HOUSTON--(BUSINESS WIRE)--Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE) reported second quarter 2018 revenues of $205.5 million, net income of $9.0 million and adjusted EBITDA of $30.6 million. Second quarter 2018 revenues increased approximately 18% as compared to the first quarter 2018 revenues of $173.8 million. For the second quarter of 2018, the Company reported net income of $9.0 million, or $0.37 per diluted share. This compares to net income of $1.7 million, or $0.08 per diluted share in the first quarter of 2018. The Company reported second quarter 2018 adjusted EBITDA of $30.6 million, an increase of approximately 27% compared to first quarter 2018 adjusted EBITDA of $24.1 million, and represented the sixth sequential quarterly increase. The Company had provided second quarter 2018 revenue guidance between $185.0 and $195.0 million and adjusted EBITDA guidance between $27.0 and $29.0 million, with actual results outperforming the midpoint of second quarter 2018 revenue guidance by approximately 8% and the midpoint of second quarter adjusted EBITDA guidance by approximately 9%. For the second quarter of 2018, the Company generated an ROIC of 8%, as compared to first quarter 2018 ROIC of 3%.
“The team at Nine continues to execute in the field and drive growth for the Company,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “We remain focused on offering our customers a unique blend of outstanding wellsite execution and service with a portfolio of innovative and reliable technology to increase efficiencies and decrease cycle time,” said Fox. "With our proven track record, we have been able to gain market share and strategically increase price as seen through the significant growth on the top line of approximately 18% and increasing net income by over five times over the first quarter of 2018. We were also happy to see our ROIC increase by approximately 500 basis points this quarter. ROIC will continue to help guide management on capital deployment decisions moving forward and gauging Company performance.”
“The trends in onshore completions continue to help propel the Completion Solutions Segment across all service lines. Our completion tools and wireline stages grew approximately 30% collectively quarter over quarter despite US land rig count increasing approximately 7% and market stage count growing approximately 8%. Operational efficiencies within Nine continue to improve and help Nine navigate labor bottlenecks with the average stages per employee per month increasing over 40% through the first half of the year," said Fox.
“We remain positive on the outlook for North American shale and for the company moving forward, anticipating another quarter of both revenue and adjusted EBITDA growth in the third quarter of 2018. This growth will be driven by both completion tools and our completions services, all of which directly benefit from industry trends of more complex completions and multi-pad development,” Fox concluded.
Business Segment Results
Completion Solutions
During the second quarter of 2018, the Company’s Completion Solutions segment, which includes the Company’s cementing, completion tools, wireline and coiled tubing services reported revenues of $185.1 million compared to first quarter 2018 revenues of $154.6 million, representing an approximate 20% increase. For the second quarter 2018, Completion Solutions reported adjusted gross profitc of $39.1 million compared to first quarter 2018 adjusted gross profit of $33.2 million, representing an approximate 18% increase.
Production Solutions
During the second quarter of 2018, the Company’s Production Solutions segment, which includes well services, generated revenues of $20.4 million compared to first quarter 2018 revenues of $19.2 million, representing an approximate 6% increase. For the second quarter 2018, Production Solutions reported adjusted gross profit of $2.8 million compared to first quarter 2018 adjusted gross profit of $2.4 million, representing an approximate 18% increase.
Other Financial Information
During the second quarter of 2018, the Company reported selling, general and administrative expense of $16.1 million, compared to $15.4 million for the first quarter of 2018. Depreciation and amortization expense ("D&A") in the second quarter of 2018 was $15.1 million, compared to $15.0 million for the first quarter of 2018.
During the second quarter of 2018, the Company’s effective tax rate was 6.7%. The effective income tax rate for the quarter was primarily attributable to changes in pre-tax book income and valuation allowance positions as well as tax liability in states where income is expected to exceed available net operating losses.
Liquidity and Capital Expenditures
During the second quarter of 2018, the Company reported net cash provided by operating activities of $7.9 million, compared to $17.3 million for the first quarter of 2018.
As of June 30, 2018, Nine’s cash and cash equivalents were $70.9 million with $50.0 million of revolver capacity, $49.3 million of which is currently available, resulting in a total liquidity position of $120.2 million as of June 30, 2018.
Capital expenditures totaled $11.6 million during the second quarter of 2018, compared to $6.5 million in the first quarter of 2018.
ABCSee end of press release for definitions
Conference Call Information
The call is scheduled for Monday, August 13, 2018 at 10:00 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 27, 2018 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13681859.
About Nine Energy Service
Nine Energy Service is an oilfield services company that offers completion and production solutions throughout North America. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Strategically located throughout the U.S. and Canada, 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 nature of the energy service industry risks related to economic conditions; volatility of crude oil and natural gas commodity prices; a decline in demand for our services, including due to declining commodity prices; our ability to implement price increases or maintain pricing of our core services; 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 our capital resources and liquidity; our ability to implement new technologies and services; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; and other factors to be discussed in the “Business” and “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and the subsequently filed Quarterly Reports on Form 10-Q and Periodic 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.
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NINE ENERGY SERVICE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In Thousands, Except Per Share Amounts) (Unaudited) |
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| Three Months Ended | ||||||||||
| June 30, 2018 | March 31, 2018 | |||||||||
| Revenues | $ | 205,492 | $ | 173,807 | ||||||
| Cost and expenses | ||||||||||
| Cost of revenues (exclusive of depreciation and | ||||||||||
| amortization shown separately below) | 163,591 | 138,227 | ||||||||
| General and administrative expenses | 16,070 | 15,428 | ||||||||
| Depreciation | 13,212 | 13,109 | ||||||||
| Amortization of intangibles | 1,896 | 1,900 | ||||||||
| Loss on equity method investment | 118 | 75 | ||||||||
| Loss (gain) on sale of property and equipment | (881 | ) | 370 | |||||||
| Income from operations | 11,486 | 4,698 | ||||||||
| Other expense | ||||||||||
| Interest expense | 1,815 | 2,930 | ||||||||
| Total other expense | 1,815 | 2,930 | ||||||||
| Income before income taxes | 9,671 | 1,768 | ||||||||
| Provision for income taxes | 652 | 93 | ||||||||
| Net income | $ | 9,019 | $ | 1,675 | ||||||
| Net income per share | ||||||||||
| Basic | $ | 0.38 | $ | 0.08 | ||||||
| Diluted | $ | 0.37 | $ | 0.08 | ||||||
| Weighted average shares outstanding | ||||||||||
| Basic | 23,895,858 | 21,902,519 | ||||||||
| Diluted | 24,351,000 | 22,069,353 | ||||||||
| Other comprehensive income, net of tax | ||||||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | (250 | ) | $ | (394 | ) | ||||
| Total other comprehensive loss, net of tax | (250 | ) | (394 | ) | ||||||
| Total comprehensive income | $ | 8,769 | $ | 1,281 | ||||||
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NINE ENERGY SERVICE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited) |
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June 30, 2018 |
March 31, 2018 |
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| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 70,860 | $ | 72,900 | ||||||
| Accounts receivable, net | 140,968 | 116,080 | ||||||||
| Income taxes receivable | 109 | - | ||||||||
| Inventories | 23,091 | 21,748 | ||||||||
| Prepaid expenses and other | 7,431 | 6,859 | ||||||||
| Notes receivable from shareholders | 10,526 | - | ||||||||
| Total current assets | 252,985 | 217,587 | ||||||||
| Property and equipment, net | 248,803 | 253,066 | ||||||||
| Goodwill | 93,756 | 93,756 | ||||||||
| Intangible assets, net | 59,749 | 61,645 | ||||||||
| Other long-term assets | 1,093 | 1,181 | ||||||||
| Notes receivable from shareholders | - | 10,501 | ||||||||
| Total assets | $ | 656,386 | $ | 637,736 | ||||||
| Liabilities and Stockholders’ Equity | ||||||||||
| Current liabilities | ||||||||||
| Long-term debt, current portion | $ | 5,899 | $ | 2,774 | ||||||
| Accounts payable | 39,002 | 36,446 | ||||||||
| Accrued expenses | 25,871 | 22,383 | ||||||||
| Income taxes payable | - | 721 | ||||||||
| Total current liabilities | 70,772 | 62,324 | ||||||||
| Long-term liabilities | ||||||||||
| Long-term debt | 107,980 | 110,936 | ||||||||
| Deferred taxes | 5,392 | 4,970 | ||||||||
| Other long term liabilities | 62 | 66 | ||||||||
| Total liabilities | 184,206 | 178,296 | ||||||||
| Stockholders’ equity | ||||||||||
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Common stock (120,000,000 shares authorized at $.01 par value;
25,030,863 and 24,278,857 shares issued and outstanding at June 30, 2018 and March 31, 2018, respectively) |
250 | 243 | ||||||||
| Additional paid-in capital | 559,645 | 555,681 | ||||||||
| Accumulated other comprehensive income (loss) | (4,328 | ) | (4,078 | ) | ||||||
| Retained earnings (accumulated deficit) | (83,387 | ) | (92,406 | ) | ||||||
| Total stockholders’ equity | 472,180 | 459,440 | ||||||||
| Total liabilities and stockholders’ equity | $ | 656,386 | $ | 637,736 | ||||||
| NINE ENERGY SERVICE, INC. | ||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| (In Thousands) | ||||||||||
| (Unaudited) | ||||||||||
| Three Months Ended | ||||||||||
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June 30, 2018 |
March 31, 2018 |
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| Cash flows from operating activities | ||||||||||
| Net Income | $ | 9,019 | $ | 1,675 | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by | ||||||||||
| operating activities | ||||||||||
| Depreciation | 13,212 | 13,109 | ||||||||
| Amortization of intangibles | 1,896 | 1,900 | ||||||||
| Amortization of deferred financing costs | 169 | 853 | ||||||||
| Recovery of doubtful accounts | (30 | ) | (270 | ) | ||||||
| Deferred tax expense (benefit) | 422 | (47 | ) | |||||||
| Impairment of goodwill | - | - | ||||||||
| Impairment of intangibles | - | - | ||||||||
| Provision for inventory obsolescence | 228 | - | ||||||||
| Stock-based and deferred compensation expense | 3,971 | 2,240 | ||||||||
| Loss (gain) on sales of assets | (881 | ) | 370 | |||||||
| Loss (gain) on revaluation of contingent consideration | 607 | 1,063 | ||||||||
| Loss on equity method investment | 118 | 75 | ||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||||||
| Accounts receivable | (24,981 | ) | (16,387 | ) | ||||||
| Inventories | (1,622 | ) | 406 | |||||||
| Prepaid expenses and other current assets | (571 | ) | 757 | |||||||
| Accounts payable and accrued expenses | 7,227 | 11,357 | ||||||||
| Income taxes receivable/payable | (831 | ) | 140 | |||||||
| Other assets and liabilities | (60 | ) | 66 | |||||||
| Net cash provided by operating activities | 7,893 | 17,307 | ||||||||
| Cash flows from investing activities | ||||||||||
| Proceeds from sales of assets | 198 | 1,096 | ||||||||
| Proceeds from property and equipment casualty losses | 1,743 | - | ||||||||
| Purchases of property and equipment | (11,597 | ) | (6,468 | ) | ||||||
| Net cash used in investing activities | (9,656 | ) | (5,372 | ) | ||||||
| Cash flows from financing activities | ||||||||||
| Borrowings on revolving credit facilities | - | - | ||||||||
| Payments on revolving credit facilities | - | (96,182 | ) | |||||||
| Payments on term loans | - | (155,701 | ) | |||||||
| Proceeds from term loan | - | 125,000 | ||||||||
| Payment of contingent liability on Scorpion purchase | - | - | ||||||||
| Proceeds from issuance of common stock in IPO, net offering costs | (166 | ) | 171,616 | |||||||
| Proceeds from other issuances of common stock | - | 300 | ||||||||
| Deferred financing costs | - | (1,385 | ) | |||||||
| Net cash provided by (used in) financing activities | (166 | ) | 43,648 | |||||||
| Net increase (decrease) in cash and cash equivalents | (1,929 | ) | 55,583 | |||||||
| Impact of foreign currency exchange on cash | (111 | ) | (196 | ) | ||||||
| Cash and cash equivalents | ||||||||||
| Beginning of period | 72,900 | 17,513 | ||||||||
| End of period | $ | 70,860 | $ | 72,900 | ||||||
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NINE ENERGY SERVICE, INC. SEGMENT DATA (In Thousands) (Unaudited) |
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| Three Months Ended | |||||||||
| June 30, 2018 | March 31, 2018 | ||||||||
| Revenues | |||||||||
| Completion Solutions | $ | 185,111 | $ | 154,644 | |||||
| Production Solutions | 20,381 | 19,163 | |||||||
| $ | 205,492 | $ | 173,807 | ||||||
| Gross profit(1) | |||||||||
| Completion Solutions | $ | 39,109 | $ | 33,218 | |||||
| Production Solutions | 2,792 | 2,362 | |||||||
| $ | 41,901 | $ | 35,580 | ||||||
| General and administrative expenses | 16,070 | 15,428 | |||||||
| Depreciation | 13,212 | 13,109 | |||||||
| Amortization of intangibles | 1,896 | 1,900 | |||||||
| Loss on equity method investment | 118 | 75 | |||||||
| Loss (gain) on sale of assets | (881 | ) | 370 | ||||||
| Income from operations | $ | 11,486 | $ | 4,698 | |||||
| Capital expenditures | |||||||||
| Completion Solutions | $ | 10,630 | $ | 5,283 | |||||
| Production Solutions | 955 | 692 | |||||||
| Corporate | 12 | 493 | |||||||
| $ | 11,597 | $ | 6,468 | ||||||
| Assets | |||||||||
| Completion Solutions | $ | 461,683 | $ | 442,433 | |||||
| Production Solutions | 116,672 | 117,240 | |||||||
| Corporate | 78,031 | 78,063 | |||||||
| $ | 656,386 | $ | 637,736 | ||||||
| (1) Excludes depreciation and amortization, shown below. | |||||||||
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NINE ENERGY SERVICE, INC. GEOGRAPHICAL SPLIT (In Thousands) (Unaudited) |
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| Three Months Ended | ||||||||
| June 30, 2018 | March 31, 2018 | |||||||
| Revenues | ||||||||
| United States | $ | 197,430 | $ | 166,705 | ||||
| Canada | 8,062 | 7,102 | ||||||
| $ | 205,492 | $ | 173,807 | |||||
| June 30, 2018 | March 31, 2018 | |||||||
| Long-lived assets: | ||||||||
| United States | $ | 398,521 | $ | 415,138 | ||||
| Canada | 4,880 | 5,011 | ||||||
| $ | 403,401 | $ | 420,149 | |||||
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NINE ENERGY SERVICE, INC. RECONCILIATION OF ADJUSTED GROSS PROFIT (In Thousands) (Unaudited) |
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| Three Months Ended | ||||||||||
| June 30, 2018 | March 31, 2018 | |||||||||
| Calculation of gross profit | ||||||||||
| Revenues | $ | 205,492 | $ | 173,807 | ||||||
| Cost of revenues (exclusive of depreciation and | ||||||||||
| amortization shown separately below) | 163,591 | 138,227 | ||||||||
| Depreciation (related to cost of revenues) | 12,993 | 12,892 | ||||||||
| Amortization | 1,896 | 1,900 | ||||||||
| Gross profit | $ | 27,012 | $ | 20,788 | ||||||
| Adjusted gross profit (excluding depreciation and amortization) reconciliation | ||||||||||
| Gross profit | $ | 27,012 | $ | 20,788 | ||||||
| Depreciation (related to cost of revenues) | 12,993 | 12,892 | ||||||||
| Amortization | 1,896 | 1,900 | ||||||||
| Adjusted gross profit | $ | 41,901 | $ | 35,580 | ||||||
| NINE ENERGY SERVICE, INC. | |||||||||||
| RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA | |||||||||||
| (In Thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| June 30, 2018 | March 31, 2018 | ||||||||||
| EBITDA reconciliation: | |||||||||||
| Net income | $ | 9,019 | $ | 1,675 | |||||||
| Interest expense | 1,815 | 2,930 | |||||||||
| Depreciation | 13,212 | 13,109 | |||||||||
| Amortization | 1,896 | 1,900 | |||||||||
| Provision from income taxes | 652 | 93 | |||||||||
| EBITDA | $ | 26,594 | $ | 19,707 | |||||||
| Adjusted EBITDA reconciliation: | |||||||||||
| EBITDA | $ | 26,594 | $ | 19,707 | |||||||
| Transaction expenses | - | 377 | |||||||||
| Loss or gains from the revaluation of contingent liabilities (1) | 607 | 1,063 | |||||||||
| Loss on equity investment | 118 | 75 | |||||||||
| Non-cash stock-based compensation expense | 3,971 | 2,240 | |||||||||
| Loss (gain) on sale of property and equipment | (881 | ) | 370 | ||||||||
| Legal fees and settlements (2) | 177 | 305 | |||||||||
| Adjusted EBITDA | $ | 30,586 | $ | 24,137 | |||||||
| (1) Loss or gain related to the revaluation of liability for contingent consideration relating to our acquisition of Scorpion to be paid in shares of Company common stock and in cash, contingent upon quantities of Scorpion Composite Plugs sold during 2016 and gross margin related to the product sales for three years following the acquisition. |
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(2) Amount represents fees and legal settlements associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws. |
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NINE ENERGY SERVICE, INC. RECONCILIATIONS OF ROIC CALCULATIONS (In Thousands) (Unaudited) |
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| Three Months Ended | ||||||||||
| June 30, 2018 | March 31, 2018 | |||||||||
| Income from continuing operations, net of tax | $ | 9,019 | $ | 1,675 | ||||||
| Add back: | ||||||||||
| Interest Expense | 1,815 | 2,930 | ||||||||
| Taxes on interest | (381 | ) | (615 | ) | ||||||
| After-tax net operating profit | $ | 10,453 | $ | 3,990 | ||||||
| Total capital as of prior period end: | ||||||||||
| Total stockholders' equity | $ | 459,440 | $ | 287,358 | ||||||
| Total debt | 115,274 | 242,235 | ||||||||
| Less cash and cash equivalents | (72,900 | ) | (17,513 | ) | ||||||
| Total capital | $ | 501,814 | $ | 512,080 | ||||||
| Total capital as of period end: | ||||||||||
| Total stockholders' equity | $ | 472,180 | $ | 459,440 | ||||||
| Total debt | 115,274 | 115,274 | ||||||||
| Less cash and cash equivalents | (70,860 | ) | (72,900 | ) | ||||||
| Total capital | $ | 516,594 | $ | 501,814 | ||||||
| Average total capital | $ | 509,204 | $ | 506,947 | ||||||
| ROIC | 8 | % | 3 | % | ||||||
AAdjusted EBITDA is defined as EBITDA further adjusted for (i) impairment of goodwill and other intangible assets, (ii) transaction expenses related to acquisitions or the Combination, (iii) loss from discontinued operations, (iv) loss or gains from the revaluation of contingent liabilities, (v) non-cash stock-based compensation expense, (vi) loss or gains on sale of assets, (vii) inventory write-down and (viii) adjustment for other expenses or charges, to exclude certain items which we believe are not reflective of ongoing performance of our business, such as transaction expenses associated with our IPO, legal expenses and settlement costs related to litigation outside the ordinary course of business, and restructuring costs. 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.
BROIC is defined as after-tax net operating profit, divided by average total capital. We define after-tax net operating profit as income (loss) from continuing operations (net of tax) plus interest expense, less taxes on interest. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We then take 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 capital resource allocation decisions and in evaluating business performance.
CAdjusted 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.
