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National Energy Services Reunited Corp. (NESR): A Diversified Leader in the Middle East and North Africa Energy Services Market
Published on November 30, 2024 | Ticker: NESR

National Energy Services Reunited Corp. (NESR) is an international, industry-leading provider of integrated energy services in the Middle East and North Africa (MENA) region. With a strong presence across key markets, NESR has established itself as a diversified player catering to the evolving needs of the energy industry in this dynamic geographical area.

Business Overview and History

NESR was formed on January 23, 2017, as a blank check company in the British Virgin Islands. The company’s initial purpose was to acquire, engage in a share exchange, share reconstruction and amalgamation, purchase all or substantially all of the assets of, enter into contractual arrangements, or engage in any other similar business combination with one or more businesses or entities.

On May 17, 2017, NESR completed its initial public offering (IPO), selling 21 million units at $10 per unit and raising $210 million. Simultaneously, the company sold 11.85 million private warrants to its sponsor for $5.92 million. On May 30, 2017, NESR sold an additional 1.92 million units and 768,680 private warrants, raising an additional $19.6 million.

Following the IPO, NESR had $229.22 million held in a trust account, which it intended to use to acquire a target business. The company was formed to focus on businesses that operate in the energy services industry, with an emphasis on oil and gas services globally. From its formation through March 31, 2018, NESR’s activities were limited to organizational activities, the IPO, and identifying potential target companies for a business combination.

As of March 31, 2018, NESR had $120,480 in cash held outside the trust account, which was available for working capital purposes, and a working capital deficit of $5.17 million. The company had not generated any operating revenues at that time and incurred a net loss of $1.85 million for the three months ended March 31, 2018, consisting mainly of target identification and operating costs.

In 2017, NESR achieved its goal through the merger of Gulf Energy and National Petroleum Services, two prominent regional oilfield services companies. The combination created a well-positioned entity with a diverse portfolio of drilling, completion, and production services, as well as equipment offerings.

Since its inception, NESR has continued to strengthen its presence across the MENA region, capitalizing on the growing demand for energy services. In 2018, the company expanded its footprint by acquiring a 61% stake in Gulf Energy, a leading provider of oilfield services in the region. This strategic move reinforced NESR’s position as a comprehensive solutions provider, offering a wide range of services to its customers.

Financial Performance and Ratios

NESR’s financial performance has been robust, with the company consistently delivering strong results. For the fiscal year 2023, NESR reported annual revenue of $1.146 billion, representing a 26% increase from the previous year. This growth was driven by the company’s ability to capture market share and expand its service offerings across the MENA region.

The company’s profitability has also shown improvement, with annual net income reaching $12.6 million in 2023. NESR’s operating cash flow for the year ended December 31, 2023, was $177.0 million, a significant increase of 91% year-over-year. Additionally, the company’s free cash flow for the same period was $108.8 million, demonstrating the strength of its cash generation capabilities.

In the most recent quarter (Q3 2024), NESR reported revenue of $336.205 million, up 12% year-over-year. Net income for the quarter reached $20.618 million, a 40% increase compared to the same period in the previous year. Operating cash flow for Q3 2024 was $70.788 million, while free cash flow stood at $43.433 million.

Financials

NESR’s financial ratios paint a picture of a well-managed and financially sound company. As of September 30, 2024, the company’s current ratio stood at 1.10, indicating a healthy liquidity position. The debt-to-equity ratio was 0.47, suggesting a balanced capital structure. The company’s return on assets (ROA) and return on equity (ROE) for the trailing 12-month period were 3.13% and 6.65%, respectively, showcasing its ability to generate returns for its shareholders.

For the full year 2024, NESR expects capital expenditures to be around $120 million, driven by the delivery of their first ROYA directional drilling tools. The company’s net debt to trailing 12 months adjusted EBITDA ratio fell to 0.96 at the end of Q3 2024, below their target of 1.

Liquidity

NESR’s liquidity position remains strong, as evidenced by its current ratio of 1.10 and quick ratio of 0.911 as of December 31, 2023. This indicates that the company has sufficient short-term assets to cover its short-term liabilities. As of December 31, 2023, NESR had cash and cash equivalents of $67.82 million. The company’s ability to generate substantial operating cash flow and free cash flow further underscores its solid liquidity position, providing flexibility for investments and debt management.

Operational Highlights and Diversification

NESR’s operational prowess is highlighted by its diversified service offerings and strong market presence. The company operates in key MENA countries, including Saudi Arabia, the United Arab Emirates, Kuwait, and Oman, among others. This geographical diversification has allowed NESR to capitalize on regional growth opportunities and mitigate concentration risks.

Furthermore, NESR has made significant strides in expanding its technology and innovation capabilities. In 2024, the company successfully deployed its ROYA advanced drilling platform, which includes a rotary steerable system and measurement-while-drilling technology. This achievement marks an important milestone in NESR’s efforts to provide cutting-edge solutions to its customers.

Additionally, the company has made strategic investments to enhance its environmental and decarbonization capabilities through its NESR Environmental & Decarbonization Applications (NEDA) segment. This includes the acquisition of a minority stake in SALTTECH BV, a Dutch provider of innovative thermal desalination technology. These initiatives underscore NESR’s commitment to sustainability and its ability to offer comprehensive solutions to address the industry’s evolving needs.

Guidance and Outlook

NESR has provided a positive outlook for its future performance. The company expects to continue its growth trajectory, with management projecting high single-digit to low double-digit revenue growth in 2025 compared to 2024. This optimism is driven by the company’s strong market positioning, diversified service offerings, and the ongoing demand for energy services in the MENA region.

For Q4 2024, NESR expects year-over-year growth to largely match the 14.3% growth achieved in the first 9 months of 2024. The company believes growth will continue across the MENA market for the remainder of 2024 and into 2025. NESR expects their effective tax rate in Q4 2024 to be approximately in line with Q3 2024 at around 20%.

Furthermore, NESR has stated its intention to maintain its focus on improving operational efficiency, enhancing technological capabilities, and strengthening its financial position. The company’s commitment to debt reduction and working capital management is evident in its recent achievements, with the net debt-to-trailing 12-month adjusted EBITDA ratio reaching 0.96 as of September 30, 2024.

Risks and Challenges

While NESR has demonstrated resilience and adaptability, the company faces certain risks and challenges inherent to the energy services industry. Fluctuations in global oil and gas prices, along with geopolitical tensions in the MENA region, can impact the demand for the company’s services. Additionally, intensifying competition from both regional and international players may pose challenges to NESR’s market share and pricing power.

The company’s reliance on a limited number of large customers also presents a potential risk, as the loss of a significant customer could have a material effect on its financial performance. NESR’s ability to successfully integrate acquisitions and manage its supply chain effectively will also be critical to its long-term success.

Conclusion

National Energy Services Reunited Corp. has established itself as a diversified leader in the MENA energy services market. With a strong track record of financial performance, operational excellence, and a commitment to technological innovation, NESR is well-positioned to capitalize on the growing demand for energy services in the region. The company’s diversified service offerings, strategic investments, and focus on sustainability underpin its ability to navigate the evolving industry landscape and deliver value for its shareholders.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.

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