PART I [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited H1 2023 financial statements show increased assets and revenues, positive operating cash flow, and a slight net loss increase [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets increased to $438.5 million, liabilities remained stable, and stockholders' deficit improved to $13.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $41,122 | $17,445 | | Total current assets | $207,960 | $196,725 | | Total assets | $438,475 | $426,834 | | **Liabilities & Equity** | | | | Total current liabilities | $83,812 | $81,003 | | Long-term debt | $332,555 | $338,031 | | Total liabilities | $451,887 | $450,341 | | Total stockholders' equity (deficit) | $(13,412) | $(23,507) | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) Q2 2023 revenues increased to $161.4 million, but higher interest expense led to a net loss of $2.5 million, with six-month revenues reaching $324.8 million Statement of Income Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $161,428 | $142,346 | $324,836 | $259,281 | | Income from operations | $9,311 | $6,418 | $16,193 | $7,500 | | Interest expense | $12,994 | $8,133 | $25,448 | $16,210 | | Net loss | $(2,537) | $(978) | $(8,646) | $(7,877) | | Loss per share (Basic & Diluted) | $(0.08) | $(0.03) | $(0.26) | $(0.26) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) H1 2023 saw net cash from operations turn positive at $31.1 million, with cash and equivalents increasing to $41.1 million by period-end Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $31,095 | $(6,889) | | Net cash used in investing activities | $(11,100) | $(1,627) | | Net cash provided by financing activities | $3,864 | $9,521 | | **Net increase in cash and cash equivalents** | **$23,677** | **$899** | | **Cash and cash equivalents end of period** | **$41,122** | **$22,408** | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue disaggregation by service line, and a significant debt restructuring, with the company operating as a single segment - The company operates as a single reportable segment named **Completion Solutions**[28](index=28&type=chunk) Disaggregated Revenues by Service Line (in thousands) | Service Line | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Cement | $58,120 | $55,230 | $120,582 | $100,468 | | Tools | $38,852 | $33,127 | $76,640 | $61,840 | | Coiled tubing | $33,493 | $27,661 | $67,021 | $49,242 | | Wireline | $30,963 | $26,328 | $60,593 | $47,731 | | **Total revenues** | **$161,428** | **$142,346** | **$324,836** | **$259,281** | - In January 2023, the company completed a public offering of **300,000 units**, consisting of **$300 million** in **13.000% Senior Secured Notes due 2028** and **1.5 million shares** of common stock. Proceeds were used to redeem the outstanding **8.750% Senior Notes due 2023**[41](index=41&type=chunk)[53](index=53&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2023 revenue growth driven by pricing and activity, challenges from cost inflation and pricing pressure, and a liquidity position of $60.1 million - Q2 2023 revenue increased **13% YoY** to **$161.4 million**, driven by pricing and activity increases across all service lines, particularly a **21% rise in coiled tubing revenue**[90](index=90&type=chunk)[91](index=91&type=chunk) - The company is experiencing **pricing pressure** from customers due to **declining commodity prices** and a **drop in U.S. rig count by over 100 rigs** from Q4 2022 to Q2 2023[86](index=86&type=chunk)[87](index=87&type=chunk) - As of June 30, 2023, the company had a **total liquidity position of $60.1 million**, consisting of **$41.1 million in cash** and **$19.0 million available under its ABL Credit Facility**[129](index=129&type=chunk) Non-GAAP Reconciliation: Adjusted EBITDA (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(2,537) | $(978) | $(8,646) | $(7,877) | | EBITDA | $19,802 | $16,887 | $37,162 | $28,573 | | **Adjusted EBITDA** | **$21,714** | **$18,914** | **$46,723** | **$31,137** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," the company is exempt from providing quantitative and qualitative disclosures about market risk - As a "**smaller reporting company**," the company is **exempt** from providing quantitative and qualitative disclosures about market risk[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were **effective as of June 30, 2023**[155](index=155&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that **materially affected**, or are reasonably likely to materially affect, these controls[156](index=156&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management expects no material adverse effect on its financial condition or operations - The company is subject to various legal proceedings in the ordinary course of business but does not expect them to have a **material adverse impact**[159](index=159&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, have occurred - **No material changes** to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, have occurred[160](index=160&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q2 2023, the company withheld 175 shares at $5.47 per share to cover tax obligations from restricted stock vesting, not part of a repurchase plan - In Q2 2023, the company withheld **175 shares** at an average price of **$5.47** to satisfy tax obligations related to the vesting of restricted stock[161](index=161&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[162](index=162&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[164](index=164&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) - Exhibits filed include **CEO and CFO certifications** (31.1, 31.2, 32.1, 32.2) and **Interactive Data Files** (101, 104)[167](index=167&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q1 2023 was $163.4 million, falling within the guidance of $160 million to $165 million [15] - Net loss for the quarter was $6.1 million, with adjusted EBITDA of $25 million, reflecting an adjusted EBITDA margin of 15% [17][82] - ROIC for the quarter was approximately 16.2% [17] - General and administrative expenses were reported at $19.7 million, with depreciation and amortization at $10.3 million [8] Business Line Data and Key Metrics Changes - Cementing revenue for Q1 was $62.5 million, a decrease of approximately 4% [18] - Wireline revenue was $29.6 million, a decrease of approximately 2% [18] - Completion Tool revenue increased by approximately 7% to $37.8 million, despite a decrease in stages completed by approximately 1% [6][85] - Coiled Tubing revenue decreased by approximately 7% to $33.5 million, with utilization at 64% [85] Market Data and Key Metrics Changes - The US rig count decreased by 24 rigs since the end of Q4 2022, with a nearly 10% decline in the Haynesville region [5] - EIA reported completions were down by approximately 3% quarter-over-quarter, and new wells drilled decreased by approximately 1% [16] - Average frac crew counts are estimated to be between 250 and 275 [16] Company Strategy and Development Direction - The company is focused on generating free cash flow and de-levering, with a CapEx guidance of $25 million to $35 million [10][12] - There is an emphasis on maintaining safety and service quality while adapting to market conditions [20] - The company is exploring environmentally friendly cement options, although cost competitiveness remains a concern [29][49] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the energy sector despite current pricing pressures and market softness [9][71] - The outlook for Q2 is projected to be slightly down compared to Q1, with revenue guidance between $158 million to $166 million [20][61] - Management noted that the current market environment feels more stable compared to previous sharp declines or increases [61] Other Important Information - As of March 31, 2023, the company had cash and cash equivalents of $21.4 million and total liquidity of $47.4 million [36] - The average DSO for Q1 was 54.2 days, with CapEx spend for Q1 at $5 million [37] Q&A Session Summary Question: CapEx guidance and outlook - Management indicated that CapEx will likely be at the lower end of the guidance range due to market conditions [12][23] Question: Revenue expectations and market conditions - Management expects slightly down revenue in Q2, with potential for international orders to impact the top line [20][27] Question: Pricing pressures and customer conversations - Conversations with customers indicate a methodical approach to pricing, with no urgency despite lower gas prices [33][61] Question: Capital allocation strategy for 2023 - The focus will be on generating cash flow and de-levering, with a flat working capital outlook [59][61]

[PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Nine Energy Service, Inc [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents the unaudited condensed consolidated financial statements for Nine Energy Service, Inc., including balance sheets, income statements, and cash flows for Q1 2023 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets to **$426,694 thousand**, while total liabilities decreased, improving the stockholders' deficit to **$(11,341) thousand** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $196,195 | $196,725 | | **Total assets** | $426,694 | $426,834 | | **Total current liabilities** | $72,970 | $81,003 | | **Total liabilities** | $438,035 | $450,341 | | **Total stockholders' equity (deficit)** | $(11,341) | $(23,507) | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) Revenues significantly increased to **$163,408 thousand**, improving income from operations to **$6,882 thousand** and narrowing the net loss to **$(6,109) thousand** Q1 2023 vs Q1 2022 Income Statement (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Total Revenues** | $163,408 | $116,935 | | **Income from operations** | $6,882 | $1,082 | | **Net loss** | $(6,109) | $(6,899) | | **Diluted loss per share** | $(0.19) | $(0.23) | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Stockholders' deficit improved from **$(23,507) thousand** to **$(11,341) thousand**, primarily due to the issuance of common stock from the 2028 Units offering - The issuance of 1,500,000 shares of common stock as part of the 2028 Units offering increased additional paid-in capital by **$17.9 million**[21](index=21&type=chunk) - The total stockholders' deficit improved from **$(23,507) thousand** at the end of 2022 to **$(11,341) thousand** at the end of Q1 2023[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to **$3,965 thousand**, with financing activities providing **$5,344 thousand**, leading to a **$3,929 thousand** increase in cash Q1 2023 vs Q1 2022 Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $3,965 | $(6,459) | | **Net cash provided by (used in) investing activities** | $(5,284) | $1,340 | | **Net cash provided by financing activities** | $5,344 | $3,567 | | **Net increase (decrease) in cash** | $3,929 | $(1,568) | | **Cash and cash equivalents end of period** | $21,374 | $19,941 | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed disclosures on accounting policies, revenue breakdown by service line, debt obligations, and commitments and contingencies Disaggregated Revenues by Service Line (in thousands) | Service Line | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Cement | $62,462 | $45,238 | | Tools | $37,788 | $28,713 | | Coiled tubing | $33,528 | $21,581 | | Wireline | $29,630 | $21,403 | | **Total revenues** | **$163,408** | **$116,935** | - In January 2023, the company completed a public offering of 300,000 Units, raising **$279.8 million** in net proceeds[43](index=43&type=chunk) - On February 1, 2023, the company used proceeds from the Units offering and borrowings under its ABL Credit Facility to redeem all of its outstanding 8.750% Senior Notes due 2023 for **$307.3 million** plus accrued interest[55](index=55&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial performance, including a **40%** revenue increase, industry trends, non-GAAP measures, and liquidity, notably a major debt refinancing [Overview](index=21&type=section&id=Overview) Nine Energy Service provides completion services for oil and gas development, completing a significant debt refinancing in Q1 2023 by issuing new 2028 Notes - The company is a leading completion services provider targeting unconventional oil and gas resource development[86](index=86&type=chunk) - On January 30, 2023, the company completed a public offering of 300,000 Units, consisting of 13.000% Senior Secured Notes due 2028 and common stock, raising **$279.8 million** in net proceeds[88](index=88&type=chunk) - On February 1, 2023, the company redeemed all outstanding 8.750% Senior Notes due 2023 for **$307.3 million** plus accrued interest[89](index=89&type=chunk) [Industry Trends and Outlook](index=23&type=section&id=Industry%20Trends%20and%20Outlook) Declining commodity prices led to a decrease in U.S. rig counts and completion activity in Q1 2023, though the long-term energy outlook remains optimistic - Due to declining commodity prices, U.S. rig counts experienced their first quarterly decline since 2020, and U.S. completions were down **3%** in Q1 2023 compared to Q4 2022[95](index=95&type=chunk) - The company is no longer implementing price increases and has received pricing pressure from select customers due to the decline in commodity prices and activity levels[97](index=97&type=chunk) - Despite near-term uncertainty, the long-term outlook for the energy sector remains optimistic, supported by OPEC production cuts and capital discipline from public U.S. producers[96](index=96&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q1 2023 revenues increased by **40%** to **$163,408 thousand**, driving adjusted gross profit to **$36,290 thousand** and income from operations to **$6,882 thousand** Q1 2023 vs Q1 2022 Results of Operations (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | **Revenues** | $163,408 | $116,935 | $46,473 | | **Adjusted gross profit** | $36,290 | $22,617 | $13,673 | | **Income from operations** | $6,882 | $1,082 | $5,800 | | **Net loss** | $(6,109) | $(6,899) | $790 | - The **40%** revenue increase was driven by a **20%** rise in the average U.S. rig count and pricing improvements[101](index=101&type=chunk) - All service lines saw growth: cementing (**+38%**), coiled tubing (**+55%**), tools (**+32%**), and wireline (**+38%**)[101](index=101&type=chunk) - General and administrative expenses increased by **$7.9 million**, primarily due to **$6.4 million** in costs associated with the Units offering in Q1 2023[103](index=103&type=chunk) [Non-GAAP Financial Measures](index=25&type=section&id=Non-GAAP%20Financial%20Measures) Provides definitions and reconciliations for non-GAAP metrics, with Adjusted EBITDA increasing to **$25,009 thousand** and ROIC improving to **16.2%** in Q1 2023 Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net loss** | $(6,109) | $(6,899) | | **EBITDA** | $17,360 | $11,686 | | **Adjustments** | $7,649 | $537 | | **Adjusted EBITDA** | **$25,009** | **$12,223** | - Return on Invested Capital (ROIC) for Q1 2023 was **16.2%**, a significant improvement from **2.1%** in Q1 2022[119](index=119&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Total liquidity was **$47,400 thousand** as of March 31, 2023, supported by cash, operating cash flow, and an amended ABL Credit Facility maturing in 2027 - As of March 31, 2023, the company had a total liquidity position of **$47.4 million**, consisting of **$21.4 million** in cash and **$26.0 million** of availability under the ABL Credit Facility[127](index=127&type=chunk) - The ABL Credit Facility was amended in January 2023, extending the maturity to January 2027 and decreasing its size from **$200.0 million** to **$150.0 million**[139](index=139&type=chunk) - Net cash provided by operating activities was **$4.0 million** in Q1 2023, compared to **$6.5 million** used in Q1 2022, primarily due to improved working capital management[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is not required to provide market risk disclosures as it qualifies as a "smaller reporting company" - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a "smaller reporting company"[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[152](index=152&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[153](index=153&type=chunk) [PART II - OTHER INFORMATION](index=35&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, with management expecting no material adverse effect on its financial condition - The company is subject to various legal proceedings in the ordinary course of business but does not expect the outcomes to have a material adverse effect on its financial condition[156](index=156&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, were reported - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, were reported[157](index=157&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None[158](index=158&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[161](index=161&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, and certifications - Exhibits filed include the Unit Agreement and Indenture for the 2028 Notes, the First Amendment to the Credit Agreement, and Sarbanes-Oxley Act certifications[164](index=164&type=chunk)

Financial Data and Key Metrics Changes - In 2022, the company achieved a revenue increase of 70% year-over-year, with adjusted EBITDA rising over 17 times and adjusted EBITDA margin increasing from 1% to 16% [24] - For Q4 2022, revenue was $166.7 million, with adjusted EBITDA of $30 million, reflecting an adjusted EBITDA margin of 18% [12][31] - The company reported net income of $14.4 million for the full year 2022, or $0.45 per diluted share [31] Business Line Data and Key Metrics Changes - Completion tools saw a 38% year-over-year increase in the total number of stages completed, outperforming the U.S. EIA completions growth of 22% [7] - Cementing services increased jobs completed by approximately 50% year-over-year, with an average price per job up by 34% [8] - Wireline services completed 26% more stages year-over-year, with an average price per stage increasing by 18% [9] - Coiled tubing days worked increased by approximately 37% year-over-year, with average day rates rising by 40% [28] Market Data and Key Metrics Changes - The company grew its market share in wireline and completion tools from approximately 18% in 2021 to 20% in 2022, and in cementing from 17% to 19% [26] - The company estimates holding approximately 20% of the total U.S. plug market, including both composite and dissolvable plugs [27] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and plans to continue deleveraging using free cash flow to repay debt [20][34] - Investment in technologies that drive profitability while reducing emissions is a priority, including the conversion of hydraulic wireline units to electric [30] - The company aims to capitalize on sustained cycles in the oilfield services space, leveraging service line diversity and geographic diversity [52] Management's Comments on Operating Environment and Future Outlook - Management noted that the labor market remains constrained, which continues to be a significant challenge for the oilfield services sector [38] - For Q1 2023, the company anticipates a slight decline in revenue compared to Q4 2022, projecting revenue of $160 million to $165 million [40] - The company expressed confidence in its ability to navigate market fluctuations and maintain a solid earnings profile despite recent challenges in natural gas prices [43][51] Other Important Information - The company reported a total liquidity position of $84 million as of December 31, 2022, with $17.4 million in cash and cash equivalents [15] - The effective tax rate for 2022 was 3.7%, primarily due to the company's tax position in state and foreign jurisdictions [17] Q&A Session Summary Question: What is the guidance for incremental margins for Q1? - Management indicated that while there will be some degradation to the margin, it is expected to remain strong, above 2019 profitability levels [57] Question: Are there any immediate concerns regarding supply chain headwinds? - Management noted ongoing challenges in the supply chain, particularly with heavy equipment, and highlighted labor constraints as a significant concern for the oilfield service sector [60][62] Question: What factors contributed to the substantial market share gains last year? - The company attributed market share gains to improved service execution, technical capabilities, and a focus on selective customer engagement [74][76] Question: How does the competitive landscape change with the current gas market conditions? - Management expressed confidence that significant price reductions in the sector are unlikely, given the previous negative net income in 2021 and the current market dynamics [72] Question: What is the company's strategy regarding emission-friendly cement? - The company is developing its own green-friendly cement and is aware of the challenges in maintaining wellbore integrity with new materials [86]

Operational Performance - Nine Energy Service completed approximately 18,100 cementing jobs from January 2018 to December 2022, achieving an on-time rate of approximately 90%[29] - The company deployed approximately 377,100 isolation, stage one, and casing flotation tools during the same period, enhancing completion efficiencies[31] - From January 2018 to December 2022, Nine Energy Service performed approximately 5,890 coiled tubing jobs, deploying over 160 million running feet of coiled tubing with a success rate exceeding 99%[36] - Nine Energy Service's wireline services achieved a success rate of approximately 99% with around 140,700 wireline stages completed from January 2018 to December 2022[33] - The company emphasizes a service-driven culture, which is a key contributor to its operational efficiency and customer satisfaction[29] - The company focuses on providing cost-effective completion solutions to maximize production levels and operating efficiencies for E&P customers across major onshore basins in the U.S. and Canada[206] Customer and Revenue Concentration - The top five customers accounted for approximately 21% of Nine Energy Service's revenues for the year ended December 31, 2022[43] - The five largest customers accounted for approximately 21% of total revenues for the year ended December 31, 2022[134] - The company generated approximately 0.3% and 0.6% of its revenue from operations in western Canada for the years ended December 31, 2022 and 2021, respectively[129] Financial Performance - In 2022, the company reported revenues of $593,382,000, a 70% increase from $349,419,000 in 2021[221] - Adjusted gross profit for 2022 was $136,289,000, up from $41,427,000 in 2021, reflecting a significant increase of 229%[221] - The company experienced a net income of $14,393,000 in 2022, a turnaround from a net loss of $64,575,000 in 2021, representing an improvement of $78,968,000[221] Regulatory and Environmental Compliance - The company is subject to stringent environmental regulations, including the Clean Water Act, which imposes strict controls on pollutant discharges into waters[68] - The company faces potential liabilities under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for hazardous substance releases[64] - The company is actively monitoring regulatory changes related to methane emissions, with new rules expected to be finalized by August 2023[71] - The U.S. aims to reduce GHG emissions by 50-52% by 2030 compared to 2005 levels, with a commitment to the Paris Agreement[75] - The Global Methane Pledge targets a 30% reduction in global methane emissions from 2020 levels by 2030, with over 150 countries participating[75] - The SEC proposed a rule for mandatory climate-related disclosures, which may increase compliance costs and operational challenges for the company[79] - The U.S. Bureau of Land Management proposed regulations to minimize natural gas waste during oil and gas production, requiring waste minimization plans[81] - The company’s operations may be affected by potential new federal regulations on hydraulic fracturing, which could impose additional costs and operational restrictions[82] - Increased regulatory oversight of hydraulic fracturing at state and local levels could lead to higher operational costs and reduced demand for services[85] - The National Environmental Policy Act may delay oil and natural gas project approvals due to required environmental impact evaluations[87] - Future designations of critical habitats under the Endangered Species Act could restrict land use and adversely affect demand for services[88] Market Conditions and Economic Factors - The average price of West Texas Intermediate (WTI) oil for 2022 was $94.90, a 39% increase from 2021, and $55.74 higher than 2020[93] - The posted price for WTI oil ranged from a low of $(36.98) per barrel in April 2020 to a high of $123.64 per barrel in March 2022[93] - The Henry Hub spot market price of gas fluctuated between a low of $1.33 per MMBtu in September 2020 and a high of $23.86 per MMBtu in February 2021[93] - Average rig count increased by 51% from 2021 to 2022 and was 67% higher in 2022 than in 2020[93] - The company anticipates an increase in U.S. E&P capital expenditure levels in 2023, although at a slower rate than in 2022[217] - The average WTI price for 2022 was $94.90, although prices began to decline in Q3 2022 due to economic factors[216] - The U.S. average drilled but uncompleted wells inventory in 2022 was down over 40% from 2019 levels, indicating a need for increased drilling to maintain production[217] Risks and Challenges - The company faces cyclical business risks tied to capital spending in the oil and natural gas industry, which is influenced by external market conditions[90] - The company faces inflationary pressures, including increases in labor and material costs, which could offset price increases for products and services[98] - A decline in oil and natural gas commodity prices may adversely affect demand for the company's products and services[93] - The company may experience lower utilization of equipment and services in weak oil and natural gas price environments[95] - Increased scrutiny of sustainability matters could damage the company's reputation and adversely affect its business[105] - Negative public perception of the oil and gas industry may hinder the company's ability to raise debt and equity capital[102] - The company may face restrictions in its debt agreements that could limit its ability to finance future operations or capital needs[112] - The company is exposed to credit risk from customers, particularly in the volatile oil and natural gas E&P industry, which could adversely affect its financial results[132] - Certain product lines are at risk due to supplier concentration, which could negatively impact operations if key suppliers face disruptions[135] - The company faces potential cyber security risks that could adversely affect its financial condition and results of operations[165] Corporate Governance and Structure - SCF VII, L.P. and SCF-VII(A), L.P. owned approximately 27% of the company's outstanding common stock as of December 31, 2022[166] - Another stockholder beneficially owned approximately 10% of the outstanding common stock as of December 31, 2022, leading to a concentration of ownership that may limit other stockholders' influence[167] - The company’s charter and bylaws contain provisions that could deter takeover attempts, potentially affecting stockholder value[182] - The company may face increased legal and financial compliance costs once it no longer qualifies as an emerging growth company[189] Employee and Operational Risks - As of December 31, 2022, the company employed 1,212 full-time employees, with no collective bargaining agreements in place[59] - The company may face challenges in attracting and retaining skilled employees due to competition and market conditions, which could impair growth potential[173] - The company relies heavily on key personnel, particularly the President and CEO, Ann G. Fox, and COO, David Crombie, whose loss could materially affect business operations[172] - Wage and hour-related litigation has increased, with the company named as a defendant, potentially impacting financial condition and operating results[141] Future Outlook and Strategic Initiatives - The company implemented price increases across many service lines in 2022 due to labor shortages and supply chain constraints[218] - The company expects potential price increases in 2023 to be offset by labor and material cost inflation, which may impact customer activity levels[218] - The company does not intend to pay dividends on its common stock in the foreseeable future, limiting stockholder returns to stock price appreciation[175] - The company completed a public offering of 300,000 units with an aggregate stated amount of $300.0 million on January 30, 2023, receiving proceeds of $279.8 million after deductions[210] - On February 1, 2023, the company redeemed all outstanding 2023 Notes at a redemption price of $307.3 million, plus accrued interest of $6.7 million[211]

Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $167.4 million, exceeding guidance of $145 million to $155 million, representing an 18% increase quarter-over-quarter [7] - Adjusted EBITDA was $32.6 million, reflecting a 72% increase quarter-over-quarter, with an adjusted EBITDA margin of 19% [7] - Free cash flow generated was $26.8 million before changes in net working capital and $9.2 million after changes [8] - Net income for the quarter was $14.3 million, with basic EPS of $0.46 and ROIC of approximately 29% [18] Business Line Data and Key Metrics Changes - Cementing revenue was $63.9 million, a 16% increase, with 1,130 jobs completed, down 2% from the previous quarter [22] - Wireline revenue was $29.3 million, an 11% increase, with 5,701 stages completed, up 5% [23] - Completion tools revenue was $40.8 million, a 22% increase, with 34,214 stages completed, up 17% [23] - Coiled tubing revenue was $33.4 million, a 21% increase, with days worked up 10% and utilization at 54% [24] Market Data and Key Metrics Changes - Average frac crew count increased by approximately 7% to between 270 and 275 [11] - EIA reported completions were flat quarter-over-quarter, while new wells drilled increased by approximately 6% [11] - Cementing pricing has increased by approximately 58% since Q4 2020, driven by undersupply of equipment and labor [12] Company Strategy and Development Direction - The company is focusing on expanding its market share in completion tools and cementing, with a strong emphasis on R&D and innovation [12][35] - Plans to electrify wireline units are driven by customer demand for ESG compliance [49] - The company aims to maintain strong free cash flow generation while reducing capital allocation risk in a cyclical business [35] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the outlook for 2023, citing North American shale production as critical for global supply [33] - The company expects pricing to remain steady into Q4 with potential increases in early 2023 as budgets reset [37] - Management anticipates Q4 revenue to be relatively flat compared to Q3, with projected revenue between $160 million to $170 million [37] Other Important Information - The company repurchased $13 million par value of bonds for $10.1 million, reducing total bonds outstanding to $307 million [8][21] - CapEx for Q3 2022 was $4.6 million, with full-year guidance unchanged at $20 million to $30 million [26] Q&A Session Summary Question: Can you frame the valve opportunity with the NOC in the Middle East? - Management indicated that this is a significant opportunity for Nine, reflecting their ability to design tools not offered by larger service providers internationally [42][44] Question: Do you agree with the expected 5% to 10% price increase for next year? - Management believes that the anticipated inflation is underestimated and expects higher price increases due to ongoing labor challenges [45][46] Question: How many electric wireline units will be operational by the end of 2023? - Management confirmed that there will be six fully electrified units by the end of 2023, with a seventh unit having options for electrification [50] Question: What is the cementing revenue number of stages? - Cementing revenue was confirmed at $63.9 million with 1,130 jobs completed [55][56] Question: When will the $10 million orders from the Middle East convert to revenues? - Management stated that these orders will convert over the course of the next year [58] Question: Are you negotiating with E&Ps for next year’s pricing? - Management has started conversations and is seeing traction on pricing above the stated 8% to 10% [63] Question: Do you expect EBITDA margins to remain flat in Q4? - Management did not provide specific guidance on EBITDA margins, indicating it will be mix-dependent [65] Question: What is the growth outlook for dissolvable plugs? - Management noted a broad customer base and increasing international sales, indicating strong momentum in the dissolvable plug market [87][89]

Q3 2022 IR PRESENTATION O Nine DISCLAIMER Forward-Looking Statements & Non-GAAP Financial Measures Certain statements in this presentation are forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this presentation, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management ar ...

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $142.3 million, exceeding guidance of $130 million to $140 million, reflecting a 22% increase quarter-over-quarter [6][7] - Adjusted EBITDA was $18.9 million, a 55% increase quarter-over-quarter, with an adjusted EBITDA margin of 13% [6][15] - Net loss for the quarter was $1 million, with basic earnings per share at negative $0.03 [15] Business Line Data and Key Metrics Changes - Cementing service line revenue increased by approximately 22% quarter-over-quarter, totaling $55.2 million [10][19] - Completion tools revenue rose by approximately 15% quarter-over-quarter, driven by a 33% increase in Stinger dissolvable plugs sold [13][19] - Wireline revenue increased by approximately 23%, totaling $26.3 million, primarily due to market share gains and price increases [13][19] - Coiled tubing revenue increased by approximately 28%, driven by increased utilization and price increases [14][20] Market Data and Key Metrics Changes - Average frac crew count in Q2 was approximately 250, an 8% increase quarter-over-quarter [7] - EIA reported completions increased by approximately 3% and new wells drilled increased by approximately 15% [7] - Labor and supply chain bottlenecks remain significant issues, with an unemployment rate around 3.6% [10] Company Strategy and Development Direction - The company is optimistic about the outlook for the second half of 2022 and into 2023, focusing on price increases and market share growth [25][29] - The company anticipates continued price increases due to labor shortages and supply chain constraints [9][27] - The strategic focus on dissolvable technology is expected to drive growth, with a projected increase in revenue across all service lines in Q3 [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about potential recessionary pressures but believes North American shale production will remain vital for global supply [25][26] - The company expects Q3 revenue to be between $145 million to $155 million, with improved adjusted EBITDA and cash flow [29] - Management noted that supply chain disruptions could impact the availability of cement, which may lead to challenges in meeting customer demand [33][35] Other Important Information - As of June 30, 2022, the company had cash and cash equivalents of $22.4 million and total liquidity of $74.5 million [17] - The company reported general and administrative expenses of $12.5 million and depreciation and amortization expenses of $10.3 million for Q2 [21] Q&A Session Summary Question: Concerns about cement supply with increased rig count - Management acknowledged concerns about cement supply tightening and indicated that they are working through customer allocations based on efficiency and history [33][34] Question: Insights on dissolvable technology market growth - Management noted that gains in dissolvable technology sales are coming from both new customers and existing customers increasing their purchases [36][38] Question: Expectations for incremental gross profit margins in Q3 - Management expects much stronger incremental margins in Q3 due to price increases [42][44] Question: Free cash flow generation in Q3 - Management indicated that generating positive free cash flow in Q3 is a fair assumption [45] Question: Client activity levels in Haynesville and Permian - Management noted mixed signals regarding activity levels but indicated that operators may be more proactive due to supply chain constraints [47][48] Question: Expectations for SG&A expenses in Q3 and Q4 - Management expects SG&A expenses to remain similar going forward [49]

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 June 30, 2022 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, ...

Company Overview - Nine is a leading completion services provider targeting unconventional resource development across North American basins and abroad[9] - The company operates with an asset-light business model focused on completions[9] Financial Performance - Nine's revenue has grown from $282 million in 2016 to $833 million in 2019, then decreased to $311 million in 2020, and increased to $349 million in 2021[12] - Adjusted EBITDA margin was 17% in 2018, decreased to -8% in 2020, and increased to 1% in 2021[13,79] - The company has repurchased $79.7 million of bonds for $22.9 million of cash, representing 29% of par value, leaving $320.3 million par value of bonds outstanding[72] Operational Efficiency - Capex as a percentage of revenue has decreased from an average of 7% between 2017-2019 to 4% between 2020-Q2 2022[23,26] - Employees have been reduced by 51% from 1,835 to 905, while stages/employee/month have increased by 46% from 11.2 to 16.3[27] Market Position and Strategy - The company has demonstrated market share gains, with US Wireline & Completion Tools increasing from 6% in 2014 to 21% in 2021[30] - Nine is focused on technology and service differentiation, aiming for higher margins and mitigation of financial risk[38] - The US Dissolvable Plug market is projected to increase to over 35% by YE 2023[62]