UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2019~~MARCH 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-38347

Nine Energy Service, Inc.

(Exact name of registrant as specified in its charter)



Delaware	80-0759121
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2001 Kirby Drive, Suite 200

Houston, TX 77019

(Address of principal executive offices) (zip code)

(281) 730-5100

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NINE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐x
Non-accelerated filer	x☐	Smaller reporting company	☐
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at ~~November 8, 2019~~May 5, 2020 was ~~30,569,546.~~31,758,643.

TABLE OF CONTENTS



PART I		FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Income and Comprehensive Income (Loss)	2
		Condensed Consolidated Statements of Stockholders’ Equity	3
		Condensed Consolidated Statements of Cash Flows	54
		Notes to the Condensed Consolidated Financial Statements	65
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2316
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3827
	Item 4.	Controls and Procedures	3827
PART II		OTHER INFORMATION	3928
	Item 1.	Legal Proceedings	3928
	Item 1A.	Risk Factors	3928
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3930
	Item 3.	Defaults Upon Senior Securities	4030
	Item 4.	Mine Safety Disclosures	4030
	Item 5.	Other Information	4030
	Item 6.	Exhibits	4131
		Signatures	4232

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by law, and we caution you not to place undue reliance on them. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and “Risk Factors” in Item 1A of Part II in this Quarterly Report on Form 10-Q. These factors, some of which are beyond our control, include the following:

the level of capital spending and well completions by the onshore oil and natural gas industry;

oil and natural gas commodity prices;

general economic conditions;

the impact of the coronavirus pandemic and the actions of certain oil and natural gas producing countries on our business and the business of our customers, including the effects of the resulting excess supply of oil;

our ability to employ, or maintain the employment of, a sufficient number of key employees, technical personnel, and other skilled and qualified workers;

our ability to implement price increases or maintain existing prices on our products and services;

pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for our composite and dissolvable plug products;

our ability to accurately predict customer demand;

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;

our ability to implement new technologies and services;

seasonal and adverse weather conditions;

our ability to regain compliance with the minimum share price requirement under the New York Stock Exchange (the “NYSE”) continued listing requirements and avoid the delisting of our common stock;

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

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.~~its affiliates (the “Magnum Acquisition”) and realize anticipated revenues, cost savings, or other benefits of such acquisition.

Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	93,321		$	63,615		$	90,116		$	92,989
Accounts receivable, net	118,428			154,783			92,645			96,889
Income taxes receivable							810			660
Inventories, net	66,475			91,435			63,113			60,945
Prepaid expenses and other current assets	14,312			15,717			14,977			17,434
Notes receivable from shareholders (Note 9)	—			7,626
Total current assets	292,536			333,176			261,661			268,917
Property and equipment, net	198,879			211,644			121,148			128,604
Definite-lived intangible assets, net	159,526			173,451
Intangible assets, net							144,822			148,991
Goodwill	316,469			307,804			—			296,196
Indefinite-lived intangible assets	108,711			108,711
Other long-term assets	5,462			6,386			7,377			8,187
Total assets	$	1,081,583		$	1,141,172		$	535,008		$	850,895
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	32,027		$	46,132		$	28,291		$	35,490
Accrued expenses	40,473			61,434			29,098			24,730
Current portion of capital lease obligations	973			665			1,019			995
Income taxes payable	308			57
Total current liabilities	73,781			108,288			58,408			61,215
Long-term liabilities
Long-term debt	391,539			424,978			379,007			392,059
Deferred income taxes	3,039			5,915			—			1,588
Long-term capital lease obligations	2,458			2,330			1,937			2,201
Other long-term liabilities	3,987			4,838			3,805			3,955
Total liabilities	474,804			546,349			443,157			461,018
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 30,582,584 and 30,163,408 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)	306			302
Common stock (120,000,000 shares authorized at $.01 par value; 30,406,994 and 30,555,677 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively)							304			306
Additional paid-in capital	755,349			746,428			762,332			758,853
Accumulated other comprehensive loss	(4,582		)	(4,843		)	(5,070		)	(4,467		)
Accumulated deficit	(144,294		)	(147,064		)	(665,715		)	(364,815		)
Total stockholders’ equity	606,779			594,823			91,851			389,877
Total liabilities and stockholders’ equity	$	1,081,583		$	1,141,172		$	535,008		$	850,895

The accompanying notes are an integral part of these ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Revenues	$	202,305		$	218,427		$	669,527		$	597,726
Service													$	114,401		$	175,990
Product													32,223			53,715
													146,624			229,705
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	166,849			165,882			529,994			467,700
Service													99,198			140,586
Product													26,810			38,004
General and administrative expenses	19,222			21,816			60,979			51,837			16,395			19,939
(Gain) loss on revaluation of contingent liabilities	(5,771		)	45			(20,701		)	1,715
Loss on sale of subsidiaries	15,834			—			15,834			—
Depreciation	12,196			13,661			39,572			39,982			8,541			13,530
Amortization of intangibles	4,609			1,857			13,925			5,653			4,169			4,688
Impairment of goodwill													296,196			—
Gain on revaluation of contingent liabilities													(426		)	(13,955		)
Gain on sale of property and equipment	(466		)	(1,190		)	(799		)	(1,701		)	(575		)	(23		)
Income (loss) from operations	(10,168		)	16,356			30,723			32,540			(303,684		)	26,936
Interest expense	9,843			1,756			29,940			6,763			9,828			9,326
Interest income	(111		)	(188		)	(439		)	(450		)	(371		)	(160		)
Gain on extinguishment of debt													(10,116		)	—
Income (loss) before income taxes	(19,900		)	14,788			1,222			26,227			(303,025		)	17,770
Provision (benefit) for income taxes	727			1,130			(1,548		)	1,875			(2,125		)	460
Net income (loss)	$	(20,627	)	$	13,658		$	2,770		$	24,352		$	(300,900	)	$	17,310
Earnings (loss) per share
Basic	$	(0.70	)	$	0.57		$	0.09		$	1.05		$	(10.22	)	$	0.59
Diluted	$	(0.70	)	$	0.56		$	0.09		$	1.03		$	(10.22	)	$	0.59
Weighted average shares outstanding
Basic	29,361,633			23,971,032			29,288,113			23,264,014			29,430,475			29,150,996
Diluted	29,361,633			24,389,295			29,397,636			23,603,922			29,430,475			29,471,753
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$	(179	)	$	207		$	261		$	(437	)	$	(603	)	$	248
Total other comprehensive income (loss), net of tax	(179		)	207			261			(437		)	(603		)	248
Total comprehensive income (loss)	$	(20,806	)	$	13,865		$	3,031		$	23,915		$	(301,503	)	$	17,558

The accompanying notes are an integral part of these ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


	Common Stock					Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings (Accumulated Deficit)				Total Stockholders’ Equity			Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares		Amounts						Shares					Retained Earnings (Accumulated Deficit)				Total Stockholders’ Equity			Amounts					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
Balance, June 30, 2019	30,683,009		$	307		Additional Paid-in Capital		$	752,072	Accumulated Other Comprehensive Income (Loss)			$	(4,403	)		$	(123,667	)		$	624,309
Issuance of common stock under stock compensation plan	(98,954	)	(1		)	1				—				—				—
Balance, December 31, 2019																					30,555,677		$	306		$	758,853		$	(4,467	)	$	(364,815	)	$	389,877
Issuance (forfeitures) of common stock under stock compensation plan																					(49,009	)	(1		)	1			—			—			—
Stock-based compensation expense	—		—			3,286				—				—				3,286			—		—			3,592			—			—			3,592
Exercise of stock options	—		—			—				—				—				—			—		—			—			—			—			—
Vesting of restricted stock	(1,471	)	—			(10		)		—				—				(10		)	(99,674	)	(1		)	(114		)	—			—			(115		)
Other comprehensive loss	—		—			—				(179		)		—				(179		)	—		—			—			(603		)	—			(603		)
Net loss	—		—			—				—				(20,627		)		(20,627		)	—		—			—			—			(300,900		)	(300,900		)
Balance, September 30, 2019	30,582,584		$	306		$	755,349			$	(4,582	)		$	(144,294	)		$	606,779
Balance, March 31, 2020																					30,406,994		$	304		$	762,332		$	(5,070	)	$	(665,715	)	$	91,851

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated Deficit) Total
Stockholders’ Equity
Shares Amounts
Balance, June 30, 2018 25,030,863
$ 250
$ 559,645
$ (4,328 ) $ (83,387 ) $ 472,180
Issuance of common stock under stock compensation plan 13,728
—
—
—
—
—
Stock-based compensation expense —
—
3,508
—
—
3,508
Exercise of stock options 96,367
1
1,866
—
—
1,867
Vesting of restricted stock (26,361 ) —
(790 ) —
—
(790 )
Other comprehensive income —
—
—
207
—
207
Net income —
—
—
—
13,658
13,658
Balance, September 30, 2018 25,114,597
$ 251
$ 564,229
$ (4,121 ) $ (69,729 ) $ 490,630

Common Stock
Additional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated Deficit)
Total
Stockholders’ Equity
Shares
Amounts

Balance, December 31, 2018 30,163,408
$ 302
$ 746,428
$ (4,843 ) $ (147,064 ) $ 594,823
Issuance of common stock under stock compensation plan 489,529
5
(5 ) —
—
—
Stock-based compensation expense —
—
10,553
—
—
10,553
Exercise of stock options 674
—
15
—
—
15
Vesting of restricted stock (71,027 ) (1 ) (1,642 ) —
—
(1,643 )
Other comprehensive income —
—
—
261
—
261
Net income —
—
—
—
2,770
2,770
Balance, September 30, 2019 30,582,584
$ 306
$ 755,349
$ (4,582 ) $ (144,294 ) $ 606,779

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated Deficit) Total
Stockholders’ Equity
Shares Amounts
Balance, 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
Issuance of common stock under stock compensation plan 1,171,008
11
(11 ) —
—
—
Stock-based compensation expense —
—
9,719
—
—
9,719
Exercise of stock options 96,367
1
1,866
—
—
1,867
Vesting of restricted stock (26,361 ) —
(790 ) —
—
(790 )
Other issuances of common stock 13,043
—
300
—
—
300
Other comprehensive loss —
—
—
(437 ) —
(437 )
Net income —
—
—
—
24,352
24,352
Balance, September 30, 2018 25,114,597
$ 251
$ 564,229
$ (4,121 ) $ (69,729 ) $ 490,630



	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares		Amounts		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
Balance, December 31, 2018	30,163,408		$	302	$	746,428		$	(4,843	)	$	(147,064	)	$	594,823
Issuance (forfeitures) 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
Balance, March 31, 2019	30,782,600		$	308	$	749,508		$	(4,595	)	$	(129,754	)	$	615,467

The accompanying notes are an integral part of these ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash flows from operating activities
Net income	$	2,770		$	24,352
Adjustments to reconcile net income to net cash provided by operating activities
Net income (loss)							$	(300,900	)	$	17,310
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation	39,572			39,982			8,541			13,530
Amortization of intangibles	13,925			5,653			4,169			4,688
Amortization of deferred financing costs	2,238			1,191			745			746
Provision for (recovery of) doubtful accounts	236			(319		)	(288		)	47
(Benefit) provision for deferred income taxes	(2,876		)	965
Benefit for deferred income taxes							(1,588		)	(478		)
Provision for inventory obsolescence	4,502			278			271			1,338
Stock-based compensation expense	10,553			9,719			3,592			3,153
Impairment of goodwill							296,196			—
Gain on extinguishment of debt							(10,116		)	—
Gain on sale of property and equipment	(799		)	(1,701		)	(575		)	(23		)
(Gain) loss on revaluation of contingent liabilities	(20,701		)	1,715
Loss on equity method of investment	—			270
Loss on sale of subsidiaries	15,834			—
Gain on revaluation of contingent liabilities							(426		)	(13,955		)
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable, net	20,453			(62,702		)	4,458			(4,402		)
Inventories, net	17,634			(7,705		)	(2,651		)	(7,879		)
Prepaid expenses and other current assets	(405		)	1,760			2,409			(6,060		)
Accounts payable and accrued expenses	(16,953		)	38,117			(3,213		)	(3,703		)
Income taxes receivable/payable	674			(666		)	(150		)	796
Other assets and liabilities	151			(153		)	271			780
Net cash provided by operating activities	86,808			50,756			745			5,888
Cash flows from investing activities
Acquisitions, net of cash acquired	1,020			—
Proceeds from sale of subsidiaries	17,222			—
Proceeds from sales of property and equipment	1,934			1,791			892			477
Proceeds from property and equipment casualty losses	1,503			1,743			428			1,238
Proceeds from notes receivable payments	7,626			—			—			532
Purchases of property and equipment	(48,898		)	(29,545		)	(785		)	(20,386		)
Net cash used in investing activities	(19,593		)	(26,011		)
Net cash provided by (used in) investing activities							535			(18,139		)
Cash flows from financing activities
Proceeds from revolving credit facilities	10,000			—
Payments on revolving credit facilities	(45,000		)	(96,182		)
Proceeds from term loan	—			125,000
Payments on term loans	—			(155,701		)
Payments on Senior Notes							(3,455		)	—
Payments on 2018 ABL Credit Facility							—			(20,000		)
Payments on capital leases	(668		)	—			(240		)	(212		)
Payments of contingent liability	(250		)	—			(98		)	—
Proceeds from issuance of common stock in IPO, net of offering costs	—			171,450
Proceeds from other issuances of common stock	—			300
Proceeds from exercise of stock options	15			1,867			—			15
Vesting of restricted stock	(1,643		)	(790		)	(115		)	(82		)
Cost of debt issuance	—			(1,385		)
Net cash provided by (used in) financing activities	(37,546		)	44,559
Net cash used in financing activities							(3,908		)	(20,279		)
Impact of foreign currency exchange on cash	37			(283		)	(245		)	72
Net increase in cash and cash equivalents	29,706			69,021
Net decrease in cash and cash equivalents							(2,873		)	(32,458		)
Cash and cash equivalents
Cash and cash equivalents beginning of year	63,615			17,513			92,989			63,615
Cash and cash equivalents end of period	$	93,321		$	86,534		$	90,116		$	31,157
Supplemental disclosures of cash flow information:
Cash paid for interest	$	19,619		$	4,363		$	748		$	750
Cash paid for income taxes	$	649		$	1,582
Cash paid (refunded) for income taxes							$	(577	)	$	132
Capital expenditures in accounts payable and accrued expenses	$	1,183		$	11,946		$	648		$	6,227
Property and equipment obtained by capital lease	$	1,621		$	1,679		$	—		$	1,310
Receivable from property and equipment sale (including insurance)							$	5,454		$	24

The accompanying notes are an integral part of these ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Company and Organization

Background

Nine Energy Service, Inc. (the “Company” or “Nine”), a Delaware corporation, is an oilfield services business that provides services integral to the completion of unconventional wells through a full range of tools and methodologies. The Company is headquartered in Houston, Texas.

On August 30, 2019, the Company entered into a Membership Interest Purchase Agreement (the ~~“Divestiture Date”~~“Production Solutions Purchase Agreement”), with Brigade Energy Services LLC (“Brigade”). Pursuant to the Production Solutions Purchase Agreement, on such date, through the sale of all of the limited liability interests of its wholly owned subsidiary, Beckman Holding Production Services, LLC, the Company sold its Production Solutions segment to ~~Brigade Energy Services LLC (“Brigade”). For additional information on the~~Brigade. The Production Solutions Purchase Agreement contained customary representations and warranties, covenants, and indemnification provisions. This divestiture ~~see Note 4 – Business Acquisitions~~did not qualify as discontinued operations in accordance with Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and ~~Divestitures.~~Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity as it did not represent a strategic shift that had a major effect on the Company’s operations and financial results.

Risks and Uncertainties

The Company’s business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies. These activity and spending levels are strongly influenced by the current and expected oil and natural gas prices. The worldwide coronavirus outbreak in early 2020, which was declared a pandemic by the World Health Organization in March 2020, the uncertainty regarding its impact, and various governmental actions taken to mitigate its impact have resulted in an unprecedented decline in demand for oil. In the midst of the ongoing pandemic, the Organization of Petroleum Exporting Countries and other oil producing nations, including Russia, were initially unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. The convergence of these events created the unprecedented dual impact of a massive decline in the demand for oil, coupled with the risk of a substantial increase in supply, which has directly affected the Company.

2. Basis of Presentation

Condensed Consolidated Financial Information

The accompanying ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements have not been audited by the Company’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, ~~2018~~2019 and the Condensed Consolidated ~~Statements~~Statement of Stockholders’ Equity as of December 31, ~~2018~~2019 and ~~2017~~2018 are derived from audited ~~Consolidated Financial Statements.~~consolidated financial statements. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for the fair statement of the Company’s financial position have been included. These ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements include all accounts of the Company.

These ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements should be read in conjunction with the Company’s audited ~~Consolidated Financial Statements~~consolidated financial statements and notes thereto for the year ended December 31, ~~2018,~~2019, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Principles of Consolidation

The ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements include the accounts of Nine and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Such estimates include fair value assumptions used in purchase accounting and in analyzing goodwill, definite and indefinite-lived intangible assets, and property and equipment for possible impairment, useful lives used in depreciation and amortization expense, stock-based compensation fair value, estimated realizable value on excess and obsolete inventories, deferred taxes and income tax contingencies, and losses on accounts receivable. It is at least reasonably possible that the estimates used will change within the next year.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. ~~“(Gain) loss on revaluation~~These reclassifications primarily relate to presenting “Revenues” and “Cost of ~~contingent liabilities”~~revenues” by product and service and by presenting “Interest income” are presented as separate line items in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Additionally, “(Gain) loss on equity method investment” is no longer shown as a separate ~~line item but is included within the “General and administrative expenses”~~ line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

3. New Accounting Standards

Accounting ~~Standards Update 2014-09~~

~~Background~~Pronouncements Recently Adopted

In ~~May 2014,~~August 2018, the Financial Accounting Standards Board (the “FASB”) issued ~~Accounting Standards Update (“ASU”) No. 2014-09,~~ASU 2018-13, ~~Revenue from Contracts with Customers~~Fair Value Measurement (Topic ~~606)~~820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which ~~supersedes the current revenue recognition guidance.~~eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchangeeffective for those goods or services. The standard also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and asset recognized from costs incurred to obtain or fulfill a contract. The FASB subsequently issued ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12 which provide additional guidance around Topic 606. These amendments are encompassed in the Company’s reference to ASU No. 2014-09 below.

~~As an emerging growth company, the Company is permitted to, and will, apply ASU No. 2014-09 to annual reporting periods beginning after December 15, 2018~~all entities for fiscal years, and interim ~~reporting~~ periods within ~~annual reporting periods~~those fiscal years, beginning after December 15, 2019. In the fourth quarter of 2019, the Company, as an emerging growth company, expects to adopt ASU No. 2014-09 for the annual period ending December 31, 2019 (effective January 1, 2019) utilizing the modified retrospective approach. The ~~Company will continue to report revenues under current accounting standards until it formally adopts ASU No. 2014-09.~~

~~Status of Management’s Implementation Efforts of ASU No. 2014-09~~

During 2018, in preparation for the adoption of ASU No. 2014-09, the Company reviewed the various types of customer contract arrangements for each of its businesses. These reviews included the following:

~~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.~~

~~The Company has completed these contract reviews and has determined there will be no material adjustment to retained earnings upon adoption of ASU No. 2014-09, effective January 1, 2019. The Company~~standard is ~~currently updating and implementing revised accounting system processes in order to capture information~~ required to be ~~disclosed under ASU No. 2014-09.~~

applied retrospectively, except the new Level 3 disclosure requirements are applied prospectively. The Company ~~is also~~adopted ASU 2018-13 in the ~~process~~first quarter of ~~updating its current accounting policies to align with revenue recognition practices under ASU No. 2014-09. In 2019, as part of its ongoing evaluation of contracts with customers,~~2020, and it had an immaterial impact on the Company is holding regular meetings with key stakeholders across the organization to determine any impact ASU No. 2014-09 may have on its current or new business processes. Additionally, the Company continues to evaluate its internal processes to address risks associated with incorporating ASU No. 2014-09. Upon adoption, the Company will also implement new internal controls associated with incorporating ASU No. 2014-09, which is not expected to result in a material change in its existing control environment.Company’s condensed consolidated financial statements.

~~Disclosure Requirements for ASU No. 2014-09~~

The Company’s disclosures related to revenue recognition will be significantly expanded under ASU No. 2014-09, specifically around the quantitative and qualitative information associated with performance obligations, changes in contract assets and liabilities, and the disaggregation of revenue. The Company is currently in the process of evaluating the impact of these disclosure requirements.

~~Other~~ Accounting ~~Standards~~Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU ~~No.~~ 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard, which requires the use of a modified retrospective transition approach, includes a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. Based on initial evaluation, the Company expects to include operating leases with durations greater than twelve months on its Condensed Consolidated Balance Sheets. The Company is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company will provide additional information about the expected financial impact as it progresses through the evaluation and implementation of the standard. ~~Although~~For emerging growth entities, the standard is effective for ~~public business entities for~~the fiscal years beginning after December 15, ~~2018~~2020 and interim periods within ~~those~~the fiscal years beginning after December 15, 2021. Early adoption is allowed, and the Company, as an emerging growth company, ~~is permitted, and~~ plans to early adopt the standard for the fiscal years beginning after December 15, 2019 and ~~the~~ interim periods within the fiscal years beginning after December 15, 2020.

In ~~August 2016,~~March 2020, the FASB issued ASU ~~No. 2016-15,~~2020-04, ~~Statement of Cash Flows~~Reference Rate Reform (Topic ~~230)~~848): ~~Classification of Certain Cash Receipts and Cash Payments~~. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and applicationFacilitation of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the fiscal years beginning after December 15, 2018 and the interim periods within fiscal years beginning after December 15, 2019. The Company will apply the guidance retrospectively and is currently evaluating the impactEffects of ~~the standard~~Reference Rate Reform on ~~its Condensed Consolidated~~ Financial ~~Statements.~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~Reporting, ~~in an effort~~which provides optional expedients and exceptions for applying GAAP to ~~clarify the definition of a business with the objective of adding guidance~~contract modifications and hedging relationships, subject to ~~assist entities with evaluating whether transactions should~~meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be ~~accounted for as acquisitions (or disposals) of assets or businesses.~~discontinued. The amendments in ~~this standard provide~~ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a ~~screen~~date within an interim period that includes or is subsequent to ~~determine when an integrated set of assets and activities is not a business. The screen requires~~March 12, 2020, up to the date that ~~when substantially all of~~ the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business.financial statements are available to be issued. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements. Although the standard is generally effective for fiscal years beginning after December 15, 2017, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2018 and the interim periods within annual periods beginning after December 15, 2019. Entities are required to apply the guidance prospectively when adopted.condensed consolidated financial statements.

In August 2018, the FASB issued ASU ~~No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework~~ – ~~Changes to the Disclosure Requirements for Fair Value Measurement~~, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The ASU is required to be applied retrospectively, except the new Level 3 disclosure requirements are applied prospectively. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

~~In August 2018, the FASB issued ASU No.~~ 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU ~~No.~~ 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a

cloud computing arrangement that is a service contract. The amendments in ASU ~~No.~~ 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. ASU 2018-15 is effective for public businesses for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for ~~the annual reporting periods~~fiscal years beginning after December 15, 2020 and ~~the~~ interim periods within ~~annual periods~~fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of the standard on its ~~Condensed Consolidated~~condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial ~~Statements.~~Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in ASU 2016-13 replace the current incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information. ASU 2016-13 is effective for SEC filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the standard on its condensed consolidated financial statements.

4. ~~Business Acquisitions and Divestitures~~Revenue

~~Magnum Acquisition~~Disaggregation of Revenue

~~On October 25, 2018 (the “Closing Date”~~The Company adopted Accounting Standards Codification 606 (“ASC 606”)~~, pursuant to~~ on December 31, 2019, effective January 1, 2019, using the terms of a Securities Purchase Agreement, dated October 15, 2018 (as amended on June 7, 2019, the “Magnum Purchase Agreement”), the Company acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum”) for approximately $334.5 million in upfront cash consideration, subject to customary adjustments, and 5.0 million shares of the Company’s common stock, which were issued to the sellers of Magnum in a private placement. The Magnum Purchase Agreement also includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses)modified retrospective method. Accordingly, results for the ~~“E-Set” tools business~~year ended December 31, 2019 and periods thereafter are presented in accordance with ASC 606 while prior period results, including those presented below for the three months ended March 31, 2019, ~~through 2026~~have not been adjusted and ~~(ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019 (the “Magnum Earnout”).~~

~~The Magnum Acquisition has been accounted for as a business combination using~~are reported under the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date, with the remaining unallocated amount recorded as goodwill.

~~The following table summarizes the fair value of purchase consideration transferred on the Closing Date:~~previous revenue recognition guidance.

Fair Value
(in thousands)
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility⁽¹⁾
$ 296,622
Cash provided from operations 57,740
Total upfront cash consideration $ 354,362

Issuance of the Company’s common shares $ 177,350
Contingent consideration⁽²⁾
23,029
Total purchase consideration $ 554,741

~~(1) Senior Notes and 2018 ABL Credit Facility are defined in Note 8 – Debt Obligations.~~



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Completion Solutions		Total		Completion Solutions		Production Solutions⁽²⁾		Total
	(in thousands)				(in thousands)
Coiled tubing	$	20,731	$	20,731	$	38,643	$	—	$	38,643
Cement	48,637		48,637		53,258		—		53,258
Tools	32,223		32,223		53,715		—		53,715
Wireline	45,033		45,033		63,516		—		63,516
Well service	—		—		—		20,573		20,573
Total revenues	$	146,624	$	146,624	$	209,132	$	20,573	$	229,705

(2) The estimated fair value of the Magnum Earnout was based on a Monte Carlo simulation model with estimated outcomes ranging from $0 to $25.0 million. The estimated fair value of the Magnum Earnout was based upon available information and certain assumptions, known at the time of the Closing Date, which management believed were reasonable. Any difference in the actual Magnum Earnout from the estimated fair value of the Magnum Earnout is recorded in operating income (loss) in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

The following table summarizes the allocation of the purchase price of the Magnum Acquisition to the assets acquired and liabilities assumed based on the fair value as of the Closing Date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill:

Purchase Price Allocation
(in thousands)
Cash and cash equivalents $ 8,509
Accounts receivable, net 30,898
Income taxes receivable 695
Inventories, net 52,249
Prepaid expenses and other current assets 1,147
Property and equipment, net 3,729
Goodwill 234,504
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 (18,404 )
Other long-term liabilities (15 )
Total net assets acquired $ 554,741



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Completion Solutions		Total		Completion Solutions		Production Solutions⁽²⁾		Total
	(in thousands)				(in thousands)
Products⁽¹⁾	$	32,223	$	32,223	$	53,715	$	—	$	53,715
Services⁽¹⁾	114,401		114,401		155,417		20,573		175,990
Total revenues	$	146,624	$	146,624	$	209,132	$	20,573	$	229,705

(1) The Company recognizes revenues from the sales of products at a point in time and revenues from the sales of services over time.

~~All goodwill acquired is attributable to expected synergies gained through the Magnum Acquisition as well as the assembled workforce. In addition, all goodwill acquired is included in the~~(2) The ~~Completion~~Production Solutions segment ~~and is deductible for tax purposes.~~was sold to Brigade on August 30, 2019. For additional information on ~~goodwill, see Note 6 – Goodwill and Intangible Assets.~~

The Company finalized its purchase price allocation in connection with the Magnum Acquisition during the three months ended September 30, 2019. As a result, the Company recorded measurement period adjustments to the fair value of assets acquired and liabilities assumed at the Closing Date due to the refinement of its valuation models, assumptions, and inputs. The updated assumptions and inputs incorporated additional information obtained about facts and circumstances that existed at the Closing Date. These final purchase price allocation adjustments recorded during the three months ended September 30, 2019 related to the finalization of contractual obligations and the finalization of working capital adjustments, which decreased working capital by $1.0 million, and increased accrued expenses by $7.7 million. Total adjustments recorded during the three months ended September 30, 2019 increased goodwill by $8.7 million.

~~Magnum’s results of operations are included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss), as part of its~~ ~~Completion Solutions~~ segment, for the three and nine months ended September 30, 2019. It is impractical to quantify the contribution of Magnum since the Closing Date, as the business was fully integrated into the Company’s existing operations in 2018.

~~Frac Tech Acquisition~~

On October 1, 2018, pursuant to the terms and conditions of a Securities Purchase Agreement (the “Frac Tech Purchase Agreement”), the Company acquired Frac Technology AS, a Norwegian private limited company (“Frac Tech”) focused on the development of downhole technology, including a casing flotation tool and a number of patented downhole completion tools. This acquisition was not material to the Company’s Condensed Consolidated Financial Statements.

~~Production Solutions Divestiture~~

~~On August 30, 2019, the Company entered into a Membership Interest Purchase Agreement (“Production Solutions~~ ~~Purchase Agreement”) with Brigade. Pursuant to~~ the Production Solutions ~~Purchase Agreement, on such date, through the sale of all of the limited liability interests of its wholly owned subsidiary, Beckman Holding Production Services, LLC, the~~divestiture, see Note 1 – Company ~~sold its~~ ~~Production Solutions~~ ~~segment to Brigade for approximately $17.4 million in cash. The closing consideration is subject to working capital~~ and ~~other customary post-closing adjustments. The~~ ~~Production Solutions~~ Purchase Agreement contained customary representations and warranties, covenants, and indemnification provisions. The Company recorded a loss of $15.8 million in connection with this divestiture during the third quarter of 2019. This divestiture does not qualify as discontinued operations at September 30, 2019 in accordance with ASU 2014-08, ~~Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity~~ ~~as it does not represent a strategic shift that has a major effect on the Company’s operations and financial results.~~Organization.

Performance Obligations

At March 31, 2020 and December 31, 2019, the amount of remaining performance obligations were immaterial.

Contract Balances

At March 31, 2020 and December 31, 2019, contract assets and contract liabilities were immaterial.

5. Inventories

Inventories, consisting primarily of finished goods and raw materials, are stated at the lower of cost or net realizable value. Cost is determined on an average cost basis. The Company reviews its inventory balances and writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The reserve for obsolescence was ~~$5.6~~$5.0 million and ~~$1.9~~$5.4 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, respectively.

Inventories, net as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were comprised of the following:


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(in thousands)						(in thousands)
Raw materials	$	37,398		$	38,890		$	41,761		$	38,823
Work in progress	597			130			434			—
Finished goods	34,072			54,301			25,932			27,555
Inventories	72,067			93,321			68,127			66,378
Reserve for obsolescence	(5,592		)	(1,886		)	(5,014		)	(5,433		)
Inventories, net	$	66,475		$	91,435		$	63,113		$	60,945

6. Goodwill and Intangible Assets

Goodwill

The changes in the net carrying amount of the components of goodwill for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were as follows:

Goodwill
Gross Value Accumulated
Impairment Loss Net
(in thousands)
Balance as of December 31, 2018 $ 400,067
$ (92,263 ) $ 307,804
Purchase price adjustments ⁽¹⁾
8,665
—
8,665
Balance as of September 30, 2019 $ 408,732
$ (92,263 ) $ 316,469



	Goodwill
	Gross Value		Accumulated Impairment Loss			Net
	(in thousands)
Balance as of December 31, 2019	$	408,732	$	(112,536	)	$	296,196
Impairment	—		(296,196		)	(296,196		)
Balance as of March 31, 2020	$	408,732	$	(408,732	)	$	—

~~(1) The Company recorded adjustments to~~Q1 2020 Goodwill Impairment

Based on the above events, an indication of impairment associated with the Company’s reporting units occurred, triggering an interim goodwill impairment test of the Level 3 fair value of each reporting unit under Accounting Standards Codification 350, Intangibles - Goodwill and Other (“ASC 350”) at March 31, 2020. The Level 3 fair value of each reporting unit was determined by using the income approach (discounted cash flows of forecasted income) based on the Company’s best internal projections and the likelihood of various outcomes.

Determining fair value requires the use of estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating profit margins, weighted average cost of capital, terminal growth rates, future market share, the

impact of new product development, and future market conditions, among others. The Company believes that the estimates and assumptions used in the interim goodwill impairment test are reasonable and appropriate.

Based on its Level 3 fair value determination in ~~relation~~connection with the interim goodwill impairment test under ASC 350, the Company recorded goodwill impairment charges of $296.2 million associated with its tools, cementing, and wireline reporting units. These charges represent a full write-off of goodwill and are primarily attributed to the ~~Magnum Acquisition. For additional information on~~events described above, coupled with an increased weighted average cost of capital driven by a reduction in the~~Magnum Acquisition~~ Company’s stock price and ~~related purchase price adjustments, see~~the Level 2 fair value of its Senior Notes (as defined in Note 48 – ~~Business Acquisitions~~Debt Obligations) at March 31, 2020.

These charges are included in the line item “Impairment of goodwill” in the Company’s Condensed Consolidated Statements of Income and ~~Divestitures.~~Comprehensive Income (Loss) for the three months ended March 31, 2020.

Intangible Assets

The changes in the net carrying value of the components of intangible assets for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were as follows:

Intangible Assets
Customer Relationships Non- Compete Agreements Technology Definite-Lived Intangible Asset Total Trade Names Other Intangible Assets Indefinite-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 (6,255 ) (1,133 ) (6,537 ) (13,925 ) —
—
—
Balance as of September 30, 2019 $ 41,709
$ 1,717
$ 116,100
$ 159,526
$ 107,700
$ 1,011
$ 108,711
Weighted average amortization period 6.8 3.9 13.8 Indefinite Indefinite



	Customer Relationships			Non- Compete Agreements			Technology			In-process R&D		Total
	(in thousands, except weighted average amortization period information)
Balance as of December 31, 2019	$	32,536		$	1,534		$	113,921		$	1,000	$	148,991
Amortization expense	(1,890		)	(100		)	(2,179		)	—		(4,169		)
Balance as of March 31, 2020	$	30,646		$	1,434		$	111,742		$	1,000	$	144,822
Weighted average amortization period	5.9			3.6			13.4			Indefinite

Amortization of intangibles expense was ~~$4.6~~$4.2 million and ~~$13.9~~$4.7 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, respectively. ~~Amortization of intangibles expense was $1.9 million and $5.7 million for the three and nine months ended September 30, 2018, respectively.~~

Future estimated amortization of intangibles is as follows:


(in thousands)
Year Ending December 31,			(in thousands)
2019	$	4,443
2020	17,227		$	12,298
2021	16,876		16,116
2022	14,223		13,463
2023	12,275		11,516
2024			11,183
Thereafter	94,482		79,246
Total	$	159,526	$	143,822

With a significant reduction in exploration and production capital budgets and activity, primarily driven by sharp declines in global crude oil demand and an economic recession associated with the coronavirus pandemic, as well as, sharp declines in oil and natural gas prices associated with international pricing and production disputes, the carrying amount of long-lived assets (inclusive of definite-lived intangible assets and property and equipment) associated with the Company’s asset groups may not be recoverable. As such, the Company performed an impairment assessment of long-lived assets in its asset groups under Accounting Standards Codification 360, Property, Plant and Equipment (“ASC 360”) at March 31, 2020, based on its best internal projections and the likelihood of various outcomes.

Based on its assessment, the Company determined that the estimated future undiscounted cash flows derived from long-lived assets associated with its asset groups exceeded the carrying amount of long-lived assets associated with its asset groups, and no impairment to long-lived assets was required.

However, the occurrence of future events or deteriorating market conditions could result in additional impairment assessments under ASC 360 subsequent to March 31, 2020.

7. Accrued Expenses

Accrued expenses as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 consisted of the following:


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(in thousands)				(in thousands)
Accrued compensation and benefits	$	15,140	$	11,930	$	9,346	$	7,009
Accrued interest					14,333		6,091
Accrued bonus	2,067		13,250		—		5,043
Sales tax payable	724		1,185
Accrued sales tax					606		820
Contingent liabilities	778		20,922		206		391
Interest payable	14,841		7,031
Other accrued expenses	6,923		7,116		4,607		5,376
Accrued expenses	$	40,473	$	61,434	$	29,098	$	24,730

8. Debt Obligations

The Company’s debt obligations as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(in thousands)						(in thousands)
Senior Notes	$	400,000		$	400,000		$	386,171		$	400,000
2018 ABL Credit Facility	—			35,000			—			—
Total debt before deferred financing costs	$	400,000		$	435,000		$	386,171		$	400,000
Deferred financing costs	(8,461		)	(10,022		)	(7,164		)	(7,941		)
Total debt	$	391,539		$	424,978		$	379,007		$	392,059
Less: Current portion of long-term debt	—			—			—			—
Long-term debt	$	391,539		$	424,978		$	379,007		$	392,059

Senior Notes

Background

On October 25, 2018, the Company issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The Senior Notes were issued under an indenture, dated as of October 25, 2018 (the “Indenture”), by and among the Company, certain subsidiaries of the Company and Wells Fargo, National Association, as Trustee. The Senior Notes bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year, ~~with~~and the first interest payment ~~being~~was due on May 1, 2019. The Senior Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries.

The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to engage in certain activities. The Company was in compliance with the provisions of the Indenture at ~~September 30, 2019.~~March 31, 2020.

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

Unamortized deferred financing costs associated with the Senior Notes were ~~$8.5~~$7.2 million and ~~$10.0~~$7.9 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. These costs are direct deductions from the carrying amount of the Senior Notes and are being amortized through interest expense through the maturity date of the Senior Notes using the effective interest method.

Extinguishment of Debt

In the first quarter of 2020, the Company repurchased approximately $13.8 million of the Senior Notes for a repurchase price of approximately $3.5 million in cash. As a result, the Company recorded a $10.1 million gain on extinguishment of debt which was calculated as the difference between the repurchase price and the carrying amount of the Senior Notes partially offset by $0.2 million in deferred financing costs. The gain on extinguishment of debt is included as a separate line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended March 31, 2020.

Subsequent to March 31, 2020, the Company repurchased an additional $15.9 million of the Senior Notes for a repurchase price of approximately $3.9 million in cash.

2018 ABL Credit Facility

On October 25, 2018, the Company entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”), by and among the Company, Nine Energy Canada, Inc., JP Morgan Chase Bank, N.A. ~~(“JP Morgan”)~~ as administrative agent and as an issuing lender, and certain other financial institutions party thereto as lenders and issuing lenders. The 2018 ABL Credit Agreement permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date.

Loans to the Company and its domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018 ABL Credit Facility may be base rate loans or LIBOR loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be ~~CDOR~~Canadian Dollar Offered Rate (“CDOR”) loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans vary from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans vary from 1.75% to 2.25%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. ~~The weighted average interest rate was 2.63% during the nine months ended September 30, 2019.~~

The 2018 ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions), and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant of 1.00 to 1.00 that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below ~~a certain threshold~~$18.75 million or a default has occurred until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. The Company was in compliance with all covenants under the 2018 ABL Credit Agreement at ~~September 30, 2019.~~March 31, 2020.

All of the obligations under the 2018 ABL Credit Facility are secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties, excluding certain assets. The 2018 ABL Credit Facility is guaranteed by the U.S. Credit Parties, and the Canadian tranche is further guaranteed by the Canadian Credit Parties and the U.S. Credit Parties.

Concurrent with the effectiveness of the 2018 ABL Credit Facility, the Company borrowed approximately $35.0 million to fund a portion of the upfront cash purchase of the Magnum Acquisition. The Company is permitted to repay any amounts borrowed prior to the maturity date without any premium or penalty, subject to minimum amounts of prepayments and customary LIBOR breakage costs. During the first nine months of 2019, the Company repaid its outstanding revolver borrowings in full.

At ~~September 30, 2019,~~March 31, 2020, the Company’s availability under the 2018 ABL Credit Facility was approximately ~~$118.0~~$93.5 million, net of an outstanding letter of credit of $0.2 million.

~~Prior Credit Agreements~~

On September 14, 2017, the Company entered into a credit agreement (as amended on November 20, 2017, the “2018 IPO Credit Agreement”) with JP Morgan as administrative agent and certain other financial institutions that became effective upon the consummation of the initial public offering (“IPO”) in January 2018 (the “Effective Date”). Pursuant to the terms of the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow $125.0 million of term loans (the “2018 IPO Term Loan Credit Facility”), which the Company drew in full on the Effective Date. In January 2018, the Company also made a mandatory prepayment of $9.7 million against the 2018 IPO Term Loan Credit Facility, which approximated 50.0% of the estimated net proceeds from the IPO in excess of $150.0 million, as prescribed under the 2018 IPO Credit Agreement. In addition, under the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow up to $50.0 million (including letters of credit) as revolving credit loans under the revolving commitments. Loans to the Company and its domestic restricted subsidiaries under the 2018 IPO Credit Agreement were either base rate loans or LIBOR loans. The applicable margin for base rate loans varied from 1.50% to 2.75%, and the applicable margin for LIBOR loans varied from 2.50% to 3.75%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum was charged on the average daily unused portion of the revolving commitments. On October 25, 2018, the Company fully repaid and terminated the 2018 IPO Credit Agreement.

In 2014, the Company entered into the Amended and Restated Credit Agreement (as amended, the “Legacy Nine Credit Agreement”) with HSBC Bank USA, N.A., as U.S. administrative agent, HSBC Bank Canada, as Canadian agent, and certain other financial institutions. All loans and other obligations under the Legacy Nine Credit Agreement were scheduled to mature on May 31, 2018. In 2014, Beckman Production Services, Inc. entered into a credit agreement (as amended, the “Legacy Beckman Credit Agreement” and together with the Legacy Nine Credit Agreement, the “Legacy Credit Agreements”) with Wells Fargo Bank, National Association, as administrative agent, and certain other financial institutions. All loans and other obligations under the Legacy Beckman Credit Agreement were scheduled to mature on June 30, 2018. Concurrent with the effectiveness of the 2018 IPO Credit Agreement in January 2018, the Company repaid all indebtedness under the Legacy Credit Agreements, which approximated $242.2 million.

~~Debt Extinguishment Costs~~

During the first quarter of 2018, the Company recorded debt extinguishment costs of approximately $0.7 million in unamortized deferred financing costs associated with the termination of the Legacy Credit Agreements. These unamortized deferred financing costs were being amortized through the maturity dates of each agreement using the effective interest method. These debt extinguishment costs are included in “Interest expense” in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2018.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 was as follows:


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(in thousands)				(in thousands)
Senior Notes	$	324,000	$	376,000	$	96,581	$	324,000
2018 ABL Credit Facility	$	—	$	35,000	$	—	$	—

The fair value of the Senior Notes is classified as Level 2 in the fair value hierarchy and is established based on

observable inputs in less active markets. The 2018 ABL Credit Facility is also classified within Level 2 of the fair value hierarchy. The fair value of the 2018 ABL Credit Facility approximates its carrying value.

9. Related Party Transactions

As part of the acquisition of Crest Pumping Technologies, LLC (“Crest”) in 2014, the Company issued promissory notes totaling $9.4 million to former owners of Crest, including David Crombie, who is an executive officer of the Company. The principal was due on June 30, 2019. The interest rate was based on the prime rate, the federal funds rate, or LIBOR, plus a margin to be determined in connection with the Company’s credit agreement and was due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At December 31, 2018, the outstanding principal balance of the notes of the remaining individuals totaled $7.6 million, and unpaid interest, included in “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheets, totaled $10,000. During the nine months ended September 30, 2019, the Company received the full principal balance of the notes outstanding as well as any unpaid interest.

The Company leases office space, yard facilities, and equipment and purchases building maintenance services from entities owned by ~~Mr. Crombie.~~David Crombie, an executive officer of the Company. Total lease expense and building maintenance expense associated with these entities was $0.2 million ~~and $0.6 million~~ for both the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~$0.2 million and $0.6 million for the three and nine months ended September 30, 2018, respectively.~~March 31, 2019. The Company also purchased ~~$0.7 million and $1.3~~$0.1 million of equipment during both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~respectively,~~ from an entity in which Mr. Crombie is a limited partner. ~~The Company purchased $0.6 million of equipment from this entity during the three and nine months ended September 30, 2018.~~ There were outstanding payables due to this entity relating to equipment purchases of $0.1 million at ~~September 30,~~both March 31, 2020 and December 31, 2019.

In addition, the Company leases office space in Corpus Christi and Midland, Texas from an entity affiliated with Lynn Frazier, a beneficial owner of more than 5% of the Company’s stock. Total rental expense associated with this office space was ~~$0.4 million and $1.1 million for the three and nine months ended September 30, 2019, respectively. There were no outstanding payables due to the entity at September 30, 2019 and December 31, 2018.~~

At December 31, 2018, the Company had an open receivable due from the sellers of Magnum primarily related to sales commissions paid to an intercompany entity that was not included in the Magnum Acquisition. The Company received payment in full in the first quarter of 2019.

~~The Company provides services to Citation Oil & Gas Corp., an entity owned by Curtis F. Harrell, a director of the Company. The Company billed $0.2~~$0.3 million and $0.4 million for ~~services provided~~the three months ended March 31, 2020 and March 31, 2019, respectively.

The Company purchases cable for its wireline trucks from an entity owned by Forum Energy Technologies (“Forum”). Two of the Company’s directors serve as directors of Forum. The Company was billed $0.4 million for both the three months ended March 31, 2020 and March 31, 2019. There was an outstanding payable due to ~~this~~the entity of $0.2 million and $0.3 million at March 31, 2020 and December 31, 2019, respectively. The Company purchases coiled tubing string from another entity owned by Forum. The Company was billed $1.9 million and $2.3 million for coiled tubing string during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~respectively, and billed $0.0~~respectively. There was an outstanding payable due to the entity of $1.0 million and ~~$0.5~~$0.9 million at March 31, 2020 and December 31, 2019, respectively.

The Company purchases chemical additives used in cementing from Select Energy Services, Inc. (“Select”). One of the Company’s directors also serves as a director of Select. The Company was billed $0.6 million both for the three months ended March 31, 2020 and March 31, 2019. There was an outstanding payable due to Select of $0.2 million and $0.1 million at March 31, 2020 and December 31, 2019, respectively.

The Company provides products and rentals to National Energy Services, Inc. (“NESR”). One of the Company’s directors serves as a director of NESR. The Company billed $0.3 million and $0.0 million for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and March 31, 2019, respectively. There was an outstanding receivable due to the Company from ~~this entity~~NESR of ~~$0.2~~$6.7 million and ~~$0.1~~$6.8 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The Company provides services in the ordinary course of business to EOG Resources, Inc. (“EOG”). Gary L. Thomas, a director of the Company, acted as the President of EOG until his retirement from EOG at December 31, 2018. The Company generated revenue from EOG of $12.1 million and $31.8 million for the three and nine months ended September 30, 2018, respectively. There was an outstanding receivable due from this entity of $7.0 million at December 31, 2018.

On June 5, 2019, Ann G. Fox, President and Chief Executive Officer and a director of the Company, was elected as a director of Devon Energy Corporation (“Devon”). The Company generated revenue from Devon of ~~$5.4~~$1.7 million and ~~$15.8~~$5.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, respectively. There was an outstanding receivable due from Devon of ~~$2.0~~$0.9 million and $1.0 million at ~~September 30, 2019.~~March 31, 2020 and December 31, 2019, respectively.

10. Commitments and Contingencies

Litigation

From time to time, the Company has various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, the Company believes any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on its business, operating results, or financial condition.

On August 31, 2017, an accident occurred while a five-employee crew of Big Lake Services, LLC, a subsidiary of Nine (“Big Lake Services”), was performing workover services at an oil and gas wellsite near Midland, Texas, operated by Pioneer Natural Resources USA, Inc. (“Pioneer Natural Resources”), resulting in the death of a Big Lake Services employee, Juan De La Rosa. On December 7, 2017, a lawsuit was filed on behalf of Mr. De La Rosa’s minor children in the Midland County District Court against Pioneer Natural Resources, Big Lake Services, and Phillip Hamilton related to this accident. The petition alleged, among other things, that the defendants acted negligently, resulting in the death of Mr. De La Rosa. On March 14, 2018, a plea in intervention was filed on behalf of Mr. De La Rosa’s parents, alleging similar claims. The plaintiffs and intervenors sought money damages, including punitive damages. On December 17, 2018, a mediation was held, and the parties reached an agreement in principle to settle this matter. In May 2019, the parties entered into settlement agreements, which have been approved by the court, and the court has dismissed the case. The Company has tendered this matter to its insurance company for defense and indemnification of Big Lake Services and the other defendants, and this settlement has been fully funded by its insurance company.

Self-insurance

The Company uses a combination of third-party insurance and self-insurance for health insurance ~~clams.~~claims. The self-insured liability represents an estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date. The estimate is based on an analysis of trailing months of incurred medical claims to project the amount of incurred but not reported claims liability. The estimated liability for self-insured medical claims was ~~$1.6~~$1.7 million and $1.8 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, respectively, and is included under the caption “Accrued expenses” on the Condensed Consolidated Balance Sheets.

Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, the self-insurance liability could be affected if future claims experience differs significantly from historical trends and actuarial

assumptions.

Contingent Liabilities

The Company has recorded the following contingent liabilities at ~~September 30, 2019:~~March 31, 2020:

Magnum Earnout

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement, dated October 15, 2018 (as amended on June 7, 2019, the “Magnum Purchase Agreement”), the Company acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum”).

The Magnum Purchase Agreement ~~includes~~included the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2026 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. ~~For additional information on~~In 2019, the ~~Magnum Acquisition, see~~ ~~Note 4 – Business Acquisitions and Divestitures~~.Company did not meet the sales requirement of certain dissolvable plug products during the year.

Frac Tech Earnout

On October 1, 2018, pursuant to the terms and conditions of ~~the Frac~~a Securities Purchase Agreement (the “Frac Tech Purchase ~~Agreement,~~Agreement”), the Company acquired Frac ~~Tech.~~Technology AS, a Norwegian private limited company (“Frac Tech”) focused on the development of downhole technology, including a casing flotation tool and a number of patented downhole completion tools. The Frac Tech Purchase Agreement includes, among other things, the potential for additional future payments, based on certain Frac Tech sales volume metrics through December 31, 2023.

~~The following is a reconciliation of the beginning and ending amounts of the contingent liabilities (Level 3) for the nine months ended September 30, 2019:~~


	Magnum			Frac Tech			Total			Magnum		Frac Tech			Total
	(in thousands)									(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008		$	25,529
Balance at December 31, 2019										$	2,609	$	1,359		$	3,968
Revaluation adjustments										141		(567		)	(426		)
Payments	—			(250		)	(250		)	—		(98		)	(98		)
Revaluation adjustments	(21,436		)	735			(20,701		)
Balance at September 30, 2019	$	3,085		$	1,493		$	4,578
Balance at March 31, 2020										$	2,750	$	694		$	3,444

The contingent consideration related to the contingent liabilities is reported at fair value, based on a Monte Carlo simulation model. Significant inputs used in the fair value measurement include estimated gross margin related to forecasted sales of the plugs, term of the agreement, and a risk adjusted discount factor. Contingent liabilities include ~~$0.8~~$0.2 million and ~~$20.9~~$0.4 million reported in “Accrued expenses” at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, and ~~$3.8~~$3.2 million and ~~$4.6~~$3.6 million reported in “Other long-term liabilities” at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, in the Company’s Condensed Consolidated Balance Sheets. The impact of the revaluation adjustments is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

11. Taxes

Income tax expense (benefit) included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) ~~were~~was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands, except percentages)												(in thousands, except percentages)
Income tax expense (benefit)	$	727		$	1,130		$	(1,548	)	$	1,875		$	(2,125	)	$	460
Effective tax rate	(3.7		)%	7.6		%	(126.7		)%	7.1		%	0.7		%	2.6		%

~~Generally, the~~

The Company’s ~~effective~~ tax ~~rate is lower than the statutory federal rate of 21% in most periods due~~provision prior to ~~its valuation allowance position, offset by state and foreign income taxes. The effective tax rate for the nine months ended September 30, 2019 also includes~~ the discrete tax impact ~~from the~~ ~~Production Solutions~~ ~~divestiture. All other changes in the effective tax rate are~~discussed below was approximately $0.3 million, primarily attributable to ~~the current year impact of the Company’s valuation allowance positions, levels of pre-tax income, and~~ state and non-U.S. income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law which, among other provisions, provides a five-year carryback of certain net operating losses. As a result, during the three months ended March 31, 2020, the Company recorded the tax benefit from the ability to carryback some of its net operating losses. In addition, the goodwill impairment recorded during the three months ended March 31, 2020 resulted in the release of some of the Company’s

valuation allowance previously recorded. The total discrete impact for the three months ended March 31, 2020 was an income tax benefit of approximately $2.4 million.

12. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is based on the weighted average number of shares outstanding during each period and the ~~assumed~~ exercise of potentially dilutive stock options assumed to be purchased from the proceeds using the average market price of the Company’s stock for each of the periods presented as well as the potentially dilutive restricted stock, restricted stock units, and ~~restricted~~performance stock units.

Basic and diluted earnings (loss) per common share was computed as follows:


	Three Months Ended September 30, 2019							Three Months Ended September 30, 2018					Three Months Ended March 31, 2020							Three Months Ended March 31, 2019
	Net Loss			Average Shares Outstanding	Loss Per Share			Net Income		Average Shares Outstanding	Earnings Per Share		Net Loss			Average Shares Outstanding	Loss Per Share			Net Income		Average Shares Outstanding	Earnings Per Share
	(in thousands, except share and per share amounts)												(in thousands, except share and per share amounts)
Basic	$	(20,627	)	29,361,633	$	(0.70	)	$	13,658	23,971,032	$	0.57	$	(300,900	)	29,430,475	$	(10.22	)	$	17,310	29,150,996	$	0.59
Assumed exercise of stock options	—			—	—			—		41,341	—		—			—	—			—		2,709	—
Unvested restricted stock and stock units	—			—	—			—		376,922	—		—			—	—			—		318,048	—
Diluted	$	(20,627	)	29,361,633	$	(0.70	)	$	13,658	24,389,295	$	0.56	$	(300,900	)	29,430,475	$	(10.22	)	$	17,310	29,471,753	$	0.59

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 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 $ 2,770
29,288,113
$ 0.09
$ 24,352
23,264,014
$ 1.05
Assumed exercise of stock options —
—
—
—
31,879
—
Unvested restricted stock and stock units —
109,523
—
—
308,029
—
Diluted $ 2,770
29,397,636
$ 0.09
$ 24,352
23,603,922
$ 1.03

For the three months ended ~~September 30, 2019,~~March 31, 2020, the computation of diluted earnings (loss) per share excluded all stock options, unvested restricted stock, unvested restricted stock units, and unvested ~~restricted~~performance stock units because their inclusion would be anti-dilutive given the Company was in a net loss position. The average number of securities that were excluded from diluted earnings (loss) per share that would potentially dilute earnings per share for the periods in which the Company experienced a net loss were as follows:



	2020	2019
Three months ended March 31,	119,075	—

13. Segment Information

On August 30, 2019, the Company sold its Production Solutions segment to Brigade. For additional information on the Production Solutions divestiture, see Note 41 – ~~Business Acquisitions~~Company and ~~Divestitures.~~Organization. Prior to ~~the Divestiture Date,~~August 30, 2019, the Company reported its results in two segments, the Completions Solutions segment and the Production Solutions segment. As a result of the Company’s sale of its Production Solutions segment, the Company considers the Completion Solutions segment to be its operating and reporting segment. This segmentation is representative of the manner in which the Chief Operating Decision Maker (“CODM”) and its Board of Directors view the business in allocating resources and measuring financial performance. The Company considers the CODM to be its Chief Executive Officer.

~~Financial data through the Divestiture Date is reported below for the~~ ~~Production Solutions~~ ~~segment.~~ The amounts labeled “Corporate” relate to assets not allocated to either the Completion Solutions segment or the Production Solutions segment.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
Revenues
Completion Solutions	$	186,252		$	196,608		$	611,255		$	536,363		$	146,624		$	209,132
Production Solutions	16,053			21,819			58,272			61,363			—			20,573
	$	202,305		$	218,427		$	669,527		$	597,726		$	146,624		$	229,705
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	152,679		$	147,178		$	480,140		$	414,606		$	126,008		$	161,439
Production Solutions	14,170			18,704			49,854			53,094			—			17,151
	$	166,849		$	165,882		$	529,994		$	467,700		$	126,008		$	178,590
Adjusted gross profit
Completion Solutions	$	33,573		$	49,430		$	131,115		$	121,757		$	20,616		$	47,693
Production Solutions	1,883			3,115			8,418			8,269			—			3,422
	$	35,456		$	52,545		$	139,533		$	130,026		$	20,616		$	51,115

General and administrative expenses	19,222			21,816			60,979			51,837			16,395			19,939
(Gain) loss on revaluation of contingent liabilities	(5,771		)	45			(20,701		)	1,715
Loss on sale of subsidiaries	15,834			—			15,834			—
Depreciation	12,196			13,661			39,572			39,982			8,541			13,530
Amortization of intangibles	4,609			1,857			13,925			5,653			4,169			4,688
Impairment of goodwill													296,196			—
Gain on revaluation of contingent liabilities													(426		)	(13,955		)
Gain on sale of property and equipment	(466		)	(1,190		)	(799		)	(1,701		)	(575		)	(23		)
Income (loss) from operations	$	(10,168	)	$	16,356		$	30,723		$	32,540		$	(303,684	)	$	26,936
Non-operating expenses	9,732			1,568			29,501			6,313
Non-operating (income) expenses													(659		)	9,166
Income (loss) before income taxes	(19,900		)	14,788			1,222			26,227			(303,025		)	17,770
Provision (benefit) for income taxes	727			1,130			(1,548		)	1,875			(2,125		)	460
Net income (loss)	$	(20,627	)	$	13,658		$	2,770		$	24,352		$	(300,900	)	$	17,310

Capital expenditures by segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(in thousands)								(in thousands)
Completion Solutions	$	9,146	$	10,723	$	44,343	$	26,636	$	1,423	$	22,478
Production Solutions	804		665		2,790		2,312		—		914
Corporate	—		92		93		597		—		55
	$	9,950	$	11,480	$	47,226	$	29,545	$	1,423	$	23,447

Total assets by segment as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(in thousands)				(in thousands)
Completion Solutions	$	977,633	$	1,045,643	$	435,827	$	739,142
Production Solutions	—		35,086
Corporate	103,950		60,443		99,181		111,753
	$	1,081,583	$	1,141,172	$	535,008	$	850,895

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the ~~Consolidated Financial Statements~~consolidated financial statements and ~~Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,~~Operations”, including ~~Critical~~“Critical Accounting ~~Policies,~~Policies”, included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

This section contains forward-looking statements based on our current expectations, estimates, and projections about our operations and the industry in which we operate. Our actual results may differ materially from those discussed in any forward-looking statement because of various risks and uncertainties, including those described in the ~~section~~sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

OVERVIEW

Company Description

Nine Energy Service, Inc. (either individually or together with its subsidiaries, as the context requires, the “Company,” ~~“Nine,”~~“Nine” “we,” “us,” and “our”) is a leading North American onshore completion services provider that targets unconventional oil and gas resource development. We partner with our exploration and production (“E&P”) customers across all major onshore basins in both the U.S. and Canada as well as abroad to design and deploy downhole solutions and technology to prepare horizontal, multistage wells for production. We focus on providing our customers with cost-effective and comprehensive completion solutions designed to maximize their production levels and operating efficiencies. We believe our success is a product of our culture, which is driven by our intense focus on performance and wellsite execution as well as our commitment to forward-leaning technologies that aid us in the development of smarter, customized applications that drive efficiencies.

~~Recent Events~~

~~Production Solutions Divestiture~~

~~On August 30, 2019 (the “Divestiture Date”), we entered into a Membership Interest Purchase Agreement (“Production Solutions~~ ~~Purchase Agreement”) with Brigade Energy Services LLC (“Brigade”). Pursuant to the~~ ~~Production Solutions~~ ~~Purchase Agreement, on such date, through the sale of all of the limited liability interests of our wholly owned subsidiary, Beckman Holding Production Services, LLC, we sold our~~ ~~Production Solutions~~ segment to Brigade for approximately $17.4 million in cash. The closing consideration is subject to working capital and other customary post-closing adjustments. We recorded a loss of $15.8 million in connection with this divestiture during the third quarter of 2019. For additional information on this divestiture, see Note 4 – Business Acquisitions and Divestitures included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~Magnum Acquisition~~

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement dated October 15, 2018 (as amended on June 7, 2019, the “Magnum Purchase Agreement”), we acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum” and such acquisition, the “Magnum Acquisition”) for approximately $334.5 million in upfront cash consideration, subject to customary adjustments, and 5.0 million shares of our common stock, which were issued to the sellers of Magnum in a private placement. The Magnum Purchase Agreement also includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2026 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. For additional information on the Magnum Acquisition, see Note 4 – Business Acquisitions and Divestitures included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~Senior Notes~~

On October 25, 2018, we issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The proceeds from the Senior Notes, together with cash on hand and borrowings under the 2018 ABL Credit Facility (as defined below), were used to (i) fund a portion of the upfront cash purchase price of the Magnum Acquisition, (ii) repay all indebtedness under the credit facility entered into in conjunction with our initial public offering (the “IPO”), and (iii) pay fees and expenses associated with the issuance of the Senior Notes, the Magnum Acquisition, and the 2018 ABL Credit Facility (as

~~described below). For additional information on the Senior Notes, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~

~~2018 ABL Credit Facility~~

On October 25, 2018, we entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”) that permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the “2018 ABL Credit Facility”). Concurrent with the effectiveness of the 2018 ABL Credit Facility, we borrowed approximately $35.0 million to fund a portion of the upfront cash purchase price of the Magnum Acquisition. During the first six months of 2019, we fully repaid the outstanding revolver balance. For additional information on the 2018 ABL Credit Facility, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~Initial Public Offering~~

~~In January 2018, we completed our IPO of 8,050,000 shares of common stock (including 1,050,000 shares pursuant to an over-allotment option) at a price to the public of $23.00 per share.~~

Business Segments

The Completion Solutions segment provides services integral to the completion of unconventional wells through a full range of tools and methodologies. Through the 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.

On August 30, 2019, we entered into a Membership Interest Purchase Agreement (“Production Solutions Purchase Agreement”) with Brigade Energy Services LLC (“Brigade”). Pursuant to the ~~Divestiture Date,~~Production Solutions Purchase Agreement, on such date, through the sale of all of the limited liability interests of our wholly owned subsidiary, Beckman Holding Production Services, LLC, we sold ~~the~~our Production Solutions segment to Brigade.For additional information on ~~the~~ ~~Production Solutions~~this divestiture, see Note 41 – ~~Business Acquisitions~~Company and ~~Divestitures.~~Organization included in Item 1 of Part I of this Quarterly Report on Form 10-Q. Prior to ~~the Divestiture Date,~~August 30, 2019, we reported our results in two segments, the Completions Solutions segment and the Production Solutions segment.

The Production Solutions segment provided a range of production enhancement and well workover services that were performed with a well servicing rig and ancillary equipment. Our well servicing business encompassed 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 installed and removed downhole equipment and eliminated obstructions in the well to facilitate the flow of oil and natural gas.

How We Generate Revenue and the Costs of Conducting Our Business

We generate our revenues by providing completion services to E&P customers across all major onshore basins in both the U.S. and Canada as well as abroad. We primarily earn our revenues pursuant to work orders entered into with our customers on a job-by-job basis. We typically will enter into a Master Service Agreement (“MSA”) with each customer that provides a

framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us. Each specific job is obtained through competitive bidding or as a result of negotiations with customers. The rate we charge is determined by location, complexity of the job, operating conditions, duration of the contract, and market conditions. In addition to MSAs, we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services, and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business. These longer-term contracts address pricing and other details concerning our services, but each job is performed on a standalone basis.

The principal expenses involved in conducting our business include labor costs, materials and freight, the costs of maintaining our equipment, and fuel costs. Our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment. Another key component of labor costs relates to the ongoing training of our field service employees, which improves safety rates and reduces employee attrition.

How We Evaluate Our Operations

We evaluate our performance based on a number of financial and non-financial measures, including the following:

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 our operations compared to historical revenue drivers or market metrics. We are particularly interested in identifying positive or negative trends and investigating to understand the root causes.

Adjusted Gross Profit (Excluding Depreciation and Amortization): Adjusted gross profit (excluding depreciation and amortization) is a key metric that we use to evaluate operating performance. We define adjusted gross profit (excluding depreciation and amortization) as revenues less 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 and 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, (iv) gain on extinguishment of debt, (v) loss or gain on ~~equity method investment,~~the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation expense, ~~(vii)~~(viii) loss or gain on sale of property and equipment, ~~(viii) restructuring charges,~~ (ix) ~~loss or gain on the sale of subsidiaries, and (x)~~ 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.~~business. 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, (ii) transaction and integration costs related to acquisitions, (iii) interest expense (income), (iv) restructuring charges, (v) loss or gain on the sale of subsidiaries, (vi) gain on extinguishment of debt, and ~~(vi)~~(vii) 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~~year-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.TRIRis 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.

Factors Affecting the Comparability of Our Results of Operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, and our historical results of operations among the periods presented may not be comparable to each other, primarily due to ~~the Magnum Acquisition and partially due to~~ our divestiture of the Production Solutions segment.

The historical results of operations for the three and nine months ended September 30, 2019 included in this Quarterly Report on Form 10-Q include activity related to the Magnum Acquisition whereas the historical results of operations for the three and nine months ended September 30, 2018 do not include activity related to the Magnum Acquisition. As a result, the historical results of operations for the three and nine months ended September 30, 2018 may not give an accurate indication of what our actual results would have been if the Magnum Acquisition had been completed at the beginning of the period presented, or of what our future results of operations are likely to be for the following reasons:

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.~~

In addition, the historical results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 included in this Quarterly Report on Form 10-Q do not include activity related to the Production Solutions segment ~~only through August 30, 2019 (which is the Divestiture Date)~~ whereas the historical results of operations for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 do include activity related to the Production Solutions segment for the entire ~~periods.~~period. Furthermore, future results of operations after August 30, 2019 will not include activity related to the Production Solutions segment. For additional information on the ~~Magnum Acquisition and on the~~ divestiture of the Production Solutions segment, see Note 41 – ~~Business Acquisitions~~Company and ~~Divestitures~~Organization included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Industry Trends and Outlook

Our business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas ~~companies onshore in North America.~~companies. These activity and spending levels are strongly influenced by the current and expected oil and natural gas prices. ~~During 2018,~~The worldwide coronavirus outbreak in early 2020, which was declared a pandemic by the World Health Organization in March 2020, the uncertainty regarding its impact, and various governmental actions taken to mitigate its impact have resulted in an unprecedented decline in demand for oil. In the midst of the ongoing pandemic, the Organization of Petroleum Exporting Countries and other oil prices rose to their highest levels since the downturn that began in late 2014. However, during the fourth quarter of 2018, oil prices declined approximately 40%, which is generally believed to be due to concerns over a worldwide oversupply of oil as well as concerns over the possible slowing of global demand growth. In response, at the beginning of 2019, OPEC members and some nonmembers,producing nations, including Russia ~~renewed pledges~~(“OPEC+”), were initially unable to ~~reduce planned~~reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. The convergence of these events created the unprecedented dual impact of a massive decline in ~~an effort to draw down~~the demand for oil coupled with the risk of a ~~global oversupply and to rebalance supply and demand. These and other events provided support for an~~substantial increase in ~~oil~~supply. While OPEC+ agreed in April 2020 to cut production, downward pressure on commodity prices ~~during~~has remained and could continue for the foreseeable future. Accordingly, while we have experienced impact in the first ~~several months~~quarter, we expect a significant decline in activity coupled with downward pricing pressure and corresponding reductions in revenue and profitability for the remainder of ~~2019. Since then, due~~2020. See “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q for more information regarding risks relating to ~~among other things, global geopolitical tensions, oil prices have slightly decreased, despite renewed pledges by OPEC members~~the coronavirus outbreak and some non-members, including Russia, to extend production cuts into 2020. We expect ongoing oil price volatility as compliance with the output reduction agreements, changes in oil inventories, GDP growth, and actual demand growth are reported. Similarly, natural gas prices have decreased significantly throughout 2019 and are expected to continue to be volatile, causing many operators in the more gas-exposed regions to curtail activity. actions of OPEC+.

Significant factors that are likely to affect ~~2019~~2020 commodity prices include the extent to which members of OPEC+ and other oil exporting nations continue to reduce oil export prices and increase production; the longevity and severity of the coronavirus pandemic; the effect of U.S. energy, monetary, and trade policies; the pace of economic growth in the U.S. and throughout the world, including the potential for macro weakness; geopolitical and economic developments in the U.S. and globally; the ~~extent to which members~~outcome of ~~OPEC~~the United States presidential election and ~~other oil exporting nations adhere to~~subsequent energy and ~~agree to further extend the agreed oil production cuts;~~Environmental Protection Agency policies; and overall North American oil and natural gas supply and demand fundamentals, including the pace at which export capacity grows.

~~Customer~~Demand for our products and services will continue to decline as our customers revise their capital budgets for ~~2019 were set at the end of 2018. As discussed above, there was a sharp decline~~2020 downwards and adjust their operations in response to lower oil ~~price during the fourth quarter of 2018. As a result, customer budgets for 2019 are more limited than previously anticipated,~~prices, which has and ~~on average, customers have decreased E&P investments in 2019 as compared~~will continue to ~~2018, which could~~ adversely affect our business. ~~With this overall reduction, there has~~The posted price for West Texas Intermediate (“WTI”) oil during the first quarter decreased from a high of $63 per barrel in early January 2020 to a low of $14 per barrel in late March 2020, a level which had not been experienced since March 1999, with physical markets showing signs of distress as spot prices have been negatively impacted by the lack of available storage capacity. In April 2020, the posted price for WTI oil traded at negative levels for a ~~strong commitment~~brief period and ranged from ~~E&P operators~~$28 per barrel to ~~stay within capital budgets, prompting many of them to begin to scale back activity in the third quarter of 2019 and likely into the fourth quarter of 2019.~~$(37) per barrel. Even ~~if there~~

iswith price ~~improvement~~improvements in oil and natural gas, ~~during the remainder of 2019, it is expected that~~ operator activity ~~would~~may not materially increase, as operators ~~would likely~~ remain focused on operating within their ~~previously set~~ capital ~~plans.~~

plans, and uncertainty remains around supply and demand fundamentals. We cannot predict the length of time that the market disruptions resulting from the coronavirus pandemic and efforts to mitigate its effects will continue, the ultimate impact on our business, or the pace or extent of any subsequent recovery. Nevertheless, we will maintain our commitment to safety and service quality for our customers and continue to focus on generating returns and cash flow.

Operators have continued to improve operational efficiencies in completions design, increasing the complexity and difficulty, making oilfield service selection more important. This increase in high-intensity, high-efficiency completions of oil and gas wells further enhances the demand for our services. We compete for the most complex and technically demanding wells in which we specialize, which are characterized by extended laterals, increased stage spacing, multi-well pads, cluster spacing, and high proppant loads. These well characteristics lead to increased operating leverage and returns for us, as we are able to complete more jobs and stages with the same number of units and crews. Service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently, rather than only price.

Results of Operations

Results for the Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared to the Three Months Ended ~~September 30, 2018~~March 31, 2019


	Three Months Ended September 30,									Three Months Ended March 31,
	2019			2018			Change			2020			2019			Change
	(in thousands)									(in thousands)
Revenues
Completion Solutions	$	186,252		$	196,608		$	(10,356	)	$	146,624		$	209,132		$	(62,508	)
Production Solutions ⁽¹⁾	16,053			21,819			(5,766		)	—			20,573			(20,573		)
	$	202,305		$	218,427		$	(16,122	)	$	146,624		$	229,705		$	(83,081	)
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	152,679		$	147,178		$	5,501		$	126,008		$	161,439		$	(35,431	)
Production Solutions ⁽¹⁾	14,170			18,704			(4,534		)	—			17,151			(17,151		)
	$	166,849		$	165,882		$	967		$	126,008		$	178,590		$	(52,582	)
Adjusted gross profit
Completion Solutions	$	33,573		$	49,430		$	(15,857	)	$	20,616		$	47,693		$	(27,077	)
Production Solutions ⁽¹⁾	1,883			3,115			(1,232		)	—			3,422			(3,422		)
	$	35,456		$	52,545		$	(17,089	)	$	20,616		$	51,115		$	(30,499	)

General and administrative expenses	$	19,222		$	21,816		$	(2,594	)	$	16,395		$	19,939		$	(3,544	)
(Gain) loss on revaluation of contingent liabilities	(5,771		)	45			(5,816		)
Loss on sale of subsidiaries	15,834			—			15,834
Depreciation	12,196			13,661			(1,465		)	8,541			13,530			(4,989		)
Amortization of intangibles	4,609			1,857			2,752			4,169			4,688			(519		)
Impairment of goodwill										296,196			—			296,196
Gain on revaluation of contingent liabilities										(426		)	(13,955		)	13,529
Gain on sale of property and equipment	(466		)	(1,190		)	724			(575		)	(23		)	(552		)
Income (loss) from operations	(10,168		)	16,356			(26,524		)	(303,684		)	26,936			(330,620		)
Non-operating expenses	9,732			1,568			8,164
Non-operating (income) expenses										(659		)	9,166			(9,825		)
Income (loss) before income taxes	(19,900		)	14,788			(34,688		)	(303,025		)	17,770			(320,795		)
Provision (benefit) for income taxes	727			1,130			(403		)	(2,125		)	460			(2,585		)
Net income (loss)	$	(20,627	)	$	13,658		$	(34,285	)	$	(300,900	)	$	17,310		$	(318,210	)

(1)We sold the Production Solutions segment to Brigade on August 30, 2019. For additional information on the Production Solutions divestiture, see Note 41 – ~~Business Acquisitions~~Company and ~~Divestitures.~~Organization.

Revenues

Revenues decreased ~~$16.1~~$83.1 million, or 7%36%, to ~~$202.3~~$146.6 million for the ~~third~~first quarter of ~~2019~~2020 which is primarily related to reduced activity and pricing pressure ~~across~~caused by rapidly deteriorating market conditions late in the ~~company. The~~ ~~Completion Solutions~~ ~~segment and the historical~~ ~~Production Solutions~~ segment depend, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in North America. In turn, activity and capital spending are strongly influenced by current and expected oil and natural gas prices. During the thirdfirst quarter of 2019, the average closing price of oil was $56.34 per barrel, and the average closing price of natural gas was $2.38 per MMBtu. During the third quarter of 2018, the average closing price per barrel of oil was $69.69, and the average closing price of natural gas was $2.93 per MMBtu. The overall decrease is partially offset with an increase in completion tools revenue from the first nine months of 2018, due in large part to the Magnum Acquisition in the fourth quarter of 2018.

~~Additional information with respect to revenues by reportable segment is discussed below.~~

~~Completion Solutions~~: Revenues decreased $10.4 million, or 5%, to $186.3 million for the third quarter of 2019. The decrease was primarily related to a decrease in coiled tubing revenue of $16.8 million, or 35%, as total job count decreased by 39% in comparison to the third quarter of 2018. In addition, the decrease was partly related to a decrease in wireline revenue of $8.9 million, or 13%, mainly related to pricing pressure. Total completed wireline stages increased 10% in comparison to the third quarter of 2018. The overall decrease in ~~Completions Solutions~~ ~~revenues was partially offset~~2020, driven by an increase in completion tools revenue of $12.6 million, or 45%. The increase was primarily due to an increase of 10% in completion tool stages with a corresponding increase of 32% in completion tools revenues by stage due in large part to the Magnum Acquisition in the fourth quarter of 2018. Cementing revenues (including pump downs) also increased by $2.6 million, or 5%, which is in conjunction with the increase in cement job count of 4% quarter-over-quarter.

~~Production Solutions: Revenues decreased $5.8 million, or 26%, to $16.1 million for the third quarter of 2019. The overall decrease in revenue was primarily related to the fact that the~~ ~~Production Solutions~~ ~~segment was sold on August 30, 2019 and therefore only recorded two months of revenue in the third quarter of 2019 compared to recording three months of revenue in the third quarter of 2018.~~

~~Cost of Revenues (Exclusive of Depreciation and Amortization)~~

Cost of revenues increased $1.0 million, or 1%, to $166.8 million for the third quarter of 2019. The increase was primarily related to additional costs of $5.8 million for materials installed and consumed while performing services. The increase in these costs was due in large part to the Magnum Acquisition in the fourth quarter of 2018. In addition, the overall increase in cost of revenues was partly related to an increase in severance and other cost of revenue type restructuring charges of $1.8 million mainlyeconomic recession associated with the third quarter of 2019 wind-down of our wireline service offerings in Canada. The overall increase in cost of revenues was partially offset by a decrease of $5.4 million in other employee-related costs,coronavirus pandemic, as well as ~~a decrease of $1.2 million in other costs, which was mainly driven by reductions in repairs~~international pricing and ~~maintenance, travel and meals and entertainment expenses in comparison to the third quarter of 2018.~~

~~Additional information with respect to cost of revenues by reportable segment is discussed below.~~

~~Completion Solutions~~: Cost of revenues increased $5.5 million, or 4%, to $152.7 million for the third quarter of 2019 primarily related to additional costs of $7.0 million for materials installed and consumed while performing services. The increase in these costs was due in large part to the Magnum Acquisition in the fourth quarter of 2018. In addition, the overall increase in cost of revenues was partly related to an increase in severance and other cost of revenue type restructuring charges of $1.8 million mainly associated with the third quarter of 2019 wind-down of our wireline service offerings in Canada. The overall increase in cost of revenues was partially offset by a decrease of $2.8 million in other employee-related costs, as well as a decrease of $0.5 million in other costs, which was mainly driven by reductions in repairs and maintenance, travel and meals and entertainment in comparison to the third quarter of 2018.

~~Production Solutions~~: Cost of revenues decreased $4.5 million, or 24%, to $14.2 million for the third quarter of 2019. Employee-related costs decreased by $2.6 million while costs related to materials consumed while performing services decreased by $1.3 million, and other costs such as repairs and maintenance, vehicle and facilities expenses, decreased by $0.7 million in the third quarter of 2019. The primary driver behind the reduction of these costs of revenues related to the sale of the ~~Production Solutions~~ ~~segment on August 30, 2019 as only two months of cost of revenues was recorded in the third quarter of 2019 compared to three months of cost of revenues recorded in the third quarter of 2018.~~

~~Adjusted Gross Profit~~

~~Completion Solutions~~: Adjusted gross profit (excluding depreciation and amortization) decreased $15.9 million to $33.6 million for the third quarter of 2019 due to the factors described above under “Revenues” and “Cost of Revenues.”

~~Production Solutions~~: Adjusted gross profit (excluding depreciation and amortization) decreased $1.2 million to $1.9 million for the third quarter of 2019 as a result of the factors described above under “Revenues” and “Cost of Revenues.”

~~General and Administrative Expenses~~

General and administrative expenses decreased $2.6 million to $19.2 million for the third quarter of 2019. The decrease was primarily related to a decrease of $1.9 million in employee-related costs in comparison to the third quarter of 2018. The decrease is also partly related to a third quarter of 2018 settlement of $1.5 million associated with the Fair Labor Standards Act (“FLSA”) that did not recur in the third quarter of 2019, coupled with certain transaction costs recorded in the third quarter of 2018 associated with the Magnum Acquisition that also did not recur in the third quarter of 2019. The overall decrease in general and administrative expenses was partially offset by an increase in severance and other general and administrative type restructuring charges of $1.4 million mainly associated with the third quarter of 2019 wind-down of our wireline service offerings in Canada. General and administrative expenses as a percentage of revenue was 9.5% for the third quarter of 2019, compared to 10.0% for the third quarter of 2018.

~~(Gain) Loss on Revaluation of Contingent Liabilities~~

(Gain) loss on the revaluation of contingent liabilities changed $5.8 million from a loss of less than $0.1 million to a gain of $5.8 million for the third quarter of 2019. The change was primarily related to a reduction in the estimated sales of certain dissolvable plug products in 2019 associated with the Magnum Acquisition, which contributed to the reduction in fair value during the current quarter.

~~(Gain) Loss on Sale of Subsidiaries~~

~~Loss on the sale of subsidiaries was approximately$15.8 million for the third quarter of 2019 and was related to the sale of the~~ ~~ProductionSolutions~~ ~~segment on August 30, 2019.~~production disputes. We ~~did not record a loss on the sale of subsidiaries for the third quarter of 2018.~~

~~Depreciation~~

~~Depreciation expense decreased $1.5 million to $12.2 million for the third quarter of 2019. The overall decrease was primarily within service offerings in the~~ ~~Production Solutions~~ ~~segment as we recorded a property and equipment impairment charge recorded in the fourth quarter of 2018. Furthermore, the remaining property and equipment associated with the~~ ~~Production Solutions~~ ~~segment was sold on August 30, 2019.~~

~~Amortization of Intangibles~~

Amortization of intangibles increased $2.8 million to $4.6 million for the third quarter of 2019, primarily due to a $3.1 million increase in amortization associated with intangible assets acquired as part of the Magnum Acquisition and the acquisition of Frac Technology AS, a Norwegian private limited company (the “Frac Tech Acquisition”). The overall increase was partially offset by a reduction in amortization of $0.3 million associated with intangible assets in the ~~Production Solutions~~ ~~segment, which were fully impaired in the fourth quarter of 2018.~~

~~Non-Operating Expenses~~

Non-operating expenses increased $8.2 million to $9.7 million for the third quarter of 2019. The increase in comparison to the third quarter of 2018 was primarily related to an increase in interest expense related to higher indebtedness and an increased interest rate in conjunction with the Senior Notes, which were entered into in the fourth quarter of 2018 in connection with the Magnum Acquisition.

~~Provision (Benefit) for Income Taxes~~

Our tax provision for the third quarter of 2019 was approximately $0.7 million as compared to a tax provision of $1.1 million for the third quarter of 2018. The $0.4 million decrease in the tax provision was primarily a result of the discrete tax impact from the sale of the ~~Production Solutions~~ ~~segment on August 30, 2019, coupled with changes in pre-tax income between periods.~~

~~Adjusted EBITDA~~

Adjusted EBITDA decreased $14.1 million to $24.2 million for the third quarter of 2019. The Adjusted EBITDA decrease is primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

~~Results for the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018~~

Nine Months Ended September 30,
2019 2018 Change
(in thousands)
Revenues
Completion Solutions $ 611,255
$ 536,363
$ 74,892
     Production Solutions ⁽¹⁾
58,272
61,363
(3,091 )
$ 669,527
$ 597,726
$ 71,801
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions $ 480,140
$ 414,606
$ 65,534
     Production Solutions ⁽¹⁾
49,854
53,094
(3,240 )
$ 529,994
$ 467,700
$ 62,294
Adjusted gross profit
Completion Solutions $ 131,115
$ 121,757
$ 9,358
     Production Solutions ⁽¹⁾
8,418
8,269
149
$ 139,533
$ 130,026
$ 9,507

General and administrative expenses $ 60,979
$ 51,837
$ 9,142
(Gain) loss on revaluation of contingent liabilities (20,701 ) 1,715
(22,416 )
Loss on sale of subsidiaries 15,834
—
15,834
Depreciation 39,572
39,982
(410 )
Amortization of intangibles 13,925
5,653
8,272
Gain on sale of property and equipment (799 ) (1,701 ) 902
Income from operations 30,723
32,540
(1,817 )
Non-operating expenses 29,501
6,313
23,188
Income before income taxes 1,222
26,227
(25,005 )
Provision (benefit) for income taxes (1,548 ) 1,875
(3,423 )
Net income $ 2,770
$ 24,352
$ (21,582 )

~~(1)We sold the~~ ~~Production Solutions~~ ~~segment to Brigade on August 30, 2019. For additional information on the~~ ~~Production Solutions~~ ~~divestiture, see Note 4 – Business Acquisitions and Divestitures.~~

~~Revenues~~

Revenues increased $71.8 million, or 12%, to $669.5 million for the first nine months of 2019. The increase is primarily related to an increase in completion tools revenue from the first nine months of 2018, due in large part to the Magnum Acquisition in the fourth quarter of 2018. The overall increase is partially offset with pricing pressure across the company. The ~~Completion Solutions~~ ~~segment and the historical~~ ~~Production Solutions~~ ~~segment~~ depend, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in North America. In turn, activity and capital spending are strongly influenced by current and expected oil and natural gas prices. During the first ~~nine months~~quarter of ~~2019,~~2020, the average closing price of oil was ~~$57.04~~$45.34 per barrel, and the average closing price of natural gas was ~~$2.62~~$1.91 per MMBtu. During the first ~~nine months~~quarter of ~~2018,~~2019, the average closing price per barrel of oil was ~~$66.93,~~$54.82, and the average closing price of natural gas was ~~$2.95~~$2.92 per MMBtu.

Additional information with respect to revenues by historical reportable segment is discussed below.

Completion Solutions: ~~Revenues increased $74.9~~Revenue decreased $62.5 million, or ~~14%~~30%, to ~~$611.3~~$146.6 million for the first ~~nine months~~quarter of ~~2019.~~2020. The ~~increase~~decrease was ~~primarily related to an increase in~~prevalent across all lines of service and was a direct reflection of pricing pressures caused by reasons described above. More specifically, our tools revenue decreased $21.5 million, or 40%, as completion tools stages decreased by 19%, and completion tools revenue ~~of $78.0 million, or 107%, with a corresponding increase of 65% in completion tool stages and 26% in completion tools revenues~~ by stage due in large part to the Magnum Acquisition in the fourth quarter of 2018. In addition, the increase was partly attributable to an increase in wireline revenue of $7.8 million, or 4%, as total wireline stages completed increased 19% due to an increase in activitydecreased by 27% in comparison to the first ~~nine months~~quarter of ~~2018. Furthermore, cementing revenues (including pump downs) increased by $19.0~~2019. Wireline revenue decreased $18.5 million, or ~~13%, primarily due to a 12% increase in cement job count during the first nine months of 2019. The increase was partially offset with a decrease in coiled tubing revenue of $29.8 million, or~~ ~~22%~~29%, as total ~~job count~~completed wireline stages decreased by ~~34%~~18%. in comparison to the first ~~nine months~~quarter of ~~2018.~~2019. Coiled tubing revenue decreased by $17.9 million, or 46%, as total days worked decreased by 35% in comparison to the first quarter 2019 and cementing revenue (including pump downs) decreased by $4.6 million, or 9% as our total cement job count decreased 8% in comparison to 2019.

Production Solutions: ~~Revenues~~Revenue decreased ~~$3.1~~$20.6 million, or ~~5%, to $58.3 million~~100% for the first ~~nine months~~quarter of ~~2019 primarily related to a reduction of activity. The~~2020 as the Production Solutions segment was sold on August 30, 2019.

Cost of Revenues (Exclusive of Depreciation and Amortization)

Cost of revenues ~~increased $62.3~~decreased $52.6 million, or ~~13%~~29%, to ~~$530.0~~$126.0 million for the first ~~nine months~~quarter of ~~2019. The increase was~~2020. which is primarily related to ~~increased revenues described above~~rapidly deteriorating market conditions late in ~~comparison to~~ the first ~~nine months of 2018, which was due in large part to the Magnum Acquisition in the fourth~~ quarter of ~~2018.~~2020, driven by an economic recession associated with the coronavirus pandemic, as well as international pricing and production disputes.

Additional information with respect to cost of revenues by historical reportable segment is discussed below.

Completion Solutions: Cost of revenues ~~increased $65.5~~decreased $35.4 million, or ~~16%~~22%, to ~~$480.1~~$126.0 million for the first ~~nine months~~quarter of ~~2019. Costs~~2020. The decrease in comparison to the first quarter of 2019 was prevalent across all lines of service and was a direct reflection of reasons described above. More specifically, the decrease was primarily related to a $20.3 million decrease in materials installed and consumed while performing services, ~~increased $53.4~~a $9.2 million decrease in employee costs, a $4.5 million decrease in other costs such as repair and ~~other employee-related costs increased $8.0~~maintenance, travel, meals and entertainment, and vehicle expenses and a $2.4 million decrease in ~~comparison to the first nine months of 2018, due in large part to the Magnum Acquisition in the fourth quarter of 2018. In addition, Magnum~~transaction and integration costs associated with ~~cost of revenues was approximately $3.2 million in~~ the ~~third quarter of 2019. These costs did not occur in the third quarter of 2018. Furthermore, the increase~~Magnum Acquisition. The overall decrease in cost of revenues was ~~partly related to~~partially offset by an increase in severance and other cost of revenue type restructuring ~~charges~~costs of ~~$1.8~~$1.0 million mainly associated with ~~the third quarter of 2019 wind-down of our wireline service offerings~~headcount reductions and cost cutting measures in Canada. The overall increase in cost of revenues was partially offset by a decrease of $0.9 million in other costs, which was mainly driven by reductions in repairs and maintenance, travel and meals and entertainment in comparisonresponse to the ~~first nine months of 2018.~~challenging market conditions across the industry.

Production Solutions: Cost of revenues decreased ~~$3.2~~$17.2 million, or ~~6%, to $49.9 million~~100% for the first nine months of 2019. Costs related to materials consumed while performing services decreased $1.7 million, employee-related costs decreased $1.2 million, and other costs such as repairs and maintenance, vehicle and facilities expenses, decreased $0.3 million in the third quarter of ~~2019. The primary drivers behind the reduction of these costs of revenues related to a reduction in activity for the first nine months of 2019 coupled with the ultimate sale of~~2020 as the Production Solutions segment was sold on August 30, 2019.

Adjusted Gross Profit

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) ~~increased $9.4~~decreased $27.1 million to ~~$131.1~~$20.6 million for the first ~~nine months~~quarter of ~~2019~~2020 due to the factors described above under “Revenues” and “Cost of Revenues.”

Production Solutions: Adjusted gross profit (excluding depreciation and amortization) ~~increased $0.1~~decreased $3.4 million to ~~$8.4~~$0.0 million for the first ~~nine months~~quarter of ~~2019~~2020 as a result of the factors described above under “Revenues” and “Cost of Revenues.”

General and Administrative Expenses

General and administrative expenses ~~increased $9.1~~decreased $3.5 million to ~~$61.0~~$16.4 million for the first ~~nine months~~quarter of ~~2019.~~2020. The ~~increase~~decrease in comparison to the first ~~nine months~~quarter of ~~2018~~2019 was primarily related to ~~additional general~~a $2.2 million decrease in transaction and ~~administrative costs, including~~ integration ~~compensation, and benefits~~ costs associated with the Magnum Acquisition, a $1.7 million decrease in other costs such as marketing, office, travel, meals and entertainment and facility expenses and a $0.9 million decrease in employee costs mainly associated with the ~~fourth quarter~~recently sold Production Solutions segment. The overall decrease in general and administrative expenses was partially offset by an increase

in severance and other general and administrative type restructuring costs of ~~2018.~~$1.3 million mainly associated with headcount reductions and cost cutting measures in response to the challenging market conditions across the industry. General and administrative expenses as a percentage of revenue was ~~9.1%~~11.2% for the first ~~nine months~~quarter of 2019, compared to 8.7% for the first ~~nine months~~quarter of ~~2018.~~2019.

Depreciation

Depreciation expense decreased $5.0 million to $8.5 million for the first quarter of 2020. The decrease in comparison to the first quarter of 2019 was primarily related to a reduction in depreciation expense associated with our coiled tubing business mainly due to the property and equipment charge recorded in the fourth quarter of 2019. The decrease was also partly attributed to the reduction in depreciation expense in the Production Solutions segment, which was sold on August 30, 2019.

Amortization of Intangibles

Amortization of intangibles decreased $0.5 million to $4.2 million for the first quarter of 2020, primarily due to a $0.3 million decrease in amortization associated with certain non-compete agreements that were fully amortized in 2019, coupled with a $0.2 million decrease in intangible assets associated with our coiled tubing business mainly due to the intangible asset impairment charge recorded in the fourth quarter of 2019.

Impairment of Goodwill

We recorded goodwill impairment charges of $296.2 million for the first quarter of 2020 in our tools, cementing, and wireline reporting units due to sharp declines in global crude oil demand and an economic recession associated with the coronavirus pandemic, as well as, sharp declines in oil and natural gas prices associated with international pricing and production disputes. No goodwill impairment charges were recorded for the first quarter of 2019.

(Gain) Loss on Revaluation of Contingent Liabilities

~~(Gain) loss~~Gain on the revaluation of contingent liabilities ~~changed $22.4~~decreased $13.5 million ~~from~~to a ~~loss~~gain of ~~$1.7~~$0.4 million for the first ~~nine months~~quarter of ~~2018 to againof $20.7 million for the first nine months of 2019.~~2020. The ~~change~~reduction was primarily related to a ~~reduction~~$14.1 million gain recorded in the first quarter of 2019 in connection with the estimated sales of certain dissolvable ~~plug products~~plugs associated in ~~2019 associated~~ with the Magnum Acquisition ~~which contributed~~that did not recur in the first quarter of 2020. The reduction was partially offset by an increased gain attributed to the ~~reduction~~earnout associated with our acquisition of Frac Technology AS.

Non-Operating (Income) Expenses

We recorded $0.7 million in ~~fair value during the first nine months of 2019.~~

~~(Gain) Loss on Sale of Subsidiaries~~

~~Loss on the sale of subsidiaries was approximately$15.8 million~~non-operating income for the first ~~nine months~~quarter of ~~2019 and was related~~2020 compared to ~~the sale of the~~ ~~ProductionSolutions~~ ~~segment. We did not record a loss on the sale of subsidiaries~~$9.2 million in non-operating expenses for the first ~~nine months of 2018.~~

~~Depreciation~~

~~Depreciation expense decreased $0.4 million to $39.6 million for the first nine months~~quarter of 2019. The decrease ~~was primarily within service offerings~~ in ~~the~~ ~~Production Solutions~~ ~~segment as we recorded a property and equipment impairment charge recorded in the fourth quarter of 2018. Furthermore, the remaining property and equipment associated with the~~ ~~Production Solutions~~ segment was sold in the third quarter of 2019. The overall decrease is partially offset with an increase in depreciation expense in other lines of service where capital expenditure activity was larger in the first nine months of 2019 in comparison to the first nine months of 2018.

~~Amortization of Intangibles~~

Amortization of intangibles increased $8.3 million to $13.9 million for the first nine months of 2019, primarily due to a $9.4 million increase in amortization associated with intangible assets acquired as part of the Magnum Acquisition and Frac Tech Acquisition. The overall increase was partially offset by a reduction in amortization of $0.8 million associated with intangible assets in the ~~Production Solutions~~ ~~segment, which were fully impaired in the fourth quarter of 2018.~~

~~Non-Operating Expenses~~

~~Non-operating~~non-operating expenses ~~increased $23.2 million to $29.5 million for the first nine months of 2019. The increase in comparison to the first nine months of 2018~~ was primarily related to ~~an increase in interest expense~~a $10.1 million gain on the extinguishment of debt related to ~~higher indebtedness and an increased interest rate in conjunction with~~ the repurchase of Senior Notes ~~which were entered into~~(as defined in “Liquidity and Capital Resources”) in the ~~fourth~~first quarter of ~~2018~~2020 that did not recur in ~~connection with~~ the ~~Magnum Acquisition.~~first quarter of 2019.

Provision (Benefit) for Income Taxes

~~Our~~We recorded an income tax benefit ~~for the first nine months~~ of ~~2019 was approximately $1.5 million as compared to a tax provision of $1.9~~$2.1 million for the first ~~nine months~~quarter of ~~2018.~~2020 compared to an income tax provision of $0.5 million for the first quarter of 2019. The ~~$3.4~~$2.6 million decrease in ~~our~~the income tax provision was primarily ~~related to changes in pre-tax income between periods coupled with~~a result of the discrete tax impact from the ~~sale~~net operating loss provisions of the ~~Production Solutions~~ ~~segment~~Coronavirus Aid, Relief, and Economic Security Act and the goodwill impairment recorded during the ~~first nine months of 2019.~~quarter, coupled with changes in pre-tax income between periods.

Adjusted EBITDA

Adjusted EBITDA ~~increased $8.3~~decreased $28.9 million to ~~$101.4~~$10.3 million for the first ~~nine months~~quarter of ~~2019.~~2020. The Adjusted EBITDA ~~increase~~decrease is primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies.

We define EBITDA as net income (loss) before interest, ~~expense,~~ depreciation, amortization of intangibles, and provision

(benefit) for income taxes.

We define Adjusted EBITDA as EBITDA 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, (iv) gain on extinguishment of debt, (v) loss or gain on ~~equity method investment,~~the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation expense, ~~(vii)~~(viii) loss or gain on sale of property and equipment, and ~~(viii) restructuring charges,~~ (ix) ~~loss or gain on the sale of subsidiaries, and (x)~~ 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.~~

business.

Management believes EBITDA and Adjusted EBITDA are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at these measures because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. These measures should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”) or as an indicator of our operating performance. Certain items excluded from these measures are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of these measures. Our computations of these measures may not be comparable to other similarly titled measures of other companies. We believe that these are widely followed measures of operating performance.

The following table presents a reconciliation of the non-GAAP financial measures of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income (loss) for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
EBITDA reconciliation:
Net income (loss)	$	(20,627	)	$	13,658		$	2,770		$	24,352		$	(300,900	)	$	17,310
Interest expense	9,843			1,756			29,940			6,763			9,828			9,326
Interest income	(111		)	(188		)	(439		)	(450		)	(371		)	(160		)
Depreciation	12,196			13,661			39,572			39,982			8,541			13,530
Amortization of intangibles	4,609			1,857			13,925			5,653			4,169			4,688
Provision (benefit) for income taxes	727			1,130			(1,548		)	1,875			(2,125		)	460
EBITDA	$	6,637		$	31,874		$	84,220		$	78,175		$	(280,858	)	$	45,154

Adjusted EBITDA reconciliation:
EBITDA	$	6,637		$	31,874		$	84,220		$	78,175		$	(280,858	)	$	45,154
Impairment of goodwill													296,196			—
Transaction and integration costs	1,418			2,320			8,864			2,697			146			4,762
Loss on equity method investment	—			77			—			270
(Gain) loss on revaluation of contingent liabilities ⁽¹⁾	(5,771		)	45			(20,701		)	1,715
Loss on sale of subsidiaries	15,834			—			15,834			—
Gain on revaluation of contingent liabilities ⁽¹⁾													(426		)	(13,955		)
Gain on extinguishment of debt													(10,116		)	—
Restructuring charges	3,263			—			3,263			—			2,329			—
Stock-based compensation expense	3,286			3,508			10,553			9,719			3,592			3,153
Gain on sale of property and equipment	(466		)	(1,190		)	(799		)	(1,701		)	(575		)	(23		)
Legal fees and settlements ⁽²⁾	22			1,721			165			2,203			4			68
Adjusted EBITDA	$	24,223		$	38,355		$	101,399		$	93,078		$	10,292		$	39,159

(1)Amounts relate to the revaluation of contingent liabilities associated with our 2018 acquisitions. The impact is included in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss). For additional information on contingent liabilities, see Note 10 – Commitments and Contingencies included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

(2)Amounts represent fees and legal settlements associated with legal proceedings brought pursuant to the ~~FLSA~~Fair Labor Standards Act and/or similar state laws.

Return on Invested Capital

ROIC is a supplemental non-GAAP financial measure. 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, (ii) transaction and integration costs related to acquisitions, (iii) interest expense (income), (iv) restructuring charges, (v) loss or gain on the sale of subsidiaries, (vi) gain on extinguishment of debt, and ~~(vi)~~(vii) 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 then take the average of the current period-end and prior ~~period-end~~year-end total capital for use in this analysis.

Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. Management uses ROIC to assist them in capital resource allocation decisions and in evaluating business performance. Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC differ, and our computation of ROIC may not be comparable to other similarly titled measures of other companies.

The following table provides an explanation of our calculation of ROIC for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019:


							Three Months Ended March 31,
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			2020			2019
	(in thousands)						(in thousands)
Net income (loss)	$	(20,627	)	$	2,770		$	(300,900	)	$	17,310
Add back:
Impairment of goodwill							296,196			—
Transaction and integration costs							146			4,762
Interest expense	9,843			29,940			9,828			9,326
Interest income	(111		)	(439		)	(371		)	(160		)
Transaction and integration costs	1,418			8,864
Restructuring charges	3,263			3,263			2,329			—
Loss on sale of subsidiaries	15,834			15,834
Provision (benefit) for deferred income taxes	143			(2,876		)
After-tax net operating profit	$	9,763		$	57,356
Total capital as of prior period-end/year-end:
Gain on extinguishment of debt							(10,116		)	—
Benefit for deferred income taxes							(1,588		)	(478		)
After-tax net operating profit (loss)							$	(4,476	)	$	30,760
Total capital as of prior year-end:
Total stockholders’ equity	$	624,309		$	594,823		$	389,877		$	594,823
Total debt	400,000			435,000			400,000			435,000
Less cash and cash equivalents	(16,886		)	(63,615		)	(92,989		)	(63,615		)
Total capital as of prior period-end/year-end	$	1,007,423		$	966,208
Total capital as of prior year-end							$	696,888		$	966,208
Total capital as of period-end:
Total stockholders’ equity	$	606,779		$	606,779		$	91,851		$	615,467
Total debt	400,000			400,000			386,171			415,000
Less cash and cash equivalents	(93,321		)	(93,321		)	(90,116		)	(31,157		)
Total capital as of period-end	$	913,458		$	913,458		$	387,906		$	999,310
Average total capital	$	960,441		$	939,833		$	542,397		$	982,759
ROIC	4.1%			8.1%			(3.3)%			12.5%

Adjusted Gross Profit (Excluding Depreciation and Amortization)

GAAP defines gross profit as revenues less cost of revenues and includes depreciation and amortization in costs of revenues. We define adjusted gross profit (excluding depreciation and amortization) as revenues less ~~cost~~direct and indirect costs of revenues (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses.

Management uses adjusted gross profit (excluding depreciation and amortization) to evaluate operating performance. We prepare adjusted gross profit (excluding depreciation and amortization) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance. Adjusted gross profit (excluding depreciation and amortization) should not be considered as an alternative to gross profit (loss), operating income (loss), or any other measure of financial performance calculated and presented in accordance with GAAP.

Adjusted gross profit (excluding depreciation and amortization) may not be comparable to similarly titled measures of other

companies because other companies may not calculate adjusted gross profit (excluding depreciation and amortization) or similarly titled measures in the same manner as we do.

The following table presents a reconciliation of adjusted gross profit (excluding depreciation and amortization) to GAAP gross profit (loss) for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(in thousands)								(in thousands)
Calculation of gross profit
Revenues	$	202,305	$	218,427	$	669,527	$	597,726	$	146,624	$	229,705
Cost of revenues (exclusive of depreciation and amortization shown separately below)	166,849		165,882		529,994		467,700		126,008		178,590
Depreciation (related to cost of revenues)	11,994		13,434		38,916		39,319		7,943		13,306
Amortization of intangibles	4,609		1,857		13,925		5,653		4,169		4,688
Gross profit	$	18,853	$	37,254	$	86,692	$	85,054	$	8,504	$	33,121
Adjusted gross profit (excluding depreciation and amortization) reconciliation:
Gross profit	$	18,853	$	37,254	$	86,692	$	85,054	$	8,504	$	33,121
Depreciation (related to cost of revenues)	11,994		13,434		38,916		39,319		7,943		13,306
Amortization of intangibles	4,609		1,857		13,925		5,653		4,169		4,688
Adjusted gross profit (excluding depreciation and amortization)	$	35,456	$	52,545	$	139,533	$	130,026	$	20,616	$	51,115

Liquidity and Capital Resources

Sources and Uses of Liquidity

Historically, we have met our liquidity needs principally from cash on hand, cash flows from operating activities and, if needed, external ~~borrowings, proceeds from the IPO, and capital contributions (prior to the IPO).~~borrowings. Our principal uses of cash are to fund capital expenditures and acquisitions, to service our outstanding debt, and to fund our working capital requirements. In 2018, we issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”) to, together with cash on hand and borrowings under the 2018 ABL Credit Facility (as defined and described below), fund the Magnum Acquisition as well as fully repay and terminate the term loan borrowings and the outstanding revolving credit commitments under our prior credit facility. For additional information regarding the Senior Notes, see ~~Note 8~~“Liquidity and Capital Resources – ~~Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.~~Senior Notes” below. In the third quarter of 2019, we divested the Production Solutions segment for approximately ~~$17.4~~$17.1 million in cash. ~~The closing consideration is subject to working capital and other customary post-closing adjustments.~~ We plan to use such proceeds to fund a portion of our 2020 capital expenditures and support working capital ~~requirements and capital expenditures.~~requirements.

We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outside sources of capital. In addition, our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, the level of drilling, completion and production activity for North American onshore oil and natural gas resources, and financial and business and other factors, many of which are beyond our control.

Although we do not budget for acquisitions, pursuing growth through acquisitions ismay continue to be a significant part of our business strategy. Our ability to make significant additional acquisitions for cash will require us to obtain additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

We may also, from time to time, make open market debt repurchases (including our Senior Notes) when it is opportunistic to do to manage our debt maturity profile. In the first quarter of 2020, we repurchased approximately $13.8 million of the Senior Notes for a repurchase price of approximately $3.5 million in cash. As a result, we recorded a $10.1 million gain on extinguishment of debt which was calculated as the difference between the repurchase price and the carrying amount of the Senior Notes partially offset by $0.2 million in deferred financing costs. The gain on extinguishment of debt is included as a separate line item in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended March 31, 2020.

Subsequent to March 31, 2020, we repurchased an additional $15.9 million of the Senior Notes for a repurchase price of approximately $3.9 million in cash.

At ~~September 30, 2019,~~March 31, 2020, we had ~~$93.3~~$90.1 million of cash and cash equivalents and ~~$118.0~~$93.5 million of availability under the 2018 ABL Credit Facility (as defined below), which resulted in a total liquidity position of ~~$211.3~~$183.6 million. In response to rapidly deteriorating market conditions driven in large part by the coronavirus pandemic and international pricing and production disputes, we have implemented certain cost-cutting measures across the organization to continue to maintain our current liquidity position. Based on our current forecasts, we believe that, cash on hand, together with cash flow from operations, and borrowings under the 2018 ABL Credit Facility, should be sufficient to fund our capital requirements for at least the next twelve months from the issuance date of our condensed consolidated financial statements. However, we can make no assurance regarding our ability to achieve our forecasts. Furthermore, depending on our financial performance and the ever-changing market, we may implement additional cost-cutting measures, as necessary, to continue to meet our liquidity and capital resource needs for at least the next twelve months from the issuance date of our condensed consolidated financial statements. We can make no assurance regarding our ability to successfully implement such measures, or whether such measures would be sufficient to mitigate a decline in our financial performance.

Senior Notes

On October 25, 2018, we issued the Senior Notes under an indenture, dated as of October 25, 2018 (the “Indenture”), by and among us, including certain of our subsidiaries, and Wells Fargo, National Association, as Trustee. The Senior Notes bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year, and the first interest payment was due on May 1, 2019. The Senior Notes are senior unsecured obligations and are fully and unconditionally guaranteed on a senior unsecured basis by each of our current domestic subsidiaries and by certain future subsidiaries.

The Indenture contains covenants that limit our ability and the ability of our restricted subsidiaries to engage in certain activities. We were in compliance with the provisions of the Indenture at March 31, 2020.

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to us, any of our restricted subsidiaries that are a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

Unamortized deferred financing costs associated with the Senior Notes were $7.2 million and $7.9 million at March 31, 2020 and December 31, 2019, respectively. These costs are direct deductions from the carrying amount of the Senior Notes and are being amortized through interest expense through the maturity date of the Senior Notes using the effective interest method.

2018 ABL Credit Facility

On October 25, 2018, we entered into ~~the~~a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit ~~Agreement.~~Agreement”), by and among us, Nine Energy Canada, Inc., JP Morgan Chase Bank, N.A. as administrative agent and as an issuing lender, and certain other financial institutions party thereto as lenders and issuing lenders. The 2018 ABL Credit Agreement permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of ~~credit.~~credit (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date.

Loans to us and our domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018 ABL Credit Facility may be base rate loans or ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be ~~CDOR~~Canadian Dollar Offered Rate (“CDOR”) loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans vary from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans vary from 1.75% to 2.25%, in each case depending on our leverage ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. ~~The weighted average interest rate was 2.63% during the first nine months of 2019.~~

The 2018 ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions) and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant of 1.00 to 1.00 that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below ~~a certain threshold~~$18.75 million or a default has occurred until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. We were in compliance with all covenants under the 2018 ABL Credit Agreement at ~~September 30, 2019.~~March 31, 2020.

All of the obligations under the 2018 ABL Credit Facility are secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties excluding certain assets. The 2018 ABL Credit Facility is guaranteed by the U.S. Credit Parties, and the Canadian tranche is further guaranteed by the Canadian Credit Parties and the U.S. Credit Parties.

Concurrent with the effectiveness of the 2018 ABL Credit Facility, we borrowed approximately $35.0 million to fund a portion of the upfront cash purchase price of the Magnum Acquisition. During the second quarter of 2019, we repaid our outstanding revolver borrowings in full.

At ~~September 30, 2019,~~March 31, 2020, our availability under the 2018 ABL Credit Facility was approximately ~~$118.0~~$93.5 million, net of an outstanding letter of credit of $0.2 million.

Cash Flows

Cash flows provided by (used in) operations by type of activity were as follows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Operating activities	$	86,808		$	50,756		$	745		$	5,888
Investing activities	(19,593		)	(26,011		)	535			(18,139		)
Financing activities	(37,546		)	44,559			(3,908		)	(20,279		)
Impact of foreign exchange rate on cash	37			(283		)	(245		)	72
Net change in cash and cash equivalents	$	29,706		$	69,021		$	(2,873	)	$	(32,458	)

Operating Activities

Net cash provided by operating activities was ~~$86.8~~$0.7 million ~~for~~in the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$50.8~~$5.9 million in net cash provided by operating activities ~~for~~in the first ~~nine months~~quarter of ~~2018.~~2019. The ~~$36.0~~$5.2 million ~~increase~~decrease in net cash provided by operating activities was primarily a result of a ~~$52.9~~$26.7 million ~~increase~~decrease in ~~net~~ cash flow provided ~~through our working capital.~~by continuing operations, adjusted for any non-cash items, primarily due to a decrease in revenue in the first quarter of 2020 compared to the first quarter of 2019. The overall ~~increase~~decrease in net cash provided by operating activities was partially offset by ~~a $16.9~~an increase of $21.5 million ~~increase~~ in cash collections and other changes in working capital which provided an increased source of cash flow ~~used by continuing operations, adjusted for any non-cash items, primarily due to revenue growth for~~in the first ~~nine months~~quarter of ~~2019~~2020 in comparison to the first ~~nine months~~quarter of ~~2018.~~2019.

Investing Activities

Net cash ~~used in~~provided by investing activities was ~~$19.6~~$0.5 million ~~for~~in the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$26.0~~$18.1 million in net cash used in investing activities ~~for~~in the first ~~nine months~~quarter of ~~2018.~~2019. The ~~$6.4~~$18.6 million decrease in net cash used in investing activities was primarily related to ~~$17.2~~a decrease of $19.6 million in ~~proceeds received from the sale~~cash purchases of ~~subsidiaries as well as $7.6 million in proceeds received from notes receivable payments, both of which occurred~~property and equipment in the first ~~nine months~~quarter of ~~2019 and did not occur~~2020 in comparison to the first ~~nine months~~quarter of ~~2018.~~2019. The overall decrease in net cash used in investing activities was partially offset by ~~an increase of $19.4~~$0.5 million in ~~cash purchases~~proceeds from notes receivable payments which were received in the first quarter of 2019 but did not recur in the first quarter of 2020. The overall decrease was also partially offset by a reduction in proceeds from sales of property and equipment ~~for~~(including insurance) of $0.4 million in the first ~~nine months~~quarter of 2020 compared to the first quarter of 2019.

Financing Activities

Net cash used in financing activities was ~~$37.5~~$3.9 million ~~for~~in the first ~~nine months~~quarter of ~~2019~~2020 compared to ~~$44.6~~$20.3 million in net cash flow ~~provided by~~used in financing activities ~~for~~in the first ~~nine months~~quarter of ~~2018.~~2019. The ~~$82.1~~$16.4 million decrease in net cash ~~provided by~~used in financing activities was primarily related to ~~$171.8~~$20.0 million in ~~proceeds received from~~payments on the ~~IPO and issuances of common stock and $125.0 million in proceeds received from our term loan entered into in conjunction with the IPO~~2018 ABL Credit Facility in the first ~~nine months~~quarter of ~~2018~~2019 that did not recur in the first ~~nine months~~quarter of ~~2019 as well as an increase in cash used of $2.7 million related to the vesting of restricted stock in the first nine months of 2019 compared to the first nine months of 2018.~~2020. The overall decrease in net cash ~~provided by~~used in financing activities was partially offset by ~~$155.7~~$3.5 million inof payments ~~made~~ on ~~prior term loans and $1.4 million in deferred financing costs~~the Senior Notes in the first ~~nine months~~quarter of ~~2018~~2020 that did not ~~recur~~occur in the first ~~nine months~~quarter of ~~2019 as well as a reduction in net payments of $61.2 million on our revolving credit facilities in the first nine months of 2019 compared to the first nine months of 2018.~~2019.

Contractual Obligations

Our contractual obligations at ~~September 30, 2019~~March 31, 2020 did not change materially, outside the normal course of business, from those disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Off-Balance Sheet Arrangements

At ~~September 30, 2019,~~March 31, 2020, we had a letter of credit of $0.2 million, which represented an off-balance sheet arrangement as defined in Item 303(a)(4)(ii) of Regulation S-K. As of ~~September 30, 2019,~~March 31, 2020, no liability has been recognized in our Condensed Consolidated Balance Sheets for the letter of credit.

Recent Accounting Pronouncements

See Note 3 – New Accounting Standards included in Item 1 of Part I of this Quarterly Report on Form 10-Q for a summary of recently issued accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information previously disclosed in Item 7A of Part II included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange ~~Commission.~~Commission (the “SEC”). As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September 30, 2019.~~March 31, 2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of ~~September 30, 2019,~~March 31, 2020, due to the material weakness in internal control over financial reporting described below.

Material Weakness in Internal Control over Financial Reporting. As reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, we did not design and maintain adequate controls to address the segregation of certain accounting duties related to journal entries, account reconciliations, and other accounting functions. Certain accounting personnel had the ability to prepare and post journal entries, as well as reconcile accounts, without an independent review by someone other than the preparer. Specifically, our internal controls were not designed or operating effectively to evidence that journal entries were appropriately recorded or were properly reviewed for validity, accuracy, and completeness. Immaterial misstatements were identified ~~in 2017~~ related to the inadequate segregation of accounting duties. This material weakness could result in misstatement of the aforementioned accounts and disclosures that would result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

~~Material Weakness in Internal Control over Financial Reporting~~. In addition to the remediation steps listed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, management has performed, or is in the process of performing, the following:

Continued to develop and implement additional controls and procedures and enhance existing controls and procedures to ensure the segregation of certain accounting duties related to journal entries, account reconciliations, and other accounting functions.

Hired additional resources, including an experienced Internal Audit Director to lead the Company’s internal audit department, with responsibility for direction and oversight of all internal audit functions.

Until the remediation steps listed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018 and the remediation steps set forth above are fully developed, implemented, and operating for a sufficient amount of time to validate the remediation, the material weakness described above will continue to exist.

Changes in Internal Control over Financial Reporting. ~~Except for the changes identified above related to our remediation efforts, there have been~~There were no changes in our internal control over financial reporting during the quarterly period ended March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting during the quarterly period ended September 30, 2019.~~reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we have various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, we believe any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our business, operating results, or financial condition.

On August 31, 2017, an accident occurred while a five-employee crew of Big Lake Services, LLC, a subsidiary of Nine (“Big Lake Services”), was performing workover services at an oil and gas wellsite near Midland, Texas, operated by Pioneer Natural Resources USA, Inc. (“Pioneer Natural Resources”), resulting in the death of a Big Lake Services employee, Juan De La Rosa. On December 7, 2017, a lawsuit was filed on behalf of Mr. De La Rosa’s minor children in the Midland County District Court against Pioneer Natural Resources, Big Lake Services, and Phillip Hamilton related to this accident. The petition alleged, among other things, that the defendants acted negligently, resulting in the death of Mr. De La Rosa. On March 14, 2018, a plea in intervention was filed on behalf of Mr. De La Rosa’s parents, alleging similar claims. The plaintiffs and intervenors sought money damages, including punitive damages. On December 17, 2018, a mediation was held, and the parties reached an agreement in principle to settle this matter. In May 2019, the parties entered into settlement agreements, which have been approved by the court, and the court has dismissed the case. We have tendered this matter to our insurance company for defense and indemnification of Big Lake Services and the other defendants, and this settlement has been fully funded by our insurance company.

ITEM 1A. RISK FACTORS

Except as set forth below, as of the date of this Quarterly Report on Form 10-Q, there have been no material changes with respect to ~~the~~those risk factors ~~involving us from those~~ previously ~~disclosed in~~ disclosed in “Risk Factors” in Item 1A of Part I ~~included~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2018. Additional~~2019.

The recent coronavirus pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, results of operations, and financial condition.

The coronavirus pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. These events have directly affected our business and have exacerbated the potential negative impact from many of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2019, including those relating to our customers’ capital spending and ~~uncertainties~~trends in oil and natural gas prices. For example, demand for our products and services has and continues to decline as our customers continue to revise their capital budgets downwards and swiftly adjust their operations in response to lower commodity prices. In addition, the decline in market conditions has resulted in goodwill impairment charges of $296.2 million for the first quarter of 2020. We are also experiencing inefficiencies and logistical challenges surrounding stay-at-home orders and remote work arrangements, travel restrictions, and an inability to commute to certain facilities and job sites, as we provide services and products to our customers.

In the midst of the ongoing coronavirus pandemic, OPEC+ was initially unable to reach an agreement to continue to impose limits on the production of crude oil. The convergence of these events created the unprecedented dual impact of a global oil demand decline coupled with the risk of a substantial increase in supply. Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. At the same time, aggressive increases in production of oil by Saudi Arabia and Russia created a significant surplus in the supply of oil. The posted price for WTI oil during the first quarter decreased from a high of $63 per barrel in early January 2020 to a low of $14 per barrel in late March 2020, a level which had not ~~currently known~~been experienced since March 1999, with physical markets showing signs of distress as spot prices have been negatively impacted by the lack of available storage capacity. While OPEC+ agreed in April 2020 to uscut production, downward pressure on commodity prices has continued, with prices remaining depressed through the beginning of the second quarter, and could continue for the foreseeable future. In April 2020, the posted price for WTI oil traded at negative levels for a brief period and ranged from $28 per barrel to $(37) per barrel.

Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business; however, we believe that in addition to the impacts described above, other current and potential impacts of these recent events include, but are not limited to:

disruption to our supply chain for raw materials essential to our business, including restrictions on importing and exporting products;

notices from customers, suppliers, and other third parties arguing that their non-performance under our contracts with them is permitted as a result of force majeure or other reasons;

liquidity challenges, including impacts related to delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies;

a credit rating downgrade of our corporate debt and potentially higher borrowing costs in the future;

a need to preserve liquidity, which could result in a delay or change in our capital investment plan;

cyber security issues, as digital technologies may become more vulnerable and experience a higher rate of cyber attacks in the current environment of remote connectivity;

litigation risk and possible loss contingencies related to coronavirus and its impact, including with respect to commercial contracts, employee matters, and insurance arrangements;

reduction of our workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;

additional impairments along with other accounting charges as demand for our services and products decreases;

infections and quarantining of our employees and the personnel of our customers, suppliers, and other third parties in areas in which we operate;

changes in the regulation of the production of hydrocarbons, such as the imposition of limitations on the production of oil and gas by states or other jurisdictions, that may result in additional limits on demand for our products and services;

actions undertaken by national, regional, and local governments and health officials to contain the virus or treat its effects; and

a structural shift in the global economy and its demand for oil and natural gas as a result of changes in the way people work, travel, and interact, or in connection with a global recession or depression.

Given the dynamic nature of these events, we ~~currently deem to be immaterial also may materially adversely affect~~cannot reasonably estimate the period of time that the coronavirus pandemic and related market conditions will persist, the full extent of the impact they will have on our business, financial condition, results of operations, or ~~future results.~~cash flows or the pace or extent of any subsequent recovery. We anticipate that 2020 will be a challenging year for us, as our customers continue to reduce their capital budgets. Therefore, we expect a substantial decline in activity from levels we experienced in the first quarter of 2020, coupled with downward pressure on the price of our products and services, and corresponding reductions in revenue and operating margins.

~~Our charter~~The confluence of events described above have had, and ~~bylaws designate~~are expected to continue to have, a significant impact on our business, and depending on the ~~Court of Chancery~~duration of the ~~State~~pandemic and its effect on the oil and gas industry, could have, a material adverse effect on our business, liquidity, results of ~~Delaware~~operations, and financial condition.

If we cannot meet the continued listing requirements of the NYSE, the NYSE may delist our common stock.

On April 21, 2020, we received written notification from the NYSE that the average closing price of our common stock had fallen below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average closing share price required to maintain listing on the NYSE under Section 802.01C of the NYSE Listed Company Manual. The notice has no immediate impact on the listing of our common stock, which will continue to be listed and traded on the NYSE during this period, subject to our compliance with other listing standards. Our common stock is permitted to continue to trade on the NYSE under the symbol “NINE,” but will have an added designation of “.BC” to indicate the status of the common stock as “below compliance.”

We informed the ~~sole~~NYSE that we intend to cure the deficiency and ~~exclusive forum~~to return to compliance with the NYSE continued listing requirement. We would typically have six months following receipt of the notification to regain compliance with the minimum share price requirement. However, due to unprecedented market-wide declines as a result of the spread of the coronavirus, the SECapproved the NYSE’s proposal to toll the cure period for ~~certain types~~the minimum share price requirement through June 30, 2020. Consequently, we have a period of ~~actions~~six months, beginning on July 1, 2020, to regain compliance with the minimum share price requirement. We can regain compliance at any time during the six-month cure period if our common stock has a closing share price of at least $1.00 on the last trading day of any calendar month during the six-month period and ~~proceedings~~also has an average closing share price of at least $1.00 over the 30-trading day period ending on the last trading day of that ~~may be initiated~~month.

Notwithstanding the foregoing, if we were to determine that we must cure the price condition by taking an action that would require approval of our shareholders (such as a reverse stock split), we could also regain compliance by (i) obtaining the requisite shareholder approval by no later than our next annual meeting and (ii) implementing the action promptly thereafter, such that the price of our common stock would promptly exceed $1.00 per share, provided that the price must remain above that level for at least the following 30 trading days. However, there is no assurance that our stockholders would vote for such proposal.

Further, our common stock could be delisted if (i) our average market capitalization over a consecutive 30 trading-day period is less than $15 million, or (ii) our common stock trades at an “abnormally low” price, which in either case, we would not have an opportunity to cure the deficiency, our common stock would be suspended from trading on the NYSE immediately, and the NYSE would begin the process to delist our common stock, subject to our right to appeal under NYSE rules. There is no assurance that any appeal we undertake in these or other circumstances will be successful. While we are considering various options, it may take a significant effort to cure this deficiency and regain compliance with this continued listing standard, and there can be no assurance that we will be able to cure this deficiency or if we will cease to comply with another NYSE continued listing standard.

If our common stock ultimately were to be delisted for any reason, it could ~~limit~~negatively impact us by, among other things, reducing the liquidity and market price of our ~~stockholders’~~common stock, reducing the number of investors willing to hold or acquire our common stock, and negatively impacting our ability to access equity markets and obtain ~~a favorable judicial forum for disputes with us or our directors, officers, employees, or agents.~~

Our charter and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our charter or our bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. These exclusive forum provisions are not intended to apply to actions arising under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”). The Court of Chancery of the State of Delaware has recently held that a Delaware corporation can only use its constitutive documents to bind a plaintiff to a particular forum where the claim involves rights or relationships that were established by or under Delaware’s corporate law.

Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the forum selection provisions of our charter and bylaws. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees, or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our charter or bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.financing.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE AND SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.



Exhibit ~~number~~Number		Description

~~2.1†~~		Securities Purchase Agreement, dated as of October 15, 2018, by and among Warren Lynn Frazier, Garrett Lynn Frazier 2018 DG Trust, Derrick Chase Frazier 2018 DG Trust, Frazier Family Foundation, Inc., as sellers, Warren Lynn Frazier, solely and in his capacity as seller representative, MOTI Holdco, LLC and Nine Energy Canada Inc., as buyers, Nine Energy Service, Inc. and certain other parties named therein (Incorporated by reference to Exhibit 2.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on October 15, 2018).

2.2*		First Amendment to Securities Purchase Agreement, dated June 7, 2019, by and among Warren Lynn Frazier, Garrett Lynn Frazier 2018 DG Trust, Derrick Chase Frazier 2018 DG Trust, and Frazier Family Foundation, Inc., as sellers, MOTI Holdco, LLC and Nine Energy Canada Inc., as buyers, and Nine Energy Service, Inc. (Incorporated by reference to Exhibit 2.2 of Nine Energy Service, Inc.’s Quarterly Report on Form 10-Q filed on August 12, 2019)

~~2.3†+~~		Membership Interest Purchase Agreement, dated August 30, 2019, by and between Brigade Energy Services LLC and Nine Energy Service, Inc. (Incorporated by reference to Exhibit 2.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on September 6, 2019).

3.1		Third Amended and Restated Certificate of Incorporation of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).

3.2		Fourth Amended and Restated Bylaws of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.2 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).

10.1		~~First Amendment to Amended and Restated~~ Employment Agreement bybetween Guy Sirkes and ~~among~~ Nine Energy Service, LLC, ~~Nine Energy Service, Inc. and Edward Bruce Morgan, effective~~dated as of ~~August 30, 2019~~March 31, 2020 (Incorporated by reference to Exhibit 10.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on ~~September 6, 2019)~~March 31, 2020).

10.2		Indemnification Agreement between Nine Energy Service, Inc. and Guy Sirkes, dated March 31, 2020 (Incorporated by reference to Exhibit 10.2 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on March 31, 2020).

10.3		Separation Agreement and General Release of Claims between Clinton Roeder and Nine Energy Service, LLC, dated March 31, 2020 (Incorporated by reference to Exhibit 10.3 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on March 31, 2020).

31.1*		Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certifications by Chief Executive Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2**		Certifications by Chief Financial Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101*		Interactive Data Files


*	Filed ~~herewith~~herewith.


**	Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K.


†	~~Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.~~

Pursuant to Item 601(b)(2) of Regulation S-K, certain immaterial provisions of the agreement that would likely cause competitive harm to the Company if publicly disclosed have been redacted. The Company hereby undertakes to furnish supplementally an unredacted copy of the agreement to the Securities and Exchange Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any documents so furnished.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Nine Energy Service, Inc.

Date:	~~November 12, 2019~~May 7, 2020	By:	/s/ Ann G. Fox
			Ann G. Fox
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Date:	~~November 12, 2019~~May 7, 2020	By:	/s/ ~~Clinton Roeder~~Guy Sirkes
			~~Clinton Roeder~~Guy Sirkes
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)

4232



	Fair Value
	(in thousands)
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility⁽¹⁾	$	296,622
Cash provided from operations	57,740
Total upfront cash consideration	$	354,362

Issuance of the Company’s common shares	$	177,350
Contingent consideration⁽²⁾	23,029
Total purchase consideration	$	554,741



	Purchase Price Allocation
	(in thousands)
Cash and cash equivalents	$	8,509
Accounts receivable, net	30,898
Income taxes receivable	695
Inventories, net	52,249
Prepaid expenses and other current assets	1,147
Property and equipment, net	3,729
Goodwill	234,504
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	(18,404		)
Other long-term liabilities	(15		)
Total net assets acquired	$	554,741



	Nine Months Ended September 30, 2019					Nine Months Ended September 30, 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	$	2,770	29,288,113	$	0.09	$	24,352	23,264,014	$	1.05
Assumed exercise of stock options	—		—	—		—		31,879	—
Unvested restricted stock and stock units	—		109,523	—		—		308,029	—
Diluted	$	2,770	29,397,636	$	0.09	$	24,352	23,603,922	$	1.03