Q4 2024 Nine Energy Service Inc Earnings Call
Greetings and welcome to Nine Energy Service Earnings Conference call for the 4th quarter and full year 2024.
At this time, all participants are on a list and only mode. A question and answer session will follow as a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: I would now like to turn this conference over to your host, Heather Schmidt, Senior Vice President of Strategic Development and IR.
Heather Schmidt: Thank you. Good morning, everyone, and welcome to the Nine Energy Service earnings conference call to discuss our results for the fourth quarter in fully year 2024, which me today are Ann Fox, President and Chief Executive Officer and Guy Sirkes, Chief Financial Officer. We appreciate your participation.
Heather Schmidt: Some of our comments today may include forward-looking statements reflecting nine views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control.
Heather Schmidt: These risks and uncertainties can cause the actual results to differ materially from our current expectation.
Heather Schmidt: We provide listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Heather Schmidt: We undertake no obligation to revise or update publicly any for the statements for any reason.
Our comments today also include non-GAAP financial measures.
Heather Schmidt: Additional details and a reconciliation to the most directly comparable GAAP financial measures.
Ann Fox: We are also included in our fourth quarter press release and can be found in the Investor Relations section of our website. I will now turn the call over to Ann.
Speaker Change: As we evaluate this past year, the nine team had many accomplishments despite a continued and challenging backdrop for the oil-filled service sector.
Speaker Change: We ended a year with around 590 rigs in the US market, a decline of a little over 30 rigs for the year. This was following 2023, where we saw over 150 rigs come out of the market.
Speaker Change: Low National Gas Prices contributed to lower activity levels in the US market, as well as pricing pressure, specifically in the gas-leaf-bird basins like the Hainesville and Northeast, where nine has historically generated over 30% of our total revenue.
Speaker Change: Our oil-weavered customers kept activity levels relatively flapped this year, but they too felt the impact of low gas prices throughout most of 2024.
Speaker Change: We continue to see significant consolidation amongst our customers who remain committed to the capital discipline.
Speaker Change: Operators are getting larger, and we are helping them become more efficient doing much more with less, which led to an increase in U.S. production, again, in 2024, despite the red count decreasing by almost 25% over the last two years.
Speaker Change: Nine is a spot market business, and historically, our earnings have moved almost in tandem with the US Red Count.
Speaker Change: These market drivers will continue to significantly impact our earnings. However, beginning in the first half of 2024, we formulated and began executing a two-prong strategy to drive profitability for 2009 in a declining or flat rigged-count environment.
Speaker Change: This included implementing cost-cutting measures, as well as profitable market share gains across service lines and basins.
Speaker Change: Our team did an excellent job executing this strategy and we began seeing the financial impacts in Q3 and we continue to see them in Q4.
Speaker Change: After increasing adjusted EBITDAW in Q3 by approximately 47 percent, despite the average rate count declining by 3 percent, we once again increased revenue by approximately 2 percent and maintained flat adjusted EBITDAW in Q4 despite weather, holiday and budget exhaustion
Speaker Change: Without the typical seasonality impacts in Q4, we are confident we would have seen Q4 adjusted EVA DAW increase sequentially over Q3.
Speaker Change: I am extremely proud of this team who continue to uncover every opportunity to drive margin expansion through cost-cutting initiatives and market share wins. And I do believe we have differentiated ourselves in the market.
Speaker Change: The cementing division was the largest driver of our revenue and profitability gains over the last two quarters. From Q2 to Q4 of 2024, cementing revenue has increased by approximately 20%.
Speaker Change: Seamending had its best quarter of the year in Q4, despite the 2024 U.S. Red Count being at its trough.
Speaker Change: We were able to exit 2024 with a market share within the regions we operate of approximately 19 percent, an increase of approximately 14 percent over our Q4 2023 average, while simultaneously increasing profitability throughout the year through better utilization and cost reduction.
Speaker Change: Our C-Mending Team remains by the forefront of technology and execution, servicing the longest and most complicated lateral.
Speaker Change: For example, during Q4, our team successfully cemented one of our longest laterals to date in the Permian Basin for one of the largest acreage holders in the Permian Basin.
Speaker Change: The well had measured depth of almost 31,000 feet with nearly four miles of lateral length.
Speaker Change: The operator utilized one of our proprietary flories, Nine Light, which combines both the low density required to achieve the desired cement coverage, and the elevated compressive strength required for completion and production activities.
Speaker Change: The Siemens Flurry was optimized to safely travel through the extended lateral while neither settling nor causing excessive friction pressure.
Speaker Change: Furthermore, the placement was engineered to place cement across multiple pay zones without fracturing the formation. As expected, this was but one of over 1100 cementing jobs performed in Q4 delivered on time on budget and without any non-productive time or HSE incidents.
Speaker Change: We anticipate our customers will continue to expand laterally linked, which benefits nine across all of our service offerings.
Speaker Change: Our team continue to relentless focus on technology in 2024, fielding multiple new completion tool technologies, and I am confident in saying we still have one of the top completion tool offerings in U.S.
Speaker Change: We introduced the new Pinser Hybrid Fract Plug, a plug that utilizes both composite and dissolvable materials and is almost half the size of our original scorpion composite plugs, allowing for flood drill out times as low as two minutes per plug.
Speaker Change: Additionally, we added a fractured element to our existing scorpion plug, which allows operators the chance to re-initiate pump-down operations if the guns do not fire post-plug setting.
Speaker Change: With the FractArt, operators can eliminate the need to pump down a ball, saving time, water usage and money.
Speaker Change: We remain bullish on the dissolvable plug thesis. As lateral lengths expand, the drilling out of plugs becomes much more complicated and difficult. Nine stinger dissolvable plug has helped operators extend lateral lengths without compromising reliability.
Speaker Change: Growth in the international tools market remains a feature of our strategy and we expect growth in this market year over year in 2025.
Speaker Change: Our R&D team in Norway continues to enhance our offering, demonstrating that our multi-cycle barrier valves can outperform the competition. Our team here in the U.S. allowed us to successfully penetrate the niche and growing refract market, along with others with great success.
Speaker Change: We will be constructing a state-of-the-art patient tools R&D and testing facility in Texas to enhance our technology moving forward and speed up the R&D cycle from conception to commercialization.
Speaker Change: This new facility is an important part of continuing to be a premier completion tool provider for the US and international markets moving forward.
Speaker Change: Our wireline team, despite being in one of the most saturated service lines with NOFS, was able to increase their profitability throughout the year, while maintaining flat revenue and reported their best revenue of months of the year during Q4.
Speaker Change: Safe Operations are essential and drive operational excellence, sustain morale, and create cohesion in the teams from the field to the corporate office.
Speaker Change: This year, our TRIR declined 22% from 2023 to a 0.49, and the severity of our incidents also dropped. We are proudly a fossil fuels company, but we do care about how we operate in the implications of our operations on the communities within which we operate today.
Speaker Change: We launched our first sustainability report in 2024, which includes tough to get measurements for a corporation of our size. Our operational team worked hard and played an essential role in tracking and thinking about our emissions. We are extremely proud of the way we operate and the type of workplace we provide for our team.
Speaker Change: Throughout 2024, we implemented our cost reduction at Supply Chain Initiative, which kept positively impacted profitability.
Speaker Change: We believe these reductions are sustainable. This is an ongoing effort and will continue to be a top priority in 2025 as we continue to find sustainable ways to increase profitability.
Speaker Change: Company revenue for the year was $554.1 million, net loss was $41.1 million, or negative $1.11 per diluted share, and negative $1.11 per basic share. Adjusted EBITDA for the year was $53.2 million.
Now, according to Q4, [inaudible]
Speaker Change: Revenue for the quarter was 141.4 million, which was in the upper end of our original guidance of 132 to 142 million, and an increase of approximately 2% quarter of a quarter. Adjust to the EBITDA with 14.1 million, which was relatively flat to Q3.
Speaker Change: We did face typical Q4 seasonality with weather and holiday impacts, specifically in December , and like I mentioned, we believe we would have seen adjusted evidog growth over Q3 without these seasonal impacts.
Speaker Change: NetLoss was 8.8 million or negative 22 cents per diluted share and negative 22 cents for basic share.
Adjusted RLIC for the fourth quarter was approximately 6%.
Speaker Change: I would now like to turn the call over to Guy to walk through detailed financial information. Thank you, Ann. As of December 31, 2024, Nine Cash and Cash Equivalence were 27.9 million, with 24.2 million of availability under the revolving credit facility.
Guy Sirkes: Resulting in a total liquidity position of $52.1 million as of December 31, 2024.
Guy Sirkes: On December 31, 2024, the company had 47 million of borrowings and a clear involvement credit facility.
Guy Sirkes: At the end of 2023, we put a $30 million ATM program in place to provide flexibility for the company. During Q4, we did not sell any shares under the ATM program.
Guy Sirkes: For the year-end of 2024, we sold a total of approximately 5.4 million shares, which has generated net proceeds of approximately 8.2 million.
Guy Sirkes: During the fourth quarter revenue totaled 141.4 million, with adjusted gross profit of 26.2 million.
Guy Sirkes: During a fourth quarter, we completed 1121 cementing jobs, an increase of approximately 12% of that person in third quarter.
Guy Sirkes: The average blended revenue per job decreased by approximately 4%, cementing revenue for the quarter was 54.8 million, an increase of approximately 7%.
Guy Sirkes: During the 4th quarter, we completed 6,713 lyreline stages, an increase of approximately 6%. The average blended revenue per stage decreased by approximately 7%.
Guy Sirkes: Wireline Revenue for the Porter was 27.6 million, but decrease of approximately 1%.
Guy Sirkes: For completion tools, we completed 25,587 stages, an increase of approximately 3%.
Guy Sirkes: Completion Tool Revenue was $33.3 million, an increase of approximately 6%.
Guy Sirkes: During the fourth quarter, our poiled tubing days were decreased by approximately 16% with the average blended day rate increasing by approximately 11%.
Quality of Human Utilization during the quarter was 44%.
Guy Sirkes: Quail to be revenue for the quarter was 25.8 million, a decrease of approximately 7%. During the fourth quarter, the company reported general and administrative expense, a 14.2 million, with 4-year GNA, a 51.3 million.
Guy Sirkes: Depreciation and amortization expense in the fourth quarter was $8.8 million, with full year DNA of $36.8 million.
Guy Sirkes: The company's tax provision was approximately 0.2 million. The provision for 2024 is the result of our tax position in state and non-US tax jurisdictions.
Guy Sirkes: For the year end 2024, the company reported net cash provided by operating activities of 13.2 million. The average DSO for 2024 was 55.9 days.
Our total CAPEX fans for 2024 was approximately 14.6 million.
Guy Sirkes: Which came with in management's original guidance of 10 to 15 million. For 2025, we anticipate total cat-backs of 15 to 25 million.
Guy Sirkes: Our cash flow will continue to be impacted by our semi-annual interspanements of approximately 20 million in Q1 and Q3 of 2025. I will now turn it back to Ann.
Guy Sirkes: Thank you, guys. It is a very dynamic time, but we are optimistic looking into 2025 as we continue to execute our strategy, maintaining and expanding on our market share gains and cost-cutting initiatives we began implementing in 2024.
Guy Sirkes: We believe the long-term demand for natural gas will increase due to the power demands from AI, as well as the rise of
Guy Sirkes: Our revenue is over 30% we've heard to natural gas basins. So this would be a significant catalyst for growth for nine. We are well positioned in the natural gas basins, and we have seen our earnings respond quickly and significantly in the past.
Guy Sirkes: Thus far in 2025, we have seen a much more supportive natural gas price, and we are cautiously optimistic that some of the natural gas-libert operators could bring some activity back online.
Guy Sirkes: It appears most of our oil-leavered customers are likely to keep activity levels relatively flat and overall with what we know today, we expect 2025 U.S. activity levels to be mostly stable.
Guy Sirkes: Despite weather impacts in January and relatively flat activity levels thus far, Q1 is off to a very good start. And the strong momentum we saw in the back half of 2024 has continued into 2025.
Guy Sirkes: Because of this, we anticipate both revenue and adjusted EBITDA will increase sequentially in Q1 compared to Q4 and we project Q1 revenue between 146 and 152 million.
Guy Sirkes: This sequential increase is due to nine sustained market share games and previously implemented in ongoing cost cutting measures.
Guy Sirkes: We are constantly challenging ourselves to find ways to drive profitability for nine. We believe there are significant latent earnings within the company, especially within the National Gas Libert Basins, where activity has been very depressed, and many competitors have
Guy Sirkes: Our team has experienced and motivated. We are focused on continuing to execute our strategy and increasing profitability no matter the rate count environment. I believe strongly we are one of the top providers in the US within the services we provide and our entire team is aligned in driving value for nine.
Guy Sirkes: 2024 demonstrated that we can play offense and defense, and I am extremely proud to work with the people at nine.
Guy Sirkes: Before I open for Q&A, I wanted to draw attention to Nine's recent press release regarding changes to the size and composition of our board.
Guy Sirkes: Yesterday, we announced an exciting and we believe timely refresh of our Board of Directors.
Guy Sirkes: We are welcoming two new members to the board, Julie Peffer and Richard Burnett, Julie joined the board on March 1st. She is a current chief financial officer at Big Bear AI and brings extensive financial and leadership experience as well as a deep knowledge around AI that will be extremely beneficial to Nine.
Guy Sirkes: Richard is joining the board on May 3rd. He is the current president and CEO of Silver Creek Exploration and he brings extensive business and financial expertise in the oil and gas industry.
Guy Sirkes: Yesterday's press release also provided additional information on the anticipated appointment of another director in August .
Guy Sirkes: With these changes, the board is now comprised of six members. The current management team will remain in place with no current or anticipated changes. We are all extremely excited to work with this new board and for what is the head of nine.
Guy Sirkes: I want to thank the retiring board members for their incredible service and contributions to the company, and we wish them all the best on their future endeavors. Additionally, I want to thank SCF who has been a long term investor and partner making their first investment in nine in 2011. [inaudible]
Guy Sirkes: They have been excellent and patient strategic partners over the last 14 years, providing sound guidance and stability through extreme volatility and market cycles. We will now open up the call for Q&A.
Guy Sirkes: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad.
Guy Sirkes: A confirmation tone will indicate your line is in the question queue. You may press start to if you'd like to remove your question from the queue.
One moment please while we poll for questions.
Guy Sirkes: My first question comes from John Daniel, with Daniel Energy. Please proceed with your question.
John Daniel: Good morning, Ann and team. Hopefully you can hear me okay. Yes, we can. Good morning. Cool. Thank you. I got two probably easy questions, but on the dissolvable business, the plugs, do you see any difference between the basins where the adoption rates are better than others?
Speaker Change: Well, surely as we've said before, John , your hot basins are they just love all things dissolvable. So that certainly sets up well for us. We're talking really about the Heansville, obviously the Eagle Ferd, so it's also happened as you well know to be natural gas.
Speaker Change: Well, certainly the Haynesville and lots of natural gas in the Eagle Ferd, so that confluence of events is wonderful for us as you think about dissolvable plugs this year or so. Really happy to see that gas price be so supportive and such a nice
Speaker Change: So, and then just another reminder housekeeping reminder question for me, but when you think about the customers that are using the plugs.
Speaker Change: Did you see a higher doctorate would say the larger majors, NSO, one would think that would be beneficial, but the consolidation, that would be one benefit of consolidation, if you will.
Dale. John Daniel, Waqar Syed,
Speaker Change: Okay. Thank you for including me. Have a great day. Thank you, Fox. Thanks, John .
Speaker Change: Our next question comes from Waqar Syed with ATB Capital Markets. Please proceed with your question.
Mughar Saeed: Thank you. Good morning, Ann and team. Good morning. Congress and a great quarter. Thank you.
Mughar Saeed: We're hearing about all these tariffs and don't know exactly what the final, you know, finally they look like, but do you see, based on what we know right now, do you see any impact on your input costs of operations?
Makar: This is such a great question, Waqar. I'm sure everybody on the call has the very same question and I think if you're not checking your phone on an hourly basis.
Makar: It's hard to keep up to date with what is and is not happening. But at the moment, if the tariffs are to stay in place, yes, there will be impacts to the supply chain and those, you know, I'm sure most of the service sector plans to pass those through. Thank you.
Makar: And that is the plan at the moment. So, but if the terrorists stay in place and we don't reach any negotiations with our friends to the North and South, then yes, there will be impacts that will be passed through to the customer.
Speaker Change: Where do you see the most impact? What kind of products do you see?
Speaker Change: Well, I think the whole sector is probably most concerned around steel. Certainly cement is a concern, but in steel you know that touches so many different areas of
Speaker Change: of the well and the construction of the well. And it also, of course, touches, perf guns, it touches.
Speaker Change: Cool, tubing strings. So a lot of different components here. And I think what's very challenging for every US entity when they look into their supply chain is really to understand the impact because there's a lot of. There's a lot of. There's a lot of.
You know, inputs that you can't see.
Speaker Change: So, you might assemble something, you might add value to it in the US.
Speaker Change: All those very small components and ingredients to make these cakes, we're a very global economy, as you well know, and we're at the moment we're inextricably linked.
Speaker Change: We're starting to see potentially a delinking of that. So I think many people, even understanding the tariffs is still difficult to understand the impact on the supply chain until we actually get into it. So let's hope that we reach some negotiations and we can figure out how to lessen the impact here. But regardless, the service sector will be passing this through to the upstream customers.
in my opinion.
Speaker Change: Yeah, you'd think the service market is tight enough to be able to pass this on.
Speaker Change: I do. And I also think the service sector is lean enough in their profitability at large that that's a must with some of the level of these tariffs. So I think it's broadly it's like a game of, you know.
Speaker Change: Pasahop potato or musical chairs, but I will be very surprised if the service sector does not at large pass these through the upstream community.
Speaker Change: Sure. Now, digging deeper into your guidance for Q1 looks to be pretty solid guidance for Q1 revenue growth.
Speaker Change: Could you maybe talk about, like, which business segments do you see, you know, contributing most to the growth? Is it all evenly distributed? Is it just cementing that's driving it? Could you maybe drill down deeper into the Q1 outlook?
Speaker Change: Sure. Right now, of course, the primary driver of this bullish outlook for us is C-Men, but also, and we heard John's question.
Question, closely followed by a...
Speaker Change: By tools, you know, because we are going to see these hot markets that are also gas markets that are totally left.
Speaker Change: Hopefully see some change in activity with these gas prices, which will be supportive.
Speaker Change: So, yes, and we're also seeing a re-balancing in coil oil. So, we're seeing very good utilization in the coil business. So, so far, very supportive for the coil business as well.
Speaker Change: Now, you typically have some revenues through the course of the year for the international market. Sometimes they can be lumpies on the coal two-inch, on the condition to the side. Was there anything under your NQ for or anything under your expect from NQ1?
Speaker Change: Um, no, no, you're very right. It is lumpy. We do expect growth in the international revenue 2025 over 2024. We are expecting that.
Speaker Change: Okay, great. And then what kind of incremental margins do you expect for this revenue you go to the Q1?
Speaker Change: Yeah, Waqar, we're not providing margin guidance. I think it'll be relatively normal incremental margins relative to what we've had in past. In general, we are expecting a good growth in both revenue and. And, uh, adjust it.
Speaker Change: I'd like you to have fun. Could you maybe talk about the timing?
Speaker Change: When that could happen, and do you expect to see a police check-on back first, or reins well, are there going to be with me over 4.0 gas, like in both areas, you expect some pickup, and the timing of that.
Speaker Change: So I do think that we'll start to see the timing of that in Q2 and beyond, and obviously
Speaker Change: It really works well with this price, Waqar, and I suspect we see some movement also in the Heenville. So we've had some really good initial conversations with some of our customers, which gives us a great sense of optimism. I'll just remind you, I know we talked about it a bit in the script.
Speaker Change: But we're really dealing with a very nice forward strip price right now, and just to remind you, 2024 Average NAC gas price was roughly $2.19.
Speaker Change: We're talking about a massive, massive change in the gas price. So that's really quite positive. And again, what's really positive about that is there's momentum moving forward also in that gas price. So really excited about that.
Speaker Change: Very, very excited about the National Gas Markets, but specifically to answer your question. We do think we'll see a more market change in Appalachia first, but Haynesville certainly should respond to this price.
Speaker Change: Okay. And then just, you know, on the very side, all prices have really slipped down to the number between 65 and 17 now. And if there were to sustain at these levels, how do you, you know, what do you think happens in the premium, you know, prices stay at these levels?
Speaker Change: Yeah, I think we really love to see 65 and above.
Crude. Um, so-
Speaker Change: Let us see if it can hang there. I do think if for some reason we tumble into the 50s then obviously we're going to see activity pullbacks. That's what I would expect. But I am again, I'm hoping that we can see a floor here of 65 at least for the next couple of quarters and. I'm hoping for the next couple of quarters and. I'm hoping for the next couple of quarters and.
Speaker Change: You know, as you know, a lot of our operators are relatively maintenance-level programs anyhow, so I don't suspect that that changes dramatically with what we know today, but again, that seems some kind of threshold level around 65.
Speaker Change: Okay, so at $65 a barrel WTI, you don't think premium activity to come down.
Speaker Change: I think it also depends Waqar on what happens at tariffs, right? What happens to the cost for operators, which is extremely challenging to predict. I will be surprised if we end up in an end.
Speaker Change: Permanent ever escalating situation. I'm hoping that we'll find some resolution on the tariffs, but obviously we we love to see over 70, but I think we can do just fine with over 65.
Speaker Change: Great. That's all from me. Thank you so much for your way detailed answers.
Yes, of course. Thank you.
Speaker Change: We have reached the end of the question and answer session. I'd now like to turn the call back over to Ann Fox for closing comments.
Speaker Change: I want to end by thanking our investors, customers, and employees for their continued support and I'm looking forward to seeing what we can accomplish in 2025.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.