Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International First Quarter 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, ladies and gentlemen, today's call is being recorded. Thank you. I would now like to turn the conference over to Karen David-Green, Vice President of Investor Relations, Marketing and Communications. Ma'am, you may begin your conference.

Thank you, Carol. Good morning, and welcome to the Weatherford International's First Quarter Conference Call. With me on today's call, we have Mark McCollum, President and Chief Executive Officer; and Christoph Bausch, Executive Vice President and Chief Financial Officer. Today's call is being recorded, and a replay will be available on Weatherford's website for 10 days. Before we begin with our prepared statements, I'd like to remind our audience that some of today's comments may include forward-looking statements. These matters may involve risks and uncertainties that could cause our actual result to differ materially from our forward-looking statement. Please refer to our latest Form 10-K, 8-K, and other SEC filings for risk factors and cautions regarding forward-looking statements. A reconciliation of GAAP to non-GAAP financial measures is included in our first quarter press release and the company's presentation, which can be found on our website. Christoph will now provide an overview of our first quarter results, followed by Mark's comments on our strategy and the progress of our transformation. Following these prepared statements, we'll welcome your questions. And now, I'd like to turn the call over to Christoph.

Thank you, Karen. Revenue in the first quarter of 2018 was $1.42 billion, a decrease of 4% compared to the fourth quarter of 2017, and 3% higher than the $1.39 billion of revenue reported in the first quarter of 2017. The sequential revenue decrease was due to nonrepeating year-end product sales as well as seasonal declines in the North -- in North Sea and Russia. The year-over-year increase was primarily due to activity increases in the U.S., Argentina and Mexico in the Western Hemisphere and Kuwait, Iraq, Russia and Saudi Arabia in the Eastern Hemisphere. This was partially offset by a decrease in Venezuela as a result of our fourth quarter change in accounting for revenue and depressed offshore markets in the North Sea, West Africa and Asia. Operating loss for the first quarter of 2018 was $39 million. Excluding unusual charges and credits, segment operating income in the first quarter of 2018 was $40 million, up $123 million or 148% sequentially and up $129 million or 145% year-over-year. The sequential improvement was primarily due to improved product margins benefiting from a favorable sales mix, lower personnel and other support costs, the timing of revenue and cost recognition related to deliveries in Kuwait, and lower depreciation expenses resulting from asset impairments recorded in the prior quarter. Year-over-year improvement was led by revenue growth in production and dock construction in the U.S. and parts of Latin America, combined with higher activity and improved service quality across all product lines in the Middle East and Russia. Results also benefited from an overall reduction in cost structure as well as lower depreciation due to asset sales and impairments in the prior quarters. These improvements were partially offset by a decline in revenue in Venezuela after our change last quarter in accounting for revenue…

Thank you, Christoph, and hello, everyone. I'm pleased with the year-over-year and sequential improvements shown in our first quarter results. The past three months have involved a lot of long hours and hard work as we finish the bottom-up planning stage of our transformation and move into implementation. I want to thank and recognize all of our employees, who put their shoulders to the plow. It has not been easy and we still have a long way to go, but our transformation work is starting to make an impact on our bottom line as well as our processes and our culture. As Christoph noted in the first quarter, we realized $27 million of recurring cost savings or $108 million on an annualized basis. This gives us 10% of the way to our goal of $1 billion in run rate profitability improvements by year-end 2019. Additionally, we generated $41 million of onetime cash benefits. We expect these improvements to accelerate in the coming quarters as we continue to execute the nearly 1,600 transformation initiatives the organization is working on. Something we've heard a lot over the last three months is where is the $1 billion coming from? How does it break down across the company? We want to be as clear and transparent as possible with you, so we provided a complete breakdown of the estimated recurring savings for each work stream across the organization. You can view these numbers and their proportional share of the pie in the presentation we released today, simultaneous with our first quarter earnings. I also want to give you a few tangible examples of these initiatives, so you can get a flavor for what our transformation program looks like at the ground level on a day-to-day basis. The two areas with the largest impact are…

[Operator Instructions]. Our first question today comes from Angie Sedita from UBS.

I think the slide deck was -- is great. It's a lot of detail that we would all like to see and very helpful to our processes, and so I guess we'll start off there. Number one, on the annualized cost savings that you mentioned, right, $108 million annualized so far. Is there any rough -- I know it's early, but any rough runway rate we can think about towards the end of 2018? And then with that, on the sales and commercial, is it fair to think that it's revenue, obviously, versus cost?

Angie, this is Christoph. So as I said in my prepared statements, we expect Q2 to ramp up between 50% to 75%, and then for the rest of the year, we build momentum going forward. And I think we also said before that for the year, we expect a total number of about $200 million to $300 million of recurring savings in our results.

Realized savings.

Realized recurring savings in our results. So that will lead you towards the end of the year to a run rate, which will be around the $500 million margin. Now to the second part of the question, which is where does it come from. In details, it progressed forward. I think you've seen the first quarter numbers. In the second quarter numbers, we will see an acceleration in the sales and commercial work stream. We'll also see an acceleration in the procurement or external spend work stream, and we also see some effects on the G&A side. So we have a detailed plan by month, by quarter and so on. I think the call is not the right form to discuss the detail, but kind of that gives you, I think, what you're asking for.

But I think also to your point, the sales and commercial really represents revenue opportunities that will translate into profit improvement. Some of those relate to pricing initiatives, looking -- as I've talked about in my comments, areas where we felt like we needed to do a better job of pricing effectively when we do bespoke manufacturing or unique configurations or making sure that our product categories are priced correctly versus the costs that we're incurring. And some of those will relate to their incentives that are set with the sales organization on specific opportunities that they're pursuing, now that they're more actively cross-selling products and services across the various accounts.

Okay. Okay, very helpful. And then Mark, maybe you could talk a little bit about the international markets as far as your strategy, specifically around the lump-sum turnkey contracts in the past that's been something that Weatherford did focus on with your strategy, this cycle on lump-sum versus discrete services.

That's a great question. So I think that in the past, Weatherford had been a bit fairly aggressive about doing turnkey type projects. We're probably one of the first companies to actually step out into that process, both in Mexico and Iraq. Some of those did well, and some of those did not do so well as you know. And after that point, I think the company decided to retrench some. We are still actively engaged in the integrated service projects and not shying away from those. We have actually active projects in Mexico, in Russia, in Oman and elsewhere, and those projects are actually ramping up. We're continuing to gain, and we're actively involved in the tendering process. Of course, one of the things that I want to make sure that we do as part of our transformation is as we standardize and sort of stabilize processes around, one of the things we also want to do is to sort of ensure that we have a good process wrapped around the execution of these projects as well, so that we -- because they really lean heavily on your ability to deliver effectively, our service quality is going up dramatically over this past year. Particularly in the Eastern Hemisphere, those guys have done a super job of improving our quality results, and so I feel confident that we're at that point we can deliver well. We just need to make sure that we -- as we go into the competitive bidding process, that we sharpen our pencil to make sure that as we price the risk, analyze the risk, understand what it's going to cost for us to deliver, that we do so in a way that will make -- ensure that we can generate the returns of profitability that we need to provide shareholders.

Our next question comes from James Wicklund from Crédit Suisse.

Between the comments that you guys made and the presentation you've put out, we're all hard-pressed to come up with any good questions, to be honest with you. Which is really nice, and I appreciate it. One quick clarification. The improvement in Q2 EBITDA is off the base of the $151 million in Q1.

That is correct, James.

Okay. I told you I was hard-pressed. The second one deals with international. Mark, you talked about contract wins in Asia, in the Middle East and you're having to mobilize some spend equipment -- spend money to get ready for those projects. And you talked about a targeted pricing internationally. Almost everybody so far has talked about how there is no pricing or pricing is declining dramatically internationally, and you seem to be bucking the trend. Is this because these are new projects and new wins and not legacy? And does that give you a head up -- heads up? And can you talk a little bit about what those are? Especially in Asia, we really haven't really heard much about that.

Yes, I think, Jim, always, folks' commentary about pricing tends to be which side of the elephant they're looking at, whether they're on the winning side or they were on the losing side. Typically, when we lose something, it's because of pricing; if we win, it's because of our exceptional technology promise. But I think that bottom line for us is that we have -- we effectively, last quarter, felt that we have sort of reached an inflection point in our universe of projects across the international front, and that -- while there's still some, here and there, there's some pricing pressures, we're also seeing the opportunity to start to move pricing and some of the contract wins that we're having. And so that we feel pretty good about it, at least, we're at an inflection point. I'm not suggesting in any way that we think that there's going to be a material ramp in pricing coming in the next year, but I don't think that there is, at least from our viewpoint, significant continued risk of pricing deterioration in the international space.

Maybe I'll answer that script. But we have -- when we look at the tendering results and the bids we are negotiating, it's a bit of a mixed bag for us. We do see tendering coming in at a competitive price. We do see demands for lower price. But we've also seen some price increases for customers coming back to us, asking for better service quality and improved deployment of technology. And there, we have managed to increase rates. And we've also seen it on drilling rigs as well. We have increased rates on some of our drilling rigs lately. And so in that sense, it's a mixed bag, which is better compared to a year ago, where it was all downward. And your second question, on Asia, those are predominantly completions projects, but we are ramping up. And these are offshore completions projects. We had a little bit of delays with some of them from our side, and those are ramping up into Q2 and Q3.

We're ramping on a lot of wireline work around the world. We're like others having to sort of continue to build tools at a rapid pace to meet the demand that's growing.

Our next question comes from James West from Evercore ISI.

Mark, so we've been talking about asset sales for a better part of the year now. At this point, can you sort of lay out a timeline for us, both on the land rigs and the two other divestitures? Because I think at this point, it's something that's not been done.

Well, I said in our remarks, James, that obviously, I'm not happy about not getting things done. We got the pressure pumping deal done, which is part of what [indiscernible]. So that has been accomplished. On the two others that we launched this quarter, we had said that there was a basket with possibly four different transactions that we were going to pursue over the course of 2018. Our commitment is still try to get those done during the course of the year, but I'm not going to commit to a timeline inside of that. On the rig deal, look, I've used terms like imminent, it's one of the things where it's frustrating because you're working on a to-do list, in negotiation and communications and things like that. It's not a long list, but it's a formidable list. And so we're just going to continue working. I sit here and look at it, it's stunning. It's going to be stunning, but I'm not going to give you a specific date.

Okay, I think your shareholder base, those are becoming -- the frustration is building, and we hear a lot of talk, it's just a question of we've had some action here, so it's good to hear that you're making progress, but maybe great to see...

Yes, I think it would be a mistake on your part or others to think that because it's not done, there's been no action. Because we spent a tremendous amount of time and resources, and we're trying to get this thing accomplished. We have talked about it, it's a very complex. And the fact that when stepped away from the -- our list -- as the possibilities of doing a partial deal versus a full deal is just -- that actually exponentially compounded the complexity.

Our next question comes from the line of Sean Meakim from JPMorgan.

So Mark and Christoph, the guidance on 2Q operating cash flow, and your breakeven free cash flow for the year is all pretty straightforward. I guess -- so you're expecting sequential improvement in the P&L. But based on all different drivers in the slide deck that you laid out, it sounds like parsing out, counting on any macro help to drive that, and I guess, I just -- as we think for the year, what are kind of the major moving pieces that we should be thinking about to drive those assumptions? For example, the $41 million benefit a quarter, is that embedded within EBITDA? Or would that be exclusive of the EBITDA result that we saw this quarter? Just trying to get some additional pieces around working capital, legal costs, and some of the other cash components to drive your assumptions.

Okay. Sean, I'll take that. So I think, first, the Q2 comment, the -- getting towards breakeven operating cash flow, the components driving that are improved results, our improved working capital and our lower-interest cash cost in the second quarter. Even Q1, as I indicated last quarter, we said it clear to everyone, our Q1 will be negative and will mirror, similar to Q1 2017, and that's exactly what was happening. Into Q2, that will improve. Getting towards the rest of the year and answering this other parts of your question, the onetime benefits, the $41 million we had in Q1 and we expect getting close to $300 million for the entire year, those are not impacting the EBITDA. These are onetime cash benefits we get from a disposal of an asset from improved working capital management and the likes. So we will see those an improved -- in the improved cash flow for the year but not in the EBITDA. So driving towards a year of breakeven free cash flow, which is what we committed to, it will require several things. And I think all of them, very important to understand, do not require market tailwinds in addition to what we have today. We've done a forecast, which was, I think, conservative. And we have assumed transformation benefits compared to what I said to Angie before, about $200 million to $300 million in our results. We assume some improvements on the cash flow side through working capital or these nonrecurring benefits, and that will result in the free cash flow for the entire year. I hope that I answered -- covered what you were looking for?

There are a lot of moving pieces there, so I appreciate you taking a moment a bit here. There are some helpful clarifying points in that answer. The other thing I wanted to touch on was the completion tools business in North America. That's a business that I don't think what you've included in your original strategic review, it was planned to be divested by the end of last year. So now that it's kind of back into the fold, it would be great just to get a sense for how you see that being in the portfolio, the opportunities for it, and just the opportunities that you see for that business, specifically given that there's a pretty compelling portion of your North American business.

No, it is. Sean, this is actually a very great business. And so after the pressure pumping deals, the one-stop transaction fell apart, we kind of refocused on that business. They've been operating sort of full-out manufacturing. They're essentially selling everything that they're manufacturing in terms of the frac-based completions. And we have been putting money back into some technology development around small diner and composite plugs. We're working feverishly to also develop our own dissolvable plugs and we continue to see a lot of opportunity in that space. Part of our plan, manufacturing has also increased capacity there to try to continue to meet increased demand that we see coming. So it's a focus. It was a little bit off in the first quarter, in part because it was impacted a little bit early as a result of some of the other logistics issues and the frac environment, have a little bit of spillover. But not that much, but probably more impacted by the Canadian weakness because we have very strong franchise in Canada that's being impacted by oil price differential. But I think going forward, we're -- it's going to be a meaningful contributor, but we're going to have to scale-up a little bit to meet the potential demand that is coming our way.

Our next question comes from Bill Herbert from Simmons.

Mark, if we could get back to the land rigs here for a moment. You made a comment that basically, it's a complex process and you're trying to check all the boxes. So other than consideration received and price received, what are the boxes that you're trying to check?

As you're depending on what country you're in, legal entities matter. There's a lot of the -- particularly in the Middle East, you have qualifying entities that as far -- that customers have taken several years to get them across a hurdle in terms of making sure that they're qualified to perform services based on their history experience, so getting that done and getting that box checked takes time. The fact that we have been involved with certain analysts, TK-type contracts and the rigs, what they're doing, associated with that, has some implications too in terms of how you transition contracts over in the bars. So those were all some of the issues. So there's legal, there's legal hurdles, there's some, I would call, customer qualification hurdles, there are contract hurdles, all of which had to be clear. And trust me, sort of reflecting on your earlier question, it's not like we don't want to do this deal. We want to get this thing done, and we're moving as expeditiously as we can. And if we could close, we would have. We just haven't gotten into a point where all the boxes can get checked to get it done yet.

And with regard to the open issues intended to the land rigs, is price still a sticky point? Or is it mostly this other kind of legalistic checking-the-box issues that precludes you, or has precluded you from doing a deal rather than consideration?

Price has not been an issue. In terms of those that we're at the finish line with, price is not the issue.

Got it. Okay. And then assuming that we get this transaction done, well, asking the question differently, you have a targeted $80 million to $100 million for the capital spending, if I heard Christoph correctly for Q2. Of that $80 million to $100 million, how much of that is related to land rig, related to capital spending? And how much does your annualized capital spending go down once you sell these land rigs?

Yes. Bill, I think we've said that the last time around the -- our annual CapEx for land rigs is somewhere in the range between $80 million to $100 million. It depends a little bit on the timing of certain customer contracts and when it kicks in and when the rigs finish, and then some spend needs to happen. We have -- I think we said we spend in Q1 close to 10 of that. Q2 won't go up because of the land rigs, and the two which started, actually, started already in Kuwait very recently, so we'll have some increased spend there. And then the rest will come end of Q3, beginning of -- and in Q4. So that kind of give you the boundaries of the CapEx for the year. So we've said, I think last quarter, I think we've talked that without land rigs, the annual CapEx will be somewhere in the range between $200 million to $225 million. And that will stick with that.

Our next question comes from Kurt Hallead from RBC.

So Mark, remember a conversation we had not too long ago, kind of talking about the transformation plan you guys have in progress. And I remember you mentioning something along the lines improving the profitability is just a much important and longer-term driver for Weatherford than just asset sales. So given one of the preceding questions and answer this on that asset sale dynamic, I was wondering if you might be able to just give us your thoughts on the improving of your profitability relative to those asset sales and why you think the improved profitability is much more important at the end of the day.

Well, thanks for that question, Kurt. When you understand the dynamic of selling businesses, yes, we get cash proceeds and -- but you're also losing EBITDA every time you sell a business. That's contributing to our cash flow, for paying the interest cost. And so yes, I might be able to bring the debt total down by the proceeds of the business. But ultimately, by losing that EBITDA, I don't improve my coverage statistics, which ultimately is probably the more important marker for understanding where we are in terms of our relative debt position. On the other hand, the transformation itself and the work that we've got to do there can dramatically, not just change where -- not just breakeven on cash flow, but actually getting us in a position where we can -- we're generating cash on a consistent basis and using that cash to, therefore, not only improve the coverage ratio automatically, but then also, I guess, to provide cash to create an actual delevered process. I mean, all these transactions that we're talking about, or the assets designed to create the additional runway, and we're going to follow through on the commitments that we made. In the end, you're absolutely right, the real value creation ancient here for shareholders is going to be around getting this transformation program done. And what we're trying to express to you, not only the confidence that we have, I guess, in this presentation, but also behind the scenes, with -- there is a tremendous amount of detail. We've got 1,600 initiatives that people are working on there. 900 people across the organization who own these initiatives that have teams underneath them that are working against deadlines, step-by-step, including changed management steps and initiatives that are embedded in those programs to make sure that not only do they get this work done to improve our profitability, but that all of the work that they do, process changes are codified, and we standardize around, so that it's sustainable. And we can bank on this in the future. The organization is pretty engaged. They're very positive about this process. We're already seeing some early fruit. There is a fairly rigorous program management process behind the scenes that creates cadence for executing this initiative. We feel very good about getting this thing done, very good. And so what we really need is just -- we'll just continue to show you as our stakeholders the result of this transformation quarter-by-quarter. And I think you'll see from our future report cards that this is -- this really is going to make a significant difference in value.

And then I think, on the profitability, can you remind us, is that predicated on any assumption of improved activity?

No. The fact is, in an earlier question, I think as Christoph was getting to the important fact, we've sort of felt like that the market was going to be somewhat, I'd call it, wavelike, but up and down a little bit, very sort of U.S. dependent, which is not our strongest market anyway. But we intend to strengthen that market, over time, but from an activity level, it's relatively benign over the next two years. So all that means is that the improvements in EBITDA that we're driving toward to achieve our earnings and cash flow targets are really designed around transformation. And this transformation, all the analysis, the targets were set, assuming a relatively static market environment that we were sort of sitting in, in third quarter and the end of last year. So not banking on the market we have to get us there. This is all going to be organizational heavy lifting, organizations after it now ready to do it. Everybody is all in here, and we're confident we can execute.

That's great. I know we're bumping up time, just one more quick question for Christoph. So Christoph, we met things out the -- for second quarter, you talked about improvement in EBITDA sequentially. Do you mind putting that within -- in a range, maybe percentage increase, 10%, 15% increase versus first quarter, is that how we should be thinking about it?

Yes, but you have to consider Canada, the spring break happened, as Mark pointed out, we are very -- we have a strong presence in Canada. And the break up this year will be deeper than it was last year. Many people are laying off again, people in Canada. So there will be a slight offset there. But overall, at the lower range, what you were saying, I feel comfortable.

And we are a little past the hour now, so thank you all for joining us on today's call. I'd like to turn the call back over to the operator. Carol?

Thank you very much. This does conclude today's conference call, and you may now disconnect. Have a great day.