Q1 2025 Weatherford Int PLC Earnings Call

Good day and welcome to the Weatherford First Quarter 2025 results conference call. All participants will be on a listen only mode. Should you need assistance, please signal conference specialists by pressing the star key, followed by zero.

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 earnings press release, which can be found on our website.

Krish: 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 Krish.

Krish: Thanks, Luke and thank you all for joining our call.

Krish: Before we get started I want to update you on recent changes to our leadership team.

Krish: Our announcement yesterday I am very pleased to welcome annuity drew the Weatherford as our executive Vice President and Chief Financial Officer.

Krish: So which brings more than two decades of diverse experience across global finance strategy and transformation roles in the technology energy and chemicals industries.

Krish: I'm excited about partnering with <unk> to lead that effort through the next phase of our journey.

Krish: I'd also like to thank our own Mitra for his contributions during his time with us he drove significant impact over the past couple of years and we wish him all the best in his next chapter and welcome to by the fed.

Speaker Change: Thanks Girish.

Girish: Very excited and humbled to be the new CFO of Weatherford, the company's journey over the past several years has been remarkable and I'm excited to be a part of the next phase I look forward to meeting with and speaking to all of you.

Girish: Great I'll now start with an overview of our performance and key highlights and will then share our outlook on the markets.

Speaker Change: Luke will then cover specifics on financial performance balance sheet, and detailed guidance and I will wrap up with some thoughts on whether such operating plants, but this environment before opening for Q&A.

Speaker Change: As illustrated on slide three our first quarter results were in line with our earlier expectations.

Speaker Change: However, the pathway with slightly different than anticipated activity levels softened further in key segments and geographies.

Speaker Change: We previously expected activity in Mexico to decline by 30% to 50% in 2025.

Speaker Change: But following the sharp drop in Q1, it now appears down around 60% on a year over year basis.

Speaker Change: North America continued its downward trend down 4% sequentially and Europe also softened driven by operator cutbacks in the U K amidst an unfavorable policy environment.

Speaker Change: On a positive note our confidence in the Middle East and Asia regions was well placed as we saw year on year growth in this part of the world demonstrating resilience and stability.

Speaker Change: I am pleased with how the Weatherford team responded to rapidly changing conditions with a focus on customers cost and cash.

Speaker Change: This discipline is reflected in our adjusted free cash flow of $66 million for the quarter driven by strong collections.

Speaker Change: <unk> EBITDA margins for Q1 came in at 21, 2% impacted by lower revenues project startup costs and a partially under absorbed head count which was reduced over the course of the quarter.

Speaker Change: As I stressed last quarter, we have consistently maintained that margin improvement is possible even in a flat environment, but when revenues fall the math becomes more challenging.

Speaker Change: As shown on slide six we have now paid three quarterly dividends of 25 per share and repurchased approximately $152 million worth of shares over the past three quarters, which includes approximately $53 million during Q1.

Speaker Change: While this amount may vary each quarter due to market conditions, we remain very committed to our buyback program and still have sufficient capacity under our $500 million authorization.

Speaker Change: Now turning to our segment overview on slides eight through 11.

Speaker Change: The operational and technical highlights showcase advancements and new market penetration technology adoption and continued innovation of our product and services portfolio.

Speaker Change: We continue to see high tendering activity and as noted in our earnings release, we continue to win high impact contract so across key regions, which demonstrates both the strength of our technology and the trust our customers place in us.

Speaker Change: In the UK North Sea, we successfully delivered logging while drilling and formation pressure services on a complex high pressure high temperature well drilled to a depth of 21000 feet with the temperature of 175 degree Celsius.

Speaker Change: In deepwater, Brazil, Weatherford successfully installed the first upbeat Ross RFID multi cycle sliding sleeve Val for Petrobras.

Speaker Change: This system enhances acid stimulation efficiency, improving production and boosting the reservoirs all recovery factor.

Speaker Change: And in North America, we are seeing strong uptake of our fore sight, our regenerate a variable speed drive.

Speaker Change: This technology helps customers reduce power consumption and emissions by lowering their operating costs.

Speaker Change: These are just a few of the highlights that are a testament to our technology is differentiated value across global operations.

Speaker Change: Now turning to our outlook going forward.

Speaker Change: Overall international market has softened over the past nine months and the industry has witnessed substantial drops in Mexico, along with continued reduction in U S land activity levels.

Speaker Change: Lower commodity prices was somewhat stable have driven caution and slowdown in customer spending.

Speaker Change: Over the past several weeks Unfortunately, the market has taken a ton for divorce.

Speaker Change: Recent U S status, along with retaliatory tariffs have added significant uncertainty in the market, which if left unresolved will very likely cause demand destruction in the short to midterm.

Speaker Change: Coupled with the OPEC plus adding supply back to the market, we are seeing increasing pressure on the global oil supply demand balance.

Speaker Change: While we have not seen a universal cut back our definition of changes in customer spending plans.

Speaker Change: Difficult for us to provide precise near term visibility.

Speaker Change: What is clear is that we are in a distinctly different phase of the cycle with some markets and a clear downtown.

Speaker Change: There are multiple factors that drive our industry cycle and during transitions. These shared a common thread of uncertainty.

Speaker Change: That said, we have seen how spending patterns have evolved in past cycles and remain hopeful that the industry discipline of recent years will result in a milder spending reductions in the last three cycles.

Speaker Change: We have continued to adapt our cost structure over the past two quarters and will further evolve as the market unfolds.

Speaker Change: Since Q3, 2024, we have reduced our head count by over 1000, and our annualized personnel expenses are already down by over $100 million.

Speaker Change: In previous cyclical shifts the quarter in which the defining event occurred experienced minimal operational disruptions.

Speaker Change: It took time for customers to adapt and change their plans.

Speaker Change: While we haven't seen clear direction from customers yet it is reasonable to expect a broad based slowdown in the second half if global trade reductions and increased supply create a need for customers to be selective with their capex.

Speaker Change: As a result, our outlook as risks granular between Geo markets and product lines.

Speaker Change: <unk>, a more realistic and potentially conservative steps we.

Speaker Change: We believe we remain very well positioned to capitalize on stable or improving activity levels or even an uptick.

But we are also taking steps to ensure we're not caught flat footed in the event of a more pronounced slowdown as appears to be the case.

Speaker Change: Even with a potential annual double digit revenue decline, we expect to deliver EBITDA margins in the low twenties. This year, which remarkably is still better than maybe where two years ago.

Speaker Change: In addition to the tactical actions in response to current market environment.

Speaker Change: We're also continuing to position the portfolio for the future with the goal of being both highly differentiated and with lower capital intensity.

Speaker Change: As noted in our earnings release, we have divested our Argentina pressure pumping business that consisted of triplex pumps and associated equipment.

Speaker Change: And then a separate transaction, we sold our Argentina wireline business in the southern part of the country.

Speaker Change: The proceeds from these will be used to high grade the portfolio and there are return cash to shareholders.

Speaker Change: These two divestitures now allow us to focus on the walk on water.

Speaker Change: Our differentiated product lines. This is a significant portfolio of quality improvement.

Speaker Change: However, there is also a revenue and EBITDA reductions from our results due to these dispositions.

Speaker Change: So while we have reduced our outlook. It is important to note that this change is also built into that view.

Speaker Change: With this we expect 2025, North America revenues will decline high single to mid double digits year on year and international will declined low double to mid double digits.

Speaker Change: In our high end case ex Mexico International revenues would only be down low single digits. Despite the impact of the divestments.

Speaker Change: Second quarter revenue should be fairly flat with the Canadian breakup U S land and cantina divestitures being the primary headwinds this should be mostly offset by contract startups in the middle East Asia and Europe.

Speaker Change: Normalized for the divestments, we will still see a revenue uptick sequentially.

Speaker Change: Be it lower than our expected from our last call in February.

Speaker Change: With that I'd like to turn the call over to Luc before I come back with closing comments on how we plan to address this phase of the cycle.

Luc: Thanks, Kris and good morning, and thank you everyone for joining us on the call.

Luc: <unk> already shared an overview of our first quarter performance and an update on our capital return program for a more detailed breakdown of our first quarter results. Please refer to our press release and accompanying slide deck presentation.

Luc: My comments today will sit around our cash flow working capital balance sheet liquidity and guidance.

Luc: Turning to slide 22 for cash flows and liquidity for the first quarter, we generated $66 million of adjusted free cash flow at a 26, 1% free cash flow conversion rate versus 24, 4% in first quarter 2024.

Luc: As you know the first quarter is typically a lighter free cash flow quarter.

Luc: Net working capital efficiency measured by net working capital as a percentage of revenues improved from 26, 1% in <unk> 2024 to 25, 2% in <unk> 2025.

Luc: Over the last six quarters, we maintain net working capital efficiency levels at the 25% to 26% range and as mentioned before regardless of the stage of cycle. Our goal is to maintain net working capital efficiency levels at 25% or better sustainably.

Luc: As Chris mentioned, we have continued to execute on and initiate a series of cost actions across the company.

Luc: In this context, we took an additional restructuring and severance charge of $29 million in Q1.

Luc: Several actions have already been completed and we anticipate initiating more actions over the balance of the year as we continue to remain agile and adapt to changing market conditions.

Luc: During the first quarter Capex was $77 million.

Luc: While this was outside of our targeted range. This was primarily driven by Capex for our long term subsea intervention contract in Brazil.

Luc: On an absolute dollar standpoint, we fully expect to spend a slowdown and land within our targeted range by year end.

Luc: In Q1, we repurchased approximately $53 million worth of shares and paid a <unk> 25 share quarterly dividend and.

Luc: In addition, we also bought back $34 million for $8, 625% notes and intend to continue opportunistically repurchasing in the open market.

Luc: Our net leverage ratio remains at 0.5 X and with our liquidity at approximately $1 3 billion, we feel confident in our ability to manage the company through the cycle.

Luc: Turning to guidance, let me start with Q2.

Luc: We're expecting 1.1 65 billion to $1 195 billion in revenues with adjusted EBITDA of $2 $45 million to $265 million.

Luc: The Q1 to Q2 change is due to the removal of the Argentina pressure pumping and wireline businesses, that's mostly offset by head count reductions and the project startups Bruce mentioned.

Luc: The outperformance in Q1 collections shifted some of the free cash flow from Q2 into Q1, but on a normalized basis, we expect roughly flat performance in Q2.

Luc: The most significant variable and this continues to be the timing of payments out of Mexico.

Luc: For 2025, we expect revenues of $4 $6 5 billion adjusted EBITDA of 975 million to $1 1 billion.

Luc: And free cash flow conversion to increase 100 to 200 basis points year on year.

Luc: The revenue change and resulting EBITDA flow down as a function of the Argentina divestment and what we believe is a prudent view on market expectations in the second half of the year.

Luc: Our effective tax rate can vary quarter to quarter, depending on the geographic mix and we anticipate this will be similar to 2024 in the mid 20% range for 2025.

Luc: Capex is expected to trend down over the course of the year and land in the 3% to 5% of revenues for the whole year.

Bruce: Thank you for your time today, and I will pass the call back to Bruce for his closing comments. Thanks Luke.

Speaker Change: But I remain very confident about <unk> future over the next several years. It is clear that market conditions have changed and we must continue to pivot.

Bruce: The market has matured and so must our approach what we won't do is chase market share without value margins must be defended.

Bruce: I spoke earlier about the uncertainty weighing on the market and while we know the steps to take the exact size of each measure is still to be determined.

Bruce: Over the past several years, we have positioned and prepared for a moment like this.

Bruce: First we have dramatically strengthened our balance sheet by reducing gross debt by approximately $1 billion.

Bruce: We now have total liquidity of $1 3 billion.

Bruce: Which consists of $930 million in cash and our net leverage ratio sits at 0.5 times trailing 12 months adjusted EBITDA.

Bruce: Secondly, our cost structure has become more scalable as we have modernized our fulfillment network and consolidated several facilities, while building a more nimble supply chain.

Bruce: Thirdly, we set the dividend at a level that is sustainable even in a down market.

Bruce: The dividend is sacrosanct and will be maintained.

Bruce: Lastly, our share repurchase program is pragmatic and we entre treating.

Bruce: Moving forward, we will be flexible with our operating structure support cost and Capex.

Bruce: Just as needed to match market conditions.

Bruce: Last quarter I outlined our cost optimization program, which has begun and goes well beyond just adjusting for volume.

Bruce: This is a multiyear program that remains focused on achieving sustainable productivity gains through technology and lean processes versus just adjusting headcount.

Bruce: Secondly, working capital efficiency remains a core focus area to drive free cash flow conversion to a sustainable 50%.

Bruce: The new Weatherford will continue to evolve and initiatives and actions that were already in place will help us navigate this part of the cycle better than the old Weatherford.

Bruce: While we all hope for a better market. The reality is we will have to navigate a more difficult one than previously forecasted. However, I am confident the weatherford team will remain agile adapt and generate a stronger company as we navigate this period and now operator, please open the call for questions.

Bruce: Thank you we will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Bruce: If you're using a speakerphone please pick up your handset before pressing the keys.

Bruce: Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Speaker Change: And the first question will come from David Anderson with Barclays. Please go ahead.

David Anderson: Thank you and good morning Girish.

Girish: Dave How're you doing.

Dave: Im doing good.

Speaker Change: <unk> very sobering outlook and also appreciate all the uncertainty that's in front of us.

Dave: Typically when we think about international markets, we're talking about being longer cycle barrel can be more resilient in U S. Onshore during periods of oil price volatility means your largest region and if I heard you right. I think you said ex Mexico, Youre thinking internationally down kind of mid single digits could you walk us through how some of those key countries and Nino trending.

Dave: Are those ioc's contemplating any shifts to plans OPEC decisions don't usually impact spending, but just kind of feels a little bit different if you could just help us understand how those major markets are trending thank you sure.

Sure, Dave, but look you're absolutely right I think gets about uncertainty right now and the reality is the international markets do tend to be more stable, but with <unk>, leading the pack look.

Dave: As we've outlined what we have tried to do with the outlook. We presented is really present a range of possibility.

Dave: I wish I could give you a lot more clarity and say this is exactly what it's going to be but I think that uncertainty right now leads to a very broad range. What we're seeing right now on the ground is continued stability, we're not really seeing a shift which is partially why again for Q2 normalized for the divestment in Latin America.

Dave: I actually expect revenues to go up on a normalized basis, because thats not changing look as we look at places like Saudi will talk about that in the middle East.

Dave: Saudi has been reducing rig counts are and because <unk> been doing that over the past year or so and we have indicated in the past that we are not immune to it but despite that we actually believe we can actually grow the Saudi business that view has not changed unless we see.

Dave: Another significant ramp down later this year and I think there is a potentiality for that so that we are just trying to make sure that we're prepared for that we see a very robust spending pattern in activity levels in places like Kuwait in the UAE and Oman.

Dave: ISP contracts are doing extremely well, we are actually seeing positive signs emerge out of Iraq, which get us a lot more confident about 2026. So in general I would say look we are not seeing anything definitive yet what we are just trying to do is prepare for a range of outcomes as this whole.

Dave: <unk> situation on global trade and the resultant impact on commodity prices as well as then activity levels get sorted out that that's really what we're trying to do and look as I mentioned in my in my remarks, if everything sort of.

Dave: Stays reasonably okay. We are well positioned for for that we will be able to take advantage and if you look at the high end of our guidance.

Dave: We're still really only down just sort of low single digit on the international side, So again back to that stability.

Speaker Change: Oh Gosh, you call. This a distinctly different phase of the cycle.

Dave: Youre, saying youre expecting a slowdown in the second half of the year.

Dave: Characterize us as a downturn impossible question I realize but.

Dave: Many ways to still play out, but how do you see this downturn playing out in terms of duration or severity just as you sit here today, recognizing the things can change all different ways, yes, so you're right.

Dave: It's a bit of an impossible question look I think a couple of things, though Dave one is I think the industry discipline, both on the operator side as well as on the service company side makes this a slightly different one this isn't everything falling off a cliff and 50% reduction or something of that nature I think it has much milder.

Dave: I think the second fundamental difference is that it is not universal and we're seeing different causes in different places.

Dave: The situation in Mexico is very different from the situation and be in the middle East. So places like the Middle East I think we will see just a bit of a gradual slowdown and I think as supply and demand come back into balance the global trade situation gets sorted out because if it doesn't I think they've all got bigger things to do.

Dave: And then worry about over the next hopefully several months by the latter part of this year I think we'll have a little bit more clarity, we still see a lot of positivity on the offshore side going into 'twenty six 'twenty seven so we feel good about.

Dave: The outer years in the projections. So I think it is reasonably short lived.

Dave: But we are just making sure that that we are fully prepared I think the other thing is you've got a lot of countries like Thailand, Malaysia, Indonesia, India that are really driving activity based on domestic needs and if anything in this kind of an environment that becomes far more important. So I don't think we will see a significant step off of activity in places like that either.

Speaker Change: Interesting point and thanks for the insight Girish sure.

Scott Gruber: The next question will come from Scott Gruber with Citigroup. Please go ahead.

Scott Gruber: Yes, good morning, Hey.

Dave: Hey, Scott.

Scott Gruber: I want to stay on the 25.

Scott Gruber: And as well so you know Mexico is worse.

Scott Gruber: But can you provide some more details on the the other moving pieces.

Scott Gruber: What's the magnitude of the impact from the divestitures are those fully out of the P&L and into Q in and outside of Mexico, which other countries or regions did you risk adjust lower in the in the guidance. Thanks sure.

Scott Gruber: Sure Scott look as you said a lot of moving pieces.

Scott Gruber: Initially when we gave the guidance in February.

Scott Gruber: We had a slightly different view I think look Mexico in itself is down a bit more we've talked about it we had expected sort of 30% to 50%.

Scott Gruber: That's probably down closer to around.

Scott Gruber: Give or take a couple of points or 60% or so so that gives us order of.

Scott Gruber: Magnitude, let's call it between 150, and Doron and 50 bps of reduction, but the good news is it's a little bit flatter off the base.

Speaker Change: Have taken North America down.

Speaker Change: That is where we see the most significant change in the market on a dynamic basis. It moves very very fast we have already seen that effect.

Speaker Change: It is also the market that is likely to pick up the fastest are not changed to the extent we have.

Speaker Change: I sort of outlined but that's that's down.

Speaker Change: And then we have taken a little bit more of a prudent view in sub Saharan Africa, Europe and slightly be graded the middle east as well. So if you think about it look the divestitures yellow again order of magnitude 100 to 300 bps.

Speaker Change: What what that drives and then we have sort of on a global basis factoring in about 300 to 500 bps on the market reduction, but again I will emphasize that if that doesn't actually play out and I hope I sincerely hope were wrong.

Speaker Change: We will be very well positioned to take advantage of the activity levels that exist.

Speaker Change: Got it.

Speaker Change: And then are you able to say.

Speaker Change: With the proceeds from the transaction I remember the.

Speaker Change: Argentine pumping business being a decent size them and how do you think about.

Speaker Change: Utilizing those proceeds do you keep them as dry powder for future acquisitions to pay down debt. That's the buyback just kind of thoughts on use of proceeds.

Speaker Change: Yes, so look what I'll say is yes, we will have a lot more detail in the Q as it comes out Tonight.

Speaker Change: Thank the relevant fact, though Scott is the revenue size is a little bit higher as I just outlined in my in my work.

Speaker Change: To you, but it was a very capital intensive business, especially the pressure pumping piece so.

Speaker Change: Requiring the amount of Capex that we did as we looked out into 26 and beyond this will be a significant improvement in our ability to convert cash.

Speaker Change: What's left really now for US is the Walker, Martha and I'm very excited about our MPD offerings, they're some of our product offerings saw what we're doing with artificial lift and then our ability to go in and have a much stronger drilling business.

Speaker Change: In that unconventional piece. So those are the things that we are looking forward to going through in doing in Argentina, So Argentina about really transforms itself as the reforms take hold into.

Speaker Change: Our growth engine for us.

Speaker Change: So the proceeds look.

Speaker Change: We don't look at it as sort of a single bucket attached to the overall liquidity of the company and I think we've got plenty of dry powder to look at all of the different things as we have outlined on our capital allocation priorities.

Speaker Change: We will obviously continue to pay the dividend.

Speaker Change: Stock repurchase program as is ongoing as.

Speaker Change: As we indicated in the earnings release, we have also.

Speaker Change: Taken some opportunistic advantage and taken some of.

Speaker Change: The debt out, albeit a little bit.

Speaker Change: This gives us an opportunity to look at.

Speaker Change: Smaller tuck in acquisitions like we have done last year.

Speaker Change: Great No I appreciate all the color. Thank you.

Sara <unk>: The next question will come from Sara <unk> with Bank of America. Please go ahead.

Sara: Hi, good morning Girish.

Speaker Change: Hey, Chris Yeah, I wanted to spend a little more time on Mexico, I know, we spoke about the middle East and I know you said the situation in Mexico is different which I guess a lot of people appreciate right, but given the change of good issue in your outlook from a 30% to 50%, 60%, maybe just give us a little more color on what's going on in the country, what's the risk.

Speaker Change: That things can potentially get worse or on the contrary things get a little better by the end of the year, because we did see some news on potentially three suspended jackups going back to work again, right, but just give us a little more color on Mexico. Please.

Speaker Change: Sure look I think all of this is is still in the process of playing out, but we've got a little bit more granularity and clarity now what I would say is look at this level.

Speaker Change: Activity dropped, but we feel reasonably comfortable that it'll it'll stay at least flattish to this I think you're right in that there is a potentiality all fe uptake, but its likely to book to be towards the tail end of the year. So we're not really counting on that I think more importantly, looking into 2026 I think.

Speaker Change: Things will get better because.

Speaker Change: All of the commentary we've heard out of.

Speaker Change: Various different sources in Mexico do suggest an understanding of the need to have different avenues to increase our increased activity. So look we've positioned our business we've positioned the team right sized it.

Speaker Change: Essentially do adapted this activity level.

Speaker Change: But also have given ourselves a little bit of leeway that if things do improve.

Speaker Change: More private operators that get into the mix ought to be able to take advantage of that.

Speaker Change: I think the most significant thing for us we will be continuing to.

Speaker Change: Work with and figured out the payment stream that we get out and that will really influence our ability to then modulate upwards on this but look at this point, we're really assuming that it doesn't get any worse and we feel pretty comfortable about maintaining activity levels at or slightly above.

Speaker Change: The Q1 levels.

Speaker Change: Okay perfect no. That's good color good issue and then maybe an unrelated follow up on free cash flow.

Speaker Change: So just on a conversion basis, a 100 200 bps is unchanged, but EBITDA is lower so free cash flow number is going down can you just walk us through some of the moving pieces look I know you commented on capex or declining through the year. So you would fall within that range, maybe a little bit on working capital the risk from Mexico, just collections when the market is slowing down in any of the.

Speaker Change: Oh gosh, a component of the charges you have taken a full cost reduction head count reduction all of that kind of stuff, maybe some color on that.

Speaker Change: Sure It looks our vessel, we build all of that into the end of the guidance that we have provided so yes, sorry, you're right. The math would imply that it's a little bit.

Speaker Change: A little bit lower but still a very reasonable and I think a very healthy level of free cash flow generation for the year that still allows us to obviously pay the dividend make progress on the stock repurchase and then after that still gives us plenty of dry powder on either.

Speaker Change: That our M&A et cetera look the biggest lever continues to be working capital. Obviously capex is going to go down but that sort of still more within that that percentage realm, but the capex number will go down commensurately or will be within that.

Speaker Change: Three to five probably a little bit closer to five still does your on revenue.

Speaker Change: But look the working capital piece the biggest chunk of it.

Speaker Change: Terms of the puts and takes in the variability does continue to be payments out of Mexico. Now we are hopeful that we will see clarity on that and get more visibility into that over the next several weeks and months, but yes that is that is the key thing now what is also important to recognize too is as.

Speaker Change: Go revenue levels fall down that exposure also reduces commensurately, we've obviously got the.

Speaker Change: The overhang from from last year, but as that gets cleared out. The overall exposure level does does go down and that actually will become a a positive once that once that comes to be so so look I think for us as we look at the longer term pathway to 50% free cash flow conversion is still pretty much the same as net working capital.

Speaker Change: Improvements its improvement on cash taxes, and then it died.

Speaker Change: Point in time.

Speaker Change: And interest and we're making good progress on all of those things.

Speaker Change: Okay perfect no that's fantastic I'll turn it back.

Speaker Change: Thank you.

Speaker Change: The next question will come from Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson: Hey, good morning, guys and thanks for all the color and kind of honest assessment of.

Speaker Change: What things look like to your best ability at the moment.

Speaker Change: Green shoots Goldman kind of circling back to costs, you threw out a couple of numbers head count down by a thousand plus people and you're kind of annualized expenses down by over 100 million.

Speaker Change: Is it just head count reductions that have been the driver so far or maybe a little detail on what else you've been doing to get that annualized cost yes.

Speaker Change: Yes.

Speaker Change: Yes, Jim I. Appreciate the question look it's head count is certainly a very significant component of that it's never.

Speaker Change: Easier nice, but it's just a function of the business environment.

Speaker Change: We have to take these actions, but look in addition, we're really working hard on first I'll call. It the traditional levers of discretionary costs.

Speaker Change: Making sure that we are really spending money only on the things that matter when it comes due.

Speaker Change: Professional consulting services things like travel all of that but the usual.

Speaker Change: Tightening down on things that happen in this environment.

Speaker Change: The other thing that we're doing is.

Speaker Change: Our fulfillment program that's been working for the last several years, we've talked a lot about that in the past that's really starting to pay some dividends.

Speaker Change: Modernizing the network getting more efficient.

Speaker Change: Sort of effects on both ends the first is just reducing cost and the impact of the company, but at the same time also a reduction and more flexibility in meeting customer deadlines et cetera, so that that helps us well.

Speaker Change: We are also looking at how do we run the company more efficiently more shared services.

Speaker Change: Kinds of arrangements.

Speaker Change: Better ways to run it more technology to automate.

Speaker Change: We've launched a as we've talked about a multiyear ERP program, but we're not waiting for every single piece to take hold before we get some of the efficiency. Some of these things are running in parallel of as we get the process improvements in place. So it's really sort of all hands on deck and everything focused on running the company more efficiently I have.

Speaker Change: Said this before where weatherford was never really designed to be.

Speaker Change: What it is today and so we've got a very unique opportunity to sort of redraw the blueprint and set the company up in a way that works for the business that we are today and what we are going to be which really gives us more ability to be efficient.

Speaker Change: The resources that we have.

Speaker Change: Got it I appreciate all that color and if you think about what you kind of have in progress. Some of these things you mentioned take time.

Speaker Change: And so the $100 million of annualized that you were kind of already achieved how much more.

Speaker Change: Do you think you have to go like how much more costs, assuming this kind of market stays here how much more cost you can take out at us.

Speaker Change: Yes, So look you know.

Speaker Change: What I would say is again, if we just assume let's let's say we'd get to the end of this year and then we stay flat.

Speaker Change: I will get back to you know over the next two to three years, we should still be able to lift up margins in that 25 to 75 bps every year so call. It one.

Speaker Change: 150 odd bps. So that would suggest that there is still order of magnitude about the same in the next three years or so that we can get just from a productivity standpoint.

Speaker Change: Look forward to it thanks.

Speaker Change: Alright, thank you.

Speaker Change: The next question will come from Sean Mitchell with Daniel Energy Partners. Please go ahead.

Sean Mitchell: Good morning, Thanks for taking my question and appreciate all the color and kudos for Gander.

Sean Mitchell: You guys have talked in the past about your family of P&A services and products, especially in the North Sea can you kind of just refresh us on the outlook for that business.

Yes, Sean Thanks for the question look up this continues to be an area that we think has a lot of interesting growth prospects for us in the future depending upon the environment and the market things ebb and flow a little bit, but we've had some tremendous success.

Sean Mitchell: Note in offshore.

Sean Mitchell: So on the California side as well as the Gulf of America, we have had a lot of success.

Sean Mitchell: In places like the North Sea.

Sean Mitchell: Continental places like Continental Europe, a multiple other locations.

Sean Mitchell: Lot of it is within our intervention business, but it's complemented by some of our well construction products that we bring in but probably most significantly is the umbrella that we're able to put around it on overall project management and scope to really give customers a complete solution.

Sean Mitchell: Look we don't have some of the elements like conveyance et cetera, but we were able to successfully partner with other organizations to be able to provide that to customers. So we're very excited about this business. While the acquisitions. We made last year. This company <unk>, which is now part of our interventional business.

Sean Mitchell: It gave us a little bit more capability with a far more efficient cut and pull technology single trip technology on that front, we've deployed that extremely successfully.

Sean Mitchell: That business is doing extremely well relative to our expectations on the pro forma that we had so youre a lot more to come on this I think the key will be really to see how the regulatory environment plays out.

And whether that gives us additional impetus.

Sean Mitchell: But even without that I think our operators understand the significance of the responsibility of doing this so over the years to come I think this will be a very significant platform for us.

Sean Mitchell: Great. Thanks for the color.

Sean Mitchell: I will turn it back.

Doug Becker: The next question will come from Doug Becker with capital one. Please go ahead.

Sean Mitchell: Okay.

Sean Mitchell: You characterized the sale of the pressure pumping business in Argentina is a key milestone in the portfolio optimization to a more capital efficient model.

Sean Mitchell: What's left to optimize and are there other potential divestitures on the horizon.

Sean Mitchell: Yeah.

Sean Mitchell: Doug look as I've said, a few different times of the patio, we like the overall portfolio that we have we arent looking at the business and saying there is a particular product line or a particular country or something like that.

Sean Mitchell: I don't want to divest or change what we tend to do is really look at this what we call the intersection of product line and country and we look at what is the sustainability.

Ability of that business that are done capability over time, the viability of the asset base et cetera, and I think in this particular circumstance, we had a happy confluence.

Sean Mitchell: Of circumstances, where we had.

Sean Mitchell: Is it an opportunity to divest the business it was going to be more capital intensive for us as I mentioned in my prepared remarks. These were triplex pumps.

Sean Mitchell: You can get a bit of a flavor of the capital intensity around things like that.

Sean Mitchell: Look.

Sean Mitchell: I think this was probably the most significant piece that we had from a capital intensity in one particular country. One particular product line, but look we continue to evolve and look at ways to.

Sean Mitchell: Base to shape the portfolio and it's not just about divestment look last year, we acquired a.

Sean Mitchell: Two companies in the wireline technology business probe and ISI and that really accelerated our pivot in wireline to be a less capital intensive business to be a technology provider in several instances. So we will continue to look at shifts like that in the pressure pumping side. We started a couple of years ago on this sector.

Sean Mitchell: Transition to grow what we call our engineered fluid chemistry business. So it's a.

Sean Mitchell: It's a very small part of the company today, but one that's growing extremely well.

Sean Mitchell: We feel the value is far more in that engineered fluid chemistry portion versus in the heavy set of machinery aspect of it. So I think we will continue to look at that intersection and see where we can add value to it and if we see circumstances, where it doesn't make sense, we'll take the appropriate action.

And you alluded to this a little bit, but youre still looking for acquisitions.

Sean Mitchell: Maybe in the context of uncertainty can create opportunities.

Sean Mitchell: It's something we should be looking for or is it just part of the ongoing process.

Sean Mitchell: It is not one that we are looking at and saying we just have to go do something look it's part of the ongoing process. We always look at stuff I think there is a lot of interesting things and one of the things that I am, particularly interested in frankly, a little excited about his benefit today is this is a cycle.

Sean Mitchell: Change that is very different for us in the previous couple of downturns Weatherford has not been in a position to play offense.

Sean Mitchell: We've kind of been hunkered down and worried about survival and stability. So very very different company today, we've got a resilient balance sheet, we have a lot more capability inside the organization and so we are able to look at things with a broader and a longer term perspective. So I do think there is a possibility and optionality that we have but.

Sean Mitchell: We're always going to do it only if it makes sense.

Sean Mitchell: Thank you.

Speaker Change: The next question will come from Derik part Hazer with Piper Sandler. Please go ahead.

Speaker Change: Hey, good morning, I was hoping you could expand on a potential tariff impact and maybe if you can quantify it for US and then we've heard for a couple of your peers. This week, putting a dollar figure, but how should we think about it maybe from a country country perspective, maybe a product line perspective, just maybe some more color and comments around potential tariffs impact.

Speaker Change: Sure.

Speaker Change: Look I'll I'll be very candid I think it is very difficult to quantify right now because we don't know exactly what it's going to look like.

Speaker Change: If you look at the business itself.

Speaker Change: Three elements to it I think there is going to be an impact from a capex standpoint on our service product lines, which will most significantly felt in our DIY segment.

Speaker Change: We moved a lot of tools across different parts of the world and we've got centers of excellence in the United States. So the impact of tools coming in.

Speaker Change: It's something that we will have to understand once we know exactly what the tariff regime is is going to be.

Speaker Change: But at the same time.

Speaker Change: <unk>.

Speaker Change: How that then gets manifested in terms of pricing increases et cetera, we will have to see.

Speaker Change: On the well construction and completion side of the business.

Speaker Change: Neil We think there is limited impact we do have manufacturing facilities in the U S, where we shipped some product out to other parts of the world.

Speaker Change: That could be subject to a little bit of this set of territory tariffs, depending again on what shape or form that takes really difficult at this stage do to quantify that but we could see a better <unk>.

Speaker Change: Suppression and demand and Thats, what we have tried to bake into the guidance.

And I think the most pronounced effect will be in our production and intervention segment.

Speaker Change: Which holds our artificial lift product line.

Speaker Change: We bring a lot of product into the United States.

Speaker Change: From other parts of the World and I think on that one with the tariffs that are currently in place.

Speaker Change: Likely creates a very difficult situation for customers.

Speaker Change: Because the cost ramps up fairly dramatically, even if we are able to pass on the costs will lead to customers.

Speaker Change: With that some of the tariff levels that we've got right now we.

Speaker Change: We would not be in those product lines that we weren't able to do that but it becomes a dramatic change. So I think customers will then look at alternative technologies might look at a refurbished or used markets.

Speaker Change: Et cetera, So look I personally I, just think it's way too difficult problem, probably too early now to make pronouncements on this so.

Speaker Change: So what we've kind of viewed it as we will wait a little bit to see what really happens over the next 30 60 90 days as hopefully these agreements get finalized get put into place and in the meantime, though what we do expect is there is going to be a a degree of uncertainty which leads to.

Speaker Change: A reduction in activity levels, and I think that will be the most.

Speaker Change: Tangible change that we will see.

Speaker Change: Please the next several months.

Speaker Change: Got it Okay. That's very helpful walk there I appreciate that.

Speaker Change: Just a follow up I just wanted to hit on digital I mean, you, obviously announced the partnership with Abu Dhabi IQ, but maybe just kind of a bigger picture question on digital.

Speaker Change: Just given the uncertainty in the macro activity levels coming down is this really viewed as discretionary spending for your independent E&P IOC NOC customers, just thinking how relatively insulated digital products could be in this type of environment or would that digital related spending just really come down in line with traditional services.

Speaker Change: Just maybe some color around that.

Speaker Change: Yeah look I think at defense Derek on what element of digital right. It's a very broad brought so I think things that don't have value or just sort of seen as a little bit of fiscal experiment that might likely come down, but I actually think it's a very significant opportunity for for us, especially as we look at the <unk>.

Speaker Change: Production space in.

Speaker Change: In this kind of an environment I think that is going to be a significant premium that customers place on production optimization on finding mechanisms to do more with their data that again allows them to get more production intensity out of existing reservoirs existing wells and that is where our suite of products and.

Speaker Change: <unk>, starting with our <unk> system, our edge devices and our production optimization platforms. I think can actually have a significant opportunity to create value. So my hope is that that will actually go up versus down.

Speaker Change: Got it very helpful. I'll turn it back thank you.

Speaker Change: Thanks.

Speaker Change: The next question will come from Italian <unk> with Goldman Sachs. Please go ahead.

Speaker Change: Hey, good morning team. Good issue noted in the prepared remarks that the guidance changes potentially conservative can you help us understand that comment.

Speaker Change: The factors that you've evaluated and the de risking that provides confidence that.

Speaker Change: Sure.

Speaker Change: Good morning.

Speaker Change: You know again I tried to be careful with some of our words.

Speaker Change: Potentially conservative because again it goes back to this notion of uncertainty because I think I pointed out a couple of times, we have not seen customers definitely tell us at this point that they're going to cut back spending or theyre going to change our specific plans et cetera, what we're doing is projecting forward a little.

Speaker Change: And we want to be realistic and prudent about it I will again say I sincerely hope Bob I am completely wrong on this and that everything is perfectly fine and that oil rebounds and activity levels continue. So if that does happen then yes, the guidance would be potentially conservative and we would see.

Speaker Change: Uptake, we just see the reality today is more likely to be different.

Speaker Change: Got it that's very helpful. And then maybe if I can get one for <unk> if possible.

Speaker Change: How should we think about your priorities as you start in this new role and thoughts you can provide on the capital allocation priorities of our balance sheet priority or any anything you can provide us.

Yes sure. Thanks. Thanks for the question. So this is day three for me so I need to.

Speaker Change: I understand the organization and much more detailed before putting together and detailed my priorities. However from a capital allocation standpoint.

Speaker Change: Echo Gary's have mentioned, which is the dividend is sacrosanct key is to have a strong balance sheet I'd like to call. It a fortress of a balance sheet, which allows for flexibility throughout the cycle and so those things will not change.

The site to cash on sheet, and making sure we have enough liquidity levels, which I believe we are very well positioned here to withstand the uncertainty that we're seeing and to make sure that we can be opportunistic as needed through the cycle.

Speaker Change: Yeah.

Speaker Change: That's great. Thank you so much.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Speaker Change: Great Hey, Thank you all for joining the call really appreciate as always your time.

Speaker Change: I think we've tried to paint as clear a picture given the uncertainty in the market that it's a fairly wide range of outcomes.

Speaker Change: But we feel very strong and our capability to navigate through that uncertainty and ensure that we still generate healthy margins and most significantly strong cash flow over the course of the year. So thank you for your time and we'll talk to you again in 90 days.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

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Speaker Change: Yeah.