Weatherford International(WFRD) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements. The unaudited condensed consolidated financial statements show a reduced net loss and increased revenues, reflecting a shift to positive operating income year-over-year Condensed Consolidated Statements of Operations (Unaudited) Financial Performance (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions $) | Q1 2021 (Millions $) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 938 | 832 | 106 | 12.7% | | Cost of Services | 385 | 356 | 29 | 8.1% | | Cost of Products | 297 | 280 | 17 | 6.1% | | Total Costs and Expenses | 920 | 845 | 75 | 8.9% | | Operating Income (Loss) | 18 | (13) | 31 | 238.5% | | Net Loss | (74) | (110) | 36 | -32.7% | | Basic & Diluted Loss per Share | (1.14) | (1.66) | 0.52 | -31.3% | Condensed Consolidated Statements of Comprehensive Loss (Unaudited) Comprehensive Loss (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions $) | Q1 2021 (Millions $) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Loss | (74) | (110) | 36 | -32.7% | | Foreign Currency Translation Adjustments | — | (4) | 4 | -100.0% | | Comprehensive Loss | (74) | (114) | 40 | -35.1% | Condensed Consolidated Balance Sheets Balance Sheet Highlights (March 31, 2022 vs December 31, 2021) | Metric | March 31, 2022 (Millions $) | December 31, 2021 (Millions $) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 841 | 951 | (110) | -11.6% | | Restricted Cash | 215 | 162 | 53 | 32.7% | | Total Current Assets | 2,889 | 2,911 | (22) | -0.8% | | Total Assets | 4,684 | 4,774 | (90) | -1.9% | | Total Current Liabilities | 1,300 | 1,332 | (32) | -2.4% | | Long-term Debt | 2,416 | 2,416 | 0 | 0.0% | | Total Liabilities | 4,258 | 4,278 | (20) | -0.5% | | Total Shareholders' Equity | 426 | 496 | (70) | -14.1% | Condensed Consolidated Statements of Cash Flows (Unaudited) Cash Flow Summary (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions $) | Q1 2021 (Millions $) | Change ($) | | :--- | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | (64) | 74 | (138) | | Net Cash Provided by (Used in) Investing Activities | 9 | (3) | 12 | | Net Cash Used in Financing Activities | (5) | (9) | 4 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (57) | 58 | (115) | | Cash, Cash Equivalents and Restricted Cash at End of Period | 1,056 | 1,343 | (287) | Notes to Condensed Consolidated Financial Statements 1 – Basis of Presentation and Summary of Significant Accounting Policies - Financial statements are unaudited and prepared under U.S. GAAP and SEC rules for interim reporting, requiring estimates[15][16] - Certain reclassifications were made to conform to the Q1 2022 presentation, including a change in reportable segments during Q4 2021[18] 2 – Segment Information - Reportable segments were realigned in Q4 2021 from geographic to well life cycle-based: Drilling and Evaluation, Well Construction and Completions, and Production and Intervention[20] - The primary measure of segment profitability is now segment adjusted EBITDA, which includes R&D expenses[21] Segment Revenues and Adjusted EBITDA (Q1 2022 vs Q1 2021) | Segment | Q1 2022 Revenues (Millions $) | Q1 2021 Revenues (Millions $) | YoY Revenue Change (%) | Q1 2022 Adj. EBITDA (Millions $) | Q1 2021 Adj. EBITDA (Millions $) | YoY Adj. EBITDA Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Drilling and Evaluation | 292 | 236 | 23.7% | 59 | 29 | 103.4% | | Well Construction and Completions | 344 | 323 | 6.5% | 67 | 50 | 34.0% | | Production and Intervention | 286 | 259 | 10.4% | 39 | 41 | -4.9% | | Total Segment | 922 | 818 | 12.7% | 165 | 120 | 37.5% | 3 – Revenues - Revenues are recognized when control of goods/services transfers to customers, primarily from short-term contracts with fixed/determinable prices[23] - Revenues recognized from beginning-of-year contract liabilities were $10 million in Q1 2022, down from $18 million in Q1 2021[27] Revenues by Geographic Areas (Q1 2022 vs Q1 2021) | Geographic Area | Q1 2022 Revenues (Millions $) | Q1 2021 Revenues (Millions $) | YoY Change ($) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Middle East/North Africa/Asia | 310 | 267 | 43 | 16.1% | | North America | 238 | 214 | 24 | 11.2% | | Latin America | 227 | 176 | 51 | 29.0% | | Europe/Sub-Sahara Africa/Russia | 163 | 175 | (12) | -6.9% | | Total Revenues | 938 | 832 | 106 | 12.7% | 4 – Restructuring Charges - Restructuring charges in Q1 2022 were $20 million, primarily for severance ($14 million) and asset retirement obligations ($6 million), related to a footprint consolidation and workforce efficiency initiative[30] Restructuring Charges by Segment (Q1 2022 vs Q1 2021) | Segment | Q1 2022 (Millions $) | Q1 2021 (Millions $) | | :--- | :--- | :--- | | Drilling and Evaluation | 5 | — | | Well Construction and Completions | 7 | — | | Production and Intervention | 5 | — | | All Other | 3 | — | | Total Restructuring Charges | 20 | — | 5 – Inventories, Net Inventories, Net (March 31, 2022 vs December 31, 2021) | Category | March 31, 2022 (Millions $) | December 31, 2021 (Millions $) | | :--- | :--- | :--- | | Finished Goods | 595 | 595 | | Work in Process and Raw Materials, Components and Supplies | 89 | 75 | | Inventories, Net | 684 | 670 | Total Inventory Charges (Q1 2022 vs Q1 2021) | Caption | Q1 2022 (Millions $) | Q1 2021 (Millions $) | | :--- | :--- | :--- | | Inventory Charges in "Cost of Products" | 11 | 17 | | Inventory Charges in "Other Charges, Net" | 4 | — | | Total Inventory Charges | 15 | 17 | 6 – Intangibles, Net - Amortization expense was $39 million for both Q1 2022 and Q1 2021, reported in "Selling, General and Administrative"[34] Intangible Assets, Net (March 31, 2022 vs December 31, 2021) | Category | March 31, 2022 (Millions $) | December 31, 2021 (Millions $) | | :--- | :--- | :--- | | Developed and Acquired Technology, Net | 315 | 343 | | Trade Names, Net | 304 | 314 | | Intangible Assets, Net | 619 | 657 | 7 – Borrowings and Other Debt Obligations - Accrued interest increased from $35 million at December 31, 2021, to $71 million at March 31, 2022, primarily related to the Exit Notes, 2028 Senior Secured Notes, and 2030 Senior Notes[42] Long-term Debt (March 31, 2022 vs December 31, 2021) | Debt Type | March 31, 2022 (Millions $) | December 31, 2021 (Millions $) | | :--- | :--- | :--- | | 11.00% Exit Notes due 2024 | 300 | 300 | | 6.50% Senior Secured Notes due 2028 | 489 | 488 | | 8.625% Senior Notes due 2030 | 1,584 | 1,584 | | Finance Leases Long-term Portion | 43 | 44 | | Long-term Debt | 2,416 | 2,416 | Fair Value vs Carrying Value of Long-Term Debt (March 31, 2022 vs December 31, 2021) | Debt Type | March 31, 2022 Carrying Value (Millions $) | March 31, 2022 Fair Value (Millions $) | December 31, 2021 Carrying Value (Millions $) | December 31, 2021 Fair Value (Millions $) | | :--- | :--- | :--- | :--- | :--- | | 11.00% Exit Notes due 2024 | 300 | 311 | 300 | 31 | | 6.50% Senior Secured Notes due 2028 | 489 | 516 | 488 | 52 | | 8.625% Senior Notes due 2030 | 1,584 | 1,628 | 1,584 | 1,66 | | Long-Term Debt (excl. Finance Leases) | 2,373 | 2,455 | 2,372 | 2,49 | 8 – Disputes, Litigation and Legal Contingencies - Accrued litigation and settlements increased to $45 million at March 31, 2022, from $40 million at December 31, 2021[47] - The GAMCO shareholder litigation, alleging federal securities law violations, is awaiting a decision from the Court of Appeals for the Fifth Circuit after the District Court granted the motion to dismiss[48] 9 – Shareholders' Equity Shareholders' Equity Activity (Q1 2022 vs Q1 2021) | Metric | Dec 31, 2021 (Millions $) | Q1 2022 Change (Millions $) | Mar 31, 2022 (Millions $) | Dec 31, 2020 (Millions $) | Q1 2021 Change (Millions $) | Mar 31, 2021 (Millions $) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Capital in Excess of Par Value | 2,904 | 4 | 2,908 | 2,897 | — | 2,897 | | Retained Deficit | (2,397) | (80) | (2,477) | (1,947) | (116) | (2,063) | | Accumulated Other Comprehensive Loss | (35) | — | (35) | (43) | (4) | (47) | | Noncontrolling Interests | 24 | 6 | 30 | 30 | 4 | 34 | | Total Shareholders' Equity | 496 | (70) | 426 | 93 | (110) | 82 | 10 – Loss per Share - Diluted weighted average shares outstanding exclude potential ordinary shares (11 million in Q1 2022, 9 million in Q1 2021) due to net losses making their inclusion anti-dilutive[52] Loss per Share (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Loss Attributable to Weatherford (Millions $) | (80) | (116) | 36 | -31.0% | | Basic and Diluted Weighted Average Shares Outstanding (Millions) | 70 | 70 | 0 | 0.0% | | Basic and Diluted Loss Per Share Attributable to Weatherford ($) | (1.14) | (1.66) | 0.52 | -31.3% | 11 – Income Taxes - Tax expense was $28 million on a $46 million pre-tax loss in Q1 2022, compared to $23 million tax expense on an $87 million pre-tax loss in Q1 2021[55] - Income tax provisions are driven by income in specific jurisdictions, deemed profit countries, and withholding taxes, which do not directly correlate to ordinary income or loss[55] - Uncertain tax positions of $272 million may decrease by up to $11 million in the next twelve months due to statute expirations, settlements, or examination conclusions[56] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The company details its business, industry trends, financial performance, and outlook, noting revenue growth and improved operating income amid geopolitical and supply chain challenges Business - Weatherford is a leading global energy services company providing equipment and services across the well life cycle in approximately 75 countries[59][60] - The company's principal business segments are Drilling and Evaluation, Well Construction and Completions, and Production and Intervention, all enabled by digital solutions[61] - DRE offers managed pressure drilling and wireline services; WCC provides tubular running and cementation products; PRI focuses on production optimization and artificial lift[62][63][64] Industry Trends - Energy industry spending is heavily influenced by oil/natural gas prices, ESG initiatives, supply chain shortages, and geopolitical events[66] - Commodity prices increased year-over-year due to global economic reopening and recent geopolitical events[66] Average Oil and Natural Gas Prices (Q1 2022 vs Q1 2021) | Price Type | Q1 2022 | Q1 2021 | YoY Change ($) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Oil price - WTI ($/barrel) | 94.45 | 57.79 | 36.66 | 63.4% | | Oil price - Brent ($/barrel) | 100.30 | 60.82 | 39.48 | 64.9% | | Natural gas price - Henry Hub ($/MMBtu) | 4.66 | 3.56 | 1.10 | 30.9% | Average Rig Counts (Q1 2022 vs Q1 2021) | Region | Q1 2022 | Q1 2021 | YoY Change | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | North America | 831 | 538 | 293 | 54.5% | | International | 823 | 698 | 125 | 17.9% | | Worldwide | 1,654 | 1,236 | 418 | 33.8% | Consolidated Statements of Operations - Operating Income Summary - Revenues increased 13% YoY to $938 million, driven by increased customer activity and technology adoption[71] - Cost of products and services increased 7% but improved as a percentage of revenues to 73% from 76% due to increasing volumes and operational efficiencies[72] - SG&A and R&D costs decreased 5% YoY to $199 million, improving as a percentage of revenues to 21% from 25% due to cost improvement initiatives[73] - Operating income improved by $31 million, reaching $18 million in Q1 2022 compared to a $13 million loss in Q1 2021[74] Consolidated Statements of Operations - Non-Operating Expenses Summary - Interest expense, net, decreased to $48 million in Q1 2022 from $70 million in Q1 2021 due to debt repayments and refinancing initiatives[75] - Other expense, net, increased to $16 million in Q1 2022 from $4 million in Q1 2021, primarily due to changes in fair value of foreign currency forward contracts[76] Segment Results of Operations - DRE revenue growth (24%) was driven by demand in Latin America and MENA+ASA; WCC revenue growth (7%) was due to higher activity in North America; PRI revenue growth (10%) was from demand in MENA+ASA and Latin America[82][83] - PRI segment adjusted EBITDA decreased 5% due to higher logistics costs and supply chain challenges in North America[87] - Depreciation and amortization decreased to $87 million from $111 million, while Q1 2022 adjustments included $20 million in restructuring charges and $19 million in other charges[88][90] Segment Revenues and Adjusted EBITDA (Q1 2022 vs Q1 2021) | Segment | Q1 2022 Revenues (Millions $) | Q1 2021 Revenues (Millions $) | YoY Revenue Change (%) | Q1 2022 Adj. EBITDA (Millions $) | Q1 2021 Adj. EBITDA (Millions $) | YoY Adj. EBITDA Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Drilling and Evaluation | 292 | 236 | 23.7% | 59 | 29 | 103.4% | | Well Construction and Completions | 344 | 323 | 6.5% | 67 | 50 | 34.0% | | Production and Intervention | 286 | 259 | 10.4% | 39 | 41 | -4.9% | | Total Segment | 922 | 818 | 12.7% | 165 | 120 | 37.5% | Business Outlook - Expects continued improvements in customer activity and a multi-year energy demand expansion[91] - Anticipates 2022 consolidated revenues to increase by high single digits to low-teens above 2021 levels[91] - Key external factors influencing growth include geopolitical conflicts, COVID-19 impact, customer capital expenditures, ESG changes, and commodity prices[91] Russia Ukraine Conflict - The company is monitoring and complying with sanctions related to the Russia-Ukraine conflict[92][93] - Revenues in Russia accounted for 6% of total revenues in Q1 2022[94] - Net assets in Russia (excluding cash) were $106 million as of March 31, 2022[94] - Prolongation or escalation of the conflict and related sanctions may negatively impact business, potentially lowering revenues or triggering asset impairments[94] Opportunities and Challenges - Customers require technologies to improve productivity and efficiency, creating opportunities for specialized products and services[95] - Long-term energy demand is expected to rise, requiring more advanced technology from the energy service industry[95] - Challenges include cost reduction targets, employee retention, geopolitical impacts, ESG focus, and managing industry cyclicality[96] - Long-term success depends on managing industry cyclicality, responding to market demands, and generating consistent positive cash flow[96] Liquidity and Capital Resources - Total cash and cash equivalents plus restricted cash were $1.1 billion at March 31, 2022[98] - Cash used in operating activities was $64 million in Q1 2022, primarily due to seasonal working capital requirements, a decrease from $74 million provided in Q1 2021[99] - Cash provided by investing activities was $9 million in Q1 2022, while cash used in financing activities was $5 million[100][102] - The company expects sufficient cash from operations and cash on hand to fund short-term and long-term cash requirements[103] Operating Activities - Q1 2022 saw $64 million cash used in operating activities due to seasonal working capital, a reversal from $74 million provided in Q1 2021[99] Investing Activities - Q1 2022 investing activities provided $9 million, including proceeds from an escrow settlement and asset sales, offsetting $20 million in capital expenditures[100] Financing Activities - Q1 2022 financing activities used $5 million, mainly for finance lease payments, compared to $9 million used in Q1 2021[102] Sources of Liquidity - Primary liquidity sources are cash from operations, cash and cash equivalents, and accounts receivable factoring[103] - Expects sufficient cash from operations and on hand to fund cash requirements short-term and long-term[103] - Cash and cash equivalents of $841 million (excluding restricted cash) are the primary source of funds for liquidity event risks[104] LC Credit Agreement - $215 million senior secured letter of credit agreement (LC Credit Agreement) matures May 29, 2024[105] - As of March 31, 2022, $169 million in letters of credit were outstanding, with $46 million availability[105] Ratings Services' Credit Ratings - Moody's corporate family rating is B2 and S&P's is B-, both with a stable outlook[112] Cash Requirements - 2022 capital spending is projected to be $175 million to $200 million[109] - Expects $215 million in interest payments in 2022 and approximately $204 million annually thereafter[109] - Anticipates utilizing cash for capital assets and working capital growth as business activity returns to pre-COVID-19 levels[107] - Approximately $168 million of cash cannot be immediately repatriated from various countries due to central bank controls or regulations[110] Customer Receivables - Risks include delayed customer payments and defaults due to economic weakness, reduced customer cash flow, limited credit access, and political instability[111] Accounts Receivable Factoring - Utilizes uncommitted factoring arrangements to sell accounts receivable for cash proceeds[112] Accounts Receivable Factoring (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions $) | Q1 2021 (Millions $) | | :--- | :--- | :--- | | Accounts Receivable Sold | 17 | 6 | | Cash Proceeds Received | 15 | 5 | Guarantees - Weatherford International plc guarantees the obligations of its subsidiaries for notes and credit facilities[113][114] Letters of Credit and Surety Bonds - Total outstanding letters of credit were $382 million at March 31, 2022[115] - Surety bonds outstanding totaled $300 million at March 31, 2022[116] - Calling of letters of credit or surety bonds could reduce available liquidity[116] Forward-Looking Statements - Forward-looking statements are subject to numerous risks and uncertainties, including global conditions, regulatory compliance, and the Russia-Ukraine conflict[118][119] - Actual outcomes and results may differ materially from expressed or forecasted forward-looking statements[118][121] - The company undertakes no obligation to update or revise forward-looking statements, except as required by law[118] Item 3. Quantitative and Qualitative Disclosures About Market Risk. Market risk exposure remains materially unchanged since year-end 2021, with the exception of fair value fluctuations in debt obligations - Market risk exposure has not materially changed since December 31, 2021, except for debt fair value changes[123] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal financial reporting controls - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[125] - No material changes to internal control over financial reporting occurred during Q1 2022[126] PART II – OTHER INFORMATION Item 1. Legal Proceedings. This section refers to Note 8 of the financial statements for detailed information on the company's ongoing litigation - Refer to "Note 8 – Disputes, Litigation and Legal Contingencies" for details on legal proceedings[128] Item 1A. Risk Factors. Risks from sustained inflation and the Russia-Ukraine conflict are highlighted, supplementing the risks disclosed in the 2021 Annual Report - No material changes to risk factors since 2021 Annual Report, except for discussions on sustained inflation and the Russia-Ukraine conflict[129] - Sustained inflation could lead to higher operating costs and reduced client budgets, negatively impacting profitability if pricing cannot be increased[130] - The Russia-Ukraine conflict and related sanctions could adversely impact the global economy and the company's business, potentially leading to asset losses and operational disruptions[131][132] - Assets are generally not insured against political violence, meaning uninsured losses could be material[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - None[134] Item 3. Defaults Upon Senior Securities. This section confirms that there were no defaults upon senior securities during the reporting period - None[135] Item 4. Mine Safety Disclosures. This item is not applicable to Weatherford International plc's operations - Not applicable[136] Item 5. Other Information. This section indicates that there is no other information to report - None[137] Item 6. Exhibits. This section lists all exhibits filed with the 10-Q report, including various award agreements and certifications under the Sarbanes-Oxley Act - Includes various exhibit documents such as executive and non-executive director award agreements, CEO/CFO certifications under Sarbanes-Oxley Act, and XBRL documents[139] SIGNATURES - Report signed by H. Keith Jennings (EVP & CFO) and Desmond J. Mills (SVP & Chief Accounting Officer) on April 28, 2022[143]