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Nine Energy Service First Quarter 2020 Results

Share Print Bookmark    |    Thursday,May 07,2020

Nine Energy Service, Inc. reported its Q1 2020 results.

The company reported first quarter 2020 revenues of $146.6 million, net loss of $(300.9) million and adjusted EBITDA of $10.3 million. The first quarter net loss of $(300.9) million, or $(10.22) per basic share, includes goodwill impairment charges of $296.2 million associated with the tools, cementing and wireline reporting units. For the first quarter 2020, adjusted net loss^c was $(14.9) million, or $(0.51) adjusted basic earnings per share. During the first quarter, the Company generated ROIC^d of –3%.

The Company had provided original first quarter 2020 revenue guidance between $150.0 and $160.0 million and adjusted EBITDA guidance between $10.0 and $13.0 million, with actual results for revenue falling slightly below Management’s original guidance range and results for adjusted EBITDA falling within Management’s original guidance. Revenue results came in lower than original guidance primarily due to rapidly deteriorating market conditions and activity curtailment in conjunction with oil price declines beginning in March.

President & CEO Ann Fox said: “This quarter, revenue fell slightly below management’s original guidance. Adjusted EBITDA fell within the range of management’s original guidance, but we did experience significant market declines in the last month of the quarter. We do not feel Q1 is reflective in any way of the financial picture for the remaining quarters of the year. We have a strong liquidity position of $183.6 million as of March 31, 2020 consisting of $90.1 million of cash on the balance sheet and an undrawn ABL credit facility with $93.5 million of availability. As of March 31, 2020, we have a sizeable accounts receivable balance of $92.6 million and inventories balance of $63.1 million. Additionally, we purchased a portion of our bonds on the open market at a discount, lowering our annual cash interest expense and reducing our overall debt outstanding. To date, we have purchased bonds with a face value of approximately $29.7 million for a total purchase price of approximately $7.4 million.

“We continue to navigate an extremely volatile market with the energy industry suffering from both significant global demand reductions related to the COVID-19 pandemic, as well as a flood of supply hitting the market. In response to this, our customers quickly began further cuts to 2020 capex plans, dropping rigs and releasing frac crews. These ‘completions holidays’ are affecting all of our service lines with meaningful revenue and adjusted EBITDA declines.

“Our new low-temperature dissolvable plug was successfully commercialized during Q1 and the timeline for our high-temperature and new composite plug remain on-track for Q2 and Q3, respectively. Our team remains extremely pleased with the performance of our low-temperature plug, specifically in the Permian, as well as the interest from our customers in trialing the technology. The current market backdrop is a substantial headwind, which will delay near-term adoption; however, I am confident we will execute our previously scheduled trials and commercial commitments once activity resumes and customers look for new ways to reduce costs and cycle times in a depressed environment.”

Operating Results

During the first quarter of 2020, the Company reported revenues of $146.6 million with adjusted gross profit^E of $20.6 million.

During the first quarter of 2020, the Company reported selling, general and administrative (“SG&A”) expense of $16.4 million, compared to $20.3 million for the fourth quarter of 2019. Depreciation and amortization expense ("D&A") in the first quarter of 2020 was $12.7 million, compared to $15.4 million for the fourth quarter of 2019.

The Company recognized income tax benefit of approximately $2.1 million in the first quarter of 2020, resulting in an effective tax rate of 0.7% against year to date results. The benefit provided by both the net operating loss provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the goodwill impairment recorded during the quarter are the primary components of the Company’s 2020 tax position.

Liquidity and Capital Expenditures

During the first quarter of 2020, the Company reported net cash provided by operating activities of $0.7 million, compared to $14.5 million for the fourth quarter of 2019.Capital expenditures totaled $1.4 million during the first quarter of 2020, of which approximately 73% related to maintenance capital expenditures.

As of March 31, 2020, Nine’s cash and cash equivalents were $90.1 million with $93.5 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $183.6 million as of March 31, 2020.

During the first quarter, the Company repurchased approximately $13.8 million of the senior notes for a repurchase price of approximately $3.5 million in cash. As a result, the Company recorded a $10.1 million gain on extinguishment of debt with no cash tax obligation. Subsequent to March 31, 2020, the Company repurchased an additional $15.9 million of the senior notes for a repurchase price of approximately $3.9 million in cash.