NOV Inc. 10-Q

Item 1. Financial Statements NOV INC. CONSOLIDATED BALANCE SHEETS (In millions, except share data) June 30, December 31, 2023 2022 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 592 $ 1,069 Receivables, net 1,891 1,739 Inventories, net 2,199 1,813 Contract assets 704 685 Prepaid and other current assets 224 187 Total current assets 5,610 5,493 Property, plant and equipment, net 1,839 1,781 Lease right-of-use assets, operating 376 346 Lease right-of-use assets, financing 172 171 Goodwill 1,549 1,505 Intangibles, net 470 490 Investment in unconsolidated affiliates 184 117 Other assets 246 232 Total assets $ 10,446 $ 10,135 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,007 $ 906 Accrued liabilities 769 959 Contract liabilities 494 444 Current portion of lease liabilities 91 87 Current portion of long-term debt 13 13 Accrued income taxes 11 28 Total current liabilities 2,385 2,437 Long-term debt 1,715 1,717 Lease liabilities 568 549 Deferred income taxes 69 68 Other liabilities 212 230 Total liabilities 4,949 5,001 Commitments and contingencies Stockholders’ equity: Common stock - par value $ .01 ; 1 billion shares authorized; 393,776,806 and 392,832,752 shares issued and outstanding at June 30, 2023 and December 31, 2022 4 4 Additional paid-in capital 8,773 8,754 Accumulated other comprehensive loss ( 1,515 ) ( 1,593 ) Retained deficit ( 1,828 ) ( 2,069 ) Total Company stockholders' equity 5,434 5,096 Noncontrolling interests 63 38 Total stockholders’ equity 5,497 5,134 Total liabilities and stockholders’ equity $ 10,446 $ 10,135 See notes to unaudited consolidated financial statements. 2 NOV INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In millions, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenue $ 2,093 $ 1,727 $ 4,055 $ 3,275 Cost of revenue 1,636 1,418 3,187 2,752 Gross profit 457 309 868 523 Selling, general and administrative 276 241 561 476 Operating profit 181 68 307 47 Interest and financial costs ( 21 ) ( 19 ) ( 42 ) ( 38 ) Interest income 8 5 16 6 Equity income in unconsolidated affiliates 37 14 85 20 Other expense, net ( 29 ) — ( 45 ) ( 2 ) Net income before income taxes 176 68 321 33 Provision (benefit) for income taxes 19 ( 2 ) 39 12 Net income 157 70 282 21 Net income attributable to noncontrolling interests 2 1 1 2 Net income attributable to Company $ 155 $ 69 $ 281 $ 19 Net income attributable to Company per share: Basic $ 0.39 $ 0.18 $ 0.72 $ 0.05 Diluted $ 0.39 $ 0.18 $ 0.71 $ 0.05 Cash dividends per share $ 0.05 $ 0.05 $ 0.10 $ 0.10 Weighted average shares outstanding: Basic 393 390 392 389 Diluted 395 393 396 392 See notes to unaudited consolidated financial statements. 3 NOV INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In millions) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Net income $ 157 $ 70 $ 282 $ 21 Currency translation adjustments 43 ( 84 ) 82 ( 62 ) Changes in derivative financial instruments, net of tax ( 1 ) ( 13 ) ( 11 ) ( 21 ) Changes in defined benefit plans, net of tax ( 3 ) — 7 — Comprehensive income (loss) 196 ( 27 ) 360 ( 62 ) Comprehensive income attributable to noncontrolling interest 2 1 1 2 Comprehensive income (loss) attributable to Company $ 194 $ ( 28 ) $ 359 $ ( 64 ) See notes to unaudited consolidated financial statements. 4 NOV INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In millions) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 282 $ 21 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 148 149 Provision for inventory losses 14 5 Deferred income taxes ( 3 ) ( 13 ) Equity income in unconsolidated affiliates ( 85 ) ( 20 ) Stock-based compensation 32 33 Other, net ( 18 ) 61 Change in operating assets and liabilities, net of acquisitions: Receivables ( 161 ) ( 279 ) Inventories ( 393 ) ( 264 ) Contract assets ( 19 ) ( 17 ) Prepaid and other current assets ( 36 ) ( 31 ) Accounts payable 99 142 Accrued liabilities ( 207 ) 11 Contract liabilities 44 64 Income taxes payable ( 17 ) 5 Other assets/liabilities, net 46 ( 94 ) Net cash used in operating activities $ ( 274 ) $ ( 227 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 133 ) ( 89 ) Other 5 — Net cash used in investing activities $ ( 128 ) $ ( 89 ) Cash flows from financing activities: Borrowings against lines of credit and other debt 2 10 Payments against lines of credit and other debt ( 5 ) — Cash dividends paid ( 40 ) ( 39 ) Financing leases ( 11 ) ( 12 ) Other ( 19 ) ( 11 ) Net cash used in financing activities ( 73 ) ( 52 ) Effect of exchange rates on cash ( 2 ) ( 5 ) Decrease in cash and cash equivalents ( 477 ) ( 373 ) Cash and cash equivalents, beginning of period 1,069 1,591 Cash and cash equivalents, end of period $ 592 $ 1,218 Supplemental disclosures of cash flow information: Cash payments during the period for: Interest $ 41 $ 38 Income taxes $ 52 $ 79 See notes to unaudited consolidated financial statements. 5 NOV INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (In millions) Shares Issued and Outstanding Common Stock Additional Paid in Capital Accumulated Other Comprehensive Loss Retained Earnings (Deficit) Total Company Stockholders' Equity Noncontrolling Interests Total Stockholders' Equity Balance at December 31, 2022 393 $ 4 $ 8,754 $ ( 1,593 ) $ ( 2,069 ) $ 5,096 $ 38 $ 5,134 Net income — — — — 126 126 ( 1 ) 125 Other comprehensive income, net — — — 39 — 39 — 39 Cash dividends, $ 0.05 per common share — — — — ( 20 ) ( 20 ) — ( 20 ) Transactions with non-controlling interests — — 3 — — 3 28 31 Stock-based compensation — — 15 — — 15 — 15 Common stock issued 2 — — — — — — — Withholding taxes ( 1 ) — ( 17 ) — — ( 17 ) — ( 17 ) Other — — 1 — — 1 — 1 Balance at March 31, 2023 394 $ 4 $ 8,756 $ ( 1,554 ) $ ( 1,963 ) $ 5,243 $ 65 $ 5,308 Net income — — — — 155 155 2 157 Other comprehensive income, net — — — 39 — 39 — 39 Cash dividends, $ 0.05 per common share — — — — ( 20 ) ( 20 ) — ( 20 ) Stock-based compensation — — 17 — — 17 — 17 Other — — — — — — ( 4 ) ( 4 ) Balance at June 30, 2023 394 $ 4 $ 8,773 $ ( 1,515 ) $ ( 1,828 ) $ 5,434 $ 63 $ 5,497 Shares Issued and Outstanding Common Stock Additional Paid in Capital Accumulated Other Comprehensive Loss Retained Earnings (Deficit) Total Company Stockholders' Equity Noncontrolling Interests Total Stockholders' Equity Balance at December 31, 2021 393 $ 4 $ 8,685 $ ( 1,546 ) $ ( 2,146 ) $ 4,997 $ 67 $ 5,064 Net loss — — — — ( 50 ) ( 50 ) 1 ( 49 ) Other comprehensive income, net — — — 14 — 14 — 14 Cash dividends, $ 0.05 per common share — — — — ( 20 ) ( 20 ) — ( 20 ) Stock-based compensation — — 17 — — 17 — 17 Withholding taxes — — ( 12 ) — — ( 12 ) — ( 12 ) Other — — — — — — ( 4 ) ( 4 ) Balance at March 31, 2022 393 $ 4 $ 8,690 $ ( 1,532 ) $ ( 2,216 ) $ 4,946 $ 64 $ 5,010 Net income — — — — 69 69 1 70 Other comprehensive loss, net — — — ( 97 ) — ( 97 ) — ( 97 ) Cash dividends, $ 0.05 per common share — — — — ( 19 ) ( 19 ) — ( 19 ) Stock-based compensation — — 16 — — 16 — 16 Other — — ( 6 ) — — ( 6 ) ( 2 ) ( 8 ) Balance at June 30, 2022 393 $ 4 $ 8,700 $ ( 1,629 ) $ ( 2,166 ) $ 4,909 $ 63 $ 4,972 See notes to unaudited consolidated financial statements. 6 NOV INC. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements of NOV Inc. (“NOV” or the “Company”) present information in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. They do not include all information or footnotes required by GAAP in the United States for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s 2022 Annual Report on Form 10-K. Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. In our opinion, the consolidated financial statements include all adjustments, which are of a normal recurring nature unless otherwise disclosed, necessary for a fair presentation of the results for the interim periods. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fair values of cash and cash equivalents, receivables and payables were approximately the same as their presented carrying values because of the short maturities of these instruments. The fair value of long-term debt is provided in Note 9, and the fair values of derivative financial instruments are provided in Note 12. 2. Inventories, net Inventories consist of (in millions): June 30, December 31, 2023 2022 Raw materials and supplies $ 521 $ 479 Work in process 363 308 Finished goods and purchased products 1,697 1,404 2,581 2,191 Less: Inventory reserve ( 382 ) ( 378 ) Total $ 2,199 $ 1,813 3. Accrued Liabilities Accrued liabilities consist of (in millions): June 30, December 31, 2023 2022 Compensation $ 223 $ 329 Vendor costs 103 168 Taxes (non-income) 94 107 Warranties 70 70 Insurance 45 42 Interest 8 7 Fair value of derivatives 17 13 Commissions 18 18 Other 191 205 Total $ 769 $ 959 7 4. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows (in millions): Derivative Employee Currency Financial Benefit Translation Instruments, Plans, Adjustments Net of Tax Net of Tax Total Balance at December 31, 2022 $ ( 1,545 ) $ ( 4 ) $ ( 44 ) $ ( 1,593 ) Accumulated other comprehensive income (loss) before reclassifications 80 ( 18 ) 6 68 Amounts reclassified from accumulated other comprehensive loss 2 7 1 10 Balance at June 30, 2023 $ ( 1,463 ) $ ( 15 ) $ ( 37 ) $ ( 1,515 ) The components of amounts reclassified from accumulated other comprehensive loss are as follows (in millions): Three Months Ended June 30, 2023 2022 Currency Derivative Employee Derivative Employee Translation Financial Benefit Financial Benefit Adjustments Instruments Plans Total Instruments Plans Total Revenue $ — $ 4 $ — $ 4 $ 1 $ — $ 1 Cost of revenue — 1 — 1 ( 1 ) — ( 1 ) $ — $ 5 $ — $ 5 $ — $ — $ — Six Months Ended June 30, 2023 2022 Currency Derivative Employee Derivative Employee Translation Financial Benefit Financial Benefit Adjustments Instruments Plans Total Instruments Plans Total Revenue $ — $ 5 $ — $ 5 $ 1 $ — $ 1 Cost of revenue — 2 — 2 ( 8 ) — ( 8 ) Other expense 2 — — 2 — — — Selling, general and administrative — — 1 1 — — — Tax effect — — — — 1 — 1 $ 2 $ 7 $ 1 $ 10 $ ( 6 ) $ — $ ( 6 ) The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income (loss). The effect of changes in the fair values of derivatives designated as cash flow hedges are accumulated in other comprehensive income (loss), net of tax, until the underlying transactions are realized. The movement in other comprehensive income (loss) from period to period will be the combination of: 1) changes in fair value of open derivatives of ($ 6 ) million and ($ 18 ) million during the three and six months ended June 30, 2023 ; and, 2) the outflow of other comprehensive loss related to cumulative changes in the fair value of derivatives that have settled in the current period were $ 5 million and $ 7 million during the three and six months ended June 30, 2023 . 8 5. Segments Financial results by operating segment are as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenue: Wellbore Technologies $ 804 $ 666 $ 1,549 $ 1,274 Completion & Production Solutions 753 639 1,471 1,169 Rig Technologies 606 462 1,156 903 Eliminations ( 70 ) ( 40 ) ( 121 ) ( 71 ) Total revenue $ 2,093 $ 1,727 $ 4,055 $ 3,275 Operating profit (loss): Wellbore Technologies $ 128 $ 81 $ 224 $ 120 Completion & Production Solutions 53 20 97 ( 2 ) Rig Technologies 64 31 117 42 Eliminations and corporate costs ( 64 ) ( 64 ) ( 131 ) ( 113 ) Total operating profit (loss) $ 181 $ 68 $ 307 $ 47 Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment. 6. Impairment and Other Items Beginning February 2022, as a result of armed conflict in Ukraine, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. Among other things, these sanctions include controls on the export, re-export, and in-country transfer in Russia of certain goods, supplies, and technologies, including some that we use in our business in Russia. They also impose restrictions on doing business with specially designated nationals, including certain state-owned Russian customers, certain financial institutions and certain individuals and restrict or prohibit new investments and business activities in Russia. As previously disclosed, in response to these sanctions, the Company ceased new investments and curtailed our activities in Russia. Further, during the third quarter of 2022, the Company sold its business in Belarus and committed to a plan to sell its businesses in Russia. The sale is subject to government approval under Russian law and other jurisdictions. As a result of these actions, we recorded $ 41 million in impairment and other charges within costs of revenue for the six months ended June 30, 2022. As of June 30, 2023, all our Russian assets and liabilities were classified as held for sale and reported in “Prepaid and Other Current Assets” and “Accrued Liabilities”, respectively, in our Consolidated Balance Sheet. We expect to complete the sale of our Russian entities within the next 12 months, subject to regulatory approval. Total other items included in operating profit for the three and six months ended June 30, 2023 , were pre-tax credits of $ 7 million and $ 11 million, respectively, primarily related to gains on sales of previously reserved inventory. Total other items included in operating profit for the three and six months ended June 30, 2022 , were pre-tax charges for severance, facility closures, and other items of $ 14 million, net of related credits of $ 16 million, and $ 59 million, net of related credits of $ 17 million, respectively. Other items for the six months ended June 30, 2022 included impairment and other charges associated with the Company's operations in Russia, Belarus, and Ukraine discussed above. 9 7. Revenue Disaggregation of Revenue The following table disaggregates the Company’s revenue by major geographic and market segment destination. In the table, North America includes the U.S. and Canada (in millions): Three Months Ended June 30, 2023 2022 Completion Completion Wellbore & Production Rig Wellbore & Production Rig Technologies Solutions Technologies Elims. Total Technologies Solutions Technologies Elims. Total North America $ 408 $ 327 $ 110 $ — $ 845 $ 346 $ 236 $ 120 $ — $ 702 International 363 402 483 — 1,248 305 391 329 — 1,025 Eliminations 33 24 13 ( 70 ) — 15 12 13 ( 40 ) — $ 804 $ 753 $ 606 $ ( 70 ) $ 2,093 $ 666 $ 639 $ 462 $ ( 40 ) $ 1,727 Land $ 577 $ 459 $ 136 $ — $ 1,172 $ 518 $ 387 $ 115 $ — $ 1,020 Offshore 194 270 457 — 921 133 240 334 — 707 Eliminations 33 24 13 ( 70 ) — 15 12 13 ( 40 ) — $ 804 $ 753 $ 606 $ ( 70 ) $ 2,093 $ 666 $ 639 $ 462 $ ( 40 ) $ 1,727 Six Months Ended June 30, 2023 2022 Completion Completion Wellbore & Production Rig Wellbore & Production Rig Technologies Solutions Technologies Elims. Total Technologies Solutions Technologies Elims. Total North America $ 791 $ 654 $ 214 $ — $ 1,659 $ 652 $ 449 $ 208 $ — $ 1,309 International 706 774 916 — 2,396 595 699 672 — 1,966 Eliminations 52 43 26 ( 121 ) — 27 21 23 ( 71 ) — $ 1,549 $ 1,471 $ 1,156 $ ( 121 ) $ 4,055 $ 1,274 $ 1,169 $ 903 $ ( 71 ) $ 3,275 Land $ 1,130 $ 897 $ 327 $ — $ 2,354 $ 952 $ 709 $ 238 $ — $ 1,899 Offshore 367 531 803 — 1,701 295 439 642 — 1,376 Eliminations 52 43 26 ( 121 ) — 27 21 23 ( 71 ) — $ 1,549 $ 1,471 $ 1,156 $ ( 121 ) $ 4,055 $ 1,274 $ 1,169 $ 903 $ ( 71 ) $ 3,275 Performance Obligations Net revenue recognized from performance obligations satisfied in previous periods was $ 5 million for the three months ended June 30, 2023 primarily due to change orders. Remaining performance obligations represent the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with original expected duration of one year or more. We do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and short-term contracts that are expected to have a duration of one year or less. As of June 30, 2023 , the aggregate amount of the transaction price allocated to remaining performance obligations was $ 4,210 million. The Company expects to recognize approximately $ 761 million in revenue for the remaining performance obligations in 2023 and $ 3,449 million in 2024 and thereafter. Contract Assets and Liabilities Contract assets include unbilled amounts when revenue recognized exceeds the amount billed to the customer under contracts where revenue is recognized over time. Contract liabilities consist of customer billings in excess of revenue recognized under over-time contracts, customer advance payments and deferred revenue. The changes in the carrying amount of contract assets and contract liabilities are as follows (in millions): Contract Assets Contract Liabilities Balance at December 31, 2022 $ 685 $ 444 Provision — — Billings ( 668 ) 548 Revenue recognized 655 ( 514 ) Currency translation adjustments and other 32 16 Balance at June 30, 2023 $ 704 $ 494 10 Royalty Revenue The Company recognizes royalty revenue due under various licenses for the Company's intellectual property, including for technology related to drill bits. The Company recognized revenue for drill bit licenses of approximately $ 21 million and $ 41 million for the three and six months ended June 30, 2023, respectively, and $ 20 million and $ 40 million for the three and six months ended June 30, 2022, respectively. As previously disclosed, the Company is currently pursuing litigation against certain non-paying licensees. See Note 15 for discussion of the ongoing litigation. Allowance for Credit Losses The Company estimates its allowance for credit losses using information about past events, current conditions and risk characteristics of each customer, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of receivables and contract assets. The Company’s customer base, mostly in the oil and gas industry, have generally similar collectability risk characteristics, although larger and state-owned customers may have lower risk than smaller independent customers. As of June 30, 2023, the allowance for credit losses totaled $ 76 million. The changes in the carrying amount of the allowance for credit losses are as follows (in millions): Balance at December 31, 2022 $ 71 Provision for expected credit losses 16 Recoveries collected ( 7 ) Other ( 4 ) Balance at June 30, 2023 $ 76 8. Leases The Company leases certain facilities and equipment to support its operations around the world. These leases generally require the Company to pay maintenance, insurance, taxes and other operating costs in addition to rent. Renewal options are common in longer term leases; however, it is rare that the Company initially intends that a lease option will be exercised due to the cyclical nature of the Company’s business. Residual value guarantees are not typically part of the Company’s leases. Occasionally, the Company sub-leases excess facility space, generally at terms similar to the source lease. The Company reviews agreements at inception to determine if they include a lease and, when they do, uses its incremental borrowing rate to determine the present value of the future lease payments as most do not include implicit interest rates. Components of leases are as follows (in millions): June 30, December 31, 2023 2022 Current portion of lease liabilities: Operating $ 69 $ 67 Financing 22 20 Total $ 91 $ 87 June 30, December 31, 2023 2022 Long-term portion of lease liabilities: Operating $ 351 $ 334 Financing 217 $ 215 Total $ 568 $ 549 11 9. Debt Debt consists of (in millions): June 30, December 31, 2023 2022 $ 1.1 billion in Senior Notes, interest at 3.95 % payable semiannually, principal due on December 1, 2042 $ 1,090 $ 1,090 $ 0.5 billion in Senior Notes, interest at 3.60 % payable semiannually, principal due on December 1, 2029 495 495 Other debt 143 145 Total Debt 1,728 1,730 Less current portion 13 13 Long-term debt $ 1,715 $ 1,717 The Company has a revolving credit facility with a borrowing capacity of $ 2.0 billion through October 30, 2024, and a borrowing capacity of $ 1.7 billion from October 31, 2024 to October 30, 2025. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $ 3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon Secured Overnight Financing Rate (SOFR), NIBOR or CDOR plus 1.25 % subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60 %. As of June 30, 2023 , the Company was in compliance with a debt-to-capitalization ratio of 26.4 % and had no outstanding borrowings or letters of credit issued under the facility, resulting in $ 2.0 billion of available funds. Additionally, a consolidated joint venture of the Company borrowed $ 120 million against a $ 150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon SOFR plus 1.40 %. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75 %. As of June 30, 2023 , the joint venture was in compliance. The facility construction was completed in the fourth quarter of 2022, and the joint venture will not have future borrowings on the line of credit. The line of credit repayment schedule began in December 2022 with final payment no later than June 2032 . As of June 30, 2023 , the Company has $ 109 million in borrowings related to this line of credit. The carrying value of debt under the Company’s consolidated joint venture approximates fair value because the interest rates are variable and reflective of current market rates. The Company has $ 10 million in payments related to this line of credit due in the next twelve months. The Company can repay the entire outstanding facility balance without penalty at its sole discretion. Other debt at June 30, 2023 included $ 33 million of funding provided by minority interest partners of NOV consolidated joint ventures, of which $ 3 million is due in the next twelve months. The Company had $ 481 million of outstanding letters of credit at June 30, 2023, primarily in Norway and Netherlands, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds. At June 30, 2023 and December 31, 2022, the fair value of the Company’s unsecured Senior Notes approximated $ 1,256 million and $ 1,215 million, respectively. The fair value of the Company’s debt is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those of similar instruments. At June 30, 2023 and December 31, 2022, the carrying value of the Company’s unsecured Senior Notes approximated $ 1,585 million. 10. Income Taxes The effective tax rate for the three and six months ended June 30, 2023 was 10.8 % and 12.1 %, respectively, compared to ( 2.9 )% and 36.4 % for the same periods in 2022. The effective tax rate for 2023 was positively impacted by the utilization of previously unrealized loss carryforwards and tax credits as well as favorable adjustments related to changes in certain exchange rates, partially offset by current year losses in certain jurisdictions with no tax benefit. In 2022, the Company received and paid a $ 51 million transfer pricing tax assessment in Denmark. The Company and its advisors believe the assessment is without merit, but the Company was required to pay the assessment to pursue a settlement within Denmark's legal system. The Company is presently appealing and believes it will be reimbursed following a successful appeals process. The payment has been recorded as a long-term receivable. Additionally, the IRS is examining the Company’s tax returns for 2017 and 2018 and has proposed an adjustment to certain restructuring steps which occurred in 2017. The Company and its advisors believe these restructuring steps were properly completed in accordance with U.S. tax laws and regulations and will appeal the proposed adjustment. However, if the Company is unsuccessful in the appeals process, the IRS proposed adjustment would be substantially offset by the utilization of foreign tax credit carryforwards which are fully reserved by a valuation allowance and $ 48 million additional income tax expense would be owed. 11. Stock-Based Compensation The Company’s stock-based compensation plan, known as the NOV Inc. Long-Term Incentive Plan (the “NOV Plan”), was approved by shareholders on May 11, 2018 and amended and restated on May 24, 2022. The NOV Plan provides for the granting of stock options, 12 restricted stock, restricted stock units, performance awards, phantom shares, stock appreciation rights, stock payments and substitute awards. The number of shares authorized under the NOV Plan is 55.7 million. The NOV Plan is also subject to a fungible ratio concept, such that the issuance of stock options and stock appreciation rights reduces the number of available shares under the NOV Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the NOV Plan on a 1.5-for-1 basis. At June 30, 2023, approximately 12.8 million shares remained available for future grants under the NOV Plan. The Company also has outstanding awards under its other stock-based compensation plan known as the National Oilwell Varco, Inc. Long-Term Incentive Plan (the “Plan”), however the Company is no longer granting new awards under the Plan. On May 17, 2023, the Company granted 84,000 restricted stock units with a fair value of $ 15.00 per share. The awards were granted to non-employee members of the board of directors and vest on the first anniversary of the grant date. Total expense for all stock-based compensation arrangements was $ 17 million and $ 32 million for the three and six months ended June 30, 2023, respectively and $ 17 million and $ 33 million for the three and six months ended June 30, 2022, respectively. There was no income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements under the NOV Plan for each of the three and six months ended June 30, 2023 and 2022 . 12. Derivative Financial Instruments The Company uses forward currency contracts to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). The Company also executes forward currency contracts to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge). The fair values of these derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date. Forward currency contracts consist of (in millions): Currency Denomination June 30, December 31, Foreign Currency 2023 2022 South Korean Won KRW 13,458 KRW 65,980 Norwegian Krone NOK 2,202 NOK 2,741 U.S. Dollar USD 670 USD 655 Japanese Yen JPY 455 JPY 460 Brazilian Real BRL 291 BRL 291 Mexican Peso MXN 224 MXN 160 Euro EUR 123 EUR 125 South African Rand ZAR 30 ZAR 149 Singapore Dollar SGD 26 SGD 27 British Pound Sterling GBP 13 GBP 16 Danish Krone DKK 10 DKK 13 Canadian Dollar CAD 3 CAD 2 Cash Flow Hedging Strategy To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company instituted a cash flow hedging program. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The Company includes time value in hedge relationships. The Company expects $ 11 million of the accumulated other comprehensive loss will be reclassified into earnings within the next twelve months. Non-designated Hedging Strategy 13 The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The gain or loss on the derivative instrument is recognized in earnings in other income (expense), together with the changes in the hedged nonfunctional monetary accounts. The amount of gain (loss) recognized in other income (expense), net was ($ 5 ) million and ($ 10 ) million for the three and six months ended June 30, 2023 , respectively, and ($ 11 ) million and ($ 14 ) million for the three and six months ended June 30, 2022, respectively. The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions): Asset Derivatives Liability Derivatives Fair Value Fair Value Balance Sheet June 30, December 31, Balance Sheet June 30, December 31, Location 2023 2022 Location 2023 2022 Derivatives designated as hedging instruments under ASC Topic 815 Foreign exchange contracts Prepaid and other current assets $ 1 $ 3 Accrued liabilities $ 11 $ 3 Foreign exchange contracts Other Assets — — Other liabilities 4 1 Total derivatives designated as hedging instruments under ASC Topic 815 $ 1 $ 3 $ 15 $ 4 Derivatives not designated as hedging instruments under ASC Topic 815 Foreign exchange contracts Prepaid and other current assets $ 2 $ 5 Accrued liabilities $ 6 $ 10 Foreign exchange contracts Other Assets — — Other Liabilities 3 — Total derivatives not designated as hedging instruments under ASC Topic 815 $ 2 $ 5 $ 9 $ 10 Total derivatives $ 3 $ 8 $ 24 $ 14 13. Net Income Attributable to Company Per Share The following table sets forth the computation of weighted average basic and diluted shares outstanding (in millions, except per share data): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Numerator: Net income attributable to Company $ 155 $ 69 $ 281 $ 19 Denominator: Basic—weighted average common shares outstanding 393 390 392 389 Dilutive effect of employee stock options and other unvested stock awards 2 3 4 3 Diluted outstanding shares 395 393 396 392 Net income attributable to Company per share: Basic $ 0.39 $ 0.18 $ 0.72 $ 0.05 Diluted $ 0.39 $ 0.18 $ 0.71 $ 0.05 Cash dividends per share $ 0.05 $ 0.05 $ 0.10 $ 0.10 14 Companies with unvested participating securities are required to utilize a two-class method for the computation of net income attributable to Company per share. The two-class method requires a portion of net income attributable to Company to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents if declared. Net income attributable to the Company allocated to these participating securities was immaterial for each of the three and six months ended June 30, 2023 and 2022 , respectively. The Company had stock options outstanding that were anti-dilutive totaling 23 million and 22 million shares for the three and six months ended June 30, 2023 , respectively, compared to 20 million and 21 million shares for the three and six months ended June 30, 2022 , respectively. 14. Cash Dividends Cash dividends were $ 20 million and $ 40 million for the three and six months ended June 30, 2023 compared to $ 19 million and $ 39 million for the three and six months ended June 30, 2022 . The declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors. 15. Commitments and Contingencies Our business is governed by laws and regulations, including those directed to the oilfield service industry, promulgated by U.S. federal and state governments and regulatory agencies, as well as international governmental authorities in the many countries in which we conduct business. In the United States these governmental authorities include: the U.S. Department of Labor, the Occupational Safety and Health Administration, the Environmental Protection Agency, the Bureau of Land Management, the Department of Treasury, Office of Foreign Asset Controls, state environmental agencies and many others. We are unaware of any material liabilities in connection with our compliance with such laws. New laws, investigations, regulations and enforcement policies may result in additional, presently unquantifiable, or unknown, costs or liabilities. From time to time, the Company is involved in various claims, regulatory agency audits, investigations and legal actions involving a variety of matters. The Company maintains insurance that covers claims such as third-party personal injuries or property damage arising from risks associated with the business activities of the Company, such as premises liability, product liability, personal injury, marine risk, property damage, and other such insurable losses. The Company carries substantial insurance to cover insurable risks above a self-insured retention. The Company believes, and the Company’s experience has been, that such insurance has been sufficient to cover any such material risks. The Company is also a party to claims, threatened and actual litigation, arbitration, internal investigations of potential regulatory and compliance matters which arise both from legacy businesses that the Company has acquired over many years and from the Company’s current ordinary day-to-day business activities. These regulatory matters and disputes involve private parties and/or government authorities, which assert claims against the Company for a broad spectrum of potential claims including: employment law claims, collective actions or class action claims under employment laws, intellectual property claims, (such as alleged patent infringement, and/or misappropriation of trade secrets by the company), premises liability claims, environmental claims, product liability claims, warranty claims, personal injury claims arising from exposure to or use of allegedly defective products, alleged regulatory violations, alleged violations of anti-corruption and anti-bribery laws and other commercial and/or regulatory claims seeking recovery for alleged actual or exemplary damages or fines and penalties. Such claims involve various theories of liability which include: negligence, breach of contract, strict liability, product liability, and other theories of liability. For some of these contingent claims and potential liabilities, the Company’s insurance coverage may not apply, or exclusions to coverage or legal impediments may apply. In such instances, settlement or other resolution of such claims, individually or collectively, could have a material financial or reputational impact on the Company. As of June 30, 2023, the Company recorded reserves in an amount believed to be sufficient, given the range of potential outcomes, for contingent liabilities representing all contingencies believed to be probable. These reserves include costs currently and reasonably estimated to be incurred for reclamation of a closed barite mine and product liability claims, as well as other circumstances involving material claims. The Company has assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are believed to be not probable, but are reasonably possible. The Company sets accruals in accordance with GAAP based on its best judgment about the probable results of disputed claims, regulatory enforcement actions, tax and other governmental audits, and other contingencies. The litigation process as well as the outcome of regulatory oversight is inherently uncertain, and our best judgment concerning the probable outcome of litigation or regulatory enforcement matters may prove to be incorrect. No assurance can be given as to the outcome of these matters. The total potential loss on these matters cannot be determined; however, in our opinion, any ultimate liability, to the extent not otherwise provided for, will not materially affect our financial position, cash flow or results of operations. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s experience. Because of uncertainty and risk inherent to litigation, 15 arbitration, audits, governmental investigations, enforcement actions, and similar matters, the Company’s actual liabilities incurred may materially exceed our estimated liabilities and reserves, which could have a material financial or reputational impact on the Company. In many instances, the Company’s products and services embody or incorporate trade secrets or patented inventions. From time to time, we are engaged in disputes concerning protection of the Company’s trade secrets and confidential information, patents, and other intellectual property rights. Such disputes frequently involve complex, factual, technical and/or legal issues which result in high costs to adjudicate our rights and for which it may be difficult to predict the ultimate outcome. At any given time, the Company may be a plaintiff or defendant in disputes involving disputed intellectual property rights. The Company is currently pursuing litigation against several companies involving royalties due under licenses for technology related to drill bits. This technology resulted in a portfolio of patents related to leaching technology, a revolutionary technology owned by the Company that dramatically improves the performance of drill bits and other products utilizing certain synthetic diamond parts. The Company previously sued several drill bit manufacturers for patent infringement and those lawsuits were resolved by a series of licensing agreements with various drill bit manufacturers. To settle and end litigation or to avoid litigation, the licensees were provided access to the portfolio of leaching patents owned by the Company in exchange for a royalty payment, as defined in the license agreement. The license agreements each provide that they terminate on the date of the last to expire of the patents in the licensed portfolio. Having obtained the benefit of these licenses for more than a decade, some of the licensees unilaterally stopped making royalty payments even though all of the patents in the portfolio have not expired. These companies have asserted, among other reasons, that they are entitled to stop making these payments because they have not elected to manufacture products covered by the unexpired patents. The Company contends this is a breach of the license agreements at issue. The parties’ filings to date can be found in two cases currently pending in the United States District Court for the Southern District of Texas: Grant Prideco, Inc., et al. v. Schlumberger Tech. Corp., et al., No. 4:23-cv-00730, and Halliburton Energy Serv, Inc. v. Grant Prideco, Inc., et al., No. 4:23-cv-01789. The Company continues to accrue accounts receivable for the unpaid royalties and accrued an incremental $ 10 million during the second quarter, bringing the total amount accrued to $ 52 million. This amount is likely to increase over time until resolution of ongoing litigation. While the Company strongly believes that the royalties for which it has sued are due and owing pursuant to the terms of the licensing agreement, there is inherent risk with the related litigation and the Company makes no assurances as to the outcome of such litigation. The protection of intellectual property is important to the Company’s performance, and as such, an adverse result in the above dispute or any future dispute related to any of our intellectual property could result in materially adverse financial consequences such as a decline in sales of products protected by patents, which could materially and adversely impact our financial performance. In addition to intellectual property matters, from time to time consumers of our products and services or members of the supply chain become involved in governmental investigations, internal investigations, political or other enforcement matters. In such circumstances, such investigations may adversely impact the ability of consumers of our products, entities providing financial support to such consumers or entities in the supply chain to timely perform their business plans or to timely perform under agreements with us. We may, from time to time, become involved in these investigations, at substantial cost to the Company. We also are subject to trade regulations, supply chain regulations, and other regulatory compliance in which the laws and regulations of different jurisdictions conflict or these regulations may conflict with contractual terms. In such circumstances, our compliance with U.S. laws and regulations may subject us to risk of fines, penalties, or contractual liability in other jurisdictions. Our efforts to actively manage such risks may not always be successful which could lead to negative impacts on revenue or earnings. The Company is exposed to customs and trade regulation risk in the countries in which we do business and countries from which or to which we import or export goods. Such trade regulations can be complex and conflicting, as different countries use trade regulation to promote conflicting policy objectives. Compliance with these laws and regulations present challenges which could result in future liabilities (for example, when laws conflict between countries). The Company may face increased tariffs and trade costs, loss of revenue, loss of customers, fines, penalties, increased costs, the need for renegotiation of agreements, and other business disruptions. In addition, trade regulations, export controls, and other laws adversely impact our ability to do business in certain countries, e.g., Iran, Syria, Russia, China and Venezuela. In response to additional sanctions enacted by governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries as a result of active armed conflict in Ukraine, we ceased new investments in Russia and have curtailed our activities in Russia. During the third quarter of 2022, we sold our business in Belarus and entered into an agreement to sell our business in Russia. The sale is subject to various government approvals in Russia and other jurisdictions. The Russian government continues to enact new laws impacting the exit of western companies from Russia, including some instances of expropriation of western businesses. We may incur additional costs as a result of conditions in Russia if we are unable to complete the transaction to sell our Russian business on the terms of the agreements. The geopolitical response to the COVID-19 pandemic continues to have lingering supply chain impacts and to affect how business is being done in countries around the world. The Company’s ability to manufacture equipment and perform services could be impaired 16 from such disruptions and the Company could be exposed to liabilities resulting from additional interruption or delay in its ability to perform due to materials shortages, inflationary pressures, and limited manpower. The overall situation related to COVID-19 has improved, but the Company continues to see operational delays resulting from impacts on availability of materials and work force, the lack of predictability of vendor delivery dates and other operational disruptions. We may face loss of workers, labor shortages, litigation, fines and/or other adverse consequences resulting from ongoing labor impacts or COVID-19 regulations. The combined impact of supply chain and labor market disruptions along with the inflationary impacts of pandemic monetary and regulatory policies could have material adverse impacts on our financial results. Disputes may arise regarding application of force majeure contract provisions and allocation of responsibility among customers, the Company, and suppliers, resulting in material added cost and/or litigation. Our customers may attempt to cancel or delay projects, cancel contracts, or may invoke force majeure clauses. Our customers may also seek to delay or may default on their payments to us. As a result, the Company may be exposed to additional costs, liabilities and risks which could materially, adversely impact our financial performance and results. These potential operational and service delays could result in contractual or other legal claims from our customers. At this time, it is not possible to quantify all these risks, but the combination of these factors could have a material impact on our financial results. Due to market conditions and ongoing concerns about the energy transition, demand for our products and services may decline. Legal restrictions on exploration and production may impede our customer’s ability to do business in certain jurisdictions. The political environment may adversely impact demand for hydrocarbons in different jurisdictions or globally. The demand for energy may be constrained with adverse consequences for our customers and for the company. 16. New Accounting Pronouncements Recently Issued Accounting Standards In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848).” Topic 848, as amended, applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024. During the first quarter of 2023 , the Company adopted the optional relief guidance provided under Topic 848 after modifying certain debt and derivative instruments to update the reference rate from LIBOR to SOFR. The adoption of this optional relief did no t have a material impact on the consolidated financial statements. 17 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction NOV Inc. (“NOV” or the “Company”) is a leading independent equipment and technology provider to the global energy industry. Originally founded in 1862, NOV and its predecessor companies have spent 161 years helping transform oil and gas field development and improving its cost-effectiveness, efficiency, safety, and environmental impact. Over the past few decades, the Company has pioneered and refined key technologies to improve the economic viability of frontier resources, including unconventional and deepwater oil and gas. More recently, by applying its deep expertise and technology, the company has helped advance the transition toward sustainable energy. NOV’s extensive proprietary technology portfolio supports the industry’s full-field drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on automation, predictive analytics, and condition-based maintenance. NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 63 countries, operating under three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted EBITDA (defined as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP. Wellbore Technologies The Company’s Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services, managed pressure drilling, drilling fluids, premium drillpipe, wired pipe, drilling optimization services, tubular inspection and coating services, instrumentation, downhole tools, and drill bits. Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment’s products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies. Completion & Production Solutions The Company’s Completion & Production Solutions segment integrates technologies for well completions and oil and gas production. The segment designs, manufactures, and integrates technologies for well completions, oil and gas production, and industrial markets. This includes equipment and technologies needed for hydraulic fracture stimulation, including pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; cementing products for pumping, mixing, transport, and storage; onshore production, including fluid processing, composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and offshore production, including integrated production systems and subsea production technologies. Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment’s products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies. The segment also designs and manufactures equipment for industrial markets. This includes specialized, technology-driven progressive cavity pumps and mixers for a wide breadth of industrial end markets with high failure costs, premium pole products to support connectivity, lighting, and power for municipal and residential applications including 5G, smart-city infrastructure, roads and highways, and energy-grid modernization. Demand for these products is driven by general industrial activity and infrastructure spend. Rig Technologies The Company’s Rig Technologies segment manufactures and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies the segment provides to customers include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; 18 fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems, including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling machinery; major equipment components for offshore wind construction vessels; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world. Rig Technologies supports land and offshore drillers. Demand for the segment’s products depends on drilling contractors’ and oil and gas companies’ capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment’s large installed base of equipment. The segment also designs and builds equipment for wind turbine installation companies, where demand is dependent on global investment into offshore wind energy developments. Critical Accounting Policies and Estimates In our annual report on Form 10-K for the year ended December 31, 2022, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition under long-term construction contracts; inventory reserves; impairment of goodwill and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material. EXECUTIVE SUMMARY For the second quarter ended June 30, 2023, the Company generated revenues of $2.09 billion, an increase of 7 percent compared to the first quarter of 2023 and an increase of 21 percent compared to the second quarter of 2022. Net income for the second quarter of 2023 was $155 million, or 7.4 percent of sales, which included $7 million of credits in Other Items. Adjusted EBITDA (operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) increased sequentially to $245 million, or 11.7 percent of sales. Segment Performance Wellbore Technologies Wellbore Technologies generated revenues of $804 million in the second quarter of 2023, an increase of 8 percent from the first quarter of 2023 and an increase of 21 percent from the second quarter of 2022. Operating profit was $128 million, or 15.9 percent of sales, and included a credit of $1 million in Other Items. Adjusted EBITDA increased $31 million sequentially and increased $42 million from the prior year to $164 million, or 20.4 percent of sales. Significantly improved manufacturing throughput from the segment’s drill pipe operations, market share gains and improving demand from international and offshore markets offset activity declines in North America to drive improved results. Completion & Production Solutions Completion & Production Solutions generated revenues of $753 million in the second quarter of 2023, an increase of 5 percent from the first quarter of 2023 and an increase of 18 percent from the second quarter of 2022. Operating profit was $53 million, or 7.0 percent of sales. Adjusted EBITDA increased $15 million sequentially and increased $37 million from the prior year to $69 million, or 9.2 percent of sales. Results reflect improving execution on a higher margin mix of international and offshore projects, partially offset by softening demand for completion equipment and aftermarket services in North America. New orders booked during the quarter increased 11% and totaled $450 million, representing a book-to-bill of 94 percent when compared to the $477 million of orders shipped from backlog. As of June 30, 2023, backlog for capital equipment orders for Completion & Production Solutions was $1,586 million, a decrease of $15 million from the first quarter of 2023 and an increase of $144 million from the second quarter of 2022. Rig Technologies Rig Technologies generated revenues of $606 million in the second quarter of 2023, an increase of 10 percent from the first quarter of 2023, and an increase of 31 percent from the second quarter of 2022. Operating profit was $64 million, or 10.6 percent of sales, and included a credit of $7 million of Other Items. Adjusted EBITDA increased $2 million sequentially and increased $30 million from the prior year to $71 million, or 11.7 percent of sales. Steadily improving demand drove the segment’s sequential revenue growth. Incremental margins were limited by a lower margin sales mix and sequentially higher costs related to a wind tower startup operation. New capital equipment orders booked during the quarter totaled $222 million, representing a book-to-bill of 108 percent when compared to the $205 million of orders shipped from backlog. As of June 30, 2023, backlog for capital equipment orders for Rig Technologies 19 was $2,893 million, an increase of $17 million from the first quarter of 2023 and an increase of $54 million from the second quarter of 2022. Oil & Gas Equipment and Services Market and Outlook Despite the recent volatility in commodity prices, management believes the industry is in the early stages of an extended recovery that began in 2021 with the gradual reopening of global economies following the COVID-19 pandemic. Improving economic activity, driven by pent-up consumer and industrial demand combined with government economic stimulus, drove higher consumption of commodities, pulled significant volumes of oil and gas out of global inventories, and exposed diminished productive capacity resulting from years of underinvestment in the oil and gas industry. Tightening of government fiscal policies, concerns regarding a global recession, ongoing global supply chain disruptions, and rising inflationary costs may drive volatility and could pressure commodity prices near-term; however, management believes diminished global oil and gas production capacity, along with rising energy security risks, will continue to spur increased oilfield activity and demand for the Company’s equipment and technology. NOV remains committed to improving organizational efficiencies while focusing on the development and commercialization of innovative products and services, including technologies to reduce environmental impact of oil and gas operations and technologies to accelerate the energy transition that are responsive to the longer-term needs of NOV’s customers. We believe this strategy will further advance the Company’s competitive position in all market conditions. Operating Environment Overview The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by other oilfield service companies and drilling contractors, and worldwide oil and gas inventory levels. Key industry indicators for the second quarter of 2023 and 2022, and the first quarter of 2023 include the following: % % 2Q23 2Q23 2Q23* 2Q22* 1Q23* 2Q22 1Q23 Active Drilling Rigs: U.S. 722 715 761 1.0 % (5.1 )% Canada 115 114 223 0.9 % (48.4 )% International 960 815 915 17.8 % 4.9 % Worldwide 1,797 1,644 1,899 9.3 % (5.4 )% West Texas Intermediate Crude Prices (per barrel) $ 73.76 $ 108.72 $ 76.08 (32.2 )% (3.0 )% Natural Gas Prices ($/mmbtu) $ 2.16 $ 7.44 $ 2.65 (71.0 )% (18.5 )% * Averages for the quarters indicated. See sources below. The Company is also becoming increasingly engaged with energy transition related opportunities and is currently involved in projects related to wind energy, geothermal power, rare earth metal extraction, biogas production, and carbon sequestration. Additionally, the Company is investing in developing technologies and solutions that will support other energy transition related industry verticals. Management expects to see continued growth in these areas as low carbon power becomes a larger portion of the global energy supply. The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Crude Oil prices for the past nine quarters ended June 30, 2023, on a quarterly basis: .Industry Tr..ends Rig Counts and Oil Prices Total Number of Rigs 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $ West Texas Int. (Price per Barrel) 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Total Rings 2,110 2,262 2,260 2,260 2,210 2,197 2,071 2,053 1,255 Canada 105 208 177 185 83 132 139 196 25 US 1,037 1,051 1,072 1,046 989 920 821 784 396 International 968 1,003 1,011 1,029 1,138 1,145 1,111 1,073 834 W.TX Int. ($) $68.03 $69.76 $59.08 $54.83 $59.78 $56.37 $56.92 20 .99 Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Oil and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.doe.gov). The worldwide quarterly average rig count decreased 5 percent (from 1,899 to 1,797), and the U.S. decreased 5 percent (from 761 to 722), in the second quarter of 2023 compared to the first quarter of 2023. The average per barrel price of West Texas Intermediate Crude Oil decreased 3 percent (from $76.08 per barrel to $73.76 per barrel) and natural gas prices decreased 18 percent (from $2.65 per mmbtu to $2.16 per mmbtu) in the second quarter of 2023 compared to the first quarter of 2023. At July 14, 2023, there were 862 rigs actively drilling in North America, which increased 3 percent from the second quarter average of 837 rigs. The price for West Texas Intermediate Crude Oil was $75.42 per barrel at July 14, 2023, an increase of 2 percent from the second quarter of 2023 average. The price for natural gas was $2.53 per mmbtu at July 14, 2023, an increase of 17 percent from the second quarter of 2023 average. 21 Results of Operations Financial results by operating segment are as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenue: Wellbore Technologies $ 804 $ 666 $ 1,549 $ 1,274 Completion & Production Solutions 753 639 1,471 1,169 Rig Technologies 606 462 1,156 903 Eliminations (70 ) (40 ) (121 ) (71 ) Total revenue $ 2,093 $ 1,727 $ 4,055 $ 3,275 Operating profit (loss): Wellbore Technologies $ 128 $ 81 $ 224 $ 120 Completion & Production Solutions 53 20 97 (2 ) Rig Technologies 64 31 117 42 Eliminations and corporate costs (64 ) (64 ) (131 ) (113 ) Total operating profit (loss) $ 181 $ 68 $ 307 $ 47 Wellbore Technologies Three and six months ended June 30, 2023 and 2022. Revenue from Wellbore Technologies was $804 million for the three months ended June 30, 2023, compared to $666 million for the three months ended June 30, 2022, an increase of $138 million or 21 percent. For the six months ended June 30, 2023, revenue from Wellbore Technologies was $1,549 million compared to $1,274 million for the six months ending June 30, 2022, an increase of $275 million or 22 percent. Operating profit from Wellbore Technologies was $128 million for the three months ended June 30, 2023 compared to an operating profit of $81 million for the three months ended June 30, 2022, an increase of $47 million. For the six months ended June 30, 2023, operating profit from Wellbore Technologies was $224 million compared to operating profit of $120 million for the six months ending June 30, 2022, an increase of $104 million. Completion & Production Solutions Three and six months ended June 30, 2023 and 2022. Revenue from Completion & Production Solutions was $753 million for the three months ended June 30, 2023, compared to $639 million for the three months ended June 30, 2022, an increase of $114 million or 18 percent. For the six months ending June 30, 2023, revenue from Completion & Production Solutions was $1,471 million compared to $1,169 million for the six months ending June 30, 2022, an increase of $302 million or 26 percent. Operating profit from Completion & Production Solutions was $53 million for the three months ended June 30, 2023 compared to an operating profit of $20 million for the three months ended June 30, 2022, an increase of $33 million. For the six months ended June 30, 2023, operating profit from Completion & Production Solutions was $97 million compared to operating loss of $2 million for the six months ending June 30, 2022, an increase of $99 million. The Completion & Productions Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a contract related to a construction project. The capital equipment backlog was $1,586 million at June 30, 2023, an increase of $144 million from backlog of $1,442 million at June 30, 2022. Although numerous factors can affect the timing of revenue out of backlog (including, but not limited to, customer change orders and supplier accelerations or delays), the Company reasonably expects approximately 55 percent of backlog to become revenue during the rest of 2023 and the remainder thereafter. At June 30, 2023, approximately 58 percent of the capital equipment backlog was for offshore products and approximately 75 percent of the capital equipment backlog was destined for international markets. 22 Rig Technologies Three and six months ended June 30, 2023 and 2022 . Revenue from Rig Technologies was $606 million for the three months ended June 30, 2023, compared to $462 million for the three months ended June 30, 2022, an increase of $144 million or 31 percent. For the six months ended June 30, 2023, revenue from Rig Technologies was $1,156 million compared to $903 million for the six months ending June 30, 2022, an increase of $253 million or 28 percent. Operating profit from Rig Technologies was $64 million for the three months ended June 30, 2023 compared to $31 million for the three months ended June 30, 2022, an increase of $33 million. For the six months ended June 30, 2023, operating profit from Rig Technologies was $117 million compared to $42 million for the six months ending June 30, 2022, an increase of $75 million. The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related to a construction project. The capital equipment backlog was $2,893 million at June 30, 2023, an increase of $54 million from backlog of $2,839 million at June 30, 2022. Although numerous factors can affect the timing of revenue out of backlog (including, but not limited to, customer change orders and supplier accelerations or delays), the Company reasonably expects approximately 18 percent of backlog to become revenue during the rest of 2023 and the remainder thereafter. At June 30, 2023, approximately 30 percent of the capital equipment backlog was for offshore products and approximately 95 percent of the capital equipment backlog was destined for international markets. Eliminations and corporate costs Eliminations and corporate costs were $64 million and $131 million for the three and six months ended June 30, 2023, compared to $64 million and $113 million for the three and six months ended June 30, 2022. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the company. Eliminations include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment. Other expense, net Other expense, net was $29 million and $45 million for the three and six months ended June 30, 2023, compared to expenses of zero and $2 million for the three and six months ended June 30, 2022, respectively. The change in income was primarily due to fluctuations in foreign currencies. Provision for income taxes The effective tax rate for the three and six months ended June 30, 2023 was 10.8% and 12.1%, respectively, compared to (2.9)% and 36.4% for the same period in 2022. The effective tax rate for 2023 was positively impacted by the utilization of previously unrealized loss carryforwards and tax credits as well as favorable adjustments related to changes in certain exchange rates, partially offset by current year losses in certain jurisdictions with no tax benefit. Non-GAAP Financial Measures and Reconciliations This Form 10-Q contains certain non-GAAP financial measures that management believes are useful tools for internal use and the investment community in evaluating NOV’s overall financial performance. These non-GAAP financial measures are broadly used to value and compare companies in the oilfield services and equipment industry. Not all companies define these measures in the same way. In addition, these non-GAAP financial measures are not a substitute for financial measures prepared in accordance with GAAP and should therefore be considered only as supplemental to such GAAP financial measures. The Company defines Adjusted EBITDA as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items. Management believes this is important information to provide because it is used by management to evaluate the Company’s operational performance and trends between periods and manage the business. Management also believes this information may be useful to investors and analysts to gain a better understanding of the Company’s results of ongoing operations. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income. 23 The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions): Three Months Ended Six Months Ended June 30, March 31, June 30, 2023 2022 2023 2023 2022 Operating profit (loss): Wellbore Technologies $ 128 $ 81 $ 96 $ 224 $ 120 Completion & Production Solutions 53 20 44 97 (2 ) Rig Technologies 64 31 53 117 42 Eliminations and corporate costs (64 ) (64 ) (67 ) (131 ) (113 ) Total operating profit (loss) $ 181 $ 68 $ 126 $ 307 $ 47 Other items, net: Wellbore Technologies $ (1 ) $ 7 $ — $ (1 ) $ 30 Completion & Production Solutions — 1 (1 ) (1 ) 17 Rig Technologies (7 ) (8 ) (3 ) (10 ) (2 ) Corporate 1 14 — 1 14 Total other items $ (7 ) $ 14 $ (4 ) $ (11 ) $ 59 (Gain)/Loss on Sales of Fixed Assets: Wellbore Technologies $ — $ (3 ) $ — $ — $ (1 ) Completion & Production Solutions — (4 ) (5 ) (5 ) (4 ) Rig Technologies — — — — 1 Corporate — — 1 1 2 Total (gain)/loss on sales of fixed assets $ — $ (7 ) $ (4 ) $ (4 ) $ (2 ) Depreciation & amortization: Wellbore Technologies $ 37 $ 37 $ 37 $ 74 $ 74 Completion & Production Solutions 16 15 16 32 31 Rig Technologies 14 18 19 33 36 Corporate 4 5 5 9 8 Total depreciation & amortization $ 71 $ 75 $ 77 $ 148 $ 149 Adjusted EBITDA: Wellbore Technologies $ 164 $ 122 $ 133 $ 297 $ 223 Completion & Production Solutions 69 32 54 123 42 Rig Technologies 71 41 69 140 77 Eliminations and corporate costs (59 ) (45 ) (61 ) (120 ) (89 ) Total Adjusted EBITDA $ 245 $ 150 $ 195 $ 440 $ 253 Reconciliation of Adjusted EBITDA: GAAP net income attributable to Company $ 155 $ 69 $ 126 $ 281 $ 19 Noncontrolling interests 2 1 (1 ) 1 2 Provision for income taxes 19 (2 ) 20 39 12 Interest expense 21 19 21 42 38 Interest income (8 ) (5 ) (8 ) (16 ) (6 ) Equity income in unconsolidated affiliates (37 ) (14 ) (48 ) (85 ) (20 ) Other expense, net 29 — 16 45 2 (Gain)/Loss on Sales of Fixed Assets — (7 ) (4 ) (4 ) (2 ) Depreciation and amortization 71 75 77 148 149 Other items, net (7 ) 14 (4 ) (11 ) 59 Total Adjusted EBITDA $ 245 $ 150 $ 195 $ 440 $ 253 Liquidity and Capital Resources Overview At June 30, 2023, the Company had cash and cash equivalents of $592 million and total debt of $1,728 million. At December 31, 2022, cash and cash equivalents were $1,069 million and total debt was $1,730 million. As of June 30, 2023, approximately $522 million of the $592 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash could be 24 subject to foreign withholding taxes and incremental U.S. taxation if transferred among countries or repatriated to the U.S. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, the Company may choose to borrow against its revolving credit facility. The Company has a revolving credit facility with a borrowing capacity of $2.0 billion through October 30, 2024, and a borrowing capacity of $1.7 billion from October 31, 2024, to October 30, 2025. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon SOFR, NIBOR or CDOR plus 1.25% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of June 30, 2023, the Company was in compliance with a debt-to-capitalization ratio of 26.4% and had no outstanding letters of credit issued under the facility, resulting in $2.0 billion of available funds. A consolidated joint venture of the Company borrowed $120 million against a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon SOFR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of June 30, 2023, the joint venture was in compliance. The facility construction was completed in the fourth quarter of 2022, and the joint venture will not have future borrowings on the line of credit. The line of credit repayment schedule began in December 2022 with final payment no later than June 2032. As of June 30, 2023, the Company had $109 million in borrowings related to this line of credit. The Company has $10 million in payments related to this line of credit due in the next twelve months. The Company’s outstanding debt at June 30, 2023 consisted primarily of $1,090 million in 3.95% Senior Notes, $495 million in 3.60% Senior Notes, and other debt of $143 million. The Company was in compliance with all covenants at June 30, 2023. Long-term lease liabilities totaled $568 million at June 30, 2023. The Company had $481 million of outstanding letters of credit at June 30, 2023, primarily in Norway and the Netherlands, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds. The following table summarizes our net cash used in continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions): Six Months Ended June 30, 2023 2022 Net cash used in operating activities $ (274 ) $ (227 ) Net cash used in investing activities (128 ) (89 ) Net cash used in financing activities (73 ) (52 ) Significant uses of cash during the first six months of 2023 • Cash flows used in operating activities were $274 million, primarily driven by changes in the primary components of our working capital (receivables, inventories, accounts payable, and accrued liabilities). • Capital expenditures were $133 million. • We paid $40 million in dividends to shareholders. Other The effect of the change in exchange rates on cash flows was a decrease of $2 million for the first six months of 2023, and a decrease of $5 million for the first six months of 2022. We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations. We may pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us. 25 New Accounting Pronouncements See Note 16 for recently adopted and recently issued accounting standards. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “believe,” “plan,” “will,” “expect,” “anticipate,” “estimate,” “should,” “forecast,” and similar words, although some forward-looking statements are expressed differently. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products and worldwide economic activity, including matters related to recent Russian sanctions. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Annual Report on Form 10-K for the year-end December 31, 2022, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements, and additional disclosures we make in our press releases and Forms 10-Q, and 8-K. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts. 26