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): March 7, 2022
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 March 7, 2022, Nine Energy Service, Inc. issued a press release providing information on its results of operations and financial condition for the quarter and year ended December 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 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Nine Energy Service, Inc. press release dated March 7, 2022. |
| 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: March 7, 2022 | NINE ENERGY SERVICE, INC. | |
|---|---|---|
| By: | /s/ Theodore R. Moore | |
| Theodore R. Moore<br> <br>Senior Vice President and General Counsel |
EX-99.1
Exhibit 99.1
Nine Energy Service Announces Fourth Quarter and Full Year 2021 Results
| • | Total liquidity position of $64.7 million as of December 31, 2021 |
|---|---|
| • | Full year 2021 revenue, net loss and adjusted EBITDA^A^ of $349.4 million, $(64.6) million and $5.2 million, respectively |
| --- | --- |
| • | Revenue, net loss and adjusted EBITDA of $105.1 million, $(15.7) million and $4.6 million,<br>respectively, for the fourth quarter of 2021 |
| --- | --- |
| • | Fourth quarter 2021 basic loss per share of $(0.52) |
| --- | --- |
HOUSTON – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported fourth quarter 2021 revenues of $105.1 million, net loss of $(15.7) million and adjusted EBITDA of $4.6 million. For the fourth quarter 2021, adjusted net loss^B^ was $(15.7) million, or $(0.52) adjusted basic loss per share^C^.
The Company had provided original fourth quarter 2021 revenue guidance between $92.0 and $100.0 million, with actual results falling above the provided range and representing a sequential revenue increase of approximately 13% quarter over quarter.
“We outperformed our Q4 revenue guidance due to strong performances in both cementing and completion tools, both of which outperformed market drivers this quarter,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “We saw activity and pricing improvements across most of our service lines, which is reflected in our 13% increase in revenue quarter over quarter.”
“Despite difficult market conditions in 2021, we were able to better position ourselves to capitalize on what looks to be a growth environment for the near to medium term. For the 7^th^ consecutive year, we grew our market share of U.S. stages completed, increasing from approximately 20% in 2020 to approximately 22% in 2021. In cementing, we increased the total number of jobs completed by approximately 22% year over year, while the average U.S. rig count increased by only 10% over that same time. I remain extremely happy with both the success of our new Stinger Dissolvable plug, as well as the market’s overall adoption of dissolvable plugs. We estimate that the dissolvable plug market has increased from approximately 10-15% at the end of 2018 to approximately 20-25% at the end of 2021, and we believe that our initial prediction of the dissolvable plug market expanding to 35-50% by the end of 2023 is achievable. Our Stinger Dissolvable plug continues to perform extremely well in the field and is proven in our numbers. We increased the total number of Stinger products sold by over 400% in 2021, versus EIA completions, which increased approximately 32% over this same time.”
“We remain very optimistic looking into 2022 and 2023 and anticipate North American capital spending will increase by at least 20% in 2022. I do not see any near-term solution for the labor shortages and as our customers try to increase activity, this should move pricing leverage back to the service providers. For Q1, we have seen activity increases thus far and expect Q1 will be
better than Q4 with sequential revenue increases. With what we know today, we anticipate revenue and earnings to improve each quarter throughout 2022. We remain differentiated by our service line diversity, forward-leaning technology, geographic diversity, and balanced commodity exposure. The shift of our top-line revenue derivation towards completion tools and technology over the last several years has significantly reduced the capital and labor needs of the Company to generate earnings growth. We have proven our ability to grow earnings while emerging from a downturn and believe our asset-light business model will enable us to capitalize on an improving market environment.”
Operating Results
For the year ended December 31, 2021, the Company reported revenues of $349.4 million, net loss of $(64.6) million, or $(2.13) per basic share, and adjusted EBITDA of $5.2 million. Full year 2021 adjusted net loss was $(80.6) million, or $(2.66) per adjusted basic share. For the full year 2021, the Company reported gross loss of $(1.6) million and adjusted gross profit^D^ of $41.4 million. For the year ended December 31, 2021, the Company generated ROIC^E^ of (16.7)%.
During the fourth quarter of 2021, the Company reported revenues of $105.1 million, gross profit of $4.7 million and adjusted gross profit of $14.9 million. During the fourth quarter, the Company generated ROIC of (11.4)%.
During the fourth quarter of 2021, the Company reported selling, general and administrative (“SG&A”) expense of $11.8 million, compared to $11.1 million for the third quarter of 2021. For the year ended December 31, 2021, the Company reported SG&A expense of $45.3 million. Depreciation and amortization expense (“D&A”) in the fourth quarter of 2021 was $10.7 million, compared to $11.0 million for the third quarter of 2021. For the year ended December 31, 2021, the Company reported D&A expense of $45.0 million.
The Company recognized an income tax benefit of approximately $25 thousand for the year, resulting in an effective tax rate of .01% for 2021. Our tax benefit for 2021 is primarily the result of our tax position in state and foreign tax jurisdictions.
Liquidity andCapital Expenditures
For the year ended December 31, 2021, the Company reported net cash used in operating activities of $(40.4) million.****For the year ended December 31, 2021, the Company reported total capital expenditures of $14.8 million, which fell below management’s original full year 2021 guidance of $15-$20 million.
As of December 31, 2021, Nine’s cash and cash equivalents were $21.5 million, and the Company had $43.2 million of availability under the revolving credit facility, resulting in a total liquidity position of $64.7 million as of December 31, 2021. On December 31, 2021, the Company had $15.0 million of borrowings under the 2018 ABL Credit Facility and has subsequently borrowed an additional $5.0 million.
| ^ABCDE^ | See end of press release for definitions |
|---|
Conference Call Information
The call is scheduled for Tuesday, March 8, 2022, 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 March 22, 2022, and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13726409.
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 level of capital spending and well completions by the onshore oil and natural gas industry, which has been and may again be affected by the COVID-19 pandemic and, related economic repercussions and which may be affected by geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war or terrorism in oil producing countries or regions, particularly Russia, the Middle East, South America and Africa; the ability of the OPEC+ countries to agree on and comply with supply limitations; 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 manage 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, technical personnel and other skilled and qualified workers; 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 | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br>2021 | September 30,<br>2021 | 2021 | 2020 | |||||||||
| Revenues | $ | 105,093 | $ | 92,868 | $ | 349,419 | $ | 310,851 | ||||
| Cost and expenses | ||||||||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 90,192 | 78,879 | 307,992 | 302,157 | ||||||||
| General and administrative expenses | 11,796 | 11,114 | 45,301 | 49,346 | ||||||||
| Depreciation | 6,757 | 6,921 | 28,905 | 32,431 | ||||||||
| Amortization of intangibles | 3,904 | 4,029 | 16,116 | 16,467 | ||||||||
| Impairment of goodwill | — | — | — | 296,196 | ||||||||
| Loss on revaluation of contingent liabilities | 584 | 21 | 460 | 276 | ||||||||
| (Gain) loss on sale of property and equipment | — | (17 | ) | 660 | (2,857 | ) | ||||||
| Loss from operations | (8,140 | ) | (8,079 | ) | (50,015 | ) | (383,165 | ) | ||||
| Interest expense | 7,993 | 7,968 | 32,527 | 36,759 | ||||||||
| Interest income | (2 | ) | (3 | ) | (26 | ) | (615 | ) | ||||
| Gain on extinguishment of debt | — | — | (17,618 | ) | (37,841 | ) | ||||||
| Other income | (195 | ) | (34 | ) | (298 | ) | (62 | ) | ||||
| Loss before income taxes | (15,936 | ) | (16,010 | ) | (64,600 | ) | (381,406 | ) | ||||
| Provision (benefit) for income taxes | (188 | ) | 41 | (25 | ) | (2,458 | ) | |||||
| Net loss | $ | (15,748 | ) | $ | (16,051 | ) | $ | (64,575 | ) | $ | (378,948 | ) |
| Loss per share | ||||||||||||
| Basic | $ | (0.52 | ) | $ | (0.53 | ) | $ | (2.13 | ) | $ | (12.74 | ) |
| Diluted | $ | (0.52 | ) | $ | (0.53 | ) | $ | (2.13 | ) | $ | (12.74 | ) |
| Weighted average shares outstanding | ||||||||||||
| Basic | 30,452,049 | 30,449,286 | 30,302,925 | 29,744,830 | ||||||||
| Diluted | 30,452,049 | 30,449,286 | 30,302,925 | 29,744,830 | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | (2 | ) | $ | (102 | ) | $ | (34 | ) | $ | (34 | ) |
| Total other comprehensive loss, net of tax | (2 | ) | (102 | ) | (34 | ) | (34 | ) | ||||
| Total comprehensive loss | $ | (15,750 | ) | $ | (16,153 | ) | $ | (64,609 | ) | $ | (378,982 | ) |
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| 2020 | |||||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 21,509 | $ | 68,864 | ||
| Accounts receivable, net | 64,025 | 41,235 | |||
| Income taxes receivable | 1,393 | 1,392 | |||
| Inventories, net | 42,180 | 38,402 | |||
| Prepaid expenses and other current assets | 10,195 | 16,270 | |||
| Total current assets | 139,302 | 166,163 | |||
| Property and equipment, net | 86,958 | 102,429 | |||
| Operating lease<br>right-of-use assets, net | 35,117 | 36,360 | |||
| Finance lease<br>right-of-use assets, net | 1,445 | 1,816 | |||
| Intangible assets, net | 116,408 | 132,524 | |||
| Other long-term assets | 2,383 | 3,308 | |||
| Total assets | 381,613 | $ | 442,600 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities | |||||
| Accounts payable | 28,680 | $ | 18,140 | ||
| Accrued expenses | 18,519 | 17,139 | |||
| Current portion of long-term debt | 2,093 | 844 | |||
| Current portion of operating lease obligations | 6,091 | 6,200 | |||
| Current portion of finance lease obligations | 1,070 | 1,092 | |||
| Total current liabilities | 56,453 | 43,415 | |||
| Long-term liabilities | |||||
| Long-term debt | 332,314 | 342,714 | |||
| Long-term operating lease obligations | 30,435 | 32,295 | |||
| Long-term finance lease obligations | 65 | 1,109 | |||
| Other long-term liabilities | 1,613 | 2,658 | |||
| Total liabilities | 420,880 | 422,191 | |||
| Stockholders’ equity | |||||
| Common stock (120,000,000 shares authorized at .01 par value; 32,826,325 and 31,557,809 shares<br>issued and outstanding at December 31, 2021 and December 31, 2020, respectively) | 328 | 316 | |||
| Additional paid-in capital | 773,350 | 768,429 | |||
| Accumulated other comprehensive loss | (4,535 | ) | (4,501 | ) | |
| Accumulated deficit | (808,410 | ) | (743,835 | ) | |
| Total stockholders’ equity | (39,267 | ) | 20,409 | ||
| Total liabilities and stockholders’ equity | 381,613 | $ | 442,600 |
All values are in US Dollars.
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Cash flows from operating activities | ||||||
| Net loss | $ | (64,575 | ) | $ | (378,948 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||
| Depreciation | 28,905 | 32,431 | ||||
| Amortization of intangibles | 16,116 | 16,467 | ||||
| Amortization of deferred financing costs | 2,602 | 2,836 | ||||
| Amortization of operating leases | 8,020 | 8,897 | ||||
| Provision for (recovery of) doubtful accounts | (229 | ) | 2,820 | |||
| Benefit for deferred income taxes | — | (1,588 | ) | |||
| Provision for inventory obsolescence | 4,831 | 8,957 | ||||
| Impairment of goodwill | — | 296,196 | ||||
| Impairment of operating lease | — | 466 | ||||
| Stock-based compensation expense | 5,406 | 9,744 | ||||
| Gain on extinguishment of debt | (17,618 | ) | (37,841 | ) | ||
| (Gain) loss on sale of property and equipment | 660 | (2,857 | ) | |||
| Loss on revaluation of contingent liabilities | 460 | 276 | ||||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||
| Accounts receivable, net | (22,540 | ) | 52,914 | |||
| Inventories, net | (8,608 | ) | 13,600 | |||
| Prepaid expenses and other current assets | 3,350 | 1,368 | ||||
| Accounts payable and accrued expenses | 12,447 | (25,456 | ) | |||
| Income taxes receivable/payable | — | (732 | ) | |||
| Other assets and liabilities | (9,643 | ) | (4,451 | ) | ||
| Net cash used in operating activities | (40,416 | ) | (4,901 | ) | ||
| Cash flows from investing activities | ||||||
| Proceeds from sales of property and equipment | 3,492 | 6,402 | ||||
| Proceeds from property and equipment casualty losses | — | 1,237 | ||||
| Purchases of property and equipment | (15,413 | ) | (9,417 | ) | ||
| Net cash used in investing activities | (11,921 | ) | (1,778 | ) | ||
| Cash flows from financing activities | ||||||
| Proceeds from 2018 ABL Credit Facility | 15,000 | — | ||||
| Payments on Magnum Promissory Notes | (844 | ) | (281 | ) | ||
| Purchases of Senior Notes | (8,355 | ) | (14,561 | ) | ||
| Proceeds from short-term debt | 1,513 | — | ||||
| Payments of short-term debt | (545 | ) | — | |||
| Payments on finance leases | (1,094 | ) | (995 | ) | ||
| Payments of contingent liabilities | (154 | ) | (1,390 | ) | ||
| Vesting of restricted stock | (473 | ) | (158 | ) | ||
| Net cash provided by (used in) financing activities | 5,048 | (17,385 | ) | |||
| Impact of foreign currency exchange on cash | (66 | ) | (61 | ) | ||
| Net decrease in cash and cash equivalents | (47,355 | ) | (24,125 | ) | ||
| Cash and cash equivalents | ||||||
| Beginning of period | 68,864 | 92,989 | ||||
| End of period | $ | 21,509 | $ | 68,864 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br>2021 | September 30,<br>2021 | 2021 | 2020 | |||||||
| Calculation of gross profit (loss) | ||||||||||
| Revenues | $ | 105,093 | $ | 92,868 | $ | 349,419 | $ | 310,851 | ||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 90,192 | 78,879 | 307,992 | 302,157 | ||||||
| Depreciation (related to cost of revenues) | 6,284 | 6,437 | 26,882 | 30,161 | ||||||
| Amortization of intangibles | 3,904 | 4,029 | 16,116 | 16,467 | ||||||
| Gross profit (loss) | $ | 4,713 | $ | 3,523 | $ | (1,571 | ) | $ | (37,934 | ) |
| Adjusted gross profit (loss) reconciliation | ||||||||||
| Gross profit (loss) | $ | 4,713 | $ | 3,523 | $ | (1,571 | ) | $ | (37,934 | ) |
| Depreciation (related to cost of revenues) | 6,284 | 6,437 | 26,882 | 30,161 | ||||||
| Amortization of intangibles | 3,904 | 4,029 | 16,116 | 16,467 | ||||||
| Adjusted gross profit | $ | 14,901 | $ | 13,989 | $ | 41,427 | $ | 8,694 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br>2021 | September 30,<br>2021 | 2021 | 2020 | |||||||||
| EBITDA reconciliation: | ||||||||||||
| Net loss | $ | (15,748 | ) | $ | (16,051 | ) | $ | (64,575 | ) | $ | (378,948 | ) |
| Interest expense | 7,993 | 7,968 | 32,527 | 36,759 | ||||||||
| Interest income | (2 | ) | (3 | ) | (26 | ) | (615 | ) | ||||
| Depreciation | 6,757 | 6,921 | 28,905 | 32,431 | ||||||||
| Amortization of intangibles | 3,904 | 4,029 | 16,116 | 16,467 | ||||||||
| Provision (benefit) for income taxes | (188 | ) | 41 | (25 | ) | (2,458 | ) | |||||
| EBITDA | $ | 2,716 | $ | 2,905 | $ | 12,922 | $ | (296,364 | ) | |||
| Impairment of goodwill | — | — | — | 296,196 | ||||||||
| Transaction and integration costs | — | — | — | 146 | ||||||||
| Gain on extinguishment of debt | — | — | (17,618 | ) | (37,841 | ) | ||||||
| Loss on revaluation of contingent liabilities (1) | 584 | 21 | 460 | 276 | ||||||||
| Restructuring charges | — | 375 | 1,588 | 4,907 | ||||||||
| Stock-based compensation expense | 1,215 | 1,153 | 5,406 | 9,744 | ||||||||
| (Gain) loss on sale of property and equipment | — | (17 | ) | 660 | (2,857 | ) | ||||||
| Legal fees and settlements (2) | 45 | 17 | 1,809 | 39 | ||||||||
| Adjusted EBITDA | $ | 4,560 | $ | 4,454 | $ | 5,227 | $ | (25,754 | ) | |||
| (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 | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br>2021 | September 30,<br>2021 | 2021 | 2020 | |||||||||
| Net loss | $ | (15,748 | ) | $ | (16,051 | ) | $ | (64,575 | ) | $ | (378,948 | ) |
| Add back: | ||||||||||||
| Impairment of goodwill | — | — | — | 296,196 | ||||||||
| Interest expense | 7,993 | 7,968 | 32,527 | 36,759 | ||||||||
| Interest income | (2 | ) | (3 | ) | (26 | ) | (615 | ) | ||||
| Transaction and integration costs | — | — | — | 146 | ||||||||
| Restructuring charges | — | 375 | 1,588 | 4,907 | ||||||||
| Gain on extinguishment of debt | — | — | (17,618 | ) | (37,841 | ) | ||||||
| Benefit for deferred income taxes | — | — | — | (1,588 | ) | |||||||
| After-tax net operating loss | $ | (7,757 | ) | $ | (7,711 | ) | $ | (48,104 | ) | $ | (80,984 | ) |
| Total capital as of prior period-end: | ||||||||||||
| Total stockholders’ equity | $ | (24,732 | ) | $ | (9,731 | ) | $ | 20,409 | $ | 389,877 | ||
| Total debt | 321,750 | 322,031 | 348,637 | 400,000 | ||||||||
| Less: cash and cash equivalents | (29,969 | ) | (33,128 | ) | (68,864 | ) | (92,989 | ) | ||||
| Total capital as of prior period-end: | $ | 267,049 | $ | 279,172 | $ | 300,182 | $ | 696,888 | ||||
| Total capital as of period-end: | ||||||||||||
| Total stockholders’ equity | $ | (39,267 | ) | $ | (24,732 | ) | $ | (39,267 | ) | $ | 20,409 | |
| Total debt | 337,436 | 321,750 | 337,436 | 348,637 | ||||||||
| Less: cash and cash equivalents | (21,509 | ) | (29,969 | ) | (21,509 | ) | (68,864 | ) | ||||
| Total capital as of period-end: | $ | 276,660 | $ | 267,049 | $ | 276,660 | $ | 300,182 | ||||
| Average total capital | $ | 271,855 | $ | 273,111 | $ | 288,421 | $ | 498,535 | ||||
| ROIC | -11.4 | % | -11.3 | % | -16.7 | % | -16.2 | % |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) AND ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br>2021 | September 30,<br>2021 | 2021 | 2020 | |||||||||
| Reconciliation of adjusted net income (loss): | ||||||||||||
| Net loss | $ | (15,748 | ) | $ | (16,051 | ) | $ | (64,575 | ) | $ | (378,948 | ) |
| Add back: | ||||||||||||
| Impairment of goodwill (a) | — | — | — | 296,196 | ||||||||
| Transaction and integration costs (b) | — | — | — | 146 | ||||||||
| Gain on extinguishment of debt (c) | — | — | (17,618 | ) | (37,841 | ) | ||||||
| Restructuring charges | — | 375 | 1,588 | 4,907 | ||||||||
| Less: Tax benefit from add backs | — | — | — | (2,547 | ) | |||||||
| Adjusted net loss | $ | (15,748 | ) | $ | (15,676 | ) | $ | (80,605 | ) | $ | (118,087 | ) |
| Weighted average shares | ||||||||||||
| Weighted average shares outstanding for basic and adjusted basic earnings (loss) per<br>share | 30,452,049 | 30,449,286 | 30,302,925 | 29,744,830 | ||||||||
| Earnings (loss) per share: | ||||||||||||
| Basic loss per share | $ | (0.52 | ) | $ | (0.53 | ) | $ | (2.13 | ) | $ | (12.74 | ) |
| Adjusted basic loss per share | $ | (0.52 | ) | $ | (0.51 | ) | $ | (2.66 | ) | $ | (3.97 | ) |
| (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. | |||||||||||
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| (b) | Amounts represent transaction and integration costs, including the cost of inventory that was stepped up to<br>fair value during purchase accounting, associated with 2018 acquisitions. | |||||||||||
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| (c) | Amount primarily represents the difference between the repurchase price and the carrying amount of Senior Notes<br>repurchased in 2021 and 2020 | |||||||||||
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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. | |||||||||||
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