- Revenue, net loss and adjusted EBITDAA of $146.6 million,
$(300.9) million and $10.3 million, respectively for the first
quarter of 2020
- First quarter basic EPS of $(10.22) and $(0.51) adjusted basic
EPSB
- As of March 31, 2020, cash and cash equivalents of $90.1
million
Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE)
reported first quarter 2020 revenues of $146.6 million, net loss of
$(300.9) million and adjusted EBITDA of $10.3 million. The first
quarter net loss of $(300.9) million, or $(10.22) per basic share,
includes goodwill impairment charges of $296.2 million associated
with the tools, cementing and wireline reporting units. For the
first quarter 2020, adjusted net lossc was $(14.9) million, or
$(0.51) adjusted basic earnings per share. During the first
quarter, the Company generated ROICd of –3%.
The Company had provided original first quarter 2020 revenue
guidance between $150.0 and $160.0 million and adjusted EBITDA
guidance between $10.0 and $13.0 million, with actual results for
revenue falling slightly 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 rapidly deteriorating market conditions
and activity curtailment in conjunction with oil price declines
beginning in March.
“This quarter, revenue fell slightly below management’s original
guidance. Adjusted EBITDA fell within the range of management’s
original guidance, but we did experience significant market
declines in the last month of the quarter. We do not feel Q1 is
reflective in any way of the financial picture for the remaining
quarters of the year,” said Ann Fox, President and Chief Executive
Officer, Nine Energy Service. “We have a strong liquidity position
of $183.6 million as of March 31, 2020 consisting of $90.1 million
of cash on the balance sheet and an undrawn ABL credit facility
with $93.5 million of availability. As of March 31, 2020, we have a
sizeable accounts receivable balance of $92.6 million and
inventories balance of $63.1 million. Additionally, we purchased a
portion of our bonds on the open market at a discount, lowering our
annual cash interest expense and reducing our overall debt
outstanding. To date, we have purchased bonds with a face value of
approximately $29.7 million for a total purchase price of
approximately $7.4 million.”
“We continue to navigate an extremely volatile market with the
energy industry suffering from both significant global demand
reductions related to the COVID-19 pandemic, as well as a flood of
supply hitting the market. In response to this, our customers
quickly began further cuts to 2020 capex plans, dropping rigs and
releasing frac crews. These ‘completions holidays’ are affecting
all of our service lines with meaningful revenue and adjusted
EBITDA declines.”
“Our new low-temperature dissolvable plug was successfully
commercialized during Q1 and the timeline for our high-temperature
and new composite plug remain on-track for Q2 and Q3, respectively.
Our team remains extremely pleased with the performance of our
low-temperature plug, specifically in the Permian, as well as the
interest from our customers in trialing the technology. The current
market backdrop is a substantial headwind, which will delay
near-term adoption; however, I am confident we will execute our
previously scheduled trials and commercial commitments once
activity resumes and customers look for new ways to reduce costs
and cycle times in a depressed environment.”
Operating Results
During the first quarter of 2020, the Company reported revenues
of $146.6 million with adjusted gross profitE of $20.6 million.
During the first quarter of 2020, the Company reported selling,
general and administrative (“SG&A”) expense of $16.4 million,
compared to $20.3 million for the fourth quarter of 2019.
Depreciation and amortization expense ("D&A") in the first
quarter of 2020 was $12.7 million, compared to $15.4 million for
the fourth quarter of 2019.
The Company recognized income tax benefit of approximately $2.1
million in the first quarter of 2020, resulting in an effective tax
rate of 0.7% against year to date results. The benefit provided by
both the net operating loss provisions of the Coronavirus Aid,
Relief, and Economic Security (CARES) Act and the goodwill
impairment recorded during the quarter are the primary components
of the Company’s 2020 tax position.
Liquidity and Capital Expenditures
During the first quarter of 2020, the Company reported net cash
provided by operating activities of $0.7 million, compared to $14.5
million for the fourth quarter of 2019. Capital expenditures
totaled $1.4 million during the first quarter of 2020, of which
approximately 73% related to maintenance capital expenditures.
As of March 31, 2020, Nine’s cash and cash equivalents were
$90.1 million with $93.5 million of availability under the
revolving credit facility, which remains undrawn, resulting in a
total liquidity position of $183.6 million as of March 31,
2020.
During the first quarter, the Company repurchased approximately
$13.8 million of the senior notes for a repurchase price of
approximately $3.5 million in cash. As a result, the Company
recorded a $10.1 million gain on extinguishment of debt with no
cash tax obligation. Subsequent to March 31, 2020, the Company
repurchased an additional $15.9 million of the senior notes for a
repurchase price of approximately $3.9 million in cash.
ABCDESee end of press release for definitions
Conference Call Information
The call is scheduled for Thursday, May 7, 2020 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 21, 2020 and may
be accessed by dialing U.S. (Toll Free): (877) 660-6853 or
International: (201) 612-7415 and entering the passcode of
13697767.
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 severity and duration of the COVID-19
pandemic, related economic repercussions and the resulting negative
impact on demand for oil and gas; the current significant surplus
in the supply of oil and the ability of the OPEC+ countries to
agree on and comply with supply limitations; the duration and
magnitude of the unprecedented disruption in the oil and gas
industry currently resulting from the impact of the foregoing
factors, which is negatively impacting our business; operational
challenges relating to the COVID-19 pandemic and efforts to
mitigate the spread of the virus, including logistical challenges,
protecting the health and well-being of our employees, remote work
arrangements, performance of contracts and supply chain
disruptions; 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 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 Per Share
Amounts)
(Unaudited)
Three Months Ended
March 31, 2020
December 31, 2019
Revenues
$
146,624
$
163,410
Cost and expenses
Cost of revenues (exclusive of
depreciation and amortization shown separately below)
126,008
139,985
General and administrative expenses
16,395
20,348
Depreciation
8,541
10,972
Amortization of intangibles
4,169
4,442
Impairment of goodwill
296,196
20,273
Impairment of property and equipment
-
66,200
Impairment of intangibles
-
114,804
Gain on revaluation of contingent
liabilities
(426
)
(486
)
(Gain) loss on sale of property and
equipment
(575
)
261
Loss on sale of subsidiaries
-
62
Loss from operations
(303,684
)
(213,451
)
Interest expense
9,828
9,830
Interest income
(371
)
(421
)
Gain on extinguishment of debt
(10,116
)
-
Loss before income taxes
(303,025
)
(222,860
)
Benefit for income taxes
(2,125
)
(2,339
)
Net loss
$
(300,900
)
$
(220,521
)
Loss per share
Basic
$
(10.22
)
$
(7.51
)
Diluted
$
(10.22
)
$
(7.51
)
Weighted average shares outstanding
Basic
29,430,475
29,367,436
Diluted
29,430,475
29,367,436
Other comprehensive income (loss), net
of tax
Foreign currency translation adjustments,
net of tax of $0 and $0
$
(603
)
$
115
Total other comprehensive income (loss),
net of tax
(603
)
115
Total comprehensive loss
$
(301,503
)
$
(220,406
)
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In Thousands)
(Unaudited)
March 31, 2020
December 31, 2019
Assets
Current assets
Cash and cash equivalents
$
90,116
$
92,989
Accounts receivable, net
92,645
96,889
Income taxes receivable
810
660
Inventories, net
63,113
60,945
Prepaid expenses and other current
assets
14,977
17,434
Total current assets
261,661
268,917
Property and equipment, net
121,148
128,604
Intangible assets, net
144,822
148,991
Goodwill
-
296,196
Other long-term assets
7,377
8,187
Total assets
$
535,008
$
850,895
Liabilities and Stockholders’
Equity
Current liabilities
Accounts payable
$
28,291
$
35,490
Accrued expenses
29,098
24,730
Current portion of capital lease
obligations
1,019
995
Total current liabilities
58,408
61,215
Long-term liabilities
Long-term debt
379,007
392,059
Deferred income taxes
-
1,588
Long-term capital lease obligations
1,937
2,201
Other long-term liabilities
3,805
3,955
Total liabilities
443,157
461,018
Stockholders’ equity
Common stock (120,000,000 shares
authorized at $.01 par value; 30,406,994 and 30,555,677 shares
issued and outstanding at March 31, 2020 and December 31, 2019,
respectively)
304
306
Additional paid-in capital
762,332
758,853
Accumulated other comprehensive loss
(5,070
)
(4,467
)
Accumulated deficit
(665,715
)
(364,815
)
Total stockholders’ equity
91,851
389,877
Total liabilities and stockholders’
equity
$
535,008
$
850,895
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31, 2020
December 31, 2019
Cash flows from operating
activities
Net loss
$
(300,900
)
$
(220,521
)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation
8,541
10,972
Amortization of intangibles
4,169
4,442
Amortization of deferred financing
costs
745
746
Provision for (recovery of) doubtful
accounts
(288
)
613
Benefit for deferred income taxes
(1,588
)
(1,451
)
Provision for inventory obsolescence
271
646
Impairment of goodwill
296,196
20,273
Impairment of property and equipment
-
66,200
Impairment of intangible assets
-
114,804
Stock-based compensation expense
3,592
3,504
Gain on extinguishment of debt
(10,116
)
-
(Gain) loss on sale of property and
equipment
(575
)
261
Gain on revaluation of contingent
liabilities
(426
)
(486
)
Loss on sale of subsidiaries
-
62
Changes in operating assets and
liabilities, net of effects from acquisitions
Accounts receivable, net
4,458
21,399
Inventories, net
(2,651
)
4,911
Prepaid expenses and other current
assets
2,409
2,800
Accounts payable and accrued expenses
(3,213
)
(10,948
)
Income taxes receivable/payable
(150
)
(968
)
Other assets and liabilities
271
(2,762
)
Net cash provided by operating
activities
745
14,497
Cash flows from investing
activities
Proceeds from sales of property and
equipment
892
1,768
Proceeds from property and equipment
casualty losses
428
73
Net proceeds from sale of subsidiaries
-
(308
)
Purchases of property and equipment
(785
)
(16,061
)
Net cash provided by (used in) investing
activities
535
(14,528
)
Cash flows from financing
activities
Payments on Senior Notes
(3,455
)
-
Payments on capital leases
(240
)
(235
)
Payments of contingent liability
(98
)
(124
)
Vesting of restricted stock
(115
)
-
Net cash used in financing activities
(3,908
)
(359
)
Impact of foreign currency exchange on
cash
(245
)
58
Net decrease in cash and cash
equivalents
(2,873
)
(332
)
Cash, cash equivalents and restricted
cash
Beginning of period
92,989
93,321
End of period
$
90,116
$
92,989
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF ADJUSTED
GROSS PROFIT
(In Thousands)
(Unaudited)
Three Months Ended
March 31, 2020
December 31, 2019
Calculation of gross profit
Revenues
$
146,624
$
163,410
Cost of revenues (exclusive of
depreciation and amortization shown separately below)
126,008
139,985
Depreciation (related to cost of
revenues)
7,943
8,090
Amortization of intangibles
4,169
4,442
Gross profit
$
8,504
$
10,893
Adjusted gross profit (excluding
depreciation and amortization) reconciliation
Gross profit
$
8,504
$
10,893
Depreciation (related to cost of
revenues)
7,943
8,090
Amortization of intangibles
4,169
4,442
Adjusted gross profit
$
20,616
$
23,425
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF EBITDA AND
ADJUSTED EBITDA
(In Thousands)
(Unaudited)
Three Months Ended
March 31, 2020
December 31, 2019
EBITDA reconciliation:
Net loss
$
(300,900
)
$
(220,521
)
Interest expense
9,828
9,830
Interest income
(371
)
(421
)
Depreciation
8,541
10,972
Amortization of intangibles
4,169
4,442
Benefit for income taxes
(2,125
)
(2,339
)
EBITDA
$
(280,858
)
$
(198,037
)
Impairment of goodwill
296,196
20,273
Impairment of property and equipment
-
66,200
Impairment of intangible assets
-
114,804
Transaction and integration costs
146
4,183
Gain on revaluation of contingent
liabilities (1)
(426
)
(486
)
Gain on extinguishment of debt
(10,116
)
-
Restructuring charges
2,329
713
Stock-based compensation expense
3,592
3,504
(Gain) loss on sale of property and
equipment
(575
)
261
Legal fees and settlements (2)
4
142
Loss on sale of subsidiaries
-
62
Adjusted EBITDA
$
10,292
$
11,619
(1) Amounts relate to the revaluation of
contingent liabilities associated with the
Company's recent acquisitions.
(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
March 31, 2020
December 31, 2019
Net loss
$
(300,900
)
$
(220,521
)
Add back:
Impairment of goodwill
296,196
20,273
Impairment of property and equipment
-
66,200
Impairment of intangibles
-
114,804
Transaction and integration costs
146
4,183
Interest expense
9,828
9,830
Interest income
(371
)
(421
)
Restructuring charges
2,329
713
Gain on extinguishment of debt
(10,116
)
-
Loss on sale of subsidiaries
-
62
Benefit for deferred income taxes
(1,588
)
(1,451
)
After-tax net operating profit
$
(4,476
)
$
(6,328
)
Total capital as of prior
period-end:
Total stockholders' equity
$
389,877
$
606,779
Total debt
400,000
400,000
Less cash and cash equivalents
(92,989
)
(93,321
)
Total capital as of prior
period-end
$
696,888
$
913,458
Total capital as of period-end:
Total stockholders' equity
$
91,851
$
389,877
Total debt
386,171
400,000
Less: cash and cash equivalents
(90,116
)
(92,989
)
Total capital as of period-end:
$
387,906
$
696,888
Average total capital
$
542,397
$
805,173
ROIC
-3
%
-3
%
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF ADJUSTED
BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
Three Months Ended
March 31, 2020
December 31, 2019
Reconciliation of adjusted net income
(loss):
Net loss
$
(300,900
)
$
(220,521
)
Add back:
Impairment of goodwill (a) (b)
296,196
20,273
Impairment of property and equipment
(b)
-
66,200
Impairment of intangibles (b)
-
114,804
Transaction and integration costs (c)
146
4,183
Restructuring charges
2,329
713
Loss on sale of subsidiaries
-
62
Gain on extinguishment of debt (d)
(10,116
)
-
Less: Tax benefit from add-backs
(2,547
)
(2,467
)
Adjusted net loss
$
(14,892
)
$
(16,753
)
Weighted average shares
Weighted average shares outstanding for
basic and
29,430,475
29,367,436
adjusted basic earnings (loss) per
share
Loss per share:
Basic loss per share
$
(10.22
)
$
(7.51
)
Adjusted basic loss per share
$
(0.51
)
$
(0.57
)
a) 2020 impairment charges were driven by
sharp declines in global crude oil demand and an economic recession
associated with the coronavirus pandemic, as well as sharp declines
in oil and natural gas prices associated with international pricing
and production disputes.
b) 2019 impairment charges were driven by
1) a reduction of the need for coiled tubing during the drill-out
phase of the overall completions process and 2) the transition of
certain trade names associated with recent acquisitions, to the
Company’s trade names.
(c) Amounts represent transaction and
integration costs, including the cost of inventory that was stepped
up to fair value during purchase accounting associated with recent
acquisitions.
(d) Amount primarily represents the
difference between the repurchase price and the carrying amount of
senior notes repurchased during the three months ended March 31,
2020.
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, (iii) loss or gain on
revaluation of contingent liabilities, (iv) 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 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.
CAdjusted 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, (iii) restructuring
charges, (iv) loss or gain on the sale of subsidiaries, (v) gain on
the extinguishment of debt and (vi) 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.
DReturn 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) property and equipment, goodwill, and/or intangible asset
impairment charges, (ii) transaction and integration costs related
to acquisitions, (iii) interest expense (income), (iv)
restructuring charges, (v) loss or gain on the sale of
subsidiaries, (vi) gain on extinguishment of debt, and (vii) 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. Management uses ROIC to assist them
in making capital resource allocation decisions and in evaluating
business performance.
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. 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/20200507005021/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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