Weatherford International plc — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2021 periods.
Business context and results
Weatherford provides oilfield equipment and services across Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI), operating in approximately 75 countries. Management attributed higher revenue to increased demand across all segments.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,120 | $945 | $3,122 | $2,680 |
| Operating income | $121 | $71 | $243 | $83 |
| Net income (loss) attributable to Weatherford | $28 | $(95) | $(46) | $(289) |
| Basic and diluted EPS | $0.39 | $(1.36) | $(0.65) | $(4.13) |
| Segment adjusted EBITDA | $229 | $192 | $598 | $459 |
| Segment adjusted EBITDA margin | 20.9% | 21.0% | 19.5% | 17.6% |
Financial position, cash flow and debt
- Q3 revenue increased 19%; nine-month revenue increased 16%. Nine-month operating income rose $160 million year over year. Nine-month attributable loss narrowed to $46 million.
- Cost of products and services was 69% of revenue in Q3 and 71% year to date, versus 73% and 75% in 2021. Management cited improved utilization and operating efficiency, partly offset by inflation and supply-chain disruption.
- Nine-month operating cash flow was $156 million, down from $234 million. Capital expenditures were $83 million; investing cash outflow was $22 million. Financing cash outflow was $89 million, including $62 million of long-term debt repayments.
- At September 30, cash and cash equivalents were $933 million and restricted cash was $210 million. Total current assets were $3,063 million against current liabilities of $1,384 million.
- Long-term debt was $2,366 million, plus $14 million current debt. Notes included $250 million of 11% Exit Notes due 2024, $490 million carrying value of 6.5% secured notes due 2028, and $1,585 million carrying value of 8.625% notes due 2030. The company redeemed $50 million of Exit Notes in August.
- Interest expense was $44 million in Q3 and $140 million for nine months, down from $69 million and $211 million, respectively, reflecting prior refinancing and principal repayments.
Segments and material changes
Q3 segment revenue and adjusted EBITDA were: DRE $348 million and $85 million; WCC $391 million and $78 million; PRI $357 million and $66 million. DRE led growth, with revenue up 25% and EBITDA up 52%. WCC EBITDA was down 1% in Q3, while PRI EBITDA rose 16%. Year-to-date revenue increased in all three segments; year-to-date segment EBITDA margin improved to 19.5% from 17.6%.
The nine-month results included $22 million of restructuring charges for a multi-year footprint consolidation and workforce-efficiency initiative, including severance and asset-retirement obligations. Other expense increased, primarily due to foreign-exchange losses and settlements of currency forwards. Foreign-currency translation reduced Q3 comprehensive income by $51 million.
Outlook, risks and contingencies
- Management expected 2022 revenue to grow over 2021 and industry activity to continue improving into 2023; no specific revenue-growth percentage was provided. 2022 capital spending was projected at $120–$130 million.
- Management cited expected customer activity improvement and generally positive energy-market conditions, while monitoring recession concerns, inflation, supply-chain disruption, logistical constraints and travel restrictions. It noted that oilfield demand depends on energy prices, customer spending, geopolitics and OPEC+ quota compliance.
- Russia represented 6%–7% of revenue in both comparative periods. The Russia-Ukraine conflict and related sanctions could reduce revenue or result in asset impairments; the company said it intended to comply with applicable sanctions.
- On October 17, 2022, the company amended its letter-of-credit agreement into a $370 million revolving credit facility, including $45 million of revolving-loan capacity, with financial covenants. On October 18, it gave notice to redeem $125 million of Exit Notes at 103% of principal, plus accrued interest.
- At quarter-end, $357 million of letters of credit were outstanding; $194 million under bilateral facilities was cash-collateralized. The company also had $287 million of surety bonds, which could reduce liquidity if called. Accrued litigation and settlements were $39 million. A shareholder securities lawsuit was on appeal; the company said the outcome and potential loss could not be reliably predicted.
- Management expected sufficient operating cash and cash on hand to fund requirements. Risks include customer payment delays, cyclicality, debt service, sanctions, cybersecurity, inflation, supply constraints, and the availability of uncommitted receivables-factoring arrangements.
Important facts for investors to verify
- Whether revenue growth and improved year-to-date segment margins persist as inflation, supply costs and customer activity evolve.
- Cash conversion and working-capital needs, including receivables, inventory, and reliance on factoring or monetization transactions.
- Debt repayment and covenant capacity under the amended credit agreement, including the planned Exit Notes redemption and its premium.
- Potential effects of Russia-related sanctions, litigation, letters of credit and surety-bond calls on earnings and liquidity.
- The filing reports effective disclosure controls as of September 30, 2022 and no material change in internal control over financial reporting.