Earnings Call
NOV Inc. (NOV)
Earnings Call Transcript - NOV Q4 2022
Operator, Operator
Good day, ladies and gentlemen. Welcome to the NOV Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference call, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.
Blake McCarthy, Vice President of Corporate Development and Investor Relations
Welcome, everyone, to NOV’s fourth quarter and full year 2022 earnings conference call. With me today are Clay Williams, our Chairman, President and CEO; and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today’s comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis for the fourth quarter of 2022, NOV reported revenues of $2.07 billion and net income of $104 million. For the full year 2022, revenues were $7.24 billion and net income was $155 million. Our use of the term EBITDA throughout this morning’s call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now, let me turn the call over to Clay.
Clay Williams, Chairman, President and CEO
Thanks, Blake. For the fourth quarter of 2022, NOV’s revenues grew a solid 10% sequentially and fully diluted earnings were $0.26 per share. EBITDA increased to $231 million or 11.1% of revenue with sequential flow-through somewhat impacted by continuing supply chain challenges, incremental costs to expedite key orders and a less desirable mix. Consolidated book-to-bill was 111% on 16% higher sequential shipments out of backlog. Compared to the fourth quarter of 2021, incremental EBITDA flow-through was 29% on a very strong 37% year-over-year revenue growth. For the full year 2022, NOV generated $679 million in EBITDA on $7.2 billion in revenue, which included $332 million in renewable energy-related revenue. Incremental flow-through was 26% on 31% year-over-year growth. 2022 was a good year for NOV; our team executed well in the face of continuing extraordinary challenges. We introduced new products that we developed through the downturn that improve the efficiency, safety and environmental impact of our customers’ operations, including several greenhouse gas emissions-reducing technologies and an edge computing platform that is the foundation for several new digital products. EBITDA marched up steadily quarter-by-quarter as revenue grew, and we benefited from the cost reductions of prior years. We pushed prices higher, more successfully in some product lines than in others. While EBITDA margins improved, frankly, we are disappointed in the magnitude of our price-driven margin expansion so far. Our marketplace remains competitive, as our competitors seek to load plants after the pandemic lockdown decimated volumes. But nevertheless, we have been successful in clawing back discounts and achieving significant pricing increases. However, the ramp in inflation we saw throughout the year has driven our costs up materially. While we still have a way to go, we are much, much closer to earning acceptable returns on capital, and it is early days in what we are confident will be an extended upcycle. For the world, 2022 was an eventful year in a string of eventful years. It was a year of learning about constraints. We learned that when economies reopen after being closed for a pandemic, knock-on effects and unforeseen constraints are created which reverberate far into our future. We started the year hopeful that 2022 would see an end to the chaos of the pandemic and the wrecking ball that the economic shutdowns brought to our industry in 2020 and 2021. Remember negative oil prices and the lowest rig counts on record, following hundreds of oil patch bankruptcies and downsizing that saw tens of thousands of years of valuable experience leave the oil field. We were hopeful that 2022 would finally bring our industry a respite to heal and rebuild. Unfortunately, the fragility of our energy situation blew up on us with the outbreak of hostilities in Ukraine, which spiked energy prices and prompted renewed urgency and oilfield recovery. That exposed the manning obstacle course of constraints through which the industry must navigate to ramp production. The industry’s constraints underpin our long-term bullish outlook. We foresee further growth ahead in demand for NOV’s products and services for the next several years, but we also see some near-term challenges as more healing and rebuilding is needed. The downturn eroded a great deal of offshore drilling capacity. Many desperate offshore drilling contractors cut maintenance to preserve cash, laid off experienced workers and cold stacked rigs. Collectively, the industry scrapped 386 offshore drilling rigs since 2011. Sadly, it didn’t work. Almost all offshore drilling contractors still went through bankruptcy, and many today are owned by frustrated ex-bondholders forced to become equity owners. They want their money back, and the sooner, the better. So, when E&P companies eyeing higher commodity prices decided to reenter the offshore drilling market to finally develop their blocks after an absence of several years, they discovered en masse what a daunting challenge we faced to restart long-idled offshore drilling assets; particularly when the asset owners have limited capital and limited appetite to invest. There is seemingly no lack of demand for these assets. Rising development activity in Brazil and West Africa, new basin development in Guyana, shallow water activity in Mexico, the Arabian Gulf and India, brownfield tiebacks in the Gulf of Mexico and the North Sea, and promising exploration areas emerging in Namibia, Suriname, and the Eastern Mediterranean present a great deal of offshore drilling need. There’s plenty of demand for years to come, but right now there are two constraints: money and supply chain. The freshly restructured offshore drilling contractor industry has little access to or appetite for external capital to rebuild itself. Despite 30% headline project cost increases since 2020, E&Ps are becoming more confident in their economics in the energy security-challenged new reality we are living in. But they’re finding one more cost that they need to dial in, and that’s a way to finance the refurbishment of offshore drilling rigs through higher day rates and mobilization fees. National oil companies and integrated majors supplemented by shipyards offering bareboat charters, and importantly, eastern hemisphere sovereign wealth funds are the emerging sources of capital that we foresee underwriting the big offshore drilling restart. The second constraint is supply chain broadly. COVID-driven workforce disruptions, lack of critical components, and expensive unreliable freight have injected new execution risk into all shipyard projects in Asia and elsewhere, and not just for offshore rigs; FPSOs also face higher execution costs and risks as we hear from our Completion & Production Solutions customers. Despite these challenges, our Rig Technologies teams successfully completed 15 offshore rig reactivation projects in the fourth quarter, mostly jack-ups. And we are pleased to launch 23 new reactivation, recertification and upgrade projects on offshore rigs during the quarter. We’re seeing rising interest in more floater activity, which is not surprising with drillship day rates squarely in the mid $400,000 per day range. While a long way from anything approaching new build economics, it is clear that high demand is driving the industry steadily towards recovery. Early projects are the bare minimum, but as industry demand rises and capital sources solidify, we expect customers to use the reactivation time spent in shipyards to upgrade with items like a second subsea BOP stack to comply with BSEE regulations for instance. Rig Technologies revenues from the offshore grew 22% sequentially and Completion & Production Solutions revenues also grew 22% sequentially from offshore customers. Wellbore Technologies offshore revenues were up 5% as well, enabling NOV to post a consolidated 18% sequential increase from all its offshore customers. Turning to international land, for the first time in a dozen years, day rates and oilfield services pricing are on the rise. Unlike North America, most international land markets did not retool themselves up to higher levels of technology in the super cycle of 2004 to 2014. Phase 1 of the U.S. shale revolution was for the replacement of the land rig drilling fleet with higher capability AC rigs and the buildout and a fit-for-purpose frac spreads. International markets never took that step, relying instead on older technology and used equipment. That’s beginning to change in places like the Middle East and Argentina, where national oil companies are frustrated with materially lower efficiencies compared to North America. I’m pleased to report that the first two high-spec rigs delivered by our new plant in Saudi Arabia are performing very well, and interest is growing from other land drilling contractors in the region. We also see rising demand for newer coiled tubing equipment as well as directional drilling kits, bits and drilling motors that we offer in key international land markets. While Chinese competition in these markets can be fierce, these product offerings are head and shoulders better, and national oil company bureaucracies are waking up to the idea of buying on value and service as opposed to strictly buying on price. So to summarize, we are bullish on international land markets and offshore for 2023. Consolidated international land revenues increased 13% sequentially for NOV with all three segments showing strong growth. But now, let’s talk about North America. Our consolidated revenues from North America land customers increased only 1% sequentially. After rising sharply in the first part of the year, the U.S. rig count has now found a near-term ceiling, a touch below 800 rigs constrained by, among other things, the availability of labor. North American E&Ps are citing service availability as the biggest risk to achievement of their production targets. But our oilfield service customers tell us that crew availability is the real root cause. U.S. oilfield wages in West Texas and North Dakota are up 20% to 50%, along with higher per diems, higher oil-based mud bonuses, and higher overtime as crews that are chronically shorthanded work extra hours to cover the unfilled positions. $4,000 per ton casing is another constraint, contributing to 40% higher costs per foot for E&Ps. Dwindling Tier 1 drilling location inventory and the reversal of double-digit well productivity gains in terms of barrels per foot of lateral that fueled the rapid run-up in U.S. shale production several years ago are also emerging as constraints to production growth. And like international markets, capital is scarce and expensive. Even the rising equipment utilization across North America in 2022 brought mercifully higher pricing, enabling land drilling contractors and pressure pumpers to begin earning much improved returns on capital; however, the industry is hesitant to invest. For instance, U.S. high-spec land rig day rates around $40,000 a day can generate 20% capital returns on new build rigs for efficient contractors. However, new capacity additions so far have been scarce owing to capital, labor, and supply chain constraints. On the other hand, pressure pumpers are cautiously investing in frac fleets given the higher wear and tear that simultaneous fracs and 24/7 operations are placing on their spreads. They see the need to replace equipment they’re consuming every day at accelerating rates. It doesn’t hurt either that the returns on new frac fleets are approaching 40%. Importantly, these investments are self-funding. External capital is still very difficult to access. Given the myriad of constraints 2022 has exposed, it’s no surprise that year-over-year U.S. production growth fell well short of the 2016 to 2019 era, and even fell short of greatly reduced expectations despite a massive drawdown in DUC inventory. Now, adding to the constraints I've mentioned, the emerging North American gas oversupply caused by constrained LNG export capacity out of the U.S. and rising gas-oil ratios in shale basins as they mature, we foresee additional pressure on E&P economics and diminishing urgency to drill in North America. Higher pricing across the board will likely still lead to an overall increase in year-over-year E&P spending, but our outlook for 2023 North American land remains a little cautious in contrast to offshore and international land markets where investment urgency, utilization, and pricing are rising. Longer term, we’re bullish on all basins in all areas, including North America, as a serious global structural shortfall in production becomes more evident. This returns me to where I started. Constraints are everywhere in this industry. Years of limited exploration and reserve replacement now restrain the industry’s ability to ramp production quickly as the pipeline of developments has dwindled. FIDs in 2020 and 2021 are down 80% from 2009 peaks. Nevertheless, this is beginning to change. The events of 2022 taught us just how crucial the capital-intensive industry we serve is. Oil and gas is the industry that powers all other industries. Our way of life would not exist without it. Every upcycle shares some common traits. The cutting of maintenance expenditures and laying off of hard-working oilfield employees during down-cycles creates an urgent need to rebuild capabilities and teams as we first enter an upcycle. But never before has this industry faced the constraints we face today. From raw materials to finished components to workforce, freight availability, capital access, higher interest rates, hostile political pressure, and tightening regulations, pivoting back to growth will be as daunting as it ever has been throughout the industry’s 164-year history. I’m convinced that these extraordinary constraints will elongate this upcycle. They will take many years to overcome. But we simply must overcome them to restore the critical energy security required for economic growth and improving standards of living, particularly for those living in energy poverty. That’s why I’m so very proud of the NOV team. Our employees are smart and hard-working. They know the world is counting on them. They innovate and create solutions. They hustle and work the problems. They get it done. And Jose, Blake and I are grateful to each and every one of them.
Jose Bayardo, Senior Vice President and CFO
Thank you, Clay. To quickly recap the quarter, NOV’s consolidated revenue grew 10% sequentially and 37% year-over-year, with all three segments posting their highest revenue since the fourth quarter of 2019. While North America drove most of the growth during 2022, as Clay noted, momentum in international markets has been building throughout the year and outpaced North America in the fourth quarter, resulting in 14% sequential revenue growth in international markets and 4% in North America, which included strong growth in the offshore Gulf of Mexico. Adjusted EBITDA for the fourth quarter totaled $231 million, or 11.1% of sales, representing an incremental flow-through of 20% sequentially and 29% compared to the fourth quarter of 2021. We’ve recorded a credit of $8 million in other items during the fourth quarter, primarily related to positive margins realized on previously reserved inventory, which we deducted from Q4 EBITDA. With the improving market environment, we may continue to recognize such credits and EBITDA adjustments in 2023. Additionally, we expect to complete the termination of our U.S. defined benefit pension plans in the first quarter, for which we expect to recognize a pretax noncash charge for the recognition of all actuarial losses and accumulated other comprehensive losses which was $8 million as of December 31, 2022. During the fourth quarter, eliminations and corporate costs at the EBITDA level increased $11 million due to higher levels of intercompany transactions, expenses associated with the buyout of a JV partner, and year-end true-ups to employee benefits and other accounts. We expect eliminations and corporate costs to return to the $60 million range in the first quarter. Despite the increase in working capital arising from strong revenue growth, cash flow from operations was $154 million in the fourth quarter. Capital expenditures totaled $66 million, resulting in free cash flow of $88 million. As is often the case, we expect a meaningful seasonal use of cash from operations in the first quarter, but we expect to be free cash flow positive for 2023, the magnitude of which will be mostly determined by the rate of revenue growth during the year. We have a strong track record and remain committed to returning capital to our shareholders while maintaining a bulletproof capital structure. Since mid-2014, we have returned $4.7 billion of capital to our shareholders through share repurchases and dividends. And since mid-2015, we have reduced our gross debt by $2.6 billion. As a reminder of our capital allocation hierarchy, we first and foremost seek compelling organic investment opportunities, which historically have provided us the greatest risk-weighted returns as we can appropriately leverage our installed base of equipment, existing manufacturing capacity, global distribution infrastructure, digital platforms, and world-class R&D facilities. With the improving market environment and the progress we have made in new product development over the last several years, we see increasing numbers of attractive organic opportunities and are, therefore, increasing our capital expenditures to approximately $275 million in 2023. Next on the list of prioritizations is M&A, where we employ a disciplined returns-focused process. We approach M&A as an opportunistic means to accelerate already defined organic growth initiatives. This means that we avoid being in a position where we are pressured to complete an acquisition, reducing the likelihood that we overpay. We prioritize high rates of return, sustainable long-term growth opportunities that leverage our core competencies. But as previously noted, we are committed to returning excess capital to our shareholders, whether through increasing our dividend or a share repurchase program. While our balance sheet remains solid, the recent anticipated near-term uses of cash to fund meaningful growth in our businesses, along with an M&A environment that is looking a bit more constructive means that we are not ready to increase the return of capital to our shareholders at this time. We will continue to monitor sources and uses of cash as the year evolves and maintain a regular dialogue on this topic.
Clay Williams, Chairman, President and CEO
Moving on to segment results. Our Wellbore Technologies segment generated $762 million in revenue during the fourth quarter, an increase of $21 million or 3% compared to the third quarter and 32% compared to the fourth quarter of 2021. Revenue growth was driven primarily by the second straight quarter of solid improvements in demand for our key drilling technologies in the Middle East, partially offset by a North American market that has plateaued and lingering supply chain challenges that delayed deliveries of drill pipe and motors. EBITDA grew to $146 million or 19.2% of revenue with soft flow-through due to a less favorable mix, lingering supply chain difficulties, and associated costs required to expedite critical customer orders. Our Grant Prideco drill pipe business realized modest top-line growth that was limited by supply chain disruption, including delays in receiving steel and coating materials, which resulted in customer deliveries slipping from Q4 to Q1. Incremental flow-through was also limited due to a significantly less favorable product mix. Despite these challenges, Grant Prideco posted its highest revenue quarter in three years and received its greatest volume of orders for any year since 2014. Orders improved 25% sequentially with strong demand from the Middle East and a notable pickup from offshore markets. Our ReedHycalog drill bit business saw a meaningful decline in revenue during the quarter, driven primarily by a large Q3 shipment to Asia that did not repeat along with a drop-off in Canadian activity and weather-related delays in the U.S. Despite supply chain challenges that are restricting deliveries of roller-cone bits, the business continued to realize solid growth in the Middle East and in geothermal markets as highlighted under the significant achievements in our earnings release. Our downhole tools business reported revenue growth in the low-teens, led by a significant pickup of fishing tool sales into the Middle East and Asia Pacific. After realizing significant improvements during the third quarter, the operation had challenges procuring certain high-grade steel and elastomers needed for its high-spec stators, adversely affecting sales and rentals of the business unit’s drilling motors. Despite the supply chain challenges and the resulting less favorable product mix, pricing increases instituted earlier in the year allowed the business to maintain respectable EBITDA flow-through. Our WellSite Services business posted a small sequential decrease in revenue primarily due to strong shipments of MPD equipment in Q3 that did not repeat. The decline in MPD sales was mostly offset by solid results from the business unit’s legacy operations. We’re seeing growing opportunities for both our solid control and MPD offerings in offshore markets, including Mexico, Brazil, West Africa, and Guyana, and growing momentum in key land markets in the Middle East. This improving outlook was reflected in strong bookings for MPD capital equipment orders, which should serve as a growth catalyst for this business during 2023. Our Tuboscope business delivered a solid increase in revenue driven by the operation’s fifth straight quarter of double-digit growth in its coating operations. The business realized strong demand for pipe coating services in the Middle East and Asia for its Thru-Kote pipe sleeves in the Middle East and for glass-reinforced epoxy TK liners in Latin America and Europe. The business also continues to realize growing demand for its TK-Liner systems in geothermal applications and recently secured contracts for two new geothermal projects in Denmark, which will add to our total of more than 28 miles of large diameter TK lined pipe that we have delivered for geothermal applications since 2020. Our M/D Totco business posted another quarter of solid growth with outsized incrementals led by a strong improvement in the unit surface data acquisition operations in the Middle East, North America, and Europe. This growth was partially offset by a small decrease in revenues from our eVolve wired drill pipe optimization services, resulting from capital sales in the third quarter that did not repeat. The outlook for our eVolve services remains bright with several customers signing new contracts and with demand for this service building in the Middle East. The unit is also realizing greater adoption of its latest Max digital product offerings which are currently installed on over 150 rigs utilizing over 800 of our Max Edge devices to simultaneously provide real-time data analytics in the field and at the operator’s office. Additionally, we recently launched our Max Completions offering, which is remotely monitoring a frac job in the Williston Basin for a large independent operator. While we’re in the infancy of providing digital solutions, which drive higher levels of efficiencies for both drilling and now completion operations, M/D Totco’s success in developing industry-leading digital solutions beyond its legacy data acquisition systems has already allowed the business to achieve its highest revenues and EBITDA in eight years, and the outlook remains bright. For our Wellbore Technologies segment, we expect demand for our key enabling drilling technologies to be supported by improving global oilfield activity, driving continued growth for the segment in 2023. However, we do expect seasonality to serve as headwinds to Q1 results, resulting in revenue and EBITDA for our Wellbore Technologies segment in the first quarter to be roughly in line with fourth quarter results. Our Completion & Production Solutions segment generated revenues of $738 million in the fourth quarter, an increase of 8% from the third quarter and an increase of 34% from the fourth quarter of 2021. Adjusted EBITDA increased by $10 million sequentially and $64 million from the prior year to $66 million or 8.9% of sales. Sequential EBITDA flow-through of 18% was negatively impacted by a lower-margin product mix. Relative to the fourth quarter of 2021, flow-through was 34%, resulting from improved execution against supply chain-related challenges, better absorption in our manufacturing facilities, and improved pricing. Orders increased 13% to $557 million, the highest quarterly bookings the segment has achieved since 2014. Also of note is that this was the segment’s eighth straight quarter with a book-to-bill over 100%. CAPS backlog at the end of the fourth quarter was $1.6 billion, up 8% sequentially and 24% year-over-year. Our Intervention & Stimulation Equipment business posted a strong increase in revenue, achieving its highest level since Q4 of 2019. The business is seeing a notable transition in demand from reactivations and refurbishment-related aftermarket work to new capital equipment sales resulting from our customers’ need to replace outdated equipment with more efficient assets. As Clay mentioned, access to capital remains difficult for the industry. But the good news is that many of our customers are now generating healthy cash flows, their confidence in a sustained recovery is increasing, and many are now looking to lock in limited delivery slots that require substantial lead times. These factors combined to drive another solid quarter of order intake and the fifth straight quarter in which the business grew its backlog. Asset replacements, new technology to improve efficiencies and economics, lower emissions, and longer laterals drove our order book in the fourth quarter. After selling our first new coiled tubing unit into the U.S. in three years during the third quarter, we received orders for six new coiled tubing units, three of which are destined for service in North America. We also saw a notable increase in demand for 30,000-foot large diameter pipe with a 0.276-inch wall thickness to support completions of ultra-long lateral wells in West Texas. As noted in the press release, we booked 20,000 hydraulic horsepower of our eFrac pressure pumping equipment, and we also sold six hybrid electric IMAX wireline trucks as more customers see the opportunity to not only reduce emissions but to also lower their total cost of ownership by using our latest technologies. Also encouraging is that we are beginning to see higher demand from international markets, particularly from the Middle East. Our subsea flexible pipe business posted a mid-single-digit increase in sequential revenue. Margins compressed slightly as the effects of improving throughput were offset by a less favorable mix of projects. Orders for the quarter remained strong and resulted in the unit’s sixth straight quarter with a book-to-bill greater than 1. Equally important, we are realizing increasing pricing power as much of the spare capacity in the market has been absorbed or committed, and customer demand continues to rebound. Our XL conductor pipe connection business experienced a significant sequential increase in revenue driven by strong execution and product deliveries to support several large projects in Latin America and the Gulf of Mexico. While we expect the typical seasonal pullback in deliveries during Q1, strong orders and steadily improving offshore activity should support a solid year for this operation. Our Process and Flow Technologies business posted a slight sequential increase in revenue. EBITDA was mostly flat after a strong rebound in the third quarter. While the effects of supply chain difficulties, shipyard constraints, and inflation continue to pressure margins and push bookings to the right as operators recalibrate cost assumptions, recent customer conversations give us confidence in increasing FIDs which should result in a much stronger 2023 for this business. Our pump and mixture operations experienced a sequential decrease in revenue due to outsized shipments of pent-up orders from the lifting of COVID lockdowns in China during the third quarter that did not repeat. Bookings improved 55% sequentially and included a large equipment package for a pepper processing plant in New Mexico that will be able to process 30 million pounds of Cayenne Pepper Mash per year. NOV will provide 120 fiberglass storage vessels, each equipped with Chemineer agitators to achieve optimal mixing, 13 Moyno progressive cavity pumps to handle transfer loading and unloading, and our GoConnect digital monitoring and control system to provide the customer with real-time equipment and process data to fine-tune operations, maintain quality, and ensure equipment reliability. The unit also won an award to provide 24 Moyno progressive cavity pumps for sludge transfer and polymer pumping applications at a wastewater facility that will treat over 450 million gallons of wastewater per day. Despite the strong industrial orders in Q4, we’re sensing that our non-oil and gas customers are growing more cautious due to uncertainty in the macroeconomic environment. Our fiberglass business posted flat revenue but delivered more than a 300 basis-point improvement in EBITDA margin due to a healthy increase in higher-margin offshore scrubber deliveries that more than offset the effect of the seasonal decline in fuel handling equipment sales. Orders remained strong and, in addition to the previously mentioned tanks for the pepper processing plant, the unit booked a large order for a semiconductor manufacturing facility in Texas. The strong order intake resulted in the business delivering its eighth straight quarter with a book-to-bill over 1 and an all-time high backlog going into 2023. For our Completion & Production Solutions segment, we expect seasonality and several large projects that are nearing completion to result in a mid-single-digit decrease in revenue with decremental margins in the 30% range. Our Rig Technologies segment generated revenues of $620 million in the fourth quarter, an increase of $109 million or 21% compared to the third quarter and 44% compared to the fourth quarter of 2021. The strong sequential growth was led by our aftermarket operations. Four straight quarters of growing spare part bookings combined with improving global supply chains led to a sizable increase in shipments. The segment also posted a solid increase in capital equipment sales, which benefited from the delivery of a new land rig to a private drilling contractor in the U.S. and from a higher rate of progress on rig projects in Saudi Arabia. Adjusted EBITDA improved $36 million sequentially to $88 million or 14.2% of sales. New capital equipment orders increased $135 million or 113% sequentially and totaled $254 million. Book-to-bill was just below 1 times, a result of the 27% increase in revenue out of backlog during the fourth quarter. Total backlog for the segment at year-end was $2.79 billion, an increase of $26 million over the prior year. Fourth quarter orders were highlighted by bookings for the designs and jacking systems for two wind turbine installation vessels and a new BOP stack for a harsh environment semi-submersible rig. While demand for conventional rig equipment has improved for three straight quarters, bookings remain subdued as contractors are still reticent to make large capital commitments. Encouragingly, both utilization and day rates for all major classes of rigs continue to improve. Land rig counts increased by 43 or 3% sequentially, almost all in international markets, and average day rates continued to improve, up another 11% on average in the U.S. during Q4 as contracts roll off and rigs repriced to leading-edge rates. Contracted offshore counts improved 4% sequentially with jackup rig utilization reaching 80% and drillships 78%, resulting in higher day rates and longer-duration contracts. These improvements should translate into better cash flow and growing confidence and outlook for our customers over time. While equipment orders remain modest, demand for our products and services is heading in the right direction, and the industry cycle is going through its normal progression at a very measured pace. It starts with simple reactivations of highly capable warm stacked rigs that move to less capable cold stacked rigs which require more effort to reactivate and often need upgrades to compete for work. Then, once fleets reach sufficiently high levels of utilization and day rates, and operators seek higher productivity through newer and more advanced technology, demand for new builds will eventually take hold. We’re moving through this natural cycle in both the land and offshore markets, and that progression is reflected in our results. Revenue from land customers in our aftermarket operations bottomed in Q3 2021 and has increased 92% from the trough. With leading edge day rates for top-tier land rigs north of $40,000 in the North American land markets, returns are now at a level well above new build economics. While we delivered a new land rig to a private U.S. contractor in Q4, capital discipline remains strong, particularly among public drillers who still have stacked rigs to reactivate, and we’re not expecting many more orders for new builds in North America this year. Customers remain focused on being disciplined and on driving efficiencies in their operations. However, we’re increasingly fielding calls inquiring about our new technologies that can potentially alleviate some of their pain points, including our ATOM RTX fully automated robotic system and our Maestro drilling power management system, which allows contractors to optimize power and fuel consumption during drilling operations and minimize emissions. In international land markets, the availability of modern rigs that can be cost-effectively upgraded is significantly more limited. As a result, we have recently seen a meaningful improvement in the number of discussions we are having with customers regarding new rigs, particularly in the Middle East, Latin America, and Asia. Aftermarket revenue from our offshore drilling contractor customers bottomed in the fourth quarter of 2021 and has increased 58% since that time. While we are not yet having discussions related to new floaters reflecting the longer cycle nature of the deepwater market, we are having discussions related to orders for new jack-ups. Additionally, there are meaningful opportunities for customers to continue reactivating and upgrading stacked rigs and to complete the 14 drillships that have been stranded at shipyards in Asia since 2015. We believe these rigs can be acquired and fully kitted out between $300 million to $350 million, a price which should produce a strong return for contractors in a $400,000-plus day rate environment. We estimate NOV’s addressable opportunity to properly equip and finish these rigs ranges anywhere from $20 million to $125 million per rig, while access to and cost of capital for rig contractors remains challenged; it is improving and a customer recently acquired one of these stacked rigs. All of these opportunities may take some time to materialize, but will eventually come. In the meantime, our volume of work from reactivations, recertifications, and upgrades of the existing fleet continues to grow. As Clay touched on, we completed 15 such projects in the fourth quarter, including the reactivation of 9 previously stacked jack-ups. Additionally, we received awards for another 23, leaving us with a current backlog of 83 projects. In our wind business, the market for installation vessels remains strong as evidenced by the two orders for NOV’s proprietary NG-20000X vessel designs and jacking systems we received during the fourth quarter. We expect to see a decrease in demand for new wind orders in 2023, but we still expect a few orders this year and see a significant shortfall in available vessels needed to meet the forecasted demand for turbine installations in the ‘26 to ‘27 timeframe. If this forecast holds, it should translate into nearly a dozen additional opportunities over the next several years for NOV. While 2023 is expected to be a year of growth and improved profitability for our Rig Technologies business, we expect seasonality and the timing of projects to result in first quarter revenues contracting 10% to 15% with decremental margins in the 30% range. With that, we’ll now open the call to questions.
Operator, Operator
Our first question comes from Jim Rollyson of Raymond James.
Jim Rollyson, Analyst
Hey. Clay, going back to your comments about the offshore side and kind of the need for incremental investments and obviously the lack of capital or willingness to spend capital by some of the current owners. How do you see that playing out in terms of you mentioned who the ultimate providers of capital may be. But when you think about that just playing out and the time frame of this playing out, how do you unpack that?
Clay Williams, Chairman, President and CEO
It's a great question. In our perspective, this situation is already developing as major integrated oil companies and national oil companies that rely on the offshore rig industry are engaging with service providers. They are likely being informed that significantly higher day rates and mobilization fees will be necessary. For example, day rates for 7th generation drillships have doubled year-over-year, with increasing rates now starting in the mid-four hundreds. There is an acknowledgment that the offshore drilling industry has suffered significantly during the downturn and has limited access to capital, which will have to be addressed. Oil companies are likely to be the first to confront this issue. Additionally, there are other players involved. I noted in my prepared remarks that some shipyards, which have been unable to proceed with rig construction projects throughout the downturn, are now offering bareboat charters for these rigs to drilling contractors. This allows the shipyards to seek capital to finalize those projects, clear their yards, and make those assets operational for drilling contractors. Furthermore, sovereign wealth funds, which have substantial financial resources and are situated in countries that depend on the petroleum industry for public service funding and government budget stability, are expected to play an increasingly significant role in this context. These funds do not seem to face the same lending constraints as traditional capital providers.
Jim Rollyson, Analyst
Great. That’s helpful. And then just as a follow-up, when we think about kind of how things have unfolded over the last two or three years, obviously, NOV has made a lot of overhauling of the cost structure through the downturn, which is, I’m sure, enhancing margins as revenues start coming back. And as we think about this going forward, you mentioned supply chain issues and constraints there and just cost inflation around pricing, which you’ve been working on clawing back pricing from where we were before. But maybe just a little bit of color on kind of where pricing sits on average because I know it varies by product line. But kind of where we sit now versus kind of pre-COVID levels? And as I think about margins going forward, how much room do you have in pricing versus just your volume?
Clay Williams, Chairman, President and CEO
Thank you for the question. We're very focused on the fact that prices aren’t high enough. In 2019, we began significantly reducing costs from our organization, more than $900 million a year. Then, during the pandemic, demand plummeted, leading to substantial discounting. We monitor pricing by comparing similar product baskets we sell. By late 2020 or early 2021, many of these were at mid-teens pricing. Since reaching that low point, we've been diligently raising prices and have successfully regained most of those discounts. Many products are now priced higher than they were in 2019. However, inflation has diminished a lot of that margin potential. When we review our financial outcomes, we see that despite the significant effort to cut $900 million from our cost structure, inflation has impacted that recovery. While we've made progress on pricing, margins are still not where they need to be. Moving forward, a primary focus will be to keep pushing for better pricing to reach acceptable margin levels. As you pointed out, we are still facing supply chain disruptions and ongoing inflation across many areas; there’s considerable cost pressure. We must maintain a strong focus on pricing to improve our margins.
Operator, Operator
Our next question comes from the line of Chase Mulvehill of Bank of America.
Chase Mulvehill, Analyst
I would like to follow up on orders. You mentioned the growing momentum in subsegments and some conservative outlooks in others. Could you take a moment to briefly discuss both Rig Tech and CAPS? It would be helpful to point out what the investment community should focus on regarding potential growth in those segments in 2023. Additionally, do you believe that orders could actually increase for both segments in 2023?
Clay Williams, Chairman, President and CEO
Yes. I’ll ask Jose to add his thoughts on that too. Generally, as I mentioned earlier, we are somewhat cautious about the outlook for North America. Up to now, throughout 2022, the majority of our intervention stimulation equipment orders have come from North America. We anticipate a shift in 2023 with increased interest from international markets, particularly the Middle East, which has previously focused more on used equipment and has not had favorable pricing. We see opportunities for better pricing and a desire for higher technology equipment in certain regions of the Middle East and other parts of the world, which we find encouraging. On the other hand, the Completion & Production Solutions order book mainly consists of producers focused on offshore projects. Last year, projects often faced delays due to high inflation levels, with significant cost increases being common. This created considerable surprise for engineers involved in long-term projects. Moving into 2023, we believe that the lessons learned about energy security are leading to increased confidence in the supply-demand outlook. Operators seem more ready to make final investment decisions, and we are hearing similar sentiments from others in our industry, especially regarding international gas projects. Accordingly, we expect a positive outlook in that area as well. In terms of rigs, while offshore conditions are improving, there is still hesitation among drilling contractors regarding significant investment in their rig fleets. However, if supply and demand continue to tighten, day rates are likely to rise. We believe that demand may increase. Notably, there has been unexpected interest and demand for workover rigs within Rig Technologies, with several higher-spec rigs sold that are tailored for longer laterals. Overall, despite the challenges facing the oil and gas industry in restoring energy security over the coming year, the situation presents a favorable starting point.
Jose Bayardo, Senior Vice President and CFO
Clay covered it very well, but I’d like to add a couple of points. The market environment is clearly improving, and we are optimistic about achieving strong bookings in 2023, though the specifics will vary. Clay's insights suggest there might be some changes in our mix, especially regarding certain offshore projects within CAPS. We anticipate that some of the projects that have been delayed may gain momentum in 2023. Additionally, in relation to our rig operations, Clay mentioned some points for consideration. Our rig business is showing steady improvement, starting with the aftermarket segments, which have rebounded significantly. There’s also been volatility in our capital equipment bookings, largely due to large orders in the offshore wind sector. We have seen three consecutive quarters of increased bookings in our conventional rig capital equipment business. It's worth noting that our substantial backlog from the Saudi rig manufacturing contract, which amounts to $1.8 billion, skews our booking statistics. Excluding this contract's revenue, our conventional rig capital equipment showed a book-to-bill ratio of slightly over 100% this quarter. We remain hopeful that this upward trend will continue throughout 2023.
Chase Mulvehill, Analyst
I appreciate the insights. I have a quick follow-up. Investors appear to be concentrating on the Rig Tech aftermarket opportunities, especially as offshore activity is on the rise. Can you discuss the growth from last year? I understand you launched 23 new reactivations in the fourth quarter. Looking ahead to 2023, what opportunities do you see? Will there be more heavy shallow water or deepwater reactivations, along with some new builds? Additionally, how should we compare the aftermarket business in 2023 to 2022?
Clay Williams, Chairman, President and CEO
Yes. I mean broadly, as the offshore drilling industry goes back to work, they’re going to need more aftermarket spares. There’s certainly kind of a flush level of demand going into reactivations a little bit. The industry got really good at cannibalizing spare parts off of idled rigs and we’re rebuilding that to some degree. But 37 jack-ups contracted by Aramco, for instance, for Saudi Arabia, going to work with higher levels of activity in Brazil. That all takes a lot of aftermarket to support. One of the big headwinds we faced in 2022 throughout the year was supply chain disruption of our aftermarket business. And what you saw in Q4 was the dam broke a little bit, better availability of castings since our manufacturing group really got after a 26% increase in their shipments into our aftermarket organization helped sort of underpin a roughly 20% sequential improvement in revenue there. That won’t necessarily repeat in Q1, but we’re making good progress and feel pretty good about the balance of the year.
Operator, Operator
Our next question comes from the line of Luke Lemoine of Piper Stanley.
Luke Lemoine, Analyst
You touched on some of the underpinnings of this offshore cycle within Rig Tech with some of the bigger ticket items like floater reactivations, the stranded drillships between guys like Samsung and Hyundai and NVO jack-ups. I guess with these types of individual orders and the incremental floater demand that could be over 30 rigs over the next few years, what do you think the annual order potential is for Rig Tech a couple of years out?
Clay Williams, Chairman, President and CEO
That's a challenging question to answer, Luke. As Jose mentioned, it tends to be quite variable. I can say that the overall trend appears positive, and we expect to continue gaining momentum in supporting global drilling operations across all pipe types and offshore. However, there has been significant downsizing since 2015. We believe we can significantly increase our efforts and achieve strong financial returns by supporting the industry globally, without relying on new rig builds like we did in the previous super cycle. We are ready to grow and meet the industry's needs, and we hope that will materialize. The fundamental aspects of drilling involve a lot of spare parts, which proves to be a high-margin, high-incremental business for us. Additionally, we are continuously innovating with various technologies and products for the oilfield. Jose mentioned our ATOM RTX robotics system that we’re launching this year; we are very enthusiastic about it. It is being sold for both land and offshore projects. We have several emissions reduction technologies, including our Eco Booster hydraulic system, our PowerBlade regenerative energy capture system, and our Maestro system, all designed to assist land and offshore drillers in lowering their greenhouse gas emissions. I see significant opportunities there. Lastly, we have discussed our digital solutions, which I believe will enhance order management. Instead of merely supplying equipment, as we did extensively in the last super cycle, we aim to offer more advanced and higher value-added equipment in the upcoming cycle, which should lead to increased margins and better returns.
Luke Lemoine, Analyst
Got it. And then maybe on the stranded drillships, you talked about what the content value could be to you kind of $20 million to $125 million a rig, on the floater reactivations we’ve seen the offshore drillers quotes. But what could the content value be to you guys kind of per rig from what you see right now?
Clay Williams, Chairman, President and CEO
Yes. Every rig is different. They’ve been sort of stacked in different ways. They’re at different levels of completion. So, this is sort of the notional revenue range that Jose provided for kind of the rig reactivations. But as I mentioned, one of the bigger ticket items in that is potentially a second subsea BOP stack, which is like a $50 million way to make the rig compliant with the latest BSEE regulations.
Operator, Operator
Our next question comes from the line of Neil Mehta of Goldman Sachs.
Neil Mehta, Analyst
Good morning, team. And congrats on the good orders here. I had a couple of cash flow questions. And the first is, just as you think about 2023, can you walk us through some of the moving pieces? Recognizing free cash flow is super challenging to forecast in a growth environment like we’re in right now, but maybe you can walk through the different components ranging from working capital to other considerations that you want us to have dialed in for ‘23.
Jose Bayardo, Senior Vice President and CFO
Certainly, Neil. Your question is quite insightful as there are many factors to consider for 2023. To start with, in the near term, Q1 often involves substantial cash usage due to several payments that are due within the quarter. Typically, free cash flow improves, especially in the latter half of the year. As we look towards 2023, one positive factor is the expected improvement in the supply chain. However, we are currently focused on fulfilling our commitments to customers, which sometimes requires us to maintain extra inventory and overstock certain critical areas, impacting our working capital. We have experienced significant growth so far in the recovery and anticipate strong growth to persist throughout 2023 and likely beyond. The exact impact on normal working capital from this growth is still uncertain, especially with ongoing supply chain challenges. Additionally, our revenue mix will shift to become more internationally focused, where cash conversion cycles are longer due to larger projects. This means we will have higher inventory levels to meet project demands and longer days sales outstanding with our international clients. These factors pose a challenge. Moreover, many of our projects involve substantial progress or completion payments, which can lead to significant fluctuations in our cash flow from quarter to quarter. Thus, we generally refrain from overreacting to free cash flow changes on a quarterly basis but remain confident in our ability to build working capital throughout the year, aligning with top-line growth, which will eventually convert into free cash flow.
Clay Williams, Chairman, President and CEO
I would like to add too, our historical working capital intensity at 25% this quarter in the high 20% range is much better than it was before the prior super cycle. So, I think the organization has made a lot of progress in becoming more efficient around our working capital requirements needed to support top line growth.
Neil Mehta, Analyst
Yes. That’s very clear. I think Clay, that’s - a follow-up. You guys have a terrific balance sheet here, and you made some comments around M&A. So, I just want your perspective on whether you would leverage that balance sheet to opportunistically add to the portfolio? And to the extent that is something you’d consider, do you see any logical areas for addition?
Clay Williams, Chairman, President and CEO
We have consistently emphasized the importance of maintaining a strong balance sheet. I want to reiterate that we are not expecting new builds in the near future, but reflecting on the last super cycle from 2004 to 2014, our revenue increased significantly, six and a half times when adjusted for our DNOW spin-off. This indicates substantial potential for top-line growth, which requires adequate working capital. Therefore, we must be cautious and avoid increasing leverage as we recover. We have successfully reduced our debt during this downturn. While the mergers and acquisitions landscape is becoming increasingly appealing, with many stranded assets being explored by private equity and sponsors looking to divest, we will proceed with caution, focusing on risk management. Any transactions we engage in will be strategically sound.
Operator, Operator
Our next question comes from the line of Stephen Gengaro of Stifel.
Stephen Gengaro, Analyst
Good morning, everyone. I have two points to discuss. First, I'm curious if you have any comments on something we've heard about a manufacturer that is financing new builds in the frac fleet sector. How do you view this, and do you believe it will have any impact on your order flow, if at all?
Clay Williams, Chairman, President and CEO
I believe we excel in developing technologies and manufacturing efficiently while managing costs. However, I don't think we are as proficient in banking and financing. Considering my previous comments about our balance sheet in response to Neil's question, I urge everyone to exercise caution when it comes to financing in this sector, which is highly cyclical and can be risky. We are aware of some product categories where we have competitors that are offering deals for various reasons. The low volumes during the pandemic have led to a sense of desperation in the market. We'll see how that situation plays out for them. But we don’t need to change our approach, as we focus on financial returns, and we believe that the most effective use of our capital is not in investing in our customers' fleets.
Stephen Gengaro, Analyst
That makes sense. I just wanted to get your views. And the second, just on the wellbore side, can you just remind us when we think about the international versus North American mix? Just sort of how we should be thinking about growth in light of your comments on both the international and the domestic side as we think about ‘23?
Clay Williams, Chairman, President and CEO
That’s about 50-50, Stephen. And you heard my comments around sort of our outlook for both areas. I did want to be clear; although we’re not necessarily expecting an activity increase in North America and I think the pressure on gas; you could even see a modest decrease, we do expect that overall North American investment by E&Ps and overall revenue for NOV probably should be up in 2023, and that’s because pricing marched upwards across North America for most all participants in oilfield services throughout 2022. So, that kind of year-on-year comparison, that all kind of hangs together. I think some of the most recent surveys point to kind of mid-teens year-on-year E&P, CapEx on drilling and completion work in North America. But I think it’s going to take that level of spending increase just to keep activity flat, if that makes sense. You bet. Thank you, Stephen.
Operator, Operator
Thank you. That does conclude the Q&A. I’d like to turn the call back over to Clay Williams for any closing remarks.
Clay Williams, Chairman, President and CEO
Thank you, Valerie. I appreciate everyone joining us this morning and look forward to speaking with you again on our next earnings call in April. Have a great day.
Operator, Operator
Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.