Good morning, my name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, today's call is being recorded. I would now like to turn the conference over to Karen David-Green, Vice President of Investor Relations, Marketing and Communications. Ma'am, you may begin your conference.

Thank you, Carol. Good morning, and welcome to the Weatherford International Second Quarter Conference Call. With me on today's call, we have Mark McCollum, President and Chief Executive Officer; and Christoph Bausch, Executive Vice President and Chief Financial Officer. Today's call is being recorded, and a replay will be available on Weatherford's website for 10 days. Before we begin with our prepared statements, I'd like to remind our audience that some of today's comments may include forward-looking statements. These matters may involve risks and uncertainties that could cause our actual results to differ materially from our forward-looking statements. Please refer to our latest Form 10-K, 8-Ks and other SEC filings for the risk factors and cautions regarding forward-looking statements. A reconciliation of GAAP to non-GAAP financial measures is included in our second quarter press release and accompanying presentation, which can be found on our website. Christoph will now provide an overview of our second quarter results, followed by Mark's comments on our strategy and our progress of our transformation. Following these prepared statements, we welcome your questions. And now I'd like to turn the call over to Christoph.

Thank you, Karen. Revenue in the second quarter of 2018 was $1.45 billion, an increase of 2% compared to the first quarter of 2018 and 6% higher than the $1.36 billion of revenue reported for the second quarter of 2017. The sequential revenue increase was due to higher activity levels, improved product mix in the U.S., increased activity in integrated service projects in Mexico, seasonal improvements in the North Sea and higher activity levels in several countries, offset by the seasonal slowdown associated with the spring break-up in Canada. The year-over-year increase was primarily due to higher levels of production and completions work in the U.S. and increased integrated service projects activity in Mexico. In the Eastern Hemisphere, higher levels of activity in Saudi Arabia was offset by a lower amount of offshore project in West Africa and Asia, combined with adverse exchange rate effects in Russia. Operating loss for the second quarter of 2018 was $73 million. Excluding unusual charges and credits, segment operating income in the second quarter of 2018 was $69 million, up $29 million or 73% sequentially, and up $142 million or 195 year -- 195% year-over-year. The sequential improvement in the Western Hemisphere was due to higher volume, favorable product mix and improved operational efficiency associated with our transformation efforts. Eastern Hemisphere operating income increased primarily due to transformation initiatives, resulting in a lower cost structure. The year-over-year operating income improvements were driven by production and completions activity increases in the U.S., and market share gains in Latin America, combined with lower operating costs as a result of our transformation initiatives in both the Western and Eastern Hemispheres. Non-GAAP net loss for the second quarter of 2018, excluding unusual charges and credits, was $156 million or $0.16 diluted loss per share. This compares to a…

Thank you, Christoph, and hello, everyone. Once again, I'm happy to report sequential and year-over-year improvements in our operating results during the second quarter. Transforming the way on which our company does business is the most important step to improving earnings and cash flow and providing a path to reduce overall debt. Our transformation is in full force, and we now have tangible evidence of its effect on our bottom line and back-to-back quarters. With a clear mission, the right organizational structure and a solid strategy, our Weatherford team is embracing this challenge head on. And together, we have already made considerable progress toward our ultimate goals. As Christoph mentioned, impacts of our transformation initiatives were 78% higher sequentially, which was above the high end of our expectations. I'm pleased that we've reached nearly 20% of our $1 billion target. We'll make additional progress on these initiatives as our transformation continues to accelerate. We expect to approach 30% of our recurring EBITDA target by the end of the next quarter. We are running toward our goal of $1 billion in profit improvements and, internally, setting our sights on bigger targets. Our ultimate aim is to generate more sustainable value for all of our stakeholders. Shortly, I'll share our progress in key individual work streams. But first, I'd like to give a shout out to the Weatherford transformation team. Our organization has readily embraced the changes required to make these targets a reality, as shown by the results from the last 2 quarters. The transformation team is working relentlessly toward completing close to 1,600 different transformation initiatives. The results are coming fast, but that doesn't mean they're coming easy. I cannot understate the sacrifice of time and the amount of heart and dedication being put forth by our employees to get…

[Operator Instructions] Our first question today comes from Jim Wicklund from Crédit Suisse.

My question is about the Eastern Hemisphere. You note that most all of the improvement in operating income was due to the transformational efforts. There's been a great deal of talk about pricing in the international markets over the last couple of quarters. We know the international markets, at least, shallow water and onshore, are starting to improve, but it would seem like you didn't see any pricing improvement either. Can you talk about the timing of contracts, the role of contracts, the momentum you see? Can you kind of walk us through activity and price for the Eastern Hemisphere as you see for the next year or so?

Jim, it's Christoph. And a lot of moving parts, so I'll go first on the second quarter. I think, from us, the second quarter was benign growth and the main reason were some delays of equipment deliveries, so you'll see that gearing up in Q3. Going on your second question about contracts and pricing, in general, I think there are several parts to that. And we said that last quarter, and I think it's the same now, you see a mixed bag. We see some contracts with pricing pressure. And we see some contracts and bids where we have pricing opportunities. So I -- it's really not a clear trend in one or the other direction. And I would say, the most competitive area is the Middle East, whereas in other parts, we have been able to see some price improvements. Maybe on the tendering activity, we have seen an increase in tendering activity over -- and that's already last quarter, and we continue to see that. So we do expect further growth in the Middle East based on our tenders we have already won and we're building into and, again, increasing activity going forward. One last point and you've -- I think you know that for sure, many contracts are multiyear contracts in the Middle East. So one of the effects you do see is that pricing agreed a year ago, you have to work through, and that goes another year until the next tender goes out. So pricing improvement in the Middle East takes usually -- or in the Eastern Hemisphere, in general, takes usually a bit longer. Now if you deliver top service quality and your customer is very happy, you are able to, I think, sell up or get some additional opportunities to maybe improve your commercials. But I hope that answers your question.

Yes. Jim, this is Mark. And let me add to -- so I think that Christoph is exactly right. That -- off -- this is traditionally the way Eastern Hemisphere works. Our customers there bid multiyear contracts. The guy who has the sharpest pencil and the lowest cost typically wins. Your pricing opportunities typically come true in terms of providing superior service quality and then finding new technologies to sell through. I think that the market is tightening up as equipment gets back to work in many areas around the world, and that's a net positive. I think those -- as there are more lump sum turnkey integrated service contracts that are coming out. And those tend to be very aggressively bid for those who are trying to get multiple services and discount across those. And so I think some of the noise that you typically hear is if you're the guy who wins, it's typically -- you feel good about your pricing and pricing is going up. And if you lose, it's because you lost on price because people are undercutting and -- so I think that's just the nature of the game.

And heads you win, tails you win. Okay. My follow-up, if I could, let me move hemispheres to the Western Hemisphere, Mexico. You talked about lump sum turnkey projects. We all kind of remember [ Chicanopac ] years ago for Weatherford. You talked about how you've expanded your scope due to service quality in Mexico. How much capital risk do you take in that project? And if you're going to do that elsewhere, can you -- are the terms going to be different? Are you taking any balance sheet risk here?

Jim, capital risk in terms of capital expenditure is very, very little because we have the existing infrastructure. We have drilling rigs in Mexico. We work -- so nothing needs to be acquired or invested in or it's very, very benign. Yes, you take performance risk overall. And one of the things, which, I think, we have learned a lot from the past, we have a very rigorous process now looking at the risk on a sophisticated basis, and there is risk and we built that over a number of wells and we build it into the pricing of the contract and operate accordingly. And I think that's different to what was done in the past. Those projects are very much in our wheelhouse and all of them, so far, we're ahead of the drilling curve. We have not actually touched our risk [ part ] in those projects, so we're quite confident in that. And we approach other projects we bid for in the Middle East exactly the same way. So very rigid process, very rigid review of the risks involved in those. And the risk [ part ] is part of our pricing.

Our next question comes from James West from Evercore ISI. Our next question comes from David Anderson from Barclays.

I was wondering if you could just kind of step back a little bit. You seemed to mention that -- it sounds like a lot of these costs have been coming out of the international side, at least on the Eastern Hemi. Is it fair to say that kind of the easy wins are in the international side? And if you see kind of double-digit growth next year in international market, I'm just kind of curious about your take on that. Do you feel pretty confident? I guess, I'm just kind of curious. Is it more skewed towards international? Is that where we should be seeing this for the next several quarters?

No. Actually, I don't think that, that's case. It's actually fairly evenly spread between the hemispheres. If you look at the results and how they've accumulated, I think some of the -- remember, there's -- there are both cost savings opportunities as well as revenue opportunities. And probably, what you've seen is that some of the cost saving opportunities are coming from the Eastern Hemisphere and the revenue opportunities have been coming from the West. And a large part of that is that, oftentimes in the East, we have been historically a bit more integrated, but more cost heavy because our structure, particularly being in 90 countries and having multiple regions and all, you had layers of management across each of the product lines that existed in each of those regions. And so they've had more opportunities to streamline and to do a better job on logistics and moving things. And of course, in the U.S. for us, where we were more disaggregated in the way that we approach the market and, particularly given the strength of the market, we've had pricing opportunities. There's a lot more bespoke work that's done in the U.S. I mean, all that has created opportunity for revenue growth over here. And I think that, that's probably a trend that you'll continue to see. So it's been more evenly distributed. And they -- each of these initiatives, as they are recorded and tracked, we have fairly high visibility of where they're happening and where they should benefit.

So Mark, I was curious. You were talking about the tendering activity and talking about how it's [ very competitive ] in the Middle East. I also can't help but think about your procurement side. That seemed to be such a massive opportunity for you guys in terms of how you price everything in terms of your scale and purchasing. Is it fair to say that, that part over in the procurement could have a real big impact on maybe an outsized impact on that Middle East business as it evolves?

Absolutely, absolutely. I mean, obviously, the first order of business in procurement is looking at how the machine feeds our manufacturing. We've got distributed manufacturing around the world, both in the West and the East, and finding ways to leverage the spend in a way that can feed all of our manufacturing facilities. And then, of course -- then better logistics, yes, the movement of resources around the world brings down our cost basis, which, then, so as we're going in and we're tendering lump sum turnkey or other projects, we're making massive product deliveries into the Middle East. Our ability to get it there faster, get it there more cost effectively as well as reduce our internal sourcing cost just makes us even more competitive. So it's actually a fairly exciting opportunity, and we haven't accounted for a lot of the downstream effects for some of that.

Right. And then one last quick question on Christoph. You talked about the 5 -- can you just repeat what you said on the asset sale [ pack ], which is the remainder? I think we had -- the last we spoke, I think we heard there's 2 separate packages supposed to total around $500 million. Can you -- you've mentioned -- I think you said you expected one of those packages to close by the end of the third quarter. Can just explain what you meant there?

Yes. What I said, I -- we will announce, at least, one in the third quarter. But let me just clarify, David. We have a couple of packages that have been out. Those couple of packages represent the sort slight majority of the value of the -- $500 million was a series of different opportunities. Those 2 don't represent $500 million. There are more things that we are teeing up in the queue to bring forward over the next quarter or so.

Our next question comes from Sean Meakim from JPMorgan.

So Mark, that's a good segue for one of my questions. Looking at the outlook that you put out, it's certainly positive, the number of key milestones on the list. And so -- of course, you have a reputation for being conservative in terms of what you promised to The Street. I'm just curious why you're willing to put time lines on some of these goals that aren't necessary completely within your control, like the divestitures and the revolver extension? Perhaps, it's -- you're close enough that you have comfort to report those time lines out there or, perhaps, it's an opportunity to apply some pressure internally or to make sure these things happen. Just curious about the thought process of putting some of these time lines out there.

I'm going to let Christoph take the first shot because he's the guy who's responsible for hitting those deadlines. How about that?

Thank you, Mark. We wouldn't put time lines out there if we wouldn't have, I think, good confidence that we'll achieve those. And so specifically, as we said, one package, we feel very confident that, that's going to happen in Q3. And similar to the revolver, we feel very confident that we can get that done in the very near future. So -- and I think that's why we commit to the time lines.

We have to recognized we have a little bit of scar tissue on the rig transaction complication and that was probably one of the more complicated transactions that I've done in my entire career. And hats off to Christoph and his team for navigating all those challenges. And we have more to go on that. So we're trying to give you a sense of what those things that we can clearly see and sort of know where we are. And there are other things that we're working on. I'm not willing to put a date on it at this point.

I think if you can check up all those boxes in third quarter, it will be very productive. Could I also just ask a question on the Valiant alliance on ESPs? Sounds like you were going to wait a little bit to get some of the more granular details, but it will be great to hear just at the high level how you think this is going to impact your lift portfolio. Maybe elaborate on opportunities in the nearer term or in terms of markets or applications, just great to understand a bit more of how that fits into the strategy for lift.

Sean, it's Christoph again. We had a very good discussion with Valiant. We have a very good reputation, very good product, and that fits right into the hole in the portfolio. We have -- Valiant has already a good distribution network in the U.S. And so the opportunity exists more on the Eastern Hemisphere side, where we have very good distribution network, very good customer relations and where we can distribute and then integrate also these ESP offerings into our overall artificial lift offering and come with our expertise when wells and what type of lift we have for each well. In the Western Hemisphere side, on the U.S., if we have incremental opportunities on our side, as customers either want to have a full lift solution with rod lift for the later stages and ESPs for an earlier one, we have the discussions. We will bring Valiant to the table, and Valiant will execute in those places because we have the setup already existing. I think that answers broadly to your question on how we see it.

Honestly, for -- the big opportunity I see is having a complete portfolio, everything in our catalog that we can offer. I think customers tend to come to Weatherford and buy because, I mean, it's the products, but it's also the reputation of having good service quality, performance across the whole face of the contract. And I think, particularly in North America, as we see there's a life cycle of these wells and customers, as we get into this more discussions about production solutions and managing through the life cycle and understanding, all of that takes, I think, having the opportunity to provide a full catalog of different tools to them, along with our ability to take ForeSite and our ability to manage the production data and cash, I think, just creates a better value proposition for our customers. And so I'm excited about the -- having this JV and the alliance and seeing what we could do with it.

Our next question comes from Bill Herbert from Simmons.

Mark and Christoph, can you guys remind us what the forward path and time line is for the disposition of the remainder of your land rig portfolio? How many land rigs and which regions are likely to be sold first? And if you could just touch on kind of expected proceeds to -- do they match or exceed what you're garnering from the first stage [indiscernible]?

Yes, thanks. And I'm not going through all of it. I'll give you the broader understanding, so the -- let's cover first the piece, which we have signed with others, which is Saudi Arabia, Kuwait and Algeria. Our thought will be to close this in -- the bigger portion in end of Q3 and the rest in Q4. That includes 31 rigs and all operations in those 3 countries. You're then left with another 79 rigs globally. And there is a pool of rigs, which are stacked. And then there's a pool of rigs working in countries and operating there, and has contracts and so on and so forth. During the divestiture process, we had already some offers for the individual countries, but we didn't want to entertain them because of -- we wanted to talk about the bigger package first focus and then go onto the other ones. So we will get to these other ones, and there is some which will go very quick, some which will take a little bit longer. So overall, we said we will be the next quarters will be sold, whether we have, for example, 3 rigs in Chad. Whether those will happen in Q3 or Q4 or Q2 or Q3 next year, I don't know, okay? So -- and I don't want to answer on those. On the proceed sides, overall, it's not going to be the same amount as what we've got for the key piece in Saudi, Kuwait and Algeria. So it's going to be a lower amount there. And again, it depends on the countries we sell. So I don't want to give an absolute dollar number, but we will proceed as quickly and as diligently as we can.

Okay. And with regards to the capital intensity, if I heard you correctly of your $48 million in CapEx in the second quarter, $9 million was for land rigs. Or was the $9 million for the land rigs that are being sold?

No, 9 rigs for the land rigs in total. And those come very close to the ones being sold in those countries. That's where the highest CapEx goes because of the rigs are the highest spec.

Okay. So basically, $40 million rounding up a little bit in the annualized CapEx almost all for your land rigs fee, a lot of which is going to go with the sale of this first stage.

Well, it's actually way higher number.

It's way higher than that, actually. I mean, the biggest opportunity, not -- in selling these is not just the proceeds you get, but also the avoided capital because there was a bow wave of capital that was about to come in some of these countries relative to -- I mean, they're high spec, but they're also hanging the latest and greatest in jewelry on them as they come in and out of the market there. So it's -- it was a big cost avoidance, part of our capital that's going to be very helpful for us.

Okay. And I've just got one last one. Why is capital spending going up so much in the second half of the year?

Because there -- because some of the sales force, some of those rigs, right? I mean, the forecast itself will be a transitory time before that we actually finish all the legal requirements to get them sold and closed that we'll have to incur some of that money. And so Christoph, I think, conservatively is forecasting that they'll be some of that money starting to spend on the rigs, and then it will go away.

Yes. It's very specific on a contract, on a conversion and upgrade project of some of the rigs, which are sold and we will spend that CapEx. And the other part outside that, we are ramping up our fleet for Magnus. It's a high opportunity in the market, and we want to have a big enough fleet to go out there. Lastly, we have won, I think, quite some contracts on wireline right now, and we are getting into the state where we are short in tools. And we've seen that on some, so we're also ramping up some of the built-in wireline tools.

Okay. So bottom line, sale of these land rigs, right, the 31 in the Middle East saves you what in annualized CapEx going forward?

If -- it depends on what year you take because it's lumpy, but for that scope, in 2017, we spent about $80 million, 8-0, in CapEx in 2017. In 2018, if you look at it on a full year basis, you will come on a CapEx basis to probably about $50 million or so. If you look at it for the full year, $50 million to $60 million. Next year will be -- would be a bit less, I would expect. But again, they're high spec and there's always something which you invest.

Our next question comes from Kurt Hallead from RBC.

So you guys put in a lot of very good details so far on the call, I just want to maybe follow up on -- with you, Mark, on -- from an operational standpoint. You mentioned, obviously, the concerns in the Permian related to completion-related activity. You guys don't have any frac exposure to speak of at this point. You have emphasize the positive dynamics on production. But if there were going to be risks in the Permian for you, what kind of product lines would there be risk? And then what kind of magnitude of impact, just on a relative basis, to your portfolio if you think that could be?

Well, obviously, I think it depends upon what customers are going to do. If they -- so much of their CapEx spend is going toward the frac itself, if what we see over the course of the next quarters, as things get tight that customers continue to spend there, but they're increasing the DUCs -- the DUC inventory that, really, the only exposure that we would have will be on the completion side and plugs and packers, I mean, that -- which is relatively small. Part of our Completions business there is cementation products and liner hangers, and that continues to do exceeding well. And so we wouldn't see that risk. If they decide that they're going to reduce the rig count itself and shift, then, obviously, it will have more direct impact on our Drilling and Evaluation business. But the reality is that if they shift that -- then it's going to go somewhere else. Oil prices continue to be supportive. And in many ways, you look across the U.S., we have a pretty balanced basin exposure from California to the Bakken. And I just don't see it being a big impact to us, at all, quite frankly. On the -- whether it's rig count or related to just accumulation on DUCs.

Okay. Great. That's great color. I know you walked through a couple different regions, a couple project wins, and particularly talking about Latin America. So as you think about the opportunity set internationally from this point forward, if you were to kind of rank orders on regions in terms of highest growth or lowest growth and maybe not so much on revenue, obviously, as you focus on profitability, where do see your best opportunities for improvement in the international market through the second half of this year and into '19?

Well, I guess, thinking about Eastern Hemisphere as Western Hemisphere is a [ separate region ], In the Eastern Hemisphere, the Middle East, clearly, is the nexus of activity. It continues to ramp up. We've gotten some great contract wins across our Arabian Sea geo zone and in Saudi Arabia, and that continues to do very well. We've seen a lot of tendering activity in the North Sea. And while we haven't necessarily had our name in some of the headlines, we're behind the scenes. We're winning contracts there, as well, and continue to do very well. So that activity pickup should benefit our results, particularly in the second half. We're highly exposed to Canada more than some of our other peers on a percentage basis, as we come out of break-up, which was -- this was a more severe break-up this year as a result of the widening differentials coming into that season. Now that the differentials have moderated some or coming out of break-up, we expect Canadian activity to show opportunity there. And we came into the year fairly bullish about what might happen there, and I think that, that opportunity still exists. In Latin America, quite frankly, in the first half of this year, Latin America hit it out of the park. These =our guys did a great job of managing that business. We won contracts in Argentina. It's been rock solid. Columbia have all been -- and even in Mexico have outperformed where we thought that they would be. It'll make it a little bumpy because we've got some inflationary trends that are happening down there. But I think that the currency noise may mask what under -- may underlie continued growth and activity there. So I -- particularly Argentina and Columbia, we feel very good about the future, broadly speaking.

That's great color. If I could sneak one in real quick for Christoph. You gave us the guidance ranges for what you think revenue growth is going to be by hemisphere. You did talk about margin improvement generically. How would we think about magnitudes and margin improvement for the hemispheres in the third quarter?

Yes. I think I've said that in my prepared remarks that the Western Hemisphere is going to be small. So forgot the word I used. I think it's marginally or...

Modest.

Modestly, and the simple reason we will get -- grow in Canada and that will have good incrementals. We'll see how the U.S. evolves, but we will have a Latin America offset. That's our expectation because of the inflation risk in Argentina, predominantly. And so that's the Western Hemisphere. The Eastern Hemisphere, we do expect that good incrementals in Q3, normal, I would say, for -- from a revenue perspective, and we've guided to that. So you would expect good incrementals there into the third quarter.

And we are a little past the half hour now, so thank you all for joining us on today's call. I will now turn the line back over to the operator. Carol?

This does conclude today's conference call, and you may now all disconnect.