8-K: Nine Energy Service Reports Mixed 2023 Results Amidst Market Volatility, Focuses on Technology and International Growth

Nine Energy Service reported a net loss for both the fourth quarter and full year 2023, while achieving growth in international revenue and dissolvable plug sales despite a challenging market.

Summary

• Nine Energy Service reported full year 2023 revenue of $609.5 million, a net loss of $(32.2) million, and adjusted EBITDA of $73.0 million.
• For the fourth quarter of 2023, the company's revenue was $144.1 million, with a net loss of $(10.3) million, and adjusted EBITDA of $14.6 million.
• The company's fourth quarter revenue was within its original guidance range of $137.0 to $147.0 million.
• The US rig count declined by approximately 20% since the end of 2022, impacting the company's performance.
• Despite the market challenges, the company increased the total number of StingerTM Dissolvable units sold by approximately 18% year-over-year.
• International revenue increased by approximately 16% year-over-year.
• The company introduced new technology with its Pincer Hybrid Frac Plug and aims to gain market share in 2024.
• The company's total capital expenditures for 2023 were approximately $22.3 million, below the original guidance of $25 to $35 million.
• As of December 31, 2023, the company had a total liquidity position of $58.9 million, including $30.8 million in cash and cash equivalents.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company achieved some growth in specific areas, the overall financial results show a net loss and the market conditions are challenging. The company is taking steps to improve its position, but the outlook is uncertain.

Positives

• The company's fourth quarter revenue was within its original guidance range.
• The company successfully increased sales of StingerTM Dissolvable units by approximately 18% year-over-year.
• International revenue saw a significant increase of approximately 16% year-over-year.
• The company introduced new technology with the Pincer Hybrid Frac Plug.
• Capital expenditures were below the original guidance for 2023.
• The company has a strong liquidity position of $58.9 million as of December 31, 2023.
• The company made progress with ESG, quantifying greenhouse gas emissions for 2021 and 2022.

Negatives

• The company reported a net loss of $(32.2) million for the full year 2023.
• The company reported a net loss of $(10.3) million for the fourth quarter of 2023.
• The US rig count declined by approximately 20% since the end of 2022, impacting the company's performance.
• The average natural gas price declined by over 60% year-over-year, contributing to market volatility.

Risks

• The oil and gas market remains volatile, with potential for rapid shifts.
• The US rig count has declined significantly, impacting activity levels.
• The company faces pricing pressures and intense competition in the market.
• The company is exposed to risks inherent in the oilfield services industry, such as equipment defects and accidents.
• The company's performance is subject to geopolitical and economic developments, including conflicts and instability in oil-producing regions.
• The company's ability to meet debt obligations is a risk.
• The company's ability to accurately predict customer demand is a risk.

Future Outlook

The company expects Q1 2024 revenue to be relatively flat compared to Q4 2023, with no near-term catalyst for activity increases.

Management Comments

• 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.
• This new capital structure gives us additional flexibility and de-levering continues to be a high priority for Nine.
• We have surpassed over 370,000 ScorpionTM Composite Plugs run since we acquired the technology in 2015.
• 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.

Industry Context

The results reflect the broader challenges in the oil and gas industry, particularly the decline in US rig count and natural gas prices. The company's focus on technology and international markets aligns with industry trends towards efficiency and diversification.

Comparison to Industry Standards

• Nine Energy Service's performance is being impacted by the same headwinds as other oilfield service companies, such as Halliburton and Schlumberger, who have also reported challenges due to reduced drilling activity.
• The 20% decline in US rig count is a significant factor affecting all companies in the sector, and Nine's results are consistent with this trend.
• The company's focus on international growth mirrors strategies of larger players seeking to diversify revenue streams away from the volatile US market.
• The increase in dissolvable plug sales is a positive sign, as this is a key technology area for many oilfield service companies.
• The company's adjusted ROIC of 8.8% for the full year is a key metric to compare against peers, and it indicates a reasonable return on invested capital given the market conditions.

Stakeholder Impact

• Shareholders are impacted by the net loss and market volatility.
• Employees are impacted by the company's efforts to navigate market changes.
• Customers benefit from the company's focus on technology and cost-effective solutions.
• Suppliers are impacted by the company's capital expenditure decisions.
• Creditors are impacted by the company's debt obligations and liquidity position.

Next Steps

• The company will continue to focus on its strategy of being an asset and labor light business.
• The company will continue to focus on diversifying more of its top-line revenue streams to completion tools and the international markets.
• The company will continue to develop a strategy on how to potentially reduce emissions moving forward.
• The company will release 2023 greenhouse gas emissions data in 2024.

Key Dates

Keywords

oilfield services, completion tools, dissolvable plugs, international revenue, EBITDA, net loss, rig count, capital expenditures, liquidity, ESG