Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. [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 third quarter 2022 conference call. I am joined today by Girish Saligram, President and CEO and Desmond Mills, Senior Vice President, Chief Accounting Officer and Interim CFO. We will start today with our prepared remarks and 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 third quarter earnings press release, which can be found on our website. As a reminder, today’s call is being webcast and a recorded version will be available in Weatherford’s website following the conclusion of this call. 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 by thanking the entire Weatherford team for their continued focus on our customers and operations. Their tireless efforts and commitment are the driving force behind an excellent third quarter of 2022. Our results reflect the team’s ethos and laser focus on ensuring that we deliver quality and performance for our customers and continue delivering free cash flow margin expansion and growth for our investors. Third quarter 2022 revenue of $1.12 billion was up 5% sequentially driven mainly by higher drilling and evaluation activity across both the North American and international markets. From a geographic standpoint, our North America business grew 11%, while international growth was 3%. I am especially pleased with our margin performance this quarter as we delivered EBITDA margins of 19.1% and expansion of over 160 basis points sequentially and generating $133 million of free cash flow driven by strong pull-throughs on higher service activity and solid execution across the board. We continue to experience inflationary pressures and supply chain bottlenecks. But our focus on cost discipline, changing our operating paradigm and pricing have enabled another strong quarter of margin expansion, getting us closer to a sustainable rate of high-teens EBITDA margins. I have talked in prior calls about our ability to not just survive, but thrive. And the third quarter is another clear marker of us delivering value and having the potential to do even more. We were net income positive once again in Q3 following our first instance in the second quarter after a lengthy period. The $133 million of free cash flow in the third quarter puts us at $128 million year-to-date and solidly on the way to a third consecutive year of free cash flow generation and unprecedented, but…

Thank you, Girish. Good morning and thank you everyone for joining us on the call. I will begin with our consolidated results and then move into our segment results and liquidity, cash flows and finally, with some thoughts on guidance. On our consolidated results, revenues for the third quarter of 2022 are $1.12 billion, an increase of 5% sequentially and 19% year-over-year. Operating income was $121 million in the third quarter of 2022 compared to $104 million in the second quarter of 2022 and $71 million in the third quarter of 2021. Net income was $28 million compared to $6 million in the second quarter of 2022 and a net loss of $95 million in the third quarter of 2021. We mentioned last quarter that we were aided by the recognition of certain benefits and generating positive net income. This quarter proves that we can get there operationally. Adjusted EBITDA was $214 million, an increase of 15% sequentially and 20% year-over-year showing very strong performance. Our adjusted EBITDA margins ticked up to 19.1% up over 160 basis points sequentially driven by favorable services fall-through and cost discipline overheads. Now moving into our segment results. Drilling and evaluation, or DRE revenues of $348 million increased by $31 million or 10% sequentially due to higher demand across all DRE product lines, primarily driven by managed pressure drilling and drilling services in the Middle East, North Africa, Asia and North American regions. Segment adjusted EBITDA of $85 million increased by $16 million or 23% sequentially largely due to higher fall-through for managed pressure drilling in the Middle East, North Africa, Asia and North America regions. Well construction and completion, or WCC revenues of $391 million increased by $8 million or 2% sequentially driven by cementation products in North America and Middle East, North…

Thanks, Desmond. Our results from the third quarter reinforce the rationale behind our strategic focus and imperatives as we drive revenue growth with margin expansion and free cash flow generation. The focus areas we highlighted around fulfillment, directed growth, execution excellence and simplification are providing the direction and alignment for the entire company to come together to deliver enterprise-wide objectives with a collaborative spirit. In fulfillment, our multiyear initiative to fundamentally change the manufacturing sourcing and repair network of the company, we have made some really good headway as seen by improvements in gross margin, which were up over 180 basis points sequentially. This was enabled by various initiatives such as higher sourcing from lower cost regions, inventory efficiencies and facility optimization as we have now exited over 10% of our operating facilities since the start of 2021. As we think about scaling up Weatherford, it is all about directed growth for us. We are not chasing volume for the sake of growth and are focused on ensuring that incremental revenues provide margin lift as well. The example of reentering to the U.S. with our HEX ultrahigh-temperature LWD technology, with a new business model that will allow us to leverage our technology differentiation, improve customer outcomes and provide a good return on our assets is a very illustrative example of this mindset. Excellence in execution is about improving operational effectiveness across the board from service excellence to asset utilization to working capital efficiency. This quarter, we continue to build upon the progress we have made as seen from the 3-day sequential reduction in net working capital. In a growth environment, improving our DSI by 3 days sequentially is a testament to the hard work dedication and focus of the entire team. Our overall net working capital as a percentage of…

Thank you. [Operator Instructions] And our first question today comes from Doug Baker of Benchmark Research. Please go ahead.

Thanks. Girish, you highlighted a nice list of recent awards. How much do you consider incremental versus extensions and just any characterization along the pricing that’s embedded in those contracts?

Hey, morning, Doug. Thanks for joining. And look, as you pointed out, we have had a very impressive list of wins and awards and it really look is a mix. We don’t break it out explicitly by what is extension, what is new, but let me give you some sort of flavor and color around that. A lot of these, to some extent, are continuing activity, but sometimes and in most cases with increased share, a lot of them with significantly enhanced margins due to better cost as well as increased pricing so that, that creates effect as well. And then you have got awards like the ones we just announced, which are for fourth quarter on PDO and Aramco, which are effectively new business that we have not been doing before. So, those kind of become really new incremental things. So it’s really a little bit of a mix of a variety of things. But all of it put together goes into this view that ‘23 should be double-digit growth as well as margin expansion.

Any context in terms of kind of putting our minds at ease at a lump-sum turnkey contract, historically that’s caused some consternation, just any context there?

Yes, yes, absolutely. And look these are when we say lump-sum turnkey these are not the old style what we used to do at Weatherford, EPF type of contracts that caused a lot of angst. These are really sort of front and center what we do everyday, just in a much more integrated fashion, where we have more project management responsibility for delivery to the customer. So, the contract in Oman, for example, is a drilling contract. But these are areas where we have a tremendous amount of experience already. We have been doing work in Oman for several years in not the same field, but very close by in them all. So, we have got a lot of experience on doing this work. And we have got a team and the technology to do it. It’s not significantly that much more complex. So, we feel very confident in our ability to deliver. In Saudi, the contract that we announced is really built around reentry and intervention services. That’s something that we do very well. So, it’s taking a lot of the discrete services that we provide and putting a bit more of a project management wrapper around it to deliver for Aramco in a slightly different model. So, I feel very confident in our ability to learn and deliver these things. They are slightly different, but certainly not the kind of risk that maybe conjured up with the notions of old style EPF, etcetera. That’s not what we are talking about here.

Well, that’s very reassuring. And then I will try and push the 2023 outlook just a little bit, very strong incremental margins this quarter. Is it reasonably thinking about next year given anything kind of laid out, but maybe incremental that our margins are 30% or higher, or still, we are premature to go that far?

Yes. Look, it’s a bit premature I would say, Doug, again, we have not given explicit guidance on ‘23. We will do that when we come back with our fourth quarter and total year earnings. But look, I think it’s reasonable to expect that anywhere sort of in that 25 bps to 75 bps range of margin increase is kind of normal. So, we will continue down that path. But we will come up with more explicit guidance. And look, as you know, we don’t commit to stop unless we have got real line of sight to it. I think the more important thing is over a longer term timeframe that we are committed to keep growing margins.

Thank you very much.

Thank you. And our next question today comes from Luke Lemoine with Piper Sandler. Please go ahead.

Hey. Good morning. I know we have already seen MENA and Asia reflect a good bet this year on a year-on-year basis. And as Doug mentioned you have had some recent awards with ADNOC along with Aramco LSDK contracts. But could you talk a little bit more on how you see MENA and Asia unfolding in ‘23?

Sure. Look, as we have said, Luke, we do expect solid-double digit growth next year across the board. It’s going to be spearheaded by this particular region and the Middle East more specifically now. As we report, we put them together. But I think what we will see is that region leading the way, with exaggerated growth driven by the activity in that region, as well as some of the additional contract awards and the wins that we have had and the share that we are regaining.

Alright. Thanks so much.

Thank you.

Thank you. And our next question today comes from [indiscernible] with Goldman Sachs. Please go ahead.

Hi, this is Alexa on for Ati. Good morning. I wanted to ask how are you thinking about capital allocation as you continue improving your liquidity or capital return starting to become the topic of conversation? And then just to add to that, what metrics are helping guide your capital allocation priorities, and how are you expecting that to evolve over time? Thank you.

Good morning, Alexa. So, a lot of different pieces in that question. Look, obviously, as you can imagine, as we have continued our journey, it is becoming a bigger and bigger topic. I want to put it in context there. Look, Weatherford is a company that has had some serious structural issues and that have taken several years. So, for us, it’s really important as we look to the future to make sure that we are addressing it systematically. We are addressing it methodically. And so we are very, very intentional about what we are doing around that notion. And we are driving everything to the view that ultimately it has to result in operational flexibility. But at the same time, making sure that shareholders get the maximum value. Look, our company, unfortunately, has had a history of very poor capital allocation decisions. We have also got some fairly primitive systems. So, we are making sure we have got all the plumbing in place. We are optimizing working capital, and ultimately all of that will enable us to have cash for strategic purchases. Those strategic purchases will include debt that we have seen over the last year or so. And at some point, we will start talking about returning capital to shareholders through a variety of different mechanisms. So, we have made great progress, but we are not done yet. And I expect us to continue on this notion of making significant improvements, and that cash for strategic purposes to grow. Now, what we are looking at in terms of metrics are really what we have talked about. Our ability to grow share, our ability to grow share with the right margin expansion where that’s coming from, from a pricing standpoint. What is the working capital usage in the company, are we able to drive that down, our return on assets, as well as our asset utilization, how all of that is improving as well as how we are closing that multiple gap from an external standpoint. All of those get factored in. And as we look at the overall capital structure of the company and figure out how best to allocate it.

Thank you. Appreciate that.

And our next question today comes from James Hubbard of Deutsche Bank. Please go ahead.

Hi. Good morning. Thank you for taking my questions. So, two questions. The first one is, obviously, everything looks wonderful at the moment. I am just wondering, as we look into next year, you mentioned supply chain inflation issues. And we know obviously, there is global supply chain issues. To what extent is your growth next year maybe constrained by supply chain issues? I mean we are expecting growth, obviously. But could it be even higher if it wasn’t for what’s been going on in global supply chains? And then the second question is, again, in this multi-year up-cycle, where might you want to add capacity, where is it you think you are lacking at the moment where there is an opportunity particularly suitable for Weatherford? Thank you.

Hey James. Good morning. Look, so let me start with the supply chain question. So, the short answer is no. But look, I think to elaborate on that a little bit further, we have not – this is not a new thing. We have been seeing this. We started talking about it in the second quarter of 2021, supply chain issues, inflation, etcetera. And we have been very effective at combating it and delivering margin expansion and growth while changing the fundamental operating structure of the company. So, look, our focus though, as we have talked about in the past has really evolved and changed. We are not just pursuing growth for the sake of growth and pursuing it everywhere. We are very targeted, very focused. And we are also building that on a function of what is the capacity available to us, do we have the right sources of supply, and therefore driving the optimal margin decisions and the trade-offs on where to participate in that growth activity. So, right now, we think we have got line of sight to everything that we need. Obviously, the teams are working fast and furiously to make sure that we are running the factories effectively and efficiently. We are getting deliveries out to customers, etcetera. But we don’t see barring some sort of a seismic event that we can’t predict right now. We don’t see our growth being constrained at this point in time. What I will say very categorically though is we are not adding more supply in and building additional CapEx with the expectation that the growth will show up. That is the fundamental change that we have been very explicit about. We are allocating capital where we have crystal-clear line of sight, do projects, do activity and contracts. And that’s where we are committing capital. Your second question on where we are seeing it, it’s really again, the biggest area for us is the Middle East. We have committed lot of resources and lot of investment, and a lot of capital, and we will continue to do so. But we are also seeing significant activity and growth in Latin America. This quarter, as you have seen, North America had a fantastic quarter and significant growth in North America as well. So, it’s – to a certain extent, I would say it’s almost a very secular type of a growth that we are seeing across it. And we are being very judicious about prioritizing our capital, prioritizing our tools, our resources, and making sure we get the best margins, which is why for us this intersection of product line and country becomes even more critical. And we are not just going everywhere. We are just – we are making sure that we can handle it and we can scale up with that growth in an effective fashion.

James, I would just add. This is Des Mills, that one of the most impressive things when you look at our growth for the quarter and for the year, so far, it’s been pretty broad based, right, crossing all regions and fairly steady across all regions. So, it just gives us a lot of hope in terms of the momentum as we move into 2023 that we are seeing that growth across the board.

Okay. Great. Thank you.

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

Hi. Good morning guys and nice quarter.

Thanks Gregg.

Just – you hit on the capital allocation focus. Can you talk a little bit about capital needs for next year to support your growth plan. And I recognize you are still focused on reducing debt. I am curious, as you look at the world today, how do you think about what the right debt levels are? I will start with that.

Sure. Great. So, look, I will break up the capital needs into sort of three broad buckets. The first is going to be the tools themselves that we invest in to run the business to deliver services to our customers. This year, we are spending significantly more on CapEx than we did last year. And I expect that rate to be roughly about the same. Look, historically, the industry has seen a fairly broad trend of somewhere between 5% and 7%, of revenue. Our business model as well as our product mix has changed significantly. So, we actually think our CapEx needs will be in the 3% to 5% range from a revenue standpoint. So and we will probably kind of run around somewhere in that thing and it will change a little bit on a quarterly basis. So, that’s one though, and we will continue to invest in CapEx, and we will have a year in 2023, that I expect to see a decent amount of CapEx getting spent on the heels of the range that we have given for this year. The second area of us that we will invest in CapEx is really around all of the restructuring elements that we have talked about with our operational paradigm, specifically around fulfillment, right. As we consolidate facilities, move into new ones, put what we call super centers, or multimodal types of facilities into place that will require some capital. That will pay off though in very significant OpEx benefits as we as we go forward. And we have laid that out before with some of the restructuring charges we have taken, etcetera. And that’s a process that’s well underway. The third significant area for us from a capital allocation and some of it will show this CapEx for…

That’s helpful. And just one more, that’s sort of two parts. I have asked you about Russia before. You have talked about how you can run the business. I am curious if there are any updates there that you think are relevant. Anything that’s coming? How are you thinking about that? And then clearly, you pointed towards Middle East strength? Is there any impact from the OpEx decision to pull back on or to cut back on production, or you feel like that’s not going to have an impact on long-term decisions?

Sure. So, look on Russia, really no change. Everything stays as we have stated before, and within the range that we have talked about. Look, the Middle East, Gregg, is it’s a really exciting area for I think not just us, but the entire sector. To answer your question, I don’t think that the OPEC decision is really going to have any impact per se. We continue to see tremendous amount of investment. Look, these kinds of transient changes in terms of production quotas, etcetera, will keep happening. They will go up. They will go down. That’s going to be a thing that changes every couple of months. But over the sort of short, mid-term, we see over the next 2 years to 3 years, a tremendous amount of investment. And it’s in Saudi Arabia. It’s in the UAE. It’s in Oman. It’s in Kuwait. It’s in Qatar. It’s an Iraq. So, every country and we are tremendously excited about the amount of investment that’s going on there, the commitment of not just the national oil companies, but all the affiliated IOCs and their partners into it. And we think we have got a tremendous opportunity for Weatherford. It’s evidenced by some of the wounds that we have had and the activity that we continue to see coming down the pike. So, we really think that this area is going to continue to see tremendous investment going forward.

Appreciate the time guys. Thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any final remarks. End of Q&A:

Great. Thanks Rocco. Hey, thank you all for joining the call today. And we look forward to speaking to you again early in 2023 with our fourth quarter and full year results. Thank you.

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.