National Energy Services Reunited (NESR) Q1 2025 Earnings Call June 03, 2025 08:00 AM ET Company Participants Blake Gendron - Vice President of Investor Relations & Business DevelopmentSherif Foda - Chairman and Chief Executive OfficerStefan Angeli - CFOJ. David Anderson - Managing DirectorArun Jayaram - Vice PresidentGregory Lewis - Managing DirectorJeffrey Robertson - Managing Director Conference Call Participants Derek Podhaizer - Senior Research AnalystSaurabh Pant - Director & Equity Research Analyst O ...

National Energy Services Reunited (NESR) Q1 2025 Earnings Call June 03, 2025 08:00 AM ET Speaker0 Greetings, and welcome to the NESR Reports First Quarter twenty twenty five Financial Results Conference Call and Webcast. At this time, participants are in a listen only mode. You may be placed into question queue at any time by pressing star one on your telephone keypad. It's now my pleasure to turn the call over to your host, Blake Gendron, Vice President, Investor Relations. Please go ahead, Blake. Speaker1 ...

National Energy Services Reunited (NESR) came out with quarterly earnings of $0.14 per share, missing the Zacks Consensus Estimate of $0.20 per share. This compares to earnings of $0.15 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -30%. A quarter ago, it was expected that this company would post earnings of $0.30 per share when it actually produced earnings of $0.30, delivering no surprise.Over the last four quarters, the c ...

Financial Performance - Total revenue for the year ended December 31, 2024, was $1,301,704 thousand, an increase of 13.6% from $1,145,915 thousand in 2023[159]. - Revenue for the year ended December 31, 2024, was $1,301.7 million, an increase of 13.6% from $1,145.9 million in 2023[205]. - Net income for 2024 was $76.3 million, significantly up from $12.6 million in 2023, showcasing strong financial performance[214]. - Total revenue for the year ended December 31, 2023, was $1,145.9 million, a 26% increase from $909.5 million in 2022[218]. - Net income for 2023 was $12.6 million, a significant recovery from a net loss of $36.4 million in 2022[218]. Revenue Sources and Customer Concentration - In 2024, revenues from four major customers accounted for 54%, 9%, 7%, and 4% of the company's consolidated revenues, indicating a high customer concentration risk[43]. - Four customers accounted for 54%, 9%, 7%, and 4% of consolidated revenues in 2024, showing a concentration of revenue sources[164]. Operational Risks - The company is experiencing a material weakness in internal control over financial reporting, which could adversely affect its ability to report financial results accurately[30]. - The geographic concentration of operations in the Middle East and North Africa exposes the company to regional economic and political risks, impacting financial stability[41]. - The company faces risks related to fluctuating exchange rates and currency control restrictions due to its operations in multiple countries[30]. - The company is subject to various legal and regulatory risks, including potential litigation and compliance with complex laws in different jurisdictions[31]. - The company is subject to risks from civil unrest, acts of terrorism, and other geopolitical factors that could adversely affect its operations and financial condition[46]. Capital Expenditures and Financial Needs - Significant capital expenditures are required for maintenance and upgrades of assets, which could strain the company's liquidity if not managed effectively[40]. - The company anticipates increased capital expenditure and financing needs due to upcoming gas field developments in the MENA region[190]. - NESR's total capital expenditures for the last three fiscal years amounted to $295.7 million, with $105.1 million in 2024, $68.2 million in 2023, and $122.4 million in 2022[143]. Environmental and Regulatory Compliance - Increased attention to ESG matters may adversely impact the oil and natural gas industry, affecting the company's operations and market position[37]. - The company is subject to various environmental regulations that could impose additional compliance costs and affect operations[168]. - Stricter regulations on greenhouse gas emissions could reduce demand for the company's services, impacting future financial performance[87]. Market Conditions and Industry Dynamics - Oil and natural gas prices have shown significant volatility, with Brent spot prices reaching a high of $133.18 per barrel in 2022 and a low of $76.02 per barrel in the same year[35]. - The oilfield services sector is highly cyclical, with operating results fluctuating based on global commodity prices and rig activity[188]. - Seasonal changes and significant weather events impact the demand for oil and oilfield services, with higher activity typically seen in Q4[160]. Strategic Initiatives and Investments - In 2024, NESR launched its NEDA service line, focusing on climate change mitigation and water management, and invested in Salttech BV for Zero Liquid Discharge technology[149][150]. - The company executed a second-phase Carbon Capture & Sequestration project in Indonesia in 2024, positioning NESR as a leader in CCS-related projects in the region[152]. - The company has established the NESR Oilfield Research & Innovation Center in Saudi Arabia to drive energy sector research and innovation[182]. Financial Liabilities and Risks - The company has $386.6 million in borrowings under various loan agreements, exposing it to interest rate risk due to floating interest rates[77]. - The company's subsidiaries may face default risks if they cannot generate sufficient cash flow to meet debt obligations, potentially leading to bankruptcy or liquidation[72]. - Collection of receivables may not meet projected cash requirements, impacting the ability to fulfill debt obligations[74]. Shareholder Considerations - As of December 31, 2024, there were 96,045,856 ordinary shares and 35,540,380 warrants outstanding, indicating potential dilution of ownership with future sales[113]. - The company currently has no plans to pay cash dividends on its ordinary shares, and any future dividend payments will depend on various factors including earnings and financial condition[116]. - There is a risk that the warrants may expire worthless as they are not "in the money" as of December 31, 2024[118]. Human Resources and Management - The loss of key employees could have a material adverse effect on the company's business operations and profitability[125]. - The company is in the process of remediating material weaknesses in internal control over financial reporting, which could divert management's attention and resources[56].

Company Overview - National Energy Services Reunited Corp. (NESR) is the largest publicly listed pure-play diversified oilfield service company focused on national oil company (NOC) and international oil company (IOC) customers in the Middle East and North Africa (MENA) region [2] - NESR operates in over 15 countries, with significant operations in Saudi Arabia, Oman, Kuwait, UAE, Iraq, Algeria, and Egypt, and is exploring new opportunities in Libya [2] - The MENA region is characterized as one of the most stable oilfield service markets globally, with NOCs focused on maintaining or increasing production capacity [2] Financial Performance - For FY24, NESR reported adjusted EBITDA of approximately $310 million on total revenue of $1.3 billion, with free cash flow totaling $124 million [5] - The company's FY25 and FY26 adjusted EBITDA estimates are $318 million and $338 million, respectively [5] - As of December 31, 2024, NESR had $108 million in cash and net debt of $279 million, trading at 2.7x and 2.2x FY25 and FY26 adjusted EBITDA estimates, with an 18.7% free cash flow yield based on FY25 estimates [5] Strategic Initiatives - NESR has expanded its oilfield service capabilities through strategic acquisitions and partnerships with technology innovators, focusing on complex drilling and production requirements [3] - The ROYA™ directional drilling platform, launched in February 2024, has secured contract awards in Saudi Arabia, Oman, and Kuwait, potentially generating up to $200 million in incremental revenue [3] - Through its NEDA platform, NESR is developing decarbonization technologies in the MENA region, including a closed-loop technology for recycling produced water in Saudi Arabia [4]

Financial Data and Key Metrics Changes - In Q4 2024, NESR achieved record revenue of $343.7 million, up 2.2% sequentially and 11.8% year-over-year. Full year revenue was $1.3 billion, up 13.6% year-over-year [32] - Adjusted EBITDA for Q4 2024 was a record $87.2 million with margins of 25.4%, up 157 basis points sequentially. Full year adjusted EBITDA was $310.1 million, up 18.2% year-over-year, with margins at 23.8% [33] - Earnings per share (EPS) for Q4 2024 was $0.30, and for the full year it was $1.04, reflecting a 96% year-over-year increase [35] - Cash flow from operations in Q4 2024 was $46.3 million, with full year cash flow at $229.3 million. Free cash flow for the full year was $124 million, with a conversion rate of 40.1% on adjusted EBITDA [36][37] - Net debt-to-adjusted EBITDA ratio was 0.89 times at year-end 2024, down from 2.8 times at the end of 2022 [38] Business Line Data and Key Metrics Changes - NESR's operational performance across its key countries remained strong, with significant growth in Saudi Arabia, Kuwait, and Oman. Saudi Arabia was the fastest-growing country in both percentage and absolute dollar terms [12][14] - In Kuwait, NESR has become the third largest player with high growth potential, having entered the market six years ago [13] - The company maintained steady performance in UAE, Algeria, and Iraq, closing the year with record revenue and strong margins across its MENA footprint [14] Market Data and Key Metrics Changes - The MENA region's rig count is at historical highs, surpassing North America for the first time, indicating robust activity growth despite global commodity price fluctuations [16] - The outlook for 2025 suggests moderate growth in the region, with NESR expecting to outpace the market due to its strategic positioning in gas development and unconventional resources [46][47] Company Strategy and Development Direction - NESR is focused on profitable growth opportunities, technology expansion, and maintaining a strong balance sheet. The company aims to leverage its ROYA direction drilling platform and NEDA decarbonization portfolio for future growth [9][29] - The company is also exploring innovative solutions in mineral recovery and direct lithium extraction, which could significantly enhance its revenue potential [29][77] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the MENA market's growth potential, particularly in unconventional gas development, despite a backdrop of low expectations for the sector [46] - The company anticipates a seasonal pattern in 2025 similar to 2024, with a slow start in Q1 followed by increased activity throughout the year [47] - Management highlighted the importance of maintaining operational efficiency and service quality to sustain margins amid competitive pressures [83] Other Important Information - NESR's gross debt at year-end 2024 was $383 million, a reduction of $153 million over the last two years [39] - The company has extended its warrants until June 2026, which was not included in the press release but will be detailed in the upcoming 20-F filing [117] Q&A Session Summary Question: Outlook on regional spending patterns and overall growth - Management expects moderate growth in the Middle East for 2025, with single-digit growth anticipated, particularly in Saudi Arabia and Kuwait [56][57] Question: Changes in NESR's mix and Jafurah's progress - NESR's exposure in Jafurah remains positive, with ongoing involvement in unconventional gas development and expectations for future tenders [66] Question: Margin performance and sustainability - Management is confident that margins will track similarly to 2024, with good execution and service quality expected to support this [83] Question: Commercial activities in Kuwait - Kuwait is experiencing strong activity with significant offshore discoveries, and NESR aims to expand its presence and contracts in the region [87][91] Question: Impact of unconventional resources on product mix and margins - NESR plans to maintain margins through efficiency improvements and technology advancements in unconventional resource development [99] Question: Valuation gap and potential strategies to close it - Management acknowledges the valuation gap and is exploring options to enhance visibility and appreciation in the market [112][114] Question: Base case for market growth and visibility - NESR anticipates 8% to 10% growth for itself in 2025, leveraging its smaller size and contract visibility to outperform the market [123]

Financial Data and Key Metrics Changes - The overall third quarter revenue reached a record $336.2 million, up 3.5% sequentially and 12% year-over-year [20] - Adjusted EBITDA for Q3 2024 was also a record at $80 million, with margins of 23.8%, remaining flat sequentially [21] - Earnings per share (EPS) excluding charges and credits was $0.31 for Q3 2024, representing a 164% year-over-year increase [22] - Cash flow from operations for Q3 2024 was strong at $70.8 million, contributing to a year-to-date total of $183.1 million [23] - Net debt to trailing 12 months adjusted EBITDA fell to 0.96, below the target of 1, compared to 2.8 at the end of 2022 [23] Business Line Data and Key Metrics Changes - The core business continues to outperform, with significant growth in direction drilling and hydraulic fracturing segments [12][13] - The ROYA direction drilling platform is expected to drive future outperformance, with a market size exceeding $2 billion annually [13] - The company announced an investment in SALTTECH BV for technology aimed at recovering minerals from produced water, indicating a new market opportunity [16][17] Market Data and Key Metrics Changes - The MENA market remains stable, with growth expected in countries like Kuwait, which is anticipated to lead MENA growth in the coming years [10][11] - North Africa is also showing steady growth, particularly in Libya and Algeria, with NESR positioned to capitalize on potential opportunities [11] Company Strategy and Development Direction - The company aims to continue outperforming the broader MENA market, focusing on core business expansion and technological advancements [29] - Strategic investments in decarbonization and water recovery technologies are being pursued to align with sustainability goals [15][29] - The company is committed to leveraging partnerships with North American technology providers to enhance service offerings in the MENA region [64][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the MENA market despite global uncertainties, with a positive outlook for NESR's core business and new technology rollouts [6][9] - The company anticipates continued growth in 2025, outpacing the market growth rate, driven by successful deployment of new technologies [50][56] Other Important Information - NESR was re-listed on NASDAQ on October 22, 2024, marking a significant milestone for the company [25] - The company has undergone substantial internal control improvements and is optimistic about demonstrating remediation of past weaknesses [26] Q&A Session Summary Question: Overview of Saudi Arabia's market activity - Management noted that Saudi Arabia has adjusted its oil production plans, focusing on gas and unconventional projects, particularly the Jafurah project, which remains a priority [33][36] Question: Future activity levels in Saudi Arabia - Management expects overall activity to remain stable, with growth in gas projects offsetting any declines in oil drilling [38][39] Question: Growth expectations in MENA and ROYA platform - Management anticipates MENA market growth of 5-6% in 2025, with NESR aiming to double that growth through the ROYA platform and other technologies [50] Question: Impact of potential OPEC production increases - Management believes that any increase in OPEC production would depend on market conditions, but NESR is positioned to grow regardless [55] Question: CAPEX investment cycle and equipment capacity - Management indicated that CAPEX for 2024 is expected to be around $120 million, with a focus on supporting growth in the ROYA platform [61]

Financial Performance - Total revenues for the three-month period ended September 30, 2024, increased to $336,205 thousand, up from $300,084 thousand in the same period last year, representing an increase of 12%[11] - Gross profit for the nine-month period ended September 30, 2024, was $149,492 thousand, compared to $104,235 thousand for the same period in 2023, reflecting a growth of 43%[11] - Net income for the three-month period ended September 30, 2024, was $20,618 thousand, compared to $14,731 thousand for the same period in 2023, marking an increase of 40%[11] - Operating income for the nine-month period ended September 30, 2024, was $94,122 thousand, compared to $53,138 thousand for the same period in 2023, reflecting a substantial increase of 77%[11] - Net income for the nine-month period ended September 30, 2024, was $49.473 million, a significant increase from $10.319 million in the same period of 2023, representing a growth of approximately 380%[19] - Net cash provided by operating activities increased to $183.069 million for the nine-month period ended September 30, 2024, compared to $140.439 million for the same period in 2023, reflecting a growth of about 30%[19] - Revenue for Q3 2024 was $336.2 million, up from $300.1 million in Q3 2023, representing an increase of 12.7%[94] - For the nine-month period ended September 30, 2024, revenue reached $958.0 million, compared to $838.4 million for the same period in 2023, reflecting a growth of 14.3%[94] - Production Services revenue for the three-month period ended September 30, 2024, was $230.521 million, compared to $208.890 million for the same period in 2023, reflecting an increase of about 10.3%[61] - Drilling and Evaluation Services revenue for the nine-month period ended September 30, 2024, reached $313.402 million, up from $261.996 million in the prior year, marking a growth of approximately 19.6%[61] Assets and Liabilities - Total current assets as of September 30, 2024, amounted to $577,154 thousand, an increase from $541,715 thousand as of December 31, 2023, representing a growth of 7%[8] - Total liabilities decreased to $929,300 thousand as of September 30, 2024, down from $976,246 thousand as of December 31, 2023, indicating a reduction of 5%[8] - The total equity of the company rose to $873,548 thousand as of September 30, 2024, compared to $821,494 thousand as of December 31, 2023, showing an increase of 6%[8] - The company’s accounts receivable, net, decreased to $132,549 thousand as of September 30, 2024, from $171,269 thousand as of December 31, 2023, indicating a decline of 23%[8] - Trade receivables decreased to $146.058 million as of September 30, 2024, from $180.989 million as of December 31, 2023, indicating a reduction of approximately 19%[31] - Long-lived assets as of September 30, 2024, totaled $425.133 million, a decrease from $442.666 million as of December 31, 2023[63] Cash Flow and Capital Expenditures - Cash and cash equivalents increased to $118,169 thousand as of September 30, 2024, up from $67,821 thousand as of December 31, 2023, representing a significant increase of 74%[8] - Capital expenditures for the nine-month period ended September 30, 2024, were $80.053 million, up from $65.824 million in the same period of 2023, representing an increase of approximately 21%[19] - The company anticipates increased capital expenditure and financing needs due to upcoming gas field developments in the MENA region[75] - Capital expenditure commitments were $64.4 million as of September 30, 2024, significantly higher than $15.4 million at the end of 2023[44] Earnings Per Share - The company reported a basic earnings per share of $0.22 for the three-month period ended September 30, 2024, compared to $0.16 for the same period in 2023, reflecting a growth of 38%[11] - The company reported a diluted EPS of $0.52 for the nine-month period ended September 30, 2024, compared to $0.11 for the same period in 2023, representing a significant increase of approximately 372.7%[54] Debt and Financing - As of September 30, 2024, the company's long-term debt, net of unamortized debt issuance costs, was $284.2 million, a decrease of 14.3% from $331.6 million as of December 31, 2023[34] - The company had total loans and borrowings of $354.7 million as of September 30, 2024, down from $403.3 million at the end of 2023, reflecting a reduction of 12.0%[34] - The net cash used in financing activities decreased to $48.563 million for the nine-month period ended September 30, 2024, compared to $75.494 million in the same period of 2023, indicating a reduction of approximately 36%[19] - Outstanding borrowings decreased to $409.3 million as of September 30, 2024, from $452.2 million as of December 31, 2023[107] Tax and Compliance - The effective tax rate for the quarter ended September 30, 2024, was 20.4%, compared to 15.7% for the same quarter in 2023, reflecting an increase of 4.7 percentage points[42] - The company recorded an income tax expense of $5.3 million for the quarter ended September 30, 2024, up from $2.7 million for the same quarter in 2023, representing a 96.3% increase[42] - The company was in compliance with all financial and non-financial covenants under the 2021 Secured Facilities Agreement as of September 30, 2024[38] Operational Insights - The company operates primarily in the MENA region, with total revenue from this area amounting to $949.884 million for the nine-month period ended September 30, 2024, compared to $830.338 million in 2023, reflecting an increase of approximately 14.4%[62] - The company has two reportable segments: Production Services and Drilling and Evaluation Services, with segment operating income for Production Services increasing to $104.205 million for the nine-month period ended September 30, 2024, from $77.327 million in 2023[62] - Production Services accounted for 69% of total revenue in Q3 2024, with revenue of $230.5 million, compared to $208.9 million in Q3 2023[89] - Drilling and Evaluation Services revenue increased to $105.7 million in Q3 2024 from $91.2 million in Q3 2023, marking a growth of 15.7%[97] Internal Controls and Governance - The company identified material weaknesses in its internal control over financial reporting as of December 31, 2023, which could result in future material misstatements if unremediated[135] - The company has implemented remedial steps to address identified material weaknesses, including appointing a Director of Internal Audit and engaging a third party for interim internal audit functions[139] - The company is in the process of remediating material weaknesses and must do so by August 28, 2025, to avoid an additional civil monetary penalty of $1.2 million from the SEC[148] - The company is committed to improving its internal control environment and has begun testing redesigned controls, expecting them to be fully effective by Q4 2024 or Q1 2025[139] Market Risks - The company is exposed to market risks primarily from changes in interest rates on borrowings, which have significantly increased since the end of 2021[131] - The company has not used derivatives for trading purposes or speculative activities[133]