Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. NOV's consolidated revenue for the first quarter of 2022 was $1.55 billion, a 2% sequential increase compared to the fourth quarter of 2021 and a 24% increase compared to the first quarter of 2021. Rapidly improving market fundamentals, growing global drilling activity and actions taken to mitigate operational disruptions more than offset seasonal declines and continued extraordinary supply chain challenges. Adjusted EBITDA totaled $103 million or 6.7% of sales, a 220 basis point improvement in EBITDA margin compared to the fourth quarter and a 670 basis point improvement compared to the first quarter of 2021, representing 34% EBITDA flow-through. Our GAAP results for the first quarter of 2022 included $45 million of other items, which were primarily due to the partial impairment of assets and other charges associated with our operations in Russia, Belarus and Ukraine. Working capital increased $163 million, primarily due to a disproportionate number of shipments that occurred late in the quarter and intentional inventory builds to mitigate operational disruptions. Working capital was also affected by the normal increase in Q1 tax employee benefit and other payments, which further contributed to a $103 million use of cash from operations. Capital expenditures totaled $46 million for the quarter. While we've become more adept at navigating through the unprecedented number of ever-changing supply chain challenges, all of our businesses remain constrained by raw material shortages with significantly protracted and growing lead times for subassemblies, castings, forgings, electronics and motors.
As a result, our throughput is constrained and we are not fully keeping up with inflecting demand. During the second quarter, we plan to build additional inventory buffers to position the organization to meaningfully improve throughput and operational results in the second half of the year. Moving on to segment results. Our Wellbore Technologies segment generated $608 million in revenue during the first quarter, an increase of $32 million or 6% compared to the fourth quarter and 47% compared to the first quarter of 2021. Growing global activity led by North America and the Middle East drove solid revenue growth across the segment's portfolio of businesses despite headwinds from supply chain disruptions. Pricing gains and an improved product mix offset inflationary pressures to drive incremental margins of 41%, resulting in a $13 million sequential improvement in EBITDA to $101 million or 16.6% of sales. Compared to the first quarter of 2021, EBITDA improved $67 million, representing 34% EBITDA flow-through. Our ReedHycalog drill bit business posted revenue growth in the upper single digits, driven by strong performance in the U.S. and Middle East.
A less favorable mix, limited sequential EBITDA flow through. However, the business unit realized a mid-40% incremental margin relative to the first quarter of 2021. Despite intense inflationary pressures on several key material inputs, the business has secured net pricing gains in most markets and its leading edge bit technologies position the business to continue its strong performance in the second half of the year. Our downhole business reported a low single-digit percentage improvement in revenue as solid growth in North America was offset by large Q4 shipments into international markets that did not repeat. This business unit has been disproportionately impacted by supply chain challenges with difficulties accessing elastomers and special grades of steel used in our high-spec products, resulting in growing backlogs for our tools. In our primary North American manufacturing facility, backlog for our power section increased 38% in Q1 due to staters awaiting relines. Despite an important -- due to these difficulties, the business has been able to push pricing to partially offset the supply constraints and is executing on plans to significantly increase throughput during the second half of 2022. Our WellSite Services business posted mid-teens sequential revenue growth with strong incremental margins. The business realized a solid full quarter contribution from its recent managed pressure drilling acquisition and strong contributions from the unit's core solids control operations.
As activity increases and more rigs are reactivated, this business is particularly well positioned as we expect drilling contractors will look to differentiate their rigs with the latest generation of solids control and MPD equipment. Our MD Totco business posted low single-digit sequential revenue growth with negative incremental margins due to the seasonal falloff in capital equipment sales into international markets and a less favorable sales mix. Despite the soft quarter, the business unit achieved 41% revenue growth with incremental margins in the 70% range in comparison to the first quarter of 2021 and had several recent commercial successes, which should drive wider adoption of the unit's newer technology offerings. Working in tandem with our rig business, the unit initiated a trial project with a key NOC in the Middle East utilizing our Kaizen intelligent drilling optimizer running on our NOVOS platform. The project demonstrated notable drilling improvements, reducing average days to drill by 35% in comparison to offset wells. Additionally, MD Totco's Evolve broadband wired drill pipe solution was commended by a key offshore customer for helping avoid a well control event. When the operator encountered an unexpected change in downhole conditions and the subsequent loss of well circulation, MD Totco's wired drill pipe and distributed long string measurements continue to provide real-time annular pressure readings, which would not have been possible with mud pulse telemetry.
This allowed the operator to effectively manage the situation and backfill the annulus. The operator estimated solution helped avoid a loss and hole incident, if not a full blowout. We expect adoption of MD Totco's technologies to accelerate among leading operators as we continue to demonstrate meaningful improvements in drilling efficiencies, well productivity and safety. Our Tuboscope business delivered a sequential revenue increase in the mid-single digits, driven primarily by improving demand in our U.S. inspection and Eastern hemisphere coating businesses. Despite continued inflationary pressures on raw materials and labor, incremental flow-through for the business materially improved as demand is now driving opportunities to ratchet pricing at a rate that should outpace the combined effect on inflationary costs and operational disruptions. Our Grant Prideco drill pipe business posted mid-single-digit revenue growth with outsized incremental margins as the business realized a 15% increase in the mix of large diameter premium pipe sales, which more than offset a dip in volume. While we expect supply chain disruptions, inflationary costs and a slight deterioration in sales mix to result in softer Q2 results, new order outlook and pricing are growing increasingly favorable with tracked pipe inventories at near record lows.
For our Wellbore Technologies segment, we expect the continued improvements in global oil field activity to drive revenue growth despite ongoing supply chain challenges, resulting in a sequential revenue improvement of 1% to 5% during the second quarter. While we expect pricing for many Wellbore's businesses will gain momentum, inflationary pressures will limit incremental flow through to the mid- to upper teens. We believe this segment is on track to achieve EBITDA margins in the high teens by year-end. Our Completion & Production Solutions segment generated revenues of $530 million in the first quarter of 2022, a decrease of 3% from the fourth quarter of 2021, but an increase of 21% compared to the first quarter of 2021. The sequential decline in revenue was driven by continued supply chain challenges, along with typical seasonal declines. Despite the sequential decrease in revenue, adjusted EBITDA increased $8 million due to better execution against ongoing supply chain disruptions, improved product mix and a better absorption in our manufacturing plants. While orders declined sequentially, book-to-bill was 110%, the fifth straight quarter in which the segment has achieved a book-to-bill greater than 1. Quarter ending backlog increased 6% sequentially to $1.36 billion, which is up 68% from the first quarter of 2021 and reached its highest level in more than five years. Q1 bookings were solid, but a number of our offshore customers took a step back and deferred new orders while they work with suppliers to get their arms around the unprecedented disruptions, delays and rising costs in shipyards around the world.
Despite this temporary pause, the outlook remains robust as improved commodity prices have significantly enhanced project economics despite rising costs. Our Process and Flow Technology unit posted mid-double-digit sequential revenue growth in the first quarter as progress improved on several projects that experienced COVID-related disruptions over the last few quarters. While profitability for this business improved, margins remain at unacceptable levels due to cost overruns caused by shutdowns and quarantine-driven delays at shipyards and engineering cost overruns, resulting from the inability to efficiently collaborate on complex projects while in remote work settings. We expect the magnitude of disruptions to decline, but the effects will continue to pressure results through the second half of the year. Our Subsea flexible pipe business recorded a sequential revenue decline in the low single digits but was able to achieve a modest improvement in profitability through a higher-margin sales mix and through Herculean efforts to control costs throughout the quarter to make up for a 3-week shutdown in one of our two manufacturing plants caused by a lack of raw materials. While the primary issue has been resolved, we expect profitability to remain challenged for this unit for at least the next quarter or 2.
Our Intervention & Stimulation Equipment business experienced a low double-digit drop in sequential revenue driven by strong Q4 coiled tubing equipment sales and a late 2021 push to sell lower margin prior generation capital equipment that did not repeat in Q1. Profitability improved due to a better product mix, higher pricing and incremental cost savings achieved during the first quarter, which more than offset continued inflation and supply chain challenges. Bookings increased 44% sequentially and included strong orders for a hydro rig [61 20] large-diameter coiled tubing injector that provides 120,000 pounds of continuous lifting capacity and 60,000 pounds of continuous snubbing capacity. While we're not yet seeing demand for new units in North America, customers are realizing much improved pricing and are now upgrading existing units with better technology. This means aftermarket activity continues to drive our ISV business. However, during Q1, we saw a pickup in demand for wireline equipment in international markets and cementing equipment in the U.S. as we are also seeing U.S. pressure pumpers purchase additional pump units to supplement current fleets as horsepower demand per spread continues to increase. With our service company customers beginning to realize net pricing for the first time in several years and high-spec equipment nearing full utilization, we expect to see increasing sales of capital equipment moving forward. Our Fiber Glass Systems business posted a sequential revenue decline in the upper single digits due to seasonality in our fuel handling systems operation and continued supply chain issues, which has made operations for this business, particularly noisy. Many of our key inputs such as glass, resin and epoxy were primarily sourced from Asia.
With a dramatic increase in shipping costs and the inability to predict delivery times, the business has worked to diversify and reallocate its supply chain to better insulate it from disruptions. Despite the challenges faced by this business and the sequential revenue decline, the team was able to improve profitability in Q1 through a focus on cost control and pushing price to make up for increased costs associated with raw materials and operational disruptions. After a difficult 2021, the business is now seeing its sales pipeline grow at a rapid pace, particularly in the Middle East, portending improved results for the business in the second half of the year. While supply chain challenges and inflationary pressures will persist through the second quarter, execution from our completion and production businesses should continue to improve. As a result, we expect Completion & Production Solutions segment to achieve a 10% to 15% increase in revenues with incremental EBITDA margins in the 15% to 20% range. We continue to believe the segment can achieve mid- to upper single-digit EBITDA margins by year-end. Our Rig Technologies segment generated revenues of $441 million in the first quarter, an increase of $10 million or 2% sequentially. The modest top line growth was a result of rapidly improving market fundamentals, which are driving a growing backlog in both capital equipment and aftermarket offerings, mostly offset by seasonal declines in supply chain challenges that are restraining our ability to ramp production in lockstep with inflecting demand in our aftermarket business. Adjusted EBITDA improved $15 million to $36 million or 8.2% of sales due to a more favorable sales mix, improved pricing and cost savings initiatives. New orders totaled $236 million, representing a book-to-bill of 124%.
We also posted an additional $80 million positive adjustment to our backlog, primarily related to an annual inflationary price index adjustment associated with our Saudi newbuild rig program. As a result, total backlog for the segment at quarter end was $2.89 billion, the highest level the segment achieved since Q1 of 2020. Demand for wind power installation vessel equipment remains robust, and we booked a large equipment package for a new wind power installation vessel during the first quarter. The award includes a jacking system, heavy lift crane and a special feeder board handling system, which is designed to provide a cost-effective Jones Act compliant solution that can improve installation process efficiencies by up to 30% compared to conventional vessels. The offshore wind power installation equipment market remains a compelling near-term opportunity, and we see the potential for five to six additional vessels reaching FID over the next 12 to 18 months. We're equally excited about NOV's mid- to longer-term opportunities within the wind power space. We've previously discussed our taller tower thesis, which continues to be the primary driver for improving economics in the wind power space and continues to drive our R&D efforts and the proprietary solutions we are developing for the market. We previously described a patented technology in which we've invested spiral weld tapered wind tower sections via an automated process, allowing for infield manufacturing, thereby eliminating the many logistical limitations of transporting the larger diameter sections necessary for tall tower developments. We are pleased to announce that production of the first commercial tower sections is now underway at our Pampa, Texas facility. While this system will address the logistical challenges and costs associated with delivering taller wind turbine towers to location, installing towers and the cells with higher hub heights presents other challenges and opportunities.
We're in the process of finalizing the design of a fit-for-purpose onshore mobile wind tower erection system, leveraging our core design and manufacturing competencies for large industrial capital equipment and experience developing complex control systems. This patent-pending system should significantly improve the safety, reliability and efficiency of tall tower installations. Longer term, we're seeing the emerging floating offshore wind market as a compelling opportunity for NOV. Floating wind turbines will be key to unlocking the massive renewable energy potential in many markets around the world that don't have access to large areas of shallow coastal waters. Beyond our existing product portfolio, which includes cranes, winches, mooring systems, cable lay systems, ballasting systems and chain connectors and tensioners, we're leveraging our deep expertise in marine and offshore engineering design and manufacturing to actively develop new products and technologies to support this nascent opportunity. Our patent-pending trifloater semi-submersible floating system has a cost advantage shallow draft design that reduces steel requirements, capital expenditures and overall project execution risk. We're also designing several proprietary lifting and handling tools to streamline the installation and commissioning of offshore wind turbine components. To date, we've completed several pre-FEED and FEED studies related to potential deepwater wind development projects and we were recently awarded a pre-FEED study for a project in South Korea. We're also working with partners on several other potential projects around the world, including opportunities within the prospective 25-gigawatt Scott wind development area, where 17 C-bed blocks covering 2,700 square miles were recently auctioned. Of the 17 blocks awarded, 11 will utilized floating wind systems and NOV has been actively engaged in discussions with the winners of six of the 11 licensees.
While there is no guarantee that NOV will be selected to equip these developments, we are well positioned for this large long-term opportunity, which could result in pre-FEED activities taking place over the next two years full FEED studies during 2024 and '25, and construction beginning in 2026 with first power by 2030. We're enthusiastic about NOV's long-term prospects within the wind space, but remain extremely focused on our current wind power construction vessel opportunities and on the growing demand from our conventional rig equipment business. While orders for rig capital equipment in Q1 2022 were up 83% over Q1 of '21, they remain light by historical measures. However, we're seeing accelerating improvement in underlying fundamentals. In the U.S. land market, leading-edge day rates for top-tier rigs are up to $30,000, up from the low $20,000s just a few quarters ago. And the active rig count continues to march higher. We expect to see similar day rate dynamics for top end rigs in international markets with improving activity. Leading-edge offshore day rates have climbed into the $300,000 to $400,000 range, levels that are encouraging reactivation and reinvestment activities to accelerate and generating orders for both our aftermarket and capital equipment businesses. During Q1, we were awarded multiple contracts to help customers ready equipment for upcoming drilling campaigns, including an agreement with an international drilling contractor to reactivate three jack-up rigs and recertify an additional 8. We've seen a dramatic change in the sense of urgency among our customers. Last quarter, we described a rise in inquiries for top drives, high torque handling equipment and pressure control gear, which are now converting into orders.
During most of 2021, customers wouldn't have had any qualms incurring downtime to recertify pressure control gear. But we're now seeing customers buy spare sets of blowout preventers to eliminate downtime during recertifications, avoiding the need to miss out on much improved day rates. While we welcome this newfound urgency and how it is creating opportunities to strip away the last vestiges of price discounts we offer during the depths of the downturn, major supply chain bottlenecks have frustrated and will continue to frustrate our efforts to ramp our output in step surging aftermarket demand for at least another quarter. Supply chain constraints are impacting all our businesses but are most acute within our rig aftermarket operation. While aftermarket revenues improved roughly 5% sequentially and growing demand from recertification, reactivation and upgrade projects in North America and Europe allowed us to avoid the typical seasonal declines in service and repair work, revenues from spare part sales declined, but not due to a lack of demand. In fact, spare part bookings increased 16%, achieving its highest level since Q1 of 2020, and was 67% higher than the low we saw in Q4 of 2020. Unfortunately, supply chain constraints led to a decline in revenue from spare part sales and resulted in our backlog increasing 31% over Q4. We expect throughput to remain constrained through at least the second quarter as supply chain remains challenged and lead times continue to stretch. The supply chain bottlenecks are numerous and include difficulties procuring all sorts of raw materials, castings, forgings, electronic circuits, electric motors, gearboxes and even large bearings. While most of the difficulties are due to lead times from third-party providers blowing out, we also made some of our own missteps related to underestimating how rapidly demand would begin to inflect. Over the past 18 months, we've been working to consolidate the operations of our large manufacturing facility in Orange, California, where we produce the bulk of our top drives into other plants in Houston and Mexicali.
While this was a high degree of difficulty endeavor, the consolidation will generate meaningful cost savings. Prior to the moves, we built buffers of finished goods that we expected to carry us through the consolidation. But the moves in associated manufacturing startups took longer than anticipated and occurred while demand was beginning to inflect. While we're now ramping production, the challenges we're facing with access to raw materials, castings and forgings, along with our own manufacturing bottlenecks, will constrain our ability to keep up with demand through the second quarter. As a result, we expect operational headwinds will keep financial results for our Rig Technologies segment flat with those of the first quarter. However, we're growing increasingly confident in a much stronger second half of 2022 and in our belief that our Rig Technologies segment can achieve EBITDA margins of 10% by year-end.
With that, we'll now open the call up to questions.