Image source: The Motley Fool. DATETuesday, June 3, 2025, at 8 a. 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. Sharif Foda noted, ".
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.
Stefan Angeli attributed increased DSO and temporary cash flow headwinds in Q1 2025 to the full month of Ramadan, which closed client offices and delayed collections. TAKEAWAYSRevenue: $303.
1 million, up 2. 1% year-over-year but down 11.
7% sequentially in the first quarter of 2025, driven by growth in Abu Dhabi, Algeria, Kuwait, Iraq, and Libya, partially offset by slower Saudi activity due to Ramadan.
Adjusted EBITDA: Adjusted EBITDA in the first quarter of 2025 was $62. 5 million, with a margin of 20. 6%, down 100 basis points year-over-year, primarily due to Saudi ject slowdowns. Adjusted EPS: $0.
14 adjusted EPS in Q1 2025, reflecting minimal charges and credits of $2. 6 million for remediation and a small investment impairment. Cash Flow from Operations: Cash flow from operations was $20.
5 million in Q1 2025, negatively impacted by higher days sales outstanding due to client office closures during Ramadan.
Free Cash Flow & CapEx: Free cash flow in the first quarter of 2025 was $20 million and $30 million in capital expenditures in Q1 2025, reflecting front-loaded nology deployment.
Gross Debt and Net Debt: Gross debt was $366 million, and net debt was $288 million as of March 31, 2025, with net debt to adjusted EBITDA of 0. 93, below the target for the third consecutive quarter.
Return on Capital Employed (ROIC): 11. 3% on a trailing twelve-month basis, aligned with growth investment strategy.
Q2 2025 Outlook: Revenues are expected to grow sequentially in Q2 2025 compared to Q1 2025, but moderate on a year-over-year basis; margin imvement anticipated from higher revenue and cost reduction measures.
Full-Year 2025 Guidance: Revenue growth expected, with full-year 2025 margins guided to be 100-200 basis points below last year; CapEx is forecast at apximately $125 million for the full year 2025, potentially higher with new tenders.
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.
Management maintained guidance for sequential revenue and margin imvement in Q2 2025, driven by recent contract wins, cost actions, and nology deployments.
Saudi activity is expected to remain soft for the remainder of 2025 due to a strategic reduction in conventional rig operations, while unconventional jects, particularly in gas, continue growing and underpin company resilience.
Kuwait, supported by aggressive tendering and investment, is identified as the major growth driver for 2025 and 2026, with several billion dollars in contract opportunities underway as of 2025.
Pilots in mineral recovery and duced water are positioned as long-term strategic differentiators, potentially opening new addressable and expanding customer engagement.
Management confirmed that a return to 25% adjusted EBITDA margins is not expected before 2026, citing a goal to recover 100-150 basis points sequentially after Q1 2025 through cost measures.
The company expects a 25% growth rate relative to the market in 2025, leveraging size advantages and newly secured multi-year contracts to gain across stable and expanding MENA geographies.
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.
From what I can see, the combination of pessimism around oil demand and unwind of spare oil supply is much 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-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.
In other words, they can cut rigs and still raise by even several million barrels if they chose 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 this lower oil price characteristic of their long-term strategic vision. They have 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.
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.
Despite the softness in the market, we anticipate that National Energy Services Reunited will grow in 2025 and 2026.
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.
Moving to Kuwait, a resilient, bright spot of growth globally, we have recently won multiple awards and are in the cess 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. 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.
With a base of anchor contracts in hand and well-calibrated investment, we are tendering on several hundred million dollars of contracts, thus having the potential to outgrow the market there.
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. To outperform. With this, I will pass the call to Stefan to discuss the financials in detail.