Nine Energy Service, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparative figures are for 2022. This filing does not provide a standalone fourth-quarter income statement or cash flow, so Q4-only values are not stated.
Business context and financial performance
Nine provides completion services and products for unconventional oil and gas wells, including cementing, completion tools, wireline and coiled tubing. It reports one operating segment, Completion Solutions.
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $609.5 million | $593.4 million | +3% |
| GAAP gross profit | $80.2 million | $97.9 million | −18% |
| Adjusted gross profit | $118.8 million | $136.3 million | −13% |
| Income from operations | $17.6 million | $43.6 million | −60% |
| Net income (loss) | $(32.2) million | $14.4 million | Declined $46.6 million |
| Adjusted EBITDA | $73.0 million | $93.7 million | −22% |
| Cash from operating activities | $45.5 million | $16.7 million | +$28.8 million |
| Capital expenditures | $22.3 million | $32.3 million | −31% |
Adjusted gross margin was approximately 19.5% versus 23.0% in 2022; GAAP gross margin was approximately 13.1% versus 16.5%. The net loss included $51.1 million of interest expense and a $0.6 million income tax provision. Operating cash flow benefited substantially from working-capital changes, including collections and inventory reductions; cash flow before those working-capital effects weakened, according to management.
Liquidity, debt and capital
- At year-end, cash was $30.8 million and ABL availability was $28.1 million, for reported total liquidity of $58.9 million.
- Debt principal outstanding was $300.0 million of 13.000% senior secured notes due 2028 and $57.0 million under the ABL facility, plus $2.9 million of other short-term debt. Balance-sheet debt, net of deferred financing costs, was $323.4 million.
- The notes require semiannual cash interest; management cited approximately $19.5 million per payment based on year-end balances. The ABL facility matures January 2027; the notes mature February 2028. The company reported compliance with debt covenants at year-end.
- The January 2023 units offering generated $279.8 million net proceeds and included 1.5 million common shares; proceeds helped redeem $307.3 million principal of the 8.750% notes due 2023. The ATM program permits up to $30 million of share sales; no shares were sold under it in Q4 2023.
- Stockholders’ deficit was $35.6 million. The company does not anticipate paying cash dividends in the foreseeable future.
Material changes and management outlook
- Revenue growth reflected higher wireline and coiled tubing activity and an international completion-tools sale; cementing revenue declined. Tools stages fell 6%, despite higher tools revenue, while wireline stages rose 4%.
- Costs of revenue increased 7%, faster than revenue, primarily from labor and materials inflation and higher activity-related costs. General and administrative expense rose 16%, including $6.4 million of units-offering and refinancing costs.
- Management said 2023 commodity prices and activity were lower than in 2022: average WTI declined about 18%, average natural gas prices about 61%, and U.S. rig count fell by roughly 157 rigs from year-end 2022. Customer pricing pressure affected revenue and margins.
- For 2024, management expects public operators’ activity and capital spending to be generally flat and does not foresee near-term activity increases; early-2024 activity and pricing were described as broadly consistent with Q4 2023. Planned 2024 capital expenditures are $15–$25 million, excluding possible acquisitions.
- Management believes cash, operating cash flow and ABL borrowings should fund requirements for at least 12 months from issuance of the financial statements, while cautioning that forecasts depend on operating performance and market conditions. It remains cautiously optimistic about the longer-term North American outlook.
Risks, contingencies and unusual items
- Business is cyclical and exposed to oil and gas prices, customer capital spending, pricing competition, labor and materials inflation, weather, and supply constraints. High debt and the 13% notes coupon constrain flexibility and cash available for operations.
- Environmental, emissions, hydraulic-fracturing, safety, transportation and climate-related rules could raise costs or reduce customer demand. Operational accidents, uninsured losses, cybersecurity events and customer credit deterioration are additional risks.
- The filing describes ongoing wage-and-hour litigation and other claims; management states the ultimate liability from pending claims is not expected to materially adversely affect the company. A $0.1 million legal accrual was recorded at year-end. A jury found against the company in a 2022 intellectual-property case involving its BreakThru casing flotation device; the company intends to appeal.
- Federal and state NOLs totaled approximately $471.8 million, but their use may be limited by a prior ownership change and future taxable income is uncertain. The company maintains a valuation allowance against relevant deferred tax assets.
- SCF held approximately 26% of common stock at year-end, giving it substantial influence. The filing also discloses related-party transactions and the potential for dilution from future equity sales.
Most important facts for investors to verify
- Whether cash generation remains adequate after separating working-capital effects from underlying operating performance, and whether margins stabilize amid cost inflation and pricing pressure.
- Available liquidity, ABL borrowing-base availability and covenant headroom, alongside the cash burden of the 13% notes and scheduled interest payments.
- Whether 2024 customer activity, pricing and capital spending match management’s flat-market outlook and whether capital expenditures remain within the stated budget.
- Developments in the BreakThru appeal, wage-and-hour claims, and any other uninsured or contingent liabilities.
- The filing reports 4.7% of 2023 revenue from customers outside the U.S. in its risk discussion, while its revenue-by-country table reports 1.2% for “Canada and other”; verify the differing scope or presentation.