Q3 2024 National Energy Services Reunited Corp Earnings Call
Greetings and welcome to any as far as third quarter 2024 financial results conference call at.
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Speaker Change: It is now my pleasure to introduce your host Blake Gendron, Vice President of Investor Relations. Thank you you may begin.
Speaker Change: Thank you Donna good day and welcome to <unk> third quarter 2024 earnings call with me today are Sharif, OTA, Chairman and Chief Executive Officer of NASA, and Stefan Angelilli Chief Financial Officer on today's call, we will comment on our third quarter results and overall performance.
Speaker Change: After our prepared remarks, we will open up the call to questions.
Speaker Change: Before we begin I'd like to remind our participants that some of the statements we'll be making today are forward looking.
Speaker Change: 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.
Sherri: Now I'll hand, the call over to Sherri.
Sherri: Thanks Blake.
Ladies and gentlemen, good morning, and thank you for participating in this conference call.
Sherri: Our third quarter was once again strong.
Sherri: Following solid first half of 'twenty 'twenty four even on top of a robust growth last year.
Sherri: We continue to reach new all time highs for revenue EBITDA EPS and cash flow.
Sherri: And our balance sheet is increasingly fortified and poised for both accretive growth and prudent shareholder returns.
Sherri: Despite the prevailing market uncertainty I am pleased to report that overall activity in the Mena market remains stable.
Sherri: And I'm extremely encouraged by the prospect and that's called business outperformance, new technology rollout, particularly in direction drilling solid hydraulic fracturing execution and frontier market opportunities in water and decarbonization segment.
Sherri: Combined with our recent re listing on NASDAQ our outlook remains extremely bright both in the fourth quarter and in the coming years.
Sherri: Before passing to Stephane 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 outperformance and our overall positioning in an otherwise.
Sherri: This cautious sector landscape.
Sherri: I'm extremely proud of the entire organization as we continue to push the envelope on growth margin delivery and cash generation.
Sherri: Which affords us the opportunity to reinvest in really exciting growth areas of our business.
Sherri: If there are two key message from my prepared remarks. They are one that didnt mean, a macro outlook remains healthy underpinned by growth in key countries, alongside Saudi leadership, and pragmatically managing energy market balances with strong focus on.
Sherri: Gas and unconventional development.
Sherri: Two we expect necessary to continue to outperform the broader sector with exciting development in the core our drilling technologies and in frontier area, such as produced water and minerals.
Sherri: These areas are driving net sort of solid performance now.
Expected to sustain performance over both the near term and also in the years to come.
Sherri: Turning first to the macro the overall commodity outlook has certainly impacted sentiment in the upstream energy sector, and especially for energy services.
Sherri: While the global upstream growth outlook today is more cautious than it was even six months ago. We believe that mean activity would remain stable, particularly with recent activity growth in countries like Kuwait, which is expected to lead overall mean a growth for the next couple of years on a percentage basis.
Sherri: Yes.
Sherri: Encouragingly North Africa is again growing steadily and there is plenty of appetite to accelerate further in places like Libya and Algeria.
For this we have scalable presence, we can easily add significant resources from equipment and human capital to cater for rapid growth should the geopolitical landscape improves and opportunities materialize financially.
Sherri: Okay.
Sherri: Overall stable activity across the Mena region hardly match, the sovereign capital market narrative.
Sherri: We have very good visibility for the coming activities and where it will take place.
Sherri: Specifically because of the long term nature of the contract and the strategic importance of the energy sector in the region.
Sherri: Case in point is the Saudi unconventional gas project, which would remain a secular growth story, given the ambition to grow domestic gas capacity substantially by 2030.
Sherri: Turning now to the portfolio first and foremost our core business continued to outperform even in a subdued growth environment.
Sherri: Given our relative size compared to our more global peers, our opportunities in the core center around our ability to leverage leading shared in our anchor countries to poll through smaller segment in which there is room to grow share in other countries.
Sherri: Example of this dynamic include the regional spread of drilling them manufactured expertise from our team and nomad.
The industrial surface from Egypt, and the duplication of our Saudi Frac success and other potential unconventional resources.
Sherri: With solid growth in the core driving success. It is our yeah direction drilling platform that we expect good to carry the outperformance forward over the next several years.
Sherri: The tier one direction drilling market is more than 2 billion dollar per year across rotary steer been eligibility and M. WG.
Sherri: It's a high quality of revenue given the consolidation and sophistication of the technologies.
Sherri: Recently, we announced the first successful run of our rotary still billing and WD in Kuwait.
Sherri: And once the technology was able to complete the targeted interval in a single run.
Sherri: This milestone marks the culmination of nearly six years of joint investment research development and field testing with more than 70000 feet drilled but more importantly signals commercial viability of our technology.
Sherri: We already have in hand, the multi year contracts with provision to deploy our Neal do you need one direction drilling platform in Kuwait, Saudi Arabia and on that end.
Sherri: And the upside within this contract is significant the next goals for <unk>.
Sherri: Include repeatable success reliability enhancement personnel training and growing our fleet of tools to expand our share as we continue to gain confidence and performance across the different reservoirs and formations.
Sherri: Another unique work we are doing at NES involves a completely new market opportunity that is being defined in real time through our collaboration with our largest customer.
Sherri: Our net environmental and decarbonization application or no that is.
Sherri: As a basket of technology aimed at establishing multiple circle economy within the Mena energy value chain.
Sherri: Often as we spoke multiple times before we found our net technology outside of the oil and gas industry and adapt them to fit specific client challenges.
Sherri: One such difficult economy, its the circa water economy in the third quarter, we announced our investment in Salt Lake BV is supplier of technology called dive bar or dynamic vapor recovery, which is the low heat desalination solution originally from the Dutch DB and chemical industry.
Sherri: Over the past couple of years, we've worked with our largest customer to adapt the diverse specifically for high salinity produced water and have successfully executed two pilot project in the country.
Sherri: Furthermore, we evaluated the technical the efficacy of recovering in valuable minerals from the produced water during the desalination process, including rare Earth metals, such as strontium and lithium that are native to this reservoir water.
The Salt Lake acquisition as a signal of our confidence in the Multicellularity model of Wootton, our mineral recovery.
Sherri: While this area remains a very long development and scale up cycle. We are extremely excited for the medium to longer term prospect in our water starved Mena region.
Sherri: Our open technology platform serves as the foundation for successful innovation, but it's the combination of our local know how operational agility and the trust and open mindedness of a customer that is driving technological success in the field.
Sherri: I'm extremely excited to share further updates on our strategic initiatives in due time, including our NASDAQ Bell ringing and Tech Expo Tomorrow in New York City.
Speaker Change: But for now I will conclude and hand, the call over to Stephen to discuss our financials in detail.
Stephen: Thank you Sherry good morning to our audience in the U S. Good afternoon, good evening to our audience in the Middle East North Africa, Asia, and Europe, I'm very pleased to go through our third quarter financial results in detail.
Stephen: Despite the volatile macro environment worldwide and the geopolitical headwinds in the Middle East Nessa has achieved exceptional results during the third quarter at 24 and for the first nine months of 2004 period first let's cover revenue.
Stephen: Overall third quarter revenue is a record $336 $2 million, which is up three 5% sequentially and 12% year over year.
Stephen: Revenue for the nine months 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 'twenty.
Stephen: Our view is that growth will continue across the middle East North Africa market remainder of 'twenty, four and into 'twenty five as outlined by choice.
Stephen: Now turning to adjusted EBIDTA.
Stephen: Adjusted EBITDA for the third quarter at 24 is also a record $80 million with margins of 23, 8% substantially flat on a sequential quarter basis.
Stephen: Year to date adjusted of data is $222 $9 million up.
Stephen: Up 21, 9% year over year with margins up 146 basis points to 23, 3% weakness exited in Q3 24 with a margin of 23, 8%.
Stephen: Interest expense for Q3, 'twenty four is $9 9 million in Q4, 'twenty four should be around $9 million in love with it. The Q3 24 effective tax rate is 24% and for the year to date period, ending 30 September. It is it is 24, 3% we would.
Stephen: Expect the Q4 'twenty four ETR to be approximately in line with Q3 'twenty four.
Stephen: Now turning to EPS earnings per share excluding charges and credits is 31 for the third quarter 2024, and 75 for the 2024 year to date period, which is up 164% year over year.
Stephen: The charges and credits impacted adjusted the beta at adjusted EPS, We've made up of principally three items as follows restructuring cost, which was used to reduce overhead cost of remediation controls material weaknesses, which should abate after 2020 for audit and current expected credit losses.
Speaker Change: Joining me for North African countries.
Speaker Change: Now turning to our liquidity, which this is a story that necessarily is very proud to discuss our cash flow from operations. During the third quarter of 24. He was very strong as we generated $78 million for the year to date 24 period, we generated $193 1 million.
Speaker Change: <unk> strong third quarter is due to significant customer collections, which drove our DSO to accompany best.
Speaker Change: Free cash flow from third quarter is $43 4 million and for the year to date 2024 period. It was $103 million and this was principally used to pay down bank debt.
Speaker Change: As a result of the strong operating results and good cash flow conversion, we achieved a significant milestone at the end of the third quarter of 24, where our debt to trailing 12 months adjusted EBITDA fell 2.96%, which is below our stated target of one for comparison purposes. We were three days at the end of 'twenty two.
Speaker Change: Two and 147 at the end of 'twenty three.
Speaker Change: Gross debt on September 30th 24 is $409 million and our net debt is $291 million.
Speaker Change: Working capital levels have remained relatively flat during 'twenty four despite revenue growth of 14% year to date on top of the 26% in 'twenty three working capital expenditure had expansion has been minimized to process improvements and system development says it hurts their efficiency.
Speaker Change: Resulting in a DSO decrease of 15 days over the last 21 months.
Speaker Change: At the quality of the inventory levels of nearly 10% over the same period.
Capital expenditures for the first nine months of 'twenty four is $80 million, we still expect full year capex to be the facility of $120 million driven by the delivery of our first royalty directional drilling tools, which is supportive of the drilling strategy just outlawed by sherif.
Speaker Change: All of the above as result or is it a return on capital employed percentage on a trailing 12 month basis.
Speaker Change: September 30th 24, reaching 11% and this should only improve going forward.
Now on to some housekeeping topics as you have seen we will list three listed back on NASDAQ4 weeks ago on Tuesday, 20, <unk> of October and we're looking forward as a company to ringing the bell at the NASDAQ does that closing ceremony tomorrow we.
Speaker Change: We've spent the better part of the last two years, two plus years reshaping our back office and the company overall, we view it updated processes procedures and controls as well as implementing the latest software upgrades throughout the ERP system. We are very confident that we'll be able to demonstrate the remediation of our <unk>.
Speaker Change: Total control weaknesses during the 24 orders. This conclusion is very positive news for the company. After almost three years of restatement investigations inquiries and internal control remediation efforts, but very soon we should should have concluded or more in.
Speaker Change: In summary, operational execution across the Middle East North Africa region continued to be strong during the third quarter of 24, and our updated processes procedures and controls have transformed the back office to accommodate the continued growth that we've targeted these drivers have combined to generate record results for the year to date 24.
Speaker Change: Period with strong revenue growth strong adjusted a beta and healthy cash flow conversion, the latter of which has been used to pay down debt and strengthen the balance sheet overall.
Speaker Change: The Middle East North Africa region remains favorable and this continues to be focused on our stated goals of delivering profitable revenue growth execution efficiency.
Speaker Change: Allergy expensive debt reduction and working capital efficiency to drive future financial performance on behalf of management I would like to thank our entire workforce for their outstanding efforts in delivering these results together with our directors shareholders and banking consortium for their continued support.
Speaker Change: Future fitness continues to look good.
Sherif: Now I'll turn the call back to Sherif.
Thanks Stephane let.
Sherif: Let me conclude by highlighting our key takeaways from the quarter.
Sherif: First I would like to leave you with our belief that we will continue to outperform the broader media market.
Sherif: Not only is there further runway for core business expansion, but we've also achieved tangible progress in our <unk>.
Sherif: Platform development and expect this to be both a meaningful growth contributor and also returns accretive over the coming years.
Sherif: We will continue to have new partners to introduce the 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.
Sherif: Our <unk> segment, and specifically our water our minerals portfolio are where some of the most interesting work in the company is being done.
Sherif: In our strategic investment in Salt SEC following several years of successful piloting and mineral recovery success.
Sherif: Now we need to take the water business to the next level and schedule the execution.
Sherif: I would like to close by thanking all of our employees their families and our valued customers and partners for their continued support.
Sherif: Couldn't be more excited about the future for neff looking.
Sherif: Looking forward to see many of you tomorrow at the NASDAQ building, where we have several key of our executive and manager flow from the region to New York to present, our technologists and engage with all of you and with that I pass over the call to the operator for your question Donna.
Speaker Change: Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
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Speaker Change: Today's first question is coming from David Anderson with Barclays. Please go ahead.
Speaker Change: Oh, great. Good morning, <unk> how are you.
Speaker Change: Sure how are you.
Speaker Change: I'm doing great I'm glad to have you back a formula.
Speaker Change: So just first question is maybe if you could kind of give us a little.
Overview of what's going on.
Speaker Change: Sort of a complicated year.
Speaker Change: Offshore going down onshore coming up a lot of focus on gas.
Speaker Change: And feel like they are kind of slowing a bit can you just sort of give us the overview of what's happened this year so far in Saudi.
Speaker Change: That change in 12 months.
Dave: Yeah, Thanks, Dave So as outlined clearly by Saudi Aramco.
Dave: And obviously the leadership there is after the 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 barrels of total capacity by having 800000 coming from offshore and.
Dave: <unk> hundred coming from them and that plan was postponed.
Dave: To only be 12, so they released the planned increased rig. So that's for people that are familiar with Saudi Saudi used to be 60, Jackups, approximately which is very high.
Dave: And the plan was to go all the way to 91 days almost reach it and then they after that decision. They started leasing the offshore jackups that were planned for the 800000 barrel additional capacity, which basically been postponed so that win.
Dave: The release of rigs started to happen and this took place earlier this year Dan.
Dave: On top of that obviously there are success.
Dave: The projects are on the unconventional et cetera, where there is a lot of associated gas and the plan to move to 50% guys, 50% renewable for the power generation I'm digging them by 2030 and they show that they have access.
Dave: The oil and basically with the EBIT slowed down or China, or 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 Thats some of the.
Dave: The extra rigs that that would at least.
Dave: Now if you look at the total rig count 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 to act 12, which again a lot of people I keep saying that.
Dave: A skeptical about it that is not true because Saudi can do that and can deliver 12 billion and they don't need the additional rigs to drill for oil when nobody needs. It right and they are very disciplined on the opex plus they needed actually so and that's why they they released the accessories now if I move to <unk>.
Dave: <unk> part, which is the unconventional the unconventional gas, which is the <unk> project is extremely successful and they keep adding rigs. So that is the only project that is not been touched has actually increased the rig count and as some people might realize well the first delivery of up to 25 2025.
Dave: First got up to 100 dominion's golf than the 2027, and then in 2013 and on that you have a lot of associated.
Dave: Gap, which is basically you get almost 600000 barrel and you get a lot of Ngls. So this definitely will again.
Dave: We'll have an additional oil there.
Dave: That is a that is a bit of it the last thing that some people might not know is that it's very.
Speaker Change: Very good the highlighted by his Royal Highness is the move away from burning crude for four power and that's and there is a plan to ensure that this does not take place, which is almost a million barrel and in the summer.
Speaker Change: Hot months, which again make sure that if this happens then the domestically they don't need all this diesel which basically will make it available for export.
Dan: So I hope I answered your question Dan.
Speaker Change: So how does things.
Speaker Change: The rigs have come off.
Speaker Change: We've kind of seen that sort of set sort of activity level do you expect things to sort of stay at these levels and just keep ramping up near or like how does that kind of the next 12 months.
Speaker Change: From sort of a broader activity level.
Speaker Change: You don't need to get specific disorder broadly speaking out of the box.
Speaker Change: Well I think what will happen in my personal opinion is basically a.
Speaker Change: It's going to be stable outside of Florida is going to be stable to a bit down.
Speaker Change: Because because obviously some rigs now are being put on what they call extended maintenance, which is obviously.
Again, you don't need to drill for some of the oil Bart you would just put it on maintenance and then to just what I was going to keep increasing so overall activity in Saudi I would say 'twenty four 'twenty five over 24 would be stable because that drop in in in oil will be compensated by the increase.
Speaker Change: In and gas and in unconventional.
Speaker Change: Now for service industry, it all depends where each play right. So our expectation for net we are going to grow 25 over 'twenty for it.
We will continue that growth profile that we had and we believe we are positioned very strongly and the other part that besides the activity being poised.
Speaker Change: Poised with we are more focused on the gas and on the project of Jeff would've 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 rotated sterba and WT SWT and now we have so that's an additional for us it's.
Speaker Change: Quite a unique because I have the contract. So now the issue becomes how much can we deploy in 'twenty five we did not deploy any in 2004, so how much of that at this will be an additional for us 25% over 24.
Speaker Change: And so the overall the shifting is that the mix works in your favor.
Speaker Change: We have more <unk> than you had offshore but just one final question for me is essential for a.
Speaker Change: Can you just kind of give us sense.
Speaker Change: A quick overview of what Youre doing today and before I know you've been on this path.
Speaker Change: Gosh, a long long time like you were the one two.
Speaker Change: A lot there.
Speaker Change: Okay.
Speaker Change: Or are you today in the field and are you expecting to see more tenders.
Speaker Change: What are some of the different.
Speaker Change:
Speaker Change: Services that youre expecting to be tendered say over the next six months.
Jim: Sure Jim.
Jim: Florida, obviously again it isn't it.
Jim: And outstanding.
Jim: The project for the four Saudi Iraq, I mean, it's it I.
Jim: I would say it's a.
A world class like you have in the U S. They beat every record from drilling the wells.
Jim: In 40 days now, making it in 2014 and 12 IHS I just took the entire my entire board.
Saudi.
Jim: And to see it and they are we actually went through the field and sold the Frack. While it was working right. So it is very impressive by all means so today.
Jim: Florida has you you'll have you'll have three unconventional Saudi such as running right, which is the big picture for us.
Jim: And you have what they call you'll have the new rates coming there so they added rigs.
Jim: And in that in the drilling they have multiple companies involved right. So you have obviously people in the mod people in the in the direction drilling et cetera, and that project that our involvement is being on the cementing from drilling the well cementing and we as well involved obviously now.
Jim: In directional drilling which is the contract. We just got awarded so we have and in the direction drilling you have multiple a multiple suppliers you have around five suppliers now under direction drilling arena between the big guys and two of the smaller guys like we are one of them.
Jim: And then on the fracking side.
Jim: Two two players today us and one of the big.
Jim: One of the 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're doing that because obviously the <unk> is going to increase dramatically from harsh so forgive but you know this is basically this year.
Jim: Or are they they are planning at 9000 stages that we completed and then this is going to go all the way to 25000 stages per year. Once you get to 25000 stages. Obviously, there are room for more players.
Jim: 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 you know people will participate.
Jim: The approaches are obviously the market should be disciplined as we always say, but you know you never know so there will be more award suppliers again to be able to complete those number of stages in the coming years and the project is poised for the <unk>.
Jim: By 2030, so definitely all of this is going to take place and the rigs are performing outstanding you know the drilling of the wells are really really.
Jim: Almost at the technical limit.
Speaker Change: That's great Yeah. Thank you very much appreciate you taking all my questions. Thank you Sir.
Jim: Yes.
Speaker Change: Thank you. The next question is coming from Gregory Lewis of <unk>. Please go ahead.
Speaker Change: Yeah, Hi, Thank you and good morning, and good evening, everybody I'm sure. If I was hoping we could kind of like blend together.
Speaker Change: The growth that were kind of expected to see and in Mena versus kind of the cross selling you know the rollout of ROI and kind of try to get a sense for as you think about revenue growth and 25 versus 24 any kind of sense for that mix of you know.
Speaker Change: Just.
Speaker Change: Outperforming the market and then kind of.
Speaker Change: Layering in those cross selling opportunities and the rollout of royall.
Speaker Change: Sure I mean, I would say the market overall and mean that would be plus single digit year over year. So 25 over 24 should go lets say a five 6%.
And.
Speaker Change: We always say, we should double that growth.
Speaker Change: So whatever the market is growing at we should be at double that rate.
Speaker Change: The route.
Speaker Change: Platform the direction drilling the.
Speaker Change: The Decarbonization segment. This is all addition to that so what we believe is at once.
Speaker Change: The success of the direction drilling is proven in the sense of commercial viability that it can take 10 20 rigs perform equal to the big provide that we should be able to gain share because we have the con.
Speaker Change: And that's I think something we try to articulate that the key in the middle East is to have a contract do you have 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.
Speaker Change: Saudi Arabia, Oman, and Kuwait, So now what we need is to deliver dose technology on the rotary steer, but that we are taking a very prudent and if you'd like technical way of looking at it. So we deploy when we know.
Speaker Change: We can be at par with the big guys before the SEC, obviously of the customer because we want to be always credit, but we always to maintain that you know I can do in this formation I can do this my dog like severity is higher than what exists in the market show the cost.
Speaker Change: And we see the benefit of us deploying the tools with the speed of deploying at 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 new issue on on contract or waiting on contract to be awarded for me to be.
Speaker Change: We're able to deploy a high bar in the contract which is a very good thing to high <unk>.
Speaker Change: On the decarbonization the third element definitely is the is the appetite of the customer we talk a lot about you know the methane pledge we're talking about the 2013 cop 29 is running as we speak.
Speaker Change: So definitely it is something that everybody wants to monitor we just came from added back in Abu Dhabi, It's still a very big important subject to sustainability is extremely important I think we live on our planet, we need to be careful how we manage our water resources in a place like as we can.
Speaker Change: As I call. It staff is actually I think it's the button on in the world from starvation of water per capita and it's all desalination. There is no rain so for the energy industry to be disposing. All this water of the produced well is not right. So we need to find solution that is economical we think we are there.
Speaker Change: There we think we can take the minerals that comes from that produced water and sell it and make a margin on it which basically pay for the power of doing that service, we think as well we can get lithium which can be a very big item on the <unk>.
Speaker Change: <unk> agenda, and if we if we get lithium from that so there is a lot of exciting things now the scale is what matters and obviously again I keep repeating this.
Speaker Change: As the customer works with you to be able to give you that project and being willing to risk and take some some test.
Speaker Change: On that front, but again for the sake of the climate the word the sustainability I think it.
Speaker Change: Rich industry like ours should do that.
Speaker Change: Okay, Great and then I did have a question.
Speaker Change: There's obviously the ongoing debate when if when Saudi Arabia's, Ghana, and OPEC plus is going to kind of start ramping production again, you know just as we think about that you know if that were to happen at some point in 2025.
Speaker Change: Tao it if at all does that impact you.
You know kind of the activity levels, you're thinking about and twenty-five then maybe 26.
Speaker Change: That additive or has that gone up.
Speaker Change: All of that.
Speaker Change: I mean look I mean, it all depends there is a lot of narrative out there that the middle east needs the oil price to be at that level or above.
Speaker Change: So all of this notion that they are you just going to open up the Dod and flood the market with oil is not going to happen.
Speaker Change: So what they need to do is they need to they will continue with the pragmatism to ensure that the market is well balanced.
Speaker Change: And the oil price remain healthy for their economic growth.
Speaker Change: So.
All the comments I made is based on that and all our forecast is based on that demand and supply now.
Speaker Change: For whatever reason.
Geopolitics there is another you know.
Speaker Change: The drop of some of the producer.
Speaker Change: And get eliminated from their production and then the <unk>.
Speaker Change: Audis or others have to come up with production to two to make up for that for sure. The activity will go much higher.
Speaker Change: So our comment on our analysis is based on an oil price the same opex plus remainder cut which.
Speaker Change: 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.
Speaker Change: Of the U S and President Trump and and most probably Russia can you know back to the game et cetera et cetera.
Speaker Change: It doesn't really drive that more activity it will happen but.
Speaker Change: We are taking that.
Speaker Change: That that notion that the activity will remain.
Speaker Change: Small low single digit $25 24, and we are outgrowing that market if the oil price.
Speaker Change: Get stronger and as I said somebody has to replace another yeah activity will go further up.
Speaker Change: And.
Speaker Change: The oil price.
Speaker Change: 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 the industry that you have 20 off. This is the main core business of employment supply chain everything in the country. So people feel protected.
Super helpful. Thank you very much.
Yeah.
Speaker Change: Once again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time.
Speaker Change: The next question is coming from Derek parties, there of Piper Sandler. Please go ahead.
Derek parties: Hey, good morning, and congrats on the re listing.
Speaker Change: Thank you Sir.
Speaker Change: 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 our Capex investment cycle. What can you service today wherewith activity need to go in order to meaningfully build out new capacity and related what does it mean for pricing and margins.
Speaker Change: How can you drive that higher over the next couple of years.
Speaker Change: Hey, Derek Stephanie I'll try.
Speaker Change: The first question I've said this year.
Speaker Change: We spent $80 million in Capex. This year, so far and we've got another $40 million, which is mainly royal royal tools coming out.
Speaker Change: Let's say the five to seven 5% to 10% growth, which we're sort of anticipating next year right. We think the capex will be $120 million right again give or take right.
Speaker Change: We were too.
Speaker Change: If the revenue from Royal was to grow greater than that Capex, obviously would be higher and if we get it in either projects.
Next year, there would be some capex on Max right.
Speaker Change: But we're looking at a flattish capex of $120 million guide next year of that 5% to 10% growth.
Speaker Change: 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.
Speaker Change: View of the free cash flow generation.
Speaker Change: Right.
Speaker Change: Let's say about $120 million of Capex for next year, we're probably looking at the high Thirty's, 40% free cash flow conversion.
Speaker Change: Probably have some working capital.
Speaker Change: Let's let sufficient very well over the last two uses.
Speaker Change: <unk>.
Speaker Change: I think it will be tough to keep.
Speaker Change: Alright.
Speaker Change: Cushing narrowed inventory and pushing their DSO with growth right, but we will do our best right, but I would.
Speaker Change: I would keep it at 40%.
Speaker Change: Free cash flow conversion to a beta.
Speaker Change: Got it great Thats helpful.
Speaker Change: My follow up question I wanted to talk about those partnerships with the North American companies that you mentioned Sharif in and how we should think about deploying U S shale technology in the Mena region, you pointed out cactus in Phoenix.
Speaker Change: Should we think about these evolving over over time over the next couple of years and you know where Mena is on the technology adoption scale versus where U S. Shale is and what products youre looking at to bring overseas just maybe some more color on that would be helpful.
Speaker Change: Sure I mean, if you look at.
Speaker Change: At the unconventional for example for.
Speaker Change: For Saudi everything you can imagine in the Permian and.
Speaker Change: The best in class is being deployed so and that's when we started that journey back in 2019 with Aramco. We that's exactly what we said we said guys. We are open platform and we are going to bring the best in class, there's not like because I have that you have to use that we are going to see what do we use.
Speaker Change: What has been used and how they moved from.
Speaker Change: $5 six stages to 18 to 2020 to pumping for 22 hours.
Speaker Change: What how did they achieve that how did the customer and the technology and the shell in the U S managed to do that and that's exactly what we did and obviously under their leadership is we looked at who has what right.
Speaker Change: And we teamed up with us with those technologies. So cactus is doing a very very very good in our.
Speaker Change: Wellheads.
Speaker Change: And factories.
Speaker Change: We use our my different John in Phoenix on the on the drilling and the motors.
We have scout on the mono bore in again what is the best in class been used here and we took it that and obviously the way it works in Saudi for again for people to understand you have that.
Speaker Change: Local player which is us.
Speaker Change: Brain, we say we present the technology that is very innovative that is unique and why is it better and obviously our uncle is extremely solid customer with a very very good and very strong technical department. They check and divert this technology then we go through.
Speaker Change: What we call it <unk> or the trial tests and during that trial that they will check and that the technology.
Speaker Change: What they call free trial free trials, when they prove that and they see the the track record then we bring this under our umbrella and perform with the customer and with the way we do it we do it transparently. We ran the company partner, we don't say Oh. This is an ethanol. We say this is doctors this is fine.
Speaker Change: <unk>. This is Scott this is et cetera, what I see the next level I think there will be a lot of work that we are going to do on it.
Speaker Change: The next level of mailing the blocks. So I think they were looking into partnership with some snap Inc.
To seek it should we go faster on finalizing, especially when it's once we go to the 25000 and stage. We are working very close now with beyond which is MPD managed pressure drilling.
Speaker Change: Both on unconventional and not an unconventional we're looking at as well, bringing those package like we do in the U S to do that there is some technology that we're looking at on wireline and we have a couple of partner without mentioning the names are we're.
Speaker Change: We're looking at second level of what else could we do too.
Speaker Change: Reduce the Frac operation and the perforation timing.
Speaker Change: And I think there will be some work as well on the rig up rig down and the speed between pads.
Speaker Change: Just.
Speaker Change: Understand that.
Speaker Change: In that size or that type of operation that type of professional to date is only in Saudi Arabia and Dominion in the Mena region. So it is not like this is what you see it's only but they went through you know appraisal exploration they spend a lot of money assessing those wells before they went now too.
Speaker Change: Development, which is basically now manufacturing and Thats exactly best in class like you see in any bad.
Speaker Change: And in the U S for the top clients like EOG or Devon in any of these guys. It's exactly the same now the other countries.
Speaker Change: In unconventional it's I would call it an infancy right. So they are in that trajectory, but as if you are like seven eight years ago. So they're going to go through that process and again the infrastructure supply chain is a challenge at the Middle East. So you have a challenge of the water that is not worth as I just explained there is.
The challenge of the local sand, which is proven now to be successful that's what we do in Saudi that's why the cost went down dramatically.
Speaker Change: People look back 10 years ago, we used to fly and import sand from Australia to Saudi right, which is obviously, we have a lot of sand in the middle East. So now when you use all local sand, we actually use even regional sand.
Speaker Change: Sand boxes et cetera, so long answer, but I'm just trying to give you. The picture that that is happened today already in Saudi I think the unconventional prospect in the middle East.
Speaker Change: A couple of other countries I think Algeria could be a very very good place.
Speaker Change: For people that understand the you know the reservoir characterization, it's a very similar to the backup morita.
Speaker Change: And that basin is huge and it is could be developed at the same scale of what you have in Argentina, you have again and Eagle Ford et cetera, and this could be.
Speaker Change: But again, they just have to stop and then obviously supply chain everything has to be developed accordingly.
Speaker Change: Got it very helpful comments, thanks, Sri Thanks, Stefan I'll turn it back.
Speaker Change: Thank you Sir.
Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. Photo for closing comments.
Mr. Photo: Thank you very much we really appreciate all the time that everybody has but we again, we'd like to thank all our employees their families all our shareholders or our banks or our partners.
We had a very good.
Mr. Photo: Good time now and we are looking forward to see a lot of people tomorrow, we are going to be on the Nasdaq.
Mr. Photo: <unk>, we will have our tech exposition two hours before so people will be able to see the technology, we will display the ROI of platform or display will display the the ninja. The decarbonization, we have people coming from the middle East are our managers and executives to be there.
Mr. Photo: As well so there's a lot of the investors and partners will be able to to 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 too.
As we say to celebrate with the closing bell and the event after that thank you very much appreciate all the support.
Speaker Change: 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.
Mr. Photo: Okay.
Mr. Photo: Yeah.
Mr. Photo: [music].
Yes.