Good morning. So Weatherford is a well-known name in our energy services sector, but it's a very different company than it was the prior cycle. Weatherford's undergone a remarkable turnaround over the past few years, much of which can be attributed to Mr. Girish Saligram, CEO of Weatherford. Position he's held since October of 2020. Before joining Weatherford, Girish served as Exterran's COO and previously spent twenty years with GE in various positions. Girish, thank you very much for joining us today.
Dave, thanks so much for having us, and a pleasure to be here.
So let's just start with this. Weatherford's undergone a pretty dramatic transformation over the past five years, in fact, a number of investors who haven't seen your company may not even recognize it right now. Can you just bring people up to speed in terms of kind of what have been the key elements to the turnaround? What have been the critical decisions and the critical changes you made?
Sure. Look, I think it's really five major things that we've focused on, most important being the leadership team for the company. So, you know, within my first ninety days, as I evaluated the organization, the team, we pretty much made a decision to change out the entire executive team, and over time, that has evolved a little bit more as we've gone through different phases, but putting in place a leadership team that has enormously deep expertise and domain knowledge, but coupled with a sense of very, very operating focused leadership. So, you know, I kind of joke that every CEO will tell you they want leaders who are hands-on, who roll up their sleeves. I don't. I want people who roll up their pants and wade into the muck.
So that, that's the kind of leader that I look for. So putting that leadership team in place. The second piece has been being very simplistic, but having a North Star that everyone can focus on. And for us, that's really been cash generation. So, you know, we've put that out as our North Star and made sure that we've gotten the entire organization aligned around that. So it means different things to everybody, simplifying that, breaking that down, but saying, "Look, that's what the company is about." The third is creating an operating cadence and incentives that align, that help that alignment, that create that sense of rigor, that sense of perspective, but also create transparency and create focus. So that's been the third thing. So those are the three cultural elements.
The other two, first is around the portfolio strategy. What we really decided is, you know, I kind of call it my confusion view, of if you can't have what you want, you want what you have. And so we had a portfolio that wasn't perfect, but we said: Look, let's focus it on the intersection of every product line in every country. And that's what we started doing. So we took the approach, there's nothing strategic about losing money. So this romantic notion that you're gonna have these product lines that lose money in a country so they can pull others, doesn't work. Everyone's got to stand on their own two feet. So we drove that through and drove innovation through the portfolio. That now resulted in something that is an extremely differentiated portfolio.
The last piece has been the capital structure that we have, you know, started with taking Sledgehammer, and now we continue to chip away at that, which has given us enormously higher degrees of freedom.
So as you kind of broke apart the company and really dug into it, what, what were some of the, kind of the surprises, either positive or negative, as you were going through this? And maybe the product line or your regional presence, what kind of surprise-
Yeah. So I think a couple of things. On the positive side, I have been amazed and just enormously grateful for, you know, the passion that our teams have around the world for our customers, for the brand. It is incredible, especially given everything that Weatherford went through. I found myself asking people, "Why? Why, why do you stay? You know, what, what happened here?" But it is just incredible to see that passion come through. I've also been incredibly heartened by the customer support that we got. You know, I walked into the job and met all of our key customers in the first month. This was during the pandemic, so it was all on Zoom, et cetera. And I expected to get behavior about the challenges and stuff.
I was amazed because they all, to a T, said: Look, we want you to succeed. We want you because you provide a critical set of technologies for us. So how do we help? And we are rooting for you. So I think that was incredibly positive. And then lastly would be, you know, we found some really interesting things in our portfolio. Weatherford has incredible technology. Our challenge historically has been commercializing it and really making it well known. And one of my favorite examples is our multiphase flow meter. This is the industry's only, only non-nuclear source flow meter. So, you know, this is something that is now selling really well. We've got a lot of traction in the marketplace. We've got a very strong strategy around the commercialization of this, and the adoption is very strong.
So I think that's been positive. The challenge, in part, every day, has been an interesting experience, but I think it's the lack of infrastructure that probably surprised me the most. For a company that speaks with $15 billion in revenue, 85,000 people, just the plumbing, the wiring around the company, the systems, the processes around that, you know, everyone talks about Weatherford was never really integrated, et cetera.
Correct.
The sheer degree of that has been something that's taken a while to get our heads around.
Is that a legacy of all the acquisitions that happened last cycle, that it just kind of added on a product line, but nothing was built around it?
Yeah.
Is that kind of one of the reasons why Weatherford kind of-
That is-
-struggled?
That is a big reason. And again, you know, lack of that operating cadence through the company, right? Again, one of the things I talk about is Weatherford was never really designed to be what it is today. Not quite sure what it was designed for. It just sort of grew into something over time. And so that's what we're doing now, though, is fixing that infrastructure. It's kind of like moving into a house. You know, you're living there, and then you're in the middle of all of it, switching out your plumbing and your electrical system, and, oh, by the way, tinkering around with the foundation a little bit. But you're continuing to live, and you're doing fairly well.
... It's not necessarily the best place to live at the time.
No.
Sure. If going back to what you just said about the technology and the commercialization, so why wasn't the technology commercialized? What, what's the kind of what, what's sort of the roadblock or-
Yeah
the speed bump to getting technology commercial?
I think part of it, look, a lot of it just had to do with the way the company evolved. Again, that lack of integration-
Mm-hmm.
The silos that existed, the incentive systems that really didn't align. You know, it was sort of every person for themselves or every, function, et cetera. And then on top of that, you look back at the recent past, right, the last ten years, the company's strategy was get to tomorrow. That was it. It was all about survival. So at that point in time, there wasn't a whole lot of focus on, "Hey, how do we go create something for the future? How do we go invest in something and build out a platform?" So that was the reason for a lot of it. But again, look, we are benefiting from that, today.
The Middle East-
Mm-hmm
is one of. I consider one of your crown jewels.
Mm-hmm.
Kind of one of the legacies or the positive legacies-
Mm-hmm
That's left over. You have this footprint, which is pretty unique, and not a lot of other companies have it. Can you help investors understand, kind of, Saudi, if I'm thinking just maybe specifically Saudi, just to carve one area out, what are the kind of the product lines and the areas where... What, what's Weatherford's sweet spot? What, what are, what are you guys-- Where do you, where, where does your greatest success lie, which probably, versus kind of some of your larger competitors-
Yeah
-over there?
Yeah. So, you know, the Middle East is really where we have our most comprehensive portfolio. We have pretty much every product line in the company that we offer. And the way I describe the portfolio there is, you know, we have a full range of services that enables us to go toe-to-toe with everybody else in this space, and ultimately allows us to offer fully integrated contracts like we have in Oman and Saudi, for example. Provide that, but we're able to complement that with highly differentiated specialty services.
Mm-hmm.
So things like MPD, TRS, intervention, et cetera, that not only are extremely profitable and accretive to the company, but then they also serve as an enabler for bringing other things to bear. So that's really what we have. You know, having said that, as important as the Middle East is, as big as it is, and we really are excited about that region, we think it'll spearhead the growth for the next several years. We actually think we still have room to grow. We still think we are underrepresented, especially in a place like Saudi. I've talked about previously, both gas and offshore are opportunities for us in Saudi to make a bigger impact. And so we think we've still got a fair amount of headroom to grow and get some more share.
So in other words, your product line for what you're doing, you're not, you're not getting the commensurate revenue there.
Yeah, so look, it's a variety of reasons. Some of it is just, again, that lack of focus over the past several years. Some of it is we've got some technology gaps. In other areas, we've pulled back from certain things. So as we rectify those step by step, I think it'll give us a little bit more growth than maybe hopefully the market.
So I know you have a number of integrated projects, a number of LSTK projects-
Mm-hmm
In the Middle East, but I think the majority of your work is on discrete contracts?
Yes.
Can you just talk a little bit about the pricing trends and kind of maybe where pricing is? I don't know if you wanna call it out, call it any specific product lines, but just kind of curious where pricing is today, say, versus where it was two years ago.
Yeah.
Where do you see that? Is it flattening out? Is it continuing to move higher?
Yeah. Pricing is certainly better. Especially, look, 2022 and 2023, I think, were really good years from a pricing standpoint. We talked about in 2023, about 20% of our top line growth came from price. So a very significant chunk of it. You know, and it was really driven by a variety of factors, tightness of supply, especially on differentiated products and services. But there was also a significant element of just catching up and, you know, demonstrating value to customers. There's also been a focus from our customer base on locking in supply for a longer period of time, so that they have that security of supply. So as all of that has played out, you know, the pricing trend has come down. It's not as robust as it used to be.
But we think, you know, this year, for example, we think it's still a net positive. It's enough to offset the effects of inflation, because we are still feeling that to a fairly large degree, but we have enough price to offset that and a little bit more. And we think we've still got an opportunity as we head into 2025 and maybe 2026, to still push that pricing lever higher. Again, but the key is differentiation. So as long as we can demonstrate that differentiation, demonstrate the value to customers, we think we can get that. I think the industry's been very disciplined on this cycle to not create a glut of capacity that typically drives it down.
In terms of, so pricing sort of, I don't know, I guess the trajectory is kind of flattening out here. And what's the cause behind that? We've seen Saudi make a number of changes to their capital program. Is it related to that? Is it related to oil prices? Is it just-
No
-the nature of the, the-
Yeah
-of the pricing cycle?
I think it's much more related to the pricing cycle, right? So we've priced it in. You've now got contracts that are much longer term. You've just increased prices. You know, you're starting to see the effects of inflation moderate a little bit. So all of those factors go into it. We still see a robust demand scenario. We still see demand increasing from an activity standpoint over the rest of the decade. So I think all of that goes into it. So again, I think it'll be a net positive, but not to the extent it was in 2022 and 2023.
... So I don't, we don't have great visibility in the Middle East market, but it seems to me we haven't seen a lot of LSTK tenders out there recently. Is there a reason for that? Why aren't we seeing more of that? I thought the whole market was gonna-
Yeah.
You asked me three years ago, I thought the whole market was gonna go this direction.
Yeah, and look, again, three years ago, I would have told you that, well, at that point I would have probably said, "I hope not," but look, we've never had that view, and we think there is a balance, right? There's some customers that will go a little bit more, a little bit less, but we don't think anyone's gonna, you know, necessarily completely shift and go one way or the other, so we are seeing tenders in the market. There are some, but look, these tend to be very lumpy. You know, they don't, they don't come at a steady run rate, so we have seen a little bit. Obviously, in Saudi, there's a little bit of a change right now, so that's paused things to a certain extent.
You know, we just really ramped up over the course of last year on the contracts that we had. We're executing at full speed today in Oman and Saudi. For us, look, the way we've thought about these integrated projects, we're very, very selective about them. So we don't go bid on every one. We only really focus on the ones where we know we can execute, we can deliver value, and get a margin profile that is within the envelope that we look at. You know, these contracts do tend to be lower margin, just given the pass-through services, but they're great from a cash flow conversion standpoint.
Last question on the Middle East. Is this a market you wanna get bigger in? I mean, you've talked about kind of getting some more of your share back, but beyond that, are there M&A opportunities, or is this more of an organic?
Yeah, we really... Look, the bulk of our focus on growth tends to be organic. That's what we think about. On the inorganic side, we've done some stuff. So what we always look at is when we do inorganic deals, we think about them, is what is the potential, especially in places like the Middle East, where we've got that footprint, and it's a much easier channel, and we can scale up. So we're probably not really focused on, hey, we're gonna do a deal specifically around that region. Those regional plays are quite different, but again, differentiated technology that we can bring to bear, we think has got an exaggerated value proposition in that region.
I'd like to shift over to another part of your story, which I think is maybe underappreciated, Deepwater.
Mm-hmm.
You have a couple of really unique product lines that are lined up there that I'd like to understand a little bit more. The two tubular running services, managed pressure drilling, are kind of the two ones that really stick out to me. So starting with TRS, there's only a handful of players in this market. So what sets your technologies apart here? And, I'm also curious, this is a rental business.
Mm-hmm.
So do you need to replace or add capacity? Where are you on that? Obviously, we've got fewer rigs than we had two years ago. So on those two things.
Yeah. So I'll come back to TRS in a second, but first, let me point out, look, MPD and TRS are certainly the sort of hallmarks of our offshore deepwater strategy, but we've also got a very strong presence in intervention services. I'm very excited about what we're doing in completions now on the offshore space. So we've got a lot of other things that go in beyond just the ones that we talk about. But look, on TRS, our strategy, our focus has been really around automation. That's what we've been driving with this TRS business.
TRS is a product line that is as old as the sector, and it has been typically involved a lot of manual operations, a lot of people on the rig floor, especially in the red zone. You know, huge safety concerns in this business, so think about an offshore rig. Historically, you would have six to eight people go out to do a TRS job. We've now changed that with our Vero system to essentially be one person sitting inside a, you know, module in the control room, operating a joystick, and we've enabled that with, you know, we've got obviously mechanization, the hardware that comes with it, but we've got software and artificial intelligence algorithms in there that completely take out human intervention, so that's really the focus for us. Now, what that enables is dramatically lower labor costs.
It is much better connection integrity, and from a safety standpoint, it's unparalleled because you're taking people out of the red zone. So those are the kinds of things. We're now deploying artificial intelligence to do positioning. We have just put in place a new, we launched a new system called StringGuard that also gives a much higher degree of reliability and essentially gives customers a very high degree of assurance that there will never be a drop string incident on their rigs, so things like that. Now, in terms of the equipment, you know, we've got a fair amount of equipment. We continue to build more Vero systems. That is a big part of our, our CapEx for the TRS business, but it's something that we, you know, are very comfortable.
There is a lead time, but as we see the rigs out there, you know, we think we've got more than enough equipment, and there's a lot of fungibility on moving things around, between rigs. So, we think as the offshore story continues to unfold, there will continue to be big opportunities. This is really, as you said, a rental business, but more importantly, it is a service that comes with that rental, and it's that service that is critical.
Interesting. So the other one is MPD.
Mm-hmm.
So MPD, this is something we've been talking about, I wanna say, for 15 years. I mean, we heard this ad nauseam. It never really happened, and then all of a sudden now, every deepwater rig needs an MPD system.
Mm-hmm.
So what's changed in recent years? Why is this all of a sudden in a critical technology that... But it's not just offshore, I know. It's not just offshore, it's also onshore as well. So maybe kind of talk about the evolution of that tool.
Yeah. So what it's really, I think, it's customer adoption and realization. You know, as we have sort of really proven out the technology and seen the efficacy, the well integrity, the loss reduction on fluids, et cetera, all of that has really led customers to the point that they really have understood that this is a better way to drill. So we are very, very excited, obviously, about MPD. It's our flagship product line. Global leader in this for several years. You look at today, Deepwater exploration, for example, most customers will tell you that they will simply not drill without MPD on the rig. And this is, on the Deepwater side, it tends to be our highest end MPD systems. We've got a very close working relationship with the drilling operators, the drillship operators.
You know, all of them, we work very closely with them. They recognize that MPD enablement is an important part of their strategy, and it's also a better way for them to manage their business. So, you know, we look at it in terms of different business models. There's rentals, but we also do capital sales to them. When we do the capital sales, we really look at how do we augment that with a services element that comes through. Because it's ultimately, it's the technology, it's the service, the personnel, the software, all of those things that really go hand in hand, not just the technology. But look, the other thing we're very excited about with MPD is we've just launched this program called Motus. Motus is a new product introduction.
It's aimed at the performance tier of the market, and that opens up a whole new segment of MPD, of wells that customers had not used MPD for before, that, that come into play, and one of my favorite examples is the jackup market. So that's something that becomes a really interesting proposition, that now you've got a package that has the right cost point and the right footprint for the jackup space, but also on the land side. So things like that, I'm very excited about.
From a customer standpoint, is the driver for MPD like a reduction of cost or sort of a risk element there? So it's like a fluid loss, or is it for safety?
Both. Both. It's, it's really everything, right? It's a much lower degree of risk for them. You know, they really feel better with that. You can detect a kick, you know, minute kick with far greater accuracy, far greater response times. You reduce your drilling fluid losses. You have better well integrity, lower chance of blow, all of those things.
Excellent. In the remaining time, I wanted to kind of focus on some of the targets, and maybe we just go back to just the recent earnings.
Mm-hmm.
You lowered the third quarter guide a little bit, but actually full year numbers were brought up.
Mm-hmm.
Market didn't like it.
Mm-hmm.
What did the market miss? I was rather surprised. So kind of maybe just as sort of digging back and looking back on what happened, and the stock still hasn't recovered, so I'm just kind of curious. What do you think the market's missing? I've still been-
Yeah.
A little surprised as to what's going on here.
Dave, if I could tell you what that was, I'd probably do something-
I guess I'm the analyst. I should tell you.
Right. But no, look, again, you know, we had a really good second quarter. We exceeded our guidance on EBITDA. You know, cash flow was strong. The second half looks pretty good. Yes, there's a little bit of softness in revenue, but again, margins at 25%, I think there was also a little bit of a concern that margins from Q2 to Q3 were gonna drop a little bit. You know, 26% is, you know, there's really not a lot of people in that space at 26%. So, you know, so I think, look, at the end of the day, this is all about us continuing to perform. That's what we are focused on.
I try my level best not to lose a whole ton of sleep on what exactly the market missed or stuff like that. But look, in terms of our execution, you know, we still believe we've got a lot of opportunities to deliver margin expansion, which is why we laid out a thesis that goes out a few years. We think we can get margins into the high twenties, improve our free cash flow conversion to 50%, and continue to, you know, generate higher returns. Ultimately, all of that leads to a higher earnings per share. So that's really what it's about.
So in terms of getting those margin targets-
Mm-hmm.
Can you talk about where you are on the, I think you call it your fulfillment plan?
Mm-hmm.
-which is essentially a different word for transformation, cross out. So I, and I know a big part of it was taking out a lot of manufacturing facilities-
Yeah.
that were redundant. If I remember, something like a hundred and forty of them that are... Which just like a mind-blowing number to me. What's next?
Yeah.
I think there's repair and maintenance, supply chain. Can you just talk about kind of what are the next-
Yeah
Timelines here? What are the next big milestones?
Yeah. So, so look, the big phase of consolidation is over, and look, fulfillment is really focused around how we deliver to customers. Whether it's manufacturing, repair and maintenance, our supply chain and sourcing, and logistics. It's kind of that ecosystem. So 140 odd factories down to order of magnitude 20. That phase is done. It's behind us. Now it's about optimizing the footprint that we have, about making sure that our supply chain is set up to support those factories. So one of the things we talked about in an earnings call a few quarters ago was moving to low-cost countries. We are behind on this, right? People did this 10 years ago.
We're playing catch up, but what is really exciting about it is, without having done that, if we can generate EBITDA margins in the mid-20s%, once we get that finished, that's a big set of improvements. So that's well underway now, but it takes some time to work through to get suppliers qualified, then get all your material into inventory, by the time the inventory works its way through the system. So that's why we think 2025 and 2026, we will continue to see gains from fulfillment. But it's then also about repair and maintenance. How do we optimize that network? So we're working on that. We've got someone who's focused, terrific lady driving that, and we just brought in another senior leader into the company, Todd Glanzer, who started a few weeks ago.
Todd's got a terrific background at Otis, Learjet, and Dell. Really an expert on supply chain management, so he's leading this entire function and capability for us now. So we're making great progress on all of those things, leaning out those factories, improving asset utilization. That's really what the name of the game there is on the repair and maintenance side, because improved asset utilization gives us an ability to get faster inventory turns. It gives us more revenue exposure. So those are the things that we will, and you know, we think that will continue to play out over the next couple of years.
So that repair and maintenance side, is that, once again, sort of a legacy of the-
It is.
Last integration and everything?
It is.
They just kind of-
Yeah.
Wherever I need one, I put one here, and there wasn't really.
It is, it is, and it's also, look, a function, again, of how the company was run. There was all these different PNLs effectively, and everyone thought they were a PNL. So there was sub-optimization around that, and we've made it very clear now, you know, where the PNL resides, what's a cost center, who's responsible for what. So our repair and maintenance centers, their entire focus is now moving assets. Their metrics are cycle time and inventory, you know, and then everybody else can go worry about the other things that they need to go worry about.
Having covered this company for so long, I shouldn't be surprised to hear all these different things that what it was like before, but I still am.
You know, you realize that these things take time. You know, Karl, who was our CEO four years ago, when I first came, he kept reminding me, he should have seen it when I got here. So after four years, I'm kind of wanting to make sure that I'm not saying that. But look, it's. Again, though, I'm really excited. We've been able to do everything we have over the past four years with a lot of shackles around us, with a lot of constraints. Now that we've got more degrees of freedom, there's a huge opportunity for us to do a lot more.
Fascinating. At least you're busy. You have things to do, you know? You're not-
No, no worries on that.
No, no worries on that. Last question, just kind of broadly outlook-
Yeah.
looking into 2025. So how are you sort of thinking about international markets? Do you think you could see kind of international markets double digits next year? Is that a little too aggressive? What's kind of your best guess looking now, based on where oil prices are and everything you've been-
Yeah, look-
Hear from the customers?
Again, we've not given guidance yet for 2025. I'm not gonna do that today. But, you know, general, look, we still see growth. It's not gonna be to the extent it was this year, certainly not last year. So I think a slightly more moderated view, sort of mid-single digits kind of growth, but still growth. You know, then company-specific piece will give, when we give guidance, because again, we've got other things that we've got to look at, but that's what the market looks like. And we think there's a huge opportunity that for the differentiation that we have, the portfolio, one of the other things we haven't touched upon that I'm really excited about is our digital portfolio.
We just announced an acquisition yesterday, as a small technology platform, but it's really cool. It's called Datagration. You know, I heard Olivier here earlier. He was talking about the open architecture, and that is incredibly important. What you get with an open architecture is you've got all of these different systems. Who's gonna connect them? And that's really what Datagration does. It effectively, the way I think about it is, it's a plug adapter that you take with you when you go to an international location. It's that for the digital world. So it connects multiple different systems. They've got a unified data model that has over a hundred connectors already in the library, the ability to build more fast. So we are now able to give customers a completely different view of their data on a very simplified viewing platform.
They've got a dashboard called PetroVisor. They've got one now for a sustainability platform called EcoVisor. So huge applications, even outside of the OFS and oil and gas space. So very excited about that.
Great. Thank you very much.
All right, Dave, thanks so much for having me. Appreciate it.
Appreciate it, Nick.