Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Weatherford International PLC (WFRD, Financial) achieved a 26% adjusted EBITDA margin, the highest in over 15 years.
- The company reported a 10% year-over-year revenue growth, driven by strong performance across all segments.
- Weatherford International PLC (WFRD) announced its first-ever shareholder return program, including an annual dividend of $1 per share and a $500 million share buyback authorization.
- The company has significantly improved its balance sheet, repaying over $1 billion of debt and reducing interest costs by over $100 million.
- International business demonstrated continued strength, with 14% year-over-year growth, particularly in the Middle East, North Africa, and Asia regions.
Negative Points
- Revenue came in at the lower end of expectations due to social unrest in Colombia, activity shifts in Mexico, and operational disruptions from a storm in Houston.
- North America revenue was down 6% sequentially, impacted by Canadian seasonality and negative weather impacts.
- Despite strong performance, the company faced challenges with project delays in Latin America and seasonality in Canada.
- The company anticipates potential timing shifts between Q3 and Q4, which could affect revenue recognition.
- Weatherford International PLC (WFRD) remains focused on addressing overall gross debt levels, aiming to get gross leverage below 1x while maintaining liquidity of approximately $1 billion.
Q & A Highlights
Q: Girish, you hit another 15-year high here with 26% EBITDA margins despite the four factors you mentioned along with the Canadian breakup. Can you help us just bridge the 2Q margins to 3Q margin guidance along with some of the main drivers? I know you already talked about kind of where you see the margins heading over the next few years in the high 20s. But if you kind of just talk about 2Q to 3Q a little more, that would be helpful.
A: Yeah. Sure, Luke. And I appreciate that it feels a little incongruous. Sort of the irony is if we had come in at about 25% in Q2, it would have been a lot simpler. But look, I think a couple of things. One, as we mentioned in our prepared remarks, we had some MPD asset sales that happened in Q2 that won't repeat the same way in Q3. So that creates a little bit of margin pressure just the way those transactions are structured. So that is one piece. The second piece is we've talked for a very long time about the infrastructure improvements that we continue to make into the company that are paying off. We've got a little bit higher element of that coming into Q3. And the third element really is mix. So we've got some mix changes that are happening between Q2 and Q3, a little bit more pressure on margins from that standpoint. But look, I think what is really important to also consider is just the overall progression of margins. At 25% in Q3, it's still 25%, those are very, very strong EBITDA margins, and we expect to again see an uptick in Q4. So the total year will now be slightly ahead of 25%.
Q: And Arun, you alluded to some of this with the 3Q revenue guide. This applies 4Q will be up fairly substantially to put the full year in line with guidance. I know you'll give us the 4Q outlook on the next call, but can you just give us a high-level overview of some of the drivers in 4Q versus 3Q for revenues?
A: Look, typically, what happens, Luke, in the fourth quarter is we get an uplift in product deliveries. We have built up inventory for the first half. And you would see us scaling back on the inventory as we ship products out. So the way things evolve, there could be some shifts between September and October. And that is why we mentioned what we did. If product deliveries were to move out from September into October, there could be some revenue shifts between Q3 and Q4.
Q: Girish, I wanted to ask about MENA, so Middle East, North Africa, kind of land markets. I know there's a lot of tendering activity in KSA right now, in the UAE and you guys have historically had a very strong position in those markets. Could you talk a bit about kind of what trends you're seeing? And when -- assuming that you capture your fair share, which you typically do, when that starts to show up, the incremental work starts to show up in revenue and earnings?
A: Yeah. So James, look, I think great question. First of all, I think you're spot on. We continue to see strong activity, and its reasonably secular, I would say, across most of the countries. We've talked a lot about the Kingdom of Saudi Arabia, but we see it in Oman, in Kuwait, in the UAE, et cetera. So multiple different countries. And so we are -- that's why we are so optimistic about the vibrancy of the cycle. Now on kind of when it shows up, I would say, look, we're already seeing a lot of that. We talked about the Middle East revenue growth. So a big part of that is because we've been able to do well both from a pricing standpoint as well as from a share standpoint. So I think that's important to highlight. We've been able to get both of those elements simultaneously, that's showing up now. We will continue to see that. I think just the nature of the math is going to suggest that the percentage might actually decrease a little bit because we have grown so much around that. But dollar-wise, we still think there is a lot of activity to come in the next few years.
Q: As you've gotten to this point with the balance sheet in great shape now, you guys have started to do some bolt-in -- bolt-on acquisitions here. Does the M&A strategy shift at all? Is it going to be still kind of small technology tuck-ins? Or do you start to look at bigger opportunities?
A: Yeah. Look, I think the filters stay the same. I think we are certainly more open to variation on scale. So it was really important for us to make sure that we had the operating muscle first of all, internally to execute. I think we have gotten very confident and comfortable with that, though we never take it for granted. And then secondly, we wanted to make sure we actually knew how to go ahead and do these acquisitions. So the capability that we have now developed over the past several months with doing diligence and integrating small acquisitions, we feel comfortable that we can scale that up. But what will not change is the strategic filters that we look at, which is really making sure it's something that gives us a strategic advantage. It is ultimately margin leveraging through synergies ultimately. It's deleveraging ideally for the company, generates cash and really ultimately creates longer-term value. That will not change. But yeah, look, I think we're open to multiple different ideas, but it's got to fit that filter.
Q: If we look back the past few years, the margin expansion story really stands out here. A lot of it's been so-called self-help as you've reset the cost structure, improved operations. Now it doesn't sound like we're seeing much in the way of pricing increase across the market. Let's assume we don't get any from here. You highlight -- you were targeting kind of high 20s EBITDA margins from here. So what's going to be the bigger driver of margin expansion kind of in '25 and beyond? Is it going to be mix from increasing revenue from, say, TRS and MPD as offshore ramps up? Or is it more likely to come internally as you consolidate repair and maintenance facilities and make improvements to the supply chain? So I'm just kind of curious, is it market? Or is it internal in order to achieve those targets?
A: Yeah, sure. Great question, Dave. Look, I think a couple of things. First of all, let me start with -- I would actually submit that pricing has been an important factor in the growth both on the top line as well as in terms of the margins that we have seen. Look, one of the things we pointed out in our K earlier this year was, as you look back at 2023, order of magnitude, about 20% of
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
