Nabors(NBR) - 2020 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Nabors Industries reported a significant Q1 2020 net loss of $374.4 million, primarily due to a $276.4 million impairment charge, alongside decreased revenues and assets Condensed Consolidated Balance Sheets Total assets decreased to $6.31 billion, primarily due to reduced property, plant, and equipment and goodwill impairment, while equity declined to $1.64 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $6,308,548 | $6,760,658 | ($452,110) | | Property, plant and equipment, net | $4,597,308 | $4,930,549 | ($333,241) | | Goodwill | $0 | $28,380 | ($28,380) | | Total Liabilities | $4,237,626 | $4,285,101 | ($47,475) | | Long-term debt | $3,388,014 | $3,333,220 | $54,794 | | Total Equity | $1,641,098 | $2,050,165 | ($409,067) | | Retained earnings (accumulated deficit) | ($508,200) | ($104,775) | ($403,425) | Condensed Consolidated Statements of Income (Loss) Q1 2020 operating revenues decreased 10.2% to $718.4 million, resulting in a net loss of $374.4 million, largely due to a $276.4 million impairment charge Q1 2020 vs Q1 2019 Income Statement (in thousands, except per share amounts) | Metric | Q1 2020 | Q1 2019 | Change | | :--- | :--- | :--- | :--- | | Operating revenues | $718,364 | $799,640 | -10.2% | | Impairments and other charges | $276,434 | $0 | N/A | | Net income (loss) | ($374,362) | ($103,533) | -261.6% | | Net loss attributable to Nabors common shareholders | ($395,479) | ($122,022) | -224.1% | | Total Diluted EPS | ($56.73) | ($18.13) | -213.0% | Condensed Consolidated Statements of Cash Flows Net cash from operations was $59.2 million, while investing activities used $50.8 million due to reduced capital expenditures, and financing provided $37.6 million from debt refinancing Q1 2020 vs Q1 2019 Cash Flows (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $59,162 | $69,854 | | Net cash used for investing activities | ($50,773) | ($144,444) | | Capital expenditures | ($59,430) | ($141,070) | | Net cash provided by financing activities | $37,572 | $59,456 | | Net increase (decrease) in cash | $43,742 | ($17,925) | Notes to Condensed Consolidated Financial Statements Notes detail a reverse stock split, COVID-19 impact, debt restructuring, $27.8 million goodwill and $83.6 million intangible asset impairments, and a new shareholder rights plan - The company executed a 1-for-50 reverse stock split, effective after the quarter end on April 20, 2020, with all share and per-share data retrospectively adjusted[19] - Due to the drop in commodity prices and demand weakness from COVID-19, the company recognized a goodwill impairment of $27.8 million, writing off remaining balances for Drilling Solutions and Rig Technologies segments[32][88] - In January 2020, the company issued $1.0 billion in new senior notes and used proceeds to repurchase approximately $1.1 billion of existing senior notes, resulting in a net gain of $15.7 million[52][54][55] Impairments and Other Charges for Q1 2020 (in thousands) | Category | Amount | | :--- | :--- | | Impairment of long-lived assets | $147,750 | | Goodwill impairments | $27,798 | | Intangible asset impairment | $83,624 | | Other assets & charges | $17,262 | | Total | $276,434 | - Subsequent to the quarter end, on May 5, 2020, the Board adopted a shareholder rights plan (a "poison pill") exercisable if a person or group acquires 4.9% or more of outstanding common shares[122][123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe impact of COVID-19 and oil price collapse, leading to a 10% revenue decline and a $395.4 million net loss, with reduced capital expenditures and compliance with debt covenants - The outlook is negative due to unprecedented volatility from COVID-19 and oil oversupply, leading to a significant drop in oil prices and customer activity, with U.S. drilling activity expected to continue to fall[133] - In response to market challenges, the company has reduced planned capital expenditures, implemented salary reductions, and taken other steps to streamline operations[134] Segment Performance YoY Change (Q1 2020 vs Q1 2019) | Segment | Operating Revenues Change | Adjusted Operating Income (Loss) Change | | :--- | :--- | :--- | | U.S. Drilling | -14% | -130% | | Canada Drilling | +1% | +163% | | International Drilling | 0% | +26% | | Drilling Solutions | -15% | -18% | | Rig Technologies | -41% | -58% | - As of March 31, 2020, the company was in compliance with its debt covenants, with a net leverage ratio of 3.60:1 (vs. limit of 5.50:1) and an asset to debt coverage ratio of 3.98:1 (vs. limit of 2.50:1)[158] - Cash from operating activities was $59.2 million, and capital expenditures were significantly reduced to $59.4 million in Q1 2020 from $141.1 million in Q1 2019[170][171] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposure were reported for Q1 2020 compared to the 2019 Annual Report - There were no material changes in the company's exposure to market risk during the three months ended March 31, 2020[177] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[179] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[180] PART II OTHER INFORMATION Legal Proceedings The company is involved in ordinary course lawsuits, but management does not expect a material adverse effect on financial position or cash flows - The company is a defendant in a number of lawsuits in the ordinary course of business but does not expect the outcomes to have a material adverse effect on its financial position or cash flows[182] Risk Factors New significant risks include the COVID-19 pandemic and energy market turmoil, leading to reduced demand for the company's services - A new significant risk factor is the outbreak of COVID-19, which, combined with disputes between major oil-producing countries, has caused a sharp drop in energy prices and demand[184][185][186] - The weak commodity price environment has led to reductions in customer exploration and production budgets, which has had and is likely to continue to have an adverse impact on demand for the company's services[187] - The spread of the virus into the company's workforce is a risk that could disrupt operations or lead to shutdowns in affected locations[189] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased common and preferred shares, with $278.9 million remaining for common share repurchases and a $15.0 million preferred share program fully utilized - As of March 31, 2020, $278.9 million remained available for repurchases under the company's common share repurchase program[190] - In March 2020, the Board authorized a $15.0 million repurchase program for mandatory convertible preferred shares, which was fully executed during the month, with 0.9 million shares repurchased and canceled[191] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[192] Mine Safety Disclosures This item is not applicable to the company - Not applicable[193] Other Information No other information was reported for this item - None[194] Exhibits Key exhibits filed include a new Rights Agreement and amendments to credit and executive employment agreements - Key exhibits filed include the Rights Agreement dated May 5, 2020, and amendments to the 2018 Credit Agreement and executive employment agreements for the CEO and CFO[194]