SLB Limited (Schlumberger Limited) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial figures are in U.S. dollars; dollar amounts are in millions unless noted. The filing was made October 27, 2021.
Business context and results
Schlumberger provides oilfield services and products through Digital & Integration, Reservoir Performance, Well Construction and Production Systems. The quarter reflected recovering activity, particularly internationally, alongside global supply and logistics constraints affecting Production Systems.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5,847 | $5,258 | $16,704 | $18,069 |
| Income (loss) before taxes | $691 | $(54) | $1,618 | $(11,769) |
| Net income (loss) attributable to Schlumberger | $550 | $(82) | $1,280 | $(10,892) |
| Diluted earnings (loss) per share | $0.39 | $(0.06) | $0.90 | $(7.84) |
Financial position, cash flow and margins
- Q3 revenue rose 11% year over year and 4% sequentially. Services revenue was $4,020 and product sales were $1,827.
- Q3 pretax segment operating margin reached 16%, up 120 basis points sequentially and reported as its highest level since 2015. Nine-month pretax operating margin was 14%, up 458 basis points year over year. Company-wide net margin was not stated directly.
- Nine-month operating cash flow was $2,719, versus $2,066 in 2020. Free cash flow, as defined by the company, was $1,699, versus $870. Capital investments were $1,020; full-year 2021 capital investments were expected to be approximately $1,600.
- At September 30, cash was $1,569 and short-term investments were $1,373. Total debt, including current maturities, was $15,395; net debt was $12,453, down from $13,880 at December 31, 2020.
- Committed credit facilities totaling $6,630 were available and unused; there were no commercial-paper borrowings. Management said available liquidity was sufficient for business needs for at least the next 12 months.
- Nine-month dividends paid were $524. The quarterly dividend was $0.125 per share. No shares were repurchased in the first nine months of 2021.
Material changes and operating trends
- Nine-month revenue declined 8% year over year. Excluding $1.1 billion of prior-year revenue from businesses divested in late 2020, revenue declined 2%. North America revenue fell 26% as reported, but 2% excluding the divestitures; international revenue declined 2%.
- Q3 international revenue was $4,675, up 4% sequentially and 11% year over year. Latin America led sequential international growth. North America revenue was $1,129, up 4% sequentially.
- Q3 Well Construction revenue rose 8% sequentially and Reservoir Performance rose 7%; Digital & Integration and Production Systems were essentially flat or slightly lower.
- Q3 segment pretax operating income was $284 for Digital & Integration, $190 for Reservoir Performance, $345 for Well Construction and $166 for Production Systems. Production Systems faced transitory supply and logistics constraints.
- Improved margins reflected cost controls, portfolio divestitures of businesses previously dilutive to margins, and lower depreciation and amortization after 2020 impairment charges.
- Q3 net income included a $47 pretax unrealized gain on an investment converted into publicly traded shares. Nine-month 2020 results included $12,596 of impairment and other charges, principally goodwill and asset impairments, restructuring and exit costs.
Outlook, risks and contingencies
- Management anticipated another quarter of growth in Q4 2021 and expected to end the year with strong momentum. It described improving demand, high commodity prices and low inventories as supportive of multiyear capital-spending growth, particularly internationally. This outlook was conditional on no recession or pandemic-related setback; no specific revenue or earnings guidance was provided.
- Management cited global supply-chain and logistics constraints, inflation, commodity-price and customer-spending volatility, pandemic setbacks, geopolitical and foreign-exchange risks, and customer and supplier financial condition as risks to results.
- Mexico receivables were approximately $700 million, including amounts due from Schlumberger’s primary customer there. The company disclosed past payment delays, but said the receivables were not disputed and it had not historically recorded material write-offs for that customer.
- Management considered the probability of a material loss from currently pending legal proceedings remote, while noting litigation outcomes are inherently uncertain. The filing reported no material change in previously disclosed risk factors.
- Backlog was $3.0 billion at quarter-end; approximately 51% was expected to be recognized as revenue over the next 12 months. The company noted that backlog is not significant to its business model.
Important facts for investors to verify
- Whether international activity and the anticipated Q4 growth materialized, and whether margins continued to expand.
- How supply and logistics constraints, particularly in Production Systems, affected delivery, revenue and profitability.
- Whether operating cash flow and free cash flow remained strong after working-capital needs and planned capital investment.
- Debt reduction, liquidity availability and the capacity to sustain dividends as industry conditions change.
- Collection timing and credit exposure related to the approximately $700 million of Mexico receivables.
- Whether any future impairments, restructuring costs or other unusual items affect reported earnings; 2020 impairment valuations involved significant estimates and uncertainty.