Nabors Industries Ltd. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Nabors is a global provider of land-based and offshore drilling services, drilling technologies, rig-related equipment, instrumentation, and energy-transition solutions. It operates in more than 15 countries. As of March 31, 2024, the fleet included 291 actively marketed land rigs and 26 actively marketed offshore rigs. This unaudited report covers the three months ended March 31, 2024, compared with the corresponding 2023 period.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Operating revenues | $733.7 million | $779.1 million | Down 6% |
| Income before income taxes | $7.0 million | $84.1 million | Down $77.0 million |
| Net income (loss) | $(9.0) million | $61.1 million | Decline of $70.1 million |
| Net income (loss) attributable to Nabors | $(34.3) million | $49.2 million | Decline of $83.6 million |
| Diluted earnings (loss) per share | $(4.54) | $4.11 | Unfavorable change |
| Adjusted segment operating income | $104.1 million | $118.7 million | Down 12% |
| Adjusted segment operating margin | Approximately 14.2% | Approximately 15.2% | Down approximately 1.0 percentage point |
| Net cash provided by operating activities | $107.2 million | $154.1 million | Down $46.8 million |
| Capital expenditures | $104.6 million | $118.7 million | Down $14.1 million |
Net loss attributable to Nabors represented approximately 4.7% of revenue, compared with a net profit margin of approximately 6.3% in Q1 2023. The filing does not provide a consolidated EBITDA value.
Liquidity, debt, and balance sheet
- Cash and short-term investments were $425.6 million at March 31, 2024, compared with approximately $1.1 billion at December 31, 2023. Working capital increased to $471.9 million from $431.7 million.
- Cash and cash equivalents were $412.9 million; restricted cash held in trust was $319.7 million, primarily associated with the consolidated SPAC.
- Total debt was $2.546 billion before deferred financing costs, compared with $3.175 billion at year-end 2023. Long-term debt, net of deferred financing costs, was $2.512 billion.
- Nabors fully redeemed the remaining $474.1 million of 5.75% senior notes due February 2025 for approximately $487.0 million, including premium and accrued interest, and fully redeemed the remaining 0.75% senior exchangeable notes due January 2024.
- The $350.0 million revolving credit facility had no borrowings and $47.1 million of letters of credit outstanding at March 31, 2024. The facility matures January 21, 2026.
- The company reported an interest coverage ratio of 4.77:1.00 and guarantor value of 99.79% at March 31, 2024, compared with required thresholds of 2.625:1.00 and 90%, respectively. Management stated that all covenants were satisfied and expected continued compliance for the following 12 months, subject to operating assumptions.
- The accounts receivable facility had a $250.0 million maximum purchase commitment, with approximately $157.0 million of receivables sold to and not yet collected by purchasers at March 31, 2024. Its term was subsequently extended in April 2024.
Material changes versus Q1 2023
- U.S. Drilling revenue declined 22% to $272.0 million, reflecting a 22% reduction in average rigs working to 78.7; adjusted operating income declined 41% to $50.5 million.
- International Drilling revenue increased 9% to $349.4 million, with average rigs working up 6% to 81.0. Adjusted operating income increased to $22.5 million from $2.0 million.
- Drilling Solutions revenue was broadly stable at $75.6 million, while adjusted operating income declined 1% to $26.9 million.
- Rig Technologies revenue declined 14% to $50.2 million, but adjusted operating income increased 14% to $4.2 million due to a higher-margin business mix.
- Interest expense increased 12% to $50.4 million, primarily because of higher effective interest rates.
- Other, net changed from a $42.4 million gain to a $16.1 million loss. Q1 2024 included foreign-currency losses of $11.4 million, asset-sale losses of $4.6 million, litigation-related expense of $2.6 million, and a $2.6 million debt-buyback loss, partly offset by a $5.7 million warrant valuation gain. Q1 2023 benefited from $34.3 million of warrant gains and $24.9 million of debt-buyback gains.
- Operating cash flow declined primarily because of lower activity and a $67.7 million use of cash from working-capital changes, including a $67.2 million increase in accounts receivable.
Outlook, commentary, risks, and unusual items
- Management stated that U.S. drilling activity continued to decline, while international activity and production-capacity expansion remained more supportive. U.S. natural-gas prices declined significantly through 2023 and into 2024.
- Demand depends substantially on oil and natural-gas prices, customer exploration and production spending, rig counts, contract renewals, pricing, and access to capital.
- Management expects existing cash, operating cash flow, debt or equity financing, the accounts receivable facility, and revolving credit facilities to fund expected requirements for at least the next 12 months. This expectation depends on current operating and financial projections.
- Purchase commitments at March 31, 2024 totaled approximately $302.8 million, primarily for capital expenditures, operating expenses, and inventory.
- Key risks include commodity-price volatility, reduced customer spending, loss of major customers, geopolitical instability, Russia-related exposure, cybersecurity incidents, interest rates, debt maturities, covenant compliance, credit-rating downgrades, tax disputes, litigation, asset impairments, and regulatory changes affecting energy transition.
- The company disclosed an Algerian legal proceeding with potential additional exposure of up to $13.0 million above accrued amounts, although management does not expect pending litigation overall to materially affect consolidated financial position or cash flows.
- On May 3, 2024, a wholly owned subsidiary transferred certain non-revenue-producing energy-transition assets to Hexegen LLC, in which an entity owned and managed by the company’s chairman, president, and CEO also invested. The arrangement provides for profit sharing, including a potential 90:10 split above a defined threshold.
- Disclosure controls and procedures were deemed effective, and no material changes to internal control over financial reporting were reported.
Important facts for investors to verify
- Whether U.S. rig activity and utilization stabilize after the 22% year-over-year decline in average rigs working.
- Whether international drilling growth and segment profitability offset continued weakness in U.S. operations.
- Liquidity after the $631.0 million of debt repayments, including cash balances, receivables sales, capital expenditures, and upcoming maturities.
- Compliance with the revolving-credit interest-coverage covenant as the required threshold increases to 2.75:1.00 by June 30, 2024.
- The timing and terms of the 7.25% notes due January 2026 and other debt maturities, including the effect of non-investment-grade ratings on refinancing costs and access.
- The sustainability of operating cash flow amid higher receivables and approximately $302.8 million of purchase commitments.
- Potential volatility from warrant fair-value changes, foreign-currency losses, debt transactions, litigation, and energy-transition investments.
- The effect of the Hexegen transaction and related-party profit-sharing arrangement on future results and disclosures.