NOV Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction NOV Inc. (“NOV” or the “Company”) is a leading independent equipment and technology provider to the global energy industry. Originally founded in 1862, NOV and its predecessor companies have spent 162 years helping transform oil and gas field development and improving its cost-effectiveness, efficiency, safety, and environmental impact. Over the past few decades, the Company has pioneered and refined key technologies to improve the economic viability of frontier resources, including unconventional and deepwater oil and gas. More recently, by applying its deep expertise and technology, the company has helped advance the transition toward sustainable energy. NOV’s extensive proprietary technology portfolio supports the industry’s full-field drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on automation, predictive analytics, and condition-based maintenance. NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 61 countries. Effective January 1, 2024, NOV consolidated its reporting structure into two segments: Energy Products and Services, and Energy Equipment. Segment disclosures pertaining to prior periods have been restated to reflect the change in reportable segments. Results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted EBITDA (defined as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP. Energy Products and Services The Company’s Energy Products and Services segment provides a variety of technologies used primarily to perform drilling and well completion operations and offers services that optimize their performance. Energy Products and Services designs, manufactures, rents, and sells equipment and products for drilling, intervention, completion, and production activities, including: drill bits, downhole tools, premium drill pipe, drilling fluids, managed pressure drilling, integral and weld-on connectors for conductor strings and surface casing, completion tools, and artificial lift systems. The segment delivers services, software, and digital solutions to improve drilling and completion operational performance. Services include tubular inspection and coating services, solids control and waste management equipment and services, and managed pressure drilling solutions. Software and digital services and solutions offer drilling and completion optimization and remote monitoring capabilities via downhole and surface instrumentation, wired drill pipe services, software controls and applications, and data management and analytics services at the edge and in the cloud. The segment also designs, manufactures, and delivers high-end composite pipe, tanks, and structures engineered to solve both corrosion and weight challenges in a wide variety of applications, including oil and gas, chemical, industrial, wastewater, fuel handling, marine and offshore, and rare earth mineral extraction . Energy Products and Services serves oil and gas companies drilling contractors, oilfield service companies, oilfield equipment rental companies and developers of geothermal energy. Demand for the segment’s products and services primarily depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies. Demand for the segment’s composite solutions serving applications outside of oil and gas are driven by industrial activity, infrastructure spend, and population growth. Energy Equipment The Company’s Energy Equipment segment manufactures and supports the capital equipment and integrated systems needed for oil and gas exploration and production, both onshore and offshore, as well as for other marine-based, industrial and renewable energy markets. The segment designs, manufactures, and integrates technologies for drilling and producing oil and gas wells. This includes equipment and technologies needed for drilling, including land rigs, offshore drilling equipment packages, drilling rig components, and software control systems that mechanize and automate the drilling process and rig functionality; hydraulic fracture stimulation, including pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; cementing products for pumping, mixing, transport, and storage; onshore production, including fluid processing, and surface transfer as well as progressive cavity pumps; offshore production, including integrated production systems and subsea production technologies; and aftermarket support of these technologies, providing spare parts, service, and repair. 20 Energy Equipment primarily serves contract drillers, oilfield service companies, and oil and gas companies. Demand for the segment’s products primarily depends on capital spending plans by drilling contractors, service companies, and oil and gas companies; and secondarily on the overall level of oilfield drilling, completions, and workover activity which drives demand for equipment, spare parts, service, and repair for the segment’s large installed base of equipment. The segment also serves marine and offshore markets, where it designs and builds equipment for wind turbine installation and cable lay vessels, and offers heavy lift cranes and jacking systems; industrial markets, where the segment provides pumps and mixers for a wide breadth of industrial end markets; and other energy transition markets, where it is applying its gas processing expertise to provide solutions that aid in wind power development, hydrogen production and carbon sequestration. Critical Accounting Policies and Estimates In our annual report on Form 10-K for the year ended December 31, 2023, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition under long-term construction contracts, impairment of goodwill and other indefinite-lived intangible assets, and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material. EXECUTIVE SUMMARY For the second quarter ended June 30, 2024, the Company generated revenues of $2.22 billion, an increase of 6 percent compared to the second quarter of 2023. Net income was $226 million, or 10.2 percent of sales, an increase of $71 million compared to the second quarter of 2023. Operating profit increased $132 million from the prior year to $313 million, or 14.1 percent of sales. The company recorded a net credit of $118 million within Other Items, primarily related to gains from the divestiture of its Pole Products business. Adjusted EBITDA (operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) increased 15 percent year-over-year to $281 million, or 12.7 percent of sales. Segment Performance Energy Products and Services Energy Products and Services generated revenues of $1,050 million in the second quarter of 2024, an increase of 2 percent from the second quarter of 2023. Operating profit decreased $28 million from the prior year to $128 million, or 12.2 percent of sales, and included $1 million in Other Items. Adjusted EBITDA decreased $14 million from the prior year to $184 million, or 17.5 percent of sales. Revenue improved from strong demand in international and offshore markets, which more than offset declining North American activity. A less favorable sales mix led to the lower level of profitability compared to the prior year. Energy Equipment Energy Equipment generated revenues of $1,204 million in the second quarter of 2024, an increase of 8 percent from the second quarter of 2023. Operating profit increased $151 million from the prior year to $232 million, or 19.3 percent of sales, and included a $119 million net credit of Other Items. Adjusted EBITDA increased $43 million from the prior year to $142 million, or 11.8 percent of sales. Higher revenue and profitability, excluding the gain from the divestiture of its Pole Products business, were the result of improved demand for aftermarket products and services, strong execution on the segment's improving capital equipment backlog, and cost savings initiatives. New orders booked during the quarter totaled $977 million, an increase of $466 million when compared to the $511 million of new orders booked during the second quarter of 2023. Orders shipped from backlog in the second quarter of 2024 was $553 million, representing a book-to-bill of 177 percent, compared to the $505 million orders shipped and a book-to-bill of 101 percent in the second quarter of 2023. As of June 30, 2024, backlog for capital equipment orders for Energy Equipment was $4,331 million, an increase of $472 million from the second quarter of 2023. 21 Oil & Gas Equipment and Services Market and Outlook Despite the recent declines in U.S. drilling activity resulting from lower natural gas prices and consolidation among North American oil and gas producers, management believes the industry remains in the early stages of an extended recovery. Macro environment and geopolitical uncertainties drive volatility and pressure commodity prices near-term; however, management believes diminished global oil and gas production capacity and rising energy security risks will continue to spur increased oilfield activity and demand for the Company’s equipment and technology. NOV remains committed to improving organizational efficiencies while focusing on the development and commercialization of innovative products and services, including technologies to reduce the environmental impact of oil and gas operations and technologies to accelerate the energy transition that are responsive to the longer-term needs of NOV’s customers. We believe this strategy will further advance the Company’s competitive position in all market conditions. Operating Environment Overview The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by exploration and production companies and drilling contractors, worldwide oil and gas inventory levels and, to a lesser degree, the level of investment in wind and geothermal energy products. Key industry indicators for the second quarter of 2024 and 2023, and the first quarter of 2024 include the following: % increase (decrease) 2Q24 v 2Q24 v 2Q24* 2Q23* 1Q24* 2Q23 1Q24 Active Drilling Rigs: U.S. 602 722 623 (16.6 %) (3.4 %) Canada 137 115 209 19.1 % (34.4 %) International 956 960 965 (0.4 %) (0.9 %) Worldwide 1,695 1,797 1,797 (5.7 %) (5.7 %) West Texas Intermediate Crude Prices (per barrel) $ 81.71 $ 73.76 $ 77.56 10.8 % 5.4 % Natural Gas Prices ($/mmbtu) $ 2.08 $ 2.16 $ 2.13 (3.7 %) (2.3 %) * Averages for the quarters indicated. See sources below. The Company is also becoming increasingly engaged with energy transition related opportunities and is currently involved in projects related to wind energy, geothermal power, rare earth metal extraction, biogas production, and carbon sequestration. Additionally, the Company is investing in developing technologies and solutions that will support other energy transition related industry verticals. Management expects to see continued growth in these areas as low carbon power becomes a larger portion of the global energy supply. 22 The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Crude Oil prices for the past nine quarters ended June 30, 2024, on a quarterly basis: Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Oil and Natural Gas Prices: US Department of Energy, Energy Information Administration (www.eia.doe.gov). The worldwide quarterly average rig count decreased 6 percent (from 1,797 to 1,695) in the second quarter of 2024 compared to the first quarter of 2024, mainly attributable to Canada. The average per barrel price of West Texas Intermediate Crude Oil increased 5 percent (from $77.56 per barrel to $81.71 per barrel) and natural gas prices decreased 2 percent (from $2.13 per mmbtu to $2.08 per mmbtu) in the second quarter of 2024 compared to the first quarter of 2024. At July 12, 2024, there were 773 rigs actively drilling in North America, comprised of U.S. and Canada, which increased 5 percent from the second quarter average of 739 rigs. The price for West Texas Intermediate Crude Oil was $82.21 per barrel at July 12, 2024, an increase of 1 percent from the second quarter of 2024 average. The price for natural gas was $2.33 per mmbtu at July 12, 2024, an increase of 12 percent from the second quarter of 2024 average. 23 Results of Operations Financial results by operating segment are as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, 2024 2023 2024 2023 Revenue: Energy Products and Services $ 1,050 $ 1,029 $ 2,067 $ 1,970 Energy Equipment 1,204 1,117 2,382 2,169 Eliminations (38 ) (53 ) (78 ) (84 ) Total revenue $ 2,216 $ 2,093 $ 4,371 $ 4,055 Operating profit: Energy Products and Services $ 128 $ 156 $ 249 $ 268 Energy Equipment 232 81 327 152 Eliminations and corporate costs (47 ) (56 ) (101 ) (113 ) Total operating profit $ 313 $ 181 $ 475 $ 307 Energy Products and Services t hree and six months ended June 30, 2024 and 2023. Revenue from Energy Products and Services was $1,050 million for the three months ended June 30, 2024, compared to $1,029 million for the three months ended June 30, 2023, an increase of $21 million or 2 percent. For the six months ended June 30, 2024, revenue from Energy Products and Services was $2,067 million compared to $1,970 million for the six months ended June 30, 2023, an increase of $97 million or 5 percent. Revenue improved primarily due to strong demand in international markets, which helped drive international revenue growth of 5 percent in the second quarter of 2024 and 6 percent year-to-date when compared to the prior year. Despite a decrease in drilling activity, North America revenue grew 3 percent in the second quarter of 2024 and 5 percent year-to-date due to market share gains as well as contributions from our new artificial lift business that was acquired in the first quarter of 2024. Operating profit from Energy Products and Services was $128 million for the three months ended June 30, 2024, compared to an operating profit of $156 million for the three months ended June 30, 2023, a decrease of $28 million. For the six months ended June 30, 2024, operating profit from Energy Products and Services was $249 million compared to operating profit of $268 million for the six months ending June 30, 2023, a decrease of $19 million. The decrease in profitability was due to a less favorable sales mix, including a 23 percent decline in sales of drill pipe in the second quarter of 2024 and an 8 percent decline year-to-date when compared to the prior year. Energy Equipment t hree and six months ended June 30, 2024 and 2023. Revenue from Energy Equipment was $1,204 million for the three months ended June 30, 2024, compared to $1,117 million for the three months ended June 30, 2023, an increase of $87 million or 8 percent. For the six months ending June 30, 2024, revenue from Energy Equipment was $2,382 million compared to $2,169 million for the six months ending June 30, 2023, an increase of $213 million or 10 percent. The increase in revenue is attributable to an increase in sales in both the international land and offshore markets. Revenue improved from international sales by 14 percent in the second quarter of 2024 and 17 percent year-to-date when compared to the prior year and offshore sales increased by 10 percent in the second quarter of 2024 and by 21 percent year-to-date when compared to the prior year. The increase in sales to these markets is a result of strong demand for aftermarket products and services and execution on the segment’s improving capital equipment backlog. The increases in the international land and offshore markets more than offset a decline in sales into the North American land market and the effect of divesting the segment’s Pole Products business during the second quarter of 2024. Our North American sales decreased 8 percent in the second quarter of 2024 and 6 percent year-to-date when compared to the prior year primarily related to declines in North America activity in our completions products. The divestiture of the segment’s Pole Products business during the quarter reduced revenues by 2 percent and 1 percent for the three months and six months ended June 30, 2024. Operating profit from Energy Equipment was $232 million for the three months ended June 30, 2024, compared to an operating profit of $81 million for the three months ended June 30, 2023, an increase of $151 million. For the six months ended June 30, 2024, operating profit from Energy Equipment was $327 million compared to operating profit of $152 million for the six months ending June 30, 2023, an increase of $175 million. Higher profitability for the three and six months ended June 30, 2024 was the result of a $131 million gain from the divestiture of the segment's Pole Products business and higher margin sales primarily driven by improved demand for aftermarket products and services. Strong execution on the segment's improving capital equipment backlog also contributed to the increase in profitability. 24 The Energy Equipment segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a contract related to a construction project. The capital equipment backlog was $4,331 million at June 30, 2024, an increase of $472 million from backlog of $3,859 million at June 30, 2023. Although numerous factors can affect the timing of revenue out of backlog (including, but not limited to, customer change orders and supplier accelerations or delays), the Company reasonably expects approximately 25 percent of backlog to become revenue during the rest of 2024 and the remainder thereafter. At June 30, 2024, approximately 45 percent of the capital equipment backlog was for offshore products and approximately 92 percent of the capital equipment backlog was destined for international markets. Eliminations and corporate costs Eliminations and corporate costs were $47 million and $101 million for the three and six months ended June 30, 2024, compared to $56 million and $113 million for the three and six months ended June 30, 2023. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the company. Eliminations include intercompany transactions conducted between the two reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment. Eliminations declined 19 percent when compared to the second quarter of 2023 due to lower intrasegment activity but remained relatively flat for year-to-date intrasegment activity when compared to 2023. Corporate costs declined 5 percent from the second quarter of 2023 and 12 percent year-to-date due to our cost savings initiatives and workforce reductions. Interest and financial costs and Interest Income Interest and financial costs were $22 million and $46 million for the three and six months ended June 30, 2024, compared to $21 million and $42 million for the three and six months ended June 30, 2023. The increase in interest and financial costs were primarily due to debt borrowings on the revolving credit facility in the first quarter of 2024. Interest income remained flat year-over-year at $8 million and $16 million for the three and six months ended June 30, 2024, and June 30, 2023. Equity income in unconsolidated affiliates Equity income in unconsolidated affiliates was $8 million and $37 million for the three and six months ended June 30, 2024, compared to $37 million and $85 million for the three and six months ended June 30, 2023. A decline in sales of almost 30 percent from the second quarter of 2023 and 17 percent year-to-date, with a relatively flat cost structure, led to lower profitability year-over-year for our largest investment in unconsolidated affiliates. Other expense, net Other expense, net was $14 million and $24 million for the three and six months ended June 30, 2024, compared to $29 million and $45 million for the three and six months ended June 30, 2023, respectively. The change in expense was primarily due to larger foreign currency fluctuations in the prior year, particularly with the currency devaluation in Argentina. Provision for income taxes The effective tax rate for the three and six months ended June 30, 2024 was 23.9% and 24.9%, compared to 10.8% and 12.1% for the same period in 2023. The effective tax rate for 2024 was negatively impacted by a mix of earnings in higher tax rate jurisdictions, losses in certain jurisdictions with no tax benefit, and adjustments to the carrying value of deferred tax assets, partially offset by the reduction of valuation allowances related to U.S. and state deferred tax assets. The effective tax rate for 2023 was positively impacted by the utilization of previously unrealized loss carryforwards and tax credits as well as favorable adjustments related to changes in certain exchange rates, partially offset by current year losses in certain jurisdictions with no tax benefit. 25 Non-GAAP Financial Measures and Reconciliations This Form 10-Q contains certain non-GAAP financial measures that management believes are useful tools for internal use and the investment community in evaluating NOV’s overall financial performance. These non-GAAP financial measures are broadly used to value and compare companies in the oilfield services and equipment industry. Not all companies define these measures in the same way. In addition, these non-GAAP financial measures are not a substitute for financial measures prepared in accordance with GAAP and should therefore be considered only as supplemental to such GAAP financial measures. The Company defines Adjusted EBITDA as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items. Adjusted EBITDA % is a ratio showing Adjusted EBITDA as a percentage of sales. Management believes this is important information to provide because it is used by management to evaluate the Company’s operational performance and trends between periods and manage the business. Management also believes this information may be useful to investors and analysts to gain a better understanding of the Company’s results of ongoing operations. Adjusted EBITDA and Adjusted EBITDA % are not intended to replace GAAP financial measures, such as Net Income and Operating Profit %. Additionally, Excess Free Cash Flow does not represent the Company's residual cash flow available for discretionary expenditures, as the calculation of these measures does not account for certain debt service requirements or other non-discretionary expenditures. 26 The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions): Three Months Ended Six Months Ended June 30, March 31, June 30, 2024 2023 2024 2024 2023 Operating profit: Energy Products and Services $ 128 $ 156 $ 121 $ 249 $ 268 Energy Equipment 232 81 95 327 152 Eliminations and corporate costs (47 ) (56 ) (54 ) (101 ) (113 ) Total operating profit $ 313 $ 181 $ 162 $ 475 $ 307 Operating profit %: Energy Products and Services 12.2 % 15.2 % 11.9 % 12.0 % 13.6 % Energy Equipment 19.3 % 7.3 % 8.1 % 13.7 % 7.0 % Eliminations and corporate costs — — — — — Total operating profit % 14.1 % 8.6 % 7.5 % 10.9 % 7.6 % Other items, net: Energy Products and Services $ 1 $ (1 ) $ — $ 1 $ (1 ) Energy Equipment (119 ) (7 ) (4 ) (123 ) (11 ) Corporate — 1 1 1 1 Total other items $ (118 ) $ (7 ) $ (3 ) $ (121 ) $ (11 ) (Gain)/loss on sales of fixed assets: Energy Products and Services $ — $ — $ (1 ) $ (1 ) $ (3 ) Energy Equipment — (1 ) — — (3 ) Corporate — 1 — — 2 Total (gain)/loss on sales of fixed assets $ — $ — $ (1 ) $ (1 ) $ (4 ) Depreciation & amortization: Energy Products and Services $ 55 $ 43 $ 54 $ 109 $ 88 Energy Equipment 29 26 28 57 55 Corporate 2 2 1 3 5 Total depreciation & amortization $ 86 $ 71 $ 83 $ 169 $ 148 Adjusted EBITDA: Energy Products and Services $ 184 $ 198 $ 174 $ 358 $ 352 Energy Equipment 142 99 119 261 193 Eliminations and corporate costs (45 ) (52 ) (52 ) (97 ) (105 ) Total Adjusted EBITDA $ 281 $ 245 $ 241 $ 522 $ 440 Adjusted EBITDA %: Energy Products and Services 17.5 % 19.2 % 17.1 % 17.3 % 17.9 % Energy Equipment 11.8 % 8.9 % 10.1 % 11.0 % 8.9 % Corporate — — — — — Total Adjusted EBITDA % 12.7 % 11.7 % 11.2 % 11.9 % 10.9 % Reconciliation of Adjusted EBITDA: GAAP net income attributable to Company $ 226 $ 155 $ 119 $ 345 $ 281 Noncontrolling interests (3 ) 2 2 (1 ) 1 Provision for income taxes 70 19 44 114 39 Interest expense 22 21 24 46 42 Interest income (8 ) (8 ) (8 ) (16 ) (16 ) Equity income in unconsolidated affiliates (8 ) (37 ) (29 ) (37 ) (85 ) Other expense, net 14 29 10 24 45 (Gain)/loss on sales of fixed assets — — (1 ) (1 ) (4 ) Depreciation and amortization 86 71 83 169 148 Other items, net (118 ) (7 ) (3 ) (121 ) (11 ) Total Adjusted EBITDA $ 281 $ 245 $ 241 $ 522 $ 440 27 Liquidity and Capital Resources Overview At June 30, 2024, the Company had cash and cash equivalents of $827 million and total debt of $1,748 million. At December 31, 2023, cash and cash equivalents were $816 million and total debt was $1,725 million. As of June 30, 2024, approximately $533 million of the $827 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash could be subject to foreign withholding taxes and incremental U.S. taxation if transferred among countries or repatriated to the U.S. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, the Company may choose to borrow against its revolving credit facility. The Company has a revolving credit facility with a borrowing capacity of $2.0 billion through October 30, 2024, and a borrowing capacity of $1.8 billion from October 31, 2024, to October 30, 2025. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon SOFR, NIBOR or CDOR plus 1.25% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of June 30, 2024, the Company was in compliance with a debt-to-capitalization ratio of 23.6% and had no borrowings or letters of credits issued under the facility, resulting in $2.0 billion of available funds. Additionally, a consolidated joint venture of the Company borrowed $120 million against a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon SOFR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of June 30, 2024, the joint venture was in compliance. The facility construction was completed in the fourth quarter of 2022, and the joint venture will not have future borrowings on the line of credit. The line of credit repayment schedule began in December 2022 with final payment no later than June 2032. As of June 30, 2024, the Company had $99 million in borrowings related to this line of credit. The Company has $11 million in payments related to this line of credit due in the next twelve months. The Company’s outstanding debt at June 30, 2024 consisted of $1,091 million in 3.95% Senior Notes, $496 million in 3.60% Senior Notes, and other debt of $161 million. The Company was in compliance with all covenants at June 30, 2024. Long-term lease liabilities totaled $553 million at June 30, 2024. The Company had $457 million of outstanding letters of credit at June 30, 2024, primarily in Norway and the United States, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds. The following table summarizes our net cash provided by (used in) continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions): Six Months Ended June 30, 2024 2023 Net cash provided by (used in) operating activities $ 354 $ (274 ) Net cash used in investing activities (226 ) (128 ) Net cash used in financing activities (113 ) (73 ) Significant uses of cash during the first six months of 2024 • Cash flows provided by operating activities were $354 million, primarily driven by changes in the primary components of our working capital (receivables, inventories, accounts payable, and accrued liabilities). • Capital expenditures were $151 million. • Business acquisitions, net of cash, were $252 million. • Payments of $50 million in dividends to our shareholders. • Share repurchases were $37 million. Other The effect of the change in exchange rates on cash flows was a decrease of $4 million for the first six months of 2024, and a decrease of $2 million for the first six months of 2023. We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations. 28 NOV repurchased 2.0 million shares of common stock at an average price of $18.50 per share and also increased its base dividend by 50 percent during the second quarter. The Company expects to return at least 50% of Excess Free Cash Flow (defined as cash flow from operations less capital expenditures and other investments, including acquisitions), through a combination of steady, quarterly base dividends, opportunistic stock buybacks, and an annual supplemental dividend to true-up returns to shareholders on an annual basis. We may pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “believe,” “plan,” “will,” “expect,” “anticipate,” “estimate,” “should,” “forecast,” and similar words, although some forward-looking statements are expressed differently. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products and worldwide economic activity, including matters related to recent Russian sanctions. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Annual Report on Form 10-K for the year-end December 31, 2023, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements, and additional disclosures we make in our press releases and Forms 10-Q, and 8-K. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts. 29