Weatherford International plc — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Weatherford provides oilfield equipment and services through its Western Hemisphere and Eastern Hemisphere segments, serving customers in approximately 75 countries.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $903 million | $821 million | $1.735 billion | $2.036 billion |
| Operating income (loss) | $25 million | $(497) million | $12 million | $(1.319) billion |
| Net loss attributable to Weatherford | $(78) million | $(581) million | $(194) million | $(1.547) billion |
| Loss per share | $(1.11) | $(8.30) | $(2.77) | $(22.10) |
- Q2 revenue increased 10% year over year, including service revenue growth of 15%; first-half revenue declined 15%. Q2 operating margin was approximately 2.8% (operating income divided by revenue).
- Q2 segment operating income was $34 million, compared with an $8 million loss a year earlier. First-half segment operating income was $39 million, unchanged year over year. Western Hemisphere segment income improved; Eastern Hemisphere revenue and first-half segment results weakened.
- For the first half, operating cash flow was $120 million versus $61 million; capital expenditures were $24 million versus $73 million. Management-reported non-GAAP free cash flow was $118 million versus negative $4 million, including $22 million of asset-disposition proceeds in 2021.
- At June 30, cash and cash equivalents were $1.217 billion; restricted cash was $170 million, making combined cash and restricted cash $1.387 billion. Total current assets were $3.126 billion and current liabilities $1.243 billion.
- Debt included $2.098 billion of 11% Exit Notes due December 2024 and $460 million carrying value of 8.75% Senior Secured Notes due September 2024; total long-term debt was $2.605 billion. Management expected approximately $275 million of annual interest payments until maturity.
Changes versus the prior period
- Q2 revenue growth reflected stronger activity in the Western Hemisphere, particularly the United States and Mexico, partly offset by a 6% Eastern Hemisphere decline. The first-half decline reflected pandemic-related activity reductions, including results from the pre-pandemic first quarter of 2020.
- Q2 2021 operating income improved substantially versus 2020, principally because 2020 included significant impairment and restructuring charges. Weatherford recorded no long-lived asset or goodwill impairment and no restructuring charges in the first half of 2021; first-half 2020 included $818 million of long-lived asset impairment, $239 million of goodwill impairment, and $83 million of restructuring charges.
- Cost reductions lowered selling, general and administrative, corporate, and research and development expenses. However, net interest expense increased to $72 million in Q2 and $142 million in the first half, from $59 million and $117 million, respectively.
- Weatherford’s ordinary shares began trading on Nasdaq on June 2, 2021 under ticker WFRD.
Outlook, risks, and unusual items
- Management expected consolidated revenue in the second half of 2021 to increase by mid- to high-single digits over the first half, with further margin expansion and revenue growth in both hemispheres.
- Management cited improving economic and energy-demand conditions but remained cautious about a broad recovery amid COVID-19 resurgence, customer restrictions, supply shortages, shipping constraints, and operational disruption. Results also depend on oil and gas prices, customer spending, OPEC+ policies, cost control, and access to capital.
- At June 30, letters of credit totaled $331 million, including $160 million under the company’s $215 million letter-of-credit facility, with $55 million available under that facility. Surety bonds totaled $307 million and may reduce liquidity if called. The company reported $175 million of cash that could not be immediately repatriated.
- Tax expense was $15 million in Q2 and $38 million in the first half despite pretax losses; management said taxes reflect jurisdictional income, deemed-profit rules, and withholding taxes. The 2021 amounts included a $13 million tax benefit from reversal of an accrual.
- A federal securities lawsuit was dismissed with prejudice in May 2021; plaintiffs appealed in June. Weatherford said it could not reliably predict the outcome or possible loss. It also disclosed $241 million of uncertain tax positions, with up to $13 million potentially decreasing within twelve months.
- Management concluded disclosure controls were effective as of June 30, 2021 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the projected second-half revenue growth and margin expansion materialized, particularly across both geographic segments.
- Cash generation after interest, capital spending, working-capital needs, and any asset-sale proceeds; free cash flow is a company-defined non-GAAP measure.
- Capacity to meet substantial interest costs and refinance or repay the 2024 maturities, given the high coupon debt and credit-rating outlooks disclosed in the filing.
- Potential liquidity effects from letters of credit, surety bonds, restricted cash, and customer payment delays.
- Developments in the appealed shareholder litigation, uncertain tax positions, COVID-19 impacts, and supply-chain constraints.