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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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80-0759121
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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x
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Smaller reporting company
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☐
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Emerging growth company
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x
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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NINE
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New York Stock Exchange
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•
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the level of capital spending and well completions by the onshore oil and natural gas industry;
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•
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oil and natural gas commodity prices;
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•
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general economic conditions;
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•
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our ability 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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•
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our ability to implement price increases or maintain existing prices on our products and services;
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•
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pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for our dissolvable plug products;
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•
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our ability to accurately predict customer demand;
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•
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conditions inherent in the oilfield services industry, such as equipment defects, liabilities arising from accidents or damage involving our fleet of trucks or other equipment, explosions and uncontrollable flows of gas or well fluids, and loss of well control;
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•
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our ability to implement new technologies and services;
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•
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seasonal and adverse weather conditions;
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•
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changes in laws or regulations regarding issues of health, safety, and protection of the environment, including those relating to hydraulic fracturing, greenhouse gases, and climate change; and
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•
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our ability to successfully integrate the assets and operations that we acquired with our acquisition of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. and realize anticipated revenues, cost savings, or other benefits of such acquisition.
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March 31,
2019 |
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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 (Note 9)
|
7,094
|
|
|
7,626
|
|
||
Total current assets
|
316,157
|
|
|
333,176
|
|
||
Property and equipment, net
|
221,134
|
|
|
211,644
|
|
||
Definite-lived intangible assets, 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
|
|
||
Commitments and contingencies (Note 10)
|
|
|
|
|
|
||
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
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Revenues
|
$
|
229,705
|
|
|
$
|
173,807
|
|
Cost and expenses
|
|
|
|
||||
Cost of revenues (exclusive of depreciation and amortization shown separately below)
|
178,590
|
|
|
138,227
|
|
||
General and administrative expenses
|
19,939
|
|
|
14,365
|
|
||
(Gain) loss on revaluation of contingent liabilities
|
(13,955
|
)
|
|
1,063
|
|
||
Depreciation
|
13,530
|
|
|
13,109
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Loss on equity method investment
|
—
|
|
|
75
|
|
||
(Gain) loss on sale of property and equipment
|
(23
|
)
|
|
370
|
|
||
Income from operations
|
26,936
|
|
|
4,698
|
|
||
Other expense
|
|
|
|
||||
Interest expense
|
9,166
|
|
|
2,930
|
|
||
Total other expense
|
9,166
|
|
|
2,930
|
|
||
Income before income taxes
|
17,770
|
|
|
1,768
|
|
||
Provision for income taxes
|
460
|
|
|
93
|
|
||
Net income
|
$
|
17,310
|
|
|
$
|
1,675
|
|
Earnings per share
|
|
|
|
||||
Basic
|
$
|
0.59
|
|
|
$
|
0.08
|
|
Diluted
|
$
|
0.59
|
|
|
$
|
0.08
|
|
Weighted average shares outstanding
|
|
|
|
||||
Basic
|
29,150,996
|
|
|
21,902,519
|
|
||
Diluted
|
29,471,753
|
|
|
22,069,353
|
|
||
Other comprehensive income (loss), net of tax
|
|
|
|
||||
Foreign currency translation adjustments, net of $0 tax in each period
|
$
|
248
|
|
|
$
|
(394
|
)
|
Total other comprehensive income (loss), net of tax
|
248
|
|
|
(394
|
)
|
||
Total comprehensive income
|
$
|
17,558
|
|
|
$
|
1,281
|
|
|
Common Stock
|
|
Additional
Paid-in Capital |
|
Accumulated
Other Comprehensive Income (Loss) |
|
Retained
Earnings (Accumulated Deficit) |
|
Total
Stockholders’ Equity |
|||||||||||||
|
Shares
|
|
Amounts
|
|
|
|
|
|||||||||||||||
Stockholders’ equity as of December 31, 2018
|
30,163,408
|
|
|
$
|
302
|
|
|
$
|
746,428
|
|
|
$
|
(4,843
|
)
|
|
$
|
(147,064
|
)
|
|
$
|
594,823
|
|
Issuance of common stock under stock compensation plan
|
622,021
|
|
|
6
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
3,153
|
|
|
—
|
|
|
—
|
|
|
3,153
|
|
|||||
Exercise of stock options
|
674
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|||||
Vesting of restricted stock
|
(3,503
|
)
|
|
—
|
|
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
(82
|
)
|
|||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|
248
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,310
|
|
|
17,310
|
|
|||||
Stockholders’ equity as of March 31, 2019
|
30,782,600
|
|
|
$
|
308
|
|
|
$
|
749,508
|
|
|
$
|
(4,595
|
)
|
|
$
|
(129,754
|
)
|
|
$
|
615,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Stockholders’ equity as of December 31, 2017
|
15,810,540
|
|
|
$
|
158
|
|
|
$
|
384,965
|
|
|
$
|
(3,684
|
)
|
|
$
|
(94,081
|
)
|
|
$
|
287,358
|
|
Issuance of common stock in IPO, net of offering costs
|
8,050,000
|
|
|
81
|
|
|
168,180
|
|
|
—
|
|
|
—
|
|
|
168,261
|
|
|||||
Other issuances of common stock
|
418,317
|
|
|
4
|
|
|
296
|
|
|
—
|
|
|
—
|
|
|
300
|
|
|||||
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,240
|
|
|
—
|
|
|
—
|
|
|
2,240
|
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(394
|
)
|
|
—
|
|
|
(394
|
)
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,675
|
|
|
1,675
|
|
|||||
Stockholders’ equity as of March 31, 2018
|
24,278,857
|
|
|
$
|
243
|
|
|
$
|
555,681
|
|
|
$
|
(4,078
|
)
|
|
$
|
(92,406
|
)
|
|
$
|
459,440
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Cash flows from operating activities
|
|
|
|
|
|
||
Net income
|
$
|
17,310
|
|
|
$
|
1,675
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
||||
Depreciation
|
13,530
|
|
|
13,109
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Amortization of deferred financing costs
|
746
|
|
|
853
|
|
||
Provision for (recovery of) doubtful accounts
|
47
|
|
|
(270
|
)
|
||
Benefit for deferred income taxes
|
(478
|
)
|
|
(47
|
)
|
||
Provision for inventory obsolescence
|
1,338
|
|
|
—
|
|
||
Stock-based compensation expense
|
3,153
|
|
|
2,240
|
|
||
(Gain) loss on sale of property and equipment
|
(23
|
)
|
|
370
|
|
||
(Gain) loss on revaluation of contingent liabilities
|
(13,955
|
)
|
|
1,063
|
|
||
Loss on equity method investment
|
—
|
|
|
75
|
|
||
Changes in operating assets and liabilities, net of effects from acquisitions
|
|
|
|
||||
Accounts receivable, net
|
(4,402
|
)
|
|
(16,387
|
)
|
||
Inventories, net
|
(7,879
|
)
|
|
406
|
|
||
Prepaid expenses and other current assets
|
(6,060
|
)
|
|
757
|
|
||
Accounts payable and accrued expenses
|
(3,703
|
)
|
|
11,357
|
|
||
Income taxes receivable/payable
|
796
|
|
|
140
|
|
||
Other assets and liabilities
|
780
|
|
|
66
|
|
||
Net cash provided by operating activities
|
5,888
|
|
|
17,307
|
|
||
Cash flows from investing activities
|
|
|
|
||||
Proceeds from sales of property and equipment
|
477
|
|
|
1,096
|
|
||
Proceeds from property and equipment casualty losses
|
1,238
|
|
|
—
|
|
||
Proceeds from notes receivable payments
|
532
|
|
|
—
|
|
||
Purchases of property and equipment
|
(20,386
|
)
|
|
(6,468
|
)
|
||
Net cash used in investing activities
|
(18,139
|
)
|
|
(5,372
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Payments on revolving credit facilities
|
(20,000
|
)
|
|
(96,182
|
)
|
||
Proceeds from term loan
|
—
|
|
|
125,000
|
|
||
Payments on term loans
|
—
|
|
|
(155,701
|
)
|
||
Payments on capital leases
|
(212
|
)
|
|
—
|
|
||
Proceeds from issuance of common stock in IPO, net of offering costs
|
—
|
|
|
171,616
|
|
||
Proceeds from other issuances of common stock
|
—
|
|
|
300
|
|
||
Proceeds from exercise of stock options
|
15
|
|
|
—
|
|
||
Vesting of restricted stock
|
(82
|
)
|
|
—
|
|
||
Cost of debt issuance
|
—
|
|
|
(1,385
|
)
|
||
Net cash provided by (used in) financing activities
|
(20,279
|
)
|
|
43,648
|
|
||
Impact of foreign currency exchange on cash
|
72
|
|
|
(196
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
(32,458
|
)
|
|
55,387
|
|
||
Cash and cash equivalents
|
|
|
|
||||
Cash and cash equivalents beginning of year
|
63,615
|
|
|
17,513
|
|
||
Cash and cash equivalents end of period
|
$
|
31,157
|
|
|
$
|
72,900
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
750
|
|
|
$
|
2,105
|
|
Cash paid for income taxes
|
$
|
132
|
|
|
$
|
—
|
|
Capital expenditures in accounts payable and accrued expenses
|
$
|
6,227
|
|
|
$
|
2,264
|
|
Property and equipment obtained by capital lease
|
$
|
1,310
|
|
|
$
|
—
|
|
Receivable from property and equipment insurance
|
$
|
24
|
|
|
$
|
—
|
|
•
|
accumulating all customer contractual arrangements;
|
•
|
identifying the individual performance obligations pursuant to each arrangement;
|
•
|
quantifying the considerations under each arrangement;
|
•
|
allocating the consideration under each arrangement to the identified performance obligation; and
|
•
|
determining the timing of revenue recognition pursuant to each arrangement.
|
|
Fair Value
|
||
|
(in thousands)
|
||
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility
(1)
|
$
|
296,622
|
|
Cash provided from operations
|
58,760
|
|
|
Total upfront cash consideration
|
$
|
355,382
|
|
|
|
||
Issuance of the Company’s common shares
|
$
|
177,350
|
|
Contingent consideration
(2)
|
23,029
|
|
|
Total purchase consideration
|
$
|
555,761
|
|
|
Purchase Price Allocation
|
||
|
(in thousands)
|
||
Cash and cash equivalents
|
$
|
8,509
|
|
Accounts receivable, net
|
30,441
|
|
|
Income taxes receivable
|
272
|
|
|
Inventories, net
|
55,169
|
|
|
Prepaid expenses and other current assets
|
1,147
|
|
|
Property and equipment, net
|
3,729
|
|
|
Goodwill
|
225,839
|
|
|
Definite-lived intangible assets, net
|
148,000
|
|
|
Indefinite-lived intangible assets
|
96,000
|
|
|
Other long-term assets
|
1,055
|
|
|
Accounts payable
|
(3,626
|
)
|
|
Accrued expenses
|
(10,759
|
)
|
|
Other long-term liabilities
|
(15
|
)
|
|
Total net assets acquired
|
$
|
555,761
|
|
|
March 31,
2019 |
|
December 31,
2018 |
||||
|
(in thousands)
|
||||||
Raw materials
|
$
|
41,986
|
|
|
$
|
38,890
|
|
Work in progress
|
2,739
|
|
|
130
|
|
||
Finished goods
|
56,262
|
|
|
54,301
|
|
||
Inventories
|
100,987
|
|
|
93,321
|
|
||
Reserve for obsolescence
|
(2,934
|
)
|
|
(1,886
|
)
|
||
Inventories, net
|
$
|
98,053
|
|
|
$
|
91,435
|
|
|
Goodwill
|
||||||||||
|
Gross Value
|
|
Accumulated
Impairment Loss |
|
Net
|
||||||
|
(in thousands)
|
||||||||||
Balance as of December 31, 2018
|
$
|
400,067
|
|
|
$
|
(92,263
|
)
|
|
$
|
307,804
|
|
Impairment
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance as of March 31, 2019
|
$
|
400,067
|
|
|
$
|
(92,263
|
)
|
|
$
|
307,804
|
|
|
Intangible Assets
|
||||||||||||||||||||||||||
|
Customer Relationships
|
|
Non- Compete Agreements
|
|
Technology
|
|
Definite-Lived Intangible Asset Total
|
|
Trade Names
|
|
Other Intangible Assets
|
|
Infinite-Lived Intangible Asset Total
|
||||||||||||||
|
(in thousands, except weighted average amortization period information)
|
||||||||||||||||||||||||||
Balance as of December 31, 2018
|
$
|
47,964
|
|
|
$
|
2,850
|
|
|
$
|
122,637
|
|
|
$
|
173,451
|
|
|
$
|
107,700
|
|
|
$
|
1,011
|
|
|
$
|
108,711
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Amortization expense
|
(2,094
|
)
|
|
(415
|
)
|
|
(2,179
|
)
|
|
(4,688
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance as of March 31, 2019
|
$
|
45,870
|
|
|
$
|
2,435
|
|
|
$
|
120,458
|
|
|
$
|
168,763
|
|
|
$
|
107,700
|
|
|
$
|
1,011
|
|
|
$
|
108,711
|
|
Weighted average amortization period
|
7.1
|
|
3.5
|
|
14.3
|
|
|
|
Indefinite
|
|
Indefinite
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||||
|
(in thousands)
|
||||||
Accrued compensation and benefits
|
$
|
16,383
|
|
|
$
|
11,930
|
|
Accrued bonus
|
1,088
|
|
|
13,250
|
|
||
Sales tax payable
|
1,389
|
|
|
1,185
|
|
||
Magnum contingent liability
|
6,245
|
|
|
20,922
|
|
||
Accrued interest
|
14,770
|
|
|
7,031
|
|
||
Other accrued expenses
|
4,158
|
|
|
7,116
|
|
||
Accrued expenses
|
$
|
44,033
|
|
|
$
|
61,434
|
|
|
March 31,
2019 |
|
December 31,
2018 |
||||
|
(in thousands)
|
||||||
Senior Notes
|
$
|
400,000
|
|
|
$
|
400,000
|
|
2018 ABL Credit Facility
|
15,000
|
|
|
35,000
|
|
||
Total debt before deferred financing costs
|
$
|
415,000
|
|
|
$
|
435,000
|
|
Deferred financing costs
|
(9,502
|
)
|
|
(10,022
|
)
|
||
Total debt
|
$
|
405,498
|
|
|
$
|
424,978
|
|
Less: Current portion of long-term debt
|
—
|
|
|
—
|
|
||
Long-term debt
|
$
|
405,498
|
|
|
$
|
424,978
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||||
|
(in thousands)
|
||||||
Senior Notes
|
$
|
412,000
|
|
|
$
|
376,000
|
|
2018 ABL Credit Facility
|
$
|
15,000
|
|
|
$
|
35,000
|
|
|
Magnum
|
|
Frac Tech
|
|
Total
|
||||||
|
(in thousands)
|
||||||||||
Balance at December 31, 2018
|
$
|
24,521
|
|
|
$
|
1,008
|
|
|
$
|
25,529
|
|
Revaluation adjustments
|
(14,137
|
)
|
|
182
|
|
|
(13,955
|
)
|
|||
Balance at March 31, 2019
|
$
|
10,384
|
|
|
$
|
1,190
|
|
|
$
|
11,574
|
|
|
Three Months Ended March 31, 2019
|
|
Three Months Ended March 31, 2018
|
||||||||||||||||||
|
Net Income
|
|
Average Shares Outstanding
|
|
Earnings Per Share
|
|
Net Income
|
|
Average Shares Outstanding
|
|
Earnings Per Share
|
||||||||||
|
(in thousands, except share and per share amounts)
|
||||||||||||||||||||
Basic
|
$
|
17,310
|
|
|
29,150,996
|
|
|
$
|
0.59
|
|
|
$
|
1,675
|
|
|
21,902,519
|
|
|
$
|
0.08
|
|
Assumed exercise of stock options
|
|
|
2,709
|
|
|
|
|
|
|
37,238
|
|
|
|
||||||||
Unvested restricted stock and stock units
|
|
|
318,048
|
|
|
|
|
|
|
129,596
|
|
|
|
||||||||
Diluted
|
$
|
17,310
|
|
|
29,471,753
|
|
|
$
|
0.59
|
|
|
$
|
1,675
|
|
|
22,069,353
|
|
|
$
|
0.08
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
Revenues
|
|
|
|
|
|
||
Completion Solutions
|
$
|
209,132
|
|
|
$
|
154,644
|
|
Production Solutions
|
20,573
|
|
|
19,163
|
|
||
|
$
|
229,705
|
|
|
$
|
173,807
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below)
|
|
|
|
||||
Completion Solutions
|
$
|
161,439
|
|
|
$
|
121,426
|
|
Production Solutions
|
17,151
|
|
|
16,801
|
|
||
|
$
|
178,590
|
|
|
$
|
138,227
|
|
Adjusted gross profit
|
|
|
|
||||
Completion Solutions
|
$
|
47,693
|
|
|
$
|
33,218
|
|
Production Solutions
|
3,422
|
|
|
2,362
|
|
||
|
$
|
51,115
|
|
|
$
|
35,580
|
|
|
|
|
|
||||
General and administrative expenses
|
19,939
|
|
|
14,365
|
|
||
(Gain) loss on revaluation of contingent liabilities
|
(13,955
|
)
|
|
1,063
|
|
||
Depreciation
|
13,530
|
|
|
13,109
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Loss on equity method investment
|
—
|
|
|
75
|
|
||
(Gain) loss on sale of property and equipment
|
(23
|
)
|
|
370
|
|
||
Income from operations
|
$
|
26,936
|
|
|
$
|
4,698
|
|
Other expense
|
|
|
|
||||
Interest expense
|
9,166
|
|
|
2,930
|
|
||
Total other expense
|
9,166
|
|
|
2,930
|
|
||
Income before income taxes
|
17,770
|
|
|
1,768
|
|
||
Provision for income taxes
|
460
|
|
|
93
|
|
||
Net income
|
$
|
17,310
|
|
|
$
|
1,675
|
|
|
March 31, 2019
|
|
March 31, 2018
|
||||
|
(in thousands)
|
||||||
Completion Solutions
|
$
|
22,478
|
|
|
$
|
5,283
|
|
Production Solutions
|
914
|
|
|
692
|
|
||
Corporate
|
55
|
|
|
493
|
|
||
|
$
|
23,447
|
|
|
$
|
6,468
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||||
|
(in thousands)
|
||||||
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
|
|
•
|
Completion Solutions
: Our
Completion Solutions
segment provides services integral to the completion of unconventional wells through a full range of tools and methodologies. Through our
Completion Solutions
segment, we provide (i) cementing services, which 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, (ii) an innovative portfolio of completion tools, including those that provide pinpoint frac sleeve system technologies as well as a portfolio of completion technologies used for completing the toe stage of a horizontal well and fully-composite, dissolvable, and extended range frac plugs to isolate stages during plug and perf operations, (iii) wireline services, the majority of which consist 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, and (iv) coiled tubing services, which 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 30,000 feet and which provides a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well.
|
•
|
Production Solutions
: 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. 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 ultimate plug 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.
|
•
|
Revenue
: We compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year. We monitor our revenue to analyze trends in the performance of each of our segments compared to historical revenue drivers or market metrics
|
•
|
Adjusted Gross Profit (Excluding Depreciation and Amortization)
: Adjusted gross profit (excluding depreciation and amortization) is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define segment adjusted gross profit (excluding depreciation and amortization) as segment revenues less segment direct and indirect costs of revenues (excluding depreciation and amortization). Costs of revenues include direct and indirect labor costs, costs of materials, maintenance of equipment, fuel, transportation freight costs, contract services, crew cost, and other miscellaneous expenses. For additional information, see “Non-GAAP Financial Measures” below.
|
•
|
Adjusted EBITDA
: We define Adjusted EBITDA as net income (loss) before interest expense, 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 gain from discontinued operations, (iv) loss or gain on revaluation of contingent liabilities, (v) loss or gain on equity method investment, (vi) stock-based compensation expense, (vii) loss or gain 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. For additional information, see “Non-GAAP Financial Measures” below.
|
•
|
Return on Invested Capital (“ROIC”):
We define ROIC 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 period-end total capital for use in this analysis. For additional information, see “Non-GAAP Financial Measures” below.
|
•
|
Safety
: We measure safety by tracking the total recordable incident rate (“TRIR”), which is reviewed on a monthly basis. TRIR is a measure of the rate of recordable workplace injuries, defined below, normalized and stated on the basis of 100 workers for an annual period. The factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 (i.e., the total hours for 100 employees working 2,000 hours per year) and dividing this value by the total hours actually worked in the year. A recordable injury includes occupational death, nonfatal occupational illness, and other occupational injuries that involve loss of consciousness, restriction of work or motion, transfer to another job, or medical treatment other than first aid.
|
•
|
As a result of the Magnum Acquisition and the application of purchase accounting, these identifiable net assets have been adjusted to their estimated fair value as of October 25, 2018, the closing date of the Magnum Acquisition (the “Closing Date”). These adjusted valuations increase our operating expenses in periods after the Closing Date primarily due to an increase in the amortization of intangible assets with definite lives.
|
•
|
Transaction and integration costs associated with the Magnum Acquisition increase operating expenses in periods after the Closing Date.
|
•
|
Our completion tools line constitutes a larger portion of our business, due in large part to the Magnum Acquisition. We expect that the Magnum Acquisition will generate additional free cash flow, reduce overall capital intensity, and improve our margins. We also expect that the Magnum Acquisition will further diversify our basin exposure and add significant size and scale.
|
•
|
We incurred significant indebtedness in connection with the consummation of the Magnum Acquisition, and our related interest expense is expected to be significantly higher than in prior periods.
|
|
Three Months Ended March 31,
|
|
|
||||||||
|
2019
|
|
2018
|
|
Change
|
||||||
|
(in thousands)
|
|
|
||||||||
Revenues
|
|
|
|
|
|
|
|
|
|||
Completion Solutions
|
$
|
209,132
|
|
|
$
|
154,644
|
|
|
$
|
54,488
|
|
Production Solutions
|
20,573
|
|
|
19,163
|
|
|
1,410
|
|
|||
|
$
|
229,705
|
|
|
$
|
173,807
|
|
|
$
|
55,898
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below)
|
|
|
|
|
|
||||||
Completion Solutions
|
$
|
161,439
|
|
|
$
|
121,426
|
|
|
$
|
40,013
|
|
Production Solutions
|
17,151
|
|
|
16,801
|
|
|
350
|
|
|||
|
$
|
178,590
|
|
|
$
|
138,227
|
|
|
$
|
40,363
|
|
Adjusted gross profit
|
|
|
|
|
|
||||||
Completion Solutions
|
$
|
47,693
|
|
|
$
|
33,218
|
|
|
$
|
14,475
|
|
Production Solutions
|
3,422
|
|
|
2,362
|
|
|
1,060
|
|
|||
|
$
|
51,115
|
|
|
$
|
35,580
|
|
|
$
|
15,535
|
|
|
|
|
|
|
|
||||||
General and administrative expenses
|
19,939
|
|
|
14,365
|
|
|
5,574
|
|
|||
(Gain) loss on revaluation of contingent liabilities
|
(13,955
|
)
|
|
1,063
|
|
|
(15,018
|
)
|
|||
Depreciation
|
13,530
|
|
|
13,109
|
|
|
421
|
|
|||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
|
2,788
|
|
|||
Loss on equity method investment
|
—
|
|
|
75
|
|
|
(75
|
)
|
|||
(Gain) loss on sale of property and equipment
|
(23
|
)
|
|
370
|
|
|
(393
|
)
|
|||
Income from operations
|
$
|
26,936
|
|
|
$
|
4,698
|
|
|
$
|
22,238
|
|
Other expense
|
|
|
|
|
|
||||||
Interest expense
|
9,166
|
|
|
2,930
|
|
|
6,236
|
|
|||
Total other expense
|
9,166
|
|
|
2,930
|
|
|
6,236
|
|
|||
Income before income taxes
|
17,770
|
|
|
1,768
|
|
|
16,002
|
|
|||
Provision for income taxes
|
460
|
|
|
93
|
|
|
367
|
|
|||
Net income
|
$
|
17,310
|
|
|
$
|
1,675
|
|
|
$
|
15,635
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
EBITDA reconciliation:
|
|
|
|
||||
Net income
|
$
|
17,310
|
|
|
$
|
1,675
|
|
Interest expense
|
9,166
|
|
|
2,930
|
|
||
Depreciation
|
13,530
|
|
|
13,109
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Provision for income taxes
|
460
|
|
|
93
|
|
||
EBITDA
|
$
|
45,154
|
|
|
$
|
19,707
|
|
|
|
|
|
||||
Adjusted EBITDA reconciliation:
|
|
|
|
||||
EBITDA
|
$
|
45,154
|
|
|
$
|
19,707
|
|
Transaction and integration costs
|
4,762
|
|
|
377
|
|
||
(Gain) loss on revaluation of contingent liabilities
(1)
|
(13,955
|
)
|
|
1,063
|
|
||
Loss on equity method investment
|
—
|
|
|
75
|
|
||
Stock-based compensation expense
|
3,153
|
|
|
2,240
|
|
||
(Gain) loss on sale of property and equipment
|
(23
|
)
|
|
370
|
|
||
Legal fees and settlements
(2)
|
68
|
|
|
305
|
|
||
Adjusted EBITDA
|
$
|
39,159
|
|
|
$
|
24,137
|
|
|
Three Months Ended March 31, 2019
|
||
|
(in thousands)
|
||
Net income
|
$
|
17,310
|
|
Add back:
|
|
||
Interest expense
|
9,166
|
|
|
Transaction and integration costs
|
4,762
|
|
|
Benefit for deferred income taxes
|
(478
|
)
|
|
After-tax net operating profit
|
$
|
30,760
|
|
Total capital as of prior year-end:
|
|
||
Total stockholders’ equity
|
$
|
594,823
|
|
Total debt
|
435,000
|
|
|
Less cash and cash equivalents
|
(63,615
|
)
|
|
Total capital
|
$
|
966,208
|
|
Total capital as of period end:
|
|
||
Total stockholders’ equity
|
$
|
615,467
|
|
Total debt
|
415,000
|
|
|
Less cash and cash equivalents
|
(31,157
|
)
|
|
Total capital
|
$
|
999,310
|
|
Average total capital
|
$
|
982,759
|
|
ROIC
|
12.5%
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
Calculation of gross profit
|
|
|
|
||||
Revenues
|
$
|
229,705
|
|
|
$
|
173,807
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below)
|
178,590
|
|
|
138,227
|
|
||
Depreciation (related to cost of revenues)
|
13,306
|
|
|
12,892
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Gross profit
|
$
|
33,121
|
|
|
$
|
20,788
|
|
Adjusted gross profit (excluding depreciation and amortization) reconciliation:
|
|
|
|
||||
Gross profit
|
$
|
33,121
|
|
|
$
|
20,788
|
|
Depreciation (related to cost of revenues)
|
13,306
|
|
|
12,892
|
|
||
Amortization of intangibles
|
4,688
|
|
|
1,900
|
|
||
Adjusted gross profit (excluding depreciation and amortization)
|
$
|
51,115
|
|
|
$
|
35,580
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(in thousands)
|
||||||
Operating activities
|
$
|
5,888
|
|
|
$
|
17,307
|
|
Investing activities
|
(18,139
|
)
|
|
(5,372
|
)
|
||
Financing activities
|
(20,279
|
)
|
|
43,648
|
|
||
Impact of foreign exchange rate on cash
|
72
|
|
|
(196
|
)
|
||
Net change in cash and cash equivalents
|
$
|
(32,458
|
)
|
|
$
|
55,387
|
|
Exhibit
number
|
|
Description
|
|
|
|
2.1†
|
|
|
|
|
|
3.1
|
|
|
|
|
|
3.2
|
|
|
|
|
|
10.1*
|
|
|
|
|
|
31.1*
|
|
|
|
|
|
31.2*
|
|
|
|
|
|
32.1**
|
|
|
|
|
|
32.2**
|
|
|
|
|
|
101*
|
|
Interactive Data Files
|
*
|
Filed herewith
|
**
|
Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K.
|
†
|
Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.
|
|
|
|
Nine Energy Service, Inc.
|
||
|
|
|
|
|
|
Date:
|
May 8, 2019
|
|
By:
|
|
/s/ Ann G. Fox
|
|
|
|
|
|
Ann G. Fox
|
|
|
|
|
|
President, Chief Executive Officer and Director
|
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
Date:
|
May 8, 2019
|
|
By:
|
|
/s/ Clinton Roeder
|
|
|
|
|
|
Clinton Roeder
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
(Principal Financial Officer)
|
|
|
NINE ENERGY SERVICE, INC.
|
|||
|
|
|
|||
|
|
By:
|
|
||
|
|
Title:
|
|
||
|
|
Name:
|
|
||
|
|
|
|||
|
|
PARTICIPANT
|
|||
|
|
|
|||
|
|
Name:
|
4.
|
Additional Factors or Information Regarding Methodology
. Consistent with the terms of the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the terms of the Plan or the Agreement, including this
Exhibit B
, shall be within the sole discretion of the Committee, and shall be final, conclusive, and binding upon all persons.
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
Date:
|
May 8, 2019
|
/s/ Ann G. Fox
|
|
|
Ann G. Fox
|
|
|
President, Chief Executive Officer and Director
|
|
|
(Principal Executive Officer)
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
Date:
|
May 8, 2019
|
/s/ Clinton Roeder
|
|
|
Clinton Roeder
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
||
|
|
/s/ Ann G. Fox
|
|
|
|
Ann G. Fox
|
|
|
|
President, Chief Executive Officer and Director
|
|
|
|
(Principal Executive Officer)
|
|
|
|
Date:
|
May 8, 2019
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
||
|
|
/s/ Clinton Roeder
|
|
|
|
Clinton Roeder
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
|
Date:
|
May 8, 2019
|