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Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International second quarter 2026 results. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star on your telephone keypad, and to withdraw your question, please press star then two. We also ask that you please limit yourself to one question. As a reminder, today's event is being recorded. I would now like to turn the conference over to Luke Lemoine, Senior Vice President of Corporate Development. Sir, you may begin.
Welcome, everyone, to the Weatherford International second quarter 2026 earnings conference call. I'm joined today by Girish Saligram, President and CEO, and Anuj Dhruv, Executive Vice President and CFO. We'll start today with our prepared remarks and then open 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 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. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our earnings press release or company 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'd like to turn the call over to Girish.
Thanks, Luke. Thank you all for joining our call. I'll start with an overview of our second quarter performance and short-term outlook, followed by a couple of key enterprise updates. Anuj will then cover specifics on financial performance, balance sheet detail guidance, and I will wrap up with some thoughts on the current operating environment and our focus areas before opening for Q&A. To summarize our Q2 2026 performance, we delivered revenue of $1.105 billion, adjusted EBITDA of $223 million at a 20.2% margin, and adjusted free cash flow of $139 million, representing a 62.3% conversion on adjusted EBITDA. I would like to thank the One Weatherford team and especially our Middle East-based employees for their focus on customers, safety, and operational discipline as the region continues to work through a challenging operating environment due to the ongoing conflict. I am especially pleased with Q2 margin and cash performance given the challenging environment. We were hampered by the Middle East activity profile not returning to pre-conflict levels driven by the geopolitical events that everyone is well aware of. We had activity declines in Indonesia, pockets of pricing headwinds leading to volume declines, and a union strike in Norway that put further pressure. Despite those incremental pressures, our team rallied to deliver EBITDA margins north of 20% and essentially flat to Q1. Moreover, our adjusted free cash flow performance was excellent, driven by working capital execution, including strong payments from our largest customer in Mexico. I am again encouraged by progress on payments in Mexico and remain hopeful for the trend to continue in the second half. The Middle East region bore the most visible impact of the conflict in the second quarter. Activity suspensions, project deferrals, and logistical disruptions that began in March carried through much of the quarter, and freight and logistics costs remain elevated, peaking in May before beginning to moderate. Throughout this period, our priority has remained the safety of our people and business continuity for our customers, and our teams have done an exceptional job on both while tightly managing costs. While the quarter ended with signs of recovery, the recent and ongoing incidents across the region create an environment of uncertainty in the short-term outlook. We do expect the recovery to continue, but it will take some time to fully normalize. The financial impact in the first half was within the $30 million-$50 million profit range we outlined on our last call. Given the recent flare-up, we expect that to increase over the course of the year and have incorporated that into our guidance. We did experience a revenue decline in Saudi Arabia due to the conclusion of our LSTK contract, and this will be further visible in the second half. We continue to view the kingdom as an opportunity for growth, but at the same time are comfortable with not having an LSTK contract given the pricing levels in the market. I am very proud of our team's execution on this contract for the past three years and grateful to Aramco for the opportunity. We have a very strong presence in Saudi and will continue our journey on adding value through technology differentiation. In Oman, we also concluded our five-year integrated contract with PDO. It is a testament to the operating prowess of our team that we finished the original scope 14 months ahead of schedule. On the back of this execution, I am pleased that we have won the Marmul extension with PDO that will commence in the third quarter. Latin America declined sequentially, driven predominantly by Mexico, where activity came in below our expectations, several wells were deferred, and our largest customer in the country continued to prioritize its spending. Collections from our largest customer in Mexico were strong through the quarter and supported our working capital performance. We have aligned our cost structure and footprint in Mexico to current activity levels, and we are positioned to respond quickly as activity increases. I've also been pleasantly surprised with the progress in Venezuela and now believe that Venezuela can provide a tangible contribution to revenue and margins in 2027. Our pipeline of opportunities with multiple customers is growing, and we are anticipating closing on some of these in the second half. In Europe, Sub-Saharan Africa, and Russia, revenue grew sequentially on higher activity, despite a labor strike in Norway impacting activity late in the second quarter. This will remain a headwind into the third quarter and will weigh on the region's near-term results. Russia revenues as a percent of enterprise revenue increased, but this was driven more by the decline of the rest of the world and impacted significantly by the conflict, resulting in a decline in the Middle East. Slides seven through nine lay out key highlights across our segments. WCC revenue declined 5% year-over-year, primarily for lower activity in MENA, partly offset by higher completions activity in Latin America. DRE revenue declined 13% year-over-year, primarily from lower wireline and drilling-related services activity in MENA, partly offset by higher managed pressure drilling activity in ESSR. PRI revenue declined 3% year-over-year, primarily from lower artificial lift activity in North America and Latin America. Across all three segments, our product lines continue to benefit from differentiated technology, a strong installed base, and the operational and manufacturing capability we have built over the past several years. During the quarter, we continued to build momentum with new contract wins across our portfolio and key regions. I am especially encouraged by the number and quality of deepwater awards this quarter. In Brazil, Constellation Oil Services awarded us two contracts for offshore well intervention and MPD in deepwater. Ventura Offshore awarded us a complete MPD solution for the SSV Victoria, and Valaris awarded us a two-year contract for MPD equipment and services offshore. In West Africa, Noble Corporation awarded us multiple MPD contracts and a global aftermarket agreement in Nigeria, and Esso Exploration and Production Nigeria awarded us a deepwater integrated completions contract covering upper and lower completion solutions. In Australia, Chevron awarded us a five-year framework contract for tubular running services, casing accessories, and other tools supporting a deepwater development project. We will see some of these MPD awards get delivered in the fourth quarter, and that is part of the ramp we expect to see in the second half. Beyond deepwater, KOC awarded us two five-year contracts for cementation products and completion services in Kuwait. PTTEP awarded us a 22-month downhole deployment valve contract in Thailand. As I referenced earlier, PDO awarded us a three-year contract to provide integrated drilling services covering 247 wells in the Marmul Field, supporting both production and injection operations following the successful completion of the 837 wells contract awarded in 2022. Given all of the near-term market dynamics, we have adjusted our second half guidance in what we believe is a realistic and responsible fashion. We do expect second half margins to be significantly higher than the first, but the quantum of improvement is slightly reduced versus our April expectations due to the ongoing nature of the Middle East conflict. Our total year thesis on margins is generally intact, but it is difficult to offset the impacts of operational disruptions due to the Iran conflict. At the same time, we have increased confidence in our adjusted free cash flow conversion and are therefore increasing guidance on that metric. We have been clear that we will not chase revenue at the expense of returns, and we would rather step away from lower margin work and concentrate on higher quality revenue that strengthens the business. The clearest evidence of that discipline is our second quarter margins and our third quarter guidance, where we expect adjusted EBITDA margins to be up at least 100 basis points, despite the ongoing conflict in the Middle East and the loss of revenue from the Saudi LSTK contract. Let me also provide an update on our proposed redomestication to the U.S. At our shareholder meetings on June 11th, the proposals to redomesticate to Texas received support from more than 60% of the votes cast but fell short of the 75% approval threshold required under Irish law. The engagement we had with shareholders through that process reinforced our conviction in the value creation potential of a move back to the U.S., and taking that feedback into account, we introduced an updated proposal to redomesticate to Delaware. The definitive proxy statement was recently filed and is being distributed to shareholders, and we will hold special shareholder meetings on September third to vote on the Delaware proposals. We continue to expect approximately $20 million-$30 million of annual cash savings beginning in 2027, with completion expected by the end of this year, subject to shareholder and Irish High Court approvals. Importantly, the redomestication does not impact our global footprint, our customer commitments, or our ongoing operations, and our board unanimously recommends that shareholders vote for all of the related proposals. During the quarter, and as shown on slides 13 and 14, we also announced a definitive agreement to acquire NCS Multistage, which expands our completions portfolio and deepens our exposure to unconventional resources. It has been approved by the boards of both companies and by NCS's controlling shareholder, and we expect it to close in the second half of 2026, subject to regulatory approvals and customary closing conditions. The industrial logic of this transaction is compelling. NCS's technology spans completions design, execution, production optimization, and late life intervention, which completes our coverage of the well lifecycle and enhances the application fit of our well construction products portfolio. It deepens our exposure to unconventional resources in North American basins and in the international unconventional markets where we see the next leg of growth, including the Middle East and Argentina, along with the offshore opportunities such as the North Sea. It is, at its core, a distribution play. NCS has built a differentiated capital-light business with a concentrated footprint, and Weatherford brings a customer base across six continents on which to scale them. The financial logic is equally clear. The consideration is structured predominantly in equity, preserving our balance sheet strength. We expect at least $15 million of annual cost synergies within 18 months of closing. NCS's operationally levered capital-light model supports both our EBITDA margins and our cash conversion, fully consistent with the M&A criteria and our capital allocation framework. With that, I'd like to turn the call over to Anuj.
Thank you, Girish. Good morning, and thank you everyone for joining us on the call. Girish has already shared an overview of our second quarter performance. For a more detailed breakdown of the results, please refer to our press release and accompanying slide deck presentation. My comments today will center around our cash flow, working capital, balance sheet, liquidity, capital allocation and guidance. Turning to slide 23 for cash flows and liquidity. In the second quarter, we generated $139 million of adjusted free cash flow, representing a 62.3% adjusted free cash flow conversion. This compares favorably to the 31.1% conversion we delivered in the second quarter of 2025 and the 36.5% conversion we delivered in the first quarter of this year and was driven primarily by working capital release, continued collections, including from our key customer in Mexico, and lower capital expenditures. Our adjusted net working capital as a percentage of revenues was 27% in the second quarter, a sequential improvement of approximately 90 basis points despite the lower revenue base, driven largely by better receivables and payables management. This is the second consecutive quarter of improvement, and it reflects the operational rigor we have put behind working capital across the organization. We remain fully committed to our internal initiatives aimed at achieving the goal of 25% or better. As we stay agile and adapt to evolving market conditions, we're continually optimizing our cost structure. We have seen the impact of these cost actions in the second quarter, and they have helped partially offset the impact of revenue decrementals, pricing pressure, and the geopolitical conflict in the Middle East. They were a key factor in holding our adjusted EBITDA margins essentially flat sequentially. During the second quarter, CapEx was $42 million, or 3.8% of revenues, down approximately $12 million compared to the second quarter of 2025. We continue to remain in the 3%-5% range across a 12 to 18-month cycle that we have laid out and will make the appropriate and prudent trade-offs through the cycle with cash returns guiding our decisions. In the second quarter of 2026, we returned $36 million to shareholders, comprising $20 million in dividends and $16 million in share repurchases. Since the inception of the shareholder return program, we have now returned more than $370 million to shareholders via share repurchases and dividends. Our balance sheet remains very strong. At the end of the second quarter, we had approximately $1.14 billion of cash and restricted cash. Total liquidity was $1.7 billion, which includes total cash and credit facility. Our net leverage ratio declined to 0.34 times. Despite the Middle East situation and resultant adjusted EBITDA declines, our leverage levels remain resilient and correspond to investment-grade equivalent ratios, demonstrating our commitment to prudent balance sheet management that provides us degrees of freedom. Our focus on strengthening the capital structure over time has resulted in a stronger than ever fortress balance sheet, which provides a solid foundation to not just navigate business operations in a challenging environment, but also pursue strategic opportunities, as evidenced by the NCS Multistage acquisition. Turning to the third quarter 2026 guidance on slide 24. We expect revenues to be in the range of $1.105 billion to $1.155 billion, and adjusted EBITDA to be between $235 million and $265 million. The sequential improvement reflects the progressive recovery of activity in the Middle East and operational improvements driving productivity, which are partially offset by activity declines in a few geographies and the LSTK contract falloff we referenced earlier. We expect adjusted free cash flow of more than $100 million in the third quarter. Collections from our largest customer in Mexico continue to be the biggest driver of variability in this regard, but we are encouraged by the past several months of consistent payments and transparent communication. For the full year 2026, we are updating our guidance with minimal changes to the midpoint of adjusted EBITDA, despite the impacts from the Middle East, while raising our free cash flow conversion outlook on the strength of our first half cash performance. Revenues are now expected to be in the range of $4.54 billion-$4.80 billion, and adjusted EBITDA is expected to be in the range of $951 million-$1.046 billion. Adjusted free cash flow conversion is now expected to be in the mid to high 40% range, an increase from our prior outlook, and our effective tax rate is expected to be in the low to mid 20% range for 2026. As communicated across periods, our priorities are to drive margin and cash-based outcomes, which we are confident will continue in the second half of 2026. Thank you for your time today. I will now pass the call back to Girish for his closing comments.
Thanks, Anuj. Before we open it up to questions, I want to step back and share how we see the environment evolving and what we are doing to position Weatherford for what comes next. On our last call, I laid out why we believe the industry is entering a period of structural multi-year demand for our services anchored in energy security. Clearly, the ongoing geopolitical issues and the impact of demand destruction requires a recalibration on timing and pace. The rebuilding of supply capacity, redundancy, and infrastructure across the Middle East and beyond is real, but it will not happen overnight. Tender cycles, rig availability, the normalization of logistics, and the sequencing of budgets all mean that the conversion of intent into activity and activity into revenue plays out over several months and quarters, not days and weeks. We saw that dynamic firsthand this quarter with the recovery beginning later and building more gradually than the headlines on a return to pre-conflict situations might suggest. What has changed since April is that energy security has moved from rhetoric toward capital plans. Over the past quarter, I have visited customers in all of our geo zones, and it is very clear that across our customer base, national oil companies and their governments are explicitly anchoring investment programs in security of supply, both as exporters and importers. This thematic is consistent and very visible in gas-focused programs in the Eastern Mediterranean, Southeast Asia, in deepwater expansion in India and South America, and in a renewed policy emphasis on domestic production in North America. These are the building blocks of a durable multi-year cycle, but they build progressively. None of these programs converts to revenue in a single quarter. We are managing the company on that basis. Although at times it feels hard to change DNA across the sector, I am hopeful that the capacity discipline of the past few years in the sector translates into pricing discipline. Against that backdrop, our job is to position Weatherford to convert this environment into cash flow and returns. You saw the blueprint in our second quarter results. There are three central themes that run through the company to deliver on that objective. The first element is staying true to our North Star of free cash flow, driving increased dollars, margins, and conversion. We delivered $139 million of adjusted free cash flow at a 62.3% conversion, an adjusted free cash flow margin of 13% of revenue in a quarter with meaningful operational disruption. That is not the product of one-time items. It is the product of structural improvements in working capital discipline, capital intensity, and asset utilization. Our adjusted net working capital efficiency improved for the second consecutive quarter. Capital expenditures were 3.8% of revenue and net leverage ended the quarter at 0.34 times, despite relatively lower adjusted EBITDA base. We are institutionalizing this focus with an emphasis on further aligning and providing visibility to cash metrics across the company. You can see this focus in our numbers. We have raised our full-year 2026 free cash flow conversion outlook every quarter since we first provided it. From the low to mid 40% range in February, to the mid 40% range in April, and now to the mid to high 40% range, all while absorbing the disruption of the conflict and each step closing the gap to our 50% through cycle target. The second element is portfolio enhancement with technology differentiation being our strategy. The NCS Multistage acquisition is a clear expression of that. We recognize the earnings volatility that comes with our scale in a cyclical market. However, we will never do M&A purely for the sake of scale. It will always be rooted in strategic intent and conviction in financial returns. We have the balance sheet capacity, experience, and operational bandwidth to do more, but will always be hyper-focused on delivering shareholder value as our priority. More importantly, we are clear that organic innovation is critical. Our new product introductions are debated and decided on that dimension. The growth in our offshore MPD, well services, integrated completions, and digital offerings are all testament to the philosophy and set the stage for more in the coming quarters and years. The third element is structural efficiency and effectiveness. Our investments in state-of-the-art ERP systems, a new structure to serve the offshore markets, the launch of our Managed Pressure Wells Center of Excellence, and several other initiatives are all aimed at taking us to the next level. Not only do I expect them to improve our margin performance, I also expect them to serve as enablers to drive top-line growth. To conclude, the demand backdrop for our industry is strengthening on a structural multi-year basis anchored in energy security. The recovery will be progressive, and we are managing the company accordingly. Further elevating our focus on free cash flow generation, conversion, and margin, driving technology differentiation in the portfolio through strategic M&A and organic innovation, and building out the next generation of structurally different and scalable company. While all of this is future-focused, we remain deeply committed to delivering in the short term. To put this in perspective, our total year adjusted EBITDA guidance is reduced by approximately 1% at the midpoint versus April while increasing our free cash conversion. The stock has seen a significantly more exaggerated impact, we will keep doing what we have done every quarter, tell you exactly what we see, deliver against it, and let our investors judge the results. Thank you for your time this morning. With that, operator, please open the floor for questions.
分析師問答
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, we ask that you please limit yourself to one question. At this time, we'll pause for just a moment to assemble our roster. Today's first question comes from David Anderson at Barclays. Please go ahead.
Hi, good morning, Girish. How are you?
Hey, Dave. How are you doing? Good morning.
Hi. Good morning. Operational and financial discipline has been a theme of yours for some time now. I just want to talk about kind of how you're thinking about revenue growth versus margin growth in this next upcycle. You mentioned you were fine not winning that Saudi LSTK contract because it was low-margin work. At the same time, your margins are moving up nicely in the second half without a big move in revenue. I was wondering, could you talk about how you're going to balance that out of kind of growth versus margins and your approach to what appears to be an expanding set of opportunities once this upcycle starts to pick up?
Dave, look, it's a really important consideration and something we spend a fair amount of time on. The reality is, you always need to have top-line growth to ultimately have a bottom line come through. We're not naive about that fact, and we can't cost cut our way to growth in the longer term. We do need top-line growth. Having said that, there are contracts that we will be okay walking away from if they don't provide the right returns. On the Saudi LSTK piece you referenced, two things I think are incredibly important. First, I'm enormously grateful to Aramco for the opportunity, and I believe we added a lot of value in the past three years in executing the contract, and it truly helped strengthen our own capability. A lot of our capability in deep gas drilling with Aramco has come as a result of Aramco trusting us with that contract and allowing us to expand our capability. Second, I am very proud of the team for how they executed. The market is going to be what the market is, and people will do different things, and we've got to react to that. What we try to do is say, "Is there a strategic intent on capability addition sometimes on a contract to take lower margins like we did on this one?" If that no longer exists, we are okay walking away. What we've got to then do is say, how do we have the right technology differentiation and the cost out within the company to get the appropriate margins? What I am supremely confident of is that we have a backlog right now, as well as a pipeline in front of us that allows us to go get that higher margin. Again, you see the proof in the proverbial pudding. You see the margins holding up very resiliently in the second quarter and ticking up with our guidance in the third.
Thank you.
Thank you. Our next question today comes from Scott Gruber at Citigroup. Please go ahead.
Yes, good morning. Girish, you mentioned that the Mid East headwind was largely in line with your $30 million-$50 million estimate in the first half, and that the impact will obviously continue in the second half. Curious about that monthly cadence. Is that moderating as you go into 3Q, as you adjust ops and logistics, or does the recent flare-up maintain that pace? You obviously have good breadth across the region. Just curious, given the flare-up, what you're seeing across the region today.
Morning, Scott. In terms of the financial impact of the conflict, I will start by saying we don't see it increasing right now, and I think that's positive. I do believe it's moderating, but that's always subject to what happens tomorrow, next week, or next month. Our hope is that it continues to moderate. It will unlikely go to zero until we get to a firm and permanent resolution. We have baked that into the guidance, but it is still a fairly significant number. From a region standpoint, it's very mixed. Over the past 10 to 12 days there's been a very unfortunate flare-up once again, and that's created a significant amount of disruption. Prior to that, we had seen Saudi start returning to normalcy, resuming some offshore operations. The UAE has continued on that same pace and actually increased in a few areas. Oman has by and large stayed fairly consistent and normal through this period. Where we've seen probably the most disruption and delay is really Bahrain, Qatar, Iraq, and Kuwait. We had started to see a little bit of recovery in all of those, and now there's again a bit of uncertainty that's been introduced. We remain hopeful and in very close contact with our customers to make sure we're supporting them and our teams through this period.
I appreciate the color. Thank you.
Thank you. Our next question today comes from James West at Melius Research. Please go ahead.
Hey. Good morning, Girish. You again mentioned the multi-year cycle you see developing here. You've also noted this will take some time. It's not just in one quarter, which is perfectly reasonable. Could you just address maybe the type of conversations and regions where you're having these discussions and maybe help us frame the way to think about the, a little bit early, but the 2027 outlook?
It is a bit early, James. Let me bucketize it into three elements. First, our customers in the Middle East. Conversations there are focused around business continuity and making sure they can deliver to their plans, and we are an integral part of that. Second, hardening of infrastructure and ensuring that as things come back to normalcy, production can resume. We're positioned for that. Third is how to get production back to prior levels and higher, regaining share. I think there will be an activity uptick, and we are preparing for that. For exporting countries outside of the Middle East, several are looking to position themselves as stable, resilient suppliers to countries that need their product. They are looking at potential plans to expand but doing so cautiously and prudently. The biggest manifestation is offshore—this bolsters and strengthens the offshore cycle we see coming in the next few years, and we are well positioned for that. The third group is countries that have reserves but are still net importers; they are focused on guaranteeing more security of supply by increasing domestic production. We expect increased investment in domestic production in places like Thailand, Indonesia, and India. Put together, I am not going to give a specific 2027 outlook right now, but I do think 2027 should be a year of growth for us. In the next few months we will be able to calibrate how much and the nature of that growth. It is shaping up to be a positive inflection.
Got it. Thank you.
Thank you. Our next question today comes from Saurabh Pant with BOA. Please go ahead.
Hi. Good morning, Girish.
Hey, Saurabh.
Girish, I think you briefly touched on this in your prepared remarks, but I want to go back to Venezuela. I think you said you expect a more tangible contribution in both revenue and margins in 2027. Maybe expand on this a little bit from a timing and ramp-up standpoint, and then what product service lines Weatherford could deploy in the country. Ultimately from an investor standpoint, what's the size of the opportunity? How big could the market be for Weatherford?
Sure. I'll reiterate that I've been pleasantly surprised. Back in January and February we were a little skeptical about how fast it could move, and it has moved faster than many anticipated. Chevron is well entrenched there and knows the landscape, and we continue to work with them on their plans. We've seen other customers not just announce plans but take actions, and many customers now ask about Venezuela when we travel. We're talking to several customers, and the range of products and services runs the gamut. We start with artificial lift, intervention services, and well services as means of increasing production—those are sweet spots in our portfolio. At its peak, Venezuela was about half a billion dollars for us, and we did pretty much everything there, including drilling services and wireline. We still have assets in the country and are starting to ramp up our workforce in anticipation of awards and the conversations with customers. It's premature to say exactly how big it will be; it would be naive to assume we'll get back to the $500 million peak in the next few years. I do think this will build in a nonlinear fashion—moving from a few million to tens of millions to several more. We'll provide more color as we get into guidance for 2027 and beyond.
Awesome. Thank you. Thank you, Girish. I'll turn it back.
Thank you. Our next question today comes from Derek Podhaizer at Piper Sandler. Please go ahead.
Hey, good morning, everyone. Girish, in your opening comments, it sounded like maybe a little bit of slippage in the Pemex calendar. Could you touch on that more in the outlook for Mexico as we work through the year? Anuj, could you hit on those Pemex collections? You struck a pretty confident tone in your remarks, but maybe provide some more detail on how these could progress through the rest of the year.
Sure. I think Pemex has gotten to a point of stability. There's been anticipation about growth and increased budgets; I am hopeful about that, but we are not betting on a large immediate increase. The Pemex calendar relates to well allocations and contract allocations. It might have been a bit specific to us in the second quarter, but we see that normalizing over the second half. I do think it will be more stable, and we expect that as we get into 2027 and beyond activity levels will increase—probably not 30% or 50%, but a reasonable mid-to-high single-digit increase is warranted. We are well positioned to scale up quickly.
On collections from Pemex: Q2 did mark the third straight quarter where we received sizable collections from Pemex. We've talked at length about some of the structural changes in Mexico, and since then the payments have generally been consistent. Our team has done a remarkable job of working with our largest customer in Mexico to continue to invoice for future collections. We are cautiously optimistic that this continues. Generally, once we invoice Pemex, the collections start coming in a few months thereafter. For the second half of the year, again, we are cautiously optimistic that this trend continues.
Great. Appreciate all the color.
Thank you. Our next question comes from James Rollyson with Raymond James. Please go ahead.
Good morning, everyone. Girish, you've been kind of pushing free cash flow conversion and generation pretty much since you came on board at Weatherford. Maybe this is for Anuj, but could you talk about just kind of your revised outlook for free cash flow conversion, given what second quarter looked like, the fact that you're now in this mid to upper 40s getting close to your 50% number. Is your long-term target kind of changing to the higher end now or beyond 50%?
Happy to take that one. Appreciate you pointing out the focus on free cash flow conversion and generation. This has been a deliberate target internally for us, and it's the result of actions across multiple years to get to where we are. Yes, we did increase our overall outlook, from mid 40% to mid to high 40%, primarily because of the very strong free cash flow generation in the first half. If you look at Q1 plus Q2 combined, we are at around 49% conversion, which gives us confidence to revise higher our overall outlook. We've talked about our approach to drive cash and margin-based outcomes. There are initiatives across all working capital categories and on optimizing interest expense. The redomestication to Delaware will further help free cash flow via tax efficiency. The team is laser-focused on improving in all these areas. Free cash flow conversion also depends on CapEx. We run the business capital light in the 3%-5% range, and we aim to ensure CapEx converts to high-grade EBITDA and then to convert that to a 50% free cash flow number. Our history is to set a target and align the company to hit it. If we structurally deliver at 50% conversion over time, only then may we potentially raise the target.
Appreciate that, Anuj. Thanks.
Thank you. Our next question today comes from Doug Becker. Please go ahead.
Thank you. Girish, I was hoping you'd expand on NCS some more. Is this a deliberate move to increase your exposure to North American unconventionals? How do you see the opportunity to expand their products across your global footprint?
Doug, I would say it's less about just North America. NCS is highly concentrated in North America, but the focus is really around what we can do with the technology. The unconventional part is interesting and exciting. We have a slide that lays out the complementarity of the solution set—it gives us a full spectrum completions solution from heel to toe in the unconventional space, which is very powerful. As unconventional growth occurs beyond North America—in Argentina, the Middle East, and other parts of the world—we can scale. NCS operates effectively in North America and we want to preserve and grow that base. The exciting part is what we can do with our global footprint to scale this offering internationally.
Makes sense. Thank you.
Thank you. Our next question today comes from Phillip Jungwirth with BMO. Please go ahead.
Thanks. Good morning. Realizing NCS hasn't closed yet, but was hoping you could elaborate a bit more on your M&A strategy, potential timing, and also just should we expect things more like NCS in the future?
Phil, what I said in prepared remarks applies here: for us it's all about strategic intent. Does a target significantly enhance or accelerate our strategy versus doing something just for scale? We look for businesses that are typically capital light and that can increase free cash flow margins. We also consider whether our global footprint gives an opportunity to scale. We've seen this with prior acquisitions and hope to see similar optionality with NCS once we close. We will not pursue M&A for the sake of scale; it must create value and meet our financial return criteria.
Thank you.
Thank you. Our next question today comes from Keith Mackey at RBC Capital Markets. Please go ahead.
Thanks, and good morning. Girish, I don't think I've heard you talk about offshore as much as you did on today's call before, certainly with several announced awards as well. Are these awards a true indication of the potential market inflection, or are you gaining market share? Could you also expand on your comment on how your offshore operations have been restructured?
Keith, short answer is yes to multiple parts. Different products have different dynamics. I believe the offshore cycle is strengthening. MPD is changing on the offshore side—there's opportunity where rigs that don't have MPD systems can be converted from a capital sale model into longer-term service partnership models, and that's something we're working on. Our tubular running services are directly correlated to wells drilled and will grow with the cycle. Completions is an area where we've made inroads—we announced an integrated offshore completions award in Denmark and followed up with awards in Nigeria. That's the result of targeted investment over the past few years. As the offshore cycle strengthens, I expect us to grow completions in areas where we haven't historically been as strong. On offshore operations restructuring, this is a response to market needs. We're ensuring consistency of execution and commercialization across geographies so operators and drilling contractors get the same service whether it's West Africa, Brazil, the Gulf of Mexico, or Asia. We're also coupling that with centers of excellence, such as our Managed Pressure Wells Center of Excellence, which brings together engineering, manufacturing, repair and maintenance, and remote operations to create a unique value proposition for customers.
Awesome. Thanks for the color.
Thank you. Our next question today comes from Josh Silverstein with UBS. Please go ahead.
Hey, thanks. Good morning, guys. Girish, you mentioned some pockets of pricing weakness along with your disciplined approach. However, I'm sure a large number of your awards aren't just because you're dropping pricing. Can you talk about where you're seeing strength and what you're encouraged about?
Josh, we try really hard not to drop pricing and certainly don't showcase when you have to do that to win. We believe the way to offset pricing weakness is twofold: technology differentiation and a competitive cost base. When we see pricing weakness, it motivates us to be more competitive. We have tried to get out of commodity businesses where the only differentiation is price; we'd rather have higher cash returns and profitability even on a slightly lower revenue base. Many of our product lines—Managed Pressure Drilling, Tubular Running Services, completions, interventions, cementation—benefit from technology and service differentiation, which is driving the bulk of our activity. We're focused on that approach rather than competing solely on price.
Thank you. Our next question today comes from Ati Modak with Goldman Sachs. Please go ahead.
Thanks. Good morning. Girish, can you talk about the decline in North America revenue in the quarter? It seems like it was driven by Canada; help us understand that better. You mentioned NCS is strategic for expanding globally—curious how you think about the North America impact of having that in the portfolio.
Sure. It is a seasonal business, and the spring break-up in Canada that we experience every year was the contributing factor for the North America decline. U.S. land actually had a positive sequential quarter; I'm encouraged by that. We've seen rig count increasing slightly and there's some encouragement in North America right now. With NCS, we get a much stronger completions capability in North America, and more importantly, a platform to scale that technology internationally. Once we close, I look forward to harnessing NCS's capability and using it to accelerate our own completions and unconventional offerings globally. One plus one may not get to three, but I'm confident it will be well over two.
Thank you.
Thank you. Our next question comes from Josh Jayne at Daniel Energy Partners. Please go ahead.
Thanks. Good morning. We've gone almost an hour without talking substantially about AI or data. Things continue to move quickly, and obviously a number of operators are increasing investments. Maybe you could update us on how quickly things are moving, an update on some of the investments you've made and traction you're getting, not only in AI, but the investments you've made surrounding data and real-time monitoring, please. Thanks.
Josh, I remain very excited and see a lot of potential, though many are still figuring out monetization. We've deployed AI in two dimensions. First, within our portfolio and offerings to customers: production optimization, certain drilling programs, and tubular running services where AI helps customers get better outcomes. Second, internally for productivity—organizational efficiency is a major focus. We're designing our ERP systems with an AI-first mentality to harness the massive amount of data we have. In our digital portfolio, we offer a unified data model to customers. Many customers struggle with data from different vintages and sources; our Unified Data Model and PetroWiser help normalize and harmonize that data. We're starting to get more commercial traction with these offerings.
Thanks. Appreciate it.
That concludes our question and answer session. I'd like to turn the conference back over to management for any closing remarks.
Great. Thank you all for joining the call today. We look forward to updating you in 90 days on our third-quarter results. Thank you. Have a great day.
Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.