Nabors Industries Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• International Markets: Activated ten international rigs in 2024, with nine startups planned for 2025 and expected reactivation of a rig in Colombia. Has a strong pipeline of additional tenders in key geographies. SANAD deployed its ninth new build in the fourth quarter, with five more scheduled for 2025 and one in 2026, forecast to generate significant adjusted EBITDA.
• US Market: Daily rig margins in the lower 48 remained at high levels in the fourth quarter, but the market showed limited near-term recovery. The trend toward increasing lateral length continues, and the company is well-positioned to capitalize on this. The acquisition of Parker Wellbore is expected to bring strategic and financial benefits.
• Technology and Innovation: NDS's gross margin exceeded 54% in the fourth quarter, a record, demonstrating the benefits of its portfolio to clients. NDS's lower 48 daily margin increased by more than $100 per day.
• Capital Structure: Challenged by delays in Mexico payments, lack of growth in the lower 48 market, and accelerated payments for new builds in Saudi Arabia. Working to improve efficiency and align cost structure.

Segment Performance

• US Drilling Segment: Revenue for the fourth quarter was $730 million, a $2 million sequential reduction. US drilling EBITDA was $105.8 million, down by $2.9 million, or 2.7% sequentially. Average daily margins came in just under $15,000, down around $100 from the third quarter. For the first quarter, lower 48 daily margins are expected to be approximately $14,800 with an average rig count of approximately sixty-one.
• International Drilling: Revenue was $371 million, an increase of $2.8 million. International EBITDA decreased by $4 million to $112 million in the fourth quarter on a stable average rig count of eighty-five. Daily gross margin was approximately $16,700, a $400 decrease. The first quarter forecast assumes a start-up of the tenth and eleventh SANAD rigs and the restart of a rig in Colombia.
• Drilling Solutions: Revenue of $76 million decreased sequentially by $3.6 million, or 4.5%. Drilling Solutions delivered EBITDA of $33.8 million in the fourth quarter, down 1.5%. NDS's gross margin exceeded 54% in the quarter, a record, and NDS's lower 48 daily margin increased by more than $100 per day.
• Rig Technologies: Revenue reached $56.2 million, up $10.4 million, or 22.6%, driven by a robust increase in deliveries of capital equipment and parts sales in the Middle East. Rig Technologies delivered EBITDA of $9.2 million in the fourth quarter, up sequentially from $6.1 million.

Guidance

• 2025 Outlook: Anticipates lower 48 average rig count in the range of sixty-two to sixty-four and daily gross margin of approximately $14,600. Total combined EBITDA from Alaska and offshore is expected to decline 5% year over year. International drilling targets average daily margin of $17,600, an increase of $1,100 or 6.8%, with average rig count between eighty-eight and eighty-nine rigs. NDS is expected to improve by approximately 6% to close the year at $140 million. Rig Technologies EBITDA should improve slightly to come in at $30 million. Capital expenses forecasted in the range of $710 to $720 million, with around breakeven free cash flow for 2025, excluding Parker Wellbore results.

Risks

• Mexico Payments: Significant delays in payments from Pemex in Mexico, with expectations of reduced investment impacting 2025 revenue, and uncertainty regarding when the government will loosen restraints.
• US Market Weakness: Limited near-term recovery in the lower 48 drilling rig market, with operators demonstrating capital discipline and elevated rig churn.
• Regulatory Approvals: Pending approvals in a few countries for the Parker Wellbore acquisition could impact the closing timeline.

Q: Good morning, everybody. Appreciate all that intel and info, especially on the SANAD front. Very helpful. Wanted to get clarity around free cash flow and substantially reducing gross debt.

A: Kurt, we have a few pieces within the company. SANAD's cash flow is ring-fenced, and in 2025, we're spending about $360 million in CapEx in SANAD, resulting in a red about $150 million in free cash flow generation within SANAD. Outside SANAD, other legal entities are forecast to generate roughly $150 million of free cash, which will be used to reduce gross debt.

Q: Good morning. And appreciate all the color. William, what's your outlook for working capital and cash taxes that's embedded in the breakeven, free cash guide, pre-Parker, and did you incorporate Mexican collections?

A: Three-part question. Mexico collections are expected to be sorted out, but likely in the first half. Working capital is expected to have DSO go down a few days. Cash taxes will be similar to this year, around $50 million.

Q: Hey. Thanks. Good afternoon. Hey. Good day. So just wanted to see if you could help me put the pieces together on the full-year 2025 guidance that you gave.

A: That's a great question. SG&A and other reconciling items are being worked on to be more efficient. We have confidence in higher operational pieces than in 2024, with ups and downs in different segments.

Q: Hey. Thanks. Maybe just to start out on a continue along the SANAD line of questioning. I think you said you expected could likely break even on a free cash basis in 2027 or 2028. Would that effectively assume a five-rig new build cadence continues?

A: Correct. Once reaching a certain base load of cumulative rigs and at that cadence level, existing rigs will fund stuff and lead to excess cash flow going forward.

Q: Yeah. First question is just regarding the SANAD new build program in 2026. You mentioned that you'd expect $200 million of EBITDA from the fifteen rigs. So is that fair that the run rate will be about $13 million per rig for the new builds, or does the $200 million include additional EBITDA from the next call tranche of five rigs?

A: We're not operating fifteen rigs right now. But the average will be somewhere in the $12 million range per rig if using that metric.

Q: Good. And just for the follow-up would be you've guided to a little over $700 million of CapEx. $360 million for the SANAD program. New build program. It's a little bit of a breakdown for the remaining, call it, $350 million of CapEx, the buckets where that's going to?

A: Midpoint CapEx is about $715 million. Remaining CapEx includes sustaining CapEx of about $280-$285 million, international contracts in Kuwait and Argentina about $56 million, NDS about $5 million, and corporate about $9 million.