National Energy Services Reunited Corp. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2017; company formed January 23, 2017. The financial statements are unaudited. This is a newly formed blank-check company, not yet an operating energy-services business. It intends to pursue a business combination, with a focus on global oil and gas services. No target had been identified in the filing.
Financial results and position
- Revenue: None; the company had not commenced operations. Operating margins are not meaningful.
- Net income: $299,169 for the three months ended June 30, 2017; $293,425 from inception through June 30. Income primarily reflects trust-account interest and gains, plus a gain from remeasuring deferred underwriting fees, rather than operating activity.
- Operating costs: $76,853 for the quarter and $82,597 from inception. Basic and diluted earnings per share were $0.04 for both reported periods.
- Cash flow: Net cash used in operating activities was $220,962 from inception. Investing activities used $229.2 million, principally to fund the trust account; financing activities provided $230.8 million. Ending cash outside the trust was $1.394 million.
- Assets and liquidity: Total assets were $231.0 million, including $229.4 million of cash and marketable securities in trust and $1.394 million of cash outside it. The trust was invested in cash and U.S. Treasury bills. The outside cash was available for working capital and transaction-related costs.
- Liabilities and debt: Total liabilities were $10.6 million, including $10.6 million of deferred underwriting fees, payable upon a business combination. Current liabilities were $49,610, including a $10,000 related-party advance. The company reported no long-term debt or other long-term contractual liabilities, apart from its monthly sponsor administrative fee.
- Equity and redemption claims: Shareholders’ equity was $56.9 million. A further $163.4 million representing 16,921,700 shares subject to possible redemption was classified outside shareholders’ equity as temporary equity.
Changes versus comparable periods
The company began operations as a registrant in 2017 and completed its IPO in May. The filing provides no prior-year comparable period; inception-to-date results are also shown. IPO proceeds and the partial exercise of the underwriters’ over-allotment option established the trust balance. Accordingly, reported earnings chiefly reflect financing-related and trust-account items, not a change in operating performance.
Outlook, risks and other notable matters
- Management expects no operating revenue until after a business combination and expects ongoing public-company, due-diligence and acquisition-related costs. The filing provides no earnings or revenue guidance.
- The company has 24 months from the IPO closing to complete a business combination; otherwise, it must cease operations and redeem public shares, subject to the filing’s terms. There is no assurance it will complete a transaction.
- A qualifying target must generally have fair market value of at least 80% of the trust balance, subject to the stated exclusions, and the post-transaction company must acquire control. Public shareholders generally have redemption rights; certain holders of 6 million public shares agreed not to redeem in connection with a business combination.
- Management said additional financing might be needed if costs exceed estimates, redemptions are significant, or post-combination cash is insufficient. Financing may not be available on acceptable terms. Issuing equity or debt could dilute shareholders or restrict future financing.
- Public warrants may expire worthless if no business combination is completed. The filing also describes potential dilution from warrants and deferred-underwriter shares.
- The sponsor receives a $10,000 monthly administrative-services fee, beginning May 17, 2017, until a business combination or liquidation. The filing reported no legal proceedings, no material changes to prospectus risk factors, and no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective as of June 30, 2017; no material change in internal control was reported during the quarter.
Important facts for investors to verify
- Whether a target has been identified and the status, valuation, financing and expected timing of any proposed business combination.
- Trust-account balance, redemption activity, and funds remaining outside the trust to cover transaction and operating costs.
- The $10.6 million deferred underwriting fee and other transaction costs, including payment conditions and any effect on available transaction proceeds.
- Potential dilution from public and private warrants, founder shares, and the 372,934 deferred shares described for the underwriters.
- Compliance with the 24-month combination deadline and the redemption and liquidation provisions if no transaction closes.