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Nine Energy Service Announces First Quarter 2023 Results

  • Revenue, net loss and adjusted EBITDAA of $163.4 million, $(6.1) million and $25.0 million, respectively, for the first quarter of 2023
  • For the first quarter of 2023 the Company generated ROICB of 16.2%
  • Total liquidity position of $47.4 million as of March 31, 2023

Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE) reported first quarter 2023 revenues of $163.4 million, net loss of $(6.1) million, or $(0.19) per diluted share and $(0.19) per basic share, and adjusted EBITDA of $25.0 million. The Company’s net loss in the first quarter of 2023 includes the impact of fees and expenses incurred in connection with its public offering of units and other refinancing activities in January. The Company had provided original first quarter 2023 revenue guidance between $160.0 and $165.0 million, with actual results falling within the provided range.

“First quarter results were as expected,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service, “with revenue within our original guidance.”

“We have seen a softening in the market due largely to the decline in natural gas prices over the past several months, resulting in a decrease in activity and pricing thus far in 2023 versus Q4 levels. Operationally, our cementing service line continues to be a strong performer, and we remain very excited about this service line. We continue to believe we have one of the top completion tool portfolios in the U.S. We increased the total number of StingerTM Dissolvable plugs sold by approximately 23%, due in large part to a significant international sale, and increased completion tool revenue by approximately 7%, in each case, quarter-over-quarter. Wireline and coiled tubing markets remain fragmented and highly competitive but play a very important role in the completions process and customer relationships.”

“Recessionary fears in the global market are affecting commodity prices, which have been erratic over the last several months. I do believe there will continue to be numerous factors that will impact commodity prices; however, I remain optimistic on the outlook for the energy sector with both OPEC’s and U.S. oil producers’ demonstrated commitment to capital discipline.”

“Looking ahead, U.S. rig and frac crew counts are good proxies for both our revenue outlook and potential pricing leverage. Activity levels thus far in Q2 are down, and we continue to see some pricing pressure from select customers, especially in the Northeast and Haynesville. As a result of this, we expect Q2 revenue to be down slightly sequentially to Q1.”

“We have purposely designed our business to be capital light, which reduces capital allocation risk, as well as diversified in terms of service lines, geography, and commodity exposure. We continue to develop and look for new technologies to expand our tool portfolio, as well as constantly improve our current offerings. Our priorities are unchanged. We are focused on generating free cash flowc, which would be used towards de-levering. While 2023 has not been the growth market we originally anticipated at the end of 2022, we have demonstrated our ability to navigate through all market cycles and quickly increase earnings in conjunction with activity growth.”

Operating Results

During the first quarter of 2023, the Company reported revenues of $163.4 million, gross profit of $26.5 million and adjusted gross profitD of $36.3 million. During the first quarter, the Company generated ROIC of 16.2%.

During the first quarter of 2023, the Company reported general and administrative expense of $19.7 million. Depreciation and amortization expense in the first quarter of 2023 was $10.3 million.

The Company’s tax provision for the first quarter of 2023 was approximately $0.9 million. The provision for 2023 is the result of our tax position in state and non-U.S. tax jurisdictions.

Liquidity and Capital Expenditures

During the first quarter of 2023, the Company reported net cash provided by operating activities of $4.0 million. Capital expenditures totaled $5.0 million during the first quarter of 2023.

As of March 31, 2023, Nine’s cash and cash equivalents were $21.4 million, and the Company had $26.0 million of availability under the revolving credit facility, resulting in a total liquidity position of $47.4 million as of March 31, 2023. On March 31, 2023, the Company had $72.0 million of borrowings under the revolving credit facility.

ABCDSee end of press release for definitions of these non-GAAP measures. These measures are intended to provide additional information only and should not be considered as alternatives to, or more meaningful than, net income (loss), gross profit, net cash provided by operating activities or any other measure determined in accordance with GAAP. Certain items excluded from these measures are significant components in understanding and assessing a company’s financial performance or liquidity, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets. Our computation of these measures may not be comparable to other similarly titled measures of other companies.

Conference Call Information

The call is scheduled for Tuesday, May 9, 2023, at 9:00 am Central Time. Participants may join the live conference call by dialing U.S. (Toll Free): (877) 524-8416 or International: (412) 902-1028 and asking for the “Nine Energy Service Earnings Call”. Participants are encouraged to dial into the conference call ten to fifteen minutes before the scheduled start time to avoid any delays entering the earnings call.

For those who cannot listen to the live call, a telephonic replay of the call will be available through May 23, 2023 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13734454.

About Nine Energy Service

Nine Energy Service is an oilfield services company that offers completion solutions within North America and abroad. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Serving the global oil and gas industry, Nine continues to differentiate itself through superior service quality, wellsite execution and cutting-edge technology. Nine is headquartered in Houston, Texas with operating facilities in the Permian, Eagle Ford, Haynesville, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus, Utica and Canada.

For more information on the Company, please visit Nine’s website at nineenergyservice.com.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. Forward-looking statements also include statements that refer to or are based on projections, uncertain events or assumptions. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, the level of capital spending and well completions by the onshore oil and natural gas industry, which may be affected by geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war or terrorism in oil producing countries or regions, particularly Russia, the Middle East, South America and Africa, as well as actions by members of the Organization of the Petroleum Exporting Countries and other oil exporting nations; general economic conditions and inflation, particularly, cost inflation with labor or materials; equipment and supply chain constraints; the Company’s ability to attract and retain key employees, technical personnel and other skilled and qualified workers; the Company’s ability to maintain existing prices or implement price increases on our products and services; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; conditions inherent in the oilfield services industry, such as equipment defects, liabilities arising from accidents or damage involving our fleet of trucks or other equipment, explosions and uncontrollable flows of gas or well fluids, and loss of well control; the Company’s ability to implement and commercialize new technologies, services and tools; the Company’s ability to grow its completion tool business; the adequacy of the Company’s capital resources and liquidity, including the ability to meet its debt obligations; the Company’s ability to manage capital expenditures; the Company’s ability to accurately predict customer demand, including that of its international customers; the loss of, or interruption or delay in operations by, one or more significant customers, including certain of the Company’s customers outside of the United States; the loss of or interruption in operations of one or more key suppliers; the incurrence of significant costs and liabilities resulting from litigation; changes in laws or regulations regarding issues of health, safety and protection of the environment; and other factors described in the “Risk Factors” and “Business” sections of the Company’s most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

   
 

Three Months Ended

 

March 31,

2023

December 31,

2022

   

Revenues

 

$

163,408

 

$

166,669

 

Cost and expenses

 

 

 

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

 

127,118

 

 

126,616

 

General and administrative expenses

 

 

19,714

 

 

13,887

 

Depreciation

 

 

7,420

 

 

7,176

 

Amortization of intangibles

 

 

2,896

 

 

2,895

 

(Gain) loss on revaluation of contingent liability

 

 

(292

)

 

217

 

Gain on sale of property and equipment

 

 

(330

)

 

(428

)

Income from operations  

 

6,882

 

 

16,306

 

Interest expense

 

 

12,454

 

 

8,151

 

Interest income

 

 

(185

)

 

(134

)

Other income

 

 

(162

)

 

(162

)

Income (loss) before income taxes  

 

(5,225

)

 

8,451

 

Provision for income taxes

 

 

884

 

 

467

 

Net income (loss)  

$

(6,109

)

$

7,984

 

   

Income (loss) per share

 
Basic  

$

(0.19

)

$

0.26

 

Diluted  

$

(0.19

)

$

0.24

 

Weighted average shares outstanding

 
Basic  

 

32,304,361

 

 

31,287,694

 

Diluted  

 

32,304,361

 

 

32,804,647

 

   

Other comprehensive income (loss), net of tax

 

Foreign currency translation adjustments, net of tax of $0 and $0

 

$

(168

)

$

98

 

Total other comprehensive income (loss), net of tax  

 

(168

)

 

98

 

Total comprehensive income (loss)  

$

(6,277

)

$

8,082

 

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

   
 

March 31,

2023

December 31,

2022

   

Assets

 

Current assets

 

Cash and cash equivalents

 

$

21,374

 

$

17,445

 

Accounts receivable, net

 

 

98,498

 

 

105,277

 

Income taxes receivable

 

 

-

 

 

741

 

Inventories, net

 

 

67,030

 

 

62,045

 

Prepaid expenses and other current assets

 

 

9,293

 

 

11,217

 

Total current assets

 

 

196,195

 

 

196,725

 

Property and equipment, net

 

 

87,650

 

 

89,717

 

Operating lease right-of-use assets, net

 

 

39,520

 

 

36,336

 

Finance lease right-of-use assets, net

 

 

157

 

 

547

 

Intangible assets, net

 

 

99,049

 

 

101,945

 

Other long-term assets

 

 

4,123

 

 

1,564

 

Total assets

 

$

426,694

 

$

426,834

 

Liabilities and Stockholders’ Equity (Deficit)

 

Current liabilities

 

Accounts payable

 

$

37,489

 

$

42,211

 

Accrued expenses

 

 

25,268

 

 

28,391

 

Income taxes payable

 

 

124

 

 

-

 

Current portion of long-term debt

 

 

1,305

 

 

2,267

 

Current portion of operating lease obligations

 

 

8,702

 

 

7,956

 

Current portion of finance lease obligations

 

 

82

 

 

178

 

Total current liabilities

 

 

72,970

 

 

81,003

 

Long-term liabilities

 

Long-term debt

 

 

331,533

 

 

338,031

 

Long-term operating lease obligations

 

 

31,672

 

 

29,370

 

Other long-term liabilities

 

 

1,860

 

 

1,937

 

Total liabilities

 

 

438,035

 

 

450,341

 

   

Stockholders’ equity (deficit)

 
 

Common stock (120,000,000 shares authorized at $.01 par value; 34,720,752 and 33,221,266 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)

 

 

347

 

 

332

 

Additional paid-in capital

 

 

793,434

 

 

775,006

 

Accumulated other comprehensive loss

 

 

(4,996

)

 

(4,828

)

Accumulated deficit

 

 

(800,126

)

 

(794,017

)

Total stockholders’ equity (deficit)

 

 

(11,341

)

 

(23,507

)

Total liabilities and stockholders’ equity (deficit)

 

$

426,694

 

$

426,834

 

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

Three Months Ended

 

March 31,

2023

December 31,

2022

   

Cash flows from operating activities

 

Net income (loss)

 

$

(6,109

)

$

7,984

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

Depreciation

 

 

7,420

 

 

7,176

 

Amortization of intangibles

 

 

2,896

 

 

2,895

 

Amortization of deferred financing costs

 

 

2,408

 

 

626

 

Amortization of operating leases

 

 

2,596

 

 

2,402

 

Provision for doubtful accounts

 

 

175

 

 

6

 

Provision for inventory obsolescence

 

 

319

 

 

400

 

Stock-based compensation expense

 

 

489

 

 

497

 

Gain on sale of property and equipment

 

 

(330

)

 

(428

)

(Gain) loss on revaluation of contingent liability

 

 

(292

)

 

217

 

Abandonment of in-process research and development

 

 

-

 

 

1,000

 

Changes in operating assets and liabilities, net of effects from acquisitions

 

Accounts receivable, net

 

 

6,589

 

 

(1,363

)

Inventories, net

 

 

(5,421

)

 

(9,425

)

Prepaid expenses and other current assets

 

 

1,222

 

 

(2,355

)

Accounts payable and accrued expenses

 

 

(6,357

)

 

651

 

Income taxes receivable/payable

 

 

867

 

 

443

 

Other assets and liabilities

 

 

(2,507

)

 

(2,285

)

Net cash provided by operating activities

 

 

3,965

 

 

8,441

 

Cash flows from investing activities

 

Proceeds from sales of property and equipment

 

 

219

 

 

20

 

Proceeds from property and equipment casualty losses

 

 

840

 

 

-

 

Purchases of property and equipment

 

 

(6,343

)

 

(19,190

)

Net cash used in investing activities

 

 

(5,284

)

 

(19,170

)

Cash flows from financing activities

 

Redemption of 2023 Notes

 

 

(307,339

)

 

-

 

Proceeds from Units offering, net of discount

 

 

279,750

 

 

-

 

Proceeds from ABL Credit Facility

 

 

40,000

 

 

12,000

 

Payments on ABL Credit Facility

 

 

-

 

 

(7,000

)

Payments on Magnum Promissory Notes

 

 

-

 

 

(281

)

Proceeds from short-term debt

 

 

-

 

 

4,086

 

Payments of short-term debt

 

 

(962

)

 

(1,819

)

Payments on finance leases

 

 

(124

)

 

(270

)

Payments of contingent liability

 

 

(66

)

 

(60

)

Cost of debt issuance

 

 

(5,915

)

 

-

 

Vesting of restricted stock and stock units

 

 

-

 

 

(1

)

Net cash provided by financing activities

 

 

5,344

 

 

6,655

 

Impact of foreign currency exchange on cash

 

 

(96

)

 

29

 

Net increase (decrease) in cash and cash equivalents

 

 

3,929

 

 

(4,045

)

Cash and cash equivalents

 

Beginning of period

 

 

17,445

 

 

21,490

 

End of period

 

$

21,374

 

$

17,445

 

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED EBITDA

(In Thousands)

(Unaudited)

   
 

Three Months Ended

 

March 31,

2023

 

December 31,

2022

Adjusted EBITDA reconciliation:

 

Net income (loss)

 

$

(6,109

)

$

7,984

 

Interest expense

 

 

12,454

 

 

8,151

 

Interest income

 

 

(185

)

 

(134

)

Provision for income taxes

 

 

884

 

 

467

 

Depreciation

 

 

7,420

 

 

7,176

 

Amortization of intangibles

 

 

2,896

 

 

 

2,895

 

EBITDA

 

$

17,360

 

$

26,539

 

(Gain) loss on revaluation of contingent liability (1)

 

 

(292

)

 

217

 

Certain refinancing costs (2)

 

 

6,396

 

 

-

 

Restructuring charges

 

 

406

 

 

1,574

 

Stock-based compensation and cash award expense

 

 

1,469

 

 

2,116

 

Gain on sale of property and equipment

 

 

(330

)

 

(428

)

Legal fees and settlements (3)

 

 

-

 

 

31

 

Adjusted EBITDA

 

$

25,009

 

 

$

30,049

 

   
   

(1) Amounts relate to the revaluation of a contingent liability associated with a 2018 acquisition.

   

(2) Amounts represent Units offering and other refinancing fees and expenses, including cash incentive compensation to employees following the successful completion of the Units offering, that were not capitalized.

 

(3) Amounts represent fees, legal settlements, and/or accruals associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws.

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ROIC CALCULATION

(In Thousands)

(Unaudited)

   
 

Three Months Ended

 

March 31,

2023

December 31,

2022

   

Net income (loss)

 

$

(6,109

)

$

7,984

 

Add back:

 

Interest expense

 

 

12,454

 

 

8,151

 

Interest income

 

 

(185

)

 

(134

)

Certain refinancing costs (1)

 

 

6,396

 

 

-

 

Restructuring charges

 

 

406

 

 

1,574

 

After-tax net operating income

 

$

12,962

 

$

17,575

 

   

Total capital as of prior period-end:

 

Total stockholders' deficit

 

$

(23,507

)

$

(32,085

)

Total debt

 

 

341,606

 

 

334,620

 

Less: cash and cash equivalents

 

 

(17,445

)

 

 

(21,490

)

Total capital as of prior period-end:

 

$

300,654

 

 

$

281,045

 

   

Total capital as of period-end:

 

Total stockholders' deficit

 

$

(11,341

)

$

(23,507

)

Total debt

 

 

373,305

 

 

341,606

 

Less: cash and cash equivalents

 

 

(21,374

)

 

 

(17,445

)

Total capital as of period-end:

 

$

340,590

 

$

300,654

 

 

 

 

 

Average total capital

 

$

320,622

 

 

$

290,850

 

ROIC

 

 

16.2

%

 

24.2

%

 

(1) Amounts represent Units offering and other refinancing fees and expenses, including cash incentive compensation to employees following the successful completion of the Units offering, that were not capitalized.

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)

(In Thousands)

(Unaudited)

   
 

Three Months Ended

 

March 31,

2023

December 31,

2022

Calculation of gross profit:

 

Revenues

 

$

163,408

$

166,669

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

 

127,118

 

126,616

Depreciation (related to cost of revenues)

 

 

6,901

 

6,674

Amortization of intangibles

 

 

2,896

 

2,895

Gross profit

 

$

26,493

 

$

30,484

   

Adjusted gross profit reconciliation:

 

Gross profit

 

$

26,493

$

30,484

Depreciation (related to cost of revenues)

 

 

6,901

 

6,674

Amortization of intangibles

 

 

2,896

 

2,895

Adjusted gross profit

 

$

36,290

 

$

40,053

AAdjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) loss or gain on revaluation of contingent liabilities, (v) loss or gain on the extinguishment of debt, (vi) loss or gain on the sale of subsidiaries, (vii) restructuring charges, (viii) stock-based compensation and cash award expense, (ix) loss or gain on sale of property and equipment, and (x) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business. Management believes Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments, acquisitions and dispositions and costs that are not reflective of the ongoing performance of our business.

BReturn on Invested Capital (“ROIC”) is defined as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) interest expense (income), (v) restructuring charges, (vi) loss (gain) on the sale of subsidiaries, (vii) loss (gain) on extinguishment of debt, and (viii) the provision (benefit) for deferred income taxes. We define total capital as book value of equity (deficit) plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior period-end total capital for use in this analysis. Management believes ROIC provides useful information because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested.

CFree cash flow is defined as net cash provided by operating activities less (i) capital expenditures, (ii) payments on finance leases, (iii) debt issuance costs, (iv) payments of contingent liability, (v) payments on short-term debt, (vi) cash employment taxes related to vesting of restricted stock and stock units and (vii) the impact of foreign currency exchange on cash.

DAdjusted Gross Profit (Loss) is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit (loss) because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit (loss) to evaluate operating performance. We prepare adjusted gross profit (loss) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance.

Contacts

Nine Energy Service Investor Contact:

Heather Schmidt

Vice President, Strategic Development, Investor Relations and Marketing

(281) 730-5113

investors@nineenergyservice.com

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