NINE Nine Energy Service Inc

• Total liquidity position of $74.6 million as of March 31, 2022
• Revenue, net loss and adjusted EBITDAA of $116.9 million, $(6.9) million and $12.2 million, respectively, for the first quarter of 2022
• First quarter 2022 basic loss per share of $(0.23)

Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE) reported first quarter 2022 revenues of $116.9 million, net loss of $(6.9) million and adjusted EBITDA of $12.2 million. For the first quarter 2022, adjusted net lossB was $(6.6) million, or $(0.22) adjusted basic loss per shareC.

The Company had provided original first quarter 2022 revenue guidance between $108.0 and $116.0 million, with actual results falling above the provided range and representing a sequential revenue increase of approximately 11% quarter over quarter.

“We had a strong growth quarter, with both activity and pricing improving over Q4 across the majority of our service lines,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service.

“Overall, market activity did improve during Q1, with the average frac crew count increasing between 6-8% versus Q4. We saw activity increase across the majority of our service lines, with double-digit price increases in both cementing and coiled tubing. Cementing performed extremely well this quarter with revenue increasing by approximately 31% quarter over quarter versus the average U.S. rig count, which increased by approximately 13%. Our completion tool technology continues to perform well in the field, and we are excited about the continued interest in the dissolvable plug technology. ESG initiatives, including the recently proposed disclosure rules by the SEC, coupled with labor and equipment constraints, should continue to propel the adoption of dissolvable plugs.”

“The outlook for the remainder of 2022 and 2023 continues to be very positive. The oilfield service industry remains under-supplied from both an equipment and labor perspective and we anticipate this will continue to be a catalyst for further price increases for the remainder of the year; however, this will be coupled with cost inflation. We remain bullish on the outlook for the dissolvable plug market and its growth and expect revenue for all of our service lines to increase for Q2. With what we know today, we anticipate revenue and adjusted EBITDA to improve sequentially for Q2. With supportive commodity prices, U.S. shale will be an important supplier of natural gas and crude oil for the globe. We are well positioned with our geographic and service line diversity to grow earnings with relatively low capital requirements.”

Operating Results

During the first quarter of 2022, the Company reported revenues of $116.9 million, gross profit of $12.7 million and adjusted gross profitD of $22.6 million. Gross profit increased by approximately 169% quarter over quarter, and adjusted gross profit increased by approximately 52% quarter over quarter. During the first quarter, the Company generated ROICE of 2.1%.

During the first quarter of 2022, the Company reported selling, general and administrative expense of $11.8 million, similar to $11.8 million for the fourth quarter of 2021. Depreciation and amortization expense in the first quarter of 2022 was $10.4 million, compared to $10.7 million for the fourth quarter of 2021.

The Company recognized income tax expense of approximately $112 thousand for the quarter, resulting in an effective tax rate of (1.7)% for the three months ended March 31, 2022. The tax expense for 2022 is primarily the result of our tax position in state and foreign tax jurisdictions.

Liquidity and Capital Expenditures

During the first quarter of 2022, the Company reported net cash used in operating activities of $(6.5) million, compared to $(13.7) million for the fourth quarter of 2021. Capital expenditures totaled $2.4 million during the first quarter of 2022.

As of March 31, 2022, Nine’s cash and cash equivalents were $19.9 million, and the Company had $54.7 million of availability under the revolving credit facility, resulting in a total liquidity position of $74.6 million as of March 31, 2022. On March 31, 2022, the Company had $20.0 million of borrowings under the 2018 ABL Credit Facility and has subsequently borrowed an additional $7.0 million in April 2022.

ABCDESee end of press release for definitions

Conference Call Information

The call is scheduled for Thursday, May 5, 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 May 19, 2022, and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13728777.

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 has been and may again be affected by the COVID-19 pandemic and related economic repercussions and 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; general economic conditions and inflation, particularly, cost inflation with labor or materials; the adequacy of the Company’s capital resources and liquidity; the Company’s ability to attract and retain key employees, technical personnel and other skilled and qualified workers; the ongoing COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, performance of contracts and supply chain disruptions; 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; the loss of, or interruption or delay in operations by, one or more significant customers; 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, 2022

December 31, 2021

 

Revenues

$

116,935

 

$

105,093

 

Cost and expenses

 

 

Cost of revenues (exclusive of depreciation and

 

 

amortization shown separately below)

 

94,318

 

 

90,192

 

General and administrative expenses

 

11,836

 

 

11,796

 

Depreciation

 

6,504

 

 

6,757

 

Amortization of intangibles

 

3,904

 

 

3,904

 

Loss on revaluation of contingent liability

 

5

 

 

584

 

(Gain) loss on sale of property and equipment

 

(714

)

 

-

 

Income (loss) from operations

 

1,082

 

 

(8,140

)

Interest expense

 

8,077

 

 

7,993

 

Interest income

 

(12

)

 

(2

)

Other income

 

(196

)

 

(195

)

Loss before income taxes

 

(6,787

)

 

(15,936

)

Provision (benefit) for income taxes

 

112

 

 

(188

)

Net loss

$

(6,899

)

$

(15,748

)

 

 

Loss per share

 

 

Basic

$

(0.23

)

$

(0.52

)

Diluted

$

(0.23

)

$

(0.52

)

Weighted average shares outstanding

 

 

Basic

 

30,491,976

 

 

30,452,049

 

Diluted

 

30,491,976

 

 

30,452,049

 

 

 

Other comprehensive income (loss), net of tax

 

 

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

$

8

 

$

(2

)

Total other comprehensive income (loss), net of tax

 

8

 

 

(2

)

Total comprehensive loss

$

(6,891

)

$

(15,750

)

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

 

March 31, 2022

December 31, 2021

 

Assets

Current assets

Cash and cash equivalents

$

19,941

 

$

21,509

 

Accounts receivable, net

 

79,744

 

 

64,025

 

Income taxes receivable

 

1,108

 

 

1,393

 

Inventories, net

 

45,959

 

 

42,180

 

Prepaid expenses and other current assets

 

12,227

 

 

10,195

 

Total current assets

 

158,979

 

 

139,302

 

Property and equipment, net

 

81,808

 

 

86,958

 

Operating lease right-of-use assets, net

 

33,883

 

 

35,117

 

Finance lease right-of-use assets, net

 

1,520

 

 

1,445

 

Intangible assets, net

 

112,504

 

 

116,408

 

Other long-term assets

 

2,175

 

 

2,383

 

Total assets

$

390,869

 

$

381,613

 

Liabilities and Stockholders’ Equity

 

 

Current liabilities

 

 

Accounts payable

$

29,887

 

$

28,680

 

Accrued expenses

 

29,606

 

 

18,519

 

Current portion of long-term debt

 

1,168

 

 

2,093

 

Current portion of operating lease obligations

 

6,085

 

 

6,091

 

Current portion of finance lease obligations

 

989

 

 

1,070

 

Total current liabilities

 

67,735

 

 

56,453

 

Long-term liabilities

 

 

Long-term debt

 

337,731

 

 

332,314

 

Long-term operating lease obligations

 

29,181

 

 

30,435

 

Long-term finance lease obligations

 

-

 

 

65

 

Other long-term liabilities

 

1,588

 

 

1,613

 

Total liabilities

 

436,235

 

 

420,880

 

 

 

Stockholders’ equity

 

 

Common stock (120,000,000 shares authorized at $.01 par value; 32,821,113 and

 

 

32,826,325 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)

 

328

 

 

328

 

Additional paid-in capital

 

774,142

 

 

773,350

 

Accumulated other comprehensive loss

 

(4,527

)

 

(4,535

)

Accumulated deficit

 

(815,309

)

 

(808,410

)

Total stockholders’ equity

 

(45,366

)

 

(39,267

)

Total liabilities and stockholders’ equity

$

390,869

 

$

381,613

 

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months Ended

March 31, 2022

December 31, 2021

 

Cash flows from operating activities

Net loss

$

(6,899

)

$

(15,748

)

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

 

Depreciation

 

6,504

 

 

6,757

 

Amortization of intangibles

 

3,904

 

 

3,904

 

Amortization of deferred financing costs

 

643

 

 

642

 

Amortization of operating leases

 

1,991

 

 

2,019

 

Provision for (recovery of) doubtful accounts

 

(172

)

 

3

 

Provision for inventory obsolescence

 

1,077

 

 

1,161

 

Stock-based compensation expense

 

927

 

 

1,215

 

(Gain) loss on sale of property and equipment

 

(714

)

 

-

 

Loss on revaluation of contingent liability

 

5

 

 

584

 

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

 

 

Accounts receivable, net

 

(15,541

)

 

(5,439

)

Inventories, net

 

(4,838

)

 

(324

)

Prepaid expenses and other current assets

 

(2,528

)

 

394

 

Accounts payable and accrued expenses

 

10,951

 

 

(5,312

)

Income taxes receivable/payable

 

285

 

 

(187

)

Other assets and liabilities

 

(2,054

)

 

(3,381

)

Net cash used in operating activities

 

(6,459

)

 

(13,712

)

Cash flows from investing activities

 

 

Proceeds from sales of property and equipment

 

2,041

 

 

495

 

Proceeds from property and equipment casualty losses

 

175

 

 

-

 

Purchases of property and equipment

 

(876

)

 

(10,581

)

Net cash provided by (used in) investing activities

 

1,340

 

 

(10,086

)

Cash flows from financing activities

 

 

Payments on Magnum Promissory Notes

 

(562

)

 

(282

)

Proceeds from 2018 ABL Credit Facility

 

5,000

 

 

15,000

 

Proceeds from short-term debt

 

-

 

 

1,513

 

Payments of short-term debt

 

(363

)

 

(545

)

Payments on finance leases

 

(329

)

 

(284

)

Payments of contingent liability

 

(44

)

 

(44

)

Vesting of restricted stock and stock units

 

(135

)

 

-

 

Net cash provided by financing activities

 

3,567

 

 

15,358

 

Impact of foreign currency exchange on cash

 

(16

)

 

(20

)

Net decrease in cash and cash equivalents

 

(1,568

)

 

(8,460

)

Cash and cash equivalents

 

 

Beginning of period

 

21,509

 

 

29,969

 

End of period

$

19,941

 

$

21,509

 

NINE ENERGY SERVICE, INC.

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(In Thousands)

(Unaudited)

 

Three Months Ended

March 31, 2022

 

December 31, 2021

EBITDA reconciliation:

Net loss

$

(6,899

)

$

(15,748

)

Interest expense

 

8,077

 

 

7,993

 

Interest income

 

(12

)

 

(2

)

Provision (benefit) for income taxes

 

112

 

 

(188

)

Depreciation

 

6,504

 

 

6,757

 

Amortization of intangibles

 

3,904

 

 

 

3,904

 

EBITDA

$

11,686

 

$

2,716

 

Loss on revaluation of contingent liability (1)

 

5

 

 

584

 

Restructuring charges

 

285

 

 

-

 

Stock-based compensation expense

 

927

 

 

1,215

 

Gain (loss) on sale of property and equipment

 

(714

)

 

-

 

Legal fees and settlements (2)

 

34

 

 

45

 

Adjusted EBITDA

$

12,223

 

 

$

4,560

 

   

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

 

(2) Amounts represent fees and legal settlements 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, 2022

December 31, 2021

 

Net loss

$

(6,899

)

$

(15,748

)

Add back:

 

 

Interest expense

 

8,077

 

 

7,993

 

Interest income

 

(12

)

 

(2

)

Restructuring charges

 

285

 

 

-

 

After-tax net operating income (loss)

$

1,451

 

$

(7,757

)

 

 

Total capital as of prior period-end:

 

 

Total stockholders' equity

$

(39,267

)

$

(24,732

)

Total debt

 

337,436

 

 

321,750

 

Less: cash and cash equivalents

 

(21,509

)

 

 

(29,969

)

Total capital as of prior period-end:

$

276,660

 

 

$

267,049

 

 

 

Total capital as of period-end:

 

 

Total stockholders' equity

$

(45,366

)

$

(39,267

)

Total debt

 

341,511

 

 

337,436

 

Less: cash and cash equivalents

 

(19,941

)

 

 

(21,509

)

Total capital as of period-end:

$

276,204

 

$

276,660

 

 

 

 

Average total capital

$

276,432

 

 

$

271,855

 

ROIC

 

2.1%

 

-11.4%

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)

(In Thousands)

(Unaudited)

 

Three Months Ended

March 31, 2022

December 31, 2021

Calculation of gross profit (loss)

Revenues

$

116,935

$

105,093

Cost of revenues (exclusive of depreciation and

 

 

amortization shown separately below)

 

94,318

 

90,192

Depreciation (related to cost of revenues)

 

6,049

 

6,284

Amortization of intangibles

 

3,904

 

3,904

Gross profit

$

12,664

 

$

4,713

 

 

Adjusted gross profit (loss) reconciliation

 

 

Gross profit

$

12,664

$

4,713

Depreciation (related to cost of revenues)

 

6,049

 

6,284

Amortization of intangibles

 

3,904

 

3,904

Adjusted gross profit

$

22,617

 

$

14,901

NINE ENERGY SERVICE, INC.

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

(In Thousands)

(Unaudited)

 

Three Months Ended

March 31, 2022

 

December 31, 2021

Reconciliation of adjusted net loss:

Net loss

$

(6,899

)

$

(15,748

)

Add back:

 

 

Restructuring charges

 

285

 

 

-

 

Adjusted net loss

$

(6,614

)

 

$

(15,748

)

 

 

Weighted average shares

 

 

Weighted average shares outstanding for basic and

 

30,491,976

 

 

30,452,049

 

adjusted basic earnings (loss) per share

 

 

 

 

Loss per share:

 

 

Basic loss per share

$

(0.23

)

$

(0.52

)

Adjusted basic loss per share

$

(0.22

)

$

(0.52

)

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 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.

BAdjusted 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.

CAdjusted 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.

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.

EReturn 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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220504005127/en/

Nine Energy Service Investor Contact: Heather Schmidt Vice President, Strategic Development, Investor Relations and Marketing (281) 730-5113 investors@nineenergyservice.com