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Nine Energy Service Third Quarter 2019 Results

Share Print Bookmark    |    Friday,November 08,2019

Nine Energy Service, Inc. reported its Q3 2019 results.

Financials

The company reported third quarter 2019 revenues of $202.3 million, net loss of $(20.6) million, which includes a loss on the sale of the Production Solutions segment of approximately $15.8 million and adjusted EBITDA of $24.2 million. Third quarter 2019 net loss per basic share was $(0.70). Third quarter 2019 adjusted net loss^D was $(4.7) million, or $(0.16) per adjusted basic share. During the third quarter of 2019, the Company generated ROIC of 4%. During the third quarter of 2019, the Company reported net cash provided by operating activities of $69.4 million compared to $11.5 million during the second quarter, an increase of approximately 6x.

The Company had provided original third quarter 2019 revenue guidance between $215.0 and $225.0 million and adjusted EBITDA guidance between $24.0 and $29.0 million, with actual results for revenue falling 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 the sale of the Production Solutions segment and the closure of wireline operations in Canada.

CEO Ann Fox said: “Even with the restructuring of our service offerings and geographical footprint, adjusted EBITDA fell within the range of management’s original guidance this quarter. Despite market conditions weakening throughout the quarter, we were able to grow cash flow from operations by over 6x compared to Q2, increasing our current cash position significantly to $93.3 million as of September 30^th. We expect our cash generation to remain strong through the remainder of the year and into 2020 as we grow our completion tool business and materially reduce total capex.

“During Q3 our customers remained extremely focused on staying within capital budgets, prompting many operators to reduce activity in the second half of the year. Activity declines, as well as irrational behavior from competitors, has led to increased pricing pressure, for which no service line is immune. The hardest hit region remains the Northeast where we have wireline and completion tool exposure, but rig count and frac crew curtailments are taking place across the U.S. Our cementing business remained steady this quarter despite rig count dropping by approximately 11% quarter over quarter.

“At Nine, we have been focused on executing our 2019 strategic initiatives, including the evaluation of existing service lines and geographies, as well as the development of our new dissolvable and composite plug technologies. During the third quarter, we completed the sale of our Production Solutions segment, and closed down wireline operations in Canada. We expect the elimination of these offerings from our portfolio to be accretive to ROIC, adjusted EBITDA margins and cash generation. We also continue to make significant progress in the development of our new dissolvable and composite plug technology. The timeline for commercialization of our three new tools remains on-track. We still anticipate our low-temperature dissolvable plug will be commercial in Q1 of 2020 as we continue to have success with our trials throughout the U.S. and Canada.

“We do expect further activity declines into Q4 with budget exhaustion, holidays and weather impacts. With current market conditions, we are managing costs very closely and actively working with our operational teams to ensure we are shielding margin wherever possible without fundamentally impeding our future earnings potential. Despite market conditions in 2020, at Nine we have a unique opportunity to increase profitability, expand margins and increase free cash flow with the introduction of our new technology.”

Business Segment Results

Completion Solutions

During the third 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 $186.3 million compared to second quarter 2019 revenues of $215.9 million. For the third quarter of 2019, Completion Solutions reported adjusted gross profit^E of $33.6 million compared to second quarter 2019 adjusted gross profit of $49.8 million.

Production Solutions

During the third quarter of 2019, the Company’s Production Solutions segment, which includes well services, generated revenues of $16.1 million compared to second quarter 2019 revenues of $21.6 million. For the third quarter 2019, Production Solutions reported adjusted gross profit of $1.9 million compared to second quarter 2019 adjusted gross profit of $3.1 million. All financial information reflects the sale of the Production Solutions segment, which closed on August 30, 2019.

Other Financial Information

During the third quarter of 2019, the Company reported selling, general and administrative (“SG&A”) expense of $19.2 million, compared to $21.8 million for the second quarter of 2019. Depreciation and amortization expense ("D&A") in the third quarter of 2019 was $16.8 million, compared to $18.5 million for the second quarter of 2019.

The Company recognized income tax expense of approximately $0.7 million in the third quarter of 2019 and overall income tax benefit year to date of approximately ($1.5) million. The discrete impact from the Production Solutions divestiture and the current year impact of our valuation allowance positions, along with state and non-U.S. income taxes are the primary components of our 2019 tax position.

Liquidity and Capital Expenditures

During the third quarter of 2019, the Company reported net cash provided by operating activities of $69.4 million, compared to $11.5 million for the second quarter of 2019.This increase was due in large part to a decrease in days sales outstanding (“DSO”), as well as improved inventory management. Capital expenditures totaled $10.0 million during the third quarter of 2019, of which approximately 47% related to maintenance capital expenditures.

As of September 30, 2019, Nine’s cash and cash equivalents were $93.3 million with $118.0 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $211.3 million as of September 30, 2019.