Weatherford International plc (WFRD) Earnings Call Transcript & Summary

Good day, and welcome to the Weatherford Third Quarter 2026 Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Luke Lemoine, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, sir.

Welcome, everyone, to the Weatherford International Third Quarter 2026 Earnings Conference Call. I'm joined today by Girish Saligram, President and CEO and a new true 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 our comments today 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 here at. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our earnings press release or accompanying slide deck, which can be found on our website. As a reminder, today's call is being webcast and a recorded version will be available on our website's Investor Relations section following the conclusion of this call. With that, I'd like to turn the call over to Girish.

Thanks, Luke, and thank you all for joining our call. I'll start with an overview of our third quarter performance and near-term outlook, followed by a couple of key enterprise updates. Anuj will then cover specifics on financial performance, balance sheet and detailed guidance, and I will conclude with some thoughts on the current operating environment, our initial thoughts on 2027 and our priorities as we move forward before opening the call for Q&A. To summarize our Q3 2026 performance, we delivered revenue of $1.143 billion, adjusted EBITDA of $254 million at a 22.2% margin and adjusted free cash flow of $155 million, representing a 61% conversion on adjusted EBITDA. Simply put, this was an excellent quarter, and I am very grateful to the one Weatherford team for continuing our track record of execution and performance. A special note of pride in our Middle East team who continue to demonstrate resilience and customer focus in very challenging circumstances. Total revenues grew 3% sequentially, while absorbing the first full quarter without the [indiscernible] contract. The wind-down of our original [ Maru ] contract in Oman and the Middle East activity profile that has not returned to pre-conflict levels, points to the stability and growth of the contract portfolio across our segments and geographies. Adjusted EBITDA margins about 22% is a tangible proof point there are thesis of being able to expand margins in a flat environment works and that expansion gets amplified with even a slight increase in revenue. Our adjusted EBITDA margins expanded 204 basis points sequentially and more significantly, 39 basis points year-over-year on a 7% decline on year-on-year revenue. Finally, adjusted free cash flow increased 57% year-over-year, demonstrating our ability to generate cash at any cycle at a high conversion level. Next, I will run through some of the dynamics across our segment regions while highlighting near-term outlook. Revenue in the Middle East, North Africa and Asia region was flat sequentially. That flat number absorbed 2 significant step-downs that we told you about in July. The conclusion of the Saudi LSTK contract and the transition in Oman from the original [indiscernible] scope to the new contract which means the rest of the business in the region grew sequentially, led by NPD, [indiscernible] hangers, completions at wireline and regional profitability improved across all 3 segments on strong fall-through. To put this in perspective, revenue in the Arabian Gulf countries grew 1% sequentially with these headwinds. At the same time, I want to be clear that the environment has not normalized. While the headlines might suggest normalization of oil exports from the region, upstream activity has not recovered fully. Rig counts in key countries are trending lower. Tender cycles have slipped and the recent escalation is a reminder that this remains an unsettled operating environment with daily operational disruptions. Our priority continues to be the safety of our people and business continuity for our customers and our teams have done an exceptional job with both. We have deliberately not built a regional recovery into our near-term outlook. We are planning the business on the basis that the region stays roughly where it is today. The Middle East, North Africa and Asia region represented 39% of our business in Q3. The Kingdom of Saudi Arabia, which was 1% of enterprise revenue and 24% of the broader geomarket revenue in 2025, stood at 20% of the region in Q3 reflecting the LSTK contract step down and activity reduction. At the same time, it is worth noting that the UAE, Oman and Kuwait collectively represented approximately 41% of this region in Q3, demonstrating the diversification of revenue within the broader region. Notably, activity levels have stayed very resilient in some countries like Oman, throughout the course of the year. Latin America grew 14% sequentially, driven by Mexico and the Caribbean. In Mexico, activity with the largest customer improved. And just as importantly, collections were strong and consistent throughout the quarter. We are very encouraged now that we have had several consecutive quarters of regular payments, which is a meaningful change from where we were 18 months ago. Another highlight in the region is Venezuela as we saw our first revenue in Q3. We will see tangible revenue contribution from Venezuela in the fourth quarter, but there will also be a significant start-up cost element. Importantly, we see potential for Venezuela to ramp up in 2027 to triple-digit revenues with further increases in 2028 and with the environment remaining stable, perhaps coming close to our prior peak in the next few years. Europe [ Sub-Saharan ] Africa and Russia declined 9% sequentially on lower activity across the segments, with the Norway label strike weighing heavily on the early part of the quarter. Norway recovered as the quarter progressed, and I am especially pleased with the Equinor award, which I will come back to in a moment. This region will remain roughly flattish in the fourth quarter, but I am very encouraged for 2027 and beyond with a step-up in the Norwegian profile, Caspian and Sub-Saharan Africa potential. North America saw an increase in Q3, partially driven by a single month contribution from our NCS acquisition. While the rig count has gone up, we are not expecting a noteworthy increase in overall activity levels over the next few months, but we'll see a step up in our reported revenue with the full period contributions from NCS. Slides 9 -- 7 through 9 layout key highlights across our segments. BRE revenue grew 14% sequentially and segment margins expanded by over 700 basis points. Our NPD capital sales were a key driver of the margin expansion. And while we recognize this will cause some lumpiness, the long-term aftermarket opportunity is something we are further developing to provide predictable high returns. WCC revenue grew 4% sequentially, and this segment will see all of the impact from the MCS acquisition in the coming periods. PRI revenue was essentially flat sequentially, and we remain encouraged on a positive inflection here when the Middle East returns to normal, and there is an emphasis on interventions to restore production. Offshore continues to be the most durable team over the next few years. Our core offshore offerings of managed pressure drilling, tubular running services and interventions had another strong quarter of awards that are highlighted in our press release and investor presentation on Slide 7 through 9. The deepwater MPD systems we were awarded earlier this year are continuing to be delivered across the second half of this year. And every system we put on a deepwater rig growth in installed base that generates multiyear aftermarket parts and services revenue. What we hear from customers is consistent. Deepwater sanctioning is increasing, led by Brazil, West Africa, the Mediterranean and Asia and this work is longer cycle, technology-intensive and far less exposed to the short cycle volatility we see on land. While we estimate that around 70% of drillships, either currently have or are in the process of installing an MPD system there is a natural question of market saturation. However, we are confident that this number will continue to climb to around 85% or 90%, giving us an opportunity for several more systems over the next few years. Additionally, there is a very significant opportunity around other offshore rigs, and the aftermarket opportunity creates a more stable revenue base. Our NPD business is projected to grow above double digits this year with further growth in 2027. That includes an aftermarket component that will more than double this year and could further double here on in the next couple of years. Beyond these core offerings, I am very excited about our growth opportunity in offshore completions. Completions is now our largest product line and offshore represents significant potential for the future. We announced a significant award with Total Energies in Denmark a couple of quarters ago, a win with Exxon in Nigeria last quarter. And in Q3, Equinor awarded us a 2-year extension and a new offshore Completions award to provide our integrated completions portfolio for the Norwegian continental shelf. Additionally, [ Seplat ] Energy awarded us a 5-year contract for completions, products and services, including gas Lip solutions for its shallow offshore operations in Nigeria. In the legacy NCS business, during the quarter, we secured an award in the Deepwater Gulf of America for its frac sleeves and service tools following 4 years of collaborative development with a major international operator. The work is expected to commence in the first quarter of 2027, an important step into the offshore market for that technology. With the MCS acquisition and our organic efforts, we now have a value proposition across the conventional, unconventional and offshore domains in completions. With that backdrop, I will frame our outlook for Q4, and Anuj will provide more specifics. We are raising our full year adjusted free cash flow conversion outlook again for the third time this year and are narrowing our adjusted EBITDA range around a midpoint that is just slightly down from July. This, despite the Middle East region that has weakened relative to expectations in July and the divestiture of a few small noncore product lines. Fourth quarter revenue steps up meaningfully with the full quarter of the delivery of the Brazil MPD system, the start-up in Venezuela and seasonally higher activity in North America and fourth quarter margins reflect the mix of that revenue and start-up costs in Venezuela. I am particularly encouraged that we have line of sight to a mid- to high single-digit increase sequentially in the Middle East, North Africa and Asia region, primarily driven by countries in the Arabian Gulf. We have been consistent that we will not chase revenue at the expense of returns and the margin and cash performance in Q3 is the clearest evidence of that discipline. Let me now turn to a couple of enterprise updates, starting with the portfolio. As shown on Slides 13 through 15, we completed the acquisition of NCS Multistage during the quarter, and I am very pleased with how the integration is going. The integration management office was in place to foreclose, day 1 went smoothly. And the key talent we wanted to retain is on board and the cost synergy work streams are tracking to be at least $15 million we committed to within 18 months of closing. More important than the cost synergies is the price we identified when we announced the deal. Taking differentiated technology that was built in a concentrated footprint and putting it through a sales channel that covers 6 continents. That thesis is fully intact, and it is already showing up. With our acquisition of NCS, we now bring into our portfolio, a differentiated completions technology platform that surpassed 500,000 frac stages completed since 2009. In North America, Customers have responded to the combination by asking for more joint projects and quotations and our international teams are qualifying early cross-sell opportunities in Argentina, the Middle East and the North Sea. MCS is a prime example of what we mean by portfolio enhancement, differentiated technology plus global distribution. Over the past few months, we sent agreements to divest a few small non core product lines. Individually, none of these is material. And together, they will create some dislocation in reported revenue over the next couple of quarters. but they are deliberate. They free up management attention and capital. They simplify the organization, and they sharpen the portfolio around the technology differentiated product lines that we are building the company around. That is the same lens we apply to M&A, adding where it strengthens the portfolio as with NCS and exiting where it does not. We are setting up the portfolio for the next phase of Weatherford. Our infrastructure modernization program witnessed the first major milestone on our ERP journey with the successful launch of our enterprise performance management applications. Essentially, this means that the financial consolidation of our quarter close was done in a new system was perfectly routine and the on-time external delivery of Q3 earnings and documentation showcases the outstanding planning and execution by the team driving it. At our special shareholder meeting in September, shareholders approved all the proposals required to redomesticate from Ireland to Delaware. The redomestication remains subject to customary closing conditions, including final approval by the Irish High Court, and we expect it to become effective during the fourth quarter. We continue to expect approximately $20 million to $30 million of annual cash savings beginning in 2027, while having no impact on our global footprint, our customer commitments or our ongoing operations. I want to thank our shareholders for their engagement and support through this process. So to recap, a weaker-than-expected macro environment, especially in the Middle East. Nonetheless, a terrific quarter on financial performance. strong contract wins showcasing portfolio value. M&A is a strategic lever that is paying off and enterprise initiatives yielding tangible improvement. That's the story of the past 90 days. With that, I'd like to turn the call over to Anuj.

Thank you, Girish, and good morning, everyone. Girish has covered the operating performance and the details are in our press release and slide deck so I will focus on cash flow, the balance sheet and guidance. Turning to Slide 24. Adjusted free cash flow was $155 million in the third quarter, a 61% conversion on adjusted EBITDA and compared to 36.8% in the third quarter of 2025, driven by higher adjusted EBITDA, continued collections including from our largest customer in Mexico and disciplined capital expenditures. Year-to-date, we have generated $379 million of adjusted free cash flow up 55% year-over-year at a 53% conversion. This is the second consecutive quarter above 60%, and the drivers are structural. Working capital discipline, capital intensity and asset utilization. While there will always be quarterly variances, it is very encouraging to have 2 consecutive quarters above 60% and provide clear proof points of our ramp to our target of sustainably achieving a 50% conversion level. Adjusted net working capital was 29.2%, a trailing 12-month revenue, up sequentially with roughly 150 basis points from the consolidation of NCS and the balance from receivables and inventory timing ahead of fourth quarter deliveries. Despite that, the ratio improved year-over-year, and we remain committed to our goal of 25% or better. Capital expenditures were $45 million or 3.9% of revenues within the 3% to 5% range we have laid out. For the fourth quarter, Capital expenditure dollars will increase as we're accelerating some spend based on the demand we see for 2027. While total year CapEx will remain within the 3% to 5% of revenue range, the Q4 spend will likely be in the $70 million to $80 million range with our ERP spend captured within that. During the quarter, we returned $47 million to shareholders dividends and $28 million in share repurchases, bringing total returns since the inception of the program to more than $420 million. Our focus on maintaining a fortress balance sheet remains clearly visible. We ended the quarter with approximately $1.2 billion of cash, total liquidity of approximately $1.8 billion which includes total cash and credit facility and net leverage of 0.28x. S&P and Fitch upgraded their outlooks on our reaffirmed BB ratings to positive during the quarter, joining Moody's and recognizing the progress we have made in strengthening the company's credit profile. On October 20, we issued a notice to redeem all $236 million of our 8.625% senior notes due 2030 using cash on hand in line with our prior commentary of reducing gross leverage at the appropriate pricing level. This redemption is at par and will leave us with no debt maturities for the next 7 years an annualized cash interest expense reduction of approximately $20 million. Coupled with the expected cash savings from redomestication. This would represent over 400 basis points of improvement in adjusted EBITDA to adjusted free cash flow conversion at these levels. This sets us up well to achieve our 50% target in 2027. These actions represent the next step in simplifying our capital structure, lowering our cost of capital and positioning Weatherford with investment-grade equivalent credit metrics. Importantly, they provide greater financial flexibility to invest in organic growth, selective M&A and shareholder returns through the cycle. Turning to guidance on Slide 25. For the fourth quarter, we expect revenues of $1.28 billion to $1.33 billion and adjusted EBITDA of $270 million to $290 million, which is a margin that is modestly down from third quarter levels. The sequential revenue increase reflects a full quarter of NCS, Middle East product deliveries, the delivery of deepwater MPD systems seasonally higher activity in North America and increased volumes in Latin America, including the start-up in Venezuela. Fourth quarter margins reflect the mix of equivalent deliveries along with start-up cost in Venezuela. At the midpoint of Q4 guidance, this will put second half adjusted EBITDA margins over 150 basis points above the first half, validating the ramp we have discussed, despite an obvious weakening in the Middle East activity. Our productivity initiatives, technology-driven mix changes and higher activity we expect should result in year-on-year margin improvements in 2027 and we will provide more specific quantification of that on our next call. We expect adjusted free cash flow of more than $100 million, while our AR balance for our largest customer in Mexico, as a percentage of total enterprise revenues is at the lowest level it's been in the past 6 years. The magnitude of remaining payments is still the largest variable on quarterly free cash flow. We have raised our adjusted free cash flow conversion outlook every quarter this year, and we're again raising it for the full year to the high 40% range from mid- to high 40% in July which puts us within closing distance of our 50% target on the strength of structural improvements rather than onetime items. In connection with the effectiveness of the redomestication, we also plan to take a certain restructuring actions at a subsidiary level. While the accounting and tax implications of those actions are still being evaluated, we expect they would have a material positive noncash impact to the income tax provision in the fourth quarter. Thank you. And I will now pass the call back to Girish.

Thanks, Anuj. I want to step back and share how we are thinking about 2027 and what we are doing to position Weatherford for the next several years. Let me start with the backdrop. The Middle East has not normalized and our base case is status quo on the current situation. Unfortunately, that status quo implies volatility and uncertainty versus a steady run rate, but we are planning with the run rate to be in line with the last few months of this year. Outside the Middle East, however, the picture is constructive and getting more so. Deepwater sanction is increasing, led by Brazil, West Africa, the Mediterranean and Asia, and our offshore MPD TRS interventions and completions businesses will be the drivers of impact from that team. Latin America is growing with Venezuela reopening to international operators and Mexico stabilizing. The international markets where NCS strengthens our position, Argentina, the Middle East and the North Sea continue to develop, and U.S. land remains short cycle, and we plan it accordingly. So here's how we think about 2027. Excluding the Middle East, international market activity levels should rise mid- to high single digits, driven by Latin America and Asia. North America will likely be up low single digits. Assuming the Middle East remains at current levels, that ought to provide a global market activity increased in the mid-single digits with a more noticeable increase starting in the second quarter. For Weatherford specifically, we expect to be higher than that based on the contribution of the NCS business share gain in some key areas and Venezuela reopening, while simultaneously offsetting the first half 2026 headwinds of the ISP contracts and Middle East activity levels. The mantra of margin expansion is central to our operating [indiscernible] cost and should manifest itself driven by a structurally lower cost base, mix effects, synergies and higher activity-driven fall-through. We are within touching distance of 50% full year adjusted free cash flow conversion and expect to achieve that in 2027 based on the factors on our job line. All in all, despite the headwinds from the Middle East, we see a constructive outlook shaping up for 2027 and the years following that. We will provide specific guidance on our next call, but wanted to paint the picture of the emerging landscape. As we think about the next phase of the company, I'd like to reiterate what we have consistently said for the past 6 years. Please do not judge us by words or rhetoric, rather let our numbers speak for us. We have consistently delivered over 20% adjusted EBITDA margins over the past few years. When rigs got cut in Saudi when Mexico activity collapsed with the current conflict and so on. At the same time, we have continued to march on our path to higher free cash flow conversion and margins, focusing on our controllable elements. Performance remains our calling card and our north star of free cash flow remains unchanged. We are focused on driving a higher degree of absolute dollars as well as margins. We believe that achieving mid- to adjusted EBITDA margins with 50% conversion of free cash flow is not just achievable. It is a very clear path in the next few years and likely sooner with activity increases. To enable that performance, we now have more capability in our portfolio and are investing in further enhancing that value proposition. We are well positioned as a technology differentiator in key segments and product lines. Our MPD, TRS, interventions, artificial lift and cementing products businesses have leadership positions in several areas. We are further augmenting that with a continued pruning of lower return businesses and capability addition in completions, drilling services, wireline and digital. The liquidity on the balance sheet and low leverage affords the capacity to accelerate that with inorganic growth in a thoughtful and prudent fashion. While we believe we can meaningfully expand margin through technology mix and operating efficiencies in a flat environment, the combination of unconventional growth, mature field rejuvenation offshore resilience and Venezuela, give me a lot of confidence in revenue growth over the next few years. The most important element of the confidence in our portfolio delivering performance is the third team. This is a team that has consistently adapted and delivered, and I am grateful for the experience, expertise and energy of the leadership team that permeates all the way to the front line of the company. Thank you for your time this morning. And with that, operator, please open the floor for questions.

[Operator Instructions] And today's first question comes from David Anderson of Barclays.

So on your '27, you're kind of out framing the picture for us here. I was wondering this kind of quite a bit to unpack in there. So you're talking about mid-single-digit growth activity, Weatherford is going to outperform that. So if we take sort of the second half of '26 run rate, can you help us bridge the gap of kind of the things that are kind of weather for specific in here that are going to see growth outside of that? And you're not assuming any Middle East recovery in there. So, should we imply that Weatherford could be up double digits if Miles does come back? I mean, is that kind of what we're thinking about here just based upon how the rest of the portfolio is setting up?

Yes. Dave, you're right. Look, it is a little bit complex with a lot of different moving pieces. I'm not going to comment on what you could imply. I'll leave that to your more than capable mind and abilities to figure that out. But look, we've had -- we'll have this year, 4 months of impact from NCS. So obviously, that will have a much impact in the first 8 months of next year. So I think that will be a bit of a positive. On the other hand, what we do have is through the first half of 2026, we have the ISP contracts in the Middle East. Plus a much higher activity profile in the first half or the first quarter of 2026. So those will need to get offset. So I think it's really better to look at this on a bit of a longer-term basis and take a look at it as a total sort of 12-month view and frame it as that with some degree of movement across the quarter. I think more importantly is what Anuj alluded to in his prepared remarks on that margin expansion on a year-on-year basis. That's something we feel really good about. Just given the fact that we have made some structural improvements this year. We will not have some of the natural effects of a spike in cost that we had earlier this year. as well as the synergies that we're going to get, plus fall-throughs from increased revenue. So net debt, I think it's shaping up to be very positive. It will be a bit more of a ramp in the second half. But this is now the second year in '26 that we have had that ramp. We have delivered it. So hopefully, that gives everyone a lot more confidence as we talk about it in 2027.

And just to clarify just on that margin improvement in 2017. Is that off the full year 26? Or is that a second half exit rate?

At this point, best to take it as a full year Dave.

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

Yes. Girish, you mentioned that you're not building a Middle East recovery into the outlook. You're planning for status quo and you do see mid- to high single-digit sequential growth in the NAND 4Q led by the Golf countries. Can you reconcile those 2? Is 4Q mostly year-end product sales versus underlying activity and with Saudi, now about 20% of the region. And I think I heard you say UAE and Mona Kuwait are like double that at 40%. Can you kind of walk around the region and identify areas of relative strength or normalcy versus areas of continued weakness?

Scott. Look, great question. You're right. They do at the face while you sound a little bit divergent statements. But essentially, when we talk about that activity level, we're really referring primarily to service activity on the ground. And -- there is -- in Q4, we typically have a much higher product delivery quarter that is very true in North America, but it's also very true in the Middle East were typically year-end deliveries of completions, liner hangers and cementing products. So we've got the pipeline on that. We've got the purchase orders. Our manufacturing teams are working [indiscernible] to make sure those deliveries happen and that's what gives us that confidence. But the base activity level we are assuming does not actually change, and this will feed the inventory profile for our customers as they go into 2027. So I think that's really what drives that. So on your second question, part of the reason we provided a little bit of that context was to give a bit of a sense of, look, there is a lot of concern, understandably, naturally and appropriately so around the Middle East right now. But we've got a revenue profile that is fairly well diversified across the various countries. There tends to be a little bit of concern, especially just given the recent escalation in the kingdom of things that have happened. And we've got a very strong revenue profile in places like the UAE, and especially in Oman have remained pretty intact. So as we look at activity levels, I think UAE and Oman remain pretty strong and kind of normalized at this point. Kuwait and Saudi a little bit down Iraq substantially. So that's sort of the mix that we see. But I think all in all, we feel pretty good about the position that we have and the ability to generate the margins and cash.

And our next question today comes from James West at Melius Research.

I wanted to just ask a bit about the NTI acquisition. You're tracking to about $50 million of cost synergies. But you've consistently said and I agree with this, that the revenue synergy is the real price. Would you mind giving us some more detail on the cross-sell pipeline in Argentina, the Middle East, the North Sea, timing to kind of first meaningful international revenue and what a reasonable revenue synergy number could be? And then kind of throw a second one in there. Has anything surprised you positively or negatively in the first 9 days of the -- since the closing?

Yes. James, let me start with maybe the latter part of the question. Acquisitions are always a little tricky regardless of the size and sometimes you're buying a company with 50 people, 500 people or 5,000 people, it sort of feels like out of work. But I've been very, very impressed with the degree of planning our integration team has put in. They've done an outstanding job. It's gone really, really smoothly. And I've been very excited to attract a lot of the legacy NCS team who are excited to be part of a bigger global platform. They see the opportunities, and I think they're starting to now really come out in speed. So I think the biggest positive for me has just been really a crystallization of this potential revenue synergy profile, which is the first part of your question. So, I look at it really sort of in 3 parts. I think the first is from an offshore standpoint, really on the deepwater side. One of the things that we get with NCS is a platform that unlocks tight place. And these were tight place that were previously potentially noncommercial due to lower permeability in the reservoir. We have had some very interesting trials. We are now taking it into the Gulf of America. And when you combine that with the rest of the capability that we have across the portfolio, it becomes a much bigger integrated completion play in offshore. And so that's something that's brand new and I think we'll add over the coming years. I've talked in the past about the tracers capability that NCS brings -- that is really an extension of our overall completions portfolio, and it really allows customers to get a much deeper sense of what is happening downhole once they've actually deployed the jewelry into the well. So that really becomes now how do you get -- use your completions to gain a view in the reservoir performance -- and then the other thing that is really exciting is on the geothermal space, I think we've got some very interesting capability there on engineered geothermal systems. Again, you combine that with what we have with our natural high-temperature capabilities, our DFS capability it becomes, again, a bigger offering. So look, I've not put a specific number around it, and we won't -- at this point in time, we are focused on the quantification being around the cost synergies that we feel very good about getting to at least and my hope is, over the coming years, we will grow this business at a run rate that is at least mid- to high single digits about its natural run rate.

And our next question today comes from Saurabh Pant with BOA.

So I want to touch on [indiscernible] a little bit, Girish. Last quarter, you were getting more encouraged. And now you're talking about first revenue in the third quarter, and I think a ramp to more than $100 million of revenue in '27. Further upside in '28. So it's very positive. Maybe just walk us through on what's underpinning that confidence. Is this contracted work with specific operators or activity assumption on specific product lines? How are you thinking about this? And then how should we think about the 4Q start-up costs that I think Anuj was talking about in his prepared remarks.

Sure. Yes, Saurabh, look, I think if you look back at the last few calls, our tone, my excitement ramp, Venezuela has grown very steadily in each one. That has really been driven by the conversations that we've been having with customers, the magnitude of the conversations, the number of different customers that we've been talking to has increased significantly. . Conversations have gone from sort of what if to now how soon, how fast and are on the basis of actual orders that we are getting versus sort of pie the sky kind of concept. So really, that confidence is underpinned by us having very clear line of sight contracting work, some of which is very much in progress. We are furiously hiring people in Venezuela. Our headcount has increased substantially in the past several weeks, and we continue to add to the capability of our team. So look, I would expect that in the next few months, there will probably be more visibility and more specifics around which customers. But I think suffice to say, we are talking to several different operators. We're focused on international operators a lot of these agreements that have been in the news and are well publicized. We have gotten purchase orders in. We are starting work, and that's really what's driving it. Now the start-up costs, look, we're not going to get into a very specific quantification because we don't do that on a country and project basis. It is a little bit of a drag, but very naturally so. We've got some refurbishment of our facilities. We've got hiring costs, bringing people on board -- we've got to make sure we get some inventory, which is a bit more of a cash impact more than anything else. But just making sure we're getting ready for what we see as a fairly big wave of activity that is coming upon us. And that's what, look, we would not use words like a potential ramp to triple-digit revenue if we weren't seeing a pretty clear line of sight to it.

And our next question today comes from Derek Podhaizer at Piper Sandler Company.

Are you iterated the mid-20% EBITDA margin, 50% free cash flow conversion, clear path over the next 2 years. The second half margins are already at 150 points above first half -- maybe could you help us bridge today from the 22% to your mid-20% target, Breaking it down, how much is structural, how much is technology like the MPD aftermarket and completions that you mentioned? And importantly, how much activity is needed. I know the underlying guidance is based on a flat Middle East, but does the path to the mid-20% require the Middle East recovery? Or can you get there if the region does stay flat?

Yes. Derek, look, I'll reiterate what we have said multiple times. We really try to run the business with a focus on we're going to get to that target at flat revenues. It's going to take a lot longer, obviously, but our role really is to drive 25 to 75 bps of margin expansion on flat revenue. That's kind of the way we think about it. And we don't really look at how much exactly is going to come from each element just going to vary on a quarter-by-quarter, year-by-year basis. But we do expect that there will be a contribution from structural cost, the modernization of our infrastructure, we think, is a very significant play that will unlock a lot more cost efficiencies in the company and allow us to focus on things that are higher value added. We are continuing to develop and deploy technology, and we are very encouraged by the initial signs of that, everything that is coming out increases that value gap. So that helps. And then a mix shift towards lower capital intensity, higher margin kinds of businesses. We talked about some of the small divestitures. In totality, it's not a huge order of magnitude, less than 1% of the company, but it is lower margin. It allows us to, again, focus our time and efforts on things that actually drive higher value. So we feel very good that even in a flat environment, we should be able to get to that mid-20s. It will probably take about 3 to 4 years if you just extrapolate it out. Now on the flip side, if you see activity increases and we are confident that we will see that come through and we will see revenue increases, that increases the amplitude of that margin as well as accelerate the timing of it. So I think if we see that activity increase, depending on what it is that 3 to 4 years could get accelerated a little bit.

Our next question today comes from Jim Rollyson at Raymond James.

Girish, if you kind of circle back to 4Q guide, so you've got margins coming down just kind of modestly from the 22.2% in 3Q on a pretty big step-up in revenues. You kind of walked through some of this, but I'd love to -- for you to decompose kind of how much of that margin delta is tied to NCS dilution? How much is kind of that NPD Middle East equipment delivery mix and then Venezuela start-up costs? Just trying to kind of understand how that flows.