Financial Data and Key Metrics Changes - Revenue for Q3 2023 totaled $140.6 million, within the guidance range of $140 million to $150 million, with adjusted EBITDA of $11.6 million and an adjusted EBITDA margin of 8% [20][10] - The company reported a net cash used in operating activities of $9.9 million, with cash and cash equivalents at $12.2 million as of September 30, 2023 [12][25] - Diluted EPS was negative $0.39, reflecting the impact of declining activity levels and pricing pressure [20] Business Line Data and Key Metrics Changes - Completion tool revenue decreased by approximately 16% to $32.6 million, with a 6% decrease in completed stages [11] - Cementing revenue was $51.9 million, down approximately 11%, with a 13% decrease in completed jobs [27] - Coil tubing revenue decreased by approximately 17% to $27.9 million, with utilization at 47% [11] Market Data and Key Metrics Changes - The EIA reported a 10% decline in U.S. completions in Q3 compared to Q2, with significant declines in the Haynesville region [5] - The rig count has declined by over 150 rigs or approximately 20% since the end of 2022, impacting all service lines [20] Company Strategy and Development Direction - The company is focused on diversifying revenue streams towards completion tools and international markets, with the introduction of the new Pincer hybrid frac plug expected to enhance market share [14][6] - The strategy remains centered on providing an asset-light business model with innovative technology and excellent service [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the business will return to trend in Q4, with expectations for improved activity levels driven by private operators if commodity prices remain supportive [4][13] - The sentiment in the market has shifted positively, with increased bids for work noted in October [13][43] Other Important Information - The company anticipates Q4 revenue to be slightly higher than Q3, projecting between $137 million and $147 million [30] - An inventory reserve of approximately $1.2 million in the completion tools business negatively impacted adjusted EBITDA [26] Q&A Session Summary Question: Was there any one-off event affecting product revenues during the quarter? - Management clarified that the decline in international sales was due to a return to normalized levels after a large one-off order in Q2 [16] Question: How is the sentiment in the market regarding private operators? - Management noted a positive shift in sentiment with increased customer activity and calls, indicating a potential for improved market conditions [42][43] Question: What are the expectations for gross margin in the services segment for the December quarter? - Management indicated that while specific guidance was not provided, they expect overall adjusted EBITDA and margins to improve compared to Q3 [45]

[PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements, showing a net loss of $13.3 million in Q3 2023, a reversal from prior year's net income, with total assets decreasing to $386.8 million and stockholders' deficit widening to $26.1 million [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2023, shows total assets of $386.8 million, a decrease from $426.8 million at December 31, 2022, with total liabilities decreasing to $413.0 million and stockholders' deficit increasing to $26.1 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $162.5 | $196.7 | | **Total assets** | $386.8 | $426.8 | | **Total current liabilities** | $58.1 | $81.0 | | **Long-term debt** | $319.0 | $338.0 | | **Total liabilities** | $413.0 | $450.3 | | **Total stockholders' equity (deficit)** | $(26.1) | $(23.5) | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%28Loss%29) For Q3 2023, total revenues decreased to $140.6 million, resulting in a $0.8 million loss from operations and a net loss of $13.3 million, a significant reversal from Q3 2022's net income Income Statement Summary (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $140.6 | $167.4 | $465.5 | $426.7 | | **Income (loss) from operations** | $(0.8) | $19.8 | $15.4 | $27.3 | | **Net income (loss)** | $(13.3) | $14.3 | $(21.9) | $6.4 | | **Diluted EPS** | $(0.39) | $0.45 | $(0.66) | $0.20 | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Deficit%29) The stockholders' deficit increased from $(23.5) million at year-end 2022 to $(26.1) million by Q3 2023, primarily due to a net loss partially offset by common stock issuance - The total stockholders' deficit increased from **$(23.5) million** at December 31, 2022, to **$(26.1) million** at September 30, 2023[21](index=21&type=chunk) - The main drivers for the change in equity were a net loss of **$21.9 million** and the issuance of **1.5 million** shares of common stock as part of the 2028 Units offering, which added **$18.0 million** to equity[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash from operating activities increased to $21.2 million, while net cash used in investing and financing activities rose to $14.7 million and $11.6 million respectively, leading to a $5.3 million decrease in cash Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $21.2 | $8.2 | | **Net cash used in investing activities** | $(14.7) | $(6.2) | | **Net cash used in financing activities** | $(11.6) | $(1.8) | | **Net decrease in cash and cash equivalents** | $(5.3) | $(0.0) | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on revenue disaggregation by service line, significant debt refinancing completed in January 2023, and other financial details including contingent liabilities Disaggregated Revenues (in millions) | Service Line | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Cement | $51.9 | $63.9 | $172.4 | $164.4 | | Tools | $32.6 | $40.8 | $109.2 | $102.6 | | Coiled tubing | $27.9 | $33.4 | $94.9 | $82.7 | | Wireline | $28.3 | $29.3 | $88.9 | $77.0 | | **Total** | **$140.6** | **$167.4** | **$465.5** | **$426.7** | - On January 30, 2023, the company completed a public offering of **300,000 Units**, consisting of **$300 million** principal of **13.000%** Senior Secured Notes due 2028 and **1.5 million** shares of common stock, with proceeds used to redeem the **8.750%** Senior Notes due 2023[39](index=39&type=chunk)[51](index=51&type=chunk) - The contingent liability for the Frac Tech Earnout increased to **$1.33 million** as of September 30, 2023, from **$1.17 million** at the end of 2022, due to revaluation adjustments[72](index=72&type=chunk)[73](index=73&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 the company's operational results, financial condition, and liquidity, highlighting a 16% Q3 2023 revenue decline to $140.6 million, a drop in Adjusted EBITDA to $11.6 million, and successful debt refinancing [Industry Trends and Outlook](index=22&type=section&id=Industry%20Trends%20and%20Outlook) The company's business is significantly impacted by volatile commodity prices and reduced U.S. rig counts, leading to pricing pressure, though management anticipates a potential recovery in early 2024 - Commodity prices have been volatile in 2023, generally lower than in 2022, causing the Baker Hughes rig count to fall by over **150 rigs** from the end of Q4 2022 to the end of Q3 2023[86](index=86&type=chunk) - The decline in commodity prices and activity has led to pricing pressure from customers, impacting both revenue and margins[87](index=87&type=chunk) - Management is cautiously optimistic about a stabilizing rig count and potential recovery in early 2024, but acknowledges market volatility and global uncertainties like OPEC actions and geopolitical conflicts[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) In Q3 2023, revenues decreased 16% year-over-year to $140.6 million, leading to a 48% drop in adjusted gross profit to $22.9 million, while nine-month revenues increased 9% to $465.5 million but adjusted gross profit declined 3% Q3 2023 vs Q3 2022 Results (in millions) | Metric | Q3 2023 | Q3 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $140.6 | $167.4 | $(26.8) | (16)% | | **Adjusted gross profit** | $22.9 | $44.0 | $(21.1) | (48)% | | **Income (loss) from operations** | $(0.8) | $19.8 | $(20.6) | (104)% | | **Net income (loss)** | $(13.3) | $14.3 | $(27.5) | (193)% | - The Q3 revenue decrease was driven by a **19%** drop in cementing revenue, a **20%** drop in tools revenue, a **17%** drop in coiled tubing revenue, and a **3%** drop in wireline revenue, all primarily due to reduced activity[91](index=91&type=chunk) Nine Months 2023 vs 2022 Results (in millions) | Metric | 9M 2023 | 9M 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $465.5 | $426.7 | $38.7 | 9% | | **Adjusted gross profit** | $93.2 | $96.2 | $(3.0) | (3)% | | **Income from operations** | $15.4 | $27.3 | $(11.9) | (44)% | | **Net income (loss)** | $(21.9) | $6.4 | $(28.3) | (442)% | [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP to non-GAAP measures, showing Adjusted EBITDA for Q3 2023 at $11.6 million, a significant decrease from $32.6 million in Q3 2022, and ROIC at (0.7)% Adjusted EBITDA Reconciliation (in millions) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net income (loss)** | $(13.3) | $14.3 | $(21.9) | $6.4 | | **EBITDA** | $9.5 | $32.3 | $46.7 | $60.8 | | **Adjusted EBITDA** | $11.6 | $32.6 | $58.3 | $63.7 | Return on Invested Capital (ROIC) | Period | 2023 | 2022 | | :--- | :--- | :--- | | **Three Months Ended Sep 30** | (0.7)% | 28.8% | | **Nine Months Ended Sep 30** | 9.9% | 14.1% | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2023, total liquidity was $34.9 million, following a major debt refinancing in January 2023 that included issuing $300 million in new notes and amending the ABL Credit Facility - At September 30, 2023, total liquidity was **$34.9 million**, consisting of **$12.2 million** in cash and **$22.7 million** of availability under the ABL Credit Facility[129](index=129&type=chunk) - In January 2023, the company issued **$300 million** of **13.000%** Senior Secured Notes due 2028 and used proceeds to redeem all outstanding **8.750%** Senior Notes due 2023[130](index=130&type=chunk)[137](index=137&type=chunk) - The ABL Credit Facility was amended to extend the maturity to January **2027**, decrease its size from **$200 million** to **$150 million**, and revise interest rates and covenants[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&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 not required to provide quantitative and qualitative disclosures about market risk[152](index=152&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[154](index=154&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[155](index=155&type=chunk) [PART II – OTHER INFORMATION](index=37&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and lawsuits in the ordinary course of business, but management does not expect a material adverse effect on its financial condition - The company is involved in various claims and legal proceedings from time to time but does not expect the outcomes to have a material adverse effect on its financial condition[158](index=158&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[159](index=159&type=chunk) [Other Items (Items 2, 3, 4, 5)](index=37&type=section&id=Other%20Items%20%28Items%202%2C%203%2C%204%2C%205%29) This section confirms no unregistered sales of equity securities, no defaults upon senior securities, no applicable mine safety disclosures, and no other information required under Item 5 during the reporting period - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information) are all reported as "None"[160](index=160&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk) - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[162](index=162&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (inline XBRL) - The exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and Interactive Data Files (XBRL)[166](index=166&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $161.4 million, within the guidance of $158 million to $166 million, with adjusted EBITDA of $21.7 million and an adjusted EBITDA margin of 13% [22][9] - Diluted earnings per share was negative $0.08, and return on invested capital (ROIC) for the quarter was 12.9% [4] - The company reported net cash provided by operating activities of $27.1 million, with an average Days Sales Outstanding (DSO) of 52.4 days [12][9] - General and administrative expenses were $14.2 million, and depreciation and amortization expenses were $10.3 million [11] Business Line Data and Key Metrics Changes - Cementing revenue decreased by approximately 5% to $58.1 million, with a decrease in the average blended revenue per job by approximately 5% [29] - Wireline revenue increased by approximately 4% to $31 million, with a 12% increase in completed wireline stages, but the average blended revenue per stage decreased by approximately 7% [10] - Completion tool revenue was $38.9 million, an increase of approximately 3%, despite a 14% decrease in completed stages [10] - Coiled tubing revenue remained flat at $33.5 million, with a 16% decrease in coiled tubing days but a 19% increase in average blended day rate [30] Market Data and Key Metrics Changes - The Northeast rig count has been stable, but pricing pressure and completion delays are affecting revenue and margins [23] - The U.S. rig count declined approximately 14% through the first half of the year, with significant declines in the Eagle Ford and Haynesville regions [24] - International revenue is approximately 4% to 5% of consolidated revenue, with a strategy to increase this profile [37] Company Strategy and Development Direction - The company is focused on maintaining pricing and market share through proprietary slurries and well site execution, while also investing in internal R&D for new technology [6][13] - There is a cautious optimism regarding a potential rebound in rig counts and activity levels in the second half of 2023 and into 2024 [13][32] - The company aims to reduce dependency on North American land by increasing international sales and focusing on completion tools [37] Management's Comments on Operating Environment and Future Outlook - Management noted that the market remains volatile, with commodity prices being erratic and unpredictable, complicating capital allocation decisions [32] - There is an expectation for Q3 revenue to decline compared to Q2, projected between $140 million and $150 million, with anticipated declines in adjusted EBITDA and margins [14] - Management is optimistic about the potential for recovery in activity levels, but acknowledges the challenges posed by pricing pressures and market conditions [92][63] Other Important Information - The company completed 6,106 wireline stages in Q2, with a noted increase in international orders contributing to revenue [10][60] - The company has a strong liquidity position of $60.1 million as of June 30, 2023, with $41.1 million in cash and cash equivalents [28] Q&A Session Summary Question: Can you provide some color on international sales and completion tools? - Management indicated that international revenue is recurring and part of the strategy to increase this profile [17] Question: What are the plans for the remaining debt outstanding? - Management plans to use generated cash flow to pay down the credit facility first, then focus on bonds [19] Question: How is the demand for coiled tubing units affected by dissolvable plugs? - Management noted that demand for coiled tubing has remained strong despite the penetration of dissolvable plugs [40] Question: Have conversations with customers changed due to recent commodity price strength? - Management stated that conversations regarding pricing have not changed significantly yet, as stability in commodity prices is needed [41] Question: What is the strategy for growth in completion tools? - The company is focusing on internal R&D and has secured contracts in the Middle East, aiming for organic growth and potential M&A [44][45] Question: How is the company handling labor amidst market volatility? - Management emphasized the importance of retaining skilled labor and is cautious about making cuts, anticipating a recovery in activity [92][103]

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]

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]