Earnings Call Transcript - WFRD Q3 2024

Operator, Operator

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to the Weatherford International Third Quarter 2024 Earnings Call. All participants will be in listen-only mode. As a reminder, this event is being recorded. I would now like to turn the conference over to Luke Lemoine, Senior Vice President, Corporate Development. Sir, you may begin.

Luke Lemoine, Senior Vice President, Corporate Development

Welcome, everyone, to the Weatherford International Third Quarter 2024 Earnings Conference Call. I'm joined today by Girish Saligram, President and CEO; and Arun Mitra, Executive Vice President and CFO. We'll start today with our prepared remarks and then open it 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 expectations expressed here within. 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 third-quarter earnings press release, which will 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 the call. With that, I'd like to turn over the call to Girish.

Girish Saligram, President and CEO

Thanks, Luke, and thank you all for joining our call. I will kick off our prepared remarks with an overview of our performance, an update on our capital return program, key highlights, and a brief market outlook. Arun will then cover cash flow, the balance sheet, liquidity, and guidance, and I will wrap up with some thoughts on our strategic direction and multi-year targets before opening for Q&A. As illustrated on Slide 3, we delivered strong margin and cash performance in a quarter where North America remained challenged, Latin America had delays, and schedules shifted in the Middle East and North Africa. We have observed a gradual softening in activity, particularly in short cycle oil projects and onshore programs. E&P operators are taking a measured and cautious approach, and we expect this trend to continue in the near term. In the third quarter of 2024, despite the revenue headwinds, adjusted EBITDA margins came in as expected at 25.2%. While the margins were more normalized after MPD asset sales supported the second quarter, it is worthwhile noting that we had almost 200 basis points of margin expansion over the same period last year. We delivered adjusted free cash flow of $184 million for an adjusted free cash flow conversion of 52%. Third quarter revenue was flat sequentially and up 7% year-over-year, driven by international revenue growth of 9% year-over-year. Revenue came in at the lower end of expectations due to two main factors. Firstly, we experienced delays in activity in Latin America that were broadly felt across the sector. Secondly, there were scheduling shifts in the Middle East and North Africa region, driven by the more measured approach that I referenced earlier. While we did have opportunities to offset the revenue shortfall with transactional work, we remain firmly committed to pricing discipline and margin expansion to drive long-term value creation. While revenue came in at the lower end of expectations, I'm encouraged by strong margin and cash flow performance, which reinforces our thesis on the ability to continue driving margin growth on an annual basis. From a regional standpoint, overall North America revenue was up 6% sequentially, primarily due to an activity increase in Canada due to favorable seasonality and increased activity in the Gulf of Mexico. Our international business was down 1% sequentially but up 9% year-over-year. The sequential impact was primarily a function of the previously mentioned factors. Despite the sequential delta, we have now achieved 14 consecutive quarters of year-over-year international revenue growth, with the Middle East, North Africa, Asia region driving the year-on-year results this quarter. The Kingdom of Saudi Arabia continues to show strength and has grown 29% year-to-date, and the broader Middle East, North Africa, Asia region has grown 25% year-to-date. Earlier this year, we discussed the expected modulation of our integrated project in Oman. This began in the third quarter and will continue into the fourth with normalization expected to resume in the first quarter of 2025. Our team's outstanding execution on this contract has led to significantly better performance than originally expected. However, as we have previously discussed, we needed to slow down to allow other customer activities to catch up. On the second quarter call, we expanded our capital allocation framework to include a quarterly dividend and a $500 million buyback. As shown on Slide 6, we paid our first-ever quarterly dividend of $0.25 per share and repurchased approximately $50 million of shares during the third quarter. However, this amount may vary each quarter depending on market conditions. Our net leverage ratio is approximately 0.5 times and we remain committed to retiring additional debt while maintaining our top-tier ROIC. We continue to pursue inorganic opportunities that align with our strategic filters. In addition to the three small acquisitions in February, we announced Datagration in September. I'm very pleased with the progress and execution of our team on the integration plans across all four of these businesses. Now turning to our segment overview on Slides 8 through 10, the operational and technical highlights showcase advancements in new market penetration, technology adoption, and continued innovation of our product and services portfolio. Aramco awarded Weatherford a three-year corporate procurement agreement that includes Cementation, Completions, Liner Hangers, and Whipstocks, as well as complementary service agreements. Also in the Middle East, Weatherford deployed MPD solutions in two deep geothermal exploration wells. This innovative use of MPD technology mitigates risk from elevated geothermal gradients during exploration drilling. Furthermore, Weatherford was awarded a three-year frame contract for drilling services in Middle East unconventional resources. In digital, the acquisition of Datagration added the PetroVisor and EcoVisor platforms to Weatherford's digital solutions portfolio, enhancing the integration of customer data with ForeSite and Cygnet for improved real-time analysis and decision-making. A few weeks ago at our 20th annual FWRD conference, we showcased the platform's capability and potential. It is extremely encouraging to see the strong customer response and immediate pipeline growth. Now for our market outlook. While the broader international market is still growing, growth has decelerated. We don't see a whipsaw in the market, but activity is moderating due to various reasons, including commodity prices, efficiencies, budget exhaustion, delays in several short cycle campaigns, and several scheduling changes. We have several noteworthy contracts listed in our press release. Despite the slowing growth, these showcase the tender and award activity that are still proceeding and demonstrate that Weatherford is able to drive competitive advantage in several spaces. Importantly, our margin outlook of an annual increase of 25 to 75 basis points improvement per year was predicated on flat revenues. While the market outlook is softer than three months ago, we're still comfortable with our ability to isolate growth opportunities in select pockets. Furthermore, we continue to believe that across all parts of the well lifecycle, there remains an emphasis on technologies that support predictable, cost-competitive production and supply security for our customers, which are areas that we excel in. We anticipate continued growth in parts of international land and offshore, mainly driven by portions of the Middle East and supported by pockets of growth in Sub-Saharan Africa and Asia. The bottom line is that we believe we will have pockets of growth driven by differentiating technologies in key markets. Most importantly for this year, we continue to have confidence in delivering approximately 20% year-on-year adjusted EBITDA growth, slightly more than 25% adjusted EBITDA margins, and adjusted free cash flow of over $500 million. With that, I'd like to hand it over to Arun.

Arun Mitra, Executive Vice President and CFO

Thank you, Girish. Good morning and thank you everyone for joining us on the call. Girish has already shared an overview of our third quarter performance and provided an update on our capital return program. For a more detailed breakdown of the third-quarter results, please refer to our press release and accompanying slide deck. My comments today will center around cash flow, working capital, balance sheet, liquidity, and fourth quarter guidance. Turning to Slide 18 for cash flows and liquidity. In the third quarter, we generated adjusted free cash flow of $184 million, up $88 million from the second quarter levels of $96 million. Our net working capital showed significantly better efficiencies and only increased 70 basis points compared to the third quarter of 2023 in spite of a 730 basis points increase in revenues. As a result, net working capital as a percentage of the last 12 months revenue was 25.8%, which represented a year-on-year improvement of greater than 260 basis points. Irrespective of the stage of the cycle, the goal is to get net working capital as a percentage of revenue to be sustainably at 25% or better. For the last 12 months, CapEx was $266 million or 4.8% of revenues. Total cash was approximately $978 million, up $58 million sequentially. During the third quarter, we repurchased approximately $50 million of shares and paid a $0.25 quarterly dividend. While our liquidity is at $1.3 billion, we remain committed to retiring additional debt and reducing our interest expense with an intent to get gross leverage below 1x, while maintaining liquidity of approximately $1 billion to operate the business and manage event risk. To summarize, our balanced capital allocation approach to investing in technology, organic and inorganic growth, debt management, and shareholder returns underscores our focus on sustainable value creation. Turning to our fourth quarter and full-year 2024 guidance on Slide 19. As Girish mentioned, there are a number of factors that have recently developed in the market with schedule shifts and several short cycle campaigns that have been delayed. As a result, we expect fourth quarter revenues to be flat to up low-single digits. Within this, we expect DRE revenues to be flat sequentially. WCC revenues to be flat to up low-single digits, and PRI revenues to be up low to mid-single digits. Adjusted EBITDA margins for the fourth quarter are expected to be approximately 25%. And we still expect full-year margins to be slightly above 25%. Full-year adjusted free cash flow is still expected to exceed $500 million. Thank you for your time today. I will now pass the call back to Girish for his closing comments.

Girish Saligram, President and CEO

Thanks Arun. On the second quarter conference call, I laid out the vision for the future that requires the same rigor on operating intensity, but is fueled with the capability of more differentiating technology, world-class fulfillment, and larger scale. While the overall market is evolving and the cycle is maturing, we believe we have the opportunity to deliver EBITDA margins in the high-20s in the next three years in a flat to modestly up operating environment. We remain intensely focused on working capital efficiency and with further reductions in our interest burden, we expect to achieve free cash flow conversion of around 50% during this period. Our internal investments aim to deliver top-tier return on invested capital. All of this will enable significant cash generation, providing an opportunity to return around 50% of that to shareholders through the framework we have outlined. This will leave sufficiently dry powder for selective inorganic plays that will reinforce this entire thesis. So while we are entering a new phase of the cycle with low growth for the immediate future, our capability to deliver true value creation is significantly bolstered by the actions and focus of the past few years. And now operator, please open the call for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. And our first question today comes from Dave Anderson of Barclays. Please go ahead.

David Anderson, Analyst

Hi, good morning, Girish. How are you?

Girish Saligram, President and CEO

Good, Dave. Good morning.

David Anderson, Analyst

So you talked about kind of the last quarter call about kind of how you view kind of Weatherford in the future, and one part of that was scale. I just want to come back to the M&A discussion here. You've done four kind of smaller acquisitions during the year. I just want to first maybe – could you just talk a little bit about how those acquisitions have gone, kind of what are they bringing to the table. And then kind of really more secondarily, I'm curious as to kind of where you are thinking going forward. Are there any kind of must-haves you need? I kind of go back to that you said scales. Is it more than just scales? Are there certain technologies you are looking for? Just sort of a general M&A question please. Thanks.

Girish Saligram, President and CEO

Sure, Dave. So look, let me start maybe a little bit more with the first, and then I'll walk into the first question. So look, from an M&A standpoint, let me start with the fact that we are very pleased and happy with the portfolio we've got today. We don't see any glaring gaps or significant holes that we absolutely have to go fill. So, as a result, as I pointed out in my prepared comments, M&A will be selective. We are not looking to grow scale for the sake of scale. That's absolutely not on the cards. We think we've got sufficient scale today. The company is operating really well. We're happy with the portfolio. But what we do have is a strategy within each of the product lines that we operate within that aims to further grow those product lines and to enhance value creation. We've also got some enterprise teams that we're trying to drive. So what we look at when we think about M&A is, any potential target here, does it fit that strategy? And if you look at the deals that we've done this year, they have been small, but they all fit into that strategy. So you know, as an example, you look at the acquisition of Probe in the wireline technology space. We were trying to pivot our wireline business and are doing that successfully to being a different kind of a wireline provider. We will have a wireline service in some critical countries, but we will also be a technology provider to other service companies in areas that we don't operate. To do that, we needed a broader suite, and that's what Probe gave us. So it's things like that. Ardyne has really helped fill out the portfolio in terms of a full capability with a high degree of efficiency with innovative technology around plug and abandonment of slot recovery. So those are the kinds of things that we are getting after. I'm extremely pleased with the progress that we have made. As everyone knows, Weatherford has had a history of acquisitions, but what we have not done a great job in the past is integrating them. So we put a lot of emphasis before we consummated the deal around the integration planning with dedicated teams, a clear playbook on how we're going to go execute, and we're learning through that. But the teams have done a terrific job, and I'm excited about the ability to build out all of these platforms to be significant growth for us in the years to come.

David Anderson, Analyst

So, Girish, it sounds like you had mentioned a couple of times isolating growth pockets in sort of a flattish market. And is this kind of the idea that you can find these sort of technologies to go after these growth pockets?

Girish Saligram, President and CEO

Absolutely. Look, you know, we still think there's, reasonably good chances for solid activity. You know, while it might be stable, we've got an opportunity to not just increase our share position, but we've also got an opportunity to create some white space and move into that. So that's exactly what we mean by that, and we think that will provide us the ability to grow the business while the overall market might be stable to slightly up.

David Anderson, Analyst

Great. And just one other thing, if I could just ask you, you had mentioned a couple of times about some scheduling shifts in the Middle East and North Africa. Could you expand on that a little bit? What do you mean by scheduling shifts? Are these temporary? Are these just kind of one project to the next? Just a little bit more color on that please. Thank you.

Girish Saligram, President and CEO

Yes. I think without getting into customer specifics, what it really is, is some of the campaigns getting pushed out by a quarter or two. That's really what it comes down to. So it's not a permanent shift. It is not cancellations. But we are seeing, as I pointed out again in my prepared remarks, a bit more of a measured, a bit more of a cautious approach. And so things that can get delayed, we are seeing customers push that out a little bit to see how the overall macroeconomic situation unfolds.

David Anderson, Analyst

Thank you very much, Girish.

Girish Saligram, President and CEO

Thanks, Dave.

Operator, Operator

Thank you. And our next question comes from James West at Evercore. Please go ahead.

James West, Analyst

Hey, good morning, guys.

Girish Saligram, President and CEO

Hey, James.

Arun Mitra, Executive Vice President and CFO

Good morning, James.

James West, Analyst

So, Girish, you've talked about, you know, a stable market environment, and I know you just discussed a little bit about the M&A that you've done so far this year. So I'm curious how you see Weatherford evolving and growing in this stable environment. Can you outpace the kind of modest growth environment? And if so, by how much? And then if so, in what areas do you see your biggest strength?

Girish Saligram, President and CEO

Yeah, so James, look we will give, as you can imagine, more specific guidance in February around the year, but broadly speaking, like we have pointed out, I think we've got specific areas of growth and if we are able to execute on that, which we are working very hard towards, is making sure that we essentially can get that incremental growth. So that's really what it's about. So I think as long as the market remains stable, as long as we can execute, we do have an opportunity to get that exaggerated growth, if you will. Specifically, look, it's different areas and different product lines. For example, I've talked in the past about MPD around our Modus launch. This year was really about getting the launch done, getting packages built, getting the supply chain together and getting them out in the field, finishing up the field trials, et cetera. This has been incredibly successful, so next year that should create a little bit more of a bonus for growth for us. The other area I look at is a very broad thematic approach where we are really focused is this notion of production optimization around mature fields. So everything that we've got from a product line capability really comes to the fore, in this notion of mature field rejuvenation and production optimization. Our MARS offering, which is our mature asset rejuvenation through surveillance, has had some great examples there. Our Well Services portfolio brings that through our intervention capabilities, all the way up to decommissioning. So that's where we think there is still going to be an extremely strong emphasis because customers in this environment are actually going to be far more focused on how do they get more out of their existing fields, how do they get more out of their existing wells, and that should give us an opportunity to grow.

James West, Analyst

Got it. Okay. And then maybe a follow up on that. As you have some growth next year, how do you think about margin profile? And I know again you'll get more color in February, but how do you think about the potential to take what are already very good margins higher in a slower growth environment?

Girish Saligram, President and CEO

Yeah, so look, we will probably not see margin expansion to the extent that we've seen in the past two years to three years of multiple hundreds of basis points. But you know we feel comfortable and confident that we should still be able to grow margins in that 25 to 75 basis points in a flat to slightly up kind of an environment. And that's really a combination of several things that we are driving internally, improving the value gap, improving our execution, and as I've pointed out before, we still have opportunities within the company to get more efficient. So the capabilities that we have developed over the past three years, you know, while we've gotten a lot of the low-hanging fruit, there is still enough fruit out there on the trees and we've built a few small ladders to go with that as well.

James West, Analyst

Got it. Thanks.

Girish Saligram, President and CEO

Thank you.

Operator, Operator

And our next question today comes from Scott Gruber at Citigroup. Please go ahead.

Scott Gruber, Analyst

Yes, good morning.

Girish Saligram, President and CEO

Hey, Scott. Good morning.

Scott Gruber, Analyst

I want to stay on the margin topic. Just because the slower growth environment often – presents management teams an opportunity to reassess those margin enhancement drivers that they've been thinking about. Are you guys thinking about the margin enhancement drivers any differently in the slower growth environment? Are there certain levers that you can pull faster or harder? Can you introduce technology internally faster? Just some additional thoughts on how you pull those margin enhancement levers.

Girish Saligram, President and CEO

For us, the strategies remain unchanged. The first is pricing. In a slower growth environment, pricing becomes a bit more difficult, but we believe there is still enough supply tightness in specialized product lines and technologies to create opportunities. We expect pricing to at least counter inflation and potentially provide a slight net benefit. The second key factor is the introduction of new technology. Our goal is to enhance the value gap by positioning our products to command higher prices while also improving efficiencies and reducing costs. The third area we've been focusing on is our fulfillment network, which is a significant undertaking with a four- to five-year timeline. We're making solid progress, especially after completing a major facility consolidation. Now, the focus is on optimizing our supply chain and sourcing networks. For example, as I mentioned a few quarters ago, we have been moving to lower-cost countries for sourcing, which is already yielding considerable benefits, even though we are behind others in this regard. This shift is helping us maintain strong margins while keeping prices steady or slightly above and achieving meaningful cost reductions. Thus, network and supply chain optimization will play a crucial role as cost becomes increasingly important. Finally, our internal efficiencies and cost structure are key. Our team has done an excellent job in recent years of improving the company and cutting costs, but we still have opportunities for greater efficiencies, including optimizing information and material flows, staffing roles, consolidation, and better utilization of technology. This will be a major focus for us over the next 18 months. Overall, I believe we have the resources needed to address costs and enhance margins despite the slower growth environment.

Scott Gruber, Analyst

That's great. I appreciate the color. I want to come back to the pricing point because we get questions from investors on the topic of margin resiliency for Weatherford. And I think some folks wonder if you benefited disproportionately versus peers from price inflation on the way up, and if that introduces risk in a more competitive marketplace. Is that a risk that folks should be concerned about?

Girish Saligram, President and CEO

So, Scott, the way I think about it is, I think it is reasonably fair to assume that we might have benefited, if you will call it disproportionately. Look, we've put a tremendous amount of emphasis on pricing as part of our commercial approach and strategy. So, we have gotten price, we have significantly increased price, but what I would say is I don't think that poses a risk on the other side because of a couple of factors. One is I feel that the whole industry has strong pricing discipline and I think hopefully we'll all continue to maintain that. I think second look, we've got internally a very, very rigorous mechanism and a culture around pricing. I talked to my prepared remarks that we've got opportunities, frankly, every day, every week to increase revenue by reducing prices fairly significantly. And we are absolutely not giving in to that. So we are very clear about our North Star, which is cash generation and margins are the first proxy for that. So we are very clear about that. And so our focus on making sure that we can articulate the value proposition that our differentiating technology brings to customers allows us to keep that pricing. So I think the first part, I would say, is fair. I think the second part is not something that I am personally overly concerned about.

Scott Gruber, Analyst

That’s great. Color. Appreciate it. Thank you.

Operator, Operator

Thank you. And our next question today comes from Ati Modak with Goldman Sachs. Please go ahead.

Ati Modak, Analyst

Hi, good morning team. Girish, you highlighted a new MPD award in the Middle East. So maybe from an adoption perspective, can you talk about which other regions are an area of focus for you where adoption might be lower at the moment and can drive growth in the next 12 months?

Girish Saligram, President and CEO

Yes, Ati. I believe MPD adoption remains crucial for us, and we are seeing very encouraging signs of progress. It's not confined to a specific region; rather, it's pervasive, and we are striving to promote it globally. As we present customers with case studies and share best practices, we are witnessing an increase in adoption. The Middle East has certainly been the most significant area for us, but we are also observing growth in parts of Asia, Europe, and Latin America. Overall, our focus is now on the performance segment of the market. Historically, we've offered basic RCDs for the lower end and our high-end Victus offering for deepwater applications. However, a performance tier has been lacking in the market, and that's where we are concentrating our efforts. Modus is an excellent product that enables us to penetrate both land and offshore markets, particularly in the jack-up sector, which is an exciting opportunity for us.

Ati Modak, Analyst

Great. Appreciate that. And then for next year, you've mentioned flattish revenue, maybe some margin growth. Any early thoughts on free cash flow cadence because the working capital seasonality will obviously be different for a year like next year versus what previous years have been. So maybe any thoughts around that and cash use, if you could.

Girish Saligram, President and CEO

Sure. Arun?

Arun Mitra, Executive Vice President and CFO

Ati, as we've mentioned, one of the things we take very seriously is the efficiency at which we use working capital. And what you would have seen over the last 21 months is a consistent improvement in the efficiency of working capital. We were at 28% beginning of last year. We find ourselves at 25.8%. Now the idea is to sustainably be at 25% or below going forward. So what I can tell you is you should expect continuous efficiency improvement across the board, DSO, DSI, and DPO translating into a better conversion cycle. And then as we've mentioned, we will continue to work on debt, which translates into lower interest costs and we expect over time, cash taxes to moderate as well. So we expect cash conversion to sequentially improve over the next three years.

Ati Modak, Analyst

Appreciate that. Thank you.

Operator, Operator

And our next question today comes from Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson, Analyst

Hi, good morning everyone. Girish, congrats on the first quarter of returning capital to shareholders. Along those lines, you look around the oilfield service space and guys that have been doing this for a little while, you kind of see this breakdown into a couple of different ways of executing it. Some people just look at what their annual free cash flow is going to be and kind of execute the buyback portion of the annual return kind of programmatically across the year and some guys are a little more opportunistic based on share price. Just curious how you guys, since this is your first quarter with the $50 million, but curious how you will execute that going forward, how you're thinking about that?

Girish Saligram, President and CEO

Yes. Jim, I'll let Arun take the specifics on this, but I will just sort of kick it off with saying, look, I think this is a learning process for us. We are trying to figure out the most optimal way. But really with the focus on doing this like we do everything else in the most prudent and responsible fashion without going nuts and taking undue risk.

Arun Mitra, Executive Vice President and CFO

Jim, what we can tell you is we did a bit of both this quarter. And what we also know for a fact that empirical evidence suggests that companies are not very good at opportunistically executing buybacks and adding value. So we will be careful, and we will be looking at market signals, which trigger opportunistic buybacks. But at the same time, the dilution component which is triggered by grants to employees, that is something we expect to buy back programmatically. So more to come in the future quarters on this.

Jim Rollyson, Analyst

Thank you for the clarification. I appreciate your responses. Girish, I have a follow-up question. At the FWRD conference, you discussed various digital initiatives, including sensors and Datagration, along with the ability to integrate different technologies. Could you provide some insight into the overall impact of these digital strategies as we consider Weatherford's growth moving forward?

Girish Saligram, President and CEO

Yes. Look, we talked earlier, Jim about those pockets of growth. Digital is most certainly one of those pockets, right? So I highlighted production focus and this mature field rejuvenation and digital is a third and a very significant portion. And look, it is far more than about the simplistic revenue growth that we get out of it. We get a couple of other things with that digital capability. The first is significantly higher margin. So it is very accretive to margins. And the second is, while there is a lot of typically upfront cost in software development, et cetera, our approach is a little bit different, really becoming more of an integrator of different things. So it's actually less capital intensive as well. Today, it is not big enough that we would peel it out and talk about it, as a separate segment or anything like that. But it is something that we are really counting on as we talk about in those levers of margin expansion technology being a driver, Digital is smack dab and center in the middle of that.

Jim Rollyson, Analyst

Perfect. Appreciate the answer.

Operator, Operator

Thank you. And our next question comes from Saurabh Pant with Bank of America. Please go ahead.

Saurabh Pant, Analyst

Hi, good morning Girish, Arun.

Girish Saligram, President and CEO

Hi, Saurabh.

Arun Mitra, Executive Vice President and CFO

Good morning Saurabh.

Saurabh Pant, Analyst

Hi, Girish, maybe I want to start with a little more color on the orders that you announced. I know you're not primarily an order-driven company, right? But it is interesting to see a dozen orders in your press release that you announced. I think seven or eight of them are in the Middle East. And I know we are simultaneously talking about concerns on the Middle East, maybe Saudi more specifically slowing down. But on the other hand, you continue to get stronger orders. How do you feel about the trajectory going forward, right? I mean, considering the order inflow, the conversation still looks relatively positive.

Girish Saligram, President and CEO

Yes, Saurabh, that's a great question. As we mentioned in the press release, there is still a lot of activity happening. While we acknowledge that the growth in activity is slowing, it remains strong and is actually experiencing slight growth. The orders not only demonstrate ongoing activity but also indicate that we are succeeding in various areas of the business across different regions. We see the Middle East leading overall growth. Looking at the global landscape, it's clear that North America may face challenges in the next 12 months, likely remaining flat or even declining slightly. For international growth, it's quite varied. Europe is expected to decline due to current issues in the UK and the North Sea. We anticipate mid-single-digit growth in Sub-Saharan Africa and Asia, while selected countries in the Middle East could see high-single-digit growth. Overall, we estimate Middle East growth to be around mid-single digits for the coming year. Thus, when considering our total international business, we expect low-single-digit growth overall, but there are specific areas with significant margin expansion that we plan to capitalize on, which should help us achieve higher EBITDA margins. The situation in Latin America remains uncertain, particularly in Argentina and Mexico, but we will need to see how that develops. The awards certainly highlight the ongoing activity out there.

Saurabh Pant, Analyst

Right, right, right. No, exactly right. I mean we hear about all the concerns, but on the other hand, like you said, the trends on the ground still look like they are relatively resilient, right, if not positive.

Girish Saligram, President and CEO

Yes. I mean look, we talked about our year-to-date growth and granted that's retrospective. But it is still very, very strong year-to-date growth. So even if that moderates, I think we've got enough momentum, we've got enough scale that we should now really be able to continue to get momentum and efficiencies and really drive that margin expansion story. So I've been saying this consistently for three-plus years is this is a margin and cash story. Yes, you've got to have revenue growth to help drive that. But even in a flat to slightly up environment, we should be able to get significant value creation from that margin expansion.

Saurabh Pant, Analyst

Right, right. Perfect. Arun, one for you very quickly. I know you talked about working capital efficiency in response to Ati's question. And you've done a great job, right 25.8%. That's a fantastic number you are sitting at and the target is to come down to 25% or less than 25%. How soon we expect you to get there? And does the fact that the overall market growth is slowing, does that make it harder to further accelerate, for example, collections for you?

Arun Mitra, Executive Vice President and CFO

We haven't observed any impact on collections. In fact, we had a strong collections quarter. However, if there is a slowdown, history indicates that collections may also slow down. At the same time, we would expect inventory levels to increase less or even decrease. So, in a scenario where growth is not as fast as before, we can anticipate some improvements in working capital. If things were to collapse entirely, we would see working capital decline. But in a stable to moderately growing environment, we should see ongoing efficiency gains. Regarding the timeline, we have some critical dependencies. A significant portion of our accounts receivable is concentrated in Mexico, and we are actively working to reduce this concentration. Therefore, I cannot promise that we will sustainably reach 25% next quarter or the one after that. What I can share is that we are working on a structure that will lower our risk related to any specific customer or geography. Once we achieve that, which we expect to do over the next couple of years, we anticipate being at or below 25% sustainably.

Saurabh Pant, Analyst

Okay. No, I got it, Arun. It makes a lot of sense. Okay. Perfect, Girish, Arun, thank you I'll turn it back.

Operator, Operator

Thank you. And our next question today comes from Kurt Hallead with Benchmark. Please go ahead.

Kurt Hallead, Analyst

Hey, good morning, everybody.

Girish Saligram, President and CEO

Hi, Kurt.

Kurt Hallead, Analyst

Thanks for the opportunity here to pepper you with some questions. So Girish, let's go back to some of the commentary you kind of referenced, obviously moderation in the growth rates, and they went through a very detailed explanation of where you think that growth is going to come. You've got the size, the focus on maintaining and improving your margins even in that environment. So how do you guide the organization, if you will, in the context of maybe feeling pressure to take some work that doesn't meet necessarily the margin or return thresholds? Or are you getting any indication of a little bit of, I don't know, anxiety within the organization about having to book work even if it's not the best work?

Girish Saligram, President and CEO

We achieve this through strong communication and by establishing the right operational rhythms to ensure everyone is aligned. I'm confident about the company's culture and the changes we've implemented over the past four years. Everyone is aware of our main goal, which is cash, along with the measures that lead us there. No one is focused solely on increasing revenue or market share at the cost of margins and cash. Our leadership team has worked hard over these four years to make sure this message reaches all 19,000 employees. We've had two-way interactions and plenty of discussions on this topic. While it may not be perfect, I believe we have a solid system where people feel comfortable asking questions, and we can respond accordingly. Importantly, we are not going to pursue low-quality work.

Kurt Hallead, Analyst

That's great, I appreciate that information. As a follow-up, typically in periods like we are experiencing now, which is unusual, we tend to see either significant increases or decreases, and right now we're in a phase of moderation. However, customers often take these situations to negotiate more with suppliers and service companies regarding pricing. You've explained the cultural dynamics around this, but can you provide insight into whether you're noticing an increase in customer discussions about pushing for lower prices? Is the pressure more intense now compared to three, four, or five months ago?

Girish Saligram, President and CEO

Look, it is always something that is part of every conversation, right? We do that with our supply base. Our customers do that with us. That's just the circle of business that you go through. So we are certainly having, I would say, maybe a few more conversations, but it is nothing to the extent that we would say it is a widespread phenomenon or something that we are overly concerned about. Most importantly, look, I think a couple of things. One is we have really tried as we have worked on pricing over the past few years, to make sure that it is backed up by a very strong value proposition. So it's not a pricing argument that's been, hey commodity prices are high, so our prices should go high. It has been about the value that we generate and create for our customers. The second is customers are still very cognizant and very keen on ensuring security of supply, especially when there is a lack of different choices around differentiating technologies. So that's a big, big factor. I think the industry has been a lot more prudent in this cycle of not building out a lot of capacity. And so there isn't this huge mismatch right now again, especially in those differentiated areas where we get the higher margins that would suggest that there is a lot of surplus capacity to throw that could create pricing softness. And look, I think last but not least, I think customers are also very, very cognizant that the cycles have changed, and this is not that whipsaw effect. There is a moderation in activity, but there isn't a drop. And I think that is a fundamental difference. And customers recognize that they need a healthy service sector as well. So I think the conversations are constructive. And net-net, we still believe we've got an opportunity and a roadmap to increase margins.

Kurt Hallead, Analyst

All right. That’s great. Great color. Thank you so much.

Operator, Operator

And our next question today comes from Doug Becker with Capital One. Please go ahead.

Doug Becker, Analyst

Thank you. Girish, Mexico is an important market for Weatherford. The country has a new President, national oil company has a new CEO. And then yesterday, there was a report that Pemex is looking to suspend some rigs just to manage budget. So just given that dynamic backdrop, I wanted to get your outlook for Latin America specifically.

Girish Saligram, President and CEO

Yes. Doug, look, Latin America has been one of the challenges over the past six months. We have referenced it on the prior call, as well as on this call in terms of delays that we have seen. And certainly, Mexico is a part of that. We recognize that leading up to the elections, there was a little bit of churn and things got slowed down and now we've got a new administration. I think it is still very early days to say exactly what it's going to look like. But clearly, there is a big focus on what they want to do in terms of getting Pemex on the right footing, and we want to support them, as a supplier and partner to the extent we can while making sure that we generate the value that's due. So as I look at Latin America as a whole, as I sort of said earlier on one of the questions. Latin America is probably the wildcard for next year. As we look at it right now, it probably feels like it is flat to maybe slightly down, but it also is the one region that has the ability to inflect the strongest. Argentina has probably the most positive outlook at this point than it has had in several years. But we still need to see that shift actually happen and the full ability to free up capital controls, etc. If that happens, I think there could be a significant positive opportunity there. Colombia we have talked about some of the changes there and the slowdown, etc. That is likely going to persist and not really change for a bit longer. Brazil has been pretty steady and growing, and that continues to do well. And then it really comes down to Mexico, which is a very significant market. So I think more to come on that, especially in the February call as we lay out guidance, etc. but it is something that we are very cognizant of. We are keeping a very close eye on and making sure that we are modulating our workforce, our plans, everything in line with customer activity and really ensuring that we are well-positioned as a company to manage overall exposure there.

Doug Becker, Analyst

That makes sense. Switching gears a little bit. The industry seems to be increasingly focused on the production phase of the well life cycle. At your recent digital conference, you were highlighting the ForeSite production platform that you can integrate artificial lift into and then specifically the power regenerative system. Just how would you characterize the growth opportunity for Weatherford from the digital production-related offerings?

Girish Saligram, President and CEO

Yes, I believe this is one of our most significant opportunities. We have a very extensive portfolio on two fronts. The first is in artificial lift. While we do not offer ESPs, we have nearly every other type of lift available, making our offering the most comprehensive in the industry, supported by a strong installed base. This gives us a significant advantage as we truly understand the production domain. The second aspect is our digital capability. We are the only oilfield services company with our own SCADA platform, Cygnet, which represents a major competitive advantage for us. As we enhance this platform and integrate it with ForeSite, we can combine various data structures, databases, and data models with our Datagration capabilities. This results in a unified data model that enables us to create very effective algorithms and platforms for customers to enhance their operational efficiency. This is our primary focus, and we believe it presents immense potential for growth. Furthermore, we are now expanding beyond artificial lift and digital capabilities to ensure we have a comprehensive portfolio that assists customers in rejuvenating their mature fields and improving production from existing wells through various intervention and well services technologies. This area is what excites us most regarding growth potential.

Operator, Operator

Thank you. And our final question today comes from Joshua Chan with Daniel Energy Partners. Please go ahead.

Joshua Chan, Analyst

Thanks for taking my questions. I have one related follow-up that you touched on regarding the service in your last response, but I would like to explore it further. First, you completed the acquisition of Datagration in the third quarter. Can you explain why now was the right time for that specific deal and provide more details on PetroVisor and EcoVisor? As a follow-up, could you elaborate on how they will ultimately work together with ForeSite and Cygnet, and discuss the increasing importance of real-time analysis and how you see that evolving in the next couple of years? Thanks.

Girish Saligram, President and CEO

A lot of factors are at play here, but let me address most of them briefly. When we consider why now is the right time, it’s always somewhat complex, as various elements come together. But looking at the market and our own capabilities, we noticed a few key points. First, customers are facing a common challenge: they have a vast amount of data but struggle to integrate it effectively. Second, customers prefer not to be locked into a particular platform or system. They recognize quality solutions but often lack the means to connect different systems, especially with the ongoing consolidation—mainly in the US market—which is substantial. As customers merge, they often find that one company used a different system, leaving a wealth of data that remains disconnected across various platforms. We figured out how to address this issue, internally and through our offerings. Datagration serves as a solution that fills this gap for our clients. It features a unified data model to help consolidate information in a straightforward manner, akin to a universal plug adapter for the digital space. This capability conveys a strong message to customers: we can assist in integrating diverse data sources quickly and in real-time, whether through a cloud-based software-as-a-service model or on-premises, with various delivery options. Regarding the roadmap for integration with ForeSite, PetroVisor, and others, that is still in progress. However, what matters more than the platform itself is our capability to provide tailored optimization solutions to customers. We can deploy AI and machine learning models for numerous use cases through preferred channels, all while offering a user-friendly interface available via subscription in the format they choose. This encompasses the essence of our strategy.

Joshua Chan, Analyst

Thanks.

Operator, Operator

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Girish Saligram, President and CEO

Great. Thanks, Rocco. Thank you all for joining the call today. Look, appreciate it. So just to summarize again, we recognize that the market is changing. It's evolving. We still though, believe that we have pockets of growth. We have the ability to grow the business in several different areas that we are excited about. And most importantly, we have the ability to continue the margin expansion journey that we've been on for the past few years. And for this year, we are on track to deliver over 25% EBITDA margins and over $500 million of cash. So thank you all so much for joining, and we'll talk to you on our fourth quarter call.

Arun Mitra, Executive Vice President and CFO

Thank you.

Operator, Operator

Thank you, everybody. This 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.