Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International First Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the conference over to Mohammed Topiwala, Director, Investor Relations and M&A. Sir, you may begin.

Welcome, everyone, to the Weatherford International First Quarter 2021 Conference Call. I'm joined today by Girish Saligram, President and CEO; and Keith Jennings, Executive Vice President and CFO. We will start today with our prepared remarks, and then we will open it up for questions. You may download a copy of the presentation slides that correspond with today's call from our website's Investor Relations section. I want to remind everyone that some of today's comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our first quarter press release, which can be found on our website. With that, I'd like to turn the call over to Girish.

Thanks, Mohammed, and thank you all for joining the call today. I'd like to start today with some highlights from the first quarter and our view on the market. Keith will then follow it up with details on the financials for the first quarter, some directional views on the second quarter and updates to the full year for 2021. Finally, I will wrap up our commentary with an update on our 2021 imperatives and strategic direction. We will start today on Slide 3, which lays out our priorities. We came into the year with good momentum from 2020, and I'm very proud of our team for carrying that forward into 2021, with another quarter of favorable operating performance while never losing focus on safety and service quality. We delivered above the expectations we outlined on our February call and are keeping pace with larger and more diversified industry players, despite having exited drilling oriented commoditized product lines in several geographies. Revenue was down very slightly on a sequential basis as we saw 6% growth in North America, offset by a 4% decline internationally. However, EBITDA performance was, again, strong at 12%, with this being the fifth consecutive quarter of double-digit margins. Most significantly, our cash performance was outstanding, with the company generating $70 million in free cash flow, which led to a cash balance of $1.3 billion, up $58 million sequentially. As you're all aware, we recently announced that we filed the registration of our shares with the SEC and we intend to relist the company on the NASDAQ under the ticker symbol WFRD. While we recognize that we still have work to do to bring the company to an optimal operating efficiency, we are confident in the future and believe this is the right time to make this change.…

Thank you, Girish. Please turn to Slide 6, and I will begin with a summary of our first quarter results, which reflects the continued momentum of our improving financials. Revenues were $832 million, 1% below the fourth quarter and 32% below the same period in 2020. The sequential performance primarily resulted from increased drilling, evaluation and intervention services in the U.S. and Canada, plus seasonal activity increases in Canada and increased activity across all our product lines in Latin America. These gains were offset by seasonally driven decreases in completion and production product sales in the Middle East, Asia and North Africa and seasonal drilling activity decreases in Russia. First quarter adjusted EBITDA was $102 million, which is an adjusted EBITDA margin of 12%. As Girish mentioned, we delivered on our commitments in the first -- in the past quarter by accomplishing another quarter of double-digit adjusted EBITDA margins and generating free cash flow. Our EBITDA margin improved by approximately 60 basis points sequentially overcoming the impact of restored pay and benefits to our employees and the seasonal decline in product sales. In the quarter, we experienced a lower-than-anticipated seasonal decline in product revenues of 13%. While not fully offsetting the revenue decline in products, the 7% increase in service revenues delivered very accretive earnings fall through. Operating results in the first quarter also benefited from the continued realization of cost reductions from our initiatives focused on simplifying the organization and managing our variable cost levers. Overall, the 12% EBITDA margin this quarter, which improved on the EBITDA margin of the prior quarter on lower revenues plus headwinds from material cost inflation, along with treating our employees as they deserve by restoring pay and benefits, demonstrates that our cost rationalization initiatives aimed at stabilizing and improving our margin profile, are…

Thanks, Keith. As you heard, a really strong start to the year, and we are focused on bringing the same degree of performance into subsequent quarters. We are seeing strong signals that our goal of achieving sustainable profitability and free cash flow generation is not just aspirational but achievable. We believe that our consistency and execution and growth should translate that into reality over the next couple of years. Turning to Slide 11. In February, we laid out our 2021 focus areas of North America performance, variable cost optimization, organizational simplification and inventory, along with the strategic vectors of digital transformation, ESG and energy transition and our portfolio. Our first focus area for 2021 is North America, where we have put in place a new leadership team and are realigning our cost structure to be in tune with the realities of today's market. In the first quarter, we saw the results of that with a 6% revenue growth in NAM coming through at improved margins. We are driving changes in the way we manage inventory through a robust sales and operations process, inventory categorization and a redeployment process. These changes, along with improved organizational agility enabled a significant increase in sequential margin performance in the first quarter. Continuing on, variable cost management is a very important focus area for us. We appointed an enterprise-wide team to establish new cultural and operational frameworks for tracking costs and driving cost reduction initiatives across the organization. The work we have done on our cost savings initiatives enabled us to maintain almost the same level of gross margin with only a 100 basis point drop on a 32% year-over-year decline in revenue. This is an incredible feat in a very challenging market, but we cannot rest there. The actions we are taking now are…

And today's first question comes from Connor Lynagh with Morgan Stanley.

Yes. I was wondering if you guys could expand on some of the comments you made on some potential big retenders from national oil companies and your potential to gain market share there. Could you maybe provide some extra color on what these tenders look like, as in are they large projects? Are they specific product line tenders? Where geographically are they? And sort of what are you targeting in terms of gains there?

Sure. Thanks, Connor. This is Girish. What we are seeing, I would say, the predominant activity is in the Middle East. That's where we are seeing the bulk of this. And most of these are really product line specific tenders. And I think there's a combination of -- you've got a natural sort of end of cycle and the next cycle starting up in some cases. And in some cases, as we mentioned, it is customers saying, "Hey, look, let's retender the overall piece." Some of these tenders happened as we were going through our Chapter 11 process, and we've lost some of the share. That's why we are looking to be able to get back in and gain some share. Secondly, we have made a lot of investment in terms of our local infrastructure, which, as you know, is a critical component in some of these geographies. And then last but not least, as we've talked about, we believe we've got a very strong suite of technology that can help. So we've put our best foot forward on these tenders, we hope, and now we'll have to see what the outcome of these. Now in terms of timing, most of these tenders typically run between 3 and sometimes 5 up to 7 years in some cases. So they're varying length we expect over the next few months to get the decisions on these. As you know, in this sector, the way these tenders, a lot of them at least work is they're typically shared across multiple service providers. And so it's not only winning the tender, but then it's also about how you execute, which is a really important part. So you've got to continue to deliver on the performance every day to make sure that you're capturing the full share of what you were originally awarded.

Yes, understood. There's been a lot of focus on international, and I think, frankly, Middle East in particular, pricing for service companies. Would you agree with the sentiment that capacity is a bit tighter than it was last cycle that there is maybe some longer-term potential for price increases for service companies? And I guess the question from your perspective is are you trading price for market share? How are you sort of approaching the market, given the balance between market share and desire for higher margin?

Sure. Yes, look, I think it's a little bit of a mixed bag right now. I think where you've got product lines that truly have a higher risk profile and you can deliver incremental value through either a differentiated service or a product offering, I think there is the ability to drive price. In terms of capacity, I also clubbed that with a little bit of material inflation and certain pieces. So there is a bit of an opportunity, for sure, around that. Having said that, I think part of the rationale that a lot of customers go through with these tenders is exactly that to make sure that they are getting the optimal pricing and to ensure that they're getting the best cost structure. So what we are trying to do is really put together an overall holistic view, and it's actually good that many of these are coming together. So we can figure out where we can get synergies across our operations to provide the right cost point and get as much price as possible. In terms of share versus price, we've been very clear in that, obviously, share is important. We are focused on top line growth, but we are not going to chase volume at the expense of margins. That is something that we are very, very clear about. We have talked about that at length internally. We have had conversations about that with customers. Now in the event in certain places, going from a let's say, a 5% share on a particular tender to a 20% share, gives you volume efficiencies. It gives you scale. If that actually changes the profile, that we will certainly look at, consider and go after. But in a generic sense, trading off volume for margin is not something we're doing.

Our next question today comes from Ian MacPherson with Simmons.

I wanted to ask you first about the MPD business. Now that we're -- especially since we're beginning to see all the offshore drillers come out of Chapter 11 with more capital and, hopefully, some reemergence with offshore activity as well. That's a leadership position with you, a unique niche for Weatherford. Can you talk about that outlook? Maybe also frame it within where today's penetration of MPD is in the high-value markets and where you think it could go to over the next couple of years in a good scenario?

Sure, absolutely. Thanks. Really appreciate it, and glad to have you on the call. Look, MPD, or managed pressure drilling, is a business, it's a technology that I'm personally tremendously excited about and something that Weatherford has had as you said, leadership position for a very long time. We've been the pioneers in this technology in a number of different ways, and it's something that we have continued to invest in over multiple cycles. We've got a fantastic global team, and we've got deep domain expertise in the product line. And the thing about MPD is, look, we truly believe it's a better paradigm around drilling. But it is still something that is less than 10% of the wells drilled in the world. So if you think about it from that context, regardless of what the share position is, I'll just say, we've got a leading position on share in that product line. If we can take that sub-10% adoption rate, we'll call it, and grow that to, say, 15% over the next 2 to 3 years, that's a tremendous increase in the overall market itself. And so we believe with the portfolio that we have, that we are adding to, we are continuing to invest in technologies to span the full spectrum. We think it's something that is a critical part of the growth engine for the company. And the thing about our MPD business is it's both onshore and offshore. We've clearly got leading-edge technology on the offshore side, our Victus product, which has been successfully deployed and is running in different parts of the world. That's something that we are very proud of, and it continues to be a market leader. But we've also got a very, very strong basic RCD business, starting with the U.S. that we do in multiple parts. So we are augmenting that overall product line, making sure that we are covering every part of the spectrum. At the same time, there's a big focus from us on really ensuring that we are spending time with customers making sure that we are going through the understanding of what the technology brings, how do we make it part and parcel of their overall paradigm in drilling. So thanks for bringing that up. Look, it's something we're very, very excited about. We think it will be a big part of our future going forward.

Super. Thanks, Girish. Now I wanted to ask a follow-up about your outlook for the year. We're calling this qualitative outlook and not guidance. I got that, but you got off to a good start with Q1. I wouldn't say starting on second base, but certainly a good start. And your guidance or the outlook for Q2, it's flatter. I know you know this than what all of your peers are pointing towards and expecting with more in the range of mid- to high single digit growth sequentially from Q1 in Q2. You mentioned some important considerations with regard to COVID impacts that are still hampering mobility internationally as well as some of the lag effect to the rig count in your North American businesses. But that being said, do you see any particular areas where you would hope to do a little bit better than flat in the second quarter?

Sure. Look, let me give you a little bit of a macro view, and Keith can jump in with some additional points. Look, first of all, I'd say, start with -- the philosophy that we have taken and that we are really trying to drive hard within the company is making sure that the company is profitable at flat activity levels. And so we are very cognizant of the fact that in this sector and especially with us historically, we have relied on an upcycle to get the company profitable. And then inevitably, we suffer the consequences on the next down cycle. So we are absolutely determined to make sure that doesn't happen. And so we are laser-focused on ensuring that we are making the structural changes in the company to drive the change that's required for us to be sustainably profitable. So that's really why we keep sort of hammering that theme. Secondly, as you pointed out, look, we've -- in certain geographies, we've exited unprofitable commoditized product lines that didn't really contribute. So as activity picks back up, the first part that picks back up are those product lines. As an example, we talked about drilling services in North America. We have just recently made a decision on our wellheads business because we didn't have something that was as profitable on that line. It was very commoditized. And so those are the things that will pick up fairly quickly, and we don't expect that to contribute to us meaningfully. Having said that, look, we are excited about the production side of the equation. Artificial lift, as an example in the U.S. if that sees activity come through, we are positioned, we are poised to capture that and we expect that to come through at an increased fall through. Secondly, look, if the restrictions around logistics and people movement, especially in some parts of the world, but it's still very strong where the pandemic is still raging. If that abates over the second half, I think we will have a better opportunity to go capture some of that. But we don't want to get way too ahead of our skis. And so we are being a little bit more prudent, and we are really focused on what we need to do and what we can control while always being ready to pounce on the market opportunity.

Ian, I think the thing we also have to think about is Q1 was a strong quarter, and it was partially strong because the products business did not step down as hard seasonally. And so we are working with our front-line salespeople to understand if that was just some of the Q2 pull forward because the U.S. is picking up. If -- with that, then we have to balance the forecast for Q2 with the step-up in the services business and then the leveling of the product sales. So that's how we've kind of thought about it, if there's more activity than we're seeing, then we'll be happy to sell into it.

[Operator Instructions] Today's next question comes from Gregg Brody with BofA.

Last quarter, you talked a little bit about trying to put in place a regular way of credit facility. I'm curious where that stands and what your current thoughts on that are.

Sure. So we continue to have dialogue with our banking partners. The overall credit spectrum and feeling towards the subinvestment grade oilfield services market, we are part of, I think, is getting better. I think we see more issues. We see more facilities being put in place. So we are working with our partners. We're having better conversations than we had in Q4. We still have not launched the process yet, but as we get out of the quiet period here, we'll pick those dialogue.

So you haven't launched it, do you have a sense of timing, how long you think it will take for it to get inked and finalized once you do...

No, no sense of timing. We're not rushing this, as you know, story of Weatherford, they -- prior leadership team, I think, probably rushed coming out of bankruptcy and the facility was not where it needed to be. So it was part of the problem that led to the need to unwind it. It became something of a -- so this time, we're taking our time. We're being more cautious. We're making sure that we put together a facility that better reflects the geographic footprint of the company as best as possible and so that's really why it's taking so long. It's not an easy thing, particularly when you're coming off of the single B credit spectrum in a world where people have moved away from your industry.

That makes sense. And then you gave some commentary on free cash flow for this year. You expect it to be slight negative. I am -- just wanted to rehash a couple of guidance numbers you gave us last quarter just to make sure they're still the same. The restructuring charges, how much are you estimating for this year?

The restructuring spend for this year?

Yes.

So I think we had $60 million in the forecast. We may not hit all of that, but we're still thinking that depending on how the second half plays out and how our cost and organizational rationalization program continues.

Is that -- the corporate cost for the quarter of $18 million, is that a good run rate now?

I think that's a good run rate. I think we could probably use $20million to $25 million in your models, but I think we're in a good place with the corporate costs. I think -- you have to remember, though, in that line, we carry intercompany eliminations, and that's what will move it up or down. We started to footnote that in our Q, so people can get a better look into that number. But this quarter, intercompany eliminations were minimal, so it's a better look at that number.

Got it. So of the $20 million to $25 million it sounds like trending towards the $20 million makes more sense there.

Yes.

Just CapEx, you reduced it, I think, by about $20 million. How should we think about -- is that something that got moved out to next year? How should we be thinking about how CapEx may grow as you mentioned that business opportunity improves?

Sure. So as -- let's peg it out a $3.5 billion revenue business. I think steady state CapEx should probably average roughly 5%, which should be about $175 million We are under that at the moment, particularly because we were overcapitalized in some ways in the last part of the cycle. So as we rationalize the assets, rationalize the assets that can go into service, we're rationalizing what we need to invest in as growth assets. Then at the moment, we see the $100 million to $130 million is what we need for 2021. That may pick up as we get a better look for '22. But at the moment, we are spending just what we need and what we believe will provide a return. As you can tell, or remember from last quarter, Q4, we accelerated and spent over $50 million because we had some particularly interesting growth opportunities that we wanted to fund and that's how we're looking at it. If it's not something that we can clearly see the return on, now we're going to continue to be fairly prudent.

That's helpful. And then you mentioned working capital, you won't have the benefit that you had in the first quarter for the rest of the year. I think you also said that it may become a use as you grow. How should we think about working capital the rest of this year as a -- in terms of how much cash it may consume?

So as I think about my full year view on working capital, I think -- when I think it through, AR is the wildcard because it depends on how the second half grows and which markets we grow in. But that should not be the same profile as 2020, which was more of a cash source as we were coming down the cycle. So we expect that AR might be a slight use in the second half. Inventory, we are working hard at our inventory rationalization program. As you saw our Q1 inventory was a strong source. We continue to hope to get to a better place across the full year. Payables, where we continue to rationalize. So I think net-net, we expect working capital to be a slight positive on the year, but not as positive as 2020.

Does that imply that you actually think you won't use any working capital over the rest of the year?

I wouldn't say -- I think net, for the rest of the year, it shouldn't be a use unless AR -- and if the business grows and I increase my AR, I think I'm okay with that.

And your -- just the taxes that you have that's -- we should just assume -- should we still assume about a little under $80 million for the year?

Just about under $80 million because we're not yet profitable, so really the same paradigm of paying deem taxes is what we're faced with.

Got it. And just last question. You talked about opportunities in carbon capture and geothermal drilling. What type of capital do you think that could ultimately require over your existing business set up for that?

Yes. Yes, I'll take that. Look, right now, I think it's still a little bit of early days on the geothermal side. We don't really expect it to be dramatically different because it's the same suite of products and technologies that we have, and it's really us doing a little bit of adjacent work, et cetera. And on the carbon capture side, it's something we are exploring, we're understanding, but suffice to say whatever model we end up with will be one that has returns that are accretive to the company and that are substantially high than what we've got. So we're not going to, again, go chase marginal returns in this business. But there's still a lot of work to be done in that front. And our focus predominantly for right now is leveraging existing technologies, and we've got an asset base that we think can fulfill most of the work that we see in front of us.

Ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.