Greetings and welcome to NESR's Third Quarter 2024 Financial Results Conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Blake Gendron, Vice President of Investor Relations. Thank you, you may begin.

Thank you Donna. Good day, and welcome to NESR's third quarter 2024 earnings call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR, and Stefan Angeli, Chief Financial Officer. On today's call, we will comment on our third 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 our results 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 reconciliation 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 Investor Relations contact information is available on our website. Now I'll hand the call over to Sherif.

Thanks, Blake. Ladies and gentlemen, good morning and thank you for participating in this conference call. Our third quarter was once again strong, following solid first half of 2024, even on top of our robust growth last year. We continue to reach new all-time highs for revenue, EBITDA, EPS, and cash flow. And our balance sheet is increasingly fortified and poised for both accretive growth and prudent shareholder returns. Despite the prevailing market uncertainty, I am pleased to report that overall activity in the MENA market remains stable, and I am extremely encouraged by the prospect in NESR’s core business outperformance, new technology rollout particularly in direction drilling, solid hydraulic fracturing execution, and frontier market opportunities in water and decarbonization segments. Combined with our recent relisting on Nasdaq, our outlook remains extremely bright, both in the fourth quarter and in the coming years. Before passing to Stefan to discuss our solid third quarter results and balance sheet positioning, I want to first offer some thoughts on the macro outlook. Our recent technological milestone that we expect will fuel continued NESR performance and our overall positioning in an otherwise cautious sector landscape. I am extremely proud of the entire NESR organization as we continue to push the envelope on growth, margin delivery, and cash generation, which affords us the opportunity to reinvest in really exciting growth areas of our business. If there are two key messages from my prepared remarks, they are, one, that the MENA macro outlook remains healthy, underpinned by growth in key countries, alongside Saudi leadership in pragmatically managing energy market balances with strong focus on gas and unconventional development. Two, we expect NESR to continue to outperform the broader sector with exciting development in the core, our drilling technologies, and in frontier areas such as produced water…

Thank you, Sherif. Good morning to our audience in the U.S., good afternoon, good evening to our audience in the Middle East, North Africa, Asia, and or Europe. I'm very pleased to go through our third quarter financial results in detail. Despite the volatile macro environment worldwide and the geopolitical headwinds in the Middle East, NESR has achieved exceptional results during the third quarter of 2024 and for the first nine months of the 2024 period. First, let's cover revenue. Our overall third quarter revenue is a record $336.2 million, which is up 3.5% sequentially and 12% year-over-year. Revenue for the nine month, year-to-date period is $958 million up 14.3% year-over-year with exceptionally strong activity in the Gulf countries. We expect year-over-year growth in the fourth quarter to largely match the year-over-year growth achieved through the first three quarters of 2024. Our view is that growth will continue across the Middle East, North Africa market for the remainder of 2024 and into 2025 as outlined by Sherif. Now, turning to adjusted EBITDA. Adjusted EBITDA for the third quarter of 2024 is also a record $80 million with margins of 23.8% substantially flat on a sequential quarter basis. Year-to-date adjusted EBITDA is $222.9 million up 21.9% year-over-year with margins up 146 basis points to 23.3% with NESR exiting Q3 2024 with a margin of 23.8%. Interest expense for Q3 2024 is $9.9 million, and Q4 2024 should be around $9 million on lower debt. The Q3 2024 effective tax rate is 20.4% and for the year-to-date period ending 30th of September, it is 24.3%. We would expect the Q4 2024 ETR to be approximately in line with Q3 2024. Now turning to EPS, earnings per share excluding charges and credits is $0.31 for the third quarter of 2024 and $0.75 for…

Thanks Stefan. Let me conclude by highlighting our key takeaways from the quarter. First, I would like to leave you with our belief that we will continue to outperform the broader MENA market. Not only is there further runway for core business expansion, but we've also achieved tangible progress in our ROYA platform development and expect this to be both a meaningful growth contributor and also returns accretive over the coming years. We will continue to have new partners to introduce their technologies from North America to the region with tailored solution for our customer. Similar success as we have had with Cactus, Phoenix, Scout, Beyond, and others. Our NEDA segment and specifically our water and mineral portfolio are where some of the most interesting work in the company is being done. And our strategic investment in SALTTECH follows several years of successful piloting and mineral recovery success. Now we need to take the water business to the next level and scale the execution. I would like to close by thanking all of our employees, their families, and our valued customers and partners for their continued support. I couldn't be more excited about the future for NESR. Looking forward to seeing many of you tomorrow at the NASDAQ building where we have several key of our executive and manager flew from the region to New York to present our technologies and engage with all of you. And with that, I pass over the call to the operator for your question. Donna?

Thank you. [Operator Instructions]. Today's first question is coming from David Anderson of Barclays. Please go ahead.

Great. Good morning, Sherif. How are you?

Good morning, sir. How are you?

I'm doing great. Glad to have you back, formally here and I looking forward to tomorrow night’s event. So hey, just first question, maybe if you could kind of give us a little overview of what's going on in Saudi. It's been sort of a complicated year, offshore going down, onshore coming up, a lot of focus on gas. Do you feel like they're kind of slowing a bit. Can you just sort of give us the overview of what's happened this year so far in Saudi, how you see that changing over 12 months?

Yeah, thanks Dave. So as outlined clearly by Saudi ARAMCO, and obviously the leadership there is after they put down the maximum sustainable capacity from 13 to 12 where they had a plan to add 1 million barrel to go to 13 million barrel total capacity by having 800,000 coming from offshore and 200 coming from land. And that plan was postponed, to only be 12. So they released the planned increased rig. As for people that are familiar with Saudi, Saudi used to be 60 checkups approximately, which is very high. And the plan was to go all the way to 91. They almost reached it. And then after that decision, they started releasing the offshore checkups that were planned for the 800,000 barrel additional capacity, which basically is being postponed. So that when the release of rigs started to happen and this took place earlier this year. Then, on top of that, obviously their success on the projects, on the unconventional, etcetera where there is a lot of associated gas and their plan to move to 50% gas, 50% renewable for the power generation on the Kingdom by 2030. And they saw that they have excess oil and basically with the slowdown of China, whatever. So they decided to, release more, of the land rigs that is responsible for oil and which took place. So that took place over the last, three to six months, and that's some of the extra rigs that were released. Now, if you look at the total recount in Saudi again, it reached an all-time high of 300 and that was again, poised for the increased capacity and the oil demand when this did not happen -- and they do have the capacity of 12, which again, a lot of people I keep…

So how do things, the rigs have come off, we've kind of seen that sort of reset sort of activity level. Do you expect things to sort of stay at these levels and Jafurah keeps ramping up here or like how does kind of the next 12 months look from sort of a broader activity level in Saudi, you don't need to get specific to sort broadly speaking how does it look now?

Well, I think what will happen, my personal opinion is basically, it's going to be stable outside Jafurah is going to be stable to a bit down, because obviously some rigs now are being put on, what they call extended maintenance, which is obviously as, again, you don't need to drill for some of the oil part, you just put it on maintenance. And then the Jafurah was going to keep increasing. So overall activity in Saudi, I would say 2024, 2025 over 2024 will be stable because that drop in oil will be compensated by the increase in gas and unconventional. Now for service industry, it all depends where each play, right. So, our expectation for NESR, we are going to grow 2025 over 2024. We will continue that growth profile that we had, and we believe we are positioned very strongly. The other part that beside the activity being, poised with -- we are more poised on the gas and on the project of Jafurah obviously that we have the drilling portfolio. So we did not have that in the past. We did not have direction drilling, we did not have rotary steerable or M-W-D-L-W-D. And now we have. So that's an additional for us, it's quite unique because I have the contract. So now the issue becomes how much can we deploy in 2025, we did not deploy any in 2024, so how much of that, and this will be an additional for us for 2025 over 2024.

Right. And so the overall -- the shifting is that the mix works in your favor. You obviously have more Jafurah than you had offshore. But just one final question for you just on Jafurah. Can you just kind of give us a quick overview of what you're doing today on Jafurah, I know you've been on the field for a long, long time. You were the ones who just -- who unlocked it. So going forward, where are you today in the field and are you expecting to see more tenders, and like what are some of the different services that you're expecting to be tender, say over the next six months?

Sure. So Jafurah obviously, again, is an outstanding project for Saudi Arabia. I mean, it's a -- I would say it's world class like you have in the U.S. They beat every record from drilling the wells in 40 days now, making it in 14 and 12. I just took the entire -- my entire Board to Saudi and to see it. And they -- we actually went to the field and saw the frack while it was working, right. So it is very impressive, by all means. So today, Jafurah has -- you have three unconventional in Saudi that is running, right, which is the big picture is Jafurah and you have what they call, you have the new rigs coming there. So they added rigs and in the drilling they have multiple companies involved, right. So you have obviously people in the mud, people in the, in the direction drilling, etcetera. And that project that our involvement has been on the cementing front drilling, the well cementing, and we as well involved obviously now in direction drilling, which is the contract we just got awarded. So we have -- and in the direction drilling, you have multiple suppliers. You have around five suppliers now in the direction drilling arena, between the big guys and two of the smaller guys, like we are one of them. And then on the fracking side, it's two players today us and one of the big -- one from the big three. And we are today basically both of us working, and recently there is even a pilot from a third player. Why they are doing that, because obviously the Jafurah is going to increase dramatically on site. So for people to know, this is basically this year, they are planning 8000, 9,000 stages, that we completed. And then this is going to go all the way to 25,000 stages per year. Once you go to 25,000 stages, obviously there are room for more players, then, then the two of us, and that will take place. So tendering will definitely happen because everything in Saudi Arabia or the Middle East goes to tender. So that bidding process will happen sometime next year and then people will participate. The approach is obviously the market should be disciplined, as we always say, but you know you never know. So there will be more awarded suppliers again to be able to complete those number of stages in the coming years. And the project is poised for the 2 bcf by 2030. So definitely, all this is going to take place. And the rigs are performing outstanding, the drilling of the wells are really, really, almost at the technical limit.

That's good to hear. Thank you very much, Sherif, I appreciate you taking on my questions.

Thank you, sir.

Thank you. The next question is coming from Gregory Lewis of BTIG. Please go ahead.

Yeah. Hi, thank you and good morning, good evening everybody. Sherif, I was hoping we could kind of like blend together the growth that were kind of expected to see in MENA versus kind of the cross selling the rollout of ROYA and kind of try to get a sense for, as you think about revenue growth in 2025 versus 2024, any kind of sense for that mix of just outperforming the market and then kind of layering in those cross-selling opportunities in the rollout pf ROYA?

Sure. I mean, I would say the market overall in MENA would be plus a single digit year-over-year. So 2025 over 2024 should go, let's say 5%, 6%. And we always say we should double that growth. So whatever the market is growing at, we should be at double that rate. The ROYA platform, the direction drilling, the decarbonization segment, this is all in addition to that. So what we believe is once the success of the direction drilling is proven in the sense of commercial viability that they can take 10, 20 rigs perform equal to the big provider, we should be able to gain share because we have the contracts. And that's, I think, something we try to articulate that the key in the Middle East is to have a contract. You have to have a long-term contract with the customer to be able to deploy those technologies. And today we have that in our three main countries of operation, Saudi Arabia, Oman, and Kuwait. So now what we need is to deliver those technology on the -- that we are taking a very prudent and if you like technical way of looking at it. So we deploy when we know we can be at par with the big guys, for the sake obviously of the customer, because we want to be always credible. We always to maintain that I can build in this formation, I can do this, my dog lack severity is higher than what exists in the market. So the customer see the benefit of us deploying the tools. With the speed of deploying and the speed of the success will determine how much that growth in revenue will be in addition year-on-year. But I have no obstacle or no issue on contract or waiting…

Okay, great. And then I did have a question. There's obviously the ongoing debate when if, when Saudi Arabia is going to and OPEC Plus is going to kind of start ramping production again. Just as we think about that, if that were to happen at some point in 2025, how if at all does that impact kind of the activity levels you you're thinking about in 2025 and maybe 2026, is that additive or is that kind of it's a non-event?

No, I mean, look, I mean, it all depends. There is a lot of narrative out there. The Middle East needs the oil price to be at that level or above. So all this notion that they are just going to open up the tab and flood the market with oil, it's not going to happen. So what they need to do is they need to -- they will continue with the pragmatism to ensure that the market is well balanced and the oil price remain healthy for their economic growth. So all the comments I made is based on that, and all our forecast is based on that demand and supply. Now, if for whatever reason, the geopolitics, there is another drop of some of the producer and get eliminated from their production, and then the Saudis or others have to come up with production to make up for that, for sure, the activity will go much higher. So, our comment and our analysis is based on an oil price the same. OPEC Plus remain their cut, which, for the foreseeable future until the demand comes back from China, and then the world needs more oil. Now, if you think about the narrative of, of the US and President Trump, and, and most probably Russia can back to the game, etcetera, etcetera, it doesn't really that that more activity will happen. But we are taking that notion that the activity will remain low single digit, 2025 over 2024, and we are outgrowing that market. If the oil price gets stronger and as I said, somebody has to replace another, yeah, activity will go further up. The -- and the oil price and the economy of the Middle East is all depending on oil and gas. So people have to remember that. This is not part of an industry that you have 20 of. This is the main core business of employment, supply chain, everything in the country. So people will protect it.

Super helpful. Thank you very much.

[Operator Instructions]. The next question is coming from Derek Podhaizer of Piper Sandler. Please go ahead.

Hey, Sherif, good morning, and congrats on the re-listing.

Thank you, sir.

Just wanted to go back to your comment about your ability to cater to the growth in the MENA region. How should we think about that in regards to your equipment base and what it means for a CAPEX investment cycle, what can you service today, where would activity need to go in order to meaningfully build out new capacity and related, what does it mean for pricing and margins, and how can you drive that higher over the next couple of years?

Hey, Derek, it's Stefan here. I'll take the first bit of the question, right. As I said, this year we've spent $80 million in CAPEX this year so far, and we've got another 40 million, which is mainly ROYA tools coming out for the, let's just say the 5% to 10% growth, which we're sort of anticipating next year. We think the CAPEX will be $120 million, again, give or take. If we were to -- if the revenue from ROYA was to grow greater than that, our CAPEX obviously would be higher. And if we get any NADA projects, next year, there would be some CAPEX on that, but we're looking at flattish CAPEX of $120 million again next year on that 5% to 10% growth.

Got it. That's helpful. And maybe a little color on the free cash flow conversion of that incremental CAPEX, just how should we think about the overall view of the free cash flow generation?

Well, right now on let's just say on $120 million of CAPEX for next year, we're probably looking at the high 30%, 40% free cash flow conversion. We'll probably have some working capital, less efficient. We've done very well over the last two years as I, elaborated. And, I think it'll be tough to keep pushing down inventory and pushing down DSO with growth. But we'll do our best, but I would keep it at 40% of free cash flow conversion to a beta.

Great, that's helpful. My follow-up question, I wanted to talk about those partnerships with the North America companies that you mentioned Sherif and how we should think about deploying U.S. shale technology in the MENA region. You pointed out Cactus in Phoenix. How should we think about these evolving over time, over the next couple years and, where MENA is on the technology adoption scale versus where U.S. Shale is and what products you're looking to bring overseas, just maybe some more color on that would be helpful?

Sure. I mean, if you look at the unconventional, for example, for Saudi, everything you can imagine in the Permian and, the best in class is being deployed. So -- and that's when we started that journey back in 2019 with ARAMCO, that's exactly what we said. We said, guys, we are open platform and we are going to bring the best in class. It's not like, because I have that, you have to use that. We are going to see what do we use, what is being used, and how they moved from five, six stages to 2018 to 2022 pumping for 22 hours. What -- how did they achieve that? How did the customer and the technology in the Shale in the U.S., managed to do that and that's exactly what we did and obviously under their leadership. As we looked at who has what, right? And we teamed up with those technologies. So, Cactus is doing, very, very, very good in our, wellhead and f factories. We use our, my different John in Phoenix on the trilling and the, the motors. We have scout on the mono bore. And again, what is the best in class being used here and we took it there. And obviously the way it works in Saudi again, for the people to understand, you have to have -- so the local player, which is us, we bring we say we present, the technology that is very innovative, that is unique, and why is it better. And obviously Aramco is extremely solid, customer with a very, very good and very strong, technical department. They check and they vet this technology, then we go through what we call a TTR or a trial test. And during that trial test, they will check and test…

Very helpful comments. thanks Sherif, thanks Stefan. I'll turn it back.

Thank you. At this time, I would like to turn the floor back over to Mr. Foda for closing comments.

Thank you very much. We really appreciate all the time that everybody has put. We again, would like to thank all our employees, their families, all our shareholders or our banks or our partners. We had a very good time now, and we are looking forward to see a lot of people tomorrow. We are going to be on the Nasdaq, closing bell. We will have our tech exposition, two hours before., so people will be able to see the technology. We will display, the ROYA platform, will display the NADA, the decarbonization. We have people coming from the Middle East, our managers and executives to be there as well. So a lot of the invest and partners will be able to talk to them, and integrate with them and then see as well the technology and see the mockup. And definitely we'll have some time as well to, as we say to celebrate, with the closing bell and the event after that. Thank you very much. Appreciate all the support.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.