Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. NOV's consolidated revenue in the third quarter of 2022 was $1.89 billion, up 9% sequentially and up 41% year-over-year. All three segments posted another quarter of strong growth and improved profitability and achieved or exceeded the 2022 exit margin targets we provided at the beginning of the year.
During the third quarter, we completed the sale of our operations in Belarus and classified our Russian operations as assets held for sale, which collectively resulted in $76 million in impairment charges, most of which was related to foreign currency translation adjustment losses and which increased SG&A. These charges were partially offset by credits related to gains on sales of previously reserved inventory, resulting in total adjustments or other items of $63 million. We do not expect additional charges in the fourth quarter.
Cash flow used by operations during the third quarter was $106 million, primarily due to working capital builds needed to support our rapid topline growth and to mitigate continued supply chain risks. Capital expenditures in the quarter totaled $59 million and we ended the third quarter with $1.73 billion in debt and $1 billion in cash. For the fourth quarter, we expect to generate between $100 million to $200 million in free cash flow, and we expect free cash flow conversion to improve significantly in 2023.
Moving on to segment results. Our Wellbore Technologies segment generated $741 million in revenue during the third quarter, an increase of $75 million or 11% compared to the second quarter and 46% compared to the third quarter of 2021. The segment realized its eighth straight quarter of revenue growth by capitalizing on improving global drilling activity levels and better execution against ongoing supply chain challenges. While activity in North America may be reaching a temporary plateau, the segment continues to benefit from pent-up demand for its proprietary drilling tools, and we are now starting to see a sharp increase in demand from the Middle East as the industry prepares to ramp activity in 2023.
EBITDA flow-through was 31%, resulting in a $23 million sequential increase to $145 million or 19.6% of revenue. Compared to the third quarter of 2021, EBITDA improved $68 million, representing 29% EBITDA flow-through. Our M/D Totco business posted solid double-digit sequential growth from both its legacy surface data acquisition system operations and its eVolve wired drill pipe optimization services despite continued challenges related to procuring specialized electronics and circuits used by the business.
Revenue from the unit surface data acquisition operations realized a strong improvement in sales into Africa and Latin America with revenue in most other major regions generally moving in line with drilling activity levels. After a modest pullback in Q2 due to a few rigs in the North Sea completing wells and moving on to new locations, our eVolve services continue to gain greater market adoption and realized a sharp recovery in the third quarter.
In addition to new jobs in the North Sea, the business also secured two new wired drill pipe optimization projects in the Middle East, one from a major integrated oil company and another from a large national oil company as well as a project supporting drilling operations on two carbon sequestration wells that will be used to inject CO2 from onshore sources, 1,000 to 2,000 meters below the seabed for permanent storage. Our unique ability to pair full downhole visibility with market-leading software analytics drives value for customers through more efficient and productive wellbores, which should make this offering a key growth driver for this business moving forward.
Our downhole business reported revenue growth in the upper teens with solid EBITDA flow-through, improved execution against supply chain-related challenges that limited the availability of special elastomers and certain grades of steel used in the business's high-spec products, allowed the unit to better meet robust demand for its proprietary tools, which drive improved drilling efficiencies for oil and gas operators.
Our ReedHycalog drill bit business posted a low double-digit sequential increase in revenue, led by strong growth in the Western Hemisphere, resulting from market share gains in the U.S., a pickup in projects in the Gulf of Mexico, and the seasonal rebound of Canadian activity. Eastern Hemisphere revenues were mostly flat with solid growth in Asia offsetting sizable Q2 shipments into Northern Africa that did not repeat and continued supply chain challenges affecting deliveries in the Middle East. Looking ahead, we expect increasing demand from Eastern Hemisphere markets, particularly the Middle East, to drive the next leg of growth for this unit.
Our wellsite services business posted mid-teens sequential revenue growth with strong incremental margins. Revenue for the business's solid control product line was up in both Western and Eastern Hemispheres with particular strength in the offshore markets and in the Middle East. Our new iNOVaTHERM portable solid treatment unit is beginning to gain wider adoption, winning its first offshore contract with a major operator in the North Sea off the back of a successful trial completed in the second quarter.
By enabling the disposal of drill cuttings at the well site, iNOVaTHERM enables significant reductions in transportation costs and carbon emissions. As this business continues to see volume growth, our team is continuing to push pricing to offset continued inflationary and supply chain challenges and to garner appropriate returns for the advantages provided by NOV technology.
Our Grant Prideco drill pipe business posted relatively flat results as delayed deliveries of green tubes negatively impacted our ability to deliver on the business's backlog during the quarter. Delayed vessels, rail transportation bottlenecks, and downtime in one of our vendor steel mills limited plant throughput during the quarter. Despite these difficulties, a favorable mix from the strength in premium, large-diameter orders from international and offshore markets over the past two quarters allowed the unit to mostly offset the cost of the disruptions.
Orders remained healthy in Q3, with North American drilling contractors representing the bulk of the orders, a notable reversal from Q2 where orders primarily originated from international markets. Additionally, the recent orders reflect a step back in 5.5-inch pipe demand, which suggests that there are a limited number of rigs equipped with the necessary high-torque packages and setbacks needed to run the larger OD pipe that most operators want.
Looking ahead to the fourth quarter, revenue is expected to improve, but flow-through will be limited due to less favorable product mix. Our Tuboscope business posted a high single-digit sequential revenue improvement with strong incremental margins. The solid performance was led by our coatings operations, which achieved its fourth straight quarter of double-digit growth and benefited from improved availability of key resins and polymers, building demand in the Eastern Hemisphere, and a full quarter contribution from the reopening of our Amelia, Louisiana, coating plant.
Our inspection operations also delivered solid results, mainly driven by strong demand for inspection and threading services in the U.S. and Latin America. Looking forward, we expect flattish results for this business in Q4 due to holidays and scheduled maintenance at certain facilities.
For our Wellbore Technologies segment, we expect building momentum in the Eastern Hemisphere and pent-up demand for our products to be partially offset by plateauing North American drilling activity, resulting in revenue growth of 2% to 6% with EBITDA flow-through in the 30% range in the fourth quarter.
Our Completion & Production Solutions segment generated revenues of $681 million in the third quarter of 2022, an increase of 7% from the second quarter and an increase of 42% compared to the third quarter of 2021. Adjusted EBITDA for the third quarter was $56 million or 8.2% of sales, an increase of $24 million from the second quarter. The 57% EBITDA flow-through was primarily the result of much-improved execution on offshore projects and the easing of supply chain constraints, which allowed for an acceleration of pent-up deliveries and, in some instances, a pull forward of planned Q4 shipments. Book-to-bill was 116%, the seventh straight quarter of a book-to-bill north of 1.
Quarter-ending backlog increased to $1.48 billion, reaching its highest level since Q1 of 2015. Despite capital constraints on our customers, sticker shock from inflation's impact on pricing and stretched supply chain's strong orders reflect the industry's increasing need to refresh its asset base and provide us with more confidence in the outlook for the order flow in our capital equipment businesses.
Our Process and Flow Technologies business posted sequential revenue growth in the upper single digits with a strong rebound in profitability. The business unit significantly improved execution with progress accelerating as supply chains normalize and COVID restrictions ease. Order intake for the business was soft, but we believe we will see growing confidence in market outlook, project economics, and the ability for the industry to clear shipyard bottlenecks. All of which are needed to move new projects forward. During the quarter, we saw an increase in FEED studies, which we expect to convert into new project awards in future quarters.
Our XL conductor pipe connections business, which posted a book-to-bill of 187% in the third quarter, further supports our growing optimism for offshore projects. As we've mentioned many times before, demand for conductor pipe tends to be a leading indicator of offshore activity and the business is starting to see an increase in FIDs for projects, many of which have been pushing to the right for over five years, finally advance.
We're also seeing more signs of life in our Subsea flexible pipe business, which has now posted a book-to-bill greater than 100% in four of the last five quarters. During the third quarter, the business also saw a substantial improvement in its operating results and posted sequential revenue growth in the mid-teens with outsized EBITDA flow-through. The strong result came from significant improvements in the availability of raw materials, which enabled efficient progress and early deliveries on certain projects.
While supply chain challenges appear to be easing, we anticipate a slower fourth quarter as the strong results in Q3 were due in part to pulling forward work from Q4. Despite the anticipated falloff in the fourth quarter, we expect new orders will remain strong which should set the stage for continued pricing improvement in 2023.
Our pump and mixer operations also realized outsized revenue growth with solid incrementals. The lifting of COVID lockdowns in Shanghai allowed the operation to finally ship pent-up deliveries to customers. While orders increased sequentially, the large increase in shipments prevented the business from achieving what would have been the business unit's eighth straight quarter with a book-to-bill greater than 1.
Our Intervention and Stimulation Equipment business realized a mid-single-digit sequential decrease in revenue. Last quarter, we noted that the completion of large aftermarket reactivation projects, along with the extended lead times for new build deliveries would result in a sequential decline in revenues. However, growing demand for orders continued, marking the fourth quarter in a row of growing backlog. Bookings included 67,500 horsepower of new pressure pumping equipment, along with orders to rebuild an additional 30,000 horsepower of pumping units. We also saw a pickup in demand for coiled tubing equipment due to rapidly tightening capacity in North America. Orders included sales of injectors, pumps, nitrogen units, and other support equipment, along with the sale of the first new unit for the U.S. market that we've had in three years.
Noteworthy and somewhat unsurprisingly, the purchase of the new unit came from a private service company that didn't have to worry about public investors and had capital to invest in what should be a high-return opportunity. Despite activity in North America that appears to be arriving at a temporary plateau and public oilfield service companies that are reluctant to spend capital, there is a pent-up need to replace and upgrade aging equipment, and we think E&P operators will reward those who provide the most efficient services by using the latest technology.
Similarly, in international markets, service providers that signed low-rate multiyear contracts during the depths of the pandemic have been reluctant to invest in assets. However, our quoting activity improved materially in Q3 as customers prepare for upcoming tenders. Our Fiber Glass Systems business unit posted a solid sequential revenue increase, resulting from improved deliveries into chemical and industrial markets in Southeast Asia and in Brazil and from improving demand from oil and gas markets with large shipments into Latin America and the Middle East. This growth was partially offset by our fuel handling business, which experienced a slight falloff when compared to the record levels it saw during the second quarter.
Sales into the marine and offshore markets were mostly flat, but we're now seeing a notable increase in interest for marine scrubbers. While shipping companies were trying to capitalize on a once-in-a-lifetime market dynamic and its associated pricing, we understandably saw no demand for new scrubbers despite a large spread between low and high sulfur diesel prices due to high opportunity cost of taking vessels out of service for shipyard modifications. Now that shipping rates are beginning to normalize, customers are once again planning to bring vessels to port and install scrubbers so that they can capitalize on the spread in fuel prices.
Looking ahead to the fourth quarter, we expect to see a modest pullback in operational results for our Fiber Glass business due to several large deliveries in the third quarter that will not repeat and due to normal seasonality in our fuel handling product sales as we move into colder weather months. For the fourth quarter, we expect growing opportunities associated with our Completion & Production Solutions segment's backlog to be mostly offset by certain projects that were pulled forward into the third quarter and supply chains that remain elongated, resulting in revenues that should be relatively flat. We also expect a less favorable sales mix will compress EBITDA margins between 50 and 100 basis points.
Our Rig Technologies segment generated revenues of $511 million in the third quarter of 2022, an increase of $49 million or 11% sequentially and an increase of 31% compared to the third quarter of 2021. Sequential revenue growth was driven primarily by continued improvement in our aftermarket business and a higher rate of progress on offshore wind and Saudi rig projects.
Adjusted EBITDA improved $11 million sequentially to $52 million or 10.2% of sales. New orders totaled $119 million, representing a book-to-bill of 59% and total backlog for the segment at quarter end was $2.78 billion. While the day rate environment for both land and offshore rigs continues to improve, recessionary fears, combined with the industry's memories of the past eight years has public boards and management teams reticent to make large capital equipment investments. However, we remain encouraged by what we're seeing in both the land and offshore markets.
In the U.S., extraordinary rates of change in day rates we saw during the first six months of the year slowed in the third quarter, but they continue to climb and are now pushing $40,000. Current rates are certainly getting customers more interested in reinvesting in their existing asset bases similar to what we saw in our Intervention and Stimulation Equipment business and to what has happened in the E&P space, it's not surprising to see private companies be the first movers to capitalize on the high rate of return investment opportunities associated with newbuild assets. During the third quarter, we booked an order for a new, high-spec land rig for a private drilling contractor, who is supported by a term contract from a large West Texas operator.
In offshore markets, activity continues to climb higher with utilization of marketed drillships reaching 78%, leaving only five ultra-deepwater drillships currently available to go to work. Additionally, we continue to see our customers book contracts with dramatically improved pricing and extended duration compared to what we saw a year ago. We're now routinely seeing ultra-deepwater drillships commanding $400,000-plus day rates and Saudi Aramco alone has awarded 184 years worth of contracts for jackups since August of 2021.
While the capital constraints on drilling contractors limit our capital equipment order intake, the improving environment and associated cash flows for our customers are driving a growing sense of urgency from drilling contractors to increase investments in maintenance and reactivations, which is reflected in the surge in demand we've seen within our aftermarket operations.
Our aftermarket operations posted 11% sequential growth in the third quarter. Revenue from spare parts sales increased double-digit as we improved execution against continued supply chain constraints in the face of growing demand. However, the rate of order intake continues to outpace our ability to ramp our operations. While the supply chain is slowly improving, availability and lead times for certain grades of high alloy steels, castings, PLC drives, and switchgear remain challenged. Nevertheless, we're continuing to ramp throughput and our customers are working with us to better plan and schedule aftermarket projects and other needs.
We posted another quarter of strong spare parts bookings, our best since the first quarter of 2020 and our current aftermarket backlog is approximately double what it was at this point last year. Our field engineering group is continuing to see an increase in quoting activity related to reactivation and recertification projects, pressure control upgrades, and enhanced automation with the heaviest concentration of inquiries coming from Brazil, Norway, the Middle East, and the U.S. Gulf of Mexico. While we did not book a wind vessel this quarter, revenue recognized from our healthy backlog continues to ramp and the outlook for this sector remains very encouraging with orders for new vessels becoming increasingly likely in the near term.
Looking ahead, market fundamentals continue to improve for our core markets, giving us confidence that our order book will improve over the next few quarters. Additionally, our current backlog for both capital equipment and aftermarket parts and services provides us with ample opportunity to grow revenue and profitability in this segment. Specifically, for the fourth quarter, we expect revenue in Rig Technologies to grow between 5% to 10% sequentially with incremental margins between 20% and 25%.
With that, we'll now open the call to questions.