Q4 2023 Weatherford International PLC Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford international first quarter and full year 2023 presentation by Ernie Shaw. All participants will be in listen-only mode.
Ladies and gentlemen, thank you for standing by.
Welcome to the Weatherford International fourth quarter, and full year 2023 earnings call.
All participants will be in listen only mode.
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Operator: As a reminder, this event is being recorded. I would now like to turn the conference over to Mohamed Taboralla, Vice President, Investor Relations, and M&A. Sir, you may begin.
As a reminder, this event is being recorded.
I would now like to turn the conference over to Mohamad took a law Vice President Investor Relations and M&A, Sir you may begin.
Mohamed Taboralla: Welcome everyone to the Weatherford International fourth quarter and four year 2023 conference call. I'm joined today by Girish Saligram, President and CEO, and Arun Mitra, Executive Vice President and CFO. He will start today with our prepared remarks and then open the call up for questions. You may download a copy of the presentation slides corresponding to today's call from our website's Investor Relations section. I want to remind everyone that some of today's comments include poor-looking paintings.
Welcome everyone to the Weatherford International fourth quarter and full year 2023 conference call I'm joined today by Gary Sonogram, President and CEO and.
Executive Vice President and CFO.
He will start today with our prepared remarks, and then I'll open it up for questions.
You may download a copy of the presentation slides corresponding for todays call on our website Investor Relations section.
I want to remind everyone that some of today's comments include forward looking statements.
Mohamed Taboralla: 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 filing for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and the reconciliation of GAAP to non-GAAP financial measures are included in our fourth core earnings tax 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's investor relations section following the conclusion of this call. With that, I'd like to turn the call over to Girish.
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 measure.
Lying 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's Investor Relations section. Following the conclusion of this call, but that I'd like to turn the call over to Gary.
Girish Saligram: Thanks Mohamed and thank you all for joining the call. We're changing the format of our prepared remarks a bit. I will provide an overview of our operating performance, our view of the markets, specifics on the transaction announcements, and our priorities heading into 2024. Arun will then cover the detailed financial results and specifics on guidance before opening for Q&A. 2023 was an outstanding year for Weatherford.
Mohammed and thank you all for joining the call.
We are changing the format of our prepared remarks, a bit I will provide an overview of our operating performance view on the market.
<unk> on the transaction announcements and our priorities heading into 2024 I don't rule that would cover the detailed financial result, and specifics on guidance before opening for Q&A.
2023 was an outstanding year for Weatherford.
Girish Saligram: Revenue growth of 19% Adjusted EBITDA margins expanding 423 basis points to 23.1%, and an adjusted free cash flow of $651 million reflect an accelerated achievement of the short-to-mid-term objectives we set for ourselves. Our growth has been driven across all segments, with DRE and WCC in the top teams, reflecting increased drilling and completion activity. Geographically, our international leverage, coupled with share gains and pricing, enabled 26% growth. I want to also highlight North America performance, where we grew margins despite revenue declining in a weaker market environment. If there was ever a litmus test of the change in the Weatherford operating culture, North America performance passes it with flying colors.
Revenue growth of 19% adjust.
Adjusted EBITDA margins expanded 423 basis points to 23, 1% and adjusted free cash flow of $651 million reflect an accelerated achievement of the short to midterm objectives, we set for ourselves.
Our growth has been driven across all segments with DRA and WCC in the high teens, reflecting increased drilling and completions activity.
Geographically, our international leverage coupled with share gains in pricing enabled 26% growth.
I want to also highlight our North America performance, maybe grew margins despite revenue declining in a weaker market environment.
If there was ever a litmus test of the change of the Weatherford operating culture, Our North America performance fastest sets of flying colors.
Girish Saligram: Cost optimization, technology upsell, and business model changes all helped to drive the profitability increase, coupled with our U.S. Gulf of Mexico business, which grew over 25% for the year and a fourth quarter performance of 1.36 billion dollars in revenue. EBITDA margin improvement of 34 basis points sequentially and $315 million in adjusted pre-tax flow was delivered on the back of the enormous passion and commitment of the entire Weatherford team. It has been a privilege for me to witness what this team is capable of, and there is enormous emotion behind my simple thank you to each of our 18,000 plus teammates.
Cost optimization technology, upsell and business model changes all helped to drive the profitability increase coupled with our U S Gulf of Mexico business, which grew over 25% for the year.
Fourth quarter performance of $136 billion in revenue.
EBITDA margin improvement of 34 basis points sequentially and $315 million in adjusted free cash flow was delivered on the back of the enormous passion and commitment of the entire one weatherford team.
It has been a privilege for me to witness what this team is capable off and there is enormous emotion behind my simple. Thank you to each of our 18000 plus team members.
Girish Saligram: Turning to the future, as the events of the past couple of weeks have shown, there is a fair degree of volatility and concern among the investor community. However, we remain confident in continued activity growth for our products and services across all segments, driven by international customer investment. We are now in the third year of a long-term upcycle. This upcycle shows clear signs of a longer duration than at any time in the past couple of decades.
Turning to the future.
As the events of the past couple of weeks have shown there is a fair degree of volatility and concerns among the investor community.
However, we remain confident in continued activity growth for our products and services across all segments driven by international customer investment.
We are now in the third year of a long term up cycle.
This up cycle shows clear signs of a longer duration than any time in the past couple of decades.
Girish Saligram: The combination of energy demand, growth in emerging economies, reservoir declines, and lack of sustainable investment over the past decade imply that even to maintain current rates of production, there will need to be continued investment and activity for oil and gas projects, at least through the end of the decade. This outlook is supported by over 100 large projects, with investments of over $1 billion each, that are on track to reach FID over the next three years, in addition to nearly 700 smaller project FIDs as well. Also, the large majority of these projects are in countries and regions where Weatherford has invested significantly, and that positions us well for growth now and in the future. We continue to see the most momentum in our DRE segment, with High Team's growth in 2024, on top of Mid Team's growth in 2023, reflective of our belief in the longevity of the cycle, with growth in PRIs to follow. In summary, we see a lot of runway for opportunity. Let me start the geographical view with our North America business, which is actually three distinct pieces. The first in Canada should grow with the market in high singles. Our offshore US Gulf of Mexico will remain stable, and we expect to get more operating efficiency.
The combination of energy demand growth in emerging economies reservoir declines and lack of sustainable investment over the past decade imply that even to maintain current rates of production. They will need to be continued investment and activity for oil and gas projects at least through the end of the decade.
This outlook is supported by over 100 large projects with investments of over $1 billion. Each that are on track to reach F. I D. Over the next three years. In addition to nearly 700 smaller project as well.
The large majority of these projects are in countries and regions, where weatherford has invested significantly and that positions us well for growth now and in the future.
We continue to see the most momentum in our <unk> segment with high teens growth in 2024.
Top of mid teens growth in 2023 reflective of our belief in the longevity of the cycle with growth in P. R I to follow.
In summary, we see a lot of runway for opportunity.
Let me start the geographical view with our North America business, which is actually three distinct pieces.
The first in Canada should grow with the market in high single digits.
Our offshore U S. Gulf of Mexico will remain stable and we expect to get more operating efficiencies and finally, the production oriented U S land business, which is approximately 13% of overall revenue in 2023 is expected to remain flat to slightly down.
Girish Saligram: And finally, the production-oriented US land business, which is approximately 13% of overall revenue in 2023, is expected to remain flat to slightly down. On the international front, there is broad strength in both the onshore and offshore markets. Latin America was our highest growth region in 2023, and we expect to see that growth moderate in 2024 but still expand in the mid to high single-digit range, driven primarily by Brazil and Mexico but tempered by Argentina and Colombia. In Europe and sub-Saharan Africa, we expect offshore to be the growth driver, enabling mid-teens growth. As previously discussed, Russia continues to be uncertain given its operational complexity as well as FX volatility. We expect Russia to continue to decline in revenue, and while it is difficult to predict, at this point, we are expecting a double-digit rate.
On the international front, there was broad strength in both the onshore and offshore markets.
Latin America was our highest growth region in 2023, and we expect to see that growth moderate in 'twenty 'twenty four but still expand in the mid to high single digit range, driven primarily by Brazil, and Mexico, but tempered by Argentina and Colombia.
In Europe, and sub Sahara Africa, we expect offshore to be the growth driver, enabling mid teens growth.
As previously discussed Russia continues to be uncertain, given the operational complexity as well as FX volatility.
We expect Russia to continue to decline in revenue and while it is difficult to predict at this point, we're expecting a double digit rate.
Girish Saligram: Our growth in 2024 will be spearheaded by the Middle East, North Africa, and Asia reported geography, with countries like Saudi Arabia, Kuwait, the UAE, Oman, Australia, and Malaysia setting the pace. With high teen growth expectations for the year in the Middle East, the most significant risk to activity growth continues to be geopolitical, rather than broader macro. Clearly, there has been sector-related concern over the past week with the announcement of capacity expansion plans in Saudi Arabia. However, from all of our analysis, insight, and discussions thus far, we expect that this will have a negligible impact on our project. Our position in Saudi Arabia is mostly onshore.
Our growth in 2024 will be spearheaded by the Middle East North Africa, and Asia reported geography with countries like Saudi Arabia, Kuwait, UAE, Oman, Australia, and Malaysia are setting the pace.
With high teens growth expectations for the year in the middle East the most significant risk to activity growth continues to be geopolitical rather than broader macro teams.
Really that has been sector related concern over the past week with the announcement on capacity expansion plants in Saudi Arabia.
From all of our analysis insight and discussion thus far we expect that this will have a negligible impact on our projections our position in Saudi Arabia is mostly onshore and offshore represents a tangible opportunity. It is not one that we have factored in significantly into our multiyear outlook.
Girish Saligram: And while offshore represents a tangible opportunity, it is not one that we have factored in significantly into our multi-year outlook. The kingdom is a critical region for us, but it does not meet the 10% of revenue threshold to be reported separately. We have a clear line of sight to activity growth in the next few years that we are excited about and fully committed to supporting ORANCO with our differentiated technology and services. To summarize, we see strong activity growth for the next several years and provide a platform for continued revenue growth. We will also look to invest in CapEx and net working capital to support that growth. Simultaneously, our focus on margin expansion and platform conversion will not be stagnant. We laid out our next target of 25% EBITDA margins, and I rely on Scratch to achieve that in 2025. In 2024, we will make meaningful progress toward that ambition, and don't see that goal as the defining limit for the company. We have expanded margins every single quarter since the first quarter of 2020.
The Kingdom is a critical region for us, but it does not meet the 10% of revenue threshold to be reported on separately.
We have clear line of sight to activity growth in the next few years that we're excited about and fully committed to supporting Aramco with our differentiated technology and services.
To summarize we see strong activity growth for the next several years and provide a platform for continued revenue growth.
We will also look to invest in Capex and net working capital to support that growth.
Simultaneously, our focus on margin expansion and cash flow conversion will not be done.
We laid out our next target of 25% EBITDA margins.
And are well on track to achieve that in 2025.
In 'twenty 'twenty, four we will make meaningful progress towards that ambition and don't see that goal as the defining limit for the company.
We have expanded margins every single quarter since the first quarter of 2022.
Girish Saligram: That's eight consecutive quarters of margin expansion, and we remain fully committed to the conversion of those margins to cash as the primary driver of shareholder value creation. As we see market growth continuing, we are also looking at ways to accelerate it further. Inorganic growth enables that, and we are excited about the acquisitions we have closed. While small relative to the size of the company, these are the first acquisitions for Weatherford for a while, and we are committed to a totally different integration paradigm than in the past. Our criteria for selection include strategic fit, followed by margin accretion, positive cash flows, being deleveraging in nature, and fitting within our market valuation environment. We have acquired two technology companies in the wireline space from Dunbridge Capital. Probe and Impact Selector International, both widely recognized brands, and Ardyne, a leader in Bell decommissioning technology, with whom we have had a partnership since the fourth quarter of 2020.
Eight consecutive quarters of margin expansion and we remain fully committed to the conversion of those margins to cash as the primary driver of shareholder value creation.
As we see market growth continuing we're also looking at ways to accelerate further inorganic growth enables that and we are excited about the acquisitions. We have closed while small relative to the size of the company. These are the first acquisitions for Weatherford in a while and we are committed to a totally different integration paradigm than in the past.
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Our criteria for selection include strategic fit followed by margin accretion positive cash flows being deleveraging in nature and fitting within our market valuation envelope.
We've acquired two technology companies of the wireline space from Tunbridge capital probe and impacts Elector International both widely recognized brands and our dine a leader in Bell decommissioning technology, with whom we have had a partnership since the fourth quarter of 2022.
Girish Saligram: We were meticulous in our approach to diligence and integration planning, as both are critical pillars to ensure we achieve the full potential of these cuts in the coming years. Again, these are small, but they will be created immediately, and projections for them will be included in the overall guidance around the world. I also want to point out that agreeing to payments for two of these acquisitions, primarily in equity, reflects a strong belief from others in the potential for upward mobility in the stock. Now, turning to our commercial and technology highlights. As in the previous quarter, we received several noteworthy commercial awards across all our segments from various customers like Qatar Energy, E&I, Exxon, and PTT&T. In addition, we continue to demonstrate the strength of our portfolio with several significant technology highlights with major customers. The details of these are highlighted in our press release for earnings and investor data. Our five strategic priorities of organizational vitality, creating the future, customer experience, lean operations, and financial performance remain unchanged for 2024.
We've a meticulous in our approach to diligence and integration planning as both a critical pillars to ensure we achieve the full potential of these transactions in the coming years again. These are small but will be accretive immediately and projections for them will be included in the overall guidance other than for whites.
I also want to point out that agreed to payment for two of these acquisitions, primarily in equity reflects our strong belief from others and the potential for upward mobility in the stock.
Turning to our commercial and technology highlights as in previous quarter. We received several noteworthy commercial awards across all our segments from vertex customers like Qatar energy Eni Exxon and PTT P. In.
In addition, we continued to demonstrate the strength of our portfolio with several significant technology highlights with major customers.
The details of these are highlighted in our press release for earnings and Investor deck.
Our five strategic priorities of organizational vitality, creating the future customer experience lean operations and financial performance remain unchanged for 2024.
Girish Saligram: The initiatives, metrics, and targets within each have evolved to further raise the bar, and we will keep you updated on these on our quarterly call. Finally, I'd like to touch on some organizational. I am very pleased that we have been able to attract world-class talent, and I'm excited to share that we just welcomed Richard Ward to the company a few weeks ago. Richard joins us as our EVP of global field operations and will have responsibility for all of our GeoZone operations.
The initiatives metrics and targets within each have evolved to further raise the bar and we will keep you updated on this on our quarterly calls.
Finally, I'd like to touch on some organization updates.
I'm very pleased that we have been able to attract world class talent.
And I'm excited to share that we just welcomed Richard worked at the company a few weeks ago, Richard joins as our EVP of global field operations and will have responsibility for all of our Geos zone operations.
Girish Saligram: Richard has a deep background in OFS with over 30 years in the industry. We have also announced a couple of other changes to the executive team with the departures of Chuck Davidson and Joe Mondale. Both of them have made important contributions to the company and set us up well for the journey ahead, and the transition plans will be seen. We have always asked to be judged by our results.
Richard has a deep background in a fast with over 30 years in the industry.
We have also announced a couple of other changes to the executive team with the departures of Chuck Davidson and Joe Mongering.
Both of them have made important contributions to the company and set us up well for the journey ahead and the transition plants will be seamless.
We have always asked to be judged by our results and I Hope you will see the intensity of focus on delivering for our customers and investors.
Girish Saligram: And I hope you will see the intensity of our focus on delivering for our customers and investors. Our operating performance has enabled us to reduce our gross debt to $1.7 billion currently, and our net leverage at this point is 0.7 times. It is our expectation to pay off the secured notes by mid-year and, following that, to provide a capital allocation framework, including shareholder returns. As we enter 2024, Weatherford will be a different company, both different from our own past but also within the text. With a firm eye on the future, we are well on our way to building a purpose-driven, leaner, and less capital-intensive organization that is focused on technology differentiation and operational excellence. My confidence in our ability to perform and execute is stronger than ever. With that, I'd like to hand it over to our.
Our operating performance has enabled us to reduce our gross debt the $1 $7 billion currently and our net leverage at this point is 0.7 types.
It is our expectation to pay off the secured notes by mid year and following that to provide a capital allocation framework, including shareholder returns.
As we enter 2020 for Weatherford is a different company.
Both different from our own past, but also within the sector.
But the film eye on the future we are well on our way to building a purpose driven leaner and less capital intensive organization that is focused on technology differentiation and operational excellence my confidence in our ability to perform and execute is stronger than ever with that I'd like to hand, it over to water.
Arun Mitra: Thank you Girish, good morning, and thank you everyone for joining us on the call. I'll begin with our consolidated results and then move into our second set of results, liquidity and cash flows. As Girish mentioned, we had a very good fourth quarter to close out a spectacular year.
Thank you Krish good morning, and thank you everyone for joining us on the call I'll begin with our consolidated results and then move into our segment results for liquidity and cash flows.
I was just kidding outlined we had a very good fourth quarter to close out a spectacular year.
Arun Mitra: Full year 2023 revenues of $5.14 billion grew 19%, as all segments experienced growth with net income of $417 million, a 1500 plus percent improvement and adjusted EBITDA of approximately $1.2 billion or 23.1% adjusted EBITDA margin of 423 basis point improvement. Revenue for the fourth quarter of 2023 was $1.36 billion, an increase of 4% sequentially and 13% year-over-year. Operating income was $216 million in the fourth quarter of 2023 compared to $218 million in the third quarter of 2023 and $169 million in the fourth quarter of 2022. The operating income was sequentially down primarily due to restructuring charges taken in Q4 for rightsizing our footprint in certain locations. Net income was $140 million as compared to $123 million in the third quarter of 23 and $72 million in the fourth quarter of 22.
Full year 'twenty twenty-three revenues.
5.14 billion grew 19% as all segments experienced growth with net income of 417 million, a 1500 plus percent improvement in adjusted EBITA of approximately $1 2 billion or 23.1.
1% adjusted EBITDAR margin of 423 basis point improvement.
Revenue for the fourth quarter of 2023 was $1 three 6 billion, an increase of 4% sequentially and 13% year over year.
Operating income was 216 billion in the fourth quarter of 2023 compared to $218 million in the third quarter of 2023.
116, 9 million in the fourth quarter of 2022 the operating income was sequentially down.
Early in Q2 restructuring charges taken in Q4 for right sizing our footprint in certain locations.
Net income was 140 million as compared to 123 million in the third quarter of 'twenty, three and 72 million in the fourth quarter of 'twenty two.
Arun Mitra: Adjusted EBITDA of $321 million in the fourth quarter increased 5% sequentially and 21% year-over-year, with an adjusted EBITDA margin of 23.6%, a sequential improvement of 34 basis points, and a year-over-year improvement of 157 basis points. These results were primarily driven by increased activity, share improvement, and pricing across all segments, coupled with solid operational execution. I would also like to highlight our performance on the integrated contract in Oman and Saudi Arabia, which is now fully ramped up and is executing very well. Now, moving into our segment results for the fourth quarter of 2023, while training and evaluation, or DRE, revenues of $382 million decreased by $6 million, or 2% sequentially, primarily due to lower activity for drilling-related services in Latin America, as impacted by weather, partially offset by increased wire DRE's segment HRC-DBDA of 97 million decreased by 14 million, or 13 percent sequentially, primarily due to lower activity and a change in mix around drilling-related services.
Adjusted EBITA of 321 million in the fourth quarter increased 5% sequentially and 21% year over year with adjusted EBITDA margin of 23, 6% a sequential improvement of 34 basis points and in Canada, where you already have proof.
157 basis points.
These results were primarily driven by increased activity share improvement pricing across all segments, coupled with solid operational execution.
I would also like to highlight our performance on the integrated contracts in Oman, and Saudi Arabia, which is now fully ramped up and are executing very well now moving into our segment results for the fourth quarter of 23, while training and evaluation or D. R. E revenue was up 382 million.
Decreased by $6 million or 2% sequentially, primarily due to lower activity for drilling related services in Latin America as impacted by weather, partially offset by increased wireline activity full year revenues increased by 16%.
<unk> segment, adjusted EBITA of 97 million decreased by $14 million or 13% sequentially, primarily due to the order activity and change in mix around trailing related services, but on a full year basis DRA adjusted EBITDA margins expanded 308 basis.
Arun Mitra: But on a fuller basis, DRE HRC-DBDA margins expanded by 308 basis points, reflecting the overall improvement in the operating profile of the segment, with higher activity, cost discipline, and increased traction in the marketplace. Well construction and completion, or WCC, revenues of $480 million increased by $21 million, or 5% sequentially, primarily due to higher activity and completions and cementation products in the Middle East, North Africa, and Asia regions, partially offset by lower activity in North America. WCC's second-adjusted EBIDTA of $131 million increased by $12 million, or 10% sequentially, primarily due to higher international activity and a favorable change in mix in tubular running service. Production and intervention PRI revenues of $386 million increased by $15 million, or 4% sequentially, primarily due to higher activity in digital solutions and international artificial lift, partially offset by lower activity for international pressure pumping and lower activity in North America for artificial lift. PRI segment adjusted EBITDA of $88 million increased by $2 million, or 2% sequentially, primarily due to higher fall throughs for digital solutions, partially offset by lower international activity for pressure pumping.
Reflecting the overall improvement in the operating profile of this segment with higher activity cost discipline and increased traction in the marketplace.
Well construction and completion or WCC revenues of 480 million increased by 21 million or 5% sequentially, primarily due to higher activity in completions and cementation products in the Middle East North Africa, and Asia regions, partially offset.
Probably ignore activity in North America.
WCC segment, adjusted EBITDA of 131 million increased by 12 million or 10% sequentially, primarily due to higher international activity and a favorable change in mix in tubular running services production and intervention or Prs revenues of 386 million increased by 50.
<unk> million or 4% sequentially, primarily due to higher activity in digital solutions and international artificial lift partially offset by lower activity for international pressure pumping and order activity in North America for artificial lift.
Prs segment, adjusted EBITDA of 88 million increased by 2 million or 2% sequentially, primarily due to higher fall throughs for digital solutions.
Partially offset by lower international activity for pressure pumping.
Arun Mitra: Turning to cash flows and liquidity, for the full year 2023, operating cash flow was $832 million, up $483 million compared to 2022. An adjusted pre-cash flow was $651 million, an increase of $352 million.
Turning to cash flows and liquidity for.
For the full year 2023, operating cash flow was 832 million up 483 million compared to 2022 and adjusted free cash flow was 651 million an increase of 352 million.
Arun Mitra: In the fourth quarter, we generated operating cash of $375 million, up $203 million sequentially, and adjusted through cash flow was $315 million, up $178 million sequentially. A strong performance on the back of strong profitability and heightened collections. During the fourth quarter, we were able to collect an additional $140 million of outstanding receivables from our largest customer in Mexico as a result of a financial transaction with a third-party financial institution.
In the fourth quarter, we generated operating cash of $375 million up 203 million sequentially and adjusted free cash flow was $315 million up 178 million sequentially a strong performance on the back of strong <unk>.
The debility and heightened collections during the fourth quarter, we were able to collect an additional $40 million of outstanding receivables from our largest customer in Mexico. As a result of a financial transaction with a third party financial institution.
Arun Mitra: We ended 2023 with net working capital at 25.8%, but that number is significantly aided by the transaction I just referenced. Our journey of improving our network capital efficiency is far from complete, and we remain optimistic about the opportunities to further improve. In the years to come, our goal is still to achieve a net working capital level of 25% of revenue, and to achieve that, we will continue to try improvements and efficiencies across billing, connection management, and inventory management, which are key performance drivers. Fort Quarter CapEx, with $67 million or 4.9% of revenue, and Full Year CapEx, of $209 million or 4.1% of revenue, marked a notable increase in investing for growth.
We ended 2023 with net working capital at 25, 8%, but that number is significantly aided by the transaction I just referenced.
Our journey of improving our net working capital efficiency is far from complete and we remain optimistic about the opportunities further improve.
In the years to come our goal is still to achieve a net working capital level of 25% of revenue and to achieve that we will continue to try improvements efficiencies across billings collections management and inventory management, which are key performance drivers.
Fourth quarter, Capex was 67 billion or 4.9% of revenue in full year Capex of 209 million or four 1% of revenue Mark to a notable increase in investing for growth.
Arun Mitra: While CapEx is still within our range of 3-5%, every dollar of CapEx incurred is rigorously monitored and focused towards providing incremental returns for the business. Our Catholic thesis of 3-5% is still valid in this environment, but it is important to note that it is over a 12-18 month rolling window. We closed the fourth quarter with total cash of approximately $1.06 billion, up $117 billion sequentially. We repaid an additional 151 million of six and a half percent senior secured nodes in January 2024. This brings the total amount of the 6.5% senior secured notes outstanding to $97 million as of the date of this release.
Capex still within our range of three to five per cent every dollar of capex incurred as rigorously monitored and focus towards providing incremental returns for the business.
Our capex pieces of 3% to 5% is still valid in this environment, but important to note that it is over a 12 to 18 month rolling window.
We closed the fourth quarter with total cash of approximately 1.06 billion up 117 billion sequentially.
We repaid an additional $151 million of six 5% senior secured notes in January 2024.
This brings the total amount of the six 5% senior secured notes outstanding to 97 million as of the data release.
Arun Mitra: Our next average ratio of 0.7X... at the end of 2023 marks the lowest ever level in the company in over 15 years, and we will continue to address growth debt to give us more degrees of freedom. I would also like to highlight that our return on invested capital, which is net operating profit after taxes over total invested capital, stood at 27.2%. This top-tier performance provides a clear demonstration of our focus on creating value through our operating paradigm. Finally, during the fourth quarter of 2023, credit rating upgrades from S&P to B+, with a positive outlook, and Moody's to B1, with a positive outlook, and Fitch Ratings initiating a rating of B+ reflect the tangible improvements we have made in our operating performance and balance sheet. Turning toward our full-year 2024 outlook, we expect consolidated revenues to grow by double digits to low teens compared to 2023
Our next leverage ratio 0.7 X.
At the end of 2023 marks the lowest ever level in the company in over 15 years, and we will continue to address cross pet to give us more degrees of freedom.
I would also like to highlight that our return on invested capital, which is net operating profit after taxes over total invested capital stood at 27, 2%.
This top tier performance provides a clear demonstration of our focus on creating value through our operating paradigm.
Finally during the fourth quarter of 2023 credit rating upgrades from S&P to <unk>, plus with a positive outlook and Moody's to be one with a positive outlook and Fitch ratings initiating a rating of B plus reflects the tangible improvements we have made in.
Our operating performance and balance sheet.
Turning to our full year 2024 outlook, we expect consolidated revenues to grow by double digits to low teens compared to 2023.
Arun Mitra: All segments are expected to grow, with DRE forecasted to deliver high teens, WCC to deliver mid-single digits, and PRI to deliver high single-digit growth. Fully consolidated, adjusted evidence of margins is expected to make meaningful progress towards a goal of 25%, with the goal of that being the exit rate for the year. We expect the 2024 Adjusted Free Cash Flow to be greater than $500 million in spite of higher capex, higher cash taxes, and debt-working capital inflation. This represents adjusted free cash flow generation at the same levels as 2023, adjusted for the one-time acceleration described earlier. CapEx for the full year is expected to be approximately 5% of revenue.
All segments are expected to Crow with TRT forecasted to deliver high teens WCC to deliver mid single digits and P. R I to deliver high single digits.
Full year consolidated adjusted EBITDA margins are expected to make meaningful progress towards our goal of 25%.
With the goal of pad being the exit rate for the year.
We expect the two.
2024, adjusted free cash flow to be greater than 500 million in spite of higher capex higher cash taxes and working capital investment.
This represents adjusted free cash flow generation at the seams Debbouze as 2023.
Just it for the one time acceleration described earlier.
Capex for the full year is expected to be approximately 5% of revenue.
Arun Mitra: For the first quarter of 2024, we expect consolidated revenues versus the fourth quarter of 2023 to decline by low single digits driven by seasonality. Across the segments, DRE revenue is expected to grow by high single digits, WCC is expected to decline by mid-single digits, and PRI is expected to decline by high single digits. Adjusted EBITDA margins for the first quarter 2024 are expected to expand 25 to 50 basis points versus the fourth quarter 2023 and expected to expand by greater than 125 over the first quarter 2023. CAPEX is expected to be in the range of $55 to $70 billion, and adjusted free cash flow is expected to be positive. Thank you all for joining the call, and operator, let's open up the call for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
For the first quarter 'twenty 'twenty four we expect consolidated revenues versus the fourth quarter of 2023 to decline by low single digits driven by seasonality across the segments D. R. <unk> revenue is expected to grow probably high single digits WCC is expected to decline.
And by mid single digits, and Priv is expected to decline by high single digits.
Adjusted EBITDA margins for the first quarter 2024 are expected to expand 25 to 50 basis points versus the fourth quarter 'twenty, three and expect it to expand by creator than 120 bps over first quarter 2023.
Capex is expected to be in the range of 55% to 17 billion and adjusted free cash flow is expected to be positive. Thanks, all for joining the call and operator, let's open up the call 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 telephone keypad.
Operator: If you are using a speaker phone, we ask that you please stay off your handsets for a minute. To withdraw your questions, please press star then 2. At this time, we will pause momentarily to assemble our room. Today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead. Good morning. Hello, Kurt.
If youre using a speakerphone, we ask that you. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
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.
Good morning.
Hey, Luke.
Luke Lemoine: Good morning, Girish. You addressed the elf in the room with your thoughts and thoughty, your prepared remarks about how this is unfolding and the mental impact on you, and the way to go read that future-fest or rainbow-cast as you're coming from. Allshore, Stephanie, and Manifa, and you hadn't factored any of this into your multi-year outlook, but could you just refresh us on which land projects and or fields you're working on within the kingdom? Yeah, so we're working on several different ones without going into hyperspecifics, Luke. Look, we provide services across the spectrum as well as provide products. One of the things that is interesting about our business, you know, we also provide products to some of the integrated projects that other service companies run as well. In addition, you know, we've got our specialty services like MPD that we've got a very strong position in Saudi. So, you know, a lot of different ones.
Good morning, Chris.
Bruce you address the elephant in the room with your thoughts on Saudi during our prepared remarks with how this is unfolding in the middle and back to you and we would agree that the future customer ranco Capex should come a problem at all.
Sure, Stephanie and Vanessa and you hadn't factored any of this in your multiyear outlook, but could you just refresh us on which land projects and filtering working on within the Kingdom.
Yeah. So we're working on several different ones without going into a hyper specifics look look we provide services across the spectrum as well as provide a product one of the things that is interesting about our business.
So provide products to some of the integrated projects that are other service companies are run as well. In addition, we've got our specialty services like MPV that we've got a very strong position in Saudi so.
Girish Saligram: Plus, look, lastly, we also have our own integrated project that we talked about in Q4 of 2022. We've ramped this up. This is the LSDK project on intervention services.
Lot of different months, plus look lastly, we also have our own integrated.
Project that we had talked about in Q4 of 2022, we ramped. This up this is the <unk> project in intervention services. So.
Girish Saligram: Really across the board, like we mentioned in our prepared remarks, the business is, you know, mostly onshore, but we see offshore as a very tangible opportunity. And we do work over there today, mostly in the form of product sales. Okay, and maybe just kind of generically, you know, within the kingdom, I mean, there's a decent amount of gas exposure as well for you guys, right?
Really across the board like we mentioned in our prepared remarks the business is.
Mostly onshore, but we see offshore as a very tangible opportunity and we do work over there today.
Mostly in the form of product sales.
Okay, and maybe just kind of generically you know within the Kingdom I mean, there are some decent amount of gas exposure as well for you guys right yes.
Girish Saligram: And then you touched on it a little bit, just kind of with the integrated projects, you know, within Aramco, but just globally, these have been growing fairly substantially. Can you just update us on where they are, you know, what's to come, and how we should think about growth and profitability within the integrated project business for you guys? Sure.
Yes, okay.
Yes.
And then you touched on a little bit just kind of what the integrated projects with dinner ampco, but just globally. It's been growing fairly substantially can you just update us on where things are.
Western Com.
And how we should think about growth and profitability within the integrated project business for you guys sure sure. So look I think a couple of things we really we've got a couple of different models on the integrated projects first of all these are not really construction projects, they're really more sort of what we do in a normal basis, just integrated and fully now some.
Girish Saligram: So, look, I think a couple of things. We've really got a couple of different models for the integrated projects. First of all, these are not really construction projects.
Girish Saligram: They're really more sort of what we do on a normal basis, just integrated and fully integrated. Now, some of these we do not provide the rig for, and those tend to have significantly higher profitability and are significantly accretive. So, we started that in Latin America, in Mexico, for example.
Of these we do not provide the rig and those tend to have a significantly higher profitability and are significantly accretive. So we started that in.
In Latin America in Mexico. For example, and then we have projects, where the rigs and other pass through services are included so when you have that model the profitability tends to be lower but that's only because of the pass through services. The intrinsic profitability of the core services and products that we provide is still very occur.
Girish Saligram: And then we have projects where the rigs and other pass-through services are included. So, when you have that model, the profitability tends to be lower, but that's only because of the pass-through services. The intrinsic profitability of the core services and products that we provide is still very accretive to the company as a whole. And most significantly, these projects have a very high degree of cash flow conversion because of the minimal capex.
<unk> for the company as a whole and most significantly these projects have a very high degree of cash flow conversion because of the minimal capex. They also provide a base load of absorption for the company. So we think of them as a very positive thing overall now having said all of that look it's not something that we are going to do.
Girish Saligram: They also provide a base load of absorption for the company. So, we think of them as a very positive thing overall. Now, having said all of that, look, it's not something that we are going to, you know, just go nuts about and take on a lot of these things. We are going to be very careful, like we have been. In terms of the projects that we will take to, so you know, today, we've got a decent number of these projects, but really, it's going to be very measured, and we'll probably do orders of magnitude, maybe one, at most, two additional ones a year, but nothing more than that. Okay. Got it. Thanks Girish, a very nice corner for cash flow. Thank you; I appreciate it. And our next question today comes from James West of the 4ISI. Please go ahead. Hey, uh, good morning, uh, Girish and Rune. Good morning.
Just go nuts on and take on a lot of these things we are going to be very careful like we have been.
In terms of the projects that we will.
So today, we've got a decent number of these projects, but really it's going to be very measured and we will probably do order of magnitude.
Maybe one Max do additional ones a year, but nothing more than that.
Okay got it thanks duration very nice quarter for cash flow.
Thanks, a lot appreciate it.
And our next question today comes from James West.
Please go ahead.
Hey, good morning, Gary.
Good morning, James.
So yes.
You're there.
James West: So the debt paydown is now well underway, the balance sheet's in great shape, the free cash flow continues to surprise on the upside. I echo Luke's comments about a great free cash flow quarter in the fourth quarter. So the shift now in your, well I think there's probably a shift coming in kind of the strategic priorities for the business. So one, is that true?
The debt pay down is now.
Echo <unk> comments about a great free cash flow quarter in the fourth quarter. So the shift now in Europe, where I think there's probably a shift coming in kind of the strategic.
Priorities for the business. So the one is that is that true.
Girish Saligram: And two, is the shift, which I think would be more offensive in nature; what would you define as the characterizations of that shift? Is it M&A? Is it market share? Is it, because you just blocked it in time, internal? You know, what are the main characteristics?
What would you define as the characterizations of that shift is it using M&A as it's market share or is it because then you're just blocking and tackling is internally what are the main characteristics.
Girish Saligram: Yeah, see, James, look, I think a couple of things. First of all, I appreciate the comments. You know, the way I would characterize it is that the balance sheet is still not in a great position. It's still...
Yeah, Hey, James look I think a couple of things first of all I appreciate the comments.
I would characterize it as the balance sheet is still a lot of the great position, it's still but it's definitely gone from.
Girish Saligram: But, you know, it's definitely gone from being in pretty dire straits to being in a good position. So we still have some with the chop. Our gross debt levels, as everyone knows, are still a tad bit higher than we would like. So debt will continue to be a priority, with the secured notes being the immediate one. And then, you know, continuing to chip away at the rest of the debt tax. So that's still going to be important. But if you look at the rest of it, though, you're right.
Bring in pretty dire Straits to being in a good position. So we still have some wood to chop off our gross debt levels as everyone knows are still a tad bit higher than what we would like so that will continue to be a priority with the secured notes are being the immediate one and then.
Continuing to chip away at the rest of the debt stack. So that's still going to be important because if you look at the rest of it though youre right. There is a shift and I think it's it's multi dimensional as you've pointed out.
Girish Saligram: There is a shift, and I think it's multidimensional, as you pointed out. You know, as we mentioned in our prepared remarks, once we have the secured notes taken off, there will be a conversation on overall capital allocation, including shareholder returns. We recognize that that is something that is on everyone's mind. So we will come back and address that. Investment into the business is always a priority. We have not slowed that down. Look, over the last couple of years, we have continued to increase investment in technology, especially as well as into CapEx. And as Arun pointed out in his remarks, you see some of that evolution in action. You know, the inorganic nature of our posture will be, I think, a little bit more apparent.
We mentioned in our prepared remarks once we have the secured notes taken off there will be a conversation on overall capital allocation, including shareholder returns. We recognize that that is something that is on everyone's mind. So we will come back and address that.
Investment into the business is always a priority we have not slowed that down and look over the last couple of years. We have continued to increase investment into technology, especially as well as into Capex and as Don pointed out in his remarks, youll see some of that debt evolution flowing the inorganic nature of our.
Posture will be able to think a little bit more aberrant, we've announced three transactions today, one of which we paid for in cash. It was a it was small the rest the other ones are predominantly in equity. So I think there will be a balance of that but look we're going to be very careful about M&A, we are not ever going to be a serial acquirer and again I want to make sure that.
Girish Saligram: We've announced three transactions today, one of which we paid for in cash. It was small; the rest, the other ones were predominantly in equity. So I think there will be a balance of that. But look, we're going to be very careful about M&A. We are not ever going to be a serial acquirer. Again, I want to make sure that I'm very explicit about that. That is not who we are.
I am very explicit around that that is not who we are but we will do it very selectively where it makes sense and we've got very robust integration plan. So I think it will really be a combination of those things investing into the company continuing to shore up the balance sheet from a reduction of debt and then really thinking about what are the inorganic opportunities.
Girish Saligram: But we will do it very selectively when it makes sense, and we've got very robust integration plans. So I think it will really be a combination of those things, investing in the company, continuing to shore up the balance sheet from a reduction in debt, and then really thinking about, you know, what are the inorganic opportunities and, you know, with what's left over, how do we create more shareholder value. Yeah, and James, okay, just to add to that, it is not only the gross debt; it is also the cost of debt, so our cost of debt, which translates into interest coverage being lower than our peers, is something that we need to keep working on, but completely in line with what Girish was saying. Okay. It makes sense.
But what's left or how do we create more shareholder value creation.
And James just to add to that it is not only the cros Ted It is also the cost of debt.
So our cost of debt, which translates into interest coverage being north and our peers.
Thing that people need to keep working on but completely new languages.
Right.
Okay, Okay. It makes sense or the thank you for that.
James West: And thank you for your comments. And then maybe a quick follow-up from me. You know, some of the conversations we've had in recent months have talked a bit more about, you know, leaning out the operations. You're competitive on, you know, with your pricing structure versus your peers. There's no discounting to win market share anymore.
And then maybe a quick follow up.
For me.
Some of the conversations we've had in recent months have talked a bit more about.
Leaning out the operations.
Youre competitive on what's your pricing structure versus your peers, there's no discounting to win market share.
Girish Saligram: And so, but, you know, margins are up a lot, and they're, you know, chasing, you know, a major fear. So, I'm curious, though, what opportunities you see on the margin side. I know you're highlighting a pair of comments that there's more room to go here, but could you talk a bit about kind of the opportunities that are there for margins? Yeah, so I think that's a couple of different things, James.
And so but your margins are up a lot of it in there.
Jason.
Major peer so.
Curious, though what opportunities you see on the margin side I know you highlighted in your prepared comments.
Room to go here.
Could you talk a bit about kind of what the.
Opportunity set is there for margins.
Yes, so I think theres a couple of different things James So first of all I'll touch upon our big fulfillment initiative, we've made tremendous progress on this but it's still one that hasnt really fully sort of reflected in the results I'm tremendously excited about what we will see over the course of this year and then it will really start to.
Girish Saligram: So, first of all, I'll touch upon our big fulfillment initiative. You know, we've made tremendous progress on this, but it's still one that hasn't really fully, you know, sort of reflected in the results. I'm tremendously excited about what you will see over the course of this year, and then it'll really start to deliver in 2025. So, there are a couple of different things.
To deliver in 2025. So this is <unk>.
Couple of different things the simplest form a fitness facility consolidation, but that's frankly not the big deal.
Girish Saligram: The simplest form of it is facility consolidation, but that's frankly not the big target here. It's about strategic sourcing, moving our supply base closer to where our factories are, making sure we've got better cost controls, and we've got better sourcing opportunities. So, we think that's a huge opportunity to move to best-cost countries, for example. We've talked about that in the past.
A big target here, it's about strategic sourcing moving our supply base closer to where our factories are making sure. We've got better cost controls, we've got better sourcing opportunity. So we think there's a huge opportunity moving to best cost countries. For example, we've talked about about that in the past so.
Girish Saligram: So, you know, everything from manufacturing, repair and maintenance, sourcing, and logistics, we think that's got a significant.., role to play in our margin expansion. The second thing is you think about the company and our history, you know, as we have, you know, gone way up and then come down, the company has a legacy of complexity, just driven by a variety of different acquisitions, all of the different countries we've played, our tax, our legal entity structure, etc., so, you know, our team's done a fabulous job over the last couple of years of simplifying that, but there's still some room to go, to continue to further reduce that and simplify the operational flow, reduce manual intervention in a lot of our processes, and essentially get not just margin expansion, but also get velocity for cycle time improvement, which will help our cash flow conversion. Got it.
Everything from manufacturing repair and maintenance sourcing and logistics, we think that's got a significant.
Gone way up and then come down the company has a legacy of complexity, just driven by a variety of different acquisitions all of the different countries. We've played our tax our legal entity structure et cetera. So.
Our team has done a fabulous job over the last couple of years of simplifying that but theres still some room to go to continue to further reduce that and simplify the operational flow reduce manual intervention and a lot of our processes and essentially get not just margin expansion, but also get velocity, so cycle time improvement, which will help our cash flow conversion.
James West: Okay. Great. Thank you. Sir, thank you.
Version.
Got it okay, great. Thanks, guys.
Sure. Thank you.
Arun Mitra: And our next question comes from Artie Modak with Goldman Sachs; please go ahead. Hi, good morning, guys. Good morning, how are you doing?
And our next question comes from Alta Moda with Goldman Sachs. Please go ahead.
Hi, good morning, guys.
I'm wondering arguing.
Are you guys spoke about this a little bit but didn't really go into details I guess I'll take the auction opportunity to ASO.
Arun Mitra: You spoke about this a little bit but didn't really go into details, so I guess I'll take the option or opportunity to ask. So, with all the notes that you've been able to pay down so far, how are you thinking about the right balance between dividend sharing purchases and when should we sort of wait to hear from you? Our priorities haven't really changed. As you know, we've made meaningful progress in getting to where we need to go. We have about $97 million of the notes that are still open, and we have to eliminate that before we engage in a shareholder return discussion.
The notes that you've been able to pay down so far and how you're thinking about the right balance between dividends share repurchases and when should we sort of wait to hear from you.
So I think our priorities haven't really changed as you noticed we've made meaningful progress in getting to where we need to.
We have about $97 million of senior notes, which are still open and we have to eliminate that before we engage in a shareholder return discussion and as you may.
Arun Mitra: And as we've maintained in the past, you know, we expect to be there by the middle of this calendar year. And beyond that, having a framework and discussing specifics of the framework in terms of what shape it takes, the how, what, when, is something we'll give you guys more clarity on, maybe another two to four months later. If I could just add to that, I know there is a lot of interest in specifics about this, all the options on the table. Our focus is going to be creating something that is sustainable over the long term and that we have a line of sight to. We are not really looking to do something that is just going to get us a great set of announcement interest, etc. We just want to make sure we are really thinking through not just the long duration of the company but also on a multi-year basis, on a two-cycle basis, to make sure it is really sustainable. It makes sense.
It maintained in the past.
We expect to be paid by the mid of this calendar year.
Beyond that having a framework and discussing specifics of the framework in terms of what shape. It takes.
Oh what brand.
It's something we'll give you guys more clarity on maybe another three to four months later.
Okay.
Yes, if I could just add to that look we have said this I know there is a lot of interest in and specifics on this all the options on the table. Our focus is going to be creating something that is sustainable over the long term and that we have line of sight do we are not really looking to do something that is just going to get us a quick set of announcement.
Interest et cetera, we just want to make sure we're really thinking through not just the long duration of the company, but also on a multi year.
<unk> basis on a through cycle basis to make sure it's really sustainable.
It makes sense.
Girish Saligram: And then on the CapEx, you guys mentioned 5% of revenue. Can you provide some color on where that CapEx is going to be directed across your service lines for that organic growth component? And help us understand the long-term objective in terms of the revenue and margin impact you expect from that. Yeah, so a couple of things. Typically, our DRE segment tends to be the biggest recipient of CAPEX, you know, just given the service nature of it. We've got a lot of demand for drilling tools; we've got, obviously, a lot of demand for MPD. And then there is also, you know, a fair amount across the segments of replenishment and maintenance CAPEX requirements. The other thing, though, that I think is important to point out this year is that we announced a couple of very significant contracts with Petrobras in the offshore space. So, these fall into our PRI because of their intervention services space, so that is a very significant driver.
Then on the Capex you guys mentioned, 5% of revenue can you provide color on where that Capex is going to be directed across your service lines for that organic growth component and help us understand the long term objective in terms of revenue and margin impact you expect from that yeah.
Yeah. So a couple of things so typically our DIY segment tends to be the biggest recipient of capex.
Just given the service nature, we've got a lot of demand for drilling tools, we have.
Got obviously a lot of demand for for MPD and then there is also a fair amount across the segments of replenishment in maintenance Capex requirement. The other thing, though that I think is important to point out. This year as you know we announced a couple of very significant contracts with Petrobras in the offshore space.
These fall into our Prs <unk>, because that interventional services space. So that is a very significant driver and from an increase standpoint is probably the most significant increase so you know.
Girish Saligram: And from an increase standpoint, it's probably the most significant increase. So, you know, in terms of returns, though Arun talked about return on invested capital, it is a, you know, very, very solid number at this point in time. So, our goal is to continue to keep driving that in the upward direction. But look, a big part of the margin expansion that you see is the result of these CapEx investments. You know, not only are we able to get increased revenue with higher call-throughs, but we're also looking to see how we can increase the efficiency of our operations with improvements in the technologies that we deploy. Great, thank you. Thank you, and our next question today comes from Jim Rolison with Raymond James. Go ahead.
In terms of the returns, though I haven't talked about a return on invested capital it is a.
Very very solid number at this point in time. So our goal is to continue to to keep driving that.
In the upward direction.
But look a big part of the margin expansion that you see is a result of these capex investments not only are we able to get increased revenue with higher <unk>, but we're also looking to see how do we increase the efficiency of our operations with improvements in the technologies that we deploy.
Great. Thank you.
Okay.
Thank you and our next question today comes from Jim Rollyson with Raymond James. Please go ahead.
Jim Wicklund: Hey, good morning, guys. And I'll echo the same thing as others have said, which is a great quarter and especially on the free cash flow side. But maybe just a little bit picking on 2024, you exited the year with 23.6% EBITDA margins, and obviously, guiding higher sequentially kind of gets you closer to 24%. And it sounds like as the year progresses, we're going to be inching closer to 25%. How are you thinking about that average progression throughout the year from a margin perspective? It sounds like we're going to probably end up somewhere north of 24% for the full year this year as we transition towards that 25%-25%. Is that a reasonable read?
Good morning, guys and great.
Same thing as others have said, which is a great quarter and especially in our free cash flow side, but.
You exited the year with 23, 6% EBITDA margins, obviously guiding higher sequentially kind of gets you closer to 24% and it sounds like as the year progresses, we're going to be inching closer to 25.
How are you thinking.
About that average progression throughout the year from a margin perspective, it sounds like we're going to probably end up somewhere north of 24% for the full year. This year as we transition towards that 25% and 25 is that a reasonable read.
Girish Saligram: Yeah, well, look, north is all kinds of stuff, Jim, so, like, I think a couple of things. One is, as Arun pointed out in his prepared remarks, we will exit the year, we believe, at a 25 percent rate. It will be a progression over the course of the year, but, you know, it's not going to be, sort of, you know, big jumps. It's probably going to be a little bit, you know, smaller increments. And, look, it's not necessarily going to be evenly spaced across the borders.
Yeah, well look north there's all kinds of stuff Jim So.
Look I think a couple of things one is as Alan pointed out in his prepared remarks, we will exit the year, we believe at a 25%.
There will be a progression over the course of the.
The year, but.
It's not going to be set of big jumps out at us.
<unk> going to be a little bit.
Smaller increments and look it's not necessarily going to be evenly spaced across the quarters. We've got typically a third quarter that tends to be a service oriented quarter second and fourth quarter. They tend to be more mixed driven two products. So there is a little bit more.
Girish Saligram: You know, we've got, typically, a third quarter that tends to be a service-oriented quarter, a second and fourth quarter that tend to be more mixed-driven by products, so there is a little bit more like that. So, you know, look, I think, overall, as we have said, we will see meaningful progress towards the 25%, but we have been very clear that that 25% is sort of a 25 by 25 kind of target. So that's where we will expect to land.
Okay.
Like that so.
Look I think overall as we have said.
We will see meaningful progress towards the 25%, but we have been very clear that that 25%, it's sort of a 25 by 'twenty five.
Kind of a target so that's where we will expect to land I think the other thing to point out as I said in my prepared remarks, our philosophy has always been we set a target.
Girish Saligram: I think the other thing to point out, as I said in my prepared remarks, our philosophy has always been we set a target. We provide a line of sight to it, we achieve it, we make sure we're sustainable, and then we raise it. But we did point out, look, we don't think that that is necessarily our defining limit.
We provide a line of sight to it we achieve it we make sure we are sustainable and then we raised it up but we did point out look we don't think that that is necessarily are defining limit. So we are constantly looking for other ways to raise the bar as well.
Girish Saligram: So, you know, we are constantly looking for other ways to raise the bar as well. Absolutely, and obviously you've clearly detailed, there are a lot of things going on that seem to extend well beyond 2025. Switching gears on a follow-up, obviously, you talk about CapEx and you were a little more active on the M&A front this quarter. It sounds like that could be part of, opportunistically, part of your incremental growth strategy. Just curious, as you think about M&A, pretty strategic in your directive on what you're focused on, but are they mostly things that you're looking at, mostly on the smaller side, like the transactions you announced today, or are there any larger transactions that you would contemplate as you go forward and your balance sheet continues to improve? Yeah, and look, Jim, we've certainly contemplated them. The criteria don't really change, though, right? So that's the important thing for us. We are not interested in driving scale for the sake of scale.
Absolutely and then obviously, you're clearly detailed there's a lot of things going on that seem to extend beyond well beyond 2025.
Switching gears on a follow up.
Obviously, you talked about Capex and you were a little more active on the M&A front this quarter and it sounds like that could be part of.
Opportunistically part of your incremental growth strategy, just curious as you think about M&A.
Pretty strategic in in your directive on what you're focused on but are they mostly things that youre looking at mostly on the smaller side like the transactions you announced today or are there any larger transactions that you would contemplate as you go forward in your balance sheet continues to improve.
Yes look we would certainly contemplate it.
Criteria adult really changed though right. So that's the important thing for US we are not interested in driving scale for the sake of scale, we want to drive scale for value creation. That's the most important thing and we believe that first of all there has to be a strategic pieces. We've got to do things that will improve the overall margin.
Girish Saligram: We want to drive scale for value creation. That's the most important thing. And we believe that, you know, first of all, there has to be a strategic piece. We've got to do things that will improve the overall margin profile of the company, will improve our ability to generate cash. So as we do all of that, and then we look at our valuation envelope, you know, for it to make sense, that's how we look at it. So, yes, we will certainly entertain larger transactions. We have looked at several. You know, but it's taken us, since I've been in the company, it's taken us three and a half years to get to this point. You know, we set a pretty high bar, and especially given our history, I think that's warranted. We want to make sure that everything that we do on the M&A space is exceedingly well thought out and has integration plans that will actually deliver the value that we have committed. That's a great answer.
Profile of the company will increase our ability to generate cash so as we do all of that and then we look at our valuation envelope, but for it to make sense. That's how we look at it. So yes, we will certainly entertain larger transactions we have looked at several.
But it's taken US look since I've been in the company has taken a three and a half years to get to this point, because we set a pretty high bar and especially given our history I think that's warranted we want to make sure that everything that we do on the M&A space is exceedingly well thought out and has integration plans that will actually deliver the value that we have committed to.
That's a great answer thanks Paresh.
Jim Wicklund: Thanks Girish. And our next question today comes from Doug Becker at Capital One. Please go ahead.
Jim.
And our next question today comes from Doug Becker Capital One. Please go ahead.
Doug Becker: So, the revenue growth guidance is a little bit higher than some of the competitors. I just want to get a sense for how much of that is driven by the acquisitions announced versus just maybe the smaller base or some of the unique opportunities that Weatherford has. Yeah, hey, Doug.
Thank you so the revenue growth guidance, a little bit higher than some of the competitors I just wanted to get a sense for how much of that is driven.
Acquisitions.
<unk> versus just maybe the smaller base or some of the unique opportunities that that Weatherford has.
Yeah, Hey, Doug So that's why I tried to stress the word small a couple of times in my prepared remarks.
Girish Saligram: So that's why I tried to stress the word small a couple of times in my prepared remarks. Look, we've been talking since sort of the late summer last year about double digit revenue growth. So it wasn't overly influenced by our acquisitions. And, you know, we've been sort of thinking through this. We've also had some, you know, things that have pressured us to the downside. I talked about Russia. We obviously know the situation in North America.
Look our we've been talking since sort of the late summer last year about double digit revenue growth. So.
It wasn't overly influenced by our acquisitions and we've been sort of thinking through this we've also had some things that have pressured us on the downside.
<unk> talked about Russia, we obviously know the situation in North America, So I think look.
Girish Saligram: So I think, look, you know, in terms of the smaller number, you know, yes, you're right, it's a smaller base, for sure. But, you know, for now, for a couple of years, we've been talking up numbers that are in excess on the international side. I think that's a combination, again, of the opportunity to grow. So, you know, the portfolio that we have, which is really a broad spectrum of full-scale services, coupled with the specialty services, gives us an opportunity to really increase the value proposition that we can offer customers. And that's what we really think is driving the growth. Got it. And will he primarily be in the DRE segment?
In terms of the smaller number.
Yes, youre right its a smaller base for sure but.
For now a couple of years, we've been talking up.
Numbers that are in excess on the international side and I think that's a combination again of the opportunity to grow so.
The portfolio that we have which is really broad spectrum.
Full scale services, coupled with the specialty services gives us an opportunity to really increase the value proposition that we can offer customers and thats. What we really think is driving the growth.
Got it and will be primarily be in the DIY segment.
Girish Saligram: So it's a mix, Doug, so the two wireline technology companies will be in the DRE segment, and Ardyne, which is in decommissioning, will be in the PRI segment. Okay, and then just real quickly on the networking capital, the 25.8% this year benefited from the financial transaction you highlighted, just maybe just what was the normalized networking capital there? What's a reasonable target for this year as the company moves toward that 25% of revenue over time? This is something I've maintained. You know, the idea is to keep improving the metrics. So while we were helped by this transaction at year-end, you know, we did make meaningful progress on a few of these metrics this year, even if I were to carve out the year-end transaction. So the idea is to improve on a normalized basis by at least 100 basis points every year, and with the long-term goal being a sustainable 25% investment in person traffic in the next couple of years. Thank you very much. Turner.
So it's a mix Doug so the two are wireline technology companies will be in the DIY segment, and our <unk>, which is in decommissioning will be in the Prs segment.
Okay, and then just real quickly on the net working capital. The 25, 8%. This year benefited from the financial transaction you highlighted just maybe just what was the normalized.
Net working capital there and what's a reasonable target for this year as the company is moving towards the 25%.
Revenue overtime.
Hey, Doug.
And this is something I've maintained.
No.
The idea is to keep improving the metrics. So while we were helped by this transaction here and we.
Did make meaningful progress on a few of these metrics this year, even if I were to carve out.
Inc. Transaction. So the idea is to improve on a normalized basis at least 100 basis points every year and with the long term call being on a sustainable 25%.
Investment in working capital.
And the next couple of years.
Thank you very much.
Sure.
Arun Mitra: Thank you, and our next question today comes from Sareb Pant with Bank of America. Please go ahead. Hi Girish, everyone. Good morning. Is it morning yet? I guess if we can spend a little time on offshore, Girish, if you don't mind, I think you said in your prepared remarks that Gulf of Mexico revenues for you grew by more than 25% in 2023. I know Girish, you haven't given specifics on your offshore exposure, but to the extent you can talk about that opportunity for you over the next couple of years, or maybe more than a couple of years, elaborate on that Sure.
Thank you and our next question today comes from Sara pumps.
Bank of America. Please go ahead.
Yes, good morning.
I guess, so if we can spend a little time on offshore the good issue. If you don't mind I know I think you said in your prepared remarks, a Gulf of Mexico revenues for you grew I think you said more than 25% in 'twenty to 'twenty three I know you haven't given specifics on your offshore exposure, but to the extent you can talk about that opportunity for you over the next couple of year.
Or maybe more than a couple of years elaborate on that a little bit and maybe give us a little more color on on Crs and MPD from that perspective.
Girish Saligram: I think, look, it used to be a really exciting space, you know. We traditionally talk about NTD and TRS first when we talk about offshore, but there are several other things that contribute to our offshore exposure. You know, first of all, there are intervention services.
Sure.
I think look it continues to be a really exciting space. We traditionally talk about MPD and Trs first when we talk about offshore but there are still several other things that contribute to our offshore exposure you know first of all there's intervention services. We do a lot. There. These two contracts I talked about with Petrobras for example, again.
Girish Saligram: We do a lot there. You know, these two contracts I talked about with Petrobras, for example, are again part of our PRI segment, and we do a lot of more conventional intervention services across the board. There is a lot of work around now on decommissioning and plug-in abandonment, so we think that will be an area of tremendous growth for us, both in the Gulf of Mexico as well as, you know, in the North Sea, so we think that's a huge opportunity. We also provide a significant amount of product sales into that, some of our cementing products, some completion, so, you know, that's an area, especially on You know, at the same time, I would be remiss if I didn't point out we do a lot of other activities, including drilling. You know, we've talked about our bins in the Gulf of Thailand, which is a high-temperature basin where we do drilling services for PTPP. We also do that in the North Sea for different operators. So, you know, it's a fairly broad spectrum of offerings. Look, on the NPV side, I'm tremendously excited about MODIS.
Out of our Prs segment, and we do a lot of more conventional intervention services across the board.
A lot of work around now decommissioning in plug and abandonment. So we think that will be an area of tremendous growth for us both of the Gulf of Mexico as well as.
In the North Sea. So we think that's a huge one.
Huge opportunity. We also provide a significant amount of product sales into this some of our <unk> products.
Some completions, so that's an area, especially on the completion side as we look to expand our presence and get more penetration.
At the same time I would be remiss, if I didn't point out deal, we do a lot of other activity, including drilling we've talked about.
Our wins in the Gulf of Thailand, which is a high temperature basin.
We do.
Drilling services for PTT PV also do.
In the North sea for four different operators. So it's a fairly broad spectrum set of offerings look on the MTBE side I'm tremendously excited about motors. This is the platform that we launched up as we get more packages and we scale up it'll actually give us that opportunity to get into the jackup market. So that's something that we're looking forward.
Girish Saligram: This is the platform that we launched. As we get more packages and we scale up, it'll actually give us an opportunity to get into the jackup market. So all of that to say, look, the bottom line is, we still see offshore as a significant area of growth for us. And given the traction that the industry as a whole has, we think we will be able to do more with that. You know, the U.S. Gulf of Mexico, yes, grew significantly last year. I said in my prepared remarks that this year we expect that to be a bit more stable. But some of the other offshore basins represent significant growth for us, Brazil, West Africa, Asia, North Sea, etc. Right, right. Okay. No, that's very helpful, Girish.
So all of that to say look bottom line is we still see offshore as a significant area of growth for us and given the traction that the industry as a whole has we think we will be able to do more with that.
Right right. Okay. No. That's very helpful. And then one maybe unrelated follow up on the on the ISP, our integrated services and products are our.
Girish Saligram: And then one maybe unrelated follow-up on the ISP or integrated services and product business. So obviously, I think, Arun, you talked about in your prepared remarks on the Oman and Saudi integrated contracts fully ramping up and doing really well. And I think you got maybe one in Mexico as well.
Business. So obviously I think I don't want you talked about in your prepared remarks on them on the Oman and Saudi are integrated contract fully ramping up and doing really well and I think you've got maybe you want in Mexico as well how should we think about that business relative to your overall growth.
Girish Saligram: How should we think about that business relative to your overall growth? Girish, I know you talked about maybe picking up one or, at most, two contracts like that a year. How should we think about that growth relative to the business overall? Does it grow faster than your overall business? And then just in terms of accounting, how you report some numbers, I got a few people asking me on the other line. Arun, if you can give us a little color on what goes into that within ISP and what goes into the main operating system.
I know you talked about maybe picking up one or at most two contracts like that are you.
How should we how should we think about that growing relative to the business overall or does it grow faster than the overall business and then just in terms of accounting how you report some number though I got a few people asking me on the all other line I don't know if you can.
And what goes into the main operating segments sure.
Arun Mitra: Sure. So, sort of, you know, the ISP business is, is, we report ISPs in two categories. One, which is product-line related, will make its way into the segments.
So sort of.
The ISP business.
As we report the ISP in two categories, one, which our product claims related make its way into the segments and one for <unk>.
Arun Mitra: And the one which is predominantly purchase resale and project management is the part that gets recorded in all other accounts. And that component is what kind of is diluted to our overall margins, as Girish outlined. But having said all of that, it is also, from a CCC standpoint, accretive because of more Catholics and lower inventories. So in terms of growth, I would almost consider the same growth as you consider for the enterprise, the ISP, others, etc., and it's hard to take off for us to report as a separate segment. So once it does, we'll get transparent to you about that, but we don't see it happening in 2014. And look, sir, for the first part of your question, what I would say is, you know, these ISP projects for us will be sort of, you know, when they happen, they will create an accelerant for growth. You know, we've not really factored into our projections anything significant that would happen as a one-off that would give us an added fillip to growth.
She is predominantly purchase pre sale and project management is the part that gets reported in all other.
And that component is what kind of is dilutive to our overall margins.
Carriers are client, but having said all that it is also promote ccc's time point accretive because it's more capex and lower inventories.
So in terms of quota.
<unk> always considered the same CRO as you consider for the enterprise.
All right.
<unk> other segment and its not big enough for us to report as a separate segment. So.
Once it does you'll get transparency.
But we don't see it happening in 2014.
And it looks like for the first part of your question, what I would say as you know.
In these ISP projects for us will be set of really when they happen they will create an accelerant to growth.
We have not really factored in.
<unk> anything significant that would happen as a as a one off that would give us an added Philip.
Girish Saligram: So, if that happens, obviously, we will come back, we will announce that and outline that like we did in 2022 when we got these two awards. So, you know, but look, I think we are, you know, our whole thesis has always been to make sure we win these, like with everything else, you know, run it, stabilize around it. And the team did an outstanding job of execution, which gives us the confidence to look to see what else we can do. No, that's fantastic. Okay, Girish, and Arun, thanks for those answers.
The growth so if that happens obviously, we will we will come back we will announce that and outline that like we did in <unk>.
In 2022, when we got these two these two awards, so, but but look I think we are.
Our whole thesis has always been make sure we win these like with everything else.
<unk> stabilized around it and the team has done an outstanding job of execution, which gives us the confidence due to look to see what else we can do.
No that's fantastic okay. Good I should own thanks for those answers I'll turn it back.
Thanks Ara.
Thank you and our next question comes from current Hollywood with benchmark. Please go ahead.
Girish Saligram: I'll turn it back. Thanks for asking. Our next question comes from Kurt Hallead with Benchmark. Please go ahead.
Hey, good morning.
Good morning.
Correct.
Kurt Hallead: Hey, good morning. Thanks, sir. Morning, Kurt. Thanks for all the color this morning.
Thanks for all the color this morning.
So Gary first on on your end right you referenced that there are something like a 100 large projects and.
Girish Saligram: So Girish, first on your end, you referenced that there are something like a hundred large projects and a number of smaller projects that are expected to be up for FID over the course of the next three years that would then, you know, provide some visibility for revenue growth out through the end of the decade. So, you know, again, not looking for specifics here, but maybe in the context of that total addressable market, when you look at the different regions in which you report your operations, you know, which region do you think would offer the highest growth, and, you know, how would you kind of rank the regions in terms of, again, whatever risk adjustment you mentally want to put into the process of what may happen or what may not happen.
A number of smaller projects that are expected to.
Yeah for <unk> over the course of the next three years that will then provide some.
Visibility for revenue growth out through the end of the decade, So again not looking for specifics here, but maybe in the context of that total addressable market. When you look at the different regions in which you report your operations.
Which which regions do you think would offer the the <unk>.
<unk> growth and how would you kind of rank the regions in terms of.
Again, whatever risk adjustment you mentally you want to put into the process of what may happen or what may not happen I'm just curious as to what regions. Do you think will offer the biggest growth opportunities for <unk> through the end of the decade.
Girish Saligram: I'm just curious as to which regions you think will offer the biggest growth opportunities for you through the end of the decade. Kurt, look, I think our overall thesis on this remains reasonably intact. I'll start with, look, head and shoulders, we think the Middle East continues to be the one that spearheads the growth, you know, sort of the broader Middle East. And it's really sort of speculative.
Yes.
Look I think our our overall thesis on this remains reasonably intact I will start with look head and shoulders. We think the middle East continues to be the one that spearheaded the growth.
Sort of the broader middle East and it's really sort of secular <unk>.
Girish Saligram: It's countries like the Kingdom of Saudi Arabia, the UAE, Oman, Kuwait, et cetera, including North Africa, right? So you've got Egypt that continues to be a really interesting opportunity, several other projects, et cetera. You know, the one question mark on the Middle East is Iraq, you know, just given some of the challenges there, but in the long term, we expect that to be positive as well. The second one is Latin America. Look, in Latin America, Brazil's sort of leading the way, but Mexico's pretty strong as well, both PEMEX as well as all of the other operators that have got activity in Mexico.
Countries like the Kingdom of Saudi Arabia, UAE, Oman, Kuwait et cetera, including North Africa, right. So you've got Egypt that.
And that continues to be a really interesting opportunity several other projects et cetera.
One maybe question Mark on the Middle East is Iraq.
And look in Latin America, Brazil, sort of leading the way, but Mexico is pretty strong as well.
Both Pemex as well as all of the other operators that are.
That have got activity in Mexico.
Girish Saligram: And then, you know, there is, I think, a little bit of a question mark as we see how Argentina fares over the course of the year. Hopefully, it comes out to be a very big positive, and actually, you know, the next four to five years are a big boost to growth. And then, look, the last piece of it, I would say, Sub-Saharan Africa.
And then.
There is I think a little bit of a question Mark as we see how Argentina fares over the course of the year hopefully.
It comes out to be a very big positive and actually over the next.
And then look the last piece of it I would say sub Saharan Africa. There is always a higher degree of risk.
Girish Saligram: You know, there's always a higher degree of risk to some of the projects there, but we see that both on the East and West Africa sides, you know, to be a fairly positive signal. So, look, different areas, but, you know, we've also got growth in Asia. We've got growth even in North America.
Some of the projects there, but we see that both on the east and West Africa side to.
To be a fairly positive.
Our signal so look multiple different.
Areas, but we've also got growth in Asia, We've got growth even in North America. So.
Girish Saligram: So, you know, I really think for the next few years, we've got a positive outcome. I appreciate that. And I just wanted to circle back on the commentary about expecting CapEx to average 5% of sales on a four-year basis. And I think that stuff fails with what you mentioned in terms of contract wins and satisfying those contracts.
I really think for the next few years, we've got a positive outlook.
No I appreciate that and I just wanted to circle back on the commentary about expect Capex to average 5% of sales.
On a full year basis, and I think that dovetails with what you mentioned in terms of contract wins and satisfying those contracts but.
Kurt Hallead: But to a certain extent, if there is anyone who might get a little bit nervous, it's always when a lot of service companies start to increase CapEx. So I was just wondering if you could give me an opportunity here to kind of address that in the context that I'm assuming you're not ramping up CapEx in anticipation of things or ramping up CapEx to address specific contract awards.
Certain extent.
There is anyone who might get a little bit nervous.
As always when oil service companies start to increase Capex.
So I was just wondering if you could give me an opportunity here in Canada kind of address that that context that I'm assuming you're.
They are not ramping capex in anticipation of things Youre ramping capex to address specific contract awards, yes.
Girish Saligram: Hey, Kurt, appreciate the question. We've been very clear about this. And, you know, we spent a lot of time thinking through our three to 5% framework, doing a lot of analysis on it. And we have stuck to that now for a while. This is down significantly from what used to be the normal 7% in an upcycle, 10% to sometimes 12%. So it's already significantly curtailed.
Hey, Curt I appreciate the question, we've been very clear about this.
And.
Spent a lot of time thinking through our 3% to 5% framework doing a lot of analysis on it and we are stuck with that now for a while this is down significantly from what used to be the normal 7% in an up cycle tend to sometimes 12%. So it is already significantly curtailed, but the way we look at Capex as we have not set a following this philosophy of build it in.
Girish Saligram: But the way we look at CAPEX is we're not sort of following this philosophy of build it, and they will come. It is very project-specific, and where we've got line of sight, and a clear view of potential, you know, contingency plans for redeployment, etc. And as we have stated on these calls multiple times, we are actually reasonably comfortable with missing out on some of the opportunities that we could have had if we had built more CAPEX, because we want to make sure we've got the right capital model, the right capital intensity on a two-cycle basis because we are in a cyclical industry. So we're very, very careful about that.
They will come it is very project specific it's where we've got line of sight and a clear view on potential contingency plans on redeployment et cetera, and as we have stated on these calls multiple times look we're actually reasonably comfortable if we miss out on some of the opportunities that we could have had if we.
<unk> built more capex, because we want to make sure. We've got the right capital model the right capital intensity on a through cycle basis, because we are in a cyclical industry. So we're very very careful about that and I think you'll see that reflected in our return on invested capital metric that are referenced.
Girish Saligram: And I think you see that reflected in our return on investment capital metric that I'll address. Thank you. Thanks, Kurt. Thank you, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for the closing remarks. Thank you all for joining us today, and we look forward to joining you again in about a few weeks' time to give you an update on the Q1 results. Thank you, and have a great day. Thank you, everyone. This concludes today's conference call. We thank you all for attending today's presentation. You may not have a special alliance, but I have a wonderful one.
I appreciate that thank you.
Thanks Kurt.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for any closing remarks.
Thanks, Rocco. Thank you all for joining today and we look forward to joining you again in about a few weeks time to give you an update on the Q1 results. Thank you and have a great day. Thank you.
Thank you everyone. This concludes today's conference call. We thank you all for attending today's presentation.
Now disconnect your lines and have a wonderful day.
Yeah.
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Okay.
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