Weatherford International plc Q1 2023 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Weatherford International first quarter 2023 earnings call.
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I would now like to turn the conference over to Mohammed top of wallet <unk> director of Investor Relations and M&A, Sir you may begin.
Welcome everyone to the Weatherford International fourth quarter 2023 conference call I'm joined today by Gary Telegram, President and CEO , and eroding Mithra Executive Vice President and CFO .
We will 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.
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 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. Following the conclusion of this.
Call with that I'd like to turn the call over to dish.
Thanks, Mohammed and thank you all for joining the call.
Our first quarter results were another set of course and I am incredibly grateful to our entire one weatherford team for their passion and tireless focus on execution.
Our results continue to demonstrate the viability of our strategy and the strength of our execution capabilities.
We delivered above expectations in revenue margins and cash and are set up well for the remainder of the year.
The first quarter did benefit from some contract recoveries that we had expected to materialize in the second quarter and as a result, we will see some timing deltas between the two quarters in the first half Nonetheless, it will be a first half that is well ahead of performance last year and gives us the confidence to significantly increase our guidance for the total year.
In the first quarter of 2023 revenue of $1.19 billion increased 26% over the first quarter of 2022, reflecting broad based growth in each of our three segments across all Geos sold. We also saw a sequential decline of 2%, which is very moderate relative to the usual seasonal declines them.
Constraining the strength of the cycle, especially in the international markets.
North America revenues grew 20% over the first quarter of 2022 and as expected the seasonal declines in activity, especially in P. O ray caused a sequential drop of 5% the.
The year over year International growth was largely broad based as revenue grew 29% over the first quarter of 2022 as we have been talking about for a while middle East activity is firming up strongly and we're also seeing greater strength in Latin America.
I'm, particularly pleased with our margin expansion performance as we delivered adjusted EBITDA of $269 million, our adjusted EBITDA margin of 22, 7%.
Margin expansion of over 650 basis points year over year is very significant especially coming on the heels of the strong margin expansion here in 2022 and puts us on the right trajectory towards our ambition of mid Twenty's EBITDA margins.
We delivered $72 million of net income in Q1.
To put this in perspective 2022 was the first year in 10 years, we generated positive net income and that was $26 million for the entire year.
Finally, we generated $27 million of adjusted free cash flow for the quarter.
Quite a significant investment in Capex working capital and annual incentive outflows. We have always stated that our investments will never come at the expense of generating cash in the first quarter. It's a tangible proof point of that commitment to our investor base.
Since I joined the company in late 2020, we have been intensely focused on improving the liquidity profile of the company and have come a long way towards enhancing the overall capital structure of the company the.
The announcement to pay down the $105 million, 11% exit not stub is another important milestone in our post emergence journey, which brings our gross debt levels below December 2019 levels. Another remarkable achievement.
On our last call I highlighted the five strategic priorities, we have for better put financial performance customer experience organizational vitality lean operations and creating the future.
But actual performance as hopefully clearly visible to everyone and it's something that will remain our north star I wanted to take a few minutes today to share some of the important product launches and operational highlights from the first quarter that point to our advances on the priorities of customer experience and creating the future, which go hand in hand.
In our drilling and evaluation segment, we continued to build upon our market, leading managed pressure drilling product offering by adding a performance to your option. This comprehensive solution enhances pressure management and improved detection and visualization of kick or loss incidents.
Ultra digitally captured data from post job analysis and process improvement by leveraging our industry, leading monitoring and modeling software capability.
And gives us a position points across the market spectrum.
In our wireline product line, we deployed our memory Raptor cased hole evaluation system, which uses our existing bulk neutron wireline logging capabilities that provides advanced analysis of oil water and gas saturation behind casing. As a result, the tool increase was production by providing precise saturation data and improving efficiency will review.
A customer calls.
In well construction and completion, we launched the express XD liner system with this launch we are driving increased the liability of liner hanger system, leading to reduce operational risk and superior well integrity.
To enhance well integrity, we have implemented the triple plug subsea reliefs are SSR system that features added fluids separation capability to prevent contamination before the cementing process. This cutting edge technology is the only system available in the market that offers a triple dart and plug feature ensuring through fluid separation.
In production and intervention in joint development with them at least operator, we delivered the ZIP technology utilizing a sensor in the Whipstock milling Assembly that provides a reading of inflammation and separation achieved at guessing exit depth, allowing the customer to validate the casing departure profile. We also released a fluid law sleep a system enhancement.
Our existing reentry fleet.
Which will enable customers to save rig time to cure lost circulation.
These are some examples of using digital technologies to enhance our differentiation, while creating greater value and customer outcomes. These technology introductions and spirit of collaboration with customers and what enables us to win business and we had several noteworthy examples in the first quarter.
In Latin America, we were awarded a $290 million two year contract extension to provide multiple product line offerings, including pressure pumping wireline belt services and testing services for onshore gas and shale wells.
We were awarded a three year five rig deepwater contract with BP Azerbaijan. The contract allows BP to automate the Crs operations further and reduce redzone risk using the video technology.
We have been awarded a three year joint operations contract with Saudi Arabia, Chevron and Kuwait Gulfport as a company.
Weatherford is the first company to provide its premier MPD technology offering but in upcoming exploration campaign.
In addition to our core offerings, we continue to gain traction in the geothermal energy space through a combination of commercial wins and partnerships. These achievements built on a long history in this area and enable us to further our positioning.
We entered into an exclusive collaboration agreement that set up the energy to provide an integrated package of products and services to end users with the development of geothermal energy.
Weatherford will offer its global expertise in data acquisition, digitalization and automation services and set a fever Leverages proven engineering and project management services to provide enhanced geothermal technology solutions to the market.
We signed a contract with ever a revolutionary geothermal company to support their first commercial ever loop in Germany for Whiting, a liner hanger system cementation products and associated services.
This project is based on a new closed loop advanced Geo Tunneled system that will begin drilling in July with pre more ever loops projected afterwards.
Our successful track record in the geothermal market made us an ideal partner for this challenging project.
In digital we saw success in further enabling our customers to increase the production of their wealth through our industry, leading data analytics and measurement capabilities.
Petroleum development Bond P. D O awarded best afford a seven year contract for our market, leading fore sight technology, which enables improved production performance of belts through its integrated and automated Bell models. We received an award from Aramco to deliver Red eye watercraft meter. This technology delivers real time measurements and enhanced accuracy multiphase conditions.
Yeah.
Now, let's turn to our view on the markets.
In North America, we are seeing signs of the growth trajectory starting to flatten as expected as rig counts have slightly decreased due to the softening of the gas market. However, we continue to see pricing resilience and expect an uptick in your production plan for the second half of the year.
As we've indicated before our portfolio in U S land market is much more production oriented and has limited downside risk, but the declining rig count and gas at the same time on offshore we continue to see robust activity in the Gulf of Mexico and are actively engaged in planning mid to longer term projects, especially for our <unk>.
Leading offerings of M. P D N P O S.
We believe North America will still grow for us this year, but at a lower place basis closer to mid single digits.
The outlook for international markets continues to demonstrate strength with the middle East and Latin America, leading the way.
Additionally, we see incremental opportunities in Asia, the Mediterranean and sub Sahara regions, driven by robust offshore project sanctions and startups.
We expect to see the broader middle East region grow North of 25% followed by Latin America in the mid to high teens, there will be volatility driven by customer project timing and supply tightness, there, but nothing as well as FX in certain international markets, but the organic activity growth is very encouraging for the next few years.
With that I'd like to hand, it over to Adam to walk us through financial performance and the guidance for the second quarter and full year of 2023.
Thank you Karen good morning, and thank you everyone for joining the call I'll begin with our consolidated results and then moving to our segment results liquidity and cash flows are skittish pension we had a great start to 2023 with our first quarter revenue of $1.19 billion, which grew 20.
6% turnover here led by across the board improvements in all segments and geographies operating income of 185 million in the first quarter of 'twenty three increased by 928% year over year.
Net income of $72 million increased by 190% year over year, when compared with a net loss of $80 million in the first quarter of 'twenty two.
Adjusted EBITDA for the quarter was $269 million, which translated into 22, 7% adjusted EBITDA margins first quarter results were favorably and had probably the timing of inflation related cost recoveries, particularly in the CRE segment, which we had forecast.
For the second quarter of 'twenty three.
Regardless, our first quarter margin expansion was noteworthy on a year on year basis and sets us up for a great first half of 2023.
Now moving to our segment results trimming any valuation or GRE revenue was 372 million increased by $80 million or 27% year over year due to increased activity across product lines and geographies the largest contributors being drilling related services.
<unk> segment, adjusted EBITDA of 108 million increased by $49 million or 83% year over year, mainly due to higher service activity and larger pull throughs, well construction and completion or WCC revenues of $421 million increased by $77 million or 22.
2% year over here driven by increased activity across all product lines and geographies, especially by higher cementation products completion spend Trs activity.
WCC segment, adjusted EBITA of 96 million increased by 29 million or 43% year over year, mainly due to increased activity across all our geographies production and intervention or P. R. I revenues of 349 million increased by 63 million or 20.
2% year over year due to increased activity across all product lines and geographies.
<unk> services and trading tunes international pressure pumping and artificial lift experienced the highest activity increases.
P. R ice segment adjusted EBITDA of 68 million increased 29 million or 74% year over year, mainly due to higher activity across all product lines and geographies led by intervention services and trading tools.
Turning to liquidity and cash flows I should point out that we are now referring to what used to be called in our non-GAAP disclosures as free cash flow as adjusted free cash flow. This is just a terminology changed structuring calculation remains exactly the same operating cash flows minus capex per sale proceeds from.
<unk> of assets is what it remains.
Our cash flow performance was robust despite the seasonal headwinds in the first quarter of 'twenty three we generated an operating cash flow of 84 million an improvement of $148 million versus first quarter of 'twenty, two and an adjusted free cash flow of positive $27 million and improve.
Linda $91 million versus first quarter of 'twenty two.
These improvements were primarily driven by higher margins as well as ongoing improvements in operational and working capital efficiencies it.
It is important to note that we drove this cash flow despite the capex and working capital investments Capex at 64 million for the quarter is expected to be at the higher point of spin versus rest of the year and the total year will be in the 4% to 5% range of revenue.
We close the first quarter of 'twenty three with total cash of approximately $983 million as of March 31st the 129 million sequentially.
This reduction was predominantly driven by a 52 million.
Remingtons for tax obligations relating to equity awards, vesting and senior notes repayments and repurchases of $62 million.
Pricing of $20 million.
11% senior unsecured notes and $42 million of our six 5% senior secured notes.
On the previous call I had suggested that we would reduce our restricted cash balance by $15 million by moving cash collateralized bilateral lcs into a new credit facility I'm very pleased that the team's execution as we accomplished a reduction of $52 million. This.
Water.
On April 22023, we issued a notice to redeem the remaining 105 million of our 11% senior unsecured notes.
Exit costs.
Our capital allocation strategy and priorities remain unchanged, we will continue to invest back in the company for technology, Capex and working capital, but not at the expense of generating free cash flow as seen from the recent announcements we've made significant progress on debt reduction and thereby interest cost reduction.
Simultaneously leverage improvements.
During the quarter, we continued to engage in opportunistic buyback parts secured debt below par and we're able to retire at $42 million subsequent to the redemption of the 100 million stub.
Ted will be approximately 2.08 billion comprised of 415 million of secured notes due 2028 at six 5% and one 6 billion of unsecured notes due 2030 at 862, 5%.
Our Q1, ending beverage of one three times is well within the industry norms and should continue to drop as we generate additional cash and expand more and further expand margins.
Turning to our outlook I'll start by noting that we are taking up our total year guidance meaningfully.
Some ships versus normal quarterly patterns that Alex <unk> 12 for the second quarter 2023, we expect consolidated revenues to grow by mid single digits sequentially.
Across the segments TRT revenue is expected to be flat to down by low single digits. WCC is expected to grow by mid to high single digits and PRA is expected to grow by mid to high single digits.
We are expecting to see a slight decrease in adjusted EBITDA margins versus the first quarter of 'twenty three and this is driven by three factors the shift to Q1 of contract recoveries, which were projected for Q2, the mix shift towards products and WCC driven by new business in the middle East and the.
Startup costs for new contracts that we've previously talked about nonetheless, adjusted EBITDA margins are expected to expand by over 400 basis points over the second quarter of 'twenty two in the first half margins in total will remain pretty strong.
Capex is expected to be in the range of $40 million to $50 million and adjusted free cash flow is expected to be greater than $50 million. Despite higher cash interest and continued working capital investments for the full year of 2023.
Our full year 2023 consolidated revenues are now expected to grow by mid teens compared to 22 versus the low double digits to mid teens, we had indicated earlier.
The segment's DRA is forecasted to deliver low double digits to mid teens growth WCC to deliver mid teens growth and PRA to deliver mid to high single digits growth.
As mentioned in our last earning calls 2023 will be a year in which we.
We invest the company reinvest in the company for the long term and have some startup costs on the newly announced contracts.
Having said that we have visibility to some significant opportunities and continue to execute in favor of our long term strategic priorities.
This will enable us to offset the aforementioned risks and deliver another year of meaningful margin expansion.
Finally, we are raising our guidance for full year consolidated adjusted EBITDA margins to expand by at least 250 basis points over 2022.
While the third quarter typically benefits from greater service fall throughs. This here, we anticipate that there will be some offset to that effect driven by service and product mix. Additionally, labor inflation and wage increases would start having an impact from Q2 through Q4 as mentioned earlier capex for.
For the full year is expected to be 45% of revenue.
Good standing we are now increasing our adjusted free cash flow guidance as we now expect 2023 adjusted free cash flow to be greater in 2022 on the back of increasing margins.
You for your time today I will now pass the call back to <unk> for his closing comments.
To summarize our commentary thus far a very strong start to the year that enables taking up the full year outlook, while our financial results are clear that enabled by the people and the initiatives. We have in the company and I want to take a couple of minutes to highlight our other two strategic priorities as well.
On lean operations, we're making good progress on simplification and our fulfillment initiative, which also has a direct impact on our financial performance and customer experience. We are streamlining our integrated supply chain by developing new strategic partners, which allows us to increase our low cost region sourcing spend by over five X over the next couple of years.
It will also increase logistics network efficiencies and decreased delivery lead times as we intensify our execution footprint around our customers.
We also continued to relentlessly focus on the intersection of product line and geography as we have discussed numerous times in the first quarter, we exited our Alaska operations as we didn't see a sustainable path to longer term profitability and scale in that region.
We saw improved inventory efficiency evidenced by a 12 day reduction in DSI year over year in a quarter, where revenue increased by 26% overall net working capital days improved by 13 days to 99 days, a noteworthy achievement in a growth environment.
We've also launched a program to modernize our human capital management platform and have selected Oracle to be a new platform.
This is an important investment in the infrastructure of the company and one that will provide a solid foundation for people and talent development for the future.
Like all of the programs. This is viewed through a rigorous execution and payback lens and we're excited about the potential of this change in the next few quarters.
We launched our turnaround with a clear goal of sustainable profitability and free cash flow generation.
Over the past 11 quarters, we have consistently delivered and are committed to more of the same our margins now demonstrate the differentiation of our portfolio and make a strong case for the continued investment potential in the company.
While there has been significant equity appreciation over the past two years, we still believe there is further room for growth and that a re rating of the multiple is justified given the performance and trajectory of the company.
We remain grateful to our customers for their unwavering trust, our employees and business partners for their steadfast support and our investors for their continued confidence throughout this journey and now operator, let's please open it up for questions.
Thank you we will now begin the question and answer session to.
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Today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning, everyone.
Hello, Good morning, Good morning, Hey, good morning.
Yeah.
<unk> you guys talked about al contract recoveries that we're expecting that <unk> kind of moved into <unk>.
Or was there anything else that was different versus your initial outlook of course cost of large eat.
And then.
And what you expect regional growth rates this year, but could you talk about where the increase in confidence is coming from that.
That raised your full year guide and maybe more specifically on the margins there as well.
Yes, sure look those duration I'll start.
So I think look a few things the contract recoveries were a part of it for sure but look I think a couple of other things that contributed.
The first one is activity continues to be really robust and we saw that in the revenue numbers right. The seasonal decline was a lot less and that just I think really points to the strength of the market in general, especially on the international side and that typically comes in at a higher cultural rates, so that that benefits as well I think the other thing that I would point.
Two is look the team's done a phenomenal job at executing bolt on our commercial initiatives as well as internal cost controls and the initiatives that we're driving around margin expansion. So I think all of that put together really drove drove the outperformance this quarter and something that we've continued to build on momentum last year and.
Continues.
A lot of that is what leads into the second part of your question, which is what gives us confidence we are seeing the international markets are really really strong you know like we pointed out in our prepared remarks.
Middle East activity is very robust we are very encouraged by the science of <unk> and ongoing tendering activity as well and then Latin America is actually much stronger than we had potentially anticipated and you know the other regions are starting to kick in as well. So net net look it's a very robust market.
America has been strong as well look the year on year growth in North America was a was very good. So we think there is a lot more traction left in the market and that gives us the confidence to increase guidance.
Okay, alright, thanks very much.
Thank you and our next question today comes from Archie Murdock with Goldman Sachs. Please go ahead.
Hi, Good morning team, you've made some incremental progress on the balance sheet, which has been an area of focus for you, but as you think about the subsequent steps yard.
And you have to refresh the thinking around capital allocation between return of capital dividend or M&A opportunities. How do you think about it.
Hey, I think this is Aaron.
You know our priorities really haven't changed we continue to focus on balance sheet.
Our impaired debt stack optimization and access to liquidity.
As we discussed before we will be prioritizing allocation of capital associated with infrastructure build out on the technology side, we are.
Investing monies in R&D as you would've noticed our capex spend went up meaningfully about 30% sequentially.
Our capital allocation priorities as far as reinvesting in the business remains the same and we will continue to make meaningful progress on access to liquidity and debt reduction.
So that timeframe continues to span a priority.
Great. Thank you for that and then on the full year margin expectation you you raised your I guess basis point change guidance, but I'm wondering if that changes your longer term normalized expectations versus the guidance you provided last time or does that more so on forward that expectation.
Yeah, Hey, I think those Girish look we have talked about this a few times now and we are.
Very clearly stated.
A couple of things one is our philosophy and our methodology is we set a target we worked towards it and unless until instrumented. We don't take it up further right. We started at 15% EBITDA margins about two years ago, we raised it to high teens and now we've said look our mid Twenty's, which is a pretty pretty remarkable.
Achievement that we can get there, but we are confident we will and really sets us up in the highest tier of the industry. So you'll look for us that continues to be the goal right now is to get to that mid twenties. When we talked about it towards the end of last year right. We basically said it is a multiyear journey.
Obviously, it's always going to get helped with a stronger market and you know we.
We are seeing that right now so our hope is that over the next couple of years, we should be able to get there, but more importantly, we want to make sure that we can sustain that and that's what really going to depend a little bit on the market, but while we're doing that we're making sure that we are making all the structural changes in the company and to set us up for a through cycle basis. So that's that's really R. R.
Our effort and the market continues to go Gangbusters, then suddenly you get accelerated but we're much more focused on the sustainability aspect.
Great appreciate the color. Thank you.
And our next question today comes from Kurt.
RBC. Please go ahead.
Hey, Hey, good morning, everybody How's it going.
I'd card, how you doin' Kurt good morning.
Great Great Great work great effort great results. So congrats thank you.
Youre welcome.
Alright. So my question is initially here on.
The growing dynamics in the international market and like you booked a billion two in new contracts. During the course of the first quarter, we booked $6 5 billion.
Last year.
Question number one along those lines as you know do you think are you think you have the capacity and capability to potentially.
Look more contract awards in 2023 than it did in 2022 and your system handle that.
Yeah, So look it's a really great.
Question. The short answer is yes, the longer version of the answer is look you know lot of these contracts are multi year right. So that's an important thing to remember so a lot of it will depend on the duration of the contract and what product lines et cetera, but look we are very confident not just in our capacity but.
Also our ability to scale.
It's also partly why we are investing in capital right. If you look at Q4 and Q1 collectively in those two quarters, we have invested about $110 million of capex into the company and that really sets us up to execute on all of these contracts not just in 'twenty, three 'twenty, four but but beyond as well. So look we are getting.
But from a capex capability, we're making sure we've got the right service delivery.
We've got making sure we've got the right fulfillment networks and as well as that making sure that the commercial efforts around the company are set up to work the new opportunities as they come you know a lot of these wins are sometimes extension some of them are incremental new opportunities and we're going all out on all of them.
Gotcha Alright. So follow up question then is you've obviously increased your margin.
Expectations for 2023, so how much of that upside in in that margin dynamic is is pricing of the contracts that are rolling through how much of that is you know specific internal drivers.
Great to get some color from you on that.
Yeah.
Got it.
We're not we don't have that degree of precision that we can point to exactly how many basis points comes from from each piece, but what I think is fair to say is look the big components pricing is certainly a factor around it we continue to see a constructive environment for pricing there is a significant offset from inflation.
You know that hasn't fully abated and a lot of different material areas and wage increases are a factor as well and it's important given the cost of living increases were for people around the world. So we are committed to make sure that our employee base gets that.
Merit adjustments, that's baked into our forecast as well, which offset the pricing got piece a little bit looking at the same time, you know like we've been talking about for the last couple of years, there's a lot of sort of Paul called self help initiatives that we're driving to really modernize the company and to make sure that our structure instead of being what has been a historical.
This advantage is actually a strategic advantage for us.
So our efforts around fulfillment, what we are doing with our service delivery. The way we are driving our product line strategies changing the mix a roundup.
Our clients the commercial strategy is not just around the pricing, how we really attack our contract base and make sure that we're getting the maximum utilization out of the contracts themselves all of it or are factors, which are leading to very significant margin expansion now for a couple of years.
Okay, Great and then if I may just look the markets are concerned about.
Significant macroeconomic slowdown recession, whatever you want call it.
How does that translate is any of that translating to discussions you're having with your international customers or are they starting to get worry or are they are they starting to maybe.
Scaled back on their aggressiveness on wanting to increase their work I mean, it doesn't appear that way, but I. Just you know you guys are having these conversations on a regular basis are you sensing any tone change from your customers at all.
Look not at all the only don't change that we're seeing is really around how can we do more so if anything look I would say on the international side. Our customers are really committed to that investment tcs their plans that they've laid out which are not look on a short term basis, there really taught us well through there.
There is a longer term disconnect on the energy security and energy supply side that has got to be gotta be fixed given the longer term underinvestment. That's happened in the sector. So we see our international customers very committed to that and continuing to go forward with their plans regardless of the sort of day to day.
<unk> and headlines that appear.
That's great I appreciate all the color. Thank you.
Thanks Kurt.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one at this time.
Today's next question comes from Doug Becker with capital one. Please go ahead.
Chris you highlighted the launch of a new N P. D offering could you go into a little more detail about what markets that technology is really targeting and I'm guessing offshore and then just your general outlook for MPD, we've been hearing that it's difficult to get the.
The equipment offshore, which suggests pretty good pricing power for Weatherford.
Yeah, Hey.
Doug.
Thanks for joining the call and appreciate the question. Yeah look we continue to remain very excited about MPD. It is really a sort.
Our flagship product line and as we've talked about multiple times before this is really a story of adoption versus share for us.
Given our technology leadership in this space. So look this offering what this really is a performance gear offerings. So you know we've got a terrific offering on the onshore market is kind of the base MPD. We've got the higher end with a rictus offering this really complements that overall portfolio by addressing the entire market now sort of at that mid <unk>.
I know that performance Dear that allows customers, who want that but don't want the full scale and range of the offering.
And so we get it a little bit on both sides of the market on onshore and offshore.
Still early days, but we are.
Tremendously excited about the potential.
And really think that this will allow us to drive that adoption story, even further on MPD and get get more traction you'll point on supply tightness I think is very correct.
Look this is a market that we are now seeing a lot more demand and you know the capital cycles at a little bit longer and you know, we're very committed to capital discipline. On this this is not going to be a case of build it and they will come this is gonna be as with everything else that we've done very rigorous payback lens.
Making sure that we've got a line of sight to do the right returns and the right profiles and you're absolutely right. It does give us a opportunity to drive.
Good pricing, but at the same time look we want to make sure that we are working with our customers to make sure that they are getting the efficacy and the benefit of this so it's a very holistic view, but look it's a very profitable product line. So tremendous room for growth. We are very excited about it.
Well, that's very encouraging.
Also looking for a little more granularity on the free cash flow guidance. It seems to imply more than 300 million. This year last year. The EBITDA to free cash flow conversion was north of 35% instead of a reasonable expectation this year given the growth opportunities you see.
So.
As is typical of car industry.
Cash flow generation in Q2, the second half of the year as opposed to the first what we can definitively tell you is that we are off to a great start probably by the time, we're done interested with the first half we would be well in advance of what we would've been in the.
First half last year, but think about the number of investments we are making relative.
Relative to what we did last year.
Meaningfully increased our capex spend there will be some working capital buildup, notwithstanding working capital efficiency that will drive top line growth not only in the second half but into this into the next calendar year as well.
So I think at this point it is.
What we are saying is we expect the cash flows to be greater than what we did last year hopefully creator can be 5% I don't know at this point, we are not really talking about a number but it will be meaningfully greater than what we did last year.
No.
Fair enough and then really just wanted to dig into a deal or are you just a little bit is the inflation recoveries. The pulmonary region that revenue is expected to be flat, maybe down a little bit in the second quarter or the other factors at play there.
Oh.
Primary reason is the fact that we experienced some cost recoveries, which typically flow through the revenue line as well.
Had that not been the case, we would have experienced a sequential growth in the second quarter. So that is why we are guiding towards maybe flat or somewhat negative.
On a sequential basis in Q2.
Got it thank you very much.
Sure.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to the management team for any final remarks.
Great Hey, Thank you all so much for joining the call I think guy look up I appreciate everyone's interest in the company and once again, a huge thanks to our entire Weatherford team for just fabulous execution in the first quarter and we look forward to talking to you again in 90 days on the second quarter results. Thank you all.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.