Weatherford International plc

Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International third quarter 2024 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 Luke Lemoyne, Senior Vice President, Corporate Development. Sir, you may begin.

Welcome, everyone, to the Weatherford International Third Quarter 2024 Earnings Conference Call. I'm joined today by Garish Saligram, President, CEO, and Arun Mitra, Executive Vice President and CFO. We'll start today with our prepared remarks and then open up for questions. 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 here within. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our third quarter's earnings press release, which can be found on our website. As a reminder, today's call is being webcast, and a recorded version will be available on our website's investor relations section following the conclusion of the call. With that, I'd like to turn over the call to Girish.

Thanks, Luke, and thank you all for joining our call. I will kick off our prepared remarks with an overview of our performance, an update on our capital return program, key highlights, and a brief market outlook. Arun will then cover cash flow, the balance sheet, liquidity, and guidance, and I will wrap up with some thoughts on our strategic direction and multi-year targets before opening for Q&A. As illustrated on slide three, we delivered strong margin and cash performance in a quarter where North America remained challenged, Latin America had delays, and schedules shifted in the Middle East and North Africa. We have observed a gradual softening in activity, particularly in short cycle oil projects and onshore programs. E&P operators are taking a measured, cautious approach, and we expect this trend to continue in the near term. In the third quarter of 2024, despite the revenue headwinds, adjusted EBITDA margins came in as expected at 25.2%. While the margins were more normalized after MPD asset sales supported the second quarter, It is worthwhile noting that we had almost 200 basis points of margin expansion over the same period last year. We delivered adjusted free cash flow of $184 million for an adjusted free cash flow conversion of 52%. Third quarter revenue was flat sequentially and up 7% year over year, driven by international revenue growth of 9% year over year. Revenue came in at the lower end of expectations due to two main factors. Firstly, we experienced delays in activity in Latin America that were broadly felt across the sector. Secondly, there were scheduling shifts in the Middle East, North Africa region, driven by the more measured approach that I referenced earlier. While we did have opportunities to offset the revenue shortfall with transactional work, we remained firmly committed to pricing discipline and margin expansion to drive long-term value creation. While revenue came in at the lower end of expectations, I'm encouraged by our strong margin and cash flow performance, which reinforces our thesis on the ability to continue driving margin growth on an annual basis. From a regional standpoint, overall North America revenue was up 6% sequentially, primarily due to an activity increase in Canada due to favorable seasonality and increased activity in the Gulf of Mexico. Our international business was down 1% sequentially, but up 9% year over year. The sequential impact was primarily a function of the previously mentioned factors. Despite the sequential delta, we have now achieved 14 consecutive quarters of year-over-year international revenue growth, with the Middle East, North Africa, Asia region driving the year-on-year results this quarter. The Kingdom of Saudi Arabia continues to show strength and has grown 29% year-to-date, and the broader Middle East, North Africa, Asia region has grown 25% year-to-date. Earlier this year, we discussed the expected modulation of our integrated project in Oman. This began in the third quarter and will continue into the fourth, with normalization expected to resume in the first quarter of 2025. Our team's outstanding execution on this contract has led to significantly better performance than originally expected. However, as we have previously discussed, we needed to slow down to allow other customer activities to catch up. On the second quarter call, we expanded our capital allocation framework to include a quarterly dividend and a $500 million buyback. As shown on slide six, we paid our first ever quarterly dividend of 25 cents per share and repurchased approximately $50 million of shares during the third quarter. However, this amount may vary each quarter depending on market conditions. Our net leverage ratio is approximately 0.5 times and we remain committed to retiring additional debt while maintaining our top tier ROIC. We continue to pursue inorganic opportunities that align with our strategic filters. In addition to the three small acquisitions in February, we announced data creation in September. I'm very pleased with the progress and execution of our team on the integration plans across all four of these businesses. Now turning to our segment overview on slides eight through 10, The operational and technical highlights showcase advancements in new market penetration, technology adoption, and continued innovation of our product and services portfolio. Aramco awarded Weatherford a three-year corporate procurement agreement that includes cementation, completions, liner hangers, and whip stocks, as well as complementary service agreements. Also in the Middle East, Weatherford deployed MPD solutions in two deep geothermal exploration wells. This innovative use of MPD technology mitigates risk from elevated geothermal gradients during exploration drilling. Furthermore, Weatherford was awarded a three-year frame contract for drilling services in Middle East unconventional resources. In digital, the acquisition of DataGration added the Petrovisor and Ecovisor platforms to Weatherford's digital solutions portfolio, enhancing the integration of customer data with Foresight and Signet for improved real-time analysis and decision-making. A few weeks ago at our 20th Annual Forward Conference, we showcased the platform's capability and potential. It is extremely encouraging to see the strong customer response and immediate pipeline growth. Now for our market outlook. While the broader international market is still growing, growth has decelerated. We don't see a whipsaw in the market, but activity is moderating due to various reasons, including commodity prices, efficiencies, budget exhaustion, delays in several short cycle campaigns, and several scheduling changes. We have several noteworthy contracts listed in our press release. Despite the slowing growth, these showcase that tender and award activity are still proceeding and demonstrate that Weatherford is able to drive competitive advantage in several spaces. Importantly, our margin outlook of an annual increase of 25 to 75 basis point improvement per year was predicated on flat revenues. While the market outlook is softer than three months ago, we're still comfortable with our ability to isolate growth opportunities in select pockets. Furthermore, we continue to believe that across all parts of the well lifecycle, there remains an emphasis on technologies that support predictable, cost-competitive production and supply security for our customers, which are areas that we excel in. We anticipate continued growth in parts of international land and offshore, mainly driven by portions of the Middle East and supported by pockets of growth in sub-Saharan Africa and Asia. The bottom line is that we believe we will have pockets of growth driven by differentiating technologies and key markets. Most importantly for this year, we continue to have confidence in delivering approximately 20% year-on-year adjusted EBITDA growth, slightly more than 25% adjusted EBITDA margins, and adjusted free cash flow of over $500 million. With that, I'd like to hand it over to Arash.

Thank you, Girish. Good morning and thank you everyone for joining us on the call. Girish has already shared an overview of our third quarter performance and provided an update on our capital return program. For a more detailed breakdown of the third quarter results, please refer to our press release and accompanying slide deck. My comments today will center around cash flow, working capital, balance sheet, liquidity, and fourth quarter guidance, turning to slide 18 for cash flows and liquidity. In the third quarter, we generated adjusted free cash flow of $184 million, up $88 million from the second quarter levels of $96 million. Our net working capital showed significantly better efficiencies and only increased 70 basis points compared to the third quarter of 23, in spite of a 730 basis points increase in revenues. As a result, net working capital is a percentage of the last 12 months' revenue, which is 25.8%, which represented a year-on-year improvement of greater than 260 basis points. Irrespective of the stage of the cycle, the goal is to get net working capital as a percentage of revenue to be sustainably at 25% or better. For the last 12 months, CapEx was $266 million, or 4.8% of revenues. Total cash was approximately $978 million, up $58 million sequentially. During the third quarter, we repurchased approximately $50 million dollars of shares and paid a 25 cent quarterly dividend. While our liquidity is at 1.3 billion, we remain committed to retiring additional debt and reducing our interest expense with an intent to get gross leverage below 1x while maintaining liquidity of approximately 1 billion to operate the business and manage event risk. To summarize, our balanced capital allocation approach to investing in technology, organic and inorganic growth, debt management, and shareholder returns underscores our focus on sustainable value creation. Turning to our fourth quarter and full year 2024 guidance on slide 19. As Girish mentioned, there are a number of factors that have recently developed in the market. with schedule shifts and several short cycle campaigns that have been delayed. As a result, we expect fourth quarter revenues to be flat to up low single digits. Within this, we expect DRE revenues to be flat sequentially, WCC revenues to be flat to up low single digits, and PRI revenues to be up low to mid single digits. Adjusted EBITDA margins for the fourth quarter are expected to be approximately 25%. And we still expect full year margins to be slightly above 25%. Full year adjusted free cash flow is still expected to exceed $500 million. Thank you for your time today. I will now pass the call back to Girish for his closing comments.

Thanks, Arun. On the second quarter conference call, I laid out the vision for the future that requires the same rigor on operating intensity, but it's fueled with the capability of more differentiating technology, world-class fulfillment, and larger scale. While the overall market is evolving and the cycle is maturing, we believe we have the opportunity to deliver EBITDA margins in the high 20s in the next three years in a flat to modestly up operating environment. We remain intensely focused on networking capital efficiency, and with further reductions in our interest burden, we expect to achieve free cash flow conversion of around 50% during this period. Our internal investments aim to deliver top-tier return on invested capital. All of this will enable significant cash generation, providing an opportunity to return around 50% of that to shareholders through the framework we have outlined. This will leave sufficiently dry powder for selective inorganic place that will reinforce this entire thesis. So while we are entering a new phase of the cycle with low growth for the immediate future, our capability to deliver true value creation is significantly bolstered by the actions and focus over the past few years. And now, operator, please open the call for questions.

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, we ask that you please pick up your handset before pressing the keys. To enjoy your question, please press star than two. At this time, we'll pause for just a moment to assemble our roster. And our first question today comes from Dave Anderson at Barclays. Please go ahead.

Hi, good morning, Garish. How are you? Good, Dave. Good morning. So you talked about kind of last quarter call about kind of how you view kind of Weatherford in the future. One part of that was scale. I just want to come back to the M&A discussion here. You've done four kind of smaller acquisitions during the year. I was wondering, first, maybe you could just talk a little bit about how those acquisitions have gone, kind of what are they bringing to the table? And then kind of really more secondarily, I'm curious as to kind of where you're thinking going forward. Are there any kind of must-haves you need? I kind of go back to that. You said scale. Is it more than just scale? Is it certain technologies you're looking for? Just sort of a general M&A question.

Sure.

Question, please. Thanks.

Sure, Dave. So, look, let me start maybe a little bit more with the first, and then I'll walk into the first question. So, look, from an M&A standpoint, let me start with the fact that we are very pleased, we're happy with the portfolio we've got today. We don't see any glaring gaps or significant holes that we absolutely have to go fill. So, you know, as a result, as I pointed out in my prepared comments, M&A will be selective. We are not looking to grow scale for the sake of scale. That's absolutely not on the cards. We think we've got sufficient scale today. The company is operating really well. We're happy with the portfolio. But what we do have is a strategy within each of the product lines that we operate within that aim to further grow those product lines and to enhance value creation. We've also got some enterprise teams that we're trying to drive. So what we look at when we think about M&A is any potential target, does it fit that strategy? And if you look at the deals that we've done this year, they have been small, but they won't fit into that strategy. So as an example, you look at the acquisition of Probe in the wireline technology space. We were trying to pivot our wireline business and are doing that successfully to being a different kind of a wireline provider. We will have a wireline service in some critical countries, but we will also be a technology provider to other service companies in areas that we don't operate. To do that, we needed a broader suite, and that's what Probe gave us. So it's things like that. Ardine has really helped fill out the portfolio in terms of a full capability with high degree of efficiency with innovative technology around plugin abandonment and slot recovery. So those are the kinds of things that we are getting after. I'm extremely pleased with the progress that we have made. As everyone knows, Weatherford's had a history of acquisitions, but what we have not done a great job in the past is integrating them. So we put a lot of emphasis before we consummated the deal around the integration planning with dedicated teams, a clear playbook on how we're going to go execute, and we are learning through that. But the teams have done a terrific job, and I'm excited about the ability to build out all of these platforms to be significant growth for us in the years to come.

So, Karish, it sounds like you had mentioned a couple of times isolating growth pockets in sort of a flattish market. And is this kind of the idea that you can find these sort of technologies to go after these growth pockets?

Absolutely. Look, you know, we still think there's, you know, reasonably good chances for solid activity. You know, while it might be stable, we've got an opportunity to not just increase our share position, but we've also got an opportunity to create some white space and move into that. So, That's exactly what we mean by that, and we think that will provide us the ability to grow the business while the overall market might be stable to, you know, slightly up.

Great. And just one other thing. If I could just ask you, you had mentioned a couple of times about some scheduling shifts in the Middle East and North Africa. Could you expand on that a little bit? What do you mean by scheduling shifts? Are these temporary? Are these just kind of one project to the next? Just a little bit more card on that, please.

Thank you. Yeah, so I think, you know, without getting into customer specifics, what it really is is some of the campaigns getting pushed out by a quarter or two. That's really what it comes down to. So it's not a permanent shift. It's not cancellations. But we are seeing, you know, as I pointed out again in my preparatory remarks, a bit more of a measured, a bit more of a cautious approach. And so things that, you know, can get delayed, we are seeing customers – push that out a little bit to see how the overall macroeconomic situation unfolds. Thank you very much, Krish. Thanks, Dave.

Thank you. And our next question comes from James West at Evercore. Please go ahead.

Hey, good morning, guys.

Hey, James. Good morning, James.

So, Girish, you've talked about a stable market environment, and I know you just discussed a little bit about kind of the the M&A that you've done so far this year. And so I'm curious how you see Weatherford evolving and growing in this stable environment. Can you outpace the kind of modest growth environment? And if so, by how much? And then if so, in what areas do you see your biggest strength? Yeah.

Yeah. So, James, look, you know, we will give, as you can imagine, more specific guidance in February around the year. But, you know, broadly speaking, you know, like we have pointed out, I think we have got specific areas of growth. And, you know, if we are able to execute on that, which we are working very hard towards, is making sure that, you know, we essentially can get that incremental growth. So that's really what it's about. So, you know, I think as long as The market remains stable. As long as we can execute, we do have an opportunity to get that exaggerated growth, if you will. Specifically, look, it's different areas and different product lines. For example, I've talked in the past on MPD around our Modus launch. This year was really about getting the launch done, getting packages built, getting the supply chain together, and getting them out in the field, finishing up the field trials, etc., This has been incredibly successful, so next year that should create a little bit more of a bolus for growth for us. The other area I look at is a very broad thematic approach where we are really focused is this notion of production optimization around mature field. So everything that we've got from a product line capability really comes to the fore in this notion of mature field rejuvenation, production optimization, et cetera. Our MARS offering, which is our mature field, asset rejuvenation through surveillance. We have had some great examples there. Our wealth services portfolio brings that through our intervention capabilities all the way up to decommissioning. So that's where we think there is still going to be an extremely strong emphasis because customers in this environment are actually going to be far more focused on how do they get more out of their existing fields, how do they get more out of their existing wealth, and that should give us an opportunity to grow.

Gotcha. Okay. And then maybe a follow-up on that. As you have some growth next year, how do you think about margin profile? And I know, again, you'll get more color in February, but how do you think about the potential to take what are already very good margins higher in a slower growth environment?

Yeah, so, you know, look, we will probably not see a margin expansion to the tune that we've seen in the past two to three years of multiple hundreds of basis points. But, you know, we feel comfortable and confident that we should still be able to grow margins in that 25 to 75 bps in a flat to slightly up kind of an environment. And that's really a combination of several things that we are driving internally, improving the value gap, improving our execution, And as I've pointed out before, we still have opportunities within the company to get more efficient. So the capabilities that we have developed over the past three years, while we've gotten a lot of the low-hanging fruit, there's still enough fruit out there on the trees, and we've built a few small ladders to go with that as well.

Got it. Thanks.

Thank you.

And our next question today comes from Scott Gruber at Citigroup. Please go ahead. Yes, good morning.

Hey, Scott, good morning. I want to stay on the margin topic. Just because a slower growth environment, you know, often a forage management team is an opportunity to kind of reassess, you know, those margin enhancement drivers that they've been thinking about. So are you guys thinking about the margin enhancement drivers any differently in a slower growth environment? Like are there certain levers that you can pull faster or harder? Can you introduce technology internally faster? Just some additional thoughts on kind of how you pull those larger enhancement levers.

Yeah, so look, Scott, for us, the levers are consistent, right? So the first one is pricing. Obviously, pricing in a slower growth environment becomes a bit more challenging, but we still think there is enough tightness of supply in highly differentiated product lines and technologies, that that is still an opportunity. And we expect pricing to, at a minimum, offset inflation and be a slight net positive. The second and probably most significant one is the introduction of new technology. And as we do that, we're really trying to enhance the value gap. So really position it at the point where we can get higher price, but also at the same time deliver it with more efficiencies and a lower cost. The third for us is what we've been working on for a while is our entire fulfillment network. Now, this is a Herculean task. It's a four- to five-year roadmap. We're making good progress on it. The initial part of it was a lot of facility consolidation. We're done with that. Now it's about how do we optimize the supply chain and our sourcing networks around that. Just a very simplistic example on that. I talked on one of the calls, I think, three or four quarters ago, about moving to lower cost countries from a sourcing base, that's providing us already significant benefits. And what's interesting about that is we are 10 years late on doing this. Everyone else has already done this. So for us, it's actually a significant margin expansion that we're still able to get really good margins, but doing that, keeping price where it is or slightly above, getting a significant cost reduction does help that. So network optimization, that supply chain optimization and fulfillment is a big factor. And we will lean on that a lot harder now because cost becomes more important. And sticking to that cost theme, the last level really is our own internal efficiencies and our cost structure. Look, the team's done an outstanding job over the past few years improving the company, taking a lot of cost out, but Weatherford was never really designed to be what it is today. And so we've still got an opportunity to get more efficiencies, you know, everything from how information flows to material flows to where we have people, you know, what roles they're doing, how we can consolidate, how we can use technology better. So that's going to be a huge emphasis for us over the next 18 months or so. And so all of that combined, I think, gives us enough ammunition to really get after cost and improve margins in this slower growth environment.

That's great. I appreciate the color. I want to come back to the pricing point, because we get questions from investors on the topic of margin resiliency for Weatherford. And I think some folks wonder if you benefited disproportionately versus peers from price inflation on the way up, and if that introduces risk in a more competitive marketplace. Is that a risk that folks should be concerned about?

So, Scott, the way I think about it is I think it is reasonably fair to assume that we might have benefited, if you'll call it disproportionately. Look, we've put a tremendous amount of emphasis on pricing as part of our commercial approach and strategy. So we have gotten price. We have significantly increased price. But what I would say is I don't think that poses a risk on the other side because of a couple of factors. One is I feel that the whole industry has strong pricing discipline, and I think hopefully we'll all continue to maintain that. I think second, look, we've got internally a very, very rigorous mechanism and a culture around pricing. I talked in my prepared remarks that we've got opportunities, frankly, every day, every week to increase revenue by reducing prices fairly significantly, and we're absolutely not giving in So we are very clear about our North Star, which is cash generation and margins are the first proxy for that. So we are very clear about that. And so our focus on making sure that we can articulate the value proposition that our differentiating technology brings to customers allows us to keep that pricing. So I think the first part, I would say, is fair. I think the second part is not something that I am personally overly concerned about.

That's a great color. Appreciate it. Thank you.

Thank you. And our next question today comes from Ati Modak with Goldman Sachs. Please go ahead.

Hi. Good morning, team. Kirish, you highlighted a new MPD award in the Middle East. So maybe from an adoption perspective, can you talk about which other regions are an area of focus for you where adoption might be low at the moment and can drive growth in the next 12 months?

Yeah, Aati, look, I think MPD adoption continues to be something that is very important for us. We're seeing very positive signs of that. There isn't necessarily a region per se. It's really sort of ubiquitous. We're trying to push this in every part of the world, and as we are able to get in front of customers, show them more case studies, share best practices, we're seeing that adoption increase. The Middle East, I would say, has been by far the probably most significant part of it, but there's areas in Asia, there's areas in Europe and Latin America where we're seeing more and more of that as well. So it's really sort of an overall perspective. What we are really, if you look at it, though, what we're trying to now get after is this performance segment of the market. So we have always had the basic RCDs that go on you know, sort of the lower end of the market. We've got our very high-end Victus offering, which is typically deepwater types of applications, et cetera. But there really has never been in the market this performance-tier offering. So that's something that we are really focused on, and MODIS is an outstanding product and really allows us to capture that both in land and in offshore. In offshore, you know, you think about the jack-up market, for example – that's something that now starts to open up for us and something that we are excited about getting after.

Great, appreciate that. And then for next year, you've mentioned flattish revenue, maybe some margin growth. Any early thoughts on free cash flow cadence? Because the working capital seasonality will obviously be different for a year like next year versus what previous years have been. So maybe any thoughts around that and cash use, if you could.

Sure.

Aarti, you know, as we've mentioned, one of the things we take very seriously is the efficiency at which we use working capital. And what you would have seen over the last 21 months is a consistent improvement in the efficiency of working capital. We were at 28 percent beginning of last year. We find ourselves at 25.8. Now, the idea is to sustainably be at 25% or below going forward. So what I can tell you is you should expect continuous efficiency improvement across the board, DSO, DSI, and DPO, translating into a better conversion cycle. And then, you know, as we mentioned before, we will keep continuing to work on debt, which translates into lower interest costs. And we expect, over time, cash taxes to moderate as well. So we expect cash conversion to sequentially improve over the next three years.

Appreciate that. Thank you.

And our next question today comes from Jim Rollison with Raymond James. Please go ahead.

Hey, good morning, everyone. And Girish, congrats, I guess, on the first quarter of returning capital to shareholders. Along those lines, you know, you look around oilfield service space and guys that have been doing this for a little while, you kind of see this breakdown into a couple of different ways of executing it. Some people just look at what their annual free cash flow is going to be and kind of execute the buyback portion of the annual return. kind of programmatically across the year, and some guys are a little more opportunistic based on share price. I'm just curious how you guys, since this is your first quarter with the $50 million, but curious how you will execute that going forward or how you're thinking about that.

Yeah. Jim, I'll let Arun take the specifics on this, but I will just sort of kick it off with things. Look, I think this is a learning process for us. We are trying to figure out the most optimal way, but really with the focus on doing this like we do everything else in the most prudent and responsible fashion without going nuts and taking undue risk.

Jim, what we can tell you is we did a bit of both this quarter, and what we also know for a fact that empirical evidence suggests that companies are not very good at opportunistically executing BIPACs and adding value. So we will be careful, and we will be looking at market signals which trigger opportunistic BIPACs, but at the same time, the dilution component which is triggered by grants to employees That is something we expect to buy back programmatically. So more to come in the future quarters on this.

Yeah, no, that's helpful, Color. Thanks for both answers. And, Grace, just one follow-up. At the Forward Conference, you know, you guys talked about a lot of different things on the digital front from sensors to obviously data creation and the ability to integrate a lot of different things. maybe just order of magnitude. You know, there's been a lot of talk about digital, but order of magnitude, kind of how impactful is that as we think about Weatherford going forward from a growth aspect?

Yeah, look, you know, we talked earlier, Jim, about those pockets of growth. Digital is most certainly one of those pockets, right? So I highlighted production, you know, focus and this mature field rejuvenation. You know, P&A is another. Digital is a third and a very significant portion. And look, it's far more than about the simplistic revenue growth that we get out of it. We get a couple of other things with that digital capability. The first is significantly higher margins, so it's very accretive to margins. And the second is, while there is a lot of typically upfront cost in software development, et cetera, our approach is a little bit different, really becoming more of an integrator of different things. So it's actually less capital-intensive as well. You know, today it's not – big enough that we would peel it out and talk about it as a separate segment or anything like that. But it is something that we are really counting on as we talk about in those levers of margin expansion, technology being a driver, digital is smack dab and center in the middle of that.

Perfect. Appreciate the answer.

Thank you. And the next question comes from Srab Pant with the Bank of America. Please go ahead.

Hi, good morning, Girish Arun. Hey, Saurabh.

Hi, Girish, maybe I want to start with a little more color on the orders that you announced. I know you're not primarily an order-driven company, right? But it's interesting to see a dozen orders in your press release that you announced. I think seven or eight of them are in the Middle East. And I know we are simultaneously talking about concerns on the Middle East, maybe Saudi more specifically slowing down. But on the other hand, you continue to get stronger orders. How do you feel about the trajectory going forward, right? I mean, considering the order and flow, the conversation still looks relatively positive.

Yeah, look, Saurabh, great question. You know, as we highlighted in the press release, I mean, there is still a lot of activity out there. So I think it's important to understand that activity growth is slowing, no questions. But activity itself is actually still very much there, and it's growing a little bit. So I think the orders not just show that there is activity, but that we are actually winning in several different areas of the business, in several different geographies. And the Middle East, I think, is still the place that we think about as spearheading growth overall. As we sort of look at a global landscape, I think everyone understands and recognizes that North America is is likely, as we look into the next 12 months or so, going to be challenged, sort of flat, more likely a bit down. On the international side, we think there's growth, but that growth is very mixed. Europe, obviously, with some of the things happening in the UK, the North Sea, that's likely to be down. We think sub-Saharan Africa has probably mid-single digits kind of growth. We think Asia has mid-single digits growth. But then Middle East, select countries have high single digits, and overall we think Middle East is about mid-single digits growth as we look at next year. And then for us, therefore, when you look at the total international business, it's probably up sort of in this low single digits kind of place. But then select pockets that have significant margin accretion that we continue to exploit should give us that ability to deliver growth. higher EBITDA margins. The one wild card I would say is probably going to be Latin America, which really we've got to wait and see a little bit how it eventually modulates, especially in places like Argentina and Mexico, what really happens. But those awards here are 100% right, really showcase what's happening and there is still activity out there.

Right, right, right. No, exactly right. I mean, we hear about all the concerns, but on the other hand, like you said, the trends on the ground still look like they're relatively resilient, right, if not positive.

Yeah, I mean, look, we talked about, you know, our year-to-date growth, and granted that's retrospective, but, you know, it's still very, very strong year-to-date growth. So even if that moderates, I think we've got enough momentum, we've got enough scale to that we should now really be able to continue to get momentum and efficiencies and really drive this margin expansion story. So I've been saying this consistently for three plus years, is this is a margin and cash story. Yes, you've got to have revenue growth to help drive that, but even in a flat to slightly up environment, we should be able to get significant value creation from that margin expansion.

Right, right. Perfect, perfect. Arun, one for you very quickly. I know you talked about working capital efficiency in response to Aarti's question. And you've done a great job, right, 25.8%. That's a fantastic number you're sitting at. And the target is to come down to 25% or less than 25%. How soon should we expect you to get there? And does the fact that the overall market growth is slowing, does that make it harder to further accelerate, for example, collections for you?

Look, we haven't seen sort of any impact on collections. As a matter of fact, we had a pretty strong collections quarter. But if things slow down, history suggests that collections will slow down as well. But at the same time, you would expect inventory to build up much less or actually reduce. So overall, in an environment which is not growing as quickly as it was, you would expect some actually working capital to go in a favorable direction. Now, if the world falls apart and everything goes to a hell in a handbasket, then of course you would expect to see working capital unwind. But in a flat to moderately up, you would see continuous efficiency improvements. And when you ask about how soon, we have some critical dependencies. I mean concentrations. You've seen from our cues that a significant portion of our AR is concentrated in Mexico. So we are actively working to reduce the concentration. So I couldn't tell you that we sustainably get to 25% next quarter or the quarter after. What I can tell you is we are working on the structure which reduces concentration on any particular customer or any particular geography. And once we do that, which we expect to do over the next couple of years, you could expect us to be 25% or better sustainably.

Okay, no, I got it. I don't know. It makes a lot of sense.

Okay, perfect. Thank you. I'll turn it back.

Thank you. And our next question today comes from Kurt with Benchmark. Please go ahead.

Hey, good morning, everybody. Hey, Kurt. Hi, Kurt. Thanks for the opportunity here to Peppery with some questions. So, Girish, let's go back to some of the commentary you kind of referenced, obviously, moderation in the growth rates, and you went through a very detailed explanation of where you think that growth is going to come. You've emphasized the focus on maintaining and improving your margins even in that environment. So, how do you guide the organization, if you will, in the context of maybe feeling pressure to take some work that doesn't meet necessarily the margin or return thresholds, or are you getting any indication of a little bit of, I don't know, anxiety within the organization about having to book work even if it's not the best work?

Yeah, look, Kurt, you know, the way we do that is just a lot of communication, firstly, and then the second is making sure we've got the right operating rhythms and mechanisms set up to ensure that everyone's on the same page. You know, I feel really good about the culture within the company, the changes that we have had over the last four years. I think everyone understands today what the North Star is. And again, it's cash and the proxies to get to that. So no one's really looking to say, hey, I'm just going to grow revenue or share something. at the expense of margins and cash. So I feel really good about that, and it's been, you know, four years of a lot of work that we have put in as a leadership team, but more importantly, you know, making sure that that message is percolated through the 19,000 people in the organization. We have had bidirectional interaction, a lot of dialogue around it. So, you know, Is it perfect? Probably not. But I feel really good about the overall system that people will, you know, have the opportunity to ask those questions and then we can address them. But, yeah, look, we are absolutely not going to go chase low-quality work.

That's great. Appreciate that, Culler. Maybe on a follow-up, right? Typically in periods like we're experiencing now, which is not really typical, it's either going up in a big way or down in a big way. Now we're just kind of moderating that. But nonetheless, you know, the customer base tends to utilize these types of situations to really kind of lean on the suppliers and service companies from a pricing standpoint. So you kind of explained the culture dynamic around it, but maybe can you give us some insights as to, you know, are you seeing that increased amount of discussion from the customers really trying to lean on you to kind of reduce prices? Is it more intense now than it might have been previously? you know, three, four, five months ago?

Look, it's always something that is, you know, part of every conversation, right? You know, we do that with our supply base. Our customers do that with us. That's just the circle of business that you go through. So, you know, we are certainly having, I would say, you know, maybe a few more conversations, but it's nothing to the extent that, you know, we would say it's a widespread phenomena or something that we are overly concerned about. Most importantly, look, I think a couple of things. One is we have really tried, as we have worked on pricing over the past few years, to make sure that it is backed up by a very strong value proposition. So it's not a pricing argument that's been, hey, commodity prices are high, so our prices should go high. It's been about the value that we generate and create for our customers. The second is customers are still very cognizant and very keen on ensuring security of supply. especially when there is a lack of different choices around differentiating technologies. So that's a big, big factor. I think the industry has been a lot more prudent in this cycle of not building out a lot of capacity. And so there isn't this huge mismatch right now, again, especially in those differentiated areas where we get the higher margins, that would suggest that there's a lot of surplus capacity to throw that could create problems. pricing softness. And look, I think last but not least, I think customers are also very, very cognizant that the cycles have changed. And this is not that whipsaw effect. There is a moderation in activity, but there isn't a drop. And I think that's a fundamental difference. And customers recognize that they need a healthy service sector as well. So I think the conversations are constructive. And net-net, we still believe we've got an opportunity and a roadmap to increase margins. That's great. Great color. Thank you so much.

And our next question today comes from Doug Becker with Capital One. Please go ahead. Thank you.

Grish, Mexico is an important market for Weatherford. The country has a new president. National Oil Company has a new CEO. And then yesterday there was a report that Pemex is looking to suspend some rigs just to manage budget issues. So just given that dynamic backdrop, I wanted to get your outlook for Latin America specifically.

Yeah, Doug, look, you know, Latin America has been one of the challenges over the past six months. We have referenced it on the prior call as well as on this call in terms of delays that we have seen, and certainly Mexico is a part of that. You know, we recognize that, you know, leading up to the elections, there was – a little bit of churn and, you know, things got slowed down and now we've got a new administration. I think it's still very early days to say exactly what it's going to look like. But clearly there's, you know, a big focus on, you know, what they want to do in terms of getting Pemex on the right footing. And, you know, we want to support them as a supplier and partner to the extent we can while making sure that, you know, you know, regenerate the value that's due. So, you know, as I look at Latin America as a whole, as I sort of said earlier on one of the questions, you know, Latin America is probably the wild card for next year. As we look at it right now, it probably feels like it's flat to maybe slightly down, but it also is the one region that has the ability to inflect the strongest. You know, Argentina has probably the most positive outlook at this point than it's had in several years. But we still need to see that shift actually happen and the full ability to free up capital controls, et cetera. If that happens, I think there could be a significant positive opportunity there. You know, Colombia, we have talked about some of the changes there and the slowdown, et cetera. That's likely going to persist and not really change for a bit longer. Brazil has been pretty steady and growing and, you know, that continues to do well. And then it really comes down to Mexico, which is a very significant market. So I think more to come on that, especially in the February call as we lay out guidance, et cetera. But it's something that we are very cognizant of. We are keeping a very close eye on and making sure that we are modulating our workforce, our plans, everything in line with customer activity and really ensuring that we are well positioned as a company to manage overall exposure there.

That makes sense. Switching gears a little bit, the industry seems to be increasingly focused on the production phase of the well life cycle. At your recent digital conference, you were highlighting the Foresight production platform that you can integrate artificial lift into, and then specifically the power regenerative system. Just how would you characterize the growth opportunity for Weatherford from the digital production related offerings?

Yeah, look, I think it's one of our most significant opportunities. We've got a very extensive portfolio on two dimensions. The first one is really around artificial lift, right? So we don't have an ESP offering, but we have just about every other form of lift, and it's the most comprehensive lift offering with a very strong installed base that we've got in the industry. So that's a huge advantage for us. We really understand this production domain. The second is the digital capability. You know, we're the only OFS company that has its own SCADA platform with Cignet, and that is a huge competitive advantage for us. And so as we modernize that, feed that into foresight, the ability to then, you know, bring together different data structures, different databases, different data models with what we have with DataGration now, this capability of a unified data model, that allows us to create incredibly powerful algorithms platforms for customers to drive their operational efficiency. So that's what we're really focused on. So we think it's an area that we will get tremendous capability. And what we're adding to these two legs now is a third dimension, which is not just, hey, we've got the artificial, we've got the digital capability, but we're now making sure we've got that comprehensive portfolio to help customers rejuvenate their mature fields and to improve their production from existing wells through a combination of intervention services, well services, et cetera, a lot of different technologies that really help drive that. So it's an area that we are probably most excited about in terms of the growth potential.

Thank you. And our final question today comes from Josh Chain with Daniel Energy Partners. Please go ahead.

Thanks for taking my questions. I have one with a related follow-up that you discussed on the surface and a little bit in your last question, but I just wanted to drill down further on. So first, you completed the acquisition of DataGration in the third quarter, and can you just speak to why now exactly was the right time for that specific deal and maybe a bit more detail on Petrovisor and Ecovisor? And then as my follow-up, can you just give a bit more detail about how they're ultimately going to work together with Foresight and Cignet and the increasing importance of real-time analysis and how you see that specifically evolving over time over the next couple of years. Thanks.

All right. A lot of different things in there, Josh. But let me try and sort of address most of them at a high level. So, look, in terms of the why now, that's always a bit hard to answer. Everything typically comes together. But really, as we looked at the market landscape, as well as our own capabilities. There was a couple of things that we realized. First is customers are struggling with the same issue, which is we've got a lot of data. We just don't know how to really bring it all together. The second is nobody really wants to get tied into a particular platform or a particular system. They see different things that are best in class, but lack the ability to stitch it all together. Especially when you think about all of the consolidation, and granted, that's more of a U.S. phenomena, but it's a huge market. Customers are consolidating and they're saying, hey, look, company acquired was on this system. I've got this system. There's this huge treasure trove of data, but they don't talk to each other, the different systems. How do we pull all of that together? We looked at that. We see that internally, but we also see that within the offerings that we have to customers. Data integration really is a solution that bridges that gap for our customers. It has this ability with this unified data model to really bring things together in a very sort of crude fashion. The layman in me sort of describes it as it's sort of the universal plug adapter for the digital world. So that's really what we get with that. And it creates then a very powerful message for customers that we can help them bring together different data sources. And most importantly, do it very fast. Do it real time. Do it on the cloud. Do it as a software, as a service kind of a model. Or if they want it on-prem, we can do that as well. Different delivery mechanisms that bring that together. So that's really what it is. Look, in terms of the exact roadmap of integration with Foresight, Petrovisor, etc., That's something that we're working on. But what is more important than the actual platform is the fact that we have the capability now to deliver to customers specific optimization platforms. We've got the ability to drive these AI ML models on a variety of their use cases to whatever channel that they want, along with a very simple user interface that can be delivered to them in a subscription model, in whatever mechanism that they want. So that's really what this whole thesis is about.

Thanks. Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Great. Thanks, Rocco. Hey, thank you all for joining the call today. Look, appreciate it. So just to summarize again, we recognize that the market is changing. It's evolving. We still, though, believe that we have pockets of growth. We have the ability to grow the business in several different areas that we're excited about. And most importantly, we have the ability to continue the margin expansion journey that we've been on for the past few years. And for this year, we are on track to deliver over 25% EBITDA margins and over $500 million of cash. So thank you all so much for joining, and we'll talk to you on our fourth quarter call. Thank you.

Thank you. Thank you, everybody. 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.