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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2021

 

Commission File Number: 001-38091

 

NATIONAL ENERGY SERVICES REUNITED CORP.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of registrant’s name into English)

 

777 Post Oak Blvd., Suite 730

Houston, Texas 77056

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [  ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes [  ] No [X]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes [  ] No [X]

 

 

 

 

 

 

INCORPORATION BY REFERENCE

 

The information contained in this report on Form 6-K shall be deemed incorporated by reference into the registration statements on Form F-3 (Registration Numbers 333-233422, 333-229801, and 333-226194) and Form S-8 (Registration Number 333-226813) of National Energy Services Reunited Corp. (including any prospectuses forming a part of such registration statements) and to be a part thereof from the date on which this report on Form 6-K is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

1
 

 

TABLE OF CONTENTS

 

FINANCIAL INFORMATION AND CURRENCY OF FINANCIAL STATEMENTS 3
PART I – FINANCIAL INFORMATION 4
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 4
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 4
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS 5
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME 6
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY 7
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS 8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 9
1. DESCRIPTION OF BUSINESS 9
2. BASIS OF PRESENTATION 9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 10
4. BUSINESS COMBINATION 13
5. REVENUE 20
6. ACCOUNTS RECEIVABLE 20
7. SERVICE INVENTORIES 21
8. PROPERTY, PLANT, & EQUIPMENT 21
9. GOODWILL AND INTANGIBLE ASSETS 22
10. DEBT 23
11. FAIR VALUE ACCOUNTING 26
12. EMPLOYEE BENEFITS 27
13. SHARE-BASED COMPENSATION 27
14. COMMITMENTS AND CONTINGENCIES 28
15. EQUITY AND WARRANTS 29
16. EARNINGS PER SHARE 30
17. INCOME TAXES 33
18. RELATED PARTY TRANSACTIONS 33
19. REPORTABLE SEGMENTS 34
Cautionary Note Regarding Forward-Looking Statements 36
ITEM 2. OPERATING AND FINANCIAL REVIEW 37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 48
ITEM 4. INTERNAL CONTROLS AND PROCEDURES 49
PART II - OTHER INFORMATION 50
Item 1. Legal Proceedings. 50
Item 1A. Risk Factors. 50

 

2
 

 

FINANCIAL INFORMATION AND CURRENCY OF FINANCIAL STATEMENTS

 

The unaudited condensed consolidated interim financial statements included in Part 1, Item 1, “Financial Statements (Unaudited)” of this Periodic Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Unless otherwise indicated, all references in this Periodic Report to “dollars,” “$,” or “US$” are to U.S. dollars, which is the reporting currency of the unaudited condensed consolidated interim financial statements.

 

3
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In US$ thousands, except share data)

 

    June 30, 2021    

December 31, 2020

(Revised, Note 3)

 
             
Assets                
Current assets                
Cash and cash equivalents   $ 66,074     $ 75,012  
Accounts receivable, net     116,483       116,835  
Unbilled revenue     117,909       158,457  
Service inventories     103,305       94,263  
Prepaid assets     13,238       11,480  
Retention withholdings     46,384       36,773  
Other receivables     19,327       18,454  
Other current assets     3,695       3,943  
Total current assets     486,415       515,217  
Non-current assets                
Property, plant and equipment, net     452,453       437,743  
Intangible assets, net     131,424       110,376  
Goodwill     628,752       620,921  
Other assets     7,853       2,797  
Total assets   $ 1,706,897     $ 1,687,054  
                 
Liabilities and equity                
Liabilities                 
Accounts payable     138,914       144,614  
Accrued expenses     39,977       73,783  
Current installments of long-term debt     54,077       47,500  
Short-term borrowings     59,709       42,360  
Income taxes payable     7,472       9,420  
Other taxes payable     5,095       11,289  
Other current liabilities     49,542       30,400  
Total current liabilities     354,786       359,366  
                 
Long-term debt     287,483       308,614  
Deferred tax liabilities     19,447       21,070  
Employee benefit liabilities     23,520       21,515  
Other liabilities     37,515       32,071  
Total liabilities     722,751       742,636  
                 
Commitments and contingencies (Note 14)     -       -  
                 
Equity                
Preferred shares, no par value; unlimited shares authorized; none issued and outstanding at June 30, 2021 and December 31, 2020, respectively     -       -  
Common stock and additional paid in capital, no par value; unlimited shares authorized; 91,119,218 and 87,777,553 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively     851,548       831,146  
Retained earnings     132,509       113,216  
Accumulated other comprehensive income     97       64  
Total shareholders’ equity     984,154       944,426  
Non-controlling interests     (8 )     (8 )
Total equity     984,146       944,418  
Total liabilities and equity   $ 1,706,897     $ 1,687,054  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

4
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(In US$ thousands, except share data and per share amounts)

 

      June 30 2021 June 30 2020       June 30 2021 June 30 2020  
    Quarter ended     Year-to-date period ended  
Description   June 30, 2021     June 30, 2020 (Revised, Note 3)     June 30, 2021     June 30, 2020 (Revised, Note 3)  
                         
Revenues   $ 234,927     $ 203,249     $ 447,353     $ 402,548  
Cost of services     (193,931 )     (164,343 )     (368,242 )     (322,613 )
Gross profit     40,996       38,906       79,111       79,935  
Selling, general and administrative expenses     (22,379 )     (17,114 )     (40,525 )     (35,741 )
Amortization     (4,499 )     (3,934 )     (8,507 )     (7,821 )
Operating income     14,118       17,858       30,079       36,373  
Interest expense, net     (3,234 )     (4,165 )     (6,397 )     (8,675 )
Gain/(loss) on Private Warrant Liability     -       (22 )     -       558  
Other income / (expense), net     (655 )     (309 )     (372 )     (420 )
Income before income tax     10,229       13,362       23,310       27,836  
Income tax expense     (2,408 )     (2,848 )     (4,017 )     (5,375 )
Net income     7,821       10,514       19,293       22,461  
Net income / (loss) attributable to non-controlling interests     -       -       -       -  
Net income attributable to shareholders   $ 7,821     $ 10,514     $ 19,293     $ 22,461  
                                 
Weighted average shares outstanding:                                
Basic     91,124,273       88,232,694       90,788,083       87,731,986  
Diluted     94,636,374       88,232,694      

93,368,023

      87,731,986  
                                 
Net earnings per share (Note 16):                                
Basic   $ 0.09     $ 0.12     $ 0.21     $ 0.25  
Diluted   $ 0.08     $ 0.12     $ 0.21     $ 0.25  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

5
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(In US$ thousands)

 

      June 30 2021 June 30 2020       June 30 2021 June 30 2020  
    Quarter ended     Year-to-date period ended  
Description   June 30, 2021     June 30, 2020 (Revised, Note 3)     June 30, 2021     June 30, 2020 (Revised, Note 3)  
                         
Net income   $ 7,821     $ 10,514     $ 19,293     $ 22,461  
Other comprehensive income, net of tax                                
Foreign currency translation adjustments     -       6       33       35  
Total Comprehensive Income, net of tax     7,821       10,520       19,326       22,496  
Comprehensive income attributable to non-controlling interest     -       -       -       -  
Comprehensive income attributable to shareholders   $ 7,821     $ 10,520     $ 19,326     $ 22,496  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

6
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY

(In US$ thousands, except share data)

 

    Ordinary     Add     Other     Retained     Shareholdes equity     Non-controlling   Total  
          Common Stock                              
          and     Accumulated           Total            
    Ordinary    

Additional

Paid in

    Other Comprehensive     Retained     Company Shareholders’    

Non-

controlling

  Total Shareholders’  
Description   Shares     Capital     Income     Earnings     Equity     Interests   Equity  
                                         
Balance at March 31, 2021     90,852,607     $ 846,160     $ 97     $ 124,688     $ 970,945     $ (8 )   $ 970,937  
Share-based compensation expense     -       3,039       -       -       3,039       -       3,039  
Shares issued to SAPESCO Selling Shareholders (Note 4)     266,611       2,349       -       -       2,349       -       2,349  
Other     -       -       -       -       -       -       -  
Net income     -       -       -       7,821       7,821       -       7,821  
Balance at June 30, 2021     91,119,218     $ 851,548     $ 97     $ 132,509     $ 984,154     $ (8 ) $ 984,146  

 

 

          Common Stock                                
          and     Accumulated           Total              
    Ordinary    

Additional

Paid in

    Other Comprehensive     Retained     Company Shareholders’    

Non-

controlling

    Total Shareholders’  
Description   Shares     Capital     Income     Earnings     Equity     Interests     Equity  
                                           
Balance at March 31, 2020 (Revised, Note 3)     87,495,221     $ 824,577     $ 58     $ 74,518     $ 899,153     $ -     $ 899,153  
Share-based compensation expense     -       2,125       -       -       2,125       -       2,125  
Conversion of Private Warrants to Public Warrants     -       372       -       -       372       -       372  
Other     -       2       6       -       8       59       67  
Net income     -       -       -       10,514       10,514       -       10,514  
Balance at June 30, 2020 (Revised, Note 3)     87,495,221     $ 827,076     $ 64     $ 85,032     $ 912,172     $ 59     $ 912,231

 

 

 

 

 

          Common Stock                              
          and     Accumulated           Total            
    Ordinary    

Additional

Paid in

    Other Comprehensive     Retained     Company Shareholders’    

Non-

controlling

  Total Shareholders’  
Description   Shares     Capital     Income     Earnings     Equity     Interests   Equity  
                                         
Balance at December 31, 2020 (Revised, Note 3)     87,777,553     $ 831,146     $ 64     $ 113,216     $ 944,426     $ (8 )   $ 944,418  
Share-based compensation expense     -       4,600       -       -       4,600       -       4,600  
Shares issued to SAPESCO Selling Shareholders (Note 4)     2,648,650       15,802       -       -       15,802       -       15,802  
Vesting of restricted share units     693,015       -       -       -       -       -       -  
Other     -       -       33       -       33       -       33  
Net income     -       -       -       19,293       19,293       -       19,293  
Balance at June 30, 2021     91,119,218     $

851,548

    $ 97     $ 132,509     $ 984,154     $ (8 )   $

 

984,146

 

 

 

          Common Stock                                
          and     Accumulated           Total              
    Ordinary    

Additional

Paid in

    Other Comprehensive     Retained     Company Shareholders’    

Non-

controlling

    Total Shareholders’  
Description   Shares     Capital     Income     Earnings     Equity     Interests     Equity  
                                           
Balance at December 31, 2019 (Revised, Note 3)     87,187,289     $ 822,942     $ 29     $ 62,571     $ 885,542     $ -     $ 885,542  
Share-based compensation expense     -       3,760       -       -       3,760       -       3,760  
Shares issued to SAPESCO Selling Shareholders (Note 4)     -       -       -       -       -       -       -  
Vesting of restricted share units     307,932       -       -       -       -       -       -  
Conversion of Private Warrants to Public Warrants     -       372       -       -       372       -       372  
Other     -       2       35       -       37       59       96  
Net income     -       -       -       22,461       22,461       -       22,461  
Balance at June 30, 2020 (Revised, Note 3)     87,495,221     $ 827,076     $ 64     $ 85,032     $ 912,172     $ 59     $ 912,231  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

7
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(In US$ thousands)

 

      June 30 2021 June 30 2020  
    Year-to-date period ended  
    June 30, 2021  

June 30, 2020

(Revised, Note 3)

 
           
Cash flows from operating activities:                
Net income   $ 19,293     $ 22,461  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     62,320       59,585  
Share-based compensation expense     4,600       3,760  
Loss (Gain) on disposal of assets     367     240  
Non-cash interest (income) expense     (51 )     (125 )
Deferred tax expense (benefit)     (1,623 )     (2,126 )
Allowance for (reversal of) doubtful receivables     286       (26 )
Provision for obsolete service inventories     -       614  
Loss (Gain) on Private Warrant liability     -       (558 )
Other operating activities, net     240       219  
Changes in operating assets and liabilities:                
(Increase) decrease in accounts receivable     9,308     1,887  
(Increase) decrease in Unbilled revenue     41,900       (44,517 ) 
(Increase) decrease in Retention withholdings     (9,611 )     (8,701 ) 
(Increase) decrease in inventories     (6,288 )     (7,883 )
(Increase) decrease in prepaid expenses     (1,449 )     857  
(Increase) decrease in other current assets     1,567     6,685
(Increase) decrease in other long-term assets and liabilities     (516 )     (2,140 )
Increase (decrease) in accounts payable and accrued expenses     (32,038 )     23,185  
Increase (decrease) in other current liabilities     (8,834 )      (818 )
Net cash provided by operating activities     79,471       52,599  
                 
Cash flows from investing activities:                
Capital expenditures     (32,568 )     (50,661 )
Proceeds from disposal of assets     784       1,277  
Acquisition of business, net of cash acquired     (36,923 )     3,740  
Other investing activities     (3,104 )     (570 )
Net cash used in investing activities     (71,811 )     (46,214 )
                 
Cash flows from financing activities:                
Proceeds from long-term debt     -       15,000  
Repayments of long-term debt     (15,000 )     -  
Proceeds from short-term borrowings     58,394       3,999  
Repayments of short-term borrowings     (40,938 )     (7,131 )
Payments on capital leases     (10,117 )     (11,180 )
Payments on seller-provided financing for capital expenditures     (8,830 )     (992 )
Other financing activities, net     (141 )     -  
Net cash provided by (used in) financing activities     (16,632 )     (304 )
                 
Effect of exchange rate changes on cash     34       35  
Net increase (decrease) in cash     (8,938)       6,116  
Cash and cash equivalents, beginning of period     75,012       73,201  
Cash and cash equivalents, end of period   $ 66,074     $ 79,317  
                 
Supplemental disclosure of cash flow information (also refer Note 3):                
Interest paid     4,696       3,970  
Income taxes paid     8,100       5,800  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

8
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

1. DESCRIPTION OF BUSINESS

 

National Energy Services Reunited Corp. (“NESR,” the “Company,” “we,” “our,” “us” or similar terms), a British Virgin Islands corporation headquartered in Houston, Texas, is one of the largest oilfield services providers in the Middle East North Africa (“MENA”) region.

 

Formed in January 2017, NESR started as a special purpose acquisition company (“SPAC”) designed to invest in the oilfield services space globally. NESR filed a registration statement for its initial public offering in May 2017. In November 2017, NESR announced the acquisition of two oilfield services companies in the MENA region: NPS Holdings Limited (“NPS”) and Gulf Energy S.A.O.C. (“GES” and, together with NPS, the “Subsidiaries,” or the “NPS/GES Business Combination”). The formation of NESR as an operating entity was completed on June 7, 2018, after the transactions were approved by the NESR shareholders. On June 1, 2020, NESR further expanded its footprint within the MENA region when its NPS subsidiary acquired Sahara Petroleum Services Company S.A.E. (“SAPESCO,” the “SAPESCO Business Combination”). On May 5, 2021, NESR again expanded its footprint within the MENA region when its NPS subsidiary acquired specific oilfield service lines of Action Energy Company W.L.L. (“Action,” the “Action Business Combination”).

 

NESR’s revenues are primarily derived by providing production services (“Production Services”) such as hydraulic fracturing, cementing, coiled tubing, filtration, completions, stimulation, pumping and nitrogen services. NESR also provides drilling and evaluation services (“Drilling and Evaluation Services”) such as drilling downhole tools, directional drilling, fishing tools, testing services, wireline, slickline, fluids and rig services. NESR has significant operations throughout the MENA region including Saudi Arabia, Oman, Qatar, Iraq, Algeria, United Arab Emirates, Egypt, Libya and Kuwait.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting purposes. Accordingly, certain information and note disclosures normally included in full-year financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2020, has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by U.S. GAAP. These condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 20-F for the year ended December 31, 2020. In the opinion of management, all adjustments considered necessary for the fair statement of these condensed consolidated interim financial statements have been made. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature.

 

9
 

 

Emerging growth company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the U.S. Securities Act of 1933 as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of the Company’s condensed consolidated interim financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Use of estimates

 

The preparation of condensed consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include estimates made towards the purchase price allocations for the acquisitions of SAPESCO and Action, allowance for doubtful accounts, evaluation for impairment of property, plant and equipment, evaluation for impairment of goodwill and intangible assets, estimated useful life of property, plant, and equipment and intangible assets, provision for inventories obsolescence, recoverability of unbilled revenue, unrecognized tax benefits, recoverability of deferred tax assets, contingencies, and actuarial assumptions in employee benefit plans.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated interim financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from the estimates.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Supplemental cash flow information

 

Non-cash transactions were as follows as of June 30, 2021:

 

  Purchases of property, plant, and equipment in Accounts payable and Accrued expenses at June 30, 2021 of $2.5 million and $0.3 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
  Capital lease obligations of $25.1 million classified as a short-term obligation within Other current liabilities and $21.9 million classified as a long-term obligation within Other liabilities, are not included under “Payments on capital leases” within the Condensed Consolidated Statement of Cash Flows.
  Purchases of property, plant, and equipment using seller-provided installment financing of $11.3 million in Accounts payable are not included under “Payments on seller-provided financing for capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
  Obligations of $0.1 million classified in Other current liabilities at June 30, 2021, related to the future payment of 7,268 shares for the purchase of SAPESCO (Note 4), are not included under “Acquisition of business, net of cash acquired” within the Condensed Consolidated Statement of Cash Flows.
  Obligations of $17.3 million classified as Other current liabilities and $5.8 million classified as Other liabilities, related to the future payments of cash for the purchase of Action (Note 4), are not included under “Acquisition of business, net of cash acquired” within the Condensed Consolidated Statement of Cash Flows.
  During the year-to-date period ended June 30, 2021, the Company issued NESR ordinary share consideration of 2,237,000 shares, 145,039 Additional Earn-Out Shares, and 266,611 shares primarily relating to Customer Receivables Earn-Out Shares, to the SAPESCO selling shareholders (Note 4). These transactions were non-cash and do not appear in the Condensed Consolidated Statement of Cash Flows for the year-to-date period ended June 30, 2021.

 

Non-cash transactions for the year-to-date period ended June 30, 2020 were as follows:

 

  Purchases of property, plant, and equipment in Accounts payable, Accrued expenses and Short-term borrowings at June 30, 2020 of $15.2 million, $0.9 million, and $28.6 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
  Capital lease obligations of $27.0 million classified as a short-term obligation within Other current liabilities and $9.0 million classified as a long-term obligation within Other liabilities, are not included under “Payments on capital leases” within the Condensed Consolidated Statement of Cash Flows.
  Purchases of property, plant, and equipment using seller-provided installment financing of $3.5 million included in Other current liabilities and $1.5 million in Other liabilities are not included under “Payments on seller-provided financing for capital expenditures” within the Condensed Consolidated Statement of Cash Flows. Additionally, purchases of property, plant, and equipment using seller-provided installment financing of $1.5 million included in Accounts Payable are not included under “Payments on seller-provided financing for capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
  Obligations of $40.6 million classified, related to the future payments of cash and shares for the purchase of SAPESCO (Note 5), are not included under “Acquisition of business, net of cash acquired” within the Condensed Consolidated Statement of Cash Flows.

 

10
 

 

Recently issued accounting standards not yet adopted

 

The SEC permits qualifying Emerging Growth Companies (“EGC”) to defer the adoption of accounting standards updates until the time when a private company would adopt such standards. The Company continues to qualify as an EGC as of June 30, 2021.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a new standard on accounting for leases. This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In June 2020, the FASB Issued ASU No. 2020-05, “Accounting Standards Update 2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.” ASU No. 2020-05 deferred the Company’s adoption of ASU 2016-02, as amended, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the provisions of ASU 2016-02 and related interpretive amendments (ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” and ASU 2019-01, “Leases (Topic 842): Codification Improvements,” inclusive) and assessing the impact, if any, on its condensed consolidated interim financial statements and related disclosures.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021, which adds implementation guidance to clarify which optional expedients in Topic 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The ASUs may be applied through December 31, 2022 and are applicable to our contracts and hedging relationships that reference LIBOR. We are still evaluating whether to apply any of the expedients and/or exceptions included in these ASUs.

 

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and, at this time, are not expected to have a material impact on our financial position or results of operations.

 

Correction of Warrant Accounting for the quarter and year-to-date periods ended June 30, 2020

 

On April 12, 2021, the Staff of the SEC released Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). In response to the Statement, the Company determined that it had incorrectly accounted for its Private Warrants (Note 15) as equity, instead of liabilities. In accordance with ASC 480, Distinguishing Liabilities from Equity, the Company’s Private Warrants should have been both initially and subsequently measured at fair value with changes in fair value recognized in earnings from inception until their conversion to Public Warrants. Private Warrants were converted into Public Warrants periodically between December of 2018 and May of 2020. The Private Warrants were determined to be within the scope of liability accounting due to provisions that could result in different settlement amounts depending upon the characteristics of the holder of the Private Warrant. Management concluded the misstatement is immaterial to its previously issued condensed consolidated interim financial statements; however, the Company has corrected its presentation in the accompanying Condensed Consolidated Interim Statement of Operations, Condensed Consolidated Interim Statement of Comprehensive Income, and Condensed Consolidated Interim Statements of Shareholders’ Equity, Condensed Consolidated Interim Statement of Cash Flows for the three and six months ended June 30, 2020 (in $US thousands, except per share amounts) as follows:

 

    As Previously Reported     As Revised     As Previously Reported     As Revised  
    Quarter ended June 30, 2020     Year-to-date period ended June 30, 2020  
    As Previously Reported     As Revised     As Previously Reported     As Revised  
Condensed Consolidated Interim Statements of Operations                                
Gain/(loss) on warrant liability   $ -     $ (22)     $ -     $ 558  
Income before income tax     13,384       13,362       27,278       27,836  
Net income     10,536       10,514       21,903       22,461  
Basic earnings per share     0.12       0.12       0.25       0.25  
Diluted earnings per share     0.12       0.12       0.25       0.25  
                                 
Condensed Consolidated Interim Statements of Comprehensive Income                                
Total Comprehensive Income, net of tax     10,542       10,520       21,938       22,496  
                                 
Condensed Consolidated Interim Statements Of Shareholders’ Equity                                
Retained Earnings     89,564       85,032       89,564       85,032  
Total Company Shareholders’ Equity     912,172       912,172       912,172       912,172  
Total Shareholders’ Equity     912,231       912,231       912,231       912,231  
                                 
Condensed Consolidated Interim Statements of Cash Flows                                
Net income                     21,903       22,461  
Loss (Gain) on warrant liability                     -       558  

 

11
 

 

Correction of Warrant Accounting as of and for the Years Ended December 31, 2020 and 2019 and for the period From June 7, 2018 to December 31, 2018

 

As described above, in the first quarter of 2021, the Company determined that it had incorrectly accounted for its Private Warrants (Note 15) as equity, instead of liabilities. In accordance with ASC 480, Distinguishing Liabilities from Equity, the Company’s Private Warrants should have been both initially and subsequently measured at fair value with changes in fair value recognized in earnings until their conversion to Public Warrants. Private Warrants were converted into Public Warrants periodically between December of 2018 and May of 2020. Management concluded the misstatement is immaterial to previously issued consolidated financial statements; however, the Company intends to correct its presentation prospectively in future filings. The impact of the misstatement on the Consolidated Balance Sheet, Consolidated Statement of Operations, Consolidated Statement of Comprehensive Income, Consolidated Statement of Cash Flows as of and for the years ended December 31, 2020 and 2019 and for the period from June 7, 2018 to December 31, 2018 is shown in the table below (in US$ thousands, except per share amounts):

 

    As of and for
the year ended
December 31, 2020
    As of and for
the year ended
December 31, 2019
    For the period from
June 7, 2018 to
December 31, 2018
 
    As Previously Reported     As Revised     As Previously Reported     As Revised     As Previously Reported     As Revised  
Consolidated Balance Sheets                                                
Warranty liabilities   $ -     $ -     $ -     $ 930                  
Total liabilities     742,636       742,636       635,892       636,822                  
Total equity     944,418       944,418       886,472       885,542                  
                                                 
Consolidated Statements of Operations                                                
Gain/(loss) on warrant liability     -       557       -       5,054     $ -     $ (1,816 )
Income before income tax     60,792       61,349       52,435       57,489       44,411       42,595  
Net income     50,087       50,644       39,364       44,418       34,980       33,164  
Basic earnings per share     0.56       0.57       0.45       0.51       0.41       0.39  
Diluted earnings per share     0.56       0.56       0.45       0.45       0.40       0.38  
                                                 
Consolidated Statements of Comprehensive Income                                                
Total Comprehensive Income, net of tax     50,122       50,679       39,345       44,399       35,143       33,327  
                                                 
Consolidated Statements of Shareholders’ Equity                                                
Retained Earnings     117,748       113,216       67,661       62,571       28,297       18,153  
Total Company Shareholders’ Equity     944,426       944,426       886,472       885,542       830,924       818,281  
Total Shareholders’ Equity     944,418       944,418       886,472       885,542       830,991       818,348  
                                                 
Consolidated Statements of Cash Flows                                                
Net income     50,087       50,644       39,364       44,418       34,980       33,164  
Loss (Gain) on warrant liability     -       557       -       5,054       -       (1,816 )

 

12
 

 

4. BUSINESS COMBINATIONS

 

Action Business Combination

 

On May 5, 2021, NESR executed the Sale and Purchase Agreement (“Action Sale and Purchase Agreement”) to acquire specific oilfield service lines of Action Energy Company W.L.L.

 

Description of the Action Transaction

 

Under the terms of the Action Sale & Purchase Agreement, NESR acquired the working capital, property, plant, and equipment, contract labor force, and the economic benefit of three five-year customer contracts associated with specific oilfield service lines of Action in an all-cash transaction which comprised of $36.7 million paid at closing and an estimated $16.8 million deferred consideration payment to be paid 6 months after closing.

 

The Action Sale & Purchase Agreement also contained earn-out mechanisms that enabled the sellers to receive additional consideration after the closing of the Action Business Combination as follows:

 

First Earn-Out Consideration (“First Earn-Out”) of 1% of revenue associated with the three acquired customer contracts, including the first renewal of each of these contracts (if any).  The First Earn-Out is payable quarterly;
   
Second Earn-Out Consideration (“Second Earn-Out”) of 3% of the revenue associated with the first renewal (if any) of the three acquired customer contracts. 66.66% of the Second Earn-Out is payable upon contract renewal with the remaining balance due at the conclusion of the renewed contract’s term.  At its discretion, NESR may settle the Second Earn-Out using cash or shares; and
   
Third Earn-Out Consideration (“Third Earn-Out”) of up to 1.12% of the revenue associated with the three acquired contracts, dependent on the amount of incremental earnings before interest, taxes, depreciation, and amortization contributed by the contracts minus certain adjustments such as capital expenditures.  The Third Earn-Out is payable within 90 days of the conclusion of the term of the last of the three acquired customer contracts.  At its discretion, NESR may settle the Third Earn-Out using cash or shares.

 

13
 

 

Collectively, the First Earn-Out, Second Earn-Out, and Third Earn-Out were fair valued at $6.4 million as of May 5, 2021. The First Earn-Out and Second Earn-Out were determined using a discounted cash flow approach within a scenario analysis. The Third Earn-Out was valued using a Monte Carlo simulation.

 

Financing of Action Business Combination

 

Consideration for the Action Business Combination was funded through the following sources and transactions:

 

cash and cash equivalents of $36.7 million;
   
deferred cash consideration of $16.8 million;

 

The following summarizes the consideration to purchase the working capital, property, plant, and equipment, contract labor force, and the economic benefit of three five-year customer contracts associated with specific oilfield service lines of Action:

 

    5.5.2021  
    Consideration (In US$ thousands)  
       
Cash consideration   $ 36,767  
Deferred cash consideration     16,786  
Total consideration – cash     53,553  
         
First Earn-Out     2,719  
Second Earn-Out     3,639  
Third Earn-Out     -  
Total estimated earn-out mechanisms     6,358  
         
Preliminary consideration   $ 59,911  

 

14
 

 

Accounting treatment

 

The Action Business Combination was accounted for under ASC 805, Business Combinations (“ASC 805”). Pursuant to ASC 805, NESR has been determined to be the accounting acquirer. Action constitutes a business, with inputs, processes, and outputs. Accordingly, the acquisition of Action constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control of Action was accounted for using the acquisition method. NESR recorded the fair value of assets acquired and liabilities assumed from Action.

 

The allocation of the consideration to the tangible and intangible assets acquired and liabilities assumed, is based on various estimates. As of June 30, 2021, management was (1) finalizing fair value of purchase consideration, (2) completing physical verifications and obsolescence assessments for Service inventories, and Property, plant and equipment, (3) evaluating the fair value of Service inventories, Property, plant and equipment, and Intangible assets, (4) completing valuation procedures for certain current assets and liabilities, (5) finalizing our completeness procedures for liabilities, (6) accounting for income taxes, and (7) concluding valuation procedures for Employee benefit liabilities. As such, to the extent of these estimates, the purchase price allocation is preliminary. Management expects that these values will be finalized by the fourth quarter of 2021. Any adjustments will be recognized in the reporting period in which the adjustment amounts are determined.

 

The following table summarizes the preliminary allocation of the purchase price allocation (in US$ thousands):

 

Preliminary allocation of consideration

 

      5.5.2021  
Cash and cash equivalents   $ 382  
Accounts receivable     8,814  
Unbilled revenue     1,352  
Service inventories     2,952  
Prepaid assets     310  
Other current assets     1,756  
Property, plant and equipment     13,605  
Intangible assets     29,500  
Other assets     2,053  
Total identifiable assets acquired     60,724  
         
Accounts payable     5,294  
Accrued expenses     2,428  
Other current liabilities     200  
Deferred tax liabilities     -  
Employee benefit liabilities     722  
Net identifiable liabilities acquired     8,644  
Total fair value of net assets acquired     52,080  
Goodwill     7,831  
Preliminary consideration   $ 59,911  

 

15
 

 

All employee benefit liabilities relate to end of service benefits (Note 12).

 

Intangible assets

 

Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805.

 

The preliminary allocation to intangible assets is as follows (in US$ thousands):

 

    Fair Value      
    Total     Useful Life
      (In US$ thousands)      
Customer relationships   $ 29,500     10 years
Total intangible assets   $ 29,500      

 

Goodwill

 

As of June 30, 2021, $7.8 million has been allocated to goodwill. Goodwill represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable definite-lived intangible assets acquired. Goodwill is not amortizable and/or deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market positions and the assembled workforces.

 

In accordance with FASB ASC Topic 350, Goodwill and Other Intangible Assets, goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event management determines that the value of goodwill has become impaired, an accounting charge for the amount of impairment during the period in which the determination is made may be recognized.

 

16
 

 

Unaudited pro-forma information

 

The following table summarizes the preliminary supplemental consolidated results of the Company on an unaudited pro-forma basis, as if the Action Business Combination had been consummated on January 1, 2020 for the quarter and year-to-date periods ended June 30, 2021 and 2020, respectively (in US$ thousands):

 

   

June 30,

2021

   

June 30,

2020

   

June 30,

2021

   

June 30,

2020

 
    Quarter ended     Year-to-date period ended  
   

June 30,

2021

   

June 30,

2020

   

June 30,

2021

   

June 30,

2020

 
                 
Revenues   $         237,018     $     208,615     $      455,718     $      413,280  
Net income/(loss)     7,951       10,770       19,811       22,371  

 

These pro-forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a consolidated company during the periods presented and are not necessarily indicative of results of operations in future periods. The pro-forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred in connection with the Action Business Combination are included in the earliest period presented.

 

Action revenue of $4.4 million and net income of $0.4 million are included in the Condensed Consolidated Statement of Operations during the quarter and year-to-date periods ended June 30, 2021.

 

SAPESCO Business Combination

 

In June of 2020, NESR executed the First Deed of Amendment (“First Deed of Amendment”) to the Agreement dated February 13, 2020 related to the sale and purchase of 99.7% of SAPESCO (collectively with the First Deed of Amendment, the “SAPESCO Sale & Purchase Agreement”). The executed First Deed of Amendment gave NESR control over SAPESCO effective from June 1, 2020. Accordingly, the accounting of the acquisition was carried out effective June 1, 2020.

 

Description of the SAPESCO Transaction

 

Under the terms of the SAPESCO Sale & Purchase Agreement, NESR acquired 99.7% of the issued and outstanding shares of SAPESCO in a cash and stock transaction which comprised of $11.0 million to be paid at closing, an additional $6.0 million to be paid in three equal installments, for total cash consideration of $17.0 million, and the issuance of 2,237,000 NESR shares. Formal closing and legal transfer of the $11.0 million of cash and $6.0 million of deferred cash consideration occurred during 2020. The transfer of 2,237,000 NESR ordinary shares was completed in the quarter ended March 31, 2021. The formal closing and transfer of consideration was temporarily delayed as a result of the global COVID-19 pandemic.

 

The SAPESCO Sale & Purchase Agreement also contained earn-out mechanisms that enabled the sellers to receive additional consideration after the closing of the SAPESCO Business Combination as follows:

 

Cash Earn-Out (“Cash Earn-Out”) of up to $6.9 million in cash based on collection of certain receivables;
   
Additional Earn-Out Shares (“Additional Earn-Out Shares”) based on the collection of certain receivables and only to the extent that NESR’s average share price during the fourth quarter of 2020 was less than $9 per share; and
   
Customer Receivables Earn-Out Shares (“Customer Receivables Earn-Out Shares”) based on the collection of certain long-dated and/or doubtful receivables for two years subsequent to the Closing Date, to be settled at the NESR Additional Share Price (“NESR Additional Share Price”) which is derived from taking the average of the price of the Company’s shares (“NESR Shares”) during each calendar quarter within the 12 months after the Closing Date and applying the average price in each quarter to the long-dated and doubtful receivables collected during the relevant quarter, provided that if such price is: (a) less than $10, the NESR Additional Share Price shall be $10 or (b) greater than $11.70, the NESR Additional Share Price shall be $11.70.

 

Collectively, the Cash Earn-Out and Additional Earn-Out Shares were fair valued at $11.7 million as of June 1, 2020. The Cash Earn-Out was determined using a discounted cash flow approach within a scenario analysis. The Additional Earn-Out Shares were valued using a Monte Carlo simulation. In the fourth quarter of 2020, the Company reduced the liabilities recorded for the Cash Earn-Out and Additional Earn-Out Shares to $2.1 million based on expected settlement values at the reporting date that were subsequently finalized with the sellers in the quarter ended March 31, 2021. This adjustment was reflected in Other income/(expense), net, as ASC 805 precludes adjusting goodwill for subsequent revisions to contingent consideration. The downward revision to the liabilities recorded for the Cash Earn-Out and Additional Earn-Out Shares was primarily on account of settlement negotiations with the sellers during the fourth quarter of 2020 that altered the mix of cash and equity consideration to be paid upon final settlement of these earn-outs. The Cash Earn-Out and Additional Earn-Out Shares were formally settled in the quarter ended March 31, 2021 through the transfer of $0.5 million of cash and 145,039 ordinary shares valued at $1.6 million, respectively.

 

The Customer Receivables Earn-Out Shares contingency and corresponding long-dated and doubtful receivables, were fair valued at $0.0 (zero) at June 1, 2020. Subsequently, as the Company has collected some of these amounts and disbursed 266,611 shares to the SAPESCO selling shareholders. The Company has recorded $0.1 million of Other Current Liabilities as of June 30, 2021 relating primarily to the expected issuance of 7,268 Customer Receivables Earn-Out Shares later in 2021.

 

17
 

 

Financing of SAPESCO Business Combination

 

Consideration for the SAPESCO Business Combination was funded through the following sources and transactions:

 

cash and cash equivalents of $11.0 million;
   
deferred cash consideration of $6.0 million;
   
the issuance of 2,237,000 NESR ordinary shares to the SAPESCO selling shareholders in exchange for their SAPESCO shares.

 

The following summarizes the consideration to purchase 99.7% of the issued and outstanding equity interests of SAPESCO:

 

    SAPESCO  
    Value (In US$ thousands)     Shares  
             
Cash consideration   $ 16,958          
Total consideration – cash     16,958          
                 
NESR ordinary share consideration     12,013       2,237,000  
Total consideration – equity (1)     12,013       2,237,000  
                 
Cash Earn-Out     5,301          
Additional Earn-Out Shares     6,377         (2)
Total estimated earn-out mechanisms     11,678         (2)
                 
Total consideration   $ 40,649       2,237,000  

 

(1) The fair value of NESR ordinary shares was determined based upon the $5.37 per share closing price of NESR ordinary shares on June 1, 2020, the acquisition date of the SAPESCO Business Combination. Control was transferred by agreement with the selling shareholders of SAPESCO.
(2) The quantity of Additional Earn-Out Shares was negotiated in the quarter ended December 31, 2020 and finalized in the quarter ended March 31, 2021 when settled with the sellers for 145,039 shares.

 

Accounting treatment

 

The SAPESCO Business Combination was accounted for under ASC 805, Business Combinations (“ASC 805”). Pursuant to ASC 805, NESR has been determined to be the accounting acquirer. SAPESCO constitutes a business, with inputs, processes, and outputs. Accordingly, the acquisition of SAPESCO constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control of SAPESCO was accounted for using the acquisition method. NESR recorded the fair value of assets acquired and liabilities assumed from SAPESCO.

 

18
 

 

The following table summarizes the final allocation of the purchase price allocation (in US$ thousands):

 

Allocation of consideration

 

         
Cash and cash equivalents   $ 3,740  
Accounts receivable     14,847  
Unbilled revenue     6,126  
Service inventories     5,641  
Prepaid assets     679  
Retention withholdings     279  
Other current assets     552  
Property, plant and equipment     14,385  
Intangible assets     3,340  
Other assets     200  
Total identifiable assets acquired     49,789  
         
Accounts payable     11,984  
Accrued expenses     6,613  
Current installments of long-term debt     5,400  
Short-term borrowings     5,692  
Income taxes payable     313  
Other taxes payable     3,802  
Other current liabilities     2,237  
Long-term debt     15,572  
Employee benefit liabilities     1,455  
Other liabilities     2,237  
Non-controlling interests     (8 )
Net identifiable liabilities acquired     55,297  
Total fair value of net assets acquired     (5,508 )
Goodwill     46,157  
Total consideration   $ 40,649  

 

All employee benefit liabilities relate to end of service benefits (Note 12).

 

The Company finalized its valuation of identifiable assets and liabilities during the quarter ended December 31, 2020.

 

Intangible assets

 

Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805.

 

The final allocation to intangible assets is as follows (in US$ thousands):

 

    Fair Value      
    Total     Useful Life
      (In US$ thousands)      
Customer relationships   $ 2,900     8 years
Trademarks and trade names     440     2 years
Total intangible assets   $ 3,340      

 

Goodwill

 

As of June 30, 2021, $46.2 million has been allocated to goodwill. Goodwill represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable definite-lived intangible assets acquired. Goodwill is not amortizable and/or deductible for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market positions and the assembled workforces.

 

In accordance with FASB ASC Topic 350, Goodwill and Other Intangible Assets, goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event management determines that the value of goodwill has become impaired, an accounting charge for the amount of impairment during the period in which the determination is made may be recognized.

 

19
 

 

Unaudited pro-forma information

 

The following table summarizes the supplemental consolidated results of the Company on an unaudited pro-forma basis, as if the SAPESCO Business Combination had been consummated on January 1, 2019 for the quarter and year-to-date periods ended June 30, 2020 (in US$ thousands):

 

    Quarter ended    

Year-to-date

period ended

 
    June 30, 2020     June 30, 2020  
             
Revenues   $ 209,563     $ 421,287  
Net income/(loss)     7,034       19,184  

 

These pro-forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a consolidated company during the periods presented and are not necessarily indicative of results of operations in future periods. SAPESCO’s results for the periods presented include significant charges for restructuring and related activities that may not have been incurred had the Company been a consolidated company during the periods presented. The pro-forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred in connection with the SAPESCO Business Combination are included in the earliest period presented.

 

SAPESCO revenue of $16.5 million and $31.3 million and net income of $2.7 million and $7.6 million are included in the Condensed Consolidated Statement of Operations during the quarter and year-to-date periods ended June 30, 2021, respectively.

 

5. REVENUE

 

Disaggregation of revenue

 

There is significant homogeneity amongst the Company’s revenue-generating activities. In all service lines, the Company provides a “suite of services” to fulfill a customer purchase/service order, encompassing personnel, use of Company equipment, and supplies required to perform the services. 98% of the Company’s revenue is from the MENA region with the majority sourced from governmental customers, predominantly in Oman and Saudi Arabia. Information regularly reviewed by the chief operating decision maker (“CODM”) for evaluating the financial performance of operating segments is focused on the timing of when the services are performed during a well’s lifecycle. Production Services are services performed during the production stage of a well’s lifecycle. Drilling and Evaluation Services are services performed during the pre-production stages of a well’s lifecycle.

 

Based on these considerations, the following table provides disaggregated revenue data by the phase in a well’s lifecycle during which revenue has been recorded (in US$ thousands):

 

    Quarter ended     Year-to-date period ended  
Revenue by Phase in Well’s Lifecycle:   June 30, 2021     June 30, 2020     June 30, 2021     June 30, 2020  
Production Services   $ 152,670     $ 139,034     $ 289,437     $ 272,224  
Drilling and Evaluation Services     82,257       64,215       157,916       130,324  
Total revenue by phase in well’s life cycle   $ 234,927     $ 203,249     $ 447,353     $ 402,548  

 

6. ACCOUNTS RECEIVABLE

 

The following table summarizes the accounts receivable of the Company as of the period end dates set forth below (in US$ thousands):

 

    June 30,     December 31,  
    2021     2020  
Trade receivables   $ 118,138     $ 118,557  
Less: allowance for doubtful accounts     (1,655 )     (1,722 )
Total   $ 116,483