NINE - Earnings call transcript Q1 2018 | Nine Energy Service, Inc.

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Operator

Greetings, and welcome to the Nine Energy Service First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. to conference like host, to now Schmidt. Heather would turn over the your I you. Thank

begin. may You

Heather Schmidt

Thank everyone our your We Good today Officer; earnings first you. and morning of participation. are conference Energy the quarter Chief and call Service Ann Nine Clinton Fox, to Chief With Roeder, appreciate discuss XXXX. results President the and for me welcome Executive to Officer. Financial

forward-looking statements of reflecting views Some may our events. today about include comments future Nine’s

risks are and to our risks our filings many publicly uncertainties to any subject are revise to advise view our statements can earnings listeners reasons. our We and forward-looking statements results discussed of beyond number with for the Forward-looking which uncertainties, a to actual current expectations. We from of risk control. any and differ SEC. in These obligation or materially factors the update release cause no undertake

financial call most measures a also in and will measures, turn the be include details comments found included also Ann Investor release are comparable Our directly quarter Fox. and in our can the section site. our non-GAAP I today to Web press additional now of first the over GAAP Relations of reconciliation financial

Ann Fox

midpoint were a XX% an approximately very over increase segment incremental free X%. XXXX. the of XX% our Heather. despite Solutions. quarter, the and We midpoint discuss for financial management’s the was Thanks, us growth. in XXXX adjusted were company for cash guidance XX% was yield working Company operations Incremental growth, quarter. revenue X% by another strong Completion million, were an adjusted and had adjusted XX.X everyone. Completion generation part QX digit was pleased QX adjusted by of results for profit flow for in capital the Solutions of XXX.X We increase flow quarter gross the and in performance EBITDA today our the This due you to EBITDA cash guidance our X% large XX%. operational in to revenue joining morning, also Good margins Thank to XXXX. XX.X quarter for of the conjunction margins and from strong EBITDA over first approximately million, strong exceeding approximately with puts increase at see revenue million double in This of quarter for

As throughout price continue increase utilization, cash expect generation the increase to strategically we our flow continue to year. we to

an ROIC the X% also improvement in was which for quarter. We saw

still XXXX we how While to XX%, remain X%. and hit levels track not this like at XXXX is we on trending our of target of

benefit adding only not but all the the think for in most the Solutions we this ability additional indicator of across also During quarter, trends that is service Completion Completion by during efficient a across directly lines. XX%. and work quarter, grew gain our to we increased positive Nine, Without all any the secular American our the segment revenue We revenue basins. of North Solutions equipment market operators share

and last completed increased our more tools completion stages by than example, this wireline group XX%. XX% quarter over For approximately stages

challenge with our rig U.S. continued market for this of X%. see This count in QX increasing side, approximately points, X remaining cementing industry share chain labor the by the On all Nine. quarter supply increased Ford Eagle despite in constraints we by the this to largest

multi-well XXXX efficiencies tools month stages pads approximately of The these month. employees working over increase adept in majority on of came utilization from allow of to stages approximately per constraints the QX, our double us and has and employee come X% line new approximately and increase headcount the most CapEx and already the employees field These to by in majority than have XX.X XX% is the and efficiencies fuel will of significant QX. order driven a are begun the plan for large operators. per new been CapEx, half sourcing the the year. are completion per our This part for averaged wireline continue to in second in labor the in equipment average existing which employee within we by place increase crews an manage putting our for During increased to we stages per on purposeful to ensure to conservative able best our Again, customers. Nine to we in more

focused partners. strategic new development, exclusive IP Lastly, on through internal with strategy. includes sourcing and commercializing we remain technology alliances This and acquisitions technology our three-pronged

quarter Our Scorpion plugs. increased composite QX both and our with sales XXXX have range in every Plug since acquisition the extended

generation these We of next including working are on options. dissolvable technologies, the also

number segment We through QX over update the a Clinton EON tools. detailed and financial had to to additional trials an field to have information. to casing plan provide call on and I turn and would of of still the like walk that, system flotation commercialization sleeve potential other in With the

Clinton Roeder

you, Completion quarter compared quarter fourth of XXXX In first Solutions Thank segment, to revenue an of XXX.X revenue totaled Ann. increase XX% million, our million. XXXX XXX.X

part and XXXX within well wireline million, XX% an increase by XX.X profit adjusted compared gross of as QX The increases XX.X significant wireline. in increase driven as completion activity of to was quarter tools cementing, First in revenue million. gains XXXX was price large

XX%. an first by of from per revenue slightly XXXX, jobs, to completed job first is XX% XXX during increase job average cementing fourth quarter we the During blended QX due for quarter the XXXX. revenue of down quarter quarter. over Cement of mix increased The approximately approximately the the

we XXXX. by per over quarter of the by increased stage of fourth quarter the XX% average The stages, versus increase QX. approximately During wireline XXXX, quarter of for revenue XX% approximately completed approximately an the blended XX%. revenue Wireline first X,XXX increased

XX,XXX XXXX. XX%. the For versus increased tool of approximately quarter an stages, of increase revenue we by completion completed tools, fourth Completion XX% approximately

Production X% tubing for utilization over X% blended X%. The over decreased rate revenue tubing first approximately During first coil tubing quarter average approximately the Coil quarter approximately the was flat which QX. by day XXXX, our QX. by increased during Coil revenue our first was of gross quarter X.X totaled by increased XX% of compared were of quarter-over-quarter. XXXX segment, days to QX to million. was the XXXX X% fourth Solutions million, profit adjusted a of profit quarter Adjusted XXXX million. approximately for compared million quarter XX.X fourth X.X decrease first revenue gross of XX.X XXXX In quarter

for for utilization QX a hour During flat as which the activity The X% activity was well well QX. Wyoming XXXX. $XXX, as [indiscernible] during driven well had flat was per was XX,XXX, quarter QX. was XX% quarter, services average decrease quarter rig rig was over to weather of decline weather. Total and first versus by first approximately in the revenue which due versus decline services in decrease revenue Average the of operator

and XX.X quarter The the a of During reported quarter to share increase compared the selling, XXXX, of company of million net diluted loss XXXX. company per compared in stock-based loss. per for or first due the and of liability fourth XX.X expenses diluted reported XX.X the reevaluation net of of $X.XX general quarter share the to of compensation $X.XX to Scorpion or million administrative income and million This was largely million XXXX. X.X fourth

XX% million net X.X XX.X by which of expenditures QX quarter, was activities X.X During were cash to the operating company XXXX. capital million reported This of XX.X the provided maintenance approximately million, compares to QX. million compared first CapEx. from Total in

the As incurred be expenditures Nine’s a XXXX of majority half reminder, second of year. in capital will the the

million, of million of XX.X our totaled equivalents XXXX, Nine’s total million. Nine’s XXX.X is XX.X cash March revolver with As XX, capacity and liquidity position cash

XX in in Our DSO also QX. days decreased to XX from QX days

During will and as was Ann rate primarily in as exceed to valuation effective the allowance positions pre-tax quarter XXXX, well where is X%. turn now discuss tax the attributable back company’s liability losses. income effective tax changes was of it available to in QX. net states income book first operating expected income rate to to I The tax

Ann Fox

you, Thank Clinton.

ahead we quarter line both of and top QX, adjusted the EBITDA. As sequential on we look growth revenue to anticipate sixth

and revenue feel Solutions in We to a a will on American growth us intensity driver We capitalize XX North million. in XXX and company. the mix continue geographic favorable macro our expect million increase completion between with be portfolio XX and and Completion coupled for XXX adjusted EBITDA to total million and between million the consolidated footprint activity shale. continued position environment of

We continue be anticipate cash guidance CapEx increase for offerings to expect and us discuss positive strategically within to flows to year still pricing with technology cash allow service our and flow differentiated XXXX. and utilization and to live we customers. Full remains our unchanged

the to business of potential both and We that track to moving ROIC metrics an for are executive want is largest capital. management I target most being to is one which part growth remind the of good Nine’s single the where X%. focused XXXX reiterate of investors’ of team opportunities, used are to and our targets capital deciding compensation our I of on evaluating that forward. deploy strategy hit everyone measure the important of for entire bonus important stewards is ROIC when will continue M&A on

open up to call Q&A. We the will now

Operator

Thank will Instructions]. conducting we you. question-and-answer be At this time, a [Operator session.

go ahead. from question first is Sean JPMorgan. Our from Meakim Please

Sean Meakim

morning. you. Thank Good

Ann Fox

Good Sean. morning,

Sean Meakim

the through about we’re quarter Ann, second So, here. halfway

back half, service the Just most the you just weighted, half which particularly to see and move your curious second you you momentum exit deploy curious, within the assets lines as quarter product would potential back or the more we the Completions plan there? portfolio, carry operating say given where incremental most into

Ann Fox

question. Sure. Great

our as of our in QX of most be when coming at capital and mentioned, you QX, you QX, equipment. look on most will So capital

come momentum very our So division our completion to closely operating is for out we and think by QX, followed most then cement. the of and wireline going then tools first

the big those we’re with activity very lines is there. seeing again pickup what two there out So in increased

put So grow even on. even the platform we before existing to equipment new within lots of room

Sean Meakim

even it Got lines that. traction a you getting the Completions perhaps year, it Thank number product cost. sounds of pricing in the in it. like And net for on of side, you were earlier

curious, and opportunities fair you for quarter? think in given about Just how a you have asset for that that second the capacity just amount of just fleet of fleet kind is how progressed share tight utilization have things how curious assessment And today? headroom market the is your your

Ann Fox

Yes.

you to utilization move now and I be not to really equipment When think gain So share coil share that about tight would how is. point growth not for room that right so market it tough lot utilized units, we a Ford. the tubing at cement, in if of Eagle X if incremental on putting again, due is think market were after look that you

However, expansion job digit of count Texas. see we’re doing double in potential the West we a do that

at And are so surface tools and it’s of completion our the wireline are really your to still below, utilized So and answer then lots efficient driven headroom room as are. so how question. there those well by operators know, how you trucks staging

we the instance, to push see plug We those pad lateral completion multi-well continuing. continuing see drive, intensity which length is margins those to sales growth and for So to as well as we trucks. that get from continue going

excited pad driver for environment So right grow that. of multi-well company the about the as just is U.S. and very those room stage lots that think now multi-well that’s we’re growth. count as on of important about to market a really pads. demonstrates We a is And XX% just of

cement let So lots your questions. again, didn’t of if and room know there. answer wireline me still that But

Sean Meakim

very was Thank that. you No, helpful. for that

much for thinking question how the there. drive of you for those Could types you relationships getting you’re good share relative plugs? to, within had just penetration just existing opportunity ability that those about other give you’re lines? Just results to but some for looks I one customers seeing I wouldn’t to of Scorpion. market us thinking the sense utilize say Just new a It bundle, like the of of your – about to other service leverage customers more

Ann Fox

tool share Sure. proficient a What is a in drives when manner most performs beautifully.

really the tool growth. the primary isolation Scorpion what’s behind that’s driver so And product

cross know, to As bundle you this sales team one try ever well or line. through likes to never justify service

have themselves. these to sell and products absolutely these So services

wireline where that as the got, time. couple with how in relevant fast bit at you’ve a very it on technology operators lack can the powerful of that drill like there does instance, accelerant as is for pouring execution plugs excellent really of of they is instance so drill what’s not saving out, an you and well service something What that is the but And kind for Scorpion when combination that. still

real a So combine best can you best winner. that’s execution, with technology service when us for

Sean Meakim

Got a it. lot. Thanks That makes sense.

Operator

ahead. from Bailey Jud go please Wells Fargo,

Judson Bailey

Good morning. Thanks.

Ann Fox

Good morning, Jud.

Judson Bailey

there? what a could, maybe you’re Wanted seeing kind to talk on a a of discussion on just up go little more always if plugs Could growth big you number the more just primarily saw follow great? where into was kind the tools you you’re the be our on Scorpion, growth model. or would and of the and a of about I little there? bit of there detail seeing across ahead little completion wide in Is maybe products Is it it color

Ann Fox

Sure.

seeing most – we’re lot the that actually importantly product So grow we of new in a MidCon. most saw line share growth

customers growth new We’re new sales. in well with total in we’re Northeast, lot continuing seeing a to so as the increased see customers the across Texas West really [ph] basin. But also of as

for So that’s tools. completion been well a big driver as

the growth tools. We that the sleeve, answer all the so conversation But isolation question, leave QX has I’ll about in you also to in the casing to of your to are and been EON to toe going seen QX. in We’ve well. talk it detail exclusive that not for floatation

Judson Bailey

you. that your you seeing opportunities pretty out the if have part your interesting on anything comment M&A second improves? at now as Okay, maybe your you’re is super. perspective. you is, vocal of looks activity looking Thank an I’m been in from perspective curious there. question just how – strategy And guys M&A Could landscape

Ann Fox

technologies We’ve see relationships teams, time. great We quite and with few of a had interesting of a lot opportunities. period folks a for

that to of will is this strategy I year. to say deploy we our view again, you’ll be important M&A. be team’s push how it my will capital relative responsibility see our up I So, valuations in and part an disciplined own is think this

is it our one also team of management can said, where the destroy but piece I’ve fastest. capital strategy key a often the is a it As place

we’re very and so see and valuations very what really The us So conversations you’ll about best excited usually fair us be partnerships very be means and are focused disciplined. that’s the for upfront that we’re we’ll win-win having. on

Judson Bailey

Okay, it I’ll back. it I turn and appreciate

Operator

Holt. Tudor, Our next go from Pickering, question is Please from George O’Leary ahead.

George O’Leary

guys. Good morning,

Ann Fox

morning, Good George.

George O’Leary

across change on Just not is some wireline what side to and larger spacing, the fracs, we’re even your kind curious so Is in well, and coil – of given seeing as business broad looking are the curious, your of interesting of down do wells about, forward? spacing, on well geographically from as well, presence going what the trends equation tubing multiple their it just quantity operators you Ann, completions of to thinking zipper construction, – something given lines? kind cementing of designs more and presence you’re well more

Ann Fox

Sure.

increase So certainly I I we’ve will talked the the think earlier multi-well percentage the continue. of about multi-well pads. would say in that pads the

come XX operators some talk and construction seeing well about You’re XX out to of pads.

So I you’re is well check. across increase because a helps heads great to trend company, of your lot efficiency this you of which well keep continue moving again also which number see think for equipment capital heads in the optics and drives we’ll that a

construction we the start to in the also here changes next I think years, see generally that Nine how we’re the you’ll surface look change as out is to the massive the for we think some over see at five done in is you’ll equipment using complete what three wells. the industry to and

George O’Leary

production labs stream you done that Okay, what and the in cementing recently and that’s business? your particular work guys opened have facility in most is Hobbs that’s you the to that more last guys then very Hobbs, year. on New you win Curious leveraging Permian cementing facility the the interesting. benefitting how are Mexico if And for has which three side

Ann Fox

at Mexico we so is XX%. did up that just New because you times. very when make if decision put year-over-year was just difficult uncertain we a QX not of in which I’ll to it’s if think permitting, But look 'XX, remind I So the you Hobbs had place decision

is really month that So that’s month, a And permitting indicator. over good number XX%. up

looking Delaware there’s that acreage. they’re lot and So to to at of really that but that come indicates basin. team operators to work still critical not capabilities is What’s a your distance audit this that only lab coming really in they in

operators So the back over service some the there think selections year come half. service out us and of the have up, now through thinking two that from with we and about rig into facility or had it are making precluded may that their we programs of large next not getting early providers

that that been to critically And you’ve distance is site you really well roads important the implement. two So already time know are out lately, the if to there lane difficult.

So this to and often isn’t XX plus as the flies you’re move your crow times materials. just making to location trips

this making and really but to was us not but place really that forward, a and that they question, just your credit thinking for answer be now surgical to going would my credit to looking choice program, forward. capital a would the to So not differentiator be at operators’ very team’s where massive again

George O’Leary

Thanks Ann. so much for the color,

Ann Fox

you. Thank

Operator

question Blake from next Our go ahead. Hancock Weil. from is Howard Please

Blake Hancock

morning. you. Thank Good

Ann Fox

morning, Blake. Good

Blake Hancock

the about here in you Maybe forward maybe topics oil change the Can and that in first year what go maybe Production seeing progresses and here? over we’ll – to here talk Services. throughout maybe how XQ servicing going you’re

Ann Fox

thing that thought service Yes, price lot we’re up I ramp was would at I well a lower was what really turn think think than by of a the when that one now. we And that still mystified does there is were on. seeing service folks commodity well much really market

think side. see on seeing motes this a is many space. [ph] business this times said and the you’re before, certainly It commoditized the we’ve that around So doesn’t I the Completion have we

labor late, to So our partners the on technology base. into business. technologies service through – facilitate the more we to to using could that and same footprint potentially driving we’re working pull revenue way some rethink we’re over this approach as of starting And talking well the national same

that’s think business. putting only I around about I mote think a up when that can So the really way about it,

what here. businesses is the the we to primarily as of be seen. driver it’s So Again, saw yet not that

mean However, room the the that’s of well to well any ignored to that for it and that the how is there’s not I thinking time a think do production if phase fundamentally ground ear the ignored is opportunity. putting doesn’t of way, that phase about change and largely their team you space. have then

So it years XX this business thoughts is – ago, this. years ago to to to work XX is that and our put it how the of team shifting ago, real now similar means years some XX very did looks

this And so very for us there out could of come potential some things be exciting business. that

Blake Hancock

it secondly, heat healthier if a allocation doesn’t That’s great. now flow then. or or maybe think XX more a provide And the obviously about event cash be do months plan between free a do dividend like and that of and a maybe some maybe M&A capital Would up XXXX and so? sounds M&A How for shareholders? for buyback more to you there maybe

Ann Fox

Yes, sure. M&A shocked absolutely see if until as didn’t and to be XXXX event I be heat up would a clear. that we XXXX

balance the when at think I intention team has that on sheet. the So on our balance cash you the no sheet, look balance of cash holding

So we’re disappointed to we about dividends I we’ve growth got were again as fruition. where those at a thinking doing be were few would if even company. come and position a in looking things we that hopefully an emerging

Blake Hancock

Great. guys. Thank you,

Operator

question Our John Company. & next Please Simmons go from is Daniel from ahead.

John Daniel

Hi, filling in. me Thanks for guys.

Ann Fox

Good morning, John.

John Daniel

M&A up I these want to all Good morning. questions. on nice follow

Do have of to cultural good those view either what strong you challenges you consolidate compete are if appetite is of there companies As the with a options across you consequential consider willing know, more there a segments. and likely you looking myriad players number at on those larger some I’m and versus your deal? opine? would potentially of small what to different out deal the more the curious that of a are private

Ann Fox

yes. Sure,

this this were about pretty on but focused will acquiring we I this geographies year. in think be team clear honestly December

as in we’re Continent. So said have times, many the underserved we Mid

DJ-Rockies XX%, in up underserved much look permitting And at XX% month-over-month, Colorado year-over-year. very also area. if We’re you the we’re

taking that’s platform. OSS the to operators the certainly you many, area capacity said building in of in and we’ve many that start So takeaway sustainable and Permian, this discount a opportunity times we’re at are when look

So it’s and in spread for important be out us geographies. to these

for And to have we we the to again, that those to teams. focus means geography of So think me, keen lines very the excellent barriers fulfill inside service geographies. that is strong that like, we’re entry tuck-in with

we I obviously where culture be would team for would careful that’s But be way. we very an that good you’ll and excellent if have to incredible I’m the anything this built team although would some management with we’re that always open not surprised see with focus. capital So deploy swing because – ability a big an to fences, comes us do our very organically.

you about So to. really need you where be paying careful premium a want to don’t

John Daniel

how season more And within actually curious workover you. increases, et if cetera. guys to Thank been outspoken the rates peers? the space, on during there the segment don’t assuming And up no of if I’m gut consolidation within your frontlines it. rating them what attention know a upside think, have well, Got this said earning what from have to has just pay a team as just follow much some And exists you seen you feel, about I bit any, larger do unfolds? but

Ann Fox

a so incorrectly of of called as we’ve strong more again, And this this all service we out that’s great called increases. a little price lines, and our people said, because thought is for this opaque many is Yes, bit question.

about forecasted conservative thinking we this movements. really when business, were we price So

So we’re here the is just up. movement traction. to in Where pick we going wouldn’t of expect pricing activity in get a margin the lot

now. been too that expect into segment a how I as see consolidation already this within much just the you or torques in kind don’t right some big believer understand to We business is this well service traction the consolidation the facilitates always would constructed a price seen in also I’ve pricing have QX But wouldn’t have of in QX. I and any business that completions.

so in production consolidation used in drive would price. phases to a believe of that to being see the fundamental have shift I’d really technology well And the

John Daniel

to equity-based the last With one the adjusted And Thanks. excluding that one. EBITDA is me is respect comp? for the housekeeping just guidance, a

Clinton Roeder

Yes.

Ann Fox

equity-based adjust comp. We for out

forecast adjust that will out, our of yes. all So

John Daniel

sure in right? that’s there’s QX, for is, like comp there actual making an all, sounds contemplated which number equity-based just I’m

Ann Fox

Yes. Yes, we do.

John Daniel

Thanks, guys.

Ann Fox

Thank you, John.

Operator

Instructions]. [Operator

Our next Goldman from Syed question ahead. go is from Please Sachs. Waqar

Waqar Syed

Thank going clarify, $X.X be non-cash within the kind the second for comp that million to to you. just to million $X.X of range And quarter? component is

Clinton Roeder

what look SG&A without Yes, you I the if comp. with at about we’ve think and before the stock-based talked

I of range think full the that for think year the kind ballpark, in X.X% as So this the where we comp. looking it at stock-based I’d look at we’re it about way about on should is

Waqar Syed

Okay, are interest there? pickup all right. sounds good. of It the you outside customers seeing of outside activity any in And – any Permian as on well,

Ann Fox

are Yes, the we crude, for the I are. coming of in lot basins see forward within important have look for level Dakota competition take that And the a you activity of we when these per real the don’t service Resources that discount North us indicator a Continental think potential Permian the which I going a at same basin. and again Oklahoma think because see moves, operators is again you of in only $X.XX as their barrel outside commodity $X to to also price companies that’s and

to we the that partners said drive just and kind very to also activity really we’ve our times important of It’s of and many issues that fought and footprint up hard because operators So have when volume footprint technology there. out not held pick these hold we downturn. a footprint many, for but throughout

of really basins. excited So we’re these about other getting some

Waqar Syed

of inquiries interest, would them? customer terms you if you and Permian outside were the how in So the to rank rank basins of

Ann Fox

love we’re Utica. love big Northeast, we Well, – the we the for us

and basin us big drivers with for a is SCOOP/STACK. of love Utica the we So there lot potential

see and Colorado we – something of we also – a potentially see as to. We’re I get and get that’s said need lot forward to earlier, activity again, in after we exposure coming

say us would for our and to SCOOP/STACK. we then position clear, relative Northeast the be and context to So the

Waqar Syed

question much you Okay. months pricing just how and Has final that the last business. of And landscape in couple on in the market? see changed cementing the competitive

Ann Fox

It’s a great question, Waqar.

publicly our looking CapEx do come CapEx seen originally out change But haven’t still announced and the into we anything programs. are operators programs. their massively to We

think into cementers to increases. going walk struggle down where pricing there’s we’re to rigs that that and means means for will coming really online that and the service additional existing really for I tighten going So to operators cementing that’s room things the

as for room line. activity see we increases increases that for So as well service pricing

Waqar Syed

Great. I Thank much. have. all That’s very you

Ann Fox

Thanks, Waqar.

Operator

concludes turn the for question-and-answer to the Fox back to you. like I’d any closing floor Thank Ann This session. comments. over

Ann Fox

the value Thank all our constituents you driving call in Thank for for partnerships of your investors today. focused you. and our employees. on customers, appreciate the We remain and participation with

Operator

This concludes teleconference. today’s

You may you disconnect your lines at your again Thank this time. participation. for

Nine Energy Service (NINE) 14 May 182018 Q1 Earnings call transcript