- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221107005083/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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