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]

Company Overview - Nine's business model is asset, emissions, and labor-light, leading to greater cash generation[9] - Approximately 62% of the business is driven by technology-based segments, specifically completion tools and cementing[9] - The company is experiencing growth in its ESG technology offerings[9] Financial Performance - The annualized quarterly revenue run rate for Q3 2022 reached $670 million, representing a 43% increase[13] - Adjusted EBITDA for Q3 2022 was $130 million, a 165% increase[13] - Cementing revenue increased by approximately 16% quarter-over-quarter, driven by pricing increases of approximately 18%[65] Market Share and Activity - Cementing jobs completed saw a 199% increase from Q3 2020 to Q3 2022[23] - Coiled tubing days worked increased by 186% from Q3 2020 to Q3 2022[25] - Wireline stages completed increased by 85% from Q3 2020 to Q3 2022[25] Technology and Innovation - The total number of dissolvable stages run in the US is estimated to increase by over 295% in 2023 versus 2018[48] - Nine holds approximately 22% of the US dissolvable plug market share[49] - Dissolvable pumpdown rings have been shown to reduce horsepower requirements by approximately 48%, water usage by approximately 28%, and diesel fuel usage by approximately 42%[58]

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]

Financial Data and Key Metrics Changes - The company reported revenue of $116.9 million for Q1 2022, exceeding guidance of $108 million to $116 million, representing an 11% increase quarter-over-quarter [6] - Adjusted EBITDA was $12.2 million, reflecting a 168% increase quarter-over-quarter, with an adjusted EBITDA margin of 10% [6][13] - The net loss for the quarter was $6.9 million, with a basic earnings per share of negative $0.23 [13] Business Line Data and Key Metrics Changes - Cementing revenue increased by approximately 31% quarter-over-quarter to $45.2 million, with a 14% increase in completed jobs [16] - Wireline revenue decreased by approximately 2% to $21.4 million, despite a 7% increase in completed stages [17] - Coiled tubing revenue increased by approximately 11% to $21.6 million, driven by an 18% increase in average blended day rates [18] Market Data and Key Metrics Changes - U.S. completions increased approximately 3% and new wells drilled increased by approximately 15% [7] - The average frac crew count increased approximately 6% to 8% over Q4, equating to 14 to 16 additional frac crews [6] Company Strategy and Development Direction - The company aims to capture market share through superior technology and service, particularly in the dissolvable plug market, which is expected to grow significantly [10][26] - The company is optimistic about revenue growth across all service lines in Q2, projecting revenue of $130 million to $140 million [27] Management's Comments on Operating Environment and Future Outlook - Management noted challenges in labor and equipment availability, which may impact the ability to increase production [25] - The company expects continued price increases across service lines due to inflationary pressures [25][27] Other Important Information - The company had a liquidity position of $74.6 million as of March 31, 2022, with $19.9 million in cash and cash equivalents [15] - CapEx for Q1 2022 was $2.4 million, with guidance of $20 million to $30 million for the full year [20] Q&A Session Summary Question: Impact of dissolvable market share growth on financial results - Management indicated that increased market share in the dissolvable market would significantly impact revenue, with a high free cash flow conversion rate [30][31] Question: Revenue decline in wireline and completion tools - Management attributed the decline to weather delays and sand shortages but expressed optimism for Q2 [39][40] Question: Active units for cementing, wireline, and coiled tubing - Management noted tight labor markets affecting crew availability, impacting service line capacity [41] Question: CapEx for additional equipment amidst labor tightness - Management confirmed that equipment orders are expected to be delayed due to labor and equipment market challenges [42] Question: Normalized incremental margins for Q2 - Management indicated that incremental margins would be lower than the previous quarter's 65% but did not provide specific guidance [43][44]