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spk00: Thank you for standing by. Welcome to the Weatherford International second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this event is being recorded. I would now like to turn the conference over to Mohamed Tapawala, Vice President, Investor Relations, and M&A. Sir, you may begin.
spk03: Welcome, everyone, to the Weatherford International Second Quarter 2023 Conference Call. I'm joined today by Girish Saligram, President and CEO, and Arun Mitra, Executive Vice President and CFO. We will start today with our prepared remarks and then open it up for questions. you may download a copy of the presentation slides corresponding to today's call from our website's investor relations section. I want to remind everyone that some of today's comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filing 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 second quarter earnings press release, which can be found on our website. As a reminder, today's call is being webcast, and a recorded version will be available on our website's investor relations section following the conclusion of this call. With that, I'd like to turn the call over to Girish.
spk04: Thanks, Mohamed, and thank you all for joining the call. Our second quarter results continue to build on the strong momentum of the first, and I'm enormously grateful to the entire One Weatherford team for delivering above expectations despite some headwinds. Our performance in the second quarter is the 12th consecutive quarter of delivering on our enterprise commitments, demonstrating the progress we continue to make in operational execution and result in financial performance. We deliver solid financial performance in revenue, margins, and most importantly, cash flow. While the North America market activity was weaker than anticipated and our business in Canada was impacted from the wildfires, our strength in the international market came through very clearly with 12% sequential growth and was up 27% over last year. This enabled a sequential 7% total revenue growth to $1.27 billion and more than offset the 7% sequential decline in North America. A 20% increase year-over-year for Q2, we are now looking to deliver mid- to high-teens revenue growth for the year. We had several countries generating over 20% growth in the first half of the year compared to the first half of 2022, giving us tangible proof points of broad-based international traction. This quarter once again had strong margin performance with adjusted EBITDA of $291 million with an adjusted EBITDA margin of 22.8%, which is not just a sequential improvement, but it's 536 basis points above the same period a year ago. This performance also represents a significant milestone with the highest level of margin the company has generated in over 12 years. I am particularly pleased with our performance on adjusted free cash flow as we generated $172 million in the second quarter. I believe the strong cash number and EBITDA conversions speak for themselves on our operating focus. Moving to some of our commercial highlights during the second quarter. We had notable wins in our intervention services portfolio with a five-year contract win with Petrobras in offshore Brazil and a three-year contract win with BP Azerbaijan to provide deep water intervention services. Aramco awarded us a three-year drilling services contract, continuing to build on our focus in the region. We were awarded a five-year contract with a major IOC in Iraq to provide upper completions products and services. Kuwait Energy in Iraq has awarded us a two-year well-testing services contract extension. And in North America, Cord Energy awarded us a one-year contract to provide reciprocating rod lift, long-stroke Rotoflex, and conventional pumping unit technology for its Bakken assets. This quarter also witnessed several noteworthy technology milestones. First, I would like to highlight our Vero offering in our tubular running services, or TRS, business. We have talked in prior quarters about this offering, which brings together automation, mechanization, software, and artificial intelligence to provide unmatched connection integrity while enhancing safety. We have now exceeded 650 jobs and 144,000 connections globally. During the quarter, Transocean awarded us TRS Vero automated integrity contracts for the first-ever deployments in Norway on three rigs, and ENI awarded us a two-year contract for Vero for deep water operations in the Mediterranean. Continuing on the theme of technology advancements in TRS, we launched StringGuard, a unique technology that enhances safety and operational efficiency by mitigating the risk of drop strings in TRS operations. I am extremely excited about the value this will bring to our customers, as we can now give them even more confidence in the reliability of our market-leading offerings. In our production and intervention segment, we launched multiple technologies, including MultiCatch Anchor and Ghost Dreamer, to improve borehole conditioning as part of our intervention services business. In the drilling and evaluation segment, we noted in our first quarter call the commercialization of our performance tier MPD offering, which we have now branded as MODIS. During the quarter, MODIS was deployed for a customer in US land, where we successfully demonstrated its ability to increase drilling efficiency. Following our Q1 contract announcement, we have now signed a joint development agreement with Ever, a revolutionary geothermal company, to develop whipstock and sidetrack technology for future projects in Germany and around the world. This agreement is designed to further bolster our geothermal offering to provide liner hanger systems, cementation products, and open-hole and cased-hole wireline services to support the first commercial Ever loop in Germany. Now let's turn to our view on the markets. As we see uneven economic recovery globally, paired with interest rate hikes by central banks impacting near-term demand, we still expect a net favorable environment in the second half of 2023 and continued customer investments going into 2024. Broader themes such as energy security, regionalization, and investment growth, especially in international and offshore markets, further support meaningful, incremental demand for Weatherford products and services across our footprint. Though unforeseen events can certainly disrupt markets, we are constructive on the near- to mid-term outlook and see healthy growth across market segments. In North America, rig count declines are poised to bottom near the levels we see today, and we expect them to hold steady as we move through the remainder of the year. As noted previously, our North America land mix is much more production-oriented, with limited risk tied with reduced rig count activity. As oversupply for both oil and gas is consumed and demand recalibrates, we would expect a slow, steady improvement in both rig and well counts into 2024 as new E&P CapEx plans kick off and operators transition from maintenance-level production. Simultaneously, we continue to consciously transition out of less profitable and cedillary service lines, a recent example being Alaska. While this might cause a relatively more modest comparison on the top line to others, We are seeing the positive impact of these actions on margins and cash generation and will remain focused on maintaining a positive value gap in the North America region. Internationally, the activity outlook is robust in the near to mid-term, led by the Middle East and Latin America, with additional pockets of growth in Asia Pacific, Mediterranean, and other regions. In the Middle East, continued field development investment in Saudi Arabia, UAE, Kuwait, and others, along with regional exploration projects, set the stage for robust rig and well count growth that should enable double-digit growth in 2024. In Latin America, rig and well activity are showing steady growth in the high single digits, led by a significant step up in offshore investment in Mexico, Guyana, Brazil, and in unconventionals in Argentina. Broader indicators support the positive story we see unfolding for offshore. CAPEX growth, a significant step up in project sanctions, tightening rig utilization, and rising activity validate our positive outlook for the next few years, especially for deep water, where we expect market activity to grow around 10% in 2024 and continue into 2025. As offshore activity ramps up and equipment capacity tightens, we expect to see pricing opportunity and a renewed focus on technology to optimize operational performance in these complex environments. This is constructive across our customer profile and product segments, including our offerings of MPD, TRS, completions, and intervention solutions. We also see growing demand for intelligent and AI-driven solutions like Vero and Foresight to support safe, efficient, profitable offshore operations. While we still expect customer project timing adjustments, supply tightness, and FX impacts in certain markets, Our overall outlook for organic growth remains encouraging, and we believe we will continue to see double-digit revenue increases into 2024 with positive margin fall-throughs. Looking ahead, we continue to make progress towards our goal of mid-20s EBITDA margins. We have exceeded expectations in the first half despite seasonality, mixed changes, startup costs on new projects, infrastructure investments, and natural disasters. The strong operating performance has enabled us to continue to de-lever the balance sheet, and our net leverage ratio at 1.1 times is a far cry from the weather for the fold. As we look at our opportunity set in the second half of the year, we believe we are well positioned to take advantage of the strong international and offshore activity while continuing to improve North America profitability. Coupled with the execution capability our team has demonstrated, we are increasing our guidance on revenue, margins, and cash. With that, I'd like to hand it over to Arun to walk us through financial performance and the detailed guidance for the third quarter and full year 2023.
spk01: Thank you, Keresh. Good morning, and thank you, everyone, for joining us on the call. My apologies for the softness in my voice this morning. Please bear with me as I describe the strong financial performance that the team delivered this quarter. I'll begin with our consolidated results and then move on to our second results, liquidity and cash flows. As Girish mentioned, we had a strong quarter with revenues of $1.27 billion, which grew 7% sequentially and 20% year over year. He touched upon the relative North America and international dynamics, and it is important to note that while North America did decline sequentially driven by Canada, we continue to see stability and strength in our offshore and U.S. land business, especially in the artificial lift business of the latter. Our operating income was 201 million in the second quarter of 2023. compared to 185 million in the first quarter of 2023 and 104 million in the second quarter of 2022. Net income was 82 million compared to a 72 million first quarter of 2023 and a 6 million second quarter of 2022. Adjusted EBITDA for the quarter was 291 million which translated into a 22.8% adjusted EBITDA margin. This is the highest ever adjusted EBITDA margins that the company has generated in over 12 years, a clear testament that our ambition to sustainably expand margins continues to materialize. If you will recollect the first quarter 2023 margins, had some favorable bias on account of inflation-related cost recoveries, particularly in the DRE segment. And we had originally planned for those in the second quarter, leading to an expectation of lower Q2 margins. Notwithstanding, the second quarter margins are a sequential improvement over the first quarter 2023 margins, which was in fact even greater organically and a reflection of the excellent operating focus of our team. Now, moving on to our segment results. Drilling and evaluation, or DRE, revenues of $394 million increased by $22 million, or 6% sequentially, primarily due to increased activity for drilling-related services partially offset by a decrease in North America revenues mainly due to the negative impact from Canadian seasonality and wildfires. DRE segment-adjusted EBITDA of $106 million decreased by $2 million, or 2%, due to timing of cost inflation-related recoveries received in the prior quarter, partially offset by higher activity in managed pressure drilling. Well construction and completion, or WCCD, revenues of 440 million increased by 19 million, or 5% sequentially, primarily due to increased completions activity in the Latin America and Middle East, North Africa, Asia regions. WCC segment-adjusted EBITDA of 109 million increased by 13 million, or 14%, sequentially, mainly due to higher completions activity. Production and intervention, or PRI, revenues of $366 million increased by $17 million, or 5% sequentially, primarily due to an increase in activity for artificial lifts in our North America and Latin America regions. PRI's segment adjusted EBITDA of $81 million increased by $13 million, or 19% sequentially. primarily due to a higher fall through for international pressure pumping and increased artificial lift activity in North America. Turning to cash flows and liquidity, our adjusted free cash flow was 172 million, a truly outstanding performance, mainly driven by improved working capital efficiency, higher collections, and lower capital expenditures. We were able to manage our working capital effectively despite a growing revenue base, a testament to the team's dedication and commitment towards lean business operations. We generated an operating cash flow of 201 million, an improvement of 117 million sequentially. CapEx was 36 million this quarter, compared to 64 million in the first quarter of 2023. We closed the second quarter of 2023 with total cash of approximately $922 million, down $61 million sequentially. In the second quarter, we paid down $159 million of closed debt, which included the remaining $105 million of our 11% exit notes and repurchases of $54 million of the six and a half senior secured notes. As we continue to work on optimizing our balance sheet, we have now in less than 24 months paid down approximately $600 million of gross debt. Additionally, we repurchased $17 million of senior secured notes since the close of the second quarter. The refinancing transactions and reduction in total gross debt levels have helped reduce our interest costs by more than $100 million on an annualized basis. Our total gross long-term debt is now less than $2 billion. During the second quarter of 2023, we also utilized an indirect foreign exchange mechanism called Blue Chip Swap, BCS, to remit $53 million from Argentina and recorded a loss of $57 million due to the BCS exchange rates at which the securities-involved were purchased and sold. We remain focused on generating cash as our operating priority. This enables funding of our organic initiatives and balance sheet optimization. We continue to bring down leveraged levels and enhance accessible liquidity, which will support us to function in a cycle-agnostic manner. As we have stated before and executed thus far, we will continue to use cash generated to address our debt and liquidity, which we believe will further unlock value for the enterprise. Turning to our outlook, we are again taking up our total year guidance meaningfully. For the third quarter of 2023, we expect consolidated revenues to be flat to up, lower single digits sequentially. Across the segments, DRE revenue is expected to be flat to down by low single digits, mainly due to a shift in timing of certain activity. WCC is expected to grow by low to mid single digits, and PRI is expected to grow by low to mid single digits. While our third quarter is typically a high services quarter, the contract wins in the product-oriented portions of WCC as well as the greater contribution from integrated projects, is contributing to some changes in the typical mixed patterns. Overall adjusted EBITDA margins are expected to be in line with the second quarter with a positive bias and increase by over 350 basis points over the third quarter of 2022. CAPEX is expected to be in the range of $35 million to $45 million and adjusted free cash flow is expected to be greater than $100 million with continued networking capital investments to support increased activity in the future. Our full year 2023 consolidated revenues are now expected to grow by mid to high teens compared to 2022. Across the segments, DRE is forecasted to deliver mid-teens growth, WCC to deliver mid to high teens growth, and PRI to deliver mid to high single-digit growth. As mentioned in our last earnings call, 2023 will be a year where we invest in the company for the longer term. Having said that, we have visibility to some significant opportunities and continue to execute in favor of our long-term strategic priorities. This will enable us to offset the investments we are making and deliver another year of meaningful margin expansion. We are raising our guidance on full-year consolidated adjusted EBITDA margins to expand by at least 350 basis points over 2022. As mentioned earlier, CapEx for the full year is expected to be 45% of revenue. Notwithstanding, we are again materially increasing our adjusted free cash flow guidance as we now expect 2023 adjusted free cash flow to be greater than 400 million, the fourth consecutive year of positive free cash flow on the back of increasing margins and better networking capital performance. Thank you for your time today. I will now pass the call back to Girish for his closing comments.
spk04: Thanks, Arun. Before we open to questions, I want to provide some updates on the initiatives behind our strategic priorities. On fulfillment, which drives customer experience and the financial performance, we have now exited approximately 13% of our operating facilities since the beginning of 2021. We are backing these exits up with a rigorous transfer of work procedures to enable seamless transition. A key part of lean operations is working capital efficiency. We have improved inventory efficiency as evidenced by a 10 days reduction in DSI year over year, and an overall net working capital days improvement of 12 days, an impressive achievement in a growth environment. Next, we have focused on de-layering and driving more accountability across the organization, resulting in overhead costs as a percentage of revenue declining over 190 basis points on a year-on-year basis. And lastly, we are building a sustainability roadmap to ensure that we responsibly manage our ESG priorities. I am very proud of the efforts our team has made on sustainability, And we released our second annual sustainability report in June that is available on our website. I would be remiss if I didn't acknowledge the significant milestone of June 2, 2023, which marked the two-year anniversary of our listing on NASDAQ. During this time, our organization has executed exceptionally well on behalf of all of our stakeholders, despite navigating through various challenges. Over the last two years, we've also received increased analyst coverage, index inclusion, and a significant evolution of our investor base. Our success is a testament to our well-defined strategy and internal drive to efficiently manage resources to deliver value. We have transformed our business strategy and operations to deliver sustained margin expansion and cash flow generation. Over the past couple of years, we have driven portfolio enhancements, digital growth, capital structure efficiency, customer focus, and talent development in the pursuit of our ambitions and these have had meaningful impact in creating shareholder value. While we have made tangible improvements thus far, we recognize that our journey is ongoing and we intend to maintain our operating focus. This will further improve our ability to increase margins and generate cash, underpinning our belief that our company is still undervalued. We are intensely focused on unlocking that value with operating performance being our litmus test. With that operator, let's open it up for questions, please.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead.
spk02: Hey, good morning. Hey, morning, Luke. How you doing? You've been doing well on yourself. Great, thanks. Garish, you've been growing revs at a very nice rate, and margins have been expanding even with startup costs. Can you maybe talk a little more about future project startups and your ability to keep continuing controlling costs as revs inflect more?
spk04: Yeah, look, it's been a huge focus for us, and I am just incredibly pleased and proud of what our team has done, especially on these integrated projects. I was in the Middle East just a couple of weeks ago and actually had the opportunity to visit both of them, and look, there's a tremendous amount of focus going on. Now, right now, we don't have any new significant integrated projects that we're going to be starting up, so I think from a cost standpoint, that's a little bit behind us. However, we do have additional significant service contracts that come up. We've actually put in place some additional mechanisms within the company to make sure that we've got the quality focus, the planning focus, and all of that's ramping up. So I actually think as we progress, we'll continuously get better on this and hopefully be in a position to continue to deliver margin expansion.
spk02: Perfect. And then you talked a little bit about your factory rationalizations. I believe you said you've exited 13% since early 21. Could you just provide a little more detail on this, you know, where you think this kind of ends up in a couple years and refresh us on that?
spk04: Sure. You know, look, we've laid this out about a year or so ago. And, you know, it's not just our factories. It also includes our operating locations, our repair and maintenance centers. And, look, we are trying to get all of this done to really have an integrated model of that supports all of our customers to the maximum extent locally, but has the different tiers of expertise and the ability to serve those customers at a regional and then at a global level. So we are harmonizing all of that, getting our repair and maintenance facilities, even our factories, to actually support multiple product lines versus be singular. So a lot of rooftop consolidation. We expect to continue to make progress on this. And eventually, look, I think, you know, I would say we are sort of, halfway through that journey, and in about another year to 18 months, we should be complete with that. All right, got it.
spk02: Appreciate it, and congrats on the quarter.
spk00: Thanks, Luke. Thank you. And our next question today comes from Doug Becker at Capital One. Please go ahead.
spk05: Thanks. So I want to start off with a return of capital question, which I'm sure you're getting a lot of. Net leverage is 1.1 times. It's actually lower than some of the other larger peers. What's the thought process when a return of capital plan makes sense? Is there a metric in that leverage ratio or something else you could point to to help us think about the timing?
spk01: Hey, Doug. This is Arun. You know, as we've consistently maintained, our priorities remain debt reduction. So if you look at metrics on the debt side, our gross debt to EV ratio is still high. Our interest coverage amongst our peers is still high. So the priority has been and will remain in the short to medium term, reduction of debt. Having said that, though, shareholder return is a topic which is always under consideration and will continue to be a focus of discussions going forward as well. But for the remainder of the year, we expect debt reduction to to be continued as a priority.
spk05: That makes sense. And then maybe a little more context on CapEx. 2Q took a little bit of a dip down. You're guiding to 4% to 5% of revenue. Does it make sense to kind of guide or shade toward the low end, the 4% level this year, and then maybe toward the 5% next year, just given the growth opportunities you have?
spk01: Hey, Doug, you know, yes, you are correct. We did go down to 2.8%, but cumulatively for the first half, we are at 4.8%. So we are tracking to guidance. And at this point, we believe the guidance we've laid out there is what you should run with.
spk05: Okay, and then just a last one on North America. Any quantification of the impact from the wildfires? on the quarter and just how that might be recovered going forward?
spk04: Yeah, look, you know, I think as we had laid out on our last call, Doug, we actually expected North America to grow slightly and we came in sort of in the opposite direction and, you know, really all of that was really attributable to the North American wildfires in Canada. Look, we've got a terrific business up in Canada and given the extent of the damage, a lot of our customers had to shut down rigs and SEAS operations and our focus and our priority was number one, keeping our employees safe and making sure that we were able to support our customers. So not something that we are concerned about. We are back in full operation and expect to be back to our normal cadence on North America. But that's really what it was. It was a Canada effect over there. And as we have pointed out even in our prepared remarks and mentioned earlier, Our business in North America is far more production-oriented. That gives us a lot more stability, along with our Gulf of Mexico offshore operation gives us a much more stable base.
spk05: Got it. And do you anticipate growth in the third quarter versus second quarter?
spk04: Again, look, we don't break it out by geography, but I think as you look at the totality, I think we should hopefully see a positive quarter. Got it. Thank you.
spk00: Thank you. And our next question today comes from Ati Modak with Goldman Sachs. Please go ahead.
spk07: Hey, good morning, team. Quickly, you mentioned you would be investing in the company and there's some opportunities out there. Can you provide more color around that and cash allocation as you think about this year and next year?
spk04: Yeah, Adi, look, I'll take that. First of all, everything that we have thought through and planned for is already captured within our guidance, so there's nothing that's extraneous to that. But I think, look, a couple of things that we have talked about in the past, first of all, modernization of our infrastructure. We've talked about investment into our systems. Last year, we talked about our new logistics system. This year, we've talked about a human capital management program, so we're investing into that. We're also beefing up our capabilities in multiple different areas and investing into technology. That's really the big, big focus for us from a customer standpoint, making sure that we are maintaining our leading edge on our market-leading offerings, but also in a few of the other ones, really driving differentiated technology. So those are the areas we're investing in, really systems, infrastructure, capability, and technology.
spk01: Yeah, and Aki, just to quantify, as you know, Our R&D allocation has gone up by 20% this year, and a CapEx allocation by more than 60%.
spk07: Great. Thank you for that. And then you mentioned the Modus Managed Pressure Solution in U.S. land. I know that that's been an area of interest in terms of organic growth. Can you talk about this success and what customer conversations are like?
spk04: Yeah, look, very encouraging, Aarti. We've always had a terrific managed pressure drilling portfolio, and it's been very successful on everything ranging from our basic sort of rotating control devices to our high-end Victus offering. What this really gives us is a performance tier offering sort of between the two of them that enables customers who either found the cost a little bit too much or applications where you didn't need the entirety of the offering, this fits right in. So we are starting to gear up production of systems so that they're available for the market. We're discussing with customers in North America, but very significantly customers in the Middle East and other regions as well. So we are very excited about this, and as we ramp up the scaling of this on the production side and get it deployed, we think it'll be a significant addition to, as you said, organic growth as we head into 24. I'll turn it over. Thank you. Thanks, Happy.
spk00: Thanks, Happy. Thank you. And our next question today comes from Kurt Hallett with Benchmark. Please go ahead.
spk06: Hey, good morning. Hey, Kurt. I'm kind of curious, right, when you look at the contract awards that you continue to book on the international front, just kind of curious, you know, what, Give us some general range of what that dollar value of awards were for the new bookings that you had in the quarter.
spk04: Yeah, look, Kurt, our business, the way it's set up is the dollar values are not really like a capital goods business where they contribute to a backlog and you can explicitly then form a book-to-bill ratio or sort of execute. They're really more call-off type of contracts that over a period of time We give them really more as a guidepost, and then occasionally we summarize all of it to give you a sense of the total commercial bookings. I think suffice to say that we are keeping well in pace with two things. One is the revenue growth that we are experiencing, so we are making sure we are refilling the bucket and the pipeline at a level greater. And second, we are keeping pace with the market, and I think that comes through in our revenue growth, especially on the international side vis-à-vis the rest of the industry. Okay.
spk06: Okay, fair enough. Now, just as a follow-on to that dynamic, right, so you have, you know, three-year, five-year contracts, a two-year contract that kind of adds on to what you did in the first quarter. So how do you kind of – I know it's not a backlog-oriented type of dynamic, but, you know, when you think about your revenue visibility, how much conviction and confidence do these contracts give you in revenue growth out beyond 2025 because, again, five-year contract from now, it takes you into 2028.
spk04: Yeah. Kurt, we've talked a little bit about 2024, which is actually pretty presumptuous of us sitting six months going into 2024. So we've already indicated the 24 we expect to grow double digits. I think 2025, 2026, beyond that, it's really going to be a function of the overall market, customer investment. There's a lot of macroeconomic factors that will go into that. Having said all of that, what we continue to see is a very robust outlook, especially on the international side. And our customer thesis going into the next two to three years is one of positive investment, increasing focus on activity. And so we think it's a very positive outlook. And that's why in our prepared remarks, we pointed to that near to midterm positive outlook. And these contracts will really underpin our ability to execute as we go into those years. Okay.
spk06: And then, so my follow-up there would be on your EBITDA margin targets, right, the mid-20% range. You know, is given what you know about what you have booked and the outlook that you see for 2025, right, is it feasible to expect an EBITDA margin exit rate in 2024 of 25%. And I say this in this context, right? Yeah. The guidance you gave for 2023 kind of suggests a flattest progression on EBITDA margin in the second half of the year. So I just was trying to get a sense as to, you know, how you're looking at this acceleration in EBITDA, what might be driving that as you go into 2024.
spk04: Yeah, so a few things, Gert, that I think are important and relevant. First is as we get growth, we have incremental revenue that should come in at higher fall through, so that's a big positive contributor. Number two, we continue to expect to see pricing be an important factor, especially if there's scarcity of supply on highly differentiated products and services. We think pricing will be a positive contributor as it has been this year. And there will certainly be inflation to offset it, but we think it will be a net positive contributor. Number three is new technology. So we talked about our investments in technology as that's coming in. That should give us the ability to get incremental margins as well. Number four is all of our efforts around fulfillment. That's been a big factor that we have talked about, and we continue to make progress. And that's why we laid it out as a multi-year journey. So that should give us incremental lift as well. And then last but not least is a continued focus on our overall overhead or support cost. We still think there is still some opportunity for efficiency there, so we continue to drive that. So those, I think, are five very tangible, very clear things. Now, we're not going to break out each one of those and give a very specific number on that, but as we have indicated previously, in just a normal environment, if you get no revenue growth, we should be operating the business and getting somewhere between 25 and 75 base points of margin expansion. So that should get accelerated as you have incremental revenues come in, and that's what gives us confidence to talk about this mid-20s, and we have laid out a timeframe of a couple of years on that. So I'm not going to give you specific guidance on the exit rate of 24, but I think hopefully what I've just said gives you enough color to piece all of it together.
spk06: Yeah, that is. That's really good. Really appreciate it. Thank you for that. Sure.
spk00: Thank you. And our next question today comes from Connor Jensen and Raymond James. Please go ahead.
spk08: Hey, guys. Thanks for taking my call today. Hey, Connor. Just one question from me. You noted the charge you took for the blue chip swap agreement in Argentina during the quarter. One of your peers highlighted a similar charge and provided the tax impact to adjust it out. Wondering if you guys could give us some additional color on that charge. Yeah, sure.
spk01: Connor, we did not tax-effect it. We don't believe there is a potential offset from a tax perspective. So we took a valuation allowance on the potential tax benefit. So effectively, our numbers do not have a tax-effected PCS loss.
spk08: Okay, very good.
spk01: One of our peers took a 21% tax-to-tax effect. Okay.
spk08: Gotcha. Yeah, that's all for me today. Thanks, guys.
spk00: Thank you. And, ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.
spk04: Great. Hey, thank you all for joining the call today. Hopefully you got a good sense of the continued strong performance the team's delivering, and we look forward to updating you again for the third quarter in October. Take care.
spk00: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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