Nine Energy Service Announces Third Quarter 2018 Results
HOUSTON--(BUSINESS WIRE)--Nov 12, 2018--Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported third quarter 2018 revenues of $218.4 million, net income of $13.7 million and adjusted EBITDA of $38.4 million. Third quarter 2018 revenues increased approximately 6% as compared to the second quarter 2018 revenues of $205.5 million. For the third quarter of 2018, the Company reported net income of $13.7 million, or $0.56 per diluted share. This compares to net income of $9.0 million, or $0.37 per diluted share in the second quarter of 2018. This represents an increase in net income of approximately 51% compared to second quarter 2018. The Company reported third quarter 2018 adjusted EBITDA of $38.4 million, an increase of approximately 25% compared to second quarter 2018 adjusted EBITDA of $30.6 million, and represented the seventh sequential quarterly increase. The Company had provided original third quarter 2018 revenue guidance between $208.0 and $216.0 million and adjusted EBITDA guidance between $34.0 and $37.0 million, with actual results outperforming the midpoint of third quarter 2018 revenue guidance by approximately 3% and the midpoint of third quarter adjusted EBITDA guidance by approximately 8%. For the third quarter of 2018, the Company generated an ROIC of 12%, as compared to second quarter 2018 ROIC of 8%.
“I am extremely proud of our team and their accomplishments in the field,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “Thanks to a relentless focus on our customers, we continue to outperform the market with profitable market share gains across the business. Our expertise in downhole completions ensures we provide the premier offering of both conveyance and technology. Providing customers with a sustainable value proposition that is proven through decreased cycle time and higher efficiencies is a key differentiator for Nine.”
“While we are happy with the 6% revenue growth this quarter, I am equally pleased with the profitability metrics that continue to improve throughout the year. ROIC, net income and cash flow from operations increased by approximately 40%, 51% and 224%, respectively this quarter. All three of these metrics will continue to guide management on future capital deployment decisions and measuring company performance. The positive trends in Nine’s organic performance are magnified by completions complexity with longer laterals, more stages and large-scale manufacturing development, all of which will help drive more selective service selection and future growth and profitability for Nine. ”
“While the fourth quarter is historically affected by weather and holidays, the overall market outlook for 2019 is positive. Our addition of Magnum Oil Tools gives us an even more balanced technology offering for our customers, and we believe there will be a strong call for North American shale activity. Nine is well positioned for growth and I am excited for our future,” Fox concluded.
Business Segment Results
During the third quarter of 2018, the Company’s Completion Solutions segment, which includes the Company’s cementing, completion tools, wireline and coiled tubing services reported revenues of $196.6 million compared to second quarter 2018 revenues of $185.1 million, representing an approximate 6% increase. For the third quarter 2018, Completion Solutions reported adjusted gross profit c of $49.4 million compared to second quarter 2018 adjusted gross profit of $39.1 million, representing an approximate 26% increase.
During the third quarter of 2018, the Company’s Production Solutions segment, which includes well services, generated revenues of $21.8 million compared to second quarter 2018 revenues of $20.4 million, representing an approximate 7% increase. For the third quarter 2018, Production Solutions reported adjusted gross profit of $3.1 million compared to second quarter 2018 adjusted gross profit of $2.8 million, representing an approximate 12% increase.
Other Financial Information
During the third quarter of 2018, the Company reported selling, general and administrative expense of $21.8 million, compared to $16.1 million for the second quarter of 2018. Depreciation and amortization expense (“D&A”) in the third quarter of 2018 was $15.5 million, compared to $15.1 million for the second quarter of 2018.
During the third quarter of 2018, the Company’s effective tax rate was 7.6%. The effective tax rate for the quarter was primarily attributable to changes in pre-tax book income and valuation allowance positions, as well as tax liabilities in states where income is expected to exceed available net operating losses.
Liquidity and Capital Expenditures
During the third quarter of 2018, the Company reported net cash provided by operating activities of $25.6 million, compared to $7.9 million for the second quarter of 2018.
As of September 30, 2018, Nine’s cash and cash equivalents were $86.5 million with $50.0 million of revolver capacity, $49.5 million of which is currently available, resulting in a total liquidity position of $136.0 million as of September 30, 2018.
Capital expenditures totaled $11.5 million during the third quarter of 2018, compared to $11.6 million in the second quarter of 2018.
Magnum Oil Tools Acquisition
On October 25, 2018, Nine completed the acquisition of Magnum Oil Tools International, LTD, a market-leading downhole technology provider with a broad offering of downhole completion products. Total upfront consideration of $493 million consisted of approximately $334 million of cash, subject to customary adjustments, as well as 5 million shares of Nine common stock. The Company funded the cash purchase price with net proceeds from a private offering of $400 million in aggregate principal amount of 8.75% senior unsecured notes due 2023 at par together with cash on hand and borrowings under a new asset-based loan credit facility entered in connection with the consummation of the transaction. The Magnum partnership solidifies Nine as one of the premier providers of completion focused technology combined with excellence in both service execution and conveyance capability.
ABC See end of press release for definitions
Conference Call Information
The call is scheduled for Tuesday, November 13, 2018 at 10:00 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 November 27, 2018 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13684535.
About Nine Energy Service
Nine Energy Service is an oilfield services company that offers completion and production 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 throughout 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, including those related to the Company’s acquisition of Magnum and potential securities offering, 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 general energy service industry risks; volatility of crude oil and natural gas commodity prices; a decline in demand for the Company’s services, including due to declining commodity prices; the Company’s ability to implement price increases or maintain pricing of the Company’s core services; 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 Company’s ability to implement new technologies and services; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; and other factors described in the “Risk Factors” and “Business” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and the 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.
A Adjusted EBITDA is defined as EBITDA further adjusted for (i) impairment of goodwill and other intangible assets, (ii) transaction expenses related to acquisitions or the Combination, (iii) loss from discontinued operations, (iv) loss or gains from the revaluation of contingent liabilities, (v) non-cash stock-based compensation expense, (vi) loss or gains on sale of assets, (vii) inventory write-down and (viii) adjustment for other expenses or charges, to exclude certain items which we believe are not reflective of ongoing performance of our business, such as transaction expenses associated with our IPO, legal expenses and settlement costs related to litigation outside the ordinary course of business, and restructuring costs. 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.
B ROIC is defined as after-tax net operating profit, divided by average total capital. We define after-tax net operating profit as income (loss) from continuing operations (net of tax) plus interest expense, less taxes on interest. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We then take 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 capital resource allocation decisions and in evaluating business performance.
C Adjusted gross profit is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit to evaluate operating performance and to determine resource allocation between segments. We prepare adjusted gross profit (excluding depreciation and amortization) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance.
View source version on businesswire.com:https://www.businesswire.com/news/home/20181112005792/en/
CONTACT: Nine Energy Service Investor Contact:
Director, Investor Relations and Marketing
KEYWORD: UNITED STATES NORTH AMERICA TEXAS
INDUSTRY KEYWORD: ENERGY OIL/GAS
SOURCE: Nine Energy Service, Inc.
Copyright Business Wire 2018.
PUB: 11/12/2018 06:00 PM/DISC: 11/12/2018 06:00 PM