Jose Bayardo
Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. NOV's consolidated revenue totaled $2.185 billion in the third quarter, an increase of 4% sequentially and 16% compared to the third quarter of 2022. Revenue from international markets grew 11% sequentially, offsetting a 6% decline in revenue from North America. EBITDA for the third quarter totaled $267 million or 12.2% of sales, representing an incremental flow through of 24% sequentially.
We are in the early phases of our $75 million cost savings plan and realized modest savings during the third quarter. As we noted last quarter, we expect the majority will be captured in 2024, helped by the additional restructuring efforts Clay discussed.
We generated $40 million in cash flow from operations with working capital continuing to be a use of cash. As anticipated, receivable days increased slightly with the shift in our business towards international markets. Inventory also increased as vendors have continued to debottleneck their operations and make deliveries earlier than originally planned. However, we believe our inventory build crested in August. The timing of these deliveries also contributed towards the $82 million sequential drop in accounts payables, which further impacted cash flow in the third quarter. We expect working capital metrics to improve from here, leading to healthy free cash flow in the fourth quarter and setting up a very strong free cash flow year in 2024.
Our Wellbore Technologies segment generated $799 million of revenue during the third quarter, a decrease of $5 million or less than 1% compared to the second quarter and an increase of 8% compared to the third quarter of 2022. Improving international activity and market share gains have offset lower drilling activity in the U.S. Despite the slight sequential decline in revenue, EBITDA grew slightly to $166 million or 20.8% of revenue.
Our ReedHycalog drill bit business posted sequential revenue growth in the mid-single digits, driven by continued growth in the Middle East, a strong recovery from the spring break up in Canada and continued market share gains in the U.S. Despite U.S. drilling activity levels that have declined 16% since the fourth quarter of 2022, ReedHycalog has increased its revenues in the U.S. for three straight quarters. Our new cutter technologies continue to deliver better drilling performance and record bit runs, driving market share gains while commanding premium pricing.
Our downhole tools business reported revenue growth in the low single digits with strong incremental margins. The strong seasonal recovery in Canada and continued gains in the Middle East and Latin America more than offset bottoming activity in the U.S. Despite the unit posting a slight sequential decline in overall U.S. results, revenue from our drilling motors business in the U.S. grew 3% sequentially against a 10% decline in drilling activity. Record runs and strong performance from new products is fueling demand for our drilling motors, which has continued to exceed supply with operators increasingly preferring our Series 55 motors along with premium power sections a combination that delivers stronger drilling performance in some of the most challenging drilling environments.
Our WellSite Services business reported low single-digit revenue growth with strong incremental margins. The improved results were driven by growing demand for solids control and managed pressure drilling services and equipment in the Middle East and offshore markets, which more than offset softer demand in the U.S. and Latin America. New product offerings, like our iNOVaTHERM solids waste control units and our growing suite of new MPD technology, have positioned this business particularly well in light of climbing international and offshore activity.
Our Grant Prideco drill pipe business posted a double-digit drop in revenue with outsized EBITDA decrementals after a very strong recovery in the second quarter. Over the course of the year, we have seen our mix shift from North America to international land and offshore markets. We expect this internationally oriented revenue mix to continue into the fourth quarter. However, based on customer inquiries, the outlook for orders in the U.S. may improve sooner than we'd normally expect, likely reflecting expectations for higher levels of drilling activity in 2024.
Our Tuboscope business unit posted a slight sequential increase in revenue, achieving its 12th straight quarter with top-line growth. Strong demand in the Eastern Hemisphere offset softer activity in the U.S. and Latin America. The unit realized stronger demand for pipe coating services and our TK-Liner products across the Eastern Hemisphere, where activity remains strong, while lower drilling activity in the U.S. and higher industry inventory levels of OCTG reduced demand for inspection services at steel mills and outside processors.
Our M/D Totco business results in the third quarter were flat with its record results in the second quarter. Revenues from drilling surface data decreased sequentially due to lower drilling activity in the U.S. and strong Q2 sales of capital equipment in the Far East that did not repeat, partially offset by higher activity in the Middle East and Canada.
Lower revenue from drilling surface data were offset by another strong increase in revenue from our eVolve wired drill pipe drilling optimization services. During the quarter, we helped a major operator in the North Sea shave more than 30 days from its drilling plan for a well on the Norwegian continental shelf by utilizing our wired drill pipe optimization and visualization tools, which are starting to see significant interest in the Middle East. We estimate the significant improvement in drilling efficiencies saved our North Sea customer more than $15 million, substantially improving its wells economics.
For the fourth quarter, we expect continued strength in international and offshore markets will more than offset bottoming U.S. land activity, resulting in revenue for our Wellbore Technologies segment increasing 46%, accompanied by incremental margins in the low- to mid-20% range.
Our Completion & Production Solutions segment generated revenues of $760 million in the third quarter of 2023, an increase of 1% compared to the second quarter and an increase of 12% compared to the third quarter of 2022. EBITDA for the third quarter was $67 million or 8.8% of sales, down $2 million from the second quarter and up $11 million from the third quarter of 2022. While our CAPS segment's results were essentially flat sequentially and drilling and completion activities remained subdued in North America. Positive momentum in international and offshore markets helped us drive an 18% increase in orders to $530 million, resulting in a book-to-bill of 114%. Backlog at the end of the third quarter totaled $1.626 billion. We've remained disciplined on what projects we take and continue to insist on driving pricing higher, resulting in the addition of margin-accretive projects into our backlog, which will result in higher margins for the segment as we move into 2024.
Our Process and Flow Technologies business unit posted a low-teens sequential increase in revenue with solid EBITDA flow through, led by accelerating progress on new higher-margin projects in our Wellstream Processing operations. We continue to pursue a large pipeline of potential offshore projects for our Wellstream and APL businesses. While some operators remain cautious, others are moving projects forward. We are seeing a sufficient number of quality opportunities advance that are allowing us to remain extremely disciplined with our pricing to drive better margins in our backlog while still posting a book-to-bill near 100% in the third quarter.
Our subsea flexible pipe business posted results that were effectively in line with the second quarter, but orders more than doubled sequentially, achieving the unit's highest order intake since 2015. While it has taken some time for customers to recalibrate their expectations and the unit is still working through lower margin backlog, our disciplined approach related to which projects we are willing to take and at what price is beginning to pay off. Our efforts along with growing demand from Brazil, West Africa, Australia and the North Sea are allowing us to book projects that have much healthier margins and more favorable milestone payment terms than those booked over the last several years.
Our XL Systems conductor pipe connections business posted a low single-digit sequential decrease in the third quarter after a robust increase in revenue during the second quarter. Orders remained strong and book-to-bill was over 100% for the fifth straight quarter, led by demand from West Africa and the North Sea. In addition to the unit success in its core offshore market, the business continues to seek growing opportunities in geothermal markets and recently completed the first sale of its new XCalibur gas-tight threaded connector to a geothermal customer in California.
Our Fiber Glass Systems business posted a low single-digit increase in revenues during the third quarter. Solid growth in oil and gas markets, led by the Middle East, more than offset slightly softer demand from industrial and fuel handling markets. The outlook for this unit remains bright with growing demand for new corrosion-proof composite pipe products from international oil and gas markets. We also continue to see meaningful opportunities to supply our new flame and smoke-resistant composite DUCs for semiconductor manufacturing plants and to support the lithium mining and processing space.
Our Intervention & Stimulation Equipment business realized a double-digit sequential decrease in revenue largely due to lower deliveries of pressure pumping equipment, partially offset by higher shipments of process and wireline equipment. While drilling and completion-related activity in the U.S. continued to soften during the quarter, order intake remained solid with the business unit posting a greater than 100% book-to-bill, underpinned by demand for our new eFrac products. Demand from international and offshore markets remain solid and customers in North America remain focused on replacing and upgrading their asset base with more operationally and energy-efficient equipment.
During the quarter, we booked orders for 25,000 hydraulic horsepower of eFrac equipment in three of our Power Pod systems that enable hybrid fleets, where eFrac equipment works alongside conventional assets, making it easy for customers to begin capitalizing on the efficiencies of our eFrac technology as they replace their conventional pumping units over time. Despite the perception that there is much excess completion equipment in North America, demand remains steady from technology-driven customers as evidenced by the eFrac order.
Demand from technology forward customers is not limited to pressure pumping, but also applies to wireline and coiled tubing equipment. In the third quarter, we sold four of our iMaxx wireline units and two high-spec coiled tubing spreads that are fully equipped with our latest controls and utilize our new digital Max Completions platform to deliver process, machine and control data to provide superior service at the wellhead.
NOV's technology leadership is second to none, which is also reflected in our team being selected by a major IOC to engineer the industry's first 20,000 psi pressure control equipment for use in completion and intervention services in the Gulf of Mexico.
For our Completion & Production Solutions segment, we expect continued improvements in offshore markets will more than offset bottoming activity in North America, resulting in sequential revenue growth of between 2% to 4% in the fourth quarter. Additionally, a better mix of higher-margin business and cost savings should result in a 100 basis point to 300 basis point improvement in EBITDA margin which should reach into the double digits for the first time in three years.
Our Rig Technologies segment generated revenues of $686 million in the third quarter, an increase of $80 million or 13% sequentially. The strong growth was driven primarily by an increase in deliveries of capital equipment packages, greater progress in projects and an increase in sales of aftermarket parts and services. Adjusted EBITDA increased $29 million to $100 million or 14.6% of revenue. The strong incremental leverage of 36% was driven by a more favorable sales mix with improved output from our aftermarket operations as well as progress on cost reductions.
New orders totaled $178 million, and we also received a $145 million inflationary price adjustment related to the new rigs for Saudi Arabia, resulting in a total of $323 million added to our backlog. When netted against Q3 shipments of $248 million, the segment's backlog increased by $75 million sequentially to $2.968 billion. The bulk of the segment's capital equipment orders were to upgrade or replace various rig components for offshore and land rigs. We also saw increasing demand for our new automation and robotics technology due to its ability to enhance wellsite safety and improve drill floor efficiencies. While orders for rig capital equipment remained muted, we are growing increasingly optimistic that dynamics in the offshore drilling markets will continue to improve, driving additional demand for capital equipment sales.
Our aftermarket business delivered strong results in the third quarter, up 10% sequentially and up 46% year over year. The sequential growth was driven by a 12% increase in spare part sales. Accelerated deliveries from our vendors allowed us to ramp our throughput and begin chipping away at our backlog of orders. While total inventory increased, we were able to ship a large amount of spare part packages and assemblies that were awaiting missing components, which was reflected in a 25% sequential reduction in the segment's work-in-process inventory.
We expect our shipments will continue to grow during the fourth quarter and combined with lower deliveries from our vendors should drive both improved profitability and cash flow. Beyond the fourth quarter, the outlook for our aftermarket business, which now comprises 56% of Rig Technologies mix is strong. Customers are digging deeper into their stacks for rig reactivations, active rig fleet is aging, driving larger opportunities for our aftermarket operations. We are seeing this play out in our backlog of reactivation, upgrade and recertification projects.
Excluding projects with the scope of less than $2 million, in the first quarter, we had $199 million in active projects with an average cost of $9 million. In the second quarter, total value of projects in execution increased to $316 million with an average price of $11 million. And in the third quarter, the total increased to $404 million with an average price of $14 million. We expect the combination of a growing number of actively working offshore rigs and continued reactivations will continue to support a healthy environment for our aftermarket business.
I next want to take a moment to highlight the importance of the duration of contracts between our offshore drilling contractor customers and their E&P operating company customers. Over the recent past, we've seen our offshore drilling contractor customers reset and repair balance sheets, supported by rapidly improving day rates. To date, any rig reactivation or upgrade has been supported by operator contracts that provide mobilization fees, higher day rates and a duration sufficient to reach a payback on the meaningful investments required to get stacked rigs back to work.
However, despite all the contracts that have been announced over the past two years, most of the fleet remained on short well-to-well contracts, and it wasn't until recently that the average duration of contract for the active drillship fleet exceeded one year in length. In fact, average duration of high-spec drillship contracts signed from 2015 to 2022 was about eight months. Today is pushing well beyond a year.
Similarly, semis and jack-ups are also seeing meaningful extensions of average term. This is important because it drives drilling contractors' investment decisions on capital expenditures. We believe that with extending visibility of healthy cash flow backed by contracts across the offshore drilling fleet, contractors will become more willing to buy upgraded equipment and reactivate rigs without contracts in order to improve their competitive positioning for upcoming tenders in which they can secure work over longer time horizons. We are already beginning to see signs of this taking place.
In the jack-up market, the slight demand dynamic within the high-spec asset class continues to tighten with leading-edge high-spec day rates now eclipsing $170,000 a day, a level above which new builds become possible. While we don't anticipate any of the established drilling contractors to place orders anytime soon, as Clay referenced, three NOCs have made serious inquiries into current new build pricing, shipyard availability and construction timing.
In the offshore wind market, the impact of higher interest rates and cost inflation is challenging the economics of certain high-profile projects. Therefore, it was not surprising that wind installation vessel contractors deferred tenders during the quarter. Despite the recent challenges, there is still a projected shortfall in vessel capacity needed for projects that have been sanctioned, which is driving constructive conversations with multiple contractors. While we did not book a new wind installation vessel during the quarter, we did receive an order for an offshore cable lay vessel equipment package from a European contractor, who will use their new vessel to install critical infrastructure for offshore wind development. We believe this award supports the view that the buildout of offshore wind will continue to advance once expectations on project economics are reset.
Looking forward for our Rig Technologies segment, we believe steadily improving market conditions and manufacturing throughput will drive improved financial results for the segment. For the fourth quarter, we expect revenue to increase between 1% to 3%, with EBITDA flow through in the low- to mid-30% range. For consolidated company results, we believe building momentum in numerous offshore markets, including rising exploration activity, along with continued growth in the Middle East, will more than offset soft North American land activity, enabling EBITDA to reach the $300 million range with much improved cash flow in the fourth quarter.
With that, we'll open the call to questions.
