Weatherford International plc — Q2 2018 Form 10-Q
Business context and period. Oilfield equipment and services provider operating through Western Hemisphere and Eastern Hemisphere segments. This unaudited filing covers the quarter and six months ended June 30, 2018; comparisons are with the corresponding 2017 periods. Dollar amounts are in millions unless noted.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1,448 | $1,363 | $2,871 | $2,749 |
| Operating loss | $(73) | $(145) | $(112) | $(359) |
| Net loss attributable to Weatherford | $(264) | $(171) | $(509) | $(619) |
| Loss per share | $(0.26) | $(0.17) | $(0.51) | $(0.63) |
| Net interest expense | $152 | $138 | $301 | $279 |
- Q2 revenue rose 6%; first-half revenue rose 4%. Q2 Western Hemisphere revenue increased 13% to $769, while Eastern Hemisphere revenue declined 1% to $679. First-half segment revenue was $1,525 and $1,346, respectively.
- Segment operating income improved to $69 in Q2 ($50 Western Hemisphere; $19 Eastern Hemisphere), from a $73 segment loss in Q2 2017. First-half segment operating income was $109 versus a $162 loss.
- Profitability remains strained: Q2 operating loss included $70 of impairment, asset write-down and other charges and $38 of restructuring charges. First-half charges were $88 and $63, respectively. The filing does not present a standalone gross-margin figure.
- Six-month operating cash flow was negative $315, versus negative $241 in 2017. Investing cash flow was negative $14 (prior year negative $315), and financing cash flow was positive $172 (prior year positive $99). Cash declined to $415 from $613 at year-end 2017.
- At June 30, total debt was $7,929: $295 short-term/current and $7,634 long-term. Cash was $415; shareholders’ deficiency was $1,312. Current assets of $3,693 exceeded current liabilities of $2,200.
- Committed credit facilities had $506 of reported borrowing availability; the company was in compliance with financial covenants at quarter-end. The revolving facility matures July 2019 and the term loan July 2020.
Changes, outlook and key matters
- Drivers of improvement: Management cited stronger U.S. activity and product mix, growth in Mexico and Argentina, and increased Middle East activity, alongside lower costs and depreciation. Offshore softness weighed on parts of the Eastern Hemisphere.
- Outlook: Management expects second-half 2018 Western Hemisphere growth, particularly in well construction, production and drilling services; it anticipates Eastern Hemisphere growth in the North Sea, Continental Europe and Gulf Cooperation Council countries. Some deepwater markets may remain subdued. Longer-term outlook was described as favorable, but dependent on pricing, activity, margins and execution. No revenue or earnings guidance was provided.
- Capital spending and transformation: 2018 capital expenditures were projected at $200–$250, excluding land drilling rigs. The cost-reduction Transformation Plan is expected to continue through 2019; first-half 2018 charges were $63.
- Debt and divestitures: Weatherford issued $600 of 9.875% senior notes due 2025 and used proceeds in part to retire 2018 and 2019 notes; tender and call activity generated a $34 loss. It was negotiating credit-agreement amendments, including extending part of commitments and adding a 364-day second-lien facility. A July 2018 agreement to sell specified land-rig operations to ADES for $287.5 cash was expected to close in stages, mostly in the second half of 2018; sale proceeds were expected to support working capital or debt reduction.
- Unusual items and exposures: First-half results included $92 of long-lived asset impairments, largely associated with land rigs held for sale; $37 of currency-devaluation charges, substantially related to Angola; and a $56 warrant fair-value gain. The company had $62 of cash denominated in Angolan kwanza at quarter-end. Argentina was deemed highly inflationary, with a U.S.-dollar functional currency change expected July 1, 2018.
- Risks and contingencies: Management highlighted high indebtedness, refinancing and capital-market access, commodity prices and activity, transformation execution, divestiture completion, currency exposure and potential asset impairments. Litigation outcomes could be material; the company also recorded $47 for expected penalties under a minimum-purchase commitment. Letters of credit and performance/bid bonds totaled $519, with additional surety bonds of $9.
- Disclosure controls were judged effective at June 30, 2018. The company reported no material changes in its risk-factor assessment from its 2017 Form 10-K.
Important facts for investors to verify
- Whether operating cash burn and ongoing losses improve, and whether working-capital needs remain manageable.
- Final terms, availability and covenant implications of the contemplated credit-facility amendments, given the approaching July 2019 revolver maturity and debt burden.
- Completion, timing and net proceeds of the ADES and other planned divestitures, and how proceeds are applied.
- Execution and realized savings from the Transformation Plan, including costs still to be incurred through 2019.
- Further impairments or currency effects, and developments in significant litigation and the $47 supply-contract penalty liability.