- Earnings call transcript Q3 2022

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Operator

Greetings and welcome to the Third Quarter 2022 Nine Energy Service Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Heather Schmidt, Vice-President of Strategic Development and Investor Relations. go may you you, ahead. Thank

Heather Schmidt

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

Some about future views statements reflecting of Nine's our comments today 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 also include comments Our non-GAAP measures.

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

Ann Fox

I changes generated flow another net quarter you, used for million net us today XX.X% of EBITDA generated and approximately off team's an in with our to bonds. par. bonds to with the or original million We of working third of for million to net of million the this EBITDA on $XXX cash EBITDA of Good EBITDA were X.X million $XX.X extremely debt outstanding our take $XXX Nine a par times million sheet, margins issued. bringing adjusted XXXX. $XXX run options repurchased balance an Nine basis, $XX our This changes repurchase morning, a cash of $XX.X to joining free for adjusted XXXX am leaves million one volatile value of capital happy million rate debt and We Thank discuss of XX% while quarter capital. bonds free million $XX times, XX% $X.X working our $XXX adjusted for over reflects increase $XX.X liquidity also We ability we of structure which approximately strong everyone. way. operating financial quarter-over-quarter we you margin With net our cash the in momentum, ever We throughout our after adjusted to supportive with capital of Incremental considering to adjusted in growth most our approximately of maintaining XX%. faced. XXXX fell refinancing and environments and flow EBITDA above X.X Heather. Thank XX%. of to are before for and and a very million, QX increase had reflecting outlook constructive revenue million, strong results debt macroeconomic $XXX.X beyond have guidance quarter-over-quarter. strong actively of original

as well today frac EIA June. of average wells end the quarter-over-quarter increased tubing and reported tools. volumes completions On operations completion count quarter, X% flat price within side, as rig minimal majority approximately frac new the We approximately is of versus and by estimate increase XXX an of X%. crew were XXX, between this a increased coming with the increases, we cementing and specifically through rate and Nine's the increases growth saw coiled and drilled

quarter evidenced versus approximately just more average with by the availability customer in As increased count, mentioned, of [indiscernible] growth on Undersupply drove and margin. labor this service than incremental of price. constraints the chain supply coupled our strong leverage which line both X%. back to equipment Service with has revenue pricing focused XX% our shifted increased majority providers Nine's quarter-over-quarter rig I by approximately pricing

another this raw innovate last extremely built in pricing. by through lab and by approximately share share cement, where had Nine been a several led ability XX%. total has to QX demonstrated landscape QX. strong with shortage Our our technical consolidated to Since position XX%. line of the competitive our The is cementing basins quarter but execute R&D Nine's service approximately estimate strong exacerbated XXXX, helps increased and in cutting-edge in we coupled of barriers is has we the In quarter operate, our we pricing on push the market is market side, strong pricing cementing

the remain work we help our believe -- maintain shortages predictable to share excited for complexity U.S. a been demands which shares This optimistic about dissolvable Nine. navigate I and dissolution completion a of the in Nine position plug holds emissions and in to science, an continuing supply including Nine. amongst provide customers. control the key the material plug top to business dynamic are that total ability market dissolvable over extremely of to XX% is due has cementing as dissolvable both the on and tool plug enter wellbores. difficult this reduced U.S. quality competitors, We market four market slurries space help for option as to market held well and for our The total greener repeatable forward-leaning and Today, competitors a of scale extremely differentiator division.

end that continue by the the to of to estimate dissolvable total will U.S. grow market over XXXX. XX% We continue

market U.S. with opportunities across should Nine. provide technology the market growth market, composite for our important U.S. this number and QX. market been larger international an competitors more in the plug remain are years There XX% and in of for Along standardized plug portfolio, has as are composite we the the estimate our be almost around composite XX of to a part offerings. Our over plugs share U.S. materials

completed national Norway oil a in barrier Our multi-cycle R&D for Eastern for our targeted recently received API-QX team and large company. Middle certification valve

that production extremely market. activities proud been NOC Nine's XXXX. in We received pursuant opportunities increase It new purchase this which stated I purchase million have the to forward. NOC an R&D process am publicly with additional accelerate of have to to orders to moving bid in $XX capabilities, approximately plans provided obtain orders has opportunities and international

refrac are it focused as the our generating on both market in-house team of [indiscernible] American North partnerships R&D remains our and new most net development be price increases, strategic to very a also so challenging tools continues portfolio. well as piece for Our Wireline tools. through important of

to type competitive Our in offering. stage completed line in results R&D wireline for of process to down plug QX, important and has XXXX. runs by quick XXXX plays understanding an increased any which completion XX% stages XXXX since role Nine team by since sales service revenue XX% every has of hole, increased both and from QX, XXXX approximately This per QX, tools, a QX, approximately

$X.XX. detailed recent division price approximately growth performance strong to for Since coiled X.XX. was our the over coiled would year-to-date days XXX% while Company well from Basic safety to tubing ROIC QX performed very $XXX.X team's XXXX the information. QX quarter driven TRIR ending worked day quarters, $XX.X to turn Our like I has of $XX.X this a now tubing revenue of quarter. financial XXXX, walk rate without their in record, million. was couple by over the I increased to last increases. extremely million. of was extremely has and far by over XX%, and the of approximately adjusted the income and EBITDA Guy am execution sacrificing Net maintaining QX also call increasing million through a proud capture with XXXX XX%. was EPS thus service quarter ability XXXX was for to by

Guy Sirkes

Ann. you, Thank

in $XX.X we equivalents ABL. XXXX with September September as facility, were resulting additional cash the million million XX, of from of revolving cash of of XXXX, million position Nine's In $X and an As $XX.X net total XX, the a XXXX. borrowed of liquidity quarter availability under ABL the credit fourth million $XX.X

This quarter, free strong net million we working changes of or capital. cash flow $X.X before in generated million $XX.X

million a annualized of $XX times cash net As million basis. Using bringing Ann million. adjusted for par million the QX rate EBITDA XX.X% outstanding of bonds adjusted $XXX.X bonds $XX.X on brings or to mentioned, to EBITDA of par $XX.X X.X run to QX, approximately debt value we during of total our purchased

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

of quarter, job revenue XX%. quarter. for increased increase The cementing of the per blended decrease Cementing XX%. million, we was quarter approximately versus approximately the revenue X% by the completed average X,XXX second During jobs, an a third approximately $XX.X

an During quarter, per of revenue X,XXX an third increase stage increased approximately stages, million, Wireline of revenue the completed XX%. X%. increase average we The quarter wireline $XX.X approximately was blended approximately for the by X%.

completion we was revenue $XX.X XX%. stages, of an approximately For approximately tools, XX,XXX of Completion an XX%. million, tool increase increase completed

quarter an rate XX%. was the increasing the days quarter, the increased Coiled approximately quarter increase worked utilization tubing Coiled during XX%. tubing $XX.X the our blended million, third revenue by average tubing During of approximately was by day for approximately XX% XX%. with coiled

provided administrative and provision the of $XX.X $XX.X of third $X.X tax tax quarter, activities less company's The million million. company XXXX the million. bringing our non-U.S. $X.X the XXXX, third CapEx for for total XX.X as was of in by our result The million. reported tax During DSO $XXX,XXX QX of the position $XX.X and was general year-to-date reported in CapEx to the XX, XXXX operating than million, and expense average of $X.X amortization year-to-date. days. net The quarter Depreciation provision quarter was for approximately million. third QX and was for spend XXXX jurisdictions. cash expense state The spend company is September

constraints to towards CapEx electric. at could guidance With would our go The additional do growth towards as will other CapEx this our four changes we about million CapEx supply looking and approximately provide wireline chain to large some believe with think guidance be conversion units interest $XX totaling will high-level of being $XX million to our though million we that today, existing $XX because flows back XXXX, any into anticipate structure, of year majority forward. capital know into allocated approximately XX% million, maintenance CapEx capital. $XX in going working outflows annual cash of unchanged a portion [indiscernible]. of full Under We we of of million we XXXX what the is like fall payments cash Our $XX net capital. to

balance of XX, December anticipate XXXX, Given loss million forward operating as $XXX.X taxes. do we carry cash any meaningful our of substantial not net

would based website. activity our flow assumptions rate, Nine's run pricing Relations $XXX on generate structure, of and have of million $XX Nine cash other of flow illustrative million on walk net annual Using on be using on assuming based capital well our on XX cash free adjusted approximately our annualized QX We and benchmark illustrative presentation, and capital out of can Nine's of our before our approximately working a approximately as interest pages EBITDA adjusted flow million Investor miscellaneous changes EBITDA found free expenditures QX annual $XX $X million million XX of cash free $XX as QX in cash laid and an as annual thoughts annual different which existing outflows, capital.

and back debt and XXXX times, actively to X.X approximately constructive While at cash way. beyond flow structure our free in we well levels. options in are for growth XXXX, our our outlook of macroeconomic we QX momentum, believe to we for refinancing poised now further run will operating considering it positioned business and EBITDA we I net is turn our are capital strong supportive believe generate that for to Ann. With that even XXXX current rate a financial adjusted

Ann Fox

know, has volatile. you extremely As all overall the market been

very current XXXX, the continue operating we will our macro XXXX out rig for will into in and today, outlook look and tight. forward. keeping global are continue will Nine's oilfield We American global supply will about moving XXXX. levels demand, when the I That There adjusted believe to the margins Nine's optimistic for very control. to at do QX, but North count said, grow. EBITDA and we be on both the drivers and how that are think are into influence be sustainable business strategies numerous production market shale remain critical supply we operators of discipline factors surpassing providers Obviously, generated service capital have under However, with

which we what tool the basins United completion to have and offerings top with operate. cementing one share positions the We and the States service top market our believe lines be of we in within

pricing put I and rig the drive equipment should constraints on and pressure activity forward OFS margin. think net on continue moving upward incremental

impact our line As of flow tools we our both we see more cash top completion the starting strategically have cementing, have exposure generation. on and shifted are will to free to this

our business. as needs, our a R&D in Our the team smaller our cyclical and used in reducing been to business Despite largest the cash world, here has risk in the designed compete flow, tools and increasing that NOCs reduce capital labor as commercialized allocation U.S. not well a capital some has being company, largest peers tools but only of by designed against

commercialized to invest and units. developed also wireline emissions reduce have technology electrifying in We to and our continue money

do Although we both expand have growth our to activity continue anticipate line growth we XXXX, and to organic margins. strategies in our place in top

We well exhaustion into due coupled completion are share QX price into a gains, to focused weather is still market Visibility tool strategic and reach as some blurry, we but with slowdowns on our expect develop budget as increases bit seasonality do QX. internationally.

QX where million. that QX, for We steady into in We Nine's further moderated beginning environment increase differentiation XXXX even XXXX from QX are Because strategy positions service have growth service with revenue again this, geographic we a XXXX in us projected will believe QX of We well with growth. operate million in flat of anticipate and lines be a increases also growth in towards more which today. expect diversity we we as growth expect XXXX. with within in activity pricing profitable budgets $XXX the returning potential we line to do remain between relatively $XXX to to and early to reset.

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

Operator

Thank you.

Partners. We session. question. will now from Daniel John comes of with [Operator be Our Please Instructions] question Energy conducting a your Daniel question-and-answer proceed first

John Daniel

Thank team. Good quarter you. Good Ann and morning.

Ann Fox

morning. Good

John Daniel

set us -- just can be first the NOC for over possible? opportunity on years, if Middle mean, opportunity couple Ann, you Can East. in the of valve question the would next is what frame at all the with the you potentially I

Ann Fox

the I -- say not you market. would for I'm to conventional the Yes. number can't going for what But this here. quantify I right is is,

that field direct first NOC. direct time was get to this we two trials So do stepped John, this where off. year it's a And an the process, we've actually, had certification, with almost

this is from the which very internationally. offer American shale, tools for a North Nine it providers not the significant reflects opportunity quite we our ability do conventional could for that design given a largest our large market, think So of outside to is market really and start service be that

excited we're exploring this. it, niches about and be like other So pretty we'll

to big a expand tool is -- completion completion this and is step of very So us that it's well. profile. for for this the starts And phase really the

John Daniel

Right.

here lot this just those to is on push Broadly speculate The price OFS a that from kind calls companies of with the would next type Okay. E&P you pricing. next X% one XX% year. speaking, of quarter, you agree Do another increase ranges? Or that?

Ann Fox

you XXXX, go example I numbers again, those XXXX. service No, if base of of underestimating say that coming would customer Yes. service are, again, inflation I back to our into think, underestimated January another inflation.

customers and Just because our that new mean place we capital in doesn't for reset situation mean budgets the that any doesn't certainly different. labor have is equipment

XX. I and broken still -- still in record, wireline Northeast, I folks the am a sound XX So I like seeking highly qualified I know

labor challenged now. ease not. has by Clearly, it We remarkably thought is a this market. would So it

think you shocked inflation way X%, number saw I would I of too low. that's an be So if

John Daniel

-- I today as Okay. was something that where opposed but -- And referring to we to year-over-year, are

Ann Fox

too Yes, I think low. that's

John Daniel

that Okay. makes And ESG in one seeing units, the any last four set? the you then an the versus making customer on the electric. proactive additional opportunity driven is How front all investments much If is being of them and that sense. wireline

Ann Fox

being on filtering would XXX% say I proactive customers to it's us. front, customer-driven, which the and are ESG down is Yes. the

that's answer would how So yes, that. I

John Daniel

in of six Is many 'XX at the electric will the end or off based of have you plan terms the the that year how seven? it And four? of current are in

Ann Fox

have be and a basis then some we on that It's six going side-by-side has will to seventh that options to be electric. fully Yes. a electrified, be

So, yes.

John Daniel

Cool.

question. for Thanks letting Okay. me ask

Ann Fox

you. Thank

Operator

Our Please next question with with comes proceed Markets. from your Waqar question. Syed Capital ATB

Waqar Syed

Thank you.

I First number missed of cementing of all, congrats on quarter. a great revenue the stages.

just could please? repeat you kindly that, So

Ann Fox

Yes.

Guy Sirkes

Sure.

cementing the So is number revenue $XX.X million.

Waqar Syed

stages? the And

Guy Sirkes

So, tool completion the stages?

Waqar Syed

right, you as on No gave point cementing that data other There's well, cementing? -- one

Guy Sirkes

blended Yes. job X,XXX the cementing average revenue jobs, XX%. increased per

Waqar Syed

XX%.

Great. Okay.

that revenues the to all convert received and the orders million, converted is going East, -- to -- $XX Or revenues? that in Now is to Middle that you

Ann Fox

those purchase I'm No. No, sorry. orders. are just

Waqar Syed

Okay.

So -- to you to do when revenues? would expect them convert when

Guy Sirkes

will convert the of next year. course over That

Waqar Syed

Okay.

of is in of of like purchase kind a that typical international So XX going kind the lead conversion markets? be orders to month time,

Guy Sirkes

Yes.

lead -- it's tool I longer a and just for are think it's this a time, Waqar, the specifically, contracts bit different. little

to it's So it's lead be and it's going a but time, longer contract specific. -- just product

Waqar Syed

Okay. Great.

Guy Sirkes

get year. hope over next It we will to Ann orders. mentioned, rolling be as further And

just it's going going hope. be stream for So forward, nice to a revenue we us

Waqar Syed

would start would you And be in Okay. disclosures? reporting your backlog then -- you

Guy Sirkes

Waqar. so not like that significant that, it's it's No,

Waqar Syed

pricing, Okay. And are comments, traction year? -- with you of getting to are And that the E&P -- then pricing on negotiating you next your you stating? for started and that seeing for have already terms you -- you above in thank X% E&Ps are XX% is

Ann Fox

started with yes, We say, of conversations for service moving, in would direction. are customers. of some that we I our lines have our some And

incremental the well to rig extremely you on market. know, tight. activity is enormous already going any pressure As put It's OFS

quite for a of that's us as incremental bit just activity a So sector.

Waqar Syed

And lot you're eaten increase Or up Okay. net the in that pricing? price number you those are your of do think gets kind inflation? own a of giving, that

Ann Fox

net the that gave deck, Well, assuming is in IR that we pricing. the example

there is aware of lines. amount of. an margin. the to cost to So challenge I obviously trying able We've how is inflationary for added we've really been impact CEO always And think that price enormous get the good had big certainly to every inflation out pressures the everybody net predict

the might in we XXXX. think of QX have been this margin last I saw So time

suspect I has and been year I this price for So you'll managing costs this very suspect would this good we're managing see is those impact. -- proven us at net increases, surpassing margin team environment that their see. very, so inflationary to that, nice

Waqar Syed

Okay. EBITDA you for And could revenues mentioned expect relatively then as flat well? Do margins you to be the QX, relatively be flat.

Guy Sirkes

mean, think mix. not I given it's guiding margins. lumpy just Waqar, I EBITDA we're the a bit

it's just to mix So going be dependent.

Waqar Syed

Okay.

you decline lines to in Where so Where quarter-over-quarter expect revenues growth? you stay see you QX? which flat? And business do see into

Ann Fox

Yes.

I be -- QX. international be in think will for the our likely orders just down change biggest be us will will

margin well factor as about you as these you Obviously, thinks in. that everybody margin, think sales and are high-margin you can about Waqar. So know, as

seeing already They're probably costs. conscious inflationary think are that what you're budget operators to to I exhaustion -- sector, extremely on the cover just increase everybody their down this our and we're in of budget year. having

think X until January going So again, them see I run far ahead. that they're waiting want not to and mark, you're out to too

softer came You're much on lot And obviously team much customer that is of our a also production. This should the coming would It in our service factor than than be very seeing thought it base that's come. watching. expected sooner something for everybody sector. good

Waqar Syed

QX, strong, margins number? incremental as were margins the And QX Okay. to above in to moderating expect quarter moderating this to a then start lower margins XX%. you into look start Do we incremental very --

Ann Fox

a -- XXXX. not strong to year I definitely a coming think would over XXXX going XX% run that think from into see rate incremental over I I very for as incremental this XXXX next margins company, use margin you're something do is XXXX. But

better year excited we're XXXX, think a about I it be much certainly and very it. will than

So going for a think to I great it's Nine. be year

Guy Sirkes

going different We've in It's we've walk things some just slides there, assumptions that can or had depend -- you margins illustrative. a on at how want in on price our think dynamics the margins the we purely when and Waqar, posted deck. but cash again, in incremental -- activity-based think get see market, we've like incremental I about have if And that, you investor which based. are, the to you it's look to put

transpires to obviously, So on next year. actually going it's what depend

Ann Fox

Yes.

really I that started we XXXX. that Waqar, where about you in margin it's we XXXX the outperform see think executing nice were think EBITDA it, in to we reflects will an strategy also, And when adjusted think XXXX. a business that on in basis

to come So see that fruition. very nice to

much very to year. of forward So this next start looking the

Waqar Syed

Great. and Well, again. thank you very congrats much

Ann Fox

you. Thank

Operator

with Piggott your Hutton. next proceed is from Ben question with Please EF Our question.

Ben Piggott

strong very Hi. Thanks. quarter. Congrats a on

paint Just the scenarios kind you CapEx guys free where capital? talked XX% aggressive where probably Guy, more where on with in more bit maintenance cash a growth maybe -- aggressive you more You color 'XX. get walk. could little picture Can about for us that talk about Maybe be just maybe there? flow a would you of be

Ann Fox

then light. generally, Yes, I'll also a good which with big very about the this revenue light. morning. start think I to from going and is at when labor I'm it over this, tools, chunk to is you But growth of in remember, completion derivation now Guy. Nine say Ben, versus It's flip capital just past, incredibly would

put then when those think that as need line expanding So generate margins. just the of dollars machines to into top we you many types and in about this remember, also margin, expanding to don't

completion So, lots there growth of that tool business for in next year.

cash look we as business, just over period, tools you talking the think I few about the walk period, capital. in And market year there just So the so year a $X million just you're think that. about when and remember few for understands, over about at the CapEx a needs completion

but to So where sometimes capital this trucks very in And pickup spend rooflines, tin Guy. I'll flip very, is light. back capital your and

Guy Sirkes

-- I Again, lay all pace it's people some not the of it's out the really to like to and chain just that, seeing depend We're equipment. firms, to to going on to add just get walk. cash mean, difficult Ben. constraints. help just guidance deliveries Yes. much to tried I think we mean, about XXXX, for supply

pace has the be moving of bit this a been candidly. exact it year, going little to So as deliveries target of a is

Ben Piggott

kind there of 'XX you should a to the to pull capital growth Got line, about look dollars made framework beyond Yes. lever cash for like growth What with capital, you about Y? comments CapEx intensity and The to on capital into all is rule was we said, the hard? on working the a have for free of of 'XX extent the top it. there think that but of kind working -- flow that excluding variability about X of as intensity just think that way is should in thumb working don't

Guy Sirkes

Yes.

capital best think I intensity think just working is way day's about a on the concept. to

we So DSO. XX.X for our reported

So biggest driver. to that's going be your

reasonable. XX regularly. of DSO for that's pretty as kind revenue probably that increases, high We've hold in flat, DSO been So if that or you XXs pretty

hold You days payable. your can also

see how trended can those but You will forward. have those linearly of with revenue. not kind and bit, going as the not a rise -- perfectly inventories trend And

working revenue, So if growth revenue is growth. there you is a capital to which be of of use do the in just expect depend cash and on magnitude the to going

Ann Fox

another don't this to your roughly but X,XXX about under about about labor not our Ben, business When as question, that, going is had you you on to about light, about as you XXXX, light, in as our point, at we think think if when $XXX necessarily much line. in CapEx Today, which about on just million annualized about think EBITDA generate going $XXX XXXX as forward, talk slightly think you XXXX, financials we million, something million, into have X,XXX. roughly adjusted the employees. $XXX today EBITDA at we look think

of efficiency loss there. So

these are this being labor we're light. So and again, that the all about excited CapEx light strategy reasons

the understands that wanted market as just I to well. So make sure

Ben Piggott

again, color. appreciate good And That’s congrats. guys. I it

Ann Fox

you. Thank

Operator

Partners. with Our Daniel next with question comes your proceed from Please question. Energy Daniel John

John Daniel

I plus think, Ann, in. back quarter-over-quarter. me letting jumped there, XX% the to for me, thanks rereading really -- was I and plug the release just out press sales Hi,

cow, driven it? Just works holy broader or on color up one saying, right, My this customers penetration getting you -- is by two big question congratulations more there that. on would So we're are is appreciated. Or be any customers? across that loading

Ann Fox

the I very this long, in No, is very it's that as list, to. actually the running these we're exposed diverse far and commodity as and a customer that's think broad Yes. basin

know, to really As you up. we that started plugs pick also and internationally, run has

the we're in about the market. excited So super international momentum

our like performance couple East. plug the Vaca recently a as in interesting of with Muerta happy So Middle plays dissolvable well as really

that's of Nine. So for there lots runway

that's awesome So see. to pretty been

John Daniel

very you much. Thank Okay.

Ann Fox

that just XXXX. XX% too, have more you we our one market we just dissolvables to in today John, if more also, that, on deck, look sold let is in than know did And the IR want point we've

keep of think the -- service you 'XX, just strong I because a really pretty as So and for kind referencing that growth that year sector. generally was about

look how to for at XXXX, are wonderful doing. that's like to relative us to we we been So numbers stay. And

John Daniel

Thank much. Okay. you all very

Ann Fox

you. Thank Awesome.

Operator

to no I further for this the to floor are closing questions Ann now turn There at Fox comments. back like over time. would

Ann Fox

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

Operator

concludes This teleconference. todays

your participation. may Thanks disconnect time. You lines for at your this

Nine Energy Service (NINE) 7 Nov 222022 Q3 Earnings call transcript