Weatherford International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Weatherford International Ltd. (WFT)

Q1 2012 Earnings Call

April 24, 2012 9:30 am ET

Executives

Bernard J. Duroc-Danner – Chairman, President and Chief Executive Officer

John H. Briscoe – Senior Vice President and Chief Financial Officer

Analysts

Jim Crandell – Dahlman Rose

William Herbert – Simmons & Company Intl.

Angie Sedita – UBS

James West – Barclays Capital

Joe Hill – Tudor, Pickering, Holt & Company

Robin Shoemaker – Citi Investment Research

Kurt Hallead – RBC Capital Markets

Scott Gruber – Sanford Bernstein & Co.

Michael Urban – Deutsche Bank Securities

Bernd Pomrehn – MainFirst Schweiz AG

Presentation

Operator

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International First Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator instructions) As a reminder ladies and gentlemen, today’s call is being recorded.

Thank you. I’d now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer. Sir, you may begin your conference.

Bernard J. Duroc-Danner

Thank you. Good morning, everyone. John will read his prepared comments, and I’ll do the same as usual.

John H. Briscoe

Thank you, Bernard, and good morning, everyone. Before my prepared comments, I would like to remind listeners that this call contains forward-looking statements within the meaning of applicable securities laws, and also includes non-GAAP financial measures. A detailed disclaimer related to our forward-looking statements is included in our press release which has been filed with the SEC and is available on our website at weatherford.com or upon request. Similarly a reconciliation of excluded items and non-GAAP financial measures is included in our press release and also on our website.

Finally, in order to allow more callers to ask questions, I ask each caller in the Q&A to limit their questions to one initial question and one follow-up question. In the first quarter 2012 we generated net income of $123 million or $0.16 per diluted share. On a non-GAAP basis, first quarter net income is $190 million or $0.25 per fully diluted share compared to non-GAAP net income for the fourth quarter of 2011 of $159 million, as detailed in the non-GAAP reconciliation table in our earnings release.

First-quarter net income was unfavorably impacted by certain excluded items highlighted in our press release totaling $67 million on an after-tax basis. The excluded items for the first quarter were primarily composed of $25 million net of tax for severance substantially related to executive officers and $40 million of discrete tax items.

Discrete tax items are primarily changes in estimates and uncertain tax positions that are not directly related to current year operating results. Due to the nature of these items, they cannot be accurately forecasted and are not considered when we provide guidance on our full-year effective tax rate.

In order to provide greater transparency to our income tax numbers and increase clarity to our operating results, beginning with this quarter we will break out discrete tax items separately and include these items in our reconciliation of GAAP to non-GAAP financial measures schedule, which is the next to last page of our earnings release.

This will allow you to clearly see our operating results on a normalized basis and the taxes related to our current operations. You will also be able to easily track our progress towards our tax guidance in the current year and track future year reductions in our effective tax rate on a truly comparable basis.

First quarter revenues of $3,599 million were 3% lower sequentially, but 26% higher than the same period last year. North America revenue was up 29% versus the first quarter of 2011, and up 3% sequentially. International revenues were up 23% versus the same quarter of 2011, and down 8% sequentially. Artificial Lift, Wireline and Completions posted strong sequential growth in North America, but these increases were more than offset by declines in Stimulation, Drilling Tools and Fishing which were penalized by declines in natural gas plays in North America. Seasonal declines in Russia, North Sea and China as well as budgetary cycles in Latin America were the primary factors impacting international sequential revenues.

Segment operating income of $554 million improved 57% over first quarter 2011, while declining $57 million or 9% sequentially. Segment operating income margins of 15%, improved 3% over first quarter 2011 while declining 2% sequentially.

North America revenues increased 29% year-over-year, and 3% sequentially with operating margins for the quarter declining 200 basis points sequentially to 21%. International revenues increased 23% year-over-year and declined 8% sequentially with operating margins declining 80 basis points sequentially to 11%.

Corporate, general and administrative expense of $64 million increased $7 million compared to the prior quarter, primarily attributable to additional professional service fees incurred in the first quarter. The record high level of corporate costs in Q1 will decline to an average below $55 million per quarter for the remainder of 2012.

During the first quarter 2012, we generated EBITDA defined as non-GAAP operating income plus depreciation and amortization of $729 million with depreciation and amortization of $301 million compared to EBITDA of $779 million and depreciation and amortization of $289 million in the prior quarter.

Capital expenditures were $483 million for the quarter, net of $30 million lost in whole revenue, while approximately 13% of revenue. Full year 2012 CapEx is projected at about $1.7 billion. Actual CapEx in the second half of the year will be driven by how we see our incremental growth developing in 2013.

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