UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 7, 2019
NINE ENERGY SERVICE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38347 | 80-0759121 | ||
|
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
2001 Kirby Drive, Suite 200
Houston, Texas 77019
(Address of principal executive offices)
(281) 730-5100
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
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 |
| Item 2.02 |
Results of Operations and Financial Condition |
On May 7, 2019, Nine Energy Service, Inc. (the “Company”) issued a press release providing information on its results of operations for the quarter ended March 31, 2019. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K are being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under this Item 2.02 and in Exhibit 99.1 in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
| Item 9.01 |
Financial Statements and Exhibits. |
| (d) |
Exhibits . |
|
Exhibit No. |
Description |
|
| 99.1 | Nine Energy Service, Inc. press release dated May 7, 2019. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: May 7, 2019 | NINE ENERGY SERVICE, INC. | |||||
| By: | /s/ Theodore R. Moore | |||||
|
Theodore R. Moore Senior Vice President and General Counsel |
||||||
Exhibit 99.1
Nine Energy Service Announces First Quarter 2019 Results
| • |
Revenue, net income and adjusted EBITDA A of $229.7 million, $17.3 million and $39.2 million, respectively for the first quarter of 2019 |
| • |
First quarter basic EPS of $0.59 and $0.76 adjusted basic EPS B |
| • |
First quarter 2019 ROIC c of 13% |
HOUSTON, May 7, 2019 – Nine Energy Service, Inc. (“Nine” or the “Company”) (NYSE: NINE) reported first quarter 2019 revenues of $229.7 million, net income of $17.3 million and adjusted EBITDA of $39.2 million. First quarter basic earnings per share was $0.59. First quarter 2019 adjusted net income D was $22.1 million, or $0.76 adjusted basic earnings per share, compared to fourth quarter 2018 adjusted net income of $13.6 million, or $0.49 adjusted basic earnings per share, an increase of approximately 63% and 55%, respectively. The Company reported first quarter 2019 adjusted EBITDA of $39.2 million and a first quarter adjusted EBITDA margin A of approximately 17%. During the first quarter of 2019, the Company generated ROIC of 13%.
The Company had provided original first quarter 2019 revenue guidance between $220.0 and $230.0 million and adjusted EBITDA guidance between $37.0 and $41.0 million, with actual results exceeding the midpoint of first quarter 2019 revenue guidance by approximately 2% and meeting the midpoint of first quarter 2019 adjusted EBITDA guidance.
“The first quarter was in-line with what we anticipated, with both revenue and adjusted EBITDA falling at the midpoint or above of Management’s original guidance range,” said Ann Fox, President and Chief Executive Officer, Nine Energy Service. “Activity was steady across the majority of our service lines, with our cementing division outperforming the market as we continue to gain market share through the combination of technical slurry development and execution at the wellsite. Pricing within the portfolio has stabilized with the recovery in oil prices and we believe the worst is behind us. We remain extremely positive around the dissolvable plug thesis as operators continue the development of large-scale well pad programs, adding complexity to the completion process and reinforcing an extreme focus on efficiencies and reducing cycle times.”
“I am confident in our differentiation in the market and the Company’s ability to be nimble and flex with the industry. Our 2019 view is unchanged at this time and we anticipate consistent results in Q2. We remain well-positioned to capitalize on any potential activity tailwinds resulting from the improved commodity price and believe we can continue to gain market share across our Completions offering.”
Business Segment Results
Completion Solutions
During the first quarter of 2019, the Company’s Completion Solutions segment, which includes the Company’s cementing, completion tools, wireline and coiled tubing services, reported revenues of $209.1 million compared to fourth quarter 2018 revenues of $209.0 million. For the first quarter 2019, Completion Solutions reported adjusted gross profit E of $47.7 million compared to fourth quarter 2018 adjusted gross profit of $55.1 million.
Production Solutions
During the first quarter of 2019, the Company’s Production Solutions segment, which includes well services, generated revenues of $20.6 million compared to fourth quarter 2018 revenues of $20.5 million. For the first quarter 2019, Production Solutions reported adjusted gross profit of $3.4 million compared to fourth quarter 2018 adjusted gross profit of $2.8 million.
Other Financial Information
During the first quarter of 2019, the Company reported selling, general and administrative expense of $19.9 million, compared to $21.2 million for the fourth quarter of 2018. Depreciation and amortization expense (“D&A”) in the first quarter of 2019 was $18.2 million, compared to $18.2 million for the fourth quarter of 2018.
During the first quarter of 2019, the Company’s effective tax rate was 2.6%. The effective tax rate for the quarter was primarily attributable to changes in pre-tax income and valuation allowance positions as well as tax liability in jurisdictions where income is expected to exceed available net operating losses.
Liquidity and Capital Expenditures
During the first quarter of 2019, the Company reported net cash provided by operating activities of $5.9 million. Capital expenditures totaled $23.4 million during the first quarter of 2019, of which approximately 10% related to maintenance capital expenditures.
During the first quarter of 2019, the Company paid down approximately $20.0 million of the outstanding ABL credit facility borrowings, resulting in $15.0 million in outstanding revolver borrowings. As of March 31, 2019, Nine’s cash and cash equivalents were $31.2 million with $129.7 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $160.9 as of March 31, 2019.
| ABCDE |
See end of press release for definitions |
Conference Call Information
The call is scheduled for Wednesday, May 8, 2019 at 10:00 am Central Time. Participants may join the live conference call by dialing U.S. (Toll Free): (877) 524-8416 or International: (412) 902-1028 and asking for the “Nine Energy Service Earnings Call”. Participants are encouraged to dial into the conference call ten to fifteen minutes before the scheduled start time to avoid any delays entering the earnings call.
For those who cannot listen to the live call, a telephonic replay of the call will be available through May 22, 2019 and may be accessed by dialing U.S. (Toll Free): (877) 660-6853 or International: (201) 612-7415 and entering the passcode of 13690044.
About Nine Energy Service
Nine Energy Service is an oilfield services company that offers completion and production solutions within North America and abroad. The Company brings years of experience with a deep commitment to serving clients with smarter, customized solutions and world-class resources that drive efficiencies. Serving the global oil and gas industry, Nine continues to differentiate itself through superior service quality, wellsite execution and cutting-edge technology. Nine is headquartered in Houston, Texas with operating facilities in the Permian, Eagle Ford, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus, Utica and throughout Canada.
For more information on the Company, please visit Nine’s website at nineenergyservice.com.
Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. Forward-looking statements also include statements that refer to or are based on projections, uncertain events or assumptions. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, the general energy service industry risks; volatility of crude oil and natural gas commodity prices; a decline in demand for the Company’s services, including due to declining commodity prices; the Company’s ability to implement price increases or maintain pricing of the Company’s core services; pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for the Company’s dissolvable plug products; the Company’s ability to accurately predict customer demand; the loss of, or interruption or delay in operations by, one or more significant customers; the loss of or interruption in operations of one or more key suppliers; the adequacy of the Company’s capital resources and liquidity; the Company’s ability to implement new technologies and services; the incurrence of significant costs and liabilities resulting from litigation; the loss of, or inability to attract, key personnel; the Company’s ability to successfully integrate recently acquired assets and operations and realize anticipated revenues, cost savings or other benefits thereof; and other factors described in the “Risk Factors” and “Business” sections of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.
Nine Energy Service Investor Contact:
Heather Schmidt
Vice President, Investor Relations and Marketing
(281) 730-5113
investors@nineenergyservice.com
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended | ||||||||
|
March 31,
2019 |
December 31,
2018 |
|||||||
|
Revenues |
$ | 229,705 | $ | 229,448 | ||||
|
Cost and expenses |
||||||||
|
Cost of revenues (exclusive of depreciation and amortization shown separately below) |
178,590 | 171,598 | ||||||
|
General and administrative expenses |
19,939 | 21,164 | ||||||
|
(Gain) loss on revaluation of contingent liabilities |
(13,955 | ) | 1,547 | |||||
|
Depreciation |
13,530 | 14,275 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
Impairment of property and equipment |
— | 45,694 | ||||||
|
Impairment of goodwill |
— | 12,986 | ||||||
|
Impairment of intangibles |
— | 19,065 | ||||||
|
Loss on equity method investment |
— | 77 | ||||||
|
Gain on sale of property and equipment |
(23 | ) | (30 | ) | ||||
|
|
|
|
|
|||||
|
Income (loss) from operations |
26,936 | (60,833 | ) | |||||
|
|
|
|
|
|||||
|
Other expense |
||||||||
|
Interest expense |
9,166 | 16,002 | ||||||
|
|
|
|
|
|||||
|
Total other expense |
9,166 | 16,002 | ||||||
|
|
|
|
|
|||||
|
Income (loss) before income taxes |
17,770 | (76,835 | ) | |||||
|
Provision for income taxes |
460 | 500 | ||||||
|
|
|
|
|
|||||
|
Net income (loss) |
$ | 17,310 | $ | (77,335 | ) | |||
|
Earnings (loss) per share |
||||||||
|
Basic |
$ | 0.59 | $ | (2.78 | ) | |||
|
Diluted |
$ | 0.59 | $ | (2.78 | ) | |||
|
Weighted average shares outstanding |
||||||||
|
Basic |
29,150,996 | 27,815,401 | ||||||
|
Diluted |
29,471,753 | 27,815,401 | ||||||
|
Other comprehensive income (loss), net of tax |
||||||||
|
Foreign currency translation adjustments,
|
$ | 248 | $ | (722 | ) | |||
|
|
|
|
|
|||||
|
Total other comprehensive income (loss), net of tax |
248 | (722 | ) | |||||
|
|
|
|
|
|||||
|
Total comprehensive income (loss) |
$ | 17,558 | $ | (78,057 | ) | |||
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
|
March 31,
2019 |
December 31,
2018 |
|||||||
|
Assets |
||||||||
|
Current assets |
||||||||
|
Cash and cash equivalents |
$ | 31,157 | $ | 63,615 | ||||
|
Accounts receivable, net |
159,245 | 154,783 | ||||||
|
Inventories, net |
98,053 | 91,435 | ||||||
|
Prepaid expenses and other current assets |
20,608 | 15,717 | ||||||
|
Notes receivable from shareholders |
7,094 | 7,626 | ||||||
|
|
|
|
|
|||||
|
Total current assets |
316,157 | 333,176 | ||||||
|
Property and equipment, net |
221,134 | 211,644 | ||||||
|
Definite-lived intangible asset, net |
168,763 | 173,451 | ||||||
|
Goodwill |
307,804 | 307,804 | ||||||
|
Indefinite-lived intangible assets |
108,711 | 108,711 | ||||||
|
Other long-term assets |
6,052 | 6,386 | ||||||
|
|
|
|
|
|||||
|
Total assets |
$ | 1,128,621 | $ | 1,141,172 | ||||
|
|
|
|
|
|||||
|
Liabilities and Stockholders’ Equity |
||||||||
|
Current liabilities |
||||||||
|
Accounts payable |
$ | 47,688 | $ | 46,132 | ||||
|
Accrued expenses |
44,033 | 61,434 | ||||||
|
Current portion of capital lease obligations |
992 | 665 | ||||||
|
Income taxes payable |
853 | 57 | ||||||
|
|
|
|
|
|||||
|
Total current liabilities |
93,566 | 108,288 | ||||||
|
Long-term liabilities |
||||||||
|
Long-term debt |
405,498 | 424,978 | ||||||
|
Deferred income taxes |
5,437 | 5,915 | ||||||
|
Long-term capital lease obligations |
3,101 | 2,330 | ||||||
|
Other long-term liabilities |
5,552 | 4,838 | ||||||
|
|
|
|
|
|||||
|
Total liabilities |
513,154 | 546,349 | ||||||
|
Stockholders’ equity |
||||||||
|
Common stock (120,000,000 shares authorized at $.01 par value; 30,782,600 and 30,163,408 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively) |
308 | 302 | ||||||
|
Additional paid-in capital |
749,508 | 746,428 | ||||||
|
Accumulated other comprehensive loss |
(4,595 | ) | (4,843 | ) | ||||
|
Accumulated deficit |
(129,754 | ) | (147,064 | ) | ||||
|
|
|
|
|
|||||
|
Total stockholders’ equity |
615,467 | 594,823 | ||||||
|
|
|
|
|
|||||
|
Total liabilities and stockholders’ equity |
$ | 1,128,621 | $ | 1,141,172 | ||||
|
|
|
|
|
|||||
NINE ENERGY SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Cash flows from operating activities |
||||||||
|
Net income (loss) |
$ | 17,310 | $ | (77,335 | ) | |||
|
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
|
Depreciation |
13,530 | 14,275 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
Amortization of deferred financing costs |
746 | 1,775 | ||||||
|
Recovery of doubtful accounts |
47 | 51 | ||||||
|
Benefit for deferred income taxes |
(478 | ) | (67 | ) | ||||
|
Provision for inventory obsolescence |
1,338 | 566 | ||||||
|
Impairment of property and equipment |
— | 45,694 | ||||||
|
Impairment of goodwill |
— | 12,986 | ||||||
|
Impairment of intangible assets |
— | 19,065 | ||||||
|
Stock-based compensation expense |
3,153 | 3,502 | ||||||
|
Gain on sale of property and equipment |
(23 | ) | (30 | ) | ||||
|
(Gain) loss on revaluation of contingent liabilities |
(13,955 | ) | 1,547 | |||||
|
Loss on equity method investment |
— | 77 | ||||||
|
Changes in operating assets and liabilities, net of effects from acquisitions |
||||||||
|
Accounts receivable, net |
(4,402 | ) | 37,730 | |||||
|
Inventories, net |
(7,879 | ) | (7,336 | ) | ||||
|
Prepaid expenses and other current assets |
(6,060 | ) | (7,482 | ) | ||||
|
Accounts payable and accrued expenses |
(3,703 | ) | (10,961 | ) | ||||
|
Income taxes receivable/payable |
796 | 411 | ||||||
|
Other assets and liabilities |
780 | 448 | ||||||
|
|
|
|
|
|||||
|
Net cash provided by operating activities |
5,888 | 38,821 | ||||||
|
|
|
|
|
|||||
|
Cash flows from investing activities |
||||||||
|
Acquisitions, net of cash acquired |
— | (349,986 | ) | |||||
|
Proceeds from sales of property and equipment |
477 | 392 | ||||||
|
Proceeds from property and equipment casualty losses |
1,238 | — | ||||||
|
Proceeds from notes receivable payments |
532 | 2,941 | ||||||
|
Purchases of property and equipment |
(20,386 | ) | (17,101 | ) | ||||
|
|
|
|
|
|||||
|
Net cash used in investing activities |
(18,139 | ) | (363,754 | ) | ||||
|
|
|
|
|
|||||
|
Cash flows from financing activities |
||||||||
|
Proceeds from revolving credit facilities |
— | 35,000 | ||||||
|
Payments on revolving credit facilities |
(20,000 | ) | — | |||||
|
Proceeds from Senior Notes |
— | 400,000 | ||||||
|
Payments on term loans |
— | (115,274 | ) | |||||
|
Payments on capital leases |
(212 | ) | (128 | ) | ||||
|
Payments of contingent liability on Scorpion purchase |
— | (3,445 | ) | |||||
|
Proceeds from exercise of stock options |
15 | 1,038 | ||||||
|
Vesting of restricted stock |
(82 | ) | (137 | ) | ||||
|
Cost of debt issuance |
— | (14,922 | ) | |||||
|
|
|
|
|
|||||
|
Net cash provided by (used in) financing activities |
(20,279 | ) | 302,132 | |||||
|
|
|
|
|
|||||
|
Impact of foreign currency exchange on cash |
72 | (118 | ) | |||||
|
|
|
|
|
|||||
|
Net decrease in cash and cash equivalents |
(32,458 | ) | (22,919 | ) | ||||
|
Cash, cash equivalents and restricted cash |
||||||||
|
Beginning of period |
63,615 | 86,534 | ||||||
|
|
|
|
|
|||||
|
End of period |
$ | 31,157 | $ | 63,615 | ||||
|
|
|
|
|
|||||
NINE ENERGY SERVICE, INC.
SEGMENT DATA
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Revenues |
||||||||
|
Completion Solutions |
$ | 209,132 | $ | 208,953 | ||||
|
Production Solutions |
20,573 | 20,495 | ||||||
|
|
|
|
|
|||||
| $ | 229,705 | $ | 229,448 | |||||
|
|
|
|
|
|||||
|
Cost of revenues (1) |
||||||||
|
Completion Solutions |
$ | 161,439 | $ | 153,891 | ||||
|
Production Solutions |
17,151 | 17,707 | ||||||
|
|
|
|
|
|||||
| $ | 178,590 | $ | 171,598 | |||||
|
|
|
|
|
|||||
|
Adjusted gross profit |
||||||||
|
Completion Solutions |
$ | 47,693 | $ | 55,062 | ||||
|
Production Solutions |
3,422 | 2,788 | ||||||
|
|
|
|
|
|||||
| $ | 51,115 | $ | 57,850 | |||||
|
|
|
|
|
|||||
|
General and administrative expenses |
19,939 | 21,164 | ||||||
|
(Gain) loss on revaluation of contingent liabilities |
(13,955 | ) | 1,547 | |||||
|
Depreciation |
13,530 | 14,275 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
Impairment of property and equipment |
— | 45,694 | ||||||
|
Impairment of goodwill |
— | 12,986 | ||||||
|
Impairment of intangibles |
— | 19,065 | ||||||
|
Loss on equity method investment |
— | 77 | ||||||
|
Gain on sale of property and equipment |
(23 | ) | (30 | ) | ||||
|
|
|
|
|
|||||
|
Income (loss) from operations |
$ | 26,936 | $ | (60,833 | ) | |||
|
Capital expenditures |
||||||||
|
Completion Solutions |
$ | 22,478 | $ | 8,666 | ||||
|
Production Solutions |
914 | 901 | ||||||
|
Corporate |
55 | 64 | ||||||
|
|
|
|
|
|||||
| $ | 23,447 | $ | 9,631 | |||||
|
Total assets |
||||||||
|
Completion Solutions |
$ | 1,053,653 | $ | 1,045,643 | ||||
|
Production Solutions |
34,662 | 35,086 | ||||||
|
Corporate |
40,306 | 60,443 | ||||||
|
|
|
|
|
|||||
| $ | 1,128,621 | $ | 1,141,172 | |||||
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Revenue by country |
||||||||
|
United States |
$ | 222,315 | $ | 223,178 | ||||
|
Canada and other |
7,390 | 6,270 | ||||||
|
|
|
|
|
|||||
| $ | 229,705 | $ | 229,448 | |||||
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Long-lived assets (2) |
||||||||
|
United States |
$ | 382,624 | $ | 377,623 | ||||
|
Canada and other |
7,273 | 7,472 | ||||||
|
|
|
|
|
|||||
| $ | 389,897 | $ | 385,095 | |||||
| (1) |
Excludes depreciation and amortization, shown separately. |
| (2) |
Inclusive of property and equipment and definite-lived intangible assets. |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Calculation of gross profit |
||||||||
|
Revenues |
$ | 229,705 | $ | 229,448 | ||||
|
Cost of revenues (exclusive of depreciation and amortization shown separately below) |
178,590 | 171,598 | ||||||
|
Depreciation (related to cost of revenues) |
13,306 | 14,039 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
|
|
|
|
|||||
|
Gross profit |
$ | 33,121 | $ | 39,906 | ||||
|
|
|
|
|
|||||
|
Adjusted gross profit (excluding depreciation and amortization) reconciliation |
|
|||||||
|
Gross profit |
$ | 33,121 | $ | 39,906 | ||||
|
Depreciation (related to cost of revenues) |
13,306 | 14,039 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
|
|
|
|
|||||
|
Adjusted gross profit |
$ | 51,115 | $ | 57,850 | ||||
|
|
|
|
|
|||||
NINE ENERGY SERVICE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
EBITDA reconciliation: |
||||||||
|
Net income (loss) |
$ | 17,310 | $ | (77,335 | ) | |||
|
Interest expense |
9,166 | 16,002 | ||||||
|
Depreciation |
13,530 | 14,275 | ||||||
|
Amortization of intangibles |
4,688 | 3,905 | ||||||
|
Provision for income taxes |
460 | 500 | ||||||
|
|
|
|
|
|||||
|
EBITDA |
$ | 45,154 | $ | (42,653 | ) | |||
|
Impairment of property and equipment |
— | 45,694 | ||||||
|
Impairment of goodwill |
— | 12,986 | ||||||
|
Impairment of intangible assets |
— | 19,065 | ||||||
|
Transaction and integration costs |
4,762 | 7,630 | ||||||
|
(Gain) loss on revaluation of contingent liabilities (1) |
(13,955 | ) | 1,547 | |||||
|
Loss on equity method investment |
— | 77 | ||||||
|
Stock-based compensation expense |
3,153 | 3,502 | ||||||
|
Gain on sale of property and equipment |
(23 | ) | (30 | ) | ||||
|
Legal fees and settlements (2) |
68 | 155 | ||||||
|
|
|
|
|
|||||
|
Adjusted EBITDA |
$ | 39,159 | $ | 47,973 | ||||
|
|
|
|
|
|||||
| (1) |
Amounts relate to the revaluation of contingent liabilities associated with the Company’s recent acquisitions. The impact is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss). |
| (2) |
Amounts represent fees and legal settlements associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws. |
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ROIC CALCULATION
(In Thousands)
(Unaudited)
| Consolidated | ||||||||
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2019 | December 31, 2018 | |||||||
|
Net income (loss) |
$ | 17,310 | $ | (77,335 | ) | |||
|
Add back: |
||||||||
|
Impairment of property and equipment |
— | 45,694 | ||||||
|
Impairment of goodwill |
— | 12,986 | ||||||
|
Impairment of intangibles |
— | 19,065 | ||||||
|
Interest expense |
9,166 | 16,002 | ||||||
|
Transaction and integration costs |
4,762 | 7,630 | ||||||
|
Benefit for deferred income taxes |
(478 | ) | (67 | ) | ||||
|
|
|
|
|
|||||
|
After-tax net operating profit |
$ | 30,760 | $ | 23,975 | ||||
|
Total capital as of prior year-end/period-end: |
|
|||||||
|
Total stockholders’ equity |
$ | 594,823 | $ | 490,630 | ||||
|
Total debt |
435,000 | 115,274 | ||||||
|
Less cash and cash equivalents |
(63,615 | ) | (86,534 | ) | ||||
|
|
|
|
|
|||||
|
Total capital as of prior year-end/period-end |
$ | 966,208 | $ | 519,370 | ||||
|
|
|
|
|
|||||
|
Total capital as of period-end/year-end: |
||||||||
|
Total stockholders’ equity |
$ | 615,467 | $ | 594,823 | ||||
|
Total debt |
415,000 | 435,000 | ||||||
|
Less: cash and cash equivalents |
(31,157 | ) | (63,615 | ) | ||||
|
|
|
|
|
|||||
|
Total capital as of period-end/year-end: |
$ | 999,310 | $ | 966,208 | ||||
|
|
|
|
|
|||||
|
Average total capital |
$ | 982,759 | $ | 742,789 | ||||
|
|
|
|
|
|||||
|
ROIC |
13 | % | 13 | % | ||||
NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED BASIC EARNINGS (LOSS) PER SHARE CALCULATION
(In Thousands)
(Unaudited)
| Three Months Ended | ||||||||
|
March 31,
2019 |
December 31,
2018 |
|||||||
|
Reconciliation of adjusted net income: |
||||||||
|
Net income (loss) |
$ | 17,310 | $ | (77,335 | ) | |||
|
Add back: |
||||||||
|
Impairment of property and equipment (a) |
— | 45,694 | ||||||
|
Impairment of goodwill (a) |
— | 12,986 | ||||||
|
Impairment of intangibles (a) |
— | 19,065 | ||||||
|
Transaction and integration costs (b) |
4,762 | 7,630 | ||||||
|
Commitment fee (c) |
— | 6,900 | ||||||
|
Income tax impact of adjustments |
— | (1,375 | ) | |||||
|
|
|
|
|
|||||
|
Adjusted net income (loss) |
$ | 22,072 | $ | 13,565 | ||||
|
Weighted average shares |
||||||||
|
Weighted average shares outstanding for basic and adjusted basic earnings (loss) per share |
29,150,996 | 27,815,401 | ||||||
|
Earnings (Loss) per share: |
||||||||
|
Basic earnings (loss) per share |
$ | 0.59 | $ | (2.78 | ) | |||
|
Adjusted basic earnings per share |
$ | 0.76 | $ | 0.49 | ||||
| (a) |
Impairment charges recorded in the fourth quarter of 2018 were due to deteriorating market conditions in the Company’s Production Solutions segment attributed to depressed commodity prices towards the end of the fourth quarter of 2018, coupled with customers focusing more on the completion business where there is more technological differentiation and value. |
| (b) |
Amounts for each period presented represent transaction and integration costs, including the cost of inventory that was stepped up to fair value during purchase accounting associated with recent acquisitions. |
| (c) |
Amount represents commitment fee associated with a potential bridge financing in the fourth quarter of 2018. |
| A |
Adjusted EBITDA is defined as net income (loss) before interest, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) loss or gains from discontinued operations, (iv) loss or gains from the revaluation of contingent liabilities, (v) loss or gains on equity method investment, (vi) stock-based compensation expense, (vii) loss or gains on sale of property and equipment and (viii) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments, acquisitions and dispositions and costs that are not reflective of the ongoing performance of our business. |
| B |
Adjusted Basic Earnings Per Share is defined as adjusted net income (loss), divided by weighted average basic shares outstanding. Management believes Adjusted Basic Earnings Per Share is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions. |
| c |
Return on Invested Capital (“ROIC”) is defined as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) transaction and integration costs related to acquisitions and our IPO, (ii) property and equipment, goodwill, and/or intangible asset impairment charges, (iii) interest expense, and (iv) the provision or benefit for deferred income taxes. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior year-end adjusted total capital for use in this analysis. Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. |
| D |
Adjusted Net Income is defined as net income (loss) adjusted for (i) property and equipment, goodwill and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, including the commitment fee associated with a potential bridge financing in connection with an acquisition, and (iii) the income tax impact of such adjustments. Management believes Adjusted Net Income is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period and help identify underlying trends in our operations that could otherwise be distorted by the effect of the impairments and acquisitions. |
| E |
Adjusted Gross Profit is defined as revenues less cost of revenues excluding depreciation and amortization. This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses. Our management uses adjusted gross profit to evaluate operating performance and to determine resource allocation between segments. We prepare adjusted gross profit (excluding depreciation and amortization) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance. |