- As of June 30, 2020, cash and cash equivalents of $88.7
million
- Revenue, net loss and adjusted EBITDAA of $52.7 million,
$(24.2) million and $(11.0) million, respectively, for the second
quarter of 2020
- Second quarter basic EPS of $(0.81)
Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE)
reported second quarter 2020 revenues of $52.7 million, net loss of
$(24.2) million and adjusted EBITDA of $(11.0) million. For the
second quarter 2020, adjusted net lossB was $(33.7) million, or
$(1.13) adjusted basic earnings per shareC.
“In response to the extreme reduction in demand related to the
COVID-19 pandemic, North American operators significantly cut
capex, either reducing or completely suspending activity during the
quarter,” said Ann Fox, President and Chief Executive Officer, Nine
Energy Service. “These reductions were most evident in the Permian
Basin where total completions have declined by approximately 77% in
June from the 2020 high in February. Activity reductions affected
revenue and profitability across service lines, but with what we
know today, we believe that we are at or near the trough from an
activity perspective.”
“The preservation of cash and debt service remains our top
priority. Because of our high variable cost and the asset-light
make-up of Nine, we were able to quickly implement cost-cutting
measures and will continue to adapt as the market dictates. Our
focus on working capital management has resulted in a strong cash
balance of $88.7 million as of June 30, 2020, as well as an undrawn
revolver.”
“Our team continues to gain ground with the commercialization of
our dissolvable plugs, receiving incremental trials with new
customers and expanding market share with current customers despite
the extremely difficult environment. The tool continues to perform
very well, allowing us to maintain some momentum into this
downturn. While the near-term outlook is very challenging, we
believe that our technological innovations position us to thrive
when activity recovers.”
Operating Results
During the second quarter of 2020, the Company reported revenues
of $52.7 million with adjusted gross lossD of $(4.0) million.
During the second quarter, the Company generated ROICE of
(27)%.
During the second quarter of 2020, the Company reported selling,
general and administrative (“SG&A”) expense of $11.3 million,
compared to $16.4 million for the first quarter of 2020.
Depreciation and amortization expense ("D&A") in the second
quarter of 2020 was $12.6 million, compared to $12.7 million for
the first quarter of 2020.
The Company recognized an income tax benefit of approximately
$0.2 million in the second quarter of 2020 and an overall income
tax benefit year-to-date of approximately $2.3 million, resulting
in an effective tax rate of 0.7% against year-to-date results. The
Company’s year-to-date income tax benefit is primarily a result of
the discrete tax benefit recorded in the first quarter of 2020
related to the Coronavirus Aid, Relief, and Economic Security Act
as well as the release of a portion of our valuation allowance due
to goodwill impairment which was also recorded in the first quarter
of 2020.
Liquidity and Capital Expenditures
During the second quarter of 2020, the Company reported net cash
provided by operating activities of $1.6 million, compared to $0.7
million for the first quarter of 2020. Capital expenditures totaled
$3.6 million during the second quarter of 2020.
As of June 30, 2020, Nine’s cash and cash equivalents were $88.7
million, and the Company had $44.8 million of availability under
the revolving credit facility, which remains undrawn, resulting in
a total liquidity position of $133.5 million as of June 30, 2020.
Availability under the revolving credit facility decreased due to a
reduction in accounts receivable and inventory balances.
ABCDESee end of press release for definitions
Conference Call Information
The call is scheduled for Thursday, August 6, 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 August 20, 2020 and
may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or
International: (201) 612-7415 and entering the passcode of
13697768.
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
June 30, 2020
March 31, 2020
Revenues
$
52,735
$
146,624
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown
separately below)
56,703
126,008
General and administrative expenses
11,284
16,395
Depreciation
8,449
8,541
Amortization of intangibles
4,116
4,169
Impairment of goodwill
-
296,196
(Gain) loss on revaluation of contingent
liabilities
910
(426
)
Gain on sale of property and equipment
(1,790
)
(575
)
Loss from operations
(26,937
)
(303,684
)
Interest expense
9,186
9,828
Interest income
(179
)
(371
)
Gain on extinguishment of debt
(11,587
)
(10,116
)
Loss before income taxes
(24,357
)
(303,025
)
Benefit for income taxes
(186
)
(2,125
)
Net loss
$
(24,171
)
$
(300,900
)
Loss per share
Basic
$
(0.81
)
$
(10.22
)
Diluted
$
(0.81
)
$
(10.22
)
Weighted average shares outstanding
Basic
29,844,240
29,430,475
Diluted
29,844,240
29,430,475
Other comprehensive income (loss), net
of tax
Foreign currency translation adjustments,
net of tax of $0 and $0
$
207
$
(603
)
Total other comprehensive income (loss),
net of tax
207
(603
)
Total comprehensive loss
$
(23,964
)
$
(301,503
)
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In Thousands)
(Unaudited)
June 30, 2020
March 31, 2020
Assets
Current assets
Cash and cash equivalents
$
88,678
$
90,116
Accounts receivable, net
39,376
92,645
Income taxes receivable
630
810
Inventories, net
59,333
63,113
Prepaid expenses and other current
assets
19,291
14,977
Total current assets
207,308
261,661
Property and equipment, net
115,258
121,148
Intangible assets, net
140,706
144,822
Other long-term assets
5,587
7,377
Total assets
$
468,859
$
535,008
Liabilities and Stockholders’
Equity
Current liabilities
Accounts payable
$
11,114
$
28,291
Accrued expenses
16,056
29,098
Current portion of long-term debt
563
-
Current portion of capital lease
obligations
1,043
1,019
Total current liabilities
28,776
58,408
Long-term liabilities
Long-term debt
365,632
379,007
Long-term capital lease obligations
1,667
1,937
Other long-term liabilities
2,834
3,805
Total liabilities
398,909
443,157
Stockholders’ equity
Common stock (120,000,000 shares
authorized at $.01 par value; 31,652,635 and 30,406,994 shares
issued and outstanding at June 30, 2020 and March 31, 2020,
respectively)
317
304
Additional paid-in capital
764,382
762,332
Accumulated other comprehensive loss
(4,863
)
(5,070
)
Accumulated deficit
(689,886
)
(665,715
)
Total stockholders’ equity
69,950
91,851
Total liabilities and stockholders’
equity
$
468,859
$
535,008
NINE ENERGY SERVICE,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
June 30, 2020
March 31, 2020
Cash flows from operating
activities
Net loss
$
(24,171
)
$
(300,900
)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation
8,449
8,541
Amortization of intangibles
4,116
4,169
Amortization of deferred financing
costs
710
745
Provision for (recovery of) doubtful
accounts
1,741
(288
)
Benefit for deferred income taxes
-
(1,588
)
Provision for inventory obsolescence
241
271
Impairment of goodwill
-
296,196
Stock-based compensation expense
2,105
3,592
Gain on extinguishment of debt
(11,587
)
(10,116
)
Gain on sale of property and equipment
(1,790
)
(575
)
(Gain) loss on revaluation of contingent
liabilities
910
(426
)
Changes in operating assets and
liabilities, net of effects from acquisitions
Accounts receivable, net
51,585
4,458
Inventories, net
3,610
(2,651
)
Prepaid expenses and other current
assets
(4,067
)
2,409
Accounts payable and accrued expenses
(32,943
)
(3,213
)
Income taxes receivable/payable
180
(150
)
Other assets and liabilities
2,525
271
Net cash provided by operating
activities
1,614
745
Cash flows from investing
activities
Proceeds from sales of property and
equipment
3,213
892
Proceeds from property and equipment
casualty losses
127
428
Purchases of property and equipment
(2,107
)
(785
)
Net cash provided by investing
activities
1,233
535
Cash flows from financing
activities
Purchases of Senior Notes
(3,959
)
(3,455
)
Payments on capital leases
(246
)
(240
)
Payments of contingent liability
(108
)
(98
)
Vesting of restricted stock
(42
)
(115
)
Net cash used in financing activities
(4,355
)
(3,908
)
Impact of foreign currency exchange on
cash
70
(245
)
Net decrease in cash and cash
equivalents
(1,438
)
(2,873
)
Cash, cash equivalents and restricted
cash
Beginning of period
90,116
92,989
End of period
$
88,678
$
90,116
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF ADJUSTED
GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
Three Months Ended
June 30, 2020
March 31, 2020
Calculation of gross profit
(loss)
Revenues
$
52,735
$
146,624
Cost of revenues (exclusive of depreciation and amortization shown
separately below)
56,703
126,008
Depreciation (related to cost of
revenues)
7,858
7,943
Amortization of intangibles
4,116
4,169
Gross profit (loss)
$
(15,942
)
$
8,504
Adjusted gross profit (loss)
reconciliation
Gross profit (loss)
$
(15,942
)
$
8,504
Depreciation (related to cost of
revenues)
7,858
7,943
Amortization of intangibles
4,116
4,169
Adjusted gross profit (loss)
$
(3,968
)
$
20,616
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF EBITDA AND
ADJUSTED EBITDA
(In Thousands)
(Unaudited)
Three Months Ended
June 30, 2020
March 31, 2020
EBITDA reconciliation:
Net loss
$
(24,171
)
$
(300,900
)
Interest expense
9,186
9,828
Interest income
(179
)
(371
)
Depreciation
8,449
8,541
Amortization of intangibles
4,116
4,169
Benefit for income taxes
(186
)
(2,125
)
EBITDA
$
(2,785
)
$
(280,858
)
Impairment of goodwill
-
296,196
Transaction and integration costs
-
146
(Gain) loss on revaluation of contingent
liabilities (1)
910
(426
)
Gain on extinguishment of debt
(11,587
)
(10,116
)
Restructuring charges
2,094
2,329
Stock-based compensation expense
2,105
3,592
Gain on sale of property and equipment
(1,790
)
(575
)
Legal fees and settlements (2)
20
4
Adjusted EBITDA
$
(11,033
)
$
10,292
(1) Amounts relate to the revaluation of
contingent liabilities associated with the Company's 2018
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
June 30, 2020
March 31, 2020
Net loss
$
(24,171
)
$
(300,900
)
Add back:
Impairment of goodwill
-
296,196
Transaction and integration costs
-
146
Interest expense
9,186
9,828
Interest income
(179
)
(371
)
Restructuring charges
2,094
2,329
Gain on extinguishment of debt
(11,587
)
(10,116
)
Benefit for deferred income taxes
-
(1,588
)
After-tax net operating loss
$
(24,657
)
$
(4,476
)
Total capital as of prior
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 prior
period-end
$
387,906
$
696,888
Total capital as of period-end:
Total stockholders' equity
$
69,950
$
91,851
Total debt
372,584
386,171
Less: cash and cash equivalents
(88,678
)
(90,116
)
Total capital as of period-end:
$
353,856
$
387,906
Average total capital
$
370,881
$
542,397
ROIC
-27
%
-3
%
NINE ENERGY SERVICE,
INC.
RECONCILIATION OF ADJUSTED
BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
Three Months Ended
June 30, 2020
March 31, 2020
Reconciliation of adjusted net income
(loss):
Net loss
$
(24,171
)
$
(300,900
)
Add back:
Impairment of goodwill (a)
-
296,196
Transaction and integration costs (b)
-
146
Restructuring charges
2,094
2,329
Gain on extinguishment of debt (c)
(11,587
)
(10,116
)
Less: Tax benefit from add-backs
-
(2,547
)
Adjusted net loss
$
(33,664
)
$
(14,892
)
Weighted average shares
Weighted average shares outstanding for
basic and
29,844,240
29,430,475
adjusted basic earnings (loss) per
share
Loss per share:
Basic loss per share
$
(0.81
)
$
(10.22
)
Adjusted basic loss per share
$
(1.13
)
$
(0.51
)
(a) 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) Amounts represent transaction and
integration costs, including the cost of inventory that was stepped
up to fair value during purchase accounting associated with 2018
acquisitions.
(c) Amounts primarily represent 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) 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 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.
CAdjusted 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.
DAdjusted Gross Profit (Loss) is defined as revenues less cost
of revenues excluding depreciation and amortization. This measure
differs from the GAAP definition of gross profit (loss) because we
do not include the impact of depreciation and amortization, which
represent non-cash expenses. Our management uses adjusted gross
profit (loss) to evaluate operating performance. We prepare
adjusted gross profit (loss) to eliminate the impact of
depreciation and amortization because we do not consider
depreciation and amortization indicative of our core operating
performance.
EReturn on Invested Capital (“ROIC”) is defined as after-tax net
operating profit (loss), divided by average total capital. We
define after-tax net operating profit (loss) as net income (loss)
plus (i) 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 period-end 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200806005044/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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