NINE - Earnings call transcript Q2 2021 | Nine Energy Service, Inc.

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Operator

Greetings, ladies and gentlemen, and welcome to Nine Energy's Second Quarter 2021 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]. It is now my pleasure to introduce your host, Ms. Schmidt. Heather you. Thank

begin. You may

Heather Schmidt

Good Energy morning, results to you. and the everyone, Earnings Conference Nine Service the quarter the Call same Thank XXXX. welcome to for discuss

with Sirkes, Chief Officer. President call On Ann today. you're Financial today Officer; Guy Executive We Fox, the and and me here Chief appreciate are

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

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

today financial measures. Our include non-GAAP comments also

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

Ann Fox

you, anticipated $XX.X the of and of in for over and with to management's we guidance XX% increase us today million quarter revenue QX quarter thank our towards QX XXXX. line Good everyone, second Thank joining discuss was results an $XX of to what you million for morning, coming XXXX. of representing with Heather. The million, original top $XX

activity inventory quarter, of results, slightly customers During operating did anticipated. we the EBITDA. impact to which quarter, the technology, with stronger tools legacy adjusted as newest negatively tools including throughout activity we million $X.X transition than Market our down replace June and our wrote improved our

increasing those U.S. operating reported quarter-on-quarter, over with there shutdowns for approximately average vast the the wells Permian. frac EIA in the approximately gassy mostly quarter-over-quarter. crews XX to active drilled of remained total the estimated of but approximately Permian activity added. lines. increased XX% increased growth by the driven to during due specifically out XX% the by new approximately weather-related completed completions be skewed crews come U.S., active in time and end, equating Nine's industry by Haynesville XX% period. quarter frac XX% activity which somewhat Permian. Nine The was revenue completions, new XX% and of has improvements for same steady At increasing Activity approximately half majority increased the While by crews frac increased approximately driven Northeast XX% service that QX, to XXX across in regions, by quarter-over-quarter, well approximately Despite quarter-over-quarter, the

Our XX% cementing pricing to our coiled remains as depressed, XX% so increases the our price tubing we in net range XX% in line the to price minimal increases have as range. begun line well implementing X% in service service in

we field labor. navigating today key personnel, labor of revenue difficult increases within through and to coiled miss causing to is been extremely find with market mostly crucial qualified have remain The which of share We price of applicable to equipment. lines inflation, challenge incremental tubing. retain inability able materials is customers. service cementing and to some man many our largest an It because to are focused pass through strategically and sacrificing implementing customers, on without where We our

Additionally, OFS some in is fighting that superceding pool wage cases, for industries is the inflation same as increases. other labor causing price

labor-light increases the inflation its company being strategy for within of labor goals. fruition. Nine From recovers, to and quality OFS rig potentially meet do increased the driven depend increased on XX.X%. asset by that by be implementing year pace service a the an forward, which our very approximately an advantage This because by continues lines OFS the finding remainder increased in of price price second both Nine be approximately Cementing wage half increases inflation is of will service to frac as X%. only crew XX.X% our OFS And In to said, magnitude may continue the wage increases year. some All catalyst revenue and to and timing for lines anticipate employee shortage capacity. XX%, our labor a of as headcount, the is performed versus We offerings. qualified great technical XX% coming completed additions and to well order service and QX, further This of revenue as by from will price potential activity moving per the and Nine's deal throughout battle increased While for to revenue QX of our increases. seat

has see We helped which pricing across create shortages to well. as cement industry, the leverage continue

continue mix a in and market to region increases basin already Coiled market already and work in to have and Wireline in increased is for share share activity increased This approximately begun Permian large we quarter-over-quarter. the both of tubing the revenue Additionally, multiple and by revenue our XX% is by in QX. XX%. driven gain Haynesville. price Haynesville this by estimate XX% operators XX%

We in yet majority the gains, the growth. driving seen have share Permian, not quarterly in specifically implemented that of have market the service net line the increases price

very perform plug well. dissolvable Our continues to

customers, to we over dissolvable by ESG be increased net The continue by of understood to stinger adoption. of and sold dissolvable benefits plugs XX%. quarter, the helping our better drive This efficiency number total

saw During declines the plug significant pricing market. XXXX, we in dissolvable

more in we is transition coiled to continue cost down, and bring to hybrid quality manufacturing well plugs and the wellbore to operators service from as adoption dissolvable as increase as other tubing our helping full will increase price dissolvables. we to and ancillary costs composite decrease diminishes, also believe While service

From number best-performing I the U.S. sold have tools to also increases one our plug of am we the QX XX%. in we plugs completion seen significant the have composite sales. confident We composite total portfolios by approximately downhole QX, increased of in

we quality believe win performance products. and We do continue low will steady. very offering and We out, to battle price holding competitors for prices are

our Basic earnings lower $XX.X per quarter. to working now was revenue the was $XX.X for call is to negative of million. information Company $X.X million EBITDA quarter manufacturing. would Guy Net adjusted to the turn share team cost was like and negative financial million. walk through to $X.XX. I for over the was negative loss R&D Our

Guy Sirkes

Ann. Thank you,

inventory under ABL balances, Availability revenue, in based and total XX, concert As cash were million $XX.X XXXX. credit Nine's XX, the June borrowing XXXX, of facility, million $XX.X million increase. as ABL should as build licensing on so working receivable position the June base we ABL cash equivalents accounts revolving a of of and under with capital with availability resulting is $XX.X in of liquidity the

did our bonds. of repurchase This not any quarter, we

second million of adjusted of quarter-over-quarter. the $XX.X increase quarter, totaled gross revenue approximately XX% During profit an with $X.X million,

tools replace we technology, During QX, $X.X we million our of newest and adjusted tools inventory to this customers transition wrote down did negatively and as legacy EBITDA. impact

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

tools, quarter. X%. XX%. versus completion of of quarter, versus increase million, average X,XXX per XX%. million, second approximately $XX.X tool revenue In first the stages, quarter was an revenue approximately XX% Completion of approximately During completed $XX.X an we first by XX% the we increased the an an stage increase XX,XXX was blended completed revenue increase increase the for Wireline approximately wireline of The quarter. savings, approximately

was quarter in $XX.X million for company's compared The to the coiled average Depreciation quarter, XX%. $XX.X worked increased increase for $X.X amortization and Coiled by and tax first approximately second blended quarter. $XX.X was for second an non-U.S. approximately of utilization tubing This million is general of administrative and attributable rate first to largely in XXXX the of days the due accrual. the the by $XX.X million legal of taxes. year year-to-date. XX% million our to X%. compared day income provision approximately with and During The million, to first company $X.X quarter. expense primarily increase in QX provision the increased million $XX.X XX%. approximately The state tubing a million revenue was quarter was reported expense The

the days through quarter, expenditures to days activities the bringing total negative second $XXX,XXX, in XXXX net the QX the for capital During in to $X.X Total QX. reported used million. QX $XX.X cash DSO compared spend CapEx second for were quarter XX company XX.X approximately The average of operating was million.

end $XX deferred XXXX to year guidance million possibility bottom million of But Our range. CapEx or unchanged. the the there XXXX below in into that of is is a remains XXXX this comes $XX full CapEx portion at of and a

our largest million. CapEx and cash payments senior in For capital. outflows our QX, working note of interest changes $XX net approximately were

now to revenue turn to most forward, be a Ann. use capital I will Looking of increases. continue back it will working cash as likely

Ann Fox

perspective increases activity our moderate you, months one Throughout QX since strongest the with a from saw we quarter, June Thank month, revenue being of Guy. XXXX. each

better will an last mentioned on we As be perspective. revenue than QX call, QX do our from activity we and anticipate

ramp only increases Additionally, catalyst we are place compared from of tubing despite discipline safety, shift lines. deterioration to our service shortage, supportive and remainder customers where lines, and increases this, to unprecedented activity Activity hiring within up prices. from That cementing price facing XXXX. a causing Similar will which unstaffed provide a main and Because as we which be share begin perspective. focus quality potential coil we customers of labor public price moderate performance, Nine to to we pricing labor coiled for the an when will for our opportunity cost levels, capital for historical anticipate have in and remain the other also to heavy said, their increases remains for some to should very market low service many customers very very committed our in oil in a and begins downturns, including good see OFS cementing, equipment, to wireline.

tools, pricing volume near is for this steady, the do case and for business Our business lower the increase costs not in our but any are tools while increasing to increases also margin. instead manufacturing always we price in term, is the internally as working anticipate

to can are growth powered These significantly we of are packs X part reduce carbon emissions. existing units by converting CapEx, of electric our wireline. and As battery lithium-ion XXXX wireline units

receive expect mid-QX. We these units new to

to and We completions our excited are technology pilot very this customers. provide for new leaner

growth at safety. model. not is we important positioned positive well million, quarter, customers QX, quality of by price than across activity we increases next within projected be product and asset that as $XX service capitalize business on remain It with to managing expect as to believe well share as well better QX sequentially as gain to We and we very market into business are as we quality our recovery the to focused Today, $XXX lines gross service the mostly with like Looking are margins. million continuing on lever increases. to driven with sacrifice revenue

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

Operator

Instructions]. [Operator

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

J.B. Lowe

XQ is we cost in looks My something XQ. on incrementals just margin the about XQ. the increases pieces XX% into been on expect incrementals pricing similar Should for question given going It and like front you've moving between inflation? gross

Ann Fox

I I think it's the for not normalizing write-down. Again, imagine unreasonable. inventory you're

think but unreasonable guiding not it, clearly I we're So don't it's an thought.

J.B. Lowe

Okay.

the net? Are Is it of So you pricing corollary you're costs I through all pricing, do is of pushing going think how it all through, of... gross? the not much be that pushing you is all guess the the that to

Ann Fox

is data is the well as on day, for times significantly the side, X cost This X, so both our and materials. conversation as labor a moving

get all were of piece where didn't understand that and/or wages then days that's on be. of that a going using think there's component material news So what they been or you think certain you you a X going for you'll inflation you're to. moved And sudden, some have to

just we has in -- it's market, don't I'll my one tell of ups and like with It's every and we've movement is contractions didn't a downs we the we a can the and just the has and the suppose been X what faced you company very So in something days. past. We historically a you But dynamic literally the based expansion. yet. -- This before expect very, from you dealt toughest perspective. inflation forecasting answer the know on to is this and done

J.B. Lowe

you. Got

Ann Fox

thing country is is obviously say experiencing I other the The want we also the to Delta -- variant. whole

the that for to revenues from generally patch shortages. in So already speaking, you're that's through short got already Delta an up is, market. vaccine. well. We're for labor going to come missing We've not over have some costs And labor jumping prior that this oil the joy as

So and that as everybody, just be of mind for well, should in factor top customers that something it's included.

J.B. Lowe

you. Got Yes.

in for is What other guys think back expecting the flow cash free be cash do My one you free was Okay. -- possible. Guy flow or just positive on cash this use for when might half? are you you. And

Guy Sirkes

Yes.

going cash. to capital we discussed, of be a use working as continue to So is

see accounts inventories build revenue to as lesser a rises, and as So potentially you'll degree, receivable well.

be on a that's to cash. So drain going

very you year. of Our the little half the CapEx, would've seen, we in spent CapEx first

CapEx our to the for budget back So payment coupon well. And year in going back-weighted. we've be the a half of is necessarily the bonds got also as here

Operator

Daniel Our next question of comes line John from Energy. Daniel the with

John Daniel

you'd benefits And the -- versus have ESG that elaborate hoping on outs. relative the to measure the just was I from Ann, a dissolvables? bit a you drill product of had chance emissions the traditional more

color any would be Just helpful.

Ann Fox

Yes. Sure.

assessment. what And conversation, actually we we we conducted -- frankly, dissolvable independent environmental took called is seeing cradle-to-grave in the did did environmental that it's study we're infrequently an we But on the a plug. So when is country. what means

the all life the the the dissolvable through of conventional versus that means source plug from manufacturer, way looking disposals, plug. through cycle at So all way the entire

you And But give a plugs, carbon It's cleanout you so about about kilograms -- you the of it's I'll equivalent. numbers. had John. round did conventional XX,XXX and if XX

about carbon If dissolvable that we you use equivalent. kilograms X,XXX offering of have, that it's XX-plus

pad, Now difference extreme about a pretty you're a at there. look if you X-well talking

a cars So they're about service I think think darn is tons combustion coming their of I to about customers, you're you And think to at our hard is the of base. the look some it's goals. And have and XX to concern road. Combustion XXX talking everything. metric or carbon going to get when big obviously off

really not can, trying from you're to out we is picture. emissions dissolvable the wherever -- drill diesel on gallons What combustion out. of So we're happens the the the take using of a

other right sitting workover out your we're gallons also you're tons And pumping there of your that use drilling with We're pad. tubing get working of off I much We're only or taking seeing significant. savings. So down the components. those in water frankly, rig not into dissolvable are on either diesel unit, coiled but less won't diesel but when details, all

to starting we're measurable, company that quantifiable. It's what focused diesel. a do So on as is really it's

more trying set choice, focused be the customers on we're of our obviously, customers cleaner where this. can frankly, And so conventional. can between up to this the imagine some offer we or And very if are our greener, public, completions to you going

won't. privates Some of our

serve. on have those that we've So constituent got each offerings reflect to pressures various that we

we're about this When now So and of is cared, acquired it. the October, we a at time really Magnum just thesis of in our people the part excited part and industrial logic, do. nobody it's

think capital-intensive to So is so most on That and because know going very you one And top that, to see this is offering. considerably core I going the pricing of well. move labor-intensive state dissolvable we're start push service of the lines. it the to

service the you to you both sector -- become when of board. quite expensive. lines, So inflationary constraints about the absolute That cash on this and think across we is line suspect pressures think the of those going about

had degradation the last offering. the dissolvable the market And to we that, pricing dissolvable with think push in going really we year coupled plug is further so

tremendous So in have we're our about trouble the And pretty technology in the Permian out out introduced of XXXX. QX I'll for that. seeing just excited environment, the operators of just we amount their remind the also market, We're dissolvable plugs in drilling low-pressure a Permian.

run. and up get to minute a had hardly it's So

XX% So pretty we're in sale. the excited pop dissolvable quarter-over-quarter about this

John Daniel

QX? is to on ESG may. and ramping. it's clearly I follow up the of change how uptake the you customer to is to measure mean in been willing this interest? Okay. sentiment, rate I can I in have but in what impossible just meetings Just know customer in tested versus developing terms want in on fast if might QX, interest I of ESG, just taking elaborate thing dissolvables

Ann Fox

has unbelievable. uptake been The

ESG about in this I -- mean even even to word the been, I of constantly. unbelievable. can't it out safety, change but a it. XX I'm service before went not thing And come you We And on John, in the demonstrate the pad caring -- with emissions sector for has was frac it help now similar customer the over been stat get And the of safe. location Nine. that days, also, will to in something just past with was about part the we will if were the say it, drop it's conversation about my is the selling, you, that the back you So seems to well I it's going you same guys cared couldn't has never pressure service is up appeared. van KPIs our another started conversation, you when Northeast, the I service emerging talking if metrics the be would to think, rate the I of talk on from suddenly it to And safety the see ESG. thing unless field the in XX present. everyone under there sector, tell is, course sector and in in quantify

Operator

Our next Syed Waqar Capital question line comes Markets. of with from ATB the

Waqar Syed

of you provide sales of the dissolvables is and measure could what Ann, between mix in composite right some terms plugs your now?

Ann Fox

we've mix. growth actually huge the we certainly piece bunch adoption. stinger had new But launched, of a technology don't our the last lot strong quarter-over-quarter year. of for a seeing as no, technology well exact know, is Well a composites. as give dissolvables as of dissolvable We're We you offering great

we're you in to very wellbores. you, full I that now more seeing And percentage quantify it little would give can seeing can't completion relative is go significant, where for also we're you I but market. the again, color, tell the the to increase So I Waqar, especially customers a

a that previously, seen been that's market change. haven't we So and

Waqar Syed

side, Difficulty] What's about cement. bit wellsite and supplies that to the issues a of hearing making with regards availability -- cementing securing Nine got supply of chain we're of doing you've on sure ample [Technical with quite cement? Ann,

Guy Sirkes

Sorry, hear technical had I us? issue Can there. a you think we

Waqar Syed

Yes, can. we

Ann Fox

Sorry, Waqar, was I'm was rambling line off. for until realize I not cut. sure a while where we I the there left

Waqar Syed

talking were about we No, cementing just chain. supply the

Ann Fox

Yes.

the cement that was to there's there answer the saying great from short around for share the just but is saying is the So really cement I shortages. sector went I -- we've market The is also is shelter long fortunate no way of that -- now. all about right it, our that service got us I really is significant bad quality so good relationships. thing was

some saying it's qualifying was which are means the that rocks our bottom of that I literally So of as with things of folks little and it barrel, in lots there. be shouldn't still

And QA/QC. me -- even you're I'm to Because throw with can aware, and to process when me rock well or a that a more X makes and if long getting a even strings. about execution cement concerned off you're company customer, so excellent execute trying everything as

real very a it's problem. think I So

I rigs. persist. our think as think we'll see put QX up we'll operators it I in exacerbated see potentially And it more

So before a it about this at we it. we're ever. And this And customer, a I think level I'm I'm seen haven't worried big is if again, just -- deal.

Waqar Syed

care and Are your so suppliers trying focused is really that -- building that that providing issue? Or they think it don't to sector? just about rectify the you cement oil rectified? gas this Do on gets

Ann Fox

don't rectify to think they're trying it. Yes. I

globally. kind I about X% cement we of of think X% classes care. thought service don't they of the to industry about Historically, the as

smaller. we're piece very So much small just pie and guys, always a we've these of now the been for

course, not. construction gas was Assuming, industry during the great. fairly the of pandemic, long was

now for piece them. an less so smaller we're far relevant And even

their considerably them really reason there's think wheels don't I now. for right So turn to any

I very operating could States interesting. relationships competition be closely. course, for very to have locked thin I production, watching we're problem. when on the you that quarterly folks razor this bigger production, long-term this again, maintenance significant tight But the very And it. concern not in could well very, guides for with -- this to So of a become is their think United handle are the relative we're And positioned it's think very

Waqar Syed

any towards pumping in it Are low fleet. and this segments changing seeing on emissions we're other well, you focus well? or Ann, upgrading emissions trends seeing fleets low towards as cementing customer as So

Ann Fox

think are fleets the focused as are products seen possible. having I are even customers mean having on materials I very that electrified and that

is the industry. well challenge on largely customer I side, cash base service think recognize know, is, the doesn't the you service a which the as diesel-based constraints

there not done. is it funding it. it's do So that can't to be no that It's

lies that's garner that play XXXX but I But price think I the there's hold is quickly which just do wherein So challenge. share, to as a incremental scarcity. turn market is in way electric think of becomes kind through electric I probably to more right could think qualified you the and

Waqar Syed

because you what And And that? as shortages, of do refusing labor Yes. your service quality. were labor you And the were quality? standards not of you revenue for cycle of if know because close or impact about jobs because jobs think that I last is growing labor worried so, you well are to meeting

Ann Fox

Yes, it's a great question, Waqar.

We not haven't quantified better. the gets I market, it suspect but it worse, for

So obviously, labor getting that, it, again, if the we're new it's market. very get we to

very most service Delta back labor take you train also, that you've your of complex so perspective to well course, the ability perspective execution an operational of safety on support from them as variant all to here. is then situation functions, properly both top companies layer have And that limited. as And and cut

on quality. more similar only, what suddenly be think saw started we is in this that not price as to market quality it's They've very customers to where and challenging, had think issues issues. I and been ramped And revert So going had ridiculously less massive I 'XX, service the such focused HX challenging. back up our safety to to

a we will there activity as be suspect up and XXXX trend, into even similar picks most we So especially incrementally. come

interesting or see. be it's an requiring to cards challenging customers hopefully, to get our start and back be going And the site on to service. for going it's time this think I again, So very we'll well

Waqar Syed

Yes.

payments Guy. question, final coupon one confirm you the Just due in that Could are QX?

Guy Sirkes

QX, in Yes. yes, that's coupon million. There's payment $XX due the

Operator

turn no Fox further to like Ann Thank you. for floor to this closing Ladies are there would the at questions. I and comments. back time gentlemen,

Ann Fox

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

Nine Energy Service (NINE) 7 Aug 212021 Q2 Earnings call transcript