Weatherford International Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 6, 2025
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Operator

Good morning, and welcome to the Weatherford International Fourth Quarter twenty twenty four and Full Year twenty four Earnings Call. All participants will be in listen only mode. After today's remarks, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Luke Lemoine, FVP of Corporate Development. Please go ahead.

Luke Lemoine
Luke Lemoine
Senior Vice President of Corporate Development at Weatherford International

Welcome, everyone, to the Weatherford International Fourth Quarter twenty twenty four and Full Year twenty twenty four Earnings Conference Call. I'm joined today by Griese Saligram, President and CEO and Arun Mitra, Executive Vice President and CFO. We will start today with our prepared remarks and then open up for questions. You may download a copy of the presentation slides corresponding to today's call from our website's Investor Relations section. I want to remind everyone that some of today's comments include forward looking statements.

Luke Lemoine
Luke Lemoine
Senior Vice President of Corporate Development at Weatherford International

These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements. Our comments today also include non GAAP financial measures. The underlying details and a reconciliation of GAAP to non GAAP financial measures are included in our earnings press release, which can be found on our website. As a reminder, today's call is being webcast and a recorded version will be available on our Investor Relations website section following the conclusion of this call.

Luke Lemoine
Luke Lemoine
Senior Vice President of Corporate Development at Weatherford International

With that, I'd like to turn the call over to Girish.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Thanks, Luke, and thank you all for joining our call. I will start with an overview of our performance and key highlights and will then share our outlook on the markets. Arun will then cover specifics on financial performance, balance sheet and detailed guidance. And I will wrap up with some thoughts on our strategic direction and twenty twenty five focus areas before opening for Q and A. As illustrated on Slide three, it's clear that the fourth quarter did not go as anticipated.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We had a significant reduction in activity in Latin America, driven by cost containment program in Mexico. The activity reduction was further amplified by scheduled shifts in the North Sea and a few other pockets. The Delta versus our guidance on revenue was a direct consequence of these changes. Nonetheless, I am very pleased with and proud of the Weatherford's team's tenacity and efforts to achieve our objective of delivering adjusted EBITDA margins exceeding 25% for the full year. Additionally, we demonstrated strong cash generation in the fourth quarter, allowing us to generate $524,000,000 adjusted free cash flow for the year.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

From a regional standpoint, in Q4, North America revenue was down 2% sequentially, primarily due to a continued reduction in U. S. Land activity, which was partially offset by improved performance in our North America offshore business. Our international business was down 6% sequentially and down 3% year over year, driven primarily by Latin America and particularly Mexico. Importantly though, our international business generated growth of 10% on a full year basis, spearheaded by the Middle East, North Africa and Asia region, which clocked in at 17% year on year top line growth.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Adjusted EBITDA margins for Q4 came in at 24.3%, driven by the impact of lower revenues. We have always maintained that we can improve margins even in a flat environment, but as the fourth quarter demonstrated, unfortunately, we cannot fight math when revenues decline. Despite the shortfall, we delivered full year adjusted EBITDA margins in line with our prior guidance at 25.1% marking the highest full year margin in over fifteen years. Throughout the year, we experienced several notable growth success stories. The Kingdom Of Saudi Arabia grew 15% for the full year, while we also achieved high growth rates in The UAE, Kuwait, Oman, Qatar, Thailand, Malaysia, Indonesia, The UK and Argentina.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

While North America remains challenged and was down 2%, I am pleased that the team has once again done an outstanding job of improving year on year margins. As shown on Slide six, we have now paid two quarterly dividends of $0.25 per share and repurchased approximately $99,000,000 of shares during the second half of twenty twenty four. While this amount may vary each quarter due to market conditions, we believe the stock at these levels is undervalued and represents a compelling investment opportunity. Now turning to our segment overview on Slides nine through 11. The operational and technical highlights showcase advancements in new market penetration, technology adoption and continued innovation of our product and services portfolio.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We achieved significant growth in a number of our product lines in 2024. Within DRE, all our major product lines exhibited significant growth. In WCC, completions remains our largest product line and grew in the mid double digits in 2024 following a year of mid-twenty percent growth in 2023. I also remain very excited about our well services product line. This is our customer OpEx focused rigless intervention business that enables production enhancement through innovative well rejuvenation solutions and we have dedicated significant organic attention to it over the past couple of years.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

In three years, this business has grown over 50% and this represents a significant growth vector. Moreover, it is low capital intensity and growth is generated by creating a quick payback business case for customers versus relying on intrinsic activity uptick. As mentioned in our earnings release and specified on segment pages in the presentation, we continue to secure a number of significant contract awards. Notable highlights include Kuwait Oil Company awarding Weatherford an MPD services contract to improve operational efficiency and reduce costs by deploying the Victus intelligent MPD system. Additionally, ADNOC awarded Weatherford a three year contract for Rigless Services as part of the reactivation of its onshore strengths.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The latter exemplifies the growth potential we can create through well services offerings. We continue to focus on technology adoption and penetration and we remain confident that we can achieve growth above market levels by showcasing the value proposition of the technology innovations within our portfolio with major customers. Now turning to our view on the market. There is a fair degree of uncertainty that will clarify as the year evolves. However, at present, the outlook has a more negative bias in the immediate term.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The biggest headwind we face is in Mexico, where activity levels are anticipated to drop significantly compared to the first half of twenty twenty four. While there is a possibility of a rebound in the second half of this year, we are adopting a cautious and prudent approach regarding our capacity. While we benefited from extraordinarily strong growth in Mexico the past few years and continue to believe in its long term potential, for the short term, our focus will be on margins and minimizing cash exposure and risk. Coupled with Russia, this will create a drag on 2025 revenues and drive enterprise revenue lower than 2024. However, I am encouraged by the outlook in the rest of the world as countries like Canada, Brazil, Kuwait, Saudi Arabia, Thailand and Norway will help partially offset the decline.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

For 2025, total international revenues will likely be down mid single digits, which is predominantly a function of Mexico and Russia. Excluding these two countries, international revenues would likely be up low single digits in 2025 and we see a continued outlook for stability there for the coming years. North America revenues are expected to continue the same trend as the past couple of years and be down low to mid single digits this year, primarily due to U. S. Land that's partially offset by Canada.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

From a segment standpoint on an enterprise basis, that translates to DRE down high single digits and WCC and PRI down low single digits. However, there may be some mix changes throughout the year based on customer plans and schedules. For Q1, the revenue decline is most pronounced in Latin America due to Mexico and closely followed by Europe, Sub Saharan Africa and Russia due to Russia along with contract timing. Considering these markets and FX challenges, overall international revenues are expected to decline quarter on quarter by mid double digits with North America revenue down low single digits. We have a good line of sight to a material increase in second quarter revenues.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We have sized Mexico appropriately and while the total year revenue decline is projected to be in the order of magnitude of 30% to 50%, the run rate is really manifested in Q1 and limited sequential changes going forward. MENA growth is driven by contract starts, integrated contracts ramp up and new contracts commence in Europe. Additionally, this should be followed by another rise in revenues from first half to second half levels, once again driven by contract starts that we have good line of sight to. As we began to see revenue softness in the fourth quarter, we launched plans to control and reduce costs across several aspects of the company, while preserving our focus on longer term investments and innovation. These actions will ensure that we are keeping detrimental in check and ensuring healthy margins at the intersection of each product line and country.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Margins are expected to improve substantially in the second half as our cost and productivity programs take full effect. With that, I'd like to turn the call over to Arun.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

Thank you, Karish. Good morning and thank you everyone for joining us on the call. Karish has already shared an overview of our fourth quarter performance and an update on our capital return program. For a more detailed breakdown of the fourth quarter results, please refer to our press release and accompanying slide deck presentation. My comments today will center around cash flow, working capital, balance sheet, liquidity and guidance.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

Turning to Slide 23 for cash flows and liquidity. For the full year 2024, we generated $524,000,000 of adjusted free cash flow or a 37.9% free cash flow conversion rate, and we remain committed to driving this rate towards the 50% in the long term. For the full year, our net working capital showed significant efficiencies with networking capital as a percentage of revenues improving to 24.5% from 25.8% the previous year. This also represents a six ten basis points improvement in our efficiency compared to the 30.6% we achieved in 2021, reflecting our commitment to sustainable longer term improvements in company performance. As we have mentioned before, regardless of the stage of the cycle, our goal is to maintain net working capital as a percentage of revenue at 25% or better sustainably.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

In the fourth quarter, we generated a significant improvement to our inventory levels as we experienced a decline in revenues, allowing us to adjust our plans to avoid incurring stranded costs. As Girish mentioned, we have initiated a series of cost actions to drive cost reductions across the company. In this context, we took a restructuring and severance charge of $32,000,000 in Q4. Several actions have already been completed and we anticipate finishing the remaining steps in the first half of the year. For 2024, CapEx was $299,000,000 or 5.4% of revenues.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

CapEx came in a bit higher in Q4 as we took advantage of opportunistic investments that are strategically important and represent good economics. On our eighteen month rolling paces, CapEx remains within the 5% of revenue range we've outlined. In the fourth quarter, we repurchased approximately 49,000,000 worth of shares and paid a $0.25 per share quarterly dividend. Our liquidity is approximately $1,300,000,000 and we feel confident in our ability to manage the company through this transitional period. We believe we have opportunities to drive multiple elements of our capital allocation framework and create value for our shareholders.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

Now turning to guidance, let me start with Q1. We are expecting $1,170,000,000 to $1,210,000,000 in revenues with adjusted EBITDA of $245,000,000 to $265,000,000 The sequential decline is a function of normal seasonality, significant Mexico activity reduction, FX and Russia decline. Free cash flow will be more second half weighted as is typical with first quarter free cash flow near breakeven. For 2025, we expect revenues of 5,100,000,000 to $5,350,000,000 dollars adjusted EBITDA of $1,200,000,000 to $1,350,000,000 and the free cash flow conversion to increase 100 to 200 basis points year on year. I'd like to point out that the Q1 operating income will be favorably impacted by a $25,000,000 quarter on quarter decline in depreciation and amortization.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

For the full year, we expect depreciation and amortization to decline approximately $100,000,000 Our effective tax rate can vary quarter to quarter depending on the geographic mix and we anticipate this will be similar to 2024 in the mid-twenty percent range for 2025, with Q1 towards a high 30% range. CapEx will remain at 5% of revenues for the year as we finish deployment of the subsea intervention projects in Brazil as announced at the end of twenty twenty three and will be a bit higher as a result in the first half of the year. Thank you for your time today. I will now pass the call back to Kirish for his closing comments.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Thanks, Arun. While the overall market is evolving and the cycle is maturing, we remain constructive on the activity profile over the next several years. There will be pockets of turbulence like we are encountering in 2025 with Mexico, but the overall demand profile for hydrocarbons, reservoir decline rates, share gain opportunities and pricing resilience give us confidence in our mid to long term positive perspective. In that context, we continue to believe we have the opportunity to deliver adjusted EBITDA margins in the high 20s in the next three years in a flat to modestly up operating environment. However, as I said earlier, when revenues decline, it's hard to fight math in the immediate term.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

What we can control are our actions and focus. We have outlined our five strategic priorities around organization vitality, creating the future, customer experience, lean operations and financial performance. And for 2025, these converge around three specific focus areas. The first area of focus is structural cost. We initiated a significant cost optimization program in the fourth quarter, which goes beyond merely adjusting for volume.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Our emphasis is on achieving sustainable productivity gains through technology and lean processes. While this program is set to run for several years, While this program is set to run for several years and aims for long term efficiency improvements from systems enhancements, we expect to see very tangible short term impacts in the first half of the year. We will provide more details during our first quarter call. Second is networking capital efficiency. Invoicing, collections, inventory paradigm, supplier terms and manufacturing and repair cycle times are all improving and expected to deliver a greater impact this year.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The enhancements will contribute to our goal of achieving free cash flow conversion of around 50% over the next few years. Finally, in a softer market, we will need to create growth and we have identified specific growth vectors that are getting a significant amount of attention. These are highly focused initiatives and include specific products like MODIS and MPD that I've talked about in the past and our Well Services business that I described earlier, our digital offerings, etcetera, all of which have a strong track record, compelling value proposition and significant opportunities for growth. I am deeply cognizant of the concern around Weatherford's performance in a softer market and I'm keenly aware of the decline in stock price, both in absolute terms and relative to the rest of the sector. While our guidance for the year is for reduced revenue and slightly lower margins, it is important to note that it is primarily a function of two countries.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The rest of the world, especially international, is exhibiting a solid outlook and we are well positioned there. Despite the profitability levels in Mexico and Russia and the significant declines, our enterprise adjusted EBITDA margins will only decline by 70 bps at the midpoint of our guidance and we will generate cash in the same order of magnitude as 2024. To put that in context, that is still north of 24% adjusted EBITDA margins and 130 bps above where we ended 2023. And we believe our anticipated performance still reflects top tier results within the industry. I've always asked for us to be judged by our numbers, not our words, and we will hopefully demonstrate that we can perform equally well in this stage of the cycle as we did in the prior one.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We expect to generate roughly the same amount of cash in 2025 on reduced revenues, and this gives us ample opportunity to make strategic investments, including buying back stock for the mid to long term. And now, operator, please open the call for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Saurabh Pant from Bank of America. Please go ahead.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Hi, good morning, Girish and Arun.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Hey, Sarav. Good morning.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

Good morning, Sarav.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Girish, I want to make sure I heard you correct in your prepared remarks. I think when you were stepping through all the countries, I think you said you expect the Saudi to be up and offset the declines in Mexico and Russia. Maybe can you confirm that for me? And then maybe can you describe what's going on in Saudi for you? And how is Weatherford likely able to grow in Saudi when some of your bigger peers, I think, early on in the earnings season were talking about decline for them on a year over year basis?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes, sure. So, Saurabh, you did hear correctly in terms of Saudi will be up. Unfortunately, it's not going to fully offset the declines in Mexico and Russia, but it will certainly aid the rest of the world growing. So look, I've always maintained, look, we have been under penetrated in Saudi in several areas, in gas, in shore and unconventional. But we have made very significant improvements in our business at Saudi.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We have driven a lot of technology introduction. We have significantly improved our operational execution. Aramco is a perfect customer. We've been working very closely. So look, we are by no stretch of the imagination immune to the decline in activity and the decline in rigs.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

But given our under penetration, we've got a little bit more, I'll call it insulation and an opportunity to grow. So we are actually very confident that we have a growth opportunity in Saudi this year, despite the overall market decline. And look to your point on why it's different, I think it's very similar to the Mexico story. It's actually just the opposite, right? It's the law of numbers.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We are much smaller in Saudi and so we've got an opportunity to grow into the market declines. Our relative proportion in Mexico is much higher even though the order of magnitude of numbers is the same. So decline in Mexico tends to just look bigger for us even though the dollar decline is about the same.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

And sorry,

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

if I may add, in Saudi, we are predominantly a product business and we will penetrate service further going forward.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Okay, okay, perfect. No, I got it.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

And I think you said you got good line of sight with contracts, right? So this is more really what you'd know and have a lot of it under control, right, versus just hope. So that's good color. And then Girish, maybe if we zoom out a little bit, you stepped through a lot of markets. I know you said excluding Mexico and Russia, international should be growing low single digits, I think you said.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Maybe step us through some of these markets that are growing, some of the key ones, if you want to just quickly touch on that. And then maybe spend a minute, Girish, if you don't mind on Russia, what exactly are we expecting in Russia for 2025?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Sure. So look, I'll start with Russia. Look, like I pointed out in my comments, we are expecting a significant decline. So our total guidance is based on both significant declines in Mexico and in Russia. I gave a range in Mexico and the totality is down mid single digits for the year on the international side.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

But again, those are very isolated, very specific situations. I'm very excited about Brazil. We've had some tremendous opportunities there. We've won some significant contracts. So Brazil is positive.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

I think Argentina is on a very positive trajectory as well. Places like Norway, Azerbaijan in Europe, pockets in Sub Saharan Africa are very positive. Asia is very strong. It's had a very strong year for us in 2024 and we'll continue that with Thailand, Malaysia, etcetera, so multiple places. And then look in The Middle East specifically, we've got a lot of optimism around our Middle East business.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

I touched upon Saudi earlier, but beyond Saudi, right, places like Kuwait, Oman, Qatar, these have been the bedrock of our growth over the last few years. And we see a lot of stability there. We see continued opportunities to grow. Last year, we'd also talked about a little bit of modulation on our integrated service contracts. The good news is customers activity is now caught up to us.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

And so we will be able to ramp that back up again and we should see an uptick there again helping partially offset some of the issues in other places.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Okay, perfect. No, that's fantastic color, Girish.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

I'll turn it back. Thank you.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Thank you.

Operator

The next question comes from Kurt Hallead from Benchmark. Please go ahead.

Kurt Hallead
Equity Research Analyst at The Benchmark Company LLC

Hey, Girish. How are you? Thank you, everybody, for making time this morning. So, Girish, you kind of yes, Mexico has been a big drag for sure. Everybody in the sector here is kind of feeling the pain, obviously, maybe to different degrees.

Kurt Hallead
Equity Research Analyst at The Benchmark Company LLC

So again, I referenced in the question before about good line of sight on opportunities at Saudi despite a soft market, contract starts, etcetera. So I just wondering if kind of like your kind of dynamic in Mexico was more of a instinctual kind of hope for a second half kind of recovery. So I just wonder if you could just give us a little bit more insights as to how you're thinking about it, how your team is thinking about it and what kind of vibes are you picking up from those within Pemex?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. So look, Curt, it's a really important point. The way we have constructed our guidance and the way we have talked through the business as I put in my prepared remarks is we have actually taken what we believe is a very prudent approach and it is a conservative approach to Mexico. So we are sizing the business a little bit further down than maybe other people. I talked about a decline in activity of 30% to 50%.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

That is very, very significant. And so we are not assuming a dramatic ramp up in the second half from Mexico. If we actually see that, that will be positive for us, that will be upside, but that is not what we have built in. We have very strong line of sight, especially look there are two ramps, right? There's a ramp from Q1 to Q2 and there's a ramp then from Q2 or the first half going into the second half.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

We've got very solid line of sight to contract starts, to activity increases, a lot of different product deliveries, etcetera, that give us confidence in that. And hopefully what we have demonstrated over the past eighteen quarters is look, we tend not to get in way over forward on our skis on guidance and we try to make sure we've got a reasonable line of sight of things we give it to. But on Mexico, we have taken what we believe is a conservative and prudent approach.

Kurt Hallead
Equity Research Analyst at The Benchmark Company LLC

Okay. All right. Appreciate that. Now, you also specify kind of less and if I'm not mistaken, I think it's I don't know, something less than 5% of your overall revenue base. But, I guess given such a small percentage of your overall business, I was just kind of curious as to what kind of drove you to maybe flag it?

Kurt Hallead
Equity Research Analyst at The Benchmark Company LLC

And then it also begs the question there was a step up in sanctions pressure on Russia. So was that part of the reason you flagged it?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. So look, Kurt, we have always maintained on Russia that we'll continue operating as long as three key principles on that. The first is ensuring the safety of our operations and people. The second is it still makes economic sense. And the third and most significant is that we have a very high degree of confidence that we are in full compliance with all international sanctions against Russia as well as all local laws within Russia.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Both need to be satisfied. Those principles have not changed for us and we still believe that we are fully within those. Having said that, with each round of sanctions, we have talked about this in the past, it does get more complicated. It does get more challenging. We have not shipped anything into Russia since February of twenty twenty two.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

There's been no new technology introduction. And so the complexity of the business means that it will further decline. The business has gone down as a percentage of the total company about 200 bps in two years. So So from 7.4% to about 5.4%. It is a significant reduction and we expect that reduction to continue.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

When you couple on top of that you add FX and the volatility around FX, we saw a dramatic decline in December on the ruble dollar exchange rate that puts a lot more pressure. So it will be a very negative headwind and again that's part of Mexico and Russia contribute to that down mid single digits on the international side.

Kurt Hallead
Equity Research Analyst at The Benchmark Company LLC

Okay. That's great color. Really appreciate it. Thank you.

Operator

Sure. The next question comes from Jim Rolison from Raymond James. Please go ahead.

Jim Rollyson
Jim Rollyson
Director & Equity Research Analyst at Raymond James Financial

Hey, good morning guys. And Girish, maybe circling back around to Mexico, kind of the opposite question. Obviously, you guys have had a big presence there and at the moment that's not working out as well as you'd like. But it seems to me if you look at the math on kind of activity in for PMax relative to their production, at some point this massive cut in activity is going to come home to roost on the production side, which kind of would assume at some point means they're going to have to reverse course. But I'm curious when we get to the other side of this kind of valley of activity reductions and they look to maybe ramp back up assuming they do.

Jim Rollyson
Jim Rollyson
Director & Equity Research Analyst at Raymond James Financial

Curious how you think about that? Like what's your opportunity set? How willing are you to get back up to the level of leverage you have to them, etcetera? Like just maybe thinking about how this works on the flip side when we get to it, whether that's 25, 20 six or whenever?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. Jim, look, right now we are very focused, as I said, on margins and ensuring that we get cash. Look, our operational performance has been really strong. They are very important customer for us and we believe in the long term potential there. So I think we will be well positioned to take advantage and we are just going to make sure that we are covering our basis when it comes to cash and not taking undue risk.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

As you know that we've talked about in the past, there have been different payment mechanisms. We have been one of the only companies that has been very limited on CDS activity. We have not taken that risk in any significant form on our balance sheet etcetera. So we will continue that very prudent approach, but I don't see any reason why if there is a positive environment we won't be able to take advantage of it. I want to stress again though Jim, look I think the dollar order of magnitude is going to be roughly equivalent for everyone operating in the sector.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

It is just a function now of just proportionality. So we did have higher exposure, so that hits us more from a percentage standpoint. But again, look, the rest of the world, we think we will have a similar but opposite dynamic.

Jim Rollyson
Jim Rollyson
Director & Equity Research Analyst at Raymond James Financial

Understood. And as a follow-up, maybe Arun, if you look, last year was the first year you guys rolled out the capital return program, so you kind of only had a half a year of doing that. We're looking at free cash flow that's going to be in a similar vein kind of $500,000,000 type of number. Just maybe curious as you guys think about your CapEx opportunities and that return of kind of 50% plus, how are you thinking about that? Are you just looking to meet the minimum or given where your share price is?

Jim Rollyson
Jim Rollyson
Director & Equity Research Analyst at Raymond James Financial

Or might you actually step up on the share repurchase side? Just kind of your big picture thoughts there?

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

Yes, Kurt. As you correctly pointed out, we are six months into pace. And if you look at the run rate, we are doing almost $15,000,000 a quarter, which is more than what the run rate is if you extrapolate twelve quarters and $500,000,000 dollars So we have been doing more than what we committed to over a three year period just based on the six months activity. And given where the share prices are, we will continue to do that. But there are other capital allocation priorities as well, which we are also paying attention to, continued pay down of debt, investing in opportunistic M and A.

Arun Mitra
Arun Mitra
Executive Vice President and Chie Financial Officer at Weatherford International

So it is really a holistic approach rather than just being focused on share buybacks. But again, we are well ahead of our commitments associated with shareholder returns, both in terms of dividend and what we've done thus far and continue to do on the share buyback.

Jim Rollyson
Jim Rollyson
Director & Equity Research Analyst at Raymond James Financial

Appreciate the answer. Thank you guys.

Operator

Thanks, Joe. The next question comes from Josh Jain from Daniel Energy Partners. Please go ahead.

Josh Jayne
Managing Director at Daniel Energy Partners

Thanks. Good morning. First one, when we just look across the number of awards that you announced over the course of the quarter, One of the themes seems to be the number of MPD awards announced. Could you speak to the success there, today's market for MPD and also how you see it evolving over the next couple of years?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Sure. Josh, look, this is a product line that we continue to be very excited about. We think it is really a better way of operators managing their business and we think adoption continues to improve. The good news is it's still at a low enough level that there's plenty of opportunity there. We've introduced MODIS.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

I've talked about last year was really about us sort of getting field trials done and getting the packages built. We now have them deployed in multiple regions. And this year we will see a significant uptick from contribution from Modus. In addition to just sort of core NPD services and we're seeing a lot of demand from customers for additional packages as they really realize the efficacy of the offering. We're also seeing this concept of managed pressure well.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

So taking the MPD technology, taking the capability that we have developed other services. And that's another platform of growth for us for the future. So there's multiple different elements. My bullishness on MPD has been there since day one has only grown.

Josh Jayne
Managing Director at Daniel Energy Partners

Great. Thanks. And then as my follow-up, your walk around the world internationally was very helpful, but could you speak generally to the sense of urgency today in the offshore market on the part of customers? What are you seeing and hearing with respect to when activity could potentially pick up over the course of this year after what seems like a lull in the first half of twenty twenty five? And what regions may be stronger in the back half of the year than they are today?

Josh Jayne
Managing Director at Daniel Energy Partners

And then I'll turn it back. Thank you.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Sure. Look, I think it's a bit of a mixed story. Different regions have very different dynamics. Broadly speaking, we still think this offshore cycle still has plenty of legs. And despite some choppiness as you pointed out in the early part of the year, in the first half specifically, we think the longer term story is very good.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

And that's really exemplified and demonstrated by some of the long term subsidy orders etcetera that other people who operate in that space have. For us, we've got very good line of sight. We work very closely with our partners and with operators. We've got good line of sight to movement of rigs and when we will have mobilization and demobilization happen. So we feel very good about a bit of a pickup and that's part of our ramp, but it's not tied to speculation.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

It's it's really tied to fairly firm schedules and contracts. Around the world, look, I mentioned Brazil, we think that's a big positive. Azerbaijan, the Caspian is a really big positive. Deal. The North Sea is a really interesting situation.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The Norwegian side of it we think will be positive. But look, The U. K. Side is challenging. It's well known what is happening in The U.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

K. Market right now. And we have seen more and more operators signal that they are going to significantly reduce their activity. Again, we have factored all of that into our view. We think The UK market is still very positive for us longer term from a P and A standpoint, but it is concerning to see the reduction in activity because there needs to be that oxygen to make sure that the P and A can get funded from a cash basis standpoint.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

And then look, places like Asia and Thailand in offshore Southeast Asia, etcetera, and even Australia, those are all positives and we continue to see resilience there and we think it will improve.

Josh Jayne
Managing Director at Daniel Energy Partners

Thanks very much. I'll turn it back.

Operator

The next question comes from Doug Becker from Capital One. Please go ahead.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Hey Doug.

Operator

Hi Doug. Is your line on mute?

Douglas Becker
Douglas Becker
Analyst at Capital One Financial

Yes. Thank you. Krish, I appreciate the near term uncertainty, but wanted to get an update on the three year targets. In the past, the talk has been for EBITDA margins to improve into the high 20s, free cash flow conversion to increase to say 50% from what looks around 40% this year. So just what's the updated intermediate term outlook for margins, free cash flow conversion in the current environment?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Doug, as we pointed out in our comments, but I'll be a little bit more explicit about it. The immediate term, it's tough to fight, Matt. So we will see that margin decline and you see that in our guidance, especially in the first quarter. Right now, we are going to suffer from a little bit of that fall through effect and the detrimentals will be dilutive.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

But look, we've got a very solid line of sight on our cost programs and then with the ramp that should again help. So we will see margins pick up very significantly as we go into the second quarter and then through the rest of the year. And look, we continue to execute the way we have over the past four years and I don't see any reason why that should fundamentally change, we should actually exit this year at margins levels very similar to 2024 or actually even better than that, right? And so for me, when you put all of that together, what that means is we re baseline the company. And so that notion of high 20s margin has not really changed.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

It might get cooked out six to nine months, but it will still very much intact and that is our goal. And we believe we've got good line of sight to achieve that over the next three years. Free cash flow conversion, again, we've talked about that. We're making significant improvements. We're not declaring victory on the 25% goal yet, even though we were below that, because look, our whole thing is we want to make sure it's sustainable and really get the total conversion to 50%.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

So we feel really good about the actions that we have got and our whole focus now is on execution around

Douglas Becker
Douglas Becker
Analyst at Capital One Financial

that. Certainly sounds promising. Also wanted to follow-up on the well services business. You mentioned it's grown over 50% over the last three years. Could you expand on specifically what products and services are driving that and the growth prospects for that business going forward?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. So look, this is an exciting business where it actually shows up in our financials from a from a segment standpoint is in well construction predominantly. So that's really where we see it. But look, what we've been able to do is take a few different elements. So first is our capability around engineering ultimately what we call IES.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

So our ability to have reservoir engineering to really work with customers to interpret their data, to have really an understanding of what is their issue, what are their challenges and how to address that. We have coupled that with a lot of digital capability including fiber optics. So how do we get surveillance that is on a more real time basis versus you've got to bring in a wireline truck etcetera. And then ultimately what is really the core of the service, it's through tubing rig less intervention. So and what this does is completely removes the need for customer to schedule a rig, manage that cost aspect of it.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

So it becomes a lighter and much more efficient way for them to get production enhancement. And ultimately look, as I pointed out earlier, what is nice about it is this becomes a business case for them from an OpEx spend to say, okay, I'm going to get a return on it versus saying, hey, I'm going to launch a big CapEx campaign over several years. So we've seen some very positive successes from this. This has become a really important platform and I'm excited about the growth that we'll get in the future from this.

Douglas Becker
Douglas Becker
Analyst at Capital One Financial

Thank you.

Operator

Our next question comes from Derek Pothizer from Piper Sandler. Please go ahead.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Hi, good morning, Girish. Wanted to talk about North America. You mentioned that North America margins were up this year despite the declining environment. Maybe could you expand on this and how you're able to improve these margins despite the flat to down market? How we should think about your margins in North America going forward?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. Great question. So it's really down to three things that we are very focused on. The first one is addressing our cost base. We have historically had a North America business that has had a lot more cost and has had margins that are dilutive to the company.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

And I am just really pleased with what the team has done so far and we're not done yet. So we've been attacking a cost base and it's not just about taking heads out of stuff. It's about facility consolidation. It's about changing from third party services to internal. It's about reducing procurement spend, getting more efficiencies, looking at how we utilize our personnel across the board.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

So that's one key element. The second aspect of it has been pricing. And it sounds a bit incongruous given North America and some of the dynamism and the decline in the market. But we've been very focused and the team has done an outstanding job of driving price and then holding on to price despite some very tough scenarios. And look to do that you've got to back it up with technology differentiation and you've got to back it up with service quality and operational execution which we think we've been very successful at and that's allowed us to get that value gap, get the cost decreased, get a bit of a price increase, has a significant impact on margins.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

The third is we've been very focused on growing into places where we didn't have penetration, right? Whether it is basins or customers, but specific products, specific services that we were not in, but we've had advantage, technical advantage. So that commercialization of technology that drives market share increase has been a big focus for us. And we've got several notable examples of this, but that's really what has driven it, which is why in totality the North America business has actually done better than the market, but more importantly, the margins have gone up.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Got it. That's very helpful. And then maybe flipping back to international, specifically the Europe Sub Saharan Africa, Russia segment of yours. Obviously, you spent a lot of time on the Russia side, but how should we think about the shape of recovery for Europe and Sub Saharan Africa and how that will impact that overall segment internationally, so think about 2Q going forward?

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Yes. So look, I think we will see a nice ramp on there actually starting in the second quarter. Again, a lot of this is stuff that we have got line of sight to. There's two effects. One is we will have a little bit of a seasonal uptick that will actually come in Q2 from Russia, so full transparency there.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

But it's going to be very small relatively speaking. The bigger part of it is contract starts that we have won that are committed. We are getting mobilization plans ready in both Q2 and Q3. And so what will likely happen is we will see a nice uptick going into from Q1 into Q2, a smaller uptick going into Q3 and then sort of leveling off for the rest of the year. So it is not a progressive ramp.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

It is really a Q1 to Q2 ramp that we are very confident about.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Great. Appreciate all the color. I'll turn it back.

Operator

There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Girish Saligram for any closing remarks.

Girish Saligram
Girish Saligram
President & CEO at Weatherford International

Thank you all for joining the call and we look forward to updating you in April on our Q1 results.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Luke Lemoine
      Luke Lemoine
      Senior Vice President of Corporate Development
    • Girish Saligram
      Girish Saligram
      President & CEO
    • Arun Mitra
      Arun Mitra
      Executive Vice President and Chie Financial Officer
Analysts
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Earnings Conference Call
Weatherford International Q4 2024
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