Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International Fourth Quarter and Full Year 2021 Earnings Call. All participants will be in with an only mode. 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 Fourth Quarter and Full Year 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, then 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 materially differ 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 fourth quarter and full-year 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 am pleased with the results of the fourth quarter of 2021, which build on the momentum we have generated throughout the year. We faced significant challenges, including inflationary pressure, supply chain bottlenecks and ongoing disruptions caused by the pandemic. Despite these headwinds, the Weatherford team delivered another quarter in-line with our outlook and outperformed in some instances. In the fourth quarter, we achieved overall revenue growth of 2% sequentially and 15% over the prior year, with adjusted EBITDA margins of 16%. You will recall that in our prior earnings call, we explained the impact of several onetime items in the third quarter of 2021. We therefore expected Q4 to come in with lower margins. However, the team did a great job executing, which enabled margins to come in above our guidance and over 400 basis points above the fourth quarter of 2020, a remarkable achievement in just one year. In addition, we generated $49 million of free cash flow during the quarter and $278 million for the full year. We also achieved two consecutive years of positive free cash flow, the first time in 30 years that that has happened in Weatherford. 2021 was a significant year for us with several notable milestones and I think it is worthwhile to reflect on how far we have come in a relatively short period. We fully returned to the public market on the NASDAQ Stock Exchange as WFRD. This move was driven by confidence in our operating posture and commercial profile to create sustainable profitability. Our return allows a broader base of investors the opportunity to participate in that value creation. We also strengthened our capital structure by using the cash generated from the business to pay down debt and…

Thank you, Girish. Before I review our fourth quarter and full-year 2021 results, I will remind us all of the segment changes implemented in the fourth quarter. We recently announced realigning how we report our results to three product lines: Drilling and Evaluation, or DRE; well construction and completions or WCC; and Production & Intervention, or PRI. The updated reporting structure better aligns with the company's focus and business strategy around the well life cycle, designed to drive improved customer collaboration and growth opportunities. All segments provide services to core oil and gas and new energy markets. Aligning our management strategy and reporting structure further drives organizational priorities into our operating processes and investment choices. The market-leading offerings in each segment reflect the strength and differentiation of our technology and innovation. These product offerings serve as the foundation to drive growth and pull-through across our portfolio. Additionally, the seamless integration of our digital offerings and the ability to provide integrated solutions across our segments would enable continued growth in our core operations and the energy transition. Our fourth quarter results were the perfect capstone to our 2021 performance. Fourth quarter and full-year 2021 results reflect the ongoing improvements in our operations and go-to-market strategies as we navigate an environment of inflation and increasing complexity. Consolidated fourth quarter 2021 revenues were $965 million, an improvement of 15% year-over-year and 2% sequentially, primarily driven by a 27% year-over-year increase in service revenues as we saw improvements across all of our segments. Seasonally higher product revenues drove a 2% increase in revenue sequentially, partially offset by the seasonal slowdown in service-related activity. Fourth quarter operating income was $33 million or 3% of revenues, increasing $140 million year-over-year and decreasing $38 million sequentially. Adjusted EBITDA for the fourth quarter was $154 million and adjusted…

Thanks, Keith. Our 2021 focus areas have yielded terrific results, but even more importantly, have laid the groundwork for improved processes and procedures in the organization. We will continue to drive rigor and discipline in those areas, but recognize that we have new demands and needs and our 2022 focus areas will drive our growth and execution strategy. We have four key themes for 2022 for Weatherford: fulfillment, directed growth, excellence in execution, and simplification. We refer to all of our customer delivery mechanisms as fulfillment, and this is a core area of how we operate. We are evolving from a set of independent product lines with their own fulfillment mechanisms to a globally-integrated business with a contemporary and industrialized network of factories and repair and maintenance centers. This will drive excellence in service delivery and customer satisfaction while significantly improving efficiencies. This is a significant change that is a multiyear journey, but we are starting on our first important steps this year. It will affect multiple aspects of the company from how we manage inventories to our supply chain and logistics functions. We have demonstrated that we can take on significant challenges and deliver operating improvements in a deliberate and focused fashion and I am confident this effort will be the same. Our second focus area is directed growth. For the first time in five years, we are going to grow the top line of Weatherford, but in a focused fashion with an emphasis on profitability. Our growth strategy for the year will be driven by technology differentiation and we will increase investment in innovation. We believe that innovation is the best option for pricing and share increases and will arm our commercial teams to drive those imperatives, starting with our market-leading offerings. In a growth scenario, our third…

Thank you. We'll now begin the question-and-answer session. Today's first question comes from Ian MacPherson with Piper Sandler. Please, go ahead.

Thanks. Good morning, gentlemen.

Good morning, Ian.

Girish, I appreciate you balancing the multi-year cyclical tailwinds with the lingering inflation and disruptive headwinds in the market with supply chain, et cetera. But when we look at your full year outlook of around 10% growth, it would not appear to reflect much gross or net pricing traction in your international markets. And we know that the pricing climate is heating up earlier domestically in the U.S. than it is internationally. That's intuitive. But when you see the building pipeline of contract tenders internationally, can you discuss how receptive your international customers are to the need for Weatherford and peers to raise pricing in this inflationary environment?

Sure. Ian, I think, it's a really important point. I think a couple of things that are at play here. I think you hit the nail on the head, it's really long-term contracts versus the transactional pricing model in the U.S. So I think part of our sort of evolution here is that we already have a number of contracts in place. So, as we get new contracts in, that's where the pricing increases typically take hold and those are for us -- and we've announced a series of them -- those are typically back-end loaded for us. So we'll see that more in the second half of this year and then going into 2023. So that's one big effect of why you see some of the numbers lay out the way you do. Look, on your question on receptiveness, I don't think generally any customer is that open to saying, come in pricing, but I think everyone understands the situation. But they all wanted to be within reason. I think they're having constructive dialogues and conversations and we are looking at ways to both cut costs to increase margins but also to raise prices. So it's a combination of both. But I would say, there is a sense of rationality, there's constructive dialogue. But at the same time, especially in the international markets, in certain geographies and markets, there's a lot of local players that do tend to compete at a different level of thresholds that we've just got to surmount.

Makes sense. One element of your outlook caught my attention, and that was the trajectory that's indicated for production and intervention, which appears to have more of a sequential decline in Q1, but also guided the highest full year growth rate, which implies more of an upward sloping trajectory for those businesses. And I wanted to ask if that is related more to specific contract backlog that informs that trajectory? Or if you're expecting more of a geographic evolution within that business as the year unfolds?

Yes. So I think there's a couple of things and I'll ask Keith to weigh in as well. I think, first of all, as we have pointed out a couple of times in our prepared remarks, the whole industry is facing the supply chain and logistics headwinds and we've had a set of them that is really impacting us, especially in Q1 that we are working hard to mitigate, and so it's a bit of a balanced view. So, that really starts to alleviate as we go through the rest of the year, improving in Q2 onwards and especially towards the second half. So that's what you see. The second thing to remember is, it's the production business, but it's also intervention services. So as we have more wells that come on stream, if you will, and you actually have a degree of greater drilling operations, the intervention services portion will also pick up, and we expect that to be a bit more back-end loaded. So, that's really what it is. But it is a segment. Look, we've got some fantastic products and service offerings, so we're excited about that. We've also got a significant portion of our digital offerings in this space -- our production automation software. So again, a lot of that kicks in a little bit later, which is why you see us being a bit more bullish on that toward the rest of the year. Keith, anything you want to add?

I think you nailed it very well there, Girish. Ian, we have some very specific things happening around logistics and supply chain that will impact the PRI business more so than the others because of the size of the equipment there. So as that works itself through the fulfillment the fulfillment organization, we have to balance what we planned for Q1 and what flows over into Q2. And that, I feel specific to that. And also, we have to think about the FX impact of the European currencies that have weakened against the dollar given the geopolitical situation. That's a translation effect and also just thinking through some of our slower contract consumption. So we have lost these contracts. The customers have just pushed some timing out. And so we still expect strong growth in PRI across the year.

Thank you, gentlemen.

Thanks, Ian.

Our next question today comes from Doug Baker at Benchmark. Please, go ahead.

Thanks. The previous question kind of touched on this a little bit, but I wanted to get more color on the margin guidance by reporting segment and just the thoughts on the trajectory by reporting segment as we go through the year.

Sure. So, we haven't given margin guidance by reporting segment. We gave consolidated margins. And also, what we have done is looked at the balance of precisely how we think the revenue will unfold across these segments more so. So, if there's something specific you want to ask about a particular segment, we're happy to try to feel that.

Would just be fair to characterize that we see pretty consistent margin progression through the year in each of the segments. Maybe that's a high-level way of framing it.

Yes, I think to a certain extent, Doug, we will. Obviously, there's going to be some impacts of mix and how that unfolds within the segments because we've also got a balance of that. But I think broadly speaking, what we would look to see is margin expansion each quarter. Look, similar to last year. Last year was very different in terms of the magnitude that we saw and then Q3, we had the sort of effect of several one-time items. But as you've seen throughout the year of 2021, we have made steady progress and steady improvements as we sort of really dig into our initiatives and we sort of get the traction from them, we will expect to see continued improvement over the course of the year with an exit rate that's hopefully better, which is why our overall blended effect for the year is what we've laid out at the guidance.

Okay. And then you highlighted that EBITDA conversion should be pretty high as we go through the cycle. Just any way to frame that EBITDA conversion to cash flows? We think, say, three years out?

Well, I don't know if I can give three years out a view. But when we think about 2022, we think we'll have strong conversion, but we think we will have less free cash flow than 2021, simply because of the requirements to invest in working capital, the requirements to double our CapEx expenditures, and as we've become a more profitable company in certain geographies, we'll have more cash taxes and we'll be maintaining about the same level of investment in restructuring. So, that says that we will still be positive on free cash flow for the year, given the interest savings that we have created to help fund these expansionary investments. And we're hoping to maintain that trajectory with given the steadiness of our margin profile across the next two to three years.

And just to be clear, I wasn't trying to get a specific number -- three years out. We live in an uncertain world. But maybe what do you consider a high conversion or just a target to think about over the longer term?

So, over the longer term, I would say that EBITDA to operating cash flow at the moment, we are in the -- I think the 60% to 70% range. When I think about that on a full year basis, I think that's something we can probably easily maintain because that just says that we have to make sure that our working capital mechanics are operating as efficiently as we have them today. So, if you look at how we performed over the course of 2021, we've taken 26 days out of our net working capital cycle overall -- 14 days out of inventory, 11 out of AR. That kind of pushes the boundaries, but we still are pushing the teams to do better. So those are the kind of the mechanics that we have to keep monitoring.

Fair enough. Thank you.

And our next question today comes from Greg Brody of Bank of America. Please, go ahead.

Hey, guys. Good morning.

Hey Greg.

First question. I didn't hear an update on the credit facility. Curious if you could tell us where that stands or how you're thinking about that today?

Sure. So we are working diligently with our banks. We are still working through that process. They were waiting to see what our Q4 print looks like, of course, and that is out today. So we will get back into the dialogue and discussion with that process. We've looked across the industry as a whole as well and we've seen very little banking facilities being given back to OFS companies or ones that I can now point to saying that there's a loosening of the bank market towards us, but we have positive conversations happening. We're working through it, and we should have an update in coming quarters.

Got it. So, nothing emitted here. It sounds like you said coming quarters. It could be a couple of quarters until we get a resolution here.

I think it comes down to getting terms and conditions that we find acceptable for the organization. We could probably sign a facility tomorrow, but it probably wouldn't be in the best interest of Weatherford.

And that's really the focus here, Greg. As we have demonstrated over last year, we are very focused on reducing our interest expense. We know we've got to address the capital structure. We have taken a huge set of steps towards that last year and improved where we stand. We have also got the stub hanging out there at $300 million. We know we've got to address that. But we are going to do everything to make sure that the company is set up and protected for the longer term versus just get it in place for the sake of getting something in place.

Yes. And the stub will be addressed as we continue to generate free cash flow that we don't need to reinvest in the business, we will address the stub. Last year, we generated $278 million of free cash flow. We took $200 million of that, repaid the stub, and we took a $100 plus million to pay the fees to fund the refinancing. So we are focused on the capital structure, so there are some things that we know we can do ourselves and there are some things that we're going to look to the bank market to provide support for.

I appreciate the update there on that. Maybe just turning gears. You've mentioned -- the first question was about inflation and you've highlighted that you have a number of long-term contracts. So, you're not necessarily going to see revenues increase as a result of this today. You did guide to better margins this year. So what I'm trying to figure out is, do you have the ability to pass inflation through to customers on these older contracts? Or are you simply finding ways to address it through operating cost savings?

Yes. So it's a mix, Greg. So we've got labor inflation typically that we can pass along and we do in pretty much all circumstances. And then we've got a mix in terms of material inflation and it really depends? If you look at our portfolio mix, we've got a fairly high degree of service-related offerings. So it's not really that product-dependent. And the product business tends to be a little bit more transactional, if you will. So, I think we're overall well-protected on that front. But as we get the longer-term contracts, the bigger point is really that they sort of really kick in the latter part of the year.

All right. And then just on the free cash flow line items. You usually get this from me, so I'll just run through the ones -- restructuring, I think you said it would be the similar level of investment this year. Does that mean we should see a $30 million number of this year?

I would think it would be higher than the $30 million, but I don't think it will be much higher than the $30 million. So, I would put that number between $30 million and $50 million at this time. And so, we're still working through our plans, as Girish says in his opening. One of our major strategic focuses this year is our fulfillment system and that could mean that we are working through how we make things and deliver things, consolidating footprint, working on the back end of our warehouses and so forth. So, there's probably going to be some restructuring investment that we will have to make into that.

And again, Greg, the other thing I would just add is we've talked about multiple times. Our focus on restructuring is dramatically different. We're really looking at a very rigorous set of business cases and it's all about payback and until we are absolutely sure and we are doing it in sort of a metered approach where we fund a little bit, we get the benefits, then that sort of leads to the next piece, et cetera. So we're being very thoughtful, very careful and very deliberate about where we do it. It is just like any other investment that we put into the company with us having a high degree of confidence and it's going to pay off.

All right. And just a few others here. So working capital, that's a trend we should expect to trend with revenues and where you've been seeing payables and just and receivable days. Right?

Yes.

The E&O inventory charge, is there some number we should be thinking about there as an add-back or a deduction? Or do you have that in your margins and you're sort of taking it out ?

It's in our margins. It's included in our EBITDA margins. We just have to adjust it for cash flow purposes. So, yes.

Is there going to be an adjustment that we should be thinking about this year when we run our free cash flow numbers?

So when I think at the moment, I think about it more so in terms of where are we now with the run rate. And I think the second half of 2021 run rate is probably where I'm thinking that we will start 2022 and probably take it through the year until we get through our inventory planning and fulfillment initiatives further and can get a better rate because really, it's just about working off things that are obsolete and slow moving. And also, as we think about what new demand is coming in, then that will also work with the calculation. It's a very specific calculation that looks at movement by plant and so it's one of those things where I always -- the best way to think of it is where are we running at now? If I take the second half of 2021, that's kind of what I would guide to use for the full-year until we get an update.

Can you remind us what the second half of 2021 was?

It's in the back of the deck. I think we were $12 million for the quarter, probably about the same in Q3. So that makes it about $24 million or $25 million for the half.

And we should annualize that number? Or we should just assume?

Just annualize that number for now.

And that's going to be a benefit to cash flow this year?

That's a benefit, yes, because it's an add-back.

Great. I got it. So I add $50 million back. And then the cash taxes, how should we think about that this year?

I think cash taxes this year was total $65 million or $70 million and I think that we should see that step up closer to somewhere between $80 million and $100 million.

Got it. And then last question for me. Any thoughts on additional asset sales? Or what do you categorize a disposition?

We don't forecast that. We think that that just comes in as a bump. Most of the covering analysts tend to remove it from the cash flow calculation anyway. So we just don't focus on that.

And maybe just last one strategically. How are you looking at the M&A environment? Obviously, things are -- you're in a much better position than you were last year. Are there opportunities for you to add to your portfolio?

Yes. So look -- we'll look at it, as you said, sort of opportunistically, Greg. Our focus really continues to be on riding the ship. We think we've got a tremendous amount of opportunity within the company, both to fix our underlying operating processes, but also to drive innovation and organic growth within the portfolio; so that's our overall priority. But look, if there is something that comes along that makes compelling sense from a shareholder value perspective, we'll most definitely look at it. So we're staying open and willing to engage in conversation.

That's very helpful. Listen, I appreciate the time, guys, and I will yield to you.

Thank you, Greg.

Thanks, Greg.

And the next question comes from Connor Rondon with Morgan Stanley. Please go ahead.

Yes, thanks. Two higher-level questions that are pretty related here, so often together. As you look at your CapEx budget that you're increasing, if you think about the new segment allocation here, where are you deploying most of your incremental capital? Is there a noticeable directional trend within the businesses? And then, more sort of structurally long-term; as you look at the cycle, where do you see the greatest opportunity for growth? And maybe let's parse that in terms of revenue and margin?

Thank you, Connor. Really great question. So if you think about our business and the way it is currently set up and the way we have laid it out, if you start with drilling and evaluation or DRI, that business is heavily service-oriented, where we take our tools out and we perform work. As you get down to well construction, it's a really good mix of services and product sales; so liner hangers that go into the whole cementation products and so forth. And then when you get down to the production and intervention business, it's much more products-oriented; so you know, we are building systems and leaving them behind and so forth. So when you look at our CapEx, you will see that as we look at it, we would say that easily 35% to 40% of our CapEx right now is focused on the Drilling and Evaluation segment because that's where we need new toys to go out and do things. And then you can split the remaining 60% or so between the other two product lines; and that's kind of been the long-term trend as we've gone through and re-segment this. The challenge we have at the moment now is, we're going to have to think about how we change our fulfillment practices. So there may be bigger investments in changing the footprint of our plants. And so the infrastructure CapEx may change, and that may before -- in the near-term, but that should smooth itself out and go back to this, how do we build the toolkit for the segments that we service. Girish?

Yes. No, I completely agree. And Connor to your second part of your question on where we see the long-term growth. Look, part of the way -- part of the reason we segmented the way we did is that's the way the business operates really, and it really highlights though, that we've got traction in each one of these segments. Look, in the short-term, I think we will -- in the short to mid-term, I would say, in this sort of cycle, we'll probably see a little bit more growth in our production business but also our drilling business. But then there's always a lag effect because it sort of follows the well life cycle; so we'll see construction and completions pick up where drilling takes off. Look, on the long-term, we believe, like many others in the industry, that oil and gas will continue to be a very significant portion of the energy supply of the world for a while to come, and so the production piece of it really will be something that's significant. But as we look at what we are doing with respect to digital solutions across the spectrum, we look at energy transition offerings. I would say all segments really are ones that we are excited about and think we've got strong growth prospects. And you look at it for this year, right, in terms of the guidance that we laid out. So it is a little bit more skewed towards PRI towards -- especially towards the backend; but really, we've got good growth in all of them, but it's also geography specific because we are not playing in every single market with every single product line.

That's all helpful context. Thanks very much for the color. I'll jump back.

And our next question today comes from Sean Mitchell at Daniel Energy. Please go ahead.

Hey guys, thanks for taking the question. Obviously, in the U.S., we were seeing a huge problem with labor, especially with shortage of truck drivers and whatnot. And you guys mentioned in your opening kind of narrative that you're seeing supply chain issues and bottlenecks internationally as well, given your exposure to the international markets. Can you talk a little bit more about specifically internationally, what's going on from a supply chain or bottleneck or labor issues maybe that you're seeing in the international markets? Is it similar to what we're seeing in the U.S., do you think or is it -- or is it other things?

Sure. Hey look, so I'll start with supply chain. I think those issues truly are global; it's not restricted to the U.S. alone. The logistics challenges are a little bit different just given in the U.S., the transportation infrastructure that we've got and a lot of the trucking capabilities across. But look, we are seeing very significant shortages and constraints around shipping lanes and freight charges and stuff like that. So overall, getting raw materials to factories, especially where you've got electronics components and we're doing a lot of our high-tech applications, et cetera; that is a challenge for us today on a global basis. From a labor side of it, look, it is a little bit different. I would say the U.S. has a much more fluid labor market than the rest of the world, generalizing to a very large extent. We've also got different dynamics in terms of the unionization piece, et cetera. So I would say the labor side is a tad bit more challenging in the U.S. and a little bit more stable in the rest of the world but you've got inflation aspects that are very different again by country.

Thank you.

And ladies and gentlemen, our next question today comes from Ian MacPherson with Piper Sandler. Please go ahead.

Thanks for the follow-up, Keith. I'm sorry to put you back in the hot seat with the model questions. I think the one that we didn't revisit was the step-up in stock comp that was in your EBITDA in the fourth quarter. And I was wondering if you could just rebaseline that for us for our free cash flow estimates for 2022? Thanks.

Sure. Thank you, Ian. So the fourth quarter was a confluence of a few things. The step-up related to two primary catch-up calculations. One was some phantom share program that we had, it was supposed to be paid out over two years; however, the target was hit early and that was -- so we have to accelerate the second half of the payment and the calculation into 2021. And then, we also have to true up some long-term incentive compensation programs for being -- based upon the revised outlook for 2022, we are more confident that we will hit the targets on that as well, and so that brought it up. When you look at the stock comp, the equity adjustment back to EBITDA on the quarter, I think that should normalize back in Q1 of this year back to the four or five where we are usually at each quarter.

Perfect. Thanks, Keith. Appreciate it guys.

Thank you, Ian.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn this conference back over to management for final remarks.

Great. Thank you, everyone, for joining us today. I really appreciate the engagement of the dialogue, and I look forward to speaking to you again at the conclusion of the first quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.