Financial Data and Key Metrics Changes - For the second quarter of 2025, the company reported revenues of $2.2 billion, a 4% increase sequentially but a 1% decrease year-over-year [5][14] - Adjusted EBITDA was $252 million, representing 11.5% of sales, with margins pressured by a less favorable sales mix and inflationary cost headwinds [6][14] - Free cash flow generated during the quarter was $108 million, converting 83% of EBITDA to free cash flow over the last twelve months [15] Business Line Data and Key Metrics Changes - The Energy Products and Services segment generated revenue of $1.03 billion, a 2% decrease compared to 2024, with adjusted EBITDA declining to $146 million or 14.2% of sales [17][18] - The Energy Equipment segment's revenue was $1.21 billion, nearly unchanged from 2024, but EBITDA increased by $16 million to $158 million, resulting in a 130 basis point increase in EBITDA margins to 13.1% [22][24] - Capital equipment sales accounted for approximately 62% of the Energy Equipment segment's revenue mix, up nearly eight percentage points year-over-year [24] Market Data and Key Metrics Changes - Global drilling activity declined by 6% sequentially, with North American oil-directed rig counts down approximately 9% since March [8][9] - The company expects North American shale activity to drift modestly lower through year-end, while Saudi conventional drilling may not reaccelerate before 2026 [11] - The offshore drilling contractor customers expect utilization challenges to ease in 2026, with a forecast for year-over-year consolidated revenue to decline between 1% to 3% in Q3 [12][11] Company Strategy and Development Direction - The company is focused on three long-term trends: offshore production supplanting U.S. unconventional resources, accelerating demand for natural gas, and applying modern technologies for operational efficiencies [32] - Cost reduction initiatives are expected to remove over $100 million in annual costs by 2026, despite headwinds from tariffs and inflation [17][45] - The company is consolidating operations and exiting unprofitable product lines to improve margins and return on capital [48][49] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic uncertainty and geopolitical factors have made customers more cautious, impacting short-cycle activity [9][10] - Despite near-term challenges, management remains optimistic about the future, particularly regarding offshore activity and the demand for LNG and unconventional gas [12][32] - The company anticipates a meaningful recovery beginning in 2026, driven by increased offshore activity and demand for spare parts and upgrades [36][41] Other Important Information - The company repurchased 10.9 million shares for $150 million and paid a quarterly base dividend of $0.75 per share, totaling $135 million in dividends year-to-date [15] - Tariff expenses for the second quarter were approximately $11 million, with expectations for increases in the following quarters due to changing trade policies [16][44] Q&A Session Summary Question: Margin outlook and potential recovery - Management acknowledged frustration with margin declines but expressed optimism about cost reduction plans and a recovery in 2026 as offshore activity increases [52][54] Question: Indicators for market recovery - Management indicated that increased contracts and activity in offshore drilling would signal a market recovery, with expectations for improved demand in 2026 [66][68] Question: Working capital and CapEx outlook - Management projected working capital as a percentage of revenue to be in the range of 27% to 29%, with CapEx expected to remain consistent with the previous year [70] Question: Market preparation and cost reduction initiatives - Management is preparing for a larger market and continuing cost reduction efforts, emphasizing the importance of efficiency and strategic sourcing [75][80]