Greetings and welcome to the Nine Energy Service Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] Please note this conference call is being recorded. I would now like to turn the call over to your host, Mr.

Guy Sirkes. Thank you. You may begin..

Thank you. Good morning everyone and welcome to the Nine Energy Service earnings conference call to discuss our results for the fourth quarter and full year of 2019. With me today are Ann Fox, President and Chief Executive Officer and Clinton Roeder, Chief Financial Officer. We appreciate your participation.

Some of our comments today may include forward-looking statements reflecting Nine's view 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 statements today also include non-GAAP financial measures.

Additional details and a reconciliation to the most directly comparable GAAP financial measures, also included in our fourth quarter and full year press release and can be found in the Investor Relations section of our website. I will now turn the call over to Ann Fox..

Thank you, Guy. Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year results for 2019. I want to start off and congratulate Heather Schmidt, our VP of IR on her soon-to-arrive new baby.

She will be out on maternity leave but Guy Sirkes, our VP of Strategic Development will be filling in for her during this time and he can be reached through the Investor Relations contact information on the website.

Despite a very tough market this past year, I am happy with the execution of our strategic initiatives that have uniquely positioned Nine for Completion tool market share growth.

At the beginning of 2018, we put a plan in place to better align our business portfolio with our strategy of being an asset light Completions focused company with higher barriers to entry around our business lines. This strategy would facilitate higher margins, stronger cash generation and better through cycle returns.

To do this, we wanted to shift more of our top-line revenue derivation towards Completion tools, while simultaneously shedding non-accretive service lines and geographies.

We also wanted to properly and successfully integrate Magnum and Frac Technologies into Nine to propel the development and commercialization of our new downhole technologies for both the near and long term.

During Q3, we successfully completed the sale of our Production Solutions segment and closed down Wireline operations in Canada, which will be accretive to ROIC, adjusted EBITDA margins and cash flow generation. We also reduced our capital needs moving forward, which has contributed to the significant reduction of CapEx in 2020 and beyond.

Additionally, Nine is now 100% Completions focused and our headcount has been reduced by approximately 35% year-over-year. The integration of Magnum and Frac Tech has gone well with both organizations fully ingrained into Nine's financial systems, as well as now operating under the Nine brands.

Our approach of one brand, one culture has helped to enable the teams to collaborate on our new technology and implement standardization across the organization.

I am confident that each company on its own would not have accomplished the engineering and material science advances in the time frame we did, which is exactly why we consummated the partnership. I will give a more detailed update on our technology later in the call.

But we have successfully commercialized our low temp dissolvable Stinger plug, which continues to be run and trialed amongst many customers and across multiple basins and have begun successful trials for our high temp dissolvable plug. The timeline for our new composite plug remains on track as well for Q3 of 2020.

We believe the development of these tools gives Nine a first mover advantage in the low temp dissolvable market and as time [ph] increases, so too will our margins, cash flow and returns profile.

These products still require little to no CapEx, which transitions Nine towards a more asset light model with strong patents and exclusive supplier arrangements to provide additional barriers to entry around IP design and material science. From an operational perspective, 2019 was really a story of price deterioration versus utilization.

Our operational teams were able to, once again, prove their ability to grow market share in a declining activity environment, with Nine's percentage of U.S. stages completed increasing from approximately 16% in 2018 to approximately 17% in 2019.

Our Wireline group increased total stages completed by approximately 11% year-over-year, despite no Canadian contribution in Q4. Our cementing group increased market share in the Permian Basin by approximately 400 basis points over year-end 2018 with only one additional unit coming in throughout the year.

The total number of cementing jobs completed increased by approximately 9% year-over-year, while simultaneously maintaining a flat average revenue per job, illustrating we were not buying market share. I'm also extremely proud of our employees that ended the year with the lowest and best TRIR safety score in the company's history at 0.77.

Finally, we were able to generate strong cash generation. For full year 2019, our cash flow from operations was $101.3 million, an increase of approximately 13% over 2018.

Our cash flow from operations per share for 2019 was $3.46, which fell below Nine's original target of $4 to $5 per share as back half activity, especially in the gassy regions was worse than we originally anticipated.

Our capital budget came in at $62.1 million, falling within management's original guidance and has allowed us to properly capitalize our cementing and Wireline service lines for the near-and medium term. Company revenue for the year was $832.9 million, net loss was $217.8 million and adjusted EBITDA was $113 million.

Basic EPS was negative $7.43 and adjusted net income for the year was $9.4 million or $0.32 per share. ROIC for the year was 6%, which fell slightly below management's original guidance of 7%. Now turning to Q4, this quarter revenue outperformed management's original guidance and adjusted EBITDA fell within the range of management's original guidance.

Additionally, we continued strong working capital management, ending the year with a cash balance of $93 million.

Company revenue for the quarter was $163.4 million, net loss was $220.5 million, which includes intangible assets, PP&E and goodwill impairments of $106.3 million associated with the coiled tubing service line and an intangible asset impairment of $95 million associated with the Completion tool service line.

Adjusted EBITDA was $11.6 million, basic earnings per share was negative $7.51, adjusted net loss for the quarter was negative $16.8 million or negative $0.57 per share. ROIC. For the fourth quarter was negative 3%. As anticipated, we saw our drilling and Completion activity taper off into Q4 due to holidays, weather and budget exhaustion.

Revenue declines were also magnified as we had no contribution from Production Solutions and Canadian Wireline, which contributed approximately $23 million of revenue in Q3.

Market share remains somewhat stable across service lines so we did see full quarter realizations of Q3 pricing concessions, which led to the majority of margin compression from Q3 to Q4. Overall, with the exception of very challenged regions like the Northeast and within the cementing service line, incremental pricing pressure has mostly subsided.

Cementing had been our most resilient service line throughout 2019 but has recently come under pricing pressure as CapEx budgets continue to decrease and the rig count continues to fall. It does, however, continue to be one of our best performing service lines.

Gassy basins remain very challenged, especially in the Northeast where activity is down over 50%. During Q1 of 2019, we estimated active frac crews at 55 to 60, which we now estimate could be down to as low as 25 to 30.

Our team is focused on gaining profitable market share and has rightsized the organizational structure to meet current demand outlook for 2020.

As a reminder, in the Northeast, we only have Wireline and Completion tool exposure, both capital-light businesses in which we are still able to generate returns even in price and activity declining environment. Cementing remain steady with activity down approximately 8% quarter-over-quarter despite new U.S.

wells drilled decreasing by approximately 13% quarter-over-quarter. U.S. Wireline market share was stable throughout Q4 with more significant activity and price declines in the Northeast than the Permian. Coiled tubing has been the hardest hit service line from both a utilization and pricing perspective.

This is due to an oversupply of large diameter units coming into the market, coupled with a decrease in activity across regions, especially in the MidCon in Haynesville, where we operate two of our three coiled tubing facilities.

From the end of 2017 to year-end 2019, we estimate a total of approximately 80 to 90 new large diameter units have entered the market with approximately 250 estimated in the market as of year-end 2019.

With the large capital commitments associated with these units, many competitors are under pressure to put units to work, which often comes with lowering pricing. As we mentioned on our last call, because coiled tubing is a more highly capital intensive business, we are watching pricing closely and we'll stack units if warranted.

We have also stated that this is not a service line, where we will be allocating growth capital due to the current market, but more importantly because of our strong belief in the dissolvable thesis. Accordingly, we completed the sale of two of our small diameter units in Q4 for approximately $6 million in cash.

I would now like to turn the call over to Clinton to walk through segment and other detailed financial information for the year-end quarter..

Thank you, Ann. In our Completion Solutions segment, fourth quarter 2019 revenue totaled $163.4 million with adjusted gross profit of $23.4 million. During the fourth quarter, we completed 1026 cementing jobs, a decrease of approximately 8% versus the third quarter. The average blended revenue per job increased by approximately 2%.

Cementing revenue for the quarter was $52.1 million, a decrease of approximately 7%. During the quarter, we received five incremental cementing units, none of which made any revenue contribution during 2019. The majority of these units were or will be deployed in the middle to end of Q1 as we finish field and maintenance test.

We hope to receive the remaining three units associated with 2019 CapEx by the end of Q2, 2020. During the fourth quarter, we completed 9,495 Wireline stages, a decrease of approximately 19%. The average blended revenue per stage increased approximately 4%. The average stage price in Wireline did not increase.

With the decline in the Northeast activity, a large portion of our stages completed are in the Permian, which has a higher average stage price than the Northeast inflating the average price per quarter-over-quarter. Wireline revenue for the quarter was $49.4 million, a decrease of approximately 17%.

The decrease in Wireline revenue was largely driven by the closing of our Wireline operations in Canada, which made no contribution in Q4 versus approximately $6.9 million of contribution in Q3. We did not add any growth capital Wireline units during the quarter. For Completion tools, we completed 16,953 stages, a decrease of approximatelC17%.

Completion tool revenue was $36 million and decreased by approximately 10%. During the fourth quarter, our coiled tubing days were decreased by approximately 13% with the average blended day rate decreasing by approximately 4%. Coiled tubing utilization during the quarter was 46%.

Coiled tubing revenue for the quarter was $25.9 million, a decrease of approximately 17%. During Q4, we sold two small diameter coil units, bringing our total fleet count to 14, 12 of which are large diameter.

During the fourth quarter, the company reported a net loss of $220.5 million or negative $7.51 per basic share, which includes intangible asset, PP&E and goodwill impairments of $106.3 million, associated with the coiled tubing service line and intangible asset impairment of $95 million associated with lesion tool service line.

We have spoken at length around the deterioration in the coiled tubing market in Q3 and Q4 with a significant number of new units coming to market, coupled with declining U.S. activity.

Additionally, the outlook for coiled tubing has diminished with the use of dissolvable plug technology, which can eliminate or significantly reduce the demand for coiled tubing. These factors together resulted in the impairments for the coiled tubing service line.

With these Nine has taken the approach of having one brand and one culture rather than operating under legacy company names. This enables cross selling, more efficient allocation of resources, encourage standardization and creates a unified identity, based on the same fundamental principle across service lines.

During 2019 we completed the transition of both RedZone and Magnum and their associated trade names over to the Nine brand resulting in the trademark impairments during Q4. Net loss for the full year 2019 totaled $217.8 million or negative $7.43 per share and adjusted net income for the full year was $9.4 million or $0.32 per adjusted share.

The company reported selling, general and administrative expenses of $20.3 million compared to $19.2 million for the third quarter. Depreciation and amortization expense in the fourth quarter was $15.4 million compared to $16.8 million in the third quarter.

The company recognized income tax benefit of approximately $2.3 million in the fourth quarter of 2019 and overall income tax benefit for the year of approximately $3.9 million resulting in an effective tax rate of 1.8% for 2019.

The fourth quarter tax benefit was primarily attributable to a change in the company's deferred taxes due to the impairment associated with our coiled tubing and Completion tools businesses. Cash tax expense for 2019 was approximately $400,000. During the fourth quarter, the company reported net cash provided by operating activities of $14.5 million.

The average DSO for the fourth quarter was approximately 53.4 days, compared to 57.8 days in Q3. Our DSO for 2019 was 53.4 days. Total capital expenditures were $14.9 million for the fourth quarter, of which approximately 18% was maintenance CapEx.

For the year ended December 31, 2019, we reported total capital expenditures of $62.1 million, of which approximately 22% was maintenance CapEx, which was within our original CapEx guidance. Approximately $4.8 million of our 2019 capital expenditures related to our cementing spreads will be delayed into 2020 and part of our 2020 CapEx guidance.

As of December 31, 2019, Nine's cash and cash equivalents were $93 million with $99.2 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $192.2 million as of December 31, 2019.

Our ABL remains undrawn but availability decreased quarter-over-quarter due to a reduction in accounts receivable and inventory. I will now turn it back to Ann to discuss the outlook for Q1 and 2020..

Thank you, Clinton. As you all have seen, there have been very significant moves in the oil price over the past several days. We are closely watching this and we are going to be in close dialogue with our customers during this difficult time for the industry.

We had intended to provide estimates of activity levels and company guidance for full year 2020. However, given the rapidly evolving nature of the market, we are not providing these at this time, but will do so in due course as things stabilize and our visibility improves.

We remain very optimistic around Nine's commercialization of our three new plug technologies. Our new low temp offering continues to perform extremely well and we have concluded a number of successful trials in the Northeast, Permian, Rockies, MidCon and Canada with both large public customers and smaller private companies.

We remain extremely confident around the tool design and materials, as well as our overall dissolvable thesis.

Right now we are illustrating the cost benefits to our customers, which can lower their plug and mill-out cost by more than 60% and the dissolvable plugs' ability to increase IRR by 5% or more with the elimination of a drill-out and their ability to bring production online faster.

In January, one of our diversified operators in the MidCon who started their trials only running the Stinger in the toe of the well ran a full well bore of the Stinger dissolvable plug.

The Stingers were successfully deployed, held up to 12,000 psi during the stage fracturing and even with the operator performing a clean out, the operator estimate savings of approximately $250,000 or 3% of the total well costs and three to four days saved for well bore versus the traditional drill out.

We anticipate, this is a trend, we will continue to see from our customers as they become comfortable with the performance of the tool and realize both cost and time savings. Additionally, we have already run a number of successful trials during Q1 for our high temp dissolvable plug and still anticipate this to being commercial during Q2 of 2020.

The design, which is identical to the low temp plug, utilizes proven materials that continue to perform well. Our timeline of Q3 commercialization for our new smaller composite plug remains on track as well and will be vital to margin accretion as we replace our existing tool offering with a lower cost option.

We want to continue to reiterate that oilfield technology does not shift overnight and we do expect a slow walk of adoption through 2020, especially within a very challenging market backdrop. Management is not able to pinpoint the exact timeframe for large volume adoption.

We do not anticipate a significant revenue or margin increase to occur in Q1 or Q2, but should begin to slowly increase in the second half of 2020 and into 2021 as all three new technologies are commercialized, trialed and adopted.

Lastly, we were extremely excited to unveil the results of our cradle-to-grave environmental report conducted by Environmental Resources Management, comparing the greenhouse gas emissions of using dissolvable plug versus composite plugs. The results were staggering.

The report found that the dissolvable plugs footprint without clean out per wellbore was 91% lower or 67.3 metric tons of carbon equivalent, which equates to the emissions of 14 passenger cars driving for one year for one wellbore.

This study shows that dissolvable plugs reduced carbon footprint emission intensity in a scalable way that can be applied on a per well basis. For some context, Sears is projecting approximately 610,000 stages in 2020. Using our assumption for the study of 70 plugs per well, this equates to approximately 8,700 wellbores.

Assuming dissolvable adoption across the industry, we could reduce emissions of approximately 585,510 metric tons of carbon equivalent or 121,800 passenger cars driving for one year. Q1 is off to a slower start this year versus 2019.

You all have been living in this dynamic market with us and our significant unknowns around the coronavirus, the presidential election and global supply and demand fundamentals, which has created a very challenging backdrop. We are forecasting, within the context, we know today, that is extremely volatile and changing rapidly.

For Q1, we expect total revenue between $150 million and $160 million and adjusted EBITDA between $10 million and $13 million, which is relatively flat to Q4. Our 2020 capital expenditure budget ranges from $20 million to $25 million, a decrease of approximately 64% versus 2019 at the midpoint of the range.

The total CapEx range includes approximately $4.8 million in 2019 growth CapEx related to the cementing spreads that have been delayed. With the execution of our strategic initiatives, we are positioned to significantly lower CapEx, generate free cash flow and build cash on the balance sheet. We will now open up the call for Q&A..

Thank you. At this time, we'll be conducting a question and answer session. [Operator Instructions] Our first question comes from Sean Meakim with JPMorgan. Please proceed with your question..

Hi, Ann, good morning. So to start off, I guess, it will be best, maybe if we just address the elephant in the room. I'm sure you spent much of the weekend considering the impact of Saudi's shift in strategy as many of us did.

If we're looking at something like $30 WTI for an extended period, say 12 to 24 months, can you just talk about the framework of how you would manage the business levers that are available to you to conserve cash, reduce debt where available and just buy yourself time for a better environment?.

Sure, it's a great question. I really think it's the most relevant question given today's environment. You absolutely go into survival mode. We have been here before in 2015 and 2016, the very large benefit for Nine is that, about 60% to 65% of our costs are variable.

So what that means is, it's up to the management team to cut in time, not to cut too soon before you get that revenue and EBITDA, but to cut very quickly thereafter.

So clearly, you're stripping back any benefits, you've got a huge amount of cash comp that can come off the table, but we're also a business that is not cloud mired by complex contracts, so no take-or-pay commitments. It's a very simplistic business in fact to cut costs. So we're obviously working hand-in-hand with our customers.

I will be shocked if you don't see a multitude of large operators and small operators cutting capital spend. So we are certainly anticipating that, we will hunker down. We have, as Clinton mentioned, close to $100 million on the balance sheet and a similar figure for our AR, I think it's about $96 million or so.

So of course, what we experienced in '15 is that those accounts receivable can pile down into cash on your balance sheet. You're obviously going to have credit risks that we're very aware of and in front of. But the reality is, when we run scenarios at this company at very low levels of EBITDA, we can still be cash flow generative.

And again because of that receivable impact, you could actually see increased cash flows. So I think we're in a good position to withstand this for a very chunky period of time.

Our debt matures in 2023 so we're prepared to do that as a team and this very same team from the field up, from supervisor level up, they have been with us in this downturn before so they know exactly what to do and they're preparing for that right now..

Okay, thank you for that. I think that's very reasonable. As you mentioned, you've been through something like this before in 2016. As you think about that experience, this time around the commercialization of the dissolvables is really still the crux of the thesis here.

Can you talk about your expectations for how to manage that process in what could be a substantially lower activity environment? On the one hand, as customers slow down, they may have more time on their hands to look for ways to improve, on the other hand, of course there is -- inertia can be a powerful force and you need to convert new customers to drive the commercialization.

Could you maybe just address how you think about those factors in this potentially new paradigm?.

Sure. So I think the couple of the fundamentals that are really important for people to understand is, one, it really doesn't take us, either much expense on the COGS line and/or from a capital perspective to push it through forward. Completion tools is -- carries the lowest labor intensity of any of our service lines.

So this is another really critical important point to understand. As we think about labor intensity on the COGS line, we also think about capital intensity as it relates to the balance sheet and cash flows. So we can push this to align forward without impeding our liquidity, Sean.

So that strategy and the marketing strategy we have in place for these tool is not impeded by the current challenging backdrop of activity.

So what does happen, if you use the word inertia, you have customers right now feverishly panning out new plans for capital spend and where they're going to cut costs, so that defers the attention they have on bringing on new technology adoption.

However, the counter to that is that it's very hard now to figure out how to take out fundamental cost and save real days, not just ours, but real days in this cycle and if all of us are going to survive this, we're going to take out whole segments in pieces of the Completion process which is exactly what the dissolvable plugs do.

So as we've stated even before coronavirus and before the Saudi-Russian site here, we were projecting very slow penetration, very slow market adoption, so it wasn't something that we were "counting on" for the survivability of the corporation.

So this is just going to be some frosting that we get to drip in, that's going to be very accretive to the margin, very, very high cash flow generation. The good news for us is, after meeting with many of the C-Suite levels of most of the operators in the country, the desire for dissolvables is strong.

It's very strong and so folks are really beginning to think about what is the next step and what is the next piece of the process that we can pull out. So I think this is just something that we're very lucky to have in our pocket. I think there's not a lot of other companies that have any binary growth opportunity in this pocket.

So, I consider myself very lucky to have that. And then of course, as you know, this team is just enormously talented. So they will figure this out and they have taken massive amount of market share in the past downturn. I expect they will do the same..

I appreciate that. Thanks, Ann..

Our next question comes from Chris Voie with Wells Fargo. Please proceed with your question..

Thanks, good morning..

Hey, Chris.

How are you?.

Hanging in there, I guess. I guess, first, I wonder if you can give us an update on the customer base in terms of the split between majors, large independents and then smaller E&Ps, just some kind of slice there..

Sure. So the way I -- the easiest way for me to cut this for you is, if you think about our revenue profile for the corporation, you have about 45%, a little more coming out of the Permian Basin, you have, give or take, about 20% coming out of the Northeast.

When you think about the Permian, the majority of our customers there are super independent, super majors or very large publics. If you think about the Northeast, that 20% you're talking about smaller companies and/or smaller publics, and then if you think about our exposure in the Haynesville, then you're talking about much smaller private.

So I would say, a solid 45% to 50% of our revenue is coming from very large corporations. But I will also note, you all saw Exxon's announcement last week. I would be very surprised if you've seen folks not cut activity in this environment. So, I do want to be really clear about that whether you're a super-independent or not..

Right, that's helpful, thanks.

And then I guess, it's way too early to judge and I'm sure you haven't had contact with many of our customers since this announcement, but if we think back to the last down cycle, in terms of procurement, pretty much the cost guys were put in the driver seat, I think it was harder to introduce newer technologies or science-type technologies in that environment, but your critical products, they also are attractive on the cost side.

In fact, it's not -- you have to upsell in cost, they should be better, but they're also different. And then, the ESG angle frankly is getting a lot of attention now as well, that's a huge plus.

Can you maybe discuss whether you have or how much inroads you have with these people and if you feel like it's the same kind of guys that you're talking to or if there's a way to think about, is it going to be a tougher sell because of having to change the design or change the way they're doing things that, could that work in this environment or is there enough uptake on ESG and the cost side of the equation that you could still get penetration, even in such a challenging backdrop?.

So these are great questions. I'll talk to all of those, but I do just want to point out that the most important thing for our customers, absolutely, is that the plug isolates the stage. It absolutely has to hold pressure, can't have fluid bypass, must isolate the stage. So that is the first order of business and that is what we've conquered.

We did do a very comprehensive customer Road Show to kick off this year and as I said, that was widespread and across either C3 level or very senior level, so we had a lot of great traction there. I think the hit rate from that Road Show will be very high. We really did not come away from that thinking, oh darn, you know what, there's strategic stock.

In fact, we had exactly the opposite sentiment from that.

So I think again what -- where you'll see, as I mentioned earlier, the inertia is just these guys must focus now on rejiggering their capital plans and their spend, that is their first order of business as it should be and so their teens will have a period of distraction and that will slow down the adoption, but they are absolutely looking for lower costs tools.

The green aspect of this is critically important. Those folks that are larger and focused on or who have BlackRock in their stock in a significant way, for instance, they are definitely focused on the ESG side, they have to be focused on the ESG side.

So that was a very big catch, I think people were very appreciative that we started to quantify that emissions reduction. As it relates to the Completions, you'll see us do more of that. So I'm very excited about this. I think we could see again a temporary pause and how fast to get there.

But I'm really not questioning the fact that we think the majority of the U.S. stage count over the next couple of years will be dissolvable plugs. The price point is such that, why would you turn away from it when you can save money on the drill out and the completion cost. It's hard to move D&C down and these guys need to do that.

It's even harder to find ways to move IRR. So now that we've got that value proposition, all the way around, it's something that's very, very compelling..

That's helpful. Thank you. I'll turn it back..

Our next question comes from George O'Leary with Tudor, Pickering, Holt. Please proceed with your question..

Good morning, Ann. Good morning, Clinton.

From a velocity of dialog with your customers' perspective and given we've seen some announcements from folks like Bang and Parsley already this morning, have you already started to have a dialog with your customers as of this weekend, or are they kind of hunkered down and running through their own budgeting and planning? Just -- have they reached out to you guys at all and kind of how is that dialog going? Or if the answer is just no, that's fine, too.

But just trying to get a sense of the velocity of dialog with your customers..

Yes, I think we will be in active conversations with them this week. Obviously most of the world will figure this out certainly by Saturday night or Sunday morning. And I think some of the operators you mentioned had already had some plans in place. So I just suspect, you'll see a lot more come out and I think Exxon really set the stage for that..

Okay, that's helpful. And then, just thinking about working capital and to Sean's question and your response to Sean's question earlier.

Typically for most OFS [ph] businesses, we see a seasonal working capital build early in the year and then that can maybe unwind depending on the trajectory of revenue throughout the year, is that kind of what we should expect for you guys from a shape of working capital build and blow down throughout the year, Q1, kind of a build and then may be some opportunity to whittle that down as we progress through the year?.

Well, I think the current environment -- I'll flip this over to Clinton in just a second, but I think the current environment has, will and should reshape looks at Q2 and Q3 activity that sometimes give rise to that build and then that subsequent unwinding. So again, I would say that this current environment reshapes a lot of thoughts on that.

But I'll turn that over to Clinton..

Yes, I would agree with Ann. One on Q4, we had a very strong performance on the cash. If you remember our last call, we had talked about, we had a number of one-time payments that we're going to hit in Q4 with the transaction bonus. We also have large CapEx and then we had our interest payment and yet we still maintain some balance.

We ended Q3 inventory and then ended the year at $93 million. Originally, prior to all the market announcements last few days, as we look to the year, yes, that would have been reasonable under the normal circumstance. But right now I think everything's on the table.

I think what you could see is actually working capital, source of cash being on normal level of activity for 2020..

Okay, great. I'll sneak in one more if I could. You guys work for the lot of different customers across a lot of different geographies and given your all Completions, all the time now and in fact your earlier comment that you can see 70 stages per well on average was an interesting one.

Just curious, any other well design changes you're seeing on the Completions side of the equation, and let's just strip out what's going on currently with respect to the crude oil price and geopolitical issues in coronavirus.

What was the biggest change that have been year-over-year in 2020 versus 2019 from a Completion design perspective?.

Yes. I mean, I won't hit the design necessarily because I don't think there's anything super revolutionary there, but one thing that was really impactful for us on our Road Show was the lateral length and we just heard multiple customers talking about three mile laterals. So I think a lot of folks in the U.S.

have kind of capped that lateral -- horizontal lateral links at 10,000 feet and I think you'll see, especially in a cost conscious environment, those folks that have the acreage to support it will be pushing out, which of course is another driver obviously of dissolvable technology. So that was like a drumbeat in every office we went into.

Pulverizing the wellbore, take clusters, that's been around in 2019. That continues. So other -- outside of that, I don't think there is any massive game change, nothing revolutionary we're seeing in Completion from '19 to '20..

Thank you both for the color, Ann and Clinton..

[Operator Instructions] Our next question comes from J.B. Lowe with Citi. Please proceed with your question..

Hey, good morning, Ann. Good morning, Clinton. So given that it's likely that North America in general is going to take the brunt of the production hit over the next couple of months, I'm just wondering if you guys -- I know you have a small deal with some other international players to kind of expand your products internationally.

I'm just wondering if you could talk about the strategy there to see if you could expand that even further..

So, I really can't give you any more details on that specifically. I would say that we are very focused on increasing our footprint in international markets and increasing our focus of effort on the business development side there and we're really happy to have some great partners that we work with and that's really all said there..

Okay. My other question was just for Clinton. I'm just wondering about what your plans are on kind of balance sheet strategy, if any debt repurchases could be in the workings, just given the price action that we've seen and how you're kind of balancing cash on the balance sheet versus opportunities like that..

Yes. I think we've been pretty consistent with our view as Ann and I've been asked that question. I think you'll continue to see us take a very conservative approach and maintain that cash on the balance sheet, especially as we're managing through these uncertain markets. So you'll continue to see us just build the cash on the balance sheet..

Okay. Last one from me is just, you guys -- you mentioned credit risk earlier in the call. I'm just wondering if you could expand a little bit on the strategies to mitigate that as much as possible..

Yes, I mean, of course, you're looking at their balance sheets, their availability, where their revolvers are, how drawn are they, we're watching all that really closely for our customers and then we've got policies -- internal policies about how much credit we extend etc.

So that's something that I think most of my peers are probably watching very closely as it relates to the E&P community..

All right. Thanks, guys, good luck..

Thank you..

Our next question comes from Waqar Syed with AltaCorp Capital. Please proceed with your question..

Thanks for taking my question. Hello, Ann and Clinton. Good morning. My question, Clinton relates to the ABL credit facility.

Is there any covenants that we should be aware of? And when is that revolver due for renewal?.

Yes. So the ABL, the only covenant we have is, we have a fixed charge ratio, but only kicks in when the availability is either less than a greater of $18.75 million or 12.5% of the loan value. And the term of that, it's six months prior to the churn date on the bonds..

Okay.

Ann, in terms of pricing, first, what's your expectations for pricing for the remainder of the year as activity may take another step down?.

Yes, I think you can kind of expect a downward trend in both activity and pricing. So you should anticipate an incremental margin compression on baseline services..

Okay.

And then in terms of the three mile laterals that you mentioned, is the Completion technology both on the pumping side and others, everything is there to continue to support three mile laterals on a consistent basis without a lot of NPT?.

I think there is certainly -- and you can ask some of my pressure pumping peers, but I think there is certainly companies that are very adept at handling those types of laterals, not all. But we feel confident that we have the Completion capability to do that. We've done laterals like that in the past, Waqar.

Our longest horizontal lateral was just shy of 20,000 feet, so it definitely can be done and it can be done with relatively no non-productive time as arranged properly and you have the right service providers at the well site..

Okay. And just final question.

Clinton, just housekeeping, what do you expect the average number of your cementing trucks available in the first quarter, second quarter and maybe third quarters?.

Well, quarter, we talked about is that we will be completing the field and maintenance test on the five new units at the end throughout Q1. So we don't expect those to be available until Q2. And then the additional three will be delivered in Q2, but I wouldn't expect those until Q3..

Okay..

And so when we have all of those, we'll be at 40..

Okay, great. Thank you very much. That's all I have..

Thanks, Waqar..

At this time, I'd like to turn the call back over to Ann Fox for closing comments..

I want to end by thanking you for your continued support and belief in Nine. Additionally, I want to thank our incredible employees who are executing in the field, innovating every day, so that we can partner with the best operators in the industry. The best is still to come for Nine, and I look forward to what we can accomplish together. Thank you..

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation..