Q2 2022 Weatherford International PLC Earnings Call
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Welcome to what are those international second quarter 2022 earnings call.
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I would now like to turn the conference over to Mohan.
The total wallet director Investor Relations and M&A, Sir you may begin.
Welcome everyone to the Weatherford International second quarter 2022 conference call.
I'm joined today by grief, sorry Graham.
President and CEO , and Qi, Jenny Executive Vice President and CFO .
We will start today with prepared remarks, and then open it up for questions.
You may download a copy of the presentation slide that corresponds with today's call.
Type Investor Relations section.
I wanted to remind everyone that some of today's comments include forward looking statements.
These statements are subject to many risk and uncertainties that could cause our actual results to materially differ from any expectation expressed herein.
Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements are.
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 second quarter earnings press release, which can be found on our website.
With that I'd like to turn the call over to Girish.
Thanks, Mohammed and thank you all for joining the call today.
The one benefit team delivered another terrific quarter, and my gratitude and appreciation go out to all of our 17500 team members.
Our results this quarter are a testament to our focus on creating value for our customers and delivering on our promise of margin expansion and cash generation to our investors.
While the overall environment was headlined by headwinds on inflation commodity price volatility supply chain bottlenecks and geopolitical driven disruptions.
At a deeper level fundamental activity levels in core oil and gas operations remained robust and buoyant.
As a result, we seized opportunities leverage the momentum of change in our operating paradigm and.
And delivered well above expectations across our metrics.
Our second quarter 2022 revenue of $1.0 billion to $6 billion was up 13% sequentially driven by international growth of 14% sequentially showcasing the strength of our international franchise.
I am, particularly pleased with our EBITDA performance as we continue to focus on delivering margin expansion.
Our EBITDA margins increased to 17, 5%, improving 140 basis points sequentially and 240 basis points year on year.
We have previously highlighted our next year goal of achieving high teens EBITDA margins over the next several years and our results this quarter demonstrate the feasibility of that ambition.
The work to drive this initiative is firmly underway underpinned by our four key focus areas of fulfillment directed growth excellence in execution and simplification.
Finally in a growth environment with a natural buildup of working capital our cash performance was terrific with the company generating $59 million in free cash flow.
This achievement enabled us to pay down $50 million of 11% senior notes as we continue improving our capital structure.
Simply put I couldnt be more pleased with our results.
In past calls you've heard me talk about the new Weatherford and how we are building it to deliver growth margin expansion and sustainable free cash flow.
Throughout that journey, we have always been conscious of the road ahead and the work we still have to do and I will acknowledge that again.
However, I think the context of that path forward is significantly different today, we have gone from seeing the road ahead is a journey towards relevance and the challenges being somewhat existential to where the road ahead is to lead to higher multiples underpinned by the solid foundation of operational excellence we are building.
We have been diligently planning and executing to evolved from a company operating at survival mode to one performing and thriving in the market.
I have always said that our results will speak for our progress and the results from the second quarter serve as a solid scorecard off that progress.
Yeah.
Beyond the financial results, we were excited to release, our first sustainability report in May while.
While it sustainable operations have always been at the core of how we run our business. This reported highlighted our strategic ESG focus areas.
Number one our use of existing technologies and contribution to new energy solutions to create a lower carbon economy.
Number two our goal of achieving net zero greenhouse gas emissions scope, one and two by 2050 and.
And number three our never ending commitment to operating sustainably with safety quality and integrity.
Turning to our commercial successes during the quarter, we had several significant wins across our portfolio showing that the combination of our broad spectrum portfolio with specialty services, both differentiated by technology is a compelling value proposition for customers.
PTT EP in Thailand awarded US a five year contract to deliver high temperature directional drilling measurement, while drilling and logging while drilling services our history of service excellence in the region and market leading offerings made better for the preferred choice for this contract award.
Our real time remote engineering support.
Bold with MPD ability to execute against an exacting pressure management plan throughout the well construction phase helped our drilled the longest well in Canada at approximately 30000 feet for a major operator faster and with fewer trips.
Shell awarded Us a three year contract this quarter to continue providing cementing products and casing accessories.
In the Gulf of Mexico, because of our position as a leading provider of deepwater cementing systems.
We also received a five year well services agreement from AD hoc offshore for the provision of <unk> equipment and services.
Our leading expertise in field proven technology helped customers consume fewer resources reduce carbon footprint and maximize the economic life of existing infrastructure.
And again in Thailand, Chevron awarded US a six year commercial contract to deliver tubular running services. We credit This award to our 60 years of experience in Trs our track record of incident free operations in the region and our high level of operational efficiency.
We entered a three year commercial agreement with Hess Corporation to serve as the primary supplier of artificial lift equipment and services, including automation has those Bakken operations.
We received this award because of the field proven application of our ROE reflects long stroke pumping unit combined with Weatherford belt pilot and the ability to provide value added services support engineering and quality.
We also received a three year award to provide Santos with industry, leading sucker rods for their operations in Australia.
Our sucker rod portfolio guarantees a match between customer needs budget and production strategy to make the most of existing assets and unique well environment now.
Now, let's turn to our view of the markets.
North America, we continue to capitalize on the current growth momentum by going after directed growth and margin expansion.
On the production side, we see demand for artificial lift growing as E&P operators capitalize on sustained higher commodity prices and in some cases benefiting from the foster transitioned from ESP to conventional lift.
We have been talking about a PRA segment lagging rig count and now we're seeing it come through with strong revenue growth as our Prs segment revenue increased by 21% sequentially outpacing rig count growth.
We continue to see strong performance from our international markets as well with demand in Asia, Latin America, and Middle East markets continuing to grow.
We expect this to continue into the second half of the year and beyond. Additionally.
Additionally, tendering activity continues to be strong throughout with robust demand coupled with the industry's resources, becoming scarcer, which will result in pricing uplift opportunities.
Our leading product lines, including Trs fishing and intervention services MPD and completions continue to position Weatherford for differentiated growth.
Overall this quarter, our focus on pricing directed growth strategies operational improvements and cash culminated in strong revenue growth margin expansion and free cash flow generation.
Before I hand, it over to Keith for the financial and full year updates.
Want to take a moment to express my gratitude for his leadership.
As we have previously announced Keith will leave the company at the end of the month keeps commitment and leadership over the last two years have been essential to building the new Weatherford. During his time with the company, we were able to return to a major public exchange improve and stabilize our capital structure and strengthened our operational profile.
At the same time, we have announced the Desmond Mills, our Chief Accounting officer, who will be stepping in as interim CFO .
Investment has been with us for over a year and done a great job in improving our accounting systems and reporting keep we wish you the best and with that I'll turn it over to you.
Thank you Gary Good morning, everyone and thank you for joining us.
Echoing <unk> comments, we had an outstanding quarter.
We outperformed our forecast and guidance in most geographies and in aggregate across all segments.
I'll begin with the total company results and then move into the segment details.
Revenues for the second quarter of 2022 were $1 6 billion, an increase of 13% sequentially and 18% year over year.
Operating income was $104 million in the second quarter of 2022 compared to $18 million in the first quarter of 2022 and $25 million in the second quarter of 2021.
The Companys second quarter of 2022, net income was $6 million compared to a net loss of $80 million in the first quarter of 2022, and a net loss of $78 million in the second quarter of 2021.
Adjusted EBITDA was $186 million, an increase of 23% sequentially.
37% year over year.
It is a significant milestone for the company to be net income positive.
Getting there this quarter was aided by the recognition of the benefit from certain previously uncertain tax positions. However, we firmly believe we will see more sustainable net income positive quarters in the near future.
Turning to our segments during the quarter.
Drilling and evaluation or GRE revenues of $317 million increased by $25 million or 9% sequentially.
Due to higher demand for all DRA product lines, driven by a managed pressure drilling and drilling services, primarily in Latin America, and the Middle East North Africa Asia regions.
Segment, adjusted EBITDA of $69 million increased by $10 million or 17% sequentially.
Largely due to higher fall through for drilling services, primarily in Latin America.
Well construction and completion or WCC revenues of $383 million increased by $39 million or 11% sequentially due to higher demand for all WCC product lines, driven by tubular running services and completions, primarily in the Middle East North Africa Asia segue.
Segment, adjusted EBITDA of $67 million was flat sequentially with volume improvement, primarily in Latin America, and the Middle East North Africa Asia region, partially offset by declines due to a change in revenue mix.
Production intervention or PRA revenues of 345 million increased by $59 million or 21% sequentially due to a higher demand for all product lines driven by intervention services and artificial lift primarily in North America.
Segment, adjusted EBITDA of $68 million increased $29 million or 74% sequentially, mainly to increase revenues and a higher margin flow through intervention services and artificial lift primarily in North America, and the Middle East North Africa Asia region.
Turning to liquidity and cash flows.
We closed the second quarter of 2022 would approximate with total cash of approximately $1 1 billion up $34 million sequentially.
Free cash flow of $59 million.
Improved $123 million versus the first quarter of 2022.
The sequential improvement was primarily driven by improved collections efficiency.
Delivering on our commitment to continue improving our debt profile and reduce interest payments from our operating results on July 11, we issued a notice of the collection to redeem $50 million by August 10 2022.
11% senior unsecured notes the exit notes.
Once completed this will reduce the outstanding principle for those notes to $250 million.
As we look ahead to the third quarter and the remainder of the year. We are now more confident that has continued to improve our operating performance. If the constructive backdrop for energy services. We will continue to capture continued margin expansion in this cycle.
For the third quarter versus our second quarter of 2022, we expect consolidated revenues to increase by low to mid single digits in all segments driven by higher demand.
As a result, we are increasing guidance on adjusted EBITDA margin.
And expect to expand by a further 25 to 50 basis points.
We're targeting free cash flow to be in line with Q2 and expect capex to be in the range of $30 million to $40 million in the third quarter.
Full year 2022 consolidated revenues are expected to grow by a mid teens above 2021 levels.
Across the segments outlook for GRE and <unk> have been revised upwards.
Sorry is now forecasted to deliver mid to high teens growth.
UCC to now deliver low to mid teens.
Maintaining this growth outlook in the in the mid to high teen.
Consolidated adjusted EBITDA margins are now expected to expand at least 100 basis points about 2021.
We are revising our capex forecast for full year 2022 down to 120 to 140 million because of three things one.
Impact from having fully removed any further capex investment in Russia.
Two supply chain delays.
And most significantly continuing to be more efficient with our asset base and resources as we continued to redefine how we fulfill our customers' expectations.
Full year free cash flow is still expected to be positive at approximately $100 million were lower compared to 2021 as the up cycle drives increases in networking capital cash taxes and capex.
With only a partial offset by lower cash interest payments for the year.
This outlook reinforces the strength of our organization.
<unk> in our operating strategy.
This is my last earnings call as CFO of Weatherford.
I have enjoyed my tenure at this great company.
I wish to thank the board Girish, the executive team and our finance organization and the entire Weatherford family for the trust they place.
I know that I'm, leaving the organization in good health. Thank you for your time today I will now pass the call back to Jewish voice closing comments.
Keith our achievements from the second quarter indicate a strategy that is taking hold and beginning to yield results, specifically generating positive free cash flow, increasing EBITDA and growing revenue.
We followed through on the plans, we previously shared and this quarter is a testament to our ability to execute while our results in the second quarter were great. We are focused on the future and the work ahead.
To get there we will leverage our focus areas today I want to give an update on fulfillment and directed growth.
And fulfillment are key objective is to serve customers better with a more efficient cost base and network efficiencies globally doing so it will be crucial to expanding margins into 2023 and beyond.
We are starting to hit important milestones that are prognosticators of future success we.
We have exited 28 facilities year to date and entered sales leaseback were 10 facilities in the second quarter.
While further improving DSO by five days.
In the first year of topline growth in over five years, we have been intensely focused on directed growth and evolving the organization's DNA the data for growth mindset.
We believe we have significant growth potential as.
As demonstrated by our confidence to increase our full year outlook for revenue to now increase by mid teens and margins to expand by at least 100 basis points over full year 2021.
Throughout the year, we have continued to gain commercial success, securing substantial contract wins and recapturing share in key markets.
We expect this trend to continue in the second half of 2022 and into 2023.
These results demonstrate the strength of our customer relationships and our ability to meet their needs.
Additionally, based on our technical differentiation and the disproportionate equipment capacity tightening across markets, we are making inroads on improving pricing as we renew contracts and institute new agreements.
Improved pricing high utilization and significant operating leverage will deliver strong incrementals for us in this up cycle as we continue to execute our strategic imperatives and drive margin expansion and free cash flow for our shareholders.
As we close I want to take a moment to talk about the renewed focus we have put in place to guide our organization as we continue to the next leg of our journey.
We recently rolled out new core values to our global team.
The one Weatherford spirit will always binders altogether, our values of passion.
<unk> ability innovation and value creation will be our focus in everything we do as we move forward with safety quality and integrity as our foundational operating values.
Thank you for joining us today and now operator, let's open it up for questions. Please.
Thank you we will now begin the question and answer session.
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Today's first question comes from Doug Becker, our benchmark research. Please go ahead.
Thanks Oscar.
Wanted to get a little more context with a lower capex means for the ability to hit.
Expected growth in 2023, it was meaningfully lower.
Lower than anticipated.
Anticipated and just wanted to make sure you can actually capture a very robust market going forward.
Sure Good morning, Doug.
Hey, listen Great question, I think look we've been on a journey for a while and we're learning a lot of things I think it's important to once again reflect back that Weatherford just a couple of years ago was a company with a much higher revenue base and therefore also had a bigger asset base.
We are going to our journey of fulfillment and simplification. We're learning that we can actually do things better and get a lot more efficiency. So look as Keith pointed out in his remarks. The capex reduction really came from first of all we've taken Russia fully out we were still working through all of that.
On the last call. So it's completely out and we've also been able to redeploy in share now between the other regions in a more efficient fashion.
Second is we are encountering some supply chain delays and so we are managing to that and also give us an opportunity to re prioritize and figured out how to do things a bit more efficiently.
And finally, the most important thing is the third piece of look how do we actually get better at executing so look to answer. Your question. We directly we don't believe it's going to have a material impact on us being able to capture the revenue that we're going after.
And we will get more efficient, but it is something that we look at it and it's still a meaningful improvement over 2021.
Okay, and so what I'm taking away from this you.
You would be able to meet low double digit.
Revenue growth next year, even with the Capex spend youre anticipating now for this year.
That was very well put Doug, but as always we have not given guidance for 2023 yet.
So I'm not going under.
Understood.
But look I think as the market continues to be robust as we have pointed out in our prepared remarks look we think we are on a continued growth trajectory and hopefully continues in the same way.
Got it maybe.
Our final question for Keith just one a little bit more detail around the reconciliation between the higher EBITDA guidance, a good cost control lower Capex and then.
The collections efficiency, why free cash flow might not be a little bit higher.
Just wanted to get a better understanding.
Uh huh.
Doug.
Look one of the things that we have recognized about this cycle and.
And given the supply chain constraints out there and moving things around it's really the investment in working capital that's required and if you look across each one we effectively.
Invested almost $100 million in working capital, which was a number that we probably would have thought when we started this year would have been a full year number.
And so.
While we are not looking forward to the lower capex as a way of offsetting that it is actually what's going to offset that because the second half, where we're actually expecting to deliver almost 12% growth in terms of <unk> versus <unk> and if you do the math on the working capital requirement, that's going to be between 50 and 70.
5 million further.
Got it and then one final general one.
Impressive growth given Russia is still being a headwind how biggest Russia today and just what's the outlook in the second half of the year.
Yeah, Hey, look really no change that we talked about in Russia relative to the Q1 call Russia is still around 6% of revenue and look we still have the same view that we did in Q1, we've got sort of the challenges around currency volatility that we are navigating in it is volatility being the key word there.
As well as look operational complexity, we continue to operate within your total compliance of all the sanctions, but it is getting more complex and we are transforming russia into a bit more of a self sustaining model just given the inability to get materially.
Thank you.
Thanks.
It comes from James Albertine at Deutsche Bank. Please go ahead.
Okay.
Yes, hi, good morning, Thanks for taking my questions I just have two.
Yes.
So we hear a lot about cost inflation pressures.
And.
Clearly one.
<unk> of that is you're able to exert some pricing power and we see that in your margins, but I'm wondering what exactly what exactly what are the main cost inflation pressures, you're seeing and then when you go to your clients. It will companies and say we want to pass this through <unk> and then some more how much pushback.
Do you get now I'm.
Im guessing with gas prices, where they are not as much pushback because you would have got maybe 12 months ago, but I'm just wondering how that.
How about is panning out and if youre starting to get more.
Resistance to that and then secondly, again on U S shale companies over here in Europe talking about labor shortage.
Restricting the pace of growth you might otherwise expected in onshore U S journey.
And I'm wondering is that an accurate understanding or it's not just one of several issues.
Holding back maybe a faster ramp up in U S shale journey. Thank you.
Sure good morning, or rather good afternoon for you James let.
Let me start with the first one.
Which is inflation look clearly we've been talking about inflation now for over a year.
I think we started well before a lot of other people did and it's certainly something that is impacting US you had 100% rate, we have been able to leverage pricing to a certain extent.
Improvement in activity with improved <unk> as well as recapturing some share but also all of the operational improvements that we're driving to offset that inflationary impact and actually deliver margin expansion and our focus is to continue to keep driving it in that same wind.
Look specifically with respect to customer conversations where we are seeing inflation, it's really pervasive across the board.
First of all we have it on the wage side, and it's especially impacting US RMB have third party servicers when we contract labor out et cetera that that's something that's a lot more transactional and it comes in through a much higher rate.
We are also seeing it on third party rentals in some of our service product lines.
And then of course on materials materials has a big impact and thats been evolving depending upon the type of material, we added get sourced it got significantly exacerbated.
The invasion in Ukraine, and the inability of getting more supply out of some of those parts of the world and then further compounded by what's happening in China and then the last piece of it is just logistics and freight which with the increase in fuel as well as supply chain bottlenecks has been a dramatic crimp on.
On the ability to move stuff and fees have gone up so it's really across the board look as we talk to customers. One thing that we are very cognizant of and we really try not to do it is in the context of saying Hey oil prices are higher. So therefore pricing goes up this is really a well thought out.
Clearly constructed conversation on our cost having gone up not because their commodity prices are going up and theyre, making more profit. So we are being very transparent and I think they are having very constructive conversations our customers recognize when costs go up and D.
I think look it's very heartening to hear them.
Understand recognize and support the fact that the overall industry needs to be healthy and for all of us to make sure that we are able to fulfill the expectations that we have with each other so I think we're having constructive conversations with customers look no customer is ever going to say you come in and go I'll accept anything. So these conversations are always chat.
<unk>, but they are.
<unk> talked full and they're constructive is the way I would I would put it but we are trying to do it in a way that really is all about our cost pressures, what we are seeing and how do we pass them on look as we also pointed out in our prepared remarks.
Not easy to just go back and put it across your entire contract base. So we really leverage these conversations more so on where it makes sense, where we have either seen dramatic cost increases, but especially on contracts that offered renewal and new discussions that are coming up.
On your second question on U S shale.
Look I think there's two factors that are driving it and in our opinion look first of all I think producers are being very returns conscious and are truly sticking to their word on ensuring that shareholders returns are taking a priority and so while there is capital available and they are generating free cash flow there.
Sure they prioritize that and as a result, the amount of Capex going back and is not as extreme as it has been in previous cases. The second thing that is really compounding. The issue is scarcity of supply, especially in a few key services you've heard a lot of other companies in the sector talk about.
Being sold out and having fleets that are not existent et cetera, and I think that puts a lot of pressure on that as well. So we do expect North America to grow, but we think it will be a lot more muted and certainly not anywhere close to what we've seen.
In the past and again I will just remind you that from our business perspective.
We are much more production oriented and a little bit more on the specialty specialty services side in the U S. We're not really exposed to direct rig count and direct drilling services, because we don't play in that in North America and the U S. Specifically.
Yes, thank you very much.
Okay.
And our next question comes from.
Neil Mehta with Goldman Sachs. Please go ahead.
Hey, guys. This is art.
On for Neil.
Broadly how do you think about capital allocation. Obviously, you were working on the balance sheet here, maybe give us an update on the revolver.
How you are thinking about the restricted cash in there.
If there is any appetite for repurchasing additional debt beyond the 11% or would you rather think about a buyback to offset equity overhang from the ownership mix.
Sure Good morning, Arty our pleasure.
A few things.
I know over the course of the last few calls.
<unk> bin.
Speaking about the constructive tone that has changed with our banks and <unk>.
Work on getting a revolver in place that we're comfortable with I want to move that just a step forward in the dialogue from constructive tone to saying that we now have had clear conversation with all our leading banks and we have a path to an Rcs weatherford.
Weatherford will be happy that we can close and so we're working on on that and working through.
The final.
Pieces of putting together something that we want to take to market.
And so when it comes to the rest of the capital allocation I would say the following.
Our first focus continues to be the repayment of debt.
Would love to get rid of the remaining stub from the exit notes. After the recent call notice of $50 million, we have $250 million principal left on those notes at 11%.
When we think about purchasing other debt at the moment.
Yes.
That's not really the focus over the next few years, we continue to drive and think about creating and generating free cash flow taking out near term debt and after that thinking about reinvesting in the business and growing.
Through the rest of the cycle.
Got it and then can you walk us through your overall margin progression towards what a normalized margin expectation is for each of your segments.
You updated revenue guidance for the full year or maybe also provide some color on the regional drivers of that increase particularly internationally.
Sure.
First as you know, we don't give guidance at the margin level on our segments, we give it overall.
We have come in and executed in Q2 fairly well.
And if you think about what has happened to the margins across our businesses. We have benefited from volume leverage as our activity has stepped up in terms of normalized levels of margins.
I would say that right now the overall business is travelling in the 70% to 75% range fairly comfortably we are working through the R&M initiatives and fulfillment changes to how we execute and deliver to our customers and over the course of 2023 those.
Initiatives should also be improving margins. So if activity levels stay here, we could see further margin expansion just from further efficiency of what we do and of course, if activity really picks up then we will see less margin expansion from that but even as we go into Q3, we've already called out that we expect to see 25%.
The 50 basis points on top of where we are just from having good cost control and team and taking more advantage of some of that volume leverage.
Yes.
Does it give you if I could add a couple of things look I think in terms of progression, we have always had a bit for longer term view.
We've set these goals and still we are truly sustainable we don't kind of set the next our next year. So we said high teens rebuild at 16, 1% in Q1 at 17, five so we've seen that margin expansion and as Keith said, we will see a little bit more as we get into the second half.
This year, which is really why we increased it from.
At least 50 basis points improvement over 'twenty, one to at least 100 basis points improvement over 2002, and then hopefully continue that into clinically look pricing is going to be a big factor our operational improvements, but we also have to offset the impact of inflation, which is where the real that we have talked about look on your point on the regional.
<unk>.
It's really a couple of things one is I think we are seeing broad growth across the globe.
There really isn't a.
Our region right now that we look at and say, we've got a challenging on beyond what we've talked about Russia.
Russia, obviously.
The region that is probably the slowest right now is Europe and Thats understandable given some of the dynamics that are happening over there look I'll start with our segments on the drilling and evaluation side, we expect that to be probably spearheaded by the middle East region, That's where we see a lot of activity coming in and that total really Shepherd Barron.
But augmented again by Latin America, and get a little bit more in.
In North America, especially in the Gulf of Mexico is where we expect to see a little bit of that on the well construction and completion I think thats, probably the most I'll call. It secular if you will from a regional standpoint of all of our segments and really across the board.
On the production intervention side, the PRA segment, it's probably going to be.
Sort of highlighted by North America, and Latin America, that's really where we see the <unk>.
Majority of that trust coming in from bolt on or.
Artificial lift business as well as the rest of the product lines in that segment, but well look we think the important message here really is activity levels. Despite all of the.
Set of concerns on recession et cetera, we do believe will remain.
Reasonably good and continue to improve.
Thank you I'll turn it over.
Thanks Avi.
And our next question comes from Gregg Brody Bank of America. Please go ahead.
Good morning, guys.
For the update.
Good morning.
Just just.
On Russia just.
I might be a little confused here, but.
I am seeing a lot of other companies talk about.
Basically holding the asset for sale talking about some timeline to have to get out of Russia sanctions.
But I'm not hearing that from you. So help me understand where I'm wrong on that and is there any pressure for you to exit Russia.
Hey, Greg So look I would not say a wrong, but I think there is a mix of companies right now in our sector. Some of whom have done exactly what you said, which is old assets for sale et cetera.
Many others, who have not look our.
<unk> has really not changed so number one we continue to operate in Russia, and we are in full compliance with all sanctions. So.
We have also highlighted in the past that the world of sanctions is a very evolving situation. It updates almost on a weekly basis, sometimes even more frequently we're looking at sanctions from the U S. The UK and the EU and ensuring that we are compliant with all of those now as those sanctions.
Evolve it is plausible and possible that something might change, which would cause a fundamental issue that we can no longer operate for whatever reason, we can't predict that and if that happens we will address it at that point in time, but as of today, while we do expect operational complexity, mostly driven by the <unk>.
The ability to ship material into Russia, which is why we think overtime, Russia is going to not be a growth story for us for sure but.
That business is becoming more self sustaining.
But we are operating and we will continue to honor all of our existing contracts. We had also again to reiterate not putting any new investments into Russia.
Of any type, including any new technology going in.
Got it.
You mentioned, Russia is about 6% of revenue now.
Do you.
You provided more color on how much of EBITDA represents how much you start to become.
No. We have not look we've said historically, it's been 5% to 7% and Theres always a little bit of seasonality based on the quarters et cetera, but that 5% to 7% range is.
<unk> is generally been fairly accurate.
That's kind of where it is right now we have not given any further information beyond that.
Just to clarify 5% to 7% range is what you said previously for revenue or are you, saying that's the same number.
For for EBITDA.
No no no we have not said what EBITDA is.
And we also need to.
Think about the the operating complexity of operating in Russia today.
In terms of no new technology, no ability to ship our products in our no intent on our part so the margins or EBITDA that we were earning any way have already been shrinking.
And so it's it's a different business, but as girish.
As pointed out we are operating within the sanctions we are turning it into a self sustaining contained business within Russia.
And we'll leave it at that for now until the sanctions to say that we have to do something else.
And then that 900 million free cash flow number that you've talked about for the year.
Okay.
Is there some is there a possibility that some of that cash is trapped in Russia or is.
It does not mean in Kona.
Correct.
It's not meaningful and we've already.
Adjusted for that.
In our plants.
Russia does generate cash however, currency is fairly convertible as we see on the international markets.
Ken.
Certain payments, even though even though the number of payments that extend maker are falling in terms of support or management.
R&D and so forth, but we don't see it as a risk to our profile at this time.
Got it.
I know you haven't provided official guidance earlier.
That also is that <unk> been able to grow double digit next year.
You are taking into account.
Sure.
Our investment in Russia, that's correct.
Taking into account the lower investment in Russia.
Yes, so look Russia.
A very small business, it's not the focus at the moment we've already.
<unk> proven that we have other parts.
The world in geographies that have outgrown.
What we've lost there in step, but we are focused on the middle East who are focused right now on North America. As you can see from our PRA business that has performed so well, we're finally getting to deploy our <unk>.
Products and services at the production and <unk>.
People will start to stimulate more wells and do more things. So we have a very robust business that is.
Forming world.
Yeah, and look just to echo that Greg I think for us really to that.
Our focus is the rest of the world and we are seeing very robust.
Demand again, they are not providing guidance for 'twenty three at this point in time, we will come back.
In a little while in a couple of quarters and give you guys saw all of that that view, but I think look the way activity shaping up right now and with the focus on energy security.
A lot of the commitments, especially in the middle East to increase production capacity. We are excited about the prospects there in Latin America, we are seeing a lot of spot activity come back. The tendering is robust. So we're excited about.
23 holds.
Great I appreciate you entertaining my questions.
It's gotten a lot.
Helpful.
Just a few more here.
So you've talked about inflation impacting fuel cost I'm curious juices are you concerned at all about some of these conversations about Europe .
Serving energy. This winter is there a possibility how are you preparing for that.
In terms of your some of your manufacturing operations there.
Is there much that you're worried about something.
Being able to to operate.
Got it.
It's a great question, Greg and look it Sparks early wireless fulfillment initiative requires becomes even more important in.
In the context of what we are doing so we are actually driving a lot more consolidation, which naturally already.
It reduces rooftops, a producer's LNG consumption et cetera on.
On a conservation of energy in Europe , specifically, we think it might actually create more activity levels for us whether it's in the north sea or in some of our land based businesses in Europe give.
Give a little bit more impetus to that so it will actually be a positive in terms of actual manufacturing look Europe is not exactly.
The most critical.
Aspect.
Europe . So yes, that's what we look at but what it does say is right now getting supplies into Europe is critical and we think activity in Europe and the rest of the world will have to go up to make sure that the energy and gas, particularly can be supplied to Europe .
No I appreciate it I appreciate that.
FX exposure is so anyway, we should be looking out for there.
You just got folks should be thinking about.
If you have any significant exposure someplace.
No not at this time I think we do have a fairly balanced.
Portfolio.
Across the globe.
Sometimes we are up in one area and sometimes we're down to another we have not.
<unk> seen the need to call that out in our forecasts at this point in time and so we continue to.
The contracting dollars, where we can and as the dollar strengthens and that seems to be good for everybody.
Great.
You mentioned sort of my cash flow refinancing credit for that question.
Yes.
You mentioned that things are progressing well with some banks.
Do you have a sense of timing that you can provide with US there I know you've been reluctant to do that in the past it sounds like you feel better about things.
Yes, Yes look we do Greg and look we're not going to give a specific timing on this we have always said, we're going to make sure we get the right structure in place for the company and when it is done we will announce that look as Keith pointed out we are getting a little bit more specific on our commentary on that and look as soon as we have something real everyone will.
No simultaneously, but we're not going to commit other than saying, we want to make sure we get the right and the efficient structure in place for the company and we think we're moving towards that.
Great.
And then just.
Cash flow items.
Have you.
The restructuring charges for the year, what should we expect any changes therefore previous guidance.
Changes from previous guidance, we're still in the.
The <unk> 40 range on that.
We've already taken a charge for 'twenty I know our spending is.
It's roughly about I think five to 10 a quarter. So I think we are.
Sure.
And then cash taxes.
How should we think about that.
Cash taxes should step up.
We've been in the 80 to 90 range, but I think we could see it.
As well with the revenues and Greg look we're happy to take in our detailed model questions offline. If you want to go through.
So yes.
Hi.
A couple of more if you don't want to take what I hear feedback people I appreciate that.
They put in their models and they say behind that about 15 calls.
If I do this.
Just if need be.
Just two more.
You told US working capital needs I think you should take up 50 to 75 this.
This year in the second half.
And then usually you have some adjustment for Andy how should I think about that.
I mean for.
Sorry, Andrew inventory changes yes.
Yes.
That's going to be included in that and that number net number I quoted.
<unk> already adjusted for that.
Got it and is there anything other free cash flow lines, we should be aware of.
I think we're running.
Clearly clean year this year in terms of items we've been.
Focusing on.
On staying within the lanes and so.
Unless there is an event or surprise.
I wouldn't expect anything else.
Okay, guys I appreciate the patience with me Keith.
Keith Good luck to you.
Sure.
Small world I'm sure well perpetual cross again.
Thanks for telling us.
Alright, Thanks Franklin.
Hello, Ladies and gentlemen, this concludes our question and answer session I would like to turn the call back over to management for final remarks.
Great Hey, Thanks, everyone. Appreciate you all joining in and we look forward to updating you with our third quarter.
Thanks.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines move a wonderful day.
Okay.
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