Nine Energy Service, Inc.

Greetings and welcome to Nine Energy Service earnings conference call for the fourth quarter and full year 2024. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn this conference over to your host, Heather Schmidt, Senior Vice President of Strategic Development, NIR.

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 2024. With me today are Ann Fox, President and Chief Executive Officer and Dai Circus, Chief Financial Officer. We appreciate your participation. 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 can cause the 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 fourth quarter press release and can be found in the investor relations section of our website. I will now turn it all over to Ann. Thank you, Heather. Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year results for 2024. As we evaluate this past year, the Nine team had many accomplishments despite a continued and challenging backdrop for the oil-filled service sector. We ended the 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. These rig declines were driven in large part by depressed natural gas prices, which averaged around $2.19 for the year. Low natural gas prices contributed to lower activity levels in the US market, as well as rising oil price pressure, specifically in the gas-leavered basins like the Haynesville and Northeast, where Nine has historically generated over 30% of our total revenue. Our oil-leavered customers kept activity levels relatively flat this year, but they too felt the impact of low gas prices throughout most of 2024. We continue to see significant consolidation amongst our customers, who remain committed to capital discipline. Operators are getting larger, and we are helping them become more efficient, doing much more with less, which led to an increase in US production again in 2024, despite the rig count decreasing by almost 25% over the last two years. Nine is a spot market business, and historically, our earnings have moved almost in tandem with the US rig count. 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-pronged strategy to drive profitability for Nine in a declining or flat rig count environment. This included implementing cost-cutting measures, as well as profitable market share gains across service lines and basins. Our team did an excellent job executing this strategy, and we began seeing the financial impacts in Q3, and we continued to see them in Q4. After increasing adjusted EBITDA in Q3 by approximately 47%, despite the average rig count declining by 3%, we once again increased revenue by approximately 2% and maintained flat adjusted EBITDA in Q4, despite weather, holiday, and budget exhaustion impacts. Without the typical seasonality impacts in Q4, we are confident we would have seen Q4 adjusted EBITDA increase sequentially over Q3. I am extremely proud of this team, who continued 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. 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%. Cementing had its best quarter of the year in Q4, despite the 2024 US rig count being at its trough. We were able to exit 2024 with a market share within the regions we operate of approximately 19%, an increase of approximately 14% over our Q4 2023 average, while simultaneously increasing profitability throughout the year through better utilization and cost reduction. Our cementing team remains at the forefront of technology and execution, servicing the longest and most complicated lateral. 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. The well had measured depths of almost 31,000 feet with nearly four miles of lateral length. The operator utilized one of our proprietary flurries, 9L, which combines both the low density required to achieve the desired cement coverage and the elevated compressive strengths required for completion and production activities. The cement flurry was optimized to safely travel through the extended lateral while neither settling nor causing excessive friction pressure. Furthermore, the placement was engineered to place cement across multiple pay zones without fracturing the formation. As expected, this was but one of over 1,100 cementing jobs performed in Q4 delivered on time, on budget, and without any non-productive time or HSE incidents. We anticipate our customers will continue to expand lateral length, which benefits nine across all of our service offerings. Our team continued a 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 the US. We introduced the new Pinsir Hybrid Frac Plug, a plug that utilizes both composite and dissolvable materials and is almost half the size of our original Scorpion composite plugs, allowing for plug drillout times as low as two minutes per plug. Additionally, we added a FracDart 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. With the FracDart, operators can eliminate the need to pump down a ball, saving time, water usage, and money. We remain bullish on the dissolvable plug thesis. As lateral lengths expand, the drilling out of plugs becomes much more complicated and difficult. Nine-singer dissolvable plug has helped operators extend lateral lengths without compromising reliability. Growth in the international tools market remains a feature of our strategy, and we expect growth in this market year over year in 2025. Our R&D team in Norway continues to enhance our offerings, demonstrating that our multi-cycle barrier valve can outperform the competition. Our team here in the US allowed us to successfully penetrate the niche and growing reef rack market, along with others with great success. We will be constructing a -the-art completion tool R&D and testing facility in Texas to enhance our technology moving forward and speed up the R&D cycle from conception to commercialization. This new facility is an important part of continuing to be a premier completion tool provider for the US and international markets moving forward. 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 month of the year during Q4. Safe operations are essential and drive operational excellence, sustain morale, and create cohesion in the team from the field to the corporate office. 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 and the implications of our operations on the communities within which we operate today. We launched our first sustainability report in 2024, which includes -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. Throughout 2024, we implemented our cost reduction and supply chain initiatives, which have positively impacted profitability. Cost reductions have come through a number of strategies and programs, including a reduction in the cost of our operating structure, as well as vendor consolidation and rationalization across the organization. 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. 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 turning to Q4. 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 over quarter. Adjusted EBITDA was $14.1 million, which was relatively flat to Q3. 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 EBITDA growth over Q3 without these seasonal impacts. Net loss was $8.8 million, or negative $0.22 per diluted share, and negative $0.22 per basic share. Adjusted ROIC for the fourth quarter was approximately 6%. I would now like to turn the call over to Guy to walk through detailed financial information.

Thank you, Anne. As of December 31, 2024, NINES cash and cash equivalents were $27.9 million, with $24.2 million of availability under the revolving credit facility, resulting in a total liquidity position of $52.1 million as of December 31, 2024. On December 31, 2024, the company had $47 million of borrowings under the revolving credit facility. 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. 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.

During the fourth quarter, revenue totaled $141.4 million, with a adjusted gross profit of $26.2 million. During the fourth quarter, we completed 1,121 cementing jobs, an increase of approximately 12% first and third quarter. The average blended revenue per job decreased by approximately 4%. Cementing revenue for the quarter was $54.8 million, an increase of approximately 7%. During the fourth quarter, we completed 6,713 wireline stages, an increase of approximately 6%. The average blended revenue per stage decreased by approximately 7%. Wireline revenue for the quarter was $27.6 million, a decrease of approximately 1%. For completion tools, we completed 25,587 stages, an increase of approximately 3%. Completion tool revenue was $33.3 million, an increase of approximately 6%. During the fourth quarter, our coil tubing days work decreased by approximately 16%, with the average blended day rate increasing by approximately 11%. Coil tubing utilization during the quarter was 44%. Coil tubing revenue for the quarter was $25.8 million, a decrease of approximately 7%. During the fourth quarter, the company reported general and administrative expense of $14.2 million, with full year G&A of $51.3 million. Depreciation and amortization expense in the fourth quarter was $8.8 million, with full year DNA of $36.8 million. The company's tax provision was approximately $0.2 million. The provision for 2024 is the result of our tax position in state and -U.S. tax jurisdictions. 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 spend for 2024 was approximately $14.6 million, which came within management's original guidance of $10-15 million. For 2025, we anticipate total capex of $15-25 million. Our cash flow will continue to be impacted by our semiannual interest payments of approximately $20 million in Q1 and Q3 of 2025. I will now turn it back to Anne.

Thank you, Guy. 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. We believe the long-term demand for natural gas will increase due to the power demands from AI, as well as the rise of LNG exports as capacity expands. Our revenue is over 30% levered 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. Thus far in 2025, we have seen a much more supportive natural gas price, and we are cautiously that some of the natural gas levered operators could bring some activity back online. It appears most of our oil levered customers are likely to keep activity levels relatively flat, and overall with what we know today, we expect 2025 US activity levels to be mostly stable. 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. 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. This sequential increase is due to NINE's sustained market share gains and previously implemented and ongoing cost cutting measures. 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 natural gas levered basins, where activity has been very depressed and many competitors have exited. Our team is experienced and motivated. We are focused on continuing to execute our strategy and increasing profitability no matter the recount 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. 2024 demonstrated that we can play offense and defense, and I am extremely proud to work with the people at NINE. 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. Yesterday, we announced an exciting and we believe timely refresh of our board of directors. We are welcoming two new members to the board, Julie Pfeffer and Richard Burnett. Julie joined the board on March 1st. She is the 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. 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. Yesterday's press release also provided additional information on the anticipated appointment of another director in August. 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 ahead of NINE. 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. 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.

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. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from John Daniel with Daniel Energy. Please proceed with your question.

Good morning, Anna 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?

Surely as we've said before, John, your hot basins, they just love all things dissolvable. That certainly sets up well for us. We're talking really about the Haynesville, obviously the Eagleford. Those also happen, as you well know, to be natural gas. Certainly the Haynesville and lots of natural gas in the Eagleford. That confluence of events is wonderful for us as we think about dissolvable plugs this year. Really happy to see that gas price be so supportive and such a nice forward strip.

Cool. Then just another housekeeping reminder question for me. When you think about the customers that are using the plugs, do you see a higher adoption rate with say the larger majors and if so, one would think that would be beneficial. But one, the consolidation, that would be one benefit of consolidation if you will.

Well, absolutely. As you know, they've got the acreage to really extend those laterals. They're seeing quite a bit of benefit from that. That's really, especially in the long portion of those laterals, those dissolvables are really an insurance policy. We're very excited about that. As you know, they've got robust capex budgets that are well planned and well thought through. That's just an incremental driver for really a premier plug provider to have a great position in North American shale.

Okay. Thank you for including me. Have a great day. Thank you.

Thanks, John.

Our next question comes from Regar Sayeed with ATB Capital Markets. Please proceed with your question.

Thank you. Good morning, Anne and team. Good morning. Congress in a great quarter. Thank you. We're hearing about all these tariffs and don't know exactly what the final, 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?

This is such a great question, Makar. I'm sure everybody on the call has the very same question. I think if you're not checking your phone on an hourly basis, 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. I'm sure most of the service sector plans to pass those through. And that is the plan at the moment. But if the tariffs stay in place and we don't reach any negotiations with our friends to the north and south, yes, there will be impacts that will be passed through to the customer.

Where do you see the most impact? What kind of products do you see expect the most impact? I

think the whole sector is probably most concerned around steel. Certainly, cement is a concern. But in steel, that touches so many different areas of the well and the construction of the well. And it also, of course, touches perf guns. It touches cold 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 inputs that you can't see. So you might assemble something. You might add value to it in the US. And all those various small components and ingredients to make these cakes were a very global economy, as you well know. And at the moment, we're inextricably linked. We're starting to see potentially a delinking of that. So I think many people, even understanding the tariffs, it's 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.

Do you think the service market is tight enough to be able to pass this on?

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, you know, broadly, it's like a game of, you know, pass the hot potato or musical chairs. But I will be very surprised if the service sector does not at large pass these through to the upstream community.

Sure. Now, just digging deeper into your guidance for Q1 looks to be pretty solid guidance for Q1 revenue growth. 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?

Sure. Right now, of course, the primary driver of this bullish outlook for us is cement. But also, and we heard John's question closely followed by tools, you know, because we are going to see these hot markets that are also gas markets hopefully lift. Hopefully, you see some change in activity with these gas prices, which will be supportive. So, yes. And we're also seeing a rebalancing in coils. So we're seeing very good utilization in the coil business. So, so far, very supportive for the coil business as well.

Now, you typically have some revenues through the course of the years from the international market. Sometimes they can be lumpy on the coil tubing, on the commission tool side. Was there anything unusual in Q4 or anything unusual expect from Q1?

No, no, you're very right. It is lumpy. We do expect growth in the international revenue 2025 over 2024. We are expecting that.

Okay, great. And then what kind of incremental margins do you expect for this revenue growth in Q1?

Yeah, well, Carl, 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 good growth in both revenue and adjusted EBITDA.

Great. And on the national gas side, what discussions are you having? You mentioned some increases are likely to happen. Could you maybe talk about the timing of when that could happen? And do you expect to see a Palacia come back first or Haynesville? Or is it going to be with over $4 gas like in both areas you expect some pick up? And the timing of that?

I do think that we'll start to see the timing of that in Q2 and beyond. Obviously, Apaliches really worked well with this price. I suspect we see some movement also in Haynesville. 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 script, 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. 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. Very, very bullish and excited about the natural gas market. But specifically to answer your question, we do think we'll see a more market change in Apaliches first. But Haynesville certainly should respond to this price.

Great. And then just on the British side, the oil prices have really slipped down to the between $65 and $70 now. And if they were to sustain at these levels, what do you think happens in the Permian if prices stay at these levels?

Yeah, I think we'd really love to see $65 and above crude. So 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 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 assumes some kind of threshold level around $65.

Okay, so at $65 a barrel WTI, you don't think Permian activity to come down?

I think it also depends, Wacar, on what happens to tariffs, right? What happens to the cost for operators, which is extremely challenging to predict. I will be surprised if we end up in a permanent ever escalating situation. I'm hoping that we'll find some resolution on the tariffs. But obviously we love to see over $70, but I think we can do just fine with over $65.

Great. That's all from me. Thank you so much for your very detailed answers.

Yes, of course. Thank you, Wacar.

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.

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.

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