Nine Energy Service (NINE) 1 Nov 24 2024 Q3 Earnings call transcript

Key Themes and Trends

Nine Energy Service (Nine) reported a solid Q3 2024 performance, with revenue above expectations, despite challenging market conditions. The company's revenue for the quarter was $138.2 million, above the original guidance range of $127 million to $137 million. The cementing business saw significant growth, with a 23% increase in market share and a 12% increase in revenue. This growth was achieved through a deliberate strategy to win market share, including reevaluating pricing and boosting sales efforts.

Despite a 3% decline in the U.S. rig count and extremely low natural gas prices, Nine managed to grow its revenue by approximately 4% quarter-over-quarter. The company's focus on cost reduction and supply chain initiatives has also contributed to its profitability, with cost reductions coming through strategies like a reduction in operating structure and vendor consolidation.

Investor and Analyst Interactions

During the call, analysts raised questions about the company's outlook for 2025 activity levels and its plans for further cost reduction. Nine's management team expressed cautious optimism for the future, acknowledging the volatility of commodity prices but believing that long-term demand for natural gas will increase. The company anticipates a moderate activity pickup in 2025 if supportive commodity prices persist and customer budgets are reset.

Industry Trends

Nine's performance highlights the ongoing challenges in the oil and gas industry, particularly in the context of low natural gas prices. However, the company's success in gaining market share in the cementing business and its focus on innovation, such as the commercialization of its pincer hybrid frac plug and Frac Dart, demonstrate its ability to adapt and differentiate itself in a competitive landscape.

Financial Metrics

Nine reported an adjusted EBITDA of $14.3 million, a 47% increase quarter-over-quarter, and diluted EPS of negative $0.26. The company's cash and cash equivalents were $15.7 million, with $27.6 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $43.3 million. Nine has been actively managing its cash flow, paying down borrowings under its ABL credit facility and selling shares under its ATM program to generate net proceeds.

Conclusion

Nine Energy Service's Q3 2024 earnings call presented a mixed picture of the company's performance and prospects. While the company faced challenging market conditions, it managed to grow its revenue and increase profitability through cost reduction and strategic initiatives. Looking ahead, Nine remains cautious about the future, acknowledging the volatility of commodity prices but expressing optimism for the long-term demand for natural gas. The company's focus on innovation and cost reduction positions it well for future growth, although the path to achieving this will depend on the broader market conditions and the successful execution of its strategies.