Q2 2023 Weatherford International PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Weatherford International second quarter 2023 earnings call.
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I would now like to turn the conference over to my home a top of law, Vice President Investor Relations and M&A.
Sir you may begin welcome everyone to the Weatherford International second quarter 2023 conference call I'm joined today by Gary selling fan President and CEO and I don't know craft executive Vice President and CFO we.
We will start today with our prepared remarks, and then open it up for questions. You may download a copy of the presentation slides corresponding to todays call My 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.
Underlying details and a reconciliation of GAAP to non-GAAP financial measures.
<unk> in our second quarter earnings press release.
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's Investor Relations section. Following the conclusion of this call with that I'd like to turn the call over to Girish.
Thanks Mohamad.
And thank you all for joining our call it our.
Our second quarter results continued to build on the strong momentum of the first and I'm enormously grateful to the entire one weatherford team for delivering above expectations. Despite some headwinds.
Our performance in the second quarter is the 12th consecutive quarter of delivering on our out of price commitments demonstrating the progress we continue to make in operational execution and result in financial performance.
We delivered solid financial performance in revenue margins and most importantly cash flow.
While the North America market activity was weaker than anticipated and our business in Canada was impacted from the wildfires our strength in the international market came through very clearly with 12% sequential growth and was up 27% over last year.
This enabled a sequential 7% total revenue growth to one point to $7 billion and more than offset the 7% sequential decline in North America.
A 20% increase year over year for Q2, we are now looking to deliver mid to high teens revenue growth for the year.
We had several countries generating over 20% growth in the first half of the year compared to the first half of 2022, giving us tangible proof points of broad based international traction.
This quarter once again had strong margin performance with adjusted EBITDA of $291 million or the adjusted EBITDA margin of 22, 8%.
Which is not just a sequential improvement, but its 536 basis points above the same period a year ago.
This performance also represents a significant milestone with the highest level of margin. The company has generated in over 12 years.
I am, particularly pleased with our performance on adjusted free cash flow as we generated $172 million for the second quarter.
I believe the strong cash number and EBITDA conversion speak for themselves on our operating focus.
Moving to some of our commercial highlights during the second quarter.
We had notable wins in our intervention services portfolio with five year contract with Petrobras in offshore, Brazil, and a three year contract win with BP Azerbaijan to provide deepwater intervention services.
Ah Rankle awarded US a three year drilling services contract continuing to build on our focus in the region.
We were awarded a five year contract with a major IOC in Iraq.
Upper completions products and services.
Great energy in Iraq has awarded US a two year well testing services contract extension.
And in North America, CT energy awarded US a one year contract to provide reciprocating rod lift long stroke, roto flex and conventional pumping unit technology for its Bakken assets.
This quarter also witnessed several noteworthy technology milestones.
First I would like to highlight our battle offering at our tubular running services or Trs business.
You've talked in prior quarters about this offering which brings together automation mechanization software and artificial intelligence to provide unmatched connection integrity, while enhancing safety. We have now exceeded 650 jobs at 144000 connections globally.
During the quarter Transocean awarded Us Trs, where ROE automated integrity contract for the first ever deployments in Norway on three rigs and Eni awarded US a two year contract for battle for deepwater operations in the Mediterranean.
Continuing on the theme of technology advancements in Trs, we launched Greenguard, a unique technology that enhances safety and operational efficiency by mitigating the risk of drop strengths in Prs operations.
I am extremely excited about the value this will bring to our customers as we can now give them even more confidence in the reliability of our market leading offerings.
In our production and intervention segment, we launched multiple technologies, including multi catch anchor and cool screamer to improve borehole conditioning as part of our intervention services business.
And the drilling and evaluation segment, we noted in our first quarter call. The commercialization of our performance tier M. P D offering, which we have now branded as motives.
During the quarter modus was deployed for a customer in U S land, maybe successfully demonstrated its ability to increase drilling efficiency.
Following our Q1 contract announcement, we have now signed a joint development agreement with ever a revolutionary geothermal company to develop the stocking sidetrack technology for future projects in Germany and around the world.
This agreement is designed to further bolster our geothermal offering to provide liner hanger system cementation product and open hole and cased hole wireline services to support the first commercial ever loop in Germany.
Now, let's turn to our view on the markets.
As we see uneven economic recovery globally paired with interest rate hikes by central banks impacting near term demand, we still expect the net favorable environment in the second half of 2023 and continued customer investments going into 2020 for broader themes, such as energy security regionalization and investment growth, especially in <unk>.
International and offshore markets further support meaningful incremental demand for weatherford product and services across our footprint.
No unforeseen events can suddenly disrupt markets, we are constructive on the near to midterm outlook and see healthy growth across market segments.
In North America rig count declines are twice the bottom near the levels, we see today and we expect them to hold steady as we move through the remainder of the year.
As noted previously our North America land mix is much more production oriented with limited risk tied with reduced rig count activity.
As oversupply for both oil and gas is consumed in demand Recalibrates, we would expect a slow steady improvement in both rig and well counts into 2024, as new E&P Capex plans kickoff and operators transition from maintenance level production.
Simultaneously, we continue to consciously transition out of less profitable and Sydney service lines. A recent example, being Alaska.
While this might cause a relatively more modest comparison on the top line to others. We are seeing the positive impact of these actions on margins and cash generation and we will remain focused on maintaining a positive value gap and the North America region.
Internationally the activity outlook is robust in the near to midterm led by the Middle East and Latin America, but the additional pockets of growth in Asia Pacific Mediterranean and other regions in the Middle East continued field development investment in Saudi Arabia, UAE, Kuwait, and others, along with regional exploration projects.
Set the stage for robust rig and well count growth that should enable double digit growth in 2024.
In Latin America rig and well activity is showing steady growth in the high single digits led by a significant step up in offshore investment in Mexico, Guyana, Brazil and didn't unconventional in Argentina.
Broader indicators support the positive story, we see unfolding for offshore.
Capex growth a significant step up in project sanctions.
I think rig utilization and rising activity validate our positive outlook for the next few years, especially for deep water. There, we expect market activity to grow around 10% in 2024 and continue into 2025.
As offshore activity ramps up and equipment capacity tightens, we expect to see pricing opportunity and a renewed focus on technology to optimize operational performance in this complex environment.
This is constructive across our customer profile and product segments, including our offerings of MPD Trs completions and intervention solutions.
We also see growing demand for intelligent and AI, driven solutions like Vettel and foresight to support safe efficient profitable offshore operations.
While we still expect customer project timing adjustments supply tightness and FX impacts in certain markets. Our overall outlook for organic growth remains encouraging and we believe we will continue to see double digit revenue increases into 2024 with positive margin pull throughs.
Looking ahead, we continue to make progress towards our goal of mid <unk> EBITDA margins.
We have exceeded expectations in the first half despite seasonality mix changes startup costs for new projects infrastructure investments and natural disasters. The strong operating performance has enabled us to continue to delever the balance sheet and our net leverage ratio at one one times is a far cry from Nevada, Florida Port.
As we look at our opportunity set in the second half of the year. We believe we are well positioned to take advantage of the strong international and offshore activity, while continuing to improve North America profitability.
Coupled with the execution capability of our team has demonstrated we are increasing our guidance on revenue margins and cash.
With that I'd like to hand, it over to Adam to walk us through our financial performance and the detailed guidance for the third quarter and full year 2023.
Thank you Karen good morning, and thank you everyone for joining us on the call apologies for the softness in my voice. This morning. So please bear with me as I described.
Financial performance because it teams from different this quarter.
I'll begin with our consolidated results and then move on to our segment results liquidity and cash flows.
Was curious pension we had a strong quarter.
Revenues of 1.27 billion, which grew 7% sequentially and 20% year over here.
You touched upon the relative North America and in.
International.
That mix and it is important to note that north.
Uh huh.
Sequentially driven by Canada.
We continue to see stability and strength in our offshore and U S land business.
Actually in the artificial lift business something bladder.
Our operating income was $201 million in the second quarter of 2023.
Compared to $185 million in the first quarter of 2023 and $104 million in the second quarter of 2022.
Net income was 82 million compared to a 72 million first quarter of 2023, and a 6 million second quarter of 2020 to adjust.
Adjusted EBIT for the quarter was $291 million.
Which translated into a 22, 8% adjusted EBITA margin.
This is our highest ever adjusted EBITA margins that the company has generated in over 12 years.
Testament that our ambition to sustainably expand margins continues to materialize.
If you would correct connect the first quarter 'twenty.
<unk> had some favorable clients on account of integration related cost recoveries.
Particularly in the Trs segment.
And we had originally planned for those in the second quarter, leading to an expectation of where Q2 margins talked with tending to second quarter margins.
Our sequential improvement over the first quarter 2023, auctions, which was in fact, even create or organically and a reflection of P. Excellent operating focus for our team.
Now moving on to our segment results trailer.
Trailing any valuation or PRT revenues of $394 million increased by $22 million or 6% sequentially, primarily due to increased activity for drilling related services, partially offset by a decrease in North America revenues mainly.
Due to the negative impact from Canadian seasonality and wildfires.
Dr. <unk> segment, adjusted EBITA of 106 billion decreased by $2 million or 2% due to timing of cost inflation.
<unk> received in the prior quarter, partially offset by higher activity in managed pressure drilling.
Well construction and completion or <unk> revenues of $440 million.
<unk> 19 million or 5% sequentially, primarily due to increased completions activity in the Latin America, and Middle East North Africa Asia regions.
<unk> segment, adjusted EBITA of 109 million increased by 13 million or 14% sequentially, mainly due to higher completions activity.
Production and intervention or PRA revenues of 366 million increased by $17 million.
5% sequentially, primarily due to an increase in activity for artificial lift.
North America and.
Latin America regions.
Peter Rice segment, adjusted EBITDA of 81 million increased by $13 million or 19% sequentially.
They are really due to a higher fall through.
International pressure pumping and increased artificial lift activity in North America.
Turning to cash flows and liquidity, our adjusted free cash flow was $172 million a truly outstanding performance, mainly driven by improved working capital efficiency higher collections and lower capital expenditures, we were able to manage our working capital effectively.
Piet accruing revenue base, a testament to the team's dedication and commitment towards lean business operations.
We generated an operating cash flow of 201 million an improvement of $117 million sequentially.
Capex was 36 million this quarter compared to $64 million in the first quarter of 2023.
Because the second quarter of 2023 with total cash of approximately 922 million to 161 billion sequentially.
Yeah.
In the second quarter, we paid down 159 million of cross pet, which included the remaining $105 million of our 11% exit notes and repurchases of $54 million after six and a half senior secured notes.
As we continue to work on optimizing our balance sheet, we have no interest in 24 months Pete tone, approximately 600 million of cross Tech. Additionally, we repurchased 17 million of senior secured notes since the close of the second quarter.
Refinancing transactions and reduction in total gross debt levels have helped reduce our interest costs by more than $100 million on an annualized basis.
Our total gross long term debt is now less than 2 billion.
During the second quarter of 2023, we also utilized and interact foreign exchange mechanics them called <unk>.
Blue chip swap.
He has to remit $53 million from Argentina and Peru.
<unk> loss of $57 million due to the BCS exchange rates at which the securities involved with purchased and sold.
We remain focused on generating cash.
Operating priority. This enables funding our organic initiatives and balance sheet optimization, we continue to bring down leverage levels.
And hence accessible liquidity.
Should support us to function in a cyclic caustic manner.
As we have stated before and executed thus far we will continue to use cash generated to address.
Debt and liquidity, which we believe will further unlock value for the enterprise.
Turning to our outlook.
Mccain, taking up our total year guidance meaningfully.
For the third quarter of 2023, we expect consolidated revenues to be flat to up low single digits sequentially.
Across the segments GRE revenue is expected to be flat to tone by low single digits, mainly due to a shift in timing of certain activity.
<unk> is expected to grow low to mid single digits and Peel right is expected to grow by low to mid single digits.
Third quarter is typically a high service this quarter the contract wins and the product oriented portions of WCC has finished the creator contribution from integrated projects is contributing to some changes in the typical mix patterns.
Overall adjusted EBITDA margins are expected to be in line with the second quarter with a positive price and increased by over 350 basis points over the third quarter of 2022.
Capex is expected to be in the range of 35 million to 45 million and adjusted free cash flow is expected to be created in 100 million with continued net working capital investments to support increased activity in the future.
Our full year 2023 consolidated revenues are now expected to grow by mid to high teens compared to 2022.
Across the segments DRA is forecasted to deliver mid teens growth tempt UCC to deliver mid to high teens growth and priv to deliver mid to high single digit growth.
As mentioned in our last earnings call 2023 will be a year, maybe invest in the company for the longer term, 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 investments we are making.
Another year of meaningful margin expansion, we are raising our guidance on full year consolidated adjusted EBITA margins to expand by at least 350 basis points over 2022.
As mentioned earlier Capex for the full year is expected to be 45% of revenue notwithstanding where it can materially increasing our adjusted free cash flow guidance as we now expect 2023, adjusted free cash flow to be greater than $400 million.
The fourth consecutive year of positive free cash flow on the back of increasing margins and better and better working capital performance. Thank you for your time today I will now pass the call back to carriage for his closing comments.
Before we open to questions I want to provide some updates on the initiatives behind our strategic priorities.
On fulfillment, which drives customer experience in the financial performance, we have now exited approximately 13% of our operating facilities since the beginning of 2021.
We are backing these exits up with the rigorous crossroad of work procedures to enable seamless transition.
A key part of lean operations as working capital efficiency, we have improved inventory efficiency as evidenced by a 10 day reduction in DSO year over year and.
And in overall networking capital days improvement of 12 days, an impressive achievement in a growth environment.
Next we are focused on delivering and driving more accountability across the organization, resulting in overhead costs as a percentage of revenue declining over 190 basis points on a year on year basis.
And lastly, we are building a sustainability roadmap to ensure that we responsibly manage our ESG priorities.
I am very proud of the efforts our team has made on sustainability and we released our second annual sustainability report in June that is available on our website.
I would be remiss, if I didn't acknowledge the significant milestone of June 2nd 2023, which marked the two year anniversary of our listing on NASDAQ.
During this time, our organization has executed exceptionally well on behalf of all of our stakeholders. Despite navigating through various challenges over the last two years. We've also received increased analyst coverage index inclusion and a significant evolution of our investor base.
Our success is a testament to our well defined strategy and internal drive efficiently manage resources to deliver value.
We have transformed our business strategy and operations to deliver sustained margin expansion and cash flow generation.
Over the past couple of years, we have driven portfolio enhancements digital growth capital structure efficiency customer focus on talent development and the pursuit of our ambitions and these have had meaningful impact and creating shareholder value.
While we have made tangible improvements thus far we recognize that our journey is ongoing and we intend to maintain our operating focus.
This will further improve our ability to increase margins and generate cash.
Underpinning our belief that our company is still undervalued.
We're intensely focused on unlocking that value with operating performance being our litmus test with that operator, let's open it up for questions. Please.
Thank you well now.
I'll begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, <unk>, how are you doing.
John Weiland yourself.
Thanks, Gary.
Chris you've been growing ramps at a very nice rate.
Martin has been expanding even with startup costs can you maybe talk a little more about future projects startups in her ability to.
Key continuing controlling costs as Ralston plus more.
Yeah look it's been a huge focus for us and I am just incredibly pleased and proud of what our team has done especially on these integrated.
Projects that was in the Middle East just a couple of weeks ago, and actually had the opportunity to visit.
Both of them and looked at it's a tremendous amount of focus going on now right. Now we don't have any new significant integrated projects that were going to be starting up so I think from a cost standpoint.
That's a little bit behind us. However, we do have additional significant service contracts that come up we have actually put in place. Some additional mechanisms within the company to make sure that we've got the quality focus the planning focus and all of that is ramping up so I actually think as we progress we will continuously get better on this and hopefully be in.
Positioned to continue to deliver margin expansion.
Perfect.
And then you talked a little bit about your factory Rationalizations I believe you said you've exited 13% since early 'twenty one.
Could you just provide a little more detail on this you know where do you think this kind of ends up in a couple of years and refresh us on that.
Sure you know look we've laid this out about a year or so ago and it's not just our factories. It also includes our operating locations or repair and maintenance centers and look we are trying to get all of this is done to really have an integrated model that supports all of our customers to the maximum extent locally but.
As the different tiers of expertise and the ability to serve those customers that are regional and then at a global level. So we are harmonizing all of that getting our repair and maintenance facilities, when our factories to actually support multiple product lines versus be singular. So a lot of rooftop consolidation.
We expect to continue to make progress on this and eventually look I think you know I would say, we're sort of halfway through that journey and in about another year to 18 months, we should be complete with that.
Alright got it.
Appreciate it congrats on the quarter.
Hello.
Thank you and our next question today comes from Doug Becker of capital one. Please go ahead.
Thanks, So I wanted to start with a return of capital question, which I'm sure you're getting a lot of net leverage is one one times, it's actually lower than some of the other larger peers whats the thought process.
When they return of capital plan makes sense is there a metric that leverage ratio or something else you could point to to help us think about the timing.
Hey, Doug this is Don.
As we've consistently maintained.
Our priorities remain on debt reduction.
Look at metrics on the tech side, our gross debt to <unk> ratio is still high right.
Our interest coverage amongst our peers is still high so the priority has been and will remain in the short to medium term reduction of debt.
Having said that though shareholder return is a topic, which is always under consideration and we will continue to be a focus of discussions going forward as well, but for the remainder of the year, we expect debt reduction to be continued as a priority.
Yeah.
That makes sense and then maybe a little more context on Capex <unk> took a little bit of a dip down you're guiding to 4% to 5% of revenue does it make sense to kind of guide.
Shade toward the low end.
The 4% level this year as it may be towards the 5% next year, just given the growth opportunities you have.
Yes, you are correct.
We did.
Core down to two 8%, but cumulatively for the first half we're at four 8%. So we are tracking to guidance and at this point people leave the guidance. We've laid out there is what you shouldn't run rate.
Okay and then just.
Last one on North America, any quantification of the impact from the wildfires.
And on the quarter and just how that might be recovered going forward.
Yes look.
I think as we had laid out on our last call Doug We actually expected North America to grow slightly and we came in.
In the opposite direction.
Really all of that was really attributable to the <unk>.
North American wildfires in Canada look we've got a terrific business up in Canada, and given the extent of the damage a lot of our customers had to shut down.
<unk> operations, and our focus and our priority was number one keeping our employees safe and making sure that we were able to support our customers. So not something that we are concerned about we are back in full operation and expect to be back to our normal cadence on North America, but that's really what it was it was a.
Canada effect over there and that is look we have pointed out even in our prepared remarks had mentioned earlier our business in North America is far more production oriented that gives us a lot more stability along with our Gulf of Mexico offshore operation gives us a much more of a stable base.
Got it and do you anticipate growth from the third quarter versus second quarter.
Again, we look we don't break it out by geography, but I think as you look at the totality I think we should we should hopefully see a positive quarter.
Got it thank you.
Thank you and our next question today comes from Archie Modoc with Goldman Sachs. Please go ahead.
Hey, good morning team.
Quickly on you mentioned some.
You would be investing in the company and there's some opportunities out there can you provide more color around that on cash allocation as you think about this year and next.
Yes, Avi look I'll I'll take that first of all everything that we have thought through and planned for it has already captured within our guidance. So there's nothing that's extraneous to that but I think look a couple of things that we've talked about in the past first of all modernization of our infrastructure, we've talked about investment into our systems last year, we talked about a new.
<unk> system. This year, we've talked about our human capital management program. So we're investing in to that we're also beefing up our capabilities in multiple different areas and investing into technology, that's really the big big focus for us from a customer standpoint.
Making sure that we are maintaining our a leading edge on our market leading offerings, but also in a few of the other ones really driving differentiated technology. So those are the areas. We're investing is really systems infrastructure capability and technology.
Just to quantify as you know our R&D allocation has gone up by 20% this year and capex allocation and more than 60%.
Great. Thank you for that and then you.
And you mentioned the motive managed pressure solution in U S land I know that that's been an area of interest in terms of organic growth can you talk about the success and what customer conversations are like.
Yes look very encouraging update.
As you know, we've always had a terrific managed pressure drilling portfolio and its been very successful on everything ranging from our basic set of rotating control devices to our high end rictus offering what this really gives us is a performance tier offerings that are between the two of them that enables customers.
Tumors, who either found the cost a little bit too much or applications, where you didn't meet the entirety of the off the offering this fits right and so we're starting to get up our production of systems. So that they are available for the market.
We are discussing with customers in North America, but very significantly customers in the middle East and other regions as well. So we're very excited about this and as we ramp up the scaling of this on the production side and get it deployed we think it'll it'll be a significant addition to as you said organic growth as we head into 'twenty four.
I'll turn it over thank you.
Thanks Ravi.
Thank you and our next question today comes from current holiday with benchmark. Please go ahead.
Hey, good morning.
Hey, good morning.
Yeah.
I guess I'm kind of curious right when you look at the <unk>.
Contract Awards that you got it.
Do you need to book on on the International front.
Just kind of curious what.
Some general range of what that dollar value of awards at work for the new bookings that you had in the quarter.
Yes look Kurt we don't our business the way it's set up as the dollar values are not really like a capital goods business, where they contribute to our backlog and you can <unk>.
Blissfully, then form a book to Bill ratio are sort of execute theyre really more call off what type of contracts that over a period of time, we give them really more as a guidepost and then occasionally we summarized all of it to give you a sense of the total commercial bookings I think suffice to say that we are keeping well in pace with too.
Things one is the revenue growth that we're experiencing so we're making sure we're refilling the bucket in the pipeline at a level greater and second we are keeping pace with the market and I think that comes through in our revenue growth, especially on the international side vis vis the rest of the industry.
Yes.
Okay.
Okay Fair enough now just as a follow on to that dynamic right. So you have.
Three year five year contract two year contract to kind of add on to what you did in the first quarter. So.
How do you how do you kind of I know, it's not a backlog oriented type of dynamic, but when you think about your revenue visibility.
How much conviction and confidence these contracts give you revenue growth beyond 2025, because.
Five year contract from now it takes you into 2028, yes.
Yeah.
We've talked a little bit about 2024, which is actually pretty Uh huh.
Sure so far sitting six months.
Going into 2024, so we've already indicated that 'twenty four we expect to grow double digits I think 'twenty five 'twenty six beyond that it's really going to be a function of the overall market customer investment. There's a lot of macro economic factors that will go into that having said all of that what we continue to see is a very robust outlook.
Actually on the international side, and our customers pieces going into the next two to three years is one of positive investment increasing focus on activity and so we think it's a very positive outlook and that's why in our prepared remarks, we pointed to that near to midterm positive outlook and these contracts will really underpin our ability to execute as we go.
Into those years.
Okay and then.
My follow up there would be on your EBITDA margin targets right the mid 20%.
Our range.
Is given what you know about what you have booked in the outlook that you see for 2025 right is it feasible to expect.
And EBITDA margin.
Exit rate.
In 2024 or 25%.
In this context right yeah.
Guidance you gave for 2023 got it suggests a flattish progression on EBITDA margin in the second half of the year.
So I guess towards trying to get a sense as to you know.
How are you looking at this acceleration in EBITDA, what might be driving that as you go into 'twenty four yeah. So a few things that I think are important and relevant first is as we get growth we have incremental revenue that should come in at higher fall through so that's a big positive contributor number two we continue.
To expect to see pricing be an important factor, especially as their scarcity of supply on highly differentiated products and services, we think pricing will be a positive contributor as it has been this year and there will certainly be inflation to offset it but we think it'll be a net positive contributor number three is new technology.
So we talked about our investments in technology, that's coming in that should give us the ability to get incremental margins as well now.
Number four as all of our efforts around our fulfillment that's been a big factor that we have talked about.
And we continue to make progress there and that's why we laid it out is a multiyear journey, so that should give us incremental lift as well and then last but not least is our continued focus on our overall overhead our support costs.
We still think that there's still some opportunity for efficiency. There. So we continue to drive that so those I think are five very tangible very clear things that we're not going to breakout each one of those and give a very specific number on that but as we have indicated previously in just a normal environment. If you get no revenue growth, we should be operating the business.
And getting to go somewhere between 25, and 75 basis points of margin expansion. So that should get accelerated as you'll have incremental revenues come in and Thats what gives us confidence to talk about this mid twenty's and we've laid out a timeframe of a couple of years on that so I'm not going to give you specific guidance on the exit rate of 24, but I think hopefully what I have.
Just that gives you enough color to pes piece all of it together.
Yes.
That's really really appreciate it thank you for that.
Sure.
Thank you and our next question today comes from Connor Johnson at Raymond James. Please go ahead.
Hey, guys. Thanks for taking my call today.
Hi, Conor.
Just one question for me you noted the charge you took for the Blue Chip swap agreement in Argentina during the quarter one of your peers highlighted a similar charge and provided the tax impact to adjusted out wondering if you guys could give us some additional color on that charge.
Sure Conor we did tax affected.
We don't believe there is a potential offset.
From a tax perspective.
So we took a valuation allowance on the potential tax benefit.
Effectively <unk>.
Numbers do not have a tax effected Pcs Clos.
Okay.
One of our peers, 221% tax tax effect.
Okay got you yeah.
That's all for me today, Thanks, guys.
Thank you and ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Great Hey, Thank you all for joining the call today, hopefully you got a good sense of the continued strong performance. The team is delivering and we look forward to updating you again for the third quarter in October .
Take care.
Okay.
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.