Weatherford International plc — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Weatherford provides oilfield equipment and services in approximately 80 countries, reporting Western and Eastern Hemisphere segments. The company emerged from Chapter 11 in December 2019 and adopted fresh-start accounting; 2020 “Successor” results and 2019 “Predecessor” results are not directly comparable.
Financial performance
| Metric | Q3 2020 | Prior-year Q3 | Nine months 2020 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $807 million | $1.314 billion | $2.843 billion | $3.969 billion |
| Operating income (loss) | $(60) million | $(447) million | $(1.379) billion | $(866) million |
| Net loss | $(167) million | $(815) million | $(1.704) billion | $(1.604) billion |
| Loss per share | $(2.48) | $(0.82) | $(24.58) | $(1.61) |
Revenue declined 39% in Q3 and 28% for the nine-month period, primarily reflecting lower activity and demand amid COVID-19, especially in North America. Q3 Western Hemisphere revenue fell 53% and Eastern Hemisphere revenue fell 23%. Segment operating income was $3 million in Q3 and $42 million for the nine months. Gross profit, calculated as revenue less product and service costs, was $176 million in Q3 (about 22% of revenue) and $690 million year to date (about 24%).
Nine-month results included $818 million of long-lived asset impairments, $239 million of goodwill impairment, $134 million of inventory charges, and $162 million of restructuring, severance and other charges. No long-lived asset impairment was recorded in Q3. Q3 operating loss improved versus 2019 chiefly because 2019 included a $399 million goodwill impairment and $303 million of reorganization items; this comparison is affected by fresh-start accounting.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $1.121 billion, with $172 million of restricted cash; total cash and restricted cash was $1.293 billion. More than $130 million of cash was not immediately repatriable.
- For the nine months, operating cash flow was positive $188 million, investing cash flow was negative $89 million, and financing cash flow was positive $400 million. Capital expenditures were $100 million; interest paid was $114 million.
- Total debt was approximately $2.616 billion, including $2.098 billion of 11% Exit Notes due 2024 and $456 million carrying value of 8.75% Senior Secured Notes due 2024. Long-term debt fair value was reported at $1.780 billion.
- In August, Weatherford issued $500 million of Senior Secured Notes, terminated its ABL facility, and increased LC facility commitments to $215 million. Management said these actions alleviated the substantial doubt about going concern previously reported at June 30. Available liquidity was $842 million at September 30; $168 million of LC facility commitments were drawn for letters of credit, leaving $47 million available under that facility. The company reported compliance with applicable covenants, including a $175 million minimum-liquidity requirement.
Outlook, risks and notable matters
- Management expected below-normal demand through the remainder of 2020 and into 2021, citing pandemic-related restrictions, oil-market volatility, lower customer capital spending and a potentially multi-year industry downturn. It did not provide revenue or earnings guidance.
- 2020 capital spending was projected at approximately $100–$150 million, about 50% below 2019. Cost actions included headcount reductions, furloughs, temporary pay cuts, business consolidation and reduced capital spending; further restructuring charges were expected.
- Principal risks include prolonged COVID-19 disruption, oil and gas price and demand volatility, customer payment delays or defaults, supply and logistics constraints, access to capital and refinancing, and execution of cost savings. Credit ratings were non-investment grade with negative outlooks.
- Disclosure controls and procedures were concluded to be ineffective because the company had not operated remediation controls for a sufficient period to conclude that a material weakness in long-lived-asset impairment review had been remediated.
- The NYSE delisting took effect in April 2020 and ordinary shares were deregistered in July; shares continued trading on OTC Pink as WFTLF. The cover page marks “No” for having filed all required reports during the preceding 12 months.
- Legal contingencies include shareholder securities litigation for which the company said it could not reliably predict the outcome or potential loss. Accrued litigation and settlements were $43 million. Environmental remediation at a former Texas facility could cost up to $6 million over 10–20 years.
Key facts for investors to verify
- Whether operating cash flow and the reported $842 million of available liquidity remain adequate under continued weak demand, debt interest payments and covenant requirements.
- The timing and costs of restructuring actions, and whether management achieves the planned cost reductions and capital-spending range.
- Progress in remediating the material weakness and the implications of the cover-page “No” response regarding required filings.
- Potential further impairments, customer credit losses, and outcomes of litigation and tax examinations.
- Share-trading venue and listing plans, given NYSE deregistration and the company’s stated intention to consider a future NYSE or Nasdaq listing.