UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 9, 2020

 

 

NINE ENERGY SERVICE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-38347   80-0759121

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

2001 Kirby Drive, Suite 200

Houston, Texas 77019

(Address of principal executive offices)

(281) 730-5100

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share   NINE   New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On March 9, 2020, Nine Energy Service, Inc. (the “Company”) issued a press release providing information on its results of operations for the fourth quarter and year ended December 31, 2019. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K are being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.

  

Description

99.1

   Nine Energy Service, Inc. press release dated March 9, 2020.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: March 9, 2020    NINE ENERGY SERVICE, INC.
   By:   

/s/ Theodore R. Moore

     

Theodore R. Moore

Senior Vice President and General Counsel

EX-99.1

Exhibit 99.1

Nine Energy Service Announces Fourth Quarter and Full Year 2019 Results

 

   

Full year 2019 revenue, net loss and adjusted EBITDAA of $832.9 million, $(217.8) million and $113.0 million, respectively

 

   

Full year 2019 basic EPS of $(7.43) and $0.32 adjusted basic EPSB

 

   

Full year 2019 cash flow from operations of $101.3 million

 

   

As of December 31, 2019, cash and cash equivalents of $93.0 million

 

   

Revenue, net loss and adjusted EBITDA of $163.4 million, $(220.5) million and $11.6 million, respectively for the fourth quarter of 2019

 

   

Fourth quarter 2019 basic EPS of $(7.51) and $(0.57) adjusted basic EPS

HOUSTON, March 9, 2020 – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported fourth quarter 2019 revenues of $163.4 million, net loss of $(220.5) million and adjusted EBITDA of $11.6 million. The fourth quarter net loss of $(220.5) million, or $(7.51) per basic share, includes intangible assets, PP&E and goodwill impairments of $106.3 million associated with the Coiled Tubing service line and an intangible asset impairment of $95.0 million associated with the Completion Tools service line. For the fourth quarter 2019, adjusted net lossD was $(16.8) million, or $(0.57) adjusted basic earnings per share. During the fourth quarter, the Company generated ROICc of -3%.

The Company had provided original fourth quarter 2019 revenue guidance between $150.0 and $160.0 million and adjusted EBITDA guidance between $11.0 and $15.0 million, with actual results for revenue outperforming Management’s original guidance range and results for adjusted EBITDA falling within Management’s original guidance.

“The fourth quarter was as anticipated, with revenue outperforming and adjusted EBITDA falling within Management’s original guidance range,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “Additionally, we continued our strong working capital management into Q4, ending the year with a cash balance of $93.0 million even with interest, capex and the retention bonus associated with the Magnum acquisition during the fourth quarter.”

“As expected, we saw drilling and completion activity decline in Q4 due to holidays, weather and budget exhaustion. Market share for Nine remained stable across the majority of service lines, but we did see full quarter realizations of Q3 pricing concessions, which led to the majority of the margin compression quarter over quarter. Coiled Tubing has been the hardest hit service line from a pricing and activity perspective due to an over-supply of large diameter units coming into the market, coupled with a decrease in activity across regions.”


“Despite a very tough market in 2019, the execution of our strategic initiatives throughout the year has been very successful. We effectively commercialized our low-temperature dissolvable plug for Q1 2020, which continues to be run and trialed with many customers across multiple basins, providing Nine a first-mover advantage in the low-temp dissolvable market. Additionally, the timeline for our new high-temp dissolvable and composite plug remain on schedule. These technology developments were accomplished in large part because of our acquisition of Magnum and collaboration between both legacy teams around both IP design and materials science. We also successfully completed the sale of our Production Solutions segment, and closed wireline operations in Canada, which will be accretive to ROIC, adjusted EBITDA margins and cash generation. Our operational teams were able to once again prove their ability to grow market share in a declining activity environment, with Nine’s percentage of U.S. stages completed increasing over 100 basis points in 2019. I am also extremely proud of our employees as Nine ended the year with the lowest and best TRIR safety score in the Company’s history at 0.77.”

“Throughout 2018 and 2019 we re-shaped the Company to align with our strategy of being asset-light and building additional barriers to entry, which we believe will enable us to increase profitability, expand margins and increase free cash flow for the future. We have just begun to see our thesis materialize with strong cash generation in the second half of 2019, which we anticipate continuing into 2020 and beyond. 2020 capex will decrease by over 60%, which will serve as a sustainable run-rate as we transition the derivation of more of our top-line revenue contribution from completion tools.”

“Q1 2020 is off to a slower start versus this time in 2019, and we anticipate Q1 2020 being relatively flat to Q4 2019. Despite market conditions, we are very optimistic about Nine’s opportunity to differentiate with our unique positioning in the market to grow within our tools business. Our team has and will remain focused on driving value for our shareholders, customers and employees and will continue to follow our returns-based growth strategy into 2020.”

For the year ended December 31, 2019, the Company reported revenues of $832.9 million, net loss of $(217.8) million and adjusted EBITDA of $113.0 million. Full year 2019 adjusted net income was $9.4 million, or $0.32 per adjusted basic share. For the year ended December 31, 2019, the Company generated ROIC of 6%.

Completion Solutions

During the fourth quarter of 2019, the Company’s Completion Solutions segment, which includes the Company’s cementing, completion tools, wireline and coiled tubing services, reported revenues of $163.4 million and adjusted gross profitE of $23.4 million.


For the year ended December 31, 2019, the Company’s Completion Solutions segment reported revenues of $774.7 million and adjusted gross profit of $154.5 million.

Other Financial Information

During the fourth quarter of 2019, the Company reported selling, general and administrative (“SG&A”) expense of $20.3 million, compared to $19.2 million for the third quarter of 2019. Depreciation and amortization expense (“D&A”) in the fourth quarter of 2019 was $15.4 million, compared to $16.8 million for the third quarter of 2019.

For the year ended December 31, 2019, the Company reported SG&A expense of $81.3 million, compared to year ended December 31, 2018 SG&A expense of $73.1 million. For the year ended December 31, 2019, the Company reported D&A expense of $68.9 million, compared to year ended December 31, 2018 D&A expense of $63.8 million.

The Company recognized an income tax benefit of approximately $2.3 million in the fourth quarter of 2019 and an overall income tax benefit for the year of approximately $3.9 million, resulting in an effective tax rate of 1.8% for 2019. The fourth quarter income tax benefit was primarily attributable to a change in the Company’s deferred taxes due to the impairment associated with our Coiled Tubing and Completion Tools service lines. Cash tax expense for 2019 was approximately $0.4 million.

Liquidity and Capital Expenditures

For the year ended December 31, 2019, the Company reported net cash provided by operating activities of $101.3 million compared to the year ended December 31, 2018 net cash provided by operating activities of $89.6 million.

During the fourth quarter of 2019, total capital expenditures were $14.9 million, of which approximately 18% related to maintenance capital expenditures, compared to total capital expenditures of $10.0 million for the third quarter of 2019. For the year ended December 31, 2019, the Company reported total capital expenditures of $62.1 million of which approximately 22% related to maintenance capital expenditures, which fell within Management’s original guidance, compared to the year ended December 31, 2018 total capital expenditures of $52.6 million. Approximately $4.8 million in 2019 capital expenditures are delayed into 2020.

As of December 31, 2019, Nine’s cash and cash equivalents were $93.0 million and the Company had $99.2 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $192.2 million as of December 31, 2019.

ABCDESee end of press release for definitions


Conference Call Information

The call is scheduled for Monday, March 9, 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 March 23, 2020 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13697764.

About Nine Energy Service

Nine Energy Service is an oilfield services company that offers completion solutions within North America and abroad. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Serving the global oil and gas industry, Nine continues to differentiate itself through superior service quality, wellsite execution and cutting-edge technology. Nine is headquartered in Houston, Texas with operating facilities in the Permian, Eagle Ford, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus, Utica and throughout Canada.

For more information on the Company, please visit Nine’s website at nineenergyservice.com.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. Forward-looking statements also include statements that refer to or are based on projections, uncertain events or assumptions. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, the general energy service industry risks; volatility of crude oil and natural gas commodity prices; a decline in demand for the Company’s services, including due to declining commodity prices; the Company’s ability to implement price increases or maintain pricing of the Company’s core services; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; the Company’s ability to implement and commercialize new technologies, services and tools; the Company’s ability to grow its completion tool business; the Company’s ability to reduce capital expenditures; the Company’s ability to accurately predict customer demand; the loss of, or interruption or delay in operations by, one or more significant customers; the loss of or interruption in operations of one or more key suppliers; the adequacy of the Company’s capital resources and liquidity; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; the


Company’s ability to successfully integrate recently acquired assets and operations and realize anticipated revenues, cost savings or other benefits thereof; and other factors described in the “Risk Factors” and “Business” sections of the Company’s 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 Investor Contact:

Heather Schmidt

Vice President, Investor Relations and Marketing

(281) 730-5113    

investors@nineenergyservice.com


NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

     Three Months Ended     Year Ended December 31,  
     December 31,
2019
    September 30,
2019
    2019     2018  

Revenues

   $ 163,410     $ 202,305     $ 832,937     $ 827,174  

Cost and expenses

        

Cost of revenues (exclusive of depreciation and amortization shown separately below)

     139,985       166,849       669,979       639,298  

General and administrative expenses

     20,348       19,222       81,327       73,078  

Depreciation

     10,972       12,196       50,544       54,257  

Amortization of intangibles

     4,442       4,609       18,367       9,558  

Impairment of property and equipment

     66,200       —         66,200       45,694  

Impairment of goodwill

     20,273       —         20,273       12,986  

Impairment of intangibles

     114,804       —         114,804       19,065  

(Gain) loss on revaluation of contingent liabilities

     (486     (5,771     (21,187     3,262  

Loss on sale of subsidiaries

     62       15,834       15,896       —    

(Gain) loss on sale of property and equipment

     261       (466     (538     (1,731
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (213,451     (10,168     (182,728     (28,293

Interest expense

     9,830       9,843       39,770       22,939  

Interest income

     (421     (111     (860     (624
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (222,860     (19,900     (221,638     (50,608

Provision (benefit) for income taxes

     (2,339     727       (3,887     2,375  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (220,521   $ (20,627   $ (217,751   $ (52,983

Loss per share

        

Basic

   $ (7.51   $ (0.70   $ (7.43   $ (2.17

Diluted

   $ (7.51   $ (0.70   $ (7.43   $ (2.17

Weighted average shares outstanding

        

Basic

     29,367,436       29,361,633       29,308,107       24,411,213  

Diluted

     29,367,436       29,361,633       29,308,107       24,411,213  

Other comprehensive income (loss), net of tax

        

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

   $ 115     $ (179   $ 376     $ (1,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     115       (179     376       (1,159
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (220,406   $ (20,806   $ (217,375   $ (54,142


NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

 

     At December 31,  
     2019     2018  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 92,989     $ 63,615  

Accounts receivable, net

     96,889       154,783  

Income taxes receivable

     660        

Inventories, net

     60,945       91,435  

Prepaid expenses and other current assets

     17,434       15,717  

Notes receivable from shareholders

           7,626  
  

 

 

   

 

 

 

Total current assets

     268,917       333,176  

Property and equipment, net

     128,604       211,644  

Definite-lived intangible assets, net

     147,991       173,451  

Goodwill

     296,196       307,804  

Indefinite-lived intangible assets

     1,000       108,711  

Other long-term assets

     8,187       6,386  
  

 

 

   

 

 

 

Total assets

   $ 850,895     $ 1,141,172  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts payable

   $ 35,490     $ 46,132  

Accrued expenses

     24,730       61,434  

Current portion of capital lease obligations

     995       665  

Income taxes payable

     —         57  
  

 

 

   

 

 

 

Total current liabilities

     61,215       108,288  

Long-term liabilities

    

Long-term debt

     392,059       424,978  

Deferred income taxes

     1,588       5,915  

Long-term capital lease obligations

     2,201       2,330  

Other long-term liabilities

     3,955       4,838  
  

 

 

   

 

 

 

Total liabilities

     461,018       546,349  

Stockholders’ equity

    

Common stock (120,000,000 shares authorized at $.01 par value; 30,555,677 and 30,163,408 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively)

     306       302  

Additional paid-in capital

     758,853       746,428  

Accumulated other comprehensive loss

     (4,467     (4,843

Accumulated deficit

     (364,815     (147,064
  

 

 

   

 

 

 

Total stockholders’ equity

     389,877       594,823  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 850,895     $ 1,141,172  
  

 

 

   

 

 

 


NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

     Year Ended December 31,  
     2019     2018  

Cash flows from operating activities

    

Net loss

   $ (217,751   $ (52,983

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

    

Depreciation

     50,544       54,257  

Amortization of intangibles

     18,367       9,558  

Amortization of deferred financing costs

     2,984       2,966  

Provision for (recovery of) doubtful accounts

     849       (268

Provision (benefit) for deferred income taxes

     (4,327     898  

Provision for inventory obsolescence

     5,148       844  

Impairment of property and equipment

     66,200       45,694  

Impairment of goodwill

     20,273       12,986  

Impairment of intangibles

     114,804       19,065  

Stock-based compensation expense

     14,057       13,221  

Gain on sale of property and equipment

     (538     (1,731

(Gain) loss on revaluation of contingent liabilities

     (21,187     3,262  

Loss on sale of subsidiaries

     15,896       —    

Loss on equity investment

     —         347  

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

    

Accounts receivable, net

     41,852       (24,972

Inventories, net

     22,545       (15,041

Prepaid expenses and other current assets

     2,395       (5,722

Accounts payable and accrued expenses

     (27,901     27,156  

Income taxes receivable/payable

     (294     (255

Other assets and liabilities

     (2,611     295  
  

 

 

   

 

 

 

Net cash provided by operating activities

     101,305       89,577  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Acquisitions, net of cash acquired

     1,020       (349,986

Proceeds from sale of subsidiaries

     16,914       —    

Proceeds from sales of property and equipment

     3,702       2,183  

Proceeds from property and equipment casualty losses

     1,576       1,743  

Proceeds from notes receivable payments

     7,626       2,941  

Purchases of property and equipment

     (64,959     (46,646
  

 

 

   

 

 

 

Net cash used in investing activities

     (34,121     (389,765
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from revolving credit facilities

     10,000       35,000  

Payments on revolving credit facilities

     (45,000     (96,182

Proceeds from Senior Notes

     —         400,000  

Proceeds from term loan

     —         125,000  

Payments on term loans

     —         (270,975

Payments on capital leases

     (903     (128

Payments of contingent liabilities

     (374     (3,445

Proceeds from issuance of common stock in IPO, net of offering costs

     —         171,450  

Proceeds from other issuances of common stock

     —         300  

Proceeds from exercise of stock options

     15       2,905  

Vesting of restricted stock

     (1,643     (927

Cost of debt issuance

     —         (16,307
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (37,905     346,691  
  

 

 

   

 

 

 

Impact of foreign currency exchange on cash

     95       (401
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     29,374       46,102  

Cash and cash equivalents

    

Beginning of period

     63,615       17,513  
  

 

 

   

 

 

 

End of period

   $ 92,989     $ 63,615  
  

 

 

   

 

 

 


NINE ENERGY SERVICE, INC.

SEGMENT DATA

(In Thousands)

(Unaudited)

 

     Three Months Ended     Year Ended December 31,  
     December 31,
2019
    September 30,
2019
    2019     2018  

Revenues

        

Completion Solutions

   $ 163,410     $ 186,252     $ 774,665     $ 745,316  

Production Solutions

     —         16,053       58,272       81,858  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 163,410     $ 202,305     $ 832,937     $ 827,174  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues (1)

        

Completion Solutions

   $ 139,985     $ 152,679     $ 620,125     $ 568,497  

Production Solutions

     —         14,170       49,854       70,801  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 139,985     $ 166,849     $ 669,979     $ 639,298  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross profit

        

Completion Solutions

   $ 23,425     $ 33,573     $ 154,540     $ 176,819  

Production Solutions

     —         1,883       8,418       11,057  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 23,425     $ 35,456     $ 162,958     $ 187,876  
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

     20,348       19,222       81,327       73,078  

Depreciation

     10,972       12,196       50,544       54,257  

Amortization of intangibles

     4,442       4,609       18,367       9,558  

Impairment of property and equipment

     66,200       —         66,200       45,694  

Impairment of goodwill

     20,273       —         20,273       12,986  

Impairment of intangibles

     114,804       —         114,804       19,065  

(Gain) loss on revaluation of contingent liabilities

     (486     (5,771     (21,187     3,262  

Loss on sale of subsidiaries

     62       15,834       15,896       —    

(Gain) loss on sale of property and equipment

     261       (466     (538     (1,731
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

   $ (213,451   $ (10,168   $ (182,728   $ (28,293

Capital expenditures

        

Completion Solutions

   $ 14,888     $ 9,146     $ 59,231     $ 48,361  

Production Solutions

     —         804       2,790       3,548  

Corporate

     —             93       661  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 14,888     $ 9,950     $ 62,114     $ 52,570  

Total assets

        

Completion Solutions

   $ 739,142     $ 977,633     $ 739,142     $ 1,045,643  

Production Solutions

     —         —         —         35,086  

Corporate

     111,753       103,950       111,753       60,443  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 850,895     $ 1,081,583     $ 850,895     $ 1,141,172  


     Three Months Ended      Year Ended December 31,  
     December 31,
2019
     September 30,
2019
     2019      2018  

Revenue by country

           

United States

   $ 163,158      $ 195,400      $ 814,639      $ 796,221  

Canada and other

     252        6,905        18,298        30,953  
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 163,410      $ 202,305      $832,937      $827,174  

 

     Three Months Ended      Year Ended December 31,  
     December 31,
2019
     September 30,
2019
     2019      2018  

Long-lived assets (2)

           

United States

   $ 271,791      $ 351,772      $ 271,791      $ 377,623  

Canada and other

     4,804        6,633        4,804        7,472  
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 276,595      $ 358,405      $276,595      $385,095  

 

(1)

Excludes depreciation and amortization, shown separately.

(2)

Inclusive of property and equipment and definite-lived intangible assets.


NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED GROSS PROFIT

(In Thousands)

(Unaudited)

 

     Three Months Ended      Year Ended December 31,  
     December 31,
2019
     September 30,
2019
     2019      2018  

Calculation of gross profit

           

Revenues

   $ 163,410      $ 202,305      $ 832,937      $ 827,174  

Cost of revenues (exclusive of depreciation and amortization shown separately below)

     139,985        166,849        669,979        639,298  

Depreciation (related to cost of revenues)

     8,090        11,994        47,006        53,358  

Amortization of intangibles

     4,442        4,609        18,367        9,558  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

   $ 10,893      $ 18,853      $ 97,585      $ 124,960  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted gross profit (excluding depreciation and amortization) reconciliation

 

        

Gross profit

   $ 10,893      $ 18,853      $ 97,585      $ 124,960  

Depreciation (related to cost of revenues)

     8,090        11,994        47,006        53,358  

Amortization of intangibles

     4,442        4,609        18,367        9,558  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted gross profit

   $ 23,425      $ 35,456      $ 162,958      $ 187,876  
  

 

 

    

 

 

    

 

 

    

 

 

 


NINE ENERGY SERVICE, INC.

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(In Thousands)

(Unaudited)

 

     Three Months Ended     Year Ended December 31,  
     December 31,
2019
    September 30,
2019
    2019     2018  

EBITDA reconciliation:

        

Net loss

   $ (220,521   $ (20,627   $ (217,751   $ (52,983

Interest expense

     9,830       9,843       39,770       22,939  

Interest income

     (421     (111     (860     (624

Depreciation

     10,972       12,196       50,544       54,257  

Amortization of intangibles

     4,442       4,609       18,367       9,558  

Provision (benefit) for income taxes

     (2,339     727       (3,887     2,375  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ (198,037   $ 6,637     $ (113,817   $ 35,522  

Impairment of property and equipment

     66,200       —         66,200       45,694  

Impairment of goodwill

     20,273       —         20,273       12,986  

Impairment of intangibles

     114,804       —         114,804       19,065  

Transaction and integration costs

     4,183       1,418       13,047       10,327  

Loss on equity method investment

     —         —         —         347  

(Gain) loss on revaluation of contingent liabilities (1)

     (486     (5,771     (21,187     3,262  

Loss on sale of subsidiaries

     62       15,834       15,896       —    

Restructuring charges

     713       3,263       3,976       —    

Stock-based compensation expense

     3,504       3,286       14,057       13,221  

Gain (loss) on sale of property and equipment

     261       (466     (538     (1,731

Legal fees and settlements (2)

     142       22       307       2,358  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 11,619     $ 24,223     $ 113,018     $ 141,051  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Amounts relate to the revaluation of contingent liabilities associated with the Company’s recent acquisitions. The impact is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

(2)

Amounts represent fees and legal settlements associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws.


NINE ENERGY SERVICE, INC.

RECONCILIATION OF ROIC CALCULATION

(In Thousands)

(Unaudited)

 

     Three Months Ended     Year Ended December 31,  
     December 31,
2019
    September 30,
2019
    2019     2018  

Net loss

   $ (220,521   $ (20,627   $ (217,751   $ (52,983

Add back:

        

Impairment of property and equipment

     66,200       —         66,200       45,694  

Impairment of goodwill

     20,273       —         20,273       12,986  

Impairment of intangibles

     114,804       —         114,804       19,065  

Interest expense

     9,830       9,843       39,770       22,939  

Interest income

     (421     (111     (860     (624

Transaction and integration costs

     4,183       1,418       13,047       10,327  

Restructuring charges

     713       3,263       3,976       —    

Loss on sale of subsidiaries

     62       15,834       15,896       —    

Provision (benefit) for deferred income taxes

     (1,451     143       (4,327     898  
  

 

 

   

 

 

   

 

 

   

 

 

 

After-tax net operating profit (loss)

   $ (6,328   $ 9,763     $ 51,028     $ 58,302  

Total capital as of prior period-end:

        

Total stockholders’ equity

   $ 606,779     $ 624,309     $ 594,823     $ 287,358  

Total debt

     400,000       400,000       435,000       242,235  

Less: cash and cash equivalents

     (93,321     (16,886     (63,615     (17,513
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital as of prior period-end:

   $ 913,458     $ 1,007,423     $ 966,208     $ 512,080  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital as of period-end:

        

Total stockholders’ equity

   $ 389,877     $ 606,779     $ 389,877     $ 594,823  

Total debt

     400,000       400,000       400,000       435,000  

Less: cash and cash equivalents

     (92,989     (93,321     (92,989     (63,615
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital as of period-end:

   $ 696,888     $ 913,458     $ 696,888     $ 966,208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Average total capital

   $ 805,173     $ 960,441     $ 831,548     $ 739,144  
  

 

 

   

 

 

   

 

 

   

 

 

 

ROIC

     -3     4     6     8


NINE ENERGY SERVICE, INC.

RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION

(In Thousands)

(Unaudited)

 

     Three Months Ended     Year Ended December 31,  
     December 31, 2019     September 30, 2019     2019     2018  

Reconciliation of adjusted net income (loss):

        

Net loss

   $ (220,521   $ (20,627   $ (217,751   $ (52,983

Add back:

        

Impairment of property and equipment (a)

     66,200       —         66,200       45,694  

Impairment of goodwill (a)

     20,273       —         20,273       12,986  

Impairment of intangibles (a)(b)

     114,804       —         114,804       19,065  

Transaction and integration costs (c)

     4,183       1,418       13,047       10,327  

Commitment fee (d)

     —         —         —         6,900  

Restructuring charges

     713       3,263       3,976       —    

Loss on sale of subsidiaries

     62       15,834       15,896       —    

Less: Tax benefit from add backs

     (2,467     (4,571     (7,038     (1,375
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss)

   $ (16,753   $ (4,683   $ 9,407     $ 40,614  

Weighted average shares

        

Weighted average shares outstanding for basic

     29,367,436       29,361,633       29,308,107       24,411,213  

and adjusted basic earnings (loss) per share

        

Earnings (loss) per share:

        

Basic loss per share

   $ (7.51   $ (0.70   $ (7.43   $ (2.17

Adjusted basic earnings (loss) per share

   $ (0.57   $ (0.16   $ 0.32     $ 1.66  

 

a)

Impairment charges were due to deteriorating market conditions in the Company’s Completion Solutions segment attributed to the reduction of the need for coil tubing during the drill-out phase of the overall completions process attributed to a recent decline in exploration and production capital budgets and activity, the over-supply of coil tubing units and the introduction of dissolvable plug technology.

b)

Impairment charges were primarily due to transition of certain trade names associated with recent acquisitions to the Company’s trade names in order to better funnel and allocate resources, create a stronger identity, facilitate cross-selling and streamline and simplify communication with existing customers.

(c)

Amounts for each period presented represent transaction and integration costs, including the cost of inventory that was stepped up to fair value during purchase accounting associated with recent acquisitions, including the Company’s IPO.

(d)

Amount represents commitment fee associated with a potential bridge financing in the fourth quarter of 2018.


AAdjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) loss or gains on the sale of subsidiaries, (iv) loss or gains from the revaluation of contingent liabilities, (v) loss or gains on equity method investment, (vi) stock-based compensation expense, (vii) loss or gains on sale of property and equipment and (viii) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments, acquisitions and dispositions and costs that are not reflective of the ongoing performance of our business.

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

CReturn on Invested Capital (“ROIC”) is defined as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) interest expense (income), (iv) restructuring charges, (v) loss or gain on the sale of subsidiaries, and (vi) 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 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 capital resource allocation decisions and in evaluating business performance.

DAdjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) property and equipment, goodwill and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, including the commitment fee associated with a potential bridge financing in connection with an acquisition, (iii) restructuring charges, (iv) loss or gain on the sale of subsidiaries and (v) the income tax impact of such adjustments. Management believes Adjusted Net Income is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.

EAdjusted Gross Profit is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit to evaluate operating performance. 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.