NOV Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. NOV supplies equipment and technology to the global energy industry through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.727 billion | $1.417 billion | $3.275 billion | $2.666 billion |
| Gross profit | $309 million | $231 million | $523 million | $387 million |
| Operating profit (loss) | $68 million | $12 million | $47 million | $(76) million |
| Net income (loss) attributable to NOV | $69 million | $(26) million | $19 million | $(141) million |
| Diluted EPS | $0.18 | $(0.07) | $0.05 | $(0.37) |
| Adjusted EBITDA | $150 million | $104 million | $253 million | $104 million |
- Q2 revenue rose 22% year over year and 12% sequentially. Gross margin was 17.9%, versus 16.3% a year earlier; operating margin was 3.9%, versus 0.8%.
- Q2 Adjusted EBITDA margin was 8.7%, compared with 7.3% in Q2 2021. Adjusted EBITDA is a non-GAAP measure.
- Six-month operating cash flow was negative $227 million, versus positive $150 million in the prior-year period. Management attributed the use of cash primarily to working capital, including receivables and inventory. Capital expenditures were $89 million.
- Cash and equivalents were $1.218 billion at June 30, down from $1.591 billion at year-end 2021. Total debt was $1.724 billion, up from $1.713 billion; cash less total debt was approximately negative $506 million. Long-term lease liabilities were $563 million.
- Current assets were $5.093 billion and current liabilities $2.171 billion. NOV had $2.0 billion available under its revolving credit facility, no borrowings under it, and was within its 60% maximum debt-to-capitalization covenant at 28.3%.
Segments and changes versus prior periods
- Wellbore Technologies: Q2 revenue of $666 million, up 44% year over year; operating profit was $81 million versus $6 million. Management cited activity growth, market-share gains, higher pricing, and improved supply-chain management.
- Completion & Production Solutions: Q2 revenue of $639 million, up 29%; operating profit was $20 million versus a $6 million loss. New orders were $530 million, a 132% book-to-bill ratio; capital-equipment backlog was $1.442 billion, up 44% year over year.
- Rig Technologies: Q2 revenue of $462 million, down 5%; operating profit was $31 million versus $49 million. Management cited stronger aftermarket demand and offshore-wind vessel projects as contributors to sequential improvement. New orders were $140 million, an 80% book-to-bill ratio; backlog was $2.839 billion.
- For the first six months, revenue grew 23% and NOV returned to positive operating and net income, compared with losses in the first half of 2021. Rig Technologies revenue remained below the prior-year level.
Outlook, commentary, and risks
- Management said it believed the industry was in the early stages of an extended recovery, citing higher activity, energy-security concerns, commodity prices, and reduced inventories and productive capacity. This is commentary, not quantified full-year earnings guidance.
- At June 30, remaining performance obligations were $4.247 billion; NOV expected to recognize about $678 million in 2022 and $3.569 billion in 2023 and thereafter. Management expected about 55% of Completion & Production Solutions backlog and 14% of Rig Technologies backlog to convert to revenue during the rest of 2022.
- Risks include supply-chain disruption, inflation and materials shortages, COVID-related restrictions and delays, changes in energy demand and customer spending, and sanctions and the Ukraine conflict. NOV recorded $49 million of Russia-, Belarus-, and Ukraine-related charges in the first half, including $8 million in Q2. It reported about $10 million of remaining assets and $74 million of related currency-translation losses at quarter-end; it expected about $20 million of Belarus translation losses to affect Q3 results following the subsequent sale of its Belarus business.
- NOV paid a $51 million Danish transfer-pricing tax assessment, is appealing it, and recorded the payment as a long-term receivable. Recovery is uncertain. The filing also discusses litigation, regulatory, intellectual-property, trade-compliance, and other contingent risks; management said the total potential loss on matters discussed could not be determined.
- About $783 million of cash was held by foreign subsidiaries and could be subject to taxes if transferred or repatriated. The board declared dividends of $0.05 per share in each quarter; future dividends remain discretionary.
Key facts for investors to verify
- Whether improving segment revenue and Adjusted EBITDA translate into sustained operating cash generation as working-capital investment rises.
- Backlog conversion timing, order trends, and the balance between recovering oil-and-gas demand and the still-weak year-over-year Rig Technologies performance.
- Further Russia and Belarus charges, sanctions-related operating changes, and the expected Q3 currency-translation impact.
- Outcome and timing of the Danish tax appeal and any material developments in litigation or regulatory matters.
- Availability and location of cash, debt and covenant headroom, and the sustainability of dividends amid cash-flow needs.