Nine Energy Service, Inc.

Good morning, ladies and gentlemen, and welcome to the Q2 2026 Nine Energy Service Earnings Comptons Call. At this time, all lines are in listening mode, and following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 6, 2026. I will now listen to the conference call over to Mr. Josh Riley, Senior Vice President, Corporate Finance and Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Welcome to the Nine Energy Service earnings conference call to discuss our results for the second quarter of 2026. With me today are Ann Fox, President and Chief Executive Officer, and Heather Schmidt, Chief Financial Officer. We appreciate your participation. Some of our comments today may include forward-looking statements reflecting nine views about future events. 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 FTC. 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 the reconciliation of these measures 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, Josh, and good morning, everyone. Thank you for joining us today to discuss our second quarter results for 2026. Revenue for the quarter was $141.8 million, which was within the range of our original guidance. Thank you for joining us. During the quarter, two of our large-diameter pool tubing units, representing approximately 17% of our large-diameter fleet, were taken out of service due to maintenance-related issues. This is a unique situation, and we have not previously experienced this percentage of our active fleet unexpectedly taken out of service. One of the affected pool tubing units returned to service early in the third quarter, while the second unit remains under repair and is currently expected to return near year end. As a result, we anticipate our cold tubing operations will remain constrained until that unit is restored to service. Cold tubing also experienced meaningful inflationary pressures across several cost categories, including consumables, labor and repairs, and maintenance, which on average increased by approximately 12% quarter over quarter. Thank you for joining us. Our completion tools business delivered a strong border supported by increased domestic sales and continued growth in international markets, where revenue increased 17% in the first six months of 2026 versus the same period last year. We also continue to make meaningful progress commercializing our new technologies and demand for our dissolvable solutions is increasing as operators extend lateral length. These trends reinforce our confidence in the long-term growth opportunities across our product offerings. Cementing remained a steady contributor. However, this business also experienced inflationary cost pressures during Q2 related to materials and labor, negatively impacting margins. In Wireline, we are making steady progress executing our expansion in the Hainesville Basin. I would now like to turn the call over to Heather to walk through detailed financial information. Thank you, Ann. As of June 30, 2026, Cash and cash equivalents were $16.8 million, with $30 million of availability under our credit facility, resulting in a total liquidity position of $46.8 million. At June 30th, the company had $97.3 million in outstanding borrowings under our credit facility. During the second quarter, revenue totaled $141.8 million, with adjusted gross profit of $19.9 million. During the second quarter, we completed 1,155 cementing jobs, an increase of approximately 13% as compared to the first quarter of 2026. The average blended revenue per job decreased by approximately 8%, primarily due to job mix versus pricing. Cementing revenue for the quarter was $55.3 million, an increase of approximately 3% from the first quarter of this year. During the second quarter, we completed 6,414 wireline stages, a decrease of approximately 7% quarter over quarter. The average blended revenue per stage was up by approximately 3%. Wireline revenue for the quarter was $23 million, a decrease of approximately 4%. For completion tools, we completed 28,256 stages, an increase of approximately 45%. Completion tool revenue was $37.1 million, an increase of approximately 44% from the prior quarter. During the second quarter, our coil tubing days worked increased by approximately 16%, while the average blended day rate decreased by approximately 15%, driven primarily by job mix and increased white space between jobs. Coil tubing revenue declined approximately 2% to $26.4 million. During the second quarter, the company reported general and administrative expense of $15.6 million, depreciation and amortization expense was $7.2 million. The company's tax provision was approximately $0.4 million year-to-date, primarily attributed to state and non-U.S. jurisdictions. For the second quarter, the company reported net cash used in operating activities of $2.3 million. The average CSO for Q2 was 59 days. CapEx spend during Q2 was $4.8 million, bringing total CapEx spend year-to-date to $10.4 million. Today, we anticipate full-year CapEx will range between $20 to $30 million. I will now turn it back to Ann. Thank you, Heather. The macro backdrop remains uncertain, particularly given recent geopolitical events and the continued focus by operators on capital discipline. With what we know today, we expect the average U.S. rig count during the third quarter to be relatively flat to slightly up compared to the second quarter, with any incremental activity likely to be measured and dependent on the sustainability of commodity prices. In the near term, we will continue to navigate a dynamic market environment. As mentioned, we are facing inflationary cost pressure across our service lines, and we often see lags between price increases and cost inflation that results in margin compression. One of our large-diameter coal tubing units that was out of service during the second quarter remains under repair and is expected to be inactive for potentially the remainder of the year. with the sustained revenue loss from this unit combined with cost inflation that continues to outpace pricing adjustments, we expect third quarter revenue and adjusted EBITDA to be flat to modestly down compared to the second quarter. We are currently projecting third quarter revenue in the range of $133 million to $143 million. We remain focused on disciplined execution, cost control, and the continued development of our technology portfolio. Our operations are diversified across service lines, basins, commodities, and domestic and international markets, which remains an important differentiator for Nine. Longer term, the fundamentals supporting U.S. shale, the need for efficient completion services, and the potential growth in natural gas demand remain constructive for nine. We believe our strengthened financial position, combined with our asset-light operating model, provides flexibility to execute through market volatility and continue pursuing profitable growth. We will now open up the call for Q&A.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Daniel from Daniel Energy. Please go ahead.

and my first question relates to the CT units but correct me if I'm wrong, the revenue decline would be suggested that there's no slack in the system and I'm just curious if you could elaborate on that given the rise in demand and therefore the implications and then often when we write and others write, we talk about oil field, attrition in the oil field and we tend to associate that with just the frack market but It would seem to extend beyond fracking, just as you could also pontificate on that as well.

Sure. No, it's a great question, Don. Thank you, and good morning. You know, it's interesting you mention that because we lost a significant percentage of our fleet on an absolute basis. It's two, but if you said to anybody across the space, hey, you're going to take down nearly 20% of your fleet of anything, it's significant. And typically, you'd pull something off the fence. because there would be that slack, there would be that excess. In this case, for most of the OFS peers, there's not lots of excess equipment sitting on the fence line that's ready to go and or is actually geared for the wells today. So if you look at kind of end of 2019, let's just say pre-COVID, you're probably down almost 40% the number of closed tubing units available in the United States. That's extraordinarily significant. and it's also, you know, important to note that the investment in new units is also down considerably. You can't see that as well because, you know, a lot of the publics do not play in the foil space, but there's not much slack. So, I think, you know, depending on where the rig count goes, you know, obviously the will have to follow that because there's just not availability. So although very challenging to lose these units now, we're definitely excited about the foil phase and for what's to come, and we see this absolutely as very temporary.

Okay, fair enough. A quick follow-up just on your rolling out the wireline operations and the Haines, though. Can you just update us on how that's going and then what the opportunities are for pull-through of other services?

Yes, so it's another great question. We love the hand fill because it's very complicated to complete wells there, right? Extremely high temperatures, very high pressures. So we really decided to reposition assets out of the Pernian and face the gas markets as we're seeing and most of the folks on the phone understand that this natural gas demand could be very real and very significant as we see the proliferation of data centers and the use of AI. So that was, you know, the rationale behind moving assets there. We're looking forward to, you know, strong incremental plug use there. We've got cement services there. So, this will be a really nice offering and a great basin for us moving forward. So, so far, going quite well, John.

Okay. Thank you. I'll turn it back over.

Thank you. And your next question comes from Steve Fernani from Cytody. Please go ahead.

Great. Thanks, Ann. Thanks, Heather, for the detail on the call. I do want to dig in a little bit on if you can quantify in some way the impact of the lost coil tubing units, timing of when they went down, because your revenue was quite healthy, as you noted. So I'm just trying to figure out if those were late in the quarter or if you were running ahead of your guidance prior to those going down. And then did we see costs in that number? that would have pressured margins if that was just simply you still were absorbing costs when you weren't getting revenue from two units.

Thanks for the question, Steve. Yes, to answer the second part of the question first, yes, there were significant costs moving upward, you know, throughout the quarter. And when we have these inflationary environments in OFS, we typically see a lag. in the timeframe for which we can re-price the customers and then actually realize that new pricing. So you're obviously finishing the well pads that you're on for them. You're negotiating that price and then you're waiting for that new work to start. If you look at our guidance moving forward, you'll see the midpoint to Q3 dropped a good significant chunk without giving up too much competitive information. A good significant chunk of that revenue is from that unit. Keep in mind, we've got a very small fleet. We've got 12 deep reach units. and so these units are very specialized to go very deep into the wells. We're using a lot of these units in the Permian so they're huge revenue generators for us. You're also not sheltering your costs by getting rid of the collection of workforce that relates to that unit. That's a really important point to note and separate that from inflationary pressures due to geopolitical events and kind of the cost of crude and that's important because those guys are extraordinarily skilled at what they do and they've been trained over years. They've got implicit communication in those crews and we are absolutely going to hang on to them and drag margin until these units can get back up into service.

That makes sense. It's very helpful. You said there's somewhat extraordinary events. Is there any concern among the remaining coiled tubing units you could see similar issues?

No. You know, we have a very good eye on maintenance. And, you know, one of these units, just to be specific, to give you an idea, like if you drive a pickup truck, you might have a gross weight somewhere a little over 10,000 pounds. Our coiled units are getting up over 300,000 pounds of gross weights. So if we're going out to location and one sinks in the sand, it's not your average tow truck that's pulling that thing out. So when you retrieve it, once it's sunk, you can do very significant damage. And that's exactly what happened. So it's not like we've got some feet that's not well maintained and not ready for action. But because of the size and the weight of these units and the depth that they have to reach to, oftentimes you can, you know, It's pretty challenging to get them to where they need to be if they get stuck, and that's what happened in the case of one unit. And then we had a very, very unusual failure, maintenance failure in one of them that we have not previously seen that resulted in a real dropping down onto the pavement and becoming damaged. So in the time that we've had COIL, which has been since 2017, we have never seen this percentage of the fleet drop, and we have always been able to maneuver. But again, these fleets are highly utilized. are all critically important to that revenue and margin. So it is temporary. It's painful in the meantime, but it's absolutely temporary. And I'm absolutely hanging on to that workforce.

Absolutely. Okay. That's helpful. Turning to the other side with completion tools, it had been trending down in line with activity, but probably revenue was down a little bit faster than activity. This quarter activity was up, but revenue outpaced what we would think the activity growth is. Is there something you've turned around in completion tools as they're trending down?

Yeah, I would say there are two pieces to that question. The outpacing of market activity was due to international sales, and we had very strong international sales. We're seeing lots of demand for dissolvable plugs in the international space. and our products have been very well received there. So that gave rise to that outpacing that you mentioned. And then we're also doing a darn good job of getting domestic market share. So completion tools is certainly firing on all fronts. So we're very excited about that.

Excellent. Very helpful. In terms of your general view on pricing across product and service lines, it sounds like you're at least Offsetting with a lag. How much activity growth do you think we need to see before you can actually get some pricing power and how much does it vary by your product and service lines? Big question. I'll let you answer it if you want to just answer parts of it.

Sure. Yes. It's another great question. So when you look at your more differentiated service lines, obviously easier to ask for price in the service lines and those are your bigger margin contributors. So kind of at the top of that is your tools and your cement, closely followed by coil and then wireline. I think, you know, we certainly have been able to offset, as you said, chunks of the inflationary pressure with price increases. But the times, I believe, are pretty significant. The other nuance to this is you've got certain customers that are big volume customers. So they have a big impact on your P&L. And they're not necessarily the first ones you're going after a price for because typically – Those relationships are long-dated, and they're also very good customers, which is why you have the volume. The other thing that's been happening in this volatile environment is you'll reprice the customer, they'll accept it, and then three weeks later, you get hit with another And you're not necessarily walking back into that customer's office and repricing again. So lots of bumpiness in that. Think about it just as kind of temporary turbulence in the air. These things do settle out, but it's a very dynamic market. And, you know, I think we would love to be able to predict how this goes going forward. But I think there's been fits and starts. Obviously, the commodity price is jumping all around based on, you know, Peace Deals in Iran.

You ran into some of the issues which we've talked about on the call. How are you thinking about cash conversion, CapEx, into the second half, and what are you comfortable with in terms of balance sheet?

Sure, I can take that. So I'll start with CapEx. We're always evaluating prospects with the market, whether it's good or bad. So, you know, we guided the 20 to 30, which we reaffirmed today. We originally had talked about that being in the higher end of that range. I think that's probably going to be in the middle to lower end of that range now, as we see what we've done thus far in the year. So I think you'll see cash flow neutrality through the second half of the year. I think we feel relatively comfortable with the balance sheet. We have a 7% interest rate. We have the ABL. But we're watching that very closely. We always are. But I think we feel pretty comfortable today. And we're going to look at that cash. We're looking at that cash on a regular basis.

Great. Thanks, Ann. Thanks, Heather.

Thank you. Thank you. And the last question comes from Steve Storms from Stonegate. Please go ahead.

Good morning. I appreciate you having questions here. Good morning. Just maybe wanted to circle back to some of the parking and fractioning. You mentioned a whole lot of factors on inflation. I guess maybe broad strokes, where are you seeing the strongest headwinds between the labor and the consumer goals for Paris? And maybe is there any place that you're starting to see that ease up?

Yeah, so we did see some pretty strong wage increases. That was just necessary. So I would say that that doesn't, you know, continue and that doesn't continue to surprise you. Those are typically one time inflection points for which we already took that. Very, very necessary. Very happy to give those to the workforce. And then the other, I would say, biggest chunk was on our consumables.

That's perfect. I appreciate that. You mentioned in your clear remarks that dissolvable offerings really gain a lot of momentum. Just thinking beyond them, what other downhole tech are you really focused on, or is the dissolvable really the prime focus right now?

Yeah, I would say, again, we've been super pleased with that dissolvable offering. Our barrier valves have been great. We're very excited about that. And we're also really looking forward to increased market share through better composite sales.

That's perfect. Thank you. And then maybe just one more on the macro side. Given the conversations that you're having with people in the industry, and you made a comment to this earlier around the jumping around of commodity prices. Is the market still just waiting for commodity prices to settle? Are you seeing people start to get ahead of this new volatility in the market? Just maybe any high-level macro commentary that you're seeing.

Yeah, I mean, well, you're seeing rig count move. That's good. That's healthy. You know, I think we had one of our customers come out today, or this week, I should say, and announce to the street increased production and increased capex. That was really received with very mixed results. So I think our operators are being very careful and cautious about raising their capital plans. But it sure is nice to see the privates coming in with increased rig count, which the drillers have said is going to continue and Whether that number is 10 or 15, we shall see. But that matters because those are very impactful for the market. And I do think regardless of what happens now with the geopolitical situation, it has definitely put an increased focus on, you know, the lack of risk coming out of North American shale. And I think it's put another lens on just how incredibly important this region of the world is. So we're definitely excited about that and very excited to kind of get all of this turbulence behind us with inflationary pressures and price movement, which I suspect stabilizes by Q4. That is very dependent on something going on with Iran, right? This could all start again if for some reason the conflict starts and we see crude prices move significantly. But I do think we've got optimism around the rising rig count environment, and that's very exciting. And so, again, this temporary issue with COIL is just that. It's temporary.

That's great commentary. Thank you.

Thank you. And I'm all for the questions at this time. You may please proceed with your conference.

Thank you for your participation in the call today, and I want to thank our employees, our EMC partners, and our investors. Thank you.

Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day, everyone.