Results

Nine Energy Service Inc.

11/08/2019 | Press release | Distributed by Public on 11/08/2019 16:27

Nine Energy Service Announces Third Quarter 2019 Results

Nine Energy Service Announces Third Quarter 2019 Results
  • Revenue, net loss and adjusted EBITDAA of $202.3 million, $(20.6) million and $24.2 million, respectively for the third quarter of 2019
  • Third quarter basic EPS of $(0.70) and $(0.16) adjusted basic EPSB
  • Cash flow from operations of $69.4 million
  • Third quarter 2019 ROICc of 4%

HOUSTON--(BUSINESS WIRE)-- Nine Energy Service, Inc. ('Nine' or the 'Company') (NYSE: NINE) reported third quarter 2019 revenues of $202.3 million, net loss of $(20.6) million, which includes a loss on the sale of the Production Solutions segment of approximately $15.8 million and adjusted EBITDA of $24.2 million. Third quarter 2019 net loss per basic share was $(0.70). Third quarter 2019 adjusted net lossD was $(4.7) million, or $(0.16) per adjusted basic share. During the third quarter of 2019, the Company generated ROIC of 4%. During the third quarter of 2019, the Company reported net cash provided by operating activities of $69.4 million compared to $11.5 million during the second quarter, an increase of approximately 6x.

The Company had provided original third quarter 2019 revenue guidance between $215.0 and $225.0 million and adjusted EBITDA guidance between $24.0 and $29.0 million, with actual results for revenue falling below Management's original guidance range and results for adjusted EBITDA falling within Management's original guidance. Revenue results came in lower than original guidance primarily due to the sale of the Production Solutions segment and the closure of wireline operations in Canada.

'Even with the restructuring of our service offerings and geographical footprint, adjusted EBITDA fell within the range of management's original guidance this quarter,' said Ann Fox, President and Chief Executive Officer, Nine Energy Service. 'Despite market conditions weakening throughout the quarter, we were able to grow cash flow from operations by over 6x compared to Q2, increasing our current cash position significantly to $93.3 million as of September 30th. We expect our cash generation to remain strong through the remainder of the year and into 2020 as we grow our completion tool business and materially reduce total capex.'

'During Q3 our customers remained extremely focused on staying within capital budgets, prompting many operators to reduce activity in the second half of the year. Activity declines, as well as irrational behavior from competitors, has led to increased pricing pressure, for which no service line is immune. The hardest hit region remains the Northeast where we have wireline and completion tool exposure, but rig count and frac crew curtailments are taking place across the U.S. Our cementing business remained steady this quarter despite rig count dropping by approximately 11% quarter over quarter.'

'At Nine, we have been focused on executing our 2019 strategic initiatives, including the evaluation of existing service lines and geographies, as well as the development of our new dissolvable and composite plug technologies. During the third quarter, we completed the sale of our Production Solutions segment, and closed down wireline operations in Canada. We expect the elimination of these offerings from our portfolio to be accretive to ROIC, adjusted EBITDA margins and cash generation. We also continue to make significant progress in the development of our new dissolvable and composite plug technology. The timeline for commercialization of our three new tools remains on-track. We still anticipate our low-temperature dissolvable plug will be commercial in Q1 of 2020 as we continue to have success with our trials throughout the U.S. and Canada.'

'We do expect further activity declines into Q4 with budget exhaustion, holidays and weather impacts. With current market conditions, we are managing costs very closely and actively working with our operational teams to ensure we are shielding margin wherever possible without fundamentally impeding our future earnings potential. Despite market conditions in 2020, at Nine we have a unique opportunity to increase profitability, expand margins and increase free cash flow with the introduction of our new technology.'

Business Segment Results

Completion Solutions

During the third quarter of 2019, the Company's Completion Solutions segment, which includes the Company's cementing, completion tools, wireline and coiled tubing services, reported revenues of $186.3 million compared to second quarter 2019 revenues of $215.9 million. For the third quarter of 2019, Completion Solutions reported adjusted gross profitE of $33.6 million compared to second quarter 2019 adjusted gross profit of $49.8 million.

Production Solutions

During the third quarter of 2019, the Company's Production Solutions segment, which includes well services, generated revenues of $16.1 million compared to second quarter 2019 revenues of $21.6 million. For the third quarter 2019, Production Solutions reported adjusted gross profit of $1.9 million compared to second quarter 2019 adjusted gross profit of $3.1 million. All financial information reflects the sale of the Production Solutions segment, which closed on August 30, 2019.

Other Financial Information

During the third quarter of 2019, the Company reported selling, general and administrative ('SG&A') expense of $19.2 million, compared to $21.8 million for the second quarter of 2019. Depreciation and amortization expense ('D&A') in the third quarter of 2019 was $16.8 million, compared to $18.5 million for the second quarter of 2019.

The Company recognized income tax expense of approximately $0.7 million in the third quarter of 2019 and overall income tax benefit year to date of approximately ($1.5) million. The discrete impact from the Production Solutions divestiture and the current year impact of our valuation allowance positions, along with state and non-U.S. income taxes are the primary components of our 2019 tax position.

Liquidity and Capital Expenditures

During the third quarter of 2019, the Company reported net cash provided by operating activities of $69.4 million, compared to $11.5 million for the second quarter of 2019.This increase was due in large part to a decrease in days sales outstanding ('DSO'), as well as improved inventory management. Capital expenditures totaled $10.0 million during the third quarter of 2019, of which approximately 47% related to maintenance capital expenditures.

As of September 30, 2019, Nine's cash and cash equivalents were $93.3 million with $118.0 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $211.3 million as of September 30, 2019.

ABCDESee end of press release for definitions

Conference Call Information

The call is scheduled for Monday, November 11, 2019 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 25, 2019 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13695511.

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 throughout 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 general energy service industry risks; volatility of crude oil and natural gas commodity prices; a decline in demand for the Company's services, including due to declining commodity prices; the Company's ability to implement price increases or maintain pricing of the Company's core 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; 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 reduce 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 adequacy of the Company's capital resources and liquidity; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; the Company's ability to successfully integrate recently acquired assets and operations and realize anticipated revenues, cost savings or other benefits thereof; and other factors described in the 'Risk Factors' and 'Business' sections of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and the 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,
2019

June 30,
2019

Revenues

$

202,305

$

237,517

Cost and expenses

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

166,849

184,555

General and administrative expenses

19,222

21,818

Gain on revaluation of contingent liabilities

(5,771

)

(975

)

Loss on sale of subsidiaries

15,834

-

Depreciation

12,196

13,846

Amortization of intangibles

4,609

4,628

Gain on sale of property and equipment

(466

)

(310

)

Income (loss) from operations

(10,168

)

13,955

Interest expense

9,843

10,771

Interest income

(111

)

(168

)

Income (loss) before income taxes

(19,900

)

3,352

Provision (benefit) for income taxes

727

(2,735

)

Net income (loss)

$

(20,627

)

$

6,087

Earnings (loss) per share

Basic

$

(0.70

)

$

0.21

Diluted

$

(0.70

)

$

0.21

Weighted average shares outstanding

Basic

29,361,633

29,349,396

Diluted

29,361,633

29,473,037

Other comprehensive income (loss), net of tax

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

$

(179

)

$

192

Total other comprehensive income (loss), net of tax

(179

)

192

Total comprehensive income (loss)

$

(20,806

)

$

6,279

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

September 30,
2019

June 30,
2019

Assets

Current assets

Cash and cash equivalents

$

93,321

$

16,886

Accounts receivable, net

118,428

169,450

Inventories, net

66,475

87,935

Prepaid expenses and other current assets

14,312

16,482

Notes receivable from shareholders

-

-

Total current assets

292,536

290,753

Property and equipment, net

198,879

220,575

Definite-lived intangible assets, net

159,526

164,135

Goodwill

316,469

307,804

Indefinite-lived intangible assets

108,711

108,711

Other long-term assets

5,462

5,723

Total assets

$

1,081,583

$

1,097,701

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable

$

32,027

$

38,993

Accrued expenses

40,473

30,820

Current portion of capital lease obligations

973

1,012

Income taxes payable

308

97

Total current liabilities

73,781

70,922

Long-term liabilities

Long-term debt

391,539

391,018

Deferred income taxes

3,039

2,896

Long-term capital lease obligations

2,458

2,864

Other long-term liabilities

3,987

5,692

Total liabilities

474,804

473,392

Stockholders' equity

Common stock (120,000,000 shares authorized at $.01 par value; 30,582,584 and 30,683,009 shares issued and outstanding at September 30, 2019 and June 30, 2019, respectively)

306

307

Additional paid-in capital

755,349

752,072

Accumulated other comprehensive loss

(4,582

)

(4,403

)

Accumulated deficit

(144,294

)

(123,667

)

Total stockholders' equity

606,779

624,309

Total liabilities and stockholders' equity

$

1,081,583

$

1,097,701

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Three Months Ended

September 30, 2019

June 30, 2019

Cash flows from operating activities

Net income (loss)

$

(20,627

)

$

6,087

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

Depreciation

12,196

13,846

Amortization of intangibles

4,609

4,628

Amortization of deferred financing costs

746

746

Provision for doubtful accounts

188

1

Provision (benefit) for income taxes

143

(2,541

)

Provision for inventory obsolescence

2,422

742

Stock-based compensation expense

3,286

4,114

Gain on sale of property and equipment

(466

)

(310

)

Gain on revaluation of contingent liabilities

(5,771

)

(975

)

Loss on sale of subsidiaries

15,834

-

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

Accounts receivable, net

35,013

(10,158

)

Inventories, net

16,068

9,445

Prepaid expenses and other current assets

1,547

4,108

Accounts payable and accrued expenses

3,108

(16,358

)

Income taxes receivable/payable

634

(756

)

Other assets and liabilities

470

(1,099

)

Net cash provided by operating activities

69,400

11,520

Cash flows from investing activities

Acquisitions, net of cash acquired

1,020

-

Proceeds from sale of subsidiaries

17,222

-

Proceeds from sales of property and equipment

747

710

Proceeds from property and equipment casualty losses

23

242

Proceeds from notes receivable payments

-

7,094

Purchases of property and equipment

(11,535

)

(16,977

)

Net cash used in investing activities

7,477

(8,931

)

Cash flows from financing activities

Proceeds from revolving credit facilities

-

10,000

Payments on revolving credit facilities

-

(25,000

)

Payments on capital leases

(239

)

(217

)

Payments of contingent liability

(112

)

(138

)

Vesting of restricted stock

(10

)

(1,551

)

Net cash used in financing activities

(361

)

(16,906

)

Impact of foreign currency exchange on cash

(81

)

46

Net increase (decrease) in cash and cash equivalents

76,435

(14,271

)

Cash and cash equivalents

Beginning of period

16,886

31,157

End of period

$

93,321

$

16,886

NINE ENERGY SERVICE, INC.

SEGMENT DATA

(In Thousands)

(Unaudited)

Three Months Ended

September 30, 2019

June 30, 2019

Revenues

Completion Solutions

$

186,252

$

215,871

Production Solutions

16,053

21,646

$

202,305

$

237,517

Cost of revenues (1)

Completion Solutions

$

152,679

$

166,022

Production Solutions

14,170

18,533

$

166,849

$

184,555

Adjusted gross profit

Completion Solutions

$

33,573

$

49,849

Production Solutions

1,883

3,113

$

35,456

$

52,962

General and administrative expenses

19,222

21,818

Gain on revaluation of contingent liabilities

(5,771

)

(975

)

Loss on sale of subsidiaries

15,834

-

Depreciation

12,196

13,846

Amortization of intangibles

4,609

4,628

Gain on sale of property and equipment

(466

)

(310

)

Income (loss) from operations

$

(10,168

)

$

13,955

Capital expenditures

Completion Solutions

$

9,146

$

12,719

Production Solutions

804

1,072

Corporate

-

38

$

9,950

$

13,829

Total assets

Completion Solutions

$

977,633

$

1,032,759

Production Solutions

-

36,616

Corporate

103,950

28,326

$

1,081,583

$

1,097,701

Three Months Ended

September 30, 2019

June 30, 2019

Revenue by country

United States

$

195,400

$

233,766

Canada and other

6,905

3,751

$

202,305

$

237,517

Three Months Ended

September 30, 2019

June 30, 2019

Long-lived assets (2)

United States

$

351,772

$

377,616

Canada and other

6,633

7,094

$

358,405

$

384,710

(1) Excludes depreciation and amortization, shown separately.

(2) Inclusive of property and equipment and definite-lived intangible assets.

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT

(In Thousands)

(Unaudited)

Three Months Ended

September 30, 2019

June 30, 2019

Calculation of gross profit

Revenues

$

202,305

$

237,517

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

166,849

184,555

Depreciation (related to cost of revenues)

11,994

13,616

Amortization of intangibles

4,609

4,628

Gross profit

$

18,853

$

34,718

Adjusted gross profit (excluding depreciation and amortization) reconciliation

Gross profit

$

18,853

$

34,718

Depreciation (related to cost of revenues)

11,994

13,616

Amortization of intangibles

4,609

4,628

Adjusted gross profit

$

35,456

$

52,962

NINE ENERGY SERVICE, INC.

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(In Thousands)

(Unaudited)

Three Months Ended

September 30, 2019

June 30, 2019

EBITDA reconciliation:

Net income (loss)

$

(20,627

)

$

6,087

Interest expense

9,843

10,771

Interest income

(111

)

(168

)

Depreciation

12,196

13,846

Amortization of intangibles

4,609

4,628

Provision (benefit) for income taxes

727

(2,735

)

EBITDA

$

6,637

$

32,429

Transaction and integration costs

1,418

2,684

Gain on revaluation of contingent liabilities (1)

(5,771

)

(975

)

Loss on sale of subsidiary

15,834

-

Restructuring charges

3,263

-

Stock-based compensation expense

3,286

4,114

Gain on sale of property and equipment

(466

)

(310

)

Legal fees and settlements (2)

22

75

Adjusted EBITDA

$

24,223

$

38,017

(1) Amounts relate to the revaluation of contingent liabilities associated with the Company's 2018 acquisitions. The impact is included in the Company's Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

(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)

Consolidated

Three Months Ended

Three Months Ended

September 30, 2019

June 30, 2019

Net income (loss)

$

(20,627

)

$

6,087

Add back:

Interest expense

9,843

10,771

Interest income

(111

)

(168

)

Transaction and integration costs

1,418

2,684

Restructuring charges

3,263

-

Loss on sale of subsidiaries

15,834

-

Provision (benefit) for deferred income taxes

143

(2,541

)

After-tax net operating profit

$

9,763

$

16,833

Total capital as of prior period-end:

Total stockholders' equity

$

624,309

$

615,467

Total debt

400,000

415,000

Less: cash and cash equivalents

(16,886

)

(31,157

)

Total capital as of prior period-end:

$

1,007,423

$

999,310

Total capital as of period-end:

Total stockholders' equity

$

606,779

$

624,309

Total debt

400,000

400,000

Less: cash and cash equivalents

(93,321

)

(16,886

)

Total capital as of period-end:

$

913,458

$

1,007,423

Average total capital

$

960,441

$

1,003,367

ROIC

4

%

7

%

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION

(In Thousands)

(Unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

Reconciliation of adjusted net income (loss):

Net income (loss)

$

(20,627

)

$

6,087

Add back:

Transaction and integration costs (a)

1,418

2,684

Loss on sale of subsidiaries

15,834

-

Restructuring charges

3,263

-

Less: Tax benefit from add backs

(4,571

)

-

Adjusted net income (loss)

$

(4,683

)

$

8,771

Weighted average shares

Weighted average shares outstanding for basic and adjusted basic earnings (loss) per share

29,361,633

29,349,396

Earnings (loss) per share:

Basic earnings (loss) per share

$

(0.70

)

$

0.21

Adjusted basic earnings (loss) per share

$

(0.16

)

$

0.30

(a) Amounts for each period presented represent transaction and integration costs, including the cost of inventory that was stepped up to fair value during purchase accounting associated with 2018 acquisitions.

AAdjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) loss or gains from discontinued operations, (iv) loss or gains from the revaluation of contingent liabilities, (v) loss or gains on equity method investment, (vi) stock-based compensation expense, (vii) loss or gains on sale of property and equipment and (viii) 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 and restructuring costs. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful because they allow 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 help 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 Basic Earnings Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings 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.

CReturn 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) transaction and integration costs related to acquisitions and our IPO, (ii) property and equipment, goodwill, and/or intangible asset impairment charges, (iii) interest expense, and (iv) the provision or 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 year-end adjusted total capital for use in this analysis. Management believes ROIC is a meaningful measure 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.

DAdjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) property and equipment, goodwill and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, including the commitment fee associated with a potential bridge financing in connection with an acquisition, and (iii) the income tax impact of such adjustments. Management believes Adjusted Net Income 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 is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit to evaluate operating performance and to determine resource allocation between segments. We prepare adjusted gross profit (excluding depreciation and amortization) 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/20191108005598/en/

Nine Energy Service Investor Contact:

Heather Schmidt

Vice President, Investor Relations and Marketing

(281) 730-5113

[email protected]

Source: Nine Energy Service, Inc.