Executive Summary / Key Takeaways

• Nine Energy Service operates as a specialized completions provider for unconventional oil and gas wells, strategically focusing on cementing, coiled tubing, wireline, and advanced completion tools across North America and internationally.
• The company's core investment thesis is anchored in its technological differentiation, particularly its dissolvable frac plugs and proprietary cementing slurries, which offer quantifiable benefits in complex, long-lateral well completions, enhancing efficiency and reliability for E&P customers.
• Despite a challenging market characterized by rig count declines and pricing pressures in 2025, Nine has demonstrated resilience through strategic cost reductions and targeted market share gains, particularly in its cementing and international tools divisions.
• Liquidity remains a critical focus, with the company refinancing its ABL facility in May 2025 to enhance financial flexibility, though substantial debt obligations and potential borrowing base reductions due to commodity price impacts on inventory require careful monitoring.
• The long-term outlook for natural gas, driven by AI power demand and LNG exports, presents a significant catalyst for Nine, given its substantial revenue exposure to gas-levered basins, which could unlock latent earnings potential as activity returns.

The Unconventional Edge: Nine Energy Service's Foundational Strategy

Nine Energy Service, Inc. (NINE) stands as a focused provider of completion services, integral to the development of unconventional oil and gas wells. Incorporated in 2011, the Houston-based company has carved out a niche by delivering specialized tools and methodologies designed to prepare horizontal, multistage wells for production. Its overarching strategy centers on partnering with exploration and production (E&P) customers across major onshore basins in the U.S. and Canada, as well as internationally, to deploy downhole solutions that maximize production and operating efficiencies. This approach is underpinned by a culture emphasizing performance, wellsite execution, and a commitment to forward-leaning technologies.

The company's competitive positioning is defined by its specialized offerings in a market dominated by larger, more diversified players like Halliburton , Schlumberger , Baker Hughes , and Weatherford International . While these industry giants offer broader, integrated service portfolios and possess significantly greater financial and technical resources, Nine differentiates itself through agility and a concentrated focus on specific, high-value completion challenges. This allows Nine to compete effectively in targeted onshore applications, where its specialized tools can offer distinct operational advantages.

Technological Differentiation: The Core of Nine's Moat

At the heart of Nine's competitive strategy lies its differentiated technology, particularly within its completion tools and cementing services. The company's innovative portfolio includes technologies for completing the toe stage of horizontal wells and a range of fully-composite, dissolvable, and extended-range frac plugs. These plugs are crucial for isolating stages during plug-and-perf operations, a multistage well completion technique.

A prime example of this innovation is the Pincer hybrid frac plug, introduced in 2024. This plug combines composite and dissolvable materials and is approximately half the size of Nine's original Scorpion composite plugs, enabling drill-out times as low as 2 minutes per plug. This quantifiable benefit directly translates to enhanced operational efficiency for customers, reducing non-productive time and associated costs. Furthermore, the addition of a frac start element to the existing Scorpion Plug allows operators to reinitiate pump-down operations if guns fail post-plug setting, eliminating the need for a ball and saving time, water usage, and money.

Nine remains particularly bullish on the dissolvable plug thesis, recognizing that as lateral lengths in unconventional wells continue to expand, the drilling out of conventional plugs becomes increasingly complicated and difficult. Nine's Stinger dissolvable plug is designed to help operators extend lateral lengths without compromising reliability, acting as a critical "insurance policy" for these complex, high-value wells. This technological edge is especially beneficial in "hot basins" like the Haynesville and Eagle Ford, where high temperatures naturally aid dissolution, creating a confluence of factors favorable to Nine's offerings.

The company's R&D efforts extend beyond plugs. Its cementing division, for instance, recently achieved a landmark accomplishment in the challenging Haynesville basin. The team formulated a latex-based cement slurry that maintained stability while being placed in an extremely narrow annulus, mitigated friction pressure concerns due to its reduced viscosity, and allowed for increased pumping rates and reduced pressures while maintaining full fluid returns. This demonstrates Nine's capability to innovate for extreme operating environments, which often feature bottom hole temperatures exceeding 400°F and high pressures.

To further enhance its technological roadmap and accelerate the R&D cycle from conception to commercialization, Nine is constructing a state-of-the-art completion tools R&D and testing facility in Texas. This facility, spanning over 30,000 square feet, will feature multiple test wells capable of simulating various pressures and temperatures, along with drill-out capabilities and flowback loops. This investment is critical for maintaining its position as a premier completion tool provider, especially for meeting the stringent requirements of international customers. The Norwegian R&D team, acquired through Frac Technology AS in 2018, continues to enhance the multi-cycle barrier valve, which has shown to outperform competitors internationally.

Financial Performance and Operational Resilience

Nine's financial performance in 2025 reflects a challenging yet resilient operating environment. For the third quarter of 2025, revenues decreased by $6.1 million, or 4%, to $132 million, falling below the company's original guidance. This decline was primarily driven by a 15% decrease in coiled tubing revenue, stemming from reduced volume, utilization, and pricing. Cementing revenue also saw a 4% decrease, mainly due to pricing reductions despite a slight increase in job count. Completion tools revenue experienced a 1% decline, with stages down 11%, partly due to domestic market share losses from customer consolidation and changes in casing sizes. Wireline services provided a partial offset, with revenue increasing by 1% as completed stages rose by 31%, overcoming pricing pressures. Adjusted gross profit for Q3 2025 decreased by approximately $4.4 million to $20.3 million, and Adjusted EBITDA fell by $4.6 million (33%) to $9.6 million.

Despite these quarterly headwinds, the first nine months of 2025 showed an overall revenue increase of $17.1 million, or 4%, to $429.7 million, compared to the same period in 2024. This growth was largely fueled by cementing revenue, which grew by $13.4 million (9%) due to a 16% increase in job count. Wireline revenue also increased by $7 million (8%) with a 28% rise in completed stages, and tools revenue grew by $3 million (3%). Adjusted gross profit for the nine-month period increased by approximately $2.9 million to $74.1 million, and Adjusted EBITDA rose by $1.2 million (3%) to $40.3 million. The net loss for the nine months remained relatively stable at $32.1 million.

The company's operational resilience is evident in its ability to generate incremental Adjusted EBITDA margins of approximately 26% in Q1 2025, driven by market share gains and cost reductions, despite a flat U.S. rig count. This highlights the effectiveness of the two-pronged strategy initiated in 2024, which focused on cost-cutting measures and profitable market share expansion. Cost reductions have been sustainable, stemming from improvements in fleet management, reductions in employee count, and vendor consolidation. Furthermore, Nine's commitment to safety is reflected in its Total Recordable Incident Rate (TRIR) declining 22% from 2023 to 0.49 in 2024.

Liquidity and Capital Structure

Liquidity remains a critical area for Nine. As of September 30, 2025, the company reported $14.4 million in cash and cash equivalents, complemented by $25.9 million in availability under its 2025 ABL Credit Facility, totaling a liquidity position of $40.3 million. The company had $63.3 million in outstanding borrowings under the 2025 ABL Credit Facility and $300 million aggregate principal amount of 13% Senior Secured Notes due 2028. These notes carry significant semi-annual interest payments of $19.5 million each, which materially impact liquidity.

A key financial development in May 2025 was the refinancing of its ABL revolving credit facility with White Oak Commercial Finance, LLC. The new 2025 ABL Credit Facility provides $125 million in commitments and a $50 million uncommitted accordion, maturing in November 2027. This refinancing significantly enhanced Nine's covenant-compliant liquidity by approximately $22 million, including a $14.4 million increase in the borrowing base and a $7.5 million reduction in the fixed charge coverage ratio at the trigger level. However, this comes with an estimated $1 million increase in annual cash interest expense.

The borrowing base under the 2025 ABL Credit Facility is subject to reductions based on inventory's appraised value, with anticipated decreases of approximately $2.2 million as of October 31, 2025, and further reductions on November 30, 2025, December 31, 2025, and January 31, 2026. The company's 2025 capital expenditure budget is projected to be between $15 million and $25 million, likely at the lower end of this range. While management believes current liquidity sources are sufficient for the next twelve months, this is contingent on achieving forecasts and navigating an ever-changing market.

Outlook and Strategic Initiatives

Nine's outlook is shaped by a dynamic commodity price environment and ongoing strategic initiatives. For Q4 2025, the company projects revenue between $122 million and $132 million, anticipating both revenue and adjusted EBITDA to be down sequentially from Q3. This forecast accounts for typical seasonal slowdowns due to weather, holidays, and budget exhaustion, alongside continued pricing pressure.

Despite near-term challenges, the long-term outlook for natural gas is a significant positive catalyst for Nine. Management is optimistic about increased demand driven by AI power consumption and expanding LNG export capacity. With over 30% of its revenue tied to natural gas basins, Nine is well-positioned to capitalize on any sustained recovery in natural gas prices, which averaged a depressed $2.19 per MMBtu in 2024 but improved to approximately $3.45 per MMBtu through Q3 2025. Initial conversations with customers suggest potential activity increases in gas markets, particularly Appalachia and Haynesville, starting in Q2 2026 and beyond.

The company's strategic initiatives are designed to drive profitability regardless of market conditions. These include growing market share both domestically and internationally, advancing R&D and technological capabilities, expanding its International Tools business (which saw a 19% revenue increase in the first nine months of 2025), and evaluating service line expansion into new geographies. The new state-of-the-art completion tools facility in Texas underscores a commitment to technological leadership.

Competitive Landscape and Risks

Nine operates in a highly competitive oilfield services market. Its larger competitors, such as Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BKR), and Weatherford International (WFRD), possess greater scale, financial resources, and broader geographic reach. These larger players can offer more integrated solutions and often benefit from economies of scale in R&D and supply chains. For instance, while Nine's specialized tools offer efficiency, larger competitors' digital platforms often provide superior data analytics and optimization capabilities. The Permian Basin, a significant market for Nine, is particularly saturated, leading to intense pricing pressure as service providers make unsolicited bids and customers seek to drive down costs.

Nine's agility and specialized technology, such as its dissolvable plugs for long laterals, provide a competitive edge in niche applications, potentially offering superior performance in fracture isolation compared to more generalized offerings. The company's focus on cost-effective solutions also makes it attractive to smaller, operationally driven private operators, who often grant field engineers greater autonomy in vendor selection. However, Nine's smaller scale makes it more vulnerable to commodity price volatility and pricing pressures, as evidenced by recent market share losses in completion tools due to customer consolidation and changes in completion designs.

Key risks for Nine include its substantial debt obligations, which could limit growth and future prospects. The company is also currently out of compliance with certain NYSE continued listing standards, including average global market capitalization and minimum share price. A potential delisting could severely impact stock liquidity and the ability to raise equity financing. Furthermore, the cyclical nature of the oil and gas industry, geopolitical developments, tariffs (especially on steel and cement), and increased scrutiny of sustainability matters all pose ongoing challenges. The company's dependence on a single industry and the potential loss of significant customers, including international ones, also represent material risks.

Conclusion

Nine Energy Service stands at a critical juncture, balancing the inherent volatility of the oilfield services market with a clear strategic vision centered on technological differentiation and operational efficiency. The company's commitment to advanced completion tools, such as its Pincer hybrid frac plugs and proprietary cementing slurries, provides a tangible competitive advantage in the increasingly complex landscape of unconventional well development. While recent financial performance has been impacted by rig count declines and pricing pressures, particularly in oil-levered basins, Nine's strategic cost reductions and targeted market share gains demonstrate a resilient operational model.

The long-term investment thesis for Nine is significantly bolstered by the promising outlook for natural gas demand, driven by emerging trends like AI data center power requirements and expanding LNG exports. With a substantial portion of its revenue tied to gas basins, Nine is well-positioned to unlock considerable latent earnings as activity in these regions potentially rebounds. However, investors must closely monitor the company's liquidity, its ability to manage substantial debt, and its efforts to regain NYSE compliance. Nine's success will ultimately hinge on its continued ability to innovate, execute its cost-reduction strategies, and leverage its specialized technological expertise to capture market share in a fiercely competitive and evolving energy landscape.