Weatherford International plc — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Weatherford provides global oilfield products and services through Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI). Unless stated otherwise, figures below are in millions of dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,313 | $1,120 | $3,773 | $3,122 |
| Operating income | $218 | $121 | $604 | $243 |
| Net income (loss) attributable to Weatherford | $123 | $28 | $277 | $(46) |
| Diluted earnings (loss) per share | $1.66 | $0.39 | $3.76 | $(0.65) |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $457 | $156 |
- Q3 revenue rose 17% year over year; nine-month revenue rose 21%. Services revenue was $805 in Q3 and $2,340 for the nine-month period; products revenue was $508 and $1,433, respectively.
- Q3 operating margin was approximately 16.6%, versus 10.8% a year earlier. The filing reports cost of products and services at 65% of revenue for Q3 and 66% for the nine-month period, compared with 69% and 71% in 2022.
- Segment adjusted EBITDA margins improved across all three segments. Q3 / nine-month margins: DRE 28.6% / 28.2%; WCC 25.9% / 24.5%; PRI 23.2% / 21.6%. Segment adjusted EBITDA is a company-defined measure.
- Nine-month investing cash outflow was $158, including $142 of capital expenditures; financing cash outflow was $388, including $306 of debt repayments and repurchases. Cash, cash equivalents and restricted cash totaled $946 at period end, versus $1,112 at the beginning of the year.
- Cash and cash equivalents were $839 and restricted cash was $107 at September 30. Total debt carrying value was $1,955, including $91 current debt and $1,864 long-term debt, down from $2,248 at December 31, 2022. Debt included $1.6 billion of 2030 Senior Notes and $324 of 2028 Senior Secured Notes principal.
- Current assets were $3,220 and current liabilities $1,731. Accounts receivable increased to $1,261 from $989 at year-end; inventory rose to $776 from $689.
Changes and drivers
- Growth was broad-based, led by international activity. Q3 regional revenue increased in Middle East/North Africa/Asia, Latin America, and Europe/Sub-Sahara Africa/Russia, while North America declined. For the nine-month period, all reported regions grew.
- Management attributed approximately 90% of Q3 and 80% of nine-month revenue growth to increased customer demand. Improved utilization helped lower product and service costs as a share of revenue. Segment margin expansion reflected higher activity and related margin fall-through; pricing also contributed to DRE’s nine-month improvement.
- Net interest expense declined to $30 in Q3 and $92 for nine months, compared with $44 and $140 in 2022, mainly reflecting lower debt and higher interest income.
- The company recorded a $57 loss on Argentina Blue Chip Swap securities in Q2 2023, contributing to nine-month other non-operating costs. No such transactions occurred in Q3.
Outlook, risks and unusual items
- Management continued to expect overall 2023 growth over 2022, led by customer activity, particularly international demand. Capital spending for 2023 was projected at 3–5% of full-year revenue. No specific revenue or earnings guidance was provided in the filing.
- Management said future results depend on pricing, work volumes, technology and market-share gains, as well as the ability to manage industry cyclicality and generate consistent cash flow. Demand is sensitive to oil and gas prices, rig counts, customer spending, inflation, supply constraints, policy and geopolitical conditions.
- Russia represented approximately 6% of revenue in Q3 and for the nine-month period. The company cited sanctions, possible asset nationalization and potential revenue reductions or impairments as risks. Russia assets included $35 cash, $94 other current assets and $69 in property, plant and equipment and other non-current assets; liabilities were $57.
- Mexico accounted for 35% of net receivables at September 30, up from 21% at year-end, driven by delayed payments from a primary customer. Management said balances were not disputed and did not expect material write-offs, but warned that further delays or nonpayment could affect results.
- Letters of credit outstanding totaled $379 and surety bonds $564 at September 30; calls on these instruments could reduce liquidity. Available revolving loan capacity was $45. The company reported $157 of cash and cash equivalents that could not be immediately repatriated.
- The October 24, 2023 credit agreement amendment increased commitments from $400 to $550, extended maturity to October 2028 subject to conditions, and revised permitted dividends, buybacks and acquisitions subject to leverage and liquidity tests. After quarter-end, the company also redeemed $50 principal of 2028 notes at 103% of principal and reported additional $25 principal repurchases.
- Accrued litigation and settlements were $36. A securities class action appeal remained pending; the company said it could not reliably predict the outcome or potential loss. Tax examinations and uncertain tax positions also remain, with up to $12 of uncertain tax positions possibly decreasing over the next 12 months.
Important facts for investors to verify
- Whether operating cash generation continues as receivables and inventories rise, and whether delayed Mexico collections resolve.
- Debt reduction, interest costs, liquidity and compliance with the credit agreement’s leverage and liquidity conditions.
- Whether management’s expectation of 2023 growth and capital spending of 3–5% of revenue is achieved.
- Exposure to Argentina currency restrictions and further Blue Chip Swap losses, and to Russia-related sanctions or asset risks.
- Potential cash or financial effects from letters of credit, surety bonds, litigation and tax contingencies.