Weatherford International plc Ordinary Shares 2026 Q3 Earnings Call

Please go ahead, sir. Welcome, everyone, to the Weatherford International Third Quarter 2026 earnings conference call.

I am joined today by Girish Saligram, President and CEO, and Anuj Dhruv, 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 corresponding to today's call from our website's investor relations section. I want to remind everyone that some of the comments today include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially 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 earnings press release or accompanying slide deck, which can be found on our website. As a reminder, today's call is being webcast, and a recorded version will be available on our website's investor relations section following the conclusion of this call. With that, I would like to turn the call over to Girish.

Thanks, Luke, and thank you all for joining our call. I will start with an overview of our third quarter performance and near-term outlook, followed by a couple of key enterprise updates. Anuj will then cover specifics on financial performance, balance sheet, and detailed guidance. I will conclude with some thoughts on the current operating environment, our initial thoughts on 2027, and our priorities as we move forward before opening the call for Q&A. To summarize our Q3 2026 performance, we delivered revenue of $1.143 billion, adjusted EBITDA of $254 million at a 22.2% margin, and adjusted free cash flow of $155 million, representing a 61% conversion on adjusted EBITDA. Simply put, this was an excellent quarter, and I am very grateful to the One Weatherford team for continuing our track record of execution and performance.

A special note of pride in our Middle East team, who continue to demonstrate resilience and customer focus in very challenging circumstances. Total revenues grew 3% sequentially while absorbing the first full quarter without the Saudi LSTK contract, the wind down of our original Marmul contract in Oman, and a Middle East activity profile that has not returned to pre-conflict levels points to the stability and growth of the contract portfolio across our segments and geographies. Adjusted EBITDA margins above 22% is a tangible proof point that our thesis of being able to expand margins in a flat environment works, and that expansion gets amplified with even a slight increase in revenue. Our adjusted EBITDA margins expanded 204 basis points sequentially and more significantly, 39 basis points year-over-year on a 7% decline on year-on-year revenue.

Finally, adjusted free cash flow increased 57% year-over-year, demonstrating our ability to generate cash in any cycle at a high conversion level. Next, I will run through some of the dynamics across our segments and regions while highlighting near-term outlook. Revenue in the Middle East, North Africa, and Asia region was flat sequentially. That flat number absorbed two significant step downs that we told you about in July. The conclusion of the Saudi LSTK contract and the transition in Oman from the original Marmul scope to the new contract, which means the rest of the business in the region grew sequentially, led by MPD, liner hangers, completions, and wireline, and regional profitability improved across all three segments on strong fall through. To put this in perspective, revenue in the Arabian Gulf countries grew 1% sequentially with these headwinds.

At the same time, I want to be clear that the environment has not normalized. While the headlines might suggest normalization of oil exports from the region, upstream activity has not recovered fully. Rig counts in key countries are trending lower. Tender cycles have slipped. The recent escalation is a reminder that this remains an unsettled operating environment with daily operational disruptions. Our priority continues to be the safety of our people and business continuity for our customers, and our teams have done an exceptional job with both. We have deliberately not built a regional recovery into our near-term outlook. We are planning the business on the basis that the region stays roughly where it is today. The Middle East, North Africa, and Asia region represented 39% of our business in Q3.

The Kingdom of Saudi Arabia, which was 10% of enterprise revenue and 24% of the broader geo market revenue in 2025, stood at 20% of the region in Q3, reflecting the LSTK contract step down and activity reduction. At the same time, it is worth noting that the UAE, Oman, and Kuwait collectively represented approximately 41% of this region in Q3, demonstrating the diversification of revenue within the broader region. Notably, activity levels have stayed very resilient in some countries like Oman throughout the course of the year. Latin America grew 14% sequentially, driven by Mexico and the Caribbean. In Mexico, activity with the largest customer improved, and just as importantly, collections were strong and consistent throughout the quarter. We are very encouraged now that we have had several consecutive quarters of regular payments, which is a meaningful change from where we were 18 months ago.

Another highlight in the region is Venezuela, as we saw our first revenue in Q3. We will see tangible revenue contribution from Venezuela in the fourth quarter, but there will also be a significant startup cost element. Importantly, we see potential for Venezuela to ramp up in 2027 to triple-digit revenues, with further increases in 2028, and with the environment remaining stable, perhaps coming close to our prior peak in the next few years. Europe, Sub-Saharan Africa, and Russia declined 9% sequentially on lower activity across the segments, with the Norway labor strike weighing heavily on the early part of the quarter. Norway recovered as the quarter progressed, and I am especially pleased with the Equinor award, which I will come back to in a moment.

This region will remain roughly flat-ish in the fourth quarter, but I am very encouraged for 2027 and beyond with a step up in the Norwegian profile, Caspian and Sub-Saharan Africa potential. North America saw an increase in Q3, partially driven by a single-month contribution from our NCS acquisition. While the rig count has gone up, we are not expecting a noteworthy increase in overall activity levels over the next few months, but we will see a step up in our reported revenue with the full-period contributions from NCS. Slides seven through nine lay out key highlights across our segments. DRE revenue grew 14% sequentially, and segment margins expanded by over 700 basis points. Our MPD capital sales were a key driver of the margin expansion, and while we recognize this will cause some lumpiness, the long-term aftermarket opportunity is something we are further developing to provide predictable high returns.

WCC revenue grew 4% sequentially, and this segment will see all of the impact from the NCS acquisition in the coming periods. PRI revenue was essentially flat sequentially, and we remain encouraged on a positive inflection here when the Middle East returns to normal and there is an emphasis on interventions to restore production. Offshore continues to be the most durable theme over the next few years. Our core offshore offerings of managed pressure drilling, tubular running services, and interventions had another strong quarter of awards that are highlighted in our press release and investor presentation on slides seven through nine. The deepwater MPD systems we were awarded earlier this year are continuing to be delivered across the second half of this year, and every system we put on a deepwater rig grows an installed base that generates multiyear aftermarket spares and services revenue.

What we hear from customers is consistent. Deepwater sanctioning is increasing, led by Brazil, West Africa, the Mediterranean, and Asia, and this work is longer cycle, technology-intensive, and far less exposed to the short-cycle volatility we see on land. While we estimate that around 70% of drill ships either currently have or are in the process of installing an MPD system, there is a natural question of market saturation. However, we are confident that this number will continue to climb to around 85% or 90%, giving us an opportunity for several more systems over the next few years. Additionally, there is a very significant opportunity around other offshore rigs, and the aftermarket opportunity creates a more stable revenue base. Our MPD business is projected to grow above double digits this year, with further growth in 2027.

That includes an aftermarket component that will more than double this year and could further double here on in the next couple of years. Beyond these core offerings, I am very excited about our growth opportunity in offshore completions. Completions is now our largest product line, and offshore represents significant potential for the future. We announced a significant award with TotalEnergies in Denmark a couple of quarters ago, a win with Exxon in Nigeria last quarter, and in Q3, Equinor awarded us a two-year extension and a new offshore completions award to provide our integrated completions portfolio for the Norwegian Continental Shelf. Additionally, Seplat Energy awarded us a five-year contract for completions, products and services, including gas lift solutions for its shallow offshore operations in Nigeria.