Weatherford International plc

Good day and welcome to the Weatherford second quarter 2024 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Muhammad Tapawala, Vice President, Investor Relations, and M&A. Please go ahead, sir.

Welcome, everyone, to the Weatherford International Second Quarter 2024 Earnings 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 filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures The underlying details and 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.

Thanks, Mohamed, and thank you all for joining our call. I will kick off our prepared remarks with an overview of performance, the thesis on our capital allocation framework, key highlights, and broad market view. Arun will then cover detail on the results, guidance, and liquidity, and I will wrap up with some thoughts on the next phase for Weatherford before opening for Q&A. As illustrated on slide three, we delivered excellent margin and cash performance in a quarter that threw out some unplanned events and challenges. In the second quarter of 2024, adjusted EBITDA margins came in at 26%, carving yet another notch on the list of firsts in the new Weatherford. While this was lifted up by some asset sales, it demonstrates the viability of our thesis on continued margin expansion in the years to come. We delivered adjusted free cash flow of $96 million, despite this being an interest-paying quarter. Second quarter revenue grew 3.5% sequentially and 10% year-over-year as every segment improved performance, both sequentially and year-over-year. We are cognizant that revenue came in at the lower end of expectations, and that was due to four main factors. Firstly, there has been significant social unrest in Colombia that curtailed activity for the entire sector. Given our strength in this market and the relative size, the impact on us was greater. Secondly, we had some shifts in activity in Mexico that were again broadly felt across the sector. Third, the storm in May in Houston unfortunately had some adverse impact on a few of our facilities that caused operational disruptions for over a week. Finally, we had some shift in timing on different types of asset sales in MPD across the quarters. I realize that this is a lot of information, but we have always believed in transparency, and in a quarter where we did have some softness on revenue, we want to ensure that we are very clear on the why. It is also noteworthy to point out that additional opportunities for offsets on revenue existed, but we remain steadfastly committed to pricing discipline and margin expansion, and given our margin performance, believe that we continue to make the right tradeoffs for longer-term value creation. Most importantly, I am very encouraged by our margin and cash results outperforming, despite revenue being impacted slightly. This really demonstrates the potential for longer-term margin expansion that we have. From a regional standpoint, although overall North America revenue was down 6% sequentially, our U.S. land business grew sequentially as production continued to increase, with softness in the region mainly due to Canadian seasonality and negative weather impacts. Our international business demonstrated continued strength, up 6% sequentially and 14% year over year, led by 29% year-over-year growth in the Middle East, North Africa, and Asia region. We have now had 13 consecutive quarters of year-over-year international revenue growth, with the Middle East, North Africa, and Asia region being a big driver of that, showcasing our continued strength in that region. I also want to highlight that the Kingdom of Saudi Arabia is now the third country in our portfolio to be over 10% of company revenue. Saudi has grown over 35% year-over-year in the first half, and we remain optimistic about future growth potential for us. Over the last several years, we have made significant improvements to our balance sheet. As seen on slide 5, we have repaid over $1 billion of debt, reduced interest costs by over $100 million, added and expanded a credit facility, brought our net leverage ratio down to 0.5 times, and achieved top-tier ROIC of 27.4%. Our disciplined approach to capital allocation and the consistent deployment of free cash flow to repay debt has enabled us to fortify our balance sheet and position us well for the next chapter in our capital allocation story. All of you have been asking for a while now on when we will embark on returning cash to shareholders, and slide six lays out our capital allocation framework, which consists of five pillars. We will not change our focus on business investment and reducing gross leverage. We will also look for inorganic opportunities that fit our strategic filters. We announced three small acquisitions in February, and I am very pleased with the progress and execution of our team on the integration plans on all of them. Our board has authorized us to now introduce two new pillars to this framework as we launch our first-ever shareholder return program. The program comprises an annual dividend of $1 per share and a $500 million share buyback authorization to be executed over three years. We arrived at this decision after conducting a thorough analysis of our financial position and extensive modeling of various scenarios to determine the optimal and sustainable capital allocation strategy for us. The determination of the mix of dividends and buybacks was driven by several guiding principles. It was essential to ensure that the dividends were sustainable through cycles, and the buybacks provide a vehicle to ensure that we mitigate dilution and opportunistically return cash to shareholders. At the same time, we wanted to maintain our capital flexibility to pay down debt further, invest in the business, and pursue attractive organic and M&A opportunities. Our focus has always been on creating long-term value for our shareholders and the process we followed to introduce dividends and buybacks reflects this commitment. Now, turning to our segment overview on slides 8 through 10, the operational and technical highlights showcase advancements in new market penetration, technology adoption, and continued innovation of our product and services portfolio. In Saudi Arabia and Kuwait, our MPD technology gained traction, demonstrating advanced capabilities in precisely maintaining bottom-hole pressure, enhancing safety, and optimizing drilling performance in challenging environments. These two illustrations of MPD efficacy give us further confidence in the increased adoption of MPD and the opportunity that affords us. In digital, our foresight suite of technology continue to drive value for our customers with the deployment of our first foresight sense fiber optic monitoring system installation into a gas storage well for a major operator in the Middle East. We also launched Foresight Edge 2.0, our next generation scalable IoT-enabled automation solution, enhancing customers' advanced autonomous production optimization in real time. We'll now turn to the market outlook on slide 12. Our market outlook remains largely unchanged. Across all parts of the well lifecycle, there is a continued emphasis on technologies to support predictable, cost-competitive production and security of supply for our customers. We anticipate continued growth in international land and offshore, particularly driven by the Middle East and supported by pockets of double-digit growth in Europe, Sub-Saharan Africa, and Asia. Clearly, there has been a weakening of North America expectations relative to our initial guidance in February. Despite a fairly significant reduction in revenue estimates for North America, I am very encouraged that we continue to see total enterprise revenue for 2024 in the same range as February, due to the strength of the international markets, especially the Middle East. More importantly, we continue to have confidence in delivering approximately 20% year-on-year adjusted EBITDA growth and delivering slightly more than 25% margins, coupled with adjusted free cash flow of over $500 million. With that, I'd like to hand it over to Arun.