National Energy Services Reunited Corp

Greetings and welcome to the NESR Report's first quarter 2025 financial results conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the floor over to your host, Blake Gendron, Vice President, Investor Relations. Please go ahead, Blake. Thanks, Kevin. Hello, and welcome to Nessar's first quarter 2025 earnings call. With me today are Sharif Foda, Chairman and Chief Executive Officer of Nessar, Stephan Angeli, Chief Financial Officer. On today's call, we will comment on our first 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 the 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 to 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, Vivek. Ladies and gentlemen, good morning and thank you for participating in this conference call. First, I'd like to thank the entire Nestle team for delivering the services to our dearest customers and executing flawlessly despite all the macro environment and the full month impact of Ramadan during the first quarter. Nevertheless, the geopolitical and global economic winds have shifted immensely since the start of the year. As we have seen many times in our industry, the cycle is resetting, and we at NETR are preparing to cite the many opportunities that could emerge in the coming 12 to 18 months of market transition. As we say, never miss the opportunity of a downturn. With that in mind, let me start with the macro and the big picture for our sector. When it comes to this oil cycle reset, we have all been here before. In fact, this is my fourth time to navigate such an environment. From what I can see, the combination of pessimism around oil demand An unwind of spare oil supply is much like the setup for 2015-2016 cycle reset. On the oil demand side, global geopolitical tension and trade uncertainty continue to weigh on economic growth that was already fragile coming into the year. On the oil supply side, non-opic and particularly U.S. production remain resilient in the face of rig and frack activity decline, at least for the short term. Given continued activity reduction in the U.S., we expect to see an impact to non-opic production in the coming 12 months, despite pockets of growth in places like Guyana and Brazil. As I have announced, OPEC has decided to gradually bring back previously curtailed battles. This dynamic remains the wild card in framing the downside case for oil prices, and I suspect the commodity market will remain on edge for the time being. Now, what does this mean for activity in the MENA region? For the GCC, it is not the same answer everywhere. Saudi remains the key player with maximum sustainable capacity and therefore can reduce drilling activity with negligible impact to oil production. Those that are new to the industry might not fully appreciate this dynamic. It is unique to the kingdom. In other words, they can cut rigs and still raise production by even several million barrels if they choose to do so. Today, we believe that without the strong growth of unconventional activity, the Saudi market would otherwise be down in 2025. On the other hand, Kuwait is pushing ahead on growth despite lower oil price, characteristic of their long-term strategic vision. They put a 2040 plan in place and are executing it, so we will see added rigs and services in the coming quarters and years. Furthermore, they have launched innovative commercial models for risk sharing, and growth in this area will be additive to the expected standard service market. UAE and North Africa will grow as well, and as of today, we have seen negligible activity impact from lower prices. The rest of the countries have been and are expected to remain stable. While a materially lower oil scenario would likely impact all of these countries, it is important to remember two key themes. One, the MENA region represents the lowest break-even cost for oil globally. Two, upstream remains a highly strategic sector, if not the main, in all of the countries in which we operate. Now let me discuss our strategic approach over the next 12 to 18 months, which is adapted from our long-term strategy to fit the current circumstances. As seen in previous cycles, we are moving to right-size the fixed cost structure and are using our agility to hydrate and reallocate variable cost resources to where the activity growth is. Despite the softness in the market, we anticipate that NETS will grow in 2025 and in 2026. Why? First, we are still relatively small and have a larger set of incremental contract opportunities from which to choose from. Second, and perhaps more concretely, we have recently won multiple key contracts and are now in the planning phase ahead of anticipated mobilizations. Let me elaborate more specifically. In Oman, we have a strong base of contract and recently announced a number of incremental contracts in areas such as dwelling and slickline. Span five years. While Oman remains a stable market and is already one of our top three countries in terms of size, we expect to grow. Opportunities to deploy our Royal Direction Dwelling Platform will drive the next leg of growth And the latest win of Slickline will drive more our drilling and evaluation performance and leadership prediction. Similarly in UAE, a stable market with capacity approaching target, we have one new contract on top of the anchor contract previously secured. Therefore, we have clear visibility for the coming couple of years. Moving to Kuwait, a resilient bright spot of growth globally. We have recently won multiple awards and are in the process of tendering for several billion dollars in multi-year contracts across several segments. Given our size and momentum, we should outgrow in an already robust growth market, and depending on the outcome of these tenders, could see Kuwait launch into the second biggest country within our footprint. Therefore, we are investing strongly in the country, including in our recently announced Ahmadi Innovation Valley, which aims to mirror our successful technological launch of Nori in Saudi Arabia. We plan to bring a number of our technology investments and pilot cutting-edge solutions with our visionary customers as they move quickly to tackle key challenges in the next phase of capacity growth. We remain excited about North Africa, despite the potential price sensitivity to oil. With the days of anchor contracts in hand and well-calibrated investment, we are tendering on several hundred million dollars of contracts, and thus have the potential to outgrow the market there. Geopolitical tension and security could delay the pace of our decision and additional redeployment. But we remain optimistic. Coming back to the fulcrum of the story and our largest country footprint, Saudi Arabia, despite the softening outlook, I'm confident that we will weather the storm because, one, we remain relatively small compared to competition and are favorably exposed to secular gas growth. Two, we have numerous projects and initiatives that elevate our profile as a nimble technology provider. Our open technology platform has proven incredibly fruitful in the kingdom. And with the collaborative support of our customers, we are driving in-country innovation led by a new generation of Saudi professionals in key areas such as water, minerals, direction drilling, methane detection, and geothermal. With that lead into technology, let me conclude by providing an update on our key growth frontier, WUIA and NIDA. Our Royal Steel Rotary Steerable has undergone extensive field and facility testing, and we are moving new tools to Oman to endeavor the next phase of the commercialization journey. As we communicated before, the entire rollout, and particularly the Rotary Steerable, is designed to be conservative, deliberate, and with the utmost focus on reliability and continuous improvement. We are commercializing with the long-term in mind, and testing footage is the key metric. Extensive testing, calculated deployment, and well-timed commercialization will help us maximize the success of the platform in collaboration with our key customers. Shifting to NEDA, in recent months, we've mobilized crucial pilot projects in multiple areas of mineral recovery. with several exciting opportunities in rare earth mineral extraction. These pilots are important in boosting the overall economics of produced water treatment. Beyond the need for the region to recycle its own water and eliminate freshwater use, we have active client engagement with our key customer and the success of the ongoing pilots will be contagious to others. More updates to come in the coming quarters. Overall, while we would prefer an expanding market for all, I'm excited about our differentiated story. We cannot control the commodity cycle, but can drive relative performance within any market framework. We started Nest principally as a pure play service provider in the best geography for upstream activity. I am confident that this differentiation will come to the forefront in the coming 12 to 18 months. Additionally, our counter-cyclical investing, as we successfully executed back during the COVID pandemic, will set the company up for continued growth and success over all time horizon. We are as excited about this story as ever, both in terms of balance sheet and contract positioning to outperform With this, I will start the call to Stefan to discuss the financial indicators.

Thank you very much, Sharif. Good morning to our audience in the US and good afternoon, good evening to our audience in the Middle East, North Africa, Asia and Europe. I am very pleased to give an update on our financial performance for the first quarter of 2025, some colour for Q2 2025 and the full year of 2025. A lot has happened in the last three months since we last talked. Ongoing macro volatility worldwide, the new administration in the US, uncertainty in the tariffs, higher inflation, lower subsidies to developing countries, the ongoing war in the Ukraine, and the overall geopolitical uncertainty in the Middle East have all led to lower oil prices and lower rig counts in certain countries. All this has impacted the Q1-25 results of the oilfield services sector that makes forecasting the short-term outlook difficult. Despite all this, as Sharif highlighted in his market summary, most of the markets in the Middle East, apart from Saudi, were flat to up in Q125 versus Q124, and we continue to see this stability for the rest of 25 as it stands now. First, let's turn to Q125. Our overall first quarter revenue was $303.1 million, which was up 2.1% year over year, outpacing the broader market, that is down 11.7% sequentially. Year over year, there was growth in Abu Dhabi, Algeria, Kuwait, Iraq and Libya, partially offset by a slow start for year in Saudi. The sequential decrease in Saudi was mainly on slowdowns in our main project, Jude Ramadan. Now turning to adjusted EBITDA. Adjusted EBITDA for the first quarter of 25 was $62.5 million, with margins of 20.6%, down 100 basis points on a year-over-year quarter basis. This is mainly due to the slowdown in specific project activity in Saudi in March-June Ramadan. Interest expense for Q125 was $8.3 million, and Q125 tax was $3.3 million, which implies an effective tax rate of 24%. Turning to earnings per share. EPS adjusted for charges and credits was $0.14 for the first quarter of 2025. The charges and credits of $2.6 million impacting adjusted EBITDA and adjusted EPS was the lowest for many periods. They were made up primarily of two items in Q125 as follows. Cost of remediation and material weakness controls which should moderate dramatically from now and an impairment of the small investments. Now turning to our cash flow and liquidity, which has been very strong over the past several years. Our cash flow from operations during the first quarter of 25 was $20.5 million. The headwinds to cash flow generation was mainly driven by a sharp increase in our DSO in Q125, as Ramadan closed most of our client offices for the last week in March. The free cash flow for Q125 was negative $9.6 million, with CapEx at $30 million, as we continue to front-end load our growth and technology deployments. As of March 31, our gross debt was $366 million, and our net debt was $288 million. Our net debt to adjusted EBITDA was $0.93, which remains below the one-times target for a third consecutive quarter. On a trailing 12-month basis, our return on capital employed, or ROCI, was 11.3%, concurrent with our robust growth investment strategy. We expect Q2 25 revenues to grow sequentially versus Q1 25, but moderate on a year-over-year basis as key project timing is now expected to be more back half-year weighted. The Q2 25 growth will be approximately half the growth rate of Q2 24, Despite the overall headwinds in rigged releases in Saudi Arabia for our full year 25, we expect revenue growth due to our recent contract wins and successful technology deployments that Sharif previously highlighted. Margins for Q2 25 should slightly improve on Q1 25 with the modestly higher revenues and the impact of our cost reduction program initiated in April. We do not expect to be impacted materially by the US-China tariff stories. Full year 25 interest should be around $30 million, and full year 25 ETR should be in the mid-20s, as previously outlined. Cap ex for the full year 25 will be in the vicinity of $125 million, as previously outlined, and may go slightly up depending on the results of some large tenders, which obviously will impact revenues in the future years. Now onto housekeeping topics. We spent the better part of the last two plus years reshaping our back office and the company overall with new, updated processes, procedures and controls, as well as implementing the latest software upgrades to our ERP system. As you know, in 24 we remediated three of our four historical material weaknesses and we're still confident that the last one will be remediated in 25 as most of the work has already been done and testing is all that is required. Two comments on capital allocation. The company is going through a tender process to convert its outstanding warrants into equity on a one share to ten warrant basis. The company anticipates that this will be completed over the coming months as it goes through its regulatory processes. The warrant conversion is to clear up the capital structure and remove the overhang originating from the SPAC. For the short-term future, due to market volatility, the company will continue to use its excess cash flow to continue to pay down debt. 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. We'll update you further on this topic as the year progresses as we continue to receive and discuss all investor feedback. The outlook for most of the Middle East and North Africa region remains favourable as we've just outlined. Upstream spending remains durable and Nestle 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 of Vanessa continues to look good. Now I turn the call back to Sharif.