’m very curious about and you kind of referenced this concept about offshore drillers potentially being willing to activate rigs without contracts. Is that your sense of how history may repeat, or are you getting indications from your discussion that’s actually going to happen?
Clay Williams: No, I would say, not yet. We’re not seeing that just yet. But our point was longer term contracts and as the market moves towards — E&Ps are starting to realize, hey, rigs are in short supply here, I better sign-up contracts that run a little bit longer than I previously could, which is in contrast to — there’s a bunch of rigs out there that’s oversupplied. I’m just going to go well-to-well, which was — has dominated the prior decade. We think could change their thinking. But right now, everybody is very capital disciplined and understandably so, coming out of the last 10 years and all the financial challenges we’ve all been through. But again, if history is a guide over time, and shortages of equipment and high margins that are earned by the people that own that equipment can change that thinking.
Jose Bayardo: And Kurt, I’d add that we’re not seeing that take place. there are conversations where customers are getting a little bit further ahead in terms of planning and preparing and starting to do small things around the edges to get ready to go sooner rather than later.
Kurt Hallead: Got you. Look, if I may squeeze one more in because you’ve referenced it earlier about how do you gauge success on restructuring and so on, right? So maybe we can talk about it in this context. What type of incremental margin would you then equate to success? In the past, you’ve given some updates on incremental margins for your different business segments on a through-cycle basis. So maybe we can throw that out there, and say what are the incremental margins that you would want to see achieved in these new segments to say, hey, we’re successful.
Jose Bayardo: Yeah. So Kurt, good question, tough question. But really, outside of what we’ve really accomplished with Wellbore Technologies here to date in the cycle. We, obviously, haven’t been extremely satisfied with the incremental margins that we’ve delivered. So part of this restructuring, part of the cost-out program, part of the doubling down our efforts to make sure that we’re extremely disciplined in knowing what type of opportunities that we’re going to have to drive price higher revolves around trying to drive those incremental margins higher. And so I think the same through the cycle, incremental margins apply, same things that we’ve always talked about, as we’ve also always talked about different points in the cycle, they can be above other parts of the cycle, they can be below.
