NOV Inc. 2020 Form 10-K Summary
Business context and reporting period
NOV is a global equipment, technology, and services provider to the energy industry, operating through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. This annual report covers the year ended December 31, 2020; fourth-quarter results are also highlighted. Amounts below are U.S. dollars.
Results reflected the severe 2020 oil-and-gas downturn: COVID-19-related demand destruction, the early-year supply surge, and lower customer spending. Average worldwide rig activity fell 38% year over year; average WTI crude and natural gas prices declined 31% and 20%, respectively.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $6.09 billion | $8.48 billion |
| Gross profit | $434 million | $845 million |
| Operating loss | $2.43 billion | $6.28 billion |
| Net loss attributable to NOV | $2.54 billion; $6.62 per diluted share | $6.10 billion; $15.96 per diluted share |
| Adjusted EBITDA | $350 million | $885 million |
| Cash from operating activities | $926 million | $714 million |
| Capital expenditures | $226 million | $233 million |
| Cash and cash equivalents at year-end | $1.69 billion | $1.17 billion |
| Total debt at year-end | $1.83 billion | $1.99 billion |
Gross margin was approximately 7.1% in 2020 versus 10.0% in 2019. Operating loss included $2.42 billion of “Other Items,” principally impairment charges, inventory write-downs, and restructuring costs. NOV recorded $1.30 billion of goodwill impairment, $83 million of indefinite-lived intangible impairment, and $513 million of long-lived asset impairment. Cash generation benefited from working-capital reductions, including collections of receivables and lower inventory.
At year-end, NOV had $2.0 billion available under its revolving credit facility, no borrowings under that facility, and reported a 28.4% debt-to-capitalization ratio against a 60% covenant limit. Approximately $1.04 billion of cash was held by foreign subsidiaries. The company paid $19 million in dividends in 2020, or $0.05 per share, and stated it had no plans to pay future dividends.
Material changes versus prior comparable periods
- Full-year revenue decreased 28% from 2019. Wellbore Technologies revenue fell 42%, Completion & Production Solutions fell 12%, and Rig Technologies fell 28%.
- Full-year operating loss and net loss improved substantially from 2019, when NOV recorded larger impairment charges; the 2020 results nevertheless remained deeply loss-making.
- Fourth-quarter revenue was $1.33 billion, down 4% sequentially and 42% from fourth-quarter 2019. Fourth-quarter net loss was $347 million, versus a $385 million loss a year earlier and a $55 million loss in third-quarter 2020.
- Fourth-quarter Adjusted EBITDA was $17 million, compared with $71 million in third-quarter 2020 and $288 million in fourth-quarter 2019. Fourth-quarter Other Items were $236 million.
- Year-end Completion & Production Solutions backlog declined 47% to $696 million; Rig Technologies backlog declined 11% to $2.7 billion.
Outlook, management commentary, risks, and unusual items
Management expected industry activity and customer spending to remain depressed in early 2021, while expressing optimism that improving commodity prices, rising activity, and company actions could improve profitability over the course of 2021. The company said it would continue streamlining operations while investing in technology, including lower-emissions products and renewable-energy opportunities. These statements are forward-looking and are not guaranteed.
NOV estimated approximately $621 million of Completion & Production Solutions backlog revenue and $556 million of Rig Technologies backlog revenue for 2021. Total remaining performance obligations were $3.69 billion, with approximately $905 million expected to be recognized in 2021. Backlog may be delayed, cancelled, or fail to generate a profit.
Key risks include continued oil-and-gas market volatility; persistent effects of COVID-19; customer cancellations, delayed payments, or insolvencies; supply-chain and project execution problems; international, currency, trade, and regulatory exposures; and environmental, climate-transition, cybersecurity, and litigation risks. Management also cautioned that weaker market conditions could prompt further impairments or inventory allowances. Several reporting units had limited fair-value headroom at year-end.
Unusual 2020 items included a $224 million impairment of an equity investment in an unconsolidated affiliate, a $260 million equity loss in unconsolidated affiliates, and an $8.2 million loss on extinguishment of debt following a tender offer for $217.3 million of notes. NOV reported $446 million of outstanding letters of credit under bilateral facilities. The filing describes legal and regulatory matters but does not quantify a total potential loss; management said it believed reserves for probable contingencies were sufficient.
Most important facts for investors to verify
- Whether early-2021 activity recovery translated into sustained revenue, positive operating results, and stronger Adjusted EBITDA.
- Whether cash from operations remains robust when working-capital benefits normalize, given the large 2020 net loss and capital needs.
- Whether additional asset impairment or inventory charges arise, especially in reporting units with limited fair-value headroom.
- Whether backlog converts to revenue as projected, and whether order intake improves enough to replenish declining backlog.
- How customer credit quality, international cash availability, debt maturities, and the company’s dividend policy evolve.