NOV Inc. quarterly report, Q1 FY2022

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NOV Inc. Q1 2022 Form 10-Q Summary

Business 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 report covers the three months ended March 31, 2022; comparisons are primarily with Q1 2021. Unless stated otherwise, amounts are in millions of U.S. dollars.

Financial results and position

  • Revenue: $1,548, up 24% year over year. Gross profit was $214, for a 13.8% gross margin, versus $156 and 12.5% a year earlier.
  • Profitability: Operating loss was $21, an improvement from $88; operating margin was negative 1.4%, versus negative 7.0%. Net loss attributable to NOV was $50, or $0.13 per diluted share, compared with $115, or $0.30 per share. SG&A was $235 versus $244.
  • Adjusted EBITDA: $103, or 6.7% of revenue, compared with $0 in Q1 2021 as presented in the company’s non-GAAP reconciliation. This measure excludes specified items and is not a GAAP measure.
  • Cash flow and investment: Operating cash outflow was $103 versus $27 outflow in Q1 2021, with receivables and inventory uses of cash of $156 and $133, respectively. Capital expenditures were $46; investing cash outflow was $49. Cash dividends paid were $20. Cash decreased $185 to $1,406.
  • Liquidity and debt: Cash was $1,406 and total debt $1,714 at quarter end, implying net debt of about $308. The company reported $2.0 billion available under its revolving facility and compliance with its debt covenant (28.1% debt-to-capitalization against a 60% maximum). Lease liabilities totaled $661. About $857 of cash was held by foreign subsidiaries and could be subject to tax if transferred or repatriated.
  • Other balance-sheet indicators: Total assets were $9,553; stockholders’ equity was $5,010. Current assets of $4,949 compared with current liabilities of $1,979. Receivables were $1,465 and net inventory $1,440.

Changes and segment performance

  • All three segments increased revenue year over year. Wellbore Technologies revenue rose 47% to $608 and operating profit improved to $39 from a $14 loss. Completion & Production Solutions revenue rose 21% to $530, while its operating loss widened to $22 from $17. Rig Technologies revenue rose 2% to $441 and operating profit improved to $11 from an $8 loss.
  • Segment results reflected better activity, pricing, sales mix, and cost savings, but continued supply-chain and operating disruptions. Management attributed Wellbore improvement to growing drilling activity, improved mix and pricing; Rig profitability also benefited from cost initiatives and pricing.
  • Completion & Production Solutions booked $339 of orders against $308 shipped from backlog (110% book-to-bill); its capital equipment backlog was $1,364, up 68% year over year. Rig Technologies booked $236 against $190 shipped (124% book-to-bill) and recorded an $80 positive backlog adjustment, primarily contractual inflation index adjustments; its backlog was $2,893.
  • Worldwide average rig count increased 34% year over year to 1,654. Q1 average WTI crude was $94.54 per barrel, up 64% year over year, while natural gas averaged $4.62 per MMBtu, up 30%.

Outlook, risks, and unusual items

  • Management expressed optimism that improving energy-market fundamentals and higher activity could support growth and improved profitability, while acknowledging raw-material shortages, supply-chain disruption, inflation, and COVID-related restrictions. NOV is also pursuing energy-transition opportunities, including wind, geothermal, biogas, rare-earth extraction, and carbon sequestration. The filing does not provide a clear full-year earnings or revenue forecast.
  • Remaining performance obligations were $4,193 at March 31; NOV expected to recognize approximately $1,043 in 2022 and $3,150 in 2023 and thereafter. The company expected about 76% of Completion & Production Solutions backlog and 21% of Rig Technologies backlog to convert to revenue during the rest of 2022.
  • Q1 included $45 of pre-tax “Other Items,” including approximately $41 of impairment and other charges associated with Russia, Belarus, and Ukraine. At quarter end, about $30 of related assets and $67 of related currency translation losses remained. NOV had stopped new investment and curtailed activity in Russia, and was evaluating further curtailment, sale, or wind-down options. Further sanctions or conflict effects could cause additional charges.
  • Other material risks include supply-chain delays and materials shortages, COVID-related disruptions and customer cancellations or payment delays, oil-and-gas demand and energy-transition pressures, foreign-exchange exposure, trade and sanctions compliance, and litigation or regulatory matters. Management said potential total losses on contingencies could not be determined; it had accrued amounts believed sufficient for probable contingencies.
  • Operating cash flow weakened substantially year over year, mainly amid working-capital demands. Management believed cash, operating cash generation, and available borrowing capacity would be sufficient for operating and financing needs, but this expectation is forward-looking.
  • Management concluded disclosure controls were effective at a reasonable assurance level. A broad migration of financial systems to a cloud platform required modifications to internal controls over financial reporting during the quarter.

Important facts for investors to verify

  1. Whether revenue growth and improved segment profitability persist, particularly as supply constraints and inflation affect costs and execution.
  2. Whether the $103 operating cash outflow reflects temporary working-capital investment and how receivables and inventory convert to cash.
  3. Backlog quality, order cancellations or delays, and the timing of the expected backlog and remaining-performance-obligation conversion.
  4. Further financial, operational, legal, and sanctions-related consequences for Russia and Belarus, including the recoverability of remaining assets and potential additional charges.
  5. Access to foreign-held cash, covenant compliance, and liquidity after dividends, capital spending, debt service, and any future acquisitions.