NINE - Earnings call transcript Q3 2018 | Nine Energy Service, Inc.

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Operator

Greetings, and welcome to Nine Energy Service Third 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. I would now like to turn the conference over to Heather Schmidt, Director of Investor Relations. you. Thank

begin. may You

Heather Schmidt

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

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

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

financial today press website. in measures to Relations comparable our most also directly include comments section the in Our third additional included non-GAAP reconciliation a be of details found the and can also our financial and GAAP Investor measures, are release, quarter

date call, Nine today's QX is will only. will XX For X and are and October which again, QX as their filed of September of month acquisition be numbers an XX days by under auditors business so review this Magnum January on year. XXXX the X, for actuals begin operational results XXXX of by financial of we legacy with XX, the X-K

tool part the reported completion service completion included our and in information our our All be of as consolidated segment Magnum's acquisition date lines. from will forward financial solution results of

turn on will we trials, will to our guidance call Fox. to technology Finally, our Ann now over XXXX QX outlook. the provide an and call, update I the end

Ann Fox

today Thanks, X%, by management's approximately the strong midpoint morning, and for of We of for adjusted results Thank revenue differentiated XXXX. Heather. by guidance us approximately EBITDA and original discuss exceeding midpoint had joining of another everyone. third guidance to our quarter quarter you Good growth, the X%.

the million, a outperformed approximate points points EBITDA XX%. margins X% of to were in XX% yield were for for company for the QX. XXX% was net was the an segment ROIC increase Completion XX%, of EBITDA X increase revenue and an we quarter-over-quarter, of segment. was generated XXX quarter was service margins $XX.X X% basis All the over $XXX.X $XX.X third Solution across quarter from Company quarter adding ROIC QX, over approximately increase the Incremental XX%, in million, income this incremental approximately lines segment Completion Cash approximately up adjusted profit over X%. that and approximately profit increase of Solutions $XX.X and adjusted of XX%. million, margin gross million, adjusted of an flow an was for our approximately percentage approximately gross operations QX flow our cash adjusted

in well side team and tools day-out The continue technology the wireline. is our part as strongest as service pleased exception across with our best the see and it's by completion our XX% very quarter to Completion our price increases total incremental from quarter and due completion this XXXX, XXX% an while stages our increase increases continue the both, of equipment half increased approximately since who and increases Solutions by this this the lines increasing across company XXXX Throughout quarter since to execute are XX% a stages adding participated end of day-in simultaneously in of coil customers. the strongest have as the We over back lines with completed seen wireline jobs average and providing to tools completed quarter-over-quarter. of the to in by the almost with our outperformance any of At all increases gains. jobs. we coming share by incredible have large the profitable until service QX, tubing performance year on our per X% quarter U.S. cementing, with without of service In total revenue activity we market in all wireline, the the increase of and in U.S., well our end of field and

begun We measuring their the times focus down on cycle to they and continue efficiencies, hear reducing from increasing minute. service operators about to and providers have

these trends our on that customers, built partnerships sustained proposition solidify provide performance. we value and try of Nine with All is a as always we to

plug For of two Scorpion tripping the XXX bed. our northeast days a an with the and per operator plugs in costly bed Recently of well. than cycle of saving replacing the time reducing drilled drill out Scorpion is Composite process and our example, single out operators the eliminating well more and in

Nine, forward We most the the also on and numerous and North we provided At the all with wireline this work leaning wells of working XXX runs. on completed most completing complex thrive stages across well America. operators

and Moving cost limits push our increase forward, focused and remain to providing on to production. on completion, we help service will technology the reduce customers

this previously been have a wage year. bottleneck in we significant saw labor the in first inflation and the we discussed, half has As industry, of

of in was wage anticipate margin first inflation taken later inflation relatively majority XXXX We to XXXX the year expansion more I the wage the quarter-over-quarter. company for in call. the quarter was will to the speak half during and This of contributing flat,

approximately And headcount headcount end we QX. XX%. by increase we QX incremental X% added XXXX, the in approximately of During versus X% our have of XXX increased an over since by employees,

discussing employee to Our Nine. multi-well we've We per their more manufacturing pads. on XXXX. excited trend team this during I'm average extremely operators transition to an over join call, us we Magnum per are we acquisitions completed the mode thrilled in to another welcome to be Later have anticipate will also XXX% October. in stages, approximately continuing month increase XX.X of as approximately was in QX stages

and to new positioning $XXX leverage [ph] the net reiterate facility. in are AVL structure long-dated With place closed premier capital including technology proven due technology, XXXX, October enhanced debt X.XX% staying in profile. I put service transaction both debt conservative of and new maturities a one advantage aggregate in of senior team amount completion-focused Nine of now with We successfully Magnum to the we this acquisition excellence and believe this providers a our that we've trends. optimal reminder, want and and dissolvable the of we R&D of a As a we conveyance X-year to combined million first-mover capability. with of Tools offering ahead as ensure in approach in $XXX financial EBITDA is private million internal closed have Oil credit unsecured execution notes flexibility, on to onetime strong principal a XX,

extremely With the have With financial XX our to the next detailed to over confidence growth to in cash would within were the months. we We much XX the segment a differentiate. anticipate and quarter. with and this information place I that, still reach in more turn the like becoming so and the generative, reasonable continued to walk pathway earning we execution the Clinton company ability target through other for leverage team our pleased to quarter call to

Clinton Roeder

Thank you Ann.

quarter only operational our increase for segment, Nine metrics. $XXX.X X% all XXXX legacy not quarter As In metrics an a the second information compared or of and $XXX.X Solutions business million. financial are revenue third Completions million, to do revenue Magnum include and reminder, of totaled approximately numbers any

XX%. of profit Third quarter approximately adjusted an and adjusted increase profit an margin XX% gross XXXX gross million, approximately of was incremental $XX.X QX, over

second During The quarter for the over quarter. per increase the third of job average an XX% we revenue approximately blended XXXX completed quarter by approximately increased Cementing by the cementing XXXX, jobs, increased X%. of approximately X%. revenue

double one to QX receive double [ph] QX. single prong half received of we stage back the delivery single expect unit prong and in pronged and one Towards of one one and

of revenue increased the quarter received approximately completed increase Wireline average XXXX, X%. any the we second approximately for additional quarter year. blended stage versus During by growth of per an back-half XX%. X% the will increased incremental capital and of XX,XXX approximately receive this wireline towards The units two stages, wireline QX quarter. the revenue units not We third

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

third decreased man X% maintenance approximately by to from a coil quarter. due this our quarter, down unit were the days tubing days for During XX plus

increased no for strong coil units approximately the X%. large revenue our revenues of the units quarter. by day X%. rate which XX%. the during tubing end conversion did provided approximately at diameter We XXX was We of quarter demand blended see September increasing QX this continue with the utilization third average Coil to our Coil by contribution complete for tubing

$XX.X totaled second compared was million quarter this units of Adjusted second adjusted increase Solutions be approximately XXXX We of gross $XX.X Production year. million, of revenue profit quarter XX%. revenue quarter million, In will additional to to segment, our an the for quarter of compared not third an profit gross X% adding $X.X XXXX second approximately million. $X.X increase any

an quarter, was quarter rig XX,XXX, X%. Total XX%, During the the increase per approximately of for $XXX, during services hour of increase Average approximately an was had of hours of utilization increase ta the third rig well an X%. X%. revenue

compared administrative million to and the of million $X During share diluted company and This expenses quarter expenses legal reported second selling, $X.XX per $XX.X the compared quarter, was million or Depreciation second to of general costs. the the in largely third transaction of in The $XX.X $XX.X net third increase or quarter. million, net $XX.X of to million million in income and professional income expense share quarter. second due in the the reported company for per was compared $X.XX $XX.X to amortization quarter XXXX. diluted

effective book During tax XXXX, where rate a primarily in positions; in X.X%. and is attributable operating rate net company's the was to income as exceed the income The effective expected to tax losses. well was changes quarter pre-tax quarter the for available liabilities third valuational of allowance tax state

This change was of to be major net XXX%. XX significant XX compared an $XX estimate capital quarter system reported in QX, averaged resolved. million million During a has CapEx. year million, CapEx The increase compares $XX.X average full million anticipate the to provided approximately compared We customer approximately for with total company of approximately increase QX, were which year. X expenditure $XX.X guidance third approximately of QX. of DSO the original QX. in days XX% of million maintenance is taken capital million third within days the $XX.X which $XX to been $X.X being a of expenditures DSO full days during and for implementing operating by due cash to to in We quarter, activities was days to Total XX the portion

position liquidity XX, equivalents revolver total a will September and Nine's September I was of capacity our it million with Ann XXXX, on cash $XXX of XXXX. turn guidance. million; discuss trials cash now As back million, technology $XX.X XX, to $XX.X to totaled and Nine's

Ann Fox

Throughout trailing the either year internal or through been downhole Thank R&D. of source you, number a completion develop have Clinton. strategic through we alliances

times, portfolio lateral links but We System. competition, completion many anyway overall and methodologies compromising without we have which gap the searching purpose. production allow while three with as the are we intervention distribution and develop reliable, reducing need have was an this not leave with technology cemented tools Fleet we continue today [ph]. said will catalyst our for tools to customers of in the feel for cycle reliable our agreement current to risk, that been we do All At extend EON our our application designed will time in industry, Nine, intervention-less the for for well-bore to discuss

exclusive pinpoint in the rights As U.S. sleeve activated ball, single a distribution an System which list, reminder, is has frac Nine system and for Canada. the intervention sized EON

ran During the at took trials, of a team majority the in place Canada. of the year, Nine which number

will successful, tool being commercialization. need challenges some While experience developments before trials did ready for and the downhall were further

to will EON XX% in a cycle strategic wellbore. believe to intervention work today with the the to reliable, of play technology significant of and continue from XX% will time, to plugs on XX% are imperative; next that total offering is system. and We We a risk the a reduction of grow the years. dissolvables Dissolvable partner sold our the evolution to XX% X will and X having dissolvable anywhere in role

plastic and this innings opportunity the still participate firsthand presented dissolvable working we've allow our capture has we was When to on in prolific the it extend. itself, offering, to will this We market adjustable number dissolvable and barriers necessary, market. dissolvable with technology two, including to expand are temperature will addressable the year grow Magnum be this would which in and believe growing future. in dissolvable teams stages for plug low started is to dissolvable Magnum total next-generation This forecasted of already a technology, While are magnesium dissolvable market. year and and Northeast, as dissolvable and internal entry. and and Permian the portfolio, early Nine our introduced to technology. links own dissolvable plastic suited technology important market how we partner the market share a recognized the knew plug working the a for lateral well internal this Magnum experienced overall the growing proven of on

cost-efficient able in year. in eliminates trap introduced market flotation highly Our barrier see will helps to and depth reach what to shatter casing by receives The pressure only those operators market that trap. extremely development tools The and will differential team work work conjunction final a and U.S., sold and efficiently in most be substantial with in shortens added XX laterals feel on it remain not technology access run only cost. of a engineered precise trials focused also on We [ph], have the reliably, by used R&D incredible significantly for shoe the an provides and a take system the and trap, called to device number share by large applicable eliminating breakthrough in addressable we in floating market plug but potentially Ford, will this technology exceeds increasing successful, patents the confident provides abroad. the and and with is money total techniques. team, to of downhole have with can in developed components products for operationally upfront The tool in casing in tool long EUR. tool Magnum's allows laterals. designed Canada Nine well device. with first longer we QX Nine trials Frac reach lateral eliminating from at debris casing growing of success assurance flotation similar the failures MidCon under receive and per tool runs not our a ensure Hall oil-related Norwegian operator wells. not for casing Technology; no the uses teams over using the with strengthen Canada commonly Claire for debris throughout operators and in is and Eagle and more but is We the the patents but continue technology The unique history the bottom conventional Permian, The fall scheduled of we the tool breakthrough Northeast, in are and this development. has bottom DJ the propel company with to Chief The XX-year material the October. growth team and reliability the the To-date, The need acquired as that Officer, industry. tool method a IT adoption The the to the frac and will durable to far are a and combined and currently for Technology the because of been this will and Norway

on we the expertise are the working deep The currently breakthrough and as we throughout wellborne. Technology completions of future. team Frac has the tools on tools the of tool, focused the excited the always While are are about next-generation potential of in

and teams the and teams in abilities by fields. to do intel knowledge, of will we We our Technology about with our what Nine, are customers combining the be for service Magnum extremely R&D execution Frac excited able

QX Lastly, Nine QX months XX. the we days Nine like what talk two note, see Please business, about legacy I for of Magnum, the and guidance the is XXXX. contribution consolidated reflecting October Magnum to on transaction of includes for and close would and only six and and

$XXX accurate million, every want year and we million. $XXX million million for an QX between revenue I rate run related holidays between the consolidated total proxy exhaustion. that and EBITDA expect budget for is to to $XX emphasize see adjusted OFS and we weather, QX, and For $XX and slowdowns not

remain cautious being and operators overall XXXX and the budget on While positive seeing we fundamentals outlook for within very are more industry for about this the year, XXXX.

foot, best with approach cost to been more our are with efficiencies Customer capital within production allocating price. large to we completion to customers to and are efficiencies consistent will type lateral doing the as of less, differentiate the deal We at Those longer have OpEx XXXX. service future. gain site. and working today for and for and focus customers Operators the market and they laterals cost the pads development safety mega ensure a more translate ability providers as and continue Nine, in are reduce seeking with with both to on towards well predictability well the to timing, the more capital well work balanced, share

increases on with We and working in with those our are their XXXX plan most customers activity indicating production. currently

conversations XXXX we Because XXXX in provide portion work XXXX. we formal of equipment gross capital While for not there. will of year is have our a on Nine because solution for line demand ordered expect service these already growth this we within another of our our guidance call, completion

to while maintaining monitor We labor, execution. another service prioritize and to and anticipating will XXXX brand will Similar continue XXXX, capital year plan our are wage with our inflation. returns

is positive flow cash invest generation, less as profitability. entry. margin Because in and cash increased addition as XXXX, capital and efficiencies multi-well increasing higher Magnum Frac continue a Oil more Technology, development, well we intensive the and through in this pad of much of while gain operational with a see capital to Nine can ROIC labor generative Tools, we With to and a free less our as barriers trajectory expansion, to we pathway

go Our our financial service good believe being have ultimate cumulative and goal [ph] shareholders. while sustainable customers we is the for better platform, our best technology service Today, for shareholders. teams able risk of on to and to focused capital to we oilfield return service blend mitigating increasing with our the right

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

Operator

[Operator Credit Our James Instructions] with first from is Suisse. Wicklund question

James Wicklund

Ann, close just we're have only the X completing some introduced years X and first has Can on not to people into dissolvables; or upto chemistry adoption further expect XX% that we're market. on years as market, in were for at after it's technologies of us an in The of or they positive done now out, X acceleration it's were tell plugs. rent the about to dissolvable the first you couple dissolving dissolving X complained balls, you be you're ago changed, why laterals obviously a dissolvables? you for years and XX% of the expect where great

Ann Fox

and a unwillingness of one a in I of in composite 'XX, to North mind think is, entered getting increase one, keep to years great saw; so of two sign past we traction gained XX% the level decline engineers that beginning then the America, worse to be. lot XX plug has think thing it the really that what XX% much relative would majority obviously Completion's through been XXXX got to are across in fired when we months, in upfront can 'XX the AFE and any

I the that So rate. really think adoption timing

engineers. was and disaster had dissolvable lot shook technology, Canada, also of early a large that occurred XXXX technology, early a job in Magnum that We not real with Completion's that in a

on a for healthier, XXXX, a the and lateral shift proliferation think was from of to beginning multi-well again, huge in seen two-well in radical links pad became we've rare get movement market us pad XXXX. So Permian backdrop in the very also the in have it XXXX, seen as we dissolvables up I

the really again extension on multi-well risk the growth technology, and has dissolvable this into the of concentration that into 'XX pad So deferred lateral link of year.

lot we've a and playing X seen seen tool past dissolvables. I quickly climb a also not as have across field operators would wellbore the of the have with around full with dissolvables months. so We say And we over

talking years sure if answers count but I'm go that not I'm detail So to happy out X about. question, X years there that more that in you're your into

James Wicklund

you makes and stepping willingness of technology play out follow-up area very has acquisition demonstrated another you you're helpful, play. to to? grow just out huge an is with it. amount Magnum currently better the that I and a that step area currently of That's My overtime. in I every gotten Where mind appreciated don't It don't sense you you where if could; wouldn't

Ann Fox

concur XXXX think here I we've company. for of lot geography a of the by growth in disciplined and a terrain many America, North be times, to said marked will for lot organic us

in lot in a management a have the services to Frac tools lines, leverage work team now these we've of technology and Technology. We and established to very Magnum do got really

to XXXX both be at combining but say looking I growing obviously gap is and/or be for make we we're nice And we'll that service there marked strategic technology, service time as out that always we organic but feel any growth. well alliances we're bolt-on sense exposure by hanging North right keen So in of across this have may that will into and acquisitions disciplined don't line not those don't in very now. to America as that there get technology, would line some

James Wicklund

opposed from lines? we to expect So like place organic product up as adding the the Rockies in and exposure basis new the of an MidCon should beefed

Ann Fox

we the when to again, sitting we're find team. we mean here such want justify to Jim I Yes. a never but it never with say talented premium hard

obviously, So focused be publicly those the we've that and always area, often and Mid-continent we'll said areas. in Rockies underexposed the on we're

Operator

next from Martial with is Our question Raymond [ph] James. Atkins

Unidentified Analyst

like if, really last is and almost implies how one almost higher asking seem about of stage into across of to case, unit getting in the revenue pricing And you're What terms quarter. to like outliner price 'XX? that improvement or seems posting your talk technology is that's board an realize segments issue that going or your ability every it does you're indeed That because look pricing the adoption? a guys per You every mix whatever. be or I'm or per sub-segment

Ann Fox

line price the an Completion was we to Yes, just in relative didn't to see a service that where did. that's basis. tools only mix, going on quarterly and increase fluctuate we show you're The

absolutely tools Some but than as well correct, our including price quarter-over-quarter, increased others other line are every service of obviously activity you production gains. carry inclusions prices different as

of proud very we're So that.

efficiencies said supervisor facilitated significantly, our but the improve facilitated we're more sometimes technology continue tolerant-fleet sometimes good that operators we're with [ph], by at throwing the it's in all process through we've with -- up think mostly over that is we've feel don't zero times that working differentiation want most many the to I exceptional by it's equipment, and to we the think mistation/misruns service [ph], infusing they're of do the just combining tenure. industrial execution that I level close level, but paramount it's darn defect that. pretty incented, is our differentiated. out the it's We so over got seen just centers and our X.X-year execute out And have continuing folks team every -- very we've the day our we we've seen district field motivated, operational to which well single to the manager extremely really there, in CC say Nine, certainly improve significantly,

-- to lateral when well we to continue a and we're have bring comparison we on relentless customers in execution that the partners. to I you that to learning predict are cultures also then cost provide their to them able If have see cost just able complete. to those So complete predict our but as they're going that misaligned, for per we their reliably select mismatched well are reduce cost for forward. that incremental service into or our being online, wouldn't foot increases say customer as pale were going would allow to reducing prices customers focus and

think activity driven. very about I think you be will it when very, XXXX,

As value we've did many twice we dripped times some and said this year, proposition.

here and So efficiency, creating tool, here proposition every efficiency, we're creates and tool time or incremental the flotation we providing put here and XX-feet tight service get a execute per rotating that's is when saving you're time we're every is is lateral say a a what here execution we'll economics, we that your you is of downhole value well.

driven talking 'XX terms always be proposition would will with but say definitely price in I we're value So activity. of by

Unidentified Analyst

question; for it whopping in-house X maybe a you've know had Second X weeks even I here. or

to surprises, forward? insights Now will to understand you as for Magnum that you be going may people gotten useful think onboard, that that have how know this anything the didn't before any fit you've or us

Ann Fox

mean I knew through is But obviously think the what's think with weren't And excellent team surprise team. surprising to the knew was I two the very diligence. we how teams big I we is we broader these Yes, able been that contact have as gelled to like integration it's I'll pick type each to talk plan call get other. the a to it's phone they basis, an have what to quickly, on not connected so throw up self-starter and the needed, so to down people

anticipated. seamless a is I integration the been lot So has and have already even in it's weeks would few first more

efficient be better way And than isn't the a calls in already, surprising we're in is American -- very with I'll had obviously think just heavy land market it's attack the even very teams planning expected. next and how and North us joint out engineering to the year figure with to but it's to so team honest, that I most customer phase I successful

Operator

Instructions] Simmons next is from [Operator Our & John question with Daniel Co.

John Daniel

QX Annual, Nine business? the possible to guidance; get between breakdown contribution and is it Magnum the a legacy

Ann Fox

No, down. we're not that breaking

tools, so not tools, percentages forward; completion -- instance, be will completion wireline, We topline reporting be that for to anymore we the one site as breaking here. it out but and will from Magnum cementing, driven this be etcetera breaking lines relates going consolidated we will two one under down team,

John Daniel

And be on point. might us organic to so include? orders you walk disciplined what growth; you you delivered orders for new just equipment placed that Have of those so, CapEx, XXXX some if mentioned can next through any year?

Ann Fox

absolutely we're as put we walking time is still what chain did equipment this through there very not but in orders real bottlenecks supply are industry. on order, At you know these you the

of receiving anticipating were management the businesses, service within to a every capital supplying completion service the our one call won't we're senior the their that the but and the from you line say capital be would say that is solutions very growth know, relatively lot keen and not on I on attention growth would within you we get that and ones demand can production lines team order, a you, So work. of margin to were get lot their I obviously, contribution, and [indiscernible] to that

for there out market more to lot grab sure. for So us

chunk So on, John, we'll of on plan as more safe put that on yes, that time say be we've again, detailed but a goes to equipment order.

John Daniel

tech Nine labor as higher to well making one model business that fit on business. a You're doesn't you progress intensive But less is that transitioning great servicing. really know

just curious going look how you So at forward? do that I'm business

Ann Fox

said relatively year to to my the that get to I'm taking I'm business, time business. that I've and new service Well, so this know well

and We have stated have of differentiation the Completion that does Solutions. not often open

got evaluating always cross obviously maybe to or we And it, still so we're we're segment business. we've pony refine investor that tools evaluating would say some [ph] industry our of but out I there that that

John Daniel

pricing; about to continue larger some segment, you pushing peers talked saying to that do of are efforts On have the that?

Ann Fox

needs working in been I pushed. X% pricing the and we're service pushing so to all increased pricing line, think we together, pushing that all and on it we've our quarter-over-quarter; be pricing

we we're an that know, in so that. important keep wages environment you that's and critically on doing inflationary As

service a will very year. think a said a you've And -- come also survey our I out it's lot and acknowledged intensive customers labor have next have business. as of that inflation of they lot

Operator

session. closing call the would like our have question-and-answer turn over end back to to remarks. management I We any the for reached of

Ann Fox

E&P team Thank in you, and you. your want today. all, Thank our I to amazing the our of investors. thank call for partners employees, participation

Operator

concludes Thank teleconference. you. today's This

you time. at for disconnect thank may And your your this participation. You lines

Nine Energy Service (NINE) 14 Nov 182018 Q3 Earnings call transcript