Ladies and gentlemen, thank you for standing by, and welcome to the National Energy Services Reunited Corp. First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Ms. Melissa Cougle, CFO of NESR Corp. Please go ahead, Melissa.

Good day, and welcome to NESR Corp.'s First Quarter 2019 Earnings call. With me today is Sherif Foda, Chairman and Chief Executive Officer. On today's call, we will comment on our first quarter results and overall performance. After our prepared remarks, we will open 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 our results to materially differ 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 and reconciliations to the most directly comparable GAAP financial measures can be found in our press release which is on our website. Finally, some of you may be calling for the first time, so please feel free to contact us after the call with any additional questions you may have. Additionally, our Investor Relations contact information is available at www.nesr.com. Now, I'll hand the call over to Sherif Foda. Sherif?

Thank you, Melissa. Ladies and gentlemen, thank you for participating in this conference call. We are excited to report on our tremendous results and continuous progress in this quarter. We grew our revenue 29% year-on-year, which is more than double the industry average, while the overall rig count in the region increased by mid- to high single digits in the same period. Now I would like to take a moment to talk about the industry as a whole and where I believe we are headed in the MENA region. As I mentioned last quarter, we continue to see strong activity trends in the core GCC countries as well as the larger MENA region. 2019 will be a solid growth year and the start of a steady long-term plans for the majority of the customers. Across the GCC, we see our esteemed customers put in place long-term field development and CapEx spend plans. And going forward, we will see approximately $60 billion to $70 billion average spend per year over the next 5 years, which is almost double of the last cycle. Our customers continue to invest for the future of the region by building the infrastructure to ensure they are the most reliable and sustainable source of energy for the world economy. They are venturing into more complex reservoirs and harsher environments, like unconventional, heavy oil and high H2S fields. Another big driver in the region is gas production, which is seen as an enabler for internal growth. In our key markets, we see a great emphasis by our clients to develop and significantly increase gas production, mainly for internal consumption, conversion from diesel powered plants and in the quest for cleaner energy. Each have spent almost $14 billion in a massive conversion to the newer gas plant and will…

Thanks, Sherif. This morning, we filed our earnings release reporting our first quarter results. As excitement continues to build around our story, we remain pleased with the results of our operations as we conclude our third full quarter post business combination. First quarter revenues were $152 million, an increase of 29% over the same period last year. It was highlighted by our continued cross-selling of new services from our Drilling and Evaluation segment as well as solid performance from our production segment. First quarter adjusted EBITDA was $41 million, which grew over 30% over the same period last year for the legacy company, demonstrating that we continue to be able to translate our growth into cash flows. The first quarter is traditionally the slowest of the year for oilfield service companies in the region as our customers begin to deploy operating budget. Despite this, we note that our first quarter adjusted EBITDA on an annualized basis is already on pace to exceed full year 2018 adjusted EBITDA. And as we go into the latter half of the year, we believe our strong growth pattern will continue. Drilling down. Our Drilling and Evaluation segment revenue for the first quarter was $60 million, growing more than 60% over the same period last year. We continue to expect D&E to grow at a fast pace, mainly enabled by the continued cross-selling of the drilling portfolio where we have a leading position in Oman into our other operating location. One good example of this effort has been in our Fishing & Remedial solutions, which was particularly successful in the first quarter with revenue gains of nearly 50% in comparison to revenues of the 2018 fourth quarter. On the evaluation front, we're continuously looking to expand our leading position in our Evaluation business line in…

Thanks, Melissa. Q1 has been a great start, and I'm pleased that we are on the path to deliver on our objectives this year and in the future. The international market is heading for strong recovery. MENA, in particular, will have a solid 2019. And I am confident in our ability to double the growth rate of the region. With this, I would like to take this opportunity to thank everyone for joining this earnings call. And if there are any question, we would be happy to address them now. Operator?

[Operator Instructions] Our first question comes from the line of Greg Colman with National Bank Financial.

Guys, congrats on the strong year-over-year growth.

Thank you, Greg.

Wanted to start by taking a look at some of the contracts available in the region. Last year, especially in the latter part of the year, you had pretty big bookings. I think you put something like $450 million in contracts on -- structured over the next 4, 5 years. Was that an unusual -- unusually big year for contract bookings? Should we expect 2019 to be a little less eventful? Or is there still big stuff in the region that you're chasing?

Thanks, Greg. So I would say, obviously, last year was significant because it was the first year the company was put together. So we had a lot of opportunities that we were targeting, and we managed to capture a lot of them. Some of them were tendered every 4, 5 years, so it was significant. However, saying that, I think 2019 will be similar or larger because of the fact that we managed to put a lot of product line in every country that is much more than what the 2 guys -- the 2 companies alone used to do. So in another way to say -- to think about it, today we are bidding on much bigger pool of contracts that what we used to do before. And therefore, I would believe that we should be able to announce similar or larger size this year than last year. The difference is the timing. So as you would imagine, maybe you will ask me now why you didn't announce anything this quarter? I tell you because we are negotiating. So the type of the tenders, again, in the region, some of it comes with what we call a binary. So basically, it's a very clear who won -- you have 3 or 4 players that won, and they get announced immediately. And some of it, we keep negotiating with the customer, either an extension to the current contract we have or we negotiate after we submit the pricing based on who would be the L1, L2, L3, L4, et cetera, and therefore, after we -- all this is settled and announcement is made, then we announce obviously to the market after the client acceptance where we are. So in summary, you will be seeing more of the same of last year towards the coming quarters.

Got it. Okay. And kind of keeping on that growth theme here. If we see that -- those contract wins coming forward, can you give us a reminder of how much capital you're looking to deploy, I guess, both from a maintenance, but also more importantly from a growth perspective in 2019? And is that capital deployment dependent on securing additional contracts or is it pretty much locked at this point?

So if you look at what we're planning on 2019 is, as we said before, is around $100 million CapEx. And we believe -- we are ordering that magnitude because we are quite comfortable of the awards we're going to have and -- as well the growth that we already had since last year with the contract award. So most of this is already almost committed, and we will be deploying it through the year how we spend it. If you look at what we did already this year in contracts and what we need to, to have for maintenance, I always say, rule of thumb is almost 4%. So if you look at the $100 million CapEx, $20 million of this will be maintenance and $80 million will be growth.

Got it. All righty. Good to hear. Just focusing in a little bit more on the detail of 2019. Just, because you're a newer company we're still getting used to the seasonality. I mean, we've seen in the region for the majors for a long time now. But is there any reason to expect that we shouldn't -- is there any reason that 2019 shouldn't exhibit the same seasonality pattern that we saw in '18? Meaning, we sort of saw a ramp up of each quarter sequentially. Is there any nuance in last year or in this year that would prevent that from happening? Or would that be in line with what you're expecting internally?

It will be in line. It will be exactly in line. The -- you will always see Q2 stronger; Q3, the stronger; and then Q4, the strongest. So this will -- I mean, the way I see it, this year will not be any different. The only difference that you might have is security in the region, in Algeria and Libya, which is in our case will only be, I would say, muted because obviously our size is very small in those countries. If something happens and the operation is halt in one of those countries, for us it will not make any difference, but for others it might make for the seasonality that you are asking for. But taking that in a different step, today, Libya was never a big contributor to any of the service company, right? So it's not going to be a huge effect either way. So I would say -- for NESR, in particular, I would say the second half will even be stronger this year than last year because of the fact of the contract award and they are all ramping in the second half of the year.

Got it. So that $450 million in wins last year kind of starts this -- in 2019, but really ramps in the back part?

It's a mix. It's a mix. Some of it has already started, which you know already. I mean, the stuff that we had, for example, in the GCC with our large customer and we started this already since last year. So this was already -- we got awarded and we started immediately, but some of the contract award, the smaller ones, like in Chad, in Kuwait, et cetera, only start second half of the year.

Got it. Okay. And then the last one for me, and sorry to hog the questions, but Melissa, on the debt side, it's great to see the consolidated line there, all up sort of in an easy to understand package. But when we look at our Q2 numbers, is there any one-time cost associated with that, that we should just be watching for -- sorry, with that startup?

No. I don't think you're going to see any -- I mean, we paid one upfront fee, but I don't think it's worth it to call out, but it was shy of 100 bps. So it wouldn't be something I would tag as material, but you'll see -- I mean, you'll see it in terms of financing cost come through the cash flow in this quarter, but it's not very large.

Our next question comes from the line of Sean Meakim with JPMorgan.

So Sherif, maybe we could start with D&E. Could we talk a little bit more about the mix impact quarter-over-quarter in profitability? I guess I'm trying to get a sense for how much of the revenue mix was coming from cost-plus? And as you look out, what would you say is the normalized mix for cost-plus as this shift in customer demand changes?

Sean, thank you. So if you look at the D&E, obviously, it's Drilling and Evaluation, right? So it's a huge -- a lot of product lines and the mix makes a big difference if you have more of the evaluation type work than the drilling type work. So obviously, evaluation comes with the better margins than the fishing, rental type work, right? So in Q4, we had, I would say, better evaluation than drilling. And Q1 was -- the mix was a bit different. This is part of the margin. I guess that's what you're saying, Q1 versus Q4, but the big one is what we call cost-plus. As we -- as we now will be coming to -- the customer is really depending on us on some of these huge contracts. The beginning -- they asked us to go and manage a lot of those sites, right? So obviously, we take it because this is definitely strong for us to be able to perform this work. And definitely, the clients wants to have, as I keep saying, more efficient way of testing those wells. So they don't want to manage between trucking, contracting, catering, camps and et cetera, which we do it as cost-plus. We don't want to do this as -- in any other way. So if you think about it, Sean, in a very simple math, if you do -- our margins for our business is intact. It's the same. So if you -- let's say, for the sake of argument, if you do $10 million at 30% margin, it's the same. So you make $3 million. And then you have this additional work that you take, which is, let's say, 30% of that, which is $3 million, you do it at cost-plus, so gives you 10%-or-so. So all of a sudden your overall margin becomes, if you take $3 million over $10 million, it's 30%, but now you take 10% of $3 million, it's 300. So $3.3 million over $13 million gives you 25% margin, right? So your margin drop dilution, at the dollar value it increased because you have $300,000 more, you don't lose any money on taking care of that business; however, the overall dilution gets you 300, 400 points less. So in Q1, you saw that our revenue was, as I said, D&E doubled from a year ago, but part of it was small, but part of that contract where we took we have now taking that responsibility of managing the third party. And I think as the company gets bigger, you will have always this demand, can you take care of this. Obviously, the customer has to trust you that you can manage better than them or as good as them.

Got it. That was a very helpful explanation. On production, is there -- I guess, is there a similar dynamic or is it limited more to D&E? And I guess, it'd be great to hear a little more color on geographic and product mix in the quarter for production, maybe a little bit more about upfront contract prep, startup cost, et cetera, that you're experiencing and as we think about the impact on second quarter and the back half of '19?

Yes. So the production is obviously where the company is very strong. And we continue to have a fantastic year this year on -- especially on our core countries, Saudi, Iraq, Algeria, Qatar, very, very strong, that we are taking more work, the customer are giving us more rigs. We are just discussing with them very, very big kind of additional work scope on our current contract in Oman. And the clients are discussing, can you -- the coiled tubing business, for example, I mentioned in my remarks, they added to us like big scope of it where we take care of the high pressure, some high stimulation work, et cetera, and we are taking care of that. So I think the production will continue to be our stronghold, and we definitely -- we want to make it much bigger than what we did today, and we are venturing into couple of new business lines in it and larger contract with the customer. The startup cost is definitely there because we repeated -- we won 2 contracts in 2 countries where we never existed before. So we are setting up the base, we are setting up the facility, the bulk plan, the lab, hiring people. So we started this already in this quarter, and we will continue in the second quarter to make sure that we are ready by the second half. The whole motto we have here, we don't want to manage our business like every quarter by 1 or 2 points, we need to make sure that we are ready with the service quality and the delivery, and we want to always pleasantly surprise our customer. Our customer is the most important thing for us, and we need to make sure that they are entrusting that all of a sudden they're going to give us this work from somebody else or as a newcomer we need to make sure that they are extremely happy with how we perform from day 1. We do not want to have a learning curve of 6 to 8 months like the rest of the industry. We want to start, hit the floor running from day 1, and that's why we put some preparation in the ground, hired the best people and setting up the base. So I wouldn't say that you will see a huge drop or a difference between the quarter because obviously we have to always be smart, how to manage the cost and balance it through the quarter until we get the revenue. But definitely, you have a startup cost.

Our next question comes from the line of Byron Pope with Tudor, Pickering, Holt & Co.

Just have 1 qualitative question for you based on the comment you made in your -- during your prepared remarks about the increasing service intensity per well in the GCC region countries. And so as you think about -- you got tons of organic growth opportunities for both business segments, but as we think about that trend toward rising service intensity per well, how do you think about which of the 2 business segments probably benefits disproportionately from that service intensity trend?

So I would say -- Byron, thank you. I would say, in the short term, definitely production will benefit more. So as you start this very heavy intensity and especially you go to the unconventional, it's like the U.S., right, the same story. So you will get a lot of coiled tubing, stimulation, artificial lift, fracturing, et cetera, so which is all into that bucket of the production. Definitely, on the longer term, you will see the clients today, our customers, are very smart, planning very prudently how they're going to have large field development plans for, I would say, lower productivity wells than the previous like the beautiful Ghawar, Burgan, these fields, right? So the heavy oil definitely, once the projects are sanctioned and starting in some of the countries where they have huge plans for it, you'll have the drilling portfolio by far getting much bigger because then they start drilling all these wells. Some of these field development calls for 1,600 wells, right? So there is a lot of construction -- well construction type of activity that will take place. But I think for the shorter term, you'll see a lot of production increase, which is again we are in a good shape for it, and then longer-term project are in the construction, the big project, where you'll see a lot of as well drilling will catch up. And definitely between the 2, 3 countries where they have a huge unconventional scope, there would be a lot of rigs going in and constructing magnitude much higher than what you always used to be in the Middle East for those projects.

Our next question comes from the line of Igor Levi with BTIG.

This is actually Jacob on for Igor. You touched a little bit about current tech in your prepared remarks as previously you've turned to North America to acquire technologies required to meet these contracts in the Middle East. Could you discuss some more in -- of the gaps in technology that you may need to fill this year going forward to execute on your contracts? And how you're thinking about acquisitions versus partnerships for these technologies?

Thanks. Very good question. Yes, absolutely. I mean -- and that's how we mentioned our open platform strategy on the technology. We are -- today, we have half a dozen agreements signed and sealed with, I would say, state-of-the-art technology, and we are working on another, almost dozen more now, between Canada, U.S. and Europe. Most of those contracts are partnership, and that's how we look at it as asset light, as I keep saying. And plus, we need to -- the whole idea of our philosophy is that's the usual old style that you like someone, you just go and acquire them, right? And we don't want to do that. We want to keep this innovation with the people. Usually, they are small, nimble. They come up with a lot of good ideas. We give them access. We want to tailor with them some of these technologies. What we do usually, if -- and I tried to mention it in my remarks, if technology that we think -- because, obviously, we're technical people as well, so we think that they should modify the tool and to do something for the reservoir in the MENA that we know very well, and we invite the customer from the beginning, then we fund the technology. So instead of acquisition, we just give them money to fund the technology and the tool, and then we have obviously exclusivity, royalty, et cetera, to make sure that the tool is targeted for that market. When the tool works for somebody else outside that region, like U.S., we are fine that they can do it and even actually it's encouraging because we need to run more jobs to ensure and to validate the tool and the tool can be commercial, right? So we will continue to do with that philosophy. We have a lot, a lot of opportunities. We keep looking at chemistry, downhole tools, a lot of other metrics, and we will continue to enlarge our portfolio of D&E and production to ensure that we have the best in line for the customer. And again, we always maintain a credibility when we do not have a certain technology or we do not master that in the client field, we decline doing the job and we actually advise the customer who has the best tool. And that's good long way to be a real trusted partner with your customer. Acquisition-wise, I would say, we -- it will be -- maybe a very -- if there is anything, it has to be something extremely, extremely small in the region here for an R&D company that we think better than giving them money is to acquire them. But so far, this is not our target.

Our next question comes from the line of Blake Gendron with Wolfe Research.

Following on Byron's question in your prepared remarks about unconventional gas. Just wondering if you can give us some more color on the opportunity for NESR in that regime over the coming years, specific product or service lines that NESR would like to add? I guess restating that, maybe, how much of the $80 million growth CapEx is earmarked for unconventional gas specifically? And then finally, would you have to requalify in these segments for unconventional gas assuming the NOCs customers release a portion of them, run the qualified pool of service companies kind of separately for both unconventional oil versus unconventional gas?

Certainly. So yes, I mean, I would -- it would be hard for me to really qualify to you exactly line-by-line. Obviously, there is a competitive edge here and there is some, I would say, trademarks of the customer. But overall, I would tell you, the region is definitely going on a big way under unconventional resources. Definitely Saudi leads the way because they already started years ago, before -- I mean, Saudi and Algeria actually almost started at the same time, but Saudi obviously put a lot of emphasis on the gas because they want gas from the unconventional -- they know that they have a very rich resource into the different areas. They announced this publicly, so I can speak about it. And they are extremely successful. So they had an amazing seismic business in the beginning and then they went for exploration. They did not want to do this in 6 months. They wanted to spend years to develop it properly because they wanted to put science in it. They didn't want -- they knew that they cannot do that statistical model, like you do here, so they wanted to go through a very strong exploration a la Saudi, which is basically they do a very good job in reservoir simulation and trying to understand where is the best productivity of each of the reservoir. And they did that and now they are enlarging in a huge scope between drilling, fracking, everything. Definitely, what we are doing, as we always do, we qualify ourselves. And I try to mention that we qualified 2 new product lines during the quarter and basically to be able to qualify ourselves and I think that's what you tried to -- the question is, you can be qualified to do services for…

That's helpful color. And then really quickly, if you could just comment on the status of the labor market. Will this be a gating factor for you as you ramp up some of the more specialized segments across both businesses? We've heard in D&E specifically across your peers that really labor, it's a gating factor in addition to tools themselves? And then with the recent developments in one of your larger peers, Friday, after market close, does this drastically change the labor landscape in the Middle East?

So we are lucky to be small, and we are lucky as well to be attractive. So we have absolutely no issue attracting the best talent in the region. We actually get invaded almost by excellent people, and we do not see any issue of our ramping up to the level of growth or higher this year and beyond due to people or personnel. We will have absolutely no issue for growth because -- due to human capital. If I understand you correctly, I would say, yes, for sure, there will be some turbulence. And definitely, we are looking at all opportunities.

Okay. Great. And one more, if I can sneak it in. Your single management structure that you alluded to, I imagine you're running a bit more lean from a middle-management perspective than some of your peers. And I would imagine that management structure is aimed at capturing -- or at least heightening the visibility or the intimacy with your larger NOC customers. But for investors, they may be worried about you running a bit too lean as you grow as rapidly as you are. Could you just provide a little bit of color as to how this management structure is designed to take in some of the growth that you perceive through 2022?

Yes. No. It's -- obviously we are -- we understand that the business and understand when should we add. So the key is, at the country level, the most important thing that you have the infrastructure, the support of the technical people to make sure that the country runs properly. And that's the most important aspect of the job. So for example, the gentleman in Saudi Arabia reports directly to me, right? So he -- we have absolutely no -- there is no layers between the -- I would call him the CEO of Saudi Arabia and myself. So he runs the show, and he has the full authority and autonomy to run the business. And all the segments, all the product line reports to him, but he -- when he goes and sees the senior people of the customer, they know he can call the shots and he has the authority to do that. What you need to do is you need to make sure that he has the right support when he wants to -- when he needs to. And we have a VP of Drilling and Evaluation. We have a VP of Production. And we have obviously a -- subject matter experts that exist between the countries and in headquarter. So the whole idea that we're trying to do is we want to always remain light on headquarter, like the top -- at the Senior Executive level, we're very light. And -- but when we put resources, we put it in the region close to the customer, close to the people to work. But the people, what I call the floaters, in between, the people just -- we just do not have those in a big way, but we have a very strong structure in those countries and we have the technology team that is already existing in the company. So today we added a lot of, what we call, subject matter experts. So we have a subject matter expert for chemistry, for perforation, for drilling, for cementing, for stimulation, for coiled tubing, so people can go to that subject matter expert and ask for advice and et cetera, et cetera. And obviously, I tried to mention again the back office, we strengthened the back office to make sure that the supply chain, the economy of scale, people don't waste time as they used to do before bidding on every little thing because now they can go to the system and the supply chain and get what they want. So I think, yes, we are light, we are what we call lean and mean. But as we grow, we will definitely make sure that this structure is well taken care of.

Our next question comes from the line of James West with Evercore ISI.

This is actually Jason Bandel on for James this morning. My first question, have you seen any change in the competitive dynamics from what you're seeing in the Middle East. As you know, we continue to push companies to focus more on returns and in your prepared remarks, you stated your belief that pricing should start to stabilize as the industry shows more discipline. So just curious to see, have you seen any evidence of that discipline emerging yet?

No. On the big projects, no, there is no discipline so far. And I would say, that's why I'm saying, as we -- as activity continues to grow on a bigger scale, people would not be able to bid, I would say almost foolishly on some of these contracts. And then the industry will stabilize itself to be able to -- and to have -- you will not be able to obviously bid the same margin on every contract based on the scale. You will have to sacrifice sometimes the margins for bigger project, but should not bid to lose money, right? So I would say, yet to be seen to put it lightly, and I would say only the LSTK project that is the extreme undisciplined project.

Got it. My second question. Looking at international rig count, the Iraq rig count crossed 70 for the first time since 2014. Can you talk about what you're seeing right now in Iraq and what your expectations are for the country this year?

Yes. Iraq, I mean, as expected since last year, as the security stabilize, as a lot of the contracts with the supermajor has been signed and sanctioned by the customer, definitely they are adding rigs, they are adding back to go to their production target that they have, which is very aggressive. And the supermajors are adding a lot of, as well, what we call rigless and services, and workover sites where we work, right? Because we do not today participate under well construction because it's all LSTK. And the majority of the other services is increasing because the customer wants to get the production up. So you see, I don't know, which one is announced, I cannot talk about it from our supermajor, but most of them now have a very clear plan of how many rigs they're going to add and how many sites, et cetera. And we have a very strong growth. Ourselves, last year we grew almost 50% to 70% and we are expecting a very strong growth as well this year over '18. But definitely on, I think, the well construction, people would see a huge growth because of the drilling well-constructed wells.

Got it. That makes sense. And then my last one, your ability to qualify product lines in your portfolio, you talked about the 2 recent ones, being able to do that under accelerated timeline. Is that dependent on product line itself or just your ability to bring new services to the market as you gain experience doing that?

Yes. It's a mix. Actually, it depends on the country. But a lot of times you have a time frame to be able to get qualified and the client approves your -- that you are capable of performing one additional business, either in that segment, which I tried to explain before, like for example, they tell you high-pressure gas. Can you operate in high-pressure gas? No, you're not qualified. So you go and you go through a qualification process to be able to qualify. Sometimes and generally, this could take almost up to 2 years. 2 years to get qualified, with a lot of tests, et cetera. Once you are trusted and the customers understand that you are really doing an amazing job and you are obviously national, you perform extremely well, they trust what you do, so they -- we speed up the process of qualification and they get you qualified faster. And that's what we managed to do on 2 product lines this quarter, which traditionally -- if we went through the normal course, would have taken almost a year. So the beauty of that is once you are qualified, you are allowed to be invited to tender. Once you tender, you are -- you obviously have a chance to win and then you can add those service to your country. So the presence in the country, the image being national champion obviously understanding what the customer exactly wants and knowing how to access that makes a huge difference.

Our next question comes from the line of Jeff Fetterly with Peters & Co.

Just 2 follow-ups. On the pricing side, Sherif, is the pricing pressure resigned or exclusively on the LSTK side or are you seeing it in specific countries and/or product lines or projects?

I would say, LSTK as a whole, yes, everywhere. There is no country difference. Any LSTK project pricing is pretty bad. And if you look at specific, yes, I cannot mention countries, but I can tell you when the project is large, you tend to have a less disciplined approach because obviously nobody wants to lose such a big contract, especially if it's for 3 to 5 years, right? So -- and on top of it, if it's binary. So when it is multiple awards, it is good to navigate. When it is like a take it or leave it, then obviously people tend to be worried to lose that contract, which is understood. Again, I'm not blaming anyone, I'm just saying as an industry as a whole. And again, if you are small, you have the better advantage of being able to choose. If you are extremely big, it's harder to choose.

Are you seeing any signs of pricing discipline emerging across any project bids?

I think -- as I said, I think, once the activity continues to grow, which is in -- and I'm quite confident that that's what will happen. And I think the activity will grow at much higher rate than what the industry or the analysts expect. You will see automatically because of capacity, the price will be disciplined.

Second question for Melissa. The revised or the new credit facility, the $300 million term loan, have you repaid or will you repay all of the other existing loans to fund that?

Yes. All existing outstanding facilities and term loans are getting refinanced into essentially new -- the new term loan of $300 million as well as into the underlying facilities, right? So everything that we have outstanding right now gets reissued underneath the new facilities in term loan.

And you said, just to clarify for the term loan, you have a 1-year grace period for principal repayments and then a 5-year amortization period?

But it's not straight -- yes, but not straight line. So the early years of amortization are much lighter with a buildup anywhere from 10% to 15% and then a final payment at maturity, 6 years, would be closer to 35%.

Okay. And is -- are those facilities secured?

They are not formally collateralized with sort of security documentation. But in one way or another, they are secured, yes.

Our next question comes from the line of David Herman with Crispin Capital.

Sherif, Melissa, congratulations on a great quarter. I just want to understand the margin profile. Not specifically as it relates to D&E and the project management side on the cost-plus, which you alluded to. But as you have invested this success-based capital in some of these new projects you've won, new contracts you've won, how should we think about the margin profile of those over time i.e., you've alluded to the fact that you're making heavy investments in Q1 and Q2 for some of the stuff that's going to start materializing in Q3. Is there a negative margin impact in the first half of the year from that investment or is that purely capital? And then how should we think about the margin profile as those projects progress?

Thanks, David. Yes, the majority of it is capital. The ramp-up cost that you have is basically people that you hire ahead of time and some of the infrastructure spend, if it is not CapEx related, that you start to really get ready for that project to materialize. So I would say, the ramp up -- the contracts that we -- that you will see the award and you should expect the same type of profitability when we perform the work. Definitely, you'll have always, even like last year, your margins increase or improve while you're -- you start to execute those large projects. The only difference, and I alluded to and you mentioned again, is all this third-party business, it's basically an add-on from a dollar value, but from a percentage people treat it as lower because you did this, as I explained to Sean, you do it like the $3 million at 10%, because it's just a cost-plus, right? You take all the catering and camping, and whatever into the equation. But the majority of the preparation of the ramp-up is definitely your human capital gets to be the main cost that you get ready because obviously again when you want to start that well or that contract without learning curve. And the learning curve, the customer expects 6 to 8 months, and we want to always pleasantly surprise them that we are ready from day 1.

Okay. And you alluded to in the presentation, Melissa alluded to the facility that's available for the $65 million, I think, it was available for potential M&A. Is that what she was referring to that you would be able to access that for an acquisition?

Yes. Correct.

Yes, we could.

There are no further questions at this time. I would like to turn the call back over to Mr. Foda for any closing remarks.

Thank you all for joining us. We look forward to updating you on all our progress the next quarter. We are extremely excited about our performance, and we believe we're going to have an absolutely outstanding year. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.