Executive Summary / Key Takeaways

• Strategic Pivot Yielding Results: Nine Energy Service has successfully implemented a two-pronged strategy of aggressive cost-cutting and profitable market share gains, demonstrating enhanced profitability and operational efficiency even amidst a challenging U.S. rig count environment.
• Technological Edge in Completions: The company's innovative completion tools, including the Pincer hybrid frac plug (2-minute drill-out, 50% less material) and the Scorpion Plug with Frac Dart, provide quantifiable benefits to operators, strengthening its competitive moat and driving market share.
• Liquidity Strengthened, Debt Managed: A recent refinancing of its ABL credit facility in May 2025 significantly boosted liquidity by $22 million, providing financial flexibility to support operations and strategic initiatives despite substantial debt obligations.
• Natural Gas as a Future Catalyst: NINE is strategically positioned to capitalize on the long-term demand for natural gas, driven by AI power demand and LNG exports, with over 30% of its revenue levered to these basins, offering a significant upside catalyst if prices sustain above $3/MMBtu.
• Near-Term Headwinds & Long-Term Vision: While Q3 2025 revenue is projected to decline due to oil price impacts and activity slowdowns, NINE's focus on sustainable cost reductions, international expansion (20% H1 2025 international tools revenue growth), and targeted R&D (new state-of-the-art facility opening 2026) underpins its long-term growth strategy.

The Unconventional Playbook: Adapting to a Dynamic Energy Landscape

Nine Energy Service, Inc. (NINE) operates as a specialized onshore completion services provider, integral to the development of unconventional oil and gas wells across North American basins and internationally. The company’s core business revolves around preparing and enabling wells for production through a comprehensive suite of services: cementing, coiled tubing, wireline, and an innovative portfolio of completion tools. This focused approach positions NINE as a critical partner for exploration and production (E&P) customers, particularly as the industry evolves towards longer laterals and more complex well designs.

The energy sector's inherent cyclicality and the volatility of oil and natural gas prices have profoundly shaped NINE's trajectory. The period leading into 2024 saw significant rig count declines, with over 150 rigs exiting the U.S. market in 2023 and an additional 30+ in 2024. This downturn was exacerbated by depressed natural gas prices, which averaged around $2.19 per million British thermal units (MMBtu) in 2024, leading to reduced activity and pricing pressure. In response, NINE initiated a proactive, two-pronged strategy in the first half of 2024: aggressive cost-cutting measures coupled with a deliberate pursuit of profitable market share gains. This strategic pivot has become the bedrock of its investment thesis, demonstrating a commitment to profitability regardless of market conditions.

Technological Edge: Driving Efficiency and Competitive Moat

At the heart of NINE's competitive strategy lies its relentless focus on technological differentiation and innovation. The company's completion tools portfolio is a prime example, offering solutions that directly address the evolving needs of unconventional well completions. For instance, the Pincer hybrid frac plug, a significant innovation, utilizes both composite and dissolvable materials. This design makes it almost half the size of NINE's original Scorpion composite plugs, enabling remarkable plug drill-out times as low as 2 minutes per plug. This translates into substantial time savings and meaningfully reduces bit wear for customers, in some cases eliminating the need for an additional bit trip.

Another key offering is the Scorpion Plug with Frac Dart element. This technology allows operators to reinitiate pump-down operations if perforating guns do not fire post-plug setting, eliminating the need to pump down a ball. The benefit is clear: reduced time, lower water usage, and significant cost savings for the operator. Furthermore, NINE remains bullish on its Nine Stinger dissolvable plug thesis. As lateral lengths expand—with some wells now approaching four miles—the drilling out of plugs becomes increasingly complicated. The Nine Stinger helps operators extend lateral lengths without compromising reliability, acting as a crucial "insurance policy" for these complex, high-value wells. The company's proprietary NineLite cement slurry also exemplifies this technological advantage, combining low density with elevated compressive strength for optimal cement coverage and well integrity in challenging formations.

To further solidify its technological leadership, NINE is constructing a new state-of-the-art R&D and testing facility for completion tools in Jacksboro, Texas. This over 30,000 square foot facility, slated for a 2026 opening, will feature multiple test wells, drill-out capabilities, and a flowback loop. This investment is designed to enhance technology development and significantly speed up the R&D cycle from conception to commercialization, serving both domestic and increasingly important international markets. This commitment to innovation directly contributes to NINE's competitive moat, allowing it to command better pricing, achieve higher capital efficiency, and secure sticky customer relationships by delivering superior operational outcomes.

Operational Performance and Financial Discipline

NINE's strategic execution is evident in its recent financial performance. For the second quarter of 2025, the company reported revenues of $147.3 million, landing within the upper range of its guidance despite significant rig declines. Adjusted EBITDA for the quarter stood at $14.1 million. This performance was largely driven by its cementing, wireline, and completion tools segments. Cementing revenue increased by 14% year-over-year to $52.2 million, even as job counts decreased by 15%, indicating improved revenue per job. Wireline revenue grew by 18% to $33.0 million, with stages completed up 35%. Completion tools revenue increased by 14% to $37.0 million, supported by a 27% rise in stages. These gains were partially offset by pricing pressure in coiled tubing, which saw a 4% revenue decrease to $25.1 million.

For the first six months of 2025, total revenue reached $297.7 million, an 8% increase over the same period in 2024. Adjusted gross profit for Q2 2025 increased by approximately $5.5 million to $25.8 million, reflecting the impact of NINE's cost reduction and supply chain initiatives. These efforts, which include improvements in fleet management, reductions in employee-related costs, and vendor consolidation, are deemed sustainable and have positively impacted profitability. The company's net loss decreased by 26% to $10.4 million in Q2 2025, while Adjusted EBITDA increased by 45% to $14.1 million, underscoring the effectiveness of its operational improvements.

NINE's liquidity position has also seen a significant boost. As of June 30, 2025, the company held $14.2 million in cash and cash equivalents, complemented by $51.3 million in availability under its new revolving credit facility, totaling $65.5 million in liquidity. This new $125 million asset-based revolving credit facility, secured in May 2025 with White Oak Commercial Finance, LLC, replaced the previous facility, providing approximately $22 million of incremental covenant-compliant liquidity and extending maturity to November 2027. This enhanced financial flexibility is crucial for funding ongoing capital requirements, which are budgeted between $15 million and $25 million for 2025, and managing its substantial debt obligations, including semi-annual interest payments on its 13% Senior Secured Notes due 2028.

Competitive Landscape and Strategic Positioning

NINE operates in a highly competitive oilfield services market, facing formidable rivals such as Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BKR), and Weatherford International (WFRD). These larger, more diversified players often boast greater financial and technical resources, broader global footprints, and more integrated service offerings.

A direct comparison of TTM profitability metrics highlights the scale advantage of NINE's larger competitors. While NINE's TTM Gross Profit Margin stands at 12.06%, its rivals demonstrate significantly higher figures: Halliburton at 19%, Schlumberger at 21%, Baker Hughes at 21%, and Weatherford at 35%. Similar disparities are observed in Operating Profit Margin (NINE: 2.64% vs. HAL: 17%, SLB: 17%, BKR: 11%, WFRD: 17%) and EBITDA Margin (NINE: 11.31% vs. HAL: 17%, SLB: 17%, BKR: 11%, WFRD: 17%). NINE's Net Profit Margin remains negative at -6.31%, while competitors are profitable. This quantitative comparison underscores NINE's challenge in matching the profitability and efficiency derived from the sheer scale and diversified operations of its larger peers.

Despite these challenges, NINE carves out its competitive niche through agility, specialized expertise, and targeted innovation. Its strength lies in its focused portfolio for unconventional resources, allowing for greater efficiency in specific onshore operations. For instance, NINE's advanced cement slurries and rapid drill-out plugs offer tangible cost and time savings that resonate with operators. The company has demonstrated its ability to gain market share, particularly in cementing, where it achieved approximately 19% market share in Q4 2024 within its operating regions, a 14% increase over Q4 2023. In wireline, NINE has successfully differentiated itself by expanding into remedial work, diversifying its revenue streams.

NINE's strategic response to competitive pressures involves a dual approach:

• Targeted Market Share Gains: By reevaluating pricing and boosting sales efforts, NINE has secured "sticky" customer relationships based on solid performance. The company has also strategically utilized assets, such as deploying Wireline equipment and personnel from West Texas to support operations in the Northeast, maximizing efficiency.
• Cost Discipline and Innovation: NINE's sustainable cost reductions and continuous R&D, as seen with the Pincer plug and Frac Dart, enable it to offer solutions that help customers reduce their own costs per lateral foot, a critical metric for E&P companies. This collaborative approach, aimed at "making the customer a hero," is essential in a market where operators are relentlessly focused on capital efficiency.

The competitive dynamics in natural gas basins, particularly the Haynesville and Northeast, are described as "kinder" by management, with some competitors having exited these areas during periods of low gas prices. This creates an opportunity for NINE to leverage its established presence and potentially realize "significant latent earnings" as natural gas prices recover. Furthermore, NINE is actively expanding its international tools business, which saw a 20% revenue increase in the first half of 2025 compared to the first half of 2024, driven by sales of its multi-cycle barrier valve (MCBV) and plugs. This international focus, primarily product-based without heavy equipment proliferation, offers a less capital-intensive growth avenue.

Outlook and Risks

NINE's outlook reflects a cautious but strategically focused approach. For the third quarter of 2025, the company projects revenue between $135 million and $145 million, a sequential decline from Q2 2025. This anticipated decrease is attributed to the full quarter realization of activity and pricing declines experienced in Q2, particularly in oil-levered basins like the Permian. Management also expects more "white space" in the calendar, including completion delays, as customers adjust capital plans in response to commodity price fluctuations. The possibility of additional rigs coming out of the market in the latter half of the year, especially from private operators who tend to be more reactive to price movements, remains a key assumption.

Despite these near-term headwinds, NINE maintains a positive long-term outlook, particularly for natural gas. The company is "cautiously optimistic" that natural gas-levered operators will increase activity if prices average $3/MMBtu or above, driven by the growing power demand from AI and expanding LNG export capacity. NINE expects to see market changes first in Appalachia, followed by the Haynesville. For Q1 2026, customer conversations indicate increased activity, specifically in the Permian, aligning with typical budget resets.

However, significant risks persist. The cyclical nature of the oilfield services industry and the extreme volatility of oil and natural gas prices remain paramount. A sustained decline in WTI crude prices below the $65/barrel floor, or a tumble into the $50s, would likely trigger further activity pullbacks. Inflation, particularly in labor and materials, could erode margins if NINE is unable to fully pass through cost increases. New tariffs, especially on steel-intensive components, are a direct concern, though NINE intends to pass these costs on to customers, believing the service sector cannot absorb them.

A critical risk factor is NINE's compliance with NYSE listing standards. As of April 29, 2025, the company's average closing share price was below $1.00 for a consecutive 30-day period, and its average global market capitalization was below $50 million with stockholders' equity also below $50 million as of October 21, 2024. Failure to regain compliance within the stipulated cure periods could lead to delisting, which would negatively impact stock liquidity, market price, and the ability to raise equity financing. The company is considering all options, including a reverse stock split, to address this.

Conclusion

Nine Energy Service stands at a pivotal juncture, demonstrating remarkable resilience and strategic acumen in a challenging energy market. Its deliberate pivot towards sustainable cost reductions and targeted market share gains has begun to yield tangible improvements in profitability, even as industry activity contracts. The company's commitment to technological innovation, exemplified by its advanced completion tools and the planned state-of-the-art R&D facility, is a critical differentiator, offering quantifiable benefits to customers and strengthening its competitive position in niche, high-value segments.

While near-term revenue and earnings face headwinds from fluctuating oil prices and reduced activity, NINE's strategic positioning in the natural gas basins and its growing international tools business offer significant long-term catalysts. The recent ABL refinancing has bolstered its liquidity, providing a stronger financial foundation to execute its strategy. Investors should closely monitor commodity price trends, particularly the recovery in natural gas, and the company's progress in addressing its NYSE listing compliance. NINE's ability to continue its disciplined operational execution, leverage its technological advantages, and capitalize on the evolving energy landscape will be key to unlocking its full potential and driving shareholder value.