NESR Reports Third Quarter 2026 Financial Results - NATIONAL ENERGY SERVICES REUNITED CORP

Financial Performance:

• Q3 2026 revenue reached $504.7 million, representing a 70.9% year-over-year (YoY) increase, driven primarily by the Jafura contract and strong activity in Kuwait, Oman, Abu Dhabi, and Algeria.
• Revenue declined 3.1% sequentially due to geopolitical disruptions in September affecting GCC operations and ongoing issues in Iraq.
• Adjusted EBITDA was $95.9 million (19% margin); excluding $5.5 million in incremental freight/logistics costs, the underlying margin was 20.1%.
• Adjusted net income rose 156.8% YoY to $39.6 million, with adjusted diluted EPS of $0.38 (second-highest in company history).
• Full-year 2026 revenue guidance is raised to ~$2.0 billion (±$5 million), supported by an annualized run rate of over $2 billion observed in Q2/Q3.
• Full-year adjusted EBITDA margin targeted at ~20%, including freight costs; full-year capital expenditure expected between $220 million and $225 million.
• Year-to-date cash flow from operations totaled $201.5 million; Q3 free cash flow was negative $45.9 million due to working capital buildup for inventory and delayed collections, with expected recovery in Q4.
• Net debt stands at $160.5 million (0.44x leverage to adjusted EBITDA), providing significant financial flexibility.
• Trailing 12-month return on capital employed (ROCE) improved to 13.7%.

Guidance and Future Outlook:

• Reaffirmed long-term "3B3" strategy targeting $3 billion in annual revenue by end of 2028.
• 2027 revenue guidance remains positive, with expectations of growth over 2026 even if the geopolitical conflict continues; revenue growth driven by organic expansion and existing project portfolios.
• If conflict resolves, management anticipates a significant "post-conflict box" of work, including well intervention, workovers, and deferred drilling activities, preceding new well drilling.
• North Africa expected to see significant activity unlock in 2027, potentially delivering 20-30% YoY growth.
• Lithium business (NESEA) targeting commercial production of 2,000 tons by end of 2027, with potential to scale to a billion-dollar revenue opportunity over the next five years.
• Water and ESG projects remain on track with new pilots in Oman, awaiting economic proof for further scaling.

Business Segments and Product Lines:

• Hydraulic Fracturing: Maintained four active fleets on the Jafura contract (Saudi Arabia) throughout Q3, demonstrating stability and scale.
• Fifth Fleet: Arrived in Saudi Arabia and is positioned for Aramco; expected to commence operations late Q4 2026 and likely run through 2027.
• Lithium (NESEA): Secured a $200 million contract award for Direct Lithium Extraction (DLE); moving from pilot to demo scale with standalone economics in Saudi Arabia.
• Water: Pilots advancing in Oman; management confident in long-term scale once economics are fully proven.
• Intervention & Completion: Anticipated to lead the post-conflict recovery phase due to backlog of deferred maintenance and reservoir sections.
• North Africa: Strong pipeline in Algeria, Egypt, and Libya; Algeria and Egypt viewed as key growth drivers with export pipeline constraints creating high-value opportunities.

Market and Competitive Landscape:

• Middle East energy leaders (Saudi Arabia, Kuwait, UAE) are maintaining rig counts and "ecosystem warmth" despite conflicts, signaling a commitment to long-term capacity and redundancy.
• Market demand for energy security is driving investment in capacity, gas, and storage; Saudi Arabia plans an 80% increase in gas production by 2030.
• Nessr maintains a pure-play Middle East exposure with no dilution from North American politics or market volatility.
• Competition in tendering is expected to shift as customers prioritize reliability and speed of execution; Nessr expects to win "more than fair share" of upcoming tenders in Kuwait and UAE.
• The region is positioning itself as the primary supplier to rebuild global inventories and meet growing demand in India, China, and Southeast Asia once supply chains normalize.

Risks and Challenges:

• Geopolitical disruptions (e.g., Strait of Hormuz, Iraq, Qatar force majeure) caused temporary sequential revenue dips and increased logistics costs ($5.5 million in Q3).
• Delays in North Africa attributed to internal security issues and political factors rather than energy fundamentals.
• Oilfield service margins face pressure from potential cost inflation and pricing dynamics in new contracts.
• Iraq remains the principal drag on year-over-year growth due to IOCs pausing heavy spending until security is fully assured.
• Working capital volatility remains a risk, though managed through proactive inventory buildup and contingency sourcing plans.

Management Commentary and Tone:

• Management tone was highly confident and resilient, emphasizing that "markets have a short memory, but regional leadership thinks in decades."
• CEO Sharif Foda praised the workforce for achieving 100% reliability and zero evacuation during significant conflict, framing the company as the "national champion" of the region.
• CFO Stephan Angeli highlighted disciplined cost management and operational execution as key drivers of margin resilience despite external headwinds.
• Both executives expressed strong belief in the region's strategic imperative to invest in redundancy and energy security, viewing current challenges as catalysts for long-term growth.
• Management announced the company's inaugural dividend ($0.10/share) and a successful $747 million refinancing, signaling strong confidence in cash flow generation.

Analyst Questions and Answers:

• 2027 Outlook: Management expects 2027 revenue growth over 2026 regardless of conflict status, driven by existing backlog and regional investment plans; if conflict ends, a post-conflict surge is expected.
• Margins: Q3 margin at 19% (down from 20.1% underlying due to freight costs); Q4 expected to improve seasonally, full-year 2026 at 20%. 2027 margins estimated at 21.3% if conflict resolves, or ~20% if status quo persists.
• Jafura Inventory: Strong backlog of stages/completions exists; efficiency gains from AI implementation could improve profitability by 20%.
• Lithium Commercialization: $200M contract is a milestone; first lithium delivery due end of 2027, with potential for rapid regional replication if successful.
• North Africa Growth: Algeria and Egypt projects delayed by politics but expected to unlock in 2027 with high growth potential.
• Tender Pipeline: Significant opportunities in Kuwait and UAE; management confident in winning new segments (fluids, chemicals, tubulars) where they currently have low presence.
• Post-Conflict Recovery: Intervention and completion services will likely lead the recovery, followed by new drilling once production and storage levels are restored.

Other Key Points:

• Capital Structure: Successfully refinanced debt with a new $747 million facility ($298M term + $449M working capital), extending maturities and adding an accordion feature for up to $153M additional capacity.
• Dividend Initiation: Board approved first-ever quarterly dividend of $0.10 per share, payable December 10, 2026.
• Counter-Cyclical Strategy: Company continued inventory buildup (approx. $50M increase in stock) and capex deployment during Q3 to ensure readiness for post-conflict demand.
• Operational Resilience: Maintained 4 fleets in Jafura and zero evacuation across the region despite airspace closures and force majeure declarations in parts of Iraq.