8-K
Nine Energy Service, Inc. (NINE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 3, 2021
NINE ENERGY SERVICE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38347 | 80-0759121 |
|---|---|---|
| (State or Other Jurisdiction<br>of Incorporation) | (Commission<br>File Number) | (IRS Employer<br>Identification 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 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 | Trading<br>Symbol(s) | Name of each exchange<br>on 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 6, 2021, Nine Energy Service, Inc. (the “Company”) issued a press release providing information on its results of operations and financial condition for the first quarter ended March 31, 2021. 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 to 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 to 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 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On May 3, 2021, at the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), as further described below in Item 5.07, the Company’s stockholders approved the First Amendment (the “Incentive Plan Amendment”) to the Nine Energy Service, Inc. 2011 Stock Incentive Plan, as amended and restated effective February 28, 2017 (the “Incentive Plan”). Previously, the Company’s Board of Directors (the “Board”) approved the Incentive Plan Amendment, which increases the number of shares of the Company’s common stock that may be issued under the Incentive Plan by 1,300,000 shares, subject to the approval by the Company’s stockholders at the Annual Meeting.
The Incentive Plan is a long-term incentive plan pursuant to which awards, including stock options, stock appreciation rights, restricted stock, performance awards, restricted stock units, bonus stock, dividend equivalents, other stock-based awards and cash awards, may be granted to certain employees and other service providers of the Company and its subsidiaries. It is not possible to determine specific amounts and types of awards that may be granted to eligible participants under the Incentive Plan subsequent to the Annual Meeting because the grant and payment of such awards is subject to the discretion of the Board’s Nominating, Governance and Compensation Committee.
The foregoing description of the Incentive Plan Amendment is a summary only and is qualified in its entirety by reference to the complete text of the Incentive Plan Amendment, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated by reference herein. In addition, a description of the material terms of the Incentive Plan Amendment and the Incentive Plan was included in the Company’s proxy statement for the Annual Meeting, which was filed with the Securities and Exchange Commission on March 8, 2021 (the “Proxy Statement”).
Item 5.07 Submission of Matters to a Vote of Security Holders.
On May 3, 2021, the Company held the Annual Meeting, at which the Company’s stockholders were requested to: (1) elect the three nominees named in the Proxy Statement to serve on the Board as Class III Directors until the Company’s 2024 Annual Meeting of Stockholders or until their respective successors are elected and qualified, (2) ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021, and (3) approve the Incentive Plan Amendment.
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:
| 1. | Each of the three nominees for Class III Directors that was up for election was elected for a term of three years. Votes regarding the election of these directors were as follows: | |||||
|---|---|---|---|---|---|---|
| NOMINEE | VOTES FOR | VOTES<br>WITHHELD | BROKER<br>NON-VOTES | |||
| --- | --- | --- | --- | --- | --- | --- |
| Mark E. Baldwin | 13,627,220 | 2,878,560 | 9,509,440 | |||
| Ernie L. Danner | 13,727,178 | 2,778,602 | 9,509,440 | |||
| Ann G. Fox | 13,740,476 | 2,765,304 | 9,509,440 | |||
| 2. | PricewaterhouseCoopers LLP was ratified as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. The voting results were as follows: | |||||
| --- | --- | |||||
| VOTES FOR | VOTES AGAINST | VOTES ABSTAINED | BROKER NON-VOTES | |||
| --- | --- | --- | --- | |||
| 26,008,153 | 2,267 | 4,800 | 0 | |||
| 3. | The Incentive Plan Amendment was approved. The voting results were as follows: | |||||
| --- | --- | |||||
| VOTES FOR | VOTES AGAINST | VOTES ABSTAINED | BROKER NON-VOTES | |||
| --- | --- | --- | --- | |||
| 16,430,347 | 58,065 | 17,368 | 9,509,440 |
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 10.1 | First Amendment to the Nine Energy Service, Inc. 2011 Stock Incentive Plan. |
| 99.1 | Nine Energy Service, Inc. press release dated May 6, 2021. |
| 104 | Cover Page Interactive Data File. The cover page XBRL tags are embedded within the inline XBRL document (contained in Exhibit 101). |
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 6, 2021 | NINE ENERGY SERVICE, INC. | |
|---|---|---|
| By: | /s/ Theodore R. Moore | |
| Theodore R. Moore<br> <br>Senior Vice President and General Counsel |
EX-10.1
Exhibit 10.1
FIRST AMENDMENT TO THE
NINE ENERGY SERVICE, INC.
2011 STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT (this “Amendment”) to the Nine Energy Service, Inc. 2011 Stock Incentive Plan, as amended and restated effective February 28, 2017 (the “Plan”), is effective March 5, 2021, subject to approval by the Company’s stockholders (the “Effective Date”).
W I T N E S S E T H:
WHEREAS, Nine Energy Service, Inc., a Delaware corporation (the “Company”), previously adopted the Plan pursuant to which the Company is authorized to grant equity and equity-based incentive awards to certain employees and other service providers of the Company and its subsidiaries;
WHEREAS, Paragraph XVII of the Plan provides that the Board of Directors of the Company (the “Board”) may amend the Plan from time to time, including to increase the aggregate maximum number of shares that may be issued under the Plan with the approval of the Company’s stockholders;
WHEREAS, the Board desires to amend the plan to increase the aggregate maximum number of shares common stock, par value $0.01 per share, of the Company available for issuance under the Plan by 1,300,000 shares, subject to the approval of the Company’s stockholders; and
WHEREAS, the Board has determined that it is desirable and in the best interests of the Company to amend the Plan in the manner contemplated hereby, subject to approval by the Company’s stockholders at the Company’s upcoming annual meeting to be held on May 3, 2021 (the “Annual Meeting”).
NOW, THEREFORE, the Plan shall be amended as follows, effective as of the Effective Date:
- Paragraph V(a) of the Plan shall be deleted in its entirety and the following substituted therefor:
“Shares Subject to the Plan and Award Limits. Subject to adjustment in the same manner as provided in Paragraph XVI with respect to shares of Common Stock subject to Options then outstanding, the aggregate maximum number of shares of Common Stock that may be issued under the Plan, and the aggregate maximum number of shares of Common Stock that may be issued under the Plan through Incentive Stock Options, from and after the Effective Date shall not exceed 1,587,621 shares of Common Stock. Shares shall be deemed to have been issued under the Plan only to the extent actually issued and delivered pursuant to an Award. To the extent that an Award lapses or the rights of its holder terminate, any shares of Common Stock subject to such Award shall again be available for the grant of an Award under the Plan. In addition, shares issued under the Plan and forfeited back to the Plan, shares surrendered in payment of the exercise price or purchase price of an Award, and shares withheld for payment of applicable employment taxes and/or withholding obligations associated with an Award shall again be available for the grant of an Award under the Plan.”
This Amendment shall be and is hereby incorporated in and forms a part of the Plan, and, as amended hereby, the Plan is specifically ratified and reaffirmed.
All other terms and provisions of the Plan shall remain unchanged except as specifically modified herein.
Notwithstanding anything to the contrary herein, in the event the stockholders of the Company do not approve this Amendment at the Annual Meeting, then this Amendment shall not become effective and shall terminate as of the date of the Annual Meeting.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused the execution of this First Amendment by its duly authorized officer, effective as of the Effective Date.
| NINE ENERGY SERVICE, INC. | |
|---|---|
| By: | /s/ Ann G. Fox |
| Name: | Ann G. Fox |
| Title: | President, Chief Executive Officer |
EX-99.1
Exhibit 99.1
Nine Energy Service Announces First Quarter 2021 Results
| • | As of March 31, 2021, cash and cash equivalents of $53.0 million |
|---|---|
| • | During Q1, repurchased additional bonds with a face value of $26.3 million for a total purchase price of<br>$8.4 million, leaving $320.3 million of senior notes outstanding |
| --- | --- |
| • | Revenue, net loss and adjusted EBITDA^A^ of<br>$66.6 million, $(8.2) million and $(3.4) million, respectively, for the first quarter of 2021 |
| --- | --- |
| • | First quarter basic loss per share of $(0.28) |
| --- | --- |
HOUSTON – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported first quarter 2021 revenues of $66.6 million, net loss of $(8.2) million, or $(0.28) basic loss per share, and adjusted EBITDA of $(3.4) million. For the first quarter 2021, adjusted net loss^B^ was $(25.4) million, or $(0.85) adjusted basic loss per share^C^.
“While overall market activity improved quarter over quarter, we saw a much slower start in January versus last year, coupled with weather-related shut-downs in February,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “Despite EIA reported completed wells decreasing approximately 3% in Q1 versus Q4, Nine’s revenue increased by approximately 8%, driven mostly by strong activity increases in cementing and completion tools. Pricing has stabilized across service lines but remains extremely depressed. We have begun to feel some tightness, specifically in the labor market, but any potential pricing leverage will depend significantly on the timing and pace of rig and frac crew additions.”
“Our team once again saw an opportunity to purchase additional bonds on the open market at a significant discount to par, lowering our annual cash interest expense, and reducing our overall debt outstanding. During Q1, the Company repurchased $26.3 million par value of bonds for $8.4 million of cash. To date, Nine has repurchased approximately $79.7 million of bonds for $22.9 million leaving $320.3 million of bonds outstanding and an undrawn ABL.”
“We continue to make progress with the commercialization of our new dissolvable plug technology across all basins with our total number of Stinger Dissolvable plugs sold increasing by over 80% quarter over quarter. During the quarter, we also began running trials for our new Scorpion Pincer Composite plug, which is approximately 35% shorter than our current offering.”
“While we continue to see improvements in the market, we are still anticipating a challenging environment in 2021. That said, we expect Q2 to be better sequentially than Q1 with double-digit sequential revenue increases, followed by sequential revenue increases in Q3 over Q2.”
Operating Results
During the first quarter of 2021, the Company reported revenues of $66.6 million with gross loss of $(7.0) million and adjusted gross profit^D^ of $4.3 million. During the first quarter, the Company generated ROIC^E^ of (23)%.
During the first quarter of 2021, the Company reported selling, general and administrative (“SG&A”) expense of $10.2 million, compared to $11.0 million for the fourth quarter of 2020. Depreciation and amortization expense (“D&A”) in the first quarter of 2021 was $11.9 million, compared to $11.8 million for the fourth quarter of 2020.
The Company’s tax provision for the first quarter of 2021 was less than $0.1 million.
Liquidity and Capital Expenditures
During the first quarter of 2021, the Company reported net cash used in operating activities of $(5.2) million, compared to $(9.5) million for the fourth quarter of 2020. **** Capital expenditures totaled $1.9 million during the first quarter of 2021.
As of March 31, 2021, Nine’s cash and cash equivalents were $53.0 million, and the Company had $45.8 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $98.8 million as of March 31, 2021.
During the first quarter, the Company repurchased approximately $26.3 million of the senior notes for a repurchase price of approximately $8.4 million in cash. As a result, the Company recorded a $17.6 million gain on extinguishment of debt with no cash tax obligation. To date, the Company has repurchased approximately $79.7 million of the senior notes for a repurchase price of approximately $22.9 million in cash, leaving $320.3 million of bonds outstanding.
^ABCDE^See end of press release for definitions
Conference Call Information
The call is scheduled for Thursday, May 6, 2021 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 20, 2021 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13718631.
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 Share and Per Share Amounts)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| Revenues | $ | 66,626 | $ | 61,971 | ||
| Cost and expenses | ||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 62,283 | 66,963 | ||||
| General and administrative expenses | 10,224 | 10,966 | ||||
| Depreciation | 7,789 | 7,678 | ||||
| Amortization of intangibles | 4,092 | 4,091 | ||||
| Gain on revaluation of contingent liabilities | (190 | ) | (505 | ) | ||
| (Gain) loss on sale of property and equipment | (273 | ) | 43 | |||
| Loss from operations | (17,299 | ) | (27,265 | ) | ||
| Interest expense | 8,585 | 8,615 | ||||
| Interest income | (13 | ) | (22 | ) | ||
| Gain on extinguishment of debt | (17,618 | ) | (340 | ) | ||
| Other income | (34 | ) | (33 | ) | ||
| Loss before income taxes | (8,219 | ) | (35,485 | ) | ||
| Provision (benefit) for income taxes | 27 | (110 | ) | |||
| Net loss | $ | (8,246 | ) | $ | (35,375 | ) |
| Loss per share | ||||||
| Basic | $ | (0.28 | ) | $ | (1.18 | ) |
| Diluted | $ | (0.28 | ) | $ | (1.18 | ) |
| Weighted average shares outstanding | ||||||
| Basic | 29,878,426 | 29,852,516 | ||||
| Diluted | 29,878,426 | 29,852,516 | ||||
| Other comprehensive income (loss), net of tax | ||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | 41 | $ | 230 | ||
| Total other comprehensive income, net of tax | 41 | 230 | ||||
| Total comprehensive loss | $ | (8,205 | ) | $ | (35,145 | ) |
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| December 31,<br>2020 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 52,982 | $ | 68,864 | ||
| Accounts receivable, net | 48,139 | 41,235 | |||
| Income taxes receivable | 1,142 | 1,392 | |||
| Inventories, net | 38,759 | 38,402 | |||
| Prepaid expenses and other current assets | 13,115 | 16,270 | |||
| Total current assets | 154,137 | 166,163 | |||
| Property and equipment, net | 96,530 | 102,429 | |||
| Operating lease<br>right-of-use assets, net | 35,186 | 36,360 | |||
| Finance lease<br>right-of-use assets, net | 1,716 | 1,816 | |||
| Intangible assets, net | 128,432 | 132,524 | |||
| Other long-term assets | 3,048 | 3,308 | |||
| Total assets | 419,049 | $ | 442,600 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities | |||||
| Accounts payable | 21,385 | $ | 18,140 | ||
| Accrued expenses | 24,547 | 17,139 | |||
| Current portion of long-term debt | 844 | 844 | |||
| Current portion of operating lease obligations | 5,897 | 6,200 | |||
| Current portion of finance lease obligations | 1,118 | 1,092 | |||
| Total current liabilities | 53,791 | 43,415 | |||
| Long-term liabilities | |||||
| Long-term debt | 316,910 | 342,714 | |||
| Long-term operating lease obligations | 30,948 | 32,295 | |||
| Long-term finance lease obligations | 819 | 1,109 | |||
| Other long-term liabilities | 2,498 | 2,658 | |||
| Total liabilities | 404,966 | 422,191 | |||
| Stockholders’ equity | |||||
| Common stock (120,000,000 shares authorized at .01 par value; 31,517,982 and 31,557,809 shares<br>issued and outstanding at March 31, 2021 and December 31, 2020, respectively) | 315 | 316 | |||
| Additional paid-in capital | 770,309 | 768,429 | |||
| Accumulated other comprehensive loss | (4,460 | ) | (4,501 | ) | |
| Accumulated deficit | (752,081 | ) | (743,835 | ) | |
| Total stockholders’ equity | 14,083 | 20,409 | |||
| Total liabilities and stockholders’ equity | 419,049 | $ | 442,600 |
All values are in US Dollars.
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| Cash flows from operating activities | ||||||
| Net loss | $ | (8,246 | ) | $ | (35,375 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||
| Depreciation | 7,789 | 7,678 | ||||
| Amortization of intangibles | 4,092 | 4,091 | ||||
| Amortization of deferred financing costs | 676 | 676 | ||||
| Amortization of operating leases | 2,041 | 8,897 | ||||
| Provision for doubtful accounts | 34 | 699 | ||||
| Provision for inventory obsolescence | 906 | 7,038 | ||||
| Impairment of operating lease | — | 466 | ||||
| Stock-based compensation expense | 2,010 | 2,027 | ||||
| Gain on extinguishment of debt | (17,618 | ) | (340 | ) | ||
| (Gain) loss on sale of property and equipment | (273 | ) | 43 | |||
| Gain on revaluation of contingent liabilities | (190 | ) | (505 | ) | ||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||
| Accounts receivable, net | (6,921 | ) | (7,050 | ) | ||
| Inventories, net | (1,247 | ) | 7,356 | |||
| Prepaid expenses and other current assets | 2,412 | 2,825 | ||||
| Accounts payable and accrued expenses | 11,136 | 1,617 | ||||
| Income taxes receivable/payable | 250 | (146 | ) | |||
| Other assets and liabilities | (2,094 | ) | (9,538 | ) | ||
| Net cash used in operating activities | (5,243 | ) | (9,541 | ) | ||
| Cash flows from investing activities | ||||||
| Proceeds from sales of property and equipment | 843 | 454 | ||||
| Proceeds from property and equipment casualty losses | — | 682 | ||||
| Purchases of property and equipment | (2,428 | ) | (2,364 | ) | ||
| Net cash used in investing activities | (1,585 | ) | (1,228 | ) | ||
| Cash flows from financing activities | ||||||
| Payments on Magnum Promissory Notes | (281 | ) | (281 | ) | ||
| Repurchases of senior notes | (8,355 | ) | (151 | ) | ||
| Payments on finance leases | (264 | ) | (257 | ) | ||
| Payments of contingent liabilities | (30 | ) | (59 | ) | ||
| Vesting of restricted stock | (131 | ) | — | |||
| Net cash used in financing activities | (9,061 | ) | (748 | ) | ||
| Impact of foreign currency exchange on cash | 7 | 43 | ||||
| Net decrease in cash and cash equivalents | (15,882 | ) | (11,474 | ) | ||
| Cash and cash equivalents | ||||||
| Beginning of period | 68,864 | 80,338 | ||||
| End of period | $ | 52,982 | $ | 68,864 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| Calculation of gross loss | ||||||
| Revenues | $ | 66,626 | $ | 61,971 | ||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 62,283 | 66,963 | ||||
| Depreciation (related to cost of revenues) | 7,244 | 7,141 | ||||
| Amortization of intangibles | 4,092 | 4,091 | ||||
| Gross loss | $ | (6,993 | ) | $ | (16,224 | ) |
| Adjusted gross profit (loss) reconciliation | ||||||
| Gross loss | $ | (6,993 | ) | $ | (16,224 | ) |
| Depreciation (related to cost of revenues) | 7,244 | 7,141 | ||||
| Amortization of intangibles | 4,092 | 4,091 | ||||
| Adjusted gross profit (loss) | $ | 4,343 | $ | (4,992 | ) |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| EBITDA reconciliation: | ||||||
| Net loss | $ | (8,246 | ) | $ | (35,375 | ) |
| Interest expense | 8,585 | 8,615 | ||||
| Interest income | (13 | ) | (22 | ) | ||
| Provision (benefit) for income taxes | 27 | (110 | ) | |||
| Depreciation | 7,789 | 7,678 | ||||
| Amortization of intangibles | 4,092 | 4,091 | ||||
| EBITDA | $ | 12,234 | $ | (15,123 | ) | |
| Gain on extinguishment of debt | (17,618 | ) | (340 | ) | ||
| Gain on revaluation of contingent liabilities (1) | (190 | ) | (505 | ) | ||
| Restructuring charges | 468 | 25 | ||||
| Stock-based compensation expense | 2,010 | 2,027 | ||||
| Gain (loss) on sale of property and equipment | (273 | ) | 43 | |||
| Legal fees and settlements (2) | 12 | — | ||||
| Adjusted EBITDA | $ | (3,357 | ) | $ | (13,873 | ) |
| (1) | Amounts relate to the revaluation of contingent liabilities associated with the Company’s 2018<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)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| Net loss | $ | (8,246 | ) | $ | (35,375 | ) |
| Add back: | ||||||
| Interest expense | 8,585 | 8,615 | ||||
| Interest income | (13 | ) | (22 | ) | ||
| Restructuring charges | 468 | 25 | ||||
| Gain on extinguishment of debt | (17,618 | ) | (340 | ) | ||
| After-tax net operating loss | $ | (16,824 | ) | $ | (27,097 | ) |
| Total capital as of prior period-end: | ||||||
| Total stockholders’ equity | $ | 20,409 | $ | 53,599 | ||
| Total debt | 348,637 | 349,418 | ||||
| Less: cash and cash equivalents | (68,864 | ) | (80,338 | ) | ||
| Total capital as of prior period-end: | $ | 300,182 | $ | 322,679 | ||
| Total capital as of period-end: | ||||||
| Total stockholders’ equity | $ | 14,083 | $ | 20,409 | ||
| Total debt | 322,031 | 348,637 | ||||
| Less: cash and cash equivalents | (52,982 | ) | (68,864 | ) | ||
| Total capital as of period-end: | $ | 283,132 | $ | 300,182 | ||
| Average total capital | $ | 291,657 | $ | 311,431 | ||
| ROIC | -23 | % | -35 | % |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED NET LOSS AND ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2021 | December 31,<br>2020 | |||||
| Reconciliation of adjusted net loss: | ||||||
| Net loss | $ | (8,246 | ) | $ | (35,375 | ) |
| Add back: | ||||||
| Gain on extinguishment of debt (a) | (17,618 | ) | (340 | ) | ||
| Restructuring charges | 468 | 25 | ||||
| Adjusted net loss | $ | (25,396 | ) | $ | (35,690 | ) |
| Weighted average shares | ||||||
| Weighted average shares outstanding for basic | 29,878,426 | 29,852,516 | ||||
| and adjusted basic earnings (loss) per share | ||||||
| Loss per share: | ||||||
| Basic loss per share | $ | (0.28 | ) | $ | (1.18 | ) |
| Adjusted basic loss per share | $ | (0.85 | ) | $ | (1.20 | ) |
| (a) | Amount represents the difference between the repurchase price and the carrying amount of senior notes<br>repurchased during the respective period. | |||||
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| ^A^ | Adjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization,<br>further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) loss or gain on revaluation of contingent liabilities,<br>(iv) loss or 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<br>(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.<br>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<br>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.<br> | |||||
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| ^B^ | Adjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) goodwill, intangible asset,<br>and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) restructuring charges, (iv) loss or gain on the sale of subsidiaries, (v) loss or gain on the extinguishment<br>of debt and (vi) the 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<br>period and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions. | |||||
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| ^C^ | Adjusted Basic Earnings (Loss) Per Share is defined as adjusted net income (loss), divided by weighted average<br>basic shares outstanding. Management believes Adjusted Basic Earnings (Loss) 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<br>identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions. | |||||
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| ^D^ | Adjusted Gross Profit (Loss) is defined as revenues less cost of revenues excluding depreciation and<br>amortization. This measure differs from the GAAP definition of gross profit (loss) because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses<br>adjusted gross profit (loss) to evaluate operating performance. We prepare adjusted gross profit (loss) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core<br>operating performance. | |||||
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| ^E^ | Return on Invested Capital (“ROIC”) is defined as after-tax<br>net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) goodwill, intangible asset, and/or property and equipment<br>impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) interest expense (income), (iv) restructuring charges, (v) loss (gain) on the sale of subsidiaries, (vi) loss (gain) on extinguishment of<br>debt, and (vii) the provision (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 period-end total capital for use in this analysis. Management believes ROIC provides useful information because it quantifies how well we generate operating income relative to the capital we have invested in our<br>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.<br> | |||||
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