National Energy Services Reunited Corp. (NESR) Earnings

Management highlights

- Geopolitical & Operational Resilience: All NESR employees and their families remain safe amid regional MENA conflict; all operations have remained fully uninterrupted, with zero employee evacuations. The local workforce has maintained 100% job reliability with no service turndown. Management implemented a 30-60-90 day supply chain program to ensure uninterrupted material and spare parts flow, with a fully activated crisis management oversight team. Extra freight and logistics costs have been absorbed to maintain readiness, building long-term customer trust. NESR maintains limited exposure to conflict-disrupted regions (such as force majeure areas in Qatar) and has minimal offshore exploration exposure relative to its total business; the majority of operations are land-based concentrated in resilient GCC countries that have maintained active upstream activity. - Regional Project & Investment Outlook: Major GCC customers are moving forward with large-scale upstream expansion: Saudi Arabia is advancing three large low-cost upstream projects, two additional mega projects, six new field exploration projects, and expanded natural gas development, with the Jafurah unconventional project already accelerating ahead of original schedule. Kuwait's long-term growth plans remain fully on track with a robust tender pipeline. ADNOC has confirmed a $55 billion 2-year project investment commitment, with expansion ongoing across UAE and Oman. In North Africa, Algeria, Libya and Egypt are accelerating upstream investment to leverage existing underutilized export pipeline capacity to Europe, with growing IOC entry driving new activity. - Capital Allocation Framework: NESR has formalized a new three-priority capital allocation framework: 1) Prioritize investment in high-return growth opportunities including recently awarded contracts and technology expansion across core MENA markets; 2) Maintain a strong balance sheet with a target net leverage ratio at or below 1x; 3) Initiate consistent shareholder capital return: a quarterly dividend will begin in Q4 2026 at $0.10 per share ($0.40 annual), and a $50 million 12-month share repurchase program will be launched for opportunistic repurchases when shares trade below intrinsic value. - Countercyclical Investment Strategy: NESR continues to execute its countercyclical investment approach, stepping up investment during periods of crisis to position for future growth, as it did during the COVID-19 pandemic.

Guidance

- Full year 2026 CapEx is projected to be approximately $180 billion, reflecting increased activity and a strong awarded contract pipeline, consistent with the countercyclical investment strategy. Full year adjusted EBITDA margin is expected to remain roughly flat year-over-year at ~21% to 21.5%, despite incremental geopolitical freight costs, with margins improving sequentially each quarter through the end of the year. - Q2 2026 is expected to deliver continued robust year-over-year revenue growth driven by Jafurah ramp-up and recent contract awards, with sequential margin improvement returning to normal seasonal patterns. Interest expense is projected at ~$6.5 million, with an effective tax rate of 22.5%. Geopolitical-related freight and logistics cost impacts are expected to decline from the Q1 level as conditions normalize. Q2 operating cash flow and free cash flow are expected to rebound in line with normal seasonal patterns seen in Q2 2025. - Full year 2026 free cash flow conversion is expected to be 35% to 40% of adjusted EBITDA. Management maintains its long-term target of reaching $2 billion in total annual revenue. - The $3 billion total tender pipeline remains intact, with no delays or suspensions; most awards are still expected within the next 2 to 3 months, and some projects are likely to be moved ahead of original schedules due to new regional energy security priorities.

Segment performance

Overall Q1 2026 revenue was an all-time high of $404.6 million, up 1.6% sequentially and 33.5% year-over-year. Sequential growth was driven by the continued ramp-up of the Jafurah contract in Saudi Arabia, partially offset by lower activity in Egypt, Oman and Iraq (due to regional March disruptions). Year-over-year growth was supported by the full quarter contribution from Jafurah and increased activity across Kuwait, Algeria, Libya and Egypt. Adjusted EBITDA for the quarter was $76.7 million, for a 19% margin. Net income was $23.8 million, more than doubling sequentially and increasing 129% year-over-year. Adjusted diluted EPS was $0.26. Operating cash flow was $30.7 million, while free cash flow was negative $5.3 million (an improvement from Q1 2025). CapEx for the quarter was $36 million. As of March 31, gross debt was $287.4 million, net debt was $194.4 million, net debt to adjusted EBITDA was 0.66x, and return on capital employed improved to 10.9%. The firm notes that unconventional completions and testing service lines delivered particularly strong performance as activity scales.

Risks & headwinds

- Ongoing regional geopolitical conflict creates uncertainty for supply chains and operations, and has led to incremental unexpected freight and logistics costs (=$4 million in Q1 2026). - Persistent closure of key shipping lanes requires proactive supply chain diversification and pre-positioning of inventory and spares, which adds short-term cost burdens. - Broad commodity cost inflation (including a 100% increase in diesel prices) has raised overall operating cost structures for the industry. - Foreign exchange volatility in North Africa has created moderate losses, with $3.6 million in Q1 2026 ForEx losses partially offset by favorable items. - Seasonal working capital headwinds, combined with unforeseen geopolitical disruptions, created negative free cash flow in Q1 2026. - Some smaller, lower-priority exploratory and pilot projects outside core operations have been delayed due to supply chain constraints.

Analyst Q&A

• Q: What is the current status of the previously guided $3 billion tender pipeline, and what are expectations for upcoming awards? /

  A: NESR has already been awarded a larger-than-expected share of recently announced cementing contracts in Kuwait and North Africa, giving it a leading position in that segment in these markets. The full $3 billion pipeline remains on schedule with no delays or suspensions, and all bidding and negotiation activities are ongoing. Management expects most awards to be announced within 2-3 months, and notes additional unplanned projects may come to market as customers accelerate capacity expansion in response to current geopolitical dynamics.

• Q: Can you provide an update on Jafurah ramp-up, acceleration, deployment of the fourth fleet, and efficiency upside? /

  A: The Jafurah project is accelerating because strong execution from both NESR and Aramco has made more well pads available earlier than planned, allowing for faster ramp-up of quarterly stage counts. NESR's fourth fleet is already in Saudi Arabia and will be deployed very soon. There remains meaningful room for further efficiency improvement, with NESR implementing new continuous pumping technologies from the U.S. in close coordination with Aramco. Management expects Jafurah to become a global best-in-class project for completion efficiency, delivering upside to both activity levels and profitability.

• Q: How is NESR positioned for the $55 billion ADNOC investment plan, given ADNOC's preference for in-house services? /

  A: NESR has been working with ADNOC for a long time and has recently won multiple new contracts, and is currently bidding on a large number of the new mega projects. While ADNOC's internal service companies take the majority share of activity, the overall project pie is growing substantially, so even with a minority share NESR will capture meaningful incremental growth. NESR is well positioned to benefit from ADNOC's localized Made in Emirates initiative, and projects previously planned for the late 2020s are being accelerated, creating additional near-term opportunity.

• Q: How will NESR handle potential U.S. supply chain tightness as it scales Jafurah? /

  A: NESR has already locked in all required equipment for the fourth and fifth fleets for Jafurah, with equipment already in country or en route. The company also pre-planned and locked in all required chemicals, spares, engines and other supplies well ahead of time, and added buffer inventory to meet or exceed customer demand even if supply constraints worsen. Management notes it is well positioned to continue execution regardless of U.S. market tightness.