NOV Inc. — Q1 2023 Form 10-Q
Business context and period: NOV is a global equipment and technology provider to the energy industry, operating through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. This unaudited filing covers the three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1.962 billion | $1.548 billion |
| Gross profit / margin | $411 million / 21.0% | $214 million / 13.8% |
| Operating profit (loss) / margin | $126 million / 6.4% | $(21) million / (1.4)% |
| Net income (loss) attributable to NOV | $126 million; $0.32 per diluted share | $(50) million; $(0.13) per diluted share |
| Adjusted EBITDA / margin | $195 million / 9.9% | $103 million / 6.7% |
| Net cash used in operating activities | $(202) million | $(103) million |
| Capital expenditures | $57 million | $46 million |
Revenue increased 27%; gross profit rose 92%, and NOV returned to operating and net profitability. Q1 2023 results included $48 million of equity income from unconsolidated affiliates, compared with $6 million in the prior-year quarter, and a $4 million pre-tax credit in Other Items. Adjusted EBITDA is a non-GAAP measure defined by the company and should be considered supplemental to GAAP results.
Segments
- Wellbore Technologies: Revenue $745 million, up 23%; operating profit $96 million versus $39 million. Management cited supply-chain challenges affecting drill-pipe operations.
- Completion & Production Solutions: Revenue $718 million, up 35%; operating profit $44 million versus a $22 million loss. Capital-equipment backlog was $1.601 billion; orders were $407 million and book-to-bill was 96%.
- Rig Technologies: Revenue $550 million, up 25%; operating profit $53 million versus $11 million. Capital-equipment backlog was $2.876 billion; orders were $251 million and book-to-bill was 140%.
Liquidity, debt and balance sheet
- Cash and equivalents were $774 million at March 31, down $295 million from year-end 2022. Total debt was $1.732 billion, leaving approximately $958 million of net debt; long-term lease liabilities were $556 million.
- Current assets were $5.422 billion and current liabilities $2.308 billion. Inventories rose to $2.036 billion from $1.813 billion at year-end.
- NOV had a $2.0 billion revolving credit facility with no borrowings or letters of credit issued under it and reported $2.0 billion available. Debt-to-capitalization was 27.0%, below the 60% covenant limit; the company reported compliance with its covenants.
- Approximately $611 million of cash was held by foreign subsidiaries and could be subject to withholding and incremental U.S. taxes if transferred or repatriated. Separate bilateral facilities supported $464 million of outstanding letters of credit.
- Operating cash use was driven primarily by working-capital movements, including a $221 million inventory cash use and a $201 million decrease in accrued liabilities. Dividends paid were $20 million, or $0.05 per share.
Outlook, risks and unusual items
- Outlook: Management described the industry as being in an early-stage extended recovery and expects diminished oil and gas production capacity and energy-security concerns to support activity. It cautioned that recession concerns, tighter fiscal policy, volatile commodity prices, inflation, and supply-chain disruption could weigh on near-term conditions. No specific full-year financial guidance was provided.
- Backlog: Remaining performance obligations were $4.224 billion; NOV expected to recognize about $1.083 billion during the remainder of 2023 and $3.141 billion in 2024 and thereafter. Management expected approximately 72% of Completion & Production Solutions backlog and 24% of Rig Technologies backlog to convert to revenue during the rest of 2023.
- Russia: Russian assets and liabilities were classified as held for sale, with completion of the planned sale expected within 12 months subject to government approval. NOV had curtailed activity and ceased new investment; regulatory approval delays could result in litigation or severance costs. Q1 2022 included $41 million of Russia-related impairment and other charges and $45 million of total Other Item charges; Q1 2023 included a $4 million net credit.
- Other risks and contingencies: The filing discusses supply-chain and labor constraints, inflation, customer project delays or cancellations, energy-transition and hydrocarbon-demand uncertainty, foreign-exchange exposure, and potential litigation/regulatory liabilities. NOV is appealing a $51 million Danish transfer-pricing assessment paid in 2022 and recorded as a long-term receivable. It also reported approximately $40 million of outstanding receivables in drill-bit intellectual-property licensing disputes; claims may increase.
- Foreign exchange: NOV recorded a $9 million foreign-exchange loss in Q1 2023. It estimated that a hypothetical 10% currency move could affect net income by $29 million and other comprehensive income by $37 million, based on disclosed exposures.
Important facts for investors to verify
- Whether operating cash flow improves as inventory and other working-capital demands normalize.
- Whether reported earnings remain supported by operating performance and whether the unusually high equity income from affiliates recurs.
- Backlog conversion, new order trends, and execution against management’s stated 2023 conversion expectations.
- Timing and approvals for the Russian business sale, and the recoverability of the Danish tax receivable and drill-bit licensing claims.
- Commodity-price, supply-chain, labor, foreign-exchange, and customer-spending developments that could affect demand and margins.