What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 156 added, 106 removed, 155 unchanged (63% of the section changed)

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The table below shows the average oil and natural gas prices for West Texas Intermediate (“WTI”) and Brent North Sea (“Brent”) crude oil and Henry Hub natural gas.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Oil price - WTI (1)

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Natural gas price - Henry Hub (2)

$ 2.16 $ 7.48 $ 2.41 $ 6.07

(1) Oil price measured in dollars per barrel (rounded to the nearest $0.01)

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The table below shows historical average rig counts based on the weekly Baker Hughes Company rig count information.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

North America 836 827 909 829

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Russia Ukraine Conflict

On February 24, 2022, the military conflict between Russia and Ukraine (“Russia Ukraine Conflict”) began and in response we evaluated, and continue to evaluate, our operations, with the immediate priority being centered on the safety and well-being of our employees in the impacted regions, as well as operating in full compliance with applicable international laws and sanctions.

In response to the Russia Ukraine Conflict, the United States, the European Union, the United Kingdom, Switzerland and other countries have imposed certain restrictions and broad sanctions against Russia, certain Russian individuals and entities and certain activities involving Russia or such persons or entities.

We continue to monitor and intend to remain in full compliance with the evolving sanctions landscape and will continue to fulfill existing contractual obligations within applicable laws and sanctions.

Revenues in Russia were approximately 6% of our total revenues for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, our Russia operations include $42 million in cash, $96 million in other current assets, $58 million in property, plant and equipment and other non-current assets, and $45 million in liabilities.

On February 24, 2022, the military conflict between Russia and Ukraine (“Russia Ukraine Conflict”) began and in response we evaluated, and continue to evaluate, our operations, with the priority being centered on the safety and well-being of our employees in the impacted regions, as well as operating in full compliance with applicable international laws and sanctions.

With respect to our continued operations in Russia, we continuously monitor developments in the conflict, changes in sanctions against Russia and restrictions imposed on western companies operating in Russia along with other associated risks including potential nationalization of our assets in Russia.

Revenues in Russia were approximately 6% of our total revenues for both the three and six months ended June 30, 2023 and June 30, 2022, respectively.

As of June 30, 2023, our Russia operations include $57 million in cash, $85 million in other current assets, $58 million in property, plant and equipment and other non-current assets, and $44 million in liabilities.

As the Russia Ukraine Conflict and related sanctions persist or are escalated, our business may be negatively impacted, potentially lowering revenues or triggering asset impairments in Russia.

Consolidated Statements of Operations - Operating Income Summary

Revenues of $1.2 billion in the three months ended March 31, 2023, increased 26% compared to $938 million in the three months ended March 31, 2022.

Year-over-year product revenues increased 29% and service revenues increased 25%.

DRE, WCC, and PRI contributed to 32%, 31% and 25% of the increase in revenues, respectively.

Geographically, revenue growth was led by improvements in Latin America, Middle East/North Africa/Asia, North America and Europe/Sub-Sahara Africa/Russia which contributed to 36%, 27%, 19% and 18%, of the increase, respectively.

Approximately 80% of our revenue increase is due to increased customer demand, which management believes is attributable to greater investment in oil and gas production capacity on a global basis, caused by a desire to drive energy security and to meet global consumption needs.

The production capacity increase is consistent with the increase in global rig counts, which increased by 15% year-over-year.

Covid-19 and related impacts like travel restrictions were still impacting demand in the three months ended March 31, 2022.

Cost of products and services of $790 million in the three months ended March 31, 2023, increased $108 million, or 16% compared to the three months ended March 31, 2022.

Approximately 80% of the increase in cost of products and services was attributable to cost increases necessary to meet increased demand, with the remainder of the increase equally attributable to a shift in service and product mix and inflation in the cost of labor and materials.

Our cost of products and services as a percentage of revenues was 67% in the three months ended March 31, 2023, compared to 73% in the three months ended March 31, 2022.

Consolidated Statements of Operations - Operating Summary

Revenues of $1.3 billion and $2.5 billion in the three and six months ended June 30, 2023, increased 20% and 23% compared to $1.1 billion and $2.0 billion in the three and six months ended June 30, 2022, respectively.

Year-over-year in the second quarter, product revenues increased 18% and service revenues increased 21%.

DRE, WCC, and PRI contributed to 37%, 27% and 10% of the increase in revenues, respectively, with the remainder coming from higher activity in integrated services and projects.

Year-over-year in the six months ended June 30, product revenues increased 23% and service revenues increased 23%.

DRE, WCC, and PRI contributed to 34%, 29% and 18% of the increase in revenues, respectively, with the remaining 18% from higher activity in integrated services and projects.

Approximately 80% of our revenue increase in each of the three and six months June 30, was due to increased customer demand, which management believes is attributable to greater investment in oil and gas production capacity on a global basis, caused by a desire to drive energy security and to meet global consumption needs.

The production capacity increase is consistent with the increase in global rig counts, which increased by 9% and 12% year-over-year in the three and six months ended June 30, respectively.

Geographically, the year-over-year second quarter revenue growth was led by improvements in Latin America, Middle East/North Africa/Asia, and Europe/Sub-Sahara Africa/Russia, which contributed to 50%, 34%, and 17% of the increase, respectively, partially offset by decline of 1% in North America.

The year-over-year six months ended June 30 revenue growth was led by improvements in Latin America, Middle East/North Africa/Asia, Europe/Sub-Sahara Africa/Russia and North America, which contributed to 43%, 30%, 17% and 10% of the increase, respectively.

In the three and six months ended June 30, 2023, the U.S.

accounted for 17% and 18% of revenue, respectively, and Mexico accounted for 13% in each period, respectively.

In the three and six months ended June 30, 2022, the U.S.

accounted for 19% of revenue in each period.

No other country accounted for more than 10% of our revenue in the periods presented in these financials.

Cost of products and services of $847 million and $1.6 billion in the three and six months ended June 30, 2023, increased 12% and 14% compared to $756 million and $1.4 billion in the three and six months ended June 30, 2022, respectively.

Approximately 80% of our increase in each of the three and six months ended June 30, 2023 was attributable to cost increases necessary to meet increased demand, with a larger portion of the remainder from a shift in service and product mix and the rest due to inflation in the cost of labor and materials.

Our cost of products and services as a percentage of revenues was 66% and 67% in the three and six months ended June 30, 2023, compared to 71% and 72% in the three and six months ended June 30, 2022.

The improvement was primarily driven by improved utilization of service-related resources.

Selling, general, administrative and research and development costs of $216 million in the three months ended March 31, 2023, increased $17 million, or 9% compared to $199 million in the three months ended March 31, 2022, primarily reflecting an increase in research and development investment in newer technologies.

These costs as a percentage of revenues were 18% in the three months ended March 31, 2023, a decrease compared to 21% in the three months ended March 31, 2022, reflecting our focus on cost control and efficiency.

No restructuring charges were incurred in the three months ended March 31, 2023 and $20 million was incurred in the three months ended March 31, 2022.

See “Note 4 – Restructuring Charges” for additional information.

Other charges (credits) in the three months ended March 31, 2023 were a net credit of $5 million and a net charge of $19 million in the three months ended March 31, 2022 related to miscellaneous charges and credits.

Consolidated Statements of Operations - Non-Operating Summary

Selling, general, administrative and research and development costs of $225 million and $441 million in the three and six months ended June 30, 2023, increased 3% and 6% compared to $218 million and $417 million in the three and six months ended June 30, 2022, respectively.

The increase primarily reflects an increase in research and development investment in newer technologies and an increase in overhead to support the organization growth.

Selling, general, administrative and research and development costs as a percentage of revenues was 18% in both in the three and six months ended June 30, 2023, respectively, a decrease compared to 21% in both the three and six months ended June 30, 2022.

Interest Expense, Net

Interest expense, net was $31 million and $48 million in the three months ended March 31, 2023 and 2022, respectively.

Interest expense, net primarily represents interest on our outstanding long-term debt offset by interest income.

The year-over-year decrease was due in part to lower interest expense after partial repayments of principal since March 31, 2022 and partly due to the increase in interest income, as we reinvest our cash in certain short-term demand deposits.

See “Note 7 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details on the long-term debt.

Interest expense, net was $31 million and $62 million in the three and six months ended June 30, 2023, respectively, and $48 million and $96 million in the three and six months ended June 30, 2022.

Interest expense, net is interest expense net of interest income, and overall has decreased in the periods presented primarily due to a decrease in interest expense on our outstanding long-term debt and an increase of interest income.

Interest expense was $47 million and $94 million in the three and six months ended June 30, 2023, respectively, and $54 million and $107 million in the three and six months ended June 30, 2022, respectively.

Interest expense has decreased in the periods presented primarily due to the reduction in our outstanding long-term debt.

As of June 30, 2023, we have fully repaid our outstanding Exit Notes and have made partial repurchases of principal on our 2028 Senior Secured Notes since June 30, 2022.

See “Note 6 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details.

Interest income was $16 million and $32 million in the three and six months ended June 30, 2023, respectively, and $6 million and $11 million in the three and six months ended June 30, 2022.

Interest income has increased primarily due to higher interest rates on short-term demand deposits.

Loss on Blue Chip Swap Securities

An indirect foreign exchange mechanism known as the Blue Chip Swap (“BCS”) allows entities to remit U.S.

dollars from operations in Argentina.

We entered into a series of BCS securities transactions that resulted in a “Loss on Blue Chip Swap Securities” of $57 million in both the three and six months ended June 30, 2023.

We may enter into additional BCS transactions in the future which may drive additional losses to the extent that the implied exchange rates are higher than the official exchange rates.

See “Note 11 – Blue Chip Swap Securities - Argentina” to our Condensed Consolidated Financial Statements for additional details.

Other Expense, Net

Other expense, net was $35 million and $16 million in the three months ended March 31, 2023 and 2022, respectively.

Other expense, net primarily represents foreign exchange losses attributed to currency losses in countries with no or limited markets to hedge, letter of credit fees and other financing charges.

Other expense, net was $39 million and $74 million in the three and six months ended June 30, 2023, respectively, and $32 million and $48 million in the three and six ended June 30, 2022, respectively.

Other expense, net primarily represents foreign exchange losses attributed to currency losses in countries with no or limited markets to hedge, letter of credit fees and other financing charges, including when applicable, bond redemption premiums partially offset by certain investment gains and losses.

When economically advantageous, we enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency.

Additionally, we enter into certain short-term investments to offset our foreign exchange losses, the gains of which are recorded in “Other Expense, Net”.

Other expense, net in the three months ended March 31, 2023 was primarily attributable to foreign exchange losses in the Argentinian Peso.

Other expense, net in the three months ended March 31, 2022 was primarily attributed to changes in fair value and settlements of certain foreign currency forward contracts.

Foreign exchange losses in the three and six months ended June 30, 2023 were primarily attributable to currency losses on the Argentinian Peso.

Foreign exchanges losses in the three and six months ended June 30, 2022 were primarily attributed to changes in fair value and settlements of certain foreign currency forward contracts.

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered residents for income tax purposes.

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Three Months Ended (Unfavorable)

March 31, $ % or bps

June 30, $ % or bps

(Dollars in millions) 2023 2022 Change

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PRI Segment Adjusted EBITDA 81 68 13 19 %

Corporate and Other (3) (14) 11 79 %

All Other 9 — 9 n/m

Corporate (14) (18) 4 22 %

Depreciation and Amortization (81) (90) 9 10 %

Share-Based Compensation (8) (6) (2) (33) %

Restructuring Charges — (20) 20 100 %

Other (Charges) Credits (1) 14 (15) (107) %

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PRI Segment Adjusted EBITDA Margin 22.1 % 19.7 % n/m 240 bps

DRE revenues of $372 million in the three months ended March 31, 2023, increased $80 million, or 27% compared to $292 million in the three months ended March 31, 2022.

DRE segment adjusted EBITDA of $108 million in the three months ended March 31, 2023, increased $49 million, or 83% compared to $59 million in the three months ended March 31, 2022.

DRE segment adjusted EBITDA margin was 29.0% in the three months ended March 31, 2023, compared to 20.2% in the three months ended March 31, 2022.

Approximately 70% of the revenue increase was from drilling-related services.

Six Months Ended (Unfavorable)

June 30, $ % or bps

(Dollars in millions) 2023 2022 Change

DRE Revenues $ 766 $ 609 $ 157 26 %

WCC Revenues 861 727 134 18 %

PRI Revenues 715 631 84 13 %

All Other 118 35 83 237 %

Total Revenues $ 2,460 $ 2,002 $ 458 23 %

Operating Income:

DRE Segment Adjusted EBITDA $ 214 $ 128 $ 86 67 %

WCC Segment Adjusted EBITDA 205 134 71 53 %

PRI Segment Adjusted EBITDA 149 107 42 39 %

All Other 18 2 16 800 %

Corporate (26) (34) 8 24 %

Depreciation and Amortization (161) (177) 16 9 %

Share-Based Compensation (17) (13) (4) (31) %

Other (Charges) Credits 4 (25) 29 116 %

Operating Income $ 386 $ 122 $ 264 216 %

DRE Segment Adjusted EBITDA Margin 27.9 % 21.0 % n/m 690 bps

WCC Segment Adjusted EBITDA Margin 23.8 % 18.4 % n/m 540 bps

PRI Segment Adjusted EBITDA Margin 20.8 % 17.0 % n/m 380 bps

DRE revenues of $394 million and $766 million in the three and six months ended June 30, 2023, increased $77 million or 24%, and $157 million or 26%, compared to $317 million and $609 million in the three and six months ended June 30, 2022, respectively.

Of the year-over-year revenue increase in the second quarter of 2023, approximately 65% was from drilling-related services.

Geographically, international regions contributed approximately 90% to the overall revenue growth and approximately half of the international growth came from Latin America.

The increase in revenue was attributable to higher activity.

Of the year-over-year revenue increase in the six months ended June 30, 2023, approximately 70% was from drilling-related services.

Geographically, Latin America contributed approximately 50% to the overall revenue growth, with each remaining geography contributing equally.

The increase in revenue was approximately 85% attributable to higher activity with the remainder primarily attributable to pricing.

The improvement in segment adjusted EBITDA was equally attributable to higher activity and pricing including timing of cost inflation related recoveries.

WCC revenues of $421 million in the three months ended March 31, 2023, increased $77 million, or 22% compared to $344 million in the three months ended March 31, 2022.

WCC segment adjusted EBITDA of $96 million in the three months ended March 31, 2023, increased $29 million, or 43% compared to $67 million in the three months ended March 31, 2022.

WCC segment adjusted EBITDA margin was 22.8% in the three months ended March 31, 2023, compared to 19.5% in the three months ended March 31, 2022.

Approximately 80% of the revenue increase was from cementation products, completions and tubular running services.

Geographically, international regions contributed approximately 85% to the overall revenue growth, with each international region contributing equally.

DRE segment adjusted EBITDA of $106 million and $214 million in the three and six months ended June 30, 2023, increased $37 million or 54%, and $86 million or 67%, compared to $69 million and $128 million in the three and six months ended June 30, 2022.

DRE segment adjusted EBITDA margin was 26.9% and 27.9% in the three and six months ended June 30, 2023, compared to 21.8% and 21.0% in the three and six months ended June 30, 2022.

The improvement in segment adjusted EBITDA was more than half attributable to pricing, including timing of cost inflation related recoveries with the remainder from higher activity.

WCC revenues of $440 million and $861 million in the three and six months ended June 30, 2023, increased $57 million or 15%, and $134 million or 18%, compared to $383 million and $727 million in the three and six months ended June 30, 2022, respectively.

Of the year-over-year revenue increase in the second quarter 2023, approximately 95% was from completions and cementation products.

Geographically, international regions contributed approximately to all of the overall revenue growth, and approximately 55% of the international growth came from Latin America.

Of the year-over-year revenue increase in the six months ended June 30, 2023, approximately 80% was from cementation products and completions.

Geographically, international regions contributed approximately 90% to the overall revenue growth, and approximately 40% of the international growth came from Latin America, with the rest of the international regions contributing equally.

WCC segment adjusted EBITDA of $109 million and $205 million in the three and six months ended June 30, 2023, increased $42 million or 63%, and $71 million or 53%, compared to $67 million and $134 million in the three and six months ended June 30, 2022.

WCC segment adjusted EBITDA margin was 24.8% and 23.8% in the three and six months ended June 30, 2023, compared to 17.5% and 18.4% in the three and six months ended June 30, 2022.

The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through.

PRI revenues of $349 million in the three months ended March 31, 2023, increased $63 million, or 22% compared to $286 million in the three months ended March 31, 2022.

PRI segment adjusted EBITDA of $68 million in the three months ended March 31, 2023, increased $29 million, or 74% compared to $39 million in the three months ended March 31, 2022.

PRI segment adjusted EBITDA margin was 19.5% in the three months ended March 31, 2023, an improvement compared to 13.6% in the three months ended March 31, 2022.

Approximately 90% of the revenue increase was from intervention services and drilling tools, pressure pumping and artificial lift.

Geographically, international regions contributed approximately 65% to the overall revenue growth, with each international region contributing equally.

PRI revenues of $366 million and $715 million in the three and six months ended June 30, 2023, increased $21 million or 6%, and $84 million or 13%, compared to $345 million and $631 million in the three and six months ended June 30, 2022, respectively.

Of the year-over-year revenue increase in the second quarter of 2023, approximately 95% was from intervention services and drilling tools, pressure pumping and artificial lift.

Geographically, Latin America contributed approximately 70% to the regions with overall revenue growth, offset by a revenue decline in North America.

Of the year-over-year revenue increase in the six months ended June 30, 2023, approximately 90% was from intervention services and drilling tools, pressure pumping and artificial lift.

Geographically, international regions contributed approximately 90% to the overall revenue growth and approximately half of the international growth came from Latin America.

PRI segment adjusted EBITDA of $81 million and $149 million in the three and six months ended June 30, 2023, increased $13 million or 19%, and $42 million, or 39%, compared to $68 million and $107 million in the three and six months ended June 30, 2022.

PRI segment adjusted EBITDA margin was 22.1% and 20.8% in the three and six months ended June 30, 2023, an improvement compared to 19.7% and 17.0% in the three and six months ended June 30, 2022.

The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through.

Corporate and Other

Corporate and other was a net expense of $3 million in the three months ended March 31, 2023 compared to $ 14 million in the three months ended March 31, 2022.

The year-over-year decrease was primarily due to improved results in other non-core businesses that did not individually meet the criteria for segment reporting and from our focus on cost control and efficiency.

All Other Results

All Other revenues of $74 million and $118 million in the three and six months ended June 30, 2023, increased $55 million or 289%, and $83 million or 237%, compared to $19 million and $35 million in the three and six months ended June 30, 2022, respectively.

The year-over-year increase was primarily due to improved results in integrated services and projects in the Middle East/North Africa/Asia and Latin America that did not individually meet the criteria for segment reporting.

Corporate was a net expense of $14 million and $26 million in the three and six months ended June 30, 2023 compared to a net expense of $18 million and $34 million in the three and six months ended June 30, 2022, respectively.

The year-over-year decrease in expense was primarily due to the impact of certain one-time items in 2023 and 2022.

Depreciation and Amortization

Depreciation and amortization was $80 million in the three months ended March 31, 2023 compared to $87 million in the three months ended March 31, 2022, respectively.

Depreciation and amortization was $81 million and $161 million in the three and six months ended June 30, 2023 compared to $90 million and $177 million in the three and six months ended June 30, 2022, respectively.

The year-over-year decrease was primarily from a lower asset base.

Share-based Compensation Expense

We recognized $9 million of share-based compensation expense in the three months ended March 31, 2023, an increase of $2 million compared to $7 million of share-based compensation expense in the three months ended March 31, 2022.

The increase was attributable to a higher number of performance share units expected to vest.

Restructuring Charges

No restructuring charges were incurred in the three months ended March 31, 2023 and $20 million was incurred in the three months ended March 31, 2022.

See “Note 4 – Restructuring Charges” for additional information.

Other (Charges) Credits

Other (charges) credits in the three months ended March 31, 2023 were a net credit of $5 million and a net charge of $19 million in the three months ended March 31, 2022 related to miscellaneous charges and credits.

We recognized $8 million and $17 million of share-based compensation expense in the three and six months ended June 30, 2023 compared to $6 million and $13 million of share-based compensation expense in the three and six months ended June 30, 2022, respectively.

The increase was primarily attributable to a higher number of performance share units expected to vest.

Growth and spending in the energy services industry is highly dependent on many external factors.

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and the price of oil and natural gas.

For 2023, we expect continued growth in our customer activity levels and notwithstanding recessionary concerns, we expect continued improvement in our customer activity, especially in international markets.

However, we continue to closely monitor the global market and are well positioned to pivot our strategy as changes in external factors require.

We continue to expect overall 2023 growth over 2022, led by increased demand in customer activity levels.

We continue to closely monitor the global market and are well positioned to pivot our strategy as changes in external factors require.

Our customers continue to face challenges in balancing the cost of extraction activities with securing desired rates of production while achieving acceptable rates of return on investment.

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We continue to follow our long-term strategy, aimed at achieving sustainable profitability and cash flow generation in our businesses, servicing our customers and creating value for our shareholders.

Our long-term success will be determined by our ability to effectively manage the cyclicality of our industry, including growth during the current up-cycles and potential prolonged industry downturns, our ability to respond to industry changes and demands, while managing through risks we may be exposed to, and ultimately our ability to generate consistent positive cash flow and positive returns on invested capital.

Our long-term success will be determined by our ability to effectively manage the cyclicality of our industry, including growth during the current up-cycles and potential prolonged industry downturns, our ability to respond to industry changes and demands, manage risks we may be exposed to, and ultimately our ability to generate consistent positive cash flow and positive returns on invested capital.

Liquidity and Capital Resources

At March 31, 2023, we had cash and cash equivalents of $833 million and $150 million in restricted cash, compared to $910 million of cash and cash equivalents and $202 million in restricted cash at December 31, 2022.

At June 30, 2023, we had cash and cash equivalents of $787 million and $135 million in restricted cash, compared to $910 million of cash and cash equivalents and $202 million in restricted cash at December 31, 2022.

The following table summarizes cash flows provided by (used in) each type of business activity in the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in millions) 2023

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Operating Activities

Cash provided by operating activities was $84 million for the three months ended March 31, 2023.

The primary source of cash provided by operating activities was higher operating income that more than offset higher operating and seasonal working capital requirements.

Cash used in operating activities was $64 million for the three months ended March 31, 2022.

The primary uses of cash in operating activities were driven by seasonal working capital requirements.

Cash provided by operating activities was $285 million for the six months ended June 30, 2023.

The primary source of cash provided by operating activities was mostly attributed to more revenues billed from increased demand and more collections that more than offset our operating spend.

Cash used in operating activities was $4 million for the six months ended June 30, 2022.

The primary uses of cash in operating activities were working capital investments to support increased customer activity and interest payments.

used in operating activities was minimized by accounts receivable collections and by a short-term monetization transaction we entered into during the three months ended June 30, 2022 on certain accounts receivable balances.

This transaction resulted in net cash proceeds of $59 million in the three months ended June 30, 2022, which decreased our net cash outflows in the six months ended June 30, 2022.

Investing Activities

Cash used in investing activities was $64 million for the three months ended March 31, 2023.

The primary investing activity was cash used for capital expenditures of $64 million.

Cash provided by investing activities was $9 million for the three months ended March 31, 2022.

The primary investing activities included proceeds from a settlement of escrow related to the sale of business for $9 million, cash used for capital expenditures of $20 million, which was offset by proceeds from the sale of assets of $20 million.

Cash used in investing activities was $122 million for the six months ended June 30, 2023.

The primary investing activities were cash used for capital expenditures of $100 million and the purchase of Blue Chip Swap securities in Argentina for $110 million.

The uses of cash were partially offset by Blue Chip Swap proceeds of $53 million (see Note 11 – Blue Chip Swap Securities - Argentina) and additional cash proceeds of $33 million from the sales of our investments in marketable securities in Argentina, presented as part of “Other Investing Activities”.

Cash provided by investing activities was $7 million for the six months ended June 30, 2022.

The primary investing activities included proceeds from the sale of assets of $43 million and a release of funds in escrow related to the sale of business for $9 million, which was offset by cash used for capital expenditures of $44 million.

Financing Activities

Cash used in financing activities was $127 million for the three months ended March 31, 2023.

The primary uses of cash were $66 million for repayments and repurchases of long-term debt and $52 million in tax remittances on equity awards vested.

The tax remittances were higher relative to the three months ended March 31, 2022 due to an increase in both the share price and the quantity of shares vested.

Cash used in financing activities was $5 million for the three months ended March 31, 2022 which includes $4 million of finance lease payments and $1 million in tax remittances on equity awards vested.

Cash used in financing activities was $297 million for the six months ended June 30, 2023.

The primary uses of cash were $230 million for repayments and repurchases of long-term debt (see “Note 6 – Borrowings and Other Debt Obligations”) and $54 million in tax remittances on equity awards vested.

The tax remittances were higher than the same period of the prior year due to an increase in both the share price and the quantity of shares vested.

Cash used in financing activities was $25 million for the six months ended June 30, 2022.

The primary uses of cash were for finance lease payments and dividends paid to noncontrolling interests.

Sources of Liquidity

Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, and accounts receivable factoring.

Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, the borrowing capacity available to us under our Credit Agreement and accounts receivable factoring.

From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.

We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings.

Based upon current and anticipated levels of operations and our 2021 refinancing transactions, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below and in “Note 7 – Borrowings and Other Debt Obligations”) and financial obligations, both in the short-term and long-term.

Based upon current and anticipated levels of operations, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below and in “Note 6 – Borrowings and Other Debt Obligations”) and financial obligations, both in the short-term and long-term.

Cash Requirements

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To the extent business activity continues to rise, we expect to make more tax payments and to utilize cash on reducing our debt structure and invest in capital assets and our working capital.

Our cash requirements also include personnel costs including awards under our employee incentive programs as well as other amounts to settle litigation related matters.

As of March 31, 2023, we had outstanding debt of $105 million in aggregate principal amount for our Exit Notes maturing on December 1, 2024 (which we announced on April 20, 2023 that we intend to redeem in total on May 22, 2023), $441 million in aggregate principal amount for our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount for our 2030 Senior Notes.

For these notes, after the May 2023 redemption of the Exit Notes, we expect $173 million in interest payments annually in 2023 and approximately $167 million in interest payments annually, beginning in 2024 until the maturity of these obligations.

In addition, we may further invest in research and development investment in newer technologies as well as overhead to support the organization growth.

Our cash requirements also include improvements made to our technology platforms and personnel costs including awards under our employee incentive programs as well as other amounts to settle litigation related matters.

As of June 30, 2023, our primary debt outstanding was the $396 million in aggregate principal amount of our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount of our 2030 Senior Notes.

Considering the balances of our outstanding notes as of June 30, 2023, we would expect $172 million in interest payments in 2023 in total, of which we have paid $91 million during the six months ended June 30, 2023.

See “Note 6 – Borrowings and Other Debt Obligations” for additional information.

Our capital spending for 2023 is projected to be between $200 million to $230 million.

Our capital spending for 2023 is projected to be between 4-5% of total year revenues.

Our payments on our operating and finance leases in 2023 are expected to be approximately $65 million and $20 million, respectively.

Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland.

At March 31, 2023 we had approximately $174 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations.

Based on the nature of our structure, other than the restrictions noted above, we foresee we will be able to redeploy cash with minimal to no incremental tax.

At June 30, 2023 and December 31, 2022, we had approximately $112 million and $177 million, respectively, of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations.

Repatriation of those cash balances might result in incremental taxes or losses similar to the Argentine Blue Chip Swap “BCS” transactions executed in the second quarter of 2023 (see Note 11 – Blue Chip Swap Securities - Argentina), which contributed to the decrease in cash and cash equivalents that cannot be immediately repatriated.

As of June 30, 2023 and December 31, 2022, our Argentine operations include $30 million and $115 million in cash denominated in Argentine pesos, respectively.

To safeguard our cash from the effects of Argentine inflation and devaluation, we may consider additional BCS transactions in the future.

Ratings Services’ Credit Ratings

Our credit ratings at March 31, 2023 were maintained since December 31, 2022.

Our credit ratings at June 30, 2023 were maintained since December 31, 2022.

• Standard and Poor’s corporate family and senior unsecured notes ratings are at B, and our senior secured notes and Credit Agreement ratings are BB-.

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In addition, our customers are primarily in fossil fuel-related industries and broad declines in demand for or pricing of oil or natural gas might impact the collections of our customer receivables.

As of December 31, 2022 and March 31, 2023, our net accounts receivables in Mexico comprised 21% and 27% of our total net account receivables, respectively.

As of June 30, 2023 and December 31, 2022, our net accounts receivables in Mexico were 28% and 21% of our total net account receivables, respectively.

From time to time, we experience delays in payments from customers in Mexico, and although the balances due are not in dispute and we do not expect to have any material write-offs of receivables, delays or failure to pay in the future could differ from management’s expectations and negatively impact future results of the Company.

As of December 31, 2022 and March 31, 2023, net accounts receivables in the U.S.

comprised 12% of total net accounts receivables.

As of June 30, 2023 and December 31, 2022, our net accounts receivables in the U.S.

was 12% of total net accounts receivables.

Except for the above, no other country accounted for more than 10% of our net accounts receivables balance.

Accounts Receivable Factoring

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions for cash proceeds net of discount and hold-back.

During the three months ended March 31, 2023 and 2022, we sold accounts receivable balances of $46 million and $17 million, and received cash proceeds of $42 million and $15 million, respectively.

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions for cash proceeds net of discounts and hold-backs.

During the three and six months ended June 30, 2023, we sold accounts receivable balances of $63 million and $109 million, and received cash proceeds of $61 million and $103 million, respectively.

During the three and six months ended June 30, 2022, we sold accounts receivable balances of $9 million and $26 million, and received cash proceeds of $8 million and $23 million, respectively.

Our Exit Notes and 2028 Senior Secured Notes were issued by Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and guaranteed by the Company and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”) and other subsidiary guarantors party thereto.

Our 2030 Senior Notes were originally co-issued by Weatherford Bermuda and Weatherford Delaware and guaranteed by the Company and other subsidiary guarantors party thereto.

Our Exit Notes were fully redeemed and repurchased in May 2023.

Our 2030 Senior Notes were issued by Weatherford Bermuda and guaranteed by the Company and other subsidiary guarantors party thereto.

On December 1, 2022, the indenture related to our 2030 Senior Notes was amended and supplemented to add Weatherford Delaware as co-issuer and co-obligor, and concurrently released the guarantee of Weatherford Delaware.

Credit Agreement, Letter of Credit and Surety Bonds

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(“Weatherford Canada”), together, as borrowers, and the Company as parent, have an amended and restated credit agreement (the “Credit Agreement”).

The Credit Agreement allows for a total commitment amount of $400 million maturing on October 17, 2026 (subject to a $250 million minimum liquidity covenant and a minimum interest coverage ratio and maximum ratio of funded debt), provided that no more than $50 million of our Exit Notes are outstanding on August 30, 2024 (otherwise the maturity date becomes August 30, 2024).

On March 24, 2023, we further amended the Credit Agreement to permit unlimited prepayments and other redemptions of indebtedness subject to (i) the ratio of funded debt (net of unrestricted cash in excess of $400 million) to consolidated adjusted EBITDA as defined in the Credit Agreement, not exceeding 2.50 to 1.00, (ii) no default or event of default existing and (iii) aggregate proforma liquidity in the event of a debt reduction equaling or exceeding $300 million (which previously was $350 million).

The material terms of the Credit Agreement or exceeding $300 million (which previously was $350 million).

The material terms of the Credit Agreement are otherwise unchanged.

The obligations under the Credit Agreement are guaranteed by the Company and certain of our subsidiaries and secured by substantially all of the personal property of the Company and those subsidiaries.

As of March 31, 2023, we had $405 million of letters of credit outstanding, consisting of the $253 million under the Credit Agreement and another $152 million under various uncommitted bi-lateral facilities (of which there was $146 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).

At March 31, 2023, we had $147 million remaining letters of credit available under our Credit Agreement.

As of June 30, 2023, we had $385 million of letters of credit outstanding, consisting of the $250 million under the Credit Agreement and another $135 million under various uncommitted bi-lateral facilities (of which there was $128 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).

As of December 31, 2022, we had $395 million of letters of credit outstanding, consisting of the $195 million under the Credit Agreement and another $200 million under various uncommitted bi-lateral facilities (of which there was $199 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).

As of June 30, 2023 and December 31, 2022, our revolving loan capacity available was $45 million, respectively.

We utilize surety bonds as part of our customary business practice in Latin America.

As of March 31, 2023, we had surety bonds outstanding of $430 million.

As of June 30, 2023 and December 31, 2022, we had surety bonds outstanding of $434 million and $415 million, respectively.

Any of our outstanding letters of credit or surety bonds could be called by the beneficiaries should we breach certain contractual or performance obligations and could reduce our available liquidity if we are unable to mitigate the issue.

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Risk Factors”, sets forth certain risks and uncertainties relating to our forward-looking statements that may cause actual results to be materially different from our present expectations or projections:

• global political, economic and market conditions, banking crises, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

• global political, economic and market conditions, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

• general global economic repercussions related to U.S.

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• failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations;

• changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict and the potential for such issues to exacerbate other risks we face, including those related to the other risks and uncertainties listed or referenced;

• changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict such as nationalization of assets, and the potential for such issues to exacerbate other risks and uncertainties listed or referenced;

• cybersecurity incidents, as our reliance on digital technologies increases, those digital technologies may become more vulnerable and/or experience a higher rate of cybersecurity attacks, intrusions or incidents in the current environment of remote connectivity, as well as increased geopolitical conflicts and tensions, including as a result of the Russia Ukraine Conflict;

• our ability to comply with, and respond to, climate change, environmental, social and governance and other “sustainability” initiatives and future legislative and regulatory measures both globally and in the specific geographic regions in which we and our customers operate;

• our ability to effectively and timely address the need to conduct our operations and provision of services to our customers more sustainably and with a lower carbon footprint;

• risks associated with disease outbreaks and other public health issues, including the COVID-19 pandemic, their impact on the global economy and the business of our company, customers, suppliers and other partners;

• further spread and potential for a resurgence of a pandemic in a given geographic region and related disruptions to our business, employees, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread of the COVID-19 pandemic, including vaccination requirements and the associated availability of vaccines, restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

• our ability to effectively and timely address the need to conduct our operations and provide services to our customers more sustainably and with a lower carbon footprint;

• risks associated with disease outbreaks and other public health issues, including the COVID-19 pandemic;

further spread and potential for a resurgence of a pandemic in a given geographic region and related disruptions to our business, employees, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread, including vaccination requirements and the associated availability of vaccines, restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

• the price and price volatility of, and demand for, oil, natural gas and natural gas liquids;

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Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our current and past filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended.

Quantitative and Qualitative Disclosures About Market Risk.

Other than the change in fair value of our debt as discussed in “Note 7 – Borrowings and Other Debt Obligations” in the Notes to Condensed Consolidated Financial Statements, our exposure to market risk has not changed materially since December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis