NOV Inc. — 2021 Form 10-K Summary
Business context and reporting period
NOV is a global provider of equipment, technology and services for the energy industry, operating through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. This 10-K covers the year ended December 31, 2021; it also reports fourth-quarter results. Results remain highly dependent on oil and gas activity and customer capital spending. Approximately 68% of 2021 revenue was generated outside the United States.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $5.524 billion | $6.090 billion |
| Gross profit | $774 million (14.0% of revenue) | $434 million (7.1%) |
| Operating profit (loss) | $(134) million | $(2.425) billion |
| Net loss attributable to NOV | $(250) million; $(0.65) per share | $(2.542) billion; $(6.62) per share |
| Adjusted EBITDA | $229 million | $350 million |
| Cash from operating activities | $291 million | $926 million |
| Capital expenditures | $201 million | $226 million |
Fourth-quarter revenue was $1.52 billion, up 13% sequentially and 14% year over year. Net loss was $40 million, or $0.10 per diluted share, improving by $29 million from Q3 and $307 million from Q4 2020. Adjusted EBITDA was $69 million, versus $56 million in Q3 and $17 million in Q4 2020. Fourth-quarter total operating loss was $15 million.
At year-end, cash and cash equivalents were $1.591 billion and total debt was $1.713 billion, compared with $1.692 billion and $1.834 billion, respectively, a year earlier. The $2.0 billion revolving credit facility was undrawn, with $2.0 billion available; the company reported a 27.8% debt-to-capitalization ratio against a 60% covenant limit. Lease liabilities totaled $675 million. NOV generated $291 million of operating cash flow, down from $926 million, and used $189 million in financing activities. The company paid $20 million in dividends, or $0.05 per share.
Material changes and segment results
- Revenue fell 9.3% year over year, following severe industry and customer spending declines in 2020. Wellbore Technologies revenue rose 5% to $1.959 billion; Completion & Production Solutions fell 19% to $1.963 billion; Rig Technologies fell 9% to $1.739 billion.
- All three segments improved operating results substantially versus 2020, when major impairment and inventory charges drove losses. In 2021, Wellbore Technologies reported $74 million operating profit, Completion & Production Solutions a $65 million operating loss, and Rig Technologies $43 million operating profit.
- The improvement in GAAP operating results principally reflects the absence of 2020’s $2.423 billion of “Other Items,” including goodwill, intangible and long-lived asset impairments. 2021 Other Items were $57 million. Adjusted EBITDA nevertheless declined to $229 million from $350 million.
- Year-end capital-equipment backlog increased to $1.287 billion in Completion & Production Solutions from $695 million, and to $2.767 billion in Rig Technologies from $2.669 billion. No comparable Wellbore Technologies backlog figure is provided here.
Outlook, management commentary and risks
Management said recovering commodity prices and demand were supporting a gradual industry recovery, and expressed optimism that improving market fundamentals and company actions would support growth and profitability. It also highlighted continued supply-chain disruption, materials shortages, shipping delays, labor constraints and inflation into 2022. The filing provides no formal company-wide earnings or revenue guidance. NOV expected to recognize about $1.125 billion of Completion & Production Solutions backlog revenue and $692 million of Rig Technologies backlog revenue in 2022; these are estimates, not guaranteed sales.
NOV is pursuing opportunities in offshore and onshore wind, geothermal, and carbon capture and sequestration, while continuing to develop lower-emissions oilfield products. The company’s principal risks include volatile oil and gas prices and customer spending, COVID-related disruptions, inflation and supply constraints, international political and currency exposure, sanctions and trade restrictions, climate and energy-transition policies, cybersecurity, skilled-labor availability, project execution and cost-estimation risk, and potential litigation or environmental, product-liability and regulatory claims. Management said recorded reserves covered contingencies considered probable, but total potential losses could not be determined; it believed any unprovided ultimate liability would not materially affect results, while cautioning actual outcomes could differ.
Notable items: NOV repaid $182 million of 2.60% notes in April 2021, recording a $7.1 million extinguishment loss; its earliest remaining bond maturity was 2029. No goodwill or indefinite-lived intangible impairment was recorded in 2021. However, $725 million of goodwill was in reporting units without substantial fair-value headroom; Rig Equipment and XL Systems together held $725 million of remaining goodwill and could face impairment if market conditions weaken or capital costs rise. Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether operating cash flow and Adjusted EBITDA recover as activity improves, given their declines in 2021.
- Backlog conversion, order intake, margins and customer ability to fund or complete projects, particularly in Completion & Production Solutions.
- Whether supply-chain, freight, materials and labor inflation pressures ease, and how well NOV can pass through higher costs.
- Goodwill valuation assumptions and sensitivity at Rig Equipment and XL Systems, as well as potential future inventory-reserve needs.
- Liquidity and debt capacity, including foreign-held cash, bilateral letters of credit, and the Saudi joint-venture borrowing.
- Progress and commercial returns from energy-transition initiatives, alongside exposure to changes in oil and gas demand and regulation.