National Energy Services Reunited Corp

Hello and welcome to NSER's fourth quarter 2024 earnings call. With me today are Sharif Foda, Chairman and Chief Executive Officer of NSER, Stephan Angeli, Chief Financial Officer. On today's call, we will comment on our fourth quarter results and overall performance. After our prepared remarks, we will open up the call to questions. Before we begin, I'd like to remind our participants that some of the statements we'll be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations of the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our investor relations contact information is available on our website. Now, I'll hand the call over to Sharif.

Thanks, Blake. Ladies and gentlemen, good morning and thank you for participating in this conference call. I'm extremely proud of another stellar year that the team delivered in 2024. In the fourth quarter, we once again reached new heights for revenue, EBITDA, and EPS. With robust cash flow generation, we've entered 2025 in a position of notable balance sheet strength, and we've never been better positioned to size the many opportunities that remain in front of us. First, let me reflect briefly on what we were able to achieve over the past year. 2024 was an exceptional year for the company, marked by many key milestones, especially our NASDAQ relisting this past October. This was a fantastic event where we had our management team traveling to New York and celebrate with our investor at the impressive NASDAQ Center at Times Square. Thank you to all our investors and analysts that attended the event. Operationally, 2024 was a continuation of our unique growth story as we secured new contracts, enhanced our core business, and pushed into new technology frontier with our RoEA direction drilling platform and NEDA decarbonization portfolio. We expanded and deepened our anchor country footprint on many fronts with multiple growth drivers within each country contributing to our near doubling of the overall market growth in 2024. Today, our large core countries expand into Saudi, Oman, Kuwait, UAE, Iraq, Algeria, and Egypt. We have achieved record revenue and growth in each this year. We are positive about the prospects and opportunities into all of them for 2025. and we maintain optimistic about adding more countries to that league in the near future. Best example is Libya, with its recent development. We continue to address all profitable growth opportunities in all the countries where we operate, and we are nimble and agile to act quickly when needed. I will go into more detail in the outlook, but let me first summarize some highlights of 24 at the country level. In Saudi Arabia, which was our fastest-growing country by both percentage and in absolute dollar terms, NEF gained market share, outperformed in several product lines, and started some key investments for the future of our infrastructure. In Oman, where we have the highest market share as a percentage, we maintained our solid execution and gained several service quality and HSE leadership awards. and began to introduce our ROIA direction drilling platform in our recently awarded contracts. We see a lot of runways in this country. Despite the stable outlook, we can still outpace the competition by adding new services and gaining shares. In Kuwait, I'm very proud of our achievement today. You recall we entered this from nothing six years ago. And today, it's our third biggest country with the highest growth potential in percentage with the obvious rate growth tailwinds. In UAE, Algeria, and Iraq, we maintained our steady performance and delivery on our contracts and closed the year near all-time high across both oil and gas basin. The rest of our countries remained solid and saw good margin improvement through the year. Across our entire MENA footprint, we exited the year almost uniformly at record best revenue, strong margin, and cash flow generation. In addition to the natural seasonality of the region, our fourth quarter result is a testament to both continuous improvement across the organization and also the deployment of new innovation that helps us unlock greater efficiency and revenue quality. Stefan will discuss this in great detail. Moving to the outlook, I want to comment on both the market outlook for the region and also for our company. Overall, we see sustained and broad activity growth in most of our core countries, combined with secular gas development projects that are moving ahead regardless of global commodity prices, and also frontier opportunities in decarbonization and water. While growth in the region is expected to moderate in 2025 compared to recent years, The fact that the rig count in our four largest countries, which comprise over 75% of national revenue, are at or near historical all-time highs. The total rig count of the MENA region today is far higher than it has been at any time in history, higher for the first time than the rig count in North America. And this, importantly, is at a time when the oil feed service industry is at its most disciplined with respect to CapEx and capacity expansion. With this in mind, let me take a moment to illustrate our outlook in some of our key countries, starting with our largest country and one that remains the most heavily debated by the market. In Saudi, the highly pragmatic decision about a year ago to rationalize all capacity from prior plans was well documented in the industry. And activity on the oil side has largely stabilized now. In gas, the ambitious publicly expressed target of reaching 50% gas power generation and 50% renewable by 2030 continues to fuel what was always understood to be a fantastic growth story for domestic gas consumption in the kingdom. Nesra remains heavily focused on unconventional gas development in close collaboration with our esteemed customer, and the fruits of this partnership span many aspects of the value chain, including efficient completion delivery, innovation around consumables, and even circular water technologies. In February, Nesra announced the groundbreaking of a new operational facility in King Salman Energy Park, known as PARC. which deepens Nestle's commitment to continuous improvement in the kingdom, specifically around its operation in unconventional gas, building the latest FRAC operation reliability and failure prediction center in the middle of the Jafura field. UAE is also asserting strong leadership on unconventional gas development, as announced, and they continue with their program to ensure oil capacity of 5 million barrels. There will be potential add to their gas program by the international partner in future, and we are currently engaged at multiple levels in addition to our core business in the country. Stepping back for a moment, the MENA natural gas team extend beyond the leadership of Saudi and UAE. We believe that the region is in the early stage of a broader gas expansion journey for which different countries are approaching this team from different angles and at varying degrees of urgency and speed. It has become consensus that the global artificial intelligence arms race is materializing, for which vast increases in power supply will be needed to keep up with demand, above and beyond the general energy demand growth that is expected, and that gas will fill much of this incremental demand. What is perhaps underappreciated is that the MENA region can play a central role in the advent of AI, data centers, and high-performance computing, underpinned by high-quality natural gas and the cheapest renewable resource globally. We believe that this natural gas theme only adds to the stability and visibility of continued activity growth in MENA for the foreseeable future. Kuwait is arguably the brightest spot in the region when it comes to rapid growth. And the recent success of the country in adding rigs is a testament to the vision and commitment of its leadership. The desire to reach 4 million barrels per day capacity and the latest discovery of offshore deposits translate to growth projection for several years to come. This month, we signed an MOU with the visionary leadership of KOC to form the first Ahmadi Innovation Valley, AIV. that will feature very few selected service companies to address specific operator challenges in a jointly research and technology excellence, and in future, would add others to the value chain in one park. Elsewhere, Oman and Iraq remain largely stable in terms of activity, and for NETS will be areas of focus for new technology deployment, including Roia, where we have our newly awarded direction drilling contracts in Oman. North Africa is another notable bright spot, teeming with ambition, and especially Libya is exhibiting a remarkable step change in activity and innovation. Over the recent weeks and months, we've spent a lot of time in the country, meeting with customers and industry leaders as the country has resumed activity and is calling upon the service sector to partner in many exciting projects. Libya has already added more than 40 rigs on plan to advance oil production from 1.4 million barrels currently to 1.6 million barrels over the medium term, with aspiration of 2 million barrels per day in the future. Our thesis of maintaining a calibrated presence in Libya since the start of the company is playing out, and Nesr stands ready to drive growth in the country across a diverse portfolio. Moving to the technology highlights in the fourth quarter, beginning with a key pilot milestone for our RoIA direction drilling platform. As previously announced, we successfully executed a flagship single-run weld board delivery in Kuwait with our RoIA steer, rotary steerable, and RoIA stream, measuring while drilling tool, hitting all of our internal performance benchmarks. Combined with earlier success with our RoIA-C logging while drilling tool, we are confident in the commercialization path of Roia this year. Our plan is to continue the deliberate extensive testing in different formation and drilling environment while executing on our contracts in the three countries. Turning to NEDA, we are very encouraged by the innovation and prospect before us and believe that 25 will be a pivotal year for NEDA expansion and growth. In the fourth quarter, we successfully delivered over 2,000 metric ton of CO2 for a CCS reservoir injection pilot in Indonesia. The country remains highly active across traditional oil and gas, geothermal, and also carbon capture and sequestration, and we are excited for the future there. We also continue to develop our holistic circular mineral and water process in the GCC, for which we uniquely have access to potentially valuable brine and are among the few companies actually generating positive results in the field not just the lab the water solution that we've adapted from outside of the oil and gas industry represent the portfolio approach that we are taking to produce water and our fourth quarter investment in salt tech formalized our strategy around zero liquid discharge to reuse as much of our industry water as possible however this produced water evolution doesn't stop just at liquids Increasingly, the industry is discussing the potential of mineral extraction from produced water, and the recently announced transition mineral joint venture between our largest customer and the largest metal and mining company in MENA region is evidence of this massive potential. Given our piloting work in mineral extraction over the past several years, NESR is strategically positioned to contribute to cross-sector collaboration, and we anticipate updating the market throughout the year on our work in this area. Just as we take an open technology platform approach to our core service business, we see our NEDA portfolio and access to brine in the field as a platform to plug in additional mineral recovery solution, including the area of direct lithium extraction. I'm thrilled with the potential and opportunities in front of us in 2025 and beyond, following another remarkable year in 2024. Expectation may be low for our industry and sector, but we still see NETS as extremely well positioned within this macro framework and believe that the MENA market could surprise to the upside. More exciting announcement to come, but for now, I'll conclude and hand over the call to Stefan to discuss our financial in great details.

Thank you, Sherif. Good morning to our audience in the US and good afternoon, good evening to our audience in the Middle East, North Africa, Asia and or Europe. I'm very pleased to give an update on our strong financial performance for the fourth quarter of 24 and for the full year 24. In summary, despite the ongoing macro volatility worldwide and geopolitical uncertainty in the Middle East, Nevsa achieved stellar results for the fourth quarter of 24 and for the full year of 24. First, let's cover revenue. Our overall fourth quarter revenue was a record $343.7 million, which was up 2.2% sequentially and up 11.8% year over year, outpacing the broader market. Revenue for the full year 24 was $1.3 billion exactly, up 13.6% year over year, with exceptionally strong activity in the Gulf countries. Now turning to adjusted EBITDA. Adjusted EBITDA for the fourth quarter of 2024 was also a record $87.2 million, with near record margins of 25.4%, up 157 basis points on a sequential quarter basis. Full year adjusted EBITDA was $310.1 million, up 18.2% year over year, with full year margins up 93 basis points to 23.8%. Interest expense for Q4-24 was $9.9 million, and full-year interest was $39.9 million. Full-year 24 effective tax rate was 20.1%, which included a tax release of $3.8 million. Normalising for this adjustment implies a full-year 24 EPR of around 24.1%. Turning to EPS. Earnings per share is adjusted for charges and credits. was 30 cents for the fourth quarter of 24, and $1.04 for the full year 24, which was up 96% year over year. The charges and credits impacting adjusted EBITDA and adjusted EPS were made up of primarily of two items in Q4 24 as follows. Cost of remediation of control material weaknesses, which should moderate dramatically after the conclusion of the 24 audit this month and an impairment of a small investment. Now turning to our cash flow and liquidity, which I'm very proud to discuss as a point of significant emphasis over the past several years. Our cash flow from operations during the fourth quarter of 24 was very strong as we generated $46.3 million. For the full year 24 period, we generated $229.3 million. We had significant customer collections in Q4 24, which drove our DSO at year end to a company best. Free cash flow for the full year 24 was $124 million, a conversion rate on adjusted EBITDA of 40.1%, which was underpinned by strong working capital execution in 24, on top of strong execution in 23, despite the significant top line growth in both years. The free cash flow was principally used to pay down bank debt. As a result of strong operating results and good cash flow conversion, our net debt to adjusted EBITDA remains below our goal of one times for a second consecutive quarter. And we ended the year at a ratio of 0.89 times. For comparison purposes, we were at 2.8 times at the end of 22 and 1.5 times at the end of 23. Our gross debt at year-end 24 was $383 million, which represents a reduction of $153 million over the last two years, and our net debt was $275 million. Working capital levels remained relatively flat throughout the year, despite significant top-line growth. Working capital efficiency has greatly improved due to the process and system enhancements, resulting in a DSO decrease of 22 days over the last 24 months. and a decline in inventory levels of 12% over the same period. CapEx for the full year 24 was $105 million, which was slightly below budget due to delivery timing on certain pieces of equipment, which will now come in H125. All of the above contributed to a significant improvement in the financial return profile of the company during 24. On a trailing 12-month basis, our return on capital employed, or ROCI, reached 11.6% in Q4-24, a company best and concurrent with our robust growth investment strategy. Now, on to housekeeping topics. We've spent the better part of the last two-plus years reshaping our back office and the company overall with new and updated processes, procedures, and controls, as well as implementing the latest software upgrades to our EPR system. We are very confident that we have demonstrated significant progress on the remediation of our internal control material weaknesses during 24 and will give a detailed update in our 2420F when it's filed at the end of March. In summary, operational execution across our key countries remained strong during the fourth quarter of 24, while our updated processes and procedures and controls have transformed the back office and contributed greatly to our working capital efficiency. These drivers combine to generate record results for full year 24 period with strong revenue growth, strong adjusted EBITDA and healthy cash flow conversion, the latter of which has been used to pay down debt and strengthen the balance sheet overall. Looking ahead on capital allocation, there are several discrete growth opportunities not currently included in our budget that could require an investment decision around mid-year. It is also worth noting that our expanding base of activity and pushing to larger tender opportunities does require additional liquidity in the form of bid bonds and performance guarantees, which we view as a favourable competitive barrier in the MENA region. However, the strength of our balance sheet gives us flexibility on our growth plans and should market conditions change drastically from our current outlook, we certainly could evaluate other capital allocation alternatives, including returns. Anyway, we'll update further on this topic as the year progresses. The outlook for the Middle East and North Africa region remains favourable, upstream spending remains durable, and NESA continues to be focused on its stated goals of delivering profitable revenue growth, execution efficiency, technology expansion, debt reduction, and working capital efficiency to drive future financial performance. On behalf of management, I'd like to thank our entire workforce for their outstanding efforts in delivering these results, together with our directors, shareholders, and banking consortium for their continued support. The future for Nessa continues to look good. Now I turn the call back to Sherif.