Nine Energy Service (NINE) Q4 2019 earnings summary

Executive summary

• 2019 revenue increased 1% to $832.9M, but adjusted EBITDA fell to $113.0M from $141.1M and net loss widened to $217.8M from $53.0M, amid weakening activity and pricing.

• Strategic focus shifted to asset-light completion tools and technology, including exiting non-accretive Well Services and Canadian Wireline and selling Production Solutions.

• Priorities for 2020: launch new plug technologies, expand margins and free cash flow, and reduce leverage; management expected U.S. activity to decline 10–15%.

Financial highlights

• Revenue was $832.9M in 2019 versus $827.2M in 2018; adjusted EBITDA was $113.0M versus $141.1M.

• Net loss was $217.8M, or $(7.43) per diluted share, versus $53.0M, or $(2.17), in 2018.

• Operating loss reached $182.7M versus $28.3M, including $201.3M in impairment charges for property and equipment, goodwill, and intangibles.

• Cash from operations was $101.3M versus $89.6M; capital expenditures were $62.1M versus $52.6M.

• Reported revenue growth reflected a full year of Magnum tools contribution; pricing pressure and the Production Solutions divestiture offset part of the increase.

Outlook and guidance

• 2020 U.S. activity was expected to decline 10–15%, with larger reductions in gas-exposed Northeast and Haynesville markets; customer budgets were expected to fall YoY.

• 2020 capex guidance was $20–25M, down more than 60% YoY as the mix shifts toward completion tools with minimal capex needs.

• Low-temperature dissolvable plug launched in Q1 2020; high-temperature dissolvable and new composite plugs were expected in Q2 and Q3, respectively.

• Management expected first-half 2020 working-capital build for new-tool inventory, with inventory drawdown in H2; cash uses were expected to be capex and bond interest.

• Net debt / TTM adjusted EBITDA was 2.7x at year-end; target leverage remained 1.0x, with deleveraging dependent on adjusted EBITDA and cash generation.