NINE Nine Energy Service Inc

• As of September 30, 2020, cash and cash equivalents of $80.3 million
• During and subsequent to Q3, purchased additional bonds with a face value of $23.6 million for a total purchase price of $7.2 million, leaving $346.7 million of senior notes outstanding
• Revenue, net loss and adjusted EBITDAA of $49.5 million, $(18.5) million and $(11.1) million, respectively, for the third quarter of 2020
• Third quarter basic loss per share of $(0.62)

Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE) reported third quarter 2020 revenues of $49.5 million, net loss of $(18.5) million and adjusted EBITDA of $(11.1) million. For the third quarter 2020, adjusted net lossB was $(33.8) million, or $(1.13) adjusted basic loss per shareC.

“The US market remained very challenged in Q3 with total US completions and new wells drilled down again quarter over quarter,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “That said, we believe that we have passed through the trough during the May-June timeframe and we saw sequential activity and revenue increases month over month throughout the course of Q3, but did not reach April revenue or activity levels. Although the percentage basis increases appear very robust, the absolute activity levels remain bleak with increases coming off a very low base. We do expect Q4 to be better sequentially than Q3 from an activity and revenue perspective. As activity returns, however many competitors are trying to buy market share, driving down prices and offsetting much of the revenue increases.”

“This quarter, our team capitalized on opportunities that better position the company from a financial and operational perspective. Once again, we saw an opportunity to purchase additional bonds on the open market at a significant discount, lowering our annual cash interest expense, while reducing our overall debt outstanding. During and subsequent to Q3, the Company repurchased $23.6 million par value of bonds for $7.2 million of cash. To date, Nine has repurchased approximately $53.3 million of bonds for $14.6 million leaving $346.7 million of bonds outstanding and an undrawn ABL. We have been very purposeful in balancing near and medium-term liquidity needs with the refinancing of our debt and our top priority continues to be the preservation of cash. On the operational side, we organically expanded cementing into the Haynesville, adding size and scale to the cementing service line without increasing our 2020 capex guidance of $10-$15 million.”

“On the technology side, I remain extremely happy with the performance of our dissolvable plugs and the customers’ appetite for a dissolvable option. We are currently running trials with some of the largest acreage holders with over 80% of the tools deployed run by public operators across multiple basins. We also continue to penetrate the cold temperature markets, running approximately 35% of the low-temp Stinger products in the Permian and approximately 46% in the Northeast. We are confident once we see a real recovery in activity, the dissolvable tools will begin generating growth.”

“Our operational team once again demonstrated their ability to gain market share, growing our percentage of stages completed from approximately 16% in Q3 of 2019 to approximately 22% in Q3 of 2020. I am confident we can continue to differentiate through our service execution and technology and be well positioned as activity increases.”

Operating Results

During the third quarter of 2020, the Company reported revenues of $49.5 million with adjusted gross lossD of $(3.0) million. During the third quarter, the Company generated ROICE of (29)%.

During the third quarter of 2020, the Company reported selling, general and administrative (“SG&A”) expense of $10.7 million, compared to $11.3 million for the second quarter of 2020. Depreciation and amortization expense ("D&A") in the third quarter of 2020 was $11.9 million, compared to $12.6 million for the second quarter of 2020.

The Company’s tax benefit for the three and nine months ended September 30, 2020 was less than $0.1 million and $2.3 million, respectively. The Company’s year-to-date tax benefit was 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 valuation allowance due to the goodwill impairment which was also recorded in the first quarter of 2020.

Liquidity and Capital Expenditures

During the third quarter of 2020, the Company reported net cash provided by operating activities of $2.3 million, compared to $1.6 million for the second quarter of 2020. Capital expenditures totaled $2.2 million during the third quarter of 2020.

As of September 30, 2020, Nine’s cash and cash equivalents were $80.3 million, and the Company had $39.5 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $119.8 million as of September 30, 2020. Availability under the revolving credit facility decreased as compared to June 30, 2020 due to a reduction in accounts receivable and inventory balances.

During the third quarter, the Company repurchased approximately $23.1 million of the senior notes for a repurchase price of approximately $7.0 million in cash. As a result, the Company recorded a $15.8 million gain on extinguishment of debt with no cash tax obligation. Subsequent to September 30, 2020, the Company repurchased an additional $0.5 million of the senior notes for a repurchase price of approximately $0.2 million in cash. To date, the Company has repurchased approximately $53.3 million of the senior notes for a repurchase price of approximately $14.6 million in cash, leaving $346.7 million of bonds outstanding.

ABCDESee end of press release for definitions

Conference Call Information

The call is scheduled for Thursday, November 5, 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 November 19, 2020 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13707026.

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

September 30, 2020

June 30, 2020

 

Revenues

$

49,521

 

$

52,735

 

Cost and expenses

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

 

52,483

 

 

56,703

 

General and administrative expenses

 

10,701

 

 

11,284

 

Depreciation

 

7,763

 

 

8,449

 

Amortization of intangibles

 

4,091

 

 

4,116

 

Loss on revaluation of contingent liabilities

 

297

 

 

910

 

Gain on sale of property and equipment

 

(535

)

 

(1,790

)

Loss from operations

 

(25,279

)

 

(26,937

)

Interest expense

 

9,130

 

 

9,186

 

Interest income

 

(43

)

 

(179

)

Gain on extinguishment of debt

 

(15,798

)

 

(11,587

)

Other income

 

(29

)

 

-

 

Loss before income taxes

 

(18,539

)

 

(24,357

)

Benefit for income taxes

 

(37

)

 

(186

)

Net loss

$

(18,502

)

$

(24,171

)

Loss per share

Basic

$

(0.62

)

$

(0.81

)

Diluted

$

(0.62

)

$

(0.81

)

Weighted average shares outstanding

Basic

 

29,849,753

 

 

29,844,240

 

Diluted

 

29,849,753

 

 

29,844,240

 

Other comprehensive income (loss), net of tax

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

$

132

 

$

207

 

Total other comprehensive income, net of tax

 

132

 

 

207

 

Total comprehensive loss

$

(18,370

)

$

(23,964

)

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

 

September 30, 2020

June 30, 2020

 

Assets

Current assets

Cash and cash equivalents

$

80,338

 

$

88,678

 

Accounts receivable, net

 

34,805

 

 

39,376

 

Income taxes receivable

 

1,246

 

 

630

 

Inventories, net

 

52,683

 

 

59,333

 

Prepaid expenses and other current assets

 

19,526

 

 

19,291

 

Total current assets

 

188,598

 

 

207,308

 

Property and equipment, net

 

108,986

 

 

115,258

 

Intangible assets, net

 

136,615

 

 

140,706

 

Other long-term assets

 

4,260

 

 

5,587

 

Total assets

$

438,459

 

$

468,859

 

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

$

10,022

 

$

11,114

 

Accrued expenses

 

23,236

 

 

16,056

 

Current portion of long-term debt

 

844

 

 

563

 

Current portion of capital lease obligations

 

1,067

 

 

1,043

 

Total current liabilities

 

35,169

 

 

28,776

 

Long-term liabilities

Long-term debt

 

343,036

 

 

365,632

 

Long-term capital lease obligations

 

1,391

 

 

1,667

 

Other long-term liabilities

 

5,264

 

 

2,834

 

Total liabilities

 

384,860

 

 

398,909

 

 

Stockholders’ equity

Common stock (120,000,000 shares authorized at $.01 par value; 31,570,926 and 31,652,635 shares issued and outstanding at September 30, 2020 and June 30, 2020, respectively)

 

316

 

 

317

 

Additional paid-in capital

 

766,402

 

 

764,382

 

Accumulated other comprehensive loss

 

(4,731

)

 

(4,863

)

Accumulated deficit

 

(708,388

)

 

(689,886

)

Total stockholders’ equity

 

53,599

 

 

69,950

 

Total liabilities and stockholders’ equity

$

438,459

 

$

468,859

 

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30, 2020

June 30, 2020

 

Cash flows from operating activities

Net loss

$

(18,502

)

$

(24,171

)

Adjustments to reconcile net loss to net cash provided by operating activities

Depreciation

 

7,763

 

 

8,449

 

Amortization of intangibles

 

4,091

 

 

4,116

 

Amortization of deferred financing costs

 

705

 

 

710

 

Provision for doubtful accounts

 

668

 

 

1,741

 

Provision for inventory obsolescence

 

1,407

 

 

241

 

Stock-based compensation expense

 

2,020

 

 

2,105

 

Gain on extinguishment of debt

 

(15,798

)

 

(11,587

)

Gain on sale of property and equipment

 

(535

)

 

(1,790

)

Loss on revaluation of contingent liabilities

 

297

 

 

910

 

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

Accounts receivable, net

 

3,921

 

 

51,585

 

Inventories, net

 

5,285

 

 

3,610

 

Prepaid expenses and other current assets

 

201

 

 

(4,067

)

Accounts payable and accrued expenses

 

9,083

 

 

(32,943

)

Income taxes receivable/payable

 

(616

)

 

180

 

Other assets and liabilities

 

2,291

 

 

2,525

 

Net cash provided by operating activities

 

2,281

 

 

1,614

 

Cash flows from investing activities

Proceeds from sales of property and equipment

 

1,843

 

 

3,213

 

Proceeds from property and equipment casualty losses

 

-

 

 

127

 

Purchases of property and equipment

 

(4,161

)

 

(2,107

)

Net cash provided by (used in) investing activities

 

(2,318

)

 

1,233

 

Cash flows from financing activities

Purchases of senior notes

 

(6,996

)

 

(3,959

)

Payments on capital leases

 

(252

)

 

(246

)

Payments of contingent liability

 

(1,125

)

 

(108

)

Vesting of restricted stock

 

(1

)

 

(42

)

Net cash used in financing activities

 

(8,374

)

 

(4,355

)

Impact of foreign currency exchange on cash

 

71

 

 

70

 

Net decrease in cash and cash equivalents

 

(8,340

)

 

(1,438

)

Cash and cash equivalents

Beginning of period

 

88,678

 

 

90,116

 

End of period

$

80,338

 

$

88,678

 

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30, 2020

June 30, 2020

Calculation of gross loss

Revenues

$

49,521

 

$

52,735

 

Cost of revenues (exclusive of depreciation and

amortization shown separately below)

 

52,483

 

 

56,703

 

Depreciation (related to cost of revenues)

 

7,219

 

 

7,858

 

Amortization of intangibles

 

4,091

 

 

4,116

 

Gross loss

$

(14,272

)

$

(15,942

)

 

Adjusted gross loss reconciliation

Gross loss

$

(14,272

)

$

(15,942

)

Depreciation (related to cost of revenues)

 

7,219

 

 

7,858

 

Amortization of intangibles

 

4,091

 

 

4,116

 

Adjusted gross loss

$

(2,962

)

$

(3,968

)

NINE ENERGY SERVICE, INC.

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30, 2020

 

June 30, 2020

EBITDA reconciliation:

Net loss

$

(18,502

)

$

(24,171

)

Interest expense

 

9,130

 

 

9,186

 

Interest income

 

(43

)

 

(179

)

Depreciation

 

7,763

 

 

8,449

 

Amortization of intangibles

 

4,091

 

 

4,116

 

Benefit for income taxes

 

(37

)

 

(186

)

EBITDA

$

2,402

 

$

(2,785

)

Loss on revaluation of contingent liabilities (1)

 

297

 

 

910

 

Gain on extinguishment of debt

 

(15,798

)

 

(11,587

)

Restructuring charges

 

459

 

 

2,094

 

Stock-based compensation expense

 

2,020

 

 

2,105

 

Gain on sale of property and equipment

 

(535

)

 

(1,790

)

Legal fees and settlements (2)

 

15

 

 

20

 

Adjusted EBITDA

$

(11,140

)

$

(11,033

)

(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)

 

Three Months Ended

September 30, 2020

June 30, 2020

 

Net loss

$

(18,502

)

$

(24,171

)

Add back:

Interest expense

 

9,130

 

 

9,186

 

Interest income

 

(43

)

 

(179

)

Restructuring charges

 

459

 

 

2,094

 

Gain on extinguishment of debt

 

(15,798

)

 

(11,587

)

After-tax net operating loss

$

(24,754

)

$

(24,657

)

 

Total capital as of prior 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 prior period-end

$

353,856

 

$

387,906

 

 

Total capital as of period-end:

Total stockholders' equity

$

53,599

 

$

69,950

 

Total debt

 

349,418

 

 

372,584

 

Less: cash and cash equivalents

 

(80,338

)

 

(88,678

)

Total capital as of period-end:

$

322,679

 

$

353,856

 

 

 

Average total capital

$

338,268

 

$

370,881

 

ROIC

 

-29

%

 

-27

%

NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION

(In Thousands)

(Unaudited)

 

Three Months Ended

September 30, 2020

June 30, 2020

Reconciliation of adjusted net loss:

Net loss

$

(18,502

)

$

(24,171

)

Add back:

Restructuring charges

 

459

 

 

2,094

 

Gain on extinguishment of debt (a)

 

(15,798

)

 

(11,587

)

Less: Tax benefit from add-backs

 

-

 

 

-

 

 

Adjusted net loss

$

(33,841

)

$

(33,664

)

 

Weighted average shares

Weighted average shares outstanding for basic and

 

29,849,753

 

 

29,844,240

 

adjusted basic earnings (loss) per share

 

Loss per share:

Basic loss per share

$

(0.62

)

$

(0.81

)

Adjusted basic loss per share

$

(1.13

)

$

(1.13

)

(a) 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 (Loss) Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings (loss) Per Share is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.

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/20201105005051/en/

Nine Energy Service Investor Contact: Heather Schmidt Vice President, Strategic Development, Investor Relations and Marketing (281) 730-5113 investors@nineenergyservice.com