Nine Energy Service, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Nine is an oilfield services provider focused on unconventional well completions. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $92.9 | $49.5 | $244.3 | $248.9 |
| Adjusted gross profit (margin) | $14.0 (15.1%) | $(3.0) (-6.0%) | $26.5 (10.9%) | $13.7 (5.5%) |
| Operating loss | $(8.1) | $(25.3) | $(41.9) | $(355.9) |
| Net loss | $(16.1) | $(18.5) | $(48.8) | $(343.6) |
| Adjusted EBITDA | $4.5 | $(11.1) | $0.7 | $(11.9) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(26.7) | $4.6 |
Q3 revenue rose 88% year over year as activity recovered across service lines. Nine-month revenue was down 2%: higher tools and coiled tubing sales were offset by lower wireline and cementing revenue. Q3 cost of revenue increased 50%, reflecting higher activity, labor and materials inflation, and headcount growth. Nine-month costs and G&A declined, partly due to prior headcount and salary reductions.
The 2020 nine-month operating and net losses included a $296.2 million goodwill impairment charge, which did not recur in 2021. Nine-month 2021 results also included a $17.6 million gain from repurchasing debt below carrying value; the prior-year period included a $37.5 million debt-extinguishment gain.
Financial position and liquidity
- At September 30, cash was $30.0 million, down from $68.9 million at December 31, 2020. Total assets were $385.9 million.
- Debt carrying value was $318.3 million, including approximately $320.3 million principal of 8.75% Senior Notes due 2023 and $1.4 million of Magnum notes. Stockholders’ equity was negative $24.7 million.
- Cash plus ABL availability was $85.4 million at quarter-end; the company had no ABL borrowings and $55.4 million of availability, net of letters of credit. It subsequently borrowed approximately $10.0 million for general corporate purposes.
- Nine-month operating cash use of $26.7 million was attributed largely to working-capital movements, including receivables rising with sales and collections lagging. Investing cash use was $1.8 million; financing cash use was $10.3 million.
Outlook, risks and contingencies
Management gave no formal revenue or earnings guidance. It said customer activity had risen only moderately despite higher commodity prices, as customers maintained capital discipline. Pricing was expected to remain depressed in the near to medium term; modest price increases had been achieved in cementing and coiled tubing, while labor and materials inflation and difficulty retaining qualified workers remained headwinds. Management expects cash, operating cash flow and ABL borrowing capacity to cover capital needs for at least twelve months, but cautioned that liquidity may erode, notably because of Senior Notes interest payments.
Key exposures include volatile oil and gas prices and completion activity, customer concentration, competition and pricing pressure, cost inflation and labor availability, pandemic-related impacts, operational and environmental liabilities, and substantial debt and covenant restrictions. The company reported compliance with debt covenants at September 30, 2021. The ABL facility’s 1.00-to-1.00 fixed-charge coverage covenant is tested if availability falls below $18.75 million or a default occurs.
After quarter-end, Nine reached a $1.7 million settlement, plus payroll taxes, in a wage-and-overtime class action, payable in four quarterly installments. Accrued legal liabilities were $2.1 million at September 30, 2021, versus $0.2 million at year-end 2020. Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor verification priorities
- Track cash generation and working-capital conversion, particularly receivables and inventory, against the reported operating cash outflow.
- Verify ABL availability, subsequent borrowings, covenant headroom, and the company’s ability to meet the Senior Notes’ interest and 2023 maturity obligations.
- Assess whether revenue recovery and any pricing gains can outpace labor and materials inflation, especially in wireline and cementing.
- Follow the wage-and-overtime settlement payments and any changes in legal accruals or other contingencies.
- Interpret adjusted gross profit and Adjusted EBITDA alongside GAAP losses; these are non-GAAP measures and do not replace reported net loss or cash flow.