Q4 2022 Weatherford International PLC Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Weatherford International fourth quarter, and full year 2022 earnings call.
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I would now like to turn the conference over to Mohamad Wallboard Director Investor Relations and M&A. Sir you may begin welcome everyone to the Weatherford International fourth quarter and full year 2022 conference call I'm joined today by Geely Telegram, President and CEO I don't Mitra our executive.
President and Chief Financial Officer, and doesn't know our Chief Accounting Officer.
We'll start today with our prepared remarks, and then open it up for questions.
Download a copy of the presentation slides corresponding today's call from our website Investor Relations section.
I want 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 expectation expressed herein.
Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements.
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 fourth quarter 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 website section. Following the conclusion of this call.
With that I'd like to turn the call over to diminish thanks.
Thanks, Mohammed and thank you all for joining the call today.
Barefoot delivered outstanding results in the fourth quarter, and all of 2022, and I am incredibly gratified proud and humbled gratified that our strategy and actions have come together to deliver strong performance proud of what we have achieved and humbled by being given the privilege to represent the 17700 <unk>.
Members of the one weatherford team and share our results with all of you.
The spirit resilience and talent of our team is the driving force behind the commercial wins revenue growth margin expansion and free cash flow. We delivered my immense pride in deep gratitude goes out to all of our better footing.
You for what you do every day for our customers and the company.
There are many significant milestones in our full year 2022 results.
It was the first time, we generated positive free cash flow for three consecutive years in over three decades.
We achieved a leverage ratio of one four times the lowest in over 15 years.
Revenue grew year over year by 19% the highest growth rate in over 10 years, and perhaps most notably we generated positive net income of $26 million. Another first in over 10 years.
These results clearly demonstrate the effectiveness of our refreshed operating paradigm and reaffirmed the strength of our strategy to enable margin expansion and generate free cash flow.
With this marking the 10th successive quarter of results that demonstrate performance credibility transparency and stability. We can now confidently say the turnaround at Weatherford is complete we are the new Weatherford are verified that continues to deliver differentiation in technology and people, but now with the culture leadership and operating.
Paradigm around consistency and credibility of performance and so.
Consequently move into the next phase of our journey, we have a broader horizon and a longer range vision to deliver value.
Desmond no not only will cover more details, but I wanted to share a few of the more significant highlights of our results are.
Our fourth quarter 2022 revenue of one point to $1 billion was up 8% sequentially and 25% year over year, our focus on directed growth and pricing allowed us to grow the top line and was aided by general market activity increase.
I'm, especially pleased with our performance on margins and free cash flow, we delivered 22% adjusted EBITDA margins expanding margins by 290 basis points sequentially driven by solid execution across the board.
In fact, the Q4 2022 EBITDA margin is the highest that the company has achieved in any quarter and more than 12 years.
The improvements we have made in our net working capital efficiencies alongside higher adjusted EBITDA were reflected in a $171 million of free cash flow performance. This is 38 million higher than the third quarter, despite $65 million in additional interest payments.
We delivered $72 million of net income in Q4, leading to a full year profitability as measured by net income of $26 million.
If you would've bet on Weatherford being net income positive in 2022, and we are excited to turn the page and add to shareholder equity on our balance sheet.
While we clearly acknowledge the benefit of the tailwind of a strong market performance improvements are equally driven by the execution intensity on our 2022 focus areas in fulfillment. We continued our multiyear initiative and have begun to fundamentally change the company's manufacturing sourcing and repair popcorn.
Over the course of the year, we identified a new flagship centers put in place a new logistics management system and continue to make progress on facility optimization as we have now exited over 12% of our operating facilities since 2021.
I have been emphatic about not chasing revenue growth without margins and directed growth with a focus area for us to ensure that incremental revenues also provide margin lift.
We complemented this with a company wide initiative on driving price consistently and systematically as we offset the inflationary pressures from our suppliers and wage increases.
Excellence in execution, our focus area aimed at improving got enterprise effectiveness continued to progress over the course of the year, we saw improved inventory efficiency evidenced by an 11 day reduction in DSI year over year in a year, where revenue increased by 19% overall net working capital days improved by 13 days to 90.
One days, an impressive achievement in a growth environment.
Simplification, our focus area to increase operational efficiency was led by several global and localized initiatives aimed at delayering and driving more accountability across the organization, resulting in overhead costs as a percentage of revenue declined over 280 basis points on a full year basis.
These initiatives are crucial in delivering a year over year increases of 320 basis points, and EBITDA margins and $21 million of free cash flow.
Over the past three years Weatherford has generated $655 million of free cash flow, which exceeds the past two decades combined.
In the fourth quarter of 2022, we also had many commercial wins demonstrating our position as both a broad spectrum and specialty services provider, providing a solid foundation for 2023 and beyond.
Kuwait oil company or KFC awarded Us a five year contract to provide directional drilling and logging while drilling services, which provide fit for purpose solutions to work overcome complex challenges.
A major IOC in the middle East awarded US a five year contract to provide fishing equipment and services. We attribute this window, a consistent service quality and safety performance.
We won three awards worth more than $600 million with the Latin American customer to deliver integrated drilling and completion services in onshore and offshore operations enabled by our technological and operational leadership.
In Brazil, we secured a two year sole provider award with Petrobras for the provision of a newly enhanced chemical injection system addressing the reliability and convenience requirements of the pre salt play.
As previously announced we received a three year lump sum turnkey or LSD Ek contract with a ramp go to deliver drilling and intervention services with a possibility of extending it for two years.
A five year contract exceeding $500 million from petroleum development, Oman to deliver integrated drilling services in the marble and greater soccer fields, which is already underway.
Shifting to our technology and partnership highlights for the quarter. Our firm are plugging abandonment team in Europe , one in or Wi Award for significant contribution to the industry.
This recognition showcases our pharma solutions rigorous approach to well decommissioning, resulting in reduced carbon emissions and enhance safety in every operation.
We announced a partnership with <unk> a leader in specialized well decommissioning technology that will enable their support and are dying to deliver significant value to customers globally by offering the industry's most comprehensive portfolio of plugging abandonment and slot recovery solutions.
This partnership demonstrates our continuing commitment to innovation and value creation in the well decommissioning space and further enhancing our industry leading from our offering.
We signed a multiyear agreement with data robot a leader in artificial intelligence to deliver advanced AI solutions, and our digital platforms, including foresight production optimization and central well well construction platforms now.
Now turning to our view on the markets.
In North America, the last several quarters have seen a high rate of growth for drilling and completions activity and we expect the trajectory to start flattening.
We still expect North America to grow in 2023, but at a lower rate on the supply side. We are now beginning to see signs of recovery as logistical constraints are slowly correcting and raw materials are becoming available.
On the offshore side, we are seeing signs of market activity picking up and are well positioned to capture it across our portfolio, especially with our MPD and Trs offerings.
The momentum of our international markets continues to gain traction and support the multiyear up cycle view across all segments and markets.
Middle East and Latin America activity continued to be robust and there will be incremental opportunities as activity further ramps up in.
In summary, the overall macro environment for the sector continues to be supported by solid fundamentals. Despite continued inflationary and geopolitical headwinds our ability to carry our momentum forward as evidenced in the commercial wins in 2022, including over $6 5 billion of wins with IOC and NOC across our broad customer footprint.
In the coming quarters, we will begin to see the impact of our new contracts technology advancements and partnerships as we continue to focus on margins cash flow and positioning the company for success over the long term.
Our confidence in the growing revenue pipeline and intense focus on driving leasing lean business operations enable us to envision low to mid 20% EBITDA margins over the next few years.
We also added a new member to our leadership team in January Urban Metro I joined Weatherford, as executive Vice President and Chief Financial Officer.
This decision for joined Weatherford speaks volumes to the caliber of talent, we attract the best in class organization.
We are thrilled to have you on our team.
Before I hand things over to iron I'd like to thanks, Desmond Mills for his service as our interim Chief Financial Officer, and his continued leadership in guiding our finance team with that I'd now like to hand, it over to Desmond to talk more specifically about our financial performance. This quarter, followed by our own to walk us through the guidance for the first quarter and full year of 2023.
Thank you Krish.
And thank you everyone for joining us on the call I'll begin with our consolidated results and then move into our segment results liquidity and cash flows as Girish outlined we had a stellar fourth quarter to close out the full year with great momentum full.
Full year 2022 revenue of $4 three 3 billion grew 19% as all segments experienced growth with adjusted EBITDA of 817 million or 18, 9%.
Adjusted EBITDA margin.
320 basis point improvement.
Revenue for the fourth quarter of 2022 was 1.21 billion, an increase of 8% sequentially and 25% year over year.
Operating income was $169 million in the fourth quarter of 2022 compared to $121 million in the third quarter of 2022 and $33 million in the fourth quarter of 2021.
Net income was 72 million compared to $28 million in the third quarter of 2022, and a net loss of $161 million in the fourth quarter of 2021.
Adjusted EBITDA of 266 million in the fourth quarter increased 24% sequentially and 73% year over year with adjusted EBITDA margin of 22% a sequential improvement of 290 basis points.
These results were primarily driven by increased activity share improvement and pricing across all of our segments, coupled with successful execution across our focus areas, we laid out for ourselves in 2022.
Now moving into segment results.
Drilling and evaluation of our dairy revenues of $371 million increased by $23 million or 7% sequentially, mainly driven by higher volumes and price increases for drilling services and higher wireline and managed pressure drilling activity in Latin America, and the Middle East North Africa Asia regions.
Segment, adjusted EBITDA of $111 million increased by $26 million or 31% sequentially, leading all segments with a Q4 adjusted EBITDA of nearly 30% 550 basis points higher than Q3.
This increase is largely attributable to price increases to certain drilling services contracts, which are retroactive back to Q3.
Additionally, we achieve higher fall throughs from increased activity in drilling services.
Well construction and completion of WCC revenues of 403 million increased by $12 million or 3% sequentially, primarily driven by higher cementation and liner hanger products in the Middle East North Africa, Asia, and Latin America regions.
Segment, adjusted EBITDA of 87 million increased by $9 million or 12% sequentially.
Due to higher fall through and execution efficiencies for cementation and liner hanger products in the Middle East North Africa, Asia, and Latin America regions.
Production and intervention or <unk> revenues of 407 million increased by $50 million or 14% sequentially, primarily driven by higher international pressure pumping activity, along with higher artificial lift activity in North America.
Segment, adjusted EBITDA of $88 million increased by $22 million or 33% sequentially, mainly due to higher margin fall throughs for pressure pumping overall.
Turning to liquidity and cash flows.
Full year 2022, operating cash flow was $349 million.
And free cash flow was $299 million.
In the fourth quarter net cash provided by operating activities was $193 million, an increase of $33 million and free cash flow was $171 million, an increase of $38 million sequentially. These.
These improvements were primarily driven by higher EBITDA margins as well as improved working capital efficiencies, especially around inventory utilization.
Drove outstanding performance with DSI metrics, improving by seven days to end the quarter at 51 days on improved sales and operational planning execution.
We made a lot of progress improving operational efficiencies as seen from our cost of products and services, which as a percentage of revenue with 70% in 2022 compared to $74 five in 2021, an improvement of 450 basis points.
This is reflective of the higher utilization on a more efficient operating cost structure, coupled with price improvements, which offset some of the impacts from supply chain disruptions and inflationary headwinds.
We are beginning to see the working capital benefits of our ongoing fulfillment and inventory optimization initiatives and improvements are evidenced by our year end inventory levels, which were up less than 3% compared to 2021, Despite a 19% increase in revenue.
We ended the fourth quarter of 2022 with total cash of approximately $1 1 billion as of December 31, 2022 down 31 million sequentially, reflecting payments made to pay down some of our debt.
During the fourth quarter, we completed the debt Paydown of previously announced redemption of the 125 million principal amount of our 11% senior notes due in 2024 and.
In addition, we're also opportunistic in buying back some of our debt on the open market as we optimize the economics of our debt Paydown by open market purchases all below par.
We bought $8 million of our six 5% secured notes during the fourth quarter and an additional $11 million in January 2023.
Finally, we also redeemed a further 20 million of our 11% senior notes in January 2023 by calling it in December 2022.
In total since the beginning of 2022, we have now paid down a total of $214 million of debt as we continue to improve our debt profile and reduced annual interest expense by approximately $23 million. Our overall debt stack at this point comprises $1 6 billion of senior notes due in 2030.
At 862, 5%.
$481 million of secured notes due in 2028 at six 5% and the original exit notes stub of $105 million due in 2024 and 11%.
Finally during the fourth quarter of 2022 standard <unk> poor upgraded our credit rating to B and we also increased the aggregate amount available under our credit facility to $400 million.
Thanks, all for your time today.
I'll now pass the call total for his comments on the outlook for the first quarter and full year 2023.
Thank you <unk> for the introduction and Testbed for supporting me with the 2022 commentary and good morning, everyone. I just wrapped up my first full bump here and it's been a busy one.
I'm truly excited to be part of an organization that has achieved so much in such a short span.
Look forward to contributing to the company's strategic direction and driving further financial performance as we pivot to position the company to generate sustainable returns over the longer term.
In the first quarter of 2023, we expect consolidated revenues to grow on a year over year basis by mid to high teens. However, there will be the usual Q4 to Q1 sequential decline.
Mid to high single digits, mainly driven by seasonality and some FX impacts.
Across the segments DRA and revenue is expected to decline in the high single digits WCC is expected to increase low to mid single digits and P. O right is expected to decline by mid to high teens, mainly driven by seasonality.
Adjusted EBITDA margins for the first quarter of 2023 are expected to decline by 150 to 200 basis points compared to the record fourth quarter, we experienced in 2022, which was augmented by catch up pricing adjustments. So normalized for Q4 the decline is there.
50 to 100 basis points, although the margins will witness a seasonal decline in Q1, they are still expected to be over 20%.
Capex is expected to range between $40 million to $60 million and free cash flow will be in the range of negative <unk> 15 to negative $35 million due to seasonal working capital payments during the quarter.
Our full year 2023 consolidated revenues are expected to grow by low double digits to mid teens compared to 2022, driven by mid single digits growth in North America mid teens growth internationally, excluding Russia.
Our Russia business expected to be a drag on overall company growth.
Cross the segment's DRA is forecasted to deliver mid to high single digits growth WCC to deliver in the mid to high teens growth and PR try to deliver mid to high single digits growth.
There continue to be multiple headwinds highlighted by labor inflation geopolitical uncertainty and supply chain disruptions 2023 will also be a year, where we invest in the company for the longer term and also have some startup costs on the new contracts, we have announced regardless we are confident in our <unk>.
<unk> to deliver margin expansion and cash flow generation.
We also have visibility to some significant opportunities and we fully expect to offset the aforementioned risk and have a slight bias to the upside as a result full year consolidated adjusted EBITDA margins are expected to expand by at least 100 basis points over 2022.
We expect 2023 free cash flow to be in line with 2022 with a slight bias to growth in spite of higher Capex and net working capital Capex for the full year is expected to be in the range of $200 million to $230 million.
As in our prior years, our Capex will be a metered spend with rigor around delivering real returns and within the 3% to 5% range. We previously discussed. Thank you for your time today I will now pass the call back to <unk> for his closing comments.
Thanks Edwin.
As we take a final lap on 2022 and take time to communicate them celebrate these results were also very clear that now is not the time to rest rather we are marching forward with the renewed refreshed and rejuvenated sense of purpose as.
As we are moving on to the next phase of our journey I will share our strategic imperatives. However, this time around our priorities are broader and will be a multiyear journey.
The first and foremost priority remains financial performance, we successfully demonstrated in 2022 that we could achieve growth along with margin expansion and positive cash flow.
For 2023 and beyond we are driving to ensure cash flow generation of cycle agnostic, while taking advantage of the up cycle, we will drive cost efficiencies and technology differentiation to provide greater leverage now and enhanced support and a different cycle.
The second priority is organizational white <unk>.
Our goal is to Upskill and develop our team to meet the industry challenges and continue to lead <unk>.
Will drive greater focus and investment in training and development across all levels of the company, but like all other investments. This will also have a rigorous payback, let's be want to attract great talent, but more importantly, develop engage and retain our team to grow their careers in the manner. They aspire to.
Next we have customer experience customers will continue to be the focal point of everything we do as we build our opportunity pipeline. We wanted to ensure that we employ robust processing solutions technologies and data that help us achieve both customer success and satisfaction as we forged ahead, we want to look at building a sticky customer.
Our base to our approach of delivering services. Despite the continued and logistical challenges faced by the industry, we will endeavor to maintain our uptime for our customers and minimize our total incident rate.
Our fourth priority is lean operations.
Efficiency and waste elimination will be the motives that guide all of our internal processes. Our ultimate goal is to provide value to the customer and this will be achieved on the back of nimble and agile operations.
This will be achieved through a combination of various factors such as maximizing the value per dollar spent on support costs, increasing asset utilization efficiency and tightening the working capital cycle.
This is a very significant change for our company as we bring together disparate systems processes and workflows built on media acquisitions and become a more integrated company.
Our final priority is creating the future innovation.
Innovation is the key tenant to achieving this objective our focus will be to enable our people to understand the needs of our customers and to introduce new products and services that create a unique value proposition for our customers and differentiate us in the market.
We will continue to actively engage in further building, our core products and services energy transition and digital portfolios, thereby positioning ourselves for the next decade.
As a responsible organization that is committed to sustainability journey Weatherford will continue to advance our ESG strategies and collaborate with stakeholders to achieve our net zero commitment.
We've come a long way and our progress Energizes and reassures me that we are on the right path.
I've seen what this organization is capable of and I'm excited about the journey ahead. Thank you for joining the call today and now operator, let's open it up for questions. Please.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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Today's first question comes from James West of Evercore ISI. Please go ahead.
Hey, good morning, guys and congrats on a great quarter.
Thank you.
Welcome to the team Rune and I know Chuck you've been there a little longer but both of them as well.
Thank you.
I'm curious.
I guess I'm curious maybe for you first question for me you laid out five priorities going forward.
All important priorities and really shows a company that's much matured from from where Weatherford was just several years ago. If you had to pick one or two of those priorities as kind of keys to success.
Or would those two big I understand that all five are important but what was the key one or two messages that we should take away. Yeah. So a great question James look I think at the end of the day financial performance frankly, as an output of everything that we do.
So the way I look at IPO for US we have to get 100% right. We have to do all of it but this whole notion of lean operations and customer experience I think that external focus on delivering to customers and how we deliver it internally really brings everything together and ultimately drives our ability to be more efficient and more effective.
Okay. Okay fair enough and then just looking at your strengths and MPD and Trs and really just the nice inflection and acceleration that we're seeing offshore and in particular in deep water could you maybe talk for a minute about how well positioned you guys or there and if there are any kind of geographical or.
Product holes you need to fill.
Yeah. So look we are excited as we referenced a little bit in our prepared remarks on the offshore inflection.
Look the industry is starting to adopt MPD a little bit more so that's I think a big positive.
For us given our leading edge technology in that space and as we have said multiple times before both MPD and Trs have a bit more of an exaggerated value proposition on the on the offshore piece look we don't think we have got any gaps per se, but we continue to drive new product development to position us at multiple different application levels in <unk>.
Different price points. So we're excited about a couple of things that we've got coming through the pipeline that we'll be talking about over the course of the year.
Okay got it great. Thanks, guys.
Thank you James.
And our next question today comes from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning.
On a global reach.
Congratulate pretty remarkable turnaround here.
Thank you.
Wanted to see you gave us the PSL outlook and briefly touched on the Geo markets.
Wondering if you could expand upon the geo markets and the outlook for each of these in 'twenty three.
Look I'll start with North America, you know again, we expect North America to grow but as you look at last year, we grew over 20% in North America. So certainly not anything close to that kind of a rate I think.
Probably instead of the mid to high single digits is where we see the North America business going again, this offshore inflection will help a little bit, especially on the Gulf of Mexico side.
Latin America was probably if you look at just a numbers basis was our most robust region grew 30% last year. We're still continue to be excited about Latin America, but that will again taper down a little bit we got the bulk of our growth and so this year it will be building on that and driving margin expansion.
Middle East is probably the area, where the most excited about as I've referenced multiple times on the call. We think the middle east growth will be head and shoulders above all of the other regions and will really spearheaded the overall company growth.
And should be high teens to 20 plus percent just on a standalone basis, and then you've got up.
Europe , and in Russia, and especially in Russia, We mentioned will be a little bit of a drag look Russia continues to be a complex environment, there's a lot of volatility.
On currency, so, it's a little bit hard to predict exactly where.
That will go we think Europe will grow outside of that but probably not to the level of any of these other regions. So hopefully that gives you a little bit more perspective.
Yeah, absolutely and then on the margin side, you talked about your goal to get to the low to mid 20% range over the next few years of course, you get the low 20% range on a quarterly basis in <unk>.
Can you talk a little bit about what it takes.
Maybe bridge the gap to get to the mid 20% margin level.
Yes, So I think look a couple of things I looked at our important does.
Is that on pointed out and doesn't reference rate in our Q4 numbers, we had a little bit of a pricing catch up the totally of numbers everything sort of still fits within that envelope, but there was a little bit of a catch up that really should be attributed to Q3. So net net its probably about 50 to 100 basis points.
As you look at it from that perspective, I think we will continue to see very strong and solid margin expansion. This year on an operational basis, and we will continue to drive that having said that we have this year a couple of things going on the first pieces. We have a few investments that we've talked about all over the course of last year in systems and our processes.
That we are going to be very very diligent about very conscious and we'll do it in a metered fashion, but we have to get this company ready for the next decade or two so that's going to come in a little bit over the course of the year and.
And the second is our new contracts have some startup costs, especially in the second.
And then maybe a little bit in the third quarter. So we've got a little bit of that but I think once we are sort of past that as we get our fulfillment network and our overall platform around repair and maintenance fully established and it should be in a much better state by the end of this year as we are able to bring out more new technology I think we will be able to then look at 'twenty four.
<unk> is really the year, where we transition into that that sort of put it out on a consistent basis.
Okay got it.
Yes, I appreciate the answers thank you.
And our next question today comes from Austin <unk> with Goldman Sachs. Please go ahead.
Hi, good morning beam.
You talked about a lot of improvement in working capital in 2022 are you now in a position to talk about normalized free cash flow conversion from EBITDA, just yet and.
And if not what else do you need to see happen before you get there yes.
Hey morning, Darby look I think a couple of a couple of things right.
Normalized is very broad for it for a.
I'd say, it's all relative to a certain extent I think we've made some tremendous progress on working capital efficiencies, but I don't believe we're fully done yet, but the other thing for US is you have to recognize as you think about EBITDA to free cash flow conversion is we still have a sizable chunk of debt right. So our debt and our interest payments.
While they're very manageable now our blended <unk>.
Cost of debt is approximately 8%, which in today's market is very competitive. We think we can certainly manage that but it does create a little bit of a.
Bump if you will on that conversion ratio. So I think we've got to take a little bit more time and hopefully by the second half of this year there'll be able to talk a little bit more of that from your perspective, what that normalized sense means, but we still think we've got opportunities to improve.
Our overall working capital side, especially on our payables side.
Got it. Thank you and then auto and maybe one for you firstly congratulations on the role and we look forward to working with you.
To get your view on what your key areas of focus are far for the farm as you think about the role and how do you think about the capital allocation priorities for the farm in terms of just the milestones you would like to achieve.
Thank you aarti.
Yeah.
I'm very excited to be in this drove a lot of work to be done, but a tremendous amount of progress has already been made and the excitement is palpable. So I'm very excited.
Nice to be here, but I think too.
As <unk> mentioned earlier, there is still a correct we turned on the working capital optimization. So I.
I'd like to get to on an unlevered basis, 40% to 50% conversion.
In terms of capital allocation priorities as <unk> mentioned several times in the past our priority is to recover.
We recalibrate our debt structure broken out there keep paying down debt. So that we have the flexibility and the resilience on our balance sheet when a when.
When the downcycle hits, so resilience of the balance sheet is a clear priority at this stage.
Great. Thank you and I'll turn it over.
Great. Thanks Avi.
And our next question today comes from James Hubbard with Deutsche Bank. Please go ahead.
Hi, Thank you congrats on great. So the others have said.
My first question is.
I've been listening to all week, BP shell and total and others.
They claim that they they're saying mid.
Low single digit inflation on all of their Capex and then of course, we've heard that story before from those guys in that at all.
You guys in a different direction, but I'm just wondering.
Can you help me reconcile that with the obvious margin expansion, we're seeing in the U S. Oilfield service sector yourselves included I'm just wondering.
Do you not do much work for the majors is that is that the answer and then.
Secondly, more philosophically.
Traditionally very cyclical sector, and 20, 25% EBITDA margins maybe to look forward through the next few years, but then inevitably at some point we worry about.
The decline in.
In the past the sector's behaved by getting better lots of people and it sounds like your urban life.
Okay.
The schools, you're trying to take a different approach with a new website and I am wondering.
How would you envisage guiding through the next downturn whenever it may be.
Many years from now, but when it comes when it just be another.
50% of the workforce.
Pat for Weatherford.
Yeah, James both great questions. Thank you look on the first one I am never going to tell you that we do enough for any kind of a customer anywhere we'd love to do more for all of them.
But look we do have a very wide mix and again as you look at our company right. We've talked multiple times about our revenue mix. It is much more internationally geared right. So 75% of our revenues are outside of North America. So as a result, we do have a greater proportion of our preponderance of <unk> versus <unk>.
Versus the Ioc's.
So and look we do work with all of the companies that you mentioned they are all very important and strategic customers for us along with a lot of the different noc's, but when it comes to margin expansion as we've talked deal pricing is certainly a factor in that.
But in addition to pricing you have two other effects right. The first is us working on our cost structure and improving the efficiencies on that and second is just a very simple set of mathematical view of fall throughs as they come in with.
On the same cost base, because we don't add cost at that same level on a total company basis. So I think that's what gives us that that margin expansion and we continue to have optimism about being able to expand it into the future. So having said that look your second question I think it's really important and Youre right look we've tried to look at it very differently.
For the last couple of years.
One of the tenets that I've spoken about multiple times is that we are willing to give up a little bit of that upside in this up cycle to make sure that we are fixing the company and we are protecting it on the downside when inevitably the cycle, but it does look like everyone else, we hope and we believe at this point, it's not going to be anytime in the immediate.
Future, but we are trying to build a company that is more cyclic gnostics that is a little bit more cycle proof. If you will and that mentality of as soon as you have a down cycle you slash and burn your employee base just doesn't work that's no way to run an organization. So we're really working on scalable infrastructure look as you look at our revenue growth we exited 2020.
With a run rate of approximately $3 billion Gil.
If you look at what we're guiding to our exit run rate. This year is going to be 60% higher than that but our employee base has not even gone up 10% right. So it's a dramatic change in the way we are leveraging our resource space. How we are utilizing third party labor and just getting more efficiency, but also driving automation.
Into our services into how we deliver to our customers and again, that's also a big part of the margin expansion that we see.
Great. Thank you.
Okay.
Yeah.
And our next question today comes from Doug Becker, Our capital one. Please go ahead.
Thanks.
Krish I wanted to approach the margin outlook, a little differently last year Weatherford group EBITA margins more than 300 basis points guidance for this year call scripts at least 100 basis points of margin improvement.
Full disclosure I'm trying to gauge the potential upside to that but what assumptions around pricing benefits from the fulfillment initiatives are really needed just to reach that 100 basis points.
Margin expansion.
Yeah.
Hey, Doug look I will start off with saying our mentality and our approach of really being credible in terms of the guidance that we give and making sure that we have a pathway and a line of sight on having full transparency on how we get there and what changes has not changed at all.
To collect even last year that we started at at least 50 basis points and we worked our way up as we saw more than beside activity and flagged up so look as we have planned out. This year. We have built in some assumptions on cost increases in terms of inflation, we have built in assumptions on wage increases.
This is a high inflationary environment for all of our team members. So we are going to be doing a medic increase thats something thats very important and we have as Ron mentioned some startup costs on these new contracts nothing untoward nothing that is concerning but its just a timing factor. These are long range contracts three years for the one in <unk>.
Saudi in five years for the one in Oman, and so we will have a little bit of Fei impact this year.
But look we do believe that pricing is going to continue to be a factor that is a positive contributor, but probably not to the extent that it was last year, we were able to get some very significant benefits, especially in the fourth quarter as we worked with customers and we're able to explain our value proposition as well as our cost base.
So we think all of these look we haven't broken it down in a quantitative fashion to give you the exact work, but all of that feeds into say 100 basis points at least of margin expansion and as we come back each quarter like we have done in the past we will provide you with the granular update of where we see things and how much progress we have made on the initiatives to drive that.
No that all sounds very reasonable.
Europe SSA, Russia revenue grew 22% sequentially just can you highlight which countries were the primary drivers of this growth.
So again, Doug we don't break it out by country, but look at we had multiple we had multiple growth areas.
And you have to also look at it on a quarterly sequential basis, but also on a total year basis. If you look at it on a total year basis. It was only a 4% growth year over year. So we would also highlight some of the challenges that we see as opposed to the other the other regions.
Yeah, that's fair and then.
Arun you touched base on this a little bit, but just wanted to get a little more color on what attracted you to weatherford and maybe get your initial assessment of the internal systems and maybe down the road would you anticipate providing segment guidance not just just a pull.
Total company revenue guidance.
Yes. Thanks for the question this is <unk>.
<unk>, which has been asked pretty frequently in the recent past.
My common answer has been I don't know what I was thinking I should've been hearing.
Year ago. So.
This is Ben.
The excitement and the team is palpable.
Look anywhere close to being a company, which had an existential crisis three years ago.
This is a company, which is you know.
On a platform to drive growth and continued margin expansion.
And although there is still a little bit of negative imperative out there in terms of when you Google Weatherford, if you dig deeper and try and understand what this management team has been able to accomplish over the last two and a half years, it's extraordinary and of course, <unk> being able to put together.
A super management team communication vertically horizontally is is very transparent and download the cross route Nevertheless, based on what I've seen in the last 30 days there is alignment in the strategic direction of the company.
So I'm very excited.
Sure.
We.
We don't do segment EBITA margin disclosures, so as <unk> highlighted.
A highlight it earlier.
Hum.
<unk> be at least 100 basis points expansion compared to 2022.
We do see an upside bias to it but we will be able to give you guys more color as the quarters progress in 2023.
And Doug look I, if I could just add to that.
We're very committed to transparency, but we also need to make sure that we give you things that are constructive and helpful versus giving you more information that it does lead to more questions. Our job is to manage all of this together and we always give you the full details on a retroactive basis of exactly what happened in each segment, so to get a bit of a better sense.
Around the company look given our size and scale, we still have a situation where individual product lines in a single country do have an effect and we've got to manage that at a holistic level.
No fair point.
I don't say this on calls very often but next quarter.
Thank you Doug I appreciate it thank you Tom.
Ladies and gentlemen, as a brief reminder, if you'd like to ask a question. Please press Star then one our next question comes from Gregg Brody of Bank of America. Please go ahead.
Good morning, guys and congrats on a great quarter.
I don't say that very often either so.
Thank you.
Just you.
You mentioned the capital allocation priorities, you're focused on Recalibrating. The debt structure could you just give us a little bit more color on how youre thinking about that.
One is what is it what is the right that number today.
So Greg I'll take that one and I have just started to have a lot of discussions as he's coming up to speed on that.
We have not.
<unk> laid out a leverage target or a specific debt number but look our priority has been to first and foremost take out.
High cost of debt stops or the stuff that we still have left we took out another $20 million of that will be paid out in January we called it in December So we're left with $105 million.
The call premium on that goes away in December . So we'll continue to look at the economics on that but I think suffice to say look that that won't be an issue on the longer term. We will we will get that taken care off and look what we started doing on an opportunistic basis in the fourth quarter as we saw our bonds.
Below par a little bit just given the market volatility.
We went in and got.
Some of you were able to buy back some of those bonds. So youll look we want to continue to pare down debt the cost of that like I mentioned earlier.
Linda sort of 8%, we think is very competitive, but we'd still like to bring that quantum down a little bit more I think look once we are able to get are retrenching down the credit facility as we get a few more quarters under our belt, we will be able to come back and have a bit more of a specific conversation about that so I would just ask for a tad bit more.
Patients on that but just look it continues to be the biggest priority for us.
Right and just last quarter, you did you put in place a new revolver.
One of the I think.
One of the benefits of that facility was the ability to.
Truly some of the cash that is collateralized hum for Lcs.
Have you made any progress with being able to release cash is that something where there's a way to think about how that may play out over the year.
Yes, Craig.
Take that.
Based on what I've seen I think we are on target to release about 15 billion in Q1. Another 20 in Q2, so we should be able to free up restricted cash to the extent of $70 million through the first half of the year.
Got it. Thank you for the time guys I appreciate it thanks, Greg.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to management for any final remarks.
Great Hey, Thank you all for Don joining and taking the time today, we look forward to coming back towards the end of April and sharing our Q1 results. Thank you all.
Okay.