Q1 2025 Nine Energy Service Inc Earnings Call
Greetings and welcome to nine Energy service first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the farm all presentation.
Much require operator assistance during the conference. Please press Star zero on your telephone keypad as a reminder, this call is being recorded.
Speaker Change: I'd now like to turn the conference over to your host Heather Schmidt, Vice President of strategic development and Investor Relations.
Speaker Change: Thank you good morning, everyone and welcome to the nine Energy Service earnings Conference call to discuss our results for the first quarter of 2025.
Speaker Change: Me today are Ann Fox, President and Chief Executive Officer.
Speaker Change: As Chief Financial Officer, we appreciate your participation.
Speaker Change: 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. These risks and uncertainties could 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.
Speaker Change: 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 you. Thank.
Speaker Change: Thank you Heather good morning, everyone. Thank you for joining us today to discuss our first quarter results for 2025.
Speaker Change: Revenue for the quarter was $150 5 million, which was in the upper range of our original guidance of 146 to 152 million and an increase of approximately 6% versus Q4, we generated adjusted EBITDA of $16 5 million an increase of <unk>.
Speaker Change: Awesome at least 17% quarter over quarter incremental adjusted EBITDA margins were approximately 26% we had a strong quarter relative to the market as we continue to execute our strategy of market share gains and cost reductions.
Speaker Change: US land market was relatively stable in Q1 with the U S rig count remaining flat versus Q4. Despite this we generated revenue growth within all of our service lines and generated EBITDA margins of approximately 26% driven in large part by increased activity from our market share gains most spin.
Speaker Change: Typically within cementing.
Speaker Change: Additionally, we did not have the negative impacts of holiday weather and budget exhaustion. We saw in Q4, resulting in more efficient operations and less white space. Most evident in our coiled tubing division, where we increased revenue by approximately 16% quarter over quarter.
Speaker Change: Rising across service lines with mostly stable in Q1 with the exception of our wireline operations in the northeast, where we saw the impact of lower stage pricing implemented during the bidding process in 2024.
Speaker Change: As I mentioned, our total revenue grew by approximately 6% quarter over quarter with our cementing business, increasing its revenue by approximately 4% and jobs completed by approximately 11%. Despite a flat rig count environment and sustained low activity levels in the haynesville.
Speaker Change: Completion tool revenue for the quarter increased due to market share gains in the Permian basin with our Bud offering our technology continues to perform very well and we continue to be a premier completion tool it provider for the U S and abroad.
Speaker Change: Our U S wireline division increased revenue by approximately 7% quarter over quarter due in large part to more efficient operations in the northeast as budgets reset and we did not have the impacts of holiday shutdowns, we have seen stage price reductions in the northeast as we reprice work for 2025 beds completed during a.
Speaker Change: Lower natural gas price in 2024.
Speaker Change: Coiled tubing revenue increased by approximately 16% this quarter utilization was significantly higher in Q1 versus Q4, driving an increase in both revenue and profitability quarter over quarter I would now like to turn the call over to Guy to walk through detailed financial information.
Speaker Change: Before I walk through Q1 results I want to discuss the recent refinancing of our ABL revolving credit facility on May one we closed on a new asset based revolving credit facility with White Oak commercial finance due November 2027.
Speaker Change: New ABL will provide us with $125 million of commitments and a $50 million uncommitted accordion.
Speaker Change: We will replace the company's previous revolving credit facility.
Speaker Change: Based on our March borrowing base and excluding one time transaction costs. The new facility provides <unk> with approximately $22 million of incremental covenant compliant liquidity through an increase in our borrowing base of approximately $14 4 million as well as lowering our fixed charge coverage ratio trigger level.
Speaker Change: By approximately seven $5 million.
Speaker Change: Additionally, the new ABL extends the previous maturity by approximately nine months to November 2027.
Speaker Change: We estimate the new ABL will increase our annual cash interest expense by approximately $1 million.
Speaker Change: The combination of additional borrowing base availability and lower fixed charge covenant ratio trigger levels significantly increases our liquidity and financial flexibility and we are excited about our new partnership with white oak.
Speaker Change: A summary of the terms are contained within the Companys recent filing with the SEC and there is a supplemental presentation that can be found in the investor Relations section of our website.
Speaker Change: As of March 31, 2025, Nine's cash and cash equivalents were $17 3 million with $36 5 million of availability under the previous revolving ABL credit facility, resulting in a total liquidity position of $53 8 million as of March 31 2025.
Speaker Change: At March 31, we had 47 million of borrowings under the ABL credit facility.
Speaker Change: During Q1, we did not sell any shares under the ATM program.
Speaker Change: As per the terms of the indenture governing nine senior secured notes. The company is required to periodically offered a repurchase such notes with a portion of any excess cash flow now.
Speaker Change: <unk> did not generate any excess cash flow as defined in the indenture and the most recently ended two fiscal quarters as a result, no excess cash flow offer will be made to noteholders. This month.
Speaker Change: During the first quarter revenue totaled 155 million with adjusted gross profit of $28 million.
Speaker Change: During the first quarter, we completed 1245, cementing jobs, an increase of approximately 11%.
Speaker Change: The average blended revenue per job decreased by approximately 6%.
Speaker Change: Cementing revenue for the quarter was $57 2 million an increase of approximately 4%.
Speaker Change: During the first quarter, we completed 7713 wireline stages, an increase of approximately 15%.
Speaker Change: The average blended revenue per stage decreased by approximately 7%.
Speaker Change: Wireline revenue for the quarter was $29 6 million an increase of approximately 7%.
Speaker Change: For completion tools, we completed 29057 stages, an increase of approximately 14%.
Speaker Change: Completion tool revenue was $33 9 million an increase of approximately 2%.
Speaker Change: Yeah.
Speaker Change: During the first quarter, our coiled tubing days worked increased by approximately 36%.
Speaker Change: With the average blended day rate decreasing by approximately 15%.
Speaker Change: Coiled tubing revenue was $29 9 million an increase of approximately 16%.
Speaker Change: During the first quarter, the company reported general and administrative expense of $13 3 million.
Speaker Change: Depreciation and amortization expense was $8 6 million.
Speaker Change: The company's tax provision was approximately 0.1 million for the first quarter of 2025.
Speaker Change: The provision for 2025 is the result of the company's tax position in state and non U S tax jurisdictions.
Speaker Change: For the first quarter the company reported net cash used in operating activities of $5 3 million.
Speaker Change: The average DSO for Q3 was 57 six days.
Speaker Change: Capex spend during Q1 was $4 3 million and our full year Capex budget remains unchanged at $15 million to $25 million I.
Ann Fox: I will now turn it back to Ann Thank you Guy the recent decline in oil price in conjunction with increased costs due to tariffs has created uncertainty for the energy industry and global market. It is too early to understand the timing and totality of these impacts and what customer plans and U S activity levels will look.
Ann Fox: Moving forward things can change quickly and we are planning for every scenario commodity prices will impact activity levels and our customers are currently in the process of evaluating plans with the recent OPEC announcements oil prices have fallen and we are waiting to see the magnitude of operator reaction, we have seen supportive Nashville.
Ann Fox: Gas prices in Q1, but activity levels in the natural gas basins have remained flat thus far we.
Ann Fox: We are optimistic on the long term outlook for natural gas and the positive impact it did have a ninth earnings.
Ann Fox: Tariffs will directly impact nine as well as the overall industry. We are most impacted by tariffs in our wireline division with our perforating guns, and coiled tubing with our Reals and with some of our component parts for our tools, we have already begun having pricing conversations with our customers and are simultaneously evaluating alternatives.
Ann Fox: Sources of materials to offset some of these cost increases.
Ann Fox: In May we began to see some activity declines as well as pricing pressure specifically in the Permian basin.
Ann Fox: As previously discussed forward looking plans are still very uncertain, but with what we know today, we anticipate both revenue and adjusted EBITA to decline compared to Q1 and project Q2 revenue between $138 million and $148 million. This team has navigated uncertainty before and we are.
Ann Fox: We're prepared to pivot with market changes, we are ready to capitalize on any market growth in the natural gas levered basins, and our diversity in geography and commodities remain an important differentiator for nine we will continue to focus on executing our strategy the development of our technology and maintaining our service quality and execution at the website.
Ann Fox: Before we open up the call for Q&A I wanted to mention the recent appointment of Joey Hall to the board of directors as previously announced the board had made a strategic decision to change the composition and size of the board. We knew it was crucial to have an upstream and industry expert on the board and we are.
Ann Fox: Joey will bring deep experience and insight to the markets. We serve he most recently served as the executive Vice President of operations for Pioneer natural resources and we are very excited to welcome him to the board. We will now open up the call for Q&A.
Speaker Change: 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.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from Olga <unk> with <unk> capital markets. Please proceed with your question.
Speaker Change: Thank you good morning.
Olga: Oh, good morning Waqar.
Speaker Change: And Oh my question relates to pricing pressures that you mentioned could you maybe provide some some details around that you know which business line is being the most impacted and maybe quantify some of the you know the magnitude of the impact.
Speaker Change: So it's still very early what car to try and quantify the magnitude I would say this pricing pressure is largely related to our west Texas activities. We're seeing some pressure in the cementing division I think it's relative to kind of be upset with the terrorists that has occurred obviously that's you.
Speaker Change: No not just specific to our industry, but but part of it is that where you're having to go in and have conversations with your customers around tariff impacts them and then the other piece is you know just the commodity price what our customers are facing and what theyre looking at so we started to see that.
Speaker Change: Early in West, Texas, and I would just add to that that and I think you've probably heard this from so many of our peers and then just other industries at large is it's really too early I think for any of us to understand these impacts which may be small and they may not be I mean, obviously, we're waiting for trade agreement announcements today.
Speaker Change: Hey, with the U K, we've got you know the administration has meetings with the Chinese this weekend I'm. So as you know these things can rapidly change and that's that's important if you look at our Q2 guidance, we've debated back and forth on on really what that number looks like because the uncertainty is so strong for.
Speaker Change: June just given everything that where we're waiting on to see April was a very strong month for us and if we had to run rate the quarter on April we would've given stronger guidance ne is a good month I think what you're seeing is a lot of companies are trying to say hang on a second there is some uncertainty coming we want to be transparent, we don't want to be.
Speaker Change: Misleading, but nobody has actually come off a cliff yet right and so and that cliff may not be there. It just depends what comes out of it largely depends what comes out of Washington, and what happens to these commodity prices. So I don't want to I don't want to paint some a picture of certainty that we don't have we.
Speaker Change: We're trying to be cautious and conservative.
Speaker Change: Sure Anthony.
Speaker Change: In the oil industry.
Speaker Change: Although the green the $60 oil price and $58 oil price may not be as she was just banks.
Speaker Change: Magnitude difference, but.
Speaker Change: Optically for operators, it's a big difference when you have a high five data.
Speaker Change: On commodity prices on prices.
Speaker Change: The current guidance that you provided is it more kind of a low sixty's guidance or you think it's more of a.
Speaker Change: Below $60 oil price like 50, 50, 859 oil price staying over the next three six months.
Speaker Change: You know what what car I think it's still early to say and I think obviously as you said, it's you know the the near term oil prices matter. Obviously the forward strip matters. What is the certainty in the market. What do we think is coming with global demand global production.
Speaker Change: So I would say this is just thoughts on the Q2 outlook, we're not providing any guidance going forward and obviously as you know a 50 dollar price is very different than a 60 dollar price is very different than a 70 dollar price and it's really important to know our customers are doing the valuation real time themselves right and trying to figure out.
Speaker Change: What will be their cash returned to you know the street what are their production goals, how do they manage tariffs if if they stick right. If the terrorists stick. So I'm I think it's way too early for me to to answer that question, specifically I can just give you the color I gave you on Q2.
Speaker Change: Sure No I appreciate that.
Speaker Change: And then you also talked about like data related impact on components that have a lot of steel whether that's going to Bangalore.
Speaker Change: Perforating guns.
Speaker Change:
Speaker Change: You know what is your ability to pass those extra costs or what are the customer given that the customers are getting squeezed from low oil prices as well.
Speaker Change: Well I think you know your ear, so I'm well versed in all things oilfield service and the service sector really at large does not have the capacity to absorb these terrorists and so I I think most of us will be going to our customers to absorb those tariffs they are well understood.
Speaker Change: So unlike times in the past, where you may face some organic issue relative to pricing. This is this is a matter that is well publicized and very transparent. So we are absolutely planning to pass those terrorists on them and I think frankly, our customers understand that Oh FX.
Speaker Change: Not have the capacity to absorb these.
Speaker Change: These tariffs so where we're planning to pass those on a I think that's been received and those conversations are ongoing again as you know even this afternoon that aluminum in and feel a tariff is in question with the U K. So that's just one example, so I don't want to be too certain about anything because of any month.
Speaker Change: We can see something lifted or we could see something eased or we could see something become more difficult.
Speaker Change: Sure.
Speaker Change: And then Oh.
Speaker Change: The natural gas.
Markets, whether that's haynesville are.
Speaker Change: Appalachia northeast looks much better the outlook there.
Speaker Change: In your commentary.
Speaker Change: Firstly, there was some comments about relocation of equipment.
Speaker Change: <unk> refocused towards that.
Speaker Change: Could you maybe highlight what are you thinking along those lines.
Speaker Change: Yeah. So we we right now we're not planning to relocate any equipment I do know you've heard from some of our customers. You you heard from terrorist specifically are the adult they'll focus their capex on on the gas market, but right now we are not planning to relocate as you know we fought really hard when the average gas price last year.
Speaker Change: With $2.19 to hang onto those gassy footprints. We're so happy that we did because there's are a really nice bright spots for US right now we do suspect and you kind of look at where the strip pricing is for gas. It's a very happy place for our customers. So really excited about the gas markets for us.
Speaker Change: Going forward, but right now we don't have a plan to reallocate any assets or equipment.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And then just the final question on your international completion tool sales was there any anything there in Q1.
Speaker Change: I mean, yes, we we had international sales there and we're really pleased with how our multi cycle barrier valve is performing I'm really pleased with our outlook for the international tool sales. This year definitely a very bright spot as well so so looking forward to that.
Speaker Change: As you know we're building a state of the art completion tools facility in Texas, and that's going to have every possible test capability that will help us serve the domestic market, but really will also help us meet some really tough and stringent requirements and to continue to play and expand in the internet.
Speaker Change: Aftermarket.
Speaker Change: Right.
Speaker Change: Thank you very much I appreciate the comments.
Speaker Change: Thank you so much of a car.
Speaker Change: Our next question comes from John Daniel with Daniel Energy Partners. Please proceed with your question.
John Daniel: Good morning, guys, Thanks for including me in a while.
Speaker Change: And he asked all the good questions I'm, a I I missed some of your prepared remarks, so I apologize, but I was curious if you could speak to the plug business and just yeah. We continue to see longer laterals has asked you talked about four mile laterals in the Bakken more people are testing it just.
Speaker Change: Look out one to two years, how do you see that demand playing out and do you feel the same pricing pressures on sort of the technology offering versus the other stuff.
Speaker Change: Well good morning, John we always appreciate your questions and participation I think you know when you look out I'll I'll take the second question first.
Speaker Change: Oh, if I seems to be it doesn't seem to have any immunity in any segment anywhere as it relates to pricing pressure. So when pricing pressure cons are you deal with a market like that it seems to be universally applied on the first question, we really love to see these long laterals I mean, it feels like every time, we start talk.
Speaker Change: About you know it was a couple of years ago, we started talking about four mile laterals Nobody gets too excited about it because they're sparse and a few and far between and then that continues to increase the complexity of the completions continue to increase as you know the relentless focus on efficiency is there. So we are very excited.
Speaker Change: That that the technology requirements and demand will continue to go up on these frac plugs, which as you know are absolutely critical to the overall health and production and type curve of these wells. So we're always after a plug that does the absolute best job isolating.
Speaker Change: Each stage.
Speaker Change: It also can dissolve quickly and and lend to a fishing operations for the customer. So we're hyper focused on new innovations all the time as it relates to Frac plugs, we loved the outlook for demand.
Speaker Change: We think that that complexity will drive right to what we do best which.
Speaker Change: Which is to meet the need of really difficult technology innovation. So we're excited about it and it's going to be a market mover for us for sure.
John Daniel: And I did there to do John is that as you know I'm, just naturally things like to dissolve in and high temperatures. So I think the Haynesville is also going to be a nice base in for US moving forward over the next couple of years, So that's exciting too.
Okay, and then just a quick follow up as the international tool sales sort of accelerate over time do you see any opportunities for that to be a pull through for other services.
John Daniel: Sure.
John Daniel: Is it a realistic.
Speaker Change: Okay, Nope I'll be really clear about that we have at our size and scale no interest and proliferating any what I'll call a breakthrough mortar heavy equipment or you know human assets on the ground.
Speaker Change: So we are absolutely going after that international market from a product perspective, and a technology perspective, and one of our number one goal is to expand our.
Speaker Change: Our offering for the conventional wellbore.
Speaker Change: So we're always happy to attack the unconventional, but we're actively working on that and we have what we would say in Massachusetts, a wicked smart Norwegian team of engineers are over in Norway working on those tools. So very excited about that those guys are really second to none so.
Speaker Change: It's something we don't often talk about but they are actively working on it.
Speaker Change: Okay, well, thank you very much and joey's a good get congratulations.
Speaker Change: Yeah. He isn't it he's an incredible get so thank you. So much we feel extremely happy to have him join our board. Thank you you bet you bet Bye bye.
Speaker Change: Yeah.
Speaker Change: We have reached the end of the question and answer session I would now like to turn the call back over to Ann Fox for closing comments.
Speaker Change: Thank you for your participation in our call today I want to thank our employees, our E&P partners and investors. Thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Speaker Change: Today's conference has ended please disconnect at this time thank you.