Greetings, and welcome to Nine Energy Service Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn it over to Heather Schmidt..

Thank you. Good morning, everyone, and welcome to the Nine Energy Service earnings conference call to discuss our results for the second quarter of 2024. With me today are Ann Fox, President and Chief Executive Officer; and Guy Sirkes, Chief Financial Officer. We appreciate your participation.

Some of our comments today may include forward-looking statements reflecting Nine's views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control goal. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures.

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

Thank you, Heather. Good morning, everyone. Thank you for joining us today to discuss our second quarter results for 2024. Revenue for the quarter was $132.4 million, which was within our original guidance of $130 million to $140 million. We generated adjusted EBITDA of $9.7 million and diluted EPS of negative $0.40.

During Q2, we continued to see rig declines coming out of an already depressed market, which impacted both our revenue and earnings. Since the end of 2023, we have seen over 40 additional rigs come out of the market. This is following a year in which we had over 150 rigs come off the market, resulting in almost a 200 rig decline since the end of 2022.

As a spot market business, our revenues and earnings are correlated very closely with the U.S. land rig count, which drives volume and pricing for all of our service lines.

In addition to lower rig counts, we also had full quarter realizations of lower pricing in our cementing business as well as increased white space across most of our service lines, which negatively impacted margins. As anticipated, cementing revenue was down slightly this quarter due to both a decrease in activity and pricing.

This service line has been significantly impacted by the continued rig declines, especially in the Haynesville and Eagle Ford basins. We have historically seen this business recover quickly and rapidly with the market, and it is one of our most differentiated service lines.

Completion tool revenue was down single digits this quarter due to a reduction of tools sold related to U.S. land activity as well as a decrease in international sales.

Growing our international tools business continues to be an important part of our medium- to long-term strategy, but our international revenue will continue to be lumpy quarter-over-quarter. We had a strong quarter in our U.S. refrac business. We have run over 300 refrac jobs to date for some of the largest acreage holders in the U.S.

and have established ourselves as one of the top refrac providers. This will be an important niche market for Nine moving forward. Both our dissolvable and composite plugs continue to perform very well. We are seeing more operators running dissolvables, especially in the toe of the well as lateral lengths continue to extend.

Our customers are getting bigger through consolidation, which often means bigger programs and more complex difficult completions as well as higher quality and ESG standards. This is supportive for the adoption of dissolvables in the U.S. market moving forward.

Coil tubing revenue was down due mostly to white space and our customers' completion schedules in the Permian and sustained activity declines in the Haynesville, which has historically accounted for over 50% of coiled tubing revenue for Nine. Despite low activity levels in the Northeast, our wireline team maintained flat revenue quarter-over-quarter.

Wireline is the most competitive service line in which we operate, yet our team continues to differentiate through superior well site execution and service. Additionally, our wireline team has been able to supplement pump-down revenue with remedial and gas storage revenue, which is typically more specialized than traditional pump down operations.

I would now like to turn the call over to Guy to walk through detailed financial information..

Thank you, Ann. As of June 30, 2024, Nine's cash and cash equivalents were $26 million with $24.8 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $50.8 million as of June 30, 2024. At June 30, we had $52 million of borrowings under the ABL credit facility.

On July 29, 2024, the company borrowed an additional $3 million under the ABL credit facility. At the end of last year, we put a $30 million ATM program in place to provide flexibility for the company. During Q2, we sold approximately 4.2 million shares under the ATM program, which generated approximately $6.8 million of net proceeds.

During the second quarter, revenue totaled $132.4 million with adjusted gross profit of $20.4 million. During the second quarter, we completed 926 cementing jobs, a decrease of approximately 2%. The average blended revenue per job decreased by approximately 3%. Cementing revenue for the quarter was $45.8 million, a decrease of approximately 5%.

During the second quarter, we completed 6,353 wireline stages, a decrease of approximately 2%. The average blended revenue per stage increased by approximately 2%. Wireline revenue for the quarter was $28 million, which was flat compared to Q1. For completion tools, we completed 23,862 stages, a decrease of approximately 10%.

Completion tool revenue was $32.4 million, a decrease of approximately 8%. During the second quarter, our coiled tubing days worked decreased by approximately 23%, with the average blended day rate increase some by approximately 10%. Coiled tubing utilization was 49%, with revenue of $26.2 million, a decrease of approximately 15%.

During the second quarter, the company reported general and administrative expense of $12.5 million. Depreciation and amortization expense was $9.4 million. The company's tax provision was approximately $0.3 million year-to-date. The provision for 2024 is the result of our tax position in state and non-U.S. tax jurisdictions.

The company reported net cash provided by operating activities of $12.9 million. The average DSO for Q2 is 57.1 days. CapEx spend for Q2 was $2.5 million, bringing our total spend through June 30 to $8.1 million.

We have decreased our full year 2024 CapEx range to $10 million to $15 million, down from our original guidance of $15 million to $25 million, conjunction with market declines and to preserve liquidity until the market returns to more normalized levels.

Our next interest payment of approximately $19.5 million will be paid during Q3, and our cash balance will continue to ebb and flow with our semiannual interest payments. I will now turn it back to Ann..

Thank you, Guy. Natural gas prices continue to linger around $2, which has led to delayed completions, rig declines and overall more white space in the calendar. The rig count thus far in Q3 is relatively flat and activity pricing levels are mostly stable.

Because of this, we expect Q3 to be relatively flat compared with Q2 with projected revenue between $127 million and $137 million. We also anticipate that adjusted EBITDA and our adjusted EBITDA margin will be relatively flat as well.

It is extremely difficult to predict commodity prices, but we remain positive on the medium- and long-term outlook for the gas market. . For the first time in many years, power demand in the U.S. is projected to increase.

Some are estimating that domestic power demand could grow by close to 40% over the next 2 decades versus approximately 9% over the preceding 20 years. Nine's exposure to the gas market is approximately 30% to 35% of revenue, and we still believe this is a significant catalyst for growth if natural gas price recovers.

We have weathered difficult markets before and have maintained a very strong team across service lines and basins. Our asset-light business model allows us to shift quickly with the market. We are prepared and experienced in capitalizing on growing markets and believe we are differentiated in our service and technology offerings.

We will now open up the call for Q&A..

[Operator Instructions] Our first question comes from Waqar Syed with ATB Capital Markets..

Ann, what service lines are being positively impacted by the refracs that you're doing?.

Could you say the first part of the question, which is being positively impacted by refracs? I didn't hear the first part..

What service lines are being positively impacted, yes..

Thank you, Waqar. That's a great question. So we actually offer a full suite of services from our completion tools division, our cementing division, our wireline and our coiled tubing division. So all of those services we can provide in that refrac. So we're providing a very holistic solution there.

Very, very excited about our partnership with NewGen and very excited about this market. In fact, we anticipate that this market could experience very significant growth next year. And the callers should realize that there's really only a handful of folks participating in this market today, and we think we own the lion's share of the current market.

So pretty exciting for us to feel so strongly about a growing market, especially in this commodity price backdrop..

Okay. Great. And then you mentioned that you see relatively flattish revenues, Q3 versus Q2 and profitability as well. But when we look at the rig count, on average, it appears that rig count could be lower in Q3 versus Q2, especially in some of the areas where they are important to you to Nine like Haynesville and Permian, even Appalachia.

So is this the refrac business that's filling up the gap? Or why is relatively your confidence in relatively flat revenues and profitability?.

Yes. So it's another great question, Waqar. I mean a lot of this is challenging, of course, to predict exactly. We are very pleased with the start to the quarter and July did come in stronger than we had anticipated. Of course, some of that is refracs.

It's also really seeing some very good traction in our cementing business closing up some of the white space in the coiled tubing calendar, really being able to move lots of assets and work into West Texas successfully.

So a little bit of gaps that we're closing and also have really pushed into remedial markets inside of natural gas storage, which is helping us as well. So again, very hard to predict these outlooks in such a volatile market, but July certainly is a good indicator. So we are remaining hopeful here..

Okay. Great.

And then any early indications of where CapEx for Q3 would be?.

Waqar, it's Guy. So we've just guided for the year. So we haven't given exact guidance on the split between the quarters..

Okay. And then....

I just also want to add one thing there, Waqar, is that, one thing we do try to do in these challenging markets is just learn and make the company more efficient and better. And my Chief Operating Officer and I have been together really since 2014 and he is doing some really unique things with in-house refurbs on equipment.

So although our CapEx range is lowered, we're just getting leaner and leaner and more efficient in how we're maintaining this equipment. And I think we've really developed an excellent system. So should the market return, I don't think you'll see CapEx come anywhere close to what it used to be. So very, very pleased with that.

So these are incremental improvements just to the efficiency of the business for the long term..

That's great. Really good to know.

And then -- and on the international side for completion tools, any -- how do you see that impact in Q3? Do you have anything built in, in your guidance for international sales?.

International sales is baked into that guidance. And again, it's going to be lumpy. We are really pleased with this multi-cycle barrier valve. If we were guessing people, we would say, for '25, we probably have more work with that, not less work. So we're pleased with that.

But again, very lumpy and very challenging to predict how those markets go, especially as you know, Waqar when we're still a very small percentage of that. So -- but pleased with the trajectory..

Okay. Good.

And then overall pricing, has that stabilized now for your cementing and wireline coil tubing all these businesses?.

We do feel like we've seen now stability in that. That doesn't mean there won't be incremental pressures depending on what happens with commodity prices. But yes, I think it's very fair to say it's stable..

Our next question comes from John Daniel with Daniel Energy..

When you look at the 300 refrac jobs run to date, can you give a ballpark estimate what percent of those are in the Eagle Ford and Bakken?.

So the vast majority, not 100%, but the vast majority because you've got acreage, and you've got a lot of Tier 1 acreage in the Eagle Ford and the Bakken that just was understimulated and those well sites haven't been reclaimed. So the economics there are really good, and we're just seeing some wonderful results from these refracs.

So -- but to answer your question specifically, overwhelming majority so far, we are starting in West Texas. So we'll see how that goes..

Okay. And when you look at how many you all have done and eventually is hopefully the spreads to other markets, how do you take that -- I mean, is there a consulting aspect that could be created here given the expertise? Like how do you educate operators who might not have done it in the other basins, if that makes any sense..

Yes. No, it's -- there certainly could be -- I mean we've launched a massive refrac book, and we have sent that out to our customers because there really is for us as well as our customers, there's a lot of learnings and we're seeing them approach refrac from a number of different angles. So yes, we certainly could.

It's very, as you know, actually quite technical. The folks involved, not only are the technologies wonderful, but the personnel involved are extremely talented. These are not easy jobs. And so yes, I think certainly, that could be a development for us. And we are just estimating -- I mean it's very hard to think about the size of market.

There's been some analytics folks that say it's roughly 2% to 4% of the frac market today. I think the most important thing for us is that it's -- we fully see that this is a growing market. So we're very excited about that..

Okay. My next -- it sounds [indiscernible]. My next question, Ann, is more of a 30,000-foot question. I might come across as a bit of a softball, but it's not meant to. But if you think about the gas markets right now, it feels like it's going to be challenged for a few more quarters at least.

But then I think we and others could probably paint a pretty realistic scenario where back half of '25, there's a rush by E&Ps to start wanting to ramp activity.

But in between now and then, it seems like we're hearing more and more each quarter from various companies and service, both public and private kind of dialing back exposure to the gas markets, closing facilities or what have you.

And it just -- it feels like there could be like a bit of a train wreck late next year when there's that call on activity.

I'm just curious your thoughts on how do we ramp quickly when they want to ramp quickly?.

Yes. Well, thank you for that question. It's important. It's always tempting in markets like this to slash and burn if anyone, frankly, can do that. That's just the easy way out.

And then you cut into the mirror of a company and you actually have no spring back capability, right? So if you look back at this company in Q1 of 2022, and you look at the EBITDA versus Q3 of '22, you can clearly see that the team preserve the flexibility to rebound and capture those earnings.

We don't have a dissimilar view from you, John, in regards to the back half of '25. And so we are -- and we have done this before, and we have ways to do this, where we might change people's positions.

We do hang on to our facilities because if we did not believe in the medium or long-term outlook for natural gas, well, that's a different answer entirely. But we actually think that this is going to be a massive source to supply the power demand that's coming in the United States.

So I think we're, as a country, beginning to realize that this is pending and it's here. So we think that it could be a train wreck. We think we will be one of the few service providers in the Northeast that has retained excellent personnel, very good equipment, and we'll be ready to service both the Haynesville and the Northeast markets.

And we're obviously very close to our customers there. So if it does rebound, you just are dealing with an entirely different competitive landscape than the Permian. And the velocity of earnings both for our customers when that gas price moves as well as the velocity of pricing for us is excellent, and we have seen this before.

And we all remember 2012, where gas prices were and then they rebounded. So I think the only thing we can firmly say is gas prices won't stay right where they are, they could move down, they could move up but these markets just don't remain flat. So I'm actually tremendously hopeful for the back half of next year.

I'm also very confident in our team's ability to gurgle for as long as we need to. You've seen how we've reduced CapEx. We were pretty good at surviving these types of markets. So a lot of confidence there..

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..

Thank you for your participation in the call today. I really want to thank our employees, our E&P partners and of course, our investors. Thank you..

This concludes today's conference..