NOV Inc. — Q1 2021 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021. NOV provides equipment, technology and services to the global energy industry through Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. Unless stated otherwise, financial amounts are in millions of U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1,249 | $1,883 |
| Gross profit / gross margin | $156 / 12.5% | $224 / 11.9% |
| Operating loss | $88 | $1,950 |
| Net loss attributable to NOV | $115 | $2,047 |
| Net loss per diluted share | $0.30 | $5.34 |
| Adjusted EBITDA | $0 | $178 |
| Operating cash flow | $(27) | $39 |
| Capital expenditures | $49 | $68 |
Revenue declined 34% year over year. The prior-year quarter included $1,891 million of asset impairment charges, among other items, making the substantial improvement in reported operating and net losses an imperfect measure of underlying performance. Q1 2021 included $9 million of other items, primarily severance and facility-related costs. Interest and financial costs were $20 million; income tax benefit was $6 million. Gross margin improved modestly year over year, but Adjusted EBITDA fell to break-even.
Segments and material changes
- Wellbore Technologies: Revenue was $413 million, down 40% year over year; operating loss was $14 million. Management cited improving Western Hemisphere drilling activity as a sequential revenue driver, partly offset by Eastern Hemisphere seasonality.
- Completion & Production Solutions: Revenue was $439 million, down 35%; operating loss was $17 million. Sequential results were affected by severe weather, project delays, COVID-related shutdowns in Southeast Asia, and fiberglass raw-material shortages. Orders were $338 million, with reported book-to-bill of 127% (115% excluding the Denali backlog addition); backlog was $810 million.
- Rig Technologies: Revenue was $431 million, down 23%; operating loss was $8 million. Orders were $112 million and book-to-bill was 59%; backlog was $2.59 billion. Offshore wind demand and initial work on two rigs at the Saudi facility partly offset softness in rig equipment.
Worldwide average rig count increased 16% sequentially in Q1, while remaining 40% below Q1 2020. Management reported improving North American short-cycle activity, more than offset by weaker international drilling and limited capital-equipment demand.
Liquidity, debt and cash
At March 31, 2021, cash and cash equivalents were $1,607 million, down $85 million from year-end; total debt was $1,851 million, up from $1,834 million. Net debt, excluding lease liabilities, was approximately $244 million. Current assets were $4,996 million and current liabilities $1,934 million. NOV reported $2.0 billion available under its revolving credit facility and compliance with its 60% maximum debt-to-capitalization covenant, with a reported ratio of 29.0%. Approximately $850 million of cash was held by foreign subsidiaries and could be subject to taxes if transferred or repatriated.
Operating cash use was $27 million; investing cash use was $51 million and financing cash use was $3 million. The company paid no dividend in Q1 2021, versus $19 million in Q1 2020. On April 9, 2021, NOV repaid $182 million of 2.60% notes due 2022 using cash, paying $191 million including premium and accrued interest. It recorded a $7.1 million extinguishment loss in Q2; the earliest remaining bond maturity is 2029. Outstanding letters of credit under bilateral facilities totaled $444 million.
Outlook, risks and unusual items
Management expected limited international drilling and capital-equipment demand to persist through at least the first half of 2021, while expressing optimism that vaccine-led reopening, economic stimulus and recovering energy demand could support a broader recovery. NOV emphasized cost and organizational efficiencies alongside investment in innovation and environmentally oriented technologies. It did not provide specific consolidated revenue or earnings guidance.
Remaining performance obligations were $3,632 million at quarter-end; NOV expected to recognize approximately $707 million in 2021 and $2,925 million in 2022 and thereafter. Segment capital-equipment backlogs included expected remaining-2021 revenue of approximately $657 million for Completion & Production Solutions and $422 million for Rig Technologies; timing is subject to change.
Risks include continued COVID-19 effects on customer demand, project cancellations or delays, customer payment defaults and bankruptcies, supply-chain and workforce disruptions, foreign-exchange exposure, and regulatory, trade, litigation, product-liability and intellectual-property matters. Management said the total potential loss on certain legal and regulatory matters could not be determined; it had recorded reserves for contingencies considered probable and did not expect unprovided liabilities to materially affect results, while acknowledging actual outcomes could exceed estimates. A hypothetical 10% currency movement could affect net income by $29 million and other comprehensive income by $38 million, based on disclosed exposures.
Key facts for investors to verify
- Whether operating cash flow and Adjusted EBITDA improve as drilling activity recovers, given Q1 negative operating cash flow and break-even Adjusted EBITDA.
- Order conversion, cancellations and delivery timing for the $810 million Completion & Production Solutions and $2.59 billion Rig Technologies backlogs.
- Effects of the April 2021 note redemption on cash, interest expense and liquidity, and continued compliance with debt covenants.
- Customer credit quality, COVID-19 and supply-chain effects, and the adequacy of reserves for legal, regulatory and product-related contingencies.
- Realization and timing of the remaining performance obligations; the filing notes that these amounts do not cover certain short-duration and other excluded contracts.