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Nine Energy Service Announces Third Quarter 2022 Results

  • Revenue, net income and adjusted EBITDAA of $167.4 million, $14.3 million and $32.6 million, respectively, for the third quarter of 2022
  • Third quarter 2022 basic earnings per share of $0.46
  • For the third quarter of 2022 the Company generated ROICB of 28.8%
  • Total liquidity position of $88.2 million as of September 30, 2022
  • During Q3, repurchased additional bonds with a face value of $13.0 million for a total purchase price of $10.1 million, leaving $307.3 million of senior notes outstanding

Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE) reported third quarter 2022 revenues of $167.4 million, net income of $14.3 million and adjusted EBITDA of $32.6 million. For the third quarter of 2022, adjusted net incomeC was $12.2 million, or $0.39 adjusted basic earnings per shareD.

The Company had provided original third quarter 2022 revenue guidance between $145.0 and $155.0 million, with actual results falling above the provided range and representing a sequential revenue increase of approximately 18% quarter over quarter.

“Q3 was a very strong quarter for Nine,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service, “driven mostly by price increases across our service lines, as well as increased volumes within completion tools, which enabled us to drive strong incremental margins again this quarter.”

“De-levering the balance sheet continues to be a top priority for Nine. During Q3, we repurchased $13.0 million par value of bonds for $10.1 million of cash or 77.7% of par, leaving $307.3 million outstanding. I am extremely happy with our team’s ability to take over $90 million of debt off the balance sheet, while also maintaining strong liquidity throughout one of the most volatile environments we have faced. The Company is poised to generate free cash flow going forward and we plan to continue to reduce our financial leverage. Going forward, we believe that Nine can de-lever through a combination of growth in profitability, as well as reduction in net debt.”

“All of our service lines performed well this quarter and cementing continues to outperform the market, increasing sequential revenue by approximately 16%, versus the average U.S. rig count, which increased by approximately 7%. We continue to grow our completion tool business through both new technology and market share gains. In Q3, we increased the total number of dissolvable plugs sold by approximately 34% quarter over quarter, despite EIA reported completions remaining flat. Today, we believe we have a leading market share position within the U.S. dissolvable plug market. Along with the U.S. market, the international markets could provide growth opportunities for Nine. Our R&D team in Norway recently completed and received API-Q1 certification for our multi-cycle barrier valve for a large Middle Eastern national oil company (“NOC”). We have received approximately $10 million in purchase orders pursuant to an NOC bid process, with opportunities to obtain additional purchase orders moving forward. I am extremely proud of Nine’s R&D capabilities, which have provided new opportunities in the international markets.”

“The overall market has been volatile; however, we remain positive about Nine’s outlook into 2023 and beyond. There are and will continue to be numerous factors that will influence global supply and demand, but we believe North American shale production will be critical for global supply. We do think capital discipline for both operators and oilfield service providers will continue into 2023 keeping the market tight; however, we believe the constraints on oilfield service equipment will continue, and incremental rig activity moving forward should put upward pressure on pricing and drive net margin.”

“We do expect to see some seasonality impacts into Q4, especially as our customers remain focused on staying within capital budgets. With what we know today, we anticipate revenue to be relatively flat sequentially for Q4, with growth returning as we enter Q1 of 2023.”

“We have proven Nine’s ability to generate strong growth and earnings within the current rig environment. As we have strategically shifted more of our top line exposure to both completion tools and cementing, we are starting to see the positive impacts this will have on our free cash flow generation, which we expect to continue into 2023. While we do anticipate activity increases into 2023, we do not believe we need significant activity increases in 2023 to continue to grow both our revenue and expand our margin.”

“Nine’s geographic and service line diversity positions us well for this next cycle. We believe we have differentiation in the service lines in which we operate with a strategy towards more profitability even within a more moderated growth environment in 2023.”

Operating Results

During the third quarter of 2022, the Company reported revenues of $167.4 million, gross profit of $35.0 million and adjusted gross profitE of $44.0 million. Gross profit increased by approximately 77% quarter over quarter, and adjusted gross profit increased by approximately 49% quarter over quarter. During the third quarter, the Company generated ROIC of 28.8%.

During the third quarter of 2022, the Company reported selling, general and administrative expense of $13.5 million. Depreciation and amortization expense in the third quarter of 2022 was $9.5 million.

The Company’s tax provision for the third quarter of 2022 was approximately $0.5 million and $0.08 million year to date. The provision for 2022 is the result of our tax position in state and non-U.S. tax jurisdictions.

Liquidity and Capital Expenditures

During the third quarter of 2022, the Company reported net cash provided by operating activities of $15.1 million. Capital expenditures totaled $4.6 million during the third quarter of 2022.

As of September 30, 2022, Nine’s cash and cash equivalents were $21.5 million, and the Company had $66.7 million of availability under the revolving credit facility, resulting in a total liquidity position of $88.2 million as of September 30, 2022. On September 30, 2022, the Company had $27.0 million of borrowings under the 2018 ABL Credit Facility. In the fourth quarter of 2022 to date, the Company borrowed an additional $5.0 million, net.

During the third quarter, the Company repurchased $13.0 million of the senior notes for a repurchase price of $10.1 million in cash. As a result, the Company recorded a $2.8 million gain on extinguishment of debt with no cash tax obligation. To date, the Company has repurchased $92.7 million of the senior notes for a repurchase price of $32.9 million in cash, leaving $307.3 million of bonds outstanding.

ABCDESee end of press release for definitions

Conference Call Information

The call is scheduled for Monday, November 7, 2022, 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, 2022, and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13732302.

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, 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, and which has been and may again be affected by the COVID-19 pandemic and related economic repercussions; general economic conditions and inflation, particularly, cost inflation with labor or materials; the adequacy of the Company’s capital resources and liquidity, including the ability to meet its debt obligations, which may including refinancing or restructuring its indebtedness by seeking additional sources of capital, selling assets, or a combination thereof; 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 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,

2022

June 30,

2022

 

Revenues

$

167,432

 

$

142,346

 

Cost and expenses

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

 

123,418

 

 

112,741

 

General and administrative expenses

 

13,475

 

 

12,455

 

Depreciation

 

6,593

 

 

6,511

 

Amortization of intangibles

 

2,896

 

 

3,768

 

Loss on revaluation of contingent liability

 

46

 

 

186

 

Loss on sale of property and equipment

 

1,242

 

 

267

 

Income from operations

 

19,762

 

 

6,418

 

Interest expense

 

8,125

 

 

8,133

 

Gain on extinguishment of debt

 

(2,843

)

 

-

 

Interest income

 

(134

)

 

(25

)

Other income

 

(161

)

 

(190

)

Income (loss) before income taxes

 

14,775

 

 

(1,500

)

Provision (benefit) for income taxes

 

489

 

 

(522

)

Net income (loss)

$

14,286

 

$

(978

)

 

Earnings (loss) per share

Basic

$

0.46

 

$

(0.03

)

Diluted

$

0.45

 

$

(0.03

)

Weighted average shares outstanding

Basic

 

31,100,712

 

 

30,832,566

 

Diluted

 

31,932,613

 

 

30,832,566

 

 

Other comprehensive income (loss), net of tax

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

$

(225

)

$

(174

)

Total other comprehensive loss, net of tax

 

(225

)

 

(174

)

Total comprehensive income (loss)

$

14,061

 

$

(1,152

)

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

 

September 30,

2022

June 30,

2022

 

Assets

Current assets

Cash and cash equivalents

$

21,490

 

$

22,408

 

Accounts receivable, net

 

103,881

 

 

88,245

 

Income taxes receivable

 

1,184

 

 

1,726

 

Inventories, net

 

52,959

 

 

48,950

 

Prepaid expenses and other current assets

 

9,123

 

 

11,362

 

Total current assets

 

188,637

 

 

172,691

 

Property and equipment, net

 

75,658

 

 

77,993

 

Operating lease right-of-use assets, net

 

35,934

 

 

34,143

 

Finance lease right-of-use assets, net

 

598

 

 

1,398

 

Intangible assets, net

 

105,840

 

 

108,736

 

Other long-term assets

 

808

 

 

784

 

Total assets

$

407,475

 

$

395,745

 

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities

Accounts payable

$

38,145

 

$

35,470

 

Accrued expenses

 

29,374

 

 

22,980

 

Current portion of long-term debt

 

27,281

 

 

27,805

 

Current portion of operating lease obligations

 

7,438

 

 

6,458

 

Current portion of finance lease obligations

 

420

 

 

644

 

Total current liabilities

 

102,658

 

 

93,357

 

Long-term liabilities

Long-term debt

 

305,631

 

 

318,147

 

Long-term operating lease obligations

 

29,612

 

 

28,974

 

Other long-term liabilities

 

1,659

 

 

1,586

 

Total liabilities

 

439,560

 

 

442,064

 

 

Stockholders’ equity (deficit)

Common stock (120,000,000 shares authorized at $.01 par value; 33,233,106 and 33,369,148 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively)

 

332

 

 

334

 

Additional paid-in capital

 

774,510

 

 

774,335

 

Accumulated other comprehensive loss

 

(4,926

)

 

(4,701

)

Accumulated deficit

 

(802,001

)

 

(816,287

)

Total stockholders’ equity (deficit)

 

(32,085

)

 

(46,319

)

Total liabilities and stockholders’ equity (deficit)

$

407,475

 

$

395,745

 

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months Ended

September 30,

2022

June 30,

2022

 

Cash flows from operating activities

Net income (loss)

$

14,286

 

$

(978

)

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

Depreciation

 

6,593

 

 

6,511

 

Amortization of intangibles

 

2,896

 

 

3,768

 

Amortization of deferred financing costs

 

634

 

 

642

 

Amortization of operating leases

 

2,242

 

 

2,035

 

Gain on extinguishment of debt

 

(2,843

)

 

-

 

Provision (recovery) of doubtful accounts

 

4

 

 

(4

)

Provision for inventory obsolescence

 

603

 

 

886

 

Stock-based compensation expense

 

521

 

 

495

 

Loss on sale of property and equipment

 

1,242

 

 

267

 

Loss on revaluation of contingent liability

 

46

 

 

186

 

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

Accounts receivable, net

 

(15,696

)

 

(8,514

)

Inventories, net

 

(4,733

)

 

(3,972

)

Prepaid expenses and other current assets

 

1,277

 

 

2,788

 

Accounts payable and accrued expenses

 

9,709

 

 

(1,835

)

Income taxes receivable/payable

 

542

 

 

(615

)

Other assets and liabilities

 

(2,203

)

 

(2,090

)

Net cash provided by (used in) operating activities

 

15,120

 

 

(430

)

Cash flows from investing activities

Proceeds from sales of property and equipment

 

797

 

 

101

 

Purchases of property and equipment

 

(5,417

)

 

(3,068

)

Net cash used in investing activities

 

(4,620

)

 

(2,967

)

Cash flows from financing activities

Payments on Magnum Promissory Notes

 

(282

)

 

-

 

Proceeds from 2018 ABL Credit Facility

 

-

 

 

7,000

 

Purchases of Senior Notes

 

(10,081

)

 

-

 

Payments of short-term debt

 

(242

)

 

(363

)

Payments on finance leases

 

(331

)

 

(339

)

Payments of contingent liability

 

(43

)

 

(48

)

Vesting of restricted stock and stock units

 

(348

)

 

(296

)

Net cash provided by (used in) financing activities

 

(11,327

)

 

5,954

 

Impact of foreign currency exchange on cash

 

(91

)

 

(90

)

Net increase (decrease) in cash and cash equivalents

 

(918

)

 

2,467

 

Cash and cash equivalents

Beginning of period

 

22,408

 

 

19,941

 

End of period

$

21,490

 

$

22,408

 

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED EBITDA

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30,

2022

June 30,

2022

EBITDA reconciliation:

Net income (loss)

$

14,286

 

$

(978

)

Interest expense

 

8,125

 

 

8,133

 

Interest income

 

(134

)

 

(25

)

Provision (benefit) for income taxes

 

489

 

 

(522

)

Depreciation

 

6,593

 

 

6,511

 

Amortization of intangibles

 

2,896

 

 

 

3,768

 

EBITDA

$

32,255

 

$

16,887

 

Loss on revaluation of contingent liability (1)

 

46

 

 

186

 

Gain on extinguishment of debt

 

(2,843

)

 

-

 

Restructuring charges

 

729

 

 

805

 

Stock-based compensation and cash award expense

 

1,113

 

 

758

 

Loss on sale of property and equipment

 

1,242

 

 

267

 

Legal fees and settlements (2)

 

10

 

 

11

 

Adjusted EBITDA

$

32,552

 

 

$

18,914

 

 
 

(1) Amounts relate to the revaluation of 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,

2022

June 30,

2022

 

Net income (loss)

$

14,286

 

$

(978

)

Add back:

Interest expense

 

8,125

 

 

8,133

 

Interest income

 

(134

)

 

(25

)

Gain on extinguishment of debt

 

(2,843

)

 

-

 

Restructuring charges

 

729

 

 

805

 

After-tax net operating income

$

20,163

 

$

7,935

 

 

Total capital as of prior period-end:

Total stockholders' deficit

$

(46,319

)

$

(45,366

)

Total debt

 

348,148

 

 

341,511

 

Less: cash and cash equivalents

 

(22,408

)

 

 

(19,941

)

Total capital as of prior period-end:

$

279,421

 

 

$

276,204

 

 

Total capital as of period-end:

Total stockholders' deficit

$

(32,085

)

$

(46,319

)

Total debt

 

334,620

 

 

348,148

 

Less: cash and cash equivalents

 

(21,490

)

 

 

(22,408

)

Total capital as of period-end:

$

281,045

 

$

279,421

 

 

 

 

Average total capital

$

280,233

 

 

$

277,813

 

ROIC

 

28.8

%

 

11.4

%

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30,

2022

June 30,

2022

Calculation of gross profit

Revenues

$

167,432

$

142,346

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

 

123,418

 

112,741

Depreciation (related to cost of revenues)

 

6,131

 

6,055

Amortization of intangibles

 

2,896

 

3,768

Gross profit

$

34,987

 

$

19,782

 

Adjusted gross profit reconciliation

Gross profit

$

34,987

$

19,782

Depreciation (related to cost of revenues)

 

6,131

 

6,055

Amortization of intangibles

 

2,896

 

3,768

Adjusted gross profit

$

44,014

 

$

29,605

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED NET INCOME (LOSS) AND ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30,

2022

 

June 30,

2022

Reconciliation of adjusted net income (loss):

Net income (loss)

$

14,286

 

$

(978

)

Add back:

Gain on extinguishment of debt (a)

 

(2,843

)

 

-

 

Restructuring charges

 

729

 

 

805

 

Adjusted net income (loss)

$

12,172

 

 

$

(173

)

 

Weighted average shares

Weighted average shares outstanding for basic

 

31,100,712

 

 

30,832,566

 

and adjusted basic earnings (loss) per share

 

Earnings (loss) per share:

Basic earnings (loss) per share

$

0.46

 

$

(0.03

)

Adjusted basic earnings (loss) per share

$

0.39

 

$

(0.01

)

 
 

(a) Amount represents the difference between the repurchase price and the carrying amount of Senior Notes repurchased during the respective period.

 

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) loss or gain on revaluation of contingent liabilities, (iv) loss or gain on the extinguishment of debt, (v) loss or gain on the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation and cash award expense, (viii) loss or gain on sale of property and equipment, and (ix) 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) interest expense (income), (iv) restructuring charges, (v) loss (gain) on the sale of subsidiaries, (vi) loss (gain) on extinguishment of debt, and (vii) 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 Net Income (Loss) is defined as net income (loss) adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) restructuring charges, (iv) loss or gain on the sale of subsidiaries, (v) loss or gain on the extinguishment of debt and (vi) the tax impact of such adjustments. Management believes Adjusted Net Income (Loss) is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.

DAdjusted Basic Earnings (Loss) Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings (Loss) Per Share is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.

EAdjusted 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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