Nabors Industries: Q4 TAKE THREE

Summary

NBR’s revenue and margin softened moderately in Q4 as FCF turned negative

Received various rig contracts in Argentina, Colombia, and Saudi Arabia in Q4.

The company expects the US onshore activity to improve while the margin from international newbuilds can increase in 2025.

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Key Developments And Outlook : In Q4, Nabors received three five-year rig awards in Argentina and an award for an idle rig in Colombia. It expects to start up two more rigs in Sadi Arabia in its JV SANAD in Q1 2025 after deploying its ninth newbuild rig in Q4. Rig Technologies received an award for a rig upgrade package from a third-party drilling contractor in the U.S.

NBR expects to see “stable market activity” through 1H 2025. In the US onshore, it does not anticipate increases in gas-directed drilling but expects the overall US onshore activity to improve in 2025. Internationally, it expects the contribution of newbuild fleets in adjusted EBITDA to double in 2025 compared to 2024. In the medium term, it expects the JV to start generating cash flow in excess of the annual investment in new-build rigs.

Key Drivers In Q4 : Quarter-over-quarter, revenues in the company's International Drilling operating segment witnessed a 1% rise in Q4, while the topline in the U.S. Drilling segment declined by 5%. In contrast, Rig Technologies witnessed a sequential revenue rise of 23%. Rig margins in U.S. Drilling declined by 1%, while it deteriorated by 2% in International Drilling during this period. The company’s net loss lessened marginally to $53.7 million in Q4 compared to a $55.8 million loss in Q3.

Higher costs associated with rig start-ups and suspensions resulted in marginal performance softness in international operations. In U.S. Drilling, the company's Q4 onshore rig count decreased by two compared to the previous quarter, although leading-edge pricing remained stable. Also, its Drilling solution segment operating margin benefited from higher shipments of capital equipment in the Middle East.

FCF Turned Negative as Leverage Remained High : NBR's cash flow from operations improved modestly (4% up) in Q4 2024 compared to a quarter ago. Capex, however, increased more steeply. As a result, its FCF turned negative in Q4. Its debt-to-equity (5.9x) is high, primarily due to low shareholders' equity and a high long-term debt.

Thanks for reading the NBR Take Three, designed to give you three critical takeaways from NBR's earnings report. Soon, we will present a second update on NBR's earnings, highlighting its current strategy, news, and notes we extracted from our deeper dive.

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