Earnings Call Transcript - WFRD Q1 2021

Operator, Operator

Ladies and gentlemen, thank you for being here. Welcome to the Weatherford International First Quarter 2021 Earnings Call. This event is being recorded. I would now like to hand over the conference to Mohammed Topiwala, Director of Investor Relations and M&A. Please go ahead, sir.

Mohammed Topiwala, Director, Investor Relations and M&A

Welcome, everyone, to the Weatherford International First Quarter 2021 Conference Call. I'm joined today by Girish Saligram, President and CEO; and Keith Jennings, Executive Vice President and CFO. We will start today with our prepared remarks, and then we will open it up for questions. You may download a copy of the presentation slides that correspond with today's call from our website's Investor Relations section. I want to remind everyone that some of today's comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our first quarter press release, which can be found on our website. With that, I'd like to turn the call over to Girish.

Girish Saligram, President and CEO

Thanks, Mohammed, and thank you all for joining the call today. I'd like to start today with some highlights from the first quarter and our view on the market. Keith will then follow it up with details on the financials for the first quarter, some directional views on the second quarter and updates to the full year for 2021. Finally, I will wrap up our commentary with an update on our 2021 imperatives and strategic direction. We will start today on Slide 3, which lays out our priorities. We came into the year with good momentum from 2020, and I'm very proud of our team for carrying that forward into 2021, with another quarter of favorable operating performance while never losing focus on safety and service quality. We delivered above the expectations we outlined on our February call and are keeping pace with larger and more diversified industry players, despite having exited drilling oriented commoditized product lines in several geographies. Revenue was down very slightly on a sequential basis as we saw 6% growth in North America, offset by a 4% decline internationally. However, EBITDA performance was, again, strong at 12%, with this being the fifth consecutive quarter of double-digit margins. Most significantly, our cash performance was outstanding, with the company generating $70 million in free cash flow, which led to a cash balance of $1.3 billion, up $58 million sequentially. As you're all aware, we recently announced that we filed the registration of our shares with the SEC and we intend to relist the company on the NASDAQ under the ticker symbol WFRD. While we recognize that we still have work to do to bring the company to an optimal operating efficiency, we are confident in the future and believe this is the right time to make this change. I would like to thank our team, Board, partners, customers and shareholders for their patience, efforts and support in reaching this important milestone. Moving to specifics for the first quarter on Slide 4. I'd like to start with safety, an area where we continue to receive recognition from multiple customers. For example, our tubular running crew in Tengiz, Kazakhstan, received the outstanding operational excellence award from an IOC. We realize that safety continues to be at the core of our values and are now augmenting our historical focus with digital transformation. These efforts to digitalize operations for reduced exposure of personnel at the rig site are exemplified in the TRS product line, which has a high-risk profile given the historical manual intensity of operations. We had several successes, both operationally and commercially over the quarter, which create greater customer stickiness and potentially meaningful expansion opportunities. As we have discussed before, technology innovation is a large driver of the value we bring to customers. Several decades ago, we pioneered the tubular running industry. We continue to strengthen our leadership position through our Vero automatic connection integrity technology, the first of its kind in the oilfield. We launched Vero in 2019, and I am pleased to share that in the first quarter of 2021, we operated Vero in each of our eight geo zones, a significant milestone for this technology. For instance, Vero automated connection integrity technology allowed an IOC in Nigeria to create premium connections on a remote high-pressure gas well. The customer opted to switch from the previous competitor's product due to multiple leaks identified in earlier completions in the field. Our team provided an excellent solution that earned praise from the customer and led to an expanded work scope involving several additional wells. This positive momentum was also evident in Indonesia, where we conducted a successful trial of Vero for a major operator. Our solution ensured flawless connection integrity, a key feature of our offering, while improving safety by minimizing personnel on site and limiting exposure in high-risk areas. The customer appreciated Vero's automated valuation software when it disqualified several threads that traditional methods would have missed. This unique capability reduced the risk of future casing leaks for our customer, along with the related time and costs. Despite travel restrictions, this trial operation received full support with live streaming assistance from our engineering center in Germany and operations team in Australia, showcasing our expanding digital capabilities around remote operations. These results illustrate the value of our tubular running services business. Even more powerful is the integration of our tubular running capabilities with other offerings. For a major operator in the Surinam Basin, we leveraged the full strength of our tubular running and intervention portfolio to displace a global competitor and win a long-term contract on two deepwater rigs. This combination of services helps to reduce onboard personnel and enhances safety. Not only that, it addresses unforeseen contingencies by having cross-trained fishing technicians on the rig, and it reduces the customer's total cost of ownership. Besides well construction and intervention operations, we enabled effective outcomes in drilling through differentiated technologies. In Romania, we saved an operator nine days of rig time using an integrated drilling solution that combined the Magnus 475 rotary steerable system with turbine and triple combo logging while drilling technologies on an offshore well. As a result, we delivered a horizontal six-inch reentry in record time by doubling the penetration rate compared to a major competitor's previous record. Employing the full scope of our drilling engineering quality process enabled us to design the bottom hole assembly with appropriate bit and stabilization features. Using our central well construction optimization platform and real-time operating center allowed us to manage critical operational parameters, including downhole vibrations in real time. This successful operation enables us to expand the Magnus portfolio in the Continental Europe market. Again, speaking about drilling in the first quarter, we achieved the first ever use of Victus intelligent managed pressure drilling, or MPD, for a particular NOC in the Middle East as part of a recently awarded five-year contract. Our MPD solution enabled the operator to perform dynamic pore pressure and formation integrity tests, drilling statically underbalanced conditions while balancing the formation pressure and eliminating losses while circulating. This solution yielded a 67% faster rate of penetration in the reservoir section, enabled mitigation of differential sticking incidents and resulted in an elimination of over 14,500 barrels of oil-based mud lost per well to the formation and offset wells, all translating to significant cost savings to the customer. In another example of remote collaboration, our MPD teams performed a terrific job of engineering preparations, a HAZOP study, and risk management from India, Mexico, and the UAE. Also in the Middle East, we completed a successful trial of the industry's first fully retrievable 15,000 psi gas-tight bridge plug for a major operator there. The approved well barrier was set to isolate between frac stages. Post-fracking, it was received with wireline, which saved the customer over two days of coiled tubing milling, something that would have been required with the use of conventional cement barriers. In the last quarter of 2020, we highlighted the value delivered to a major operator in Argentina, using a combination of our drilling services and managed pressure drilling technologies. Recognizing the value of our integrated solutions with leading technologies, another major operator in the same field has awarded Weatherford multiple three-year contracts to serve as the primary provider of many services, including drilling, managed pressure drilling, tubular running, intervention drilling tools, cementing products, production packers, and liner hanger systems. This comprehensive solutions package will be delivered on a minimum of four wells with potential for expanding the scope of work. The highlights from this quarter show how we are harnessing opportunities for profitable growth. Our strategy involves increasing commercial traction of new technologies that enable differentiated value, leveraging scale to grow into adjacent product lines in targeted geographies, digitization to drive remote operations, and creating synergies through cross-product line solutions. These strategies for growth carryover from our core operations to alternative energy. Last quarter, we hosted a virtual geothermal event in the U.K. for our global customers. The digital session highlighted the significant contributions that geothermal energy can make to decarbonization efforts. This particular power source is clean, renewable, and generated from the earth's heat, so it represents a huge opportunity for the energy transition. It's worth noting that Weatherford has a 23-year history of delivering results in geothermal projects. These results, including the world's hottest borehole in Iceland, geosteering the world's first 90-degree geothermal well in Canada, pioneering the Turkish geothermal market and drilling and logging wells for Munich's largest geothermal heating plant. Clearly, our portfolio can make a positive impact in this space through synergies among our product lines. In fact, we can integrate our proprietary technologies from drilling, managed pressure drilling, tubular running, and wireline completion services to help customers harness this energy source and fulfill its enormous potential. Now turning to Slide 5 for our view on the market. As you all know, North America activity was up meaningfully during the quarter, and we see the U.S. rig count continue on a path of improvement. As we've previously discussed, after making strategic exits in uncompetitive markets in North America, we now have greater exposure to the production cycle in businesses like Production & Automation software and artificial lift. We generally trail rig count increases. We are encouraged by the increase in rig count and like other industry observers expect capital spending discipline by E&Ps to continue. On the international side, the disruption of logistics, including the deployment of people and assets, continues to improve, but not at a rate commensurate with what we are seeing in North America. Many NOCs continue to use this period to reevaluate and retender long-term contracts. While this provides some external pressure on pricing, we see opportunities to gain market share in select geo zones where tenders have been advanced in timing. We still believe there is pent-up demand that will raise market activity as the pandemic eases. And we see early signs of activity firming up in key markets such as the Middle East and Latin America. However, as discussed, it's a bit early to be definitive on the timing of that coming to bear, and it might be more in 2022 than the second half of 2021. While we see demand signals somewhat improving with vaccinations rising, a number of countries are in the middle of third and fourth waves, and operational movements are increasingly restricted in these places. Our focus remains on the health, safety, and well-being of our operational teams. At the same time, we are shifting attention to ensuring that our return to work protocols for office employees provide the highest degree of safety while enabling in-person collaboration to begin again. Moreover, there are still challenges to moving around and changing crews internationally. Our focus continues to be to drive operational improvements in the company based on flat activity. We will be poised to take advantage of activity increases with higher fall through, but we are not relying on that on our journey towards sustainable profitability.

Keith Jennings, Executive Vice President and CFO

Thank you, Girish. Please turn to Slide 6, and I will begin with a summary of our first quarter results, which reflects the continued momentum of our improving financials. Revenues were $832 million, 1% below the fourth quarter and 32% below the same period in 2020. The sequential performance primarily resulted from increased drilling, evaluation, and intervention services in the U.S. and Canada, plus seasonal activity increases in Canada and increased activity across all our product lines in Latin America. These gains were offset by seasonally driven decreases in completion and production product sales in the Middle East, Asia, and North Africa and seasonal drilling activity decreases in Russia. First quarter adjusted EBITDA was $102 million, which is an adjusted EBITDA margin of 12%. As Girish mentioned, we delivered on our commitments in the first quarter by accomplishing another quarter of double-digit adjusted EBITDA margins and generating free cash flow. Our EBITDA margin improved by approximately 60 basis points sequentially overcoming the impact of restored pay and benefits to our employees and the seasonal decline in product sales. In the quarter, we experienced a lower-than-anticipated seasonal decline in product revenues of 13%. While not fully offsetting the revenue decline in products, the 7% increase in service revenues delivered very accretive earnings fall through. Operating results in the first quarter also benefited from the continued realization of cost reductions from our initiatives focused on simplifying the organization and managing our variable cost levers. Overall, the 12% EBITDA margin this quarter, which improved on the EBITDA margin of the prior quarter on lower revenues plus headwinds from material cost inflation, along with treating our employees as they deserve by restoring pay and benefits, demonstrates that our cost rationalization initiatives aimed at stabilizing and improving our margin profile are taking hold. Let me now provide a regional breakdown, starting with the Western Hemisphere on Slide 7. Western Hemisphere revenues of $390 million in the first quarter grew 5% sequentially and declined 34% versus prior year. In North America, revenues grew 6% sequentially, driven by the 14% sequential growth in our drilling evaluation and intervention business, or DEI, aligning with the increased rig activity. Revenue for completions and production or C&P remained unchanged sequentially, largely due to ongoing completion and workover activity, which was partly offset by lower product sales. Additionally, both product lines benefited from seasonal increases and activity increases in Canada. First quarter revenues of $176 million in Latin America grew 3% sequentially and declined 29% versus the prior year. DEI revenue growth of 8% sequentially more than offset the C&P revenue decline. DEI product line growth was driven by increased activity in South America which was partially offset by lower production-related sales throughout Latin America. Segment adjusted EBITDA for the Western Hemisphere in the first quarter was $52 million, which grew by $11 million or 27% sequentially. Adjusted segment EBITDA margins of 13% improved 230 basis points sequentially and were 40 basis points above the prior year quarter. The growth in adjusted segment EBITDA was primarily driven by increased activity and cost rationalization in North America. Turning to Slide 8. Eastern Hemisphere revenues of $442 million in the first quarter declined 6% sequentially and 30% versus the prior year. Overall, across the Eastern Hemisphere, C&P revenues declined 17% sequentially, driven primarily by seasonally lower product sales across the Middle East, Asia, and North Africa. DEI revenues increased by 5% sequentially, driven by higher drilling activity in Europe and the Middle East, more than offsetting the service and activity declines in Russia from weather impacts. Revenues in the Middle East, North Africa, and Asia of $267 million were down 8% sequentially and 34% versus the prior year. On a sequential basis, our revenue decline here was across C&P and largely driven by seasonally lower product sales and lower activity across the region, particularly in the Middle East and Asia. Revenues in Europe, Sub Saharan Africa, and Russia declined 3% sequentially and declined 22% versus the prior year. Adjusted segment EBITDA for the Eastern Hemisphere was $66 million in the first quarter, a decrease of $21 million or 24% sequentially. Adjusted segment EBITDA margins of 15% declined 360 basis points sequentially. The sequential decline in adjusted segment EBITDA margins was primarily driven by a decline in high-margin product sales in the fourth quarter of 2020, which did not reoccur in the first quarter, and seasonally driven lower activity in sales for completions and drilling. We continue to demonstrate our performance improvements by generating positive cash flow. Despite a greater than 30% year-on-year reduction in revenues and a $22 million increase year-on-year in cash paid for interest, unlevered free cash flow of $94 million in the first quarter of 2021 improved by $94 million versus the prior year and free cash flow of $70 million in the first quarter of 2021 improved $72 million. Sequentially, adjusted EBITDA and unlevered free cash flow remain unchanged or relatively flat with the decrease in cash paid for interest and capital expenditures being the primary drivers behind the improvement of $93 million in free cash flow. First quarter 2021 cash flows provided by operations were $74 million compared to $22 million in the fourth quarter of 2020 and $30 million in the first quarter of 2020. Our continuing improvements in cash flow performance result from our improved operating performance, disciplined cost management, returns-focused capital expenditures, and working capital harvesting, driven by accounts receivable collection and continued inventory rationalization. Capital expenditures were $15 million in the first quarter compared to $38 million in the first quarter of 2020 and $54 million in the fourth quarter of 2020 when we accelerated our investments in selected growth projects in Latin America. Total cash of approximately $1.3 billion as of March 31, 2021, was up $58 million from the prior quarter. We believe our cash flow from operating activities and cash balance provide the flexibility to operate through this environment, and we have no debt maturities until 2024. In March of the first quarter, we filed a Form 10 registration statement with the United States Securities and Exchange Commission to register our ordinary shares, pursuant to Section 12B of the Securities Exchange Act of 1934 with no additional shares to be offered for sale. Our filing of the Form 10 is subject to SEC review and upon its effectiveness we will be subject to the reporting requirements of the Exchange Act. In conjunction with the Form 10 becoming effective, we intend to list our ordinary shares on the NASDAQ Stock Exchange under the ticker symbol, WFRD, subject to the approval from NASDAQ and in compliance with the applicable listing requirements. We currently expect the registration and listing process to be completed in the second quarter of 2021. This is an essential step for the company to fully return to the public markets. We believe this is the right time in our reemergence to relist on the NASDAQ Stock Exchange and that doing so will enhance long-term shareholder value by improving the company's visibility, expanding liquidity in our ordinary shares and providing a broader institutional investor base the opportunity to invest in the new Weatherford. Turning to Slide 10, I will share a few qualitative thoughts on both the full year and the second quarter of 2021. There is still significant economic and industry-specific uncertainty that precludes us from providing more specific guidance. These comments do not assume another round of extended pandemic-related lockdowns that may further curtail oil and gas activity or disrupt the expected recovery of hydrocarbon consumption that is underway. Consolidated revenues in 2021 will align with current activity levels, and we continue to expect them to be in line with our annualized second half 2020 results. Our focus areas will drive more margin expansion in 2021, and the benefit of these efforts is expected to improve EBITDA margins by 100 to 200 basis points from the second half of 2020 levels. As activity levels stabilize and eventually grow, we expect net working capital to be an outflow, particularly if we experience a material growth in activity in the second half of 2021. For 2021, excluding the impact of net working capital, our unlevered free cash flow is expected to improve slightly year-on-year. We expect to reinvest in our business through capital expenditures in the range of $100 million to $130 million. As a result, we expect slightly negative free cash flow in 2021. Let me turn now to the second quarter of 2021. We expect second quarter 2021 consolidated revenues to be in line with the first quarter we just completed. Adjusted EBITDA margin is expected to be in line with the first quarter 2021 levels. Second quarter unlevered cash flow is expected to decline sequentially from the first quarter, largely due to the nonrepeat of the working capital unwind in the first quarter as well as the seasonal timing of cash outflows. Thank you for your time today. I will now hand the call over to Girish for his closing comments.

Girish Saligram, President and CEO

Thanks, Keith. As you heard, a really strong start to the year, and we are focused on bringing the same degree of performance into subsequent quarters. We are seeing strong signals that our goal of achieving sustainable profitability and free cash flow generation is not just aspirational but achievable. We believe that our consistency and execution and growth should translate that into reality over the next couple of years. Turning to Slide 11. In February, we laid out our 2021 focus areas of North America performance, variable cost optimization, organizational simplification, and inventory, along with the strategic vectors of digital transformation, ESG and energy transition and our portfolio. Our first focus area for 2021 is North America, where we have put in place a new leadership team and are realigning our cost structure to be in tune with the realities of today's market. In the first quarter, we saw the results of that with a 6% revenue growth in NAM coming through at improved margins. We are driving changes in the way we manage inventory through a robust sales and operations process, inventory categorization, and a redeployment process. These changes, along with improved organizational agility enabled a significant increase in sequential margin performance in the first quarter. Continuing on, variable cost management is a very important focus area for us. We appointed an enterprise-wide team to establish new cultural and operational frameworks for tracking costs and driving cost reduction initiatives across the organization. The work we have done on our cost savings initiatives enabled us to maintain almost the same level of gross margin with only a 100 basis point drop on a 32% year-over-year decline in revenue. This is an incredible feat in a very challenging market, but we cannot rest there. The actions we are taking now are critical enablers for us to manage our business and advance toward the goal of sustainable profitability. To further progress efforts for our third focus area, organizational simplification, we recently brought on Joe Mongrain as our Chief Human Resources Officer. He had previously been in that role for Anadarko and Cameron. Joe and his team are focused on reducing layers and increasing span of control, while also ensuring robust mechanisms for efficient international assignments and a thriving pipeline program for our next-generation of engineers. All these efforts, coupled with the natural intensity of our teams, enabled our strong first quarter performance. I'm looking forward to the cumulative impact of our initiatives showing up in our results in the coming quarters. In the area of inventory rationalization, we made incredible progress on our 2021 goal of improving day sales of inventory by 10 days. The work done so far to simplify the organization is paying dividends. We were able to enhance collaboration throughout our company's entire supply chain and better integrate manufacturing, operations, and sales for improved inventory management and delivery. As a result of these efforts, we have seen a four-day improvement in our DSI sequentially. Now let me briefly touch base on what we've been doing to align ourselves with the long-term strategic vectors, shaping our industry as a whole. Digital transformation is one that is a high priority for us. Our investments in digital capabilities have continued to help deliver value to our customers on their ongoing digital transformation journeys. We have seen renewed interest from customers in our digital offerings, which feature remote operating capabilities, visualization, edge automation, and artificial intelligence. During the quarter, the headway we made in expanding into new geographies will further the deployment of our digital platforms. In turn, we can help our customers to reduce downtime and increase operational efficiencies across drilling, well construction, completion, and production. Energy transition is an extremely important strategic vector with tremendous traction from our customers, particularly in Europe, where we continue to see increasing levels of engagement on drilling geothermal wells. We are also having advanced conversations about carbon capture as our Firma Abandonment and Slot Recovery Solutions make further inroads in the market. This vector has great importance for us, and our portfolio is pivotal to making an impact in this area, going forward. And that brings me to our product and service portfolio. The traction of key technologies and commercial operations has a crucial effect on our achievements because it influences winning work and gaining market share. A clear indication of this is the success we've had leveraging adjacent product lines for market expansion, as in the case with Vero, which I mentioned earlier, which ran in all eight of our geo zones in the first quarter. At the same time, we continue to refine the portfolio by exiting dilutive businesses and refocusing our efforts and capital on parts of the portfolio that are generating positive returns. Weatherford has been through some challenging periods over the past few years, but we continue to remain optimistic about the future and believe that our best days are ahead. The results of 2020, and now the first quarter of 2021, are leading indicators that should provide confidence and justify our optimism. Our decision to reenter the public markets is another sign of our belief, and we look forward to updating all of you on our progress in the coming quarter. Thank you all for joining us today. And with that, operator, let's open it up for Q&A, please.

Operator, Operator

And today's first question comes from Connor Lynagh with Morgan Stanley.

Connor Lynagh, Analyst

Yes. I was wondering if you guys could expand on some of the comments you made on some potential big retenders from national oil companies and your potential to gain market share there. Could you maybe provide some extra color on what these tenders look like, as in are they large projects? Are they specific product line tenders? Where geographically are they? And sort of what are you targeting in terms of gains there?

Girish Saligram, President and CEO

Sure, thanks, Connor. This is Girish. We're noticing that most of the activity is in the Middle East, where the majority of these product line-specific tenders are occurring. There's a mix of an end of cycle and the beginning of a new one in some situations. Additionally, some customers are opting to retender the overall contracts. A few of these tenders emerged during our Chapter 11 process, which caused us to lose some market share. We're now focusing on regaining that share. We have also invested significantly in our local infrastructure, which is crucial in these regions. Furthermore, we believe our suite of technology can be highly beneficial. We have submitted strong proposals for these tenders and will have to wait for the outcomes. In terms of timing, these tenders usually take three to seven years, so we expect to see decisions in the coming months. It's important to note that in this sector, tenders are often distributed among multiple service providers, so winning is just one part of the process; executing effectively is equally vital to ensure we capture the full share of what we've been awarded.

Connor Lynagh, Analyst

Yes, understood. There's been a lot of focus on international, and I think, frankly, Middle East in particular, pricing for service companies. Would you agree with the sentiment that capacity is a bit tighter than it was last cycle that there is maybe some longer-term potential for price increases for service companies? And I guess the question from your perspective is are you trading price for market share? How are you sort of approaching the market, given the balance between market share and desire for higher margin?

Girish Saligram, President and CEO

Sure. Yes, look, I think it's a little bit of a mixed bag right now. I think where you've got product lines that truly have a higher risk profile and you can deliver incremental value through either a differentiated service or a product offering, I think there is the ability to drive price. In terms of capacity, I also club that with a little bit of material inflation and certain pieces. So there is a bit of an opportunity, for sure, around that. Having said that, I think part of the rationale that a lot of customers go through with these tenders is exactly that to make sure that they are getting the optimal pricing and to ensure that they're getting the best cost structure. So what we are trying to do is really put together an overall holistic view, and it's actually good that many of these are coming together. So we can figure out where we can get synergies across our operations to provide the right cost point and get as much price as possible. In terms of share versus price, we've been very clear in that, obviously, share is important. We are focused on top-line growth, but we are not going to chase volume at the expense of margins. That is something that we are very, very clear about. We have talked about that at length internally. We have had conversations about that with customers. Now in the event in certain places, going from a let's say, a 5% share on a particular tender to a 20% share, gives you volume efficiencies. It gives you scale. If that actually changes the profile, that we will certainly look at, consider and go after. But in a generic sense, trading off volume for margin is not something we're doing.

Operator, Operator

Our next question today comes from Ian MacPherson with Simmons.

Ian MacPherson, Analyst

I wanted to ask you about the MPD business. Now that we're starting to see offshore drillers coming out of Chapter 11 with more capital and hopefully a resurgence in offshore activity, this represents a leadership position and a unique niche for Weatherford. Can you discuss that outlook? Also, could you frame it in terms of today's penetration of MPD in high-value markets and where you see it heading over the next couple of years in an optimistic scenario?

Girish Saligram, President and CEO

Sure, absolutely. Thanks. I really appreciate it, and glad to have you on the call. Look, MPD, or managed pressure drilling, is a business, it's a technology that I'm personally tremendously excited about and something that Weatherford has had, as you said, a leadership position for a very long time. We've been the pioneers in this technology in a number of different ways, and it's something that we have continued to invest in over multiple cycles. We've got a fantastic global team, and we've got deep domain expertise in the product line. And the thing about MPD is, look, we truly believe it's a better paradigm around drilling. But it is still something that is less than 10% of the wells drilled in the world. So if you think about it from that context, regardless of what the share position is, I'll just say, we've got a leading position on share in that product line. If we can take that sub-10% adoption rate, we'll call it, and grow that to, say, 15% over the next two to three years, that's a tremendous increase in the overall market itself. And so we believe with the portfolio that we have, that we are adding to, we are continuing to invest in technologies to span the full spectrum. We think it's something that is a critical part of the growth engine for the company. And the thing about our MPD business is it's both onshore and offshore. We've clearly got leading-edge technology on the offshore side, our Victus product, which has been successfully deployed and is running in different parts of the world. That's something that we are very proud of, and it continues to be a market leader. But we've also got a very, very strong basic RCD business, starting with the U.S. that we do in multiple parts. So we are augmenting that overall product line, making sure that we are covering every part of the spectrum. At the same time, there's a big focus from us on really ensuring that we are spending time with customers making sure that we are going through the understanding of what the technology brings, how do we make it part and parcel of their overall paradigm in drilling. So thanks for bringing that up. Look, it's something we're very, very excited about. We think it will be a big part of our future going forward.

Ian MacPherson, Analyst

Super. Thanks, Girish. Now I wanted to ask a follow-up about your outlook for the year. We're calling this qualitative outlook and not guidance. I got that, but you got off to a good start with Q1. I wouldn't say starting on second base, but certainly a good start. And your guidance or the outlook for Q2, it's flatter. I know you know this than what all of your peers are pointing towards and expecting with more in the range of mid- to high single-digit growth sequentially from Q1 in Q2. You mentioned some important considerations with regard to COVID impacts that are still hampering mobility internationally as well as some of the lag effect to the rig count in your North American businesses. But that being said, do you see any particular areas where you would hope to do a little bit better than flat in the second quarter?

Girish Saligram, President and CEO

Sure. Let me provide a broad overview, and then Keith can add some additional thoughts. Firstly, our main focus is to ensure the company remains profitable even with stable activity levels. We recognize that in our industry, we have often depended on market upswings to achieve profitability, only to face challenges during downturns. We are committed to avoiding that pattern and are focused on implementing structural changes necessary for sustainable profitability. This is why we emphasize this message repeatedly. Additionally, as you noted, we have exited certain unprofitable and commoditized product lines in specific regions that did not add value. As activity resumes, those product lines will likely be the first to rebound. For instance, we recently made a decision concerning our wellheads business, which was not performing well due to its commoditized nature. While these areas may pick up quickly, we do not anticipate them contributing significantly to our overall profitability. On the positive side, we are optimistic about the production side of our business. For example, if there is an increase in activity in artificial lift in the U.S., we are positioned to take advantage of that with improved results. Furthermore, if restrictions related to logistics and mobility, particularly in areas still heavily affected by the pandemic, ease in the second half of the year, we believe we will have better chances to seize those opportunities. However, we want to be cautious and are focusing on managing what we can control while remaining ready to capitalize on market opportunities as they arise.

Keith Jennings, Executive Vice President and CFO

Ian, we need to consider that Q1 was a strong quarter, partly because the products business did not decline significantly as it usually does seasonally. We are collaborating with our front-line salespeople to determine if this strength is simply a result of some sales being pulled forward into Q2 due to the pickup in the U.S. If that's the case, we need to adjust the Q2 forecast to account for the growth in the services business and the stabilization of product sales. That's our thought process. If we see more market activity than anticipated, we will be eager to take advantage of it.

Operator, Operator

Today's next question comes from Gregg Brody with BofA.

Gregg Brody, Analyst

Last quarter, you talked a little bit about trying to put in place a regular way of credit facility. I'm curious where that stands and what your current thoughts on that are.

Girish Saligram, President and CEO

Sure. So we continue to have dialogue with our banking partners. The overall credit spectrum and feeling towards the subinvestment-grade oilfield services market, we are part of, I think, is getting better. I think we see more issues. We see more facilities being put in place. So we are working with our partners. We're having better conversations than we had in Q4. We still have not launched the process yet, but as we get out of the quiet period here, we'll pick those dialogue.

Gregg Brody, Analyst

So you haven't launched it, do you have a sense of timing, how long you think it will take for it to get inked and finalized once you do...

Girish Saligram, President and CEO

No, we don't have a sense of timing. We're not rushing this, as you know, the story of Weatherford with the previous leadership team probably involved rushing out of bankruptcy, which left the facility in a less than ideal state. This contributed to the need to unwind things. So this time, we're taking our time and being more cautious. We're ensuring that we create a facility that better aligns with the company's geographic footprint as much as possible, which is why it's taking longer. This is not an easy task, especially considering we're coming off of a single B credit rating in an environment where interest in our industry has diminished.

Gregg Brody, Analyst

That makes sense. You mentioned free cash flow is expected to be slightly negative this year. I wanted to revisit a couple of guidance numbers you provided last quarter to confirm they remain unchanged. What are you estimating for the restructuring charges this year?

Girish Saligram, President and CEO

The restructuring spend for this year?

Gregg Brody, Analyst

Yes.

Girish Saligram, President and CEO

So I think we had $60 million in the forecast. We may not hit all of that, but we're still thinking that depending on how the second half plays out and how our cost and organizational rationalization program continues.

Gregg Brody, Analyst

Is the corporate cost for the quarter of $18 million a good run rate now?

Girish Saligram, President and CEO

I believe that's a solid run rate. We could likely incorporate $20 million to $25 million into your models, and overall, we're in a favorable position with our corporate costs. However, it's important to note that we include intercompany eliminations, which can affect that figure. We've started to highlight that in our Q, allowing for better insights into that number. For this quarter, intercompany eliminations were minimal, providing a clearer view of the figure.

Gregg Brody, Analyst

Got it. So of the $20 million to $25 million it sounds like trending towards the $20 million makes more sense there.

Girish Saligram, President and CEO

Yes.

Gregg Brody, Analyst

You reduced capital expenditures by about $20 million. Should we consider this as something that has been pushed to next year? How should we think about the potential growth in capital expenditures as the business opportunities improve?

Girish Saligram, President and CEO

Sure. If we consider a $3.5 billion revenue business, the average steady state capital expenditures should be around 5%, or approximately $175 million. Currently, we are spending less than that, mainly because we overcapitalized during the last part of the cycle. As we assess our assets and determine which ones can be put into service, we are also deciding on the necessary investments for growth. For 2021, we anticipate needing between $100 million and $130 million. This figure may increase as we gain more clarity for 2022. For now, we are only investing what is necessary and what we believe will yield returns. As noted in our last quarterly report, in Q4, we accelerated spending and invested over $50 million to capitalize on some promising growth opportunities. Moving forward, if we do not see a clear return on an investment, we will remain cautious.

Gregg Brody, Analyst

That's helpful. You mentioned that working capital won't provide the same benefit for the rest of the year as it did in the first quarter. You also indicated that it might become a use of cash as you grow. How should we consider working capital for the remainder of the year in terms of potential cash consumption?

Girish Saligram, President and CEO

As I consider my full-year perspective on working capital, accounts receivable is uncertain because it will depend on growth in the second half and which markets we expand into. However, it should not mirror the profile of 2020, when it was more of a cash source as we were moving down the cycle. We anticipate that accounts receivable might slightly consume cash in the second half. We are putting significant effort into our inventory rationalization program. As you may have noticed, our inventory in the first quarter was a strong source of cash. We hope to improve our position throughout the full year. Regarding payables, we are still rationalizing that aspect as well. Overall, we expect working capital to have a slight positive impact for the year, but not as positive as it was in 2020.

Gregg Brody, Analyst

Does that imply that you actually think you won't use any working capital over the rest of the year?

Girish Saligram, President and CEO

I wouldn't say I think that for the rest of the year, there shouldn't be any use unless accounts receivable increases, and if the business grows and I increase my accounts receivable, I think I will be fine with that.

Gregg Brody, Analyst

And just in terms of taxes, should we still expect it to be a little under $80 million for the year?

Girish Saligram, President and CEO

Just about under $80 million because we're not yet profitable, so really the same paradigm of paying deem taxes is what we're faced with.

Gregg Brody, Analyst

Got it. And just last question. You talked about opportunities in carbon capture and geothermal drilling. What type of capital do you think that could ultimately require over your existing business setup for that?

Girish Saligram, President and CEO

Yes. Yes, I'll take that. Look, right now, I think it's still a little bit of early days on the geothermal side. We don't really expect it to be dramatically different because it's the same suite of products and technologies that we have, and it's really us doing a little bit of adjacent work, et cetera. And on the carbon capture side, it's something we are exploring, we're understanding, but suffice to say whatever model we end up with will be one that has returns that are accretive to the company and that are substantially higher than what we've got. So we're not going to, again, go chase marginal returns in this business. But there's still a lot of work to be done in that front. And our focus predominantly for right now is leveraging existing technologies, and we've got an asset base that we think can fulfill most of the work that we see in front of us.

Operator, Operator

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