Business Context and Reporting Period
Company: National Energy Services Reunited Corp. (NESR)
Filing Type: Form 8-K (Current Report)
Date of Report: June 12, 2018 (Earliest event reported: June 6, 2018)
Event: Completion of a Business Combination with NPS Holdings Limited ("NPS") and Gulf Energy S.A.O.C. ("GES"). NESR, previously a shell company, has ceased to be a shell company and is now a holding company for these two oilfield service providers operating in the Middle East, North Africa, and Asia Pacific regions.
Key Financial Metrics
Transaction Consideration:
- NPS Acquisition: Total consideration of approximately $442.8 million in cash (including $150.0 million from Hana Investments) plus 11,318,828 NESR ordinary shares valued at $10.00 per share. Additional earn-out mechanisms and a "Ticker Fee" of $13.4 million were also paid.
- GES Acquisition: 88% of GES acquired via stock exchange valued at $10.00 per share. The remaining 12% was acquired by NESR Holdings for $29.2 million, with debt assumed and converted to equity.
Capital Structure Post-Closing:
- Outstanding Ordinary Shares: 85,562,769
- Public Warrants: 22,921,700
- Private Warrants: 12,618,680
- Redemptions: 1,916,511 shares redeemed for $19,379,614.
Debt and Liquidity:
- Backstop Commitment: $48.3 million drawn down from MEA Energy Investment Company 2 Ltd.
- Hana Loan: $50.0 million unsecured convertible loan from Hana Investments Co. WLL, maturing December 17, 2018.
- Pro Forma Cash: Approximately $22.2 million (as of March 31, 2018 pro forma).
- Pro Forma Total Assets: $1,324.2 million.
Historical Performance (Three Months Ended March 31, 2018):
- NPS Revenue: $76.8 million (up 40% YoY); Net Income: $5.5 million.
- GES Revenue: RO 15.6 million (~$40.7 million) (down 13% YoY); Net Profit: RO 0.2 million (~$0.5 million).
Material Changes vs. Prior Period
Corporate Status: Transitioned from a "shell company" with no operations to an operating holding company with significant assets and liabilities.
Ownership and Control:
- Significant change in beneficial ownership structure. Major shareholders include Mubadarah Investment LLC (20.15%), Hana Investments Co. WLL (16.39%), and SV3 Holdings Pte Ltd (7.98%).
- Board of Directors expanded to nine members, including nominees from NPS Selling Stockholders, GES Selling Stockholders, SV3, and Olayan Group.
Financial Position:
- Assumption of significant debt obligations, including NPS's existing bank facilities and the new $50 million Hana Loan.
- Pro forma goodwill recorded at approximately $442.8 million.
- Pro forma intangible assets recorded at $178.0 million (primarily customer contracts).
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook:
- NPS: Expects growth driven by increased customer drilling budgets in the MENA region, expansion into new geographies, and a shift toward higher-margin offshore and gas-well services.
- GES: Focus on client service delivery in Oman and expanding geographical footprint. Secured new long-term contracts including a 4-year Integrated Services Project and an 8-year exclusive contract for downhole tool rentals.
Risks and Contingencies:
- Market Cyclicality: Operations are highly dependent on global oil prices and E&P spending levels.
- Integration Risk: Ability to realize anticipated benefits of the Business Combination and manage growth profitably.
- Regulatory & Listing: Risk of inability to maintain NASDAQ Capital Market listing.
- Legal Proceedings: GES is subject to an arbitration award of $875,000 against Falcon Oil Services LLC (related party), currently stayed by Omani courts.
Unusual Items:
- Earn-Outs: NPS Selling Stockholders are eligible for up to 3.3 million additional NESR shares based on 2018 EBITDA thresholds.
- Ticker Fee: $13.4 million paid to NPS Selling Stockholders for delays in shareholder approval.
Investor Verification Checklist
- Debt Covenants: Verify compliance with NPS and GES existing loan covenants, particularly regarding dividend restrictions and financial ratios.
- Earn-Out Targets: Monitor 2018 EBITDA performance to assess potential dilution from NPS earn-out shares.
- Arbitration Status: Track the status of the $875,000 arbitration award involving GES and Falcon Oil Services LLC.
- Convertible Debt: Review terms of the $50 million Hana Loan, specifically the conversion rate ($11.244/share) and maturity date (Dec 2018).
- Shareholder Lock-Ups: Confirm adherence to lock-up agreements for major shareholders (e.g., ANI, WAHA, Hana) which restrict sales for six months post-closing.