Nine Energy Service, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2023, with comparison to Q1 2022. Nine provides completion services and products for unconventional oil and gas wells, including cementing, completion tools, coiled tubing, and wireline services. It reports one segment.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $163.4 million | $116.9 million |
| GAAP gross profit / margin | $26.5 million / 16.2% | $12.7 million / 10.8% |
| Adjusted gross profit / margin | $36.3 million / 22.2% | $22.6 million / 19.3% |
| Operating income | $6.9 million | $1.1 million |
| Net loss | $6.1 million; $(0.19) per share | $6.9 million; $(0.23) per share |
| Adjusted EBITDA | $25.0 million | $12.2 million |
| Cash from operating activities | $4.0 million | $(6.5) million |
Revenue rose 40%, with growth across all service lines. Cement revenue was $62.5 million, tools $37.8 million, coiled tubing $33.5 million, and wireline $29.6 million. Management attributed growth to stronger activity and pricing versus Q1 2022. Cost of revenue increased 35% to $127.1 million, reflecting higher activity, labor and materials inflation, and headcount growth. G&A rose to $19.7 million, including $6.4 million of uncapitalized offering and refinancing costs. Interest expense increased to $12.5 million from $8.1 million.
Financial position and liquidity
At March 31, 2023, cash was $21.4 million and total liquidity, including approximately $26.0 million of ABL availability, was $47.4 million. Gross debt before deferred financing costs was $373.3 million; reported debt carrying value was $332.8 million. Total liabilities were $438.0 million, exceeding total assets of $426.7 million, and stockholders’ deficit was $11.3 million. Capital expenditures were $6.3 million in the quarter. Cash increased by $3.9 million to $21.4 million.
Material changes and financing
In January 2023, Nine issued $300 million of 13.0% senior secured notes due 2028 together with common stock in a unit offering, receiving net proceeds of $279.8 million. It used offering proceeds and ABL borrowings to redeem all $307.3 million of its 8.75% senior notes due 2023, plus accrued interest. The refinancing extended ABL maturity to January 2027 but reduced the facility size from $200 million to $150 million and increased its pricing. ABL borrowings were $72.0 million at quarter-end. The 2028 notes carry substantial interest costs; management estimates semiannual cash interest payments of $19.5 million based on quarter-end principal.
Outlook, risks, and contingencies
Management said U.S. activity weakened in Q1 2023 as oil prices remained volatile and natural gas prices fell sharply; rig counts and completions declined from Q4 2022. The company stopped implementing price increases and reported pricing pressure from some customers. Management expects results to depend on customer activity and commodity prices, its ability to maintain pricing, labor and materials inflation, staffing, and supply-chain conditions. It remains optimistic about the sector’s long-term outlook but gave no specific revenue or earnings guidance.
Management believes cash, operating cash flow, and ABL borrowings should fund requirements for at least 12 months from issuance of the financial statements, based on current forecasts; it cautioned that forecasts depend on financial performance and market conditions. The company reported compliance with ABL and 2028-note covenants at quarter-end. Risks include cyclical energy demand, pricing competition, substantial debt and covenant restrictions, cost inflation and labor availability, operational and safety incidents, customer concentration, weather, regulation, and litigation. Management said pending claims are not expected to have a material adverse effect, though outcomes are uncertain. A Frac Tech earnout liability was $0.8 million at quarter-end. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether commodity prices, rig and completion activity, and customer spending support revenue and pricing after the Q1 slowdown.
- Whether operating cash flow and ABL availability can support working capital, capital spending, and the 13.0% notes’ cash interest burden.
- Debt terms, collateral, covenant thresholds, and the conditions governing excess-cash-flow offers and voluntary debt payments.
- Whether labor, materials, and other operating cost inflation erodes the improved gross margins.
- Developments in litigation, self-insurance estimates, and the contingent Frac Tech earnout.