8-K: Nine Energy Service Reports Q1 2024 Results, Revenue Within Guidance

Nine Energy Service reported first quarter 2024 revenue of $142.1 million, a net loss of $(8.1) million, and adjusted EBITDA of $15.0 million, with revenue within the provided guidance range.

Summary

• Nine Energy Service announced its first quarter 2024 financial results, with revenue of $142.1 million.
• The company experienced a net loss of $(8.1) million, or $(0.24) per diluted share and $(0.24) per basic share.
• Adjusted EBITDA for the quarter was $15.0 million.
• The company's revenue was within its original guidance range of $135.0 to $145.0 million.
• Gross profit increased quarter over quarter despite a flat US rig count, primarily due to reduced whitespace in coil tubing, which saw an 11% revenue increase.
• Completion tool revenue was relatively flat, despite a decrease in international sales.
• Nine Energy surpassed 60,000 Stinger Dissolvable Plug units sold since its introduction in Q1 2020.
• The company expects Q2 revenue to be down compared to Q1 due to pricing pressures in the cementing business and activity slowdowns in natural gas-levered basins.
• Net cash used in operating activities was $(8.8) million, and capital expenditures totaled $5.6 million.
• As of March 31, 2024, the company had $10.2 million in cash and cash equivalents and $27.3 million of availability under its revolving credit facility, resulting in a total liquidity position of $37.5 million.
• The company did not generate any Excess Cash Flow in the most recently ended two fiscal quarters, so no Excess Cash Flow offer will be made to noteholders this month.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company met revenue guidance and increased gross profit, it also reported a net loss and expects a decline in Q2 revenue. The company is facing headwinds in the natural gas market and pricing pressures, but is also taking steps to diversify and improve its business.

Positives

• The company's revenue was within its original guidance range.
• Gross profit increased quarter over quarter, indicating improved operational efficiency.
• The coil tubing business saw a significant revenue increase of 11% quarter over quarter.
• The company achieved a milestone by surpassing 60,000 Stinger Dissolvable Plug units sold.
• The company maintains a positive outlook on the medium and long-term for natural gas markets.

Negatives

• The company reported a net loss of $(8.1) million for the quarter.
• Q2 revenue is expected to decline compared to Q1.
• The company experienced a decrease in international sales of completion tools.
• There is pricing pressure in the cementing business.
• The company did not generate any Excess Cash Flow in the most recent two fiscal quarters.

Risks

• The company faces potential activity slowdowns in natural gas-levered basins due to declining natural gas prices.
• Pricing pressures in the cementing business are expected to impact Q2 revenue.
• The company is exposed to risks associated with the oilfield services industry, including equipment defects and accidents.
• The company's performance is subject to fluctuations in oil and natural gas prices.
• The company's ability to meet its debt obligations is dependent on its financial performance.
• The company is exposed to cybersecurity risks and changes in laws or regulations.

Future Outlook

The company expects Q2 revenue to be down compared with Q1 due to pricing pressures in the cementing business and activity slowdowns in natural gas-levered basins. However, they remain positive on the medium and long-term outlook for the natural gas markets and are focused on diversifying revenue streams.

Management Comments

• Ann Fox, President and Chief Executive Officer, stated that the US land market was relatively stable in Q1, with the average US rig count remaining flat quarter over quarter.
• Ann Fox also noted that despite a flat rig count, the company increased its gross profit quarter over quarter due mostly to reduced whitespace, specifically within coil tubing.
• Management believes their service and commodity diversity is critical and they remain focused on diversifying more of their revenue streams to completion tools and the international markets.
• Management stated that their strategy of providing an asset-light business with forward-leaning technology and excellent service is unchanged and unique within oilfield services.

Industry Context

The results reflect the current market conditions in the oil and gas industry, with a flat US rig count and declining natural gas prices impacting activity levels. The company's focus on diversifying revenue streams and maintaining a nimble business model is a response to these market challenges. The company is also seeing pricing pressure in the cementing business, which is a common trend in the oilfield services sector.

Comparison to Industry Standards

• Nine Energy's performance is being impacted by the same factors affecting other oilfield service companies, such as flat rig counts and pricing pressures.
• Halliburton and Schlumberger, two of the largest oilfield service companies, have also reported similar challenges in their recent earnings reports, including pricing pressures and activity slowdowns in certain basins.
• The increase in gross profit despite a flat rig count suggests that Nine Energy is managing its costs effectively compared to some competitors.
• The company's focus on technology and service quality is a common strategy among oilfield service companies to differentiate themselves in a competitive market.
• The company's adjusted ROIC of 6.0% is a key metric to compare against peers, but further analysis is needed to determine if this is above or below industry average.

Corporate Governance

Stakeholder Impact

• Shareholders will be impacted by the company's net loss and expected decline in Q2 revenue.
• Employees may be affected by potential activity slowdowns in certain basins.
• Customers will continue to receive services from the company, with a focus on technology and service quality.
• Suppliers may be impacted by changes in the company's activity levels.
• Creditors will be monitoring the company's financial performance and ability to meet its debt obligations.

Next Steps

• The company will hold a conference call on May 7, 2024, to discuss the Q1 2024 results.
• The company will continue to monitor market conditions and adjust its strategy as needed.
• The company will focus on diversifying its revenue streams to completion tools and international markets.

Key Dates

Keywords

oilfield services, completion tools, EBITDA, revenue, net loss, Stinger Dissolvable Plug, natural gas, liquidity, capital expenditures, rig count