Greetings and welcome to the Nine Energy Service Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Guy Sirkes. Please, you may begin.

Thank you. Good morning, everyone and welcome to the Nine Energy Service earnings conference call to discuss our results for the first quarter of 2023. With me today is Ann Fox, President and Chief Executive Officer. We appreciate your participation. Some of our comments today may include forward-looking statements that reflect Nine’s views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are also included in our first quarter press release, and can be found at the Investor Relations section of our website. I will now turn the call over to Ann.

Thank you, Guy. Good morning, everyone. Thank you for joining us today to discuss our first quarter results for 2023. Revenue for the quarter was $163.4 million, which fell between our original guidance of $160 million to $165 million. We generated adjusted EBITDA of $25 million, reflecting an adjusted EBITDA margin of 15%. ROIC for the quarter was 16.2%. The company’s net loss included the impact of fees and expenses incurred in connection with its public offering of units and other refinancing activities in January. As most of you are aware, we have seen a softening in our market in response to the decline in natural gas prices over the past several months, resulting in a decrease in activity and pricing thus far in 2023 versus Q4 levels. At the end of Q1, the US rig count was down by 24 rigs since the end of Q4. During Q1, the rig count in the Northeast was relatively flat, but was down close to 10% in the Haynesville. We anticipate continued rig declines in the Haynesville in Q2, which will impact our revenue. There are near-term concerns around global economic uncertainty. However, market fundamentals support a positive outlook for the energy sector, and an especially cold winter or some other geopolitical event could change the near-term outlook very quickly. On the operations side, we estimate the average frac crew counts today is between 250 and 275. EIA reported completions were down by approximately 3% quarter-over-quarter and new wells drilled decreased by approximately 1%. Our Cementing service line continues to be a strong performer. As a reminder, Cementing has very few competitors for the more complex, horizontal Cementing jobs, and almost 100% of the wells drilled in US land requires Cementing of the wellbore. Additionally, we have some of the most technically advanced quarries in the industry, and we are in the process of working on a more environmentally-friendly option. Even with the potential pullback and enhanced field activity, we still have an opportunity to take share in the horizontal lateral completions in gas basins. We remain very excited about this service line. I continue to believe we have one of the top Completion Tools portfolios in the US, despite this mining activity, we increased the total number of Dissolvable Stinger plugs sold by approximately 23%, due in large part to a significant international order. We continue to be positive on the outlook for the adoption of the Dissolvable plug. However, near-term, with a pullback in activity specifically in the galaxy regions like the Haynesville where Dissolvable hold a high market share, near-term sales of Dissolvable could be slowed. Wireline remains fragmented and highly competitive, and a significant percentage of Nine’s Wireline revenue comes out of the Northeast, where we have had some pricing pressure with the decrease in natural gas prices. Wireline plays an important role in both the R&D and sales process for Completion Tools, as well as establishing a strong relationship with our customers and gaining intelligence on the types of completions operators are running. Coiled Tubing is performing well, considering the market conditions and our exposure in the Haynesville. Company revenue for the quarter was $163.4 million. Net loss was $6.1 million and adjusted EBITDA was $25 million. Diluted earnings per share was negative $0.19. ROIC for the quarter was approximately 16.2%. I would now like to turn the call over to Guy, to walk through detailed financial information.

Thank you, Ann. As of March 31st, 2023, Nine’s cash and cash equivalents were $21.4 million, with $26 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $47.4 million as of March 31st, 2023. On March 31st, 2023, the company had $72 million of borrowings under the ABL credit facility. Q1 results also include fees and expenses incurred in connection with the company’s January refinancing. During the first quarter, revenue totaled $163.4 million with adjusted gross profit of $36.3 million. During the first quarter, we completed 1,029 Cementing jobs, a decrease of approximately 3% versus the fourth quarter. The average blended revenue per job decreased by approximately 1%. Cementing revenue for the first quarter was $62.5 million, a decrease of approximately 4%. During the first quarter, we completed 5,455 Wireline stages, a decrease of approximately 7%. The average blended revenue per stage increased by approximately 5%. Wireline revenue for the quarter was $29.6 million, a decrease of approximately 2%. For Completion Tools, we completed 32,219 stages, a decrease of approximately 1%. Completion Tool revenue was $37.8 million, an increase of approximately 7%. During the first quarter, our Coiled Tubing days worked increased by approximately 12%, with the average blended day rate decreasing by approximately 17%. Coiled Tubing utilization during the quarter was 64%. Coiled Tubing revenue for the quarter was $33.5 million, a decrease of approximately 7%. During the first quarter, the company reported general and administrative expense of $19.7 million. Depreciation and amortization expense in the first quarter was $10.3 million. The company’s tax provision for the first quarter of 2023 was approximately $0.9 million. The provision for 2023 is a result of our tax position and state non-US tax jurisdictions. The company reported net cash provided by operating activities of $4 million. The average DSO for Q1 was 54.2 days. CapEx spend for Q1 was $5 million and our full year CapEx guidance is unchanged at $25 million to $35 million. I will now turn it back to Ann.

Thank you, Guy. As you all know, recessionary fears in a global market are affecting commodity prices, which have been erratic over the last several months, with oil prices dropping $13 within 10 days in March, before surpassing $80 again within another 10 days in early April, following the unexpected OPEC’s production cut announcement and have once again dropped into the low 70s. I do believe there will continue to be numerous factors that will impact commodity prices. However, I remain optimistic on the outlook for the energy sector with both OPEC’s and US oil producers’ demonstrated commitment to capital discipline. Our revenue will be impacted by lower activity levels within US gas plays. Rig and frac crew counts are good indicators for both our revenue outlook and potential pricing leverage. So as market activity increases or decreases, so too will our revenue and profitability in conjunction with job count and pricing. We started to see pricing pressure from some customers across service lines in Q1, especially in the Northeast and Haynesville. We have purposely designed the business to be capital-light, reducing capital allocation risk, as well as having service line, geographic, and commodity diversity. For Nine, we are continuing to develop and look for new technologies to expand our tool portfolio as well as constantly improving our current offerings. Within our service lines, we are ensuring our safety and service quality remains excellent. Activity levels thus far in Q2 are slightly down and as I mentioned, we have begun to see some pricing pressure from select customers. Because of this, we expect Q2 to be down slightly compared to Q1 with projected revenue between $158 million to $166 million. We also anticipate that adjusted EBITDA and our adjusted EBITDA margin will be down very slightly in conjunction with revenue and activity levels, as well as full quarter realizations and price reductions. Our priorities and goals are unchanged. We are focused on generating free cash flow, which would be used towards the de-levering, while 2023 has not been the growth market we anticipated. We have demonstrated we are able to capitalize on an improving market and the company will see financial impact right away in conjunction with market changes. We will now open up the call for Q&A.

Thank you. We will now be conducting a question-and-answer session. And our first question comes from Waqar Syed with ATB Capital Markets.

Good morning. In terms of the CapEx guidance –

Good morning, Waqar –

Good morning. The CapEx guidance is $25 million to $35 million range. Are you leaning now more towards the lower end, you think, with the change in outlook? Or do you still think it could be, you know, midpoint or maybe even the higher end?

It's a great question, Waqar. And I think you’ll see the team dial back CapEx this year. So yes, I think it’s fair to say, we will not be at the high end of that mark.

Okay. And you know you have like the Cementing business is more leveraged to your drilling activity and then other business lines are more towards the completion side of things. You know as you look from an activity perspective only, where do you see the more softness on the drilling side, leverage businesses or the completion businesses?

You know, I mean, that’s a great question. I think part of this is conflated, because of various levels of exposure inside the gas basins. So you know, you saw that drilling activity come down 1% quarter-over-quarter according to the EIA. But again, it’s a little conflated for us, given where we have heavy exposures in the gas markets. So I think it’s still a strong Cementing market out there. And I think, you know, we are also watching that WTI price very carefully, because we’re, you know, concerned about our Permian operators. And I think it’s perhaps a little overcorrected at this point. But right now, if you think about the outlook, Waqar, it feels steady. So we’re saying slightly down, because we’re working with really small numbers here. And so on the margin basis, that could be slightly down, but you’re seeing a pretty flat revenue line. So, I hate to call it boring and plateaued. But it’s relatively boring and plateaued right now. So it’s not that we see some large inflection down from here, nor do we see a large inflection up. It’s just kind of a steady eddy orderly market, if you will.

Yeah, your revenue guidance of $158 million to $166 million, did I hear that correctly? $166 million at the upper end?

Yes.

So what will drive it higher, given all the indications are that, you know, you could have low rig count in Q2, and we’ve already seen some Cementing weakness. What’s driving that upside to a quarter-over-quarter?

You know, it could be international markets, Waqar. You know, I think you’re going to see it relatively flat to Q1. But those international orders can be lumpy, and they can move things around.

So you had a decent order in Q1 as well. Is it now looking that it’s becoming a lot more regular item on a quarterly basis, the international business?

You know, I don’t want to call it regular yet. What I will tell you is the strategic objective of this management team is to get it to be regular. And that is actively something we’re working on. As you know, we are now running conventional tools in Abu Dhabi, so that’s exciting for us. But I wouldn’t want to tell the market this is regular, because this is something that we are growing. And again, attempting to get to be a more regular piece of our financials. But right now, I would not call it regular and that’s why sometimes this lumpiness is just hard to project.

So now you said that the most likely or a way like a likely case could be flat revenues. Now, if you assume flat revenues, and you don’t get that lumpiness of Q1 repeated into Q2 that you had international business, but in a way that you’re indicating that you know the underlying North America business or US business could potentially grow in Q2 versus Q1. Am I understanding it correctly?

No. No, I think you’ll see that revenue line flatten out, and if anything, you’re going to see full quarter realizations on some of that pricing. So I do think you’re going to see some detriment to that EBITDA margin, it’s just going to be small, because now we’re inside of the law of small numbers and trying to project the exact cost movements. So we think it will be flat to slightly down on the margin for the underlying North American business. You asked what could potentially pop the top line that could be the lumpiness of a large international order coming in, which is what could give rise to a higher top line which gives costs the guidance of $158 million to $166 million.

Waqar, we are seeing pretty decent international revenues in both Q1 and Q2.

Yeah.

It’s just the exact cadence of them is lumpy. But, you know, I think we’ve got a good pattern here for Q1 and Q2.

Would you kind of breakdown what the international revenue contribution was? Or is it in the queue anywhere?

We actually don’t break that down, Waqar.

Okay. Thanks. And then in terms of the Cementing business, you mentioned that you’re looking into some environmentally, you know, friendlier, I guess, cement. Your larger competitors have mentioned that they have some production in the marketplace. Could you maybe talk about what you’re working on and where do you stand in terms of the production?

Yes. So, yes, we’ve seen some of our competitors are mega-cap competitors come out with a greener cement. And we too, think we’re ready to put that down hole and go to trial. I think the issue there is that you’re going to see operators demand to have something that is cost-effective. So it’s not good enough for our mega caps ourselves to develop a greener cement that’s ESG-friendly, it also has to be cost-competitive. So I think, frankly, the market might be there on the technology, ourselves included, but we’re not yet there on the cost. And that is probably the second leg and as you know, it’s going to take a bit of time to drive that down. But yes, we are ready to trial that. So we’re really pleased with our progress there. But again, I don’t want to paint that as something that’s going to take over the market until we can fundamentally reduce that cost, because as you know, in North American land, it’s got to be good, but it also has to be cheap, especially right now with moderate prices.

Fair enough. And just last question here, you know, we’ve heard a number of drilling contractors report and guide. And we’ve also heard a number of pumping companies report and guide. And there was kind of a little bit of, I would say, mismatch between the guidance for some of the largest drilling contractors versus guidance from some of the largest pumping companies. And in terms of kind of the weakness that they’re seeing, like you know some of the largest drilling contractors were saying like rig count could be down or there could be down 10% quarter-over-quarter. While you did hear the pumping guys were thinking more kind of flattish revenues. You know, when you talked to your customers, where do you come out in that kind of view in terms of completion versus drilling, given that you have both of those exposures?

Yeah, I mean, I think, Waqar it’s all about absorption and uptake of basins that are levered more to black crude, like the Permian. And I think, you know, some of the frac community is assuming that some of those frac spreads will be easily absorbed and moved into those basins. And that’s where I think we come back to, you know, the WTI prices and what that looks like for operators. So I think that is where you’re seeing that debate is, what happens there and whether those frac fleets can be absorbed. And I think that’s where the tension is between that drilling rigs decline projected from those large drillers and where you’re seeing frac fleets.

Okay. Well, thank you very much. Really appreciate the color.

Of course.

Thanks, Waqar.

Our next question comes from Ignacio Bernaldez with EF Hutton.

Hey, good morning. Thank you for taking my questions. And I appreciate your time. I guess, to start, could you just walk through how you’re thinking about capital allocation through the rest of 2023, given what you’re seeing in the market right now?

Yeah. Hey, Ignacio. So, for 2023, we’re really going to be focused on generating cash flow and the de-levering as Ann mentioned previously. So you know it’s not going to be a growth year as we expected. So we’re going to see, you know, working capital would be generally flattish. We’re trying to manage CapEx down toward the midpoint or lower end of the range, and just overall, use our cash flow as we can to pay down our credit facility and improve the liquidity and de-lever.

Perfect, that’s really helpful. And then, I guess, when you’re thinking about the conversations you’re having with customers at this point, you know, in general, their sense of urgency about pricing, maybe some color on what they’re saying and how those conversations are going?

It’s a great question. I think I would say there doesn’t feel like there’s anything urgent right now in conversations. I say that relative to previous markets that we’ve been through where there’s been a great deal of urgency. So, again, I think you’ve got a lot of operators well hedged. So this is maybe they’re not rolling in as much cash as they were before. Some of them certainly, you know, more exposed than not to lower gas prices, perhaps some privates under more pressure, but I wouldn’t say there’s any urgency to the conversation. I would say it’s more trying to look at the current environment and getting some price from it, and some price relief from it. So it feels more slow and methodical. It feels less panicked to me than some of the markets we’ve seen previously. So again, that’s why I use the word orderly. So it’s certainly not a growth market, Ignacio. But this pricing pressure, again, it seems methodical, orderly and much less kind of widespread than previous times where you’ve kind of just seen a market fall off a cliff. This is a weird little bit of stability here in the market that frankly, we haven’t seen for a long time. We’ve either seen very sharp declines or very sharp inclines. And this is just, as I said, it’s a little bit of a plateau.

That’s perfect. And I appreciate the insight. Thank you so much for the time.

Of course, thank you so much.

We are closing our question-and-answer session. Now, I would like to turn the floor back over to Ann Fox for closing comments. Please go ahead.

Thank you for your participation in our call today. I want to thank our employees, our E&P partners and investors.

This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.