National Energy Services Reunited Corp.(NESR) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Unaudited Condensed Consolidated Interim Financial Statements The company's Q1 2025 financial performance shows increased revenues and net income, with a slight decrease in total assets and segment-specific revenue shifts Unaudited Condensed Consolidated Balance Sheets Total assets slightly decreased to $1.769 billion as of March 31, 2025, while total liabilities decreased and total equity increased to $920.5 million Condensed Consolidated Balance Sheet Data (in US$ thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $554,848 | $540,516 | | Total assets | $1,769,323 | $1,773,678 | | Total current liabilities | $502,569 | $503,512 | | Total liabilities | $848,844 | $865,446 | | Total equity | $920,479 | $908,232 | Unaudited Condensed Consolidated Interim Statements of Operations Q1 2025 revenue increased to $303.1 million, but gross profit and operating income declined, while net income slightly rose to $10.4 million due to lower expenses Q1 2025 vs Q1 2024 Statement of Operations (in US$ thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenues | $303,102 | $296,848 | | Gross Profit | $37,455 | $42,942 | | Operating Income | $20,941 | $24,558 | | Net Income | $10,391 | $9,982 | | Diluted EPS | $0.11 | $0.10 | Unaudited Condensed Consolidated Interim Statements of Comprehensive Income Total comprehensive income for Q1 2025 was $10.4 million, aligning with net income, with no other comprehensive income items reported - Total comprehensive income was $10.4 million for Q1 2025 and $10.0 million for Q1 2024, with no other comprehensive income items reported in either period[14] Unaudited Condensed Consolidated Interim Statements of Shareholders' Equity Total equity increased to $920.5 million by March 31, 2025, primarily driven by net income and share-based compensation - Total equity grew to $920.5 million at March 31, 2025, up from $908.2 million at December 31, 2024, mainly due to net income of $10.4 million[16] Unaudited Condensed Consolidated Interim Statements of Cash Flows Net cash from operating activities significantly decreased to $20.5 million in Q1 2025, resulting in a net cash decrease of $29.3 million for the period Cash Flow Summary (in US$ thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,485 | $69,620 | | Net cash used in investing activities | ($31,487) | ($41,363) | | Net cash used in financing activities | ($18,259) | ($33,319) | | Net (decrease) in cash | ($29,261) | ($5,062) | | Cash and cash equivalents, end of period | $78,695 | $62,759 | Notes to Unaudited Condensed Consolidated Interim Financial Statements The notes detail accounting policies, debt compliance, tax rates, segment reporting, and a subsequent warrant exchange offer, with 99% of revenue from the MENA region - The company's Integrated Production Management (IPM) projects, where compensation is based on cash flow from production, represented 0.8% of revenues in Q1 2025[21] - Total long-term debt stood at $306.0 million and short-term debt was $60.4 million as of March 31, 2025, with the company in compliance with all financial covenants[33][38][39] - The effective tax rate for Q1 2025 was 24.2%, a decrease from 31.5% in Q1 2024, primarily due to fewer provisions for uncertain tax positions[42] - The company has two reportable segments: Production Services (62% of Q1 2025 revenue) and Drilling and Evaluation Services (38% of Q1 2025 revenue)[52][57] - Subsequent to the quarter end, the company announced an intention to offer 0.10 ordinary shares in exchange for each outstanding warrant[64] Operating and Financial Review Q1 2025 revenue grew 2.1% to $303.1 million, driven by MENA E&P trends, with segment shifts and a contracted gross margin due to elevated costs - The company operates primarily in the MENA region, which contributed 99% of revenue in Q1 2025, with demand linked to global commodity prices and regional E&P spending[70][74] Q1 2025 vs Q1 2024 Revenue by Segment (in US$ thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Production Services | $188,087 | $194,503 | | Drilling and Evaluation Services | $115,015 | $102,345 | | Total revenue | $303,102 | $296,848 | - Drilling and Evaluation Services revenue grew due to increased rig assignments in Saudi Arabia and contributions from the Roya™ advanced directional drilling technology platform[94] - Production Services revenue declined due to a seasonal slowdown related to the holy month of Ramadan[93] - Cost of services as a percentage of revenue increased from 85.5% to 87.6% YoY, attributed to an elevated cost structure to support expected higher activity levels in H2 2025[95] Cash Flow Summary (in US$ thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Operating Activities | $20,485 | $69,620 | | Investing Activities | ($31,487) | ($41,363) | | Financing Activities | ($18,259) | ($33,319) | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from interest rate changes on variable-rate borrowings, while foreign currency and credit risks are managed and considered low - Foreign currency risk is limited as key currencies in the UAE, Saudi Arabia, Oman, Kuwait, and Qatar are pegged to the U.S. dollar[123] - Credit risk is concentrated with National Oil Companies (NOCs) in the MENA region, but the company has not experienced material losses from non-payment[124][125] - The company is exposed to market risk from rising interest rates on its borrowings, with the interest rate on U.S. dollar-denominated term loans increased from 2.96% at the end of 2021 to 7.19% as of March 31, 2025[128][129] Internal Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting, with a remediation plan partially implemented - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period due to a material weakness in internal control over financial reporting[131] - The material weakness is related to the control environment, specifically: lack of an effective organizational structure, ineffective communication protocols, and insufficient technical accounting resources[133][142] - A remediation plan has been designed, and several steps have been implemented, such as executive training, adding new independent directors, and enhancing policies, though not yet fully remediated[134] PART II - OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, which management does not expect to have a material impact on its financial condition - The company is involved in ordinary course legal proceedings, but management does not expect them to have a material impact on its business, financial condition, or liquidity[136] Risk Factors The most significant risk is the ongoing material weakness in internal control over financial reporting, with potential for adverse financial impact and penalties - A key risk is the continuing material weakness in internal control over financial reporting, which could adversely affect the company's ability to report financial results accurately and prevent fraud[138] - If the material weakness is not remediated by August 28, 2025, the company faces an additional SEC civil monetary penalty of $1.2 million[141]