Nine(US:NINE)2023-03-07 22:38Operational 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]