- 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%
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
investors@nineenergyservice.com
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