nine-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38347

__________________________________________________________________

Nine Energy Service, Inc.

(Exact name of registrant as specified in its charter)

__________________________________________________________________


Delaware			80-0759121
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2001 Kirby Drive, Suite 200

Houston, TX 77019

(Address of principal executive offices) (Zip Code)

(281) 730-5100

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NINE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at November 3, 2022 was 33,221,266.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Condensed Consolidated Statements of Cash Flows

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including those regarding our strategy, future operations, financial position, our ability to continue as a going concern, estimated revenues and losses, projected costs, prospects, plans, and objectives of management, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by law, and we caution you not to place undue reliance on them. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2021 and in Item 1A of Part II of this Quarterly Report on Form 10-Q. These factors, some of which are beyond our control, include the following:

•Our business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry, and the level of such activity is volatile and strongly influenced by current and expected oil and natural gas prices. If the prices of oil and natural gas decline, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected. Significant factors that are likely to affect near-term commodity prices include actions by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil exporting nations; U.S. energy, monetary, and trade policies; the pace of economic growth in the U.S. and throughout the world; and geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war, or terrorism.

•Our substantial debt obligations could have significant adverse consequences on our business and future prospects, and restrictions in our debt agreements could limit our growth and our ability to engage in certain activities. In addition, in order to meet our debt obligations, we may engage in refinancing or restructuring of our indebtedness by seeking additional sources of capital, selling assets, or a combination thereof.

•Inflation may adversely affect our financial position and operating results; in particular, cost inflation with labor or materials could offset any price increases for our products and services.

•If we are unable to attract and retain key employees, technical personnel, and other skilled and qualified workers, our business, financial condition, or results of operations could suffer.

•We may be unable to maintain existing prices or implement price increases on our products and services, and intense competition in the markets for our dissolvable plug products may lead to pricing pressures, reduced sales, or reduced market share.

•Our current and potential competitors may have longer operating histories, significantly greater financial or technical resources, and greater name recognition than we do.

•Our operations are subject to 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.

•If we are unable to accurately predict customer demand, including that of our international customers, or if customers cancel their orders on short notice, we may hold excess or obsolete inventory, which would reduce gross margins. Conversely, insufficient inventory would result in lost revenue opportunities and potentially loss of market share and damaged customer relationships.

•We are dependent on customers in a single industry. The loss of one or more significant customers, including certain of our customers outside of the U.S., could adversely affect our financial condition, prospects, and results of operations. Sales to customers outside of the U.S. also exposes us to risks inherent in doing business internationally, including political, social, and economic instability and disruptions, export controls, economic sanctions, embargoes or trade restrictions, and fluctuations in foreign currency exchange rates.

•We may be subject to claims for personal injury and property damage or other litigation, which could materially adversely affect our financial condition, prospects, and results of operations.

•We are subject to federal, state, and local laws and regulations regarding issues of health, safety, and protection of the environment. Under these laws and regulations, we may become liable for penalties, damages, or costs of remediation or other corrective measures. Any changes in laws or government regulations could increase our costs of doing business.

•Our success may be affected by the use and protection of our proprietary technology as well as our ability to enter into license agreements. There are limitations to our intellectual property rights and, thus, our right to exclude others from the use of our proprietary technology.

•Our success may be affected by our ability to implement new technologies and services.

•Significant ownership of our common stock by certain stockholders could adversely affect our other stockholders.

•Our future financial condition and results of operations could be adversely impacted by asset impairment charges.

•Increased attention to climate change and conservation measures may reduce oil and natural gas demand, and we face various risks associated with increased activism and related litigation against oil and natural gas exploration and development activities.

•Seasonal and adverse weather conditions adversely affect demand for our products and services.

•Our ability to maintain compliance with the New York Stock Exchange (the “NYSE”) continued listing requirements and avoid the delisting of our common stock.

Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	21,490	$	21,509
Accounts receivable, net	103,881		64,025
Income taxes receivable	1,184		1,393
Inventories, net	52,959		42,180
Prepaid expenses and other current assets	9,123		10,195
Total current assets	188,637		139,302
Property and equipment, net	75,658		86,958
Operating lease right of use assets, net	35,934		35,117
Finance lease right of use assets, net	598		1,445
Intangible assets, net	105,840		116,408
Other long-term assets	808		2,383
Total assets	$	407,475	$	381,613
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	38,145	$	28,680
Accrued expenses	29,374		18,519
Current portion of long-term debt	27,281		2,093
Current portion of operating lease obligations	7,438		6,091
Current portion of finance lease obligations	420		1,070
Total current liabilities	102,658		56,453
Long-term liabilities
Long-term debt	305,631		332,314
Long-term operating lease obligations	29,612		30,435
Long-term finance lease obligations	—		65
Other long-term liabilities	1,659		1,613
Total liabilities	439,560		420,880
Commitments and contingencies (Note 10)
Stockholders’ equity (deficit)
Common stock (120,000,000 shares authorized at $0.01 par value; 33,233,106 and 32,826,325 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)	332		328
Additional paid-in capital	774,510		773,350
Accumulated other comprehensive loss	(4,926)		(4,535)
Accumulated deficit	(802,001)		(808,410)
Total stockholders’ equity (deficit)	(32,085)		(39,267)
Total liabilities and stockholders’ equity (deficit)	$	407,475	$	381,613

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues
Service	$	126,634	$	65,916	$	324,075	$	172,932
Product	40,798		26,952		102,638		71,394
	167,432		92,868		426,713		244,326
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Service	92,920		59,614		252,812		160,141
Product	30,498		19,265		77,665		57,659
General and administrative expenses	13,475		11,114		37,766		33,505
Depreciation	6,593		6,921		19,608		22,148
Amortization of intangibles	2,896		4,029		10,568		12,212
(Gain) loss on revaluation of contingent liability	46		21		237		(124)
(Gain) loss on sale of property and equipment	1,242		(17)		795		660
Income (loss) from operations	19,762		(8,079)		27,262		(41,875)
Interest expense	8,125		7,968		24,335		24,534
Interest income	(134)		(3)		(171)		(24)
Gain on extinguishment of debt	(2,843)		—		(2,843)		(17,618)
Other income

SEC Form 10-Q filed by Nine Energy Service Inc.