National Energy Services Reunited Corp. — Q3 2017 Form 10-Q
Reporting period: Quarter ended September 30, 2017. The unaudited filing covers a blank-check company formed on January 23, 2017, so inception-to-date figures run from that date through September 30. It had not begun operating or generating revenue. The company intended to pursue energy-services acquisitions, particularly in oil and gas services.
Financial results and position
| Metric | Three months ended September 30, 2017 | Inception through September 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating costs / operating loss | $473,874 | $556,471 |
| Interest income | $572,378 | $752,458 |
| Net income (loss) | $(31,052) | $262,373 |
| Basic and diluted loss per share | $(0.04) | $(0.03) |
Inception-to-date net income reflects trust-account interest and a gain from the change in fair value of the deferred underwriting fee liability, offset by operating costs and unrealized investment losses. The reported loss per share also reflects the allocation of trust income to redeemable shares. No operating margins are meaningful because the company had no revenue.
- Assets at September 30: $231.36 million, including $229.96 million in the trust account and $1.24 million of cash outside the trust.
- Liabilities: $9.30 million, including $8.96 million of deferred underwriting fees and $348,823 of current liabilities. No long-term debt was reported.
- Temporary equity: $163.84 million for 16,921,700 shares subject to possible redemption. Shareholders’ equity was $58.21 million.
- Cash flows, inception to date: $383,549 used in operating activities, $229.22 million used in investing activities (funds placed in trust), and $230.85 million provided by financing activities. Ending cash outside the trust was $1.24 million.
The trust account held cash and U.S. Treasury bills; its funds were principally intended for a business combination or shareholder redemptions. The filing reports no off-balance-sheet arrangements. The $1.24 million outside the trust was available for operating and transaction-related costs.
Changes, outlook and risks
- There is no prior-year comparable period because the company was formed in 2017. Q3 results should not be compared directly with inception-to-date results.
- After quarter-end, on November 12, 2017, the company announced definitive agreements to acquire Gulf Energy SAOC and National Petroleum Services. The proposed transaction was subject to shareholder approval and customary closing conditions; it was not completed as of September 30.
- The company had until 24 months after its May 17, 2017 IPO closing to complete a business combination. It required a target or targets meeting the stated 80% trust-value test and would need to acquire control; there was no assurance a transaction would close.
- If it failed to complete a transaction within the combination period, it would cease operations and redeem public shares under the terms described in the filing. Warrants could expire worthless if the company liquidated.
- Management expected continued acquisition-related and public-company costs and did not provide numerical earnings or revenue guidance. It said it did not expect to need additional funds for planned expenditures, but noted that higher-than-expected costs, substantial redemptions, or a need to fund the transaction could require financing that might not be available on acceptable terms.
- Related-party administrative fees were $10,000 per month. The Sponsor could, but was not obligated to, provide additional working-capital or transaction loans.
- Management concluded disclosure controls were effective and reported no material changes in internal control during the quarter. No legal proceedings or material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether and when the proposed GES and NPS acquisition closed, including shareholder approval, transaction consideration, financing, and post-transaction ownership and dilution.
- Redemption levels and the cash remaining for the combined company after any business combination.
- The availability and terms of any additional financing and the effect of warrants, deferred underwriting compensation, and other potential share issuances.
- The reconciliation and payment conditions for deferred underwriting fees; the filing presents $8.96 million on the balance sheet and separately reports $9.03 million of deferred underwriting fees payable in supplemental cash-flow information.
- Whether the company can meet transaction costs and complete a qualifying business combination within its deadline, and the consequences for public shares and warrants if it cannot.