Ladies and gentlemen, thank you for standing by, and welcome to the Weatherford International Fourth Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Sebastian Pellizzer, Senior Director of Investor Relations. Sir, you may begin.

Welcome, everyone, to the Weatherford International Fourth Quarter 2020 Conference Call. I'm joined today by Girish Saligram, President and CEO; Karl Blanchard, Executive Vice President and COO; and Keith Jennings, Executive Vice President and CFO. We will start today with our prepared remarks, and then we will open it up for questions. You may download a copy of the presentation slides that correspond with today's call from our website's, Investor Relations section. I want to remind everyone that some of today's comments 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. As noted in our press release, the company adopted fresh start accounting in December 2019. Our comments today include a comparison of the results of the predecessor and successor companies. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our fourth quarter press release, which can be found on our website. With that, I'd like to turn the call over to Girish.

Thanks, Sebastian, and thank you all for joining the call today. I will open up with some key points from the fourth quarter, and then Karl will go through some additional operational details. Keith will then take you through the fourth quarter results as well as the broad construct on 2021, including the first quarter. Finally, I'll come back to lay out our focus areas for 2021 as well as some initial thoughts around our strategic direction. We will start today on Slide 3. 2020 was a very challenging year for our industry, but I'm pleased with our performance, despite the challenges, and accomplishments in 2020 are a direct result of the tremendous resilience, creativity and dedication shown by the Weatherford team day in and day out throughout the year. I've already seen the collaboration instilled by our One Weatherford culture by positive outcomes, and I'm confident that it will take us far together. To our entire global employee base, I thank you for all that you do for our customers and company every day. I previously stated our objective of being a business with sustainable profitability and free cash flow generation. While that objective is a work in progress in a multiyear journey, we believe we have strong momentum coming into 2021. Our commitment to our shareholders is to operate the business with the view that we will not count on increased market activity to drive profitability improvements and free cash flow. Specifically, that implies that we will not take our eye off the ball on structural cost improvements and margin expansion and believe that being a smaller, more nimble organization will allow us to leverage activity increases to greater effect as they happen. With that, I'd like to highlight a few points for the quarter and the year.…

Thank you, Girish. Please turn to Slide 4. As Girish mentioned, we have continued to see successes with our customer during the fourth quarter and some highlights include: the tubular running services, we won several significant contracts across the globe with both national and international oil companies to further expand our leading position in the space. These awards were driven by technology such as our Vero automated connection integrity system and our team's high service quality across the globe. A few wins include: the extension of TRS contracts in Europe and in the Middle East, where Weatherford was selected based on our superior HSE and service quality performance; an award for a major offshore operator in Qatar to exclusively provide casing and tubular running services; and an award from an IOC in North America to provide offshore services, including Vero. For completions, we were awarded a major contract to deliver annular safety valves for an operator in the Caspian Sea, demonstrating the customer's recognition of both the technical and operational advantages that Weatherford provides. In the Middle East, we had a number of contract wins, including a 5-year wellbore cleanout contract with a major offshore contractor in Qatar. A multiple discrete service projects by a major operator in Iraq, which bolstered our portfolio of work in that country, and multiple contracts for completions and products and services across the region. We spoke last quarter about how our digital offerings have enabled us to operate remotely and are delivering tangible value to our customers. There are a number of highlights this quarter as well, including the installation and remote monitoring of our Xpress integrated liner system using our AccuView remote support system and Centro, digital well delivery solution with a national oil company in the Middle East. Utilizing AccuView to run…

Thank you, Karl. Let's turn to Slide 6 and begin with a summary of our fourth quarter 2020 results. Revenues in the fourth quarter were $842 million, 4% above the third quarter and 32% below the same period in 2019. This sequential growth primarily resulted from increased completion and production sales in North America and Europe, increased activity across most of Latin America, seasonal activity increases in Canada. These positive activities were partially offset by weather-related project delays in Mexico and activity reductions in the Middle East. Fourth quarter adjusted EBITDA was $98 million with adjusted EBITDA margins of 12%. As Girish mentioned, we achieved another quarter of double-digit EBITDA margin, which was up approximately 20 basis points sequentially after adjusting our third quarter results for a onetime benefit related to the sale of operational assets. We continue to drive favorable EBITDA decrementals during the quarter defined as the change in adjusted EBITDA over the change in revenue with year-on-year decrementals of 14% during the fourth quarter. In addition, our EBITDA decrementals for the full year 2020 was only 9%, despite 29% reduction in revenue year-on-year. Let me now provide a regional breakdown, starting with the Western Hemisphere on Slide 7. Western Hemisphere revenues of $372 million in the fourth quarter grew 18% sequentially and declined 40% versus prior year. In North America, revenue grew 15% sequentially, driven by sequential growth of 27% in our completion and production business, or C&P, largely due to increased well completion and workover activity as well as year-end product sales revenue for drilling, evaluation and intervention, or DEI, declined 8% sequentially, largely due to changes in our business model in our drilling services product line to improve profitability. Additionally, both product lines benefited from seasonal activity increases in Canada. Fourth quarter revenues of $171…

Thank you, Keith. As I mentioned, I believe our strong fourth quarter and full year results are a reflection on the progress we have made towards our objectives of sustainable profitability and free cash flow generation. The actions we took in 2020 have meaningfully improved cash flow, liquidity and operational performance, but we also recognize that we are not done and need to fully institutionalize the processes and mindset to grow our 2020 execution. As Keith alluded to, we expect a couple of significant headwinds in 2021 and beyond, specifically around restoration of employee salaries and lack of working capital unwinding benefits that we need to overcome. It is therefore critical for us to accelerate the momentum from 2020 into 2021, and we will be focused on restructuring our cost levels and ensuring our working capital as a percent of revenue have clear improvement targets and actions. To provide clarity, we have laid out our internal focus areas for 2021 on Slide 11. To ensure that we are poised to deliver a year that will demonstrate increased profitability versus our second half 2020 run rate without depending on market activity increases. Firstly, performing in North America. Historically, North America has been one of the largest oilfield service markets. It is a market unlike any other globally with shorter cycle times, a degree of competition and innovation that make it very unique amongst many other things. Our team in North America did excellent work last year and delivered meaningful improvements to their operations. We plan to build on those actions this year and continue to drive further efficiencies through facility consolidation and adjustments to our commercial approach. We expect these efforts to yield meaningful improvement to our North America profitability year-on-year that will be significantly accretive to the overall company. Second…

Yes, Girish. I'd just like to say, it's been a privilege being a part of the One Weatherford team over the last few years, and I'm proud of what we accomplished. I want to thank all of our employees, our customers and stakeholders for their support during my tenure here. I'm confident that under your leadership, Girish, Weatherford will enjoy continued success in the future.

Thanks, Karl, and once again, thank you and all the very best. Let me close by acknowledging that we know we have a lot of hard work ahead of us. However, I'm confident in our ability to achieve our long-term profitability and cash flow objectives. We delivered on the commitments we made in 2020 and exited the year with strong momentum and over $1.3 billion of cash on our balance sheet. That provides us with flexibility to operate the company in an uncertain environment and work through our shorter-term objectives, while also monitoring capital markets with a goal of relisting our shares on a major exchange and reverting to a more traditional financing structure in the future. We have a clear vision of what we need to accomplish in 2021, and we are further developing our plans for our strategic vectors. I look forward to updating you on our progress in future quarters. Thank you for joining us today. And with that, operator, let's open it up for Q&A.

[Operator Instructions] Our first question comes from Brian Hook with Barclays.

With respect to the unlevered free cash flow guide for '21, can you give us a sense for what the cash restructuring charges embedded in that slightly up? [indiscernible]

Brian, good question, and thank you for the question. As we think about 2021 and we think about the restructuring charges for next year, at this point in time, we're thinking about a range of somewhere between $50 million and $100 million. We're still working through the estimates. In 2020, the cash portion of restructuring was just about $135 million. We expect it to be less than 2020, and as we're refining the estimate.

Okay. Got it. And I guess as you guys think about the business longer term, like when do you think you'll have a lot of sites of these charges going away?

Well -- yes, Brian, this is Girish. Probably towards the middle of the year, I think a big part of this is going to depend on how exactly we lay out our overall strategic footprint and the portfolio. So as we talked about our strategic vectors as we get that fully nailed down probably by the middle of the year as we continue these calls, we'll update you on that, but that's the rough timing.

Got it. So I guess, by the middle of this year, from that point forward, you would no longer be incurring the consistent cash restructuring charges? Or you'll have a final view of it will be for '21?

No longer be incurring because our business always has to go through some level of healthy pruning. As you can appreciate, the level is coming down significantly from where it was in 2020 and where it was in 2019. As we think through the viewpoint, which you are hoping for, which is the next upward looking cycle for oilfield services, we hope that we're not spending time, just releasing people and rightsizing the organization, but in fact, investing and adding new dimensions to the organization so we can grow with the cycle. But I think at this point in time -- last year, we incurred roughly $135 million. This year, we're looking at $50 million to $100 million. And hopefully, it is reduced, but we can't say it will be exactly zero, right.

Exactly. I think, look, it will be more of a steady state thing. We get the business to a normal level. Whatever we redefine normal as will be the key for us, and going forward, it will be sort of more adjusting to cycles, as Keith said.

[Operator Instructions] Our next question comes from Gregg Brody with BoA.

I have just a couple of questions. Is the -- you mentioned a couple of times about moving to a more traditional financing structure. I would read that to me that you're trying to move back to a credit facility. Is that correct? And can you just tell us what's changed in the marketplace that makes -- that you believe that's available to you?

Gregg, always a pleasure. Thank you for the question. I think we've alluded to moving back to a traditional structure and pretty structure -- and capital structure because we think that's probably more efficient and more cost effective. The market, as you rightly inferred, has not yet changed. The banks and certain parts of the capital market have not come back to the credit zip code we are in, in royalties, services and energy at the moment. That said, that does not mean that it's not something that we are working -- we're not working towards. We're having conversations. We are looking towards the up cycle. We are hoping to put things together and attract the right partners that can understand that our international business is bankable. And so as we move through these developments, if something develops, we will share it in this forum, but it's something that we have to look forward to. Just using long-dated money for short-dated liquidity is very expensive. So we're just acknowledging the inefficiencies in our capital structure and the drag it has on free cash flow as we run this business.

That's helpful. And then just on free cash flow, I've -- how should we think about taxes for this year? And are there any other line items that we should be aware of as we think about our leverage free cash flow?

Taxes, we think, should be in the same level as 2020, in the same range. I don't think we have any large surprises in unlevered free cash flow to share. I think that the thing that we have to manage the most this year is working capital. We had a good performance in terms of net unwind of almost $200 million in 2020. That benefit would just not peak. We just don't have the same shrinkage in the profile for receivables that unwound and then we benefited from. So we have to manage that carefully. So that's how we are thinking through 2021.

And just one more, if I may. It sounds like you're optimistic about the second half of the year, but conservative in your guidance. How should we think about -- I think that's correct? If I'm wrong, please correct me. The question is, if revenue increases in the second half of the year, how should we think about incremental margins for the -- for Weatherford?

I think our overall guidance for the year is someone assumes -- some of that, the 100 to 200 basis points is our range. If it steps up, it all depends on how much it steps up. If it steps up more, it also depends on where it steps in, in terms of Eastern versus Western Hemisphere. They are different profiles [ indicative. ] And it also depends on what product lines get pulled through because acquisitions in different product lines are also very different. So it'd be hard for me to give you anything more than 100 to 200 basis points that we planned for the year at this time. But if we see activity moving outside that range with either a certain geography or sort of a product line, we'll be happy to update the guidance. Girish, do you want to add anything?

Yes. Look, I think the only thing is, again, for us, the way we are planning it is really focusing on the cost actions while building out our commercial footprint, and making sure we have the right commercial and product line focus in each of the geographies, especially on these accretive product lines. So as Keith said, look, that 100 to 200 basis point range is in itself pretty significant. And if we can drive our cost actions, we should get at least start that lower end and then help get closer to that, higher end with an activity uptick. And then overall, if activity does go up significantly, it should be more accretive, but to Keith's point, it will depend a little bit on the mix and where it comes through comp.

Great. And I congratulated to Christian, not Karl. Karl, congrats to you, and good luck.

Next questions come from [ John with UFS Partners. ]

Just one question for me. If you could just speak to any change in the volume of inquiries from customers, international customers, in particular, just the last 3 to 4 weeks, if you've seen any uptick?

Well, so this is Karl. There has been a pretty robust activity in tendering business. I do think that -- as we pointed out, the cycles in international are slower and longer pitched than you have here in the U.S., and we're still on a downward trend. But there are definitely some green shoots across international, and in the Middle East, there's quite a bit of tendering activity going on right now, but a lot of that's a bit long dated. It will take several months for the process to go through and that ultimately, tender awards -- and when that becomes part of your business going forward. But I think we see reasonably healthy activity in that space.

Okay. I guess where I'm going with this call is just, we -- obviously, we all know about the capital discipline there that are being forced on U.S. producers. I'm just curious how you would characterize that narrative for international customers, if it even exists?

Well, Girish, do you want to...

Yes. So look, I think it's not a purely U.S. phenomena. I think everyone around the world is recognizing, you need to make sure you've got sufficient and the right returns from the capital investment. So we've seen a lot of our international customers, both on the NOC side as well as IOCs who have operations internationally. So you've got to remember that it's a mix of both of those that we do business with. So I think, in general, a discipline around returns is sort of pervasive around the world, which results in us having to really focus on differentiation and ensure that we have the right levels of quality at service level, and we can truly differentiate our value add. Look, we've been pretty clear in our prepared remarks, and I'll reiterate again. What we're not going to do is just chase volume just for the sake of that. It has to, for us, drive the right profitability. We recognize customers are going to be price conscious, but we believe that through the right differentiation, through the right focus areas and the intimacy that we have with our customers in multiple areas, we can be commensurate with them in driving the returns on our activities as well.

Yes. No, I wasn't referring to your capital discipline. I was referring to is there -- like [ kind of hope and pray ] that the international folks are a bit more excessive in spending.

I just want to make sure you kind of got both sides of the coin. So it's certainly -- you see it across the board. Let me put it this way, no one is spending the time, in fact.

Ladies and gentlemen, this concludes the question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.