Nine(NINE) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 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 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) 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) 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] - 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] Condensed Consolidated Statements of Cash Flows 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 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][51] - 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][73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The decline in commodity prices and activity has led to pricing pressure from customers, impacting both revenue and margins[87] - 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][88][89] Results of Operations 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] 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 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 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] - 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][137] - 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] Item 3. 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 - As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk[152] Item 4. Controls and Procedures 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] - 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] PART II – OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Other Items (Items 2, 3, 4, 5) 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][161][163] - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[162] Item 6. Exhibits 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]