Nine Energy Service, Inc. (NYSE:NINE) - Navigating Volatility with Resilience and Innovation

Published on September 24, 2024 | Ticker: NINE

Nine Energy Service, Inc. (NYSE:NINE) is a leading provider of completion services and solutions for the oil and gas industry. With a diverse portfolio of offerings, including cementing, completion tools, wireline, and coiled tubing services, Nine Energy Service has established itself as a significant player for exploration and production (E&P) companies across North America and internationally.

Financials

In the fiscal year 2023, Nine Energy Service reported annual revenue of $609.5 million and a net loss of $32.2 million. The company's annual operating cash flow was $45.5 million, while its free cash flow stood at $20.9 million. These financial results reflect the challenges faced by the industry, as well as Nine Energy Service's ability to navigate the volatile market conditions.

During the first quarter of 2024, Nine Energy Service reported revenue of $142.1 million, a decrease of 13% compared to the same period in the prior year. The company's adjusted EBITDA for the quarter was $15.0 million, representing a margin of 11%. Diluted earnings per share for the quarter was negative $0.24.

Recent Developments

The first quarter of 2024 saw relatively stable market conditions, with the average U.S. rig count remaining flat quarter-over-quarter. This was reflected in Nine Energy Service's revenue, which also remained relatively flat. However, the company's adjusted EBITDA increased quarter-over-quarter, primarily due to improved utilization within the coiled tubing segment.

Coiled tubing days worked increased by over 40% in the first quarter, driving a revenue growth of approximately 11% in this segment. The strong demand for coiled tubing work in the Permian Basin was supplemented by the company's ability to deploy equipment and personnel from the Haynesville region.

In the completion tools segment, Nine Energy Service reached a significant milestone by surpassing 60,000 dissolvable Stinger units sold since the introduction of the technology in the first quarter of 2020. The company appears optimistic about the continued adoption of dissolvable plugs in the U.S. market and abroad.

However, Nine Energy Service did experience pricing pressure within its cementing business, as the company balanced market share and profitability in the current rig count environment. In the wireline segment, the company maintained market share in the Northeast and continued to focus on gaining additional market share in the Permian Basin, while also increasing exposure to remedial and conventional wireline services.

Outlook

Looking ahead, Nine Energy Service is anticipating activity slowdowns in the natural gas-levered basins, including the Northeast, Haynesville, and Eagle Ford, due to the further decline in natural gas prices below $2 starting in February 2024. This decline in natural gas-related activity is expected to have a short-term negative impact on the company's margins.

In contrast, the oil markets have remained mostly stable, with the majority of public companies keeping their capital and activity programs flat in 2024 compared to 2023 in the oil-levered basins. Nine Energy Service has been able to supplement its Permian operations with units and personnel from its Haynesville and Northeast locations, specifically within coiled tubing and wireline.

For the second quarter of 2024, Nine Energy Service anticipates activity declines and white space within the gas-levered basins, as well as the full-quarter realization of pricing pressure within its cementing business. As a result, the company expects revenue to be between $130 million and $140 million, with a decrease in adjusted EBITDA and adjusted EBITDA margin compared to the first quarter.

Risks and Challenges

Despite the near-term challenges, Nine Energy Service remains focused on its strategy of providing an asset-light business with forward-leaning technology and excellent service. The company's service and geographic diversity provide a good balance, and it is actively working to diversify its top-line revenue streams, particularly in the international markets, which currently account for 4% to 5% of annual revenue.

Liquidity

Nine Energy Service's liquidity position remains strong, with $10.2 million in cash and cash equivalents and $27.3 million of availability under its revolving ABL credit facility as of March 31, 2024. The company's total liquidity position stood at $37.5 million at the end of the first quarter.

Conclusion

The company's ability to quickly adapt to market shifts and its focus on technological innovation have been key to its resilience. Nine Energy Service's diverse service offerings, geographic reach, and commitment to providing cost-effective and comprehensive completion solutions position it well to navigate the industry's volatility and capitalize on future growth opportunities.

Overall, Nine Energy Service's first quarter results demonstrate the company's agility and its dedication to serving its customers in a challenging market environment. As the industry continues to evolve, Nine Energy Service's focus on innovation, operational excellence, and financial discipline will be critical in driving long-term success and value creation for its shareholders.

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