Weatherford International (NASDAQ: WFT) announced its third-quarter earnings on November 1, 2024, with CEO Girish Saligram, CFO Arun Mitra, and Senior VP Luke Lemoine presenting. The company maintained an adjusted EBITDA margin of 25.2% and generated an adjusted free cash flow of $184 million.
While revenue remained flat sequentially, it increased by 7% year-over-year, driven by a 9% rise in international revenue. Weatherford also introduced a capital return program, including a quarterly dividend and share repurchases, and discussed strategic acquisitions and technology enhancements to drive future growth and margin expansion.
Key takeaways from the earnings call include:
– Adjusted EBITDA margin at 25.2% with adjusted free cash flow at $184 million, a 52% conversion rate.
– Revenue flat sequentially but up 7% year-over-year, driven by international markets.
– Initiation of a capital return program, including a $0.25 per share quarterly dividend and $50 million in share repurchases.
– Q4 revenue growth expected to be flat to low-single-digit with EBITDA margins around 25%.
Looking ahead, Weatherford anticipates flat to low-single-digit revenue growth in Q4 with a consistent adjusted EBITDA margin of around 25%. The company aims to achieve over $500 million in adjusted free cash flow for the full year, with an expected annual EBITDA growth of approximately 20%. Strategic focus will remain on margin expansion, cash flow efficiency, and enhancing technology and service offerings.
Despite challenges in certain regions, such as Latin America and the Middle East, Weatherford remains optimistic about its growth prospects. The company’s strategic acquisitions, focus on margin expansion, and commitment to returning cash to shareholders position it well for future value creation. The leadership team is confident in navigating market dynamics and improving profitability through technology, service offerings, and operational efficiency. The next update from the company is expected in February during the fourth-quarter earnings call. Slide 3 highlights our strong margin and cash performance in the third quarter of 2024, despite challenges in North America, delays in Latin America, and schedule shifts in the Middle East and North Africa. There has been a gradual softening in activity, particularly in short cycle oil projects and onshore programs, as E&P operators adopt a cautious approach. Adjusted EBITDA margins came in as expected at 25.2%, with almost 200 basis points of margin expansion compared to the same period last year. Adjusted free cash flow was $184 million, with a conversion rate of 52%. While revenue was flat sequentially, up 7% year-over-year, it was at the lower end of expectations due to delays in Latin America and scheduling shifts in the Middle East and North Africa. Despite these challenges, we remain committed to pricing discipline and margin expansion for long-term value creation.
In terms of regional performance, North America revenue was up 6% sequentially, driven by activity in Canada and the Gulf of Mexico. International revenue was down 1% sequentially but up 9% year-over-year, with the Middle East, North Africa, Asia region leading the growth. We have achieved 14 consecutive quarters of year-over-year international revenue growth, with strong performance in Saudi Arabia and the broader Middle East, North Africa, Asia region.
We have initiated a quarterly dividend and a $500 million buyback as part of our capital allocation framework. Our net leverage ratio is approximately 0.5 times, and we remain focused on retiring debt while maintaining top-tier ROIC. In terms of acquisitions, we announced Datagration in September, adding to our digital solutions portfolio. Our segment overview showcases advancements in new market penetration, technology adoption, and innovation of our products and services.
While the international market growth has decelerated, we are still seeing tender and award activity, indicating our competitive advantage. Our margin outlook remains positive, with an annual increase of 25 to 75 basis points per year, even with softer market conditions. We anticipate growth in select markets driven by differentiated technologies, with a focus on predictable, cost-competitive production and supply security for our customers. We are confident in delivering approximately 20% year-on-year adjusted EBITDA growth, over $500 million in adjusted free cash flow, and slightly more than 25% adjusted EBITDA margins for the year. Thank you. So, to address your first question, the four smaller acquisitions we have made this year have been successful in bringing complementary technologies and capabilities to our existing portfolio. These acquisitions have helped us enhance our offerings and strengthen our position in the market.
As for our future M&A strategy, we are focused on selective acquisitions that align with our product line strategies and drive value creation. We are not looking to grow scale for the sake of scale, but rather to enhance our capabilities and drive growth in key areas. We do not see any significant gaps in our portfolio that we need to urgently fill, so any future acquisitions will be targeted and strategic.
In summary, our M&A approach will be guided by our commitment to sustainable value creation and enhancing our core offerings. Thank you for your question. Girish Saligram discussed the company’s M&A strategy, emphasizing the importance of finding targets that align with their overall strategy. He highlighted recent acquisitions that have helped Weatherford pivot their business and fill out their portfolio with innovative technologies. He also acknowledged past challenges with integrating acquisitions but expressed confidence in the current integration planning process. Saligram also mentioned the potential for growth in stable market conditions by focusing on specific areas such as production optimization in mature fields.
In response to a question about outpacing modest growth in the market, Saligram noted that they are working towards executing their growth strategies to achieve incremental growth. He pointed to areas such as the successful launch of the Modus platform and the focus on production optimization in mature fields as key drivers of potential growth for Weatherford. Overall, he expressed optimism about the company’s ability to achieve growth in the current market environment. In light of the projected growth next year, how do you anticipate managing your margin profile? While more details will be provided in February, what are your thoughts on the potential to further improve already strong margins in a slower growth environment?
Girish Saligram: We may not see the same level of margin expansion experienced in the past few years, but we are confident in our ability to continue growing margins by 25 to 75 basis points in a flat to slightly upward environment. This will be achieved through internal initiatives focused on enhancing the value gap, improving execution, and increasing efficiency within the company. While we have already captured many low-hanging opportunities, there is still room for improvement, and we have the necessary tools to achieve this.
James West: Understood. Thank you.
Girish Saligram: Thank you.
Operator: Our next question is from Scott Gruber at Citigroup. Please go ahead.
Scott Gruber: Good morning. I’d like to delve further into the topic of margins. In a slower growth environment, are you considering any changes to your margin enhancement strategies? Are there specific actions you can take more aggressively, such as introducing internal technology faster or pulling certain levers more forcefully?
Girish Saligram: Our margin enhancement drivers remain consistent. Pricing will continue to be a key focus, with an emphasis on maintaining tightness in supply for differentiated products and technologies. Introducing new technology to enhance the value gap and drive efficiencies is another significant lever for us. We are also prioritizing the optimization of our fulfillment network, which includes sourcing from lower-cost countries to reduce expenses. Additionally, we are working on internal efficiencies and cost structures to further improve margins in the current environment.
Scott Gruber: Thank you for the insights. Could the pricing strategies that benefited Weatherford in the past pose a risk in a more competitive market, especially as the industry faces challenges from price inflation?
Girish Saligram: While we may have benefited from strong pricing discipline in the past, I believe that our rigorous pricing mechanism and commitment to maintaining margins will help mitigate any risks in a competitive market. We are focused on cash generation and margin improvement, and we have the necessary controls in place to ensure we remain disciplined in our pricing strategies. Girish Saligram: And so our focus on articulating the value proposition of our technology allows us to maintain our pricing. I believe the first part is fair, while the second part is not a major concern for me personally.
Operator: Thank you. Our next question is from Ati Modak with Goldman Sachs.
Ati Modak: Hi, Girish, you mentioned a new MPD award in the Middle East. Can you discuss which regions are a focus for driving growth in MPD adoption in the next 12 months?
Girish Saligram: MPD adoption is important for us, and we are seeing positive signs globally. While the Middle East has been significant, we are also seeing growth in Asia, Europe, and Latin America. We are now focusing on the performance segment of the market with products like Modus for both land and offshore applications.
Ati Modak: Thank you. Any thoughts on free cash flow cadence and cash use for next year?
Girish Saligram: We are focused on improving working capital efficiency, which has shown consistent improvement. We expect cash conversion to improve over the next three years through various initiatives.
Operator: Our next question is from Jim Rollyson with Raymond James.
Jim Rollyson: Congrats on returning capital to shareholders. How do you plan to execute buybacks going forward?
Girish Saligram: We will be cautious and consider both opportunistic and programmatic buybacks. We will monitor market signals and focus on reducing dilution triggered by employee grants.
Jim Rollyson: How impactful is your digital strategy on Weatherford’s growth?
Girish Saligram: Our digital initiatives are key to driving growth and we see them as significant pockets of growth for the company. Arun Mitra: Look, we haven’t seen any impact on collections. As a matter of fact, we had a pretty strong collections quarter. But if things slow down, history suggests that collections would slow down as well. But at the same time, you would expect inventory to build up much less or actually reduced. So overall environment, which is start growing as quickly as it was, you would expect some — actually working capital to go in a favorable direction. Now if the world falls apart and everything goes to hell in a hand basket, that of course, you would expect to see working capital unwind. But in a flat to moderately up, you would see continuous efficiency improvements. And when you ask about how soon, we have some critical dependencies. I mean concentrations. Given the significant concentration of our accounts receivable in Mexico, we are actively working to reduce this concentration. While we cannot provide a specific timeline for achieving this goal, we are focused on restructuring our operations to reduce concentration on specific customers or geographies. Once this restructuring is completed over the next couple of years, we expect to sustainably reach a 25% or better balance. Thank you for your question. Doug, Latin America has presented challenges over the past six months, particularly in Mexico. The recent elections and change in administration have caused delays, but it is still early to determine the impact. Latin America as a whole is a wildcard for next year, with Argentina showing positive signs, Colombia facing slowdowns, and Brazil maintaining steady growth. Mexico is a significant market that we are closely monitoring and adjusting our plans accordingly.
The digital production-related offerings, specifically in artificial lift and digital capabilities, present a significant growth opportunity for Weatherford. We have a comprehensive lift offering and our own SCADA platform, Cygnet, giving us a competitive advantage. Integrating these capabilities with ForeSite and Datagration allows us to create powerful algorithms for operational efficiency, especially in rejuvenating mature fields and improving production from existing wells.
The acquisition of Datagration in the third quarter was timed based on market needs and our own capabilities. Customers struggle with integrating data, and we saw an opportunity to provide a solution. PetroVisor and EcoVisor, along with ForeSite and Cygnet, will work together to provide real-time analysis and help customers optimize their operations. This integration will evolve over the next few years to meet the increasing demand for data-driven solutions. Customers are consolidating and realizing that they have valuable data spread across different systems that don’t communicate with each other. This poses a challenge in pulling all the data together. Datagration offers a solution to bridge this gap by providing a unified data model that acts as a universal plug adapter for the digital world. This allows customers to integrate various data sources quickly, in real-time, and on the cloud or on-premises.
The focus is not just on integrating with platforms like ForeSite and PetroVisor, but on delivering customized optimization solutions to customers. Datagration can deploy AI and ML models tailored to specific use cases and deliver them through a user-friendly interface on a subscription basis. This approach ensures flexibility and scalability for customers, meeting their needs in different delivery mechanisms.
Overall, the company remains optimistic about growth opportunities in the evolving market landscape. They are committed to continuing their margin expansion journey and aim to achieve over 25% EBITDA margins and generate over $500 million in cash for the year. Thank you for joining the call, and we look forward to updating you on our progress in the fourth quarter.