Jose A. Bayardo
Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. To quickly recap the quarter, NOV's consolidated revenue grew 10% sequentially and 37% year-over-year, with all three segments posting their highest revenue since the fourth quarter of 2019. While North America drove most of the growth during 2022, as Clay noted, momentum in international markets has been building throughout the year and outpaced North America in the fourth quarter, resulting in 14% sequential revenue growth in international markets and 4% in North America, which included strong growth in offshore Gulf of Mexico. Adjusted EBITDA for the fourth quarter totaled $231 million, or 11.1% of sales, representing an incremental flow-through of 20% sequentially and 29% compared to the fourth quarter of 2021. We've recorded a credit of $8 million in other items during the fourth quarter, primarily related to positive margins realized on previously reserved inventory, which we deducted from Q4 EBITDA. With the improving market environment, we may continue to recognize such credits and EBITDA adjustments in 2023.
Additionally, we expect to complete the termination of our U.S. defined benefit pension plan in the first quarter, for which we expect to recognize a pretax non-cash charge for the recognition of all actuarial losses and accumulated other comprehensive loss, which was $8 million as of December 31, 2022. During the fourth quarter, eliminations and corporate cost at the EBITDA level increased $11 million due to higher levels of intercompany transactions, expenses associated with the buyout of a JV partner, and year-end true-ups to employee benefits and other accounts. We expect eliminations and corporate costs to return to the $60 million range in the first quarter. Despite the increase in working capital arising from strong revenue growth, cash flow from operations was $154 million in the fourth quarter. Capital expenditures totaled $66 million resulting in free cash flow of $88 million. As is often the case, we expect a meaningful seasonal use of cash from operations in the first quarter, but we expect to be free cash flow positive for 2023, the magnitude of which will be mostly determined by the rate of revenue growth during the year.
We have a strong track record and remain committed to returning capital to our shareholders while maintaining a bulletproof capital structure. Since mid 2014, we have returned $4.7 billion of capital of our shareholders through share repurchases and dividends. And since mid-2015, we have reduced our gross debt by $2.6 billion. As a reminder of our capital allocation hierarchy, we first and foremost seek compelling organic investment opportunities, which historically have provided us the greatest risk-weighted returns as we can appropriately leverage our installed base of equipment, existing manufacturing capacity, global distribution infrastructure, digital platforms, and world-class R&D facilities. With the improving market environment and the progress we have made in new product development over the last several years, we see increasing numbers of attractive organic opportunities and are therefore increasing our capital expenditures to approximately $275 million in 2023.
Next on the list of prioritizations is M&A where we employ a disciplined returns-focused process, we approach M&A as an opportunistic means to accelerate already defined organic growth initiatives. This means that we avoid being in a position where we are pressured to complete an acquisition, reducing the likelihood that we overpay. We prioritize high rate of returns, sustainable long-term growth opportunities that leverage our core competencies. But as previously noted, we are committed to returning excess capital to our shareholders, whether it is through increasing our dividend or our share repurchase program. While our balance sheet remains solid, the recent anticipated near-term uses of cash to fund meaningful growth in our businesses, along with an M&A environment that is looking a bit more constructive, means that we're not ready to increase return of capital to our shareholders at this time. We will continue to monitor sources and uses of cash as the year evolves and maintain a regular dialog on this topic.
Moving on to segment results. Our Wellbore Technologies segment generated $762 million in revenue during the fourth quarter, an increase of $21 million, or 3%, compared to the third quarter, and 32% compared to the fourth quarter of 2021. Revenue growth was driven primarily by the second straight quarter of solid improvements in demand for our key drilling technologies in the Middle East, partially offset by a North American market that has plateaued and lingering supply chain challenges that delayed deliveries of drill pipe and motors. EBITDA grew to $146 million, or 19.2%, of revenue with soft flow-through due to a less favorable mix, lingering supply chain difficulties, and associated costs required to expedite critical customer orders.
Our Grant Prideco drill pipe business realized modest top-line growth that was limited by supply chain disruptions, including delays in receiving steel and coating materials, which resulted in customer deliveries slipping from Q4 to Q1. Incremental flow-through was also limited due to a significantly less favorable product mix. Despite these challenges, Grant Prideco posted its highest revenue quarter in three years and received its greatest volume of orders for any year since 2014. Orders improved 25% sequentially with strong demand from the Middle East and a notable pickup from offshore markets. Our ReedHycalog drill bit business saw a meaningful decline in revenue during the quarter, driven primarily by a large Q3 shipment to Asia that did not repeat, a drop-off in Canadian activity, and weather-related delays in the U.S. Despite supply chain challenges that are restricting deliveries of roller cone bits, the business continued to realize solid growth in the Middle East and in geothermal markets as is highlighted under the Significant Achievements in our earnings release.
Our Downhole tools business reported revenue growth in the low teens led by a significant pickup of fishing tools sales into the Middle East and Asia-Pacific. After realizing significant improvements during the third quarter, the operation had challenges procuring certain high-grade steel and elastomers needed for its high-spec standards, adversely affecting sales and rentals of the business unit's drilling motors. Despite the supply chain challenges and the resulting less favorable product mix, pricing increases instituted earlier in the year allowed the business to maintain a respectable EBITDA flow-through.
Our WellSite Services business posted a small sequential decrease in revenue, primarily due to strong shipments of MPD equipment in Q3 that did not repeat. The decline in MPD sales was mostly offset by solid results from the business unit's legacy operations. And we're seeing growing opportunities for both our solids control MPD offerings in offshore markets, including Mexico, Brazil, West Africa, and Guyana, and growing momentum in key land markets in the Middle East. This improving outlook was reflected in strong bookings for MPD capital equipment orders, which should serve as a growth catalyst for this business during 2023.
Our Tuboscope business delivered a solid increase in revenue driven by the operation's fifth straight quarter of double-digit growth in its coating operations. The business realized strong demand for pipe coating services in the Middle East and Asia for its Thru-Kote pipe sleeves in the Middle East and for glass-reinforced epoxy TK-Liners in Latin America and Europe. The business also continues to realize growing demand for its TK-Liner systems in geothermal applications and recently secured contracts for two new geothermal projects in Denmark, which will add to our total of more than 28 miles of large-diameter TK-lined pipe that we have delivered for geothermal applications since 2020.
Our M/D Totco business posted another quarter of solid growth with outsized incrementals, led by a strong improvement in the unit's surface data acquisition operations in the Middle East, North America, and Europe. This growth was partially offset by a small decrease in revenues from our eVolve wired drill pipe optimization services, resulting from capital sales in the third quarter that did not repeat. Outlook for our eVolve services remains bright with several customers signing new contracts and with demand for the service building in Middle East. The unit is also realizing greater adoption of its latest Max digital product offerings, which are currently installed on over 150 rigs utilizing over 800 of our Max edge devices to simultaneously provide real-time data analytics in the field and at the operator's office. Additionally, we recently launched our Max Completions offering which is remotely monitoring a frac job in the Williston Basin for a large independent operator. While we're in the infancy of providing digital solutions, which drive higher levels of efficiencies for both drilling and now completion operations, M/D Totco's success in developing industry-leading digital solutions beyond its legacy data acquisition systems has already allowed the business to achieve its highest revenues and EBITDA in eight years and the outlook remains bright.
For our Wellbore Technologies segment, we expect demand for our key-enabling drilling technologies to be supported by improving global oilfield activity, driving continued growth for the segment in 2023. However, we do expect seasonality to serve as headwinds to Q1 results, resulting in revenue and EBITDA for our Wellbore Technologies segment in the first quarter to be roughly in line with fourth quarter results.
Our Completion & Production Solutions segment generated revenues of $738 million in the fourth quarter, an increase of 8% from the third quarter and an increase of 34% from the fourth quarter of 2021. Adjusted EBITDA increased $10 million sequentially and $64 million from the prior year to $66 million, or 8.9%, of sales. Sequential EBITDA flow-through of 18% was negatively impacted by a lower-margin product mix. Relative to the fourth quarter of 2021, flow-through was 34%, resulting from improved execution against supply chain-related challenges, better absorption in our manufacturing facilities, and improved pricing. Orders increased 13% to $557 million, the highest quarterly bookings the segment has achieved since 2014. Also of note is that this was the segment's eighth straight quarter with a book-to-bill over 100%. CAPS' backlog at the end of the fourth quarter was $1.6 billion, up 8% sequentially and 24% year-over-year.
Our Intervention and Stimulation Equipment business posted a strong increase in revenue, achieving its highest level since Q4 of 2019. The business is seeing a notable transition in demand from reactivations and refurbishment-related aftermarket work, to new capital equipment sales resulting from our customers' need to replace tired equipment with more efficient assets. As Clay mentioned, access to capital remains difficult for the industry. But the good news is that many of our customers are now generating healthy cash flows, their confidence in a sustained recovery is increasing, and many are now looking to lock in limited delivery slots that require substantial lead times. These factors combined to drive another solid quarter of order intake and the fifth straight quarter in which the business grew its backlog. Asset replacements, new technology to improve efficiencies and economics, lower emissions, and longer laterals drove our order book in the fourth quarter. After selling our first new coiled tubing unit in the U.S. and three years during the third quarter, we received orders for six new coiled tubing units, three of which are destined for service in North America. We also saw a notable increase in demand for 30,000-foot large diameter pipe with 0.276-inch wall thickness to support completion of ultra-long lateral wells in West Texas. As noted in the press release, we booked 20,000 hydraulic horsepower of our eFrac pressure pumping equipment and we also sold six hybrid electric iMaxx wireline trucks as more customers see the opportunity to not only reduce emissions, but also lower their total cost of ownership by using our latest technologies. Also encouraging is that we're beginning to see higher demand from international markets, particularly, from the Middle East.
Our subsea flexible pipe business posted a mid-single-digit increase in sequential revenue. Margins compressed slightly as the effects of improving throughput were offset by a less favorable mix of projects. Orders for the quarter remained strong and resulted in the unit's sixth straight quarter with a book-to-bill greater than one. Equally important, we're realizing increasing pricing power as much of the spare capacity in the market has been absorbed or committed and customer demand continues to rebound. Our XL conductor pipe connection business experienced a significant sequential increase in revenue driven by strong execution and product deliveries to support several large projects in Latin America in the Gulf of Mexico. While we expect the typical seasonal pullback in deliveries during Q1, strong orders and steadily improving offshore activity should support a solid year for this operation.
Our Process and Flow Technologies business posted a slight sequential increase in revenue. EBITDA was mostly flat after a strong rebound in the third quarter. While the effects of supply chain difficulties and shipyard constraints and inflation continue to pressure margins and push bookings to the right as operators recalibrate cost assumptions, recent customer conversations give us confidence in increasing FIDs, which should result in a much stronger 2023 for this business.
Our pump and mixer operations experienced a sequential decrease in revenue due to outsized shipments of pent-up orders from the lifting of COVID lockdowns in China during the third quarter that did not repeat. Bookings improved 55% sequentially and included a large equipment package for our pepper processing plant in New Mexico that will be able to process 30 million pounds of cayenne pepper mash per year. NOV will provide 120 fiberglass storage vessels, each equipped with Chemineer agitators to achieve optimal mixing, 13 Moyno progressive cavity pumps to handle transfer loading and unloading, and our GoConnect digital monitoring and control system to provide the customer with real-time equipment and process data to fine-tune operations, maintain quality, and ensure equipment reliability. The unit also won an award to provide 24 Moyno progressive cavity pumps for sludge transfer and polymer pumping applications at a wastewater facility that will treat over 450 million gallons of wastewater per day. Despite the strong industrial orders in Q4, we're sensing that our non-oil and gas customers are growing more cautious due to uncertainty in the macroeconomic environment.
Our fiberglass business posted flat revenue but delivered more than a 300 basis-point improvement in EBITDA margin due to a healthy increase in higher-margin offshore scrubber deliveries that more than offset the effect of the seasonal decline in fuel handling equipment sales. Orders remained strong and in addition to the previously mentioned tanks for the pepper processing plant, the unit booked a large order for a semiconductor manufacturing facility in Texas. The strong order intake resulted in the business delivering its eighth straight quarter with a book-to-bill over one and an all-time high backlog going into 2023.
For our Completion & Production Solutions segment, we expect seasonality and several large projects that are nearing completion to result in a mid-single-digit decrease in revenue with decremental margins in the 30% range. Our Rig Technologies segment generated revenues of $620 million in the fourth quarter, an increase of $109 million, or 21%, compared to the third quarter, and 44% compared to the fourth quarter of 2021. The strong sequential growth was led by our aftermarket operations.
Four straight quarters of growing spare part bookings, combined with improving global supply chains, led to a sizable increase in shipments. This segment also posted a solid increase in capital equipment sales, which benefited from the delivery of a new land rig to a private drilling contractor in the U.S. and from higher rate of progress on rig projects in Saudi Arabia.
Adjusted EBITDA improved $36 million sequentially to $88 million, or 14.2%, of sales. New capital equipment orders increased $135 million, or 113% sequentially, and totaled $254 million. Book-to-bill was just below one times, a result of the 27% increase in revenue out of backlog during the fourth quarter. Total backlog for the segment at year end was $2.79 billion, an increase of $26 million over the prior year. Fourth quarter orders were highlighted by bookings for the designs and jacking systems for two wind turbine installation vessels and a new BOP stack for harsh environment semi-submersible rig. While demand for conventional rig equipment has improved three straight quarters, bookings remain subdued as contractors are still reticent to make large capital commitments.
Encouragingly, both utilization and day rates for all major classes of rigs continue to improve. Land rig counts increased by 43%, or 3%, sequentially, almost all in international markets. And average day rates continued to improve up another 11% on average in the U.S. during Q4 as contracts roll off and rigs repriced to leading-edge rates. Contracted offshore rig counts improved 4% sequentially with jack-up rig utilization reaching 80% and drill ships 78%, resulting in higher day rates and longer duration contracts. These improvements should translate into better cash flow and growing confidence in outlook for our customers over time. While equipment orders remain modest, demand for our products and services is heading in the right direction and the industry cycle is going through its normal progression at a very measured pace. It starts with simple reactivations of highly capable warm-stacked rigs, then moves to less capable cold-stacked rigs, which require more effort to reactivate and often need upgrades to compete for work. Then once fleets reach sufficiently high levels of utilization and day rates and operators seek higher productivity through newer and more advanced technology, demand for new builds will eventually take hold. We're moving through this natural cycle in both the land and offshore markets and that progression is reflected in our results.
Revenue from land customers in our aftermarket operations bottomed in Q3 2021 and has increased 92% from the trough. With leading-edge day rates for top-tier land rigs north of $40,000 in the North American land markets, returns are now at a level well above new build economics. While we delivered a new land rig to a private U.S. contractor in Q4, capital discipline remains strong, particularly among public drillers who still have stacked rigs to reactivate, and we're not expecting many more orders for new builds in North America this year. Customers remain focused on being disciplined and on driving efficiencies in their operations. However, we're increasingly fielding calls inquiring about our new technologies that can potentially alleviate some of their pain points, including our ATOM RTX fully-automated robotic system and our Maestro drilling power management system, which allows contractors to optimize, power, and fuel consumption during drilling operations and minimize emissions.
In international land markets, the availability of modern rigs that can be cost-effectively upgraded is significantly more limited. As a result, we have recently seen a meaningful improvement in a number of discussions we're having with customers regarding new rigs, particularly in the Middle East, Latin America, and Asia. Aftermarket revenue from our offshore drilling contractor customers bottomed in the fourth quarter of 2021 and have increased 58% since that time. While we are not yet having discussions related to new floaters reflecting the longer cycle nature of the deepwater market, we are having discussions related to orders for new jack-ups. Additionally, there are meaningful opportunities for customers to continue reactivating and upgrading stacked rigs and to complete the 14 drill ships that have been stranded at shipyards in Asia since 2015. We believe these rigs can be acquired and fully kitted out between $300 million to $350 million, a price which should produce a strong return for contractors and a $400,000 plus day-rate environment. We estimate NOV's addressable opportunity to properly equip and finish these rigs ranges anywhere from $20 million to a $125 million per rig. While access to and cost of capital for rig contractors remains challenged, it is improving and a customer recently acquired one of these stacked rigs.
All of these opportunities may take some time to materialize, but will eventually come. In the meantime, our volume of work from reactivations, recertifications, and upgrades of the existing fleet continues to grow. As Clay touched on, we completed 15 such projects in the fourth quarter, including the reactivation of nine previously stacked jack-ups. Additionally, we received awards for another 23, leaving us with a current backlog of 83 projects.
In our wind business, the market for installation vessels remains strong as evidenced by the two orders for NOV's proprietary NG-20000X vessel designs and jacking systems we received during the fourth quarter. We expect to see a decrease in demand for new wind orders in 2023, but we still expect a few orders this year and see a significant shortfall in available vessels needed to meet the forecasted demand for turbine installations in the '26 to '27 time frame. If this forecast holds, it should translate into nearly a dozen additional opportunities over the next several years for NOV.
While 2023 is expected to be a year of growth and improved profitability for our Rig Technologies business, we expect seasonality and the timing of projects to result in first quarter revenues contracting 10% to 15% with detrimental margins in the 30% range.
With that, we'll now open the call to questions.