NINE - Earnings call transcript Q1 2021 | Nine Energy Service, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings. Welcome to Nine Energy Service Earnings Conference Call to discuss the results for the First Quarter of 2021. At this time, all participants will be in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. turn Strategy over Development I'll Vice Heather time, of President and this the to conference Schmidt, At Investor Relations. now may you begin. Heather,

Heather Schmidt

Thank to and Service you. the everyone, the XXXX. Good Energy Nine first welcome quarter earnings our discuss to call results for conference morning,

Officer; appreciate call Executive your me participation. and with Chief Sirkes, the are Ann Guy On President Financial Fox, today Chief and Officer. We

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

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

Our financial also measures. non-GAAP comments include today

the included press financial reconciliation I GAAP most will our a comparable and website. can and now Relations release our details in the section be found of the Ann over to Fox. Additional to Investor directly call in also first turn are measures quarter

Ann Fox

joining Good quarter Heather. you, you to us for everyone. first And discuss our Thank results today thank XXXX. for morning,

X% Texas. activity in While same time driven The year in mostly January EIA over and down the a completed quarter-over-quarter, versus quarter-over-quarter, improved approximately overall shutdowns which much were reported market decreased last caused by February weather saw we slower period. approximately by significant X% start Permian conditions completions, wells in

approximately and quarter-over-quarter. XX% frac revenue with This increased increase active an average Nine’s or be to February to QX increased those new but half of completion Frac of new by has by especially increases and approximately of remains This from comes approximately U.S., added but remained Despite implies by lines from quarter-over-quarter. by quarter-over-quarter the in approximately approximately of of depressed, quarter-over-quarter, cementing shutdowns. drilled approximately active January our estimated U.S. flat in of crews and the X% the was tool mostly approximately crew all in Pricing February, by decrease XX%. stabilized service was the XXX XX activity XXXX Permian. driven Permian revenue and XX% approximately to or our crews total extremely reminder, XX% of quarter-end, a increased across frac March. affected As a decreasing wireline. out strong compared At of Texas operating to XXX wells XX% XXX an X%, operate completion in lines, frac to service largely within in activity. there tools crews mostly

the in have could well through and our shutdowns in increased rig same The Permian at increase price in labor. The and materials on tightness activity incremental implement In of pieces critical Delaware despite see to earnings. cementing, potential the approximately the still Haynesville opportunity remain is already by dependent from additions. we and potential the of XX%, as due pass begun market. majority share steady to both out incremental to increases timing labor and large basin. an perspective and unknown We pace, some the magnitude costs, extremely continues market crew remains activity from revenue of timing of and pace coming of frac are growth Nine’s the an to weather and increase part increases activity of coming price as if is Northeast And Texas, in this gains feel potentially

Coiled decreased Permian. in customers. to winning work weather-related operational, with fully quarter-over-quarter, the is due we Our shutdowns begun and new Haynesville have mostly tubing revenue location

wells tools X%. extremely happy decreasing increased stages X% remain achieved by total in This I reflects quarter-over-quarter. completed market XXXX. of sold technology share with despite increase completion of performance number over dissolvable the completed XX% of completed and Stingers by throughout gain approximately approximately stages quarter-over-quarter, the wireline Our our total by increasing our plug XX% dissolvable

Magnum the Haynesville. to We on our we apply costs which within have the year. should environments product material focus product, serve been science has us on compressions service tailwind dissolvable able significant as prices working temperature have from to of high as our the some coil margin a are manufacturing customers’ and incurred plugs for hot environments, XXXX, in our products as share discussed quality market our incremental pricing helped currently lowering specifically dissolvable gain well line. ESG. legacy Stinger new last declines diminishing recover temperature to continued Throughout in in we And throughout Increasing

its QX, inches new XX market. approximately Nine During over Due Scorpion back. Pincer plug. is and is with for plug our moving be to provides our the composite also and portfolio Scorpion running This we plug manufacturer will flow Nine's expensive less to in than times and important shorter and shorter addressing product drill XX% composite out an less plug at size, began operators it to smaller forward materials

our we again bonds and reducing debt market annual overall outstanding. cash significant at once purchase opportunity a QX, the discount, saw During additional an our interest on to open lowering expense

cash, par representing bonds was million has $XX.X and now like Nine average value through During leaving To-date, the million EPS $X.X and Basic negative undrawn Company million. of was over on Guy to $XX.X million $X.XX. $XXX.X of EBITDA walk $XX.X approximately for of quarter for XX% to for information quarter. outstanding, for bonds was of $X.X repurchased negative of negative I par QX, an the ABL. would par. XX% million, value million was million Net to the the call turn representing the revenue value par company financial and adjusted bonds repurchased million. $XX.X $X.X loss of

Guy Sirkes

Thank you, Ann.

for representing and million an XX% million cash, of par par. of Nine bonds million approximately representing average leaving par cash, outstanding, on mentioned, $XX.X and value has bonds of XX% of undrawn As we for repurchased Ann ABL. $XXX.X million par repurchased of value value million To-date, of $XX.X bonds of $X.X $XX.X

XX, fluctuate. March XXXX, of and under working XX, in and receivable as resulting balances, as million cash facility, $XX of borrowing ABL million the equivalents or so of a credit ABL unwind of with were on liquidity the total $XX.X Availability $XX.X build under As accounts capital million base revolving XXXX. availability March based cash position Nine’s will is the inventory we

During totaled with $X.X the quarter, gross profit revenue $XX.X adjusted million million. of first

first increased XX% During million, completed quarter we quarter-over-quarter. average X%. fourth revenue approximately quarter. an of the increase for approximately the approximately $XX.X quarter, increase versus the of Cementing blended The cementing XXX an was per job by jobs, XX% revenue

of quarter, stacked the During XX we XX cementing spreads. our

stages, by of Wireline quarter the for The approximately a first X% approximately stage million, average fourth approximately per revenue – stage per quarter. completed quarter, the the wireline was versus X%. of During revenue we decreased average blended decrease a decrease X,XXX $XX.X blended X%.

During $XX XX approximately units. the we of the an our stages, XX% we completion million, XX,XXX stacked quarter, XX%. tool versus approximately increase In XX an fourth of of completed revenue was increase Completion tools, quarter.

revenue by of $XX.X X%. tubing During day the our for rate with X%. of decrease by coiled Coiled average million, was The approximately XX% blended first days increased approximately worked a decreased X%. approximately utilization QX tubing quarter,

first quarter. The reported the to of compared the million, of and fourth expense XXXX company quarter general company $XX.X $XX provision for in the XXX,XXX. tax and the During million, for administrative quarter. we $XX.X amortization quarter fourth compared was quarter, less XX our than the expense stacked million $XX.X to first units. Depreciation seven of was The in million

days in activities for QX. net QX capital the During company expenditures XX.X of quarter $X.X the operating XX average first compared used Total for million. days were quarter, the The was to $X.X negative cash reported approximately million. first in DSO

largest and capital, of $XX will notes cash changes. be our our will which QX, to it revenue mirror interest working senior I back changes will For closely turn CapEx in outflows million, now approximately Ann. payments net

Ann Fox

you. Thank Guy.

to far, We moderate be capital throughout quarter have commitment thus that will increases Nine our feel customer's remains QX discipline That see this confident worst year. the to for and said, steadfast. continued QX activity

we remain of and around to policies coming and OPEC uncertainty regulations heightened all subject new from administration. potential Biden As levels COVID, the

the activity most operators their this are part rig disconnect the activity additions, likely responsible the continue as limited labor. private and The of little the companies, as seen not the are very same labor pass biggest continue for for sector. but still the And XXXX. capacity are OFS incremental but feel not their for price. throughout the could do starting for and from catalyst coming and in to as ramp through will the at believe have for same to remains recent to at pace We price pricing There's is Pricing commodity majority a costs rate. be increases potentially market, leverage the Nine which materials tightness service well ability challenge increases we

coiling We work to issues competitor have frac during also activity. due in seen an uptick performance

As service share. trends will they highest increase gradual. continue, the stealing begin cannot these to the market strategically increases We as will without of providers timing be price these quality pinpoint

As diminishes, footprint risks surface. plug an service and costs increase reducing will economic operators for environmental dissolvable human option the be and and quality at service the extremely our while

vast providing unit units which to and by remains converting The we at focused to QX, impeding in were market Haynesville across unchanged. way CapEx the to greener end emissions the the no a sound of to wireline units will completions positive while electric gain near-term. reduce original to and service customers. of wireline to our dissolvable lines QX. in million share majority converted the wireline we began wireline. compared We with We committed for to continue our Northeast are of able anticipate electric the The our of customers part guidance of are of efficiencies. unit existing when company plugs, on the margins. million, for revenue beginning process drive the reducing of two gross continuing Today, the to traditional conversions At Similar Permian, are the quality generation receiving $XX XX

see said, market, in better QX with $XX While sequentially revenue a challenging $XX still million. be improvements environment and we QX expect of million That we the are in projected to anticipating to we to continue XXXX.

increases also sequential revenue anticipate in We over QX. QX

the monitoring could industry. receiving or cost be inflation potentially materials closely. in We there potential be issues are to across leading will anticipate materials supply available all, at delays We potential chain not very

through inventory and providers navigating of We For be know constraints, critical other but are magnitude do are our an from example, receiving we currently capitalizing recovery. chain potential shortages and on these will allocations supply activity the all management vendors. not cement cementing for

not immune chain and handle to believe supply but well-equipped to challenges. We these labor are are do certainly we constraints,

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

Operator

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

from Citi. Our Please with B. with the question. question Lowe J. first comes line proceed your of

J. B. Lowe

Guy. morning, good Good and morning, Ann

Ann Fox

morning. good Hey,

J. B. Lowe

morning. Good

ask in you wanted embedded what's are guide pricing perspective incorporating from of? of some both Just spoke about kind how XQ to shortages a guys of and these revenue much the that you material

Ann Fox

Yes.

shortages material talk the a second. about in just I'll So

not to activity I that, driving we're color it be will and mostly it's I specific market gains. think I'll going that's but versus on tell incremental you share just for activity you. And price,

is really help us. if hand of some great towards can half which we sooner the course, year back out because will So the or of price that

volume my everybody's it can XX you, state-by-state say within XX So then seeing been put also months. for have more is, finger in succession, surfaced. feels than put lot is upwards I'm tell labor that XX and them of moving and of lifeboat, days time say above materials in vaccinated would the that we would I within that and we you of of olds the very it's chain lead like go-forward issues I down a in elderly, year the to I we these past short say, the rowing. times we're the on it XX%. XX what a about sudden now? shortages, the to supply would all businesses. nobody but moved business more Why I periods to me of was are rowing, The kind are today picture the can't hopeful I a I've over

I'm maintenance base you're you cost you're a from the when then what's no think in impact catch COGS that, just thing there. quality seems activity we're And enormously broken is kind It what and other decline it's at think production of around increase quarter in expected. spending has to curve the point sooner have have been and service anticipated. sector helpful cash, would large service of issues longer inflationary we when the the about to about you think we would, had us than about mean had under think to availability. service worried talking these is be you wouldn't will some scale sitting by So learning faster on customer line based rolling me about we surfacing than are CapEx, we at them the And I is the anticipated. the that competitors, And XXXX worried the taking perspective, levels than more they and they

by be a for pickup folks think labor when the for for now. trucks ugly, I income instance, it's for net have line very larger And you base our allocations will this, scale will than have the again, the their of So to companies, better we of customer lost service get sector do lot to look know it's XXXX at QX, you sector I negative. and are the for recognizes going challenged, time even

And out for a put going So to be then early. it folks are XXXX, you kind could stuff and of get on this activity disaster. not lean

I interesting, constantly, – very time of gains. us. so the very think market out yielding at big which realize field And traveling talent particular hopeful And it's share organization, to is a the depth it's you it's for this

what production, also so they're and focusing on not. You're tight the because what is operators is – working are on

quality And plugs. of they're looking so at finally

the looking goodness, thank Charlie on and they've mentality to finally is well, they're you're that. cheap had focused It's things bypass. starting fluid like So dissipate like, at

these really for and all me not So a long things good to felt I've momentum this feel time.

J. B. Lowe

guess I related that. of it's great. kind Okay, to

a the third these recovery, compared what of the and I the kind guess you in incremental – of some kind in the look second what just all Given regular factors think given – labor do should tightness market, of like, to quarters?

Ann Fox

Well, we have lag had I a some through right? also customer, would an the I anticipate kind because revenue moving question there. industry more anticipate qualify pass inflation So you strength, hear anticipated. they great immediate the and it's not it's than you about would construction when of labor with would to And industry quickly

something just than think I I sooner So do But that anticipated. it's is you, I there. probably lag tell arrive I can can't those costs, had pinpoint, will

So it's not dollar but your be spending, par. going D&C to do – slightly when you at is could it it challenged, look

J. B. Lowe

likely growth given revenue outlooks would Right. is the in quarter. that you But second EBITDA think the than positive more

Ann Fox

I I EBITDA didn't be specific, see some disappointed. be would I momentum if the be would disappointed on but line. we won't

J. B. Lowe

guys. Okay. All right. Thanks

Operator

with Syed line next questions. ATB. The with coming you. from is Thank question the of Waqar proceed Please your

Waqar Syed

gross taking for incremental XX% XX%, maybe to plus relates quarters? in XX% question, or the that margins. margins in good XX% incremental the even we still into question you could still morning. and environment My subsequent range? Are QX Thank the we where profit margins, then get EBITDA Or in upper or

Guy Sirkes

rise as the our as costs as rises. guiding Guy. we possible it But it’s be it's see think that that before also we guided pricing increases. We're Waqar, time not Hi but could And profitability, higher incrementals over our near-term, of Ann those. in I said, the you to haven't pricing – timing

next these but see rise quarters. I And it's time, to But are and quarter prices costs to timing going it's point things forecast incrementals, given normalized to in the for as higher the over any stabilized, be few think of so difficult things. we these think difficult will I to and

Waqar Syed

flow positive And then free any XXXX? free cash outlook, in in of flow see quarters do cash terms you

Guy Sirkes

going it's the of to capital. timing of working call and we'll say, interest spend timing payments, the the it, depend again, it's to because think ultimately difficult I on CapEx

our revenue cash So just accounts the think receivables deficit have flow I near-term, the more faster the rises, rise. we'll in free as

difficult it's answer to that think I So precision. with

Waqar Syed

of does frac the of hearing how Nine growing, we're impact grows? that about market the a if kind And that simultaneous market lot segment Okay.

Ann Fox

I stage. that, by get we paid the because, love

I So shorter can more time have my pop and can of carry for I my really then labor if I period to generate revenue, margin.

whole of things we'd about So as does EBITDA is perfect line. more one to so a And the if our great efficient, tomorrow, example too be customers that's the of turn simul Nine thrilled. our frac that, could margin field get

Waqar Syed

in completion tools Great. yet? business, the traction your in markets terms And then any of international

Ann Fox

Yes.

international hopefully accept also dissolvable be out with our we which plugs tools and there next to some able the getting talk we'll about we're fact, well. traction into market, quarter, new as In

quarter been see. this to that's just So wonderful

Waqar Syed

Great. to still believe still, units have of have them you in And you this return side, I to XX then cementing year? idle. terms that expect the Do work

Ann Fox

is. again, possible, kind That's market share amazing about and I'm feeling our really service the good it's quality me gains, where of to

you're possibility you feel yes. just there is to where kind feeling like run it's your So over just that, a of competition that I of and about think

Waqar Syed

service service issue made a is you the participate specific an all is in in again a cementing that lines you that or Now comment comment? on quality, that

Ann Fox

No. say you because – is continue prevalent service a it's it's new this tough in happens right, tricky business. folks such really one. this new activity when is to very suddenly And bring coil I it's always on, not coil as to just will would because degrade it but tools, grows, quality

the say it you here line is impacted board. volume where just So we're I break. right across the now least Probably to that's would you start and seeing But put any see again, it wireline. service

So labor. ever this I the think to actually toughest I time might we've and think claw seen be –

So the to you're means be get you're grows, challenged folks. really kind to talented that volume going as of,

even So way, seen the never I said years. XX right. comment. I for That's may I I compete used trucking, but quality this to. a think this we never with you get saw, mean, know labor like they've They've service seen Hunt and J.B. don't not big a mean, exacerbated we're situation it if

night in times place lead the I we're has labor, no up time family's our are my everything, watching we're order. weekly delivery to Do last X driver. told watching there's gone So want pizza

of scariest of course is product, availability moving very right. again, So quickly, is this part the

together suddenly culture need shelter you shift inventory, that keep keep saying, it's we're don't feeling now And risk the trying the stuff like, shelves shelf, bowl, bowl the so to on the something half And in one nope, so to. to organization on the And company shifting you're of allocation it can we changed, cash, you're activity. the a has it's capture the put from market. glue just-in-time overnight if

Waqar Syed

for sounds That Thank you. now. enough. Fair Yes. for me

Ann Fox

Okay. Waqar. Thanks,

Operator

from Daniels Please Our your next with John question Energy line proceed Partners. of the with question. comes Daniel

John Daniels

market supply. operations, Hey, on and just impact good it and point, and follow-up you the cement issue tightness an that, but see it your later not Ann, just has on for morning. industry becoming at the had just want on this to for the this year? comments broadly an do Is you

Ann Fox

I at you quickly, and want we're it's doing question tightening point? for base are your into answer would to what John is, with much now to much to going see the manufacturers conceding market? how as does think, then to the And know, be put And volume greater volume. been industry I that customer the where right cement. supplies But John, they've the clearly in buy able construction we're the

is the to to we specific course oil what's of manufacturers casing surface which field blend happened string, in cement. so construction-grade their service you've you're of very turned got And cement, as the talking about have process or when production classes

at suddenly building a these so manufacturers guys are hey, rate. those rapid homes And saying, are

really oil a and So about problem. that care the that's we're gas industry, going to we turn off, don't

that strains really those risk. are are the ones So at production

John Daniels

that the cement yard know just exposure background probably I I that? for me you don’t, or And should a a enough. noted by Haynesville, guys on can you is you new fair quick give in Okay, this

Ann Fox

XXXX, it. got basin about and expand and – – great Haynesville decided is. so up excited a we really It is We The yard running to that we're for Yes. us. in organically we we're

Eagle of beautiful It's I in the and are really out there, has we super Yes, it's but of long team we a – business – view talented there. mean, in Ford yes, So got know, we've we're it's our a got cement as start there, its started we lots And Shale. experience. in facility the and you birth hotter hotter

with So the operations temperatures our in we've and high got hot technical labs pressures. lot to background of deal a our and

John Daniels

situation Would East in Okay. is than tighter markets other in, you're that you labor Texas find the Ann?

Ann Fox

what is say XX market would significantly it the pin it's But I the to like past if I tightest the tightened had XX you Northeast. probably would to John, days. today, know be over

John Daniels

might pool, I see you question, and could a see incorrect How fine, any to – another might answer a we are that think I here's But find you if that coming… option? if a politically that's – advance – – mean, do apologize Well requirements do so Okay. who to of listeners don't you this offended. be see, you just I I-X labor loosening curious am grow that's an the in

Ann Fox

– to basis It so I I don't Yes. need sure. to yes, have that. I'm answer that. know don't answer I Yes, I the just no to answer properly happen. that. I not to could But – again, do

John Daniels

can't place had I down shut favorite have No, pizza Kingwood my in on employees. issue I same the and they don't because

So you. I on time. Good All right. for and reduction. empathize sympathize Thank you with the job you debt your with

Ann Fox

here, just there, wizard Thanks. pleased my that. over with CFO very, so very very, super great That's job

John Daniels

right. All

guys take care. You

Ann Fox

All thanks. right,

Operator

time, this the hand floor Fox for to over remarks. additional Ann At I’ll

Ann Fox

of Thank you We the in appreciate Thank for your support call Nine. continued your you. today. participation

Operator

will Thank conference. today's you. This conclude

your Let lines me time. this disconnect at

participation. thank me for you Let your

Nine Energy Service (NINE) 9 May 212021 Q1 Earnings call transcript