Nine(NINE) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION 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) 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 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) 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) 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] - 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] Condensed Consolidated Statements of Cash Flows 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 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, including a 40% revenue increase, industry trends, non-GAAP measures, and liquidity, notably a major debt refinancing 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] - 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] - On February 1, 2023, the company redeemed all outstanding 8.750% Senior Notes due 2023 for $307.3 million plus accrued interest[89] Industry Trends and Outlook 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] - 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] - 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] Results of Operations 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] - All service lines saw growth: cementing (+38%), coiled tubing (+55%), tools (+32%), and wireline (+38%)[101] - 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] Non-GAAP Financial Measures 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] Liquidity and Capital Resources 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] - 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] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[158] Item 5. Other Information The company reported no other information for this item - None[161] Item 6. Exhibits 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]