National Energy Services Reunited Corp (NESR) 2018 Q3 法說會逐字稿

Good day, and welcome to NESR Corp.'s Third Quarter 2018 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer; and Melissa Cougle, Chief Financial Officer, who are hosting this call today from NESR's regional office in Dubai.

On today's call, we will comment on our third quarter results and overall performance. After our prepared remarks, we'll open the call to questions.

Before we begin, I'd like to remind our participants that some of the statements we'll be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. And therefore, we refer you to our latest 10-K and Form 6-K filed earlier today and our other SEC filings.

Our comments today may also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is available on our website.

Finally, as we expect some callers today to be relatively new to the NESR story, and given the nature of the presentation of the results post combination, please feel free to contact us after the call with any additional questions you may have. Our Investor Relations contact information is available at www.nesr.com.

With that, I'll hand the call over to Sherif Foda. Sherif?

Thank you, Steve. Ladies and gentlemen, thank you for participating in this conference call. We are holding our call just before the Abu Dhabi International Petroleum Exhibition & Conference, or ADIPEC, where 1 year ago, we announced the acquisitions of NPS and Gulf Energy and introduced NESR to our customers.

This year, NESR will make its inaugural appearance at this important event. were we meet our customers and industry decision makers. In case any of you are at ADIPEC, I would welcome you to join us and meet our team and see some of the new technologies we are introducing in the region.

It has been 5 months since we closed the transaction, and I'm extremely excited with the progress we made during the quarter. At NESR, we value agility, being nimble and fast decision-making. And I personally believe that this will be a key factor and a differentiator that will drive our growth in the coming quarters and years. We are incredibly proud of our employees. Their commitment to excellence, their openness to change. Indeed, our employees have made this transition seamless and productive, all this, while we continue to grow at an accelerated pace.

This quarter's operational and financial results are a testament to the hard work of our personnel as well as the faith our customers have placed in our ability to deliver superior execution.

Before I talk about our results, I'd like to touch on the macro outlook and our performance this quarter. As we discussed on our last quarter earning call, we believe the Middle East is a $20 billion market that will grow at an average compounded annual growth rate of 6% for the next 4 to 5 years. Rig counts continue to exhibit quarter-over-quarter improvement. And more importantly, underlying drivers have not changed and indicate continued growth.

As a data point, if you look back 10 years and observe the production on a [third-grade] basis for our main customers, you will see that today activity levels are anywhere between 2 to 3x for the same production. This trend is expected to accelerate in the future. Our customers are very smart and have been preparing themselves for higher operational intensity. They are managing mega developments, launching integrated drilling and production projects or simply adding rigs and hiring rigless sites. They are increasingly addressing harder-to-reach reservoirs, going after difficult formations, traditionally not considered a priority at MENA. This macro backdrop position NESR favorably as we are rooted in the region, have the platform to execute and have a strong profile with enough critical mass to fund our growth.

We remain very close to our esteemed customers. We listen, we adapt, we maintain a dialogue and are swift in responding to their needs, from adding equipment to their new rig fleets, rigless sites, where several unplanned activities might occur, and bringing new technologies where it is needed. All these factors will ensure we continue to grow at a much faster pace than the industry.

For the third quarter, revenue grew by over 10% sequentially versus the 2% regrowth in the region and 3% internationally. Our goal is to grow at double the market CAGR, and our third quarter performance demonstrates that we are on the right track.

Adjusted EBITDA for the third quarter was $46.5 million with sequential growth in excess of 30%. As we said in our previous call, the activity in the MENA region strengthened as we approach the end of the year, and we expect our growth to continue into the fourth quarter.

Speaking about tendering, we are now invited to a much larger pool of businesses and product lines. We had an active quarter with many tenders outstanding with ongoing negotiations. This is a normal occurrence for contracts in the region and is largely due to the size and duration of these contracts. We expect contracting activity to increase as we move further into the fourth quarter and the first half of 2019.

Our product footprint is allowing us to participate in more bids in several countries as well as in a new product line within the countries we operate in today. We are having good discussions with our customers which, we believe, indicate positive results.

Now I'd like to give you an update on our integration efforts in this quarter. As I mentioned earlier, agility is the key, and I'm pleased that we have completed Phase 1 of our integration efforts ahead of our schedule. Phase 1 was about rolling out our corporate vision and priorities, implementing aligned compliance and HSE systems, integrating our infrastructure, relocating to one bigger operation, eliminating dual positions and leveraging our size to enhance our supply chain, all of which we have completed. We are now deep into implementing Phase 2. As a reminder, Phase 2 is essentially about harmonizing our back office functions, support services, including finance, HR, IT systems, in addition to other aspects of the business, which naturally take longer. For all practical purposes, we consider that the integration efforts with the highest impact on our corporate priorities have been completed. Our experience and lesson learned from this integration efforts should place us in good shape when we complete additional acquisitions.

As many of you know, the ability to bring fit-for-purpose and cutting-edge technologies to the region is one of the foundational principles of NESR. In Q3, we [either] agreed on terms, signed approximately half a dozen of such partnerships. We see ourselves as an open platform for innovative technology companies to come to the region, and our customers recognize that this unique approach will be beneficial to the regional oil and gas industry. In light of this, we signed an agreement with Dhahran Techno Valley Company, a wholly owned subsidiary of King Fahd University of Petroleum, to create a global center for the development of scientific research. This is a key milestone for NESR, and we plan to also bring our technical partners from North America and Europe to this center, which will allow us to work together to customize and develop technologies for the local industry and the wider region. This will also be a great opportunity to provide high-end technical solutions for local engineers and researchers and an important vehicle for partnership between the region academia and the industry sector.

Saudi Aramco, who is the main enabler of Dhahran Techno Valley, is very pleased to see NESR as the first company from this region investing at such a scale. They are also very appreciative of NESR's approach to create an open platform for innovation to come to the kingdom.

The other part of the equation, which we have been continuously working on, is ensuring that our operation have no shortage of baseline equipment, such as: coiled-tubing packages, cementing units, testing spreads and others. As we are close to our customer, our aim is to anticipate their future needs before they even ask. We are continuously scouring the globe to find pockets of value for capital investment, which would allow us to source equipment timely and in the most cost-efficient manner.

During the quarter, we managed to acquire capable coil and pumping equipment from North America at an excellent value for money. The equipment is suitable for operation in the MENA and Africa region and is currently being prepared for hot weather and transported from there. We contracted a best-in-class manufacturing and upgrade facility to ensure all this equipment is to hit the ground running. The main driver here is to bring such equipment to our operation in a record time, anticipating the growth and fulfilling our client requirement for fast turnaround delivery.

Going forward, we will continue to look for such opportunistic plays as it allow us to extract the maximum value from every single dollar of planned CapEx. As you can see, this has been a very busy quarter for us, and we plan to keep the same pace going forward.

With this, I will pass the call over to Melissa to talk about the financials in details.

Thanks, Sherif. As you can see from our 6-K that was filed today, revenues continue to demonstrate quarter-over-quarter double-digit growth, and we expect this performance will continue in the upcoming quarters.

This quarter's growth was driven primarily by the better utilization of our assets, with increased activity across both segments, the startup of new contracts, realization of cost synergies from our integration work and our ability to cross-sell new services in our existing footprint.

We are also continuing to progress our goal of expanding our global footprint, so we can capitalize on more revenue stream and provide more services to our customers.

As Sherif mentioned earlier, we posted a combined adjusted EBITDA of $46.5 million for the second quarter. This represents a sequential growth rate of more than 30% and year-over-year growth of more than 20%. On a year-to-date basis, we have achieved combined adjusted EBITDA of $111.8 million. Both of our segments benefited from the startup of new contracts and incremental work as well as the nonrecurrence of certain startup and one-time costs incurred during Q2.

Drilling down, our production segment revenues for the third quarter were $88.7 million with EBITDA of $33.2 million. The improvement demonstrated over the last quarter came from higher coiled-tubing activity across our operating locations, larger-scale projects for customers in Saudi and Iraq and overall margin improvements with a strong focus on cost management.

Our Drilling and Evaluation segment revenue was $56.9 million. This is up 27% from the prior quarter with contract activity increases through our larger operating locations.

These revenue gains, as well as the benefit of some nonrecurring cost from Q2, translated into strong EBITDA performance of $17.6 million.

Net income from the quarter totaled $16.2 million, which included the impact of transaction and integration cost of $2.4 million as well as the amortization from our contract intangible of $3.6 million.

When looking to the balance sheet, we completed the refinancing of our bridge facility and added a new facility during the quarter, which we fully drew down. Both facilities were previously disclosed in our Q2 filing, and you will see the effect of drawdowns reflected on our cash position this quarter. This liquidity gives us financial flexibility at economical terms to support our growth plans and enable us to quickly seize an opportunity when it arises.

Sherif mentioned the North American equipment purchases earlier in his comments. This is a good example of opportunities where our capital might be deployed.

During Q3, we also began integration-related discussions with a focus on optimizing our working capital and improving our DSO. We worked diligently during the quarter and are starting to see the improvements translate. Our October collections improved 67% from the monthly average since the combination in June.

On the tax side, we are reporting an ETR this quarter of 19.5% and have begun some preliminary restructuring activities that, we believe, will positively impact the tax rate in future quarters.

Our purchase accounting work continued in the quarter with notable adjustments made to customer intangibles and fixed assets. This resulted in a goodwill adjustment of $56 million. We anticipate wrapping up the outstanding purchase accounting work by year-end, solidifying our balance sheet as we head into 2019.

In closing, we remain optimistic about the opportunities that lie ahead of us. We believe our operations are in the right place to capitalize on projected activity increases through the region. Consequently, our results are expected to remain strong through the fourth quarter and into 2019.

With this, I'd like to pass back to Sherif for his closing comments.

Thank you, Melissa. We are incredibly proud of the work our team is doing and are excited about our future.

I would also like to take this opportunity to update you on the progress of our key objectives that I mentioned on our call last [quarter]. Number one, integration, we are well on our way to complete the critical integration steps before year-end. Number two, growth. As mentioned in our call last quarter, we want to outpace regrowth in H2. Our results demonstrate that we have achieved strong double-digit revenue growth and stellar EBITDA, growing by more than 30% sequentially. And we are very confident about both the near and long-term future. Number three, capital structure, we have a very low cost of debt and continue evaluating the optimum capital and tax structure for the company. On this front, given the very high level of tax expertise within NESR, I'm very comfortable that we will have a fruitful outcome. Number four, ambition to start operation in new country. I can confidently say that we are making good progress towards this objective. Last but not least, 2 new technologies. We have set ourselves a very challenging objective, starting new technologies into new markets. Notwithstanding these challenges, we are very focused on achieving these targets. I can proudly say that we are now in the initial stages of qualifying these technologies and are closely engaged with our customers to test them in their fields.

In summary, I believe we made significant progress in achieving our corporate priorities this quarter. As always, we like staying busy, operating at a much faster pace than the market. We are very excited about the future. And we have incredible, motivated teams staying close to our customers and execute flawlessly.

With this, I would like to take this opportunity to thank everybody for joining this earning call. And if there are any questions, we'll be very happy to address them. Operator?

(Operator Instructions) Our first question comes from the line of Greg Colman with National Bank Financial.

I just wanted to start with a few clarification -- excuse me, questions on how Q3 turned out before we talk about any forward-looking stuff. First of all, we saw the 30% sequential EBITDA growth, which is great to see, in line with what we're expecting. I'm wondering, can you offer us any color as to how much contribution you saw from the $360 million in contracts that you won in Q2? Was there full run rate from that, none whatsoever or somewhere in between, please?

Thanks, Greg. I would say a big percentage came from the contract awards. As we said before, you will see that the whole idea of when we won the contracts and start operating, the key for us is speed, right? So we do not want to ramp up in 1 year or 8 months or 10 months. We would like to get the contract immediately, prove to the customer that we are capable of delivering. And that's what we did, for example, in the 2 big contracts we had in the region. And we managed to start operating within 4 to 6 weeks from awarding those contracts, and we saw immediately the effect of those results on our business lines, right? So some of this work, I would say, we had an increase of activity into the 500% from the -- what we used to do previously.

Got it. And if we look into Q4, is there still additional -- an additional lift in activity under those contracts to get up to what, I would say, would be kind of full run rate? And is that what gives you confidence in continued sequential EBITDA growth into year-end? Or is there another reason that you think your EBITDA growth into year-end will continue?

So I would say, again, it's a mix of both. In the contracts where you have some of the contracts like, for example, the drilling business, this is -- you need ramp-up because the nature of the contract is you get assigned rigs, but until you really get work assigned to you, like fishing, remedial, downhole tool, et cetera, it takes time. And this is -- you'll see the effect going quarter-over-quarter. And the business where it's more production-related, we had already the full fledge from -- towards the end of Q3, and you will see now the same full quarter effect from October, November, December. And that's why you see revenue growth to continue. And again, we repeated this before, always H2 is stronger than H1 in the MENA region, and this is now different. And we see that, going to Q4, we have a very strong activity lying ahead. And so you saw revenue and strong fall through on EBITDA.

That makes sense. Taking out that last comment that you made about the second half of the year in the MENA region being stronger than the first half of the year, how can we think about the first half of 2019? And the 2 big moving parts that I'm thinking about are, first of all, if all else was being equal, if no contact wins, we would expect a roll in EBITDA from the second half of '18 into the first half of '19 simply as the seasonality kicks in, but you have won a lot of contracts. Can you offer us any insights, without being too specific, in what we should expect to see in early '19 EBITDA? Is the contract wins sufficient to offset the normal seasonal roll? And could you experience flat EBITDA into early 2019? Or are we still going to see a little bit of a roll, albeit moderated, because of the contract wins?

There's too much detail there, Greg, but if I -- I would just give you -- so if you look at the company now, it's combined since June 6. So you start to see synergies of revenues, you start to see synergies of cost, supply chain, et cetera. You get this effect of all these benefits. Obviously, this quarter, we saw some of it, and that's translated into the very strong fall through of revenue growth, and you will see this in Q4. But going forward, you will see some of the effect of those contracts going to H1 of '19, and H2 of '19. So the H1, if I go specifically on H1, definitely, you'll get all these contracts now more full-fledged towards the H1, so Q1 and Q2. And this will outpace, I would say, the seasonality of the -- not the quarter or the H1 versus H2. The company now is combined. You get a lot of synergy of the revenue going to new product line. We are expecting some of the work actually we didn't even start. I would say, some of the award is hopefully going to come into Q4. And then we start the year with these new contracts. These are all new business, right, so these are segment we never touched before in some of these countries. Now we have a full-fledged 19 segments. So some of the countries, you have 8. Some of the countries, you have 11. Some of the countries, you have 15 segments. And now this growth, you will see it in those countries. So overall, you will see the growth to continue, despite the fact of seasonality of H1 and H2 in MENA.

No, that makes sense. Okay. Just a couple more and then I'll hand it back. I don't mean to dominate the time here. In the bidding environment, you had $360 million in Q2, which was amazing to see, including the big $200 million in the kingdom. In Q3, pace slowed a little bit. Obviously, this is lumpy. Should we be watching for additional tender wins pulling into year-end? Or is that the sort of thing where we're still sort of in a hiatus period when -- where those larger tenders that you're competing for could be awarded?

Yes, I mean, I would say in Q4, we should get and announce couple of tenders. We will know the results -- that we bid in Q3 which should be announced in Q4. Others will be announced in Q1, I would say. So the tenders cycle in the Middle East, as we discussed before, takes time. The -- some of the contracts, what the client usually do, they give you an extension, another extension, another extension until they really put the award into rest. So I would say, we will have some announcement to make in Q4 when we do our call. And then going forward, we'll have more to come, right? But definitely, the Q2 was huge because we had the -- it was the first we combined both companies, so we announced it for the first time. And it had definitely one big huge contract that made a big effect on that number.

Got it. All right. And then just lastly for me on the M&A side. Small, but good to see little purchase there, the $7 million, to bring some pumping and coil tubing assets over. You mentioned that you're pleased with the purchase price you spent. Can you offer us any metrics on that, either relative to book value, relative to EBITDA, relative to replacement value? That's firstly. And then secondly, what do you think about further M&A? Is it the sort of thing -- I mean, it's difficult to predict, but is it the sort of thing where you're very close to potential additional purchases to bring over to your operating region or should we expect sort of a period of a break here before any more acquisitions?

So this -- I would say, the acquisition of the equipment was opportunistic. We anticipated that growth in some of the markets we have. We -- the customer is very, very close to us. We are close to the customers. They are very pleased with our performance. We had a fantastic service quality review with them, where we scored 99% efficiency -- 99.5% efficiency, which is like -- we had like almost 10 hours -- over 10,000 hours operating, so it's very, very strong performance. And we anticipated that we're going to get more work, and we [promise] them. So we saw an opportunity. And that's not the normal, I would say, M&A activity, but we found that this is a very good position we can be. We negotiated a very good -- I would say, for the speed of replacing the equipment we needed, I would say it's less than 30% of the replacement done, right? So more or less, almost $0.25 to the dollar. So when we -- when you take something like that and the equipment are ready, and you will be able to get them upgraded to hot weather and ensuring that they can work professionally with the [axles] and all this kind of details, and increasing your fleet by a nice percentage, that's what we did. And as we said, we transported the equipment. So that's not what we call M&A activity. This was very strong, but M&A activity is more into looking at, which we are discussing all the time, newer targets to address the geography we have and merging more companies into the region to strengthen our position geographically into some of these new product lines as well.

Our next question comes from the line of Igor Levi with BTIG.

Could you give us an update on your top markets where you have the biggest opportunity to grow share and comment on whether that opportunity is driven more by cross-selling, winning work on incremental tenders where you previously could not participate due to scale or moving up on the totem pole on tenders where you previously had more marginal work?

So I'd say all of the above. I mean, obviously, we are in a very -- the region, I don't want to single out the country because, obviously -- for obvious reasons. But definitely, we are very strong in our core countries. We are getting stronger by the day. If I look at the latest contract award, which I mentioned earlier, we are delivering an impressive performance in this contract. So the growth definitely is outpacing any other country or any other product line because this is where you become the 5x what you used to do before, right? So the growth is very significant. And it's no secret, obviously, that from -- within the region, Saudi Arabia definitely is the -- is very strong for us. We -- it's growing, and we continue to grow. We continue to grow in other countries where our position is smaller because we have only 1 or 2 product line in that country. And today, we have the wealth and the breadth of serving 15, 16 product line. Some of it, you have tender to win a new contract to be able to demonstrate. Some of it, you're just cross-selling, as you said. So if you have a drilling contract, let's say, you go and present to the client that, today, I have thru tubing. I can do fishing, remedial, et cetera. And I have that expertise with Gulf Energy in Oman. And they come and see what we're doing there in Oman, and they are very impressed that we have almost a very -- majority of the contract that is owned by them, right? So then we can transfer that to the other countries where we did not exist before in that product line. So it's a mix, really, of cross selling some of the Gulf Energy drilling portfolio into the other geographical area where, we, today exist, but we do not have that portfolio and the strength of the new contract award where we demonstrated that we deliver on those contracts and we took a position or a market share much faster than the client expected.

Great. That's very helpful. And could you particularly talk about your growth strategy in Kuwait? I mean, it's a market where you have relatively little presence today. But previously, you've highlighted that as a big opportunity for you guys to grow.

Yes. I mean -- again, we look at all the countries. If I look at Kuwait, we are very, very excited about Kuwait. Kuwait is going to be the biggest growth, I would say, from an industry macro point of view. They are going offshore. They are going in heavy oil. They are increasing their rig count. They're going to almost double their rig count in the next 4 to 5 years. They have a very ambition production growth. We are -- again, as you said, we are very, very small. And this is where the opportunity for us is huge. We have -- we've been awarded contract last quarter, and we are working on a couple of more. So we are definitely geared up to take part of that market. And again, definitely, there is always opportunity to look for M&A targets.

And as a follow-up to your previous M&A comment, what is the M&A landscape like in the Middle East, I mean, as far as suitable targets and then the second half of that is the willingness of those targets to be taken over?

So -- okay. So if I start from your second half, the position that we made from day 1 is we are a regional champion of the Middle East. And we are from the region. We are very proud to be from there. And we are proud as well to be national in every single country where we operate. So -- and our motto there is we want to -- we are an enabler for people to join forces and be very strong in front of the customer. So you -- let's say, if you work in Oman, you're Omani or work in Kuwait, you're a Kuwaiti, you are very close to the country. So if I look at our -- the model and weigh the perception of our customer and the perception of the employees and the people in the region, it's very positive. And a lot of people now wants to join forces with us. They believe that we have a good story. It's a listed company, it's public, et cetera. So actually, we get a lot of appetite now for people to join forces with us. We are now selective who do we want to join forces with us. So we want to make sure that we maintain the same level of compliance, the same level of expertise, HSE, service quality, image, perception, and this is for us to keep. So even if a target is good, well, you need to make sure that they fulfill all this to be able to join forces with us. And so the appetite is there, and discussions is -- are ongoing with several of the targets. And we are going to be -- to ensure that it is accretive, and we are going to make sure as well they are -- they add value and as we did as well. Earlier, we always say 1 plus 1 equals 3. We need to make sure it's complementary, it is new, it is not to eliminate something we have. It is something where 1 plus 1 equals 3. And it make sense for our shareholders, for our customer, for our employees to join forces. So I would say, in summary, we are very active in looking and discussing and negotiating.

(Operator Instructions) Our next question comes from the line of Blake Gendron with Wolfe Research.

So the competitive dynamics from your 3 largest peers in the MENA region, specifically, are pretty well captured by the market, I would say. The risk-sharing commercial model seems like a detriment to pricing more broadly. How do you guys fit in between this commercial model and a traditional, I would say, [disparate] high-service model or integrated project management model? And how do you insulate yourselves from a pricing perspective when your peers are being so predatory on the risk-sharing side of the equation?

Thanks, Blake. So fundamentally, the market is very big in the Middle East. And again, when I said $20 billion market between rigs and services, et cetera, there is a place for everybody to play in. If I look at the business model itself, just to address your question, the -- lately, some of these contracts came to -- which existed before, but it increased lately, which is a risk-share model and depending on the size of it. We -- our size and balance sheet and -- is not suitable for us -- for our size to take such risks at such large projects because we cannot afford to have unforeseen issue with rig or something and then take such a risk. So we prepare and we are capable of doing services. We like -- and I am very honored when we take integrated projects. We do that, we do that currently. And -- but it is integrated project management where you coordinate and you manage multiple segment, multiple sites for the customer. And very happy to do that, and we are always, as I said, honored when the customer trust us to take part of this. The part that I -- we do not take is when we go to this, what we call, LSTK-type contract where you take a full risk on the delivery, et cetera, because we do not have -- we are not ready for scale of such magnitude. And definitely, the customers will look at this as a much reduced overall price, which we are, again, not suitable in our size to dig to construct.

Okay. So it's safe to say that the traditional integrated project management side of the equation from a pricing perspective is pretty well insulated. I guess, moving forward, it seems like the cadence of project ramp-ups in 2019 will have you guys fairly well utilized, but just if you could remind us where you will stand, I guess, in 2H '19 from a utilization perspective. And then as you look around the rest of the market, how you see sort of OFS capacity more broadly utilized through '19. And how does that kind of flow through into the pricing discussions that you have for, perhaps, 2020?

So on the -- I would say, look, I mean, the capacity is there. There is no real shortage of capacity in majority of the services. However, the issue is, are you ready with your -- and you are capable of delivering those services in this country at the same time. So not exactly that you should have the units or you have equipment. You have to have the know-how, the understanding of the region, the understanding of the country to operate and make sure that you deliver on those services. So it's getting tight. I think it's going to continue to get tight. And the discussion on pricing, it's going to, I would say -- we have a lower effect of that drop of pricing going forward, in my opinion. I think for large -- huge contracts, you will always have that because the problem, it's more of a binary effect. So, again the large integrated, these LSTK-type projects, you'll always have this unfortunate cutthroat pricing because it's the big guys, they have to kind of pay for it. I would say, 2019 is going to be very active. It's going to be very dynamic. And the key would be that not only a pricing story, it's going to be a service quality and delivery story. So if you are ready, you have the right people, the right equipment at the right country, you will get contracts, you will get awarded and you will get business because you are ready to operate and you have no issue with the service delivery. So in a nutshell, '19 will be very busy, I think, much even busier than what people anticipate.

Okay, okay. Understood. That's helpful. And then finally, on the technology front and the M&A front. It seems like NESR has an inside edge with respect to commercializing technology, not having to go through some of the bureaucratic hoops that maybe some of the larger diversified peers have in terms of pulling through either capacity or technology to the region. But can you remind us what the local content laws or requirements are? Certainly, it's not as stringent as, say, Brazil or Argentina used to be, but when you bring capacity in from, say, North America or technology from around the world, what do you have to do from a local content perspective to qualify that -- in the countries that you work in?

Okay. So the local content is -- again, it's very, very important for -- and it's a good business. And it's sustainable for your growth and for your existence in this country. So you operate in a country, you need to make sure that you demonstrate to the customer and to the -- even to the country itself that you are a proper citizenship, that you are investing in the country, hiring national people and introducing technology. Again, each country in the MENA region or around the world actually define the ICV, or In-Country Value, differently. So you have very mature countries where they put it in a very, very strong and clear metrics where you know exactly what it is. Usually, the #1 is always employment, so you see how much your -- how much of your workforce are national. And then how much of -- then you go to more detail. Those nationals, are they what level? The engineers, how many? The operator, et cetera, et cetera. And then you have manufacturing, which plays a big role. And you have as well R&D. So in every country you operate, they have the formula and it works depending on that formula. So you can be actually an international company that you have a better local content score than a local company. It's not only because you are local, meaning you have a better national score. So it works from one country to another differently. The strength we have, we are national and we have a very strong national workforce. And we are putting -- taking the right steps with the customer and the industry and the ministry, et cetera, to ensure that we comply and we exceed their expectation. So ensuring that, we have the score in every country properly. And again, it's a good business, it's a sustainable business where you're not doing this to show off. You're doing this because it's a good business, right? Now if you think from the technology point of view, fortunately, the client, again, is -- are very smart. They know you are not going to manufacture high-pressure equipment in one place all of a sudden. So they -- this part, you're not going to score well, but they know you are going to always import equipment from the outside. And then what can you do locally, manufacture locally give you an edge. So for example, if I look at Oman, Gulf Energy, today, produce and manufacture most of the machine shops and their casing hardware, et cetera. They do it -- they are doing manufacturing all this inside Oman. So they got the expertise and they bought all the machine and they make this in Oman, so it's made in Oman. So it's very strong for them and it's very, again, good business process. Now if you look at our ability to get, what I call, innovative technology, it's basically the niche technology where there are a lot of North America and Europe key technology coming from very, very small company where they would like to -- they deploy them usually in the U.S. and Canada because it's -- the barrier to entry is easier and -- but we know -- because of our expertise, our knowledge, we know that this technology, for example, would -- it's the need of it, actually, is -- it's the best in that field, in that country. So we go to the customer and tell them, "By the way, this is a very good technology. We can put this in your well and we're going to bring this." And we make this not as an agency, like the rest of the region. We make this with partnership. So we partner with that technology company and we put money with them. We work there. We develop it with the customer that is -- maybe we have to tailor it. And again, when it's a small technology company in North America, there is no

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company today, we have [it signed]. And we're going to go in the well in the next couple of weeks. So you're talking about 3 months from end to end where, traditionally, this would take anybody a couple of years just to qualify the technology and then being able to put that technology into that country with all the barriers to entry. So that's where we make a difference in our approach to, what we call, open platform. And if the technology is good, we are going to work with it and then even make sure that the client has access to it or somebody else when even we don't have a contract [today]. So open platform and making sure that we work closely with the customer for fit-for-purpose technology.

Our next question comes from the line of Mike Cahill with Crispin Capital.

I have a question. Within the contracts that you've won, given your high level of service and efficiency, do you have the ability to kind of move up in the rankings within the service to those customers? And can you get more than even the contract, the headline contract amount in terms of revenue for the company as service is provided?

Thanks, Mike. Yes, absolutely. I mean, again, the trust and the ability to deliver on the contracts you have is a key. And once you do that, then you get invited and you get asked to do more work within, obviously, the context of those contracts and the peripheral of it, you see. So if -- for example, if you win a drilling contract and you are performing extremely well, you start -- they will ask you to bring thru tubing. They will ask you to bring other work with starts, et cetera. So because you are delivering and you are performing, then they will ask you why don't you do more of because you delivered very well. So definitely, this is where we make a difference. And our ambition is to be able to deliver and to demonstrate to the customer, we do that. And saying that, it's exactly the same credibility you have to give the customer when you can't, you say, "I decline." And obviously, modestly, politely because you say -- like, we did this physically, actually. We were asked because we've performed very well in a well in a certain field, the customer asked us for a technology, another technology, drilling technology to perform and to drill some of -- another well. And honestly, we went to the customer and we told them, "Thank you very much for your trust, but we are not capable of doing that part of the work." And we have introduced them or recommended to them another company to do that. So it's very important to have this credibility with the customer. And that's how you build trust and they know that you can deliver. And when you cannot, you say it. So -- and that, I think, is going to go a long way in our long-term relationship with our customers.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Sherif Foda for closing remarks.

Thank you very much. Thanks, everyone, for joining us. We look forward to updating you on our progress next quarter. We had a stellar quarter, so we thank you very much for your time and attendance.