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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ 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.

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 ☒

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at ~~August 3,~~November 9, 2018, was ~~25,063,421.~~30,169,216.

This Quarterly Report on Form 10-Q ~~(this “Quarterly Report”)~~ 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 included in this Quarterly Report on Form 10-Q, 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”~~“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;~~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 ~~Part I,~~“Risk Factors” in Item 1A of Part II in this Quarterly Report on Form 10-Q, “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2017, ~~(our “2017 Annual Report), Part I, Item 2~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I in this Quarterly Report on Form 10-Q, and ~~Part II, Item 7~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II in our ~~2017~~ Annual ~~Report.~~ Report on Form 10-K for the year ended December 31, 2017.

Important factors, some of which are beyond our control, that could cause actual results to differ materially from our historical results or those expressed or implied by these forward-looking statements include the following:

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

	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017

Assets
Current assets
Cash and cash equivalents	$	70,860		$	17,513		$	86,534		$	17,513
Accounts receivable, net		140,968			99,565			162,437			99,565
Income taxes receivable		109			-			84			—
Inventories		23,091			22,230
Prepaid expenses and other		7,431			7,929
Notes receivable from shareholders (Note 6)		10,526			-
Inventories, net								29,571			22,230
Prepaid expenses and other current assets								7,035			7,929
Notes receivable from shareholders (Note 8)								10,551			—
Total current assets		252,985			147,237			296,212			147,237
Property and equipment, net		248,803			259,039			257,447			259,039
Goodwill		93,756			93,756			93,756			93,756
Intangible assets, net		59,749			63,545			57,892			63,545
Other long-term assets		1,093			4,806			1,144			4,806
Notes receivable from shareholders (Note 6)		-			10,476
Notes receivable from shareholders (Note 8)								—			10,476
Total assets	$	656,386		$	578,859		$	706,451		$	578,859
Liabilities and Stockholders’ Equity
Current liabilities
Long-term debt, current portion	$	5,899		$	241,509
Current portion of long-term debt							$	—		$	241,509
Accounts payable		39,002			29,643			49,497			29,643
Accrued expenses		25,871			14,687			44,600			14,687
Current portion of capital lease obligations								372			—
Income taxes payable		-			581			—			581
Total current liabilities		70,772			286,420			94,469			286,420
Long-term liabilities
Long-term debt		107,980			—			114,048			—
Deferred taxes		5,392			5,017
Deferred income taxes								5,983			5,017
Long-term lease obligations								1,266			—
Other long-term liabilities		62			64			55			64
Total liabilities		184,206			291,501			215,821			291,501
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 25,030,863 and 15,810,540 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively)		250			158
Common stock (120,000,000 shares authorized at $.01 par value; 25,114,597 and 15,810,540 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)								251			158
Additional paid-in capital		559,645			384,965			564,229			384,965
Accumulated other comprehensive income (loss)		(4,328	)		(3,684	)
Retained earnings (accumulated deficit)		(83,387	)		(94,081	)
Accumulated other comprehensive loss								(4,121	)		(3,684	)
Accumulated deficit								(69,729	)		(94,081	)
Total stockholders’ equity		472,180			287,358			490,630			287,358
Total liabilities and stockholders’ equity	$	656,386		$	578,859		$	706,451		$	578,859

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Revenues	$	205,492		$	135,860		$	379,299		$	241,213		$	218,427		$	148,167		$	597,726		$	389,380
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)		163,591			111,604			301,818			202,992			165,882			119,909			467,700			322,901
General and administrative expenses		16,070			11,989			31,498			24,758			21,784			12,870			53,282			37,628
Depreciation		13,212			13,615			26,321			27,176			13,661			13,150			39,982			40,326
Amortization of intangibles		1,896			2,200			3,796			4,401			1,857			2,200			5,653			6,601
Loss on equity method investment		118			172			193			172			77			83			270			255
(Gain) loss on sale of property and equipment		(881	)		4,421			(511	)		4,645			(1,190	)		148			(1,701	)		4,793
Income (loss) from operations		11,486			(8,141	)		16,184			(22,931	)		16,356			(193	)		32,540			(23,124	)
Other expense
Interest expense		1,815			3,929			4,745			7,687			1,568			4,093			6,313			11,780
Total other expense		1,815			3,929			4,745			7,687			1,568			4,093			6,313			11,780
Income (loss) before income taxes		9,671			(12,070	)		11,439			(30,618	)		14,788			(4,286	)		26,227			(34,904	)
Income tax expense		652			35			745			2,201
Provision for income taxes														1,130			766			1,875			2,967
Net income (loss)		9,019			(12,105	)		10,694			(32,819	)	$	13,658		$	(5,052	)	$	24,352		$	(37,871	)
Net income (loss) per share
Basic	$	0.38		$	(0.83	)	$	0.47		$	(2.31	)	$	0.57		$	(0.34	)	$	1.05		$	(2.61	)
Diluted	$	0.37		$	(0.83	)	$	0.46		$	(2.31	)	$	0.56		$	(0.34	)	$	1.03		$	(2.61	)
Weighted average shares outstanding
Basic		23,895,858			14,652,153			22,904,743			14,225,874			23,971,032			14,992,431			23,264,014			14,492,757
Diluted		24,351,000			14,652,153			23,198,077			14,225,874			24,389,295			14,992,431			23,603,922			14,492,757
Other comprehensive income, net of tax
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$	(250	)	$	(80	)	$	(644	)	$	(87	)	$	207		$	(105	)	$	(437	)	$	(192	)
Total other comprehensive loss, net of tax		(250	)		(80	)		(644	)		(87	)
Total other comprehensive income (loss), net of tax														207			(105	)		(437	)		(192	)
Total comprehensive income (loss)	$	8,769		$	(12,185	)	$	10,050		$	(32,906	)	$	13,865		$	(5,157	)	$	23,915		$	(38,063	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Common stock				Additional paid-in		Accumulated other comprehensive			Retained earnings (accumulated			Total stockholders’
	Shares		Amounts		capital		income (loss)			deficit)			equity			Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Retained Earnings (Accumulated			Total Stockholders’
	(in thousands of dollars, except shares)															Shares			Amounts		Capital			Income (Loss)			Deficit)			Equity
Stockholders’ equity as of December 31, 2017		15,810,540	$	158	$	384,965	$	(3,684	)	$	(94,081	)	$	287,358			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			8,050,000			81		168,180			—			—			168,261
Issuance of common stock under stock-based 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		1,170,323		11		289		—			—			300			13,043			—		300			—			—			300
Stock-based compensation expense		—		—		6,211		—			—			6,211
Other comprehensive income		—		—		—		(644	)		—			(644	)
Other comprehensive loss																	—			—		—			(437	)		—			(437	)
Net income		—		—		—		—			10,694			10,694			—			—		—			—			24,352			24,352
Stockholders’ equity as of June 30, 2018		25,030,863	$	250	$	559,645	$	(4,328	)	$	(83,387	)	$	472,180
Stockholders’ equity as of September 30, 2018																	25,114,597		$	251	$	564,229		$	(4,121	)	$	(69,729	)	$	490,630

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cash flows from operating activities
Net income (loss)	$	10,694		$	(32,819	)	$	24,352		$	(37,871	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation		26,321			27,176			39,982			40,326
Amortization of intangibles		3,796			4,401			5,653			6,601
Amortization of deferred financing costs		1,022			822			1,191			1,212
Recovery of doubtful accounts		(300	)		(10	)		(319	)		(7	)
Deferred tax expense		375			2,201
Provision for deferred income taxes								965			2,624
Provision for inventory obsolescence		228			1,023			278			1,023
Stock-based and deferred compensation expense		6,211			4,195
Stock-based compensation expense								9,719			6,380
(Gain) loss on sale of property and equipment		(511	)		4,645			(1,701	)		4,793
Loss on revaluation of contingent consideration (Note 7)		1,670			144
Loss on revaluation of contingent liabilities (Note 9)								1,715			421
Loss on equity method investment		193			172			270			255
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable		(41,368	)		(35,139	)
Inventories		(1,216	)		(4,440	)
Accounts receivable, net								(62,702	)		(46,940	)
Inventories, net								(7,705	)		(6,560	)
Prepaid expenses and other current assets		186			(707	)		1,760			(289	)
Accounts payable and accrued expenses		18,584			7,992			38,117			19,051
Income taxes receivable/payable		(691	)		(331	)		(666	)		14,577
Other assets and liabilities		6			(307	)		(153	)		(1,821	)
Net cash provided by (used in) operating activities		25,200			(20,982	)
Net cash provided by operating activities								50,756			3,775
Cash flows from investing activities
Proceeds from sales of assets		1,294			493
Proceeds from sales of property and equipment								1,791			1,078
Proceeds from property and equipment casualty losses		1,743			65			1,743			97
Purchases of property and equipment		(18,065	)		(18,644	)		(29,545	)		(29,991	)
Equity method investment		—			(1,000	)		—			(1,000	)
Net cash used in investing activities		(15,028	)		(19,086	)		(26,011	)		(29,816	)
Cash flows from financing activities
Borrowings on revolving credit facilities		—			51,500
Proceeds from revolving credit facilities								—			53,500
Payments on revolving credit facilities		(96,182	)		(35,000	)		(96,182	)		(37,500	)
Proceeds from term loan		125,000			—			125,000			—
Payments on term loans		(155,701	)		(6,625	)		(155,701	)		(21,725	)
Payments on notes payable—insurance premium financing		—			(272	)		—			(272	)
Proceeds from issuance of common stock in IPO, net of offering costs		171,450			—			171,450			—
Proceeds from other issuances of common stock		300			41,299			300			61,374
Proceeds from exercise of stock options								1,867			—
Vesting of restricted stock								(790	)		—
Distribution to shareholders		—			(2,438	)		—			(2,438	)
Deferred financing costs		(1,385	)		(280	)
Cost of debt issuance								(1,385	)		(716	)
Net cash provided by financing activities		43,482			48,184			44,559			52,223
Impact of foreign currency exchange on cash								(283	)		(85	)
Net increase in cash and cash equivalents		53,654			8,116			69,021			26,097
Impact of foreign currency exchange on cash		(307	)		(63	)
Cash and cash equivalents
Beginning of year		17,513			4,074			17,513			4,074
End of period	$	70,860		$	12,127		$	86,534		$	30,171
Supplemental disclosures of cash flow information:
Cash paid for interest							$	4,363		$	10,492
Cash paid (refunded) for income taxes							$	1,582		$	(14,311	)
Capital expenditures included in accounts payable and accrued expenses							$	11,946		$	8,566

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 and provides a range of production enhancement and well workover services. The Company is headquartered in Houston, Texas.

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement, dated October 15, 2018 (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” 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 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) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. Due to the timing of the closing of the acquisition, the Company has not completed the detailed valuation work necessary to determine the required estimates of the fair value of the acquired assets and liabilities assumed and the related allocation of purchase price. The Company’s preliminary allocation of purchase price to the assets acquired will be included in the Company’s future filings.

In January 2018, the Company completed its initial public offering (“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 pursuant to a registration statement on Form S-1 (File 333-217601), as amended and declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on January 18, 2018. For additional information, see Note 10 – Stockholders’ Equity.

On February 28, 2017, pursuant to the terms and conditions of a combination agreement dated February 3, 2017, ~~(“Combination”)~~ the Company merged with Beckman Production Services, Inc. (“Beckman”), and all of the issued and outstanding shares of Beckman common stock were converted into shares of common stock of Nine Energy Service, Inc. (the “Combination”). Prior to the Combination, SCF-VII, L.P. had controlled a majority of the voting interests of Nine and Beckman since February 28, 2011 and July 31, 2012, respectively. The merger of the entities into the combined ~~Company~~company was accounted for using reorganization accounting (i.e., “as if” pooling of interest) for entities under common control. For additional information, see Note 4 – Acquisitions and Combinations.

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, 2017 and the Condensed Consolidated ~~Statements~~Statement of Stockholders' Equity as of December 31, 2017, 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 ~~U.S. Securities and Exchange Commission (“SEC”)~~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 (“~~U.S.~~ 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 ~~fiscal~~ year ended December 31, 2017, which are included in the Company’s Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, 2017 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.

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

The preparation of financial statements in conformity with ~~U.S.~~ 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 ~~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 ~~but are not limited to,~~ fair value assumptions used in purchase accounting and in analyzing goodwill, other intangibles and long-lived assets for possible impairment, useful lives used in depreciation and amortization expense, ~~stock based~~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~~year.

The Company recognizes revenue for equipment, products and services based upon purchase orders, contracts or other persuasive evidence of an arrangement with the customer that include fixed or determinable prices and that do not include right of return or other similar provisions or other post-delivery obligations. Revenue is recognized for products upon delivery, customer acceptance and when collectability is reasonably assured. Revenue is recognized for services when they are rendered and collectability is reasonably assured.

The Company extends credit to customers in the normal course of business. Accounts receivable are carried at their estimated collectible amount. Trade credit is generally extended on a short-term basis; thus receivables do not bear interest, although a finance charge may be applied to amounts past due. The Company maintains an allowance for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Such allowances are based upon several factors including, but not limited to, credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer. Accounts receivable outstanding longer than contractual terms are considered past due. The Company writes off accounts receivable to the allowance for doubtful accounts when they become uncollectible. Any payments subsequently received on receivables previously written off are credited to bad debt expense.

Bad debt expense reflected net recoveries of $30,000 and $39,000 for the three months ended June 30, 2018 and 2017, respectively. Bad debt expense reflected net recoveries of $0.3 million and $10,000 for the six months ended June 30, 2018 and 2017, respectively. The allowance for doubtful accounts was $0.2 million and $0.6 million at June 30, 2018 and December 31, 2017, respectively.

Revenues for the three and six months ended June 30, 2018 included sales to one customer that individually represented 10% or more of total revenue. No customer accounted for 10% or more of total revenue for the three and six months ended June 30, 2017.

Inventories, classified as finished goods, 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 reserves for obsolescence were $2.2 million and $2.9 million at June 30, 2018 and December 31, 2017, ~~respectively.~~

In January 2018, there was an 8.0256 for 1 stock split immediately preceding the Company’s initial public offering (the “IPO”). All shares and per share data reflect the effect of the stock split.

~~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.~~

The aggregate gross proceeds of our IPO were $185.2 million. After subtracting underwriting discounts and commissions of $12.5 million and offering expenses of approximately $4.4 million (paid in 2017 and 2018), we received net proceeds of approximately $168.3 million. We used a portion of these net proceeds, together with $125.0 million of term loan borrowings under our credit facility, to fully repay the outstanding indebtedness under our former credit facilities. Further, our credit agreement required that we use a portion of the proceeds from the over-allotment option to make a prepayment of the term loan borrowings of $9.7 million. The remainder of the net proceeds are being used for general corporate purposes. No payments, fees or expenses have been paid, directly or indirectly, to any of our officers, directors or their associates, holders of 10% or more of any class of our equity securities or other affiliates.

The Company maintains the Nine Energy Service, Inc. 2011 Stock Incentive Plan, pursuant to which the Company provides stock-based compensation to certain of its employees. The Company measures employee stock-based compensation awards at fair value on the date they are granted to employees and recognizes compensation cost in its financial statements over the requisite service period. Compensation expense is recorded for restricted stock over the applicable vesting period based on the fair value of the stock on the date of grant. Options are issued with an exercise price equal to the fair value of the stock on the date of grant. Compensation expense is recorded for the fair value of the stock options, and is recognized over the period of the underlying security’s vesting schedule. Consideration paid on the exercise of stock options is credited to share capital and additional paid-in capital.

Fair value of the stock options is measured by use of the Black-Scholes pricing model. Restricted stock is valued at the closing market price the day prior to the grant date. The following discusses the assumptions used related to the Black-Scholes pricing model.

The expected term of stock options represents the period the stock options are expected to remain outstanding and is based on the simplified method, which is the weighted average vesting term plus the original contractual term, divided by two.

Expected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period. Prior to the IPO, the Company’s stock was not publicly traded and the Company determined volatility based on an analysis of the PHLX Oil Service Index that tracks publicly traded oilfield service stocks. When there is sufficient trading history, the Company will use the historical volatility.

~~At the time of the issuance of the options, the Company did not expect to pay cash dividends in the foreseeable future. Therefore, a zero expected dividend yield was used in the valuation model.~~

~~The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.~~

~~As a result of the adoption of ASU No. 2016-09, the Company elected to account for stock-based compensation forfeitures as they occur.~~

Prior to the IPO, the value of the Company’s stock at the time of each option grant used to establish the strike price was estimated by management in accordance with an internal valuation model, and approved by the Company’s Board of Directors. The valuation model was based upon an average of cash flow and book value multiples of comparable companies. The comparable companies selected reflected the market’s view on key sector, geographic, and product type exposure that were similar to those that impacted the Company’s business. The value was further subject to judgmental factors such as prevailing market conditions, changes in the stock prices of other oilfield service companies and the overall outlook for the Company and its products in general.

~~Subsequent to the IPO, the stock value is the publicly traded share price at the time of grant.~~

Deferred financing costs are amortized over the life of the related debt using the effective interest method. The Company expensed approximately $0.2 million and $0.4 million of deferred financing costs during the three months ended June 30, 2018 and 2017, respectively. The Company expensed approximately $1.0 million and $0.8 million of deferred financing costs during the six months ended June 30, 2018 and 2017, respectively, which amounts are included in interest expense in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss). The expense included the write-offs of approximately $0.7 million and $0.1 million of deferred financing costs for the six months ended June 30, 2018 and 2017, respectively. The amount written off in the six months ended June 30, 2018 represents the deferred financing costs related to the debt that was outstanding at December 31, 2017 and paid fully in January 2018; the amount written off in the six months ended June 30, 2017 represents the portion of the deferred financing costs related to the reduction in the amount available in the revolving credit facilities. There were no write-offs of deferred financing costs in the three months ended June 30, 2018 and 2017.

~~Deferred financing costs of $1.4 million and $0.7 million at June 30, 2018 and December 31, 2017, respectively, are reported as a reduction of long-term debt (Note 5).~~

In May 2014, the Financial Accounting Standards Board ~~(‘‘~~(the ‘‘FASB’’) issued Accounting Standards Update ~~(‘‘ASU’’~~(“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the current revenue recognition guidance. The ~~ASU~~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 exchange for those goods or services. The ~~ASU~~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. As part of its ongoing evaluation of the impact of the standard, the Company is analyzing its portfolio contracts and reviewing its current accounting policies and practices to identify potential differences that would result from applying the new standard to its existing contracts. Although the

~~new guidance~~ standard was generally effective for fiscal years beginning after December ~~31,~~15, 2017, the Company plans to adopt for the fiscal ~~years~~year beginning after December ~~31,~~15, 2018, as an emerging growth company, using the modified retrospective approach. ~~The Company is currently reviewing revenue contracts in preparation for adoption of the guidance as of January 1, 2019.~~

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. ~~Upon adoption~~The standard, which requires the use of ~~the new guidance, lessees are required to recognize and measure leases at the beginning of the earliest period presented using~~ a modified retrospective ~~approach.~~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 will provide additional information about the expected financial impact as it progresses through the evaluation and implementation of the standard. Although the ~~new guidance~~standard will be generally effective for fiscal years beginning after December 15, 2018, the Company plans to adopt for the fiscal ~~years~~year beginning after December ~~31,~~15, 2019, as an emerging growth company.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)-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 application 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 plans to adopt the new standard for the fiscal year beginning after December 15, 2018. The Company is currently evaluating the ~~impacts~~impact of ~~adoption of this guidance.~~the new standard 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, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires 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. The Company is currently evaluating the impact of the new standard on its Condensed Consolidated Financial Statements. Although the ~~new guidance~~standard is generally effective for fiscal years beginning after December 15, 2017, the Company plans to adopt for the fiscal ~~years~~year beginning after December ~~31,~~15, 2018, as an emerging growth company. Early adoption is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized before the issuance date or effective date of the amendments. Entities will be required to apply the guidance prospectively when adopted. ~~The Company is evaluating the impact this new pronouncement will have on the consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-04, ~~Intangibles—Goodwill~~Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of an operating unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the operating unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that operating unit. An entity still has the option to perform the qualitative assessment for an operating unit to determine if the quantitative impairment test is necessary. The new ~~guidance~~standard should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payment~~. 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 application 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 plans to adopt the new standard for the fiscal ~~years~~year beginning after December ~~31, 2018.~~15, 2021. The Company is currently evaluating the ~~financial statement implications~~impact of ~~adopting ASU 2016-15.~~the new standard on its Condensed Consolidated Financial Statements.

On February 28, 2017, pursuant to the terms and conditions of a combination agreement dated February 3, 2017, the Company merged with Beckman and substantially all of the issued and outstanding shares of Beckman common stock were converted into shares of common stock of Nine Energy Service, Inc. at a ratio of 0.567154 Nine shares per Beckman share, other than 1.6% of Beckman shares paid in cash. Prior to the Combination, SCF-VII, L.P. had controlled a majority of the voting interests of Nine and Beckman since February 28, 2011 and July 31, 2012, respectively. The merger of the entities into the ~~Company~~combined company was accounted for using reorganization accounting (i.e., “as if” pooling of interest) for entities under common ~~control (Note 1).~~control.

In conjunction with the Combination, in addition to the conversion of Beckman shares into Nine shares, other events occurred, including:

8Payment of cash for Beckman shares that converted into fractional Nine shares at a price of $31.18 per Nine share;

•	~~Payment of cash for a certain number of Beckman shares that converted into fractional Nine shares at a price of $31.18 per Nine share;~~

The conversion of ~~Beckman~~ options to purchase Beckman common stock into options to purchase Nine ~~shares;~~common stock;

The conversion of Beckman restricted shares into Nine restricted shares;

The conversion of ~~Beckman~~ warrants to purchase Beckman common stock ininto warrants to purchase Nine ~~shares;~~common stock;

The issuance of options to purchase Nine common stock;

The issuance, on a pro-rata basis, to the Company’s shareholders, of Nine common stock based on a subscription amount equal to the number of common shares issued at a price of $31.18. The subscription was offered to all shareholders of record at the time of the Combination. Any unsubscribed shares were reallocated among the other shareholders; and

The issuance to the Company’s shareholders of Nine warrants equal to one half of the amount of shares issued related to the subscription described above.

5. Inventories

Inventories, classified as finished goods, 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 $1.7 million and $2.9 million at September 30, 2018 and December 31, 2017, respectively.

Inventories, net as of September 30, 2018 and December 31, 2017 were comprised of the following:

	September 30, 2018			December 31, 2017
	(in thousands)
Raw materials	$	2,796		$	939
Finished goods		28,518			24,197
Inventories		31,314			25,136
Reserve for obsolescence		(1,743	)		(2,906	)
Inventories, net	$	29,571		$	22,230

4.6. Goodwill and ~~intangible assets~~Intangible Assets

The changes in the net carrying amount of the components of goodwill for the year ended December 31, 2017 and the ~~six~~nine months ended ~~June~~September 30, 2018 ~~are~~were as follows:

		Goodwill									Goodwill
		Gross value		Accumulated impairment loss			Net				Gross Value		Accumulated Impairment Loss			Net
	(in thousands of dollars)									(in thousands)
Balance as of December 31, 2016		$	173,033	$	(47,747	)	$	125,286			$	173,033	$	(47,747	)	$	125,286
Impairment			—		(31,530	)		(31,530	)			—		(31,530	)		(31,530	)
Balance as of December 31, 2017		$	173,033	$	(79,277	)	$	93,756			$	173,033	$	(79,277	)	$	93,756
Impairment			—		—			—				—		—			—
Balance as of June 30, 2018		$	173,033	$	(79,277	)	$	93,756
Balance as of September 30, 2018											$	173,033	$	(79,277	)	$	93,756

At December 31, 2017, the Company performed its annual impairment test on each of its operating units and concluded that there was impairment at one operating unit in ~~our~~ its Completion Solutions segment because its carrying value exceeded its estimated fair value, which resulted from declining profitability and deteriorating market conditions. ~~The~~As such, the Company recognized a goodwill impairment loss of $31.5 ~~million.~~ million in the fourth quarter of 2017.

The December 31, 2017 impairment test for the Production ~~Solutions~~Solutions segment indicated that the estimated fair value calculation provided only 11% of cushion in relation to carrying value. As a result, this segment’s goodwill, which totals $13.0 million, is susceptible to impairment risk from adverse economic conditions in the future.

During the ~~six~~nine months ended ~~June~~September 30, 2018, there were no indications that impairment of goodwill had occurred. Goodwill by segment was unchanged from December 31, 2017.

The changes in the net carrying value of the components of intangible assets for the year ended December 31, 2017 and the ~~six~~nine months ended ~~June~~September 30, 2018 ~~are~~were as follows:

		Intangible assets										Intangible assets
		Gross value			Accumulated amortization			Net				Gross Value			Accumulated Amortization			Net
	(in thousands of dollars)										(in thousands)
Balance as of December 31, 2016		$	105,464		$	(29,320	)	$	76,144			$	105,464		$	(29,320	)	$	76,144
Amortization expense			—			(8,799	)		(8,799	)			—			(8,799	)		(8,799	)
Impairment			(12,000	)		8,200			(3,800	)			(12,000	)		8,200			(3,800	)
Balance as of December 31, 2017		$	93,464		$	(29,919	)	$	63,545			$	93,464		$	(29,919	)	$	63,545
Amortization expense			—			(3,796	)		(3,796	)			—			(5,653	)		(5,653	)
Impairment			—			—			—				—			—			—
Balance as of June 30, 2018		$	93,464		$	(33,715	)	$	59,749
Balance as of September 30, 2018												$	93,464		$	(35,572	)	$	57,892

Amortization expense of $1.9 million and ~~$3.8~~$5.7 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018, and $2.2 million and ~~$4.4~~$6.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, are related to cost of revenues, but reported separately as “Amortization of intangibles” in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

During the nine months ended September 30, 2018, there were no indications that impairment of intangible assets had occurred.

~~Long-term debt consists~~ obligations as of ~~the following:~~September 30, 2018 and December 31, 2017 were as follows:

On September 14, 2017, the Company ~~completed its IPO in January 2018. On September 15, 2017, in anticipation of the IPO, the Company completed negotiations of terms for~~entered into a new credit agreement (as amended on November 20, 2017, the “2018 IPO Credit ~~Facility (the “New Facility”~~Agreement”) with JPMorgan Chase Bank, N.A. (“JP Morgan”) as administrative agent and certain other financial institutions that became effective upon the consummation of the ~~IPO. All balances owed~~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 ~~Legacy Nine and Legacy Beckman entities’~~2018 IPO Credit ~~Facilities (“~~Agreement.

In addition, under the ~~Legacy Facilities”) were paid in full immediately following funding of the~~2018 IPO ~~and such Legacy Facilities are no longer in effect. The New Facility aggregates the Company’s collateral and security and recognizes~~Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow up to $50.0 million (including letters of credit) as ~~a single combined entity. The New Facility consists of a Term Loan Facility of $125 million, amortizable at a quarterly rate of 2.5%, and a $50 million~~revolving credit loans under the revolving commitments (the “2018 IPO Revolving Credit ~~Facility. The New Facility matures in July 2020.~~Facility”). At ~~June~~September 30, 2018, the ~~revolving credit facility~~2018 IPO Revolving Credit Facility had an undrawn ~~borrowing~~ capacity of ~~$49.3~~$49.5 million, which iswas net of a ~~$0.7~~$0.5 million outstanding letter of credit.

Concurrent with the effectiveness of the 2018 IPO Credit Agreement, using proceeds received from the IPO and borrowings under the 2018 IPO Term Loan Credit Facility, the Company repaid all indebtedness under its prior term loan and the Beckman term loan (together, the “Legacy Term Loans”) and under its prior revolving credit facility and the Beckman revolving credit facility (together, the “Legacy Revolving Credit Facilities”) in the first quarter of 2018, which approximated $242.2 million. In addition, in the first quarter of 2018, the Company wrote off approximately $0.7 million in deferred financing costs associated with the Legacy Term Loans and the Legacy Revolving Credit Facilities.

All of the obligations under the ~~New Facility are~~2018 IPO Credit Agreement were secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of ~~Nine~~the Company and its domestic restricted subsidiaries, excluding certain assets. ~~Nine Canada is not a borrower or guarantor under the Credit Agreement.~~

Loans to ~~Nine~~the Company and its domestic restricted subsidiaries under the ~~New Facility may be~~2018 IPO Credit Agreement were either base rate loans or LIBOR loans. The applicable margin for base rate ~~and prime rate~~ loans ~~will vary~~varied from 1.50% to 2.75%, and the applicable margin for LIBOR loans ~~will vary~~varied from 2.50% to 3.75%, in each case depending on ~~Nine’s~~the Company’s leverage ratio. Interest rates averaged ~~5.6%~~5.5% during the ~~six~~nine months ended ~~June~~September 30, 2018. ~~Nine is~~The Company was permitted to repay any amounts borrowed prior to the maturity date without any premium or penalty other than customary LIBOR breakage costs. In addition, a commitment fee of 0.50% per annum ~~will be~~was charged on the average daily unused portion of the revolving commitments. Such commitment fee iswas payable quarterly in arrears.

The ~~New Facility’s credit agreement contains~~2018 IPO Credit Agreement contained 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. ~~The credit agreement does not contain any financial~~Financial covenants ~~other than~~under the 2018 IPO Credit Agreement included a maximum total leverage ratio, an asset coverage ratio and a fixed charge coverage ratio, each of which ~~will be tested~~was calculated on a quarterly basis.

The Company was in compliance with all debt covenants under the ~~New Facility~~2018 IPO Credit Agreement as of ~~June~~September 30, 2018.

The fair value ~~(level 2)~~ of the Company’s debt ~~approximates book~~obligations under the 2018 IPO Credit Agreement was classified within Level 2 of the fair value hierarchy. Fair value approximated carrying value, as ~~its~~the interest rates are variable and based on market rates.

6.On October 25, 2018, the Company fully repaid and terminated the 2018 IPO Credit Agreement as more fully described below.

Unamortized deferred financing costs associated with the Company’s 2018 IPO Term Loan Credit Facility were $1.2 million at September 30, 2018. These costs were being amortized through the maturity date of the 2018 IPO Term Loan Credit Facility using the effective interest method. The Company wrote off these deferred financing costs on October 25, 2018 in conjunction with the termination of the 2018 IPO Credit Agreement.

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 will bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year with the first interest payment being due on May 1, 2019. 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 2018 IPO Credit Agreement and (iii) pay fees and expenses associated with the issuance of the Senior Notes, the Magnum Acquisition and the 2018 ABL Credit Facility. For additional information regarding the Magnum Acquisition, see Note 1 – Company and Organization.

On October 25, 2018, the Company entered into a five-year asset based senior secured revolving credit facility with JP Morgan serving as administrative agent for the lenders thereunder (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility 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 borrowing base is initially $146.5 million. 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 price of the Magnum Acquisition. 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.

During 2014, in conjunction with an exercise of warrants to provide a capital infusion, the Company issued promissory notes totaling $2.5 million to both a former executive officer of the Company and a current manager of the Company. The principal is due on June 30, 2019 (the “Maturity Date”). Interest of 4% per annum is due and payable on the Maturity Date. At each of ~~June~~September 30, 2018

and December 31, 2017, the outstanding balance of the notes, including principal and unpaid interest, totaled $3.0 million and $2.9 ~~million.~~million, respectively. Unpaid interest at each of ~~June~~September 30, 2018 and December 31, 2017 totaled $0.4 million.

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 ~~Mr.~~David Crombie, who is an executive officer of the Company. The principal is due on June 30, 2019. The interest rate is 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 is due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At each of ~~June~~September 30, 2018 and December 31, 2017, the outstanding principal balance of the remaining promissory notes held by other former owners of Crest totaled $7.6 million. Unpaid interest, included in “Prepaid expenses and ~~other”~~other current assets” in the Condensed Consolidated Balance Sheets, totaled $0.1 million and $8,000 at ~~June~~September 30, 2018 and December 31, 2017, respectively.

The Company leases office space, yard facilities, and equipment and purchases building maintenance services from entities owned by Mr. Crombie. Total lease expense and building maintenance expense was ~~$0.4~~$0.6 million for each of the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. There were no payables to these entities ~~of $13,000~~ at ~~each of June~~September 30, 2018 and $13,000 of payables to these entities at December 31, 2017.

The Company provides services to Citation Oil & Gas Corp., an entity owned by Curtis F. Harrell, a director of the Company. The Company billed $0.5 million and ~~$0.3~~$0.4 million for services provided to this entity during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. There was an outstanding receivable due from such entity of $0.1 million and $0.2 million as of ~~June~~September 30, 2018 and December 31, 2017, respectively.

The Company provides services in the ordinary course of business to EOG Resources, Inc. Gary L. Thomas, a director of the Company, acts as the President of EOG Resources, Inc. The Company generated revenue from EOG Resources, Inc. of ~~$19.7~~$31.8 million and ~~$16.8~~$26.1 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

From time to time, ~~we have~~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 and the effect such outcomes may have, ~~we believe~~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 ~~our~~its business, operating results, or financial condition.

Christina Sparks, et al v. Pioneer Natural Resources, et al., Filed in the District Court, 142nd Judicial District, Midland County, Texas. 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 alleges, 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 are seeking money damages, including punitive damages. Discovery proceedings are underway in this matter, and trial is scheduled for mid-2019.

~~We maintain~~The Company maintains insurance coverage against liability for, among other things, personal injury (including death), which coverage is subject to certain exclusions and deductibles. WeThe Company tendered this matter to ~~our~~its insurance company for defense and indemnification of Big Lake Services and the other defendants. While ~~we maintain~~the Company maintains such insurance policies with insurers in amounts and with coverage and deductibles that ~~we,~~it, with the advice of ~~our~~its insurance advisors and brokers, ~~believe~~believes are reasonable and prudent, wethe Company cannot ~~assure you~~ensure that this insurance will be adequate to protect usit from all material expenses related to current or potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices.

The Company uses a combination of ~~third party~~third-party insurance and self-insurance for health insurance clams. 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 $1.5 million and $1.3 million at ~~each of June~~September 30, 2018 and December 31, 2017, respectively, and is included under the caption “Accrued ~~liabilities”~~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.

In connection with the acquisition of ~~Scorpion~~Pat Greenlee Builders, LLC (“Scorpion”) in 2015, the Company recorded a liability for contingent consideration to be paid in shares of Company common stock and in cash, contingent upon quantities of Scorpion Composite Plugs^TM sold during 2016 and gross margin related to the product sales for three years following the acquisition.

The contingent consideration related to the Scorpion acquisition is reported at fair value, based on discounted cash flows. 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.

The revaluation gains and losses are included in “General and administrative expenses” in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss). The following is a reconciliation of the beginning and ending amounts of

contingent consideration obligation (level 3) related to the Scorpion acquisition for the ~~six~~nine months ended ~~June~~September 30, 2018 and the year ended December 31, 2017:

	June 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
	(in thousands of dollars)					(in thousands)
Balance at beginning of year	$	1,730	$	3,187		$	1,730	$	3,187
Common stock issuance		—		(547	)		—		(547	)
Payment		—		(1,325	)		—		(1,325	)
Revaluation		1,670		415
Revaluation adjustment							1,715		415
Balance at end of the period	$	3,400	$	1,730		$	3,445	$	1,730

Contingent liabilities related to the Scorpion acquisition include $3.4 million and $1.7 million and are reported in “Accrued expenses” in the Condensed Consolidated Balance Sheets at ~~June~~September 30, 2018 and December 31, 2017, respectively. The contingent liabilities related to Scorpion are expected to be paid by December 31, 2018.

In January 2018, the Company completed its 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 pursuant to ~~our~~a registration statement on Form S‑1 (File 333‑217601), as amended and declared effective by the SEC on January 18, ~~2018 (the “Registration Statement”).~~ 2018.

~~The aggregate gross proceeds of the Company’s IPO were $185.2 million.~~ After subtracting approximately $16.9 million of underwriting discounts, ~~and~~ commissions, ~~of $12.5 million~~ and offering expenses, ~~of approximately $4.4 million (paid in 2017 and 2018),~~ the Company received net proceeds of approximately $168.3 ~~million.~~million from its IPO. The Company used ~~a portion of~~ these ~~net~~ proceeds, together with ~~$125.0 million of term loan~~ borrowings under the ~~New~~2018 IPO Term Loan Credit Facility, to ~~fully~~ repay ~~the outstanding~~all indebtedness under its ~~former credit facilities. Further, the Company’s credit agreement required that it use a portion~~Legacy Term Loans and Legacy Revolving Credit Facilities, to prepay $9.7 million of the ~~proceeds from~~borrowings under the ~~over-allotment option to make a prepayment of the term loan borrowings of $9.7 million. The remainder of the net proceeds are being used~~2018 IPO Term Loan Credit Facility, as well as for general corporate purposes. For additional information, see Note 7 – Debt Obligations. No payments, fees or expenses have been paid, directly or indirectly, to any of the Company’s officers, directors or ~~its~~ associates, holders of 10% or more of any class of its equity securities or other affiliates.

~~Other issuances of common stock during the six months ended June 30, 2018 include 1.1 million shares related to unvested restricted stock.~~

The Company’s effective ~~income~~ tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in ~~pretax~~pre-tax income and nondeductible items, and changes in valuation allowances.

The Company’s effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2018 was ~~6.7%~~7.6% and ~~6.5%~~7.1%, respectively, compared ~~with (0.3%~~to (17.9%) and ~~(7.2%~~(8.5%), for the three and ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2017, respectively. The change in effective ~~income~~ tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2018 was primarily attributable to changes in pre-tax book income and valuation allowance positions as well as tax ~~liability~~liabilities in states where income is expected to exceed available net operating losses.

The Company recognized the income tax effects of the Tax ~~Reform~~Cuts and Jobs Act (the “Tax Reform”) in its audited financial statements included in the Company’s ~~2017~~ Annual Report on Form 10-K for the year ended December 31, 2017 in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period during which the Tax Reform was signed into law. The guidance also provides for a measurement period of up to one year from the enactment date of the Tax Reform for the Company to complete its accounting for the U.S. tax law changes. As such, the Company’s 2017 financial results reflected the provisional estimate of the income tax effects of the Tax Reform. No subsequent adjustments have been made to the amounts recorded as of December 31, 2017, which continue to represent a provisional estimate of the impact of the Tax Reform. The estimate of the impact of the Tax Reform was based on certain assumptions and the Company’s current interpretation of the Tax Reform. ~~This~~Any adjustments to the 2017 estimate ~~may change as the Company receives~~due to additional clarification and implementation guidance ~~and~~will be reported as ~~additional interpretations~~a component of ~~Tax Reform become available.~~income tax expense in the reporting period in which any such adjustments are identified, which will be no later than the fourth quarter of 2018.

~~The following is a reconciliation from basic earnings~~Basic income (loss) per share ~~to diluted earnings~~is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is based on the weighted average number of shares outstanding during each period and the ~~Company:~~assumed exercise of potentially dilutive stock options and restricted stock.

InBasic and diluted income (loss) per common share was computed as follows (in thousands, except ~~for~~ share and per share ~~data.~~amounts):

	2018						2017								2018						2017
Three months ended June 30,	Net Income		Average Shares Outstanding		EPS		Net Loss			Average Shares Outstanding		EPS
Three Months Ended September 30,															Net Income		Average Shares Outstanding		Income Per Share		Net Loss			Average Shares Outstanding		Loss Per Share
Basic	$	9,019		23,895,858	$	0.38	$	(12,105	)		14,652,153	$	(0.83	)	$	13,658		23,971,032	$	0.57	$	(5,052	)		14,992,431	$	(0.34	)
Assumed exercise of stock options		-		85,681				-			-					—		41,341				—			—
Unvested restricted stock		-		369,461				-			-					—		376,922				—			—
Diluted	$	9,019		24,351,000	$	0.37	$	(12,105	)		14,652,153	$	(0.83	)	$	13,658		24,389,295	$	0.56	$	(5,052	)		14,992,431	$	(0.34	)

	2018						2017								2018						2017
Six months ended June 30,	Net Income		Average Shares Outstanding		EPS		Net Loss			Average Shares Outstanding		EPS
Nine Months Ended September 30,															Net Income		Average Shares Outstanding		Income Per Share		Net Loss			Average Shares Outstanding		Loss Per Share
Basic	$	10,694		22,904,743	$	0.47	$	(32,819	)		14,225,874	$	(2.31	)	$	24,352		23,264,014	$	1.05	$	(37,871	)		14,492,757	$	(2.61	)
Assumed exercise of stock options		-		58,914				-			-					—		31,879				—			—
Unvested restricted stock		-		234,420				-			-					—		308,029				—			—
Diluted	$	10,694		23,198,077	$	0.46	$	(32,819	)		14,225,874	$	(2.31	)	$	24,352		23,603,922	$	1.03	$	(37,871	)		14,492,757	$	(2.61	)

For the three and ~~six~~nine months ended ~~June~~September 30, 2017, the computation of diluted ~~earnings (losses)~~income (loss) per share excluded outstanding stock options and unvested restricted stock because their inclusion would be anti-dilutive asgiven the Company was in a net loss position. The average number of securities that were excluded from diluted ~~earnings (losses)~~income (loss) per share that would potentially dilute earnings per ~~shares~~share for the periods in which the Company experienced a net loss were as follows:

The Company has two reportable segments, Completion Solutions and Production ~~Solutions.~~

Solutions. The Completion Solutions segment consists primarily of cementing, completion tools, wireline and coiled tubing services, while the Production Solutions consists of rig-based well maintenance and workover services.

The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. The Company evaluates the performance of its reportable segments based on adjusted gross profit. This segmentation is representative of the manner in which ~~our~~its Chief Operating Decision Maker (“CODM”) and ~~our~~its Board of Directors view the business. ~~We consider~~The Company considers the ~~Chief Operating Decision Maker~~CODM to be ~~the~~its Chief Executive Officer.

Summary financial data by segment is as follows. The amounts labeled “Corporate” relate to assets not allocated to the reportable segments.

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
	(in thousands of dollars)						(in thousands of dollars)						(in thousands)						(in thousands)
Revenues
Completion Solutions	$	185,111		$	115,148		$	339,755		$	202,427		$	196,608		$	128,623		$	536,363		$	331,050
Production Solutions		20,381			20,712			39,544			38,786			21,819			19,544			61,363			58,330
	$	205,492		$	135,860		$	379,299		$	241,213		$	218,427		$	148,167		$	597,726		$	389,380
Adjusted gross profit (1)
Cost of revenues⁽¹⁾
Completion Solutions													$	147,178		$	103,056		$	414,606		$	275,711
Production Solutions														18,704			16,853			53,094			47,190
													$	165,882		$	119,909		$	467,700		$	322,901
Adjusted gross profit
Completion Solutions	$	39,109		$	18,725		$	72,327		$	29,772		$	49,430		$	25,567		$	121,757		$	55,339
Production Solutions		2,792			5,531			5,154			8,449			3,115			2,691			8,269			11,140
	$	41,901		$	24,256		$	77,481		$	38,221		$	52,545		$	28,258		$	130,026		$	66,479

General and administrative expenses		16,070			11,989			31,498			24,758			21,784			12,870			53,282			37,628
Depreciation		13,212			13,615			26,321			27,176			13,661			13,150			39,982			40,326
Amortization of intangibles		1,896			2,200			3,796			4,401			1,857			2,200			5,653			6,601
Loss on equity method investment		118			172			193			172			77			83			270			255
(Gain) loss on sale of assets		(881	)		4,421			(511	)		4,645
(Gain) loss on sale of property and equipment														(1,190	)		148			(1,701	)		4,793
Income (loss) from operations	$	11,486		$	(8,141	)	$	16,184		$	(22,931	)	$	16,356		$	(193	)	$	32,540		$	(23,124	)
Other expense
Interest expense		1,815			3,929			4,745			7,687			1,568			4,093			6,313			11,780
Total other expense		1,815			3,929			4,745			7,687			1,568			4,093			6,313			11,780
Income (loss) before income taxes		9,671			(12,070	)		11,439			(30,618	)		14,788			(4,286	)		26,227			(34,904	)
Income tax expense		652			35			745			2,201
Provision for income taxes														1,130			766			1,875			2,967
Net income (loss)	$	9,019		$	(12,105	)	$	10,694		$	(32,819	)	$	13,658		$	(5,052	)	$	24,352		$	(37,871	)

Capital expenditures
Completion Solutions	$	10,630		$	7,127		$	15,913		$	15,418		$	10,723		$	10,561		$	26,636		$	25,979
Production Solutions		955			1,512			1,647			3,226			665			786			2,312			4,012
Corporate		12			—			505			—			92			—			597			—
	$	11,597		$	8,639		$	18,065		$	18,644		$	11,480		$	11,347		$	29,545		$	29,991

	June 30, 2018			December 31, 2017									September 30, 2018			December 31, 2017
Assets
Total Assets
Completion Solutions	$	461,683		$	428,702								$	496,373		$	428,702
Production Solutions		116,672			119,607									116,516			119,607
Corporate		78,031			30,550									93,562			30,550
	$	656,386		$	578,859								$	706,451		$	578,859

~~Long-lived assets by country were as follows:~~On October 25, 2018, the Company consummated the Magnum Acquisition. Also, on October 25, 2018, in connection with the Magnum Acquisition, the Company issued $400.0 million principal amount of Senior Notes, entered into the 2018 ABL Credit Facility and fully repaid and terminated the 2018 IPO Credit Agreement. For additional information, see Note 1 – Company and Organization and Note 7 – Debt Obligations.

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 ~~consolidated financial statements~~Condensed Consolidated Financial Statements for the three and ~~the related notes thereto~~nine months ended September 30, 2018, included ~~elsewhere~~ in Item 1 of Part I of this Quarterly Report ~~together with~~on Form 10-Q and the ~~audited consolidated financial statements~~Consolidated Financial Statements and ~~notes thereto and Part II, Item 7 “Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations, including Critical Accounting Policies, included in our ~~2017~~ Annual ~~Report.~~Report on Form 10-K for the year ended December 31, 2017.

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including those described in the section titled “Cautionary Note Regarding Forward-Looking Statements” in ~~Part I, Financial Statements of~~ this Quarterly Report on Form 10-Q, “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2017 and “Risk Factors” in ~~Part I,~~ Item 1A of ~~the 2017 Annual Report.~~Part II in this Quarterly Report on Form 10-Q.

Nine Energy Service, Inc. is a leading North American onshore completion and production services provider that targets unconventional oil and gas resource development. We partner with our exploration and production (“E&P&P”) customers across all major onshore basins in both the U.S. and Canada 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.

In January 2018, we completed our initial public offering (“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. For additional information, see Note 10 – Stockholders’ Equity included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

On February 28, 2017, ~~we completed the Combination,~~ pursuant to ~~which~~the terms and conditions of a combination agreement dated February 3, 2017, we merged with Beckman Production Services, Inc. (“Beckman”), and all of the issued and outstanding shares of Beckman common stock were converted into shares of ~~our~~ common stock ~~other than 1.6%~~ of ~~Beckman shares paid in cash.~~Nine Energy Service, Inc. (the “Combination”). Prior to the Combination, SCF-VII, L.P. had controlled a majority of the voting interests of Nine and Beckman ~~a growth-oriented oilfield services company that provides a wide range~~since February 28, 2011 and July 31, 2012, respectively. The merger of ~~well service and coiled tubing services, was also an SCF Partners portfolio company. As a result,~~ the ~~Combination~~entities into the combined Company was accounted for using ~~the~~ reorganization accounting ~~method~~(i.e., “as if” pooling of interest) for entities under common control. ~~Under~~For additional information, see Note 4 – Acquisitions and Combinations included in Item 1 of Part I of this ~~method of accounting, the financial statements and the discussions herein include the operating results of Nine and Beckman.~~ Quarterly Report on Form 10-Q.

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “Nine,” “we,” “us,” “our” and the “Company” refer to (i) Nine Energy Service, Inc. and its subsidiaries together with Beckman prior to the Combination and (ii) Nine Energy Service, Inc. and its subsidiaries after the Combination. For ~~more~~additional information, see Note 4 – Acquisitions and Combinations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement dated October 15, 2018 (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 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019.

On October 25, 2018, we issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The Senior Notes will bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year with the first interest payment being due on May 1, 2019. 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 2018 IPO Credit Agreement (as defined below) and (iii) pay fees and expenses associated with the issuance of the Senior Notes, the Magnum Acquisition and the 2018 ABL Credit Facility.

On October 25, 2018, we entered into a five-year asset based senior secured revolving credit facility with JP Morgan Chase Bank, N.A. (“JP Morgan”) serving as administrative agent for the lenders thereunder (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility 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 borrowing base is initially $146.5 million. 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. The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the ~~Combination, see Note 3—“Acquisitions and Combinations” in our audited financial statements.~~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.

We generate our revenues by providing completion and production services to E&P customers across all major onshore basins in both the U.S. and Canada. 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 both our Completion Solutions and Production Solutions segments are 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~~cost relates to the ongoing training of our field service employees, which improves safety rates and reduces employee attrition.

We ~~manage~~evaluate our ~~operations through two business segments, Completion Solutions and Production Solutions, as described above. We evaluate the~~ performance ~~of these segments~~ based on a number of financial and non-financial measures, including the following:

Factors Affecting the Comparability of our Future Results of Operations to our Historical Results of Operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily ~~because~~for the ~~Company is now~~reasons described below:

As a result of the Magnum Acquisition, our completion tools line will constitute a larger portion of our business. 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. For more information regarding Magnum and the Magnum Acquisition, see “Recent Events – Magnum Acquisition”.

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. These activity and spending levels are strongly influenced by the current and expected oil and natural gas prices. Oil and natural gas prices declined significantly between the third quarter of 2014 and the first quarter of 2016. However, oil and natural gas prices have since gradually increased ~~a positive trend since the members of the Organization of Petroleum Exporting Countries and certain other oil-producing nations agreed to reduce their oil output in 2016. This~~throughout 2017 into 2018 thus far. The continued price ~~recovery~~improvement, along with operational efficiencies has stimulated an increase in onshore North American ~~completions~~completion activity, and if the current price environment holds at or near these levels or continues to improve, we expect a further increase in demand for our services. As the demand for our services and complexity and efficiencies of our jobs increase, we anticipate the ability to increase prices for our services, creating more favorable margins for the services we provide.

The increase in high-intensity, high-efficiency completions of oil and gas wells further enhances the demand for our services. We compete with a limited number of service companies for the most complex and technically demanding wells in which we specialize, which are characterized by extended laterals, increased stage spacing, multi-well pads and 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 for the Three Months Ended ~~June~~September 30, 2018 Compared to the Three Months Ended ~~June~~September 30, 2017

	Three Months Ended June 30,						Three Months Ended September 30,
	2018			2017			2018			2017			Change
	(in thousands)						(in thousands)
Revenues
Completion Solutions	$	185,111		$	115,148		$	196,608		$	128,623		$	67,985
Production Solutions		20,351			20,712			21,819			19,544			2,275
		205,462			135,860			218,427			148,167			70,260
Cost of revenues⁽¹⁾
Completion Solutions		146,002			96,423			147,178			103,056			44,122
Production Solutions		17,589			15,181			18,704			16,853			1,851
		163,591			111,604			165,882			119,909			45,973
Adjusted gross profit (excluding depreciation and amortization)
Completion Solutions		39,109			18,725			49,430			25,567			23,863
Production Solutions		2,792			5,531			3,115			2,691			424
		41,901			24,256			52,545			28,258			24,287

General and administrative expenses		16,070			11,989			21,784			12,870			8,914
Depreciation		13,212			13,615			13,661			13,150			511
Amortization of intangibles		1,896			2,200			1,857			2,200			(343	)
Loss on equity method investment		118			172			77			83			(6	)
(Gain) loss on sale of property and equipment		(881	)		4,421			(1,190	)		148			(1,338	)
Income (loss) from operations		11,486			(8,141	)		16,356			(193	)		16,549
Interest expense		1,815			3,929			1,568			4,093			(2,525	)
Income (loss) before income taxes		9,671			(12,070	)		14,788			(4,286	)		19,074
Income tax expense		652			35
Provision for income taxes								1,130			766			364
Net income (loss)	$	9,019		$	(12,105	)	$	13,658		$	(5,052	)	$	18,710

~~Total revenue is comprised of revenue from Completion Solutions and Production Solutions.~~ Revenue ~~for the three months ended June 30, 2018~~ increased ~~by $69.6~~$70.3 million, or ~~51%~~47%, to ~~$205.5 million, from $135.9~~$218.4 million for the ~~three months ended June 30, 2017.~~third quarter of 2018, primarily due to an increase in activity across both our Completion Solutions and Production Solutions segments. Both ~~segments’ businesses~~of our segments 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, which in~~America. In turn, activity and capital spending are strongly influenced by current and expected oil and natural gas prices, which showed improvement during 2017 and inthrough the three months ended ~~June~~September 30, 2018. During 2017, the closing price of oil reached a high of ~~$60.46~~$60.42 per barrel, and the closing price of natural gas reached a high of ~~$3.71~~$3.50 per MMBtu. During the ~~three months ended June 30,~~third quarter of 2018, the closing price per barrel of oil reached ~~$72.35,~~$74.14, and the closing price of natural gas reached a high of ~~$3.02~~$3.06 per MMBtu.

Completion Solutions: Revenue increased $68.0 million, or 53%, to $196.6 million for the third quarter of 2018, primarily due to a significant increase in completions activity and increased pricing in response to the improvement of industry conditions in comparison to the third quarter of 2017. The increase in demand and price for our services resulted from our customers increasing their North American capital expenditures, as well as drilling and completing more new wells in the third quarter of 2018 compared to the third quarter of 2017. Wireline revenue increased 77% for the third quarter of 2018, reflecting improved pricing and increased activity; total wireline stages completed increased 34% due to the increase in overall market activity. Completion ~~Solutions segment~~tools revenue increased 67%, reflecting a 102% increase in stages; tools revenue per stage fell 17% due to the transition to a higher volume of plugs sold versus sleeves, reflective of the market change. Cementing revenue increased by ~~$70.0~~50%, primarily due to a 45% increase in job count and improved pricing. Coiled tubing services revenue increased 25% mainly due to improved pricing, as total job count increased by 4%.

Production Solutions: Revenue increased $2.3 million, or ~~61%~~12%, to ~~$185.1~~$21.8 million for the ~~three months ended June 30, 2018 from $115.1~~third quarter of 2018. Rig activity, measured in hours worked, decreased 1%, but was more than offset by improved pricing, an increase in non-rig work and third-party costs charged to customers.

Cost of revenues increased $46.0 million, or 38%, to $165.9 million for the ~~three~~third quarter of 2018. The increase was a result of an increase in revenue-generating activity related to improvement in the oil and gas market. Materials installed in wells and consumed while performing services increased $22.7 million. Employee costs increased $17.4 million and other costs, mostly related to improved levels of activity, increased $5.9 million.

Completion Solutions: Cost of revenues increased $44.1 million, or 43%, to $147.2 million for the third quarter of 2018. Costs related to materials installed in wells and consumed while performing services increased $22.2 million, primarily as a result of the increased level of activity. Employee costs increased $16.7 million, as headcount was increased in response to the increase in activity and revenue. Other costs, such as repair and maintenance, vehicle, freight and travel costs, increased $5.2 million, primarily as a result of the increased level of activity.

Production Solutions: Cost of revenues increased $1.9 million, or 11%, to $18.7 million for the third quarter of 2018. Costs related to materials consumed while performing services increased $0.5 million, primarily as a result of the increased level of activity. Employee costs increased by $0.7 million, due in part to reinstatement of salaries that were previously reduced. Other costs increased by $0.7 million, primarily as a result of the increased level of activity.

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased $23.9 million to $49.4 million for the third quarter of 2018 due to the factors described above under “Revenues” and “Cost of Revenues.”

Production Solutions: Adjusted gross profit (excluding depreciation and amortization) increased $0.4 million to $3.1 million for the third quarter of 2018 as a result of the factors described above under “Revenues” and “Cost of Revenues.”

General and administrative expenses increased $8.9 million to $21.8 million for the third quarter of 2018. The increase was primarily due to higher employee and other costs related to the level of business activity, expenses related to business acquisitions and costs inherent in being a public company. General and administrative expenses as a percentage of revenue was 10% for the third quarter of 2018, compared to 9% for the third quarter of 2017.

Depreciation expense increased $0.5 million to $13.7 million for the third quarter of 2018, primarily due to an increase in capital expenditures in comparison to the third quarter of 2017.

Amortization of intangibles decreased $0.3 million to $1.9 million for the third quarter of 2018, primarily due to the write-off of intangible assets in one of the Completion Solutions operating units in 2017.

Interest expense decreased $2.5 million to $1.6 million for the third quarter of 2018. The decrease was primarily a result of the reduction in debt in January 2018 in connection with the IPO and the effectiveness of the 2018 IPO Credit Agreement (as defined below).

Our effective tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pre-tax income and nondeductible items, and changes in valuation allowances.

Our effective tax rate was 7.6% and (17.9%) for the third quarter of 2018 and 2017, respectively. The change in effective tax rate for the third quarter of 2018 was primarily attributable to changes in pre-tax book income and valuation allowance positions as well as tax liabilities in states where income is expected to exceed available net operating losses.

Adjusted EBITDA increased $20.3 million to $38.4 million for the third quarter of 2018. The Adjusted EBITDA increase 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, 2018 Compared to the Nine Months Ended September 30, 2017

	Nine Months Ended September 30,
	2018			2017			Change
	(in thousands)
Revenues
Completion Solutions	$	536,363		$	331,050		$	205,313
Production Solutions		61,363			58,330			3,033
		597,726			389,380			208,346
Cost of revenues⁽¹⁾
Completion Solutions		414,606			275,711			138,895
Production Solutions		53,094			47,190			5,904
		467,700			322,901			144,799
Adjusted gross profit (excluding depreciation and amortization)
Completion Solutions		121,757			55,339			66,418
Production Solutions		8,269			11,140			(2,871	)
		130,026			66,479			63,547

General and administrative expenses		53,282			37,628			15,654
Depreciation		39,982			40,326			(344	)
Amortization of intangibles		5,653			6,601			(948	)
Loss on equity method investment		270			255			15
(Gain) loss on sale of property and equipment		(1,701	)		4,793			(6,494	)
Income (loss) from operations		32,540			(23,124	)		55,664
Interest expense		6,313			11,780			(5,467	)
Income (loss) before income taxes		26,227			(34,904	)		61,131
Provision for income taxes		1,875			2,967			(1,092	)
Net income (loss)	$	24,352		$	(37,871	)	$	62,223

Revenue increased $208.3 million, or 54%, to $597.7 million for the first nine months ~~ended June 30,~~of 2018, primarily due to an increase in activity across both our Completion Solutions and Production Solutions segments. Both of our segments 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, which showed improvement during 2017 and through the first nine months of 2018. During 2017, the closing price of oil reached a high of $60.42 per barrel, and the closing price of natural gas reached a high of $3.50 per MMBtu. During the first nine months of 2018, the closing price per barrel of oil reached $74.15, and the closing price of natural gas reached a high of $3.20 per MMBtu. The increase in revenue by reportable segment is discussed below.

Completion Solutions: Revenue increased $205.3 million, or 62%, to $536.4 million for the first nine months of 2018 due to a significant increase in completions activity and increased pricing in response to the improvement of industry conditions. The increase in demand and price for our services resulted from our customers increasing their North American capital expenditures and drilling and completing more new wells in the ~~three~~first nine months ~~ended June 30, 2018 as compared to the three months ended June 30, 2017.~~of 2018. Wireline revenue increased ~~97% from~~93% for the ~~three~~first nine months ~~ended June 30,~~of 2018 due to ~~the three months ended June 30, 2017;~~improved pricing and activity; total wireline stages completed increased ~~62%~~54% due to the increase in overall market activity. Completion tools revenue increased ~~64%~~63%, reflecting a ~~110%~~106% increase in stages; completion tools revenue per stage fell ~~22%~~21% due to a transition ~~from~~to a higher volume of plugs sold versus sleeves, reflective of the market change. Cementing revenue increased by ~~34%~~45% due

to ~~a 10%~~an 18% increase in job count and improved pricing. Coiled ~~Tubing Services~~tubing services revenue increased ~~54%~~48% on a ~~27%~~19% increase in total ~~jobs.~~jobs and pricing increases.

Production Solutions: ~~Production Solutions segment revenue decreased by $0.4~~Revenue increased $3.0 million, or 2%5%, to ~~$20.4~~$61.4 million for the ~~three~~first nine months ~~ended June 30, 2018 from $20.7 million for the three months ended June 30, 2017.~~of 2018. Rig activity, measured in hours worked, decreased 8%4%, but was more than offset by improved pricing, an increase in non-rig work and third-party costs charged to customers.

Cost of revenues ~~for the three months ended June 30, 2018~~ increased ~~by $52.0~~$144.8 million, or ~~47%~~45%, ~~compared~~ to ~~the three months ended June 30, 2017. The increase was a result of an increase in revenue-generating activity related to improvement in the oil and gas~~

market. Materials installed in wells and consumed while performing services increased by $24.2 million. Compensation and benefits increased by $19.9 million and other costs, mostly related to improved levels of activity, increased by $7.9 million.

~~Completion Solutions~~: Completion Solutions segment cost of services for the three months ended June 30, 2018 increased by $49.6 million, or 51%, when compared to the three months ended June 30, 2017. The increase was driven primarily by the increased level of activity. Costs related to materials installed in wells and consumed while performing services increased by $24.1 million, and other activity-driven costs increased by $7.4 million. Additionally, compensation and benefits were $18.0 million higher, as headcount was increased in response to the increase in revenue and forecasted activity increases.

~~Production Solutions~~: Production Solutions segment cost of services for the three months ended June 30, 2018 increased by $2.4 million, or 16%, when compared to the three months ended June 30, 2017. Compensation and benefits increased by $1.9 million, due in part to reinstatement of previous salary reductions. Other costs increased by $0.5 million, due to increased materials consumed while performing services and other increases related to activity.

~~Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased $20.4 million, to $39.1~~$467.7 million for the ~~three~~first nine months ~~ended June 30, 2018 compared to adjusted gross profit (excluding depreciation and amortization)~~ of ~~$18.7 million for the three months ended June 30, 2017 as a result of the factors described above under “Revenue” and “Cost of Revenues.”~~

~~Production Solutions~~: Adjusted gross profit (excluding depreciation and amortization) decreased $2.7 million, to $2.8 million, for the three months ended June 30, 2018 compared to $5.5 million for the three months ended June 30, 2017 as a result of the factors described above under “Revenue” and “Cost of Revenues.”

General and administrative expenses increased by $4.1 million, to $16.1 million, for the three months ended June 30, 2018 from $12.0 million for the three months ended June 30, 2017. The increase was higher primarily due to employee and other costs related to the level of business activity and expenses related to our IPO and being a public company. Additionally, there was a $0.5 million increase for revaluation of the contingent liability related to the purchase of Scorpion. General and administrative expenses as a percentage of revenue were 8% for the three months ended June 30, 2018, compared with 9% for the three months ended June 30, 2017.

Depreciation expense for the three months ended June 30, 2018 decreased by $0.4 million, to $13.2 million, from $13.6 million for the three months ended June 30, 2017. The decrease resulted primarily from the disposal of equipment.

Amortization of intangibles decreased by $0.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The decrease resulted from the write-off of intangibles in one of the Completions Solutions operating units during 2017.

Interest expense was $1.8 million for the three months ended June 30, 2018, a decrease of $2.1 million from the three months ended June 30, 2017. The decline was a result of the reduction in debt following the IPO in January 2018 and funding of the New Facility.

The Company’s effective income tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pretax income and nondeductible items, and changes in valuation allowances.

~~The Company’s effective tax rate for the three months ended June 30, 2018 was 6.7%, compared with (0.3%) for the three months ended June 30, 2017.~~ The change in effective income tax rate for the three months ended June 30, 2018 was primarily attributable to changes in pre-tax book income and valuation allowance positions as well as tax liability in states where income is expected to exceed available net operating losses.

Adjusted EBITDA was $30.6 million for the three months ended June 30, 2018 as compared with $15.7 million for the three months ended June 30, 2017, an increase of 95%. The Adjusted EBITDA increase is primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

~~Results for the Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017~~

Total revenue is comprised of revenue from Completion Solutions and Production Solutions. Revenue for the six months ended June 30, 2018 increased by $138.1 million, or 57%, to $379.3 million, from $241.2 million for the six months ended June 30, 2017. Both segments’ businesses 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, which in turn are strongly influenced by current and expected oil and natural gas prices, which showed improvement during 2017 and in the six months ended June 30, 2018. During 2017, the closing price of oil reached a high of $60.46 per barrel and the closing price of natural gas reached a high of $3.71 per MMBtu. During the six months ended June 30, 2018, the closing price per barrel of oil reached $74.15, and the closing price of natural gas reached a high of $3.20 per MMBtu. The increase in revenue by reportable segment is discussed below.

~~Completion Solutions~~: Completion Solutions segment revenue increased by $137.3 million, or 68%, to $339.8 million for the six months ended June 30, 2018 from $202.4 million for the six months ended June 30, 2017 due to a significant increase in completions activity and increased pricing in response to the improvement of industry conditions. The increase in demand and price for our services resulted from our customers increasing their North American capital expenditures and drilling and completing more new wells in the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. Wireline revenue increased 105% from the six months ended June 30, 2018 to the six months ended June 30, 2017; total wireline stages completed increased 68% due to the increase in overall market activity. Completion tools revenue increased 61%, reflecting a 108% increase in stages; completion tools revenue per stage fell 23% due to transition from a higher volume of plugs sold versus sleeves, reflective of the market change. Cementing revenue increased by 43% due to an 8% increase in job count and improved pricing. Coiled Tubing Services revenue increased 65% on a 29% increase in total jobs.

~~Production Solutions~~: Production Solutions segment revenue increased by $0.8 million, or 2%, to $39.5 million for the six months ended June 30, 2018 from $38.8 million for the six months ended June 30, 2017. Rig activity, measured in hours worked, decreased 6%, but was offset by improved pricing, an increase in non-rig work and third party costs charged to customers.

~~Cost of revenues for the six months ended June 30, 2018 increased by $98.8 million, or 49%, compared to the six months ended June 30, 2017.~~ The increase was a result of an increase in revenue-generating activity related to improvement in the oil and gas market. Materials installed in wells and consumed while performing services increased ~~by $46.5~~$68.6 million. Compensation and benefits increased by ~~$38.0~~$55.3 million and other costs, mostly related to improved levels of activity, increased $20.9 million.

The increase in cost of revenues by ~~$14.3 million.~~ reportable segment is discussed below.

Completion Solutions: ~~Completion Solutions segment cost~~Cost of ~~services~~revenues increased $138.9 million, or 50%, to $414.6 million for the ~~six~~first nine months ~~ended June 30, 2018 increased by $94.8 million, or 55%, when compared to the six months ended June 30, 2017. The increase was driven primarily by the increased level~~ of ~~activity.~~2018. Costs related to materials installed in wells and consumed while performing services increased ~~by $46.2~~$68.1 million, primarily as a result of the increased level of activity. Employee costs increased $52.1 million and other ~~activity-driven~~costs, such as repair and maintenance, vehicle and travel costs, increased by ~~$13.1 million. Additionally, compensation and benefits were $35.5~~$18.7 million, ~~higher,~~in each case, primarily as ~~headcount~~a result of the increased ~~in response to the increase in revenue and forecasted activity increases.~~ level of activity.

Production Solutions: ~~Production Solutions segment cost~~Cost of ~~services for the six months ended June 30, 2018~~revenues increased ~~by $4.1~~$5.9 million, or 13%, ~~when compared~~ to $53.1 million for the ~~six~~first nine months ~~ended June 30, 2017. Compensation and benefits~~of 2018. Employee costs increased by ~~$2.4~~$3.2 million, due in part to reinstatement of ~~previous salary reductions. Other~~salaries that were previously reduced. Materials consumed in performing services increased $0.5 million and other costs increased ~~by $1.7~~$2.2 million, ~~due to~~in each case, primarily as a result of increased ~~equipment maintenance, increased materials consumed while performing services and an increase in third party costs rebilled to customers.~~level of activity.

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased ~~$42.6~~$66.4 million to ~~$72.3~~$121.8 million for the ~~six~~first nine months ~~ended June 30,~~of 2018 ~~compared~~due to ~~adjusted gross profit (excluding depreciation and amortization) of $29.8 million for the six months ended June 30, 2017 as a result of~~ the factors described above under “Revenue” and “Cost of Revenues.”

Production Solutions: Adjusted gross profit (excluding depreciation and amortization) decreased ~~$3.2~~$2.9 million to ~~$5.2~~$8.3 million for the ~~six~~first nine months ~~ended June 30,~~of 2018 ~~compared to $8.4 million for the six months ended June 30, 2017~~ as a result of the factors described above under “Revenue” and “Cost of Revenues.”

General and administrative expenses increased ~~by $6.7~~$15.7 million to ~~$31.5~~$53.3 million for the ~~six~~first nine months ~~ended June 30, 2018 from $24.8 million for the six months ended June 30, 2017.~~of 2018. The increase was ~~higher~~ primarily due to higher employee and other costs related to the level of business activity, ~~and~~ expenses related to our IPO and business acquisitions and costs inherent in being a public company. Additionally, there was a ~~$1.5~~$1.3 million increase ~~for~~in loss on revaluation of the contingent liability related to the purchase of ~~Scorpion.~~Pat Greenlee Builders, LLC (“Scorpion”). General and administrative expenses as a percentage of revenue ~~were 8%~~was 9% for the ~~six~~first nine months ~~ended June 30,~~of 2018, as compared with 10% for the ~~six~~first nine months ~~ended June 30,~~of 2017.

Depreciation expense ~~for the six months ended June 30, 2018~~ decreased ~~by $0.9~~$0.3 million to ~~$26.3 million, from $27.2~~$40.0 million for the ~~six~~first nine months ~~ended June 30, 2017.~~of 2018. The decrease resulted primarily from an increase in the disposal of ~~equipment.~~property and equipment during the first nine months of 2018.

Amortization of intangibles decreased ~~by $0.6~~$0.9 million to $5.7 million for the ~~six~~first nine months ~~ended June 30, 2018 compared to the six months ended June 30, 2017.~~of 2018. The decrease resulted from the write-off of intangibles in one of the ~~Completions~~Completion Solutions operating units during 2017.

Interest expense ~~was $4.7~~decreased $5.5 million to $6.3 million for the ~~six~~first nine months ~~ended June 30, 2018, a decrease~~ of ~~$2.9 million from the six months ended June 30, 2017.~~2018. The decline was primarily a result of the reduction in debt ~~following our IPO~~ in January 2018 in connection with the IPO and ~~funding~~the effectiveness of the ~~New Facility.~~ 2018 IPO Credit Agreement (as defined below).

~~The Company’s~~Our effective ~~income~~ tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in ~~pretax~~pre-tax income and nondeductible items, and changes in valuation allowances.

Our effective tax rate was 7.1% and (8.5%) for the first nine months of 2018 and 2017, respectively. The ~~Company’s~~change in effective tax rate for the ~~six~~first nine months ~~ended June 30, 2018 was 6.5%, compared with (7.2%) for the six months ended June 30, 2017.~~ ~~The change in effective income tax rate for the six months ended June 30,~~of 2018 was primarily attributable to changes in pre-tax book income and valuation allowance positions as well as tax ~~liability~~liabilities in states where income is expected to exceed available net operating losses.

Adjusted EBITDA ~~was $54.7~~increased $53.2 million to $93.1 million for the ~~six~~first nine months ~~ended June 30, 2018 as compared with $21.8 million for the six months ended June 30, 2017, an increase~~ of ~~152%.~~2018. The Adjusted EBITDA increase is primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

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 for income ~~tax expense.~~taxes. EBITDA is not a measure of net income or cash flows as determined by ~~GAAP.~~U.S. generally accepted accounting principles (“GAAP”).

We define Adjusted EBITDA as EBITDA further adjusted for (i) impairment of goodwill and other intangible assets, (ii) transaction expenses related to acquisitions or the Combination, (iii) loss from discontinued operations, (iv) loss or ~~gains from the~~gain on revaluation of contingent liabilities, (v) ~~non-cash~~loss or gain on equity investment, (vi) stock-based compensation expense, ~~(vi)~~(vii) loss or ~~gains~~gain on sale of ~~assets, (vii) inventory write-down~~property and equipment and (viii) ~~adjustment for~~ other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as costs related to ~~this offering,~~ legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs.

Management believes EBITDA and Adjusted EBITDA are useful because they allow for a more effective evaluation of 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 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 ~~six~~nine months ended ~~June~~September 30, 2018 and 2017:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
EBITDA reconciliation:
Net income (loss)	$	9,019		$	(12,105	)	$	10,694		$	(32,819	)	$	13,658		$	(5,052	)	$	24,352		$	(37,871	)
Interest expense		1,815			3,929			4,745			7,687			1,568			4,093			6,313			11,780
Depreciation		13,212			13,615			26,321			27,176			13,661			13,150			39,982			40,326
Amortization		1,896			2,200			3,796			4,401
Income tax expense		652			35			745			2,201
Amortization of intangibles														1,857			2,200			5,653			6,601
Provision for income taxes														1,130			766			1,875			2,967
EBITDA	$	26,594		$	7,674		$	46,301		$	8,646		$	31,874		$	15,157		$	78,175		$	23,803

Adjusted EBITDA reconciliation:
EBITDA	$	26,594		$	7,674		$	46,301		$	8,646		$	31,874		$	15,157		$	78,175		$	23,803
Transaction expenses		-			370			377			3,365			2,320			50			2,697			3,415
Loss or gains from the revaluation of contingent liabilities (1)		607			57			1,670			144
Loss on revaluation of contingent liabilities ⁽¹⁾														45			277			1,715			421
Loss on equity method investment		118			172			193			172			77			83			270			255
Non-cash stock-based compensation expense		3,971			2,659			6,211			4,195
(Gain) loss on sale of assets		(881	)		4,421			(511	)		4,645
Stock-based compensation expense														3,508			2,185			9,719			6,380
(Gain) loss on sale of property and equipment														(1,190	)		148			(1,701	)		4,793
Legal fees and settlements (2)		177			350			482			590			1,721			188			2,203			778
Adjusted EBITDA	$	30,586		$	15,703		$	54,723		$	21,757		$	38,355		$	18,088		$	93,078		$	39,845

ROIC is a supplemental non-GAAP financial measure. We define ROIC as after-tax net operating profit, divided by average total capital. We define after-tax net operating profit as income (loss) from continuing operations (net of tax) plus interest expense, less taxes on interest. 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 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 ~~six~~nine months ended ~~June~~September 30, 2018 and 2017:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Net income (loss)	$	9,019		$	(12,105	)	$	10,694		$	(32,819	)	$	13,658		$	(5,052	)	$	24,352		$	(37,871	)
Add back:
Interest Expense		1,815			3,929			4,745			7,687
Interest expense														1,568			4,093			6,313			11,780
Taxes on interest		(381	)		(1,397	)		(996	)		(2,733	)		(330	)		(1,433	)		(1,326	)		(4,123	)
After-tax net operating profit (loss)	$	10,453		$	(9,573	)	$	14,443		$	(27,865	)	$	14,896		$	(2,392	)	$	29,339		$	(30,214	)
Total capital as of prior period-end/year-end:
Total stockholders' equity	$	459,440		$	308,409		$	287,358		$	288,186		$	472,180		$	298,883		$	287,358		$	288,186
Total debt		115,274			251,473			242,235			245,888			115,274			256,072			242,235			245,888
Less cash and cash equivalents		(72,900	)		(27,039	)		(17,513	)		(4,074	)		(70,860	)		(12,127	)		(17,513	)		(4,074	)
Total capital	$	501,814		$	532,843		$	512,080		$	530,000		$	516,594		$	542,828		$	512,080		$	530,000
Total capital as of period-end:
Total stockholders' equity	$	472,180		$	298,883		$	472,180		$	298,883		$	490,630		$	315,987		$	490,630		$	315,987
Total debt		115,274			256,072			115,274			256,072			115,274			240,840		$	115,274			240,840
Less cash and cash equivalents		(70,860	)		(12,127	)		(70,860	)		(12,127	)		(86,534	)		(30,171	)		(86,534	)		(30,171	)
Total capital	$	516,594		$	542,828		$	516,594		$	542,828		$	519,370		$	526,656		$	519,370		$	526,656
Average total capital	$	509,204		$	537,836		$	514,337		$	536,414		$	517,982		$	534,742		$	515,725		$	528,328
ROIC	8%			-7%			6%			-10%			11.50%			(2)%			8%			(8)%

Adjusted ~~gross profit (excluding depreciation~~Gross Profit (Excluding Depreciation and ~~amortization)~~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 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 and to determine resource allocation between segments. 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 ~~six~~nine months ended ~~June~~September 30, 2018 and 2017:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017		2018		2017
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Calculation of gross profit (loss)
Calculation of gross profit
Revenues	$	205,492	$	135,860	$	379,299	$	241,213	$	218,427	$	148,167	$	597,726	$	389,380
Cost of revenue (exclusive of depreciation and amortization)		163,591		111,604		301,818		202,992
Cost of revenues (exclusive of depreciation and amortization)										165,882		119,909		467,700		322,901
Depreciation (related to cost of revenues)		12,993		13,397		25,885		26,731		13,434		12,927		39,319		39,658
Amortization		1,896		2,200		3,796		4,401
Amortization of intangibles										1,857		2,200		5,653		6,601
Gross profit	$	27,012	$	8,659	$	47,800	$	7,089	$	37,254	$	13,131	$	85,054	$	20,220
Adjusted gross profit (excluding depreciation and amortization) reconciliation:
Gross profit	$	27,012	$	8,659	$	47,800	$	7,089	$	37,254	$	13,131	$	85,054	$	20,220
Depreciation (related to cost of revenues)		12,993		13,397		25,885		26,731		13,434		12,927		39,319		39,658
Amortization		1,896		2,200		3,796		4,401
Amortization of intangibles										1,857		2,200		5,653		6,601
Adjusted gross profit (excluding depreciation and amortization)	$	41,901	$	24,256	$	77,481	$	38,221	$	52,545	$	28,258	$	130,026	$	66,479

Historically, we have met our liquidity needs principally from cash flows from operating activities, external borrowings, and capital contributions. Our principal uses of cash are to fund capital expenditures and acquisitions, to service our outstanding debt, and to fund our day to day operations. 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.

~~At June 30, 2018, we had $70.9 million of cash and cash equivalents and $49.3 million of availability under~~In addition, our ~~current credit facility, which resulted in a total liquidity position of $120.2 million.~~

On January 23, 2018, we completed our IPO of 7,000,000 shares of common stock at a price to the public of $23.00 per share. After subtracting underwriting discounts and commissions of $10.9 million and the estimated offering expenses, we received net proceeds of approximately $150.1 million. On January 24, 2018, we sold an additional 1,050,000 shares of common stock at the IPO price of $23.00 per share pursuant to the underwriters’ over-allotment option. After subtracting underwriting discounts and commissions of approximately $1.6 million and the estimated offering expenses, we received net proceeds of approximately $22.5 million. The combined net proceeds of the IPO, less offering expenses of $4.4 million, totaled $168.3 million. We used a portion of these net proceeds, together with $125.0 million of term loan borrowings under our New Facility (which was funded upon the closing of the IPO), to fully repay the outstanding indebtedness under our former credit facilities. Further, our credit agreement required that we use a portion of the proceeds from the over-allotment option to make a prepayment of the term loan borrowings of $9.7 million. The remainder of the net proceeds are being used for general corporate purposes.

~~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 is 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.

~~Our cash flows for the six months ended June~~At September 30, 2018, we had $86.5 million of cash and ~~2017 are presented below:~~cash equivalents and $49.5 million of availability under the 2018 IPO Credit Agreement, which resulted in a total liquidity position of $136.0 million.

~~Net cash provided by operating activities was $25.2 million for the six months ended June 30,~~In January 2018, ~~compared~~we completed our IPO of 8,050,000 shares of common stock (including 1,050,000 shares pursuant to ~~$21.0 million used in operating activities for the six months ended June 30, 2017. The $46.2 million increase in cash provided by operating activities was due~~an over-allotment option) at a price to the ~~general improvement in profitability.~~

~~Net cash used in investing activities was $15.0~~public of $23.00 per share pursuant to a registration statement on form S-1 (File 333-217601), as amended and declared effective by the SEC on January 18, 2018. After subtracting approximately $16.9 million ~~for the six months ended June 30, 2018, a decrease~~ of ~~$4.1~~underwriting discounts, commissions and offering expenses, we received net proceeds of approximately $168.3 million from ~~the six months ended June 30, 2017. The decrease was mainly attributable to a $2.5 million increase in~~our IPO. We used these proceeds, from sales of assets and casualty losses. Additionally, the six months ended June 30, 2017 included a $1.0 million investment in a company that is developing technology expected to enhance our service offerings.

~~Net cash provided by financing activities totaled $43.5 million for the six months ended June 30, 2018, compared~~together with $48.2 million provided by financing activities for the six months ended June 30, 2017, a decrease of $4.7 million. In the six months ended June 30, 2018, net proceeds from the IPO and other share issuances totaled $171.8 million, and borrowings under the ~~Company’s New~~2018 IPO Term Loan Credit Facility ~~totaled $125.0 million. These proceeds were $206.4~~(as defined below), to repay all indebtedness under our prior term loan and the Beckman term loan (together, the “Legacy Term Loans”) and under our prior revolving credit facility and the Beckman revolving credit facility (together, the “Legacy Revolving Credit Facilities”), as more fully described below, to prepay $9.7 million ~~higher than~~of the ~~net proceeds from share issuances and~~ borrowings ~~in the six months ended June 30, 2017. Additionally, payments on debt of $251.9 million in the six months ended June 30, 2018, including payment of all debt outstanding~~ under the ~~Company’s Legacy Facilities, were $210.0 million greater than~~2018 IPO Term Loan Credit Facility, as well as for general corporate purposes. No payments, ~~on debt in the six months ended June 30, 2017.~~

~~Concurrently with the consummation~~fees or expenses have been paid, directly or indirectly, to any of our officers, directors or associates, holders of 10% or more of any class of our equity securities or other affiliates.

2018 IPO our New Facility became effective, consisting of $125 million of term loan commitments and $50 million of revolving credit commitments. We borrowed $125 million of term loans and had approximately $49.3 million of undrawn revolver capacity under our credit facility. Borrowings under our credit facility may vary significantly from time to time depending on our cash needs at any given time.Credit Agreement

~~Our credit facility is evidenced by a credit agreement dated as of~~On September 14, 2017, we entered into a new credit agreement (as amended on November 20, 2017, the “2018 IPO Credit Agreement”) with ~~JPMorgan Chase Bank, N.A.,~~JP Morgan as administrative agent, and certain other financial institutions as amended by the First Amendment to Credit Agreement dated as of November 20, 2017 (as amended, the “Credit Agreement”). The Company was not permitted to borrow under the Credit Agreement, and the covenants of the Credit Agreement were not binding on the Company, untilthat became effective upon the consummation of ~~our~~the IPO onin January ~~23, 2018.~~2018 (the “Effective Date”). Pursuant to the terms of the 2018 IPO Credit Agreement, ~~Nine~~we and ~~its~~our domestic restricted subsidiaries ~~borrowed $125~~were entitled to borrow $125.0 million of term loans (the “2018 IPO Term Loan Credit Facility”), which we drew in full on the Effective Date. In January 2018, we 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, we and ~~are~~our domestic restricted subsidiaries were entitled to borrow up to ~~$50~~$50.0 million (including letters of credit) as revolving credit loans under the revolving ~~commitments.~~commitments (the “2018 IPO Revolving Credit Facility”). At ~~no time will~~September 30, 2018, the ~~maximum principal amount~~2018 IPO Revolving Credit Facility had an undrawn capacity of ~~revolving credit loans, together~~$49.5 million, which was net of a $0.5 million outstanding letter of credit.

Concurrent with the ~~face amount~~effectiveness of ~~letters of credit,~~the 2018 IPO Credit Agreement, using proceeds received from the IPO and borrowings under the 2018 IPO Term Loan Credit ~~Agreement be permitted to exceed $50~~Facility, we repaid all indebtedness under the Legacy Term Loans and Legacy Revolving Credit Facilities in the first quarter of 2018, which approximated $242.2 million. In addition, for the first quarter of 2018, we wrote off approximately $0.7 million ~~absent Nine obtaining additional commitments from existing or new lenders. On January 24, 2018,~~ in ~~connection~~deferred financing costs associated with the ~~closing of~~Legacy Term Loans and the over-allotment option of the IPO, the Company used a portion of the proceeds from the closing of the over-allotment option to make a mandatory prepayment of the term loan borrowings of $9.7 million. After giving effect to such prepayment, the Company had $115.3 million of outstanding term loans under the credit facility.Legacy Revolving Credit Facilities.

All of the obligations under the 2018 IPO Credit Agreement ~~are~~were secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of ~~Nine~~us and ~~its~~our domestic restricted subsidiaries, ~~(including Beckman and its subsidiaries),~~ excluding certain assets. ~~Nine Canada is not a borrower or guarantor under the Credit Agreement.~~

Loans to ~~Nine~~us and ~~its~~our domestic restricted subsidiaries under the 2018 IPO Credit Agreement ~~may be~~were either base rate loans or LIBOR loans. The applicable margin for base rate ~~and prime rate~~ loans ~~will vary~~varied from 1.50% to 2.75%, and the applicable margin for LIBOR loans ~~will vary~~varied from 2.50% to 3.75%, in each case depending on ~~Nine’s~~our leverage ratio. ~~Nine is~~Interest rates averaged 5.5% during the nine months ended September 30, 2018. We were permitted to repay any amounts borrowed prior to the maturity date without any premium or penalty other than

In addition, a commitment fee of 0.50% per annum ~~will be~~was charged on the average daily unused portion of the revolving commitments. Such commitment fee iswas payable quarterly in arrears.

The ~~term loans are payable on a quarterly basis in amounts equal to 2.5% of the original principal balance. The term loans and revolving loans mature in July 2020.~~

~~The~~2018 IPO Credit Agreement ~~contains~~contained 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. ~~The~~Financial covenants under the 2018 IPO Credit Agreement ~~does not contain any financial~~

~~covenants, other than~~included a maximum total leverage ratio, an asset coverage ratio and a fixed charge coverage ratio, each of which ~~will be tested~~was calculated on a quarterly basis.

We were in compliance with all debt covenants ~~and ratios~~under the 2018 IPO Credit Agreement as of ~~June~~September 30, 2018.

On October 25, 2018, we fully repaid and terminated the 2018 IPO Credit Agreement as more fully described in “Recent Events”.

Unamortized deferred financing costs associated with the 2018 IPO Term Loan Credit Facility were $1.2 million at September 30, 2018. These costs were being amortized through the maturity date of the 2018 IPO Term Loan Credit Facility using the effective interest method. We wrote off these deferred financing costs on October 25, 2018 in conjunction with the termination of the 2018 IPO Credit Agreement.

Cash flows provided by (used in) operations by type of activity were as follows for the nine months ended September 30, 2018 and 2017:

Net cash provided by operating activities was $50.8 million for the nine months ended September 30, 2018 compared to $3.8 million provided by operating activities for the nine months ended September 30, 2017. The $47.0 million increase in operating cash flow was primarily due to the general improvement in profitability.

Net cash used in investing activities was $26.0 million for the nine months ended September 30, 2018, a decrease in cash used of $3.8 million from the nine months ended September 30, 2017. The decrease in cash flow used in investing activities was mainly attributable to a $2.4 million increase in proceeds received from sales of property and equipment including casualty losses. Additionally, the nine months ended September 30, 2017 included a $1.0 million investment in a company that is developing technology expected to enhance our service offerings.

Net cash provided by financing activities totaled $44.6 million for the nine months ended September 30, 2018, a decrease in cash provided of $7.7 million from the nine months ended September 30, 2017. For the nine months ended September 30, 2018, net proceeds from the IPO and other share issuances totaled $171.8 million, and borrowings under the 2018 IPO Credit Agreement totaled $125.0 million. These proceeds were $181.9 million higher than the net proceeds from share issuances and borrowings in the nine months ended September 30, 2017. Additionally, payments on debt of $251.9 million for the nine months ended September 30, 2018, including payment of all debt outstanding under the Legacy Term Loans and Legacy Revolving Credit Facilities, were $192.4 million greater than payments on debt for the nine months ended September 30, 2017.

Other than as disclosed in Note ~~5 -~~7 – Debt Obligations in ~~Part I,~~ Item 1 ~~“Financial Statements”~~of Part I of this Quarterly Report on Form 10-Q, our contractual obligations at ~~June~~September 30, 2018 did not change materially, outside the normal course of business, from those disclosed ~~in Part II, Item 7,~~under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations” in Item 7 of Part II of our ~~2017~~ Annual ~~Report.~~Report on Form 10-K for the year ended December 31, 2017.

We had no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, as of ~~June~~September 30, 2018.

See Note ~~2 “Summary~~3 – New Accounting Standards included in Item 1 of ~~Significant Accounting Policies” to our audited financial statements~~Part I of this Quarterly Report on Form 10-Q for a ~~discussion~~summary of recently issued accounting pronouncements.

~~As of June 30, 2018, there~~There have been no material changes in market risk from the information ~~provided~~previously disclosed in Item 7A of Part II included in our ~~2017~~ Annual ~~Report. More detailed information concerning market risk can be found in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2017 Annual Report.~~Report on Form 10-K for the year ended December 31, 2017.

Evaluation of Disclosure Controls and Procedures. ~~The Company’s disclosure~~Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the ~~Company in~~ reports ~~that it files~~we file or ~~submits~~submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to ~~its~~our management, including ~~its~~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 SEC. As required by Rule 13a-15(b) under the Exchange Act, ~~the Company’s~~our management, with the participation of ~~its~~our principal executive officer and principal financial officer, have evaluated the effectiveness of ~~the Company’s~~our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~June~~September 30, 2018. Based upon that evaluation, and due to the material weaknesses in internal control over financial reporting described in Item 9A of ~~the Company’s 2017~~Part II of our Annual Report on Form 10-K for the ~~Company’s~~year ended December 31, 2017, our principal executive officer and principal financial officer concluded that ~~its~~our disclosure controls and procedures were not effective as of ~~June~~September 30, 2018.

Changes in Internal Control over Financial Reporting. There was no change in ~~the Company’s~~our internal control over financial reporting during the quarter ended ~~June~~September 30, 2018 that has materially affected, or is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

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 and 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.

We maintain insurance coverage against liability for, among other things, personal injury (including death), which coverage is subject to certain exclusions and deductibles. We tendered this matter to our insurance company for defense and indemnification of Big Lake Services and the other defendants. While we maintain such insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisors and brokers, believe are reasonable and prudent, we cannot assure you that this insurance will be adequate to protect us from all material expenses related to current or potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices.

~~There~~Except as set forth below, there have been no material changes to the risk factors involving us from those previously disclosed in ~~our 2017 Annual Report. For a detailed discussion of known material factors which could materially affect our business, financial condition or future results, refer to Part I, Item 1A~~disclosed in “Risk Factors” in Item 1A of Part I included in our ~~2017~~ Annual ~~Report.~~ Report on Form 10-K for the year ended December 31, 2017.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

We may be unable to successfully integrate the acquired assets and operations or to realize anticipated revenues, cost savings,

Because the Magnum Acquisition involves the combination of two companies that have operated independently, we will need to devote significant management attention and resources to integrating business practices, cultures, and operations of each business. Our ability to achieve the anticipated benefits of the Magnum Acquisition will depend in part upon whether we can integrate the acquired assets and operations into our existing businesses in an efficient and effective manner. Potential difficulties we may encounter as part of the integration process include:

Any one of these factors could result in increased costs, decreases in the amount of anticipated benefits and diversion of management’s attention, which could materially impact our business, financial condition, and results of operations. In addition, even following successful integration, the anticipated benefits of the Magnum Acquisition may not be realized fully, or at all, or may take longer to realize than expected.

Certain product lines acquired in the Magnum Acquisition are subject to the risk of supplier concentration.

Certain of the product lines acquired in the Magnum Acquisition depend on a limited number of third-party suppliers and vendors. As a result of this concentration in some supply chains, our business and operations could be negatively affected if certain key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products. The partial or complete loss of any one of those key suppliers, or a significant adverse change in the relationship with any such suppliers, through consolidation or otherwise, may limit our ability to manufacture and sell certain of our product lines acquired in the Magnum Acquisition.

Intense competition in the markets for our dissolvable plug products may lead to pricing pressures, reduced sales, or reduced market share.

The oil and natural gas industry is intensely competitive and has been characterized by price erosion for new technologies as additional competing products enter the market. We may be unable to maintain the current pricing and profitability of our dissolvable plug products, including the products acquired in the Magnum Acquisition, in the future, which could harm our business.

We compete with major domestic and international oilfield services companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution, and other resources than we do. We have experienced pricing declines in certain of our more mature proprietary product lines, primarily due to competitive conditions. Likewise, our customers may seek pricing declines more precipitously than our ability to reduce costs, leaving us unable to achieve or maintain pricing to our customers at a level sufficient to cover our costs.

We have been able to moderate average selling price declines in many of our proprietary product lines by continuing to introduce new and differentiated products with more valuable features and higher prices. However, there can be no assurance that we will be able to do so in the future. If the amounts we are able to charge customers for our dissolvable plug products decline significantly or are insufficient to cover our costs, that could have a material adverse effect on our financial condition, results of operations, and cash flows.

We have incurred and will continue to incur significant transaction and acquisition-related costs in connection with the Magnum Acquisition.

We have incurred and will continue to incur significant costs associated with the Magnum Acquisition and combining the operations of Magnum with our operations. The substantial majority of the expenses resulting from the Magnum Acquisition will be composed of transaction costs related to the Magnum Acquisition and our integration efforts. These fees and costs may be substantial and include fees paid to legal financial and accounting advisors, filing fees, and printing costs. Additional unanticipated costs may be incurred in the integration of Magnum’s business, including through the consolidation of our operations, workforce, information technology, and accounting systems. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the acquired assets with our assets, should allow us to offset incremental transaction and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all.

Following the Magnum Acquisition, our overall level of debt obligations increased, which could adversely affect us.

Following the Magnum Acquisition, our overall debt level increased significantly. As of September 30, 2018, we had an aggregate outstanding principal balance of approximately $115.3 million under the 2018 IPO Credit Agreement. In connection with the Magnum Acquisition, although we fully repaid our aggregate outstanding principal balance and terminated the 2018 IPO Credit Agreement, we incurred significant indebtedness. On October 25, 2018, in connection with the Magnum Acquisition, we issued an aggregate principal amount of $400.0 million of Senior Notes and borrowed $35.0 million under the 2018 ABL Credit Facility.

Our increased level of debt and other obligations following the Magnum Acquisition could have significant adverse consequences on our business and future prospects, including the following:

We are subject to complex U.S. and foreign laws and regulations governing anti-corruption and export controls and economic sanctions.

The U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act (“UKBA”), Canada’s Corruption of Foreign Public Officials Act (the “CFPOA”), and similar anti-bribery and anticorruption laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value for the purpose of obtaining or retaining business. Following the Magnum Acquisition, we now operate and make sales in parts of the world that may be viewed as higher risk for corruption or may have experienced some corruption in the past, and in some instances, strict compliance with the FCPA, UKBA, CFPOA, and similar anti-bribery laws may conflict with local practices. We are also subject to export control and economic sanctions laws and regulations, including those implemented by the U.S. Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the European Union and its member States, Her Majesty’s Treasury of the United Kingdom, and other relevant sanctions authorities. These measures can prohibit or restrict transactions and dealings with certain designated persons and in certain countries in which we conduct business. Despite efforts to ensure compliance, there can be no assurance that our directors, officers, employees, agents, and third-party intermediaries will comply with such laws and regulations. We can be held liable for violations under such laws and regulations either due to our acts or omissions or due to the acts or omissions of others, including intermediaries working on our behalf.

If we fail to comply with applicable laws and regulations, including those referred to above, we may be subject to criminal and civil penalties or other sanctions, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations, and prospects. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, results of operations, and prospects. Additionally, we could face other third-party claims by agents, shareholders, debt holders, or other interest holders or constituents of our company. Our customers in relevant jurisdictions could seek to impose penalties or take other actions adverse to our interests, and we may be required to dedicate significant time and resources to investigate and resolve allegations of misconduct, regardless of the merit of such allegations. Furthermore, compliance with this additional regulatory burden could increase our operating or other costs.

We have assumed certain potential liabilities relating to Magnum, and we could be exposed to additional unknown and contingent liabilities associated with the acquired business, including post-closing tax obligations and other liabilities for activities of Magnum before the consummation of the Magnum Acquisition, including violations of laws, rules and regulations, commercial disputes, tax liabilities, and other known and unknown liabilities. We have performed a certain level of due diligence in connection with the Magnum Acquisition and have attempted to verify the representations made by Magnum, but there may be liabilities related to Magnum of which we are unaware. There is a risk that we could ultimately be liable for obligations such as post-closing tax obligations relating to Magnum for which indemnification is either not available or not sufficient, which could materially adversely affect our business, results of operations, and cash flow.

During the 2019 fiscal year we may no longer qualify as an “emerging growth company,” and we may no longer be able to take advantage of certain exemptions from various reporting requirements.

During the 2019 fiscal year, we may no longer qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may no longer be able to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are emerging growth companies. Following the time that we are no longer an “emerging growth company,” we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Further, we will not be able to take advantage of the same reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements that smaller reporting companies are permitted to provide or exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation, frequency of approval of executive compensation, and of any golden parachute payments not previously approved. In addition, we will no longer be able to take advantage of Section 107 of the JOBS Act that provides that an emerging growth company may take advantage of the extended transition period provided in the Securities Act of 1933, as amended, and the Exchange Act for complying with new or revised accounting standards. Compliance with these additional rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources.

Changes in United States federal income tax law may have an adverse effect on our cash flows, results of operations, or financial condition overall.

The final version of the tax reform bill commonly known as the Tax Cuts and Jobs Act (the “Tax Reform”) signed into law on December 22, 2017 may affect our cash flows, results of operations, and financial condition. Among other items, the Tax Reform provided for a new limitation on the deduction for net interest expense. Given the scope of this law and the potential interdependency of its changes, it is difficult at this time to assess whether the overall effect of the Tax Reform will be cumulatively positive or negative for our earnings and cash flow, but such changes may adversely impact our financial results.

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

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.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
			Emerging growth company	☒

PART I		FINANCIAL INFORMATION	1
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2018 and December 31, 2017	1
		Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2018 and 2017	2
		Condensed Consolidated ~~Statements~~Statement of ~~Changes in~~ Stockholders’ Equity for the period from ~~January 1, 2018~~December 31, 2017 to ~~June~~September 30, 2018	3
		Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2018 and 2017	4
		Notes to the Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2728
	Item 4.	Controls and Procedures	2728
PART II		OTHER INFORMATION	28
	Item 1.	Legal Proceedings	2829
	Item 1A.	Risk Factors	2829
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2832
	Item 3.	Defaults Upon Senior Securities	2832
	Item 4.	Mine Safety Disclosures	2832
	Item 5.	Other Information	2832
	Item 6.	Exhibits	2933
		Signatures	3034

	June 30, 2018		December 31, 2017
	(in thousands of dollars)
Long-lived assets:
United States	$	398,521	$	426,858
Canada		4,880		4,764
	$	403,401	$	431,622

	Six Months Ended June 30,
	2018			2017
	(in thousands of dollars)
Supplemental disclosures
Cash paid for interest	$	(2,688	)	$	(6,751	)
Cash paid for income taxes, net		(1,042	)		(347	)
Noncash investing and financing activities
Increase in accounts payable and accrued liabilities for additions to property and equipment	$	735		$	6,029
Increase in prepaid expenses and other for uncollected proceeds from sale of assets					(534	)
Issuance of common stock warrants		—			2,687
Issuance of common stock in acquisitions		—			547
Unpaid costs related to public offering		—			835

Exhibit number		Description

2.1†		Combination Agreement, dated as of February 3, 2017, by and among Nine Energy Service, Inc., Beckman Production Services, Inc. and Beckman Merger Sub, Inc. (Incorporated by reference to Exhibit 2.1 of Nine Energy Service, Inc.’s Amendment No. 1 to Registration Statement on Form S-1 filed on May 19, 2017).

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		Indemnification Agreement, dated as of August 9, 2018, by and between Nine Energy Service, Inc. and Darryl Willis (Incorporated by reference to Exhibit 10.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on August 10, 2018).

10.2		Amended and Restated Employment Agreement, dated August 28, 2018, by and between Nine Energy Service, LLC and Ann G. Fox (Incorporated by reference to Exhibit 10.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on August 30, 2018).

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

		Nine Energy Service, Inc.

Date:	~~August~~November 13, 2018	By:	/s/ Ann G. Fox
			Ann G. Fox
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Date:	November 13, 2018	By:	/s/ Clinton Roeder
			Clinton Roeder
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)