Weatherford International plc — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless stated otherwise, financial amounts are in millions of U.S. dollars. Weatherford provides oilfield equipment and services globally through Western Hemisphere and Eastern Hemisphere segments.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $945 | $807 | $2,680 | $2,843 |
| Operating income (loss) | $71 | $(60) | $83 | $(1,379) |
| Net loss attributable to Weatherford | $(95) | $(174) | $(289) | $(1,721) |
| Loss per share | $(1.36) | $(2.48) | $(4.13) | $(24.58) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $234 | $188 |
| Non-GAAP free cash flow | Not provided for quarter | Not provided for quarter | $229 | $101 |
Q3 operating margin was approximately 7.5%, compared with approximately negative 7.4% in Q3 2020. Nine-month operating margin was approximately 3.1%; the prior-year period included substantial impairment and restructuring charges. Nine-month revenue comprised $1,734 of services and $946 of products. Q3 revenue was $623 from services and $322 from products.
At September 30, cash and cash equivalents were $1,291 and restricted cash was $155, for combined cash of $1,446. Restricted cash primarily collateralized letters of credit. Current assets were $3,244 and current liabilities $1,524. Reported short-term borrowings and current finance leases were $211; long-term debt was $2,431. Cash and cash equivalents included approximately $195 that could not be immediately repatriated due to local restrictions.
Changes versus comparable periods
- Q3 revenue rose 17% year over year, led by 40% growth in the Western Hemisphere; Eastern Hemisphere revenue increased 3%. Nine-month revenue fell 6%, principally reflecting weaker international activity and a difficult first-quarter comparison.
- Q3 operating income improved by $131, and nine-month operating income by $1,462. The nine-month comparison was heavily affected by 2020 impairments of $1,057 and restructuring charges of $114; neither was recorded in the first nine months of 2021.
- Segment operating income was $79 in Q3 and $118 for the first nine months, up $76 in each comparison. Western Hemisphere nine-month revenue increased 3%, while Eastern Hemisphere revenue declined 13%.
- Nine-month interest expense increased to $211 from $181. The 2021 period included $59 of debt extinguishment loss and redemption premium associated with refinancing the 2024 secured notes.
- Cash from operations increased to $234 from $188. Capital expenditures declined to $44 from $100; management’s non-GAAP free cash flow measure increased to $229 from $101.
Debt, outlook, risks, and unusual items
- On September 30, Weatherford issued $500 principal amount of 6.5% senior secured notes due 2028 and repaid its $500 principal amount of 8.75% senior secured notes due 2024, using the proceeds and cash on hand. The transaction generated a $22 redemption premium and a $37 noncash extinguishment loss.
- After quarter-end, the company redeemed $200 of Exit Notes on October 20. On October 27, it issued $1.6 billion of 8.625% senior notes due 2030 and used proceeds and cash on hand to redeem $1.6 billion of Exit Notes. Management estimated annual interest payments would decline from approximately $275 to $204 following refinancing.
- Management expected Q4 2021 consolidated revenue to increase by low-single digits over Q3, citing continued recovery in customer activity. It noted that rig counts remained below pre-pandemic levels and identified COVID-19, oil and gas prices, customer spending, ESG-related changes, supply-chain constraints, inflation, logistics, and geopolitical conditions as uncertainties.
- Management said it believed available cash, operating cash flow, and refinancing provided sufficient liquidity for expected requirements. Cash needs include debt interest, capital spending, leases, working capital, and restructuring-related payments. 2021 capital spending was expected to be approximately $100–$110.
- At September 30, letters of credit totaled $329, including $173 under the LC Credit Agreement; $152 of cash collateral supported other bilateral facilities. Outstanding surety bonds were $287. A call on these instruments could reduce available liquidity.
- The company reported ongoing litigation and claims that could result in uninsured losses beyond recorded reserves. A securities class action was dismissed with prejudice in May 2021, but plaintiffs appealed in August; the outcome and potential loss could not be reliably predicted. Uncertain tax positions totaled $241, with up to $13 potentially decreasing within twelve months.
- Management reported effective disclosure controls as of September 30, 2021 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- The refinancing terms, use of proceeds, resulting debt balances, and the stated reduction in expected annual interest costs.
- Whether the low-single-digit Q4 revenue outlook was achieved, and whether growth and segment profitability persisted across both hemispheres.
- Cash availability after accounting for restricted cash, cash subject to repatriation limits, working-capital needs, and potential calls on letters of credit or surety bonds.
- Whether supply-chain inflation, logistics constraints, COVID-19 effects, and customer spending trends affected costs, delivery, or demand.
- The status of the securities litigation appeal, other claims, and uncertain tax positions, including any material changes in potential exposure.