NOV Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. NOV is a global energy equipment and technology provider. Effective January 1, 2024, it reorganized reporting into Energy Products and Services and Energy Equipment; prior-period segment figures were restated.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $2.155 billion | $1.962 billion | +10% |
| Gross profit / margin | $458 million / 21.3% | $411 million / 20.9% | Margin +0.4 pts |
| Operating profit / margin | $162 million / 7.5% | $126 million / 6.4% | +29%; margin +1.1 pts |
| Net income attributable to NOV | $119 million | $126 million | −6% |
| Diluted EPS | $0.30 | $0.32 | −6% |
| Adjusted EBITDA / margin | $241 million / 11.2% | $195 million / 9.9% | +24%; margin +1.3 pts |
| Operating cash flow | $(78) million | $(202) million | Improved by $124 million |
| Capital expenditures | $69 million | $57 million | +$12 million |
Net income declined despite higher operating profit, primarily due to a higher effective tax rate and lower equity income from unconsolidated affiliates. The effective tax rate was 26.7%, versus 13.8% a year earlier. Adjusted EBITDA is a non-GAAP measure.
Segments and demand
- Energy Products and Services: Revenue rose 8% to $1.017 billion; operating profit increased to $121 million from $112 million. Management cited stronger international and offshore demand, North American market-share gains, and an acquisition.
- Energy Equipment: Revenue rose 12% to $1.178 billion; operating profit increased to $95 million from $71 million. Management cited execution on capital-equipment backlog and improved aftermarket demand.
- Energy Equipment booked $390 million of new orders against $507 million shipped from backlog (77% book-to-bill). Capital-equipment backlog was $3.955 billion, up $115 million year over year; approximately 36% was expected to convert to revenue during the remainder of 2024.
Liquidity, debt, and cash flow
At March 31, cash and equivalents were $468 million, down from $816 million at year-end 2023; total debt was $1.808 billion, up from $1.725 billion. The resulting net debt was approximately $1.340 billion, compared with $909 million at year-end. Approximately $453 million of cash was held by foreign subsidiaries. NOV had $1.95 billion available under its revolving facility, with $50 million drawn, and was in compliance with its 60% maximum debt-to-capitalization covenant at 24.5%.
Operating cash use of $78 million reflected working-capital movements, including reductions in accounts payable and accrued liabilities. Investing cash use was $311 million, including $243 million for acquisitions and $69 million of capital expenditures. Financing provided $43 million, including $83 million of borrowings and offset by $20 million in dividends. Current assets were $5.688 billion and current liabilities $2.272 billion.
Outlook, developments, and risks
- Management described the industry recovery as ongoing and expects energy-security needs and constrained production capacity to support activity, while noting commodity-price and geopolitical volatility. It also cited opportunities in wind, geothermal, rare-earth extraction, biogas, and carbon sequestration. No specific consolidated revenue or earnings guidance was provided.
- Remaining performance obligations were $4.267 billion; NOV expected to recognize approximately $1.079 billion in 2024 and $3.188 billion in 2025 and thereafter.
- In Q1, the company completed two Energy Products and Services acquisitions for $243 million net of cash acquired. Purchase accounting remained preliminary. One acquisition involved White Deer Energy, with director investment interests; disinterested directors approved the transaction.
- NOV completed the sale of its Pole Products business on April 9, 2024. On April 25, the board authorized a share-repurchase program of up to $1 billion over 36 months. Management also said it expected to raise the quarterly dividend from $0.05 to $0.075 per share, with the first higher payment anticipated in Q2 2024; future distributions remain subject to board approval and other conditions.
- NOV is litigating against drill-bit licensees over unpaid royalties. It reported $84 million of related receivables, net of $13 million in credit-loss allowances and a $20 million timing discount, and said collection timing is uncertain. The company believes the royalties are due but gives no assurance on litigation outcomes.
- Other risks include supply-chain and labor disruption, inflation, customer project delays or cancellations, foreign-exchange exposure, trade restrictions and sanctions, and uncertainty around the pending sale of the Russian business. Management said it had recorded reserves for probable contingencies, but actual losses could exceed estimates.
Investor verification points
- Track conversion of backlog and remaining performance obligations, new orders, and the timing of the delayed Energy Equipment order.
- Assess operating cash generation and working-capital trends against reported earnings, acquisition spending, and planned shareholder returns.
- Monitor drill-bit royalty litigation, collection of the related receivables, and any changes to allowances or discounts.
- Review final purchase-price allocations for the Q1 acquisitions and the impact of the Pole Products divestiture.
- Confirm execution and funding of the announced buyback and dividend increase, and monitor debt, foreign-held cash, and revolving-facility availability.