NESR Q1 2025 Earnings Call Transcript

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EDTCALL PARTICIPANTSChairman & CEO — Sharif FodaChief Financial Officer — Stefan AngeliNeed a quote from one of our analysts. [ tected]RISKSSharif Foda stated that Saudi up activity is expected to soften further, impacting oil and gas as well as conventional rig operations, with no pickup anticipated in the second half of 2025

Stefan Angeli confirmed, "We will not get back to that rate of 25% today. " guiding to full-year 2025 adjusted EBITDA margins that are 100-200 basis points below last year

The pricing, people will start to get nervous

People will want to secure contracts, so then you’re going to see some pricing loss," referencing softer pricing in Middle East tenders as competition intensifies

Warrant Conversion: The company is initiating a tender cess to convert outstanding warrants to equity on a 1:10 basis, aiming to eliminate SPAC overhang

Contract Wins and Market : New multi-year contracts secured in Kuwait, Oman, and UAE; positioning Kuwait to potentially become the second-largest country for the company

Nology Rollout: Roeriya steel rotary steerables and MWD/LWD nologies are in deliberate, staged commercialization across Saudi, Oman, and Kuwait contracts, with extensive field and destructive reliability testing underway

Pilot Initiatives: Mineral recovery and duced water recycling pilots advancing under the NEDA banner, aiming to create new through rare earth mineral extraction and water reuse

Cost Optimization: Company is rightsizing fixed costs and reallocating variable costs toward activity growth regions, with additional margin expansion targeted from reductions

SUMMARYNational Energy Services Reunited (NESR -2. 28%) reported a year-over-year revenue increase in Q1 2025, despite sequential declines influenced by regional seasonality and the full impact of Ramadan in Saudi Arabia

Pilots in mineral recovery and duced water are positioned as long-term strategic differentiators, potentially opening new addressable and expanding customer engagement

Sharif Foda stated, "We want to be top three in every segment in the countries where we operate," confirming a focus on segment leadership as a key driver for outperformance

Cross-border capacity and equipment redeployment within the Middle East is described as straightforward for NESR, due to established infrastructure and local expertise, allowing for rapid scaling in growth regions

Market-wide tender pricing is expected to soften, as "the tenders that are coming are going to get softer," with large contracts experiencing intensified competition but subject to less volatility than U

INDUSTRY GLOSSARYDSO (Days Sales Outstanding): The average number of days required to collect payment after a sale; higher DSO negatively impacts cash flow

MWD (Measurement While Drilling): nology enabling downhole measurement of wellbore direction, used for real-time drilling guidance

LWD (Logging While Drilling): Real-time acquisition of formation evaluation data while drilling, aiding reservoir understanding and drill path optimization. (Rotary Steerable System): A downhole tool system that enables precise directional drilling without stopping operations to adjust the well trajectory

NEDA: NESR’s duced water recycling and mineral recovery unit targeting new value s and circular economy solutions

SPAC (Special Purpose Acquisition Company): A publicly traded shell company created to acquire or merge with an existing operating

Full Conference Call TranscriptSharif Foda: Thanks, Blake

Ladies and gentlemen, good morning, and thank you for participating in this conference call

I would to thank the entire National Energy Services Reunited team for dering the services to our de-risk 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 [COMPANYNAME] are preparing to cite the many opportunities that could emerge in the coming twelve to eighteen 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

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-OPEC and particularly U

Duction remained resilient in the face of rig and frac activity decline, at least for the short term

Given continued activity reduction in the U. , we expect to see an impact on non-OPEC duction in the coming twelve months

Despite pockets of growth in places Guyana and Brazil, as they have announced, OPEC has the barrels

This dynamic remains the wildcard 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 that 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 on oil duction

Those that are new to the industry may not fully appreciate this dynamic

It is unique to the kingdom

On the other hand, Kuwait is pushing ahead on growth despite this lower oil price characteristic of their long-term strategic vision

So we will see added rigs and services in the coming quarters and years

Furthermore, they have launched innovative commercial models for risk-sharing

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 are expected to remain stable

While a materially lower oil scenario would ly impact all of these countries, it is important to remember two key themes

One, the MENA region represents the lowest breakeven cost for oil globally

Two, up remains a highly strategic sector, if not the main sector, in all of the countries in which we operate

Now let me discuss our strategic apach over the next twelve to eighteen months, 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 high-grade and reallocate variable cost resources where the activity growth is

First, we are still relatively small and have a larger set of incremental contract opportunities from which to choose

Second and perhaps more concretely, we have recently won multiple key contracts and are now in the planning phase ahead of anticipated mobilization

Let me elaborate more specifically

In Oman, we have a strong base of contracts and recently announced a number of incremental contracts in areas such as drilling and slickline spanning 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 Drilling platform will drive the next leg of growth, and the win of Slickline will enhance our drilling and evaluation performance and leadership

Similarly, in the UAE, a stable market with capacity apaching target, we have won new contracts on top of the anchor contracts previously secured

Therefore, we have visibility for the coming couple of years

Given our size and momentum, we should outgrow in an already robust growth market

Depending on the outcome of these tenders, Kuwait could become the second-biggest country within our foot there

Therefore, we are strongly in the country, including in our recently announced Ahmadi Innovation Valley, which aims to mirror our successful nological launch in Saudi Arabia

We plan to bring a number of our nology investments and pilot cutting-edge solutions with our visionary customer as they move quickly to tackle key challenges in their next phase of capacity growth

We remain excited North Africa despite the potential price sensitivity to oil

Geopolitical tension and security could delay the pace of our decision and additional rig deployment, but we remain optimistic

Coming back to the fulcrum of the story, our largest country foot, 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 jects and initiatives that elevate our file as a nimble nology vider

Our open nology platform has ven incredibly fruitful in the kingdom, and with the collaborative support of our customer, we are driving in-country innovation led by a new generation of Saudi fessionals in key areas such as water, minerals, direction drilling, methane detection, and geothermal

With that lead into nology, let me conclude by viding an on our key growth frontier for the year and Meda

Our Roeriya steel rotary steerables have 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, particularly the rotary steerable, is designed to be conservative and deliberate, with the utmost focus on reliability and continuous imvement

We are commercializing with the long-term in mind, and testing footage drilled 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 NADA, in recent months, we've mobilized crucial pilot jects 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 duced water through duced water treatment

Beyond the need for the division to recycle its own water to eliminate freshwater use, we have active client engagement with our key customer, and the success of the pilot will be contagious with more to come in the coming quarters

Overall, while we would prefer an expanding market for all, I'm excited our differentiated story

We cannot control the commodity cycle, but we can drive relative performance within any market framework

We started this principally as a pure-play service vider in the best geography for up activity

I am confident that this differentiation will come to the forefront in the coming 12 to 18 months

Additionally, our countercyclical, as we successfully executed back during the COVID pandemic, will set the company up for continued growth and success over all time horizons

We are as excited the story as ever, both in terms of balance sheet and contract positioning

With this, I will pass the call to Stefan to discuss the financials in detail.