National Energy Services Reunited Corp. (NESR) Earnings

Management highlights

- Overall Operational Resilience & Performance - NESR maintained 100% uninterrupted service for all customers throughout ongoing regional geopolitical conflict, reorienting its 30-60-90 day contingency supply chain strategy to avoid disruptions. No workforce evacuations were implemented, as 95%+ of local staff remained in-country to support operations. - The company exceeded its original $2 billion annualized revenue run rate target two quarters ahead of schedule, and reaffirmed its 3B3 growth strategy to reach a $3 billion revenue run rate within three years (launched in late 2025), with management now expecting to hit this target faster than originally planned. - Revenue and profit growth was supported by market share gains from competitors that suspended operations or evacuated personnel amid regional conflict. - 3B3 Growth Strategy Pillars 1. Fueling the contract funnel: NESR is already the largest hydraulic fracturing provider in the Middle East and a top 3 provider across its largest core segments. The company now has qualification to bid on larger contract sizes across all segments, with a focus on filling the pipeline with secured multi-year contracts to drive further scale. 2. Expand anchor country footprint: NESR is pursuing smart, profitable geographic expansion into new markets and scaling existing small operations. Syria is highlighted as a particularly promising near-term opportunity, with international oil companies pursuing oil and gas industry revival projects there. 3. Commercialize frontier technology/innovation: NESR is preparing to launch commercial results from years of investment in R&D ventures including ROIA (advanced drilling tools) and NEDA (decarbonization, mineral recovery and water technologies). The recent Ahmadi Innovation Valley (AIV) master technology agreement in Kuwait is a core milestone for this pillar, unlocking dedicated innovation budget to develop tailored solutions for the Kuwait market across drilling, heavy oil, unconventional resources, enhanced oil recovery and other areas, with over a dozen global tech partnerships and hundreds of patents supporting the initiative. - Capital Allocation Framework - Priority 1: Invest in high-return organic growth aligned with the 3B3 strategy, including recently awarded contracts and technology expansion. - Priority 2: Maintain a strong balance sheet with a target net leverage ratio of 1x adjusted EBITDA or lower; zero net debt is a realistic possibility within two years based on current performance. - Priority 3: Return capital to shareholders: a quarterly dividend of 10 cents per share (40 cents annual) will be initiated in Q4 2026, and the existing $50 million 12-month share repurchase program remains in place. - Financial Performance Highlights - Q2 2026 adjusted EBITDA was a record $106.2 million (20.4% margin), with $4 million in incremental geopolitical-related freight and logistics costs. Adjusted net income hit a record $45.5 million (70.1% sequential growth, 125.9% year-over-year growth), with adjusted diluted EPS of 44 cents. - Q2 operating cash flow was $174 million, with free cash flow of $99.9 million (including ~$40 million in temporary working capital timing effects). Trailing 12-month return on capital employed reached 13.5% as of quarter end. - As of Q2 end, net debt was $99.6 million, for a net debt to adjusted EBITDA ratio of 0.3x, well below the 1x long-term target. - The company changed its external auditor from Grant Thornton Dubai to PricewaterhouseCoopers Dubai, effective for the 2027 audit, following a competitive tender process; there were no disagreements with the prior auditor.

Guidance

- Third Quarter 2026 Guidance - Continued strong year-over-year revenue growth, supported by ongoing ramp-up of the Jafora contract and recently awarded contracts across Kuwait, the UAE, and North Africa. The fifth Jafora hydraulic fracturing fleet will be deployed shortly after arriving in Saudi Arabia, dependent on customer timing. - Sequential margin expansion in line with normal seasonal trends. Incremental geopolitical-related freight and logistics costs are not expected to exceed Q2 2026 levels unless the regional security situation materially deteriorates. - Expected net interest expense of ~$6.8 million, and an effective tax rate of ~24%. - Full-year 2026 free cash flow is expected to hit 35% of adjusted EBITDA, consistent with long-term targets. - Full Year 2026 Guidance - $2 billion of full-year revenue is now a minimum objective, raised from the original full-year target, achieved two quarters ahead of the original planned annualized exit rate. - Full-year adjusted EBITDA margins are expected to remain broadly in line with 2025 levels, despite incremental geopolitical-related logistics costs. - Full-year capital expenditures are projected to be $210 million to $215 million, increased from prior plans to support higher activity levels, recently awarded contracts, and 3B3 growth investments. - Expected full-year net interest expense of $26 million to $27 million, effective tax rate of ~24%, net income margins of 9% to 9.5%, and free cash flow conversion of 35% to 40% of adjusted EBITDA, depending on final year-end collections.

Segment performance

The call does not provide separate financial results, absolute revenue figures, or revenue contribution percentages for individual product segments. The overall company Q2 2026 revenue was a record $520.8 million, with 28.7% sequential growth and 59.1% year-over-year growth. The strongest segment performance came from unconventional completions, driven by the ramp-up of the Jafora unconventional contract in Saudi Arabia, where four hydraulic fracturing fleets operated throughout the quarter. Additional solid growth was delivered by conventional operations in Saudi Arabia, and operations in Oman, Egypt, Kuwait, and North Africa. Activity in Iraq was the only headwind, with lower volumes due to regional geopolitical disruptions.

Risks & headwinds

- Ongoing regional geopolitical conflict has created incremental freight and logistics costs, and has disrupted activity levels in Iraq. Further material deterioration of the regional security situation could increase costs beyond current expectations and cause additional activity disruptions. - Large tender awards for regional contracts have been pushed back by one quarter due to conflict-related uncertainty, which could delay near-term revenue growth. - Frontier technology commercialization (including NEDA decarbonization and mineral projects) has been slowed by client priority shifting to near-term production and export readiness amid the conflict, pushing expected project start dates out. - Future revenue growth depends on winning a large share of upcoming regional tenders, which is not guaranteed. - Geopolitical disruptions to global supply chains could impact the company's ability to source critical equipment and materials for new project ramp-ups.

Analyst Q&A

• Q: What drove Q2 2026 sequential revenue growth, what is the ramp status of the Jafora frack fleets, and when will the $3 billion 3B3 revenue target be achieved? /

  A: Q2 growth was led by the Jafora project, with four fleets fully operational in the quarter; the fifth fleet was shipped and will deploy shortly once cleared by the customer. Additional growth came from strong performance in Oman and North Africa, with very limited exposure to conflict-disrupted regions limiting downside. Management expects the $3 billion 3B3 target, originally planned for three years from late 2025 launch, will be achieved faster than the original timeline, dependent on contract wins in new markets and successful commercialization of frontier technologies.\n\nQ: What is the significance of the Kuwait Ahmadi Innovation Valley master technology agreement, and when will revenue start to flow from it? / A: AIV is a visionary initiative by Kuwait's national oil company to create a regional upstream innovation hub, and NESR was selected as one of four inaugural founding partners. The framework allows NESR to test and deploy fit-for-purpose technologies for the Kuwait market, with awarded technologies moving directly to commercial deployment without additional full tender processes. The official inauguration is expected in Q4 2026, with commercial contracts flowing after successful technology testing.\n\nQ: What does gaining licenses to bid on larger contracts mean for 3B3 growth, and can NESR win another contract as large as Jafora? / A: In Middle East energy contracting, firms must prove operational and financial capability to be eligible to bid on large multi-year contract lots. As NESR has grown its scale and track record, it now qualifies to bid on the largest contract sizes across all its service lines, which enables much faster growth than when it was only eligible for smaller contracts. Upcoming tender awards have been pushed one quarter due to conflict uncertainty. While another single contract as large as the Jafora project (the world's largest unconventional oil services contract) is unlikely, multiple large awards across different segments will combine to deliver equivalent growth.\n\nQ: How has NESR maintained uninterrupted supply chain operations amid regional conflict when global peers have faced disruptions? / A: NESR activated its crisis management team early, diversified supply chain routes and stored critical materials in multiple regional locations to avoid reliance on any single chokepoint. When sea/land routes were blocked, the company proactively paid for air freight charters of critical materials to ensure no service interruptions, absorbing the incremental cost rather than passing it to clients to uphold partnership commitments. As a local-focused MENA firm with almost entirely in-country staff, NESR did not evacuate any personnel, allowing it to continue operations and capture market share from exiting competitors.