Jose Bayardo
Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. NOV's consolidated revenues for the fourth quarter totaled $2.34 billion and revenues for the full year 2023 totaled $8.58 billion, an increase of 19%, or $1.35 billion from 2022. EBITDA increased 10% sequentially to $294 million, or 12.5% of sales. As Clay mentioned, flow-through was limited in part due to larger than anticipated year-end adjustments to our medical and workers comp accruals and the devaluation of the Argentine peso.
For the full year, EBITDA increased 47% to $1.0 billion or 11.7% of sales. During the fourth quarter, we recorded $55 million in Other Items, primarily related to a voluntary early retirement program. Additionally, NOV's effective tax rate was favorably impacted by the release of $485 million in valuation allowances, resulting from the Company's assessment of the carrying value of its deferred tax assets and future projections of taxable income. We estimate that our tax rate for 2024 will be approximately 26%.
Cash flow from operations totaled a healthy $377 million in the fourth quarter, supported by a reduction in working capital, but partially offset by $42 million in cash severance charges associated with the voluntary early retirement program and other restructuring related actions. Capital expenditures totaled $76 million in the fourth quarter and, when netted against cash flow from operations, resulted in $301 million in free cash flow. During 2024, we expect to generate free cash flow in excess of 50% of EBITDA, with a seasonal use of cash in the first quarter and steadily improving cash flow through the remainder of the year.
Our capital allocation hierarchy remains the same as it has been. First and foremost, we prioritize compelling organic investment opportunities, which historically provide us with the greatest risk-weighted returns. As Clay discussed, the new products we've recently introduced are gaining rapid adoption in the market, and we plan to accelerate our build out of these offerings. As a result, we expect to increase our capital expenditures in 2024 to approximately $330 million. We continue to take portfolio management approach to capital allocation and will invest in businesses at compelling valuations where we can leverage our core competencies, manufacturing capabilities, global distribution infrastructure, digital platforms, and world-class R&D facilities. An example of this is the very recent acquisition of Extract, a leading provider of artificial lift technologies and services. We will also look to divest businesses where we are not the best owner, and, as Clay mentioned, plan to do so for one to two businesses in 2024.
With the cash flow guidance I provided, it's also worthwhile to reiterate Clay's previous comment that we remain committed to returning excess capital to our shareholders, and that we anticipate being able to increase the return of capital later this year.
Next, I will walk through our historical segment results, then provide our outlook based on our new segment structure: Energy Products and Services, and Energy Equipment. To help investors understand the change and update their models, we've provided a diagram illustrating the changes in our reporting segments and five years of proforma financial data on our investor relations website and in an 8-K we filed this morning.
Moving on to segment results. Our Wellbore Technologies segment generated $824 million in revenue during the fourth quarter, an increase of $25 million or 3% compared to the third quarter and 8% compared to the fourth quarter of 2022. Exceptionally strong year-end shipments of drill pipe and managed pressure drilling equipment, along with healthy drilling activity levels in international and offshore markets, more than offset a softening North American market. EBITDA was $160 million, or 19.4% of revenue, with soft flow-through due to a less favorable mix and operations that were disproportionately affected by the increase in employee benefit costs and the devaluation of the Argentine peso.
Our Downhole tools business reported a modest increase in revenue and EBITDA. Strong year-end drilling motor and fishing tool packages sales into Asia and Sub-Saharan Africa, along with higher rental activity and service equipment sales in the Middle East, drove a solid increase in Eastern Hemisphere revenues, while sales in North America decreased 1% against a 4% decline in drilling activity. Our M/D Totco business posted a high single-digit revenue increase to achieve another quarterly record high revenue level. The sequential increase was primarily due to growth from its core drilling surface data system sales and rentals, driven by strong activity in the Middle East and Far East.
Surface data system rentals remained stable in North America despite the lower rig count. Revenues from our eVolve wired drill pipe drilling optimization services decreased slightly due to early completion of two North Sea projects, which we expect will resume in early 2024. Further expansion of eVolve wired drill pipe services and accelerating rate of adoption of our Max products further underscores NOV's continued success in developing industry-leading digital solutions that Clay discussed.
Our ReedHycalog drill bit business posted a mid-single-digit percent sequential decrease in revenues during the fourth quarter, largely due to softening drilling activity in North America. After three quarters of growing U.S. revenues through market share gains, the 20% year-on-year decline in drilling activity finally prevented the unit's revenues from grinding higher. Despite the challenges in North America, the business partially offset these declines with solid gains in several Middle Eastern countries, including Turkey, Qatar, and Kuwait. Additionally, the business expects to return to its growth trajectory in the first quarter with a rebound in Canadian drilling activity and continued strength in the Middle East and North Africa.
Our Tuboscope pipe inspection and coating business realized a low single-digit sequential decrease in revenue during the fourth quarter. Inspection revenues were impacted by the continued rig activity declines in North America, the currency devaluation in Argentina, and a decrease in product sales in the Far East, partially offset by improved activity in Mexico, Europe, and the Middle East. Revenue from the unit's coating operation declined on lower sleeve shipments and lower pipe coating volumes in the Eastern Hemisphere, partially offset by improved activity in the Middle East and Mexico. Despite lower drilling activity, U.S. coating revenues and volumes were flat, and backlog remains strong.
Our Grant Prideco drill pipe business realized strong top-line growth with flush shipments following supply chain normalization, permitting the unit to achieve its highest revenue levels since the first quarter of 2015. A more favorable offshore and international sales mix that drove average pricing higher also contributed to the sequential growth. New orders increased sharply from low levels in the third quarter and were weighted toward the offshore and Western Hemisphere customers. Unfortunately, the strong bookings take a few quarters to convert into revenue, and we expect that lower volumes and a less favorable sales mix to result in a sharp revenue decline in the first quarter for our Grant Prideco business.
Our Wellsite Services business delivered strong sequential growth in revenue during the fourth quarter, driven by sizeable year-end shipments of managed pressure drilling equipment and strong demand for our solids control offerings. The revenue gains were partially offset by the currency devaluation and reduced solids control activity in Latin America. While the strong capital equipment deliveries are not expected to repeat in the first quarter, we expect strong sales for both our solids control and MPD offerings to return later in the year in key offshore markets, including Brazil, Mexico, and Guyana, as well as in strategic international land markets, such as the Middle East.
Our Completion and Production Solutions segment generated revenue of $803 million in the fourth quarter of 2023, a 6% sequential increase and a 9% improvement compared to the fourth quarter of 2022. EBITDA was $86 million, or 10.7% of sales, representing a healthy flow-through of 44% compared to the third quarter. We continued to see strong demand from international and offshore markets pushing orders up 28% sequentially to $676 million, representing a book-to-bill of 132% and the highest level of orders since 2014. Backlog at year-end was $1.82 billion, up 12% sequentially and 14% year-over-year.
Our Intervention and Stimulation Equipment business posted an upper single-digit sequential increase in revenue with solid EBITDA flow-through. The unit benefited from flush year-end deliveries in all major product lines following supply chain normalization. Pressure pumping revenues improved on higher pump and blender deliveries; coiled tubing sales increased with the delivery of a new unit, several support trailers, and nitrogen units; and wireline improved with strong deliveries into Latin America and the Middle East. The business also posted strong bookings, which improved 71% sequentially, resulting in a 154% book-to-bill.
Despite the softening North American market impacting shorter-cycle products like coil tubing strings and aftermarket spares and services, we saw strong demand for capital equipment orders to close out the year. While much of the demand is coming from the Middle East, Latin America, and Asia Pacific regions, service intensity is only increasing in North America, and the wear and tear continues to drive attrition and the need to replace equipment. During the fourth quarter, we booked a replacement DGB frac fleet for a customer in the U.S. and continue to have active discussions with customers regarding additional DGB and eFrac spreads. Despite strong orders and backlog, we expect Q1 revenues to decline following flush year-end shipments.
Our Subsea flexible pipe business posted a strong finish to the year with solid revenue growth, healthy EBITDA flow-through, and strong bookings. Throughout 2023, the business unit continued to work through some lower margin projects but produced its highest footage of pipe its history, and our discipline to hold out for better pricing is being rewarded with strong bookings at highly accretive margins. The business unit posted a book-to-bill of 147%, and we also expect strong bookings in the first quarter. Although we still have lower margin projects in our backlog and anticipate a sequentially less favorable mix with lower volumes in the first quarter, we expect the business unit's margins to steadily improve throughout the course of 2024.
Our XL Systems conductor pipe business achieved significant revenue growth during the quarter with strong shipments to both the Gulf of Mexico and offshore West Africa. While we expect a sharp sequential decline in first quarter revenues, we expect the unit's results to improve through 2024 with increasing exploration and development activity in most offshore regions.
Our Process and Flow Technologies business experienced a modest drop in revenue after a very strong third quarter from our Wellstream Processing operations. Despite the decline in revenues, margins improved slightly with higher margin backlog continuing to displace less favorable projects. Bookings increased 29% sequentially and included orders for a mono-ethylene glycol module and a sulphate removal unit for projects in the North Sea. Additionally, we were awarded a contract to provide a CO2 dehydration package for a supermajor's carbon capture and storage project on the Gulf Coast, which will capture 800,000 tons of CO2 annually. These project awards demonstrate NOV's continued leadership in gas and liquid processing technology and capabilities.
Our Fiberglass business unit posted flat sequential revenue, with improved demand from oil and gas, chemical and industrial, and marine sectors offsetting declines in revenue from the wastewater sector and in fuel handling product sales. EBITDA improved due to a more favorable sales mix. Demand remains strong for our Fiberglass business, and we continue to realize solid growth from multiple countries in the Middle East, where we are increasing our capacity to better serve the region. In North America, we received an order from an operator for 11,000 foot of 8-inch composite spoolable DuraFlex pipe, which is the largest order we have ever received for this product. We continue to make inroads into the semiconductor market and received an order to supply a large tank farm for a major new semiconductor fabrication facility. Additionally, we are realizing more opportunities to provide our lightweight, corrosion resistant Bondstrand solutions for ballast systems in FPSOs, leaving the business well-positioned to capitalize on growing offshore activity.
Our Rig Technologies segment generated revenues of $766 million in the fourth quarter, an increase of $80 million or 12% compared to the third quarter and 24% compared to the fourth quarter of 2022. The strong growth was primarily the result of large capital equipment deliveries at year-end, a higher rate of progress on projects, and a typical seasonal fourth quarter increase in aftermarket activities. Adjusted EBITDA improved $9 million sequentially and $21 million year-over-year to $109 million, or 14.2% of sales. EBITDA flow-through was limited by a less favorable sales mix and higher medical and workers comp related costs. New capital equipment orders increased $36 million, or 20% sequentially, totaling $214 million. Total backlog for the segment at year-end was $2.87 billion, an increase of $75 million over the prior year. Solid offshore and international industry fundamentals continue to support the segment's aftermarket operations, which has doubled its revenues since the fourth quarter of 2021.
The outlook remains positive with customers continuing to push forward reactivation, upgrade, and recertification projects. Our total value of projects rose another $71 million with the average size per project increasing 10% sequentially. As customers dig deeper into their stacks for reactivation and as the broader rig fleet continues to age, the size and scope of projects continue to increase. This growth in service and repair work more than offset a small decline in spare part bookings, where an understandable decline in orders from the U.S. was mostly offset by increased orders from the Middle East and Asia.
Continued improvement in on-time deliveries from our vendors has enabled better execution from our manufacturing facilities, allowing us to continue to chip away at the backlog of orders in both our spare parts and capital equipment operations and better manage our inventory levels. A meaningful improvement in casting deliveries from our vendors helped increase our ability to manufacture key product components, contributing to a sizeable increase in shipments of top drives, BOPs, and iron rough necks for our customers.
The outlook for rig capital equipment continues to improve in international and offshore markets, particularly in the Middle East where activity is grinding higher, driving incremental demand for equipment orders. We are seeing a growing number of opportunities to upgrade rigs in the Middle East and North Africa with operators pushing for contractors to update DC rigs to AC power systems and improve mechanization. While we expect demand from North America to remain soft until excess equipment capacity in our customers' yards is absorbed, we are capitalizing on opportunities to support upcoming drilling projects in Alaska and continue to gain traction in the lower 48 land markets with automation upgrades.
Despite the increase in project costs from higher interest rates and inflation, the economics of offshore wind remain attractive in many regions of the world, outside of North America. We and our customers still see a sizeable shortfall in vessel capacity needed for projects that have been sanctioned, and we are continuing to have promising conversations with multiple contractors. While new WTIV orders have been delayed, we expect a couple projects will move forward later this year, and we continue to capitalize on other investments required to build out key infrastructure for offshore wind power development.
During the fourth quarter, we received an order for a large interconnector cable-lay system and crane from a key European provider of power transmission cables. The order booking marks our second order for a large power transmission cable-lay vessel, further solidifying our position as a leader in providing the key enabling technology and equipment needed for large-scale related infrastructure projects. In addition to our prospects for additional WTIV and large transmission cable-lay vessel orders, we also see opportunities to build smaller inter-array vessels which will lay cables between wind turbines and feed into larger transmission lines.
Looking forward to the first quarter, the flush shipments we delivered in the fourth quarter following supply chain normalization in all three segments, combined with an incrementally more cautious outlook for North America, will result in a larger than average seasonal drop in the first quarter. We anticipate our legacy Completion and Production Solutions and Rig Technologies segments will see seasonal declines that are in-line with their average over the last seven years. However, our legacy Wellbore Technologies segment will see a greater than average decline primarily due to extraordinarily strong shipments of high-spec drill pipe and MPD capital equipment that will not repeat in the first quarter, all of which points to a year-over-year increase in consolidated first quarter revenues of between 5% to 10%.
For our new Energy Products and Services segment, we expect Q1 revenues to improve in the mid single-digit percent range year-over-year, with EBITDA flow-through in the 30% range. For our new Energy Equipment segment, we expect revenues to improve between 8% to 10% year-over-year, with EBITDA flow-through in the mid-20% range. We also expect first quarter eliminations and corporate costs to be in-line with the first quarter of 2023.
For the year, we expect our consolidated Company revenues from North America to decrease in the low- to mid-single-digit percent range and our revenues from international markets to grow in the low double-digits, resulting in 2024 full year revenue to improve 4% to 8% year-over-year. We also expect continued margin improvement through a combination of improving quality of our backlog and our cost-out program to result in full year EBITDA flow-through in the mid-30% range.
With that, we'll now open the call to questions.
