Earnings Call Transcript - NINE Q1 2026

Operator, Operator

Greetings, and welcome to Nine Energy Service First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Heather Schmidt, Interim Chief Financial Officer. Thank you. You may begin.

Heather Schmidt, Interim Chief Financial Officer

Thank you. Good morning, everyone, and welcome to the Nine Energy Service earnings conference call to discuss our results for the first quarter of 2026. 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 reflecting 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 earnings filing 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, including reconciliations to the most directly comparable GAAP financial measures are also included in our first quarter earnings release, which can be found in the Investor Relations section of our website. On March 5, 2026, we emerged from bankruptcy and the company applied fresh start accounting as of that date. The application of fresh start accounting resulted in a new basis of accounting and the company becoming a new entity for financial reporting purposes, which is referred to as the successor. The company prior to the application of fresh start accounting is referred to as the predecessor. For simplicity and to reduce confusion for this call, we will be reporting the full quarter and combining these two periods. All SEC documents, including the 10-Q and earnings release have the periods reported separately and are available for your reference on our Investor Relations website. I will now turn the call over to Ann.

Ann Fox, President and Chief Executive Officer

Thank you, Heather, and good morning, everyone. Thank you for joining us today to discuss Nine's first quarter 2026 results. As you can imagine, this was an unusual and complex quarter as we entered and emerged from Chapter 11 and began implementing fresh start accounting effective March 5. During this transition, we experienced some customer and vendor disruption, completed the revaluation of our assets and implemented other required reporting changes to begin this new chapter for Nine. In addition, we had a $5.5 million noncash inventory write-down that negatively affected net income and adjusted EBITDA for the quarter. To ensure consistency with prior period reporting, we have not added the $5.5 million inventory write-down back to reported adjusted EBITDA. Importantly, we believe these issues are behind us. We have not experienced any material customer or vendor losses, and we expect improved and more normalized quarterly run rate beginning in the second quarter and continuing through the remainder of 2026. Following this process, the company has been transformed in a meaningful way, and I am confident that we are now in a stronger financial position as we begin this next chapter for Nine. Turning to Q1. Revenue for the quarter was $130 million with reported adjusted EBITDA of $3 million, which included the $5.5 million inventory write-down. Completion activity was down in Q1 compared to Q4 due to weather impacts early in the quarter. Despite a flat U.S. rig count, pricing across our technology and service offerings remained mostly unchanged quarter-over-quarter. Natural gas prices remained constructive during the first quarter, averaging approximately $4.70 compared to $3.73 in the fourth quarter. But recently, prices trended down and are trading below $3. Lower 48 activity responded to the supportive gas price environment, most notably in the Haynesville Basin, which added approximately 25 rigs over the past four quarters and ended Q1 with 55 rigs, whereas the Northeast has remained relatively flat. Nine is well positioned across all of its service lines to capitalize on growth opportunities in the gas-levered basins. We recently opened a wireline facility in the Haynesville. This expansion enables us to directly participate in what we believe will be sustained natural gas-driven activity in both the near and medium term. We plan to leverage Nine's established customer relationships, strong reputation across service lines and our proven track record to gain traction and capture profitable market share. While industry activity and pricing were relatively steady in the first quarter, our revenue and profitability were negatively impacted by a combination of severe weather in January and February, which caused operational inefficiencies, frac delays and white space in the calendar. These impacts were most pronounced within our Wireline division in the Northeast region, but also impacted Permian operations where all of our service lines operate. We did see a normalization of operations and financial run rate during March, and we expect this improved operating cadence to continue into Q2. We saw minimal impact to our international business in relation to the Iranian conflict in Q1 and thus far in Q2. However, we are monitoring the situation closely as events unfold. Notwithstanding the conflict, the international tools business continues to perform well and remains an important part of our growth strategy. In 2025, we delivered approximately 14% sequential growth in international tool revenue, driven primarily by sales in the UAE, Argentina and Saudi Arabia. The largest revenue declines in Q1 were seen in wireline and completion tools, both of which have significant market share in the Northeast and had severe weather impacts in January and February. Additionally, completion tool revenue was negatively impacted by the minimal international disruptions mentioned previously. Cementing and coiled tubing revenue were both relatively flat and incremental revenue in the Haynesville was able to offset some of the weather impacts in the Permian. Before turning it over to Heather, I want to acknowledge the outstanding execution of our engineering and operational teams in completion tools. The Nine team has now surpassed 500,000 Scorpion plugs sold, a meaningful milestone that highlights the quality of the Scorpion product and the sustained demand we've seen in the market. We expect to build on this momentum with updated versions of the Scorpion plug and dissolvable Stinger plugs as well as new tools to enhance our existing portfolio. I would now like to turn the call over to Heather to walk through detailed financial information.

Heather Schmidt, Interim Chief Financial Officer

Thank you, Ann. As of March 31, 2026, Nine's cash and cash equivalents were $11.2 million with $35.7 million of availability under the revolving credit facility, resulting in a total liquidity position of $46.9 million as of March 31, 2026. On March 31, the company had $90.4 million of borrowings under its revolving credit facility. And on April 28, 2026, the company borrowed an additional $5 million. During the first quarter, revenue totaled $130 million with adjusted gross profit of $13.8 million. During the first quarter, we completed 1,022 cementing jobs, an increase of approximately 4% as compared to the fourth quarter of 2025. The average blended revenue per job decreased by approximately 2%. Cementing revenue for the quarter was $53.4 million, an increase of approximately 1%. During the first quarter, we completed 6,890 wireline stages, a decrease of approximately 4%. The average blended revenue per stage was down by approximately 1%. Wireline revenue for the quarter was $23.9 million, a decrease of approximately 5%. For completion tools, we completed 19,422 stages, a decrease of approximately 10%. Completion tool revenue was $25.8 million, a decrease of approximately 10%. During the first quarter, our coiled tubing days worked increased by approximately 28%, with the average blended day rate decreasing by approximately 18%. Coiled tubing revenue was $26.9 million, an increase of approximately 4%. During the first quarter, the company reported general and administrative expense of $17.7 million. Depreciation and amortization expense was $8.2 million. Income taxes for the quarter were approximately breakeven as a modest benefit in the successor period largely offset a modest provision in the predecessor period, with both driven primarily by state and non-U.S. taxes. For the first quarter, the company reported net cash used in operating activities of $12.4 million. The average DSO for Q1 was 61 days. CapEx spend during Q1 was $5.6 million. Today, we anticipate full year CapEx will range between $20 million to $30 million and annual cash interest expense will be approximately $7 million. I will now turn it back to Ann.

Ann Fox, President and Chief Executive Officer

Thank you, Heather. With the recent increase in oil prices, the near-term outlook for U.S. land activity has improved. That said, we have not seen material changes to customer plans so far in the second quarter. We believe operators remain disciplined and measured as they assess the durability of higher prices and evaluate potential adjustments in real time. We are seeing early indications that completion activity could increase, particularly through the drawdown of DUCs given the relatively short cycle times and the ability to quickly monetize current oil prices. There have also been indications that incremental rigs could be added. However, the timing and magnitude of those increases remain uncertain. The conflict in Iran reminds us of the critical role of U.S. shale production from both an energy security and reliability standpoint and underscores Nine's strategy of being a premier completions provider in the U.S. At Nine, we remain focused on profitable growth across both our domestic and international businesses. We continue to see strong long-term opportunities in our international tools business. While the current geopolitical environment could lead to short-term disruptions in the Middle East, our presence there remains a critical part of our growth strategy. Operationally, we are well positioned for any incremental activity across U.S. basins, and our portfolio remains well balanced across commodities. Turning to the second quarter. We do not anticipate a meaningful change in U.S. rig count. However, we expect improved financial performance driven by less weather-related downtime and continued operational efficiencies. As a result, we expect both revenue and adjusted EBITDA to increase sequentially from the first quarter. We currently project second quarter revenue in the range of $136 million to $146 million. Given the complexity of first quarter reporting, we are providing adjusted EBITDA guidance for the second quarter to improve visibility as we return to more normalized reporting. For Q2, we are projecting adjusted EBITDA of $10 million to $15 million. Overall, Nine remains operationally strong and financially flexible, allowing us to execute on our strategic priorities while navigating a dynamic market environment. We continue to prioritize disciplined execution and profitable growth, and we remain confident in the long-term value creation potential of the business. We will now open up the call for Q&A.

Operator, Operator

Our first question comes from Steve Ferazani with Sidoti & Company.

Steve Ferazani, Analyst

Appreciate the time this morning. Obviously it's been a very busy period for you.

Ann Fox, President and Chief Executive Officer

Yes, it's a new chapter.

Steve Ferazani, Analyst

Absolutely. When we think about the Q2 guide, the stronger sequential improvement, is there anything in play there other than the lack of the severe seasonality you saw in Q1 in operating inefficiencies? Is that essentially flat pricing, flat activity? Or do you see any sort of green shoots there in Q2?

Ann Fox, President and Chief Executive Officer

I think you'll see those green shoots in Q3 and perhaps we don't see the shape to Q4 that we typically see, just given the rough start for the industry in Q1. So it's a great question, but you've obviously seen Conoco come out with their rig add in the back half. You've seen Diamondback come out. We've got a couple of other operators that have been clear about incremental activity. But you won't necessarily see that reflected in the Q2 numbers. That's just a result of normalization of our reporting and operating activity. So those incremental dollars that you may be speaking about may show up for the industry in the back half.

Steve Ferazani, Analyst

Got it. And then in your prepared remarks...

Ann Fox, President and Chief Executive Officer

And just remember, when you complete those DUCs, you're getting that product to market roughly within 30 days.

Steve Ferazani, Analyst

That's what I was going to ask about. Are you seeing that? You're not the first to mention DUC completions as well as potentially refracs. Are you seeing better indications that could be coming sooner?

Ann Fox, President and Chief Executive Officer

We are.

Steve Ferazani, Analyst

Okay. In terms of the results we saw in Q1, it looks like the primary weakness was in wireline and tools, which obviously had the Northeast exposure and some in the Rockies. Was this primarily seasonality?

Ann Fox, President and Chief Executive Officer

Well, actually no. To our knowledge, this was the first time in our and our employees' experience that we saw the Ohio River frozen, and we had a record number of days below freezing. We really had some catastrophic weather impacts that even for January are abnormal. So that was a significant impact to that region.

Steve Ferazani, Analyst

Got it. Coming out of this reset, CapEx higher than it's been in the last couple of years, according to your guidance, how much of that is catch-up investments or how much of that is growth investments for new opportunities you're seeing?

Ann Fox, President and Chief Executive Officer

I would say a good chunk of that is catch-up. That's something that we're going to layer in over time, and it's something that we need to do. We feel the business is very well positioned here. Clearly, we wouldn't be putting that CapEx into the business if we didn't see a need and we didn't see an opportunity. So we're very much looking forward to this next chapter, both organic and inorganic growth opportunities.

Steve Ferazani, Analyst

That's helpful. And then just if I get one more in, in terms of cash flow. Obviously, Q1 was particularly noisy. How well do you think you're positioned to generate cash moving forward? You have good liquidity coming out. Do you see yourselves as a cash flow generator moving forward?

Ann Fox, President and Chief Executive Officer

I think when we have normalized years, yes. Of course, bankruptcy is not cheap even for smaller companies. It's an enormously expensive process. So on a regular year, absolutely, you're going to see the business generate cash flow. There is a lot of noise given not just Q1, but really that bankruptcy. But to answer your question on a regular basis, if you look at us in 2027 and beyond, we would definitely see some very nice cash flow generation.

Operator, Operator

Our next question is from John Daniel with Daniel Energy Partners.

John Daniel, Analyst

I know you alluded to the anecdotes on the incremental rigs by some of the operators. I'm just curious, Ann, if you could speak to, and I know you don't want to quantify this, just the level of inquiries and inbound phone calls you have had in the last one to two weeks versus maybe two to three months ago? And then as the follow-on...

Ann Fox, President and Chief Executive Officer

Three months ago, nobody was doing anything, even two months ago. I think there was a view that this was perhaps an in-and-out operation like the one we saw with Absolute Resolve in Venezuela. It's taken folks, particularly in this area of the country, a bit to realize that perhaps this is more protracted and there's a little more durability to the commodity price. I don't want to say our customers are stampeding, but you definitely see a behavior shift. They're utilizing equipment in different ways. They are now thinking about DUCs and incremental rig adds. Especially, we're starting to see a lot of noise from larger private companies that we hadn't previously seen. So to answer you specifically, the noise and volume has picked up considerably over the past two weeks, whereas two months ago it was nothing.

John Daniel, Analyst

How would you say that the rise in demand changes one's confidence? How are you thinking internally about pricing strategy across your various services as you roll into the back half of the year?

Ann Fox, President and Chief Executive Officer

It's a great question. We're at our strategic offsite with our management team now. There is wage inflation. People say the U.S. has been insulated from these price effects because everybody has inventory on the shelves. Our cost of goods will go up and our prices to our customers across the board need to go up, full stop.

John Daniel, Analyst

Okay. Fair enough. And then the last one, is there any appetite to pursue some small tuck-in deals within your core products? Or do you wait and see?

Ann Fox, President and Chief Executive Officer

We always have an appetite for tuck-ins. I think we're looking for things on a more transformational level.

Operator, Operator

Our next question is from Dave Storms with Stonegate.

David Storms, Analyst

Yes, of course. Maybe I want to start, you mentioned in your prepared remarks that you're expecting operational efficiencies to drive some of the improvements in Q2. Just curious as to how you think about the runway here and maybe where you see those operational efficiencies playing out through the back half of the year? Or should we just expect a nice step-up into Q2?

Ann Fox, President and Chief Executive Officer

The step-up in Q2 is straightforward: when weather is bad and operators are not active, we're still carrying labor costs. A huge chunk of our COGS is labor, and you can't shed that cost instantly when activity pauses. That's a real challenge for the service sector and a significant drag on margin. We don't expect to have that drag going forward. Also, when you go through Chapter 11, a strong team will use that as an opportunity to rethink approach and strategy. There's a lot of excitement now around this new chapter, and I think that's put energy back into the company to focus on careful growth and execution on both the organic and inorganic side. That's a shift from survival to thriving, and it's very positive for morale. That energy flows through the organization, and we're excited about a number of initiatives in every service line to increase operational efficiencies.

David Storms, Analyst

Understood. Appreciate that. Thinking about the busy quarter that you guys had, are there any lingering impacts from some of the steps taken, I think in legal fees, any additional write-downs? Or is everything pretty much cleaned up and now it's just getting your vendors back in a row and back to business as normal?

Ann Fox, President and Chief Executive Officer

No, our customers are intact, our vendors are intact, and I wouldn't expect additional cleanups. If we have any remaining adjustments, those will be legitimate add-backs for any lingering costs. You will not see a repeat of the very messy quarter we saw in Q1. You'll see normalized, regular reporting moving forward. We were pleased to enter and exit bankruptcy and relist all within the same quarter, but that created a lot of noise. To answer your question specifically, you won't see that again.

David Storms, Analyst

That's perfect. And maybe one more for me. With the commodity price environment, how are you balancing working what's in front of you versus maybe focusing on downhole innovations?

Ann Fox, President and Chief Executive Officer

Great question. Over the past year, we've bifurcated our engineering team between sustaining engineering and R&D as we build out a state-of-the-art R&D and test facility in North America. We've also added key engineering talent so we can deploy differentiated tools starting this summer as well as entirely new tools. We were thoughtful during this period and continued to invest in R&D. On the cement side, we're also expanding engineering capacity so we can be at the forefront on both R&D fronts. We also have promising work coming from our Norway team that we expect to expand into international markets. We're very confident and pleased with our engineering team.

Operator, Operator

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Ann Fox, CEO for Nine Energy Service for closing remarks.

Ann Fox, President and Chief Executive Officer

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

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.