NOV Inc. quarterly report, Q2 FY2022

NOV Inc. — Q2 2022 Form 10-Q

Reporting period: Three and six months ended June 30, 2022. NOV supplies equipment and technology to the global energy industry through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.

Financial performance

MetricQ2 2022Q2 2021Six months 2022Six months 2021
Revenue$1.727 billion$1.417 billion$3.275 billion$2.666 billion
Gross profit$309 million$231 million$523 million$387 million
Operating profit (loss)$68 million$12 million$47 million$(76) million
Net income (loss) attributable to NOV$69 million$(26) million$19 million$(141) million
Diluted EPS$0.18$(0.07)$0.05$(0.37)
Adjusted EBITDA$150 million$104 million$253 million$104 million
  • Q2 revenue rose 22% year over year and 12% sequentially. Gross margin was 17.9%, versus 16.3% a year earlier; operating margin was 3.9%, versus 0.8%.
  • Q2 Adjusted EBITDA margin was 8.7%, compared with 7.3% in Q2 2021. Adjusted EBITDA is a non-GAAP measure.
  • Six-month operating cash flow was negative $227 million, versus positive $150 million in the prior-year period. Management attributed the use of cash primarily to working capital, including receivables and inventory. Capital expenditures were $89 million.
  • Cash and equivalents were $1.218 billion at June 30, down from $1.591 billion at year-end 2021. Total debt was $1.724 billion, up from $1.713 billion; cash less total debt was approximately negative $506 million. Long-term lease liabilities were $563 million.
  • Current assets were $5.093 billion and current liabilities $2.171 billion. NOV had $2.0 billion available under its revolving credit facility, no borrowings under it, and was within its 60% maximum debt-to-capitalization covenant at 28.3%.

Segments and changes versus prior periods

  • Wellbore Technologies: Q2 revenue of $666 million, up 44% year over year; operating profit was $81 million versus $6 million. Management cited activity growth, market-share gains, higher pricing, and improved supply-chain management.
  • Completion & Production Solutions: Q2 revenue of $639 million, up 29%; operating profit was $20 million versus a $6 million loss. New orders were $530 million, a 132% book-to-bill ratio; capital-equipment backlog was $1.442 billion, up 44% year over year.
  • Rig Technologies: Q2 revenue of $462 million, down 5%; operating profit was $31 million versus $49 million. Management cited stronger aftermarket demand and offshore-wind vessel projects as contributors to sequential improvement. New orders were $140 million, an 80% book-to-bill ratio; backlog was $2.839 billion.
  • For the first six months, revenue grew 23% and NOV returned to positive operating and net income, compared with losses in the first half of 2021. Rig Technologies revenue remained below the prior-year level.

Outlook, commentary, and risks

  • Management said it believed the industry was in the early stages of an extended recovery, citing higher activity, energy-security concerns, commodity prices, and reduced inventories and productive capacity. This is commentary, not quantified full-year earnings guidance.
  • At June 30, remaining performance obligations were $4.247 billion; NOV expected to recognize about $678 million in 2022 and $3.569 billion in 2023 and thereafter. Management expected about 55% of Completion & Production Solutions backlog and 14% of Rig Technologies backlog to convert to revenue during the rest of 2022.
  • Risks include supply-chain disruption, inflation and materials shortages, COVID-related restrictions and delays, changes in energy demand and customer spending, and sanctions and the Ukraine conflict. NOV recorded $49 million of Russia-, Belarus-, and Ukraine-related charges in the first half, including $8 million in Q2. It reported about $10 million of remaining assets and $74 million of related currency-translation losses at quarter-end; it expected about $20 million of Belarus translation losses to affect Q3 results following the subsequent sale of its Belarus business.
  • NOV paid a $51 million Danish transfer-pricing tax assessment, is appealing it, and recorded the payment as a long-term receivable. Recovery is uncertain. The filing also discusses litigation, regulatory, intellectual-property, trade-compliance, and other contingent risks; management said the total potential loss on matters discussed could not be determined.
  • About $783 million of cash was held by foreign subsidiaries and could be subject to taxes if transferred or repatriated. The board declared dividends of $0.05 per share in each quarter; future dividends remain discretionary.

Key facts for investors to verify

  • Whether improving segment revenue and Adjusted EBITDA translate into sustained operating cash generation as working-capital investment rises.
  • Backlog conversion timing, order trends, and the balance between recovering oil-and-gas demand and the still-weak year-over-year Rig Technologies performance.
  • Further Russia and Belarus charges, sanctions-related operating changes, and the expected Q3 currency-translation impact.
  • Outcome and timing of the Danish tax appeal and any material developments in litigation or regulatory matters.
  • Availability and location of cash, debt and covenant headroom, and the sustainability of dividends amid cash-flow needs.