NOV Inc. (NOV) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless stated otherwise, amounts are in millions of U.S. dollars. NOV supplies equipment and technology to the global energy industry through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,889 | $1,341 | $5,164 | $4,007 |
| Gross profit | $368 | $185 | $891 | $572 |
| Operating profit (loss) | $55 | $(43) | $102 | $(119) |
| Net income (loss) attributable to NOV | $32 | $(69) | $51 | $(210) |
| Diluted EPS | $0.08 | $(0.18) | $0.13 | $(0.54) |
| Adjusted EBITDA (non-GAAP) | $195 | $56 | $448 | $160 |
- Q3 revenue rose 41% year over year and 9% sequentially. Gross margin was approximately 19.5%, versus 13.8% a year earlier; operating margin was approximately 2.9%, versus negative 3.2%.
- Q3 Adjusted EBITDA was 10.3% of revenue. Management reported sequential improvement across all three segments.
- For the first nine months, operating cash flow was negative $333, compared with positive $255 in 2021. Cash used in investing was $173, including $148 of capital expenditures; financing used $72, including $59 of dividends. Cash declined $593 to $998.
- At September 30, cash was $998, total debt $1,730, and net debt approximately $732 (calculated as debt less cash). Current assets were $5,179 and current liabilities $2,247. Long-term lease liabilities were $546. The $2.0 billion revolving credit facility was undrawn, with $2.0 billion available; NOV reported covenant compliance and a 28.5% debt-to-capitalization ratio against a 60% maximum.
Segments and material changes
- Wellbore Technologies: Q3 revenue $741, up 46% year over year; operating profit $74, including $31 of Other Items; Adjusted EBITDA $145.
- Completion & Production Solutions: Q3 revenue $681, up 42%; operating profit $21, including $19 of Other Items; Adjusted EBITDA $56. Orders were $493 and shipments from backlog $425 (116% book-to-bill); capital equipment backlog was $1,478.
- Rig Technologies: Q3 revenue $511, up 31%; operating profit $22, including $13 of Other Items; Adjusted EBITDA $52. Orders were $119 and backlog shipments $202 (59% book-to-bill); capital equipment backlog was $2,781.
- All three segments reported higher Q3 revenue than a year earlier. The nine-month company-level turnaround to operating profit and net income contrasts with losses in the comparable 2021 period.
- Remaining performance obligations were $4,151 at quarter-end; NOV expected to recognize approximately $372 in the remainder of 2022 and $3,779 in 2023 and thereafter. These figures exclude certain short-term, service, and royalty contracts.
Outlook, risks and unusual items
- Management said it believes the industry is in the early stages of an extended recovery, citing rising activity, tight inventories and energy-security concerns. It noted inflation, supply-chain disruption, recession concerns and fiscal tightening. No specific company-wide earnings or revenue guidance was provided.
- Management expects continued growth in energy-transition opportunities, including wind, geothermal, rare-earth extraction, biogas and carbon sequestration. Segment demand remains sensitive to oilfield activity, commodity prices and customers’ capital spending.
- Russia and Belarus actions generated $76 of Q3 and $125 of nine-month impairment and other charges, including $51 of accumulated currency-translation losses. NOV sold its Belarus business and planned to sell its Russian businesses, subject to Russian government approval; Russian assets and liabilities were classified as held for sale. Q3 Other Items netted to $63 after $13 of inventory-related credits.
- Other disclosed risks include COVID-related supply-chain and operational disruption, inflation and materials shortages, sanctions and trade restrictions, energy-transition-driven demand shifts, foreign-exchange exposure, litigation and regulatory matters. NOV said the potential total loss from certain contingencies cannot be determined.
- NOV paid a $51 Danish transfer-pricing assessment and is appealing; it recorded the amount as a long-term receivable and believes it will be reimbursed if its appeal succeeds. The filing also describes drill-bit technology claims with outstanding receivables exceeding $25.
- Approximately $758 of cash was held by foreign subsidiaries and could incur tax if transferred or repatriated. Cash-flow weakness was primarily attributed to working-capital changes, including higher receivables and inventories.
Important facts for investors to verify
- Whether operating cash flow recovers as receivables, inventory and contract assets convert to cash.
- How much reported profitability depends on the energy-market recovery versus excluded Other Items; review the non-GAAP Adjusted EBITDA reconciliation.
- Timing, regulatory approval and final proceeds or liabilities from the planned Russia sale, and any further sanctions-related charges.
- Conversion and timing of the $4,151 remaining performance obligations and segment backlogs, particularly the low Rig Technologies quarterly book-to-bill.
- Outcome and collectability of the $51 Danish tax receivable and the drill-bit technology claims, as well as any material change in litigation or contingency exposure.