Good day, ladies and gentlemen, and welcome to the NOV third quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If you would like to ask a question, please press star one one on your telephone. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.
Welcome everyone to NOV's third quarter 2022 earnings conference call. With me today are Clay Williams, our Chairman, President, and CEO, and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest Form 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website.
On a US GAAP basis for the third quarter of 2022, NOV reported revenues of $1.89 billion and a net income of $32 million. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question and answer session. Please limit yourself to one question and one follow-up to permit more participation. Now, let me turn the call over to Clay.
Thank you, Blake. For the third quarter of 2022, NOV's consolidated revenues grew 9% sequentially and 41% year-over-year, with all three segments posting solid double-digit year-over-year growth. Despite continuing supply chain friction and increased turmoil in the global economy, our teams were once again able to drive higher sequential EBITDA at 28% leverage on top-line gains. The results demonstrate international offshore markets that are starting to gather momentum. Our early-cycle rig count, activity-driven businesses continued to trend positively on rising volumes and pricing recovery in North America and increasingly in international and offshore markets. So far, despite fears of recessionary demand destruction, commodity prices have remained strong, which I think is appropriate. The world faces a significant and scary energy shortfall after years of underinvestment, and our outlook is very constructive as a result.
However, this constructive dynamic has not yet translated into the big uplift in capital equipment orders we expect. Our overall book-to-bill for the third quarter slipped slightly below one, 98% to be exact. While we saw strong orders with a 116% book-to-bill in Completion and Production Solutions, Rig Technologies' book-to-bill came in below one, and our combined reported backlog for capital equipment declined slightly, less than 1%. We believe this is transitory, and we expect orders to grow in coming quarters. Let me explain why, starting with the observation that the third quarter book-to-bill is off-trend for us. Helped by solid orders in renewables technologies through the past year, NOV's consolidated book-to-bill for the trailing twelve months through the third quarter has been 116%.
Our customers share our optimistic outlook, but they face some near-term constraints that are delaying capital equipment orders, especially for U.S. and European oilfield participants. First, the availability and cost of capital to the oilfield have emerged as a limitation. Debt lending from banks and institutions and public and private equity investment capital have been greatly diminished for oil and gas, at least in the West, meaning investments for many must be funded entirely from cash flows from operations. Cash flow for service companies is only now recovering, given pricing leverage has emerged in only the past quarter or two, and mostly in North America. Second, companies in the U.S. and Europe are highly focused on returning capital to shareholders rather than reinvesting in their businesses despite extraordinary well and project-level return economics.
This trend started with E&Ps and management teams incentivized by cash flow returns to shareholders and is now taking root with oil field service companies as well. For the many oil field service providers and drillers that have emerged from bankruptcy in the past year or two, they find themselves with their former debt holders as new owners who are insistent on recouping their losses in cash as quickly as possible. Third, the misguided energy transition timeframe narrative, specifically the move away from oil and gas within a few years rather than the far more realistic decades timeframe, has diminished the appetite for long-lived projects in some markets. Even when there is clear line of sight to exceptional well and project returns, many struggle to pull the trigger on long-term projects.
Of course, the notion that oil and gas will be obsolete in the next 5-10 years is complete nonsense, but it does make decisions on a 20-year capital project a little more anxiety-ridden. Additionally, the supply chain challenges of the past 2 years have eroded confidence in schedules and delivery times, injecting additional transient execution anxiety into these decisions. Importantly, these constraints to capital investment are mostly confined to North American and European participants who historically were the fastest to react to higher commodity prices. In contrast, the views held by NOCs and sovereign wealth funds in the Middle East, Asia, Africa, and Latin America today leave participants far more financial freedom to respond to commodity price signaling.
That is why we were not surprised to see growth starting to accelerate in international markets, and frankly, would not be surprised to see it surpass North America, where, in addition to free cash flow reinvestment constraints, the market is facing some short-term ceilings on crew and equipment availability. This, by the way, is translating into higher rig rates and oilfield service pricing our customers in North America have seen over the past couple of quarters. We think incremental E&P spending in 2023 in North America will be required just to hold rig and completion activity flat. In contrast, we see the rest of the world gearing up for more activity in 2023 as OPEC invests to grow production and recapture its swing producer status from the U.S. That's not to say that there aren't challenges in international markets.
The Middle East has been tough on oilfield service providers for many years, as oversupply throughout the past decade and large competitive tenders locked many into long-term contracts at low margins pre-COVID. However, these are steadily expiring, and NOCs are calling for more and better equipment, paving the way for better oilfield service pricing leverage and returns, and rising demand for better technologies. Despite concerns of recession and the near-term headwinds to higher oilfield activity, we are confident they can't last. When the trend breaks the other way, it's going to break hard. Oil and gas is still the industry that powers all other industries, and price elasticity is low, which the world will learn once again as it moves through this recession. Rarely has oil consumption fallen even during recessions. The development of oil and gas production has always been one of the most capital-intensive industrial pursuits.
Wells require highly specialized, expensive, fit-for-purpose assets and consumables to construct. Oil field activity consumes oil field equipment, and this tiger can't change its stripes, despite earnest capital pledges and adoption of capital-light business models that don't quite square with the reality of constructing wellbores. You can cannibalize idle equipment, deplete your stores of consumables, and kick the can down the road for a little while, but rigs, drill pipe, pumps, coiled tubing units—you name it—all the things NOV makes are essential to getting commodities out of the ground. The installed base of equipment across the industry is being run harder and harder quarter by quarter, and the underinvestment in maintenance and replacement equipment over several years is beginning to impact the industry's ability to respond to the price signals currently being sent by commodities.
While commodity prices have pulled back from the highs we saw earlier this year, I worry that this pullback is concealing a looming supply shortfall. Leading voices in both the industry and the commodity markets have been ringing alarm bells for weeks. Global shortages of middle distillates such as diesel, gas oil, and heating oil are intensifying rather than easing. For example, U.S. distillate inventories at the beginning of this month were at the lowest level seen since the government began collecting weekly data in 1982, and European and East Asian inventories are at their lowest since the mid-2000s. U.S. crude stocks, including the Strategic Petroleum Reserve, have fallen to the lowest level since 2002, according to the EIA. While U.S. production has grown from recent lows, it has been less than expected.
As U.S. supply growth continues to disappoint, even as we've drawn down half of our inventory of DUC wells, with SPR releases of 1 million barrels per day set to wind down soon, with Russian oil supply in decline following sanctions, with OPEC underproducing its quotas even before its recently announced cuts, with Europe poised to see more gas-to-oil switching this winter, and with global demand generally suppressed from normalized levels due to continuing COVID restrictions in China, it feels like we, and by that I mean mankind, are hurtling towards a catastrophe, a very painful and damaging energy crisis. We'll look back and ask how we ended up in energy bankruptcy. Two ways, gradually, then suddenly, to quote Hemingway's The Sun Also Rises. Prepare for a hard lesson on the importance of fossil fuels to our way of life.
Throughout the downturn of the past seven years, a key question we have been asking ourselves at NOV has been: When the oil field picks up and orders resume, what will our customers need? This question has steered our R&D efforts, and I'm proud of our team's developments. In the last super cycle, 2004-2014, the industry bought equipment that could develop increasingly challenging reservoirs as quickly as possible. That meant bigger, tougher, and stronger equipment because operators were focused on drilling longer laterals and drilling in deeper waters. As we look to this next upcycle, we believe our customers will place greater focus on maximizing recoveries from existing fields, along with more efficient development of new fields, improving safety performance, and reducing greenhouse gas emissions, all with a close eye on project capital returns. We expect new digital technologies to shape that future.
Historically, operators' wells develop only a fraction of the hydrocarbons in place. Our customers, who employ the world's finest reservoir engineers, know that we can do better. They know where they need to place a well to maximize production. Current industry offerings, like the latest in rotary steerable technology, while allowing the type of control that enables precise well placement, have not enabled the downhole visibility needed for precision well placement. It's like driving a Ferrari on a highway at night and only being able to turn on your headlights once every 10 seconds. You may have a beautiful, powerful piece of machinery, but you're simply not going to be going very fast. If you do, you might end up off the road and in a ditch. That's where NOV's newest technology comes into the equation.
Starting with our proprietary Evolve Intelliserve wired drill pipe, operators can have uninterrupted high-speed data flowing from the bit to the surface, like keeping the headlights on bright 24/7. Uninterrupted data feeds the digital drilling solutions we developed, including the Kaizen intelligent drilling optimizer and NOVOS automation, which in turn digests, visualizes, and interprets the data to help guide the driller to optimal well placement, reservoir development, rig efficiency, and crew safety. Customers have been pairing our NOVOS drilling system with our Empower managed pressure drilling offerings to allow even greater control—complete downhole pressure control in the most challenging drilling environments. Recently, one of the world's largest oil companies tested this combined package for the first time, and its downhole engineering department became our biggest proponent across its organization. That same operator is using NOV's new Max Edge technology to gather and contextualize real-time well data into the cloud.
Our new Ideal eFrac technology, which lowers greenhouse gas emissions and operating costs for pressure pumping companies, continues to generate a lot of buzz in the industry, while our new EcoBooster and PowerBlade are doing the same for offshore drillers. ReedHycalog's investments in drill bit technologies are enabling it to gain share in conventional oil and gas operations by lowering drilling costs and time, thereby reducing emissions associated with wellbore construction. ReedHycalog has also carved out market-leading positions in geothermal drilling with its hard rock drilling challenges. While we believe the transition to renewable energy will take decades, we also continue to invest in renewable energy solutions to build on our market-leading position in the supply of offshore wind installation technology.
In short, in a world faced with serious, complex, and shifting energy challenges, NOV's developments in both traditional oil and gas and renewables technologies are the toolkits our customers will employ to ensure safe and reliable energy continues to lift mankind out of poverty. We expect a combination of NOV's wired drill pipe, artificial intelligence, digital solutions, edge computing, and managed pressure drilling systems to become the standard toolkit on well sites around the world, just like our top drives and drilling equipment packages are. Just like our wind turbine installation technology has become standard kit on offshore construction vessels. Just like generations of talented NOV engineers and scientists have transformed energy production through up cycles and down cycles across our 160-year history. For those talented engineers and scientists listening today, and to all my NOV teammates, thank you for all that you do.
You're simply the best. With that, I'll turn it back to Jose.
Thank you, Clay. NOV's consolidated revenue in the third quarter of 2022 was $1.89 billion, up 9% sequentially and up 41% year-over-year. All three segments posted another quarter of strong growth and improved profitability and achieved or exceeded the 2022 exit margin targets we provided at the beginning of the year. During the third quarter, we completed the sale of our operations in Belarus and classified our Russian operations as assets held for sale, which collectively resulted in $76 million in impairment charges, most of which was related to foreign currency translation adjustment losses and which increased SG&A. These charges were partially offset by credits related to gains on sales of previously reserved inventory, resulting in total adjustments or other items of $63 million. We do not expect additional charges in the fourth quarter.
Cash flow used by operations during the third quarter was $106 million, primarily due to working capital builds needed to support our rapid top-line growth and to mitigate continued supply chain risks. Capital expenditures in the quarter totaled $59 million, and we ended the third quarter with $1.73 billion in debt and $1 billion in cash. For the fourth quarter, we expect to generate between $100 million and $200 million in free cash flow, and we expect free cash flow conversion to improve significantly in 2023. Moving on to segment results, our Wellbore Technologies segment generated $741 million in revenue during the third quarter, an increase of $75 million or 11% compared to the second quarter, and 46% compared to the third quarter of 2021.
The segment realized its eighth straight quarter of revenue growth by capitalizing on improving global drilling activity levels and better execution against ongoing supply chain challenges. While activity in North America may be reaching a temporary plateau, the segment continues to benefit from pent-up demand for its proprietary drilling tools, and we are now starting to see a sharp increase in demand from the Middle East as the industry prepares to ramp up activity in 2023. EBITDA flow-through was 31%, resulting in a $23 million sequential increase to $145 million or 19.6% of revenue. Compared to the third quarter of 2021, EBITDA improved $68 million, representing 29% EBITDA flow-through.
Our M/D Totco business posted solid double-digit sequential growth from both its legacy surface data acquisition system operations and its Evolve wired drill pipe optimization services, despite continued challenges related to procuring specialized electronics and circuits used by the business. Revenue from the unit's surface data acquisition operations realized a strong improvement in sales into Africa and Latin America, with revenue in most other major regions generally moving in line with drilling activity levels. After a modest pullback in Q2 due to a few rigs in the North Sea completing wells and moving on to new locations, our Evolve services continued to gain greater market adoption and realized a sharp recovery in the third quarter.
In addition to new jobs in the North Sea, the business also secured two new wired drill pipe optimization projects in the Middle East: one from a major integrated oil company and another from a large national oil company, as well as a project supporting drilling operations on two carbon sequestration wells. These wells will be used to inject CO2 from onshore sources 1,000-2,000 meters below the seabed for permanent storage. Our unique ability to pair full downhole visibility with market-leading software analytics drives value for customers through more efficient and productive wellbores, which should make this offering a key growth driver for this business moving forward. Our downhole business reported revenue growth in the upper teens with solid EBITDA flow-through.
Improved execution against supply chain-related challenges that limited the availability of special elastomers and certain grades of steel used in the business's high-spec products allowed the unit to better meet robust demand for its proprietary tools, which drive improved drilling efficiencies for oil and gas operators. Our ReedHycalog drill bit business posted a low double-digit sequential increase in revenue, led by strong growth in the Western Hemisphere resulting from market share gains in the U.S., a pickup in projects in the Gulf of Mexico, and the seasonal rebound of Canadian activity. Eastern Hemisphere revenues were mostly flat, with solid growth in Asia offsetting sizable Q2 shipments into Northern Africa that did not repeat, and continued supply chain challenges affecting deliveries in the Middle East. Looking ahead, we expect increasing demand from Eastern Hemisphere markets, particularly the Middle East, to drive the next leg of growth for this unit.
Our Wellsite Services business posted mid-teen sequential revenue growth with strong incremental margins. Revenue for the business's solids control product line was up in both the Western and Eastern Hemispheres, with particular strength in offshore markets and in the Middle East. Our new iNOVaTHERM portable solids treatment unit is beginning to gain wider adoption, winning its first offshore contract with a major operator in the North Sea off the back of a successful trial completed in the second quarter. By enabling the disposal of drill cuttings at the well site, iNOVaTHERM enables significant reductions in transportation costs and carbon emissions. As this business continues to see volume growth, our team is continuing to push pricing to offset continued inflationary and supply chain challenges and to garner appropriate returns for the advantages provided by NOV technology.
Our Grant Prideco drill pipe business posted relatively flat results as delayed deliveries of green tubes negatively impacted our ability to deliver on the business's backlog during the quarter. Delayed vessels, rail transportation bottlenecks, and downtime in one of our vendor steel mills limited plant throughput during the quarter. Despite these difficulties, a favorable mix from the strength and premium large-diameter orders from international and offshore markets over the past two quarters allowed the unit to mostly offset the cost of the disruptions. Orders remained healthy in Q3, with North American drilling contractors representing the bulk of the orders, a notable reversal from Q2, where orders primarily originated from international markets.
Additionally, recent orders reflect a step back in 5.5-inch pipe demand, suggesting a limited number of rigs equipped with the necessary high torque packages and setbacks to run the larger OD pipe that most operators want. Looking ahead to the fourth quarter, revenue is expected to improve, but flow-through will be limited due to a less favorable product mix. Our Tuboscope business posted a high single-digit sequential revenue improvement with strong incremental margins. The solid performance was led by our coatings operations, which achieved their fourth straight quarter of double-digit growth and benefited from improved availability of key resins and polymers, building demand in the Eastern Hemisphere, and a full quarter contribution from the reopening of our Amelia, Louisiana, coating plant. Our inspection operations also delivered solid results, mainly driven by strong demand for inspection and threading services in the U.S. and Latin America.
Looking forward, we expect flat results for this business in Q4 due to holidays and scheduled maintenance at certain facilities. For our Wellbore Technologies segment, we expect building momentum in the Eastern Hemisphere and pent-up demand for our products to be partially offset by plateauing North American drilling activity, resulting in revenue growth of 2%-6% with EBITDA flow-through in the 30% range in the fourth quarter. Our Completion and Production Solutions segment generated revenues of $681 million in the third quarter of 2022, an increase of 7% from the second quarter and an increase of 42% compared to the third quarter of 2021. Adjusted EBITDA for the third quarter was $56 million, or 8.2% of sales, an increase of $24 million from the second quarter.
The 57% EBITDA flow-through was primarily the result of much-improved execution on offshore projects and the easing of supply chain constraints, which allowed for an acceleration of pent-up deliveries and, in some instances, a pull-forward of planned Q4 shipments. Book-to-bill was 116%, the seventh straight quarter of a book-to-bill north of one. Quarter-ending backlog increased to $1.48 billion, reaching its highest level since Q1 of 2015. Despite capital constraints on our customers, sticker shock from inflation's impact on pricing, and stretched supply chains, strong orders reflect the industry's increasing need to refresh its asset base and provide us with more confidence in the outlook for the order flow in our capital equipment businesses.
Our Process and Flow Technologies business posted sequential revenue growth in the upper single digits, with progress accelerating as supply chains normalize and COVID restrictions ease. Order intake for the business was soft, but we believe we will see growing confidence in market outlook, project economics, and the industry's ability to clear shipyard bottlenecks, all of which are needed to move new projects forward. During the quarter, we saw an increase in FEED studies, which we expect to convert into new project awards in future quarters. Our XL Conductor Pipe Connections business, which posted a book-to-bill of 187% in the third quarter, further supports our growing optimism for offshore projects.
As we've mentioned many times before, demand for conductor pipe tends to be a leading indicator of offshore activity, and the business is starting to see an increase in FIDs for projects, many of which have been pushed to the right for over five years, finally advance. We're also seeing more signs of life in our subsea flexible pipe business, which has now posted a book-to-bill greater than 100% in four of the last five quarters. During the third quarter, the business also saw a substantial improvement in its operating results and posted sequential revenue growth in the mid-teens with outsized EBITDA flow-through. The strong results came from significant improvements in the availability of raw materials, which enabled efficient progress and early deliveries on certain projects.
While supply chain challenges appear to be easing, we anticipate a slower fourth quarter as the strong results in Q3 were due in part to pulling forward work from Q4. Despite the anticipated falloff in the fourth quarter, we expect new orders will remain strong, which should set the stage for continued pricing improvement in 2023. Our pump and mixer operations also realized outsized revenue growth with solid incrementals. The lifting of COVID lockdowns in Shanghai allowed the operation to finally ship pent-up deliveries to customers. While orders increased sequentially, the large increase in shipments prevented the business from achieving what would have been the business unit's eighth straight quarter with a book-to-bill greater than one. Our intervention and stimulation equipment business realized a mid-single-digit sequential decrease in revenue.
Last quarter, we noted that the completion of large aftermarket reactivation projects, along with the extended lead times for new build deliveries, would result in a sequential decline in revenues. However, growing demand for orders continued, marking the fourth quarter in a row of growing backlog. Bookings included 67,500 horsepower of new pressure pumping equipment, along with orders to rebuild an additional 30,000 horsepower of pumping units. We also saw a pickup in demand for coiled tubing equipment due to rapidly tightening capacity in North America. Orders included sales of injectors, pumps, nitrogen units, and other support equipment, along with the sale of the first new unit for the U.S. market that we've had in 3 years.
Noteworthy and somewhat unsurprisingly, the purchase of the new unit came from a private service company that didn't have to worry about public investors and had capital to invest in what should be a high-return opportunity. Despite activity in North America that appears to be arriving at a temporary plateau and public oil field service companies that are reluctant to spend capital, there is a pent-up need to replace and upgrade aging equipment, and we think E&P operators will reward those who provide the most efficient services by using the latest technology. Similarly, in international markets, service providers that signed low-rate, multi-year contracts during the depths of the pandemic have been reluctant to invest in assets. However, our quoting activity improved materially in Q3 as customers prepare for upcoming tenders.
Our Fiberglass Systems business unit posted a solid sequential revenue increase resulting from improved deliveries into chemical and industrial markets in Southeast Asia and Brazil, and from improving demand from oil and gas markets with large shipments into Latin America and the Middle East. This growth was partially offset by our fuel handling business, which experienced a slight fall-off when compared to the record levels it saw during the second quarter. Sales into the marine and offshore markets were mostly flat, but we're now seeing a notable increase in interest for marine scrubbers. While shipping companies were trying to capitalize on a once-in-a-lifetime market dynamic and its associated pricing, we understandably saw no demand for new scrubbers despite a large spread between low and high sulfur diesel prices due to the high opportunity cost of taking vessels out of service for shipyard modifications.
Now that shipping rates are beginning to normalize, customers are once again planning to bring vessels to port and install scrubbers so that they can capitalize on the spread in fuel prices. Looking ahead to the fourth quarter, we expect to see a modest pullback in operational results for our Fiberglass business due to several large deliveries in the third quarter that will not repeat and due to normal seasonality in our fuel handling product sales as we move into colder weather months. For the fourth quarter, we expect growing opportunities associated with our Completion & Production Solutions segment's backlog to be mostly offset by certain projects that were pulled forward into the third quarter and supply chains that remain elongated, resulting in revenues that should be relatively flat. We also expect a less favorable sales mix will compress EBITDA margins between 50 and 100 basis points.
Our Rig Technologies segment generated revenues of $511 million in the third quarter of 2022, an increase of $49 million or 11% sequentially, and an increase of 31% compared to the third quarter of 2021. Sequential revenue growth was driven primarily by continued improvement in our aftermarket business and a higher rate of progress on offshore wind and Saudi rig projects. Adjusted EBITDA improved $11 million sequentially to $52 million or 10.2% of sales. New orders totaled $119 million, representing a book-to-bill of 59%, and total backlog for the segment at quarter end was $2.78 billion.
While the day rate environment for both land and offshore rigs continues to improve, recessionary fears combined with the industry's memories of the past eight years have public boards and management teams reticent to make large capital equipment investments. However, we remain encouraged by what we're seeing in both the land and offshore markets. In the U.S., the extraordinary rates of change in day rates we saw during the first six months of the year slowed in the third quarter, but they continue to climb and are now pushing $40,000. Current rates are certainly getting customers more interested in reinvesting in their existing asset bases.
Similar to what we saw in our intervention and stimulation equipment business and what has happened in the E&P space, it is not surprising to see private companies be the first movers to capitalize on the high rate of return investment opportunities associated with new-build assets. During the third quarter, we booked an order for a new high-spec land rig for a private drilling contractor who was supported by a term contract from a large West Texas operator. In offshore markets, activity continues to climb higher with utilization of marketed drillships reaching 78%, leaving only 5 ultra-deepwater drillships currently available to go to work. Additionally, we continue to see our customers book contracts with dramatically improved pricing and extended duration compared to what we saw a year ago.
We're now routinely seeing ultra-deepwater drillships commanding $400,000+ day rates, and Saudi Aramco alone has awarded 184 years' worth of contracts for jack-ups since August 2021. While the capital constraints on drilling contractors limit our capital equipment order intake, the improving environment and associated cash flows for our customers are driving a growing sense of urgency from drilling contractors to increase investments in maintenance and reactivations, which is reflected in the surge in demand we've seen within our aftermarket operations. Our aftermarket operations posted 11% sequential growth in the third quarter. Revenue from spare parts sales increased double digits as we improved execution against continued supply chain constraints in the face of growing demand. However, the rate of order intake continues to outpace our ability to ramp up our operations.
While the supply chain is slowly improving, availability and lead times for certain grades of high alloy steels, castings, PLC drives, and switchgear remain challenged. Nevertheless, we're continuing to ramp up throughput, and our customers are working with us to better plan and schedule aftermarket projects and other needs. We posted another quarter of strong spare parts bookings, our best since the first quarter of 2020, and our current aftermarket backlog is approximately double what it was at this point last year. Our field engineering group is continuing to see an increase in quoting activity related to reactivation and recertification projects, pressure control upgrades, and enhanced automation, with the heaviest concentration of inquiries coming from Brazil, Norway, the Middle East, and the U.S. Gulf of Mexico.
While we did not book a wind vessel this quarter, revenue recognized from our healthy backlog continues to ramp, and the outlook for this sector remains very encouraging, with orders for new vessels becoming increasingly likely in the near term.
Looking ahead, market fundamentals continue to improve for our core markets, giving us confidence that our order book will improve over the next few quarters. Additionally, our current backlog for both capital equipment and aftermarket parts and services provides us with ample opportunity to grow revenue and profitability in this segment. Specifically, for the fourth quarter, we expect revenue in Rig Technologies to grow between 5% and 10% sequentially, with incremental margins between 20% and 25%. With that, we'll now open the call to questions .
Thank you. To ask a question, you will need to press star one one on your telephone. We ask that you limit yourself to one question and one follow-up question. One moment while we compile the Q&A roster. Our first question comes from the line of Scott Gruber with Citi. Your line is open. Please go ahead.
Yes, good morning.
Morning, Scott.
Your margins are basically now where you thought they'd be in Q4, and I understand these inputs and takes on Q4. I'm trying to get a sense for where we stand on multiple fronts. Some additional color on where you stand on resetting the price book, where you stand on seeing improvement in delivery costs and delivery timing, and where you're standing in terms of stability on input cost inflation. Just some color. I know these are key areas you guys have been focused on over the past year or so. Some additional color on these margin influences would be great.
Yeah, Scott, it's a good question, and there are a lot of things in tension here. Over the past couple of years, we've been taking costs out of our organization, and we've been focused on pushing prices up. We've had the most success in our quick-turn businesses that are associated with rising drilling activity in North America. That's gone in the right direction. On the other hand, as we've talked about on prior calls and in our prepared remarks, we still face a lot of supply chain issues. Here's a quick update on where we are with that. Broadly, things are getting better. However, I do want to say we're a long way from being normalized, and in certain categories, we're seeing things get a little bit worse.
Things like electric motors, actuators, PLCs, a lot of electrical components—some of those got more expensive and more difficult through the quarter. Certain castings, in particular coming out of Europe. I think there are something like 15 steel mills in Europe that, due to the energy situation there, are putting a little pressure on some of our businesses. Those are the counter examples, but items like freight. Freight's probably down 60% off the peak, which is good, going in the right direction, but still double where it was in 2020 and triple where it was in 2019. We're seeing deliveries of certain items pushed out.
While there's a sort of broad normalization underway and ports are slowly clearing, we're still way off the mark in terms of delivery reliability. Costs are still elevated. We face workforce challenges, as do our vendors, particularly across North America. One of the developing items that we saw through the third quarter: some of our third-party machine shops are now running into labor shortages and machinist shortages, and so on-time delivery slipped quite a bit in Q3. Those are the factors that are offsetting some of the price increases that we've been able to get and some of the costs that we've taken out. You know, I think there are puts and takes in both directions around the margins.
Gotcha. I appreciate all the color there. Just shifting to capital return, it's a hot topic in oil services at this juncture. You know, we've heard several peers who've actually put forth capital return commitments. In thinking about NOV, and I know you guys, you know, still have a long way here to see kind of full margin recovery, but assuming that plays out, how do you think about a capital return commitment and whether that makes sense for NOV?
Yeah. Hey, Scott, it's Jose. I'll tackle this one. Yeah, it's a good question, and certainly getting back to more normalized margins is something that we're very focused on. You know, also just managing the tremendous amount of growth that we're currently experiencing in our business, which is a good news, bad news story, with the good news far outweighing the bad news, right? You know, when you're growing roughly 10% a quarter and 40+% year-over-year, provided that you weren't mismanaging your working capital prior to that, it's going to consume some working capital and use some cash flow, right? That's sort of where we are as a later cycle business.
You know, we'd much rather sacrifice a little free cash flow today to have a lot more down the road. I think we've been pretty clear about, you know, the historical cash flow generation capability of this business, which we expect to be even stronger going forward. We've never shied away from returning capital to our shareholders, having returned almost $5 billion of capital since 2014. You know, we've also been pretty clear about where we need to see our leverage metrics get, which is back to the 2x or better gross debt to EBITDA metrics. We're looking forward to arriving at the right place and time where we can step up our return of capital again. Things are certainly all heading in the right direction.
Things look promising from that standpoint.
No, I appreciate that. We have to remind people that working capital is a high-class problem when it builds quickly. Well,
Exactly.
Continue to stay updated. Thanks. Appreciate it.
You bet, Scott.
Thank you, Scott.
Thank you. One moment for our next question. Our next question comes from the line of Marc Bianchi with Cowen. Your line is open. Please go ahead.
Hey, thanks. You guys talked about an expectation for improving orders. I'm just curious, you know, it seemed like it's likely that you're going to stay above the 1x book-to-bill here in caps as we move forward. When do you think Rig Tech could get back above 1x?
Yeah. Mark, I actually think Q3 is just a temporary blip, and I appreciate the question because if you focus on our rig order book for the third quarter, what really changed from the second quarter was the absence of a wind turbine installation vessel. If you go back for the past several quarters, we pretty much had a large wind turbine installation vessel order every quarter. We're engaged in building out, I think, 11 wind turbine installation vessels as a result of that growing backlog in that space. What happened in the third quarter is we just didn't get any, so it just fell off.
If you look at our more traditional oil field order book in the third quarter, it actually, for capital equipment, which is really the only piece of it that we report, was up for both offshore and land customers. I think Jose mentioned in his prepared remarks that we got an order for a high-spec rig from a North American operator, and so that helped double land rig orders sequentially and triple land rig orders year-over-year. Offshore continued to move up as well, moving up about 15% sequentially.
The point I was trying to make in my prepared remarks, though, is that even at rising levels, moving up sequentially and to the right, it's still far less than the industry needs in order to launch the major industrial effort that's required to get back to growing oil and gas production around the globe. We think this is going the right way. As I explained at length in my prepared remarks, the dynamics around demand for what we sell, I think, are very strong, very constructive over the next several quarters and really the next several years. We're excited about that.
Then, to kind of round out the picture, Rig Technologies capital equipment is only one of really three big ways that drilling contractors spend money with NOV. The other two are spare parts to support their rigs, as well as pipe. What we've seen, as José said in his prepared remarks, is sort of steadily rising demand for spare parts to support rig reactivations and rig operations. They're kind of flattish sequentially, but year-over-year, up 27% and up for both offshore and land. Drill pipe is the third way that drilling contractors spend money with us, and that's actually in our Wellbore Technologies segment. Again, both of those, just a monster order in Q2, down a bit in Q3.
Still very, very strong, and in fact, Q3 was up 67% year-over-year. You add all that together, we are seeing rising expenditure and customer expectation as that continues, as the offshore gets back to work, and as drilling picks up in international markets.
Yep. Okay. Super, Clay. Thanks for that. Jose, I don't think I heard anything on unallocated. You usually don't guide to it, but it was up quite a bit from the second quarter. How should we be thinking about that for the fourth quarter?
Yeah. Up from basically the eliminations line, you know, moving as it normally does, a similar percentage from pre-elimination revenue, and then, you know, probably looking at a $2 million increase at the EBITDA level with the growth.
Got it. Something like $60 million. Great.
Yeah. Maybe just shy of that. Yep.
I'll turn it back.
Great. Thank you, Marc.
Thank you. One moment for our next question. Our next question comes from the line of Tom Curran with Seaport Global. Your line is open. Please go ahead.
Good morning.
Hi, Tom.
What would lead times be? Is the CapEx division-wise unit quoting at this point for new build frac spreads? When it comes to capital equipment sales for shale completions, what level of competition are you confronting from the secondary market, such as auctions? You know, how do the amount and pricing of used equipment out there compare to what you've seen at this point in prior U.S. upcycles?
I'll answer the second part of that question first. There's very little used equipment that can really be refurbished economically. What we've seen over the past year is more and more pressure pumpers in North America are pivoting towards buying new, and the longevity and overall value offered by going new versus used, I think, is a lot stronger. Then the first part of your question, I think, was lead times and more. I'd say plus or minus a year. You know, Tier 4 engines are eight months plus in terms of deliveries, is what we're looking at.
I will say we made some true purchases of some of the key items and so can probably deliver, depending on what our customers are buying, maybe a little more quickly than our competitors out there. On the whole, that's probably what you're looking at.
Yeah, that's all consistent with the checks I've done, but I wanted to be sure I had you guys weigh in as well. Thanks for that, Clay.
Yeah.
Could you give us an update on your annual revenue expectations or even just the potential for CCS and geothermal, respectively? You know, by division, it seems as if Wellbore Technologies has a product suite that spans both of those new energy segments, while PAPS has some specific offerings for CCS, and then, you know, Rig Tech has done some custom designs and systems for geothermal. Maybe just an update on each of those renewables markets.
Yeah. Tom, I think we'll hold back from providing the granularity that you're looking for. Our efforts related to energy transition opportunities are going very well, particularly as Clay touched on the backlog and the ongoing work that we have related to offshore wind construction vessels. Momentum continues to build there, as it does related to a number of other initiatives that we have going on related to energy transition, including geothermal that you're asking about. We really saw rapid sequential growth going from Q2 to Q3.
I think the total company, combined from a renewables standpoint, was roughly $90 million or so in the third quarter, at a really nice trajectory. We're really pleased with the way those initiatives are shaping up for the company.
Just to add a touch more color, the wind installation vessel space, where NOV is a market leader, and we've come out with new technology that we reference in our press release, accounts for the majority of that $90 million. However, we're seeing really good growth, particularly around geothermal offerings. I think we mentioned in our prepared remarks that ReedHycalog has emerged as a market leader in terms of hard rock drilling, which is required for geothermal. We're also generating a little bit of revenue in our solar initiative and seeing a lot of interest in CCUS technologies. We're the leading provider of gas processing and dehydration technologies that are directly applicable to CCUS, and so we've got some FEED studies underway there. Really, across the board, we're very excited about all of that.
Then finally, to put a bow around it, in addition to fixed wind installation vessels, there's movement on the floating wind side as well. There, as you move into deeper waters, it's a different way that NOV can participate in those projects with respect to helping build out the actual vessels, providing mooring systems. It's a larger revenue opportunity for us. We're very pleased to be participating with partners and customers in Asia and the North Sea and looking at specific floating wind opportunities that could be real needle movers in the future. We continue to pursue these opportunities and are excited about the future and believe we have a lot of value to bring to the energy transition.
Thanks for all the color.
You bet.
Thank you. As a reminder, if you would like to ask a question at this time, please press star one one on your telephone. One moment for our next question. Our next question comes from the line of David Smith with Pickering Energy Partners. Your line is open. Please go ahead.
Hey, good morning. Thank you for taking my question.
Hi. Good morning, David.
Calling in from Pickering Energy Partners. I didn't think I would ask a question like this for a really long time, Clay, but here it goes. Given how much capacity Saudi has taken out of the jack-up market, when I start to count the jack-ups that are going to be left, there just aren't that many that were delivered in the last 20 years that aren't already contracted. Assuming demand continues to grow for the next year or two, I think we can get to a point where the options to satisfy incremental demand become either a new jack-up or the reactivation of a 47-year-old cold-stacked rig that hasn't worked in several years.
Yeah.
My question is, in your view, do you think we'll see any new jack-up orders in the next five years? Also, how should we think about the opportunity for NOV on reactivations of much older assets? I expect those might include some pretty significant capital equipment upgrades.
Ain't it great, David?
For some people.
It is. It's an interesting time, for sure. Listen, you're probably aware, but in Saudi Arabia, there are plans to construct new jack-ups. We just recently opened our joint venture with Aramco, building a rig equipment manufacturing facility there in the kingdom. That's to satisfy a very large land rig order. In addition to that, the Saudis are moving forward with a program to build out 20 jack-ups over a period of time. We're well-positioned to participate in that. That's one of the ways I think that the gap will be filled, and that's sort of in addition to the, I think, 37 jack-ups that Aramco is adding in the offshore to grow their production.
I think we are starting to face constraints around rig availability, and that's the reason, frankly, that day rates have moved up so sharply. They've moved up materially for jack-ups, but in the floating space have roughly doubled in a, you know, 12- to 18-month period. All good. The industry's going back to work and very pleased that NOV is well-positioned, I think, to help our offshore customers get there.
Yeah, absolutely. I should have put an asterisk on that and asked, you know, outside of ARO Drilling, if you think there's potential for new jack-up orders in the next five years.
Well, we're not forecasting at this point, to be clear, but the dynamics are certainly getting a lot closer to that supply-demand tipping point.
Switching to land, I had been wondering when we might see a new land rig ordered for the U.S., given the remarkable increase in pricing. I would love to hear your outlook for additional new land rig orders in the U.S., and internationally if you have any insights there. And maybe any color—
Sure.
you can give on what kind of conversations you're having.
Yeah, we follow that very closely. Just to put this in perspective, though, the day rate recoveries I just talked about in the offshore are really pretty recent. In the land rig space in North America for super-spec rigs, those probably front-ran the offshore by a quarter or two, going in the right direction. We believe that we're right at the edge of replacement economics. There's a lot of incremental day rate disclosure being made this week in earnings calls. As we kind of move from the high $30,000 a day range up into the $40,000 a day range for super-spec rigs, I think the investment opportunities there for new capacity start to look pretty compelling.
That's kind of where we are with respect to that category. In international markets, as I mentioned, we are in the process of building out a grand total of 50 rigs in our order for Saudi Arabia. We've delivered the first two, and the third is being commissioned right now. We're just at the leading edge of that addition. Those are very capable high-spec rigs, but I think that's sort of an indicator of things to come. I think international markets in particular have a long way to go in stepping up the technology that they apply in drilling in their drilling operations. Again, NOV is well positioned to help them accomplish that.
You know, still a ways away from the kind of new building of rigs that we saw in the prior super cycle. Certainly all signs are encouraging that we're heading in the right direction.
Great. Thank you very much.
You bet. Thank you.
Thanks, David.
Thank you. One moment for our next question. Our next question comes from the line of Stephen Gengaro with Stifel. Your line is open. Please go ahead.
Thanks. Good morning, everybody.
Good morning, Stephen.
You know, just curious, the third-quarter Rig Tech margins were better than we thought. Based on the commentary you gave, they look to be increasing from here. How should we think about Rig Tech margins as we go into 2023?
Hey, Stephen, I think, look, obviously dependent on kind of what turns out and what the overall growth is, but I think we've, you know, repositioned the company appropriately. We've gotten the restructuring and cost savings initiatives behind us at this point. Really, as we look at, you know, not just Rig Tech, but really all of the businesses, I think the best way to think about it is that we should start to see more of what those historical normalized incrementals have been. You know, for the rig business, historically that's been kind of mid-20% type incrementals. C&Ps, upper 20s-lower 30s, and Wellbore, call it somewhere between 30%-40% incrementals.
I think we're approaching a place where, you know, at least over a period of time, there are always ebbs and flows within a quarter, but over a reasonable period of time, we should be back to those normalized incrementals. Hopefully, all the charges and restructuring are completely behind us. Yep. Yeah, I mean, normalized volumes, and then in addition, Rig really has been facing some headwinds related to supply chain issues as well. The continued normalization of the supply chain will help a lot. Those are good, I think, tailwinds for Rig margins going forward.
Okay. No, great. That's helpful color. Then the other quick one, and I know it's a similar question looking out past the fourth quarter. When you think of the CAPS business, I mean, it feels like momentum is building. It feels like you're on the cusp of a pretty nice acceleration in the top line. Is that consistent with what you're seeing? I mean, do you think you could see a year or two of outsized growth?
Yeah, it's going the right way. You know, if you look back at the last couple of years, it's been pretty challenging. For the last few quarters, you know, we've been battling projects that we undertook in the downturn of 2020, combined with supply chain headwinds and challenges in Asian shipyards, et cetera. That's clearing, but we kind of have to work those projects through our system. Likewise, I think we need to get to a place where we're seeing more pricing leverage in some of our quicker-term businesses. Our stimulation equipment business, for instance, in international markets, still has a ways to go in terms of recovery. But it's all going the right way.
I think that's going to be helpful for margin expansion going forward. Still a ways to go. We'll see.
Great. No, thanks for all the detail on the call.
Thanks.
Thank you, Stephen.
Thank you. I'm showing no further questions at this time, and I would like to turn the conference back over to Mr. Clay Williams for any further remarks.
Thank you, Michelle, and thank you all for joining us this morning. We look forward to discussing our fourth-quarter and year-end results with you in February. Have a terrific day. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.