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Nine Energy Service Fourth Quarter 2019 Results

Share Print Bookmark    |    Monday,March 09,2020

Nine Energy Service, Inc. reported fourth quarter 2019 results.

Financials

The company reported revenues of $163.4 million, net loss of $(220.5) million and adjusted EBITDA of $11.6 million. The fourth quarter net loss of $(220.5) million, or $(7.51) per basic share, includes intangible assets, PP&E and goodwill impairments of $106.3 million associated with the Coiled Tubing service line and an intangible asset impairment of $95.0 million associated with the Completion Tools service line. For the fourth quarter 2019, adjusted net loss^D was $(16.8) million, or $(0.57) adjusted basic earnings per share. During the fourth quarter, the Company generated ROIC^c of -3%.

The Company had provided original fourth quarter 2019 revenue guidance between $150.0 and $160.0 million and adjusted EBITDA guidance between $11.0 and $15.0 million, with actual results for revenue outperforming Management’s original guidance range and results for adjusted EBITDA falling within Management’s original guidance.

CEO Ann Fox said: “The fourth quarter was as anticipated, with revenue outperforming and adjusted EBITDA falling within Management’s original guidance range. Additionally, we continued our strong working capital management into Q4, ending the year with a cash balance of $93.0 million even with interest, capex and the retention bonus associated with the Magnum acquisition during the fourth quarter.

“As expected, we saw drilling and completion activity decline in Q4 due to holidays, weather and budget exhaustion. Market share for Nine remained stable across the majority of service lines, but we did see full quarter realizations of Q3 pricing concessions, which led to the majority of the margin compression quarter over quarter. Coiled Tubing has been the hardest hit service line from a pricing and activity perspective due to an over-supply of large diameter units coming into the market, coupled with a decrease in activity across regions.

“Despite a very tough market in 2019, the execution of our strategic initiatives throughout the year has been very successful. We effectively commercialized our low-temperature dissolvable plug for Q1 2020, which continues to be run and trialed with many customers across multiple basins, providing Nine a first-mover advantage in the low-temp dissolvable market. Additionally, the timeline for our new high-temp dissolvable and composite plug remain on schedule. These technology developments were accomplished in large part because of our acquisition of Magnum and collaboration between both legacy teams around both IP design and materials science. We also successfully completed the sale of our Production Solutions segment, and closed wireline operations in Canada, which will be accretive to ROIC, adjusted EBITDA margins and cash generation. Our operational teams were able to once again prove their ability to grow market share in a declining activity environment, with Nine’s percentage of U.S. stages completed increasing over 100 basis points in 2019. I am also extremely proud of our employees as Nine ended the year with the lowest and best TRIR safety score in the Company’s history at 0.77.

“Throughout 2018 and 2019 we re-shaped the Company to align with our strategy of being asset-light and building additional barriers to entry, which we believe will enable us to increase profitability, expand margins and increase free cash flow for the future. We have just begun to see our thesis materialize with strong cash generation in the second half of 2019, which we anticipate continuing into 2020 and beyond. 2020 capex will decrease by over 60%, which will serve as a sustainable run-rate as we transition the derivation of more of our top-line revenue contribution from completion tools.

“Q1 2020 is off to a slower start versus this time in 2019, and we anticipate Q1 2020 being relatively flat to Q4 2019. Despite market conditions, we are very optimistic about Nine’s opportunity to differentiate with our unique positioning in the market to grow within our tools business. Our team has and will remain focused on driving value for our shareholders, customers and employees and will continue to follow our returns-based growth strategy into 2020."

For the year ended December 31, 2019, the Company reported revenues of $832.9 million, net loss of $(217.8) million and adjusted EBITDA of $113.0 million. Full year 2019 adjusted net income was $9.4 million, or $0.32 per adjusted basic share. For the year ended December 31, 2019, the Company generated ROIC of 6%.

Completion Solutions

During the fourth quarter of 2019, the Company’s Completion Solutions segment, which includes the Company’s cementing, completion tools, wireline and coiled tubing services, reported revenues of $163.4 million and adjusted gross profit^E of $23.4 million.

For the year ended December 31, 2019, the Company’s Completion Solutions segment reported revenues of $774.7 million and adjusted gross profit of $154.5 million.

Other Financial Information

During the fourth quarter of 2019, the Company reported selling, general and administrative (“SG&A”) expense of $20.3 million, compared to $19.2 million for the third quarter of 2019. Depreciation and amortization expense ("D&A") in the fourth quarter of 2019 was $15.4 million, compared to $16.8 million for the third quarter of 2019.

For the year ended December 31, 2019, the Company reported SG&A expense of $81.3 million, compared to year ended December 31, 2018 SG&A expense of $73.1 million. For the year ended December 31, 2019, the Company reported D&A expense of $68.9 million, compared to year ended December 31, 2018 D&A expense of $63.8 million.

The Company recognized an income tax benefit of approximately $2.3 million in the fourth quarter of 2019 and an overall income tax benefit for the year of approximately $3.9 million, resulting in an effective tax rate of 1.8% for 2019. The fourth quarter income tax benefit was primarily attributable to a change in the Company’s deferred taxes due to the impairment associated with our Coiled Tubing and Completion Tools service lines. Cash tax expense for 2019 was approximately $0.4 million.

Liquidity and Capital Expenditures

For the year ended December 31, 2019, the Company reported net cash provided by operating activities of $101.3 million compared to the year ended December 31, 2018 net cash provided by operating activities of $89.6 million.

During the fourth quarter of 2019, total capital expenditures were $14.9 million, of which approximately 18% related to maintenance capital expenditures, compared to total capital expenditures of $10.0 million for the third quarter of 2019. For the year ended December 31, 2019, the Company reported total capital expenditures of $62.1 million of which approximately 22% related to maintenance capital expenditures, which fell within Management’s original guidance, compared to the year ended December 31, 2018 total capital expenditures of $52.6 million. Approximately $4.8 million in 2019 capital expenditures are delayed into 2020.

As of December 31, 2019, Nine’s cash and cash equivalents were $93.0 million and the Company had $99.2 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $192.2 million as of December 31, 2019.