Financial Data and Key Metrics Changes - Revenue for Q2 2024 was $132.4 million, within the guidance of $130 million to $140 million [4] - Adjusted EBITDA was $9.7 million, and diluted EPS was negative $0.40 [4] - Cash and cash equivalents were $26 million, with total liquidity of $50.8 million as of June 30, 2024 [8] - General and administrative expenses were $12.5 million, and depreciation and amortization expenses were $9.4 million [10] - CapEx spend for Q2 was $2.5 million, with a revised full-year CapEx range of $10 million to $15 million [10] Business Line Data and Key Metrics Changes - Cementing revenue decreased by approximately 5% to $45.8 million, with a 2% decrease in completed jobs [8] - Wireline revenue was flat at $28 million, with a 2% decrease in completed stages but a 2% increase in average blended revenue per stage [9] - Completion tool revenue decreased by approximately 8% to $32.4 million, with a 10% decrease in completed stages [9] - Coiled tubing revenue decreased by approximately 15% to $26.2 million, with a 23% decrease in days worked [9] Market Data and Key Metrics Changes - The U.S. land rig count has seen a decline of over 200 rigs since the end of 2022, impacting revenue and earnings [4] - Natural gas prices remain around $2, leading to delayed completions and rig declines [12] - The rig count in Q3 is expected to be relatively flat compared to Q2, with projected revenue between $127 million and $137 million [12] Company Strategy and Development Direction - The company aims to grow its international tools business as part of its medium- to long-term strategy [6] - The focus is on enhancing efficiency and maintaining flexibility in operations to capitalize on market recovery [17] - The company is optimistic about the medium- and long-term outlook for the gas market, anticipating increased power demand in the U.S. [12][23] Management's Comments on Operating Environment and Future Outlook - Management noted that the current market is challenging, but they are prepared to capitalize on growth opportunities when they arise [12][24] - The company believes it can maintain a competitive edge due to its asset-light business model and strong team [13] - Management expressed confidence in the potential for a market rebound in the back half of 2025 [24] Other Important Information - The company completed 926 cementing jobs in Q2, a decrease of approximately 2% [8] - The average blended revenue per job in cementing decreased by approximately 3% [8] - The company has implemented a $30 million ATM program to provide financial flexibility [8] Q&A Session Summary Question: What service lines are being positively impacted by the refracs? - Management indicated that all service lines, including completion tools, cementing, wireline, and coiled tubing, are positively impacted by refracs, with significant growth anticipated in this market [14] Question: Why is there confidence in relatively flat revenues and profitability despite rig count declines? - Management noted strong performance in the refrac business and improvements in cementing, which are helping to close gaps in revenue [15] Question: Any early indications of CapEx for Q3? - Management has not provided specific guidance on the split between quarters but has guided for the year [16] Question: How do you see the international side for completion tools impacting Q3? - International sales are included in the guidance, but they are expected to be lumpy; management is optimistic about future work [18] Question: Has pricing stabilized for cementing, wireline, and coiled tubing? - Management confirmed that pricing has stabilized, although there may be incremental pressures depending on commodity prices [19] Question: What percentage of refrac jobs are in the Eagle Ford and Bakken? - The majority of refrac jobs are in the Eagle Ford and Bakken, where there is significant Tier 1 acreage [21] Question: How can the company ramp up quickly when activity increases? - Management emphasized the importance of maintaining flexibility and not cutting into the company's capabilities, ensuring readiness for market recovery [22][24]

Revenue Performance - Revenues decreased by $29.0 million, or 18%, to $132.4 million for Q2 2024 compared to Q2 2023, primarily due to volume and pricing decreases driven by a reduction in the U.S. rig count[89] - Cementing revenue decreased by $12.3 million, or 21%, due to pricing decreases and an 8% job count decrease compared to Q2 2023[90] - Coiled tubing revenue decreased by $7.3 million, or 22%, driven by pricing decreases and a 10% decrease in total days worked compared to Q2 2023[90] - Tools revenue decreased by $6.4 million, or 17%, attributed to a 14% decrease in completion tools stages compared to Q2 2023[91] - Revenues decreased by $50.3 million, or 15%, to $274.5 million for the first six months of 2024, primarily due to volume and pricing decreases across all service lines[101] - Revenues for the three months ended June 30, 2024, were $132,401 thousand, a decline of 18.0% from $161,428 thousand in the same period of 2023[123] Profitability and Loss - Adjusted gross profit decreased by $13.6 million, or 40%, to $20.4 million for Q2 2024 compared to Q2 2023[89] - Net loss for Q2 2024 was $14.0 million, compared to a net loss of $2.5 million in Q2 2023, representing an increase in loss of 453%[89] - Adjusted gross profit decreased by $23.8 million, or 34%, to $46.5 million for the first six months of 2024 compared to the same period in 2023[103] - Net loss increased by $13.5 million, or 156%, to $22.1 million for the first six months of 2024[111] - Adjusted EBITDA decreased by $22.0 million, or 47%, to $24.8 million for the first six months of 2024[111] - Adjusted EBITDA for the three months ended June 30, 2024, was $9,735 thousand, down from $21,714 thousand in the same period of 2023, representing a decrease of approximately 55.2%[115] - Adjusted gross profit for the three months ended June 30, 2024, was $20,353 thousand, down from $33,986 thousand in the same period of 2023, reflecting a decrease of approximately 40.4%[123] Cost Management - Cost of revenues decreased by $15.4 million, or 12%, to $112.0 million for Q2 2024, primarily due to reduced activity in certain service lines[92] - Cost of revenues decreased by $26.5 million, or 10%, to $228.1 million for the first six months of 2024[102] - General and administrative expenses decreased by $9.2 million, or 27%, to $24.7 million for the first six months of 2024[103] - Depreciation expense decreased by $1.5 million, or 10%, to $13.3 million for the first six months of 2024[105] - Amortization of intangibles decreased by $0.2 million, or 3%, to $5.6 million for the first six months of 2024[106] - Non-operating expenses increased by $0.1 million, or 1%, to $24.8 million for the first six months of 2024[109] Market Conditions - The U.S. land rig count declined by over 40 rigs in the first half of 2024, following a decline of over 150 rigs from the end of 2022 to the end of 2023[87] - Natural gas prices averaged $2.10 in the first half of 2024, which is 17% lower than average prices in 2023, contributing to decreased activity and lower rig counts[86] - The company anticipates that revenue, net income (loss), and adjusted EBITDA for Q3 2024 will be relatively flat compared to Q2 2024, with cautious optimism for medium and long-term recovery in the energy sector[87] Liquidity and Capital Expenditure - As of June 30, 2024, the company had a total liquidity position of $50.8 million, consisting of $26.0 million in cash and cash equivalents and $24.8 million available under the ABL Credit Facility[127] - The company has reduced its planned capital expenditure budget for 2024 to between $10.0 million and $15.0 million to preserve liquidity amid market declines[126] - The company anticipates semiannual interest payments of $19.5 million on the 2028 Notes, which began on August 1, 2023[127] - As of June 30, 2024, the company had $52.0 million in borrowings under the ABL Credit Facility, with approximately $24.8 million available after accounting for outstanding letters of credit[139] Debt and Compliance - The 2028 Notes bear an annual interest rate of 13.000% and will mature on February 1, 2028, with interest payable semi-annually[132] - The company was in compliance with all covenants contained in the 2028 Notes Indenture and the ABL Credit Agreement as of June 30, 2024[134][138] - The company did not make an Excess Cash Flow Offer on May 15, 2024, as the Excess Cash Flow Amount was $0[133] Cash Flow Activities - Net cash provided by operating activities was $4.1 million for the first six months of 2024, a decrease of $27.0 million compared to $31.1 million in the same period of 2023, primarily due to an increased net loss[142] - Net cash used in investing activities was $8.1 million in the first six months of 2024, a decrease from $11.1 million in the same period of 2023, attributed to reduced cash purchases of property and equipment[143] - Net cash used in financing activities was $0.7 million in the first six months of 2024, compared to $3.9 million in net cash provided in the same period of 2023, largely due to the absence of proceeds from the Units offering and ABL Credit Facility[144] Growth Strategy - The company continues to evaluate potential acquisitions as part of its growth strategy, although it does not budget for them[125] - The company entered into an equity distribution agreement allowing the sale of up to $30.0 million in common stock, generating net proceeds of $6.8 million from the sale of 4,199,074 shares during the three months ended June 30, 2024[129] - The company completed a public offering of 300,000 units with an aggregate stated amount of $300.0 million, receiving proceeds of $279.8 million after deductions, which were used to redeem $307.3 million of 8.750% Senior Notes due 2023[130]

Financial Performance - Revenue for Q2 2024 was $132.4 million, with a net loss of $(14.0) million and adjusted EBITDA of $9.7 million[1] - The company reported a net loss of $14,041,000 for the three months ended June 30, 2024, compared to a net loss of $8,055,000 for the previous quarter, indicating a deterioration in performance[13] - Adjusted EBITDA for the quarter was $9,735,000, down from $15,034,000 in the prior quarter, representing a decline of 35.5%[14] - Revenues for the quarter were $132,401,000, a decrease from $142,120,000 in the previous quarter, reflecting a decline of 6.0%[16] - Gross profit decreased to $11,418,000 from $17,055,000, a decline of 33.3%[16] Liquidity and Capital Structure - Total liquidity as of June 30, 2024, was $50.8 million, consisting of $26.0 million in cash and cash equivalents and $24.8 million available under the revolving credit facility[5] - Cash and cash equivalents rose significantly to $26,027,000 from $10,237,000, marking an increase of 154.5%[13] - Total current liabilities increased to $82,963,000 from $73,854,000, an increase of 12.8%[12] - The company’s total liabilities rose to $431,437,000, up from $423,724,000, indicating a growth of 1.7%[12] Operational Highlights - The US rig count has declined significantly, with over 40 rigs exiting the market since the end of 2023, impacting revenue and earnings[2] - Cementing revenue decreased slightly in Q2 due to the rig decline, but historically recovers quickly with market improvements[3] - Coiled tubing revenue declined due to reduced activity levels in the Permian and Haynesville basins[3] - The average natural gas price was below $2.15 for the first half of 2024, leading to lower activity levels across all basins[3] - The company surpassed 300 total refrac jobs run to-date, establishing itself as a top provider in the US refrac market[3] Capital Expenditures - Capital expenditures for Q2 2024 totaled $2.5 million, with updated full-year capex guidance reduced to $10 - $15 million[5] Shareholder Activity - The company sold approximately 4.2 million shares under its equity offering program, generating about $6.8 million in net proceeds[6] Financial Metrics - Adjusted ROIC for the quarter was -1.5%, compared to 6.0% in the previous quarter, showing a significant decline[15] - Adjusted EBITDA is defined as EBITDA further adjusted for various charges and expenses, providing insights into the company's financial condition and operational performance[17] - Adjusted gross profit (loss) excludes depreciation and amortization, offering a clearer view of core operating performance[18] - Adjusted return on invested capital (adjusted ROIC) quantifies operating income relative to invested capital, aiding in capital resource allocation decisions[19]

Financial Data and Key Metrics Changes - Revenue for Q1 2024 was $142.1 million, within the guidance range of $135 million to $145 million, with adjusted EBITDA of $15 million and an adjusted EBITDA margin of 11% [25][34] - The company reported a net cash used in operating activities of $8.8 million, with a cash balance of $10.2 million as of March 31, 2024 [10][14] - Diluted earnings per share was negative $0.24 [25] Business Line Data and Key Metrics Changes - Coiled tubing days worked increased by over 41%, driving revenue growth of approximately 11% quarter-over-quarter, despite a 21% decrease in average blended day rate [31][8] - Cementing jobs completed decreased by approximately 3%, with cementing revenue at $48.3 million, down approximately 8% [12] - Wireline stages completed increased by approximately 14%, with wireline revenue flat at $27.9 million [30] Market Data and Key Metrics Changes - The average US rig count remained flat quarter-over-quarter, reflecting stability in the markets [4] - The company anticipates activity slowdowns in natural gas-levered basins due to declining natural gas prices below $2 [32][33] - Approximately 34% of Nine's revenue was generated from the Northeastern Haynesville in 2023, with expectations of a temporary slowdown in gas-related activity [33] Company Strategy and Development Direction - The company remains focused on diversifying revenue streams, particularly in completion tools and international markets, while maintaining an asset-light business model [35] - The company is optimistic about the continued adoption of dissolvable technology and plugs in both the US and international markets [9] - The strategy includes flexibility in capital expenditures, with a guidance range of $15 million to $25 million, adaptable based on market conditions [14][65] Management's Comments on Operating Environment and Future Outlook - Management noted that while the oil markets are stable, there is potential for additional rigs in the Permian if commodity prices remain supportive [17] - The company expects adjusted EBITDA and margins to decrease from Q1 levels due to pricing pressures in the cementing business [18] - Management remains positive on the medium and long-term outlook for the gas market despite short-term challenges [33] Other Important Information - The company has not sold any shares under the ATM program and did not generate excess cash flow in the last two fiscal quarters [29] - The company completed 943 cementing jobs and 28,074 stages for completion tools during the quarter [12][13] Q&A Session All Questions and Answers Question: Are you seeing stability in the spot pricing? - Management indicated that public companies are maintaining flat programs this year, with potential for some oil customers in the Northeast to increase rig activity later in the year [22] Question: Has the recent consolidation in the E&P industry impacted your business? - Management noted that consolidation has not had a negative impact and may streamline processes, leading to potential consistency in operations [21] Question: How do you see the refrac market opportunity? - Management expressed optimism about the refrac market, highlighting that they are one of the few companies in the US offering this solution and expect growth in this niche market [71]

Q1 2024 DISCLAIMER In addition to reporting financial results in accordance with GAAP, the Company has presented Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, adjusted gross profit and return on invested capital (ROIC). These are not recognized measures under, or an alternative to, GAAP. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of ope ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q _________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38347 __________________________________________________________________ Nine Energy Service, ...

Financial Performance - First quarter 2024 revenues were $142.1 million, with a net loss of $(8.1) million or $(0.24) per diluted share [2]. - Net loss for the three months ended March 31, 2024, was $8,055 thousand, an improvement from a net loss of $10,305 thousand for the previous quarter [26]. - Revenues for the three months ended March 31, 2024, were $142,120 thousand, slightly down from $144,073 thousand in the previous quarter [31]. - EBITDA for the same period was $14,111 thousand, compared to $12,187 thousand in the prior quarter, reflecting a 15.8% increase [26]. - Adjusted EBITDA for Q1 2024 was $15.0 million, reflecting a stable performance despite a flat US rig count [5]. - Adjusted EBITDA increased to $15,034 thousand from $14,648 thousand, representing a growth of 2.6% quarter-over-quarter [26]. - Gross profit improved to $17,055 thousand, up from $16,217 thousand, indicating a 5.2% increase [31]. - Adjusted gross profit rose to $26,114 thousand from $25,559 thousand, marking a 2.2% increase [31]. Liquidity and Capital Structure - The company reported a liquidity position of $37.5 million as of March 31, 2024, with $10.2 million in cash and cash equivalents [9]. - Cash and cash equivalents decreased to $10,237 thousand from $30,840 thousand, reflecting a significant reduction in liquidity [24]. - Total debt as of March 31, 2024, was $353,805 thousand, a decrease from $359,859 thousand at the end of the previous quarter [29]. - Capital expenditures for Q1 2024 totaled $5.6 million, while net cash used in operating activities was $(8.8) million [8]. - Net cash used in operating activities was $8,837 thousand, a decline from $24,324 thousand in the prior quarter [24]. Market Outlook - The company expects Q2 revenue to decline compared to Q1 due to pricing pressures in the cementing business and slowdowns in natural gas markets [4]. - The company aims to diversify revenue streams towards completion tools and international markets to enhance resilience against market fluctuations [4]. Asset Management - As of March 31, 2024, total assets were $380.4 million, down from $401.9 million at the end of 2023 [22]. - The company reported a return on invested capital (ROIC) of (10.9)% and adjusted ROIC of 6.0% for Q1 2024 [6]. - Adjusted ROIC improved to 6.0% from 3.9%, indicating better efficiency in generating returns on invested capital [29]. Product Performance - The company sold over 60,000 Stinger Dissolvable Plug units since its introduction in Q1 2020 [5]. - Gross profit increased quarter over quarter, primarily due to an 11% increase in coil tubing revenue [4].

$10 $45 $53 $62 $10 $15 $32 $22 2016 2017 2018 2019 2020 2021 2022 2023 US COMPLETIONS MARKET SHARE 14% 15% 14% 17% 19% 16% 2018 2019 2020 2021 2022 2023 | --- | --- | --- | --- | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|------------------------------|---------|----------------------------------------|---------------------|---------|---- ...

Financial Data and Key Metrics Changes - Company revenue for the year was $609.5 million, with a net loss of $32.2 million or negative $0.97 per diluted share [8] - Adjusted EBITDA for the year was $73 million, with adjusted EBITDA for Q4 at $14.6 million, an increase of 26% over Q3 [8][49] - The average DSO for 2023 was 53 days, and the company reported net cash provided by operating activities of $45.5 million [12] Business Line Data and Key Metrics Changes - Cementing revenue for Q4 was $52.3 million, an increase of approximately 1% [25] - Completion tool revenue was $36.1 million, an increase of approximately 11% [52] - Coiled tubing revenue for Q4 was $27.7 million, a decrease of approximately 1% [26] Market Data and Key Metrics Changes - The rig count in the U.S. declined by approximately 20% from 779 at the end of 2022 to 622 at the end of 2023 [18] - International revenue increased by approximately 16% year-over-year, with a shift from 4% to 5% of total revenues coming from non-North America markets [21][34] Company Strategy and Development Direction - The company aims to be an asset and labor-light business that combines excellent service with forward-leaning technology to help customers lower completion costs [14] - The introduction of new tools, such as the Pincer hybrid frac plug, is expected to enhance market share and customer base, particularly in the Middle East and Argentina [21][22] - The company is formalizing sustainability efforts and quantifying greenhouse gas emissions to improve data collection and reduce emissions [22] Management's Comments on Operating Environment and Future Outlook - The management noted that the oil and gas market remained volatile in 2023, but they are confident in navigating market changes and capitalizing on improving conditions [18][14] - For Q1 2024, the company anticipates revenue to remain flat compared to Q4 2023, projecting between $135 million and $145 million [28] - The management expressed optimism about future activity levels, particularly in natural gas basins due to planned LNG projects [28] Other Important Information - The company reduced borrowings under the revolving credit facility by approximately $20 million since refinancing in January 2023 [10] - The total CapEx spend for 2023 was approximately $22.3 million, below the original guidance of $25 million to $35 million [53] Q&A Session Summary Question: What percentage of total revenues are now being generated from the non-North America market? - The percentage has increased from around 4% in 2022 to closer to 5% in 2023, with a focus on deliberate growth in international markets [34] Question: How is the international market performing geographically? - The primary regions for international sales are the Middle East and Argentina, with sales also occurring in countries like China [35] Question: What were the drivers behind strong incremental margins in Q4? - The strong margins were attributed to the absence of operational inefficiencies seen in August and a favorable sales mix with increased international sales [37] Question: What is the EBITDA level required for breakeven free cash flow? - Approximately $65 million of EBITDA is needed for free cash flow breakeven, excluding the impact of working capital [40] Question: What is the general sentiment of private operators regarding budget planning? - Private operators are cautious but may respond quickly to market changes, with potential for increased spending if conditions improve [44][46] Question: How quickly can the company respond to changes in market conditions? - The company has demonstrated the ability to flexibly respond to market changes within a quarter, leveraging a high variable cost structure [78]

Operational Performance and Metrics - Completed approximately 22,000 cementing jobs from January 2018 through December 2023 with an on-time rate of approximately 89%[29] - Deployed approximately 470,600 isolation, stage one, and casing flotation tools from January 2018 through December 2023[31] - Completed approximately 163,600 wireline stages from January 2018 through December 2023 with a success rate of approximately 99%[33] - Performed approximately 7,100 coiled tubing jobs and deployed more than 191 million running feet of coiled tubing from January 2018 through December 2023 with a success rate of over 99%[36] - Operates four high-quality laboratory facilities for cementing services, staffed 24/7 with qualified technicians and equipped with the latest modeling software[27] - Revenue increased by $16.1 million (3%) to $609.5 million in 2023, driven by increased activity and changes in product mix[218][219] - Wireline revenue increased by $9.6 million (9%) in 2023 due to a 4% increase in completed stages[219] - Completion tools revenue rose by $7.2 million (5%) in 2023 despite a 6% decrease in stages, driven by a significant international sale[219] - Coiled tubing revenue increased by $4.0 million (3%) in 2023 as total days worked rose by 3%[219] - Cementing revenue decreased by $4.7 million (2%) in 2023 due to an 11% drop in total jobs[220] Revenue and Financial Performance - Top five customers collectively accounted for approximately 21% of revenues for the year ended December 31, 2023[43] - Adjusted gross profit decreased by $17.5 million (13%) to $118.8 million in 2023 due to higher costs[218] - Net income declined by $46.6 million (324%) to a loss of $32.2 million in 2023[218] - Cost of revenues increased by $33.7 million (7%) to $490.8 million in 2023, primarily due to higher labor and material costs[221] - The company had $300.0 million of 13.000% Senior Secured Notes due 2028 and $57.0 million of borrowings under the ABL Credit Facility outstanding as of December 31, 2023[108] - Federal and state income tax NOLs of approximately $471.8 million as of December 31, 2023, set to expire between 2024 and 2034[184] - Ownership change under Section 382 may limit the utilization of NOLs, potentially affecting net income and cash flows[186] - The company has operated at a loss in the past and may continue to face profitability challenges[176] - The company does not plan to pay dividends on its common stock, limiting stockholder returns to stock price appreciation[173] - The company may issue additional shares, potentially diluting existing stockholders and affecting the stock price[174][175] Market and Industry Conditions - Operates in major U.S. onshore basins including Permian Basin, Marcellus and Utica Shales, Eagle Ford Shale, DJ Basin, SCOOP/STACK Formation, Bakken Formation, and Haynesville Formation, as well as the Western Canada Sedimentary Basin[37] - International completion tools contribute significantly to revenue, with a portion generated outside North America[38] - The company's business is highly dependent on oil and natural gas prices, with WTI prices ranging from $(36.98) per barrel in April 2020 to $123.64 per barrel in March 2022, and Henry Hub gas prices ranging from $1.33 per MMBtu in September 2020 to $23.86 per MMBtu in February 2021[93] - The average WTI price for 2023 was $77.58, a 36% increase over 2019, but the average rig count decreased by 27% over the same period[93] - Average WTI price declined by 18% and natural gas price dropped by 61% in 2023 compared to 2022[213] - U.S. rig count decreased by 157 rigs (20%) from the end of 2022 through 2023[213] - The company's business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry, which is highly volatile[91] - The company's products and services are deferrable in weak oil and natural gas commodity price environments, which could result in lower utilization and reduced rates[95] - The company faces risks from reduced discovery rates of new oil and natural gas reserves due to decreased capital spending, which could have a negative long-term impact on its business[96] - The company's business could be adversely affected by a decline in general economic conditions or a weakening of the broader energy industry[97] Technology and Innovation - Focuses on developing new technologies and equipment internally, as well as sourcing and commercializing new technologies through mergers, acquisitions, and strategic partnerships[51] - Utilizes proprietary composite and dissolvable frac plugs to reduce cycle times, equipment needs, and carbon emissions compared to traditional composite plug completions[31] - Developed a suite of proprietary downhole tools and technologies through internal resources, mergers, acquisitions, and strategic partnerships, providing exclusive marketing rights in designated regions[52] - Strategic partnerships allow access to unique downhole technology while minimizing risks and costs associated with internal R&D[52] - Company does not rely on any single patent, license, or partnership as critical to its overall business, emphasizing technological capabilities and customer service over intellectual property[53] Regulatory and Environmental Compliance - Subject to stringent U.S. and Canadian environmental and safety regulations, with potential penalties for non-compliance[60][61] - Operates a fleet of over 590 commercial motor vehicles, subject to U.S. DOT and state regulations, with potential fines for non-compliance[66] - EPA's new rule in December 2023 aims to reduce methane emissions from oil and gas sources, introducing stricter regulations and phasing out routine flaring[70] - The EPA requires states to develop plans to reduce methane emissions from existing sources, with a two-year deadline for submission and three years for compliance from the submission deadline[71] - The Inflation Reduction Act imposes a methane emissions charge starting at $900 per ton in 2024, increasing to $1,200 in 2025 and $1,500 in 2026[76] - The U.S. aims to reduce GHG emissions by 50-52% by 2030 compared to 2005 levels, as part of the Paris Agreement[74] - The EPA proposed expanding the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, with the rule expected to be finalized in spring 2024 and effective January 1, 2025[76] - The SEC proposed a rule in March 2022 requiring registrants to disclose Scope 1, Scope 2, and Scope 3 GHG emissions, among other climate-related information[78] - The EPA issued effluent limitation guidelines prohibiting the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants[82] - The U.S. Bureau of Land Management proposed new regulations to reduce natural gas waste during oil and gas production on federal and tribal lands, with a final rule expected by January 2024[80] - The Council on Environmental Quality proposed a Phase 2 rule in July 2023 to accelerate NEPA reviews while considering environmental, climate change, and environmental justice effects, with a final rule expected in April 2024[87] - The EPA's new Subpart OOOO regulations and other federal rules regulate methane emissions, which may be released during hydraulic fracturing[80] - The Inflation Reduction Act includes a Methane Emissions and Waste Reduction Incentive Program, requiring revisions to GHG reporting regulations for petroleum and natural gas systems by 2024[75] - Compliance with environmental regulations, including GHG emissions and climate change laws, could increase costs and reduce demand for oil and natural gas services[148] - Hydraulic fracturing regulations, if tightened, could increase operating costs and reduce demand for the company's services[147] - Increased regulatory and compliance costs due to proposed SEC climate-related disclosure rules, including financial impacts, physical and transition risks, and GHG emissions[150] - Potential operational burdens and decreased demand for products due to regulations on seismic safety for hydraulic fracturing activities[151] - Risks of non-compliance with anti-corruption laws (FCPA, UKBA, CFPOA) and economic sanctions, leading to potential penalties and reputational harm[152] - Potential adverse impacts from transportation regulations, including increased costs and operational disruptions due to DOT compliance and safety requirements[154] Risks and Liabilities - Operations are exposed to industry-specific hazards such as accidents, blowouts, and environmental spills, which could lead to lawsuits and significant liabilities[54][55] - Maintains insurance coverage for workers' compensation, liability, and property, but coverage may be inadequate or become more expensive in the future[57] - Operations are exposed to risks of personal injury, property damage, and environmental harm, which could lead to litigation and significant financial liabilities[136] - Insurance coverage may not fully protect against increasing operational risks, particularly as well complexity grows, potentially exposing the company to uninsured liabilities[137] - Delays or inability to obtain permits for drilling and completion activities could result in revenue loss and adversely affect operations[140] - Risks related to intellectual property disputes, including potential litigation costs and loss of competitive advantage[158] - Cybersecurity risks that could lead to loss of intellectual property, business interruptions, and increased costs[164] - The company faces risks from potential climate change-related regulations, policies, and initiatives, which could reduce demand for oil and natural gas and increase compliance costs[100][101] - Negative public perception of the oil and gas industry could adversely affect the company's operations and ability to raise debt and equity capital[102][104] - Inflationary factors, such as increases in labor and material costs, may adversely affect the company's financial position and operating results[98] - The company may face challenges in generating sufficient cash flow to service its debt, potentially leading to asset sales, capital raising, or debt restructuring[110] - Debt agreements contain restrictive covenants that limit the company's ability to finance operations, expand business activities, and take advantage of business opportunities[112][113] - A breach of debt covenants could result in default, acceleration of debt payments, and potential inability to meet financial obligations[114] - The company faces intense competition in the oilfield services industry, which may lead to pricing pressures, reduced sales, and market share erosion[118][119] - The company's ability to increase prices for its products and services is constrained by competitive market conditions and customer sensitivity to price changes[116][117] - The company's operations are subject to inherent risks in the oilfield services industry, including equipment defects, accidents, and environmental liabilities[123][124] - Seasonal and adverse weather conditions, including climate change effects, can negatively impact the company's operations and demand for its services[126] - Company faces risks from inaccurate customer demand forecasts, leading to potential excess or obsolete inventory, which could reduce gross margins, or insufficient inventory, resulting in lost revenue opportunities and market share[128] - Company's top five customers accounted for approximately 21% of total revenues in 2023, making it vulnerable to financial impacts if key customers delay payments or reduce business[132] - Certain product lines rely on a limited number of suppliers, and disruptions in supply chains could negatively affect pricing, quality, availability, or delivery[133] - Company holds exclusive distribution rights for certain products, but failure to meet minimum volume requirements could result in termination of these arrangements[134] - Oilfield anti-indemnity provisions in some states may restrict or void indemnification agreements, potentially impacting the company's financial condition[135] Corporate Governance and Ownership - As of December 31, 2023, the company had 1,157 full-time employees with no collective bargaining agreements[59] - Significant influence of major stockholders (SCF) owning 26% of common stock, potentially limiting other stockholders' influence on corporate decisions[165] - SCF's potential reduction in ownership could adversely affect the company's business strategies and cash flows[166] - Conflicts of interest may arise due to directors also being affiliates of SCF, potentially impacting the company's best interests[167] - SCF and its affiliates may compete with the company, leading to potential conflicts over business opportunities[168] - The company's charter renounces interest in business opportunities presented to SCF Group entities, which could adversely affect its business prospects[169] - The company's future success heavily depends on retaining key personnel, including CEO Ann G. Fox and COO David Crombie[171] - The company faces challenges in hiring and retaining skilled workers, which could impact its capacity and profitability[172] - 59 stockholders of record as of March 4, 2024[199] - No cash dividends anticipated in the foreseeable future[200] Cybersecurity and IT - Cybersecurity programs developed based on the National Institute of Standards and Technology Cybersecurity Framework[188] - No material cybersecurity threats identified as of the date of the Annual Report[189] - Board oversight of cybersecurity risk management assigned to the Audit Committee[190] - Security Committee (SC) meets quarterly to review and update cybersecurity policies[191] - Senior IT leadership responsible for day-to-day management of cybersecurity programs[192] International Operations - The company's international revenue, accounting for 4.7% of total revenue in 2023, is subject to various risks including political and economic instability[180] - The company generated approximately 0.3% of its revenue from operations in western Canada for both 2023 and 2022[126] Capital Expenditures and Investments - The company spent $12.6 million and $13.6 million on capital expenditures for equipment maintenance in 2023 and 2022, respectively[125]