8-K
Nine Energy Service, Inc. (NINE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENTREPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 5, 2020
NINE ENERGY SERVICE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38347 | 80-0759121 |
|---|---|---|
| (State or Other Jurisdictionof Incorporation) | (CommissionFile Number) | (IRS EmployerIdentification No.) |
2001 Kirby Drive, Suite 200
Houston, Texas 77019
(Address of principal executive offices)
(281) 730-5100
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17<br>CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | TradingSymbol(s) | Name of each exchangeon which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | NINE | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition |
|---|
On May 7, 2020, Nine Energy Service, Inc. (the “Company”) issued a press release providing information on its results of operations for the first quarter ended March 31, 2020. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K are being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
| Item 5.07 | Submission of Matters to a Vote of Security Holders |
|---|
On May 5, 2020, the Company held its 2020 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, the Company’s stockholders were requested to: (1) elect the three nominees named in the proxy statement to serve on the Company’s Board of Directors as Class II Directors until the Company’s 2023 Annual Meeting of Stockholders or until their respective successors are elected and qualified, and (2) ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. The following are the final voting results on proposals considered and voted upon at the Annual Meeting, each of which is more fully described in the proxy statement for the Annual Meeting:
| 1. | Each of the three nominees for Class II Directors that was up for election was elected for a term of three<br>years. Votes regarding the election of these directors were as follows: | |||||
|---|---|---|---|---|---|---|
| NOMINEE | VOTES FOR | VOTESWITHHELD | BROKERNON-VOTES | |||
| --- | --- | --- | --- | --- | --- | --- |
| Scott E. Schwinger | 20,754,418 | 3,653,757 | 3,362,900 | |||
| Gary L. Thomas | 20,683,566 | 3,724,609 | 3,362,900 | |||
| Andrew L. Waite | 21,556,556 | 2,851,619 | 3,362,900 | |||
| 2. | PricewaterhouseCoopers LLP was ratified as the Company’s independent registered public accounting firm for<br>the fiscal year ending December 31, 2020. The voting results were as follows: | |||||
| --- | --- | |||||
| VOTES FOR | VOTESAGAINST | VOTESABSTAINED | BROKER NON-VOTES | |||
| --- | --- | --- | --- | |||
| 27,720,050 | 36,866 | 14,159 | 0 | |||
| Item 9.01 | Financial Statements and Exhibits. | |||||
| --- | --- |
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Nine Energy Service, Inc. press release dated May 7, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: May 7, 2020 | NINE ENERGY SERVICE, INC. | |
|---|---|---|
| By: | /s/ Theodore R. Moore | |
| Theodore R. Moore | ||
| Senior Vice President and General Counsel |
EX-99.1
Exhibit 99.1
Nine Energy Service Announces First Quarter 2020 Results
| • | Revenue, net loss and adjusted EBITDA^A^ of<br>$146.6 million, $(300.9) million and $10.3 million, respectively for the first quarter of 2020 |
|---|---|
| • | First quarter basic EPS of $(10.22) and $(0.51) adjusted basic<br>EPS^B^ |
| --- | --- |
| • | As of March 31, 2020, cash and cash equivalents of $90.1 million |
| --- | --- |
HOUSTON, May 7, 2020 – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) 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.
“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,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “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 CapitalExpenditures
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.
^ABCDE^See end of press release for definitions
Conference Call Information
The call is scheduled for Thursday, May 7, 2020 at 9:00 am Central Time. Participants may join the live conference call by dialing U.S. (Toll Free): (877) 524-8416 or International: (412) 902-1028 and asking for the “Nine Energy Service Earnings Call”. Participants are encouraged to dial into the conference call ten to fifteen minutes before the scheduled start time to avoid any delays entering the earnings call.
For those who cannot listen to the live call, a telephonic replay of the call will be available through May 21, 2020 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13697767.
About Nine Energy Service
Nine Energy Service is an oilfield services company that offers completion solutions within North America and abroad. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Serving the global oil and gas industry, Nine continues to differentiate itself through superior service quality, wellsite execution and cutting-edge technology. Nine is headquartered in Houston, Texas with operating facilities in the Permian, Eagle Ford, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus, Utica and Canada.
For more information on the Company, please visit Nine’s website at nineenergyservice.com.
Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. Forward-looking statements also include statements that refer to or are based on projections, uncertain events or assumptions. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, the severity and duration of the COVID-19 pandemic, related economic repercussions and the resulting negative impact on demand for oil and gas; the current significant surplus in the supply of oil and the ability of the OPEC+ countries to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry currently resulting from the impact of the foregoing factors, which is negatively impacting our business; operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; the Company’s ability to implement and commercialize new technologies, services and tools; the Company’s ability to grow its completion tool business; the Company’s ability to reduce capital expenditures; the Company’s ability to accurately predict customer demand; the loss of, or interruption or delay in operations by, one or more significant customers; the loss of or interruption in operations of
one or more key suppliers; the adequacy of the Company’s capital resources and liquidity; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; the Company’s ability to successfully integrate recently acquired assets and operations and realize anticipated revenues, cost savings or other benefits thereof; and other factors described in the “Risk Factors” and “Business” sections of the Company’s most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.
Nine Energy Service Investor Contact:
Heather Schmidt
Vice President, Strategic Development, Investor Relations and Marketing
(281) 730-5113
investors@nineenergyservice.com
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,2020 | December 31,2019 | |||||
| Revenues | $ | 146,624 | $ | 163,410 | ||
| Cost and expenses | ||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 126,008 | 139,985 | ||||
| General and administrative expenses | 16,395 | 20,348 | ||||
| Depreciation | 8,541 | 10,972 | ||||
| Amortization of intangibles | 4,169 | 4,442 | ||||
| Impairment of goodwill | 296,196 | 20,273 | ||||
| Impairment of property and equipment | — | 66,200 | ||||
| Impairment of intangibles | — | 114,804 | ||||
| Gain on revaluation of contingent liabilities | (426 | ) | (486 | ) | ||
| (Gain) loss on sale of property and equipment | (575 | ) | 261 | |||
| Loss on sale of subsidiaries | — | 62 | ||||
| Loss from operations | (303,684 | ) | (213,451 | ) | ||
| Interest expense | 9,828 | 9,830 | ||||
| Interest income | (371 | ) | (421 | ) | ||
| Gain on extinguishment of debt | (10,116 | ) | — | |||
| Loss before income taxes | (303,025 | ) | (222,860 | ) | ||
| Benefit for income taxes | (2,125 | ) | (2,339 | ) | ||
| Net loss | $ | (300,900 | ) | $ | (220,521 | ) |
| Loss per share | ||||||
| Basic | $ | (10.22 | ) | $ | (7.51 | ) |
| Diluted | $ | (10.22 | ) | $ | (7.51 | ) |
| Weighted average shares outstanding | ||||||
| Basic | 29,430,475 | 29,367,436 | ||||
| Diluted | 29,430,475 | 29,367,436 | ||||
| Other comprehensive income (loss), net of tax | ||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | (603 | ) | $ | 115 | |
| Total other comprehensive income (loss), net of tax | (603 | ) | 115 | |||
| Total comprehensive loss | $ | (301,503 | ) | $ | (220,406 | ) |
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| December 31,2019 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 90,116 | $ | 92,989 | ||
| Accounts receivable, net | 92,645 | 96,889 | |||
| Income taxes receivable | 810 | 660 | |||
| Inventories, net | 63,113 | 60,945 | |||
| Prepaid expenses and other current assets | 14,977 | 17,434 | |||
| Total current assets | 261,661 | 268,917 | |||
| Property and equipment, net | 121,148 | 128,604 | |||
| Intangible assets, net | 144,822 | 148,991 | |||
| Goodwill | — | 296,196 | |||
| Other long-term assets | 7,377 | 8,187 | |||
| Total assets | 535,008 | $ | 850,895 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities | |||||
| Accounts payable | 28,291 | $ | 35,490 | ||
| Accrued expenses | 29,098 | 24,730 | |||
| Current portion of capital lease obligations | 1,019 | 995 | |||
| Total current liabilities | 58,408 | 61,215 | |||
| Long-term liabilities | |||||
| Long-term debt | 379,007 | 392,059 | |||
| Deferred income taxes | — | 1,588 | |||
| Long-term capital lease obligations | 1,937 | 2,201 | |||
| Other long-term liabilities | 3,805 | 3,955 | |||
| Total liabilities | 443,157 | 461,018 | |||
| Stockholders’ equity | |||||
| Common stock (120,000,000 shares authorized at .01 par value; 30,406,994 and 30,555,677<br>shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively) | 304 | 306 | |||
| Additional paid-in capital | 762,332 | 758,853 | |||
| Accumulated other comprehensive loss | (5,070 | ) | (4,467 | ) | |
| Accumulated deficit | (665,715 | ) | (364,815 | ) | |
| Total stockholders’ equity | 91,851 | 389,877 | |||
| Total liabilities and stockholders’ equity | 535,008 | $ | 850,895 |
All values are in US Dollars.
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended | ||
|---|---|---|
| March 31,2020 | December 31,2019 | |
| Cash flows from operating activities | ||
| Net loss | $(300,900) | $(220,521) |
| Adjustments to reconcile net loss to net cash provided by operating activities | ||
| Depreciation | 8,541 | 10,972 |
| Amortization of intangibles | 4,169 | 4,442 |
| Amortization of deferred financing costs | 745 | 746 |
| Provision for (recovery of) doubtful accounts | (288) | 613 |
| Benefit for deferred income taxes | (1,588) | (1,451) |
| Provision for inventory obsolescence | 271 | 646 |
| Impairment of goodwill | 296,196 | 20,273 |
| Impairment of property and equipment | — | 66,200 |
| Impairment of intangible assets | — | 114,804 |
| Stock-based compensation expense | 3,592 | 3,504 |
| Gain on extinguishment of debt | (10,116) | — |
| (Gain) loss on sale of property and equipment | (575) | 261 |
| Gain on revaluation of contingent liabilities | (426) | (486) |
| Loss on sale of subsidiaries | — | 62 |
| Changes in operating assets and liabilities, net of effects from acquisitions | ||
| Accounts receivable, net | 4,458 | 21,399 |
| Inventories, net | (2,651) | 4,911 |
| Prepaid expenses and other current assets | 2,409 | 2,800 |
| Accounts payable and accrued expenses | (3,213) | (10,948) |
| Income taxes receivable/payable | (150) | (968) |
| Other assets and liabilities | 271 | (2,762) |
| Net cash provided by operating activities | 745 | 14,497 |
| Cash flows from investing activities | ||
| Proceeds from sales of property and equipment | 892 | 1,768 |
| Proceeds from property and equipment casualty losses | 428 | 73 |
| Net proceeds from sale of subsidiaries | — | (308) |
| Purchases of property and equipment | (785) | (16,061) |
| Net cash provided by (used in) investing activities | 535 | (14,528) |
| Cash flows from financing activities | ||
| Payments on Senior Notes | (3,455) | — |
| Payments on capital leases | (240) | (235) |
| Payments of contingent liability | (98) | (124) |
| Vesting of restricted stock | (115) | — |
| Net cash used in financing activities | (3,908) | (359) |
| Impact of foreign currency exchange on cash | (245) | 58 |
| Net decrease in cash and cash equivalents | (2,873) | (332) |
| Cash, cash equivalents and restricted cash | ||
| Beginning of period | 92,989 | 93,321 |
| End of period | $ 90,116 | $ 92,989 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT
(In Thousands)
(Unaudited)
| Three Months Ended | ||||
|---|---|---|---|---|
| March 31, 2020 | December 31, 2019 | |||
| Calculation of gross profit | ||||
| Revenues | $ | 146,624 | $ | 163,410 |
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 126,008 | 139,985 | ||
| Depreciation (related to cost of revenues) | 7,943 | 8,090 | ||
| Amortization of intangibles | 4,169 | 4,442 | ||
| Gross profit | $ | 8,504 | $ | 10,893 |
| Adjusted gross profit (excluding depreciation and amortization) reconciliation | ||||
| Gross profit | $ | 8,504 | $ | 10,893 |
| Depreciation (related to cost of revenues) | 7,943 | 8,090 | ||
| Amortization of intangibles | 4,169 | 4,442 | ||
| Adjusted gross profit | $ | 20,616 | $ | 23,425 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31, 2020 | December 31, 2019 | |||||
| EBITDA reconciliation: | ||||||
| Net loss | $ | (300,900 | ) | $ | (220,521 | ) |
| Interest expense | 9,828 | 9,830 | ||||
| Interest income | (371 | ) | (421 | ) | ||
| Depreciation | 8,541 | 10,972 | ||||
| Amortization of intangibles | 4,169 | 4,442 | ||||
| Benefit for income taxes | (2,125 | ) | (2,339 | ) | ||
| EBITDA | $ | (280,858 | ) | $ | (198,037 | ) |
| Impairment of goodwill | 296,196 | 20,273 | ||||
| Impairment of property and equipment | — | 66,200 | ||||
| Impairment of intangible assets | — | 114,804 | ||||
| Transaction and integration costs | 146 | 4,183 | ||||
| Gain on revaluation of contingent liabilities (1) | (426 | ) | (486 | ) | ||
| Gain on extinguishment of debt | (10,116 | ) | — | |||
| Restructuring charges | 2,329 | 713 | ||||
| Stock-based compensation expense | 3,592 | 3,504 | ||||
| (Gain) loss on sale of property and equipment | (575 | ) | 261 | |||
| Legal fees and settlements (2) | 4 | 142 | ||||
| Loss on sale of subsidiaries | — | 62 | ||||
| Adjusted EBITDA | $ | 10,292 | $ | 11,619 | ||
| (1) | Amounts relate to the revaluation of contingent liabilities associated with the Company’s recent<br>acquisitions. | |||||
| --- | --- | |||||
| (2) | Amounts represent fees and legal settlements associated with legal proceedings brought pursuant to the Fair<br>Labor Standards Act and/or similar state laws. | |||||
| --- | --- |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ROIC CALCULATION
(In Thousands)
(Unaudited)
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended | Three Months Ended | |||||
| March 31, 2020 | December 31, 2019 | |||||
| Net loss | $ | (300,900 | ) | $ | (220,521 | ) |
| Add back: | ||||||
| Impairment of goodwill | 296,196 | 20,273 | ||||
| Impairment of property and equipment | — | 66,200 | ||||
| Impairment of intangibles | — | 114,804 | ||||
| Transaction and integration costs | 146 | 4,183 | ||||
| Interest expense | 9,828 | 9,830 | ||||
| Interest income | (371 | ) | (421 | ) | ||
| Restructuring charges | 2,329 | 713 | ||||
| Gain on extinguishment of debt | (10,116 | ) | — | |||
| Loss on sale of subsidiaries | — | 62 | ||||
| Benefit for deferred income taxes | (1,588 | ) | (1,451 | ) | ||
| After-tax net operating profit | $ | (4,476 | ) | $ | (6,328 | ) |
| Total capital as of prior period-end: | ||||||
| Total stockholders’ equity | $ | 389,877 | $ | 606,779 | ||
| Total debt | 400,000 | 400,000 | ||||
| Less cash and cash equivalents | (92,989 | ) | (93,321 | ) | ||
| Total capital as of prior period-end | $ | 696,888 | $ | 913,458 | ||
| Total capital as of period-end: | ||||||
| Total stockholders’ equity | $ | 91,851 | $ | 389,877 | ||
| Total debt | 386,171 | 400,000 | ||||
| Less: cash and cash equivalents | (90,116 | ) | (92,989 | ) | ||
| Total capital as of period-end: | $ | 387,906 | $ | 696,888 | ||
| Average total capital | $ | 542,397 | $ | 805,173 | ||
| ROIC | -3 | % | -3 | % |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31, 2020 | December 31, 2019 | |||||
| Reconciliation of adjusted net income (loss): | ||||||
| Net loss | $ | (300,900 | ) | $ | (220,521 | ) |
| Add back: | ||||||
| Impairment of goodwill (a) (b) | 296,196 | 20,273 | ||||
| Impairment of property and equipment (b) | — | 66,200 | ||||
| Impairment of intangibles (b) | — | 114,804 | ||||
| Transaction and integration costs (c) | 146 | 4,183 | ||||
| Restructuring charges | 2,329 | 713 | ||||
| Loss on sale of subsidiaries | — | 62 | ||||
| Gain on extinguishment of debt (d) | (10,116 | ) | — | |||
| Less: Tax benefit from add-backs | (2,547 | ) | (2,467 | ) | ||
| Adjusted net loss | $ | (14,892 | ) | $ | (16,753 | ) |
| Weighted average shares | ||||||
| Weighted average shares outstanding for basic and adjusted basic earnings (loss) per<br>share | 29,430,475 | 29,367,436 | ||||
| Loss per share: | ||||||
| Basic loss per share | $ | (10.22 | ) | $ | (7.51 | ) |
| Adjusted basic loss per share | $ | (0.51 | ) | $ | (0.57 | ) |
| a) | 2020 impairment charges were driven by sharp declines in global crude oil demand and an economic recession<br>associated with the coronavirus pandemic, as well as sharp declines in oil and natural gas prices associated with international pricing and production disputes. | |||||
| --- | --- | |||||
| b) | 2019 impairment charges were driven by 1) a reduction of the need for coiled tubing during the drill-out phase of the overall completions process and 2) the transition of certain trade names associated with recent acquisitions, to the Company’s trade names. | |||||
| --- | --- | |||||
| (c) | Amounts represent transaction and integration costs, including the cost of inventory that was stepped up to<br>fair value during purchase accounting associated with recent acquisitions. | |||||
| --- | --- | |||||
| (d) | Amount primarily represents the difference between the repurchase price and the carrying amount of senior notes<br>repurchased during the three months ended March 31, 2020. | |||||
| --- | --- |
^A^Adjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) loss or gain on revaluation of contingent liabilities, (iv) gain on the extinguishment of debt, (v) loss or gain on the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation expense, (viii) loss or gain on sale of property and equipment, and (ix) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business. Management believes Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments, acquisitions and dispositions and costs that are not reflective of the ongoing performance of our business.
^B^Adjusted Basic Earnings Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings Per Share is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.
^C^Adjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) restructuring charges, (iv) loss or gain on the sale of subsidiaries, (v) gain on the extinguishment of debt and (vi) tax impact of such adjustments. Management believes Adjusted Net Income (Loss) is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.
^D^Return on Invested Capital (“ROIC”) is defined as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) interest expense (income), (iv) restructuring charges, (v) loss or gain on the sale of subsidiaries, (vi) gain on extinguishment of debt, and (vii) the provision or benefit for deferred income taxes. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior year-end adjusted total capital for use in this analysis. Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. Management uses ROIC to assist them in making capital resource allocation decisions and in evaluating business performance.^^
^E^Adjusted Gross Profit is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit to evaluate operating performance. We prepare adjusted gross profit (excluding depreciation and amortization) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance.