Weatherford International plc — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Weatherford provides oilfield products and services through Western Hemisphere and Eastern Hemisphere segments. Results are reported on a “Successor” basis following emergence from bankruptcy on December 13, 2019, with fresh-start accounting; the Q1 2019 “Predecessor” figures are therefore not directly comparable.
Financial performance and position
- Revenue: $1.215 billion, down $131 million (10%) from $1.346 billion in Q1 2019. Western Hemisphere revenue fell 19% to $588 million; Eastern Hemisphere revenue rose 1% to $627 million.
- Profitability: Operating loss was $822 million versus $301 million. Net loss attributable to Weatherford was $966 million versus $481 million; diluted loss per share was $13.80 versus $0.48. Q1 2020 included $640 million of long-lived asset impairments, $167 million of goodwill impairment, and $36 million of restructuring and other charges. Management reported segment operating income of $47 million, up $18 million; excluding specified significant charges, consolidated results improved $24 million.
- Cash flow: Operating cash flow was positive $30 million, compared with negative $249 million. Investing cash flow was negative $47 million and financing cash flow negative $8 million. Cash, cash equivalents and restricted cash decreased $36 million to $764 million, including $670 million unrestricted cash and $94 million restricted cash.
- Margins: Segment operating income was approximately 3.9% of revenue. Revenue less reported cost of products and services was $302 million, or approximately 24.9% of revenue, before other operating expenses and impairments.
- Debt and liquidity: Long-term debt was $2.149 billion and short-term borrowings/current debt were $26 million at March 31. The company had $235 million of ABL availability and reported available liquidity above $905 million, calculated as cash and cash equivalents plus ABL availability. It also had $361 million of letters of credit and performance/bid bonds outstanding. The $2.1 billion unsecured Exit Notes carry 11% interest and mature in 2024.
- Balance sheet: Total assets were $6.165 billion, total liabilities $4.302 billion and shareholders’ equity $1.863 billion. Goodwill fell to $72 million after impairment.
Material changes and unusual items
- Revenue weakness was concentrated in North America, reflecting lower activity and demand; higher activity in Mexico and parts of the Eastern Hemisphere partly offset the decline.
- Impairments totaled $807 million: $430 million of property, plant and equipment, $137 million of intangible assets, $73 million of right-of-use assets and $167 million of goodwill. Further impairments remained possible if conditions worsened.
- Net interest expense declined to $58 million from $155 million, primarily following debt reduction in the December 2019 bankruptcy emergence. The 2020 and 2019 periods also differ in share count: weighted-average shares were 70 million and 1.003 billion, respectively.
- Other expense was $25 million, primarily reflecting foreign-exchange losses and financing-related fees. Income tax expense was $44 million despite the pretax loss, including a $20 million valuation allowance charge.
Outlook, management commentary and risks
- Management expected industry weakness to persist through the remainder of 2020 and potentially 2021 or longer, with substantial constraints on revenue, earnings, cash flow and liquidity. April 2020 revenue was nearly 30% below the average monthly revenue for Q1.
- Management projected 2020 capital expenditures of $100–$135 million, approximately 50% below 2019, and warned spending could be reduced further. Cost actions included pay reductions, furloughs, workforce reductions, site and product-line consolidation, and lower capital spending.
- Although the company was in compliance with debt covenants at March 31, management expected a forthcoming breach of ABL covenants as business activity and receivables declined. An uncured breach could trigger defaults under other facilities and the Exit Notes, accelerate obligations or require cash collateralization. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern within 12 months.
- The company was in discussions with Exit Note holders about potential deleveraging or restructuring, without assurance of an agreement. On May 6, 2020, it borrowed $100 million under the ABL facility. Credit ratings were downgraded in late March and April, potentially constraining access to financing.
- On April 17, 2020, the NYSE filed to delist the ordinary shares; the delisting became effective 10 days later. The company said it continued trading on OTC Pink as WFTLF and was evaluating future listing options.
- Other risks include COVID-19 operational and supply-chain disruptions, customer payment delays or defaults, reduced borrowing-base availability, further asset impairments, and litigation or tax exposures. Accrued litigation and settlements were $40 million; outcomes of certain claims could be material, though not reliably predictable.
Key facts investors should verify
- Whether Weatherford obtained covenant waivers or forbearance, and the status and terms of any debt restructuring or deleveraging.
- Actual borrowing-base availability, covenant headroom, cash restrictions and liquidity after the May 6 ABL draw.
- Subsequent revenue, customer activity and receivables trends, particularly in North America, versus the reported April decline.
- Progress and costs of workforce, facility and product-line reductions, and whether the $100–$135 million capital-spending plan changed.
- Whether further asset impairments, material litigation outcomes or other going-concern developments occurred.
- Current trading venue and listing status; the filing reported 70,017,356 ordinary shares outstanding as of April 30, 2020.