8-K: Nine Energy Service Reports Mixed Q2 2024 Results Amidst Declining Rig Count

Nine Energy Service announced its second quarter 2024 results, showing a net loss despite revenue within guidance, impacted by a declining US rig count.

Summary

• Nine Energy Service reported second quarter 2024 revenue of $132.4 million, which was within their guidance range of $130 to $140 million.
• The company experienced a net loss of $(14.0) million, or $(0.40) per diluted share and $(0.40) per basic share.
• Adjusted EBITDA for the quarter was $9.7 million.
• The US rig count continued to decline, impacting both revenue and earnings, with over 40 rigs exiting the market since the end of 2023.
• Cementing revenue was down slightly due to the rig decline, while completion tool revenue also decreased due to reduced US market activity and lower international sales.
• The company's US refrac business performed strongly, surpassing 300 jobs run to date.
• Coiled tubing revenue declined due to whitespace in the Permian and lower activity in the Haynesville.
• Wireline revenue remained flat, attributed to superior service quality and wellsite execution.
• The company expects Q3 revenue and profitability to be relatively flat compared to Q2 due to stable rig counts and activity levels.
• Capital expenditures for the first half of 2024 totaled $8.1 million, and full-year capex guidance has been reduced to $10 to $15 million.
• As of June 30, 2024, the company had total liquidity of $50.8 million, including $26.0 million in cash and $24.8 million available under its revolving credit facility.
• The company sold approximately 4.2 million shares of common stock under its at-the-market equity offering program, generating approximately $6.8 million in net proceeds.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While revenue was within guidance, the company reported a net loss and faces significant challenges due to declining rig counts. The company's management is optimistic about the long-term outlook, but the current results are mixed.

Positives

• The company's revenue for Q2 2024 was within the previously provided guidance range.
• The US refrac business performed strongly, surpassing 300 jobs run to date.
• Wireline revenue remained flat despite a challenging market, indicating strong service quality.
• The company has reduced its full-year capex guidance, indicating improved capital management.
• The company generated $12.9 million in net cash from operating activities during the quarter.
• The company has a total liquidity position of $50.8 million.

Negatives

• The company reported a net loss of $(14.0) million for the second quarter of 2024.
• The decline in the US rig count negatively impacted both revenue and earnings.
• Cementing revenue was down slightly due to the rig decline.
• Completion tool revenue decreased due to reduced US market activity and lower international sales.
• Coiled tubing revenue declined due to whitespace in the Permian and lower activity in the Haynesville.
• The company experienced a negative ROIC of (19.5)% and an adjusted ROIC of (1.5)%.
• Natural gas prices averaging below $2.15 for the first half of 2024 led to lower activity levels.

Risks

• The company's performance is closely tied to the US rig count, making it vulnerable to market fluctuations.
• Continued declines in the rig count could further impact revenue and earnings.
• The company faces pricing pressures and intense competition in the oilfield services market.
• Fluctuations in natural gas prices can significantly affect activity levels and profitability.
• The company's international tools business is subject to lumpiness in the near term.
• The company's ability to maintain existing prices or implement price increases is a risk.
• The company is exposed to risks related to equipment defects, accidents, and loss of well control.

Future Outlook

The company expects Q3 revenue and profitability to be relatively flat compared to Q2. They remain positive on the medium and long-term outlook for the gas markets and believe their exposure to the gas markets provides a significant catalyst for growth if natural gas prices recover.

Management Comments

• As a spot-market business, our revenue and earnings are correlated closely with the US rig count, said Ann Fox, President and Chief Executive Officer, Nine Energy Service.
• We have weathered difficult markets before and have maintained a strong team across service lines and basins.
• Our asset-light business model allows us to shift quickly with the market, while not impeding the quality of the business.
• We are prepared and experienced in capitalizing on a growing market and believe we are differentiated in our service and technology offerings.

Industry Context

The results reflect the broader challenges in the oilfield services industry due to declining rig counts and fluctuating commodity prices. The company's performance is indicative of the pressures faced by service providers in a market with reduced drilling activity, particularly in the natural gas sector.

Comparison to Industry Standards

• Halliburton and Schlumberger, major oilfield service companies, have also reported challenges due to reduced drilling activity, but their diversified portfolios and international presence often provide a buffer against regional downturns.
• Smaller, more specialized companies like Nine Energy Service are more susceptible to fluctuations in specific basins and service lines, making them more vulnerable to rig count declines.
• The adjusted EBITDA of $9.7 million is relatively low compared to larger peers, highlighting the impact of the challenging market conditions on Nine's profitability.
• The reduction in capex guidance to $10-$15 million is a common response in the industry to conserve cash during periods of reduced activity, similar to actions taken by other service providers.
• The negative ROIC and adjusted ROIC indicate that the company is not generating sufficient returns on its invested capital, which is a concern compared to industry benchmarks.

Stakeholder Impact

• Shareholders will be concerned about the net loss and negative ROIC.
• Employees may face uncertainty due to market conditions and potential cost-cutting measures.
• Customers may experience changes in service availability or pricing.
• Suppliers may face reduced demand for their products and services.
• Creditors will be monitoring the company's liquidity and debt levels.

Next Steps

• The company will hold a conference call on August 6, 2024, to discuss the Q2 2024 results.
• The company will continue to monitor market conditions and adjust its operations accordingly.
• The company will focus on growing its international tools business and capitalizing on a potential recovery in natural gas prices.

Key Dates

Keywords

oilfield services, rig count, EBITDA, refrac, completion tools, cementing, coiled tubing, wireline, capital expenditures, liquidity, natural gas, Permian, Haynesville