Q4 2020 Weatherford International PLC Earnings Call
[music].
Ladies and gentlemen, thank you for standing by the welcome to the Weatherford International fourth quarter of 2020 earnings call.
All participants will be on listen only mode.
Could you give me the system placement of a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
You're asking the question you May Press Star then one on the telephone keypad.
All of your question. Please press Star then two.
As a reminder, today's call is being reported.
I would now like to turn the call over to Sebastian Poser pieces of that.
Sort of Investor Relations, Sir you may begin.
Welcome everyone to the Weatherford International fourth quarter 2020 conference call I'm joined today by Gary Solar Graham President and CEO, Karl Blanchard Executive Vice President and C O O and Keith James Executive Vice President and CFO.
We will start today with our prepared remarks, and then we will open it up for questions.
You may download a copy of the presentation slides that corresponds with today's call from our website's Investor Relations section.
I wanted to remind everyone that some of today's comments include forward looking statements.
These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations 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 as noted in our press release the company adopted fresh start accounting in December 2019.
Our comments today include a comparison of the results of the predecessor and successor companies.
The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our fourth quarter press release, which can be found on our website.
With that I'd like to turn the call over to Girish.
Thanks, Sebastian and thank you all for joining the call today.
The local up with some key points from the fourth quarter and then Carl will go through some additional operational details.
Keith will then take you through the fourth quarter results as well as the broad construct on 'twenty and 'twenty, one, including the first quarter. Finally, I'll come back the layout of our focus areas for 2021 as well of some initial thoughts around our strategic direction.
We will start today on slide three.
The 20 was a very challenging year for our industry, but I'm pleased with the performance despite the challenges and.
On our accomplishments in 2020 are the direct result of the tremendous resilience creativity and dedication shown by the Weatherford team day in and day out throughout the year.
I've already seen the collaboration instilled by our one Weatherford culture, the positive outcomes and I'm confident that it will take us far together.
For our entire global employee base I. Thank you for all of that you do for our customers and company every day.
The previously stated objective of being a business for sustainable profitability and free cash flow generation.
While that objective is the work in progress on a multiyear journey, we believe the of strong momentum coming into 2021.
Our commitment to our shareholders is to operate the business with the view that we will not count on increased market activity to drive profitability improvements in free cash flow.
Specifically that implies that we will not take our eye off the ball on structural cost improvements and margin expansion and believe the being the smaller more nimble organization will allow us to leverage activity increases the greater effect as they happen.
With that I'd like to highlight a few points for the quarter and the year.
Firstly safety and service quality of foundational elements of our performance and a 2020, we delivered a number of year on year improvements, including the 25% reduction of our Goldman of Carnival incident rate as well as a 13% reduction of non average nonproductive time.
In terms of revenues of fourth quarter revenues grew by 4% sequentially driven by growth of 15% of North America, and 2% internationally the $842 million.
Notably the achieved full year revenue growth of several strategic markets, including a number of countries in the middle East in what was arguably one of the toughest years of the industry.
Third we achieved another quarter of double digit adjusted EBITDA margin and despite the 29% decline in full year revenues of 2020, adjusted EBITDA Decrementals were limited to only 9% year on year.
The $98 million of adjusted EBITDA of a generator than the fourth quarter was slightly better than the third quarter, excluding the effects of the onetime sale of operational assets in Q3.
Next the solid performance. We had was enabled by the decisive actions, we took and continue to price in order to reduce our costs with the results exceeding our annualized savings target of $800 million.
We delivered positive full year free cash flow of approximately $80 million, an improvement of $950 million year on year to improved operating performance disciplined capital expenditures and a reduction of working capital our fourth quarter performance was especially strong and our team exceeded expectations with laser like focused right up until the.
End of the year, delivering unlevered free cash flow of $95 million.
Our liquidity position is strong with weatherford, ending the year with $1 3 billion of total cash, giving us flexibility to operate through this environment.
We also accelerated the adoption of our company's digital offerings last quarter, we talked about how these offerings enable us to operate remotely and make tangible contributions towards the customer safety quality and efficiency goals, we plan to expand on these in 2021.
And finally, we continued our history of driving innovation to deliver solutions to the complex challenges of our customer space, our central digital Bell delivery solution for site reservoir monitoring solution and the velocity wellhead system are examples of new offerings and enhanced safety efficiency and effectiveness.
Despite the physical travel limitations presented by Covid I've enjoyed the opportunity to engage with many of our customers over the past few months and I'm grateful for their continued support and encouragement on <unk>.
Customers recognize the overall value safety and service quality the benefit Denver's and I'm excited about the many opportunities for collaboration in the future with that let me turn it over the car to provide you with some operational highlights from the quarter and commentary on the market.
Thank you Ghoresh. Please turn to slide four as Grace mentioned, we have continued to see successes with our customer during the fourth quarter and some highlights include.
For tubular running services, we won several significant contracts across the globe with both national and international oil companies to further expand our leading position in the space.
These awards were driven by technology, such as our Vero automated connection integrity system and our team's high service quality across the globe.
A few wins include the extension of Trs contracts in Europe and in the Middle East for Weatherford with selected based on our superior HSE and service quality performance.
And award for a major offshore operator in Qatar to exclusively provide casing and tubular running services.
And an award from an IOC in North America to provide offshore services, including Bureau.
For completions, we were awarded of major contract to deliver annual safety valves for an operator in the Caspian Sea demonstrating the customer's recognition of both the technical and operational advantages that Weatherford provides in.
In the Middle East, we had a number of contract wins, including a five year Wellbore cleanout contract with a major offshore of contractor in Qatar.
Multiple discrete service projects by a major operator in Iraq, which bolstered our portfolio of work in that country.
And multiple contracts for completions in products and services across the region we.
We spoke last quarter about how our digital offerings have enabled us to operate remotely and are delivering tangible value to our customers. There are a number of highlights this quarter as well, including the installation and remote monitoring of our express integrated liner system using our active you remote support system and central <unk>.
Digital well delivery solution with the National oil company in the Middle East.
Utilizing active you to run a complex rotating liner hanger without of Weatherford employ at the well site in Mexico.
And the extension of the contract with a major IOC in the middle East and expanding its work scope to include the use of Weatherford central platform. The digitize the operation and enhanced performance with real time monitoring.
In addition to these highlights from the quarter I'm also proud of our success in driving the adoption of many of our meaningful technologies over the course of the year the.
Few milestones include we have now drilled more than 1 million feet with our Magnus rotary <unk> system since its launch three of half years ago. We.
We deployed for site production optimization on about 20000, new wells in 2020 further enabling our customers to make well informed decisions to maximize production performance and.
And we've now run Barrow on over 200 jobs and have made up over 56000 connections since commercializing this technology.
We have been awarded multiple new contracts for our trip single trip completion system recognition of the value of our customers see in this digitally enabled technology.
These are just a few examples of the many achievements for 2020 and we will continue this focus in 'twenty one.
Now, let's move to slide five which highlights recent trends in both rig count and drilling and completion of spending in North America and internationally.
In North America fourth quarter drilling activity was slightly better than our expectations strong seasonal activity increases in Canada and continued rig count increases in the United States drove a 33% sequential increase in average rig counts across North America.
The completion and Workover activity continued its positive trajectory as well and was in line with our expectations.
Internationally average rig counts declined 9% sequentially.
This was in line with our expectations of continued activity declines, albeit at a slower rate versus previous quarters.
Latin America was the only region to post activity increases during the quarter, largely driven by Argentina, and Colombia, where activity continues to recover from COVID-19 related shutdowns.
We are cautiously optimistic that the markets are in the early stages of a broader recovery, particularly as we look ahead to the second half of 'twenty 'twenty one.
However, there is continued uncertainty around the timing and magnitude of the recovery largely due to the COVID-19 pandemic and its impact on economic activity as well as the lack of clarity on the scope and eventual impact of new policy measures in the United States.
In North America, while we expect the activity levels will continue to improve sequentially and through the first half of the year, we remain focused on improving our operational performance and not chasing unprofitable work we expect.
The international activity to decline sequentially in the first quarter of the year with activity then increasing as Latin America continues to rebound from Covid related shutdowns and as production increases broadly to me the pent up demand that we believe exists with that I'll turn things over to Keith to provide of.
The financial update.
Thank you Paul.
Turn to slide six and begin with a summary of for fourth quarter 2020 results.
Revenues in the fourth quarter were $842 million, 4% above the third quarter and 32% below the same period in 2019.
The sequential growth primarily resulted from increased completion and production sales in North America, and Europe increased activity across most of Latin America.
Seasonal activity increases in Canada.
These positive activities were partially offset by weather related project delays in Mexico and activity reductions in the middle East.
Fourth quarter, adjusted EBITDA was $98 million with adjusted EBITDA margins of 12%.
As Gary mentioned, we achieved another quarter of double digit EBITDA margin.
Which was up approximately 20 basis points sequentially. After adjusting our third quarter results for the onetime benefit related to the sale of operational assets.
We continue to drive favorable EBITDA decrementals during the quarter defined as the change in adjusted EBITDA over the change in revenue with year on year Decrementals of 14% during the fourth quarter.
In addition, our EBIT of Decrementals for the full year 2020 was only 9%.
Yeah.
Despite 29% reduction in revenue year on year.
Let me now provide a regional breakdown starting with the western hemisphere on slide seven.
Western Hemisphere revenues of 300 incentive $2 million in the fourth quarter grew 18% sequentially and declined 40% versus prior year.
In North America revenue grew 15% sequentially driven by a sequential growth of 27% and our completion of production business or C. N P. Largely due to increased well completion and workover activity as well as of year end product sales revenue for drilling evaluation and intervention or dei declined.
8% sequentially largely due to changes in our business model and our drilling services product line to improve profitability.
Additionally, both product lines benefited from seasonal activity increases in Canada.
Fourth quarter revenues of $171 million in Latin America grew 21% sequentially and declined 35% versus the prior year.
CMP revenues grew 56% sequentially and <unk> grew 10% for global cost growth part of product lines driven by increased activity in year end product sales in Argentina, Colombia.
And Colombia, which were partially offset by lower activity in Mexico, largely due to weather related project delays.
Segment adjusted EBITDA for the Western Hemisphere was $41 million in the fourth quarter growing $12 million of 41% sequentially.
Adjusted segment EBITDA margin of 11% improved 180 basis points sequentially and were 70 basis points about the last year.
The sequential improvements were primarily driven by both increased activity and product sales in Latin America.
Let's now move to the eastern Hemisphere.
Slide eight.
Eastern Hemisphere revenues of $470 million in the fourth quarter declined by 4% sequentially and 25% versus prior year.
Revenues in Europe sub Saharan Africa, and Russia grew 5% sequentially and declined 24% versus the prior year.
The MP revenues grew 16% sequentially driven primarily by increased product sales in the north sea, the Mediterranean and Russell the.
<unk> revenues decreased by 2% sequentially, driven primarily by seasonally low drilling activity in Russia, which was partially offset by additional activity in the north sea.
Revenues in the Middle East North Africa and Asia.
Hundred $89 million of $289 million were down 9% sequentially and 25% versus the prior year.
A portion of the year on year decline was driven by businesses, we have previously divested and excluding this impact.
Our Q4, 'twenty 'twenty revenues were down by 21% year on year.
On a sequential basis on a revenue decline here was similar across both CMP and dei largely driven by lower activity across the region, which was partially offset by Iraq, where we experienced strong sequential growth, particularly in the EI.
Adjusted segment EBITDA for the Eastern Hemisphere was $87 million in the fourth quarter of decrease of $17 million or 16% sequentially.
Adjusted segment EBITDA margin of 19% declined 270 basis points from the third quarter.
The reduction in both adjusted EBIT dollars and margin is primarily attributable to the non repeat of the $12 million gain on operational asset sales that we recognized in the third quarter and to a lesser extent lower activity levels in the region.
Excluding the gain on operational asset sales adjusted segment EBITDA declined 5% sequentially and the margin declined by 20 basis points.
Our results also included charges totaling $89 million that were not included in our adjusted EBITDA.
Primarily related to the company's facility consolidations and head count reductions.
Slide nine highlights the components of for a year to date change in cash and the enhancement of our liquidity.
The company generated unlevered free cash flow of $95 million in the quarter, reflecting the ongoing improvements in our operations from the prior year results of the negative $72 million.
We continue to experience an unwinding of working capital and this alongside Capex reductions of over 40% year on year and the non repeating cash outflows associated with our financial restructuring drove the majority of the cash flow improvement year on year.
On a full year basis, the company generated $78 million of free cash flow, which represented a $950 million of improvement year on year.
Our total cash of $1 $3 billion was essentially unchanged sequentially.
Our 2020 closing cash balance is approximately $250 million higher than the balance of our cash and availability under our former asset based lending facility at year end 2019, we believe our cash position provides the flexibility to operate through this environment and we have no debt.
Maturities until 2024 hour $1 $3 billion of total cash.
Comp compares favorably to our estimated operating the Quaker requirements of between $700 million to $1 1 billion.
Estimated requirement is comprised of operating restricted cash.
<unk> cash and the additional liquidity to support the seasonality of our business of our scale and the cyclicality of our industry.
This additional liquidity can be provided in the form of cash on balance sheet as we do currently or in the form of Undrawn availability of the credit facility.
As you May recall in August 2020, we retired or of $450 million asset based lending facility with the issuance of senior secured notes due to the complexities of the mechanics of that ABL and the risk of a covenant breach.
The transaction provided the company.
On a stable source of liquidity to additional cash on balance sheet. However, we will continue to monitor the bank and credit markets for potential opportunities to provide this liquidity in a more cost efficient way.
Turning to slide 10 I.
I will share with thoughts on both the full year and the first quarter of 2021.
I will again provide qualitative comments on how we expect to our business. The progress as there is still significant economic and industry specific uncertainty that precludes us from providing more specific guidance. These comments do not assume another round of extended pandemic related lockdowns that may further curtailed oil and gas active.
<unk> or disrupt the expected recovery of hydrocarbon consumption that is underway.
Further these comments assume of relatively stable commodity price environment, and do not consider prices weakening due to a reoccurring sustained production increases for sustained reductions in hydrocarbon demand.
We expect of of consolidated revenues in 2021 to align with current activity levels and therefore be in line with the annualized second half of 2020 results.
This will be comprised of growth in the western hemisphere of low to mid single digits and declines to the low in the low to mid single digits in the eastern hemisphere.
On the cost side, we are expecting headwinds next this year debt that our plants most of the dress, including additional cost as we bring back salaries and benefits after the temporary reductions of 2020.
Our employees of demonstrated leadership responsibility and commitment, while making personal sacrifices during a challenging period to ensure the financial performance of the company on it.
As of right thing to do the normalized base salaries back in line with industry benchmarks.
Despite these cost headwinds we plan to continue to drive margin expansion in 2021 key focus areas that girish will elaborate on shortly.
The benefit of these efforts is expected to more than offset any costs related headwinds, we are facing and expect adjusted EBITDA margins to increase by a 100 to 200 basis points from second half 2020 levels importantly.
Importantly, we do not expect the benefit from the onetime sale of operational losses to reoccur in 2021, and we have excluded that benefit from our second half of 2020 baseline.
Another important theme that will provide a headwind as we progress into 2021 and beyond is working capital.
As activity levels stabilize and eventually grow we will not benefit from the almost $200 million unwinding of net working capital that we experienced in 2020 and in fact, we expect the opposite if we experienced the material growth in activity for.
For 2021, excluding the impact of net working capital.
Unlevered free cash flow is expected to improve slightly year on year on interest expense will increase in 2021 due to the refinancing transactions that were completed in August 2020, and we expect to reinvest in our business through capital expenditures at similar levels for 2020 in the range of 120.
The $150 million.
As a result, we are currently expecting to be free cash flow negative in 2021.
Let me turn now for the first quarter of 2021.
We expect first quarter 2021 consolidated revenues. The followed the are typically their typical seasonality and decline sequentially from the fourth quarter of 2020 by high single to low double digits, driven largely by the expected reduction in international activity cloud of noted.
This will translate into stronger declines in the eastern hemisphere.
Adjusted EBITDA margin is expected to decline by 150 to 250 basis points from Q4, 2020 levels driven largely by lower activity of <unk>.
The margin international operations.
First quarter on Levered cash flow is expected to decline sequentially on the fourth quarter of 2020, largely due to the non repeat of the net working capital unwind in the fourth quarter as well as the seasonal timing of cash outflows.
Thank you for your time today I will now hand, the call over the duration for his closing comments.
Thank you Keith as I mentioned I believe a strong fourth quarter on full year results are a reflection of.
On the progress we have made towards our objectives of sustainable profitability and free cash flow generation.
The actions, we took in 2020 of meaningfully improved cash flow liquidity and operational performance.
But we also recognize that we are not done and need to fully institutionalize the processes and mindset the drove our 2020 execution.
As Keith alluded to we expect the couple of significant headwinds in 2021 and be on specifically around restoration of employee salaries and lack of working capital on binding benefits that we need to overcome it is therefore critical for us to accelerate the momentum from 2020 into 2021, and we will be focused on restructuring our cost levels and <unk>.
During our working capital as a percentage of revenue of clear improvement targets and actions.
To provide clarity we have laid out for in dental focus areas for 2021 on slide 11 to ensure that we are poised to deliver a year that will demonstrate increased profitability versus our second half 2020 run rate without depending on market activity increases.
Firstly performing in North America, Historically, North America has been one of the largest oilfield service market. It is the market. Unlike any other globally with charter cycle times of.
Degree of competition and innovation that make it very unique amongst many other things our team of North America did excellent work last year and delivered meaningful improvements to their operations. He planned to build on those actions. This year and continue to drive further efficiencies through facility consolidation and adjustments for our commercial approach.
We expect these efforts to yield meaningful improvement on North America profitability year on year debt will be significantly accretive to the overall company.
Second the simplifying our organization on.
The organization must be more agile and flexible to serve the changing needs of our dynamic business. We took significant actions last year ago of liner cost with rapidly evolving market conditions and drive additional efficiencies into the organization. A great example of this is merging our manufacturing and supply chain organization into a consolidated function supporting on op.
Operations for 'twenty and 'twenty, one, we see additional opportunities for reducing complexity driving efficiencies and improving the way the support of our operations, which we believe will enable is high single digit reduction in percentage of our support costs.
Third variable cost optimization in the spirit of continuous improvement we had also focusing on reducing the magnitude of our variable costs. We.
Creating new cultural and operational frameworks for tracking costs and driving cost reduction initiatives across our organization and have established enterprise wide teams across several cost categories, including real estate fleet management logistics and telecom to name a few the.
We believe there are meaningful opportunities to reduce spending drive change increased profitability and are targeting a 50 million dollar annualized impact from these initiatives, but recognize these are unlikely to fully manifest immediately.
Number four is inventory inventory continues to be of critical team for us. This year streamlining inventory management will play a critical role in becoming a more efficient organization. We are redeploying existing inventory in most closely integrated manufacturing operations and sales to improve inventory management and delivery. This is Bob.
Just about improving processes, but also about cruising increasing company wide collaboration throughout our entire supply chain better.
Better inventory management will be of crucial enabler of our profitability and cash on cash flow objectives.
The aim to reduce day sales of inventory by 10 day through this initiative and improvement of over 10% from the end of last year.
As you can see through the actions I just laid out we will continue driving down operational cost of increased cash flow and profitability in 2021 and beyond.
I will stress again that we have developed our plans of targets for this year based on flat activity levels and will scale up or down without sacrificing our focus areas.
Beyond these operational imperatives, we are carefully examining our approach on three long term strategic vectors, the shape and define our long term vision and strategic roadmap as many of the industry of pointed out. These the central teams for the future of our sector and we strongly believe that Weatherford has the differentiation footprint and track record of carve out.
Our unique value addition space stemming from them.
The first of digitalization, a touch on the broad spectrum of our portfolio in detail last quarter, and we will continue to imply automation and digital tools and technology to simplify and enhance not just our offerings, but also of our internal operations. We will continue to deploy an improve of suite of digital products and services across on many.
The offerings to deliver a world class customer experience.
The integration of monitoring technology algorithmic models backed by deep domain expertise artificial intelligence and software delivery models on a strong competency within our team and we will look for further development and deployment of applications.
These offerings also help enable meaningful improvements of our service delivery and productivity.
The second vector is ESG, we have responsibility to our employees the communities, we operate in and of our shareholders to be good ESG stewards doing so will impact everything from a governance practices, the managing our carbon footprint, the fostering diversity and inclusion into our company.
Key part of this is our roll position in value in the energy transition the.
On the imperative to adapt to what our customers and communities. The rightfully asking for is upon us and we will enhance our existing focus on this regard.
As an example of the already have a footprint and product offering in geothermal energy.
Exemplified by our recent achievement in Canada, where we help grow the world's first 90 degree geothermal well for renewable power generation and at the same time achieved the deepest lateral in Saskatchewan history.
Our firma offering in plug and abandonment of the benchmark on responsibly Stewarding, the end of life of belts and ensuring environmental wellbeing the.
On the carbonization will be continuing team and we will look to unify our efforts on the common umbrella to amplify impact and reach.
Our final vector is our product and service portfolio.
We have a relatively low share in the low to mid single digits globally across the sector we have.
Market, leading product lines, including managed pressure drilling tubular running services cementation product liner hangers and production optimization amongst others rather than simply expansion of these we will look to exploit buchu and synergy opportunities across all of our product lines spearheaded by the unified commercial focus on our Geos on.
<unk>.
We also have several product lines that provide innovative and value added services, but low global share.
Our focus will be optimizing the intersection of product lines and geographies without the need to be everything for everyone everywhere.
Each individual business and E. G O zone will have to demonstrate independent of liability and accretive cash performance and that standard will provide an objective lens the defining a global portfolio of reach.
We will also continue to invest in technology and engineering as we believe the technical differentiator is the key value driver for our customers.
Before we end our prepared remarks I'd like to also touch upon some organizational changes that could be on announcing today.
Firstly, Karl Blanchard, our CFO will be retiring at the end of February.
<unk> has been a transformative leader on champion of our run by the culture in the three plus years of the company.
He has provided expertise leadership and a steady hand, getting all of the changes with the financial restructuring and the challenges we faced in 2020.
Over the past few months Karl has been a partner trusted advisor coach and friend to me as I've come up the speed within the company and he will be missed however, after almost 40 years in the industry collars wife, Julia looking for much of an extremely well deserved retirement and extra time to enjoy their family and we wish them all of the best. Additionally.
Stuart <unk>, our Chief Accounting officer will be leaving the company at the end of March and we wish him well in his future endeavors.
The accounts retirement, we are taking this as an opportunity to reduce our organizational layers and will not be back filling the accrual.
Our underlying principles for our structure, our organizational simplification customer focus and power of <unk> and accountability, we will consolidate our product line of engineering and technology functions under a single leader to ensure synergy standardization on common focus.
We will continue with the deals on the structure has this while driving greater focus on North America and these will be the primary conduit for driving the relationship with customers and business operations.
Factoring supply chain and logistics operations will continue to operate under a single leader and we will look to drive synergies, but on global for the service network. Lastly, we are creating the role of Chief sustainability officer to drive the focus on highlighted earlier couple of anything you'd like to add yes growth. So I'd just like to say, it's been a privilege being apart.
Of the one weatherford team over the last few years and I'm proud of what we accomplished I want to thank all of our employees our customers and stakeholders for their support during my tenure here I'm confident that under your leadership Girish Weatherford will enjoyed continued success in the future.
Thanks, Khalid once again, thank you and all of the very best let.
Let me close by acknowledging that the no. We have a lot of hard work ahead of US However, I'm confident in our ability to achieve our long term profitability and cash flow of objectives.
We delivered on the commitments, we made in 2020 and exited the year of its strong momentum and over $1 3 billion of cash on our balance sheet.
That provides us the flexibility to operate the company in an uncertain environment and worked through our shorter term objectives. While also monitoring capital markets with the goal of re listing our shares on a major exchange and reverting to a more traditional financing structure in the future.
We have a clear vision of what we need to accomplish in 2021, and we are further developing our plans for our strategic vectors I look forward to updating you on our progress in future quarters. Thank you for joining us today and with that operator, let's open it up for Q&A.
Thank you that's the time, we will begin the question and answer session. If you'd like to ask a question. Please press Star then one on your touch on some of them.
The use of the speaker phone, we ask you. Please pickup your handset before pressing the keys.
Part of your question. Please press Star then two.
Today's first question comes from Brian <unk> with Barclays. Please go ahead of it.
Hey, good morning, Thanks for taking my question.
With respect to the.
The Unlevered free cash flow guide for 'twenty one.
Can you give us a sense for what the cash restructuring charges embedded in that.
Some of the.
Slightly up.
Yes.
Good morning, Brian.
Good question and thank you for the question.
As we think about 2021, and we think about the.
The restructuring charges for next year.
<unk>.
At this point in time, we're thinking about a range of somewhere between 50 and 100 million dollars' worth.
Still working through the estimates.
In 2020, the cash portion of restructuring.
Just about $135 million, we expect it to be less than 2020.
As we refine that estimate.
Okay got it and I guess as you guys think about the business longer term Mike Glenn.
When do you think you'll have line of sight for these charges going away.
Well.
Brian just curious probably towards the middle of the year I think a big part of this is going to depend on how exactly we lay out our overall strategic footprint in the portfolio. So as we talked about our strategic vectors as we get that fully nailed down probably by the middle of the year. As we continue. These calls we will update you on that but that's the rough timing.
Got it so I guess pardon me all of this year for that going forward, you will no longer be incurring the.
The consistent cash restructuring charges or you'll have a final view of what it will be for 'twenty one.
For longer be incurring because of our business always has to go through some level of healthy pruning.
You can appreciate the level is coming down significantly from where it was in 2020 and where it was in 2019.
As we think through the the viewpoint, which we are hoping for which is the next.
Upward looking cycle for oilfield services.
That we're not spending time.
The releasing pizza right sizing the organization inside of investing.
Adding the new dimensions of the organization. So we can grow with the cycle.
But I think at this point in time.
The last year.
Incurred roughly $135 million. This year, we're looking at 50 to 100 and hopefully it is reduce the cockpit will be exactly zero right exactly I think it'll be more of a steady state thing, we get the business to a normal level of whatever we do define normalized <unk> will be the key for us and going forward it will be sort of more.
Thank the cycle does keeps it.
Got it thank you.
Ladies and gentlemen, as a reminder of that asked the question. Please press Star then one on our next question comes from Gregg Brody with please.
Go ahead.
Good morning, guys. Thanks for all of the <unk> and Christian the Buck.
I have just a couple of questions.
Just the you mentioned the couple of times about moving to a more traditional financing structure.
I would read that to mean that you are trying to move back to our credit facility.
Is that correct in the keys is tell us what's changed in the marketplace that makes you believe that's available to you.
Yeah.
Good morning, Greg all of it.
The pleasure.
Thank you for the question.
I think we've alluded to moving back to a traditional.
And for the structure and capital structure, because we think on a more efficient and more cost effective.
The market is.
You rightly inferred has not yet changed the banks and certain parts of the capital market have not come back to the credit ZIP code, we are in and the royalties services and energy at the moment.
That said that doesn't mean that it's not something that we're working we're not working towards we are having conversations.
We are.
Looking towards the up cycle.
Hoping to.
Put things together.
Attract the right partners that can understand that our international business is bankable.
And so as we move through and the developments if something develops we will share it in this forum.
But it's something that we have to look forward to just using long big of money course, shortening the liquidity is very expensive so.
We're just acknowledging the.
The inefficiencies in our capital structure and the drag it has on free cash flow as we run this business.
That's helpful and then just on.
Free cash flow.
How should we think about taxes for this year and are there any other line items that we should be aware of as we as we think about our unlevered free cash flow.
Taxes, we think should be in the same same level as 2020 on the same range.
I don't.
I think we have any.
There are surprises and unlevered free cash flow to the <unk>.
Sure.
I think that the thing that we have the manage the most this year is working capital we had a good performance in terms of net unwind of almost $200 million in 2020.
That benefit which is not the peak, we just don't have the same shrinkage in the.
Profile of for receivables debt unwind unwound, and we benefited from so we have to manage that carefully.
So that's how we are thinking through 'twenty and 'twenty one.
Okay, and just one more if I may.
It sounds like you're optimistic about the.
The second half of the year, but conservative in your guidance.
How should we think of about I.
I think thats correct, if I'm wrong. Please correct me.
The question is.
If if revenue increases in the second half of the year, how should we think about incremental margins for the.
For Weatherford.
I think all of our overall guidance.
For the year.
Somewhat assumes some of that the hundreds of 200 basis points on a range.
If it steps up the it all depends on how much it steps up.
The steps up more of it also depends on where it steps up in terms of.
Western hemisphere, the different profiles in these diseases.
It also depends on what product lines get pulled through.
Missions in different product lines are also a very different so its the hard for me to give you anything more than the 101 of the eight point that we plan for the year at this time, but if we see activity moving outside of that range.
Either.
Certain geography on a certain product line will be happy to update the.
The guidance.
Yeah look I think the only thing is again for us the way we are planning it is really focusing on the cost actions, while building out our commercial for footprint and making sure we have the right.
The commercial and product line focus on each of the geographies, especially on these accretive product lines. So as Keith said look the 100 per 200 basis point range is in the south.
Pretty significant and if we can drive our cost actions, we should get at least talked about lora end of them help get closer to the higher end with day to day activity uptake and then overall if activity does go up significantly it should be more accretive but to keep the point it will depend a little bit on the mix and when it comes to a pump.
Great and I realize I congratulated Christian not Carl Carl Congrats to you good luck.
It was nice for me.
Oh.
The.
As for the time guys.
Thank you Brad.
For the question John.
Please go ahead.
Hi, guys. Thanks for putting me on have weakened the self service is working.
Just one question for me.
Just speak to any change on the volume of inquiries from customers International customers in particular, just the last three to four weeks, if you've seen any uptick.
Well so this is Carl.
There has been.
Pretty robust.
Activity in the tendering business.
I do think that we as we pointed out that the.
On the cycles and international are.
Slower and longer pitched them then you have here in the U S and we're still on the downward trend, but but there are definitely some some green shoots across the international and.
And in the Middle East Theres quite a bit of tendering activity going on right now but.
A lot of that's a bit long dated with it'll take several months for the process to go through and the ultimately tender of awards.
And when that becomes part of your business going forward, but.
I think we see reasonably.
Healthy.
Activity in that space Okay.
Okay.
Well I'm going on at this call is just.
We all know about the capital disciplined out of being forced on U S. Producers I'm just curious how you would characterize that unheard of for international customers of Citibank.
Yes.
Well the graphs you want on yes, so look I think it's not a it's not a purely U S phenomenon I think everyone around the world is recognizing the need to make sure you've got sufficient and the rates of returns from the capital investments. So we've seen a lot of our international customers both on the NOC side as well as IOC.
Who have operations internationally, so you've got to remember that it's that it's the mix of both of those that we do of business. It So I think.
In general a discipline around returns is set of pervasive around the world.
The results in us haven't really focused on differentiation and ensure that we have the right levels of quality of service level and we can truly differentiate our value add.
We've been pretty clear in our prepared remarks, and I'll reiterate again, what we're not going to do is just chase volume just for the sake of debt. It has done for us drive the right profitability.
Customers are going to be price conscious, but we believe that two of the right differentiation through the right focus areas and the the intimacy that we have with our customers in multiple areas, we can be commensurate with them in driving the returns on our activities as well.
No I wasn't referring to your capital discipline I was referring to is the kind of hoping for just the international folks.
All of a bit more excess of in spending.
I just wanted to make sure you kind of got both double in size of the client so it certainly.
You see it across the board.
Let me put it this way no one spending the type of impact, yes, alright fair enough I appreciate the time.
Thank you thank you and ladies and gentlemen. This concludes the question the answer session on the end today's conference call.
Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Yes.
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Yeah.
For example.
Non-GAAP.