Weatherford Reports Third Quarter 2018 Results

Weatherford Reports Third Quarter 2018 Results

PR Newswire

BAAR, Switzerland, Oct. 29, 2018

BAAR, Switzerland, Oct. 29, 2018 /PRNewswire/ -- Weatherford International plc (NYSE: WFT) reported a net loss of $199 million, or a loss of $0.20 per share, for the third quarter of 2018. This compares to a net loss of $256 million, or a loss of $0.26 per share, for the third quarter of 2017.

The non-GAAP net loss for the third quarter of 2018, which excludes unusual charges and credits, was $103 million, or $0.10 diluted loss per share. This compares to a $156 million non-GAAP net loss in the prior quarter, or $0.16 diluted loss per share, and a $221 million non-GAAP net loss for the third quarter of 2017, or $0.22 diluted loss per share.

Significant Highlights

Revenue in the third quarter of 2018 was $1.44 billion, a modest decrease from the $1.45 billion of revenue recognized in the prior quarter and an approximately 1% decrease from the $1.46 billion of revenue reported for the third quarter of 2017. Sequentially, seasonal improvements in Canada and activity increases in Continental Europe and Asia were offset by lower overall activity levels in the United States and unfavorable foreign exchange rate movements in Latin America.

On a year-over-year basis, higher revenues associated with integrated service projects in Latin America were offset by lower activity levels in Canada as crude oil differentials expanded, which reduced demand for Completions and Production services and products. Results in Russia were negatively impacted by foreign exchange rate effects.

Operating loss for the third quarter of 2018 was $13 million. Segment operating income in the third quarter of 2018 was $116 million, up $47 million, or 68%, sequentially and up $123 million year-over-year.

The sequential improvement was driven by seasonal activity increases in Canada and higher margins across all product line segments on reduced costs and improved efficiencies as a result of the transformation efforts.

Year-over-year operating income improvements were driven by improved efficiencies and reduced expenses as a result of the transformation processes. Higher revenues in Latin America positively impacted operating income, offsetting relatively weak results in Canada.

In the quarter, Weatherford recorded pre-tax charges of $95 million, which consist of $71 million in non-cash impairments and asset write-downs, primarily related to land drilling rigs, $27 million in restructuring and transformation charges, and $8 million in currency devaluation charges, partially offset by an $11 million credit related to the fair value adjustment of the outstanding warrant.

In the third quarter of 2018, incremental recurring benefits as a result of the transformation plan were $27 million. The total recurring transformation benefits recognized during the third quarter were $75 million, or approximately $300 million on an annualized basis, which represents about 30% of the $1 billion target.

Mark A. McCollum, President and Chief Executive Officer, commented, "I am pleased with our third quarter operating results, which once again demonstrate the strength of our transformation and its positive impact on our bottom line. With a $195 million, or 56%, increase in adjusted EBITDA year-to-date compared to this time last year, these results represent a significant achievement and reaffirm the effectiveness of our transformation plan. Our progress reflects the discipline and accountability now being ingrained in our organization. I am confident that, having achieved approximately 30% of our annualized transformation goal, we will reach our $1 billion run-rate improvement target by the end of 2019. I believe we are just starting to see what this company is capable of."

"During the quarter, we fell short of our revenue and cash flow goals, due in large part to transitory supply chain and manufacturing inefficiencies as well as continued challenges converting inventories to cash. We remain intensely focused on generating free cash flow and on reversing these trends."

"The recent announcement of the sale of our laboratory services business earlier this month, combined with the previously announced land drilling rigs divestiture, will generate close to $500 million in cash proceeds, which will be used to reduce debt."

Cash Flow
Net cash used by operating activities was $32 million for the third quarter of 2018, driven by cash payments of $156 million for debt interest and $20 million for cash severance, restructuring, and transformation offset by segment operating income. Third quarter total capital expenditures of $55 million, including investments in held-for-sale land drilling rigs, increased by $7 million, or 15%, sequentially and decreased $10 million, or 15%, from the same quarter in the prior year.


Operating Segments



Three Months Ended


Change

(In Millions)


9/30/2018


6/30/2018


9/30/2017


Sequential


YoY

Western Hemisphere
















Revenues


$

762




$

769




$

767




(1)

%



(1)

%


Segment Operating Income


$

78




$

50




$

3




56

%



2,500

%


Segment Operating Margin


10.2

%



6.5

%



0.4

%



370

bps



980

bps


















Eastern Hemisphere
















Revenues


$

682




$

679




$

693




%



(2)

%


Segment Operating Income (Loss)


$

38




$

19




$

(10)




100

%



480

%


Segment Operating Margin


5.6

%



2.8

%



(1.4)

%



280

bps



700

bps


Western Hemisphere

Third quarter revenues of $762 million were down $7 million, or 1%, sequentially, and down $5 million, or 1%, year-over-year. Compared to the second quarter of 2018, revenues in Canada improved seasonally as the rig count increased following the spring breakup, but were offset by lower results in the United States and negative foreign exchange impacts in Latin America. Year-over-year revenue increases from integrated service projects in Latin America were offset by lower activity levels in Canada as crude differentials expanded, which reduced demand for Completions and Production services and products.

Third quarter segment operating income of $78 million was up $28 million sequentially and up $75 million year-over-year. The sequential increase benefited from lower expenses and improved operating efficiencies mainly associated with the transformation. The year-over-year improvements were driven by a combination of higher activity levels in Argentina and Mexico and the positive impacts from our transformation efforts, which overcame lower operating results in Canada and foreign exchange effects in Latin America.

Operational highlights in the Western Hemisphere during the quarter include:

Eastern Hemisphere

Third quarter revenues of $682 million were up $3 million sequentially and down $11 million, or 2%, year-over-year. Sequential revenues were higher in Continental Europe and Asia on higher product sales, offset by lower services activity in the Middle East. The modest decrease in revenues on a year-over-year basis was driven by impacts on foreign exchange rates in Russia.

Third quarter segment operating income of $38 million was up $19 million sequentially and up $48 million year-over-year. The sequential improvements resulted from a favorable revenue mix in Russia and Asia combined with the transformation benefits. Compared to the third quarter of 2017, operating income improved mainly as a result of our transformation program leading to a lower cost structure across the hemisphere.

Operational highlights in the Eastern Hemisphere during the quarter include:


Reclassifications

In 2018 we adopted pension accounting standards on a retrospective basis, reclassifying the presentation of non-service cost components of net periodic pension and post-retirement cost from operating income to non-operating Other Income (Expense), Net. All prior periods have been restated to conform to the current presentation within the Condensed Consolidated Statements of Operations and other financial information in the following pages.

About Weatherford

Weatherford is one of the largest multinational oilfield service companies providing innovative solutions, technology and services to the oil and gas industry. The Company operates in over 90 countries and has a network of approximately 710 locations, including manufacturing, service, research and development and training facilities and employs approximately 28,450 people. For more information, visit http://www.weatherford.com and connect with Weatherford on LinkedIn, Facebook, Twitter and YouTube.

Conference Call

The Company will host a conference call with financial analysts to discuss the quarterly results on October 29, 2018, at 8:30 a.m. Eastern Time (ET), 7:30 a.m. Central Time (CT). Weatherford invites investors to listen to the call live and review related presentation materials via the Company's website. Conference call details and presentation materials can be found at https://www.weatherford.com/en/investor-relations/investor-presentations. A recording of the conference call and transcript of the call will be available in the Investor Relations section of the website shortly after the call ends.

Contacts:


Christoph Bausch

+1.713.836.4615



Executive Vice President and Chief Financial Officer








Karen David-Green

+1.713.836.7430



Senior Vice President, Stakeholder Engagement and Chief Marketing Officer


Forward-Looking Statements

This news release contains, and the conference call announced in this release may include, forward-looking statements. These forward-looking statements include, among other things, the Company's quarterly non-GAAP earnings per share, effective tax rate, net debt, forecasts or expectations regarding business outlook, and capital expenditures, and are also generally identified by the words "believe," "project," "expect," "anticipate," "estimate," "outlook," "budget," "intend," "strategy," "plan," "guidance," "may," "should," "could," "will," "would," "will be," "will continue," "will likely result," and similar expressions, although not all forward-looking statements contain these identifying words. Such statements are based upon the current beliefs of Weatherford's management, and are subject to significant risks, assumptions and uncertainties. Should one or more of these risks or uncertainties materialize, or underlying assumptions prove incorrect, actual results may vary materially from those indicated in our forward-looking statements. Readers are also cautioned that forward-looking statements are only predictions and may differ materially from actual future events or results, including possible changes in the expected efficiencies and cost savings associated with our transformation plans; completion of potential dispositions, and the changes in spending and payment timing by our clients and customers. Forward-looking statements are also affected by the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and those set forth from time-to-time in the Company's other filings with the Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required under federal securities laws.


Weatherford International plc

Condensed Consolidated Statements of Operations

(Unaudited)

(In Millions, Except Per Share Amounts)












Three Months Ended


Nine Months Ended



9/30/2018


9/30/2017


9/30/2018


9/30/2017

Revenues:









Western Hemisphere


$

762



$

767



$

2,287



$

2,178


Eastern Hemisphere


682



693



2,028



2,031


   Total Revenues


1,444



1,460



4,315



4,209











Operating Income (Loss):









Western Hemisphere


78



3



152



(78)


Eastern Hemisphere


38



(10)



73



(91)


  Segment Operating Income (Loss)


116



(7)



225



(169)


Corporate Expenses


(31)



(28)



(101)



(94)


Restructuring and Transformation Charges


(27)



(34)



(90)



(140)


Other Charges, Net


(71)



(1)



(159)



(26)


Total Operating Loss


(13)



(70)



(125)



(429)











Other Income (Expense):









Interest Expense, Net


(156)



(148)



(457)



(427)


Bond Tender and Call Premium






(34)




Warrant Fair Value Adjustment


11



(7)



67



58


Currency Devaluation Charges


(8)





(45)




Other Income (Expense), Net


(6)



(1)



(21)



14


Net Loss Before Income Taxes


(172)



(226)



(615)



(784)











Income Tax Provision


(22)



(25)



(80)



(75)











Net Loss


(194)



(251)



(695)



(859)


Net Income Attributable to Noncontrolling Interests


5



5



13



16


Net Loss Attributable to Weatherford


$

(199)



$

(256)



$

(708)



$

(875)











Loss Per Share Attributable to Weatherford:









Basic & Diluted


$

(0.20)



$

(0.26)



$

(0.71)



$

(0.88)











Weighted Average Shares Outstanding:









Basic & Diluted


998



990



996



989


 

 

Weatherford International plc

Selected Statements of Operations Information

(Unaudited)

(In Millions)


Three Months Ended


9/30/2018


6/30/2018


3/31/2018


12/31/2017


9/30/2017

Revenues:










Western Hemisphere

$

762



$

769



$

756



$

759



$

767


Eastern Hemisphere

682



679



667



731



693


Total Revenues

$

1,444



$

1,448



$

1,423



$

1,490



$

1,460













Three Months Ended


9/30/2018


6/30/2018


3/31/2018


12/31/2017


9/30/2017

Operating Income (Loss):










Western Hemisphere

$

78



$

50



$

24



$

(35)



$

3


Eastern Hemisphere

38



19



16



(48)



(10)


  Segment Operating Income (Loss)

116



69



40



(83)



(7)


Corporate Expenses

(31)



(34)



(36)



(36)



(28)


Restructuring and Transformation Charges

(27)



(38)



(25)



(43)



(34)


Other Charges, Net

(71)



(70)



(18)



(1,579)



(1)


Total Operating Loss

$

(13)



$

(73)



$

(39)



$

(1,741)



$

(70)













Three Months Ended


9/30/2018


6/30/2018


3/31/2018


12/31/2017


9/30/2017

Product and Service Line (a) Revenues:










Production

$

383



$

394



$

381



$

408



$

381


Completion

303



303



294



339



320


Drilling and Evaluation

357



341



358



349



347


Well Construction

401



410



390



394



412


Total Product and Service Line Revenues

$

1,444



$

1,448



$

1,423



$

1,490



$

1,460













Three Months Ended


9/30/2018


6/30/2018


3/31/2018


12/31/2017


9/30/2017

Depreciation and Amortization:










Western Hemisphere

$

46



$

56



$

60



$

80



$

89


Eastern Hemisphere

81



84



86



109



108


Corporate

1



4



1



1



2


Total Depreciation and Amortization

$

128



$

144



$

147



$

190



$

199























(a)

Production includes Artificial Lift Systems, Stimulation and Testing and Production Services. Completions includes Completion Systems, Liner Systems and
Cementing Products. Drilling and Evaluation includes Drilling Services, Managed Pressure Drilling, Surface Logging Systems, Wireline Services and Reservoir
Solutions. Well Construction includes Tubular Running Services, Intervention Services, Drilling Tools and Rental Equipment and Land Drilling Rigs.

We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, Weatherford's management believes that certain non-GAAP financial measures and ratios (as defined under the SEC's Regulation G and Item 10(e) of Regulation S-K) may provide users of this financial information additional meaningful comparisons between current results and results of prior periods and comparisons with peer companies. The non-GAAP amounts shown in the following tables should not be considered as substitutes for operating income, provision for income taxes, net income or other data prepared and reported in accordance with GAAP, but should be viewed in addition to the Company's reported results prepared in accordance with GAAP.

Weatherford International plc

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(In Millions, Except Per Share Amounts)














Three Months Ended


Nine Months Ended



9/30/2018


6/30/2018


9/30/2017


9/30/2018


9/30/2017

Operating Loss:











GAAP Operating Loss


$

(13)



$

(73)



$

(70)



$

(125)



$

(429)


Restructuring and Transformation Charges (a)


27



38



34



90



140


Impairments, Asset Write-Downs and Other (b)


71



70



1



159



26


  Operating Non-GAAP Adjustments


98



108



35



249



166


Non-GAAP Adjusted Operating Income (Loss)


$

85



$

35



$

(35)



$

124



$

(263)













Loss Before Income Taxes:











GAAP Loss Before Income Taxes


$

(172)



$

(233)



$

(226)



$

(615)



$

(784)


Operating Non-GAAP Adjustments


98



108



35



249



166


Bond Tender and Call Premium (c)








34




Warrant Fair Value Adjustment


(11)



(10)



7



(67)



(58)


Defined Benefit Pension Plan Gains (d)






(7)





(47)


Currency Devaluation Charges (e)


8



11





45




     Non-GAAP Adjustments Before Taxes


$

95



$

109



$

35



$

261



$

61


Non-GAAP Loss Before Income Taxes


$

(77)



$

(124)



$

(191)



$

(354)



$

(723)













Provision for Income Taxes:











GAAP Provision for Income Taxes


$

(22)



$

(26)



$

(25)



$

(80)



$

(75)


Tax Effect on Non-GAAP Adjustments


1



(1)







(7)


Non-GAAP Provision for Income Taxes


$

(21)



$

(27)



$

(25)



$

(80)



$

(82)













Net Loss Attributable to Weatherford:











GAAP Net Loss


$

(199)



$

(264)



$

(256)



$

(708)



$

(875)


Non-GAAP Adjustments, net of tax


96



108



35



261



54


Non-GAAP Net Loss


$

(103)



$

(156)



$

(221)



$

(447)



$

(821)













Diluted Loss Per Share Attributable to
Weatherford:











GAAP Diluted Loss per Share


$

(0.20)



$

(0.26)



$

(0.26)



$

(0.71)



$

(0.88)


Non-GAAP Adjustments, net of tax


0.10



0.10



0.04



0.26



0.05


Non-GAAP Diluted Loss per Share


$

(0.10)



$

(0.16)



$

(0.22)



$

(0.45)



$

(0.83)













GAAP Effective Tax Rate (f)


(12)%



(11)%



(11)%



(13)%



(10)%


Non-GAAP Effective Tax Rate (g)


(26)%



(22)%



(13)%



(22)%



(11)%


(a)

Represents severance, transformation and facility exit costs in 2018.

(b) 

Represents long-lived asset impairments, other asset write-downs and inventory charges, partially offset by gains on purchase of the remaining interest in a joint venture, property sales and a reduction of a contingency reserve on a legacy contract in 2018.

(c) 

Represents a bond tender and call premium on the tender offer redemption of our 9.625% senior notes.

(d) 

Represents the supplemental executive retirement plan gain that was reclassified from Operating Non-GAAP Adjustments to non-operating Other Income (Expense), Net upon retrospective adoption of the new pension accounting standards in the first quarter of 2018.

(e) 

Represents currency devaluations of the Angolan kwanza and Venezuelan bolivar.

(f) 

GAAP Effective Tax Rate is the GAAP provision for income taxes divided by GAAP income before income taxes and calculated in thousands.

(g) 

Non-GAAP Effective Tax Rate is the Non-GAAP provision for income taxes divided by Non-GAAP income before income taxes and calculated in thousands.

 


 

Weatherford International plc

Reconciliation of GAAP to Non-GAAP Financial Measures - EBITDA

(Unaudited)

(In Millions)














Three Months Ended


Nine Months Ended



9/30/2018


6/30/2018


9/30/2017


9/30/2018


9/30/2017












Net Loss Attributable to Weatherford


$

(199)



$

(264)



$

(256)



$

(708)



$

(875)


Net Income Attributable to Noncontrolling Interests


5



5



5



13



16


Net Loss


(194)



(259)



(251)



(695)



(859)


Interest Expense, Net


156



152



148



457



427


Income Tax Provision


22



26



25



80



75


Depreciation and Amortization


128



144



199



419



611


EBITDA


112



63



121



261



254













Other (Income) Expense Adjustments:











Warrant Fair Value Adjustment


(11)



(10)



7



(67)



(58)


Bond Tender and Call Premium








34




Currency Devaluation Charges


8



11





45




Other (Income) Expense, Net


6



7



1



21



(14)


Restructuring and Transformation Charges


27



38



34



90



140


Impairments, Asset Write-Downs and Other


71



70



1



159



26


Adjusted EBITDA


$

213



$

179



$

164



$

543



$

348


 


 

Weatherford International plc

Selected Balance Sheet Data

(Unaudited)

(In Millions)














9/30/2018


6/30/2018


3/31/2018


12/31/2017


9/30/2017

Assets:











Cash and Cash Equivalents


$

393



$

415



$

459



$

613



$

445


Accounts Receivable, Net


1,155



1,167



1,100



1,103



1,236


Inventories, Net


1,097



1,143



1,225



1,234



1,752


Assets Held for Sale


618



489



369



359



935


Property, Plant and Equipment, Net


2,157



2,273



2,580



2,708



3,989


Goodwill and Intangibles, Net


2,824



2,837



2,968



2,940



2,575













Liabilities:











Accounts Payable


728



754



809



856



815


Liabilities Held for Sale


49









54


Short-term Borrowings and Current Portion of Long-term Debt


396



295



153



148



391


Long-term Debt


7,626



7,634



7,639



7,541



7,530













Shareholders' Equity:











Total Shareholders' Equity (a)


(1,508)



(1,312)



(898)



(571)



1,384


(a)

On January 1, 2018, we adopted the accounting standard related to taxes on intra-entity transfers of non-inventory assets on a modified retrospective basis and the impact from
this adoption was to record the previously recorded prepaid taxes as an adjustment to retained earnings. In addition we also adopted the revenue recognition accounting standard
and recorded the cumulative effect of the changes made to our consolidated balance sheet as an adjustment to retained earnings.

 


 

Weatherford International plc

Net Debt (a)

(Unaudited)

(In Millions)








Change in Net Debt for the Three Months Ended 9/30/2018:







Net Debt at 6/30/2018 (a)






$

(7,514)


Operating Loss






(13)


Depreciation and Amortization






128


Capital Expenditures for Property, Plant and Equipment






(43)


Capital Expenditures for Assets Held for Sale






(12)


Proceeds from Sale of Assets






20


Acquisition of Intangibles






(4)


Decrease in Working Capital (b)






8


Other Financing Activities






(14)


Income Taxes Paid






(21)


Interest Paid






(156)


Other






(8)


Net Debt at 9/30/2018 (a)






$

(7,629)









Change in Net Debt for the Nine Months Ended 9/30/2018:







Net Debt at 12/31/2017 (a)






$

(7,076)


Operating Loss






(125)


Depreciation and Amortization






419


Capital Expenditures for Property, Plant and Equipment






(111)


Capital Expenditures for Assets Held for Sale






(30)


Proceeds from Sale of Assets






70


Acquisition of Intangibles






(11)


Other Financing Activities






(28)


Increase in Working Capital (b)






(158)


Accrued Litigation and Settlements






(24)


Income Taxes Paid






(87)


Interest Paid






(439)


Other






(29)


Net Debt at 9/30/2018 (a)






$

(7,629)









Components of Net Debt (a)


9/30/2018


6/30/2018


12/31/2017

Cash


$

393



$

415



$

613


Short-term Borrowings and Current Portion of Long-term Debt


(396)



(295)



(148)


Long-term Debt


(7,626)



(7,634)



(7,541)


Net Debt (a)


$

(7,629)



$

(7,514)



$

(7,076)


(a)  

"Net Debt" is defined as debt less cash. Management believes that it provides useful information regarding our level of indebtedness by reflecting cash
that could be used to repay debt.

(b)

Working capital is defined as the cash changes in accounts receivable plus inventory less accounts payable.

 

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