NOV Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement figures are in millions unless stated otherwise. Interim financial statements are unaudited.
Business context
NOV supplies equipment and technology to the global energy industry and serves customers in 61 countries. During the period it reported three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. Management said it plans to reorganize into Energy Equipment and Energy Products and Services, effective January 1, 2024.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,185 | $1,889 | $6,240 | $5,164 |
| Gross profit / margin | $468 / 21.4% | $368 / 19.5% | $1,336 / 21.4% | $891 / 17.3% |
| Operating profit / margin | $183 / 8.4% | $55 / 2.9% | $490 / 7.9% | $102 / 2.0% |
| Net income attributable to NOV | $114 | $32 | $395 | $51 |
| Diluted EPS attributable to NOV | $0.29 | $0.08 | $1.00 | $0.13 |
| Adjusted EBITDA | $267 (12.2% of revenue) | $195 | $707 | $448 |
| Operating cash flow | Not separately stated | Not separately stated | $(234) | $(333) |
| Capital expenditures | Not separately stated | Not separately stated | $207 | $148 |
Q3 revenue rose 16% year over year and 4% sequentially; nine-month revenue rose 21%. Q3 net income attributable to NOV was 5.2% of revenue versus 1.7% a year earlier. Adjusted EBITDA is a non-GAAP measure defined by the company and should be considered alongside GAAP results.
Segments and orders
| Segment | Q3 revenue (year-over-year change) | Q3 operating profit |
|---|---|---|
| Wellbore Technologies | $799 (+8%) | $123 |
| Completion & Production Solutions | $760 (+12%) | $47 |
| Rig Technologies | $686 (+34%) | $86 |
Completion & Production Solutions booked $530 million of orders, a 114% book-to-bill ratio; capital equipment backlog was $1.626 billion. Rig Technologies booked $178 million of orders, a 72% book-to-bill ratio, and recorded a $145 million backlog adjustment, primarily from contractual inflation indexation; backlog was $2.968 billion. The company expects approximately $378 million of remaining performance obligations to be recognized in the rest of 2023 and $3.933 billion in 2024 and thereafter.
Liquidity, debt and balance sheet
At September 30, 2023, cash and cash equivalents were $513 million, down from $1.069 billion at year-end 2022. Total debt was $1.729 billion, broadly unchanged from $1.730 billion; cash less total debt therefore moved to a net debt position of approximately $1.216 billion, from $661 million. Current assets were $5.658 billion and current liabilities $2.369 billion. Long-term lease liabilities were $559 million.
Nine-month operating cash use was $234 million, with working-capital movements—including $479 million of cash use from inventories and $258 million from receivables—among the principal drivers. Investing cash use was $211 million, including $207 million of capital expenditures; financing cash use was $106 million, including $60 million of dividends. Cash declined by $556 million during the period.
The $2.0 billion revolving credit facility had no outstanding borrowings or letters of credit and was reported fully available. NOV was within its maximum 60% debt-to-capitalization covenant, with a reported ratio of 26.1%. Approximately $462 million of cash was held by foreign subsidiaries and could incur tax if transferred or repatriated. NOV also had $492 million of letters of credit under bilateral facilities.
Management outlook, risks and unusual items
- Management described the industry as being in an early-stage, extended recovery, citing energy security concerns and constrained production capacity, while cautioning that recession concerns, inflation, fiscal tightening and commodity-price volatility could pressure activity.
- The filing gives no specific full-year revenue or earnings guidance. Management expects the new organizational structure to support cost reductions, but expects unspecified restructuring charges in Q4 2023 and the first half of 2024.
- Q3 included $7 million of operating-profit “Other Items”: $13 million of early-retirement and other charges, partly offset by $6 million of inventory-sale gains. The prior-year quarter included $76 million of impairment and other charges, primarily related to Russia and Belarus; these items materially affect period comparisons.
- NOV expects to complete the sale of its Russian entities within 12 months, subject to regulatory approval. It warned that Russian laws, sanctions and possible expropriation could hinder the transaction or create additional costs.
- NOV is litigating with drill-bit licensees over unpaid royalties. It accrued an additional $21 million in Q3, bringing accrued receivables for the disputed royalties to $82 million; collection and litigation outcomes are uncertain.
- Other disclosed exposures include supply-chain and labor disruptions, inflation, customer delays or cancellations, energy-transition-related demand risks, foreign exchange, and legal, regulatory and product-liability matters. NOV recorded a $58 million foreign-exchange loss in the first nine months, versus a $14 million gain in the prior-year period.
- Tax matters include a $51 million Danish transfer-pricing assessment paid while under appeal and an IRS proposed adjustment that could result in $48 million of additional tax expense if NOV is unsuccessful. Management said a year-end deferred-tax-asset review could reduce valuation allowances and lower Q4 tax expense; any amount is not specified.
Most important facts for investors to verify
- Whether operating cash flow and working-capital investment improve, particularly given inventory growth and the sharp decline in cash.
- Whether segment margin gains and the capital-equipment backlog convert into profitable revenue, and whether new orders sustain or exceed shipments.
- The outcome and timing of the Russian business sale, drill-bit royalty litigation, and the Danish and U.S. tax matters.
- The amount and timing of restructuring charges and any resulting savings from the 2024 segment reorganization.
- Whether commodity-market, supply-chain, labor, currency and energy-transition risks alter customer spending or NOV’s earnings outlook.