NOV Inc. quarterly report, Q2 FY2021

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NOV Inc. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited and prepared under U.S. GAAP. NOV supplies equipment and technology to the global energy industry through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.

Financial performance

  • Revenue: Q2 revenue was $1.417 billion, down 5% from $1.496 billion in Q2 2020. First-half revenue was $2.666 billion, down 21% from $3.379 billion.
  • Profitability: Q2 gross profit was $231 million, a 16.3% gross margin, versus $137 million and 9.2% a year earlier. Operating profit was $12 million (0.8% margin), compared with a $100 million operating loss. Net loss attributable to NOV was $26 million, or $0.07 per share, versus $93 million, or $0.24 per share. First-half operating loss was $76 million and net loss attributable to NOV was $141 million.
  • Adjusted EBITDA: Q2 Adjusted EBITDA was $104 million, or 5.9% of sales, versus $84 million a year earlier. It included $15 million of net other items; this non-GAAP measure is not a substitute for GAAP results.
  • Cash flow and investment: First-half operating cash flow was $150 million, compared with $417 million in 2020. Investing cash use was $89 million, including $98 million in capital expenditures; financing cash use was $182 million, including repayment of $182 million of notes. Cash declined $120 million to $1.572 billion.
  • Liquidity and debt: At June 30, cash was $1.572 billion and total debt was $1.686 billion; lease liabilities were $700 million. NOV reported $2.0 billion available under its revolving credit facility and compliance with covenants, including a 27.2% debt-to-capitalization ratio against a 60% maximum. About $906 million of cash was held by foreign subsidiaries.
  • Margins and segment results: Wellbore Technologies generated $463 million revenue and $6 million operating profit; Completion & Production Solutions generated $497 million revenue and a $6 million operating loss; Rig Technologies generated $487 million revenue and $49 million operating profit.

Material changes and unusual items

  • Q2 revenue rose sequentially from $1.25 billion in Q1 2021, and operating results improved from an $88 million Q1 operating loss to $12 million of profit. Management attributed improvement to higher activity and sales, while results also benefited from unusual Rig Technologies revenue.
  • Rig Technologies Q2 revenue included $74 million related to cancellation of offshore rig projects, contributing $57 million of Adjusted EBITDA. Investors should distinguish this item from recurring operating performance.
  • First-half 2020 included $1.891 billion of asset impairment charges and other substantial charges; these materially affect year-over-year comparisons. NOV reported $42 million of first-half 2021 restructuring, facility-closure, and inventory write-down charges, net of related credits.
  • On April 9, NOV repaid its $182 million 2.60% notes due 2022 using cash, paying $191 million including premium and interest. It recorded a $7.1 million debt-extinguishment loss. The earliest remaining bond maturity is 2029. The revolving facility maturity was extended to October 2025, with lower capacity during its final year.
  • NOV paid no dividends in the first half of 2021; the Board determines future dividends at its discretion.

Outlook, risks, and contingencies

  • Management was optimistic that recovering commodity prices, activity and demand would support growth and improved profitability, while noting COVID-related disruptions, supply-chain constraints and inflation. The filing provides no specific full-year revenue or earnings guidance.
  • Remaining performance obligations were $3.867 billion at June 30; NOV expected to recognize approximately $594 million in the rest of 2021 and $3.273 billion in 2022 and thereafter. Capital equipment backlog was $1.0 billion for Completion & Production Solutions and $2.66 billion for Rig Technologies. Timing and conversion depend on customer and supplier actions.
  • Key risks include oil and gas prices and customer spending, energy-transition-related demand changes, COVID-19 impacts, supply-chain and labor disruptions, project delays or cancellations, customer payment risk, foreign-exchange movements, and regulatory, trade, litigation, product-liability and intellectual-property matters.
  • NOV said probable contingencies were reserved, but outcomes can exceed estimates and some claims may not be insured. It could not quantify total potential loss on certain matters; management did not expect unprovided liabilities to materially affect results, while acknowledging possible financial or reputational impact.
  • Foreign-exchange losses were approximately $19 million in the first half of 2021. NOV estimated a hypothetical 10% currency move could affect net income by $36 million on transactional exposures.

Important facts for investors to verify

  • Whether the Q2 operating improvement persists after excluding the $74 million offshore-project cancellation revenue and associated EBITDA contribution.
  • Whether improving activity and orders convert into revenue, cash flow and sustainable segment profitability, especially in Completion & Production Solutions.
  • Conversion and timing of the $3.867 billion remaining performance obligations and segment backlogs, including customer cancellations or delays.
  • Cash-flow trends, working-capital needs, foreign-held cash accessibility, and debt and lease obligations; confirm continued covenant compliance and facility availability.
  • Developments in COVID-19, supply-chain, inflation, energy-transition, foreign-exchange, legal and regulatory risks, and the potential effect on NOV’s results.