NOV Inc. annual report, FY2022

NOV Inc. 2022 Form 10-K Summary

Business context and reporting period

NOV is a global equipment, technology and services provider to the energy industry, operating in 62 countries through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. This annual report covers the year ended December 31, 2022; fourth-quarter results are also summarized below.

Financial performance

Metric20222021
Revenue$7.237 billion$5.524 billion
Gross profit$1.334 billion$774 million
Operating profit (loss)$264 million$(134) million
Net income (loss) attributable to NOV$155 million$(250) million
Diluted earnings (loss) per share$0.39$(0.65)
Adjusted EBITDA$679 million$229 million
Cash from operating activities$(179) million$291 million
Capital expenditures$214 million$201 million

Revenue rose 31% year over year. Gross margin was approximately 18.4% versus 14.0%; operating margin was 3.6% versus negative 2.4%. Operating cash flow turned negative, primarily reflecting increased receivables, inventory and contract assets.

At year-end, cash and cash equivalents were $1.069 billion and total debt was $1.730 billion, compared with $1.591 billion and $1.713 billion, respectively, a year earlier. NOV reported a 27.7% debt-to-capitalization ratio, compliance with its 60% covenant limit, and $2.0 billion available under its revolving credit facility. Approximately $756 million of cash was held by foreign subsidiaries. The current ratio was approximately 2.3, based on reported current assets and liabilities.

Material changes versus prior periods

  • Worldwide average rig activity increased 28% in 2022; average WTI crude and natural gas prices rose 39% and 64%, respectively, compared with 2021.
  • Revenue increased across all segments: Wellbore Technologies 42% to $2.777 billion; Completion & Production Solutions 32% to $2.588 billion; and Rig Technologies 17% to $2.034 billion.
  • All three segments returned to annual operating profit. Segment operating margins were 10.9% for Wellbore Technologies, 2.7% for Completion & Production Solutions, and 7.1% for Rig Technologies.
  • Fourth-quarter revenue was $2.07 billion, up 10% sequentially and 37% year over year. Net income was $104 million; adjusted EBITDA was $231 million, versus $195 million in Q3 2022 and $69 million in Q4 2021.
  • Dividends declared totaled $0.20 per share in 2022, up from $0.05 in 2021. Cash dividends paid were $78 million.

Outlook, commentary, risks and unusual items

Management described the industry as being in the early stages of an extended recovery, citing low global inventories, constrained productive capacity, energy-security concerns and higher commodity prices. It expects continued growth in energy-transition markets, including offshore wind, geothermal and carbon capture, but gave no specific company-wide revenue or earnings guidance.

Year-end capital-equipment backlog was $1.602 billion for Completion & Production Solutions and $2.793 billion for Rig Technologies. The company expected approximately $1.299 billion and $799 million, respectively, to convert to revenue in 2023. Backlog is subject to customer, supplier, cost and delivery risks and is not assured to be realized profitably.

  • NOV recorded $127 million of Russia/Belarus impairment and other charges in 2022, including $51 million of accumulated foreign-currency translation losses. It sold its Belarus business, curtailed Russian activity and planned to sell its Russian business, subject to Russian government approval.
  • Operating cash flow was pressured by working-capital investment; supply-chain disruption, inflation, labor availability and fixed-price project cost overruns remain risks.
  • Other key exposures include volatile oil and gas activity and prices, foreign exchange, sanctions and geopolitical developments, climate and energy-transition regulation, cybersecurity, and potential environmental, product-liability and legal claims.
  • NOV paid a $51 million Danish transfer-pricing assessment and recorded it as a long-term receivable while appealing; management believes the assessment is without merit and expects reimbursement if the appeal succeeds.
  • The company reported a $68 million equity-method income in 2022, compared with a $5 million loss in 2021; this contributed to the improvement in net income.

Most important facts for investors to verify

  • Whether working capital converts into operating cash flow as backlog is delivered and receivables are collected.
  • Backlog conversion, margins and project execution—especially the 2023 expected deliveries and exposure to cost overruns or customer delays.
  • Progress and approval status of the planned Russian business sale, and any further sanctions-related costs.
  • The status and recoverability of the $51 million Danish tax receivable and other material contingencies.
  • Whether oilfield activity and energy-transition growth support sustained earnings improvement despite commodity-price, supply-chain and regulatory risks.