Nine(NINE) - 2023 Q4 - Annual Report

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