National Energy Services Reunited Corp

Greetings and welcome to the Nessar second quarter 2025 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Mr. Blake Gendron, Vice President of Investor Relations. Thank you. You may begin.

Thanks, Melissa. Hello and welcome to NSER's second quarter 2025 earnings call. With me today are Sharice Fota, Chairman and Chief Executive Officer of NSER, and Stephan Angeli, Chief Financial Officer. On today's call, we will comment on our second 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 or result 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 best relation 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. Once again, I would like to thank our entire Nestle team for delivering another stellar performance in the second quarter and congratulate our field crews for flawless execution, achieving consistent operation records with our key customers while maintaining the highest standard in safety and quality. The next growth story is progressing as we had envisioned and is about to hit a higher gear. Our recently announced contract awards and the expected busy tender activities will serve as a foundational backlog to our journey toward $2 billion in company revenue and position us as a sizable player within the world's best region for upstream activity. On today's call, I will start with the macro and our outlook across the key anchor countries. Then I will discuss our countercyclical investment strategy, update on the recent contract awards, and discuss how we see our progress for the coming quarters and years to come. First on the macro, Coming into the year, we saw the softening upstream environment as a unique opportunity to lean into our counter-cyclical investment strategy, just as we had done successfully in 2020 and 2021. As evidenced in our second quarter result, this strategy continues to deliver differentiated performance versus the market. Not just some P&L growth, but also cash generation and debt paydowns. Despite our sector-leading investment levels, which is consistent with our localized strategy as the national champion of the region, over the past 10 quarters, we've generated almost $300 million in free cash flow, which is nearly half of our market cap today. Speaking of durability, despite sustained uncertainty in the global macro, oil prices, and recent geopolitical events in the region, we see MENA as a bright spot with just a temporary flattish rig count this year. We said previously that oil markets would remain on edge and that activity trends would vary by country. And this continues to be the case with the exception of some countries like Kuwait and key basin like unconventional that will continue to see healthy growth. Market consensus is that oil price will remain challenged for the next 12 months. Despite a 35% decline in U.S. activity this year, crude production remains flat, with continuing drilling and completion efficiency gains offsetting lower reservoir productivity. In the non-U.S. non-optic supply bucket, growth from Guyana, Brazil, and Canada have more than offset stagnating or declining production elsewhere, But in total, this growth has been measured. Above all, caution in the oil market stems from the projected global inventory builds through late 2025 into early 2026, driven primarily by OPEC supply. With this backdrop, it is important to reiterate that our customers, the national oil companies, are taking a much longer view of oil fundamentals. Encouragingly, the outlook for overall energy demand remains robust, and there is a lot of discussion around the acceleration of data center build-out and AI chip power demand, particularly related to gas development. For crude, the key factor to consider is that oil demand per capita across much of the developing world and in massive countries like China and India lacks significantly behind consumption per capita in many Western countries. The demographic shift with global south population increasing much faster than global north means that energy demand overall will be the main driver and will surely seek affordability before anything else. What this means is that the world still needs a lot more oil, with some estimates pegging demand growth of 5 to 7 million barrels per day by 2030. Where will this oil come from? without a materially higher oil prices. In the Middle East, this dynamic is driving activity growth across the majority of our anchor countries. In Saudi, maximum sustainable capacity of 12 million barrels per day remains solid. And as stated publicly, the country can easily and quickly flex activity up or down in the coming years as this capacity is absorbed and incremental supply is needed. This is why we are seeing different activity trends across our countries. Right now, there is robust growth in Kuwait and North Africa, and these trends should continue for the foreseeable future. UAE, Oman, and Iraq are largely stable for us, and we continue to build on our solid position in those countries as we introduce new technology and pull through other elements of our portfolio. In Saudi, activity is down year over year in oil, but this activity we believe is bottoming soon. With strong Saudi growth in gas and our favorite position in Jafura, NET should be able to bridge near-term softness in oil with absolute growth in Saudi in 2025 and beyond. As we have said in the past and is now abundantly clear across MENA, unconventional resources are emerging as the main engine of upstream growth in the region. mainly around gas development and the overall need for more domestic energy and power. Today, Saudi is leading this charge with clear vision for the long-term and busy week activity deployed to unconventionals to support massive growth in FRAC stages for the next several years. As has been made clear publicly, Jafura is the key project among several gas developments across the kingdom. to grow gas production 60% from the 2021 baseline by 2030. The gas is needed for domestic consumption and is therefore a highly strategic focus of investment. Aramco has revolutionized the play with a deeply scientific approach to the reservoir and to operation, with impressive efficiency gains in both drilling the wells and completing them. Back in 2019, Nesr had no business in the hydraulic fracturing space. At that time, however, we saw a unique opportunity to leverage our local know-how and open technology platform by importing best-in-class frag capability from the terminal basin. With the support of our dear client and a collaborative approach with our U.S. partner at the time, we disrupted the status quo by setting early operational records. Given our local footprint, we also maintain fully reliable operation through the pandemic. We are proud to have been and continue to be involved in innovation around frack design, similar frack, fluid chemistry, dissolvable plugs, and notably produced water treatment and mineral recovery within our NEDA segment. Aramco has set a world-class standard across all areas of unconventional resource development. Moving to Kuwait, where we have spent considerable time and focus given the vast growth opportunities over the past six quarters, today the rate count in Kuwait is at an all-time high, a record never seen before in becoming the second largest country in the Middle East in terms of rate count. Our successful entry to the country since our birth has been phenomenal. Our growth is on plan with multiple contract awards, several of which we recently announced for key drilling and evaluation prototype. We secured our first entry into Splicline and cemented our position in the drilling portfolio. Much of the portfolio import into Kuwait has come from our differentiated drilling offerings in Kuaman. We have had the unique leadership position for more than a decade, training and developing the local workforce, establishing local manufacturing, building best-in-class drilling machines, and we are now taking this success to neighboring countries. I'm talking here about drilling segments such as tubular running services, downhole tools, fishing and remedial, advanced drilling technology that will form the base for our Roia platform. As we did in Saudi, we are now in Kuwait and have worked seamlessly to make this portfolio pull through a reality. and we are still in the early stage of this evolution across other countries. The recently announced Ahmadi Innovation Valley will also add a layer of research and development to our growing operation in Kuwait, and establish a long-term collaboration with our cherished customers. Moving to North Africa, which is another area of growth, we did secure solid new contracts in both Algeria and Libya. These contracts span from three to five years and ensure that we have the runway to continue to invest in human capital and equipment. We have made strides in both countries in the past, and now we want to ensure we scale our position to mirror our size in the GCC countries. As a repetitive strategy, we rely on our local talent pool to execute flawlessly in the different segments. And our aim is to have the top leadership position in the production services. Here I'm talking about cementing, coal tubing, nitrogen and pumping, hydraulic fracturing, and industrial services. North Africa, proximity to European energy market, is uniquely positioned to provide the much-needed gas into the pipeline and meet increasing domestic power demand. In addition to increasing oil export capacity, the countries want to enhance their supply buffer in the coming years. Through this shift, we continue to be close to our customers and define the needed resources to fuel that supply growth. To summarize, the tender activities will remain very busy this year, and we are expecting much more to come in the second half. We are focused on building a solid pipeline and securing a robust backlog while maintaining profitable growth and free cash flow generation. And with that, I'll present the call over to Stephan to discuss the financial in more detail.

Thank you, 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'm very pleased to give an update on our financial performance for the second quarter of 2025 and some colour on both Q3 2025 and full year 2025. In the three months since we last talked, macro volatility worldwide has persisted. Factors including trade uncertainty, inflation, lower subsidies to developing countries, fully supplied oil markets, OPEC-plus supply releases and continuing geopolitical uncertainty in the Middle East have all led to range-bound oil prices and lower rig counts in certain countries. As we have heard from our peers, all this has impacted on the Q2-25 results of the broader oilfield services sector and makes forecasting the short-term outlook very difficult. Despite these headwinds, and as Sharif highlighted in his market summary, most of the markets in the Middle East, apart from Saudi, were flat to up both sequentially and year on year. We expect to see this trend continue for the rest of 2025 as it stands now. First, let's turn to Q2 2025. Our overall second quarter revenue was $327.4 million, which was up 8% sequentially, and up 0.71% year-over-year, up-pacing the sector. Sequentially, we experienced growth in Saudi, mainly driven by unconventional activity, as well as growth in Egypt and Iraq. Year-over-year, we saw growth in Abu Dhabi, Algeria, Iraq, Egypt and Jordan, partially offset by lower revenue in Saudi, mainly on the lumpiness of product sales. Now turning to adjusted EBITDA. Adjusted EBITDA for the second quarter of 2025 was $70.6 million, with margins of 21.6%, up 95 basis points sequentially. Interest expense for Q2 2025 was $8.6 million, and Q2 2025 tax was $4.3 million, which implies an effective tax rate of 21.9% for Q2 and 22.9% for H125. Turning to earnings per share. Earnings per share adjusted for charges and credits was 21 cents for the second quarter of 25, up 50% from Q1 25. The charges and credits of $4.9 million impacting adjusted EBITDA and adjusted EPS were made up primarily of four items in Q2 25 as follows. One, costs associated with the remediation of material weakness controls, which should moderate going forward with the completion of our remediation. Two, a small impairment on a small investment. Three, a litigation provision. And four, restructuring costs related to headcount. Now we turn to cash flow and liquidity, which has been our strong point over the past several years. As you might remember, our Q125 cash flow from operations and Q125 free cash flow were both below expectation due to seasonal growth in working capital accounts during the holy months of Ramadan. However, we rebounded in the second quarter of 25 with cash flow from operations of $98.5 million. Driving this big improvement was working capital efficiency with better management of all its components, including accounts receivable with lower DSO, accounts payable and inventory. The free cash flow for Q2 25 was a spectacular $68.7 million. CapEx was $29.7 million, which was reflective of our counter-cyclical investment strategy and new technology deployments. For H125, cash flow from operations was $119 million, free cash flow was $59.1 million, and CapEx was $59.9 million. Free cash flow conversion was a solid 44.4%. As of June 30th, our gross debt was $354 million and our net debt was $223 million. Our net debt to adjusted EBITDA was 0.74 times, which remains below our one-times target for a fourth consecutive quarter. On a trailing 12-month basis, our return on capital employed, or ROCI, was 10.8%, in line with our robust growth investment strategy. Looking ahead, We expect Q3 25 revenues in the beta to be consistent with Q2 25 results, based on the timing of certain tender awards and project start-ups. For H1 25, revenues were higher by 1.4% versus H1 24. Despite the overall market headwinds and rig releases in key countries, we still expect full year 25 revenues to be greater than full year 24 revenues. following startups from recent contract wins and successful technology deployments that we have made, and it's been highlighted separately. Implied in our outlook is that we expect next year at a record run rate for revenue, as our growth is expected to continue through 2026. Margins for Q3 2025 should be in line with Q2 2025, and for Q4 2025 should be slightly higher. We do not expect to be impacted materially by changes in global tariff policy. Full year 25 interest should be around $31 million and full year 25 ETR should be in the mid-20s as previously outlined. CapEx for full year 25 will be in the vicinity of $125 million as previously stated but may go up slightly, plus or minus $20 million, dependent on the results of some large tenders which will impact revenues positively 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 and 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. I'm very pleased to announce the remediation of our final material weakness in our Q2 25 accounts. As of June 30th, NESA can say that all our disclosure controls and procedures and internal controls over financial reporting are effective and we will be making this disclosure to the SEC. Three comments on capital allocation. First, during July the company concluded a tender process to convert its outstanding warrants into equity on a one share to ten warrant basis where we issued approximately 3.5 million shares for 35 million outstanding warrants. The warrant conversion was aimed to clean up the capital structure and remove the overhang originating from the SPAC. Second, the company is currently refinancing its debt facility and anticipates that this will be concluded over the next three months. Third, for the balance of 25, due to market volatility, ongoing debt refinancing and CapEx commitments associated with the new contract awards, the company will continue to use its excess cash flow exclusively to pay down debt. The outlook for most of the Middle East and North Africa region remains favourable, as we've just discussed. Upstream spending remains durable. 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 also like to thank our entire workforce for their outstanding efforts in delivering these results. together with our shareholders and banking consortium, for their continued support. The future for Nessa continues to look favourable. Now I turn the call back to Sharif.

Thanks, Stefan. Let me conclude by reiterating the key takeaways from the second quarter and outlook. While the macro remains choppy and sentiment remains low, MENA continues to be the most durable market globally. Current activity trends are unchanged from a quarter ago and from our expectation coming into the year, despite the many geopolitical and economic shifts so far in 2025. Activity trends vary by country, but all of our key clients are planning and acting with an eye on robust energy demand growth into the future. Within this market view, Nestle continues to outperform through a combination of project positioning, counter-cyclical investment, and portfolio pull-through. We will continue to invest heavily in 2025 and beyond. We will fuel our production services business to ensure that we achieve top three positions in MENA for each segment. With solid contract awards and backlog that spans to 2030 and beyond, our future is very bright. We don't depend on spot oil pricing. or experience activity swings like the U.S. We have solid long-term vision that is totally aligned with our customers in the region. We invest for the future. We ensure that our local talents are well leveraged and that our field team is well trained to the highest standards in the industry to deliver top-quartile safety, service quality, and flawless execution. I'd like to close By thanking all of our employees and their families, they continued to work in the hot summer months in the field. They broke record after record, positioning us as the national champion of the region. We will continue to punch above our weight and have big ambition for the future, not only in contract awards, but in innovation and technologies. Our success would not be possible without the steadfast support of our customers, who we know very well and honored to be their trusted partners. With that, we are ready to take your question. Thank you. Melissa, please open the floor.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of David Anderson with Barclays. Please proceed with your question.

Great. Thank you. Good morning, gentlemen. So within the guidance, Stephan, you said flat and 3Q. I was just wondering if you could kind of break that apart a little bit, some of the moving parts. We know Saudi's coming down. I think I had heard you say that you think Saudi's kind of bottoming here. Help me sort of understand kind of the different things that are happening in the fourth quarter. Are you expecting fourth quarter to start picking up in Saudi? Just a little help on some of those moving parts. Thank you.

Well, you touched on Q3. It's consistent with Q2, as you said. And then in Q4, it will be up, right? As I said, the full-year revenue for 25 will be higher than 24. The revenue for Q4 will be, right now, with all our tender wins which we've had over the last three or four months, together with what we think we're going to win over the next couple of months. We're in a range for Q4, right, right now. But I think it will be, let's just say, higher than... Q4 will make the full year higher than 24, up to plus or minus $40 million, right? And if you look at it from where it's going to come from... It's going to come from, as Sharif touched on, there's going to be upside in Kuwait. There'll be upside in Saudi, depending on the results of the tender. And we've had winds in Algeria, and we've had winds in Libya, right? So that's where the activity will come from.

So overall, Sharif, I'm just kind of curious, it sounds like you're going to start seeing some tailwinds into 2026. It feels like kind of all your different regions. If we assume that Saudi is bottom, we should start to see at least Saudi picking up from here. So kind of an early look at 2026, if you wouldn't mind, Sharif, in terms of how you're thinking about the MENA region overall.

Thanks, Dave. So the MENA definitely will have an uptick in 2026. That's without a doubt. as you said, the countries that did cut rigs or did cut activity are all planning activity pickup in 26. Obviously, Saudi is always on the news because of the size and the importance and their capacity. But they clearly said that they're going to pick up rigs. And we saw that, even people saw that from some of the tender activities of the of the RIG companies, right? Kuwait is on the path. Today's Kuwait, as I said, is at an all-time high. So if you take that and multiply even Q4 RIG count by four, then you get an impressive increase year over year in Kuwait. And as we said, Kuwait today, and I don't think a lot of people know that, but today is the second largest country in terms of rig count. I mean, it's above 200 rigs already in Kuwait running, as we say. And then you will have Iraq is planning to pick up to increase capacity. I would say UAE is picking up, and people can know UAE because of the Adnab Dwelling is a public company, so they know the number of rigs, and they announced the amount of rigs that they're going to add on from Jacob and from land. And then you have Oman, obviously, always stable. Then North Africa will continue their growth profile. And again, if you multiply Q4 times four, you get above 20% increase year on year in just North Africa. I think Libya will always be the security question mark. You know, they have always this, is the security clear? They will be able to add those amount of money. The ambition in Libya is to go from 1.2 million barrels to 1.6 million barrels. That's 400,000 barrels more, right? So, which means that they have to put a lot of rigs to work. So, once all the payment and all the stuff is happening, then you're going to get it done. Algeria, as you saw some of the announcement, people saw it, ExxonMobil signed, and they are negotiating with Chevron. in addition to all the total and ENI activity there. So if you add all this up, actually it's going to be quite significantly uptake 26 over 25, but usually you get some delays, geopolitical, et cetera. But definitely 26 is much higher than 25.

Everything sounds like they're turning in the right direction. Can you give us any update on the Jafora contract announcements? I think we were expecting those to already happen. Any sign of kind of when do you think those are happening? Any reason for the delays that you can share with us?

No, I mean, obviously, I mean, it's like all the tenders. Aramco does a fantastic job in floating the tenders. And then people, we all submitted. And obviously, Aramco is in the evaluation phase. And they're going to announce officially as they did in their midstream. So my expectation is sometimes in the next couple of months, everybody will know the results.

Okay, sorry, and one last one if I could squeeze in. Stefan, you talked about refinancing, you know, clearing the warrant overhang and generating a lot of free cash flow. Any consideration about buybacks or any type of kind of returning cash to shareholders at this point? Any thoughts around that or any timing? Thank you.

Yeah, well, right now, as I said, we just want to wait and see the – or finish the refinancing, wait to see the results of all the tenders and know what capex we are. And once all that's finished, and I think that will be finished by the end of the year, we'll put up to our directors what we think the, let's just say, what we should be doing without excess cash going forward. And obviously, stock buybacks would be a consideration.

Great. Thank you very much, gentlemen.

Thanks.

Thank you. Our next question comes from the line of Grant Hines with J.P. Morgan. Please proceed with your question.

Hey, Morgan. So, yeah, I mean, I think, you know, obviously, highlight the Kuwait contract, you know, 100 million or so spanning a number of the, you know, drilling and evaluation segments. And I think on last call, you mentioned, you know, segments such as cementing, fracturing, coal tubing, but I guess maybe any color on the production solution side of, you know, Kuwait and how this might compare to the scope of the drilling side.

So the Kuwait production, obviously, is going to be extremely large. These tenders are ongoing. So, obviously, we are a much bigger company in production than drilling. And our aim, as I mentioned, that we be the top performer, top three position in all the countries. So, yeah, once the tenders will be, I would say, in the next, maybe three to six months, all these tenders will be between awarded and finalized, et cetera, et cetera. And then depending on the results, obviously we do announce as we always do is the award and the size, right? So obviously we get clearance from our customers and we do that. So expect a huge tender activity in all this in Kuwait. And again, people have to understand that this, used to be 60, 70 rigs, now it's 200 rigs. So if you take the services aligned with that, it's going to be quite big.

Appreciate it. And then on the NIDA side of things, I think to highlight a pretty significant TAM, you know, by the end of the decade, with several pilot projects sort of ongoing. But I guess across sort of water, you know, flaring emissions and CCUS, you know, I guess where does NEDA see maybe most of the short-term demand pull, you know, just for near-term solutions?

Thank you. So, look, I mean, this is obviously a very wide question on the NEDA part or our decarbonization efforts, right? As you rightly said, I mean, obviously MENA is going to be, from a rig count or intensity of work, it's going to be very different than two decades ago, right? Because this is now a lot of rigs, a lot of fracturing, a lot of service intensity per well or per barrel is much higher, which means that the carbon footprint will increase. And as stated by the majority of our customer, they want to always maintain the lowest carbon footprint in the world, right? So which means that that's why we formed the segment back in 21. And today we have a lot of ambition on, you know, flare to power, heat to power, water, and mineral recovery. I think we are the most advanced on water because of, Definitely the region has a big scarcity of water. We are producing, as a world industry, six, seven times water, as much water as much oil, which means that there is a lot of water being available. So once we get the economics to make that a reality, I think the adoption would be extremely fast, right? So we are doing a lot of investment with our dear customers on ZLD, zero liquid discharge, And today we are running the pilot as we speak on the mineral recovery and how can we reproduce that water and clean it and use it for many sources, right? So, you know, we did the investment in SALTEC and we did investment in others. So we are today, I would say, to summarize, in three to six months, we will have much better clarity on the economics of those pilots. And I can keep telling the market, if these pilots are economics, actually the amount of demand will be so much bigger than any supply we can deliver, right? Because the market itself is enormous, right? If you produce 100 million barrels, you produce 700 to 800 million barrels of water per. So that's a lot of water available. So we just need to get the economics to work from power, from mineral recovery, et cetera. So I would say, again, the term of that, I'm overexcited about it, but I think in the next couple of years it will be seen in our numbers, and we're going to separate the segment to report it alone.

Thank you.

Thank you. Our next question comes from the line of Derek Podheiser with Piper Sandler. Please proceed with your question.

Hey, good morning. Sharif, I wanted to go back to a comment you made on the top of the call. You said your journey towards $2 billion in company revenue up from we're at 1.2, 1.3 run rate right now. Maybe could you talk about the drivers behind this outlook? Is this all organic or is there an organic component to this? And then any sense on timing and maybe some milestones we should look out for in order to gain confidence around this $2 billion target?

Yeah, I mean, obviously, we put that $2 billion back since we formed the company, right? So, at the time, we were $450 million. We said we're going to quadruple the company size, right? And we got delayed, obviously, COVID, et cetera. So, our plan now is very clear. Why? Because the amount of tender and contract and positioning. So... If I go back and elaborate more, we were like two prone countries or three countries, right? And then we said, no, no, we need to have anchor countries, which means we have a very strong position from infrastructure, from contract awards, from obviously client relationship. And did we achieve that? Yes, we did. So today we are, I would say, six to seven countries that are very significant for us, meaning that we have the majority of the product line. We have the very good infrastructure. Some of the places we have research centers. Some of the places we have, you know, even more kind of industry linkage with different organizations in the country, right? So once you have that, which we do have it now, then you start to pull through the segments from one country to another based on the fact that the tenders are available, right? And again, for people in the U.S. to understand this is all work in the Middle East have to be contracted. You cannot do a spot market. You cannot just come and have a PO and work. So this tender did occur over the last three, four years. You need to be qualified. You need to have, sometimes you have to have five years of background and experience in those type of work for the client to invite you to tender to those segments. All this has been accomplished over the last five years. So today we are invited in all contracts, in all advanced technologies. We established that. So today I'm tendering, and we are trending over the last, obviously, couple of years, and we're starting to see these awards. So I think for the next three to six months, depending on the award size and the amount of contracts we get in those different anchor countries, then the value of this $2 billion is very clear. So if you get, you know, multiple contracts in multiple countries, and as we say, we announce and we know what is existing, what's incremental, we might be as fast as, you know, 18 months to be on that run rate. So it all depends on those contract awards. And once we announce it, everybody will know, and then people can make the numbers very easily.

Got it. No, that's really helpful. I appreciate that. Maybe switching back to the margin progress, you know, Stefan gave us some good guidance there. And I think on the first quarter call, you talked about being 100, 200 basis points or less versus 2024 and 2025, which kind of gets you around that 22% range. I mean, are we still there considering flattish margins quarter over quarter and then slightly pick higher from 4Q? Maybe just help us understand that.

that margin guide you know the worky pieces behind that i understand there's tariff impacts you know pricing in the regions just maybe a little bit of help around what's driving the margins of where you think you can get them um in the full year based on the guidance that was delivered yeah good question nothing nothing materially changed from what's said in q1 right we're 20.6 in q1 we're 21.6 in q2 uh q2 will be give or take a bit more than that uh you know consistent with that or flattish with that in Q3. And in Q4, with a higher revenue base, right, we'll probably be, you know, 23% to 24% mark, which will give us 22% for the year, right? So nothing much has changed there, right? You know, the issue is, which I said before, which Sri touched on, is just the timing of all these tenders, when they'll get awarded. The ones we've won over the last six months when they will physically start the actual work, right? So, you know, if we pull in extra revenue in Q4, then the margins may be a bit more accretive in Q4, right? But the 22% approximate number I gave three months ago still holds for the year. Great. Appreciate all the colour.

I'll turn it back.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Jeff Robertson with Water Tower Research. Please proceed with your question.

Thank you. Good morning. Sherif, can you talk a little bit about necessary scale in Algeria in light of the recent contract award that you disclosed a couple of weeks ago and how that scale positions the company to participate in unconventional gas development in the coming years?

So our site in Algeria, obviously we started back five years ago and very, very small, and we kept growing and adding more contracts and adding more business. We just won, as we said, now contracts, so they give us this runaway to add a lot of services. I believe that once we start implementing and start getting those contracts, we are very open and we've been talking to the leadership there that we can add a lot of resources, for example, for their hydraulic fracturing and unconventional development. I think that journey is going to take some time for Algeria, but definitely once you have that scale and have that position, then you will be able to serve once the client asks for it. So I would say our size, if you want to take it from a, from a scale is going to be by next year quite sizable, meaning they will be in the range of our, what we call the bigger countries, and for us the bigger countries in this $100 million range a year country, right? So there is a lot, lot of, I would say, potential in Algeria, I think, and again, people to understand their proximity to Europe and they have an existing pipeline for gas, they could be a major, major supplier to all the European cities. And definitely, the unconvention actually in Algeria and the Basin, et cetera, is proven a long time ago, right? So, the size of it could be exactly the same as in Argentina. So, and they have obviously the conventional gas that is very strong. So if you get the unconvention plus the convention and they unlock it with an IOC or a big ENP company or themselves alone as Sonatrac, then it becomes very massive, right? So, again, North Africa overall has very unique position. again, because of the unique proximity to Europe, and obviously with all what's happening geopolitically, they could be a very easy replacement for all the power needed, you know, in Spain, Italy, France, Germany, et cetera. They could be a huge player there.

Secondly, to follow up on your comments on NIDA and some of the pilots you're working on, are you... Are you seeing interest from some of the other countries in what you're doing there? And if you're successful with those pilots, then you could then maybe start rolling out projects in some of the other countries in the region?

Yeah, 100%. And I'm trying to always try to explain that in a more detailed way. But again, the opportunity is enormous, right, especially on water. The key now is economics. And let's just be very honest here. Nobody's going to do this just because they love the climate, right? People will do that because they want to see economic benefit, right? So if today I can clean the water, for example, and get minerals, and the cost is exactly the same as how you get the water from desalination plant, why wouldn't you do that? Everybody will do it, right? So that's why we are unlocking the economics And you have to understand the white paper meaning. You have to understand in that country how much the water costs. What is the disposal well cost? What is the flaring cost? What does, you know, the power cost in the country? So, obviously, if the economics doesn't work, you know, honestly speaking, don't waste your time. Right? It's not going to happen. So, and that's what we are proving with those pilots. Definitely, all the countries in the Middle East are very conscious about the climate, very conscious about, and you saw the COP28. COP27 was in Egypt. COP28 was in UAE. They had the pledge of the methane pledge of zero methane by 2030. Everybody wants to make this a reality, but the economics, again, has to work. The affordability has to work. So, I am super excited about it, and that's why I think already they are doing a lot of work on flaring and the whole Middle East. You know, some countries already have zero flaring sometimes, right? Aramco doesn't. There are so many people that don't do it, right? So now can you get all the compression, et cetera, to the gas, and then the part that is the pocket where you cannot – Do anything with that flare gas. Can you convert it to power? We are even looking at data center remotely. Even we got some ideas for them for some Bitcoin mining in the desert. You know, there is a lot of ideas. There is a lot of things to be done. And I think, again, the economics has to work on every item. And that's why I'm the most excited. A part of it for me is water and mineral recovery.

Thank you for taking my questions.

Thank you. Our next question comes from the line of Greg Lewis with BTIG. Please proceed with your question.

Yeah, hi, thank you, and good morning, and thanks for taking my question. Just one for me. You know, Cherie, you guys called out saying congrats on the North Africa contract, three to five years. You know, I guess one of the things that we're wondering is, like as we think about contract durations, like how have those kind of been trending and where do you think those can be trending over the next couple of years? Do we expect durations of some of these service contracts to expand or are we kind of at a level where they're probably just going to stay?

Thanks. Thanks. I think, you know, it's a very wide question in the sense of all the customers in the Middle East, as I said, have to have these contracts Contracted, meaning you have to have a long-term or a short-term. For them, by the way, short-term means two years, and some of them long-term means nine years. So we have contracts that were awarded for nine years, and so they are valid until 2032. So why a client does a contract for that long? First of all, because they do multiple awards. So it's not like you get one and everybody else doesn't get. No, you get four or five companies get awarded and this contract varies from that and they give themselves an extension. And the clients, they're all very smart, obviously. So they would see how is the market trending, right? So most of the tenders today are called for three, five, seven, and exceptionally, some are like nine or 10 years, right? And those contracts, look for how much do you need to invest, and they look on all the other factors that the customer takes very well, which is different than the U.S., is your country, in-country value. So they will look how many people you employ, what's your nationalization factor, do you have to build the manufacturing, do you have to do something on research, and all this stuff, all these soft parts, create an ecosystem for them to award you the contract, right? So if you don't invest in a country, for example, I'll give you the best example, our position today, for example, in Kuwait, right? We started from nothing, and today we have a base, we have very good nationalization, now we are putting a research center, state-of-the-art, into the Ahmadi with our dear friend in KOC. Why? Because now we are committed to long-term. We're going to put a large investment. And then when they award you the contract, they know you are not here to just make some money and run away. You are here to stay and establishing that link with the customer and the client and establishing solving problem into the reservoir. So I would say all these contracts will remain open. a minimum of three years, and the majority of them will be, I would say, will be the five-year mark because that ensures that the service industry does invest in the good for the country. Super helpful.

Thank you very much.

Thank you. Our next question comes from Arvind Singhar with Geosphere Capital. Please proceed with your question.

Thanks. Good morning, Sherif. One question I'm trying to understand is your free cash flow. I'm seeing, and this may be a question for Stephan, your accounts receivables have gone up by a lot. Revenues in the first half were, you know, barely up much. So, therefore, your free cash flow was, you know, flat to slightly down at 59 million. What's going on? Should we see some reversal? Is there a reason that the days receivables have expanded as much as they have?

Well, if you go from December, it's expanded because our DSO at the end of December was 70 days. At the end of March, it was 92 days. And at the end of June, we dropped three days. So from a DSO point of view, it reversed three days in Q1. Q2, but it expanded because we had extra revenue in Q2 versus Q1. The working capital was better in Q2 versus Q1 because we had better DSO, even though it expanded, as you said, and that was because of the revenue growth. The infantry came down in Q2 versus Q1, and the Accounts payable, in Q1, we paid down a lot of accounts payable, a lot faster than we probably should have, and we corrected that in Q2. To be honest, we probably over-corrected it, right? And in Q3 and Q4, I think the free cash flow, subject to CapEx and subject to contract timings, will end up the year, as said three months ago, around the $100 million mark. So give or take, Q2 will be less than Q1 due to probably a bit of a correction on the AP, right? But we'll still have a fantastic year. And Q2, even with the slowdown on payables, was a fantastic quarter.

So then I'm trying to understand what is the potential capex? I'm trying to get a sense of free cash flow. availability for the company, what is the potential capex that you might need on if you win, let's say, you know, the Saudi order for tracking the unconventional, what would be the capex needed for something like that?

So as I said in the call, right, our capex for the full year will be $125 million and Right now, we've spent just about $60 million for the first half of the year. And depending on the tender awards, and probably the one that you mentioned, we'll probably spend potentially plus or minus another $20 million this year. So we could potentially end up with $145 million of CapEx.

Okay, so then my question is, with this kind of free cash flow, even with the incremental CapEx, Why is it that we have to wait until April next year, which is when you would probably report your fourth quarter numbers, to hear anything about the stock buyback? Because, you know, companies in your balance sheet free cash flow who talk about their stock being undervalued are all, and I repeat, all the companies that we're invested in are returning cash to shareholders, and you're strangely reluctant to do that and keep pushing it back and back and back.

Well, as Alvin has said, right, before, we're going through the bank refinancing part right now. Part of the bank, you need the permission of the banks to do stock buybacks. So that part has been done as a part of the refinancing, right? And then we just want to know what the results of all the tenders and the capex that's required for all these tenders, right? And as I said, this will be determined by the end of the year. I said that three months ago as well. Maybe we could take some risk and do what you said, but we've made a decision that we're going to look at it at the end of the year, and then we'll put it to the board. We've put it to the board so far, and they've explained it that way to us, right? They want to see the results of all this.

So when you say end of the year, does that mean after fourth quarter numbers? Because I'm thinking we're talking about April now.

Well, it's at the end of the year. We'll know the results of all these tenders over the next three months, right? This could be in December. It could be in January, right? But we'll know towards the end of the year.

Okay. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Frodo for any final comments.

Thank you, Melissa. Thanks, everybody. And we really, really appreciate all the support of everyone. And, again, I reiterate our thanks to our employees for a fantastic job, all our people at the field. So we'd like to thank everybody. And, again, we're extremely, extremely excited about the future, and we're very happy to be here with you. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.