Weatherford International plc — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unless otherwise noted, amounts are in millions of U.S. dollars. Weatherford provides global oilfield products and services through Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI).
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,274 | $1,064 | $2,460 | $2,002 |
| Operating income | $201 | $104 | $386 | $122 |
| Net income (loss) attributable to Weatherford | $82 | $6 | $154 | $(74) |
| Diluted earnings (loss) per share | $1.12 | $0.08 | $2.11 | $(1.04) |
| Net interest expense | $31 | $48 | $62 | $96 |
| Operating cash flow | — | $285 | $(4) |
Q2 revenue rose 20% year over year; first-half revenue increased 23%. Approximate operating margins were 15.8% in Q2 versus 9.8%, and 15.7% for the first half versus 6.1%. Cost of products and services declined to 66% of revenue in Q2 and 67% for the first half, from 71% and 72%, respectively. Management attributed the improvement primarily to better utilization of service resources.
All three segments grew revenue and adjusted EBITDA. Q2 DRE revenue increased 24% and segment adjusted EBITDA margin rose to 26.9% from 21.8%; WCC revenue increased 15% and margin rose to 24.8% from 17.5%; PRI revenue increased 6% and margin rose to 22.1% from 19.7%. Segment adjusted EBITDA is a non-GAAP measure.
Balance sheet, debt and liquidity
At June 30, 2023, cash and cash equivalents were $787 million and restricted cash was $135 million, compared with $910 million and $202 million at year-end 2022. Total debt, including current and long-term portions, was approximately $2.026 billion, down from $2.248 billion. Total shareholders’ equity increased to $672 million from $551 million.
First-half investing cash use was $122 million, including $100 million of capital expenditures and net cash used in Blue Chip Swap (BCS) transactions. Financing cash use was $297 million, including $230 million of debt repayments and repurchases. Cash, cash equivalents and restricted cash decreased by $190 million to $922 million. The company reported $45 million of available revolving loan capacity; $385 million of letters of credit were outstanding, and the credit agreement includes a $250 million minimum-liquidity covenant.
Weatherford redeemed the remaining $105 million of 11% Exit Notes in Q2 and repurchased $96 million principal of 6.5% 2028 Senior Secured Notes during the first half. Its principal remaining notes were $396 million of 2028 notes and $1.6 billion of 8.625% notes due 2030.
Changes, outlook and risks
- Revenue growth was attributed mainly to higher customer demand and activity; management said about 80% of the increase in both Q2 and the first half reflected increased demand. Latin America led Q2 geographic growth; North America revenue declined slightly in Q2.
- Management continued to expect 2023 growth over 2022, led by higher customer activity. Capital spending was projected at 4–5% of full-year revenue. No specific revenue or earnings target was provided.
- The $57 million Q2 BCS securities loss arose from remitting U.S. dollars from Argentina at implied exchange rates approximately 106% above the official rate. Additional transactions could result in further losses. The company recorded the related peso-denominated monetary assets using the official rate.
- Q2 included a $16 million income tax benefit; the first half recorded $22 million of tax expense. Management cited valuation-allowance releases and benefits from previously uncertain tax positions, partly offset by a valuation allowance associated with the BCS loss. The company changed to the estimated annual effective tax rate method in 2023.
- Risks include oil and gas price and activity volatility, inflation and supply constraints, customer collection delays, foreign exchange and restrictions on cash repatriation, and geopolitical developments. Russia represented approximately 6% of revenue in both periods; the filing warns of possible sanctions impacts, nationalization, lower revenue or asset impairments. Litigation outcomes may result in uninsured losses; accrued litigation and settlements were $46 million. The GAMCO-related securities case remained on appeal, with outcome and potential loss not reliably predictable.
- Management expected available cash and operating cash generation to fund requirements, while noting that $112 million of cash and cash equivalents could not be immediately repatriated at quarter-end. It also identified customer receivables in Mexico as 28% of total net receivables and noted possible payment delays.
Key facts for investors to verify
- Whether operating cash generation and margins remain strong as demand, pricing, and service utilization change.
- Debt-reduction progress, interest costs, covenant compliance, and the limited $45 million revolving capacity relative to letters of credit.
- Further Argentina BCS activity, exchange-rate losses, and access to cash held outside the company’s principal jurisdictions.
- Exposure to Russia, Mexican customer collections, and potential litigation or tax outcomes.
- Whether the 2023 growth expectation and 4–5% capital-spending plan remain achievable amid commodity-price, inflation, geopolitical, and supply-chain risks.