8-K
Nine Energy Service, Inc. (NINE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENTREPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 2020
NINE ENERGY SERVICE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38347 | 80-0759121 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission<br><br><br>File Number) | (IRS Employer<br><br><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<br>Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the<br>Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on whichregistered |
|---|---|---|
| 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 August 6, 2020, Nine Energy Service, Inc. (the “Company”) issued a press release providing information on its results of operations for the quarter ended June 30, 2020. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K are being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits. |
| --- | --- |
| Exhibit No. | Description |
| --- | --- |
| 99.1 | Nine Energy Service, Inc. press release dated August 6, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 6, 2020 | NINE ENERGY SERVICE, INC. | |
|---|---|---|
| By: | /s/ Theodore R. Moore | |
| Theodore R. Moore<br> <br>Senior Vice President and<br>General Counsel |
EX-99.1
Exhibit 99.1
Nine Energy Service Announces Second Quarter 2020 Results
| • | As of June 30, 2020, cash and cash equivalents of $88.7 million |
|---|---|
| • | Revenue, net loss and adjusted EBITDA^A^ of<br>$52.7 million, $(24.2) million and $(11.0) million, respectively, for the second quarter of 2020 |
| --- | --- |
| • | Second quarter basic EPS of $(0.81) |
| --- | --- |
HOUSTON, August 6, 2020 – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported second quarter 2020 revenues of $52.7 million, net loss of $(24.2) million and adjusted EBITDA of $(11.0) million. For the second quarter 2020, adjusted net loss^B^ was $(33.7) million, or $(1.13) adjusted basic earnings per share^C^.
“In response to the extreme reduction in demand related to the COVID-19 pandemic, North American operators significantly cut capex, either reducing or completely suspending activity during the quarter,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “These reductions were most evident in the Permian Basin where total completions have declined by approximately 77% in June from the 2020 high in February. Activity reductions affected revenue and profitability across service lines, but with what we know today, we believe that we are at or near the trough from an activity perspective.”
“The preservation of cash and debt service remains our top priority. Because of our high variable cost and the asset-light make-up of Nine, we were able to quickly implement cost-cutting measures and will continue to adapt as the market dictates. Our focus on working capital management has resulted in a strong cash balance of $88.7 million as of June 30, 2020, as well as an undrawn revolver.”
“Our team continues to gain ground with the commercialization of our dissolvable plugs, receiving incremental trials with new customers and expanding market share with current customers despite the extremely difficult environment. The tool continues to perform very well, allowing us to maintain some momentum into this downturn. While the near-term outlook is very challenging, we believe that our technological innovations position us to thrive when activity recovers.”
Operating Results
During the second quarter of 2020, the Company reported revenues of $52.7 million with adjusted gross loss^D^ of $(4.0) million. During the second quarter, the Company generated ROIC^E^ of (27)%.
During the second quarter of 2020, the Company reported selling, general and administrative (“SG&A”) expense of $11.3 million, compared to $16.4 million for the first quarter of 2020. Depreciation and amortization expense (“D&A”) in the second quarter of 2020 was $12.6 million, compared to $12.7 million for the first quarter of 2020.
The Company recognized an income tax benefit of approximately $0.2 million in the second quarter of 2020 and an overall income tax benefit year-to-date of approximately $2.3 million, resulting in an effective tax rate of 0.7% against year-to-date results. The Company’s year-to-date income tax benefit is primarily a result of the discrete tax benefit recorded in the first quarter of 2020 related to the Coronavirus Aid, Relief, and Economic Security Act as well as the release of a portion of our valuation allowance due to goodwill impairment which was also recorded in the first quarter of 2020.
Liquidity and Capital Expenditures
During the second quarter of 2020, the Company reported net cash provided by operating activities of $1.6 million, compared to $0.7 million for the first quarter of 2020. **** Capital expenditures totaled $3.6 million during the second quarter of 2020.
As of June 30, 2020, Nine’s cash and cash equivalents were $88.7 million, and the Company had $44.8 million of availability under the revolving credit facility, which remains undrawn, resulting in a total liquidity position of $133.5 million as of June 30, 2020. Availability under the revolving credit facility decreased due to a reduction in accounts receivable and inventory balances. ^^
| ^ABCDE^ | See end of press release for definitions |
|---|
Conference Call Information
The call is scheduled for Thursday, August 6, 2020 at 9:00 am Central Time. Participants may join the live conference call by dialing U.S. (Toll Free): (877) 524-8416 or International: (412) 902-1028 and asking for the “Nine Energy Service Earnings Call”. Participants are encouraged to dial into the conference call ten to fifteen minutes before the scheduled start time to avoid any delays entering the earnings call.
For those who cannot listen to the live call, a telephonic replay of the call will be available through August 20, 2020 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13697768.
About Nine Energy Service
Nine Energy Service is an oilfield services company that offers completion solutions within North America and abroad. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Serving the global oil and gas industry, Nine continues to differentiate itself through superior service quality, wellsite execution and cutting-edge technology. Nine is headquartered in Houston, Texas with operating facilities in the Permian, Eagle Ford, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus, Utica and Canada.
For more information on the Company, please visit Nine’s website at nineenergyservice.com.
Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. Forward-looking statements also include statements that refer to or are based on projections, uncertain events or assumptions. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, the severity and duration of the COVID-19 pandemic, related economic repercussions and the resulting negative impact on demand for oil and gas; the current significant surplus in the supply of oil and the ability of the OPEC+ countries to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry currently resulting from the impact of the foregoing factors, which is negatively impacting our business; operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; the Company’s ability to implement and commercialize new technologies, services and tools; the Company’s ability to grow its completion tool business; the Company’s ability to reduce capital expenditures; the Company’s ability to accurately predict customer demand; the loss of, or interruption or delay in operations by, one or more significant customers; the loss of or interruption in operations of one or more key suppliers; the adequacy of the Company’s capital resources and liquidity; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; the Company’s ability to successfully integrate recently acquired assets and operations and realize anticipated revenues, cost savings or other benefits thereof; and other factors described in the “Risk Factors” and “Business” sections of the Company’s most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.
Nine Energy Service Investor Contact:
Heather Schmidt
Vice President, Strategic Development, Investor Relations and Marketing
(281) 730-5113
investors@nineenergyservice.com
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| June 30, 2020 | March 31, 2020 | |||||
| Revenues | $ | 52,735 | $ | 146,624 | ||
| Cost and expenses | ||||||
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 56,703 | 126,008 | ||||
| General and administrative expenses | 11,284 | 16,395 | ||||
| Depreciation | 8,449 | 8,541 | ||||
| Amortization of intangibles | 4,116 | 4,169 | ||||
| Impairment of goodwill | — | 296,196 | ||||
| (Gain) loss on revaluation of contingent liabilities | 910 | (426 | ) | |||
| Gain on sale of property and equipment | (1,790 | ) | (575 | ) | ||
| Loss from operations | (26,937 | ) | (303,684 | ) | ||
| Interest expense | 9,186 | 9,828 | ||||
| Interest income | (179 | ) | (371 | ) | ||
| Gain on extinguishment of debt | (11,587 | ) | (10,116 | ) | ||
| Loss before income taxes | (24,357 | ) | (303,025 | ) | ||
| Benefit for income taxes | (186 | ) | (2,125 | ) | ||
| Net loss | $ | (24,171 | ) | $ | (300,900 | ) |
| Loss per share | ||||||
| Basic | $ | (0.81 | ) | $ | (10.22 | ) |
| Diluted | $ | (0.81 | ) | $ | (10.22 | ) |
| Weighted average shares outstanding | ||||||
| Basic | 29,844,240 | 29,430,475 | ||||
| Diluted | 29,844,240 | 29,430,475 | ||||
| Other comprehensive income (loss), net of tax | ||||||
| Foreign currency translation adjustments, net of tax of $0 and $0 | $ | 207 | $ | (603 | ) | |
| Total other comprehensive income (loss), net of tax | 207 | (603 | ) | |||
| Total comprehensive loss | $ | (23,964 | ) | $ | (301,503 | ) |
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| March 31, 2020 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 88,678 | $ | 90,116 | ||
| Accounts receivable, net | 39,376 | 92,645 | |||
| Income taxes receivable | 630 | 810 | |||
| Inventories, net | 59,333 | 63,113 | |||
| Prepaid expenses and other current assets | 19,291 | 14,977 | |||
| Total current assets | 207,308 | 261,661 | |||
| Property and equipment, net | 115,258 | 121,148 | |||
| Intangible assets, net | 140,706 | 144,822 | |||
| Other long-term assets | 5,587 | 7,377 | |||
| Total assets | 468,859 | $ | 535,008 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities | |||||
| Accounts payable | 11,114 | $ | 28,291 | ||
| Accrued expenses | 16,056 | 29,098 | |||
| Current portion of long-term debt | 563 | — | |||
| Current portion of capital lease obligations | 1,043 | 1,019 | |||
| Total current liabilities | 28,776 | 58,408 | |||
| Long-term liabilities | |||||
| Long-term debt | 365,632 | 379,007 | |||
| Long-term capital lease obligations | 1,667 | 1,937 | |||
| Other long-term liabilities | 2,834 | 3,805 | |||
| Total liabilities | 398,909 | 443,157 | |||
| Stockholders’ equity | |||||
| Common stock (120,000,000 shares authorized at .01 par value; 31,652,635 and 30,406,994 shares<br>issued and outstanding at June 30, 2020 and March 31, 2020, respectively) | 317 | 304 | |||
| Additional paid-in capital | 764,382 | 762,332 | |||
| Accumulated other comprehensive loss | (4,863 | ) | (5,070 | ) | |
| Accumulated deficit | (689,886 | ) | (665,715 | ) | |
| Total stockholders’ equity | 69,950 | 91,851 | |||
| Total liabilities and stockholders’ equity | 468,859 | $ | 535,008 |
All values are in US Dollars.
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| June 30, 2020 | March 31, 2020 | |||||
| Cash flows from operating activities | ||||||
| Net loss | $ | (24,171 | ) | $ | (300,900 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities | ||||||
| Depreciation | 8,449 | 8,541 | ||||
| Amortization of intangibles | 4,116 | 4,169 | ||||
| Amortization of deferred financing costs | 710 | 745 | ||||
| Provision for (recovery of) doubtful accounts | 1,741 | (288 | ) | |||
| Benefit for deferred income taxes | — | (1,588 | ) | |||
| Provision for inventory obsolescence | 241 | 271 | ||||
| Impairment of goodwill | — | 296,196 | ||||
| Stock-based compensation expense | 2,105 | 3,592 | ||||
| Gain on extinguishment of debt | (11,587 | ) | (10,116 | ) | ||
| Gain on sale of property and equipment | (1,790 | ) | (575 | ) | ||
| (Gain) loss on revaluation of contingent liabilities | 910 | (426 | ) | |||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||
| Accounts receivable, net | 51,585 | 4,458 | ||||
| Inventories, net | 3,610 | (2,651 | ) | |||
| Prepaid expenses and other current assets | (4,067 | ) | 2,409 | |||
| Accounts payable and accrued expenses | (32,943 | ) | (3,213 | ) | ||
| Income taxes receivable/payable | 180 | (150 | ) | |||
| Other assets and liabilities | 2,525 | 271 | ||||
| Net cash provided by operating activities | 1,614 | 745 | ||||
| Cash flows from investing activities | ||||||
| Proceeds from sales of property and equipment | 3,213 | 892 | ||||
| Proceeds from property and equipment casualty losses | 127 | 428 | ||||
| Purchases of property and equipment | (2,107 | ) | (785 | ) | ||
| Net cash provided by investing activities | 1,233 | 535 | ||||
| Cash flows from financing activities | ||||||
| Purchases of Senior Notes | (3,959 | ) | (3,455 | ) | ||
| Payments on capital leases | (246 | ) | (240 | ) | ||
| Payments of contingent liability | (108 | ) | (98 | ) | ||
| Vesting of restricted stock | (42 | ) | (115 | ) | ||
| Net cash used in financing activities | (4,355 | ) | (3,908 | ) | ||
| Impact of foreign currency exchange on cash | 70 | (245 | ) | |||
| Net decrease in cash and cash equivalents | (1,438 | ) | (2,873 | ) | ||
| Cash, cash equivalents and restricted cash | ||||||
| Beginning of period | 90,116 | 92,989 | ||||
| End of period | $ | 88,678 | $ | 90,116 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS)
(In Thousands)
(Unaudited)
| Three Months Ended | |||||
|---|---|---|---|---|---|
| June 30,<br>2020 | March 31,<br>2020 | ||||
| Calculation of gross profit (loss) | |||||
| Revenues | $ | 52,735 | $ | 146,624 | |
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 56,703 | 126,008 | |||
| Depreciation (related to cost of revenues) | 7,858 | 7,943 | |||
| Amortization of intangibles | 4,116 | 4,169 | |||
| Gross profit (loss) | $ | (15,942 | ) | $ | 8,504 |
| Adjusted gross profit (loss) reconciliation | |||||
| Gross profit (loss) | $ | (15,942 | ) | $ | 8,504 |
| Depreciation (related to cost of revenues) | 7,858 | 7,943 | |||
| Amortization of intangibles | 4,116 | 4,169 | |||
| Adjusted gross profit (loss) | $ | (3,968 | ) | $ | 20,616 |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| June 30, 2020 | March 31, 2020 | |||||
| EBITDA reconciliation: | ||||||
| Net loss | $ | (24,171 | ) | $ | (300,900 | ) |
| Interest expense | 9,186 | 9,828 | ||||
| Interest income | (179 | ) | (371 | ) | ||
| Depreciation | 8,449 | 8,541 | ||||
| Amortization of intangibles | 4,116 | 4,169 | ||||
| Benefit for income taxes | (186 | ) | (2,125 | ) | ||
| EBITDA | $ | (2,785 | ) | $ | (280,858 | ) |
| Impairment of goodwill | — | 296,196 | ||||
| Transaction and integration costs | — | 146 | ||||
| (Gain) loss on revaluation of contingent liabilities (1) | 910 | (426 | ) | |||
| Gain on extinguishment of debt | (11,587 | ) | (10,116 | ) | ||
| Restructuring charges | 2,094 | 2,329 | ||||
| Stock-based compensation expense | 2,105 | 3,592 | ||||
| Gain on sale of property and equipment | (1,790 | ) | (575 | ) | ||
| Legal fees and settlements (2) | 20 | 4 | ||||
| Adjusted EBITDA | $ | (11,033 | ) | $ | 10,292 | |
| (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)
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended | Three Months Ended | |||||
| June 30, 2020 | March 31, 2020 | |||||
| Net loss | $ | (24,171 | ) | $ | (300,900 | ) |
| Add back: | ||||||
| Impairment of goodwill | — | 296,196 | ||||
| Transaction and integration costs | — | 146 | ||||
| Interest expense | 9,186 | 9,828 | ||||
| Interest income | (179 | ) | (371 | ) | ||
| Restructuring charges | 2,094 | 2,329 | ||||
| Gain on extinguishment of debt | (11,587 | ) | (10,116 | ) | ||
| Benefit for deferred income taxes | — | (1,588 | ) | |||
| After-tax net operating loss | $ | (24,657 | ) | $ | (4,476 | ) |
| Total capital as of prior period-end: | ||||||
| Total stockholders’ equity | $ | 91,851 | $ | 389,877 | ||
| Total debt | 386,171 | 400,000 | ||||
| Less cash and cash equivalents | (90,116 | ) | (92,989 | ) | ||
| Total capital as of prior period-end | $ | 387,906 | $ | 696,888 | ||
| Total capital as of period-end: | ||||||
| Total stockholders’ equity | $ | 69,950 | $ | 91,851 | ||
| Total debt | 372,584 | 386,171 | ||||
| Less: cash and cash equivalents | (88,678 | ) | (90,116 | ) | ||
| Total capital as of period-end: | $ | 353,856 | $ | 387,906 | ||
| Average total capital | $ | 370,881 | $ | 542,397 | ||
| ROIC | -27 | % | -3 | % |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| June 30, 2020 | March 31, 2020 | |||||
| Reconciliation of adjusted net income (loss): | ||||||
| Net loss | $ | (24,171 | ) | $ | (300,900 | ) |
| Add back: | ||||||
| Impairment of goodwill (a) | — | 296,196 | ||||
| Transaction and integration costs (b) | — | 146 | ||||
| Restructuring charges | 2,094 | 2,329 | ||||
| Gain on extinguishment of debt (c) | (11,587 | ) | (10,116 | ) | ||
| Less: Tax benefit from add-backs | — | (2,547 | ) | |||
| Adjusted net loss | $ | (33,664 | ) | $ | (14,892 | ) |
| Weighted average shares | ||||||
| Weighted average shares outstanding for basic and adjusted basic earnings (loss) per<br>share | 29,844,240 | 29,430,475 | ||||
| Loss per share: | ||||||
| Basic loss per share | $ | (0.81 | ) | $ | (10.22 | ) |
| Adjusted basic loss per share | $ | (1.13 | ) | $ | (0.51 | ) |
| (a) | Impairment charges were driven by sharp declines in global crude oil demand and an economic recession<br>associated with the coronavirus pandemic, as well as sharp declines in oil and natural gas prices associated with international pricing and production disputes. | |||||
| --- | --- | |||||
| (b) | 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. | |||||
| --- | --- | |||||
| (c) | Amounts primarily represent the difference between the repurchase price and the carrying amount of senior notes<br>repurchased during the respective period. | |||||
| --- | --- |
^A^Adjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) loss or gain on revaluation of contingent liabilities, (iv) gain on the extinguishment of debt, (v) loss or gain on the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation expense, (viii) loss or gain on sale of property and equipment, and (ix) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business. Management believes Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments, acquisitions and dispositions and costs that are not reflective of the ongoing performance of our business.
^B^Adjusted Net Income (Loss) is defined as net income (loss) adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) restructuring charges, (iv) loss or gain on the sale of subsidiaries, (v) gain on the extinguishment of debt and (vi) tax impact of such adjustments. Management believes Adjusted Net Income (Loss) is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and helps identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.
^C^Adjusted Basic Earnings Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings Per Share is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions.
^D^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.
^E^Return on Invested Capital (“ROIC”) is defined as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) interest expense (income), (iv) restructuring charges, (v) loss or gain on the sale of subsidiaries, (vi) gain on extinguishment of debt, and (vii) the provision or benefit for deferred income taxes. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior period-end total capital for use in this analysis. Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. Management uses ROIC to assist them in making capital resource allocation decisions and in evaluating business performance.