Senior Vice President & Chief Financial Officer at NOV
Thank you, Clay. To recap the quarter, NOV's consolidated revenue in the second quarter was $1.73 billion, a 12% sequential increase compared to the first quarter and a 22% increase compared to the second quarter of 2021. Adjusted EBITDA for the second quarter totaled $150 million or 8.7% of sales. All 3 operating segments reported sequential revenue growth and better profitability as we realize continued improvements in oil and gas equipment market fundamentals and execution against ongoing supply chain-related challenges.
The improvement in execution comes from working diligently to better forecast demand, plan and build buffers within our inventory of raw materials and third-party source components that have less certainty in expected lead times. Despite seeing no improvement in the average for on-time deliveries from our vendors in the second quarter, with average lead times continuing to extend the actions taken by our team increased throughput and deliveries for our customers. Of course, building buffers has a negative impact on our inventories, working capital and cash flow. Inventory increased $151 million sequentially, which contributed to the $145 million increase in working capital. Despite the increases, our focus on working capital management over the past few years allowed us to better mitigate supply chain risk and fund revenue growth while still delivering an improvement in all primary working capital metrics.
The build in working capital, along with a $51 million tax assessment described in our press release, resulted in the use of cash flow from operations of $124 million. Capex for the quarter was $43 million, resulting in negative free cash flow of $167 million, and we ended the second quarter with $1.72 billion in debt and $1.22 billion in cash. Continued top line growth, supply chain challenges and the timing of payments on certain percent of completion projects will continue to be a drag on working capital for the remainder of the year. However, at this point, we expect to generate a modest amount of free cash flow in the second half of 2022.
Moving on to segment results. Our Wellbore Technologies segment generated $666 million in revenue during the second quarter, an increase of $58 million or 10% compared to the first quarter and 44% compared to the second quarter of 2021. The segment realized revenue growth in most regions on improving global drilling activity levels, pricing gains and better execution against ongoing supply chain challenges. EBITDA flow-through was 36%, resulting in a $21 million sequential increase in EBITDA to $122 million or 18.3% of revenue. Our ReedHycalog drill bit business posted mid-single-digit revenue growth with a 16% increase in Eastern Hemisphere revenues, partially offset by the Canadian spring breakup and customer-driven project delays in the Gulf of Mexico.
Growth in the Eastern Hemisphere was led by the Middle East and Western Africa, where we are seeing an urgency from customers and their request for extensions on contracts nearing expiration, and they are placing large orders before pricing resets under new agreements. Our ReedHycalog products literally serve as the tip of the drill string and figuratively serve as the tip of the spear of leading indicators for the broader segment being one of our earliest cycle businesses.
The actions our NOC customers are taking today are giving us growing confidence in an upcoming inflection in Eastern Hemisphere activity. Our downhole business reported a high single-digit percentage improvement in revenue during the second quarter. While the unit has seen robust demand for its agitators and motors, manufacturing output has been constrained over the last several quarters due to limited availability of special elastomers and certain grades of steel used in the business's high-spec products.
The team has worked hard to mitigate operational disruptions by finding and qualifying alternate sources of materials. Their efforts began to pay off in the second half of Q2 when they were able to significantly increase throughput. Higher output in pricing led to a healthy margin improvement, which we expect will carry into the second half of the year. Our WellSite Services business reported a small sequential decrease in revenue. Healthy growth in our core solid control operation was offset by a decline in revenues from our managed pressure drilling product line resulting from large capital equipment packages that shipped in the first quarter.
Outlook for MPD remains solid, and we anticipate a strong rebound in revenues from the operation in the second half of the year. In our solid control operation, continued efforts to reduce environmental footprint as well as significantly higher costs for barite and diesel are driving efforts to achieve higher recovery rates from cuttings, which in turn is creating greater demand for various NOV solutions. These range from adding an additional centrifuge, which can modestly improve recovery rates, to the greater adoption of our thermal [Phonetic] desorption system, which can dramatically improve recoveries and reduce oil on cuttings to as low as 0.1%. Outlook for our solid control and MPD operations remains strong with international and offshore focused markets preparing to increase activity.
Improving demand will continue to absorb the capacity and allow us to focus on customers that place a premium on our technology differentiation and best-in-class service. Similar to WellSite Services, our MD Totco business posted relatively flat results with solid growth in its legacy surface data acquisition system operations, offset by a transitory decrease in revenue from our eVolve wire drill pipe optimization services.
Despite the pullback in Q2 resulting from a few rigs in the North Sea completing wells and moving on to new locations, we expect eVolve revenue will return to its upward trajectory in the third quarter. More customers are recognizing the improved drilling efficiencies, well productivity and safety benefits that our eVolve wired drill pipe services provide, which we expect will drive an increase in projects in the North Sea, Middle East and U.S. during the second half of the year.
Our Grant Prideco drill pipe business posted solid sequential revenue growth and achieved its highest order intake since 2014, with the business realizing a sharp inflection in demand for its premium pipe in the U.S. and Middle East. Customer-owned pipe inventory levels are drawing down to uncomfortable levels while drilling activity climbs, creating a renewed sense of urgency among our customers, causing them to secure manufacturing.
Our Tuboscope business delivered a sequential revenue increase in the low teens with solid incremental margins. Increased demand in the U.S. and South America, fewer operational disruptions and higher prices drove the improved results. In addition to solid sequential growth in its inspection operations, the unit realized its third straight quarter of double-digit revenue growth in its coating operations, led by increased demand for line pipe and drill pipe coating in the U.S. To meet growing demand and prevent lead times from blowing out, we recently reopened a mothball, the coating plant in Amelia, Louisiana that was shut down in July of 2020.
Looking ahead to the second half of 2022, we expect a continuation of solid demand in the Western Hemisphere with accelerating growth in the Eastern Hemisphere. For our Wellbore Technologies segment, we expect North American drilling activity growth rates to moderate while momentum builds in the Eastern Hemisphere, which we expect will help drive revenue growth of 4% to 7% in the third quarter. Continued strong execution and pricing improvement should more than offset the impact of ongoing supply chain challenges and inflationary pressures, resulting in EBITDA flow-through in the mid-30% range. Our Completion & Production Solutions segment generated revenues of $639 million in the second quarter of 2022, an increase of 21% from the first quarter.
The sequential improvement was broad-based with 6 of the segments 8 business units reporting double-digit revenue growth. Adjusted EBITDA improved $22 million to $32 million or 5% of sales. Despite a strong pickup in the shorter-cycle components of the segment's operations and improved execution, challenges within shipyard projects continue to pressure margins and limit EBITDA flow through to 20%.
Book-to-bill was 132%, the sixth straight quarter of a book-to-bill greater than 1. Quarter ending backlog increased 6% sequentially to $1.44 billion, achieving its highest level since the first quarter of 2015. While bookings for the quarter were strong, we continue to see large projects pushed to the right. Higher commodity prices have significantly improved project economics, but shipyard suppliers and operators are all struggling with existing log jams and shipyards, uncertain lead times, higher costs and stretched workforces leading to nervous customers who are delaying FIDs. However, confidence in the long-term sustainability of improved commodity prices is slowly improving, leading upside to this segment's future order potential. What we see in our XL Systems conductor pipe connection business contributes to our growing confidence that large project FIDs will rebound.
Demand for our XL Systems products has historically served as an early indicator of offshore drilling activity. The business unit realized a meaningful sequential improvement in revenues and a solid level of orders in Q2. But more importantly, it saw our customer inquiries increased 14% sequentially and 24% year-over-year with the average value per inquiry up roughly 40%, both sequentially and year-over-year.
Our Process and Flow Technologies business unit posted revenue growth in the low teens with EBITDA flow-through in the upper teens. Ongoing disruptions, delays in cost overruns and shipyard projects affected our Wellstream Processing in APL operations and pressured margins for the business unit. Nevertheless, interactions with customers remain upbeat and our engineering teams are fully consumed working on paid FEED studies, which will ensure customers are ready to move projects forward as supply chains normalize.
Additionally, the unit's backlog remains strong, equal to 5.5x its revenue added backlog during the second quarter. Our production and midstream operations began to see some relief from vendor delays, resulting in the operation generating revenue growth in the low teens with outsized incremental margins. Improved supplier deliveries with continued healthy demand, particularly for our production chokes in the Western Hemisphere resulted in a significant pickup in sales.
Our pump and mixer operation revenue was flat with the first quarter despite the operations Shanghai manufacturing facility shutting down for the vast majority of the quarter due to COVID-19 lockdowns. While the team's heroic efforts to meet customer demand allowed revenues to remain solid, near 0 absorption in Shanghai, higher freight costs and overtime incurred at other plants tasked with making up some of the shortfall pressured margins.
Demand for pumps and mixers remains high and the operation realized its seventh straight quarter with a book-to-bill greater than 1. Our subsea flexible pipe business posted a solid rebound in Q2 after suffering from a 3-week shutdown in one of our 2 manufacturing plants in the first quarter caused by the inability to procure sufficient quantities of polyvinyl fluoride. Additionally, the business unit realized its strongest order intake since 2017, with strong demand for projects in Brazil and in the Asia Pacific region.
Our Fiber Glass Systems business unit posted a sharp improvement in revenue during the second quarter, capitalizing on 6 straight quarters with a book-to-bill over 1 and overcoming many supply chain challenges that have plagued its operations over the last several quarters. While headwinds from inflationary pressures on raw materials, labor and freight continue, proactive actions taken by the business to better insulate operations from material shortages reduced manufacturing disruptions.
Outlook has also improved with all end markets now demonstrating solid recoveries. Demand from North American oil and gas customers finally inflected higher in the second quarter, which allowed us to achieve our highest level of bookings from this market in the last 4 years. We also began to see a recovery in the marine and offshore sector driven by the increasing spread between low and high sulfur fuels, rekindling demand for scrubbers despite our customers' appropriate reluctance to bring vessels to port while shipping rates remain elevated.
The Marine sector is also benefiting from growing demand in the wind power installation space with our operation receiving in order to provide its bond strand glass reinforced epoxy piping for use in a new wind turbine installation vessel. Our Intervention & Stimulation Equipment business posted revenue growth in the mid-teens with solid improvements in each of the business' product lines.
The unit also achieved its fourth straight quarter of improved bookings and its third straight quarter with a book-to-bill above 100%. Demand for pressure pumping equipment, parts and service continues to evolve as service market fundamentals improve. Beginning in the fourth quarter of 2020, customers began reactivating stacked fleets with the average level of difficulty increasing through 2021 as they dug deeper into their stacks of parked equipment. We then saw a shift towards fleet overhauls and rebuilds and are now seeing demand for new build equipment and booked orders of 62,500 horsepower of pressure pumping equipment during the second quarter.
Despite the strong orders, we expect to see a dip in pressure pumping revenues in the third quarter, resulting from the completion of large aftermarket reactivation projects in the second quarter and ongoing supply chain constraints that are extending lead times for new build deliveries.
The business unit's coiled tubing and wireline operations are also realizing growing demand from higher service activity in North America and from a growing number of international markets where customers are preparing for higher activity in the coming quarters. We expect our Completion & Production Solutions segment's growing backlog to drive revenue growth between 1% to 5%.
While the segment will continue to face supply chain disruptions and inflationary pressures through the remainder of the year, the combination of growing demand and improved execution should drive EBITDA incremental margins into the mid-30% range in the third quarter. Our Rig Technologies segment generated revenue disruptions and inflationary pressures through the remainder of the year, the combination of growing demand and improved execution should drive EBITDA incremental margins into the mid-30% range in the third quarter.
Our Rig Technologies segment generated revenues of $462 million in the second quarter, an increase of $21 million or 5% sequentially. Top line growth was led by continued strength in the segment's aftermarket operations. Adjusted EBITDA improved $5 million to $41 million or 8.9% of sales. New orders totaled $141 million, representing a book-to-bill of 80%. Total backlog for the segment at quarter end was $2.84 billion.
Orders included the design and jacking system for another next-generation wind power installation vessel. The rest of the order book consisted of top drives handling equipment, pumps, BOP controls and components and other miscellaneous equipment for replacements and upgrades. While this type of order book reflects a market that is still healing, there are many signs that indicate this process is accelerating.
As Clay touched on, recent public contracting data points have been very encouraging, with key offshore customers securing contracts at day rates more than 2x the average rate seen in 2020. In the U.S. land market, average day rates in the Permian increased 33% in the last 3 months with a blended average day rate still more than 25% below leading edge rates.
This means we can expect our customers' cash flows to continue improving rapidly, which is critical since access to capital remains a challenge for the industry. Until the broader financial markets once again reward high-return investments in oil and gas equipment customers will need to self-fund their equipment needs. Fortunately, as I just mentioned, cash flow from our customer base is improving at a rapid pace. Near term, we expect the bulk of our Rig Technologies segment's capital equipment orders to come from replacement and upgrades for their existing fleets.
While rig capital equipment orders remain modest, quickly improving day rates are driving a much improved environment for our aftermarket operations. We're seeing steadily increasing demand for reactivation, recertification, overhaul and upgrade projects in all major regions. We've also seen orders for spare parts improve over the past 6 quarters, with Q2 orders achieving pre-pandemic levels. Supply chain constraints are still limiting our manufacturing output, resulting in backlog growth that continues to outpace our ability to get parts to our customers.
While throughput and revenue from spare parts improved in the second quarter, bookings increased 9% and our backlog also increased. Growing demand and our focus on continuing to improve our ability to secure materials and ramp manufacturing throughput is making us increasingly optimistic about the prospects for the segment to generate improved financial results in the second half of this year and gather momentum for an improved 2023.
For the third quarter, we expect revenue for our Rig Technologies segment to grow between 5% to 10% sequentially, with EBITDA flow-through in the mid-teens. While we're pleased with the recovery in profitability in the second quarter, there remains substantial room for improvement with the upturn in our business in the very early innings of what we believe will be a multiyear recovery. What we see in each of our operating segments is in line with what we expect. Short-cycle businesses realizing rapidly improving results initially driven by activity in North America and now shifting to the Eastern Hemisphere, shorter-cycle capital equipment business is seeing increased demand and aftermarket operations of long-cycle capital equipment businesses ramping up.
Every cycle is a little different, and this recent down cycle has been more severe than most, if not all, prior downturns. We're still facing headwinds from global supply chain challenges and investor pressure on our customers to avoid investments in their operations. We believe these issues are creating more pent-up demand for assets that are needed to address the growing global energy supply and security challenges and will prove transitory.
While we do not expect these constraints to alleviate in 2022, we do anticipate a significant improvement in our results and expect to see demand for more of our products and technologies inflect, which should allow NOV to deliver second half 2022 EBITDA that is 45% to 55% greater than what we achieved in the first half.
With that, we'll now open the call up to questions.