Q3 2024 Weatherford International plc Earnings Call
Ladies and gentlemen, thank you for standing by.
Speaker Change: Welcome to the Weatherford International third quarter 2024 earnings call.
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Speaker Change: As a reminder, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Luke Lemoine Senior Vice President Corporate development, Sir you may begin.
Luke Lemoine: Welcome everyone to the Weatherford International third quarter 2024 earnings Conference call I'm joined today by <unk>, President and CEO and Rune Mitra Executive Vice President and CFO will start today with her prepared remarks, and then open up for questions.
Luke Lemoine: Download a copy of the presentation slides corresponding to today's call from our website's Investor Relations section.
Luke Lemoine: I want to remind everyone that somewhat today's comments include forward looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed here with that.
Luke Lemoine: Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward looking statements.
Our comments today also include non-GAAP financial measures the underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our third quarter's earnings press release, which can be found on our website.
Luke Lemoine: 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 the call.
Speaker Change: With that I'd like to turn over the call to Krish.
Krish: Thanks, Luke and thank you all for joining our call.
Krish: I will kick off our prepared remarks with an overview of our performance and update on our capital return program key highlights and a brief market outlook.
Don will then cover our cash flow the balance sheet liquidity and guidance and I will wrap up with some thoughts on our strategic direction and multiyear targets before opening for Q&A.
Krish: As illustrated on slide three we delivered strong margin and cash performance in a quarter, where North America remain challenged Latin America had delays and schedule shifted in the middle East and North Africa.
Krish: We have observed a gradual softening in activity, particularly in short cycle oil projects and onshore programs.
Krish: E&P operators are taking a measured cautious approach and we expect this trend to continue in the near term.
Krish: In the third quarter of 2024, despite the revenue headwinds adjusted EBITDA margins came in as expected at 25, 2%.
Well the margins were more normalized after M. P. D asset sales supported the second quarter. It is worthwhile, noting that we had almost 200 basis points of margin expansion over the same period last year.
Krish: We delivered adjusted free cash flow of $184 million put in an adjusted free cash flow conversion of 52%.
Krish: Third quarter revenue was flat sequentially and up 7% year over year, driven by international revenue growth of 9% year over year.
Krish: Revenue came in at the lower end of expectations due to two main factors.
Krish: Firstly, we experienced delays in activity in Latin America that we're broadly felt across the sector.
Krish: That can be there with scheduling shifts in the middle East North Africa region, driven by the more measured approached I referenced earlier.
Krish: While we did have opportunities to offset the revenue shortfall the transactional work we do.
Krish: Being firmly committed to pricing discipline and margin expansion to drive long term value creation.
Krish: While revenue came in at the lower end of expectations I'm encouraged by a strong margin and cash flow performance, which reinforces the pieces on the ability to continue driving margin growth on an annual basis.
Krish: From a regional standpoint overall, North America revenue was up 6% sequentially, primarily due to an activity increase in Canada due to favorable seasonality and increased activity in the Gulf of Mexico.
Krish: Our international business was down 1% sequentially, but up 9% year over year.
Krish: The sequential impact was primarily a function of the previously mentioned factors.
Krish: Despite the sequential Delta we have now achieved 14 consecutive quarters of year over year International revenue growth, but the middle East North Africa Asia region, driving the year on year results. This quarter. The kingdom of Saudi Arabia continues to show strength and has grown 29% year to date and the broader middle East stopped after.
Krish: The Asia region has grown 25% year to date.
Krish: Earlier this year, we discussed the expected modulation of our integrated project in Oman.
Krish: This began in the third quarter and will continue into the fourth with normalization expected to resume in the first quarter of 2025.
Krish: Our team's outstanding execution on this contract has led to significantly better performance than originally expected. However, as we have previously discussed we needed to slow down to allow other customer activities to catch up.
Krish: On the second quarter call, we expanded our capital allocation framework to include a quarterly dividend and a $500 million buyback.
Krish: Shown on slide six we paid our first ever quarterly dividend of <unk> 25 per share and repurchased approximately $50 million of shares during the third quarter.
However, this amount may vary each quarter, depending on market conditions. Our net leverage ratio is approximately 0.5 times and we remain committed to retiring additional debt, while maintaining our top tier auto IC.
Krish: We continue to pursue inorganic opportunities that align with our strategic filters. In addition to the three small acquisitions in February we announced data Gration in September I'm very pleased with the progress and execution of our team on the integration plans across all four of these businesses.
Speaker Change: Now turning to our segment overview on slides eight through 10, the operational and technical highlights showcase advancements and new market penetration technology adoption and continued innovation of our product and services portfolio.
Ah Rankle awarded by the sort of three year corporate procurement agreement that includes cementation completions liner hangers, and Zip stocks as well as complementary service agreements.
Speaker Change: Also in the Middle East Weatherford deployed M. P D solutions into deep geothermal exploration wells.
Speaker Change: This innovative use of MPD technology mitigates risk from elevated geothermal gradient during exploration drilling.
Speaker Change: Furthermore, Weatherford was awarded a three year frame contract for drilling services in middle East unconventional resources.
Speaker Change: In digital the acquisition of data creation added the Petro wiser and equal wise the platforms. The Weatherford digital solutions portfolio enhancing the integration of customer data with fore sight, and signet, where improved real time analysis and decision making.
Speaker Change: A few weeks ago at our 20th annual forward conference, we showcased the platform's capability and potential it is extremely encouraging to see the strong customer response and immediate pipeline growth.
Speaker Change: Now for our market outlook while.
Speaker Change: While the broader international market is still growing growth has decelerated. We don't see you saw in the market, but activity is moderating due to various reasons, including commodity prices.
Speaker Change: <unk> budget exhaustion delays in several short cycled campaigns and several scheduling changes.
We have several noteworthy contracts listed in our press release, despite the slowing growth be showcased the showcase the tender and award activity is still proceeding and demonstrate the better for it is able to drive competitive advantage and several spaces.
Speaker Change: Importantly, our margin outlook of an annual increase of 25 to 75 basis point improvement per year was predicated on flat revenues, while the market outlook is softer than three months ago, we're still comfortable with our ability to isolate growth opportunities in select pockets.
Speaker Change: Furthermore, we continue to believe that across all parts of the viral lifecycle. There remains an emphasis on technologies that support predictable cost competitive production and supply security for our customers, which are the areas that we excel at.
Speaker Change: We anticipate continued growth in parts of international land and offshore mainly driven by portions of the middle East and supported by pockets of growth in sub Saharan Africa and Asia.
Speaker Change: The bottom line is that we believe we will have pockets of growth driven by differentiating technologies in key markets. Most importantly for this year, we continue to have confidence in delivering approximately 20% year on year, adjusted EBITDA growth slightly more than 25% adjusted EBITDA margins and adjusted free cash flow of over 500 million.
Speaker Change: With that I'd like to hand, it over to Laura.
Laura: Thank you Karen good morning, and procure pardon for turning off some of the.
Laura: She was already shared an overview of our third quarter performance.
Speaker Change: Trying to get an update on our capital return program for a more detailed breakdown of that.
Speaker Change: Third quarter results, please refer to our Chris release and accompanying slide deck.
Speaker Change: My comments today will center around cash flow working capital balance sheet liquidity and fourth quarter guidance.
Speaker Change: Turning to slide 18 for cash flows and liquidity.
Speaker Change: In the third quarter, we generated adjusted free cash flow of 100.
Speaker Change: 184 million up 88 million from the second quarter. Nevertheless.
Speaker Change: And 96 million.
Speaker Change: Our net working capital showed significantly better efficiencies and only increased 70 basis points compared to the third quarter up 23.
Speaker Change: 730 basis points increase in revenues.
Speaker Change: As a result, net working capital as a percentage of revenue was 25, 8%, which represented a yard and yard improvement of greater than 260 basis points.
Speaker Change: Irrespective of the stage with recycled quarters to get net working capital as a percentage of revenue to be sustainably at 20.
Speaker Change: 5% or better.
Speaker Change: For the last 12 months Capex was 266 million or four 8% of revenues.
Speaker Change: Total cash was approximately 978 million up 58 million sequentially.
Speaker Change: During the third quarter, we repurchased approximately $50 million of shares.
Speaker Change: And pay to a 25 cent quarterly dividend.
Speaker Change: Right now liquidity is at 1.3 billion, we remain committed to retiring additional debt and reducing our interest expense with an intent to get cross leverage Pillow Fund X, while maintaining liquidity of approximately 1 billion too often.
Speaker Change: Great.
Speaker Change: Mitch and penetrate different Chris.
Speaker Change: To summarize our balanced capital allocation approach to investing in technology or panic in her kind of cross that management and shareholder returns underscores our focus on sustainable value creation.
Speaker Change: Turning to our fourth quarter and full year 'twenty 'twenty four guidance on slide 19.
Speaker Change: Just curious you mentioned there are a number of factors that increasingly developed in the market, but scheduled shifts and several short cycle campaigns that have been.
Speaker Change: Been delayed.
Speaker Change: As a result, we expect fourth quarter revenues to be flat to up low single digits. Within this we expect revenues to be flat sequentially me W. T C revenues to be flat to up low single digits and P. Alright revenues to be up low to mid single digits.
Speaker Change: Adjusted EBITDA margins for the fourth quarter are expected to be approximately 25%.
Speaker Change: And we still expect full year margins to be slightly above 25%.
Speaker Change: Full year adjusted free cash flow is still expected to exceed 500 million.
Speaker Change: Thank you for your time today I will now pass the call back too garish for his closing comments.
Speaker Change: Thanks, a lot.
Speaker Change: On the second quarter conference call I laid out the vision for the future that requires the same rigor on operating intensity, but it's fueled with the capability of more differentiating technology world class fulfillment and largest scale.
Speaker Change: While the overall market is evolving and the cycle is maturing we believe we have the opportunity to deliver EBITDA margins in the high Twenty's in the next three years in a flat to modestly up operating environment.
Speaker Change: We remain intensely focused on net working capital efficiency and with further reductions in our interest burden, we expect to achieve free cash flow conversion of around 50%. During this period until investments aimed to deliver top tier return on invested capital.
Speaker Change: All of this will enable significant cash generation, providing an opportunity to have done at around 50% of that to shareholders through the framework we have outlined.
Speaker Change: This will leave sufficiently dry powder for selective inorganic place that will reinforce this entire pieces.
Speaker Change: So while we are entering a new phase of the cycle with low growth for the immediate future.
Speaker Change: <unk> ability to deliver true value creation is significantly bolstered by the actions and focus over the past few years and now operator, please open the call for questions.
Speaker Change: Thank you.
Speaker Change: I will begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
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Speaker Change: Your question. Please press Star then two.
Speaker Change: At this time, we'll pause for just a moment to assemble our roster.
Speaker Change: And our first question today comes from David Anderson of Barclays. Please go ahead.
David Anderson: Hi, Good morning, I reassure you.
Speaker Change: Good day or good morning.
David Anderson: So you talked about kind of last quarter call about kind of the how you view kind of weatherford in the future. One part of that was scale I just wanted to come back to the M&A discussion here you've done for kind of smaller acquisitions. During the year I was wondering if first maybe you could just talk a little bit about how those acquisitions have gone kind of what are they bringing to the table and then kind of really more secondarily.
David Anderson: I'm curious as to kind of where you're thinking going forward are there any kind of must have as you need I kind of go back to that you said scale. It's more than just scale is it certain technologies, you're looking for just sort of a general M&A.
David Anderson: Sure.
Speaker Change: Thanks sure David So look let me start maybe a little bit more of a first and then I'll walk into the <unk>.
Speaker Change: The first question. So look from an M&A standpoint, let me start with the fact that we are very pleased we're happy with the portfolio. We've got today, we don't see any glaring gaps are significant holds that we absolutely have to go filled. So you know as a result, you know as I pointed out in my prepared comments M&A will be selective we are not looking to gross.
Speaker Change: Scale for the sake of scale.
Speaker Change: That's absolutely not on the cards, we think they've got sufficient scale today, the company's operating really well, we're happy with the portfolio, but what we do have is a strategy within each of the product lines that we operate within that aimed to further grow those product lines and to enhance value creation. We've also got some enterprise.
Speaker Change: Our teams that we're trying to drive so what we look at when we think about M&A as you know any potential target where does it fit that strategy.
Speaker Change: And if you look at the deals that we've done this year you know there have been small, but they won't fit into that strategy. So you know as an example, you look at the acquisition of a probe in the wireline technology space, we were trying to pivot our wireline business and are doing that successfully to being a different kind of a violent provider we will have a wireline services.
Speaker Change: Some critical countries, but we will also be a technology provider to other service companies in areas that we don't operate to do that we needed a.
Speaker Change: Broader suite and that's what probe gave us. So so it's things like that are dying Yale has really helped fill out the portfolio in terms of our full capability with high degree of proficiency with innovative technology around plug and abandonment of slot recovery. So those are the kinds of things that we are getting after you know I'm extremely pleased with the progress that we've made.
Speaker Change: As everyone knows Weatherford has had a history of acquisitions, but you know what we have not done a great job in the past is integrating them. So we put a lot of emphasis before we consummated the deal around the integration planning with dedicated teams a clear playbook on how we're going to go execute and we're learning through that but the teams have done a terrific.
Speaker Change: I think job and I'm excited about the ability to build out all of these platforms to be significant growth for us in the years to come.
Speaker Change: So it sounds like you had mentioned a couple of times isolating growth pockets in sort of a flattish market and is this kind of the idea that you can find these sort of technologies to go. After these growth there's growth pockets absolutely look up you know, we still think there's reasonably good chances for solid activity, while it might be.
Speaker Change: Stable, we've got an opportunity to not just increase our share position, but we've also got an opportunity to create some white space and move into that so that's exactly what we mean by that and we think that will provide us the ability to grow the business, while the overall market might be stable to.
Speaker Change: Slightly up.
Great and just one other thing if I could just ask you you had mentioned a couple of times about some scheduling shifts in the middle East and North Africa could you expand on that a little bit or what is what do you mean by scheduling shifts or are these temporary or are these just kind of one projects. The next just a little bit more color on that please. Thank you. Yeah. So I think you know without getting into customer specifics what was it.
Speaker Change: Is it some of the campaigns getting pushed out by a quarter or two and that's really what it what it comes down to so it's not a permanent shift its not cancellations, but we are seeing you know as I pointed out again in my prepared remarks, a bit more of a measured a bit more of a cautious approach and so things that can get delayed we are.
Seeing customers push that out a little bit to see how the overall macroeconomic situation unfolds.
Speaker Change: Thank you very much.
Speaker Change: Steve.
Speaker Change: Thank you and our next question comes from James West of Evercore. Please go ahead.
James West: Hey, good morning, guys.
James West: Hey, James morning Dreams.
James West: So you're saying you've talked about a stable market environment and I know you just discuss a little bit about the kind of the the M&A that you've that you've done so far this year and so I'm curious, how you see whether for evolving and growing.
James West: In this stable environment can you outpaced the.
James West: Kind of you know modest growth environment, and and if so by how much and then you know.
James West: If so in what areas do you see your biggest strike.
James West: Yeah.
Speaker Change: So James look you'll we will give as you can imagine more specific guidance in February around a year, but you know broadly speaking you know likely appointed I think we've got specific areas of growth and you know if we are able to execute on that which we are working very hard towards is making sure that our.
Speaker Change: We essentially can get that incremental growth. So that's really what it's about so yeah I think as long as the market remains stable as long as we can execute we do have an opportunity to get that exaggerated growth. If you will specifically look it's different areas and different product lines. You know for example, I've talked in the past on M. P. D. A.
Speaker Change: Around our motives launched this year was really about getting the launch done getting packages built getting the supply chain together and getting them out in the field, finishing up the field trials et cetera. This has been incredibly successful for next year that should create a little bit more of a bolus for growth for us. The other area I look at it very broad thematic approach.
Speaker Change: Roche, where we're really focused is this notion of production optimization around mature fields. So you know everything that we've got from a product line capability really comes to the floor. In this notion of mature field rejuvenation production optimization et cetera are marsh offering which is our mature.
Speaker Change: Asset rejuvenation through surveillance right. We've had some great examples that our belt services portfolio brings that through our intervention capabilities all the way up to decommissioning. So that's where we think there is still going to be an extremely strong emphasis because customers. In this environment are actually going to be far more focused.
Speaker Change: On how did they get more out of their existing fields, how do they get more out of their existing wells and that should give us an opportunity to grow.
Speaker Change: Gotcha, Okay, and then maybe a follow up on on that as you as you have some growth next year. How do you think about margin profile and I know again, you'll you'll get more color in February but how do you think about the central to what.
Speaker Change: What are already very good margins higher.
Speaker Change: In a slower growth environment.
Speaker Change: So you know look we will probably not see a margin expansion to the tune that we've seen in the past two to three years, so far multiple hundreds of basis points, but you know we feel comfortable and confident that we should still be able to grow margins in that 25 to 75 bps and a flat to slightly up kind of an environment and.
Speaker Change: That's really a combination of several things that were driving internally improving the value gap, improving our execution and as I've pointed out before we still have opportunities within the company to get more efficient. So you know the capabilities that we've developed over the past three years, while we've gotten a lot of the low hanging fruit there.
Speaker Change: Enough route out there on the trees and we have built a few a small ladders to go with that as well.
Got it thanks.
Speaker Change: Thank you.
And our next question today comes from Scott Gruber of Citigroup. Please go ahead.
Scott Gruber: Yes, good morning.
Speaker Change: Hey, Scott good morning.
Scott Gruber: I wanted to understand the margin topic.
Scott Gruber: Just because of slower growth environment.
Speaker Change: Management teams have an opportunity to kind of reassess yeah. Those margin enhancement drivers that they've been thinking about so are you guys thinking about the margin enhancement drivers any different when you're in a slower growth environment like are there certain levers that you can pull faster or harder no can you introduce technology in <unk>.
Scott Gruber: <unk> faster.
Speaker Change: Yeah definitely.
Speaker Change: Thoughts on that.
Speaker Change: You pull those are margin enhancement luggage.
Speaker Change: Yeah, So look Scott for us the the levers are consistent right. So the first one is pricing obviously pricing in a slower growth environment becomes a bit more challenging, but we still think there is enough tightness of supply and highly differentiated product lines and technologies that that is still an opportunity and we expect pricing.
Speaker Change: Two it at a minimum offset inflation and be a slight net positive the second and probably most significant one is the introduction of new technology and as we do that we are really trying to enhance the value gap, so really position. It at the point, where we can get higher price, but also at the same time delivered with more efficiencies and a lower cost the third for us.
Speaker Change: If you know what we have been working on for a while as our entire fulfillment network. Now. This is a herculean task you know its a four to five year roadmap, we're making good progress on it. The initial part of it was a lot of facility consolidation.
Speaker Change: We're done with that now it's about how do we optimize the supply chain and our sourcing networks around that just a very simplistic example on that I talked to on one off the calls I think got three or four quarters ago about moving to a lower cost countries from our sourcing base.
Speaker Change: That's providing us already significant benefits and what's interesting about that is we are 10 years later on doing this everyone else has already done. This so for us it's actually a significant margin expansion that we were still able to get really good margins, but doing that keeping price where it is or slightly above getting a significant cost reduction does help back so network.
Speaker Change: <unk> that supply chain optimization and fulfillment as a big factor and we will lean on that a lot harder now it's bigger scale cost becomes more important and sticking to that cost team. The last lever really is our own internal efficiencies and our cost structure.
Speaker Change: Look the team has done an outstanding job of the past few years, improving the company, taking a lot of cost out, but weatherford was never really designed to be what it is today and so we've still got an opportunity to get more efficiencies you know everything from how information flows to material close to where we have people.
What role they're doing how we can consolidate how we can use technology better. So that's going to be a huge emphasis for us over the next 18 months or so and so all of that combined I think gives us enough ammunition to really get after cost and improve margins in this slower growth environment.
Speaker Change: That's great I appreciate the color.
Speaker Change: I want to come back to the pricing point.
Speaker Change: Because we get questions from investors on the topic of margin resiliency for Weatherford.
Speaker Change: And I think some folks wonder if you'd benefited disproportionately versus peers from price inflation on the way up and if that introduces risk in a more competitive marketplace.
Speaker Change: Is that a risk that folks should be concerned about.
Speaker Change: So Scott the way I think about it is I think it is reasonably fair to assume that we might have benefited if you'll call. It disproportionately look we've put a tremendous amount of emphasis on pricing as part of our commercial approach and strategy. So we have gotten price we have significantly increased price but.
Speaker Change: What I would say is I don't think that poses a risk on the other side because of a couple of factors. One is I feel that the whole industry has strong pricing discipline and I think hopefully we'll all continue to maintain that I think second look we've got internally, a very very rigorous mechanism and our culture.
And pricing and I talked in my prepared remarks that we've got opportunities frankly everyday every week to increase revenue by reducing prices fairly significantly and we're absolutely not giving in to that so we're very clear about our north star, which is cash generation and margins of the first proxy for that so we are.
Speaker Change: Very clear about that and so you know our.
Speaker Change: Our focus on making sure that we can articulate the value proposition that our differentiating technology brings to customers allows us to keep that keep that pricing. So you know I think the first part I would say it's fair I think the second part is not something that I'm personally overly concerned about.
Speaker Change: That's great color I appreciate it thank you.
Thank you and our next question today comes from Archie Mora with Goldman Sachs. Please go ahead.
Archie Mora: Hi, Good morning team I'm curious you highlighted a new M. P. D Award in the Middle East So maybe from an adoption perspective can you talk about.
Archie Mora: Which are the regions or an area of focus for you where adoption might be low at the moment and can drive growth in the next 12 months.
Yeah, RP look I think you know MPD adoption continues to be something that is very important for us when we're seeing very positive.
Archie Mora: Signs of that that there isn't necessarily a region per se.
Archie Mora: It's really are we always thought it.
Archie Mora: Sort of ubiquitous we're trying to push this in every part of the world and as we are able to get in front of customers show them more case studies share best practices, we're seeing that adoption increase the middle East I would say has been by far the probably most significant part of it but there's areas in Asia there's areas.
Archie Mora: In in Europe, and Latin America, where we're seeing more and more of that as well. So it's really sort of a a overall perspective.
What we are really if you look at it though what we are trying to now get after is this performance segment of the market right. So we have always had the basic rcd's that go on.
Archie Mora: They're sort of at the lower end of the market. We've got a very high end victim offering which is typically deepwater type.
Archie Mora: Types of applications et cetera, but there really has never been in the market. This performance tier offering. So that's something that we are really focused on and modus is a is an outstanding product and really allows us to capture that both in land and in offshore and offshore you know you'd think about the jackup market for example.
Archie Mora: That's something that now starts to open up for us and something that we are very excited about getting after.
Speaker Change: Got it appreciate that and then for next year, but you had mentioned flattish revenue maybe some margin growth any early thoughts on free cash flow cadence.
Because the working capital seasonality will obviously be different in Florida, a yard like next year on horses, what previous years have been so maybe any thoughts around that and cashews if your card.
Speaker Change: Sure.
Speaker Change: I T.
Speaker Change: You mentioned one of the things we take pretty seriously is the efficiency reduce per capita and where you would have seen.
Speaker Change: The last 21 months.
Speaker Change: Is a consistent improvement in the efficiency of working capital.
Speaker Change: We were pretty 8% beginning of trust here.
Speaker Change: We find ourselves had 28.
Speaker Change: Now the idea is to sustain a P P at 25% or pinole going forward. So what I can tell you is you should expect.
Speaker Change: It was efficiency improvement across the board.
Speaker Change: So D S and your.
Speaker Change: Translating into a better conversion cycle.
Speaker Change: And then you know.
Speaker Change: As we've mentioned before he would keep continue to work on pet, which translates into lower interest costs and we expect over time cash taxes moderate.
Speaker Change: Sure.
Speaker Change: We expect cash conversion to sequentially improve over the next three years.
Speaker Change: I appreciate that thank you.
Speaker Change: And our next question today comes from Jim Rollyson with Raymond James. Please go ahead.
Jim Rollyson: Hey, good morning, everyone and Greece, Congrats I guess on the first the first quarter of returning capital to shareholders.
Jim Rollyson: Along those lines.
Jim Rollyson: You know you.
Jim Rollyson: Look around oilfield service space and guys that have been doing this for a little while you kind of see this break down into a couple of different ways of executing it. Some people just look at what their annual free cash flow is going to be and kind of execute the buyback portion of the annual return.
Speaker Change: It's kinda programmatically across the year and some guys are a little more opportunistic based on share price I'm. Just curious how are you guys. Since your first quarter with a $50 million, but curious how you will execute that going forward or how you are thinking about that.
Jim Rollyson: Yeah.
Speaker Change: Jim I'll, let I'll, let iron take the specifics on this but I will just sort of bucket out. The thing look I think this is a learning process for us.
Speaker Change: We are trying to figure out the most optimal way, but really with the focus on doing this like we do everything else in the most prudent and responsible fashion without without going nuts, and taking undue risk Jim what we can tell you as <unk> maintained a pillar for us.
Speaker Change: Quarter end.
Speaker Change: You also know for a fact pad empirical evidence suggests that companies are not pretty good at opportunistically executing pipe packs and adding value.
Speaker Change: So we will be careful and here, we will be looking at market sic codes bridge trick or opportunistic pipex.
Speaker Change: I'm the dilution component.
Speaker Change: <unk> right.
Speaker Change: Two employees that is something we expect to pipe pack program that can be.
Speaker Change: So more to come in the future orders from this.
Speaker Change: Yeah, No. That's helpful color. Thanks, Thanks for both answers and in Greece, just one follow up at the forward conference.
Speaker Change: You guys talked about a lot of different things on the digital front from sensors to obviously data gration and the ability to integrate a lot of different things, maybe just order of magnitude you know theres been a lot of talk about digital but order of magnitude kind of how impactful is that as we think about weatherford going forward from there.
Speaker Change: Growth aspect.
Speaker Change: Yes look we talked earlier, Jim about those pockets of growth digital is most certainly one of those buckets right. So I highlighted production you know focus and this mature field rejuvenation.
Speaker Change: <unk> is another digital is it a third and a very significant portion and look it's far more than about the simplistic here our revenue growth that we get out of it we get a couple of other things with that digital capability. The first is significantly higher margin. So it's very accretive to margins and the second is why.
Speaker Change: There is a lot of typically upfront cost in software development et cetera. Our approach is a little bit different really becoming more of an integrator of different things. So it's actually less capital intensive as well too.
Speaker Change: Today, it's not.
Speaker Change: Big enough that we would pull it out and talk about it as a separate segment or anything like that but it is something that we are really counting on as we talk about and those levers of margin expansion technology being a driver digital is smack Dab in center in the middle of that.
Perfect I appreciate the answer.
Speaker Change: Thank you next question comes from Rob Ponds with Bank of America. Please go ahead.
Speaker Change: Hi, good morning, good eastern.
Speaker Change: It's all over.
Rob Ponds: I Oh, maybe I wanted to start with a little more color on the orders that you announced I know you are not primarily in auto driven company right, but it's interesting to see a dozen autos are in your press release that you announced I think seven or eight of them out in the middle East and then Olga simultaneously talking about concerns on the middle East.
Maybe Saudi more specifically slowing down but on the other hand, you continue to get stronger orders.
Rob Ponds: How do you feel about that.
Rob Ponds: The the trajectory going forward right I mean, considering the order inflow the conversations they look so it's relatively positive.
Speaker Change: Look looks are a great great question you know.
Speaker Change: As we highlighted in the press release I mean, there is still a lot of activity out there. So I think it's important to understand that activity growth is slowing no question, but activity itself is actually still very much dead in its growing a little bit. So I think the orders not just showed that there is activity, but that we're actually winning.
Speaker Change: And in several different areas of the business in several different geographies and the middle East I think is still the place that we think about as spearheading our growth overall right as we sort of look at our global landscape I think everyone understands and recognizes that North America is likely as we look into the next 12.
Speaker Change: Months, or so going to be challenged outside of flat more likely a bit down.
Speaker Change: On the international side, we think there's growth, but that growth is very mixed Europe, obviously with.
Speaker Change: It's all of the things happening in the U K, the Nazi that's likely to be it.
Speaker Change: It could be down we think sub Saharan Africa has.
Speaker Change: Probably mid single digits kind of growth, we think Asia has mid single digit growth, but then middle East deal select countries have high single digit and overall, we think middle East is about mid single digit growth as we as we look at next year and then you know for US. Therefore, when you look at the total international business, it's probably.
Speaker Change: Up sort of in this low single digits kind of a place, but then select pockets that have significant margin accretion that we continue to exploit should give us that ability to deliver a higher EBITDA margins. The one wildcard I'd say, it's probably gonna be Latin America.
Speaker Change: Which it really scale, we've got to wait and see a little bit how it eventually modulates, especially in places like Argentina, and Mexico, what what really happens but.
Speaker Change: Those awards, you're 100% right really showcase what are whats happening and there is still activity out there.
Right right right no exactly right I'm in awe when you hear about all the concerns but on the other hand, just like you said that the trends on the ground as they look like that.
Speaker Change: Relatively resilient if not bothered yeah, yeah, I mean look we talked about you know our year to date growth then granted that's retrospective.
Speaker Change: But you know, it's still very very strong year to date growth. So even if that moderates I think they've got enough momentum. We've got enough scale that we should not really be able to continue to get momentum in efficiencies and really drive this margin expansion story, so I I've.
Speaker Change: I've been saying this consistently for for three plus years is this is a margin and cash story, yes, you've got to have revenue growth there to help drive that but even in a flat to slightly up environment, we should be able to get significant value creation from that margin expansion.
Speaker Change: Right right perfect perfect I don't know well enough for you very quickly I know you talked about the working capital efficiency in response to all these questions and you've done a great job all right, 25.8%. That's a fantastic number you were sitting out in the target has to come down to 25% or less than 25%. How soon should we expect you to get.
And that's the fact that the overall market growth is slowing does that make it harder to further accelerate for example collections for Ya.
Speaker Change: Look we haven't seen sort.
Speaker Change: Sort of.
Speaker Change: Any impact on collections as a matter of fact, we had a pretty strong collections quarter.
Speaker Change: If things slow down history suggests that.
Speaker Change: Collections, but slowed down as well.
Speaker Change: But at the same time, you would expect inventory to build up bunch less or actually reduce so.
Speaker Change: Overall, you know.
Speaker Change: Environment, which it started growing as quickly as it pause you would expect some actually working capital to call in a favorable direction.
Speaker Change: No.
Speaker Change: Hum.
Speaker Change: The world pulse apart.
Speaker Change: Everything goes to Hell in a hand basket and of course, you would expect to see working capital unwind.
Speaker Change: In a flat to moderately up.
Speaker Change: You would see continuous efficiency improvements and.
When you ask about how soon.
Speaker Change: Have some critical dependencies.
Speaker Change: <unk> concentrations.
Speaker Change: You have seen from our Qs that a significant portion of part a are concentrated in Mexico.
Speaker Change: We are actively working to reduce the concentration so I couldnt tell you that we sustainably CAD, 225% next quarter or the quarter. After what I can tell you is we are working on the structure, which reduces.
Speaker Change: Concentration on any particular customer or any particular geography.
Speaker Change: And once we do track it.
Speaker Change: We expect to do over the next couple of years, you could expect us to be 25% or better sustainably.
Speaker Change: Okay, No I got it it makes a lot of sense, okay perfect. Good he shouldn't thank you has done it back.
Speaker Change: Sure.
Speaker Change: Thank you and our next question today comes from Kurt How are you up with benchmark. Please go ahead.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Hey, Kurt.
Kurt How: Kurt Thanks, Rod Thanks for the opportunity here.
Pepper you with some questions so hum.
Kurt How: Alright.
Speaker Change: Go back to some of the commentary you kind of referenced obviously, a moderation in the growth rates and they went through a very detailed explanation of where do you think that that growth is going to come.
Speaker Change: You bet, you've emphasized the focus on that.
Speaker Change: Maintaining and improving your margins even in that environment. So.
How do you how do you guide.
Speaker Change: Did the organization if you will in the context of may be feeling.
Speaker Change: Pressure to take some work that doesn't mean necessarily the margin or return thresholds or are you getting any indication.
Speaker Change: Of a little bit of.
Speaker Change: I dunno anxiety within the organization about having a debt.
Speaker Change: To book work, even if it's not the best work.
Speaker Change: Yeah look good.
Speaker Change: We do that is just a lot of communication.
Firstly and then the second is making sure we've got the right operating rhythms and mechanism set up to ensure that everyone's on the same page.
Speaker Change: I feel really good about the culture within the company the changes that we've had over the last four years I think everyone understands today, what the Northstar is and again, it's it's cash and the proxies to get to that so no one's really looking to say, hey, I'm, just going to grow revenue or our share at D. A.
The expense of margins and cash so I feel really good about that and it's been you know.
Speaker Change: Four years of a lot of work that we've put in as a leadership team, but more importantly.
Speaker Change: You know, making sure that that message is percolated to the 19000 people in the organization we've had bidirectional.
Speaker Change: Interaction a lot of dialogue around it so you know.
Speaker Change: Is it perfect probably not but I feel really good about the overall system that people will.
Speaker Change: Have the opportunity to ask those questions and then we can address them, but yeah look we are absolutely not going to go chase low quality work.
Speaker Change: That's great appreciate that color, maybe on a follow up right and typically in periods like we're experiencing now like which is not really technical advance it's either going to go up in a big way or down in a big way and now we're just kind of moderating but nonetheless.
Speaker Change: The customer base tend to utilize these types of situations to really kind of lean on the suppliers and service companies from us from a pricing standpoint, so you kind of explain the culture dynamic around it but maybe can you give us some insights as to are you seeing that increased amount of discussion from the customer.
Speaker Change: I was really trying to lean on you to kind of reduce prices. It is it more intense now than it might have been 345 months ago.
Speaker Change: Yeah look it's always something that is part of every conversation right.
Speaker Change: We do that with our supply base, our customers do that with US that's just the circle of business.
Speaker Change: You'll go through so we're suddenly having I would say maybe.
Speaker Change: Few more conversations, but it's nothing to the extent that we would say, it's a widespread phenomenon or something that we're overly concerned about most importantly look I think a couple of things. One is we have really tried as we have worked on pricing over the past few years to make sure that it is backed up by a very strong value proposition. So it's not a price.
Speaker Change: <unk> argument that's been here commodity prices are high so our prices should go high it's been about the value that we generate and create for our customers. The second is customers are still very cognizant and very keen on ensuring security of supply, especially when there is a lack of different choices around differentiate.
Speaker Change: <unk> technologies. So so that's a big big factor I think the industry has been a lot more prudent in this cycle of not building out a lot of capacity.
Speaker Change: And so there isn't this huge mismatch right now again, especially in those differentiated areas, where we get the higher margins that would suggest that theres a lot of surplus capacity to toward that could create.
Speaker Change: Pricing softness in look I think last but not least I think customers are also very cognizant that the cycles have changed and this is not that whipsaw effect. There is a moderation in activity, but there isn't a drop and I think that's a fundamental difference and customers recognize that they need a healthy service sector as well so.
Speaker Change: I think the conversations are constructive and net net we still believe we've got a you know a.
Speaker Change: Opportunity on our roadmap to increase margins.
Alright, that's great great color. Thank you so much.
Speaker Change: Sure.
Speaker Change: And our next question today comes from Doug Becker with capital one. Please go ahead.
Speaker Change: Thank you Krish, Mexico is an important market for Weatherford.
Speaker Change: He has a new president National oil company has a new CEO.
Speaker Change: And yesterday there was a report that Pemex is looking to suspend some rigs just a marriage budget. So just given that dynamic backdrop wanted to get your outlook for Latin America specifically.
Yeah, Doug look you know Latin America has been one of the challenges over the past six months, we have referenced it a bit.
Speaker Change: On the prior call as well as on this call in terms of.
Speaker Change: Delays that we have seen and certainly Mexico's a part of that.
Speaker Change: We recognize that our.
Speaker Change: Leading up to the elections, there was a little bit if churn and things got slowed down and now we've got a new administration I think it's still very early days.
Speaker Change: To say exactly what it's going to look like.
Speaker Change: But clearly there's a big focus on what they want to do in terms of getting that mix on the right footing and we want to support them as a as a supplier and partner to the extent, we can while making sure that we.
Speaker Change: We generate the value that that's due so as I look at Latin America, as a whole as I sort of said earlier.
Speaker Change: On one of the questions you know Latin America is probably the wildcard for next year as we look at it right now it probably feels like it's flat to maybe slightly down but it also is the one region that has the ability to inflect the strongest.
Speaker Change: Argentina has probably the most positive outlook at this point than it's had in several years, but we still need to see that shift that actually happened in the full ability to free up capital controls et cetera.
Speaker Change: If that happens I think there could be a significant positive opportunity there Columbia, we've talked about some of the changes there and the slowdown et cetera, that's likely going to persist and not really change for a bit longer Brazil has been pretty steady and growing and that continues to do well and then it really <unk>.
Speaker Change: Comes down to Mexico, which is a very significant market. So I think more to come on that especially in the February call as we lay out our guidance et cetera, but it's something that we are very cognizant of we're keeping a very close eye on and making sure that we are modulating our workforce, our our plans everything in.
Speaker Change: In line with our with customer activity and really ensuring that we are well positioned as a company to manage overall exposure there.
Speaker Change: Well that makes sense.
Speaker Change: Switching gears, a little bit the industry seems to be increasingly focused on the production phase of the well life cycle.
Speaker Change: At your recent digital conference you were highlighting the foresight production platform that we can integrate artificial lift into and then specifically the power regenerative system.
Speaker Change: How would you characterize the growth opportunity for Weatherford.
Speaker Change: From the digital production related offerings.
Speaker Change: Look I think it's one of our most significant opportunities you know we've got a very extensive portfolio on two dimensions. The first one is really around artificial lift right. So we don't have an ESP offering, but we have just about every other form of lift and it's the most comprehensive lift offering with a V.
Speaker Change: Very strong installed base that we've got in the industry. So that's a huge advantage for us.
Speaker Change: We really understand this production domain. The second is the digital capability you know really only office company that has its own scared a platform that signet and that is a huge competitive advantage for us and so as we modernize that feed that into four site the ability to then.
Speaker Change: Together different data structures different database of different data models with what we have with data duration now this capability of a unified data model that allows us to create incredibly powerful algorithms platforms for customers to drive that operational efficiency. So that's what we're really focused on so we think it's an area that we will.
Speaker Change: Tremendous capability and you know what we are adding to these two legs now there's a third dimension, which is not just you know here we've got the artificial lift we've got the digital capability, but we're now.
Speaker Change: Making sure we've got that comprehensive portfolio to help customers rejuvenate their mature fields to improve their production from existing wells through a combination of intervention services.
Well services et cetera, a lot of different technologies that really help drive that so it's an area that we are probably more.
Speaker Change: Most excited about in terms of the growth potential.
Speaker Change: Thank you and our final question today comes from Josh Chan with annual Energy Partners. Please go ahead.
Josh Chan: Thanks for taking my questions I have one with a related follow up that you discussed on the surface and a little bit and your last question, but I just wanted to drill down further on so first.
Speaker Change: You completed the acquisition of integration and in the third quarter and can you just speak to why now.
Speaker Change: Now exactly was the right time for that specific deal and maybe a bit more detail on Petro visor and eco advisor and then as my follow up.
Speaker Change: Could you just give a bit more detail about how they are ultimately going to work together with foresight and cigna.
Speaker Change: And the increasing importance of real time analysis, and how that how you see that specifically evolving over time over the next couple of years. Thanks, Alright, a lot a lot of different things in there Josh, but let me, let me try and sort of address most of them at a at a high level. So look in terms of the wind now yards, that's always a bit.
Speaker Change: Hard to answer everything typically comes together, but clearly as we looked at the market landscape as well as our own capabilities. There was a couple of things that we realized.
Speaker Change: First as customers are struggling with the same issue, which is we've got a lot of data.
Speaker Change: Yeah, we just don't know how to really bring it altogether. The second is nobody really wants to get tied into a particular platform or a particular system. They see different things that are best in class, but lack the ability to stitch. It all together you know, especially when you think about all of the consolidation and granted thats more of a U S phenomenon.
Speaker Change: But it's a huge market customer.
Speaker Change: Customers are consolidating and they're saying Hey look company acquired was on this system I've got the system. There's this huge treasure trove of data, but they don't talk to each other the different systems, how do we pull all of that together.
We looked at that we see that internally, but we also see that within the <unk>.
Speaker Change: Offerings that we have the customers. The integration really is a solution that bridges that gap for our customers. It pass this ability with this unified data model to really bring things together you know in a very sort of crude fashion the.
Speaker Change: The Lehman and me sort of describes it that it's all of the Universal plug adapter for the digital world.
Speaker Change: That's really what what we get the debt and it creates then a very powerful message for customers that we can help them bring together different data sources and most importantly, do it very fast do it real time do it on the cloud do it as a software as a service kind of a model.
Speaker Change: Or if they want it on Prem, we can do that as well different delivery mechanisms that they bring that together. So so that's really what it is look in terms of the exact roadmap of integration with foresight Petro wiser et cetera, that's something that we're working on but what is more important.
Speaker Change: Then the actual platform is the fact that we have the capability now to deliver to customers specific optimization platforms. We've got the ability to drive these AI ml models on a variety of their use cases to whatever channel that they want along with a very simple user interface that can be delivered to them.
Speaker Change: <unk> in a subscription model and whatever mechanism that they want so that's really what what this whole pieces is about.
Speaker Change: Thanks.
Speaker Change: Thank you and this concludes our question and answer session I would like to turn the conference back over to the management team for any closing remarks.
Speaker Change: Great. Thanks, Rocco Hey, Thank you all for joining the call today look appreciate it so just to summarize again, we recognize that the market is changing its evolving we still do believe that we have pockets of growth we have the ability to grow the business in several different areas that we're excited about and most importantly.
Speaker Change: We have the ability to continue the margin expansion journey that we've been on for the past few years and for this year. We are on track to deliver over 25% EBITDA margins and over $500 million of cash. So thank you all so much for joining and we'll talk to you on our fourth vertical.
Speaker Change: Thank you. Thank you. Thank you everybody. This concludes today's conference call.
Speaker Change: Thank you all for attending today's presentation.
Speaker Change: You may now disconnect your lines and have a wonderful day.
Speaker Change: Yeah.
Speaker Change: [music].