Jose Bayardo
Senior Vice President and Chief Financial Officer at NOV
Thank you, Clay. EBITDA in the first quarter of 2023 totaled $195 million or 9.9% of sales, a decrease of $36 million sequentially and an increase of $92 million year-over-year. EBITDA was negatively impacted by supply chain issues and related operational disruptions in our drill pipe business that Clay described as well as $8 million in charges related to environmental reserves and legal expenses.
Cash flow used by operations was $202 million during the first quarter, driven primarily by ordinary Q1 payments associated with and reflected in our accrued liabilities as well as a sizable increase in inventory. While Clay spoke earlier of the inventory challenges we faced during the first quarter, I think it's worth recounting why this was such a significant use of cash during the period.
First, in several of our businesses, the limited availability and uncertainty around deliveries of certain raw materials and components prevent us from completing the manufacturing of products in a methodical and efficiently planned process. We're having to set uncompleted products to the side while we await missing materials to finish the project, resulting in excessive levels of work in process, or WIP, and assemblies in our inventories.
Second, we continue working to build buffers of critical materials and components in order to avoid the WIP build situation I just described. Third, while we're still experiencing significant delays of a limited number of materials, the broader global supply chain is healing at an accelerating rate, resulting in certain materials arriving faster and greater quantities than expected, including items for which we had been on limited allocations.
Lastly, we are continuing to see growing demand for our products and services, and our operations are gearing up for meaningful growth through the back half of the year. The total effect of all this is that we built up $60 million to $65 million of extra inventory during the quarter. While the inventory build was a sizable use of cash during the quarter, we welcomed the accelerated healing of the global supply chain which will ultimately allow us to more efficiently manage our operations, improve working capital metrics and generate meaningful free cash flow as we work through the remainder of the year.
We currently expect free cash flow to total between $100 million and $300 million for the full year. During the quarter, we increased our investment in Keystone Tower systems, which resulted in NOV obtaining a controlling interest in the business. Accordingly, we have consolidated Keystone's results into our financial statements in the first quarter. We remain encouraged by the potential for Keystone's proprietary spiral welded wind tower technology to drive efficiencies in the wind tower space, but the operation remains an early-stage venture that we expect will continue to report losses in the near to mid-term.
NOV's extensive market presence in wind tower installation offshore, heavy lift cranes, and manufacturing makes us uniquely well-positioned to capitalize on the efficiencies that taller towers bring through Keystone. Moving on to segment results. Our Wellbore Technologies segment generated $745 million in revenue during the first quarter, a decrease of $17 million or 2% compared to the fourth quarter and an increase of 23% compared to the first quarter of 2022.
The sequential decline in revenue was driven by seasonal slowdowns in key international markets and shipment delays due to the previously discussed supply chain issues for our Grant Prideco drill pipe business. EBITDA declined $133 million or 17.9% of revenue as the aforementioned disruptions and high-margin sales from the fourth quarter that did not repeat, combined to drive outsized decremental flow through.
As Clay mentioned, our Grant Prideco drill pipe business experienced supply chain challenges, which disrupted operations during the first quarter. While the issue has not been completely resolved, we expect much improved throughput from the operation in the second quarter and further improved results in the back half of the year. Drill pipe demand remained strong, and orders increased from already high levels in Q4 with an increasingly favorable mix of premium pipe for the Eastern Hemisphere and for offshore markets.
Our ReedHycalog drill bit business realized an upper single-digit sequential revenue growth with solid EBITDA flow-through during the first quarter. The strong results were driven primarily by the seasonal recovery in Canada as well as market share gains and pricing improvement in the Middle East and North America.
While the Canadian breakup and slowdown in US gas basins will serve as headwinds for the business in the second quarter, we expect continued market share gains in North America and incremental activity in the Gulf of Mexico and international markets to drive improved results for the unit in the second quarter. Our Downhole Tools business reported a mid-single-digit sequential decrease in revenue, primarily resulting from large sales of fishing tools and service equipment into the Middle East and Asia-Pacific during the fourth quarter that did not repeat.
Partially offsetting the decline was a meaningful improvement in revenue from the operations drilling motor business the result of improved manufacturing throughput of our high-spec stators, which has been constrained due to challenges procuring certain high-grade steel and elastomers. These stators power our industry-leading Series 55 motors, one of which was used to drill a 4.7 mile long section of a well in a single run, averaging 188-feet of drilling per hour.
Looking ahead, we expect increased activity in the Eastern Hemisphere and our ability to recapture additional high-spec drilling motor market share resulting from the continued ramp in manufacturing capacity to drive solid growth for this business unit in the second quarter. Our M/D Totco business realized a low single-digit sequential decrease in revenue during the first quarter. Market share gains and pricing improvement drove low to mid-single-digit revenue growth in the US for the operations surface data acquisitions offerings, but were more than offset by the seasonal decline in equipment sales into the Eastern Hemisphere.
Revenues from the operations evolved wired drill pipe optimization services were flat sequentially, but the business is preparing to ramp up several new projects, which are expected to commence in the second half of the year. The business unit also expects to continue gaining wider adoption of its digital solutions through arrangements with other customers similar to a recent global agreement signed with a major integrated oil company to provide edge computing, edge to cloud and cloud-based solutions that enable real-time insights to drive operational efficiencies for the customer.
Our Tuboscope pipe coating and inspection business posted a low single-digit percent increase in revenue with outsized EBITDA flow-through, resulting in the unit achieving its highest level of profitability in the last four years. The businesses coding operations benefited from growing sales in the Middle East, strong backlog in North America and solid global demand for its pipe sleeves and glass reinforced epoxy liners.
The unit continues to increase market penetration of its technologically advanced product portfolio in the Middle East and recently won a five-year contract to provide its TK 236 Epoxy Novalac coating system coat sleeves for joint operations in the Wafra field based on the product's ability to withstand high pressures temperatures and aggressively sour oil and gas. Our Wellsite Services business posted a small decline in revenue, primarily due to the seasonal falloff in capital equipment sales from Q4 to Q1.
Despite softening activity in the Western Hemisphere, the business unit is gearing up for a meaningful ramp in both its solids control and managed pressure drilling businesses with sizable projects scheduled to kick off in the second half of the year. Looking forward to the second quarter for our Wellbore Technologies segment, we expect the recovery in our drill pipe manufacturing operations and activity growth in the Eastern Hemisphere will more than offset headwinds from softening activity in North America, resulting in a sequential revenue improvement in the mid-single-digit percent range.
Additionally, improvements in facility absorption, pricing, and project mix should yield incremental margins in the mid-40s. Our Completion & Production Solutions segment generated revenues of $718 million in the first quarter of 2023, a decrease of 3% compared to the fourth quarter, but an increase of 35% compared to the first quarter of 2022. EBITDA for the first quarter was $54 million, down $12 million sequentially and up $44 million year-over-year.
After the segment achieved its highest quarterly bookings since 2014 and eight straight quarters with a book-to-bill greater than 1, orders decreased to $407 million in the first quarter, resulting in a book-to-bill of 96%. The decrease in Q1 order intake is attributed to typical seasonality in certain businesses. Additionally, we are pushing price so that new projects are accretive to project margins in our current backlogs and to drive improving segment margins and returns.
One of our business units within CAPS walked away from three projects during Q1 worth over $100 million, where we were the preferred vendor and given the opportunity to match the price of other vendors. Despite this example in a market where global manufacturing availability is mostly absorbed, we are starting to see competitors become more rational in their pricing, and those who remain undisciplined will soon exhaust their capacity and likely disappoint their customers.
Our Intervention & Stimulation Equipment business posted a low double-digit percent increase in sequential revenue and revenue is up roughly 50% year-over-year. The solid sequential increase in revenue was primarily driven by strong shipments of both conventional DGB and e-frac pressure pumping equipment. During the quarter, we shipped 50,000 horsepower of pressure pumping equipment, including 10,000 horsepower of e-frac units.
We also sold and shipped our first all-electric ideal processing plant, which can deliver more than 200 barrels per minute of water and 30,000 pounds per minute of proppant and is equipped with NOV's latest digital capabilities, making it very simple to configure and operate. On its first day in use, our customer was able to exceed its average number of stages completed in a day. Despite oil price volatility and low natural gas prices, which we believe caused some customers to defer or cancel certain orders we expected, book-to-bill remains north of 100%.
Our service provider customers have been running equipment extremely hard, achieving healthier returns and generating more cash, all of which we believe will continue to drive meaningful demand for replacement equipment in the US, despite a slowly softening market. While we've seen customers put indefinite holds on plans to add expansion capacity, quoting activity related to replacing tired equipment with new more efficient dual fuel or electric capabilities has remained robust.
Our Fiberglass business posted a mid-single-digit sequential decrease in revenue, but was up more than 50% year-over-year. The seasonal decline in first quarter revenue was partially offset by a backlog that remains near record highs and stronger-than-usual mid-quarter shipments of fuel handling related equipment with customers eager to beat price increases that went into effect on March 1. Orders came in just shy of a 100% book-to-bill with relatively soft orders from US oil and gas customers.
Since quarter end, we've seen US customers returned to the table and the outlook remains strong across the businesses various markets. Our Process & Flow Technologies unit posted a mid-single-digit sequential revenue decrease in the first quarter with a strong sequential improvement in its production and midstream operations being more than offset by lower progress on large projects nearing completion within the business units, wellstream processing and APL operations.
Production in midstream operations benefited from an improving supply chain, which led to improved manufacturing output, allowing the operation to capitalize on its strong backlog and from continued robust order intake of production chokes, pumps and sand traps. In the units offshore-oriented wellstream processing and APL operations, order intake has remained soft over the last few quarters as operators have been recalibrating the impact of inflation on projects and as we've passed on low-margin opportunities.
However, discussions surrounding large offshore project FIDs accelerated during the quarter, and we're gaining confidence in the order outlook for the remainder of the year. Our XL Systems conductor pipe connections business experienced a sizable sequential decrease in revenue after completing several large project deliveries in the fourth quarter. Despite several operators in the Eastern Hemisphere pushing new projects to the right, citing delays and uncertainty on the timing and availability of large diameter casing and wellheads bookings remained solid in Q1.
Offshore activity is continuing to ramp, setting a very compelling backdrop for our XL Systems business, and we're expecting significant improvement in its results as we move through the year. Our subsea flexible pipe business experienced a mid-single-digit decrease in sequential revenue. Orders for the quarter remained solid, with book-to-bill near 100%. We're continuing to obtain better pricing for new orders as global capacity remains limited and demand for subsea flexible pipe for sanctioned projects remained strong.
For the second quarter, we expect our Completion & Production Solutions segment to achieve a mid-single-digit increase in revenue with EBITDA flow-through in the lower 30% range. The quality of our backlog is improving with lower margin projects winding down and higher-margin projects coming on, which should result in steadily improving margin progression for the next several quarters, and we expect the segment to end the year with an EBITDA margin in the low double digits.
Our Rig Technologies segment generated revenues of $550 million in the first quarter, a decrease of $70 million or 11% compared to the fourth quarter and an increase of 25% compared to the first quarter of 2022. The sequential decline was a result of normal seasonality in our aftermarket operations and a falloff in capital equipment sales, which resulted from the completion of some major projects and the rush to ship equipment at year-end. The 25% year-over-year revenue growth better reflects the strengthening fundamentals we're seeing for our Rig Technologies segment.
Adjusted EBITDA declined $19 million sequentially and improved $33 million year-over-year to $69 million or 12.5% of sales. New capital equipment orders totaled $251 million, representing a book-to-bill of 140% and driving total backlog up to $2.88 billion. The recovery in the offshore and Middle East markets is continuing to gain momentum, which helped drive our fourth straight quarter of improved bookings for conventional rig equipment.
During the quarter, we received a significant capital equipment order associated with reactivating a seventh generation drillship. The project will include installing a new 165-ton active heave compensated crane and an upgraded control system, which includes a drilling automation system and drill pipe handling tools. We expect improving demand for rig capital equipment to continue. Rising technical and equipment specifications and tenders for the Middle East are acquiring the revitalization of drilling fleets that we've been expecting for some time.
Similarly, tendering activity for offshore markets will require the need to continue reactivating rigs, and we're beginning to get quite deep into the stack. Simply getting some of these rigs back into working condition is becoming a much bigger job but most of the rigs also require meaningful upgrades to conform with, operator requirements. We expect all of this to translate into a continued improvement in rig capital equipment orders through the rest of the year. Increasing activity, reactivations and upgrades are driving strong demand for aftermarket products and services.
During the quarter, our rig aftermarket operations posted a 13% increase in spare part bookings, our fifth consecutive quarter of improved orders and the best spare parts bookings quarter since the third quarter of 2019. We expect demand for our aftermarket operations to remain robust based on the recent bookings and quoting activity we've seen from our field engineering group.
Bookings and quotings levels in Q1 increased 31% and 40%, respectively, from average levels we saw during the second half of last year with customers asking our engineers to help them prepare for reactivations, pressure control equipment upgrades and the addition of enhanced automation capabilities. While we were cautious on the offshore wind market coming into 2023 due to the impact of inflation and project delays, developers appear to have recalibrated time lines and are getting over the sticker shock resulting in more optimism around additional FIDs.
During the first quarter, we received an order for the design and jacking system of a large Wind Turbine Installation Vessel, WTIV, for a European client. This is the second order from this customer and the sixth order for our NG-20000 vessel design, which has become the industry standard for the offshore wind installation market. Of the 15 WTIVs ordered globally in the last three years, excluding China, 12 have been based on NOV's designs, and we're optimistic about additional orders later this year as vessel demand for planned projects in the back half of the decade, continue to outstrip existing and planned WTIV capacity.
Additionally, during the first quarter, we delivered the world's first telescopic heavy lift crane, capable of lifting 2,500 tons in retracted mode and 1,250 tons in extended mode. The crane was delivered to a Japanese client and is set to install its first offshore wind turbines later this month. We have become the wind turbine installation industry's leader with a reputation as a dependable supplier with the ability to develop and deliver leading-edge technologies to drive efficiencies within the renewables sector.
For our Rig Technology segment, we expect continued improvement in our aftermarket operations and higher levels of capital equipment revenue out of backlog to translate into sequential revenue growth of between 5% to 10% with incremental margins in the, mid-20% range. While Rig Technologies is our longest cycle operating segment and is still in the very early stages of its recovery, we believe the Middle East, offshore and wind markets are unfolding in a manner that will allow the segment to drive meaningful growth over the coming years.
With that, we'll open the call to questions.
