Weatherford: Announces 2020 Results

Weatherford International plc (OTC Pink: WFTLF) (“Weatherford” or the “Company”) announced today its results for the fourth quarter and full-year 2020.

– Revenues of $842 million in the fourth quarter increased 4% sequentially, from 15% growth in North America and 2% internationally– Fourth-quarter operating loss of $107 million and adjusted EBITDA [1][2] of $98 million– Cash provided by operating activities of $22 million in the fourth quarter and unlevered free cash flow [1] of $95 million– Full-year revenues of $3.7 billion declined 29% year-on-year, from declines of 22% internationally and 45% in North America– Full-year operating loss of $1.5 billion and adjusted EBITDA [1][2] of $459 million– Full-year cash provided by operating activities of $210 million and free cash flow [1] of $78 million– Total cash remained essentially unchanged from the prior quarter, ending at $1.3 billion [3]Revenues for the fourth quarter of 2020 were $842 million, compared to revenue of $985 million and $261 million in the Predecessor and Successor periods of the fourth quarter of 2019, respectively. Reported operating loss was $107 million in the fourth quarter of 2020, compared to an operating loss of $316 million and operating income of $1 million in the Predecessor and Successor periods of the fourth quarter of 2019, respectively. The Company’s fourth-quarter 2020 net loss was $200 million, compared to net income of $5.3 billion and a net loss of $26 million in the Predecessor and Successor periods of the fourth quarter of 2019, respectively. Fourth-quarter 2020 cash flows provided by operations were $22 million, compared to cash flows used in operations of $68 million and cash flows provided by operations of $61 million in the Predecessor and Successor periods of the fourth quarter of 2019, respectively. Capital expenditures were $54 million in the fourth quarter of 2020, compared to $73 million and $20 million in the Predecessor and Successor periods of the fourth quarter of 2019, respectively.

Revenues for full-year 2020 were $3.7 billion, compared to revenue of $5.0 billion and $261 million in the Predecessor and Successor periods in 2019, respectively. Reported full-year operating loss was $1.5 billion in 2020, compared to a $1.2 billion loss and income of $1 million in the Predecessor and Successor periods in 2019, respectively. The Company’s full-year 2020 net loss was $1.9 billion, compared to net income of $3.7 billion and a net loss of $26 million in the Predecessor and Successor periods in 2019, respectively. Full-year 2020 cash flows provided by operations were $210 million, compared to cash flows used in operations of $747 million and provided by operations of $61 million in the Predecessor and Successor periods in 2019, respectively. Capital expenditures for full-year 2020 were $154 million, compared to $250 million and $20 million in the Predecessor and Successor periods in 2019, respectively.

On a non-GAAP basis:

• Fourth-quarter 2020
  • Adjusted EBITDA ^[1][2] of $98 million declined 6% sequentially and 37% versus the combined fourth quarter of 2019, reflecting year-on-year decrementals of 14% ^[4]. Excluding the one-time gain on sale of operational assets from the third quarter of 2020, adjusted EBITDA increased by 7% sequentially
  • Unlevered free cash flow ^[1] of $95 million improved $167 million versus the combined fourth quarter of 2019
• Full-year 2020
  • Adjusted EBITDA ^[1][2] of $459 million decreased 22% versus the combined full-year 2019, reflecting year-on-year decrementals of 9% ^[4]; associated margins improved by 112 basis points year-on-year to 12%
  • Free cash flow ^[1] of $78 million improved $950 million from the combined full-year 2019

Girish Saligram, President and Chief Executive Officer, commented, “The past year was extremely challenging for our industry, and I’m pleased with the Company’s performance in a tough environment. Our focus on leveraging our portfolio, expanding margins and enhancing liquidity continued to build through the fourth quarter, resulting in strong operational performance. Fourth-quarter 2020 revenues increased by 4% sequentially, comprised of growth of 15% in North America and 2% internationally. We achieved another quarter of double-digit adjusted EBITDA margins, and full-year 2020 adjusted EBITDA decrementals were limited to 9% year-on-year. Our results are a testament to our employees’ commitment to performance and I am extremely grateful for their resilience, creativity and dedication to our customers and the Company.

“I have outlined our multi-year objective of delivering sustainable profitability and free cash flow, and in 2020 we built a strong foundation to enable the achievement of this goal. We leveraged our broad product and service portfolio, driving full-year revenue growth in strategic international markets, including a number of countries in the Middle East, despite significant reductions in activity and customer spending. We acted decisively, implementing actions that exceeded our annualized cost savings targets of over $800 million. We generated $78 million of positive free cash flow in 2020, an improvement of $950 million year-on-year, through improved operating performance, disciplined capital allocation and expenditures, and reduced working capital. In conjunction with the refinancing transactions, these actions strengthened the Company’s liquidity position, with Weatherford ending the year with $1.3 billion of total cash, which provides flexibility to operate through this environment.

“While commodity prices and industry activity have generally improved from earlier this year and we are optimistic that the market is in the early stages of a broader recovery, particularly as we look ahead to the second half of 2021, there is continued uncertainty around the timing and magnitude of a recovery, primarily due to the COVID-19 pandemic and its impact on economic activity.

“To continue our journey towards achieving sustainable profitability and positive free cash flow, we have built our 2021 cost plan assuming activity levels remain flat versus 2020 exit levels. We have also identified several focus areas to continue driving improvements. To further our margin expansion, we will continue to improve our profitability in North America, simplify our organization, and we are implementing initiatives to improve the variable cost profile of our operations. To drive our cash flow performance, we will capitalize on our margin improvements, remain disciplined when evaluating and allocating capital expenditures, and we will implement new processes to catalyze further working capital efficiencies. The achievement of these focus areas is not predicated on a recovery in market activity and we look forward to sharing updates on our progress throughout the year.”

Note: Upon completing its financial restructuring in late 2019, the Company adopted fresh-start accounting resulting in Weatherford becoming a new entity for accounting and financial reporting purposes. As required by GAAP, results up to and including December 13, 2019 are presented separately as the predecessor period (the “Predecessor” period) and results from December 14, 2019 and onwards are presented as the successor period (the “Successor” period). The results from these Predecessor and Successor periods are not comparable. Nevertheless, for discussion purposes herein, the Company combined the results of the Predecessor and Successor periods as we believe the 18 days of the Successor period in 2019 is not a significant period of time impacting the 2019 combined results and that this provides the most meaningful basis to analyze our results.

Notes:

^[1] Adjusted EBITDA excludes, among other items, impairments of long-lived assets and goodwill as well as write-offs of property plant and equipment, right-of-use assets, and inventory. Free cash flow is calculated as cash flows provided by (used in) operating activities, less capital expenditures plus proceeds from the disposition of assets. Unlevered free cash flow is calculated as free cash flow plus cash paid for interest. Adjusted EBITDA, free cash flow and unlevered free cash flow are non-GAAP measures. Each measure is defined and reconciled to the most directly comparable GAAP measure in the tables below.

^[2] In the first quarter of 2020 the Company began reporting adjusted EBITDA excluding stock-based compensation expense. Additional detail for the current and historical periods is provided in the tables below.

^[3] Includes cash and cash equivalents and restricted cash.

^[4] Decrementals calculated as the change in adjusted EBITDA between two periods divided by the corresponding change in revenue.

Leveraging Our Portfolio 

• Weatherford was awarded a contract from a major operator in Asia to deploy the TR1P^TM single-trip completion system for two deepwater wells. TR1P is the industry’s first digitally-enabled single-trip deepwater completion system. Our equipment will be used exclusively to install the upper and lower sand face completion. The award is recognition of the value that TR1P is delivering to customers, including through reductions in rig time, personnel on board, improved logistics, and eliminating the need for intervention services.
• Weatherford was awarded two five-year contract extensions from a National Oil Company in the Middle East for Liner Hangers and Tubular Running Services, including the Company’s Vero^TM automated connection integrity solution. The extensions enable Weatherford to continue to deliver on its consistent service quality and safety metrics, having gone nearly 20 years without a lost-time incident resulting from its liner hanger operations in this country, and to continue deploying technology to improve efficiencies.
• A major integrated energy operator awarded the Company a multi-year contract to provide annular Safety Valve solutions in the Caspian Sea. Apart from delivering unmatched performance, our offering utilizes unique technology that enables installations to be completed faster and safer than traditional operations.
• In the Middle East, an operator utilized multiple applications of Weatherford’s Managed Pressure Drilling (MPD) solution to drill the longest-ever offshore well section in the region (6,700 ft). The operation used pressurized mud cap drilling as well as constant bottom hole pressure applications to drill the section, install and cement a liner. The use of these managed pressure methods enabled the well to be delivered days ahead of schedule, saving the customer millions of dollars in rig time.
• Weatherford provided an integrated solution to an IOC in Argentina in the Vaca Muerta formation to complete a well in the region’s fastest recorded time. The Company combined its Revolution^® rotary steerable system, MPD, and Vero solutions, enabling the customer to drill the well’s production section in under seven days or approximately 60% off the original plan. Moreover, the Vero solution delivered the customer’s fastest-ever casing running in this field.
• The Company recorded several production-related achievements in the United States. In the Bakken, Weatherford deployed its Rotaflex^® 1160 long-stroke pumping unit for the first time, bridging the gap between ESP and traditional forms of lift, thus eliminating the need for the commonly used secondary ESP and saving the customer significant OPEX costs. The Company also received an award to install its ForeSite^® Flow multiphase flowmeter package on an operator’s wells in the Permian Basin. Additionally, Weatherford received approval from regulatory agencies in North Dakota and Texas to use ForeSite Flow as an allocation measurement tool, replacing the cost and footprint of a traditional test separator package and allowing for continuous flow measurement on each well.
• Weatherford received multiple safety awards during the quarter in the Middle East, Latin America, and Russia, including two CEO HSE awards from National Oil Companies in the Middle East in recognition of the Company’s outstanding HSE performance.

Expanding Our Margins

Full-year 2020 adjusted EBITDA margins improved by 112 basis points year-on-year, despite a 29% reduction in revenue. The corresponding EBITDA decrementals were limited to 9%, primarily due to the Company’s meaningful cost reduction actions.

Fourth-quarter 2020 adjusted EBITDA margins declined 129 basis points sequentially, largely due to the non-repeat of a $12 million gain on the sale of operational assets during the third quarter. Excluding the impact of that transaction, adjusted EBITDA margins increased 20 basis points sequentially.

Enhancing Our Liquidity

The Company maintained its disciplined focus on cash flow during the quarter and ended the year with ample liquidity. Unlevered free cash flow of $95 million in the fourth quarter of 2020 improved by over $165 million versus the prior year, despite a 37% reduction in adjusted EBITDA. Full-year 2020 free cash flow of $78 million and unlevered free cash flow of $310 million, improved by over $900 million year-on-year due to the Company’s efforts to control costs and reduce net working capital and capital expenditures, as well as the non-repeat of cash outflows in 2019 associated with the Company’s financial restructuring. Total cash of approximately $1.3 billion as of December 31, 2020 was essentially unchanged from the prior quarter and liquidity improved by approximately $270 million year-on-year as the net benefit from the refinancing transactions was bolstered by positive free cash flow.

Results by Operating Segment

Western Hemisphere

Fourth-quarter 2020 Western Hemisphere revenues of $372 million increased 18% sequentially and decreased 40% year-on-year.

In North America, fourth-quarter 2020 revenues of $201 million increased by 15% sequentially primarily due to increased Completion and Production sales in the United States and Canada and seasonal activity increases in Canada.

Fourth-quarter 2020 revenues of $171 million in Latin America increased 21% sequentially, driven by increased activity and year-end product sales in Argentina and Colombia, partially offset by lower activity in Mexico largely due to weather-related project delays.

Fourth-quarter 2020 adjusted segment EBITDA of $41 million increased $12 million sequentially and associated margins of 11% improved by 180 basis points versus the third quarter of 2020. The growth in adjusted segment EBITDA was primarily driven by increased activity and product sales in Latin America.

Eastern Hemisphere

Fourth-quarter 2020 Eastern Hemisphere revenues of $470 million declined 4% sequentially and 25% year-on-year.

In the Middle East, North Africa, and Asia, fourth-quarter 2020 revenues of $289 million declined 9% sequentially, primarily due to reduced drilling activity across the Middle East, the non-repeat of Completion and Production sales in Saudi Arabia from the third quarter of 2020 and projects reaching the end of their work scope in Asia.

Fourth-quarter 2020 revenues in Europe, Sub Saharan Africa and Russia of $181 million increased 5% sequentially, primarily due to increased Completion and Production sales in the North Sea and the Mediterranean, which was partially offset by seasonally lower drilling activity in Russia.

Fourth-quarter 2020 adjusted segment EBITDA of $87 million decreased $17 million sequentially, and associated margins of 19% declined 270 basis points versus the third quarter of 2020. The sequential decline in adjusted segment EBITDA was driven primarily by the non-repeat of a $12 million one-time gain on operational asset sales and, to a lesser extent, lower activity and product sales in the Middle East and Asia. Excluding the impact of the one-time gain on operational asset sales, fourth quarter 2020 adjusted segment EBITDA margins declined by 20 basis points.

Restructuring Charges

Weatherford recorded restructuring and other charges of $89 million during the quarter, primarily related to the Company’s facility consolidations and headcount reductions.