Nine Energy Service, Inc. (NYSE:NINE) Q1 2024 Earnings Call Transcript May 7, 2024
Nine Energy Service, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to Nine Energy Service First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Instructions will be given at that time. [Operator Instructions] I would now like to turn the conference over to your host, Heather Schmidt, Vice President of Strategic Development and Investor Relations.
Heather Schmidt: Thank you. Good morning, everyone, and welcome to the Nine Energy Service earnings conference call to discuss our results for the first quarter of 2024. With me today are Ann Fox, President and Chief Executive Officer; and Guy Sirkes, Chief Financial Officer. We appreciate your participation. Some of our comments today may include forward-looking statements reflecting views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are also included in our first quarter press release and can be found in the Investor Relations section of our website. I will now turn the call over to Ann.
Ann Fox: Thank you, Heather. Good morning, everyone. Thank you for joining us today to discuss our first quarter results for 2024. Revenue for the quarter was $142.1 million, which was within the upper range of our original guidance of $135 million to $145 million. We generated adjusted EBITDA of $15 million, reflecting an adjusted EBITDA margin of 11%, diluted earnings per share was negative $0.24. During Q1, the markets were relatively stable with the average US rig count remaining flat quarter-over-quarter. This was reflected in our revenue, which also remained relatively flat quarter-over-quarter, coming in where we anticipated. Despite a flat rig count, our adjusted EBITDA increased quarter-over-quarter due mostly to better utilization within coiled tubing.
Coiled tubing days work increased by over 40%, driving revenue growth of approximately 11% quarter-over-quarter. Demand for coiled tubing work was strong in the Permian, and we were able to supplement this work by sending equipment and personnel to the region from the Haynesville. Completion to our revenue was relatively flat quarter-over-quarter. We reached a major milestone in Q1, surpassing 60,000 dissolvable Stinger units sold since we introduced the technology in Q1 of 2020. I am extremely proud of the team and the way they scaled this product without compromising quality and reliability. We remain bullish on not only the capability of our dissolvable technology, but on the continued adoption of dissolvable plugs in the US market and abroad.
In Q1, we began to see the impact of pricing pressure within our cementing business as we balance market share and profitability within this rig count environment. In wireline, we maintained excellent market share in the Northeast and continue to focus on gaining additional market share in the Permian while increasing exposure to remedial and conventional wireline. I would now like to turn the call over to Guy to walk through detailed financial information.
Guy Sirkes: Thank you, Ann. As of March 31, 2024, Nine’s cash and cash equivalents were $10.2 million with $27.3 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $37.5 million as of March 31, 2024. At March 31, we had $52 million of borrowings under the ABL credit facility. As a reminder, during Q1, we had a $19.5 million interest payment for our notes and paid down $5 million on the ABL. Additionally, we had $5.6 million of CapEx for the quarter. As a result, our cash balance as of March 31 was out of trough, and we have already begun to build back our cash balance. All of these cash outflows were anticipated, and our cash balance will continue to ebb and flow in conjunction with our interest payments that are made in January and August.
At the end of last year, we put a $30 million ATM program in place to provide flexibility for the company. During Q1, we did not sell any shares under the ATM program and have not sold any to date. As per the terms of the indenture governing our senior secured notes, we are required to periodically offer to repurchase such notes with a portion of any excess cash flow. We did not generate any excess cash flow as defined in the indenture in the most recently ended two fiscal quarters. As a result, no excess cash flow offer will be made to note holders this month. A reconciliation of this calculation is available in our Q1 earnings release. During the first quarter, revenue totaled $142.1 million with adjusted gross profit of $26.1 million. During the first quarter, we completed 943 cementing jobs, a decrease of approximately 3%.
The average blended revenue per job decreased by approximately 5%. Cementing revenue for the quarter was $48.3 million, a decrease of approximately 8%. During the first quarter, we completed 6,486 wireline stages, an increase of approximately 14%. The average blended revenue per stage decreased by approximately 13%. Wireline revenue for the quarter was $27.9 million, which was flat compared to Q4. For completion tools, we completed 28,074 stages, an increase of approximately 4%. Completion tool revenue was $35.3 million, a decrease of approximately 2%. During the first quarter, our coiled tubing days worked increased by approximately 41% with the average blended day rate decreasing by approximately 21%. Coiled tubing utilization was 63% with revenue of $30.7 million, an increase of approximately 11%.
During the first quarter, the company reported general and administrative expense of $12.3 million. Depreciation and amortization expense was $9.5 million. The company’s tax provision was approximately $0.2 million for the quarter, the provision for 2024 as a result of our tax position in state and non-US tax jurisdictions. The company reported net cash used in operating activities of $8.8 million. The average DSO for Q1 was 57.5 days. CapEx spend for Q1 was $5.6 million. Our 2024 CapEx guide is unchanged at $15 million to $25 million, but is flexible if market conditions dictate a reduction. I will now turn it back to Ann.
Ann Fox: Thank you, Guy. Q1 activity levels were stable driven mostly by a supportive oil price. However, we saw further declines in natural gas prices below $2 starting in February and continuing into Q2. Because of this decline, we are anticipating activity slowdowns in the natural gas levered basins, including delayed completions, rig declines and overall more white space in the calendar specifically in the Northeast, Haynesville and with some impact in the Eagle Ford. As a reminder, in 2023 approximately 34% of Nine’s revenue was generated out of the Northeastern Haynesville. We view this decline in natural gas related activity as a temporary slowdown or pause and we remain positive on the medium and long-term outlook for the gas market.
It is imperative to maintain our footprint and people within these basins to ensure we are able to capitalize when gas prices recover. However, this will have short-term negative impacts on our margins. We are watching the markets very closely and we’ll adjust course as dictated by the markets and outlook. The oil markets have remained mostly stable with the majority of public companies keeping capital and activity programs flat in 2024 versus 2023 in the oil lever basins. There could be potential for additional rigs coming into areas like the Permian if commodity prices remain supportive in the second half of this year. We have supplemented our Permian operations with units and personnel from our Haynesville and Northeast locations specifically within coiled tubing and wireline.
For Q2, we anticipate activity declines in white space within the gas-levered basins, as well as full quarter realizations of pricing pressure within our cementing business. Because of this, we expect Q2 to be down compared with Q1 with projected revenue between $130 million and $140 million. We also anticipate that adjusted EBITDA and our adjusted EBITDA margin will decrease from Q1 levels. We have shown our ability to capitalize quickly on market shifts and our business is nimble. Our service and geographic diversity provides us good balance and we are focused on diversifying more of our top line revenue streams to completion tools in the international markets. Our strategy of providing an asset-light business with forward-leaning technology coupled with excellent service is unchanged.
We will now open up the call for Q&A.
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