NOV 2026년 3분기 실적 발표 컨퍼런스 콜: EBITDA 2억 8,100만 달러 달성

핵심 요약

• NOV Inc.는 2026년 3분기 매출이 전분기 대비 4%, 전년 동기 대비 2% 증가한 22억 3,000만 달러를 기록했다고 발표했다. 조정 EBITDA는 2억 8,100만 달러로 12.6%의 이익률을 기록했다.
• 순이익은 9,000만 달러(희석주당순이익 0.25달러)를 기록했다. 조정 영업이익은 1억 8,800만 달러로 매출의 8.4%에 해당했다.
• 에너지 제품 및 서비스 부문 매출은 드릴 비트, 다운홀 툴, 유리섬유 시스템, 인공 리프트 및 디지털 솔루션에 힘입어 전분기 대비 및 전년 동기 대비 모두 9% 증가한 10억 6,000만 달러를 기록했다.
• 에너지 장비 부문은 12억 2,000만 달러의 매출과 1억 8,700만 달러의 EBITDA를 창출했다. 자본재 장비 수주는 전분기 대비 22% 증가한 5억 7,700만 달러를 기록했으나, 해당 부문의 북투빌 비율은 91%로 1.0배 미만을 유지했다.
• 중동 지역의 차질로 인해 마일스톤 청구 및 대금 회수가 지연되고 NOV가 추가 재고 완충재를 유지함에 따라 잉여현금흐름은 마이너스 4,700만 달러를 기록했다. 경영진은 4분기에 잉여현금흐름이 크게 개선되고 2027년에는 EBITDA 대비 잉여현금흐름 전환율이 약 50% 수준으로 회복될 것으로 예상하고 있다.
• 경영진은 NOV의 입증된 포트폴리오 역량이 연간 15억 달러의 EBITDA를 달성할 수 있는 기반이 된다고 밝혔으나, 이것이 정해진 일정을 가진 전망치는 아니라고 강조했다. 이러한 기회는 전반적인 시장 개선, 운영 효율성, 해양 및 글로벌 비전통 시장의 성장에 달려 있다.

핵심 재무 데이터

NOV는 지난 10개 분기 동안 6억 8,900만 달러를 투입해 발행 주식 수의 10%가 넘는 4,450만 주를 매입했다. 2분기에 지급된 3,200만 달러의 특별 배당금을 제외한 3분기 누적 연간 주주 환원액은 총 2억 4,200만 달러를 기록했다.

사업 및 운영 실적

에너지 장비

에너지 장비의 자본재 장비 수주는 전분기 대비 22% 증가한 5억 7,700만 달러를 기록하며 91%의 북투빌 비율을 나타냈다. 수요는 해양 생산 및 해양 건설 장비에 집중되었다. NOV의 공식 보고 기준 자본재 장비 수주잔고는 약 40억 달러였다.

해저 플렉시블 파이프는 매출, EBITDA, 이익률에서 7개 분기 연속 전년 동기 대비 성장을 달성했다. 경영진은 플렉시블 파이프에 대한 업계 수요가 2020년대 말까지 공급을 초과할 것으로 예상하고 있다. 해당 사업 부문은 NOV의 자체 기술인 해저 자동화 픽런처(Picklauncher)의 첫 주문도 수주했다.

생산 및 미드스트림 사업 부문은 분기 최대 매출과 최대 수주실적을 달성했다. 수요에는 아르헨티나의 파이프라인 인프라와 오만, 나이지리아, 베네수엘라의 생산 최적화 프로젝트가 포함되었다. 북미 매출은 생산용 초크 및 펌프에 힘입어 20% 이상 성장했다.

시추 자본재 장비 매출은 사우디아라비아의 시추선 제작과 시추 장비 및 자동화 수요에 힘입어 전분기 대비 및 전년 동기 대비 모두 두 자릿수 증가했다. 시추 애프터마켓 매출은 한 자릿수 초반 성장한 반면, 예비 부품 수주잔고는 2025년 3분기 대비 10%대 후반의 증가율을 기록했다.

에너지 제품 및 서비스

에너지 제품 및 서비스 부문은 관세 환급 혜택을 제외하고 전분기 대비 39%의 증분 EBITDA 이익률을 기록했다. 서비스 및 임대 매출은 전분기 대비 및 전년 동기 대비 한 자릿수 중반 비율로 증가했다.

NOV 디지털은 두 기준 모두에서 두 자릿수 성장하며 사상 최대 분기 매출을 달성했다. 또한 미국 대형 운용사로부터 30개가 넘는 시추선에 대한 디지털 서비스 계약을 수주했다.

드릴 비트 매출은 미국 육상 부문의 30% 성장을 포함해 전년 동기 대비 20% 이상 증가했다. 다운홀 툴 매출은 라틴아메리카와 중동 지역에 힘입어 전분기 대비 및 전년 동기 대비 모두 10%대 초반 비율로 증가했다.

유리섬유 시스템 매출은 전년 동기 대비 10%대 중반, 전분기 대비 10%대 초반 증가했다. 4개 분기 연속 북투빌 비율 1.0배 이상을 기록한 후 수주잔고는 전년 동기 대비 30% 증가했다. 드릴 파이프 매출은 전년 동기 대비 약 20% 성장했으며, 수주잔고는 50% 이상 증가했고 직전 12개월 북투빌 비율은 120%를 상회했다.

지역 및 해상 동향

3분기 중동 매출은 안보 관련 물류 차질과 비용 증가에도 불구하고 전분기 대비 및 전년 동기 대비 20% 이상 증가했다. 분기 말에는 시추선 가동이 중단되고 고객사들이 시추 프로그램을 조정함에 따라 활동이 둔화되었다.

바카 무에르타(Vaca Muerta) 개발 확장으로 아르헨티나 매출은 3개 분기 연속 전년 동기 대비 두 자릿수 성장을 기록했다. NOV는 또한 알제리, 호주, 이집트, 파키스탄, 베네수엘라에서 기회가 확대되고 있다고 밝혔다.

해상 시추 여건은 지속해서 개선되었다. 연초 이후 체결된 부유식 시추선 계약 일수는 전년 동기 대비 2배 이상 늘어났으며, 고사양 시추선의 최첨단 일일 대여료(Day rate)는 하루 50만 달러에 육박했다. NOV의 해상 예비 부품 수주잔고는 5개 분기 연속 증가했다.

경영진은 2026년 FPSO 프로젝트 승인 가속화와 견조한 2027년 파이프라인이 2027년과 2028년 동안의 장비 조달을 뒷받침할 것으로 예상하고 있다. 다만 해상 수주는 여전히 불규칙적이며, 주문은 일반적으로 최종 투자 결정 후 수 분기 지나서 발생한다.

경영진 가이던스

• 에너지 장비 2026년 4분기: 매출은 2025년 4분기 대비 4%~6% 감소할 것으로 예상된다. EBITDA는 1억 7,500만 달러에서 2억 500만 달러로 전망된다.
• 에너지 제품 및 서비스 2026년 4분기: 매출은 전년 동기 대비 6%~8% 증가할 것으로 예상된다. EBITDA는 1억 4,000만 달러에서 1억 6,000만 달러로 전망된다.
• 연간 자본 지출: 3억 4,000만 달러에서 3억 6,000만 달러 사이가 될 것으로 예상된다.
• 실효 세율: 연간 약 30%로 전망된다.
• 하반기 실적: 경영진은 2026년 상반기 대비 매출이 약 7% 증가하고, 관세 환급 혜택을 제외한 증분 EBITDA 이익률이 40%대 중반을 기록할 것으로 예상하고 있다.
• 운전자본: 4분기 연환산 매출의 약 25% 수준이 될 것으로 예상된다.
• 잉여현금흐름: EBITDA 대비 잉여현금흐름 전환율은 2027년에 약 50% 수준으로 회복될 것으로 예상된다.
• 수주액: 경영진은 이제 연간 에너지 장비 북투빌 비율을 이전에 제시했던 90%~100% 범위보다 낮은 약 80%~85%로 예상하고 있다. 2027년 수주액은 2026년과 2025년 실적을 모두 의미 있게 상회할 것으로 기대하고 있다.

리스크 및 핵심 모니터링 항목

• 중동의 안보 상황은 물류 차질을 야기하고 입찰, 청구 및 대금 회수를 지연시키며 배송 비용을 인상시키고 있다. 경영진은 4분기에 해당 지역 매출이 한 자릿수 중반 비율로 감소할 것으로 예상하면서도 연말 이후의 가시성은 제한적이라고 덧붙였다.
• 운송비는 전년 동기 대비 약 20% 상승했으며 3분기에서 4분기까지 높은 수준을 유지할 것으로 예상된다.
• 에너지 장비의 북투빌 비율은 여전히 1.0배 미만을 유지하고 있으며, 대형 해상 프로젝트 수주 시점은 분기 간 이동할 수 있다.
• 북미의 상장 운용사, 서비스 기업 및 시추 계약업체들은 자본 지출에 있어 계속해서 규율을 유지하고 있다. 광범위한 장비(Fleet) 투자는 가동률, 가격 및 수익성의 지속적인 개선에 달려 있다.
• 4분기 에너지 장비의 제품 믹스는 다소 불리할 것으로 예상되며, 이는 애프터마켓 성장이 예비 부품 판매보다는 이익률이 낮은 서비스 및 수리 작업에 치우쳐 있기 때문이다.

애널리스트 Q&A 주요 내용

경영진은 2027년 에너지 장비 성장 모멘텀이 주로 해상 시추 애프터마켓 활동에 의해 견인될 것으로 예상하고 있다. 하반기에 더 많은 시추선이 현장에 복귀함에 따라 예비 부품, 업그레이드 및 잠재적인 대규모 재가동 프로젝트가 뒷받침될 것으로 보인다. 신규 해상 생산 수주에 따른 매출 성장은 수주잔고 편입 시점과 프로젝트의 가동 확대 속도에 달려 있을 것이다.

가격 책정과 관련하여 경영진은 중동 외 대부분의 시장에서 내부 효율성 개선과 최근의 가격 인상 조치가 인플레이션을 앞서기 시작했다고 밝혔다. 경영진은 구체적인 시점을 제시하지는 않았으나, 고사양 장비의 시장 수급 타이트함이 2027년 실질적인 가격 개선을 뒷받침할 것으로 예상하고 있다.

NOV는 연간 15억 달러의 EBITDA 잠재력이 비정상적으로 강한 사업 활동을 가정하지 않고도 달성 가능한 수준이라고 설명했다. 경영진은 시추선 애프터마켓 활동에서 약 1억 달러의 잠재적 EBITDA 회복이 가능하고, 에너지 제품 및 서비스 이익률을 17.5% 수준으로 회복함으로써 약 1억 2,000만 달러를 확보할 수 있다고 보았으며, 판매량, 가격 정책 및 운영 효율성을 통해 추가적인 이익 개선이 기대된다고 덧붙였다.

2027년과 관련해 경영진은 중동 지역의 활동이 대체로 보합세를 유지하고 다른 지역의 여건이 강화되는 것을 전제로 한 업계의 한 자릿수 중반 성장 프레임워크를 언급했다. NOV는 중동 이외의 지역에서 하반기에 개선세가 집중되면서 이러한 성장률을 상회할 수 있을 것으로 보고 있으나, 회사 차원의 연간 가이던스는 제공하지 않았다.

실적 발표 전화회의 녹취록 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good day, and thank you for standing by. Welcome to the Third Quarter 2026 NOV Inc.'s Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amie D'Ambrosio, Director of Investor Relations. Ma'am, please go ahead.

Amie D’Ambrosio

Welcome, everyone, to NOV's Third Quarter 2026 Earnings Conference Call. With me today are Jose Bayardo, our Chairman, President and CEO; and Rodney Reed, our Senior Vice President and CFO.

Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, for the third quarter of 2026, NOV reported revenues of $2.23 billion and a net income of $90 million or $0.25 per fully diluted share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.

Later in the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now let me turn the call over to Jose.

Jose Bayardo

Thank you, Amie. Good morning, everyone, and thank you for joining us. NOV delivered another strong quarter. Our teams continue to execute well and build on the operational momentum we established earlier this year with improving performance across much of our portfolio. NOV generated revenue of $2.23 billion during the third quarter, an increase of 4% sequentially and 2% year-over-year. solid incremental margins on the increase in revenue resulted in $281 million of adjusted EBITDA. Over the past several calls, we've talked about two priorities for NOV.

First, improving profitability and returns by operating more efficiently, simplifying how we work and better leveraging the capabilities and scale of the broader NOV organization. second, positioning NOV to capitalize on attractive growth opportunities where we have durable competitive advantages and provide products and services that drive higher value for our customers. We're making meaningful progress on both fronts. This quarter, both reporting segments delivered improved margins, reflecting better execution, continued efficiency gains and the benefits of the actions we've been taking across the company. At the same time, the industry outlook continues to improve, especially in markets where NOV is particularly well positioned while years of limited investment have left relatively little excess capacity across important parts of the service and equipment supply chain.

Let me start with the Middle East. As we discussed on our last call, activity in the region has settled into what appeared to be a new operating normal following the disruptions earlier in the year. While takeaway capacity and operating conditions generally improved through most of the third quarter, maritime security continued to deteriorate, creating logistical disruptions and higher costs that affected deliveries of equipment and spare parts and delayed certain tenders. Despite these challenges, our team in the Middle East delivered sequential and year-over-year growth of over 20% during the quarter.

We remain focused, first and foremost, on the safety of our people and on serving the needs of our customers. I want to thank our employees and our customers in the region who continue doing critical work to maintain the essential flow of energy to the world in an extraordinarily difficult environment. As tensions escalated late in the quarter, we began to see some moderation in regional activity, which we expect will continue through at least year-end. While these challenges will likely persist over the medium term, we remain focused on the importance of the region to the global energy markets over the long term.

The disruption of Middle East supply has required significant draws on global inventories and experts suggest that replenishing those inventories while also meeting ongoing demand could take up to 2 years after flows out of the region normalize. Rebuilding global inventories will require increased investment, some of which is beginning to take place in other regions as countries and producers seek to strengthen energy security and diversify sources of supply. But there are limits to how far supply can diversify. The Middle East holds roughly half of the world's proven oil reserves, and as a meme master recently put it, markets can diversify suppliers, they can't diversify the geology. That's why we continue to view the Middle East as one of the most important and attractive markets for NOV over the long term.

Maintaining and ultimately increasing production from the region will require significant investment particularly as unconventional resources become a larger part of the production mix. Economically developing those resources requires many of the same higher specification drilling completion and production technologies that we perfected to help enable the U.S. shale revolution. We're already seeing increased investment in these technologies as unconventional development expands across the region. A similar pattern is developing across a number of other international land markets.

In Argentina, we're capitalizing on attractive growth opportunities as development of the [ Vaca Muerta ] continues to scale. Our revenue in the country has now grown double digits year-over-year for 3 consecutive quarters as operators move toward increasingly industrialized development programs. We're seeing greater demand for higher performance motors and other drilling technologies and we're introducing new completion and drill-out solutions to help operators improve efficiency as lateral lengths and completion intensity increase.

And importantly, there's still considerable opportunity for us to help operators improve costs and efficiencies with better equipment and technology. We're also benefiting from investment in the infrastructure required to support growing production. During the quarter, we secured orders for production and midstream equipment associated with natural gas infrastructure in the Vaca Muerta, illustrating the breadth of NOV's opportunity as development scales. Argentina is just one example and we're also capitalizing on opportunities developing in other emerging international unconventional resource markets, including Algeria, Australia, Egypt and Pakistan.

Customers in these countries are increasingly incorporating the technologies we've developed and proven in more mature resource plays. In Venezuela, we're also seeing activity and customer engagement increase. With growing inquiries across a range of NOV businesses, including production and midstream equipment, artificial lift and pumping technologies, drilling systems and digital solutions. While still small, our revenue from Venezuela is growing at a high rate, and we see the potential for it to materially increase given the need to reinvest in the country's asset base. more broadly as international development programs scale and become more technically demanding they require greater technology content, creating a long runway of opportunity for NOV.

North America presents a somewhat different opportunity. Activity continued to improve during the quarter, led by private operators and the normal seasonal increase in Canada. Public operators remain disciplined with capital and at least for now, they're not making a broad push to materially increase activity. We're seeing a similar dynamic among service companies and drilling contractors. For the most part, they remain very disciplined and want to see meaningful sustained improvement in pricing and returns before committing significant capital to their fleets. Importantly, there is little excess high specification equipment capacity available today.

As a result, we believe even a modest increase in operator activity could tighten the market fairly quickly improving utilization, pricing and ultimately, the returns required to support broader fleet reinvestment. Today, we're seeing a few more agile private customers begin investing ahead of what they and we soon believe will be higher utilization and pricing. During the quarter, we booked the sale of two new 2,000 horsepower high-spec land rigs, a major upgrade to another rig that included a DC to AC conversion and an order for a new TDS 1400 Top Drive, which provides the higher torque and horsepower required to drill increasingly demanding ultra-long lateral wells.

At the other end of the spectrum, major operators are helping support selective investments in leading-edge technologies that can structurally improve safety and efficiency, including robotic systems and fully electric well servicing rigs. So while capital equipment investment in North America remains constrained, the customers who are investing are generally focused on higher specification solutions that lower total well costs, improve reliability and enhance safety. Customers' relentless focus on improving efficiency also continues to drive demand for our shorter-cycle technologies, tools and services.

For example, our drill bit business delivered a record quarter with particularly strong growth in the Permian, while our downhole tools business generated record motor revenues and continued to gain traction with several differentiated drilling technologies. The performance and reliability of these products are helping us deepen penetration with customers and gain share. Digital is becoming an increasingly important part of that same efficiency equation.

During the quarter, we were awarded a contract to provide digital services across more than 30 rigs for a large U.S. operator, combining electronic drilling recorders and remote monitoring to standardize data capture, improve operational visibility and support more consistent decision-making across the fleet. North America remains one of the most important technology markets in the world, and an extraordinary proven ground for NOV as customers continue pushing the limits of lateral length, drilling speed, automation and capital efficiency. That creates opportunities for us to provide more technology and value on each active rig and many of the solutions proven in North America will ultimately help us drive growth in the international unconventional markets we just discussed.

Finally, turning to offshore, where we continue to see some of the strongest industry momentum and some of the most attractive opportunities for NOV. In offshore drilling, contracting activity has accelerated meaningfully this year. floater contract days awarded year-to-date have more than doubled compared to the same period last year. Utilization remains high and leading edge day rates for high-specification rigs are approaching $500,000 per day. levels that support greater investment in upgrading the existing fleet.

These improving conditions are translating into stronger demand across our drilling equipment and aftermarket businesses. As rigs prepare for new contracts and return to work, customers need spare parts, recertifications and equipment upgrades and increasingly, they are investing in automation and robotics. Our offshore aftermarket business strengthened again during the quarter, with spare parts backlog increasing for the fifth consecutive quarter. We also secured additional upgrade opportunities, including an award to increase drillships hook load capacity to over 1,400 tons and add multi-machine control functionality. We continue to see growing customer adoption of our automation and robotic systems as operators and drilling contractors look to improve safety, consistency and efficiency.

The longer-term outlook is increasingly promising. The offshore fleet is aging at the same time it is being asked to drill more efficiently in deeper water and increasingly challenging operating environments. We believe that combination will continue to create attractive aftermarket and equipment upgrade opportunities and over time, should increase the need for new high-specification rigs. The outlook on the production side of the offshore market is, in many respects, even more compelling. As shown on Slide 7 of the earnings slide deck we posted on our website this morning. Offshore investment is expected to remain at very strong levels through the end of the decade. South America will remain a significant market led by Brazil, Guyana and Suriname while investment is expected to increase meaningfully across Africa, Asia, Australia and Europe.

Much of that incremental activity is also moving into deeper water, harsher operating environments and more gas-intensive developments, creating a particularly favorable mix of opportunities for NOV. As Slide 8 illustrates, the median water depth for FPSOs in the development pipeline is approximately 1,400 meters compared with roughly 420 meters for the active fleet today. They are also increasingly gas-intensive. Average gas handling capacity for the development pipeline is approximately 336 million cubic feet per day compared with 189 million cubic feet per day for the existing fleet. Deeper water, greater gas processing requirements and increasingly harsh operating environments translate into larger and more sophisticated production systems.

That plays very well to NOV's capabilities that are illustrated on Slide 9. When we look at both the breadth of the market and the increasingly demanding technical requirements of the projects being developed, we feel very good about the offshore production opportunity over the next several years. If you look at Slide 10, you can see that there's an important lag between when an offshore development reaches FID and when NOV ultimately receives orders for much of the equipment we supply. As projects move through engineering, contracting and procurement or orders generally follow FIDs by a few quarters with the exact timing varying by project and equipment package. You can see that higher FPSO FIDs in 2022 and 2023 contributed to elevated NOV offshore bookings in the periods that followed.

The moderation in FIDs during '24 and '25 is reflected in the slightly muted pace of production equipment bookings we're experiencing in 2026. Importantly, the investment cycle is turning higher. FPSO project sanctioning is accelerating meaningfully in 2026 and the pipeline for 2027 remains very strong. Consistent with the historical lag shown on Slide 10, and we expect those projects to increasingly move into equipment procurement as we progress through 2027 and into 2028, we're already seeing that development in our sales pipeline with a growing number of projects moving through engineering, tendering and commercial discussions across our businesses.

Large offshore awards are inherently lumpy and their timing can move between quarters. But the more important point is that today's bookings largely reflect yesterday's project sanctioning environment, while the acceleration in FIDs we are seeing today represent a broader opportunity set developing in front of us. Given the strength of the project pipeline, the increasingly attractive technical requirements of future developments and NOV's strong positions across many of the critical technologies those projects require, we have growing confidence in a robust offshore production equipment opportunity over the next several years. That brings me back to the earnings potential we discussed last quarter.

As a reminder, we looked at the strongest quarterly performance each of our businesses had delivered over the past several years, excluding the seasonally strong fourth quarters. annualize those results and concluded that NOV's portfolio has demonstrated the capacity to generate $1.5 billion of annual EBITDA. This was not a forecast with a defined time line. The point was that none of our businesses needed to achieve performance they had not recently demonstrated. What is needed is a reasonably constructive broad-based market environment that allows more of them to perform near their potential at the same time. Our confidence in our ability to achieve and exceed this level is increasing, and we see 3 things moving in our favor.

First, we're beginning to see broader improvement across global energy markets. Second, we expect a disproportionate share of supply growth to come from areas where NOV is particularly well positioned, including deepwater offshore and international unconventionals. And third, we continue to drive operational efficiencies. We're simplifying how we operate, improving manufacturing productivity, better leveraging our global infrastructure and supply chain and reducing duplication across the company. Importantly, our path to $1.5 billion of EBITDA can be supported by the capacity we already have in place, creating the opportunity to drive attractive incremental earnings, cash flow and return on capital employed. The timing will depend on how customer investment develops and the path will not be perfectly linear. But the improving performance within NOV and the market opportunities we discussed today give us increasing confidence in our ability to demonstrate materially greater earnings power over the coming years.

We've been positioning the company for the market conditions we anticipate ahead, and we're committed to delivering stronger margins, greater cash flow and higher returns. To the NOV employees listening today, thank you for everything you do to serve our customers, keep one another safe and make NOV better every day. Rodney?

Rodney Reed

Thank you, Jose. Consolidated revenue for the quarter was $2.23 billion, an increase of 4% sequentially and 2% year-over-year. Net income was $90 million or $0.25 per fully diluted share Operating profit was $142 million, which included $28 million in pretax other items and an $18 million net write-down of fixed assets primarily related to facility closures. Adjusted operating profit was $188 million or 8.4% of sales and adjusted EBITDA totaled $281 million or 12.6% of sales. During the quarter, we paid dividends of $32 million and repurchased 800,000 shares for $15 million, bringing our total shares repurchased over the past 10 quarters to 44.5 million shares for $689 million, over 10% of shares outstanding.

For the full year, we've returned $242 million to shareholders, excluding the $32 million supplemental dividend in the second quarter. Free cash flow for the quarter was a use of $47 million as the ongoing conflict in the Middle East delayed certain milestone billings and collections and our supply chain teams continue to maintain inventory buffers given ongoing disruptions to logistics. We expect a significant improvement in free cash flow with working capital as a percentage of fourth quarter annualized revenue to be around 25%. We also anticipate our conversion of EBITDA to free cash flow in 2027 will return to the 50% range. Full year capital expenditures should be between $340 million and $360 million, and we forecast our annual effective tax rate to be around 30% we delivered 35% sequential incremental EBITDA margins in the third quarter after delivering 80% incremental margins in the second quarter due to our improving cost structure and operational efficiencies, including our fourth quarter guidance, we expect the team will deliver around 7% revenue growth from the first half to the second half of 2026, with strong incremental EBITDA margins in the mid-40% range, excluding tariff refund benefits.

Moving to our segments. Starting with Energy Equipment. Third quarter revenue was $1.22 billion, flat sequentially and down 2% year-over-year. EBITDA increased to $187 million or 15.3% of sales a year-over-year improvement of around 90 basis points driven by strong operational execution and improved margins in backlog. Capital equipment sales accounted for 63% of the segment's revenue with increased demand for drilling and production equipment partially offsetting the higher contribution of certain offshore projects in the prior year that have been completed. Aftermarket sales and services were 37% of segment revenue, essentially flat compared to the prior year as improving drilling aftermarket activity offset lower aftermarket revenue from our Intervention & Stimulation Equipment business.

Capital equipment orders for the third quarter were $577 million, a 22% increase sequentially, resulting in a book-to-bill ratio of 91%. Orders reflected solid demand for offshore production and marine construction equipment. We continue to expect our order intake in the second half of the year to outpace the first half but anticipate our book-to-bill ratio will remain below 1x. However, as Jose discussed, given the robust outlook for offshore FIDs, we expect 2027 bookings to meaningfully exceed 2026 and 2025. Our Subsea flexible pipe business achieved its seventh straight quarter of year-over-year revenue, EBITDA and margin growth, supported by strong execution on a higher-margin backlog.

Outlook for the business remains bright and we continue to anticipate industry demand for flexible pipe to exceed supply through the end of the decade. Additionally, the business is expanding solutions for customers, booking the first award of our proprietary Subsea automated Picklauncher, which enables remote automated pipeline inspection or picking without a vessel. As subsea tiebacks [indiscernible] and vessel availability titans, we see future opportunities for these systems. Revenue in our Process Systems and Marine Construction business declined year-over-year, reflecting higher prior year contribution from projects that were recently completed.

Strong execution of higher-margin backlog resulted in improved EBITDA margins. We continue to see strong demand for our processing technologies Morgan gas offloading equipment and offshore construction cranes, which drove the majority of the segment's orders this quarter. Looking ahead, as Jose mentioned, we see very positive trends in the offshore development pipeline with deeper, higher gas and gas condensate reservoirs and in some cases, harsh met-ocean conditions. These trends expand the need for advanced and larger gas processing equipment turret mooring systems and subsea flexible pipe, all of which are critical technologies where NOV has strong competitive advantages. Our production and midstream business unit achieved double-digit year-over-year growth, reaching its highest quarterly revenue ever.

The business also recorded record orders supporting the build-out of pipeline capacity in Argentina and production optimization projects in Oman, Nigeria and Venezuela. The team also realized over 20% growth in North America from higher sales of production chokes and pumps. Our drilling capital equipment revenue increased double digits, both sequentially and year-over-year led by strong execution from our Saudi rig manufacturing team and improving demand for our latest drilling equipment and automation technologies. Turning to our aftermarket business. Revenue from drilling aftermarket increased in the low single-digit percentage range both sequentially and year-over-year, supported by improved spare parts sales and higher service and repair work, improving dayrates and floater utilization are supporting demand for services, repairs and upgrades. After two straight quarters of year-over-year double-digit growth in spare parts bookings backlog for spare parts increased in the high-teens percentage range compared to the third quarter of 2025.

In summary, Energy Equipment continues to deliver strong financial results, with margins expanding for 4 straight years. And given what we anticipate through year-end, we expect that to extend to 5 years. Additionally, with offshore FIDs in 2026 and 2027 expected to exceed 2024 and 2025 by around 50%, we anticipate strong bookings in 2027 and 2028 and which combined with driller floater utilization that should reach a 12-year high positions the segment well for growth. For the fourth quarter, we expect revenue in our Energy Equipment segment to decrease 4% to 6% compared to the fourth quarter of 2025 as growth in drilling aftermarket will be more than offset by the completion of certain offshore production-related projects. We expect EBITDA to be in the range of $175 million to $205 million.

Moving to the Energy Products & Services segment. Our Energy Products and Services segment generated revenue of $1.06 billion an increase of 9%, both sequentially and year-over-year. Adjusted EBITDA totaled $153 million or 14.5% of sales. Excluding tariff refund benefits, third quarter EBITDA incrementals were 39% sequentially and led by strong performance from our drill pipe, drill bits, fiberglass and artificial lift businesses. For the third quarter, the sales mix within Energy Products and Services was 50% service and rental, 32% capital equipment and 18% product sales. The segment's service and rental revenue increased mid-single digits both year-over-year and sequentially, and NOV Digital achieved record quarterly revenue, increasing by double-digit percentage year-over-year and sequentially from market share gains and growing adoption of our digital completion technologies.

Our [indiscernible] drill bit business delivered another strong quarter with revenue growing over 20% year-over-year. Growth was led by additional market share gains in U.S. land, where revenue grew 30% year-over-year. in addition to greater adoption of higher-performance cutters in international unconventionals with revenue growing in Latin America and the Middle East. Our download tools business followed similar trends delivering low double-digit percentage growth year-over-year and sequentially. The business unit benefited from strong year-over-year revenue growth in Latin America and the Middle East from increased rentals of drilling motors, supporting our customers' focus on efficiency developing their unconventional resources. Our Wellsite Services business had essentially flat revenues. However, EBITDA margins improved both sequentially and against the prior year. The higher margins were the result of accelerating adoption of our Nova therm processing technology, which provides more efficient handling of drilling cutting and increased utilization of Tundramax temperature control systems as well as exiting lower margin markets.

Capital equipment revenue for the segment increased mid- to high single-digit percentage range year-over-year and sequentially. Revenue from our Fiber Glass Systems business increased mid-teens percentage year-over-year and low double digits sequentially, led by strong demand from oil and gas markets and record sales for our fuel handling products. In the Middle East, we realized strong growth in demand for our spoolable pipe for the build-out of production infrastructure while in the U.S., we significantly increased deliveries for larger diameter composite pipe for produced water systems in West Texas. Strong bookings momentum continued with a business unit achieving its fourth straight quarter of book-to-bill greater than 100% with a backlog 30% higher than last year and demand increasing, we expect to see continued growth for this business.

Our drill pipe business also had a strong quarter with revenue up around 20% year-over-year, trailing 12-month book-to-bill exceed 120% with increasing demand for offshore and larger diameter pipe and backlog improved 50% year-over-year. Product sales increased 5% year-over-year and low teens percentage sequentially. Growth was led by increased sales of drill bits and drilling tools into the Eastern Hemisphere and ESPs in the U.S.

In summary, increasing adoption of our digital solutions, higher performance technologies that enable efficiencies and longer laterals and improving manufacturing throughput on a growing backlog of capital equipment led to strong top line growth with solid incremental margins. For the fourth quarter, we expect Energy Products & Services segment revenue to be up 6% to 8% year-over-year and EBITDA in the range of $140 million to $160 million.

With that, I'll turn the call back to Jose.

Jose Bayardo

Thanks, Rodney. Before we open the call for questions, I'll leave you with a few thoughts. We're seeing a broad recovery across many of our key markets, particularly in areas NOV has strong technology positions and significant opportunity to participate. And we are pleased with the progress we're making against the two priorities I mentioned at the beginning of the call. improving profitability and positioning NOV to capitalize on attractive growth opportunities. That combination gives us increasing confidence in our ability to deliver materially stronger earnings, cash flow and return on capital over the coming years. Our focus remains on execution, serving our customers well and converting the opportunities in front of us in the long-term value for our shareholders. With that, we'll open the call for questions.

Operator

[Operator Instructions]. Our first question will come from the line of Arun Jayaram with JPMorgan Securities.

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Arun Jayaram

Jose and Rodney, I wanted to see if we could kind of zero in on thoughts around energy equipment as we approach 2027 a we see two kind of trends, Jose. As Rodney mentioned, book-to-bills have been trending below one for just a few quarters. But you did highlight expectations around strong order momentum in 2027 with flexibles and offshore production equipment. Can you just talk to us about how you think those two kind of forces will play out as we think about 2027, I know we ourselves are modeling low single-digit growth in energy equipment next year. But I just want to get your thoughts on that.

Jose Bayardo

Appreciate the question, Arun. Look, as we spent a bit of time in the prepared commentary really talking about the outlook for 2027 and kind of what we see in the pipeline. And short takeaway is it looks fantastic to us. and really wanted to spend a little bit of extra time this morning highlighting what we see and why we, and quite frankly, I think the rest of the offshore equipment community is so optimistic about the outlook for 2027. So really as it relates to the overall performance of this segment and of the business as a whole, offshore production is just one component, but it has been and continues to be a large component of our bookings and our revenue base going forward. So probably helpful to talk just a little bit more about sort of the bookings cadence, not just '27, but kind of what we've seen year-to-date and where we see it going.

First of all, as we anticipated and that we've been communicating for really since the end of last year, we saw a nice step-up in bookings from the rate of intake that we saw in the first half of the year. So 91% book-to-bill in Q3. The question is, and as we kind of touched on, that we really see a lot of excitement around '27. Let's talk about Q4 a little bit because I know it's top of mind for a lot of folks. For us to hit the range that we're talking about previously, the 90% to 100% range we need to hit. Obviously, it's simple to do the math around $750 million or so in bookings in Q4. And with what we're seeing in terms of timing of certain projects, at this point, we think that range is probably a little bit ambitious.

So the best estimate right now is that we'll finish the year at a book-to-bill of between, call it, 80% to 85%. And we obviously see that moving considerably higher in 2027. And look, I don't want to downplay the importance of bookings, but one of the things I want to remind folks of is that we currently have $4 billion in backlog. So we're in great shape. Also keep in mind that only about 28% of our revenue comes from the formerly reported capital equipment backlog. And as we've tried to highlight, we obviously have other parts of the business that don't formally report that but those are still capital equipment businesses and they're doing great right now, right?

So rig aftermarket, also within the Energy Equipment segment, five straight quarters of a building backlog. Our fiberglass systems business 4 quarters in a row with a book-to-bill of greater than 100% backlog up 30% on versus last year. And our drill pipe business, 120% book-to-bill over the last 12 months and backlog up over 50% year-over-year. put those three components together, and that's effectively more than another $1 billion of backlog. And so I feel really good about the direction of the business going forward.

And I think specifically as it relates to the EE segment in 2027. We have seen really good performance from that segment over the last 4 years with improving margins over that time frame, improving backlog, improving revenue, improving throughput through our manufacturing operations. And obviously, if we're -- as Rodney highlighted, if we meet the midpoint of our guidance for Q4, it will be 5 straight years of margin improvement. As we get into 2027, we certainly see order intake picking up significantly with what we see in the pipeline. We try to show -- cast a light on that. How much the growth in revenue added backlog improved during the course of 2027 will depend on the timing of when those orders land, and usually there's a slow start-up on projects. So anticipate momentum to continue to build through the second half of the year.

But really, as we look at EE's upside potential for 2027 versus 2026, the thing that we're most excited about is what we're seeing is in our drilling aftermarket business. Where, as we highlighted, backlog has been improving steadily. And as you've heard from our customers, including one yesterday, the pace of deepwater drilling tenders has accelerated significantly. Day rates have reached $500,000 a day leading edge. That's driving a lot more rigs that will be turning to the right in the second half of 2027, more opportunities for just routine spare part sales, more opportunities for upgrades and probably a few large reactivation projects. And really, if we look at our project backlog, it's been growing at a pretty healthy clip.

And right now, I think it's the highest level of project-related backlog that we have since 2024. So I feel really good about the outlook for the EE segment in 2027, and sorry for providing probably more detail than you want.

Arun Jayaram

We just appreciate the color. Jose, we've observed from a different -- a number of different OFS conference calls, maybe a different perspective on how the Middle East will we'll move forward, thinking about 4Q and maybe into 2027. And can you maybe just highlight what you're seeing on the ground. You did mention that there are some impacts to drilling activity from the, call it, the security situation. But I'd love to hear what your seeing and embedding in terms of your 4Q outlook?

Jose Bayardo

Yes. First and foremost, hope and pray for a very quick resolution to all the tensions in the region. But secondly, I wish I had a crystal ball to where I could tell you exactly what's going to happen room, but it's really not possible right now. As in the Middle East, the last week of September visiting with customers. And it's an interesting environment and, frankly, a very constructive environment from the operators in the region. They understand the importance of what they do for the global community, and they are obviously struggling right now from a logistics standpoint, both in terms of getting what they need into the region, but also very importantly, getting commodity out of the region to provide that energy flow that the rest of the world really needs.

But they are intent on making sure that they can quickly and efficiently respond when conditions present themselves to when they can ramp up production activity and the flow of oil and gas out of the region. So one of the things I wanted to emphasize in the prepared commentary is just the importance and the long-term value of the region to the world to NOV's business. specifically to us, short term, as we touched on, is embedded within the guidance due to rigs that have been suspended and customers that have adjusted their drilling programs here near term. What we're currently seeing is that we expect the Middle East to be down in the mid-single-digit range for Q4 and hard to predict what happens beyond that at this point, Arun.

Operator

And our next question will come from the line of Jim Rollyson with Raymond James.

James Rollyson

Jose, when we were on the road last month, you talked a bit about aftermarket, rig aftermarket and you just -- in answering a room to talk about a little bit more. My math is -- you're probably on track to be down about $400 million or so of revenues this year versus '24, which is when the offshore rig count last peak. And when you kind of look at what some of your customers are saying what you guys have said, Rodney talking about getting back to a 12-year high in the floater market. Just maybe help us understand a little bit how we should think about the timing of aftermarket ramping back up as the offshore activity ramps back up.

Jose Bayardo

Yes. Good question, Jim. And yes, directionally, you're right with kind of where we sit today. and that really presents the opportunity for the upside that we're talking about. And as I tried to convey in the response to run, we're seeing this gradual improvement and Rodney gave some specifics in terms of the percentage increase straight quarters in a row of effectively continued modest improvements in that backlog that have set us up really well for the coming year, but expect that to continue to move forward as more and more rigs come online.

So the number of rigs that will be turning to the right in the second half of the year will be a bit higher than certainly where we sit today. So we think we'll continue to see a steady progression in terms of demand for spare parts. And over time, as those day rates continue to tick up, that will create more incentives for people to not only drive more upgrade opportunities to us. but also some of the last remaining and, frankly, somewhat sizable reactivation projects. So there's already more talk of those taking place. But basically, we expect to continue to see a steady ramp with the second half of the year being a good improvement over the first half.

James Rollyson

Appreciate that color. And as a follow-up, and I don't know if you have an easy answer to this, but you talked a lot about this kind of unconventional opportunity that's blossoming internationally. And kind of following on all the technologies that you've developed in North America from -- over the past decade plus. How do you put the scale of that international unconventional opportunity maybe relative to what you've been able to generate over time through the North American side of things.

Jose Bayardo

Yes, to be determined exactly how large that becomes, Jim, but it's going to become an increasing mix of the energy market going forward right. As we look forward, our best view is that there are going to be two primary drivers of incremental production to meet the world's growing demand for oil and gas. And you've got Deepwater offshore, which has incredibly compelling economics. But those are huge investment opportunities and longer-cycle barrels and then you have international unconventional resources, which are still, quite frankly, in the very early days, but ramping pretty quickly.

Right now, obviously, a lot of the momentum in international unconventionals has been down in Argentina with Vaca Muerta, which is full speed ahead and continuing to accelerate. The other most mature area and rapidly accelerating area was the Middle East to be determined how things evolve within that region, given what we just discussed with Ron's questions. But over the long run, that will continue to ramp, I think, in a pretty meaningful way. And as we touched on other areas of the world, North Africa, Australia, there will be more in Asia that will move forward.

So over time, I wouldn't be surprised if that sort of supply base started to get in line with what we're seeing in North America over the distant future. Now we'll see exactly how that how that works. Obviously, North America came online first and most quickly and efficiently for an important reason that we have to keep in mind, and that's ownership rights entrepreneurship and the amazing efficiencies that the industry in North America brings to the table. And that's hard to replicate in other parts of the world, but a lot of good progress is being made.

Ultimately, how much market share unconventionals gain overseas will ultimately depend on the adoption of incredibly efficient leading-edge high spec equipment, which will be in their favor because getting better and better every single day of what we do. And then the cultural element, which I think of wheels in motion to make significant improvements on both of those fronts. S -- we're obviously optimistic about that opportunity for us and for the global community to continue to have more sources of reliable and economic sources of energy.

Operator

And our next question will come from the line of Marc Bianchi with TD Securities.

Marc Bianchi

First question on EE and on this guidance here for fourth quarter. If I look at sequentially, revenues up a little bit. And if I kind of strip out the tariff recovery there in the third quarter, it looks like you're not getting a ton of ton of margin leverage. I guess perhaps that's mix, but I don't know if there's anything else going on there. I would have thought that maybe you get better margin leverage on that revenue increase.

Jose Bayardo

Yes. Yes. It's -- Marc, it really is mix. I mean, obviously, things shift from quarter-to-quarter. And we obviously saw a favorable mix and also, frankly, really good execution here over the last few quarters to drive really healthy incremental margins across the board, not just in EE, but in both segments. And as we go into Q4, or anticipated -- we anticipate that, that will be a little bit less favorable. And also, while we do have a big pickup in our aftermarket business, it tends to be more service and repair, which is a little bit lower margin than what we get from just a large ramp-up in terms of the spare parts sales.

Rodney Reed

Yes, those are a couple of pieces, I think, Marc, is one, you typically have a little bit more Eastern Hemisphere product sales into the fourth quarter. However, with this in this fourth quarter for some of the reasons that Jose laid out earlier, that's probably a little bit more moderated Q3 to Q4. And also the other thing that we're seeing still is high freight cost. So freight costs year-over-year are up about 20%. And just with our anticipation on where things are right now, we think that sort of Q3 to Q4 costs are probably a little bit more elevated too.

Marc Bianchi

Okay. And maybe building on that as we think of it as perhaps a starting point for thinking about 2027, do you think mix changes a lot. We've got this -- the offshore stuff that you guys have been talking about so much already on the call, like how does that contribute? And then do you get recovery of the freight cost at some point? Is there a lag in pushing price through to recover that? Maybe just try to talk about how much of good reflection of the normal business this is and how we should think about it building up to '27.

Jose Bayardo

Yes. Marc, I think we talked a bit on one of the prior answers related to the expectation in 2027 and the pace of improvement and the general mix. As we mentioned, capital equipment will continue to grow some of that growth will be dependent on the timing of when orders come in. But what we see is more of the growth opportunity in the segment into two is the aftermarket business, which should drive margins higher, right? Now as it relates to inflationary forces, so broadly speaking, outside of the Middle East, we've gotten to a point where the severe headwinds that we saw over the last few years from inflation as well as tariffs, hopefully, is behind us, and we are now at the point where we're starting to outpace that inflation and drive margins higher from the most part for the most part.

Pricing is the next leg, right? As we think about the state of the industry today, while things are much improved and the outlook is really fantastic. I think whether it's us in the equipment space or the more traditional service space, there really hasn't been much in the way of pricing yet. And while I hate the -- the compressed spring type analogy, I can't think of a market environment that, that applies to more than it does today. So as I've mentioned a couple of times, I think we're nearing the point where excess supply of the type of desirable equipment that's out there is at its limit. That's going to require our service company and contractor customers to invest more in their asset bases, but they're not going to do so without a good improvement in pricing.

I think we're very close for the market to see that. Nobody wants to speculate on the precise timing of that, but I'll be very surprised if we don't see material improvement in 2027. Specifically related to the Middle East, obviously, more challenged from an inflationary standpoint due to logistics element that you're asking about. And obviously, in an environment in which activity levels are coming down due to those changes in drilling programs that we touched on. All of a sudden, that market has a little bit of excess capacity. So that hurts demand and it also hurts the ability to continue making progress on pricing and makes it difficult to offset some of the inflationary costs associated with logistics.

However, we are making progress on it and have been pleased with how constructive the dialogue has been with certain customers related to them absorbing those additional logistics costs. But in general, still a headwind right now, but I feel pretty good about the direction ahead.

Operator

[Operator Instructions]. Next question will come from the line of Alexis Breno with Goldman Sachs.

Unknown Analyst

We just wanted to ask about free cash flow. Can you talk about some of the moving pieces there? And then as we look into 2027, how should we think about that normalized conversion rate? And is there any opportunity for that to structurally improve?

Rodney Reed

Yes. Thanks for that, Alexis. This is Rodney. So yes, I'd say free cash flow impact for Q3 and really for the first 9 months of the year. has really been affected by two discrete items. Number one is milestone billings. So that really relates to some projects that are ongoing in the Middle East. So if you look at our free cash flow, that was really a reflection of some working capital build this sort of contract asset contract liability piece is about 1/3 of that. And I think that starts to turn around and improve in the fourth quarter, quite frankly.

Number two, the other discrete item is really related to inventory. And we've talked about this one before, just with the ongoing logistical challenges where there's more variability and on-time delivery. Our teams have built in a little bit more of a buffer into safety stock levels and just into the supply chain overall. So that will continue to take a little bit more time to moderate. I think we'll see a little bit of improvement in Q4, but that will continue into the first half of the year. And then the other part on inventory is, as Jose mentioned earlier, if you look at our [indiscernible], backlog is up about 50% year-over-year. Our Fiberglass business is up 30% year-over-year. So a little bit more inventory levels there as Q4 and Q1 have higher revenue growth. So it's really those two discrete items, I'd call them more transitory than structural.

Nothing structurally changed with our business. It's really the milestone billings and inventory. As we look into 2027, which is the other part of your question, we do think we get back to that 50% range on EBITDA to free cash flow conversion. So as I mentioned, I think most of the milestone billings start to make some progress in Q4, a little bit more in Q1, inventory levels start to normalize. And then the other thing that helps in '27 is what Jose had laid out earlier in terms of some bookings opportunities. And that means that along the way, on some milestones, you're typically pretty cash flow positive throughout those projects, in particular, in the first part. So that's where we've kind of stack up '27.

Unknown Analyst

Okay. That's very helpful. And then just as a follow-up, I understand it's tricky to make a call on Middle East activity from here, but I would just love to dig deeper on some of the other regional commentary. As we kind of think ex Middle East, how are you thinking about 2027 shaping up? You've talked about some key regions, including Latin America and elsewhere. Just curious, any other thoughts.

Jose Bayardo

Yes. Alexis, this is Jose. Look, obviously, there's been a lot of commentary by our peers related to 2027 outlook. And I think our messaging will be somewhat similar which is that it's really premature to talk about that overall. However, we can talk about things in the -- with the framework that others have applied, which feels like consensus for the space seems to be shaking out around mid-single-digit growth for next year. Obviously, there's some puts and takes to that. And I think related to your question, it's hard to provide any sort of real visibility in the Middle East.

So I think that mid-single-digit is implying sort of flattish activity within the Middle East region, meaning more healthy activity elsewhere around the globe, which makes sense based on what we're seeing around the world. We obviously spend a lot of time talking about the deepwater environment, which is going to experience -- continue experiencing very robust growth. but also anticipate we'll continue to see North America move higher as well as really all other producing regions of the world. And in that environment.

Look, again, premature to talk about specifics related to 2027. But with what we see in terms of the tightness of the market on the capital equipment side, ex Middle East right now, we think we should be able to outpace that sort of general industry rate. But it will be, as we touched about and touched on within several of our businesses, steady improvement, second half weighted higher than the first half. And we expect to continue to drive more process improvement efficiencies across the organization and drive margins a little bit higher. So I think that's really all we can say at this point. I mean, generally, the industry backdrop is very constructive.

Next quarter, you'll obviously receive our Q1 guidance and probably some more detailed commentary related to 2027. However, as you guys know, we don't typically provide full year guidance.

Operator

Next question will come from the line of Stephen Gengaro with Stifel.

Stephen Gengaro

I think two things for me. The first -- this follows up, I think, on Marc's question earlier. You mentioned pricing, I think, Jose, in your response to one to Marc's question on margins. Can you give us just kind of an overview of kind of where pricing currently sits versus sort of the recent troughs and maybe in some context historically on some of the -- just some of the bigger product lines.

Jose Bayardo

Yes, Stephen, it's impossible to answer that with perfect precision given the explosive inflation that we've seen over the last 5 years or so, right? So obviously, today, as we sit here, we are at meaningfully higher pricing than when we were in the past. However, as has been reflected in our margins, particularly within our EPS segment, what you have seen is that we have not -- things have changed so quickly, not just from an inflationary standpoint, but also the emergence of tariffs that over the last couple of years, the inflationary forces combined with deterioration in terms of overall industry activity levels have eroded our margins, not because we haven't moved our pricing up, but just because we haven't moved pricing up quickly enough, given the market environment.

Here over the last couple of quarters, I think you're starting to see our pricing and, frankly, our internal efficiencies beginning to outpace those inflationary forces. So feel really, really good about where things are headed and really good about our ability to get back to the type of margin levels that we saw in the past. I know your remark questions seem to be revolving around the E segment, which is obviously important. However, EE has been doing fantastic, right? I mean we're about to hit 5 straight years of improved margin performance and see -- certainly see the potential to drive that higher with higher aftermarket activity into 2027 and beyond. The real opportunity for us, though, in to drive some more meaningful improvement is within our EPS segment. We're starting to demonstrate that capability. But look, you go back to the '24 type time frame, and we were at an upper teens margin in that business. So segments currently at 14.5% margins, if we were able to drive that up 300 basis points back up to 17.5% to be a little bit lower than sort of the recent peak that's another $120 million of EBITDA that we can drive.

And so one of the reasons why we are so optimistic related to our ability to hit that $1.5 billion in EBITDA, there's really three primary components and buckets to think about there. One is certainly the rig aftermarket opportunity, which is probably roughly $100 million of EBITDA that we can drive if we get back to recent high water marks the $120 million from the EPS segment, which will really come from the form of, yes, some pricing, but also some more volume, better mix as we're seeing more and more growth from the capital equipment components of that segment and then continued operational efficiencies. And so we don't really need any 1 single component to get us there. They're all -- but they all seem to be moving in the right direction right now. So it gives us a lot of confidence there.

And then there's an additional $180 million on top of today's current run rate that we need to achieve and think we can do that through some modest improvement in volume, driving more efficiencies and other components of the business and again, more pricing across the portfolio. And so we feel really good about our ability to drive earnings, margins and return on capital meaningfully higher over the coming years.

Stephen Gengaro

You basically answered my second question because one of the things we hear is can you get to $1.5 billion of sort of that I won't say basically target you've laid out. And it sounds like you can get there without kind of anything heroic from an activity level perspective.

Jose Bayardo

That's absolutely right, Stephen. That's the scenario that we tried to build for everybody last quarter and every quarter, every month, every week, every day that goes by, we're getting increasingly confident about our ability to hit it.

Operator

And this will conclude today's question-and-answer session. And I would now like to hand the conference back over to Jose Bayardo for closing remarks.

Jose Bayardo

Thank you, Michelle, and thank you, everybody, for joining us this morning. Appreciate your participation in the call and look forward to talking to you again in about 3 months.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.