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, 2024
NINE ENERGY SERVICE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38347 | 80-0759121 |
|---|---|---|
| (State or Other Jurisdiction<br> <br>of Incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| 2001 Kirby Drive, Suite 200<br>Houston, Texas | 77019 | |
| --- | --- | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (281) 730-5100
Not Applicable
(Former name or former address, if changed since last report)
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, 2024, 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, 2023. 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<br>No. | Description |
|---|---|
| 99.1 | Nine Energy Service, Inc. press release dated March 7, 2024. |
| 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, 2024 | 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 Fourth Quarter and Full Year 2023 Results
| • | Full year 2023 revenue, net loss and adjusted EBITDA^A^ of<br>$609.5 million, $(32.2) million and $73.0 million, respectively |
|---|---|
| • | Revenue, net loss and adjusted EBITDA of $144.1 million, $(10.3) million and $14.6 million,<br>respectively, for the fourth quarter of 2023 |
| --- | --- |
| • | Increased total number of Stinger^TM^ Dissolvable units sold<br>by approximately 18% year-over-year |
| --- | --- |
| • | Increased international revenue by approximately 16% year-over-year |
| --- | --- |
HOUSTON – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported fourth quarter 2023 revenues of $144.1 million, net loss of $(10.3) million, or $(0.30) per diluted share and $(0.30) per basic share, and adjusted EBITDA of $14.6 million. The Company had provided original fourth quarter 2023 revenue guidance between $137.0 and $147.0 million, with actual results coming within the provided range.
“Fourth quarter revenue was in-line with expectations, coming within the upper end of our original guidance,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service.
“The oil and gas market continued to be volatile in 2023, with the US rig count declining by approximately 20% since the end of 2022. Many of these rig declines came out of the gassy basins in conjunction with the average natural gas price declining by over 60% year-over-year. 2023 once again illustrated that the market can shift quickly, which is why we have created a nimble business that can flex quickly with market conditions.”
“Despite a challenging market backdrop, the Nine team accomplished a lot in 2023, including our 2028 senior secured notes offering, extension of our ABL credit facility and full redemption of our prior senior notes due 2023. This new capital structure gives us additional flexibility and de-levering continues to be a high priority for Nine.”
“I am extremely proud of our completion tool offering and what we have been able to accomplish in 2023 with both our existing tools and the introduction of new tools in the domestic and international markets. We have surpassed over 370,000 Scorpion^TM^ Composite Plugs run since we acquired the technology in 2015. Despite activity declines year-over-year, we increased the total number of Stinger^TM^ Dissolvable units sold by approximately 18% and increased our total international revenue by approximately 16% year-over-year. We also introduced new technology with our Pincer Hybrid Frac Plug and look forward to gaining market share with this tool in 2024.”
“During 2023, we made significant progress with ESG, quantifying the Company’s greenhouse gas emissions for 2021 and 2022 and we will have 2023 data in 2024. We are identifying gaps and procedures to make the collection of this data more accurate and efficient, as well as developing a strategy on how to potentially reduce our emissions moving forward.”
“Turning to Q4, activity levels and pricing were mostly stable versus Q3. We had a significant increase in our international tools sales quarter-over-quarter, which helped drive strong incremental margins.”
“The market can change quickly, but I do not foresee any catalyst for activity increases in the near-term. Q1 activity levels and pricing have been mostly flat compared to Q4, in conjunction with the US rig count. Because of this, we expect Q1 revenue to be relatively flat compared with Q4.”
“We will continue to focus on our strategy of being an asset and labor light business that couples excellent service and forward-leaning technology to help our customers lower their cost to complete. Our team can navigate sharp market changes and quickly capitalize on improving markets. Our service and geographic diversity provides us balance and we are focused on diversifying more of our top-line revenue streams to completion tools and the international markets.”
Operating Results
For the year ended December 31, 2023, the Company reported revenues of $609.5 million, net loss of $(32.2) million, or $(0.97) per diluted share and $(0.97) per basic share, and adjusted EBITDA of $73.0 million. For the full year 2023, the Company reported gross profit of $80.2 million and adjusted gross profit^B^ of $118.8 million. For the year ended December 31, 2023, the Company generated ROIC of (10.8)% and adjusted ROIC^C^ of 8.8%.
During the fourth quarter of 2023, the Company reported revenues of $144.1 million, gross profit of $16.2 million and adjusted gross profit of $25.6 million. During the fourth quarter, the Company generated ROIC of (3.4)% and adjusted ROIC of 3.9%.
During the fourth quarter of 2023, the Company reported general and administrative (“G&A”) expense of $12.8 million. For the year ended December 31, 2023, the Company reported G&A expense of $59.8 million. Depreciation and amortization expense (“D&A”) in the fourth quarter of 2023 was $9.8 million. For the year ended December 31, 2023, the Company reported D&A expense of $40.7 million.
The Company’s tax provision was approximately $0.6 million for the year ended December 31, 2023. The provision for 2023 is the result of the Company’s tax position in state and non-U.S. tax jurisdictions.
Liquidity and Capital Expenditures
For the year ended December 31, 2023, the Company reported net cash provided by operating activities of $45.5 million. **** For the year ended December 31, 2023, the Company reported total capital expenditures of approximately $22.3 million, which was below management’s original full year 2023 guidance of $25 to $35 million.
As of December 31, 2023, Nine’s cash and cash equivalents were $30.8 million, and the Company had $28.1 million of availability under the revolving credit facility, resulting in a total liquidity position of $58.9 million as of December 31, 2023. On December 31, 2023, the Company had $57.0 million of borrowings under the revolving credit facility. Subsequent to December 31, 2023, the Company paid down an additional $5.0 million of borrowings on the revolving credit facility.
On November 6, 2023, the Company entered into an Equity Distribution Agreement. During the quarter ended December 31, 2023, no sales were made under the Equity Distribution Agreement.
^ABC^See end of press release for definitions of these non-GAAP measures. These measures are intended to provide additional information only and should not be considered as alternatives to, or more meaningful than, net income (loss), gross profit or any other measure determined in accordance with GAAP. Certain items excluded from these measures are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets. Our computation of these measures may not be comparable to other similarly titled measures of other companies.
Conference Call Information
The call is scheduled for Friday, March 8, 2024, 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, 2024 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13739256.
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, Haynesville, 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 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, as well as actions by members of the Organization of the Petroleum Exporting Countries and other oil exporting nations; general economic conditions and inflation, particularly, cost inflation with labor or materials; equipment and supply chain constraints; the Company’s ability to attract and retain key employees, technical personnel and other skilled and qualified workers; the Company’s ability to maintain existing prices or implement price increases on our products and services; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; conditions inherent in the oilfield services industry, such as equipment defects, liabilities arising from accidents or damage involving our fleet of trucks or other equipment, explosions and uncontrollable flows of gas or well fluids, and loss of well control; the Company’s ability to implement and commercialize new technologies, services and tools; the Company’s ability to grow its completion tool business domestically and internationally; the adequacy of the Company’s capital resources and liquidity, including the ability to meet its debt obligations; the Company’s ability to manage capital expenditures; the Company’s ability to accurately predict customer demand, including that of its international customers; the loss of, or interruption or delay in operations by, one or more significant customers, including certain of the Company’s customers outside of the United States; the loss of or interruption in operations of one or more key suppliers; the incurrence of significant costs and liabilities resulting from litigation; cybersecurity risks; changes in laws or regulations regarding issues of health, safety and protection of the environment; 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 31,2023 | September 30,2023 | 2023 | 2022 | |||||||||
| Revenues | $ | 144,073 | $ | 140,617 | $ | 609,526 | $ | 593,382 | ||||
| Cost and expenses | ||||||||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 118,514 | 117,676 | 490,750 | 457,093 | ||||||||
| General and administrative expenses | 12,810 | 13,060 | 59,817 | 51,653 | ||||||||
| Depreciation | 7,003 | 7,285 | 29,141 | 26,784 | ||||||||
| Amortization of intangibles | 2,829 | 2,895 | 11,516 | 13,463 | ||||||||
| Loss on revaluation of contingent liability | 25 | 493 | 437 | 454 | ||||||||
| Loss on sale of property and equipment | 699 | 21 | 292 | 367 | ||||||||
| Income (loss) from operations | 2,193 | (813 | ) | 17,573 | 43,568 | |||||||
| Interest expense | 12,813 | 12,858 | 51,119 | 32,486 | ||||||||
| Interest income | (324 | ) | (462 | ) | (1,270 | ) | (305 | ) | ||||
| Gain on extinguishment of debt | — | — | — | (2,843 | ) | |||||||
| Other income | (162 | ) | (162 | ) | (648 | ) | (709 | ) | ||||
| Income (loss) before income taxes | (10,134 | ) | (13,047 | ) | (31,628 | ) | 14,939 | |||||
| Provision for income taxes | 171 | 215 | 585 | 546 | ||||||||
| Net income (loss) | $ | (10,305 | ) | $ | (13,262 | ) | $ | (32,213 | ) | $ | 14,393 | |
| Earnings (loss) per share | ||||||||||||
| Basic | $ | (0.30 | ) | $ | (0.39 | ) | $ | (0.97 | ) | $ | 0.47 | |
| Diluted | $ | (0.30 | ) | $ | (0.39 | ) | $ | (0.97 | ) | $ | 0.45 | |
| Weighted average shares outstanding | ||||||||||||
| Basic | 33,850,317 | 33,659,386 | 33,282,234 | 30,930,890 | ||||||||
| Diluted | 33,850,317 | 33,659,386 | 33,282,234 | 32,251,398 | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | 213 | $ | (22 | ) | $ | (31 | ) | $ | (293 | ) | |
| Total other comprehensive income (loss), net of tax | 213 | (22 | ) | (31 | ) | (293 | ) | |||||
| Total comprehensive income (loss) | $ | (10,092 | ) | $ | (13,284 | ) | $ | (32,244 | ) | $ | 14,100 |
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| 2022 | |||||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 30,840 | $ | 17,445 | ||
| Accounts receivable, net | 88,449 | 105,277 | |||
| Income taxes receivable | 490 | 741 | |||
| Inventories, net | 54,486 | 62,045 | |||
| Prepaid expenses and other current assets | 9,368 | 11,217 | |||
| Total current assets | 183,633 | 196,725 | |||
| Property and equipment, net | 82,366 | 89,717 | |||
| Operating lease right of use assets, net | 42,056 | 36,336 | |||
| Finance lease right of use assets, net | 51 | 547 | |||
| Intangible assets, net | 90,429 | 101,945 | |||
| Other long-term assets | 3,449 | 1,564 | |||
| Total assets | 401,984 | $ | 426,834 | ||
| Liabilities and Stockholders’ Equity (Deficit) | |||||
| Current liabilities | |||||
| Accounts payable | 33,379 | $ | 42,211 | ||
| Accrued expenses | 36,171 | 28,391 | |||
| Current portion of long-term debt | 2,859 | 2,267 | |||
| Current portion of operating lease obligations | 10,314 | 7,956 | |||
| Current portion of finance lease obligations | 31 | 178 | |||
| Total current liabilities | 82,754 | 81,003 | |||
| Long-term liabilities | |||||
| Long-term debt | 320,520 | 338,031 | |||
| Long-term operating lease obligations | 32,594 | 29,370 | |||
| Other long-term liabilities | 1,746 | 1,937 | |||
| Total liabilities | 437,614 | 450,341 | |||
| Stockholders’ equity (deficit) | |||||
| Common stock (120,000,000 shares authorized at .01 par value; 35,324,861 and 33,221,266 shares<br>issued and outstanding at December 31, 2023 and December 31, 2022, respectively) | 353 | 332 | |||
| Additional paid-in capital | 795,106 | 775,006 | |||
| Accumulated other comprehensive loss | (4,859 | ) | (4,828 | ) | |
| Accumulated deficit | (826,230 | ) | (794,017 | ) | |
| Total stockholders’ equity (deficit) | (35,630 | ) | (23,507 | ) | |
| Total liabilities and stockholders’ equity (deficit) | 401,984 | $ | 426,834 |
All values are in US Dollars.
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Cash flows from operating activities | ||||||
| Net income (loss) | $ | (32,213 | ) | $ | 14,393 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||
| Depreciation | 29,141 | 26,784 | ||||
| Amortization of intangibles | 11,516 | 13,463 | ||||
| Amortization of deferred financing costs | 7,413 | 2,545 | ||||
| Amortization of operating leases | 12,524 | 8,670 | ||||
| Provision for (recovery of) doubtful accounts | 333 | (166 | ) | |||
| Provision for inventory obsolescence | 2,320 | 2,966 | ||||
| Abandonment of in process research and development | — | 1,000 | ||||
| Stock-based compensation expense | 2,169 | 2,440 | ||||
| Gain on extinguishment of debt | — | (2,843 | ) | |||
| Loss on sale of property and equipment | 292 | 367 | ||||
| Loss on revaluation of contingent liability | 437 | 454 | ||||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||
| Accounts receivable, net | 16,489 | (41,114 | ) | |||
| Inventories, net | 5,219 | (22,968 | ) | |||
| Prepaid expenses and other current assets | 1,148 | (818 | ) | |||
| Accounts payable and accrued expenses | 1,058 | 19,476 | ||||
| Income taxes receivable/payable | 252 | 655 | ||||
| Operating lease obligations | (12,344 | ) | (8,698 | ) | ||
| Other assets and liabilities | (245 | ) | 66 | |||
| Net cash provided by operating activities | 45,509 | 16,672 | ||||
| Cash flows from investing activities | ||||||
| Proceeds from sales of property and equipment | 606 | 2,959 | ||||
| Proceeds from property and equipment casualty losses | 840 | 175 | ||||
| Purchases of property and equipment | (24,603 | ) | (28,551 | ) | ||
| Net cash used in investing activities | (23,157 | ) | (25,417 | ) | ||
| Cash flows from financing activities | ||||||
| Proceeds from ABL credit facility | 40,000 | 24,000 | ||||
| Payments on ABL credit facility | (15,000 | ) | (7,000 | ) | ||
| Proceeds from units offering, net of discount | 279,750 | — | ||||
| Redemption of senior notes due 2023 | (307,339 | ) | — | |||
| Purchases of senior notes due 2023 | — | (10,081 | ) | |||
| Cost of debt issuance | (6,290 | ) | — | |||
| Payments on Magnum promissory notes | — | (1,125 | ) | |||
| Proceeds from short-term debt | 4,733 | 4,086 | ||||
| Payments of short-term debt | (4,141 | ) | (2,787 | ) | ||
| Payments on finance leases | (217 | ) | (1,269 | ) | ||
| Payments of contingent liability | (387 | ) | (195 | ) | ||
| Vesting of restricted stock and stock units | (2 | ) | (780 | ) | ||
| Net cash provided by (used in) financing activities | (8,893 | ) | 4,849 | |||
| Impact of foreign currency exchange on cash | (64 | ) | (168 | ) | ||
| Net increase (decrease) in cash and cash equivalents | 13,395 | (4,064 | ) | |||
| Cash and cash equivalents | ||||||
| Beginning of period | 17,445 | 21,509 | ||||
| End of period | $ | 30,840 | $ | 17,445 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,2023 | September 30,2023 | 2023 | 2022 | |||||||||
| Net income (loss) | $ | (10,305 | ) | $ | (13,262 | ) | $ | (32,213 | ) | $ | 14,393 | |
| Interest expense | 12,813 | 12,858 | 51,119 | 32,486 | ||||||||
| Interest income | (324 | ) | (462 | ) | (1,270 | ) | (305 | ) | ||||
| Depreciation | 7,003 | 7,285 | 29,141 | 26,784 | ||||||||
| Amortization of intangibles | 2,829 | 2,895 | 11,516 | 13,463 | ||||||||
| Provision for income taxes | 171 | 215 | 585 | 546 | ||||||||
| EBITDA | $ | 12,187 | $ | 9,529 | $ | 58,878 | $ | 87,367 | ||||
| Gain on extinguishment of debt | — | — | — | (2,843 | ) | |||||||
| Loss on revaluation of contingent liability (1) | 25 | 493 | 437 | 454 | ||||||||
| Restructuring charges | 823 | 315 | 2,027 | 3,393 | ||||||||
| Stock-based compensation and cash award expense | 898 | 1,208 | 4,867 | 4,914 | ||||||||
| Certain refinancing costs (2) | — | — | 6,396 | — | ||||||||
| Loss on sale of property and equipment | 699 | 21 | 292 | 367 | ||||||||
| Legal fees and settlements (3) | 16 | 29 | 69 | 86 | ||||||||
| Adjusted EBITDA | $ | 14,648 | $ | 11,595 | $ | 72,966 | $ | 93,738 | ||||
| (1) | Amounts relate to the revaluation of contingent liability associated with a 2018 acquisition.<br> | |||||||||||
| --- | --- | |||||||||||
| (2) | Amounts represent fees and expenses relating to our units offering and other refinancing activities, including<br>cash incentive compensation to employees following the successful completion of the units offering, that were not capitalized. | |||||||||||
| --- | --- | |||||||||||
| (3) | 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 AND CALCULATION OF ADJUSTED ROIC
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,2023 | September 30,2023 | 2023 | 2022 | |||||||||
| Net income (loss) | $ | (10,305 | ) | $ | (13,262 | ) | $ | (32,213 | ) | $ | 14,393 | |
| Add back: | ||||||||||||
| Interest expense | 12,813 | 12,858 | 51,119 | 32,486 | ||||||||
| Interest income | (324 | ) | (462 | ) | (1,270 | ) | (305 | ) | ||||
| Certain refinancing costs (1) | — | — | 6,396 | — | ||||||||
| Restructuring charges | 823 | 315 | 2,027 | 3,393 | ||||||||
| Gain on extinguishment of debt | — | — | — | (2,843 | ) | |||||||
| Adjusted after-tax net operating income (loss)(2) | $ | 3,007 | $ | (551 | ) | $ | 26,059 | $ | 47,124 | |||
| Total capital as of prior period-end: | ||||||||||||
| Total stockholders’ deficit | $ | (26,116 | ) | $ | (13,412 | ) | $ | (23,507 | ) | $ | (39,267 | ) |
| Total debt | 357,000 | 372,329 | 341,606 | 337,436 | ||||||||
| Less: cash and cash equivalents | (12,159 | ) | (41,122 | ) | (17,445 | ) | (21,509 | ) | ||||
| Total capital as of prior period-end: | $ | 318,725 | $ | 317,795 | $ | 300,654 | $ | 276,660 | ||||
| Total capital as of period-end: | ||||||||||||
| Total stockholders’ deficit | $ | (35,630 | ) | $ | (26,116 | ) | $ | (35,630 | ) | $ | (23,507 | ) |
| Total debt | 359,859 | 357,000 | 359,859 | 341,606 | ||||||||
| Less: cash and cash equivalents | (30,840 | ) | (12,159 | ) | (30,840 | ) | (17,445 | ) | ||||
| Total capital as of period-end: | $ | 293,389 | $ | 318,725 | $ | 293,389 | $ | 300,654 | ||||
| Average total capital | $ | 306,057 | $ | 318,260 | $ | 297,022 | $ | 288,657 | ||||
| ROIC | -3.4 | % | -4.2 | % | -10.8 | % | 5.0 | % | ||||
| Adjusted ROIC (2) | 3.9 | % | -0.7 | % | 8.8 | % | 16.3 | % | ||||
| (1) | Amounts represent fees and expenses relating to our units offering and other refinancing activities, including<br>cash incentive compensation to employees following the successful completion of the units offering, that were not capitalized. | |||||||||||
| --- | --- | |||||||||||
| (2) | Previously, in our SEC filings, press releases and other investor materials issued prior to December 31,<br>2023, we referred to (a) Adjusted ROIC as ROIC and (b) adjusted after-tax net operating profit (loss) as after-tax net operating profit (loss). We have made no<br>changes to the manner in which these measures are calculated and have only revised the titles of these measures to more clearly identify them as non-GAAP measures. | |||||||||||
| --- | --- |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| December 31,2023 | September 30,2023 | 2023 | 2022 | |||||
| Calculation of gross profit: | ||||||||
| Revenues | $ | 144,073 | $ | 140,617 | $ | 609,526 | $ | 593,382 |
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 118,514 | 117,676 | 490,750 | 457,093 | ||||
| Depreciation (related to cost of revenues) | 6,513 | 6,775 | 27,101 | 24,909 | ||||
| Amortization of intangibles | 2,829 | 2,895 | 11,516 | 13,463 | ||||
| Gross profit | $ | 16,217 | $ | 13,271 | $ | 80,159 | $ | 97,917 |
| Adjusted gross profit reconciliation: | ||||||||
| Gross profit | $ | 16,217 | $ | 13,271 | $ | 80,159 | $ | 97,917 |
| Depreciation (related to cost of revenues) | 6,513 | 6,775 | 27,101 | 24,909 | ||||
| Amortization of intangibles | 2,829 | 2,895 | 11,516 | 13,463 | ||||
| Adjusted gross profit | $ | 25,559 | $ | 22,941 | $ | 118,776 | $ | 136,289 |
^A^Adjusted EBITDA is defined as EBITDA (which is net income (loss) before interest, taxes, and depreciation and amortization) further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) fees and expenses relating to our units offering and other refinancing activities, (iv) loss or gain on revaluation of contingent liabilities, (v) loss or gain on the extinguishment of debt, (vi) loss or gain on the sale of subsidiaries, (vii) restructuring charges, (viii) stock-based compensation and cash award expense, (ix) loss or gain on sale of property and equipment, and (x) 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 Gross Profit (Loss) is defined as revenues less cost of revenues excluding depreciation and 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 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 operating performance.
^C^Adjusted^^Return on Invested Capital (“Adjusted ROIC”) is defined as adjusted after-tax net operating profit (loss), divided by average total capital. We define adjusted after-tax net operating profit (loss), which is a non-GAAP measure, as net income (loss) plus (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) fees and expenses relating to our units offering and other refinancing activities, (iv) interest expense (income), (v) restructuring charges, (vi) loss (gain) on the sale of subsidiaries, (vii) loss (gain) on extinguishment of debt, and (viii) the provision (benefit) for deferred income taxes. We define total capital as book value of equity (deficit) plus the book value of debt less balance sheet cash and cash equivalents. We compute and use the average of the current and prior period-end total capital in determining Adjusted ROIC. Management believes Adjusted ROIC provides useful information 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, and management uses Adjusted ROIC to assist them in capital resource allocation decisions and in evaluating business performance. Previously, in our SEC filings press releases and other investor materials issued prior to December 31, 2023, we referred to (a) Adjusted ROIC as ROIC and (b) adjusted after-tax net operating profit (loss) as after-tax net operating profit (loss). We have made no changes to the manner in which these measures are calculated and have only revised the titles of these measures to more clearly identify them as non-GAAP measures.