Prospectus summary

This summary provides a brief overview of information contained elsewhere in this prospectus. Because it is abbreviated, this summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, including the information presented under the headings “Risk factors,” “Cautionary note regarding forward-looking statements” and “Management’s discussion and analysis of financial condition and results of operations” and the historical combined financial statements and related notes thereto included elsewhere in this prospectus.

On February 28, 2017, Nine Energy Service, Inc. (“Nine”) merged (the “Combination”) with Beckman Production Services, Inc. (“Beckman”). In this prospectus, unless the context otherwise requires, the terms “Nine,” “we,” “us,” “our” and the “Company” refer to (i) Nine Energy Service, Inc. and its subsidiaries together with Beckman prior to the Combination and (ii) Nine Energy Service, Inc. and its subsidiaries after the Combination. In the Combination, all of the issued and outstanding shares of Beckman common stock were converted into shares of common stock of Nine Energy Service, Inc., other than 1.6% of Beckman shares paid in cash, and Beckman became a wholly owned subsidiary of Nine. See “Presentation of information.”

Company overview

We are a leading North American onshore completion and production services provider that targets unconventional oil and gas resource development. We partner with our exploration and production (“E&P”) customers across all major onshore basins in both the U.S. and Canada to design and deploy downhole solutions and technology to prepare horizontal, multistage wells for production. We focus on providing our customers with cost-effective and comprehensive completion solutions designed to maximize their production levels and operating efficiencies. We believe our success is a product of our culture, which is driven by our intense focus on performance and wellsite execution as well as our commitment to forward-leaning technologies that aid us in the development of smarter, customized applications that drive efficiencies.

We provide our comprehensive completion solutions across a diverse set of well-types, including on the most complex, technically demanding unconventional wells. Modern, high-intensity completion techniques are a more effective way for our customers to maximize resource extraction from horizontal oil and gas wells. These completion techniques provide improved estimated ultimate recovery (“EUR”) per lateral foot and a superior return on investment, which make them attractive to operators despite their associated increased well cost. We compete with a limited number of service companies for the most intricate and demanding projects, which are characterized by extended reach horizontal laterals, increased stage counts per well and increased proppant loading per lateral foot. As stage counts per well increase, so do our operating leverage and returns, as we are able to complete more jobs and stages with the same number of units and crews. Service providers for these demanding projects are selected based on their technical expertise and ability to execute safely and efficiently, rather than only price.

We offer a variety of completion applications and technologies to match customer needs across the broadest addressable completions market. Our comprehensive well solutions range from cementing the well at the initial stages of the completion, preparing the well for stimulation, isolating all the stages of an extended reach lateral, and drilling out plugs and performing associated remedial work as production comes online. Our completion techniques are specifically tailored to the customer and geology of each well. At the initial stage of a well completion, our lab facilities produce customized cementing slurries used to secure the production casing to ensure well integrity throughout the life of the well. Once the casing is in place, we utilize our proprietary tools at the toe (end) of the well, often called stage one, to prepare for the well stimulation process. We provide

 

customers with plug-and-perf or pinpoint frac sleeve system technology to complete the remaining stages of the well. Through our wireline units, we provide plug-and-perf services that, when combined with our fully-composite or dissolvable frac plugs, create perforations to isolate and divert the fracture to the correct stage. Our pinpoint frac sleeve system involves packers, either hydraulic or swellable, to isolate sections of the wellbore and frac sleeves to provide access to each stage for stimulation and production. Our equipment also includes high-specification coiled tubing units and workover rigs that are capable of reaching the farthest depths for the removal of plugs and cleaning of the wellbore to prepare for production. Once a well is producing, we are able to offer a range of production enhancement and well workover services through our fleet of well service rigs and ancillary equipment.

The following graphic provides a summary of our comprehensive well solutions that span the life cycle of a well completion.

 

 

Our services

We operate in two segments: Completion Solutions and Production Solutions. Our Completion Solutions segment provides services integral to the completion of unconventional wells through a full range of tools and methodologies. Our Production Solutions segment provides a range of production enhancement and well workover services that are performed with a well servicing rig and ancillary equipment.

Completion Solutions

The following is a description of the primary service offerings and deployment methods within the Completion Solutions business segment:

Cementing services :    Our cementing services consist of blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped between the casing and the wellbore of the

 

well. We currently have three high-quality laboratory facilities capable of designing and testing all of the current industry cement designs. The laboratory facilities operate twenty-four hours a day and are fully staffed by qualified technicians with the latest equipment and modeling software. Additionally, our technicians and engineers ensure that all tests are performed to API specifications and results are delivered to customers promptly. Our cement slurries are designed to achieve the proper cement thickening time, compressive strength and fluid loss control. Our slurries can be modified to address a wide range of downhole needs of our E&P customers, including varying well depths, downhole temperatures, pressures and formation characteristics. We deploy our slurries by using our customized design twin-pumping units, which are fully redundant and significantly decrease our risk of downtime due to mechanical failure. From January 2014 to September 2017, we completed approximately 10,500 cementing jobs, with an on-time rate of approximately 90%. Punctuality of service has become one of the primary metrics that E&P operators use to evaluate the cementing services they receive. Key contributors to our 90% on-time rate include our lab capabilities, personnel, close proximity to our customers’ acreage, dual-sided bulk loading plants and our service-driven culture.

Completion tools :    We provide unconventional and conventional downhole solutions and technology used for multistage completions. Our comprehensive completion service offerings are complemented by our unconventional open hole and cemented completion tool products, such as liner hangers and accessories, fracture isolation packers, frac sleeves, stage one prep tools, fully composite and dissolvable frac plugs and specialty open hole float equipment and centralizers. Our completion tools provide pinpoint frac sleeve system technologies that enable comparable rates per stage while providing more control over fracture initiation. A few examples of our innovative portfolio of completion tools are: (i) the Scorpion Fully-Composite Plug ^TM , a patented packer-style fully composite plug designed to provide zonal isolation in a multi-stage well completion; we offer a diverse product group of fully-composite plugs designed for 3.5” to 5.5” well casings as well as a unique Scorpion Extended Range plug, which is used in demanding well applications where operators have to negotiate through internal diameter restrictions, (ii) the Scorpion Dissolvable Plug, a high performance plug designed to provide zonal isolation, is made entirely from proprietary materials that dissolve over time, leaving the wellbore unobstructed for production and eliminating the risk and costs of conventional plug removal, (iii) the SmartStart PLUS ^TM , an interventionless time-delayed pressure-activated sleeve that we have the exclusive distribution rights to in the northeastern U.S. and with certain customers in other regions, that eliminates the need for tubing or pipe-conveyed perforating when completing the toe stage of horizontal wells, (iv) the Storm Re-Frac Packer ^TM , a system that allows our customers to re-stimulate their existing wells using standard size plug-and-perf procedures to extend and enhance their production profiles with minimal flow restriction during stimulation, (v) the FlowGun ^TM , a stage one interventionless casing-conveyed perforating technology that eliminates the need to run wireline or coil tubing and requires no electronic detonation allowing our customers to perform a maximum pressure test and perforate stage one more efficiently with less risk and with no lateral length limitations, (vi) the Coil Frac Sleeve System, a system that utilizes coiled tubing to deploy a resettable frac packer, that we have the exclusive distribution rights to in the U.S., which is used to open and isolate frac sleeves that have been installed as an integral part of the casing, and (vii) the EON Ball Drop system, an interventionless single-size ball activated pinpoint frac sleeve system, that we have exclusive distributions rights to in the U.S. and Canada. Our systems provide completion efficiencies at the wellsite by reducing our customers’ equipment needs and stimulation time and allowing for specific zonal treatment. From March 2011 to September 2017, we have deployed approximately 65,000 swell and hydro-mechanical packers and approximately 18,000 frac sleeves for downhole completions.

Additionally, we offer a portfolio of completion technologies used for completing the toe stage of a horizontal well, as well as fully-composite, dissolvable and extended-range frac plugs to isolate stages during plug-and-perf operations.

 

Wireline services :    Our wireline services involve the use of a wireline unit equipped with a spool of wireline that is unwound and lowered into oil and gas wells to convey specialized tools or equipment for well completion, well intervention or pipe recovery. Our wireline units are equipped with the latest technology utilized to service long lateral completions, including head tension tools, ballistic release tools and addressable switches. The majority of our wireline work consists of plug-and-perf completions, which is a multistage well completion technique for cased-hole wells that consists of deploying perforating guns to a specified depth. We deploy proprietary specialized tools like our fully-composite frac plugs through our wireline units. From January 2014 to September 2017, we have completed approximately 62,000 wireline stages in the U.S. with a success rate of over 99%.

Coiled tubing services :    Coiled tubing services perform wellbore intervention operations utilizing a continuous steel pipe that is transported to the wellsite wound on a large spool in lengths of up to 25,000 feet. Coiled tubing provides a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well using specialized well-control equipment. The live well work capability limits the customer’s risk of formation damage associated with “killing” a well (the temporary placement of heavy fluids in a wellbore to keep reservoir fluids in place), while allowing for safer operations due to minimal equipment handling. Coiled tubing facilitates a variety of services in both new and old wells, such as milling, drilling, fishing, production logging, artificial lift installation, cementing, stimulation and restimulation services. In addition, our units are also used in conjunction with pinpoint hydraulic fracturing operations. Most of our coiled tubing units are capable of reaching total measured depths of 21,500 feet and beyond; including lateral lengths in excess of 12,500 feet, keeping pace with the industry’s most challenging downhole environments. While we specialize in larger-diameter (2  ³ / ₈ ” and 2  ⁵ / ₈ ”) applications, we also offer 2” and 1  ¹ / ₄ ” diameter solutions to our customers. From April 2014 to September 2017, we have performed approximately 5,400 jobs and deployed more than 103 million running feet of coiled tubing, with a success rate of over 99%.

Production Solutions

The following is a description of the primary service offerings conducted within the Production Solutions business segment:

Well services :    Our well servicing business encompasses a full range of services performed with a mobile well servicing rig (or workover rig) and ancillary equipment throughout a well’s life cycle from completion to plugging and abandonment. Our rigs and personnel install and remove downhole equipment and eliminate obstructions in the well to facilitate the flow of oil and natural gas, often immediately increasing a well’s production. We believe the production increases generated by our well services substantially enhance our customers’ returns and significantly reduce their payback periods. Activities performed with our well servicing rigs can range from the milling of plugs following a plug-and-perf completion, to the installation in repair of artificial lift, to the ultimate plug and abandonment of a depleted well. Key components of our well services success include our geographic footprint, employee culture, fleet of rigs and inventory of equipment. Our operations extend across six major onshore U.S. basins, and our employee culture fosters local relationships within this expansive geographic footprint through excellent customer service and basin-level expertise.

We utilize a fleet of more than 100 rigs, approximately 40% of which are capable of performing completion-oriented work. This fleet and the inventory of equipment maintained at each of our regional locations are tailored to the needs of our customers in each particular basin. The high-specification rigs we utilize are engineered to perform in the most demanding laterals being drilled in the U.S. today. From January 2014 to September 2017, we operated more than 850,000 rig hours. According to the Association of Energy Service

 

Companies (“AESC”), only 53% of industry reported well service rigs were active or available from January 2015 to September 2017. In contrast, approximately 67% of our rigs have remained utilized in the same period.

Our competitive strengths

We believe that the following strengths differentiate us from many of our competitors and will contribute to our ongoing success:

Technology-driven business model enhances ability to capitalize on industry trend towards more technically demanding unconventional wells

We invest in innovative technology and equipment designed for modern completion and production techniques that increase efficiencies and production for our customers. North American unconventional onshore wells are increasingly characterized by extended lateral lengths, tighter spacing between hydraulic fracturing stages, increased cluster density and heightened proppant loads. Drilling and completion activities for wells in unconventional resource plays are extremely complex, and downhole risks and operating costs increase as the complexity and lateral length of these wells increase. For these reasons, E&P companies with complex wells generally prefer to partner with technically-proficient, established service companies that are capable of providing the necessary equipment and techniques to complete the services safely, efficiently and with a focus on operational excellence. We believe that these unconventional wells will comprise a growing portion of the market, and that our comprehensive completion service and solutions offerings position us well to capture this growing market.

We have developed a suite of proprietary downhole tools, products and techniques, such as the Scorpion Fully-Composite Plug ^TM , Scorpion Dissolvable Plug, SmartStart PLUS ^TM , Flow Gun ^TM , Coil Frac Sleeve System, EON Ball Drop System and Storm Re-Frac Packer ^TM , through both internal resources as well as strategic partnerships with manufacturers and engineering companies looking for a reliable and expansive channel to market. We have also made an investment in an advanced electromagnetic (EM) fracture monitoring service, Deep Imaging Technologies, which allows our customers to measure fracture efficacy, informing well spacing and infill development decisions. We believe we have become a “go-to” service provider for piloting new technologies across the U.S. and Canada because of our service quality and scale. These strategic partnerships provide us and our customers with access to unique downhole technology from independent innovators. This also allows us to minimize exposure to potential technology adoption risks and the significant costs associated with developing and implementing research and development (“R&D”) internally. Our internal resources are focused on evolving our existing proprietary tools to stay on trend and ensure quicker, lower cost completions for our customers.

Customized solutions offerings and a differentiated level of customer service

We are able to provide customized solutions for all completion types across North America, including plug-and-perf, pinpoint frac sleeve systems and hybrid wells. Our comprehensive completion service offerings, together with our complementary production services, enable us to deliver the most value to our customers throughout the life of the well. Through our strong relationships with our customers, we maintain a continuous dialogue and real-time feedback loop, allowing us to remain nimble and evolve our service offerings in concert with changing demands from our customers. We believe that our ability to be highly responsive to customers and nimbly address requests for changes in service delivery is a distinct competitive advantage and a cornerstone of our brand.

 

Established presence in all major onshore basins in both the U.S. and Canada

We operate in all major onshore basins in both the U.S. and Canada, including the Permian Basin, Marcellus and Utica Shales, Eagle Ford Shale, SCOOP / STACK Formation, Bakken Formation, Haynesville Formation and Western Canada Sedimentary Basin. We provide our services through strategically placed operating facilities located in-basin throughout North America. This local presence allows us to quickly respond to customer demands and operate efficiently. Additionally, through our extensive footprint, we are able to track and implement best practices around completion and production trends and technology across all divisions and geography.

The following map demonstrates our geographic footprint.

 

 

We believe that our strategic geographic positioning will benefit us as activity increases in our core operating areas. Our broad geographic footprint provides us with exposure to the ongoing recovery in drilling and completion activity and will allow us to opportunistically pursue new business in basins with the most active drilling environments.

 

Returns-focused business model with high operational leverage

We are focused on generating attractive returns on capital for our stockholders. Our completion and production services require less equipment and fewer people than many other oilfield service lines. Unlike pressure pumping, the increase in oil and gas well completion intensity does not significantly impact our equipment. The rising level of completion intensity in our core operating areas contributes to improved margins and returns for us on a per job basis. This provides us significant operational leverage, and we believe positions us well to continue to generate attractive returns on capital as industry activity increases and the market for oilfield services improves. As part of our returns-focused approach to capital spending, we are focused on maintaining a capital efficient program with respect to the development of new products. We do not make large investments in R&D; instead we primarily rely on strategic partnerships with oilfield product development companies, who view us as an attractive distribution platform for their products. This allows us to benefit from new products and technologies while minimizing our R&D expenditures. We believe our return on invested capital (“ROIC”) generally exceeds that of many other oilfield service providers. For a definition of ROIC, which is a non-GAAP financial measure, see “—Summary financial data—Non-GAAP financial measures.”

Experienced and entrepreneurial management team and board of directors with a successful track record of executing growth and acquisition strategies

The members of our management team and board of directors have a blend of operating, financial and leadership experience in the industry, that we believe provides us with a competitive advantage. We have a deep management team, with experienced mid-level and field managers, many of whom previously started and managed smaller independent onshore oilfield services companies. Our management team has an average of over 20 years of experience in the oilfield service industry, and our field managers have expertise in the geological basins in which they operate and understand the regional challenges that our customers face. We believe this experience provides our management team with an in-depth understanding of our customers’ needs, which enhances our ability to deliver innovative, customer-driven solutions throughout varying industry cycles, which in turn strengthens our relationships with our customers. Many members of our senior management team are entrepreneurs and company founders who joined our company and remain major stockholders, and over 80% of company founders who joined our company continue to be a part of our company today. This is an important part of our growth-focused corporate culture. We focus on partnering with the right management teams and companies, which has enabled us to identify and acquire high-quality businesses with a similar culture to us and synergistically integrate them into our existing operation. Nine has completed four acquisitions as well as the Combination with Beckman. We believe this significant experience in identifying and closing acquisitions will help us identify additional attractive acquisition opportunities in the future. In addition, we believe that our extensive industry contacts and those of SCF Partners, L.P. (“SCF Partners”), our equity sponsor, will facilitate the identification of acquisition opportunities. See “—Our equity sponsor” for information regarding SCF Partners.

Balance sheet flexibility to selectively pursue accretive growth avenues

On a pro forma basis giving effect to (i) the entry into a new term loan and revolving credit facility (our “new credit facility”) and (ii) this offering and the use of a portion of the net proceeds therefrom, together with term loan borrowings under our new credit facility, to fully repay all outstanding borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility, as defined and described in “Management’s discussion and analysis of financial condition and results of operations—Our credit facilities,” as of September 30, 2017, we would have had $         million of cash on hand, $125 million in term loan borrowings and $50 million of revolver

 

availability under our new credit facility, providing us with the flexibility to pursue opportunities to grow our business. See “—Recent Developments—Our new credit facility” for information regarding our new credit facility, under which we expect to make term loan borrowings concurrently with, and conditioned upon, the consummation of this offering. Given our broad geographic and services footprint and strong reputation in the industry, we believe that we will have significant optionality to grow in existing service areas or expand into new areas as demanded by our customers.

Our business strategies

Our company strategy is very focused on returns on invested capital achieved through serving our customers’ needs to help maximize production and drive cost efficiencies through a unique combination of technology and service. We expect to achieve this through the following strategies:

Continue to innovate and enhance our technology-driven offerings

We intend to continue to invest and develop new technologies, techniques and equipment to provide our customers with continuously innovating services and the tools of tomorrow needed to efficiently complete and produce the most complex wells. The growth of unconventional oil and gas resources drives the need for new technologies, completion techniques and equipment to increase recovery rates, lower production costs and accelerate field development. Our customers operate in an extremely competitive environment, and they demand technology-driven service and innovative tools suitable for the most modern completion and production techniques. We have instilled in our employees a culture of innovation and open communication with both our customers and management to be the first responders to our customers’ need for the next innovation or tool. We will continue to listen and learn from operators and experts in the field to facilitate a fast and informative feedback loop that allows us to stay ahead of customers’ needs and share industry best practices across basins. With this real-time information, we seek strategic partnerships and accretive acquisitions with companies and innovators that specialize in developing new production equipment and technologies. We believe that our real-time access to information and focus on technology-driven innovation and efficiency will continue to differentiate us from our competitors and will drive our success with customers that demand a technologically focused and tailored approach.

Continue to focus on service quality and flawless wellsite execution

A successful completion requires both the implementation of a variety of technologies and the commitment to wellsite execution. As well complexities continue to increase, service quality becomes a key criteria used by operators in selecting their oilfield service providers. An E&P operator’s downhole risks and operating costs increase as the complexity and lateral lengths of wells increase. Our customers demand high quality service with fast and nimble responses. We seek to meet this demand by developing our employees through extensive classroom and on the job training, as well as health, safety and environmental (“HSE”) and the U.S. Department of Transportation (the “DOT”) training programs. This also enables us to have a flatter organization and empower employees throughout all levels of the company. Our employees’ extensive knowledge and training allows for more autonomy in the field, ultimately reducing response time and establishing trust with our customers. We continue to develop and implement comprehensive metrics and company standards while allowing our regional leadership to operate autonomously in accordance with those standards. We believe this nimble, customer-focused approach to service will allow us to increase efficiencies for our customers and drive success for our company.

 

 

Continue to capitalize on efficiencies being demanded by our customer base

Our customers are increasingly focused on driving efficiencies in drilling and completion techniques of unconventional wells. This focus has led to an increase in the adoption of pad drilling, zipper fracs and other techniques intended to reduce the time and cost inherent in drilling and completing wells. We believe that we are well-positioned to benefit from these efficiencies, which allow us to complete a greater number of jobs (such as stages, plugs or drillouts) with fewer workers and minimal capital maintenance and equipment, ultimately generating additional revenue and better margins. Prior to the adoption of longer laterals, more stages and pad drilling, the completion of 100 stages would require approximately ten wireline, coil or workover units (one unit per well). The increase in operating efficiencies of our E&P customers produced by developments in horizontal drilling have produced efficiencies in our operations. For example, operators in the current environment are completing 100 stages at a single pad, allowing us to send one unit and two crews to location. We now require less people and equipment to generate the same stage counts or drillouts. In 2014, we averaged approximately 5.5 stages per employee per month compared to approximately 7.1 stages per employee per month in 2016 and approximately 7.3 stages per employee per month throughout the first nine months of 2017. Additionally, we completed approximately 27 stages per well in 2014, 28 stages per well in 2015, 40 stages per well in 2016 and 48 stages per well throughout the first nine months of 2017. We have and will continue to be aligned to our customers’ efficiencies, which drive down our costs and increase our utilization.

Leverage our strategic footprint to pilot new technologies and share best practices

Our strategy includes leveraging our broad geographic and services footprint, customer network and strong reputation in the industry to serve as a channel to market for new and innovative technology and communicate best practices internally and to our customers. Having a local presence within each basin allows us to provide more responsive customer service, as well as significant exposure to every type of completion methodology and technology across North America. This expertise and knowledge is quickly shared across the company allowing us to inform customers, modify techniques and introduce new technology across all basins. For example, we have successfully leveraged our Canadian team that has helped introduce new technologies across the company, including a new coated wireline recently deployed in the SCOOP / STACK formation and the Permian Basin. We will continue to bring innovative best practices to our customers and alter completion applications to help customers maximize production. With a broad geographic footprint, we are also the ideal service provider for manufacturing, engineering and independent innovators looking for a reliable channel to market for new technology. We provide exposure to a large customer base across all major North American basins coupled with a high quality sales team with the ability to capture market share and promote new products in every onshore basin in North America. We will continue to establish regional locations to maintain high quality customer service, implement best practices and seek strategic partnerships.

Grow our product and service offerings through internal development, strategic partnerships and accretive acquisitions

We anticipate demand for our services to increase over the medium- and long-term throughout all onshore basins in North America. We plan to drive growth both organically and through strategic partnerships and accretive acquisitions. Our organic growth strategies, which focus on continuing to provide customers with exceptional service and a comprehensive array of technology-based solutions, give us a cost effective way of growing our revenue base by leveraging our existing infrastructure and customer network. Our organic growth initiatives target areas that are expected to provide the highest economic return while taking into consideration strategic

 

goals, such as growing or maintaining our key customer relationships. To complement our organic growth, we intend to continue to enter into strategic partnerships, including with technology-focused companies to enhance our ability to provide technologically-advanced solutions at a comparatively lower cost. We also intend to continue to actively pursue targeted, accretive acquisitions that will enhance our portfolio of products and services, market positioning or geographic presence. We seek potential acquisition targets with cultures compatible with our recognized service quality and forward-looking company culture. While we operate in all major onshore basins in both the U.S. and Canada, we do not currently offer all of our services in each of these basins. We plan to efficiently leverage our existing infrastructure in select basins to grow the breadth of our service offerings. We believe this will provide us with a cost-effective way to offer additional, complementary services to existing customers, thereby offering them a more comprehensive service offering and allowing us to respond more quickly to their needs and enhancing our revenue generation potential.

Maintain a strong balance sheet to preserve operational and strategic flexibility

We intend to maintain a conservative approach to managing our balance sheet, which allows us to better react to changes in commodity prices and related demand for our services as well as overall market conditions. We carefully manage our liquidity and debt position through monitoring our cash flows and spending levels. We intend to use a portion of the proceeds from this offering and term loan borrowings under our new credit facility to repay all outstanding borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility. We also intend to improve our liquidity with availability under our new credit facility. On a pro forma basis giving effect to (i) the entry into our new credit facility and (ii) this offering and the use of a portion of the net proceeds therefrom, together with term loan borrowings under our new credit facility, to fully repay all outstanding borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility, as of September 30, 2017, we would have had $         million of cash on hand, $125 million in term loan borrowings and $50 million of revolver availability under our new credit facility, providing us with the flexibility to pursue opportunities to grow our business.

Recent developments

July 2017 Subscription Offer

On July 25, 2017, we provided notice to certain eligible holders of the Company’s common stock that we were offering for sale up to approximately $20 million of the Company’s common stock (the “July 2017 Subscription Offer”). We closed the July 2017 Subscription Offer on August 23, 2017. We received consent from all the lenders under the Existing Nine Credit Facility for the cash proceeds from the July 2017 Subscription Offer to be deposited in a segregated account that does not constitute collateral for the indebtedness thereunder.

Our new credit facility

We have received commitments from a syndicate of commercial banks to provide a new credit facility with JPMorgan Chase Bank, NA. as administrative agent, consisting of $125 million of term loans and $50 million of revolving credit commitments, which will be secured by first priority security interests (subject to permitted liens) in substantially all of our and our domestic restricted subsidiaries’ personal property. Upon consummation of this offering, we expect to borrow $125 million of term loans and to have $50 million of revolver availability under our new credit facility. Our new credit facility is scheduled to mature two and a half years from the initial date on which we borrow loans thereunder.

 

Risk factors

Investing in our common stock involves risks. You should read carefully the section of this prospectus entitled “Risk factors” for an explanation of these risks before investing in our common stock. In particular, the following considerations may offset our competitive strengths or have a negative effect on our strategy or operating activities, which could cause a decrease in the price of our common stock and result in a loss of all or a portion of your investment:

 

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Our business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry in North America, and the level of such activity is volatile. Our business has been, and may continue to be, adversely affected by industry and financial market conditions that are beyond our control.

 

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A decline in oil and natural gas commodity prices may adversely affect the demand for our services and the rates we are able to charge.

 

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We may be unable to employ, or maintain the employment of, a sufficient number of key employees, technical personnel and other skilled and qualified workers.

 

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We may be unable to implement price increases or maintain existing prices on our services.

 

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Our operations are subject to conditions inherent in the oilfield services industry.

 

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Restrictions in our debt agreements could limit our growth and our ability to engage in certain activities.

 

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

 

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

 

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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 such proprietary technology.

 

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The growth of our business through acquisitions may expose us to various risks, including those relating to difficulties in identifying suitable, accretive acquisition opportunities and integrating businesses, assets and personnel, as well as difficulties in obtaining financing for targeted acquisitions and the potential for increased leverage or debt service requirements.

 

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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.

 

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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.

 

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We are dependent on customers in a single industry. The loss of one or more significant customers could adversely affect our financial condition, prospects and results of operations.

 

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SCF controls a significant percentage of our voting power.

 

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SCF and its affiliates are not limited in their ability to compete with us, and the corporate opportunity provisions in our charter could enable SCF to benefit from corporate opportunities that may otherwise be available to us.

 

Our equity sponsor

We have a valuable relationship with SCF Partners, which has made significant equity investments in us since our formation. At an institutional level, SCF Partners has specialized in investments in the oilfield services sector since it was founded in 1989, and has been instrumental in working with our management team to develop and execute our business strategies. SCF Partners is focused exclusively on oilfield services companies and has supported the development of 13 leading public companies in the sector, including National Oilwell Varco (NYSE: NOV), Oil States International (NYSE: OIS), Complete Production Services (merged into Superior Energy Services) (NYSE: CPX/SPN) and Forum Energy Technologies (NYSE: FET). We believe we will benefit from SCF Partners’ investment experience in the oilfield services sector, its expertise in mergers and acquisitions and its support on various near-term and long-term strategic initiatives.

Upon completion of this offering, SCF will own approximately         % of our common stock (or         % of our common stock if the underwriters exercise in full their option to purchase additional shares of common stock) and will therefore be able to strongly influence all matters that require approval by our stockholders, including the election and removal of directors, changes to our organizational documents and approval of acquisition offers and other significant corporate transactions. SCF’s interests may not coincide with the interests of other holders of our common stock. Additionally, SCF Partners is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. We have renounced any interest in specified business opportunities, and SCF and its director nominees on our board of directors generally have no obligation to offer us those opportunities. L.E. Simmons & Associates, Incorporated, a Delaware corporation (“LESA”), SCF Partners’ ultimate general partner, may allocate any potential opportunities to its other portfolio companies where LESA determines, in its discretion, such opportunities are the most logical strategic and operational fit. See “Risk factors—Risks related to this offering and owning our common stock—SCF and its affiliates are not limited in their ability to compete with us, and the corporate opportunity provisions in our charter could enable SCF to benefit from corporate opportunities that may otherwise be available to us.”

Our history and the Combination

We were formed on February 28, 2013 through a combination of three service companies owned by SCF, the first of which was acquired in March 2011. Our foundation consisted of an entrepreneurial team with proven industry expertise and technological solutions for well completions, which we have continued to build upon organically and through acquisitions. We subsequently acquired Peak Pressure Control in August 2013, Dak-Tana Wireline in April 2014, Crest Pumping Technologies in June 2014 and G8 Oil Tool and its intellectual property related to its Scorpion frac plug in September 2015. These acquisitions provided us additional size, scale, product and service diversity and capabilities as well as an expanded geographic footprint. We have focused on the integration of these companies to create one united brand, culture and vision, while combining their expertise to develop customized completion solutions to the market.

On February 28, 2017, we merged with Beckman, a growth-oriented oilfield services company that provides a wide range of well service and coiled tubing services. Pursuant to the Combination, all of the issued and outstanding shares of Beckman common stock were converted into shares of our common stock, other than 1.6% of Beckman shares paid in cash. Prior to the Combination, Beckman was also an SCF Partners portfolio company since July 2012. A key strategic rationale for the Combination was to enhance our ability to serve customers and our growth potential through broader product lines and basin diversification, enabling us to cross-sell our products and compete with larger companies. For more information on the Combination, see “Certain relationships and related party transactions—The Combination.”

 

In connection with the Combination, we collectively issued 769,162 shares of our common stock and 79,890 warrants to purchase additional shares of our common stock in connection with the Nine and Combined Nine Subscription Offers and subsequent conversion of Beckman shares and warrants issued in connection with the Beckman Subscription Offer, each as defined and described in “Certain relationships and related party transactions—Subscription and warrants agreements.” The warrants held by our existing shareholders were called by us on July 25, 2017, and 297 warrants were exercised for proceeds of $74,330. All warrants that were not exercised by August 23, 2017 expired and are deemed cancelled.

Emerging growth company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as we are an emerging growth company, unlike public companies that are not emerging growth companies under the JOBS Act, we will not be required to:

 

•

provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

 

•

provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations;

 

•

comply with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;

 

•

provide certain disclosures regarding executive compensation required of larger public companies or hold stockholder advisory votes on executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act; or

 

•

obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for adopting new or revised financial accounting standards. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until we are no longer an emerging growth company. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. See ‘‘Risk factors—Risk related to this offering and owning our common stock—Taking advantage of the reduced disclosure requirements applicable to ‘emerging growth companies’ may make our common stock less attractive to investors.” If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

We will cease to be an emerging growth company upon the earliest of:

 

•

the last day of the fiscal year in which we have $1.07 billion or more in annual revenues;

 

•

the date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30);

 

•

the date on which we issue more than $1.0 billion of non-convertible debt securities over a three-year period; or

 

•

the last day of the fiscal year following the fifth anniversary of our initial public offering.

Corporate information

Our principal executive offices are located at 16945 Northchase Drive, Suite 1600, Houston, TX 77060, and our telephone number at that address is (281) 730-5100. Our website is available at www.nineenergyservice.com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission (the “SEC”), available free of charge through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this prospectus.

 

The offering

 

Issuer

Nine Energy Service, Inc.

 

Common stock offered by us

shares (or             shares if the underwriters exercise in full their option to purchase additional shares of common stock).

 

Common stock outstanding after this offering(1)

shares (or             shares if the underwriters exercise in full their option to purchase additional shares of common stock).

 

Underwriters’ option to purchase additional shares

We have granted the underwriters an option for a period of 30 days to purchase up to an aggregate of              additional shares of our common stock.

 

Use of proceeds

We will receive net proceeds from this offering of approximately $         million, assuming an initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated expenses and underwriting discounts and commissions payable by us. Each $1.00 increase (decrease) in the public offering price would increase (decrease) our net proceeds by approximately $         million. See “Use of proceeds.”

 

We intend to use a portion of the net proceeds from this offering, together with $125 million of term loan borrowings under our new credit facility, to fully repay the outstanding borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility and the remainder for general corporate purposes. As of September 30, 2017, we had $119.8 million and $121.0 million of outstanding borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility, respectively. See “Use of proceeds.”

 

Affiliates of several of the underwriters are lenders under the Existing Nine Credit Facility or the Existing Beckman Credit Facility and, accordingly, will receive a portion of the net proceeds from this offering. See “Use of proceeds” and “Underwriting (conflicts of interest).”

 

Dividend policy

We do not anticipate declaring or paying any cash dividends to holders of our common stock in the foreseeable future. In addition, our new credit facility will place restrictions on our ability to pay cash dividends.

 

Directed share program

The underwriters have reserved for sale at the initial public offering price up to     % of the common stock being offered by this prospectus for sale to our employees, executive officers, directors and director nominees who have expressed an interest in purchasing common stock in this offering. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Please read “Underwriting (conflicts of interest).”

 

Risk factors

You should carefully read and consider the information set forth under the heading “Risk factors” beginning on page 25 of this prospectus and all other information set forth in this prospectus before deciding to invest in our common stock.

 

Listing and trading symbol

We have been approved, subject to official notice of issuance, to list our common stock on the NYSE under the symbol “NINE.”

 

Conflicts of interest

The net proceeds from this offering will be used to repay borrowings under the Existing Nine Credit Facility and the Existing Beckman Credit Facility. See “Use of proceeds.” Because an affiliate of Wells Fargo Securities, LLC is a lender under the Existing Nine Credit Facility and the Existing Beckman Credit Facility, and an affiliate of J.P. Morgan Securities LLC is a lender under the Existing Nine Credit Facility, and such affiliates may receive 5% or more of the net proceeds of this offering due to the repayment of borrowings thereunder, each of Wells Fargo Securities, LLC and J.P. Morgan Securities LLC may be deemed to have a “conflict of interest” under Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and as a result, this offering will be conducted under that rule. Pursuant to FINRA Rule 5121, a “qualified independent underwriter” meeting certain standards is required to participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence with respect thereto. Goldman Sachs & Co. LLC has agreed to act as a “qualified independent underwriter” within the meaning of FINRA Rule 5121 in connection with this offering. Goldman Sachs & Co. LLC will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify Goldman Sachs & Co. LLC against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. See “Underwriting (conflicts of interest).”

 

(1)

The number of shares of common stock that will be outstanding after this offering excludes (a) the shares of common stock reserved and available for issuance under the Nine Energy Service, Inc. 2011 Stock Incentive Plan as of May 22, 2017, which consists of             shares of common stock and 12% of the total shares of common stock issued by the Company in connection with this offering and (b)             shares of common stock issuable upon the exercise of options outstanding as of                 , 2017 under the 2011 Stock Incentive Plan. The number of outstanding shares of common stock that will be outstanding after this offering includes             shares of restricted common stock issued to our directors, officers and other employees under our stock incentive plan that are subject to vesting.

 

Summary financial data

The following table presents our summary financial data for the periods and as of the dates indicated. The financial data set forth below, as well as our audited combined financial statements and related notes thereto and our unaudited condensed consolidated financial statements and related notes thereto, each included elsewhere in this prospectus and, except as otherwise indicated, all financial data provided in this prospectus, give effect to the Combination and represent the combined results of Nine and Beckman and their respective subsidiaries.

The summary historical combined financial data as of and for the years ended December 31, 2015 and 2016 are derived from our audited historical combined financial statements and related notes thereto included elsewhere in this prospectus. The summary financial data for the nine months ended September 30, 2016 and 2017, and as of September 30, 2017, are derived from our unaudited historical condensed consolidated financial statements and related notes thereto included elsewhere in this prospectus and which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. The summary historical combined financial data as of and for the year ended December 31, 2014 are derived from our unaudited combined financial statements not included in this prospectus, which were derived from the audited financial statements of Nine as of and for the year ended December 31, 2014 and the audited financial statements of Beckman as of and for the year ended December 31, 2014, also not included in this prospectus. The 2014 unaudited combined data of Nine and Beckman was prepared on the same basis as the audited combined financial statements included in this prospectus. The selected historical condensed consolidated financial data for the three months ended March 31, 2017, June 30, 2017 and September 30, 2017 are derived from our unaudited historical condensed consolidated financial statements, not included in this prospectus.

Historical results are not necessarily indicative of our future results of operations, financial position and cash flows.

 

The data presented below should be read in conjunction with, and are qualified in their entirety by reference to, “Capitalization” and “Management’s discussion and analysis of financial condition and results of operations” and our combined historical financial statements and the notes thereto included elsewhere in this prospectus. Among other things, those historical financial statements and related notes thereto include more detailed information regarding the basis of presentation for the following information.

 

		Nine months ended September 30,								Year ended December 31,
(in thousands, except share and per share information)		2017				2016				2016				2015				2014(1)
		(unaudited)																(unaudited)
Statement of operations data:
Revenues		$	389,380			$	202,368			$	282,354			$	478,522			$	663,191
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)			322,901				178,676				246,109				373,191				434,064
General and administrative expenses			37,628				26,194				39,387				42,862				51,321
Depreciation			40,326				41,779				55,260				58,894				40,173
Impairment of goodwill			—				—				12,207				35,540				—
Amortization of intangibles			6,601				6,794				9,083				8,650				6,389
Loss on equity investment			255				—				—				—				—
Loss on sale of property and equipment			4,793				2,420				3,320				2,004				971
Income (loss) from operations			(23,124	)			(53,495	)			(83,012	)			(42,619	)			130,273
Other expense
Interest expense			11,780				10,681				14,185				9,886				9,586
Total other expense			11,780				10,681				14,185				9,886				9,586
Income (loss) from continuing operations before income taxes			(34,904	)			(64,176	)			(97,197	)			(52,505	)			120,687
Provision (benefit) for income taxes			2,967				(19,017	)			(26,286	)			(14,323	)			44,515
Income (loss) from continuing operations (net of tax)			(37,871	)			(45,159	)			(70,911	)			(38,182	)			76,172
Loss from discontinued operations, net of tax ($0, $0, $0, $513 and $11,158)(2)			—				—				—				(935	)			(28,207	)
Net income (loss)			(37,871	)			(45,159	)			(70,911	)			(39,117	)			47,965
Other comprehensive income, net of tax
Foreign currency translation adjustments, net of tax of $0, $0, $0, $0 and $58			(192	)			203				210				(4,067	)			181
Total other comprehensive income (loss), net of tax			(192	)			203				210				(4,067	)			181
Total comprehensive income (loss)		$	(38,063	)		$	(44,956	)		$	(70,701	)		$	(43,184	)		$	48,146
Historical earnings per share data(3):
Weighted average shares outstanding—basic			1,805,816				1,651,240				1,653,277				1,643,912				1,374,510
Income (loss) from continuing operations per share—basic		$	(20.97	)		$	(27.35	)		$	(42.89	)		$	(23.23	)		$	55.42
Loss from discontinued operations per share—basic		$	—			$	—			$	—			$	(0.57	)		$	(20.52	)
Net income (loss) per share-basic		$	(20.97	)		$	(27.35	)		$	(42.89	)		$	(23.80	)		$	34.90
Weighted average shares outstanding—fully diluted			1,805,816				1,651,240				1,653,277				1,643,912				1,597,866
Income (loss) from continuing operations per share-fully diluted		$	(20.97	)		$	(27.35	)		$	(42.89	)		$	(23.23	)		$	47.67
Loss from discontinued operations per share-fully diluted		$	—			$	—			$	—			$	(0.57	)		$	(17.65	)
Net income (loss) per share—fully diluted		$	(20.97	)		$	(27.35	)		$	(42.89	)		$	(23.80	)		$	30.02
Pro forma earnings per share data(4) (Unaudited):
Pro forma weighted average shares outstanding—basic and diluted
Pro forma earnings (loss) per share—basic and diluted		$								$

 

		Nine months ended September 30,								Year ended December 31,
(in thousands)		2017				2016				2016				2015				2014(1)
		(unaudited)																(unaudited)
Balance sheet data at period end:
Cash and cash equivalents		$	30,171							$	4,074			$	18,877			$	24,236
Property and equipment, net			264,300								273,210				325,894				376,920
Total assets			628,382								576,094				658,434				869,933
Debt			240,840								245,888				252,378				379,658
Total stockholders’ equity			315,987								288,186				352,676				389,644
Statement of cash flows data:
Net cash (used in) provided by operating activities		$	3,775				1,200			$	(3,290	)		$	140,367			$	127,188
Net cash used in investing activities			(29,816	)			(2,723	)			(4,176	)			(19,251	)			(456,955	)
Net cash (used in) provided by financing activities			52,223				(10,852	)			(7,315	)			(126,878	)			335,813
Other financial data:
EBITDA(5) (unaudited)		$	23,803			$	(4,922	)		$	(18,669	)		$	23,990			$	148,628
Adjusted EBITDA(5) (unaudited)			40,869				4,604				9,824				73,901				188,192
ROIC(5) (unaudited)			(6	)%			(9	)%			(11	)%			(5	)%			16%
Adjusted gross profit (excluding depreciation and amortization)(5) (unaudited)		$	66,479			$	23,692			$	36,245			$	105,331			$	229,127

 

(1)

We closed the acquisitions of Dak-Tana Wireline on April 30, 2014 and Crest Pumping Technologies on June 30, 2014 and Beckman closed the acquisitions of RedZone Coil Tubing on May 2, 2014 and Big Lake Services, LLC on August 29, 2014. As a result, financial results relating to each acquisition for periods prior to the close of each of the aforementioned acquisitions are not reflected in the full year 2014 results.

 

(2)

For 2014, represents a non-cash impairment charge related to the divestiture of certain assets of a subsidiary whose primary focus was conventional completions. See “Note 14—Discontinued Operations” to the financial statements included in this registration statement for additional detail regarding the Tripoint divestiture.

 

(3)

Historical share and per share information does not give effect to the              for 1 stock split of our issued and outstanding common stock effected immediately prior to the consummation of this offering.

 

(4)

Pro forma earnings per share data give effect to (i) the              for 1 stock split of our issued and outstanding common stock effected immediately prior to the consummation of this offering and (ii) the issuance by us of              shares of common stock pursuant to this offering, and the application of the net proceeds from this offering as set forth under “Use of proceeds,” assuming an initial public offering price of $             per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus). This pro forma earnings per share data is presented for informational purposes only and does not purport to represent what our pro forma net income (loss) or earnings (loss) per share actually would have been had the Stock Split occurred on January 1, 2016 or to project our net income or earnings per share for any future period.

 

(5)

EBITDA, Adjusted EBITDA, ROIC and adjusted gross profit (excluding depreciation and amortization) are non-GAAP financial measures. For definitions of these measures, a reconciliation of EBITDA and Adjusted EBITDA to our net income (loss), an explanation of our calculation of ROIC and a reconciliation of adjusted gross profit (excluding depreciation and amortization) to gross profit (loss), see “—Non-GAAP financial measures” below.