- Revenue, net loss and adjusted EBITDAA of $140.6 million,
$(13.3) million and $11.6 million, respectively, for the third
quarter of 2023
- Cash and cash equivalents of $12.2mm as of September 30, 2023,
have increased to $34.8mm as of October 31, 2023
- Expect fourth quarter 2023 revenue and earnings to be flat to
slightly up sequentially to third quarter 2023
Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE)
reported third quarter 2023 revenues of $140.6 million, net loss of
$(13.3) million, or $(0.39) per diluted share and $(0.39) per basic
share, and adjusted EBITDA of $11.6 million. The Company had
provided original third quarter 2023 revenue guidance between
$140.0 and $150.0 million, with actual results coming within the
provided range.
“Third quarter revenue was in-line with expectations coming
within our original guidance,” said Ann Fox, President and Chief
Executive Officer, Nine Energy Service.
“We continued to see activity declines throughout Q3, with the
U.S. rig count declining by over 150 rigs, or approximately 20%,
since the end of 2022. For Nine, July began on a normal trendline;
however, we experienced activity declines as well as operational
inefficiencies related to weather and frac delays in August,
leading to elevated white space in the calendar, significantly
impacting revenue and profitability. September returned to more
normalized levels, and as we look forward, we are not expecting a
recurrence of what happened in August in Q4 and expect the business
to be back to trend for Q4, though some normal holiday and winter
seasonality is expected.”
“Cementing was impacted by the continued rig declines in Q3,
especially because of our significant exposure to the Haynesville
and Eagle Ford; however, we do anticipate Q4 cementing revenue to
be slightly higher than Q3. Completion tool revenue was down
quarter over quarter due to a reduction in international sales as
well as the reduction in U.S. completion activity. We are extremely
excited to announce the commercialization of our new Pincer Hybrid
Frac Plug. The Pincer is comprised of 47% less material than our
predecessor Scorpion Composite Frac Plug and has industry-leading
drill-out times. We believe the new Pincer Plug will help increase
our market share growth in the plug market.”
“We believe we have reached a bottoming of the U.S. rig count
and have already begun to feel a shift in sentiment as we look
towards 2024. With what we know today, we anticipate 2024 activity
to increase over current levels, but it is too early to provide a
detailed outlook. For Q4, we anticipate overall activity levels to
remain mostly flat and pricing to stabilize. We do not anticipate a
recurrence of August in the fourth quarter, but do anticipate
holidays, weather, and budget exhaustion to impact operations,
especially in the Northeast. Because of this, we expect Q4 revenue
and earnings to be flat to slightly up sequentially to Q3.”
“Nine is a spot-market business and our financial results move
closely with U.S. land activity levels. We have demonstrated our
ability to capitalize on improving markets and we remain focused on
executing our strategy as an asset-light business offering
forward-leaning technology and excellent service to our
customers.”
Operating Results
During the third quarter of 2023, the Company reported revenues
of $140.6 million, gross profit of $13.3 million and adjusted gross
profitC of $22.9 million. During the third quarter, the Company
generated ROICB of -0.7%.
During the third quarter of 2023, the Company reported general
and administrative expense of $13.1 million. Depreciation and
amortization expense in the third quarter of 2023 was $10.2
million.
The Company’s tax provision was $0.4 million year-to-date
through September 30, 2023. The provision for 2023 is the result of
the Company’s tax position in state and non-U.S. tax
jurisdictions.
Liquidity and Capital Expenditures
During the third quarter of 2023, the Company reported net cash
used in operating activities of $(9.9) million. Capital
expenditures totaled $3.9 million during the third quarter of 2023
and totaled $16.2 million year-to-date through September 30,
2023.
As of September 30, 2023, Nine’s cash and cash equivalents were
$12.2 million, and the Company had $22.7 million of availability
under the revolving credit facility, resulting in a total liquidity
position of $34.9 million as of September 30, 2023. On September
30, 2023, the Company had $57.0 million of borrowings under the
revolving credit facility. As of October 31, 2023, Nine’s cash and
cash equivalents increased to $34.8 million.
As per the terms of the indenture governing Nine’s senior
secured notes, the Company is required to periodically offer to
repurchase such notes with a portion of any Excess Cash Flow. Nine
did not generate any Excess Cash Flow, as defined in the indenture,
in the most recently ended two fiscal quarters (the six month
period ended September 30, 2023). As a result, no Excess Cash Flow
offer will be made to noteholders this month.
ABCSee 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 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, 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, November 7, 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 November 21, 2023 and
may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or
International: (201) 612-7415 and entering the passcode of
13739255.
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
September 30, 2023
June 30, 2023
Revenues
$
140,617
$
161,428
Cost and expenses
Cost of revenues (exclusive of
depreciation and amortization shown separately below)
117,676
127,442
General and administrative expenses
13,060
14,233
Depreciation
7,285
7,433
Amortization of intangibles
2,895
2,896
Loss on revaluation of contingent
liability
493
211
(Gain) loss on sale of property and
equipment
21
(98
)
Income (loss) from operations
(813
)
9,311
Interest expense
12,858
12,994
Interest income
(462
)
(299
)
Other income
(162
)
(162
)
Loss before income taxes
(13,047
)
(3,222
)
Provision (benefit) for income taxes
215
(685
)
Net loss
$
(13,262
)
$
(2,537
)
Loss per share
Basic
$
(0.39
)
$
(0.08
)
Diluted
$
(0.39
)
$
(0.08
)
Weighted average shares outstanding
Basic
33,659,386
33,293,740
Diluted
33,659,386
33,293,740
Other comprehensive loss, net of
tax
Foreign currency translation adjustments,
net of tax of $0 and $0
$
(22
)
$
(54
)
Total other comprehensive loss, net of tax
(22
)
(54
)
Total comprehensive loss
$
(13,284
)
$
(2,591
)
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In Thousands)
(Unaudited)
September 30, 2023
June 30, 2023
Assets
Current assets
Cash and cash equivalents
$
12,159
$
41,122
Accounts receivable, net
85,103
94,935
Income taxes receivable
897
1,096
Inventories, net
58,663
63,363
Prepaid expenses and other current
assets
5,718
7,444
Total current assets
162,540
207,960
Property and equipment, net
83,979
87,358
Operating lease right-of-use assets,
net
43,299
42,976
Finance lease right-of-use assets, net
60
106
Intangible assets, net
93,258
96,153
Other long-term assets
3,708
3,922
Total assets
$
386,844
$
438,475
Liabilities and Stockholders’ Equity
(Deficit)
Current liabilities
Accounts payable
$
22,897
$
37,518
Accrued expenses
24,862
35,905
Current portion of long-term debt
-
329
Current portion of operating lease
obligations
10,340
10,026
Current portion of finance lease
obligations
37
34
Total current liabilities
58,136
83,812
Long-term liabilities
Long-term debt
319,006
332,555
Long-term operating lease obligations
33,854
33,834
Other long-term liabilities
1,964
1,686
Total liabilities
412,960
451,887
Stockholders’ equity (deficit)
Common stock (120,000,000 shares
authorized at $.01 par value; 35,345,494 and 35,375,614 shares
issued and outstanding at September 30, 2023 and June 30, 2023,
respectively)
353
354
Additional paid-in capital
794,528
793,947
Accumulated other comprehensive loss
(5,072
)
(5,050
)
Accumulated deficit
(815,925
)
(802,663
)
Total stockholders’ equity (deficit)
(26,116
)
(13,412
)
Total liabilities and stockholders’ equity
(deficit)
$
386,844
$
438,475
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
September 30, 2023
June 30, 2023
Cash flows from operating
activities
Net loss
$
(13,262
)
$
(2,537
)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation
7,285
7,433
Amortization of intangibles
2,895
2,896
Amortization of deferred financing
costs
1,665
1,612
Amortization of operating leases
3,317
3,157
Provision for doubtful accounts
-
158
Provision for inventory obsolescence
1,298
348
Stock-based compensation expense
580
522
(Gain) loss on sale of property and
equipment
21
(98
)
Loss on revaluation of contingent
liability
493
211
Changes in operating assets and
liabilities, net of effects from acquisitions
Accounts receivable, net
9,687
3,565
Inventories, net
3,394
3,305
Prepaid expenses and other current
assets
1,725
1,851
Accounts payable and accrued expenses
(25,985
)
9,298
Income taxes receivable/payable
197
(1,217
)
Other assets and liabilities
(3,220
)
(3,374
)
Net cash provided by (used in) operating
activities
(9,910
)
27,130
Cash flows from investing
activities
Proceeds from sales of property and
equipment
160
151
Purchases of property and equipment
(3,775
)
(5,967
)
Net cash used in investing activities
(3,615
)
(5,816
)
Cash flows from financing
activities
Payments on ABL Credit Facility
(15,000
)
-
Payments of short-term debt
(329
)
(976
)
Payments on finance leases
(25
)
(48
)
Payments of contingent liability
(106
)
(79
)
Cost of debt issuance
-
(375
)
Vesting of restricted stock and stock
units
-
(2
)
Net cash used in financing activities
(15,460
)
(1,480
)
Impact of foreign currency exchange on
cash
22
(86
)
Net increase (decrease) in cash and cash
equivalents
(28,963
)
19,748
Cash and cash equivalents
Beginning of period
41,122
21,374
End of period
$
12,159
$
41,122
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF EBITDA AND
ADJUSTED EBITDA
(In Thousands)
(Unaudited)
Three Months Ended
September 30, 2023
June 30, 2023
Adjusted EBITDA reconciliation:
Net loss
$
(13,262
)
$
(2,537
)
Interest expense
12,858
12,994
Interest income
(462
)
(299
)
Provision (benefit) for income taxes
215
(685
)
Depreciation
7,285
7,433
Amortization of intangibles
2,895
2,896
EBITDA
$
9,529
$
19,802
Loss on revaluation of contingent
liability (1)
493
211
Restructuring charges
315
483
Stock-based compensation and cash award
expense
1,208
1,292
(Gain) loss on sale of property and
equipment
21
(98
)
Legal fees and settlements (2)
29
24
Adjusted EBITDA
$
11,595
$
21,714
(1) Amounts relate to the revaluation of a
contingent liability associated with a 2018 acquisition.
(2) 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
September 30, 2023
June 30, 2023
Net loss
$
(13,262
)
$
(2,537
)
Add back:
Interest expense
12,858
12,994
Interest income
(462
)
(299
)
Restructuring charges
315
483
After-tax net operating income
(loss)
$
(551
)
$
10,641
Total capital as of prior
period-end:
Total stockholders' deficit
$
(13,412
)
$
(11,341
)
Total debt
372,329
373,305
Less: cash and cash equivalents
(41,122
)
(21,374
)
Total capital as of prior
period-end:
$
317,795
$
340,590
Total capital as of period-end:
Total stockholders' deficit
$
(26,116
)
$
(13,412
)
Total debt
357,000
372,329
Less: cash and cash equivalents
(12,159
)
(41,122
)
Total capital as of period-end:
$
318,725
$
317,795
Average total capital
$
318,260
$
329,193
ROIC
-0.7
%
12.9
%
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF ADJUSTED
GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
Three Months Ended
September 30, 2023
June 30, 2023
Calculation of gross profit:
Revenues
$
140,617
$
161,428
Cost of revenues (exclusive of
depreciation and amortization shown separately below)
117,676
127,442
Depreciation (related to cost of
revenues)
6,775
6,912
Amortization of intangibles
2,895
2,896
Gross profit
$
13,271
$
24,178
Adjusted gross profit
reconciliation:
Gross profit
$
13,271
$
24,178
Depreciation (related to cost of
revenues)
6,775
6,912
Amortization of intangibles
2,895
2,896
Adjusted gross profit
$
22,941
$
33,986
NINE ENERGY SERVICE,
INC.
EXCESS CASH FLOW
CALCULATION
(In Thousands)
(Unaudited)
Six Months Ended
September 30, 2023
Net cash provided by operating
activities (1)
$
17,220
Repurchases of common stock in connection
with stock-based employee compensation
(2
)
Capital expenditures used or useful in a
Permitted Business:
Purchases of property and equipment
(9,742
)
Proceeds from sales of property and
equipment
311
Repayments of ABL Obligations
(5,785
)
Charges in respect of finance lease
obligations
(73
)
Debt issuance costs
(375
)
Payments on short-term debt
(1,305
)
Impact of foreign exchange rate on
cash
(64
)
Contingent liability payments
(185
)
Excess Cash Flow
$
-
Excess Cash Flow %
75
%
Excess Cash Flow Amount
$
-
(1) Amount consists of the Company's
consolidated operating cash flow, determined in accordance with
GAAP, for the fiscal quarter ended June 30, 2023 ($27.1 million of
net cash provided by operating activities) and for the fiscal
quarter ended September 30, 2023 ($9.9 million of net cash used in
operating activities)
See the definition of Excess Cash Flow
included in the Indenture filed as Exhibit 4.2 to the Current
Report on Form 8-K filed February 1, 2023
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) fees and expenses relating to
our units offering and other refinancing activities, (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) fees and expenses relating to our units
offering and other refinancing activities, (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.
CAdjusted 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231106624565/en/
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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