UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38347

Nine Energy Service, Inc.

(Exact name of registrant as specified in its charter)


Delaware			80-0759121
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2001 Kirby Drive, Suite 200

Houston, TX 77019

(Address of principal executive offices) (Zip Code)

(281) 730-5100

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NINE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at ~~November 3, 2022~~May 5, 2023 was ~~33,221,266.~~34,716,769.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Condensed Consolidated Statements of Cash Flows

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2927

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

3028

Item 3.

Defaults Upon Senior Securities

3028

Item 4.

Mine Safety Disclosures

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including those regarding our strategy, future operations, financial position, our ability to continue as a going concern, estimated revenues and losses, projected costs, prospects, plans, and objectives of management, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by law, and we caution you not to place undue reliance on them. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, ~~2021 and in Item 1A of Part II of this Quarterly Report on Form 10-Q.~~2022. These factors, some of which are beyond our control, include the following:

•Our business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry, and the level of such activity is volatile and strongly influenced by current and expected oil and natural gas prices. If the prices of oil and natural gas decline, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected. Significant factors that are likely to affect near-term commodity prices include actions by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil exporting nations; U.S. energy, monetary, and trade policies; the pace of economic growth in the U.S. and throughout the world; and geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war, orand terrorism.

•Our substantial debt obligations could have significant adverse consequences on our business and future prospects, and restrictions in our debt agreements could limit our growth and our ability to engage in certain activities. In addition, in order to meet our debt obligations, we may engage in refinancing or restructuring of our indebtedness by seeking additional sources of capital, selling assets, or a combination thereof.

•Inflation may adversely affect our financial position and operating results; in particular, cost inflation with labor or materials could offset any price increases for our products and services.

•If we are unable to attract and retain key employees, technical personnel, and other skilled and qualified workers, our business, financial condition, or results of operations could suffer.

•We may be unable to maintain existing prices or implement price increases on our products and services, and intense competition in the markets for our dissolvable plug products may lead to pricing pressures, reduced sales, or reduced market share.

•Our current and potential competitors may have longer operating histories, significantly greater financial or technical resources, and greater name recognition than we do.

•Our operations are subject to conditions inherent in the oilfield services industry, such as equipment defects, liabilities arising from accidents or damage involving our fleet of trucks or other equipment, explosions and uncontrollable flows of gas or well fluids, and loss of well control.

•If we are unable to accurately predict customer demand, including that of our international customers, or if customers cancel their orders on short notice, we may hold excess or obsolete inventory, which would reduce gross margins. Conversely, insufficient inventory would result in lost revenue opportunities and potentially loss of market share and damaged customer relationships.

•We are dependent on customers in a single industry. The loss of one or more significant customers, including certain of our customers outside of the U.S., could adversely affect our financial condition, prospects, and results of operations. Sales to customers outside of the U.S. also exposes us to risks inherent in doing business internationally, including political, social, and economic instability and disruptions, export controls, economic sanctions, embargoes or trade restrictions, and fluctuations in foreign currency exchange rates.

•We may be subject to claims for personal injury and property damage or other litigation, which could materially adversely affect our financial condition, prospects, and results of operations.

•We are subject to federal, state, and local laws and regulations regarding issues of health, safety, and protection of the environment. Under these laws and regulations, we may become liable for penalties, damages, or costs of remediation or other corrective measures. Any changes in laws or government regulations could increase our costs of doing business.

•Our success may be affected by the use and protection of our proprietary technology as well as our ability to enter into license agreements. There are limitations to our intellectual property rights and, thus, our right to exclude others from the use of our proprietary technology.

•Our success may be affected by our ability to implement new technologies and services.

•Significant ownership of our common stock by certain stockholders could adversely affect our other stockholders.

•Our future financial condition and results of operations could be adversely impacted by asset impairment charges.

•Increased attention to climate change and conservation measures may reduce oil and natural gas demand, and we face various risks associated with increased activism and related litigation against oil and natural gas exploration and development activities.

•Seasonal and adverse weather conditions adversely affect demand for our products and services.

•~~Our ability to maintain compliance with the New York Stock Exchange (the “NYSE”) continued listing requirements and avoid the delisting of our common stock.~~

Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	21,490	$	21,509	Cash and cash equivalents	$	21,374	$	17,445
Accounts receivable, net	Accounts receivable, net	103,881		64,025		Accounts receivable, net	98,498		105,277
Income taxes receivable	Income taxes receivable	1,184		1,393		Income taxes receivable	—		741
Inventories, net	Inventories, net	52,959		42,180		Inventories, net	67,030		62,045
Prepaid expenses and other current assets	Prepaid expenses and other current assets	9,123		10,195		Prepaid expenses and other current assets	9,293		11,217
Total current assets	Total current assets	188,637		139,302		Total current assets	196,195		196,725
Property and equipment, net	Property and equipment, net	75,658		86,958		Property and equipment, net	87,650		89,717
Operating lease right of use assets, net	Operating lease right of use assets, net	35,934		35,117		Operating lease right of use assets, net	39,520		36,336
Finance lease right of use assets, net	Finance lease right of use assets, net	598		1,445		Finance lease right of use assets, net	157		547
Intangible assets, net	Intangible assets, net	105,840		116,408		Intangible assets, net	99,049		101,945
Other long-term assets	Other long-term assets	808		2,383		Other long-term assets	4,123		1,564
Total assets	Total assets	$	407,475	$	381,613	Total assets	$	426,694	$	426,834
Liabilities and Stockholders’ Equity (Deficit)	Liabilities and Stockholders’ Equity (Deficit)					Liabilities and Stockholders’ Equity (Deficit)
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	38,145	$	28,680	Accounts payable	$	37,489	$	42,211
Accrued expenses	Accrued expenses	29,374		18,519		Accrued expenses	25,268		28,391
Income taxes payable						Income taxes payable	124		—
Current portion of long-term debt	Current portion of long-term debt	27,281		2,093		Current portion of long-term debt	1,305		2,267
Current portion of operating lease obligations	Current portion of operating lease obligations	7,438		6,091		Current portion of operating lease obligations	8,702		7,956
Current portion of finance lease obligations	Current portion of finance lease obligations	420		1,070		Current portion of finance lease obligations	82		178
Total current liabilities	Total current liabilities	102,658		56,453		Total current liabilities	72,970		81,003
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt	Long-term debt	305,631		332,314		Long-term debt	331,533		338,031
Long-term operating lease obligations	Long-term operating lease obligations	29,612		30,435		Long-term operating lease obligations	31,672		29,370
Long-term finance lease obligations		—		65
Other long-term liabilities	Other long-term liabilities	1,659		1,613		Other long-term liabilities	1,860		1,937
Total liabilities	Total liabilities	439,560		420,880		Total liabilities	438,035		450,341
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)
Stockholders’ equity (deficit)	Stockholders’ equity (deficit)					Stockholders’ equity (deficit)
Common stock (120,000,000 shares authorized at $0.01 par value; 33,233,106 and 32,826,325 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)		332		328
Common stock (120,000,000 shares authorized at $0.01 par value; 34,720,752 and 33,221,266 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)						Common stock (120,000,000 shares authorized at $0.01 par value; 34,720,752 and 33,221,266 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)	347		332
Additional paid-in capital	Additional paid-in capital	774,510		773,350		Additional paid-in capital	793,434		775,006
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,926)		(4,535)		Accumulated other comprehensive loss	(4,996)		(4,828)
Accumulated deficit	Accumulated deficit	(802,001)		(808,410)		Accumulated deficit	(800,126)		(794,017)
Total stockholders’ equity (deficit)	Total stockholders’ equity (deficit)	(32,085)		(39,267)		Total stockholders’ equity (deficit)	(11,341)		(23,507)
Total liabilities and stockholders’ equity (deficit)	Total liabilities and stockholders’ equity (deficit)	$	407,475	$	381,613	Total liabilities and stockholders’ equity (deficit)	$	426,694	$	426,834

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenues	Revenues									Revenues
Service	Service	$	126,634	$	65,916	$	324,075	$	172,932	Service	$	125,620	$	88,222
Product	Product	40,798		26,952		102,638		71,394		Product	37,788		28,713
		167,432		92,868		426,713		244,326			163,408		116,935
Cost and expenses	Cost and expenses									Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	Cost of revenues (exclusive of depreciation and amortization shown separately below)									Cost of revenues (exclusive of depreciation and amortization shown separately below)
Service	Service	92,920		59,614		252,812		160,141		Service	98,167		72,735
Product	Product	30,498		19,265		77,665		57,659		Product	28,951		21,583
General and administrative expenses	General and administrative expenses	13,475		11,114		37,766		33,505		General and administrative expenses	19,714		11,836
Depreciation	Depreciation	6,593		6,921		19,608		22,148		Depreciation	7,420		6,504
Amortization of intangibles	Amortization of intangibles	2,896		4,029		10,568		12,212		Amortization of intangibles	2,896		3,904
(Gain) loss on revaluation of contingent liability	(Gain) loss on revaluation of contingent liability	46		21		237		(124)		(Gain) loss on revaluation of contingent liability	(292)		5
(Gain) loss on sale of property and equipment		1,242		(17)		795		660
Income (loss) from operations		19,762		(8,079)		27,262		(41,875)
Gain on sale of property and equipment										Gain on sale of property and equipment	(330)		(714)
Income from operations										Income from operations	6,882		1,082
Interest expense	Interest expense	8,125		7,968		24,335		24,534		Interest expense	12,454		8,077
Interest income	Interest income	(134)		(3)		(171)		(24)		Interest income	(185)		(12)
Gain on extinguishment of debt		(2,843)		—		(2,843)		(17,618)
Other income	Other income	(161)		(34)		(547)		(103)		Other income	(162)		(196)
Income (loss) before income taxes		14,775		(16,010)		6,488		(48,664)
Loss before income taxes										Loss before income taxes	(5,225)		(6,787)
Provision for income taxes	Provision for income taxes	489		41		79		163		Provision for income taxes	884		112
Net income (loss)		$	14,286	$	(16,051)	$	6,409	$	(48,827)
Earnings (loss) per share
Net loss										Net loss	$	(6,109)	$	(6,899)
Loss per share										Loss per share
Basic	Basic	$	0.46	$	(0.53)	$	0.21	$	(1.61)	Basic	$	(0.19)	$	(0.23)
Diluted	Diluted	$	0.45	$	(0.53)	$	0.20	$	(1.61)	Diluted	$	(0.19)	$	(0.23)
Weighted average shares outstanding	Weighted average shares outstanding									Weighted average shares outstanding
Basic	Basic	31,100,712		30,449,286		30,810,648		30,252,670		Basic	32,304,361		30,491,976
Diluted	Diluted	31,932,613		30,449,286		31,750,425		30,252,670		Diluted	32,304,361		30,491,976
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	Foreign currency translation adjustments, net of $0 tax in each period	$	(225)	$	(102)	$	(391)	$	(32)	Foreign currency translation adjustments, net of $0 tax in each period	$	(168)	$	8
Total other comprehensive loss, net of tax		(225)		(102)		(391)		(32)
Total comprehensive income (loss)		$	14,061	$	(16,153)	$	6,018	$	(48,859)
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	(168)		8
Total comprehensive loss										Total comprehensive loss	$	(6,277)	$	(6,891)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(Unaudited)

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated Deficit) Total
Stockholders’ Equity (Deficit)
Shares Amounts
Balance, June 30, 2022 33,369,148 $ 334 $ 774,335 $ (4,701) $ (816,287) $ (46,319)
Issuance of common stock under stock compensation plan, net of forfeitures (13,174) — — — — —
Stock-based compensation expense — — 521 — — 521
Vesting of restricted stock and stock units (122,868) (2) (346) — — (348)
Other comprehensive loss — — — (225) — (225)
Net income — — — — 14,286 14,286
Balance, September 30, 2022 33,233,106 $ 332 $ 774,510 $ (4,926) $ (802,001) $ (32,085)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity (Deficit)
	Shares	Amounts
Balance, December 31, 2022	33,221,266	$	332	$	775,006	$	(4,828)	$	(794,017)	$	(23,507)
Issuance of common stock associated with the 2028 Units offering	1,500,000	15		17,939		—		—		17,954
Issuance of common stock under stock compensation plan, net of forfeitures	(514)	—		—		—		—		—
Stock-based compensation expense	—	—		489		—		—		489
Other comprehensive loss	—	—		—		(168)		—		(168)
Net loss	—	—		—		—		(6,109)		(6,109)
Balance, March 31, 2023	34,720,752	$	347	$	793,434	$	(4,996)	$	(800,126)	$	(11,341)

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated Deficit) Total
Stockholders’ Equity (Deficit)
Shares Amounts
Balance, June 30, 2021 31,350,677 $ 314 $ 770,997 $ (4,431) $ (776,611) $ (9,731)
Issuance of common stock under stock compensation plan, net of forfeitures 1,490,234 14 (14) — — —
Stock-based compensation expense — — 1,153 — — 1,153
Vesting of restricted stock and stock units (827) — (1) — — (1)
Other comprehensive loss — — — (102) — (102)
Net loss — — — — (16,051) (16,051)
Balance, September 30, 2021 32,840,084 $ 328 $ 772,135 $ (4,533) $ (792,662) $ (24,732)

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated Deficit) Total
Stockholders’ Equity (Deficit)
Shares Amounts
Balance, December 31, 2021 32,826,325 $ 328 $ 773,350 $ (4,535) $ (808,410) $ (39,267)
Issuance of common stock under stock compensation plan, net of forfeitures 634,924 7 (7) — — —
Stock-based compensation expense — — 1,943 — — 1,943
Vesting of restricted stock and stock units (228,143) (3) (776) — — (779)
Other comprehensive loss — — — (391) — (391)
Net income — — — — 6,409 6,409
Balance, September 30, 2022 33,233,106 $ 332 $ 774,510 $ (4,926) $ (802,001) $ (32,085)


		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)				Total Stockholders’ Equity (Deficit)				Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity (Deficit)
		Shares	Amounts								Shares								Amounts
Balance, December 31, 2020		31,557,809	$	316			$	768,429						$	(4,501)			$	(743,835)		$	20,409
Balance, December 31, 2021																			Balance, December 31, 2021	32,826,325			$	328		$	773,350		$	(4,535)		$	(808,410)		$	(39,267)
Issuance of common stock under stock compensation plan, net of forfeitures	Issuance of common stock under stock compensation plan, net of forfeitures	1,471,150	14		(14)				—			—				—			Issuance of common stock under stock compensation plan, net of forfeitures	(1,317)			—		—			—			—			—
Stock-based compensation expense	Stock-based compensation expense	—	—		4,191				—			—				4,191			Stock-based compensation expense	—			—		927			—			—			927
Vesting of restricted stock and stock units	Vesting of restricted stock and stock units	(188,875)	(2)		(471)				—			—				(473)			Vesting of restricted stock and stock units	(3,895)			—		(135)			—			—			(135)
Other comprehensive loss		—	—		—				(32)			—				(32)
Other comprehensive income																			Other comprehensive income	—			—		—			8			—			8
Net loss	Net loss	—	—		—				—			(48,827)				(48,827)			Net loss	—			—		—			—			(6,899)			(6,899)
Balance, September 30, 2021		32,840,084	$	328	$	772,135			$	(4,533)		$	(792,662)			$	(24,732)
Balance, March 31, 2022																			Balance, March 31, 2022	32,821,113			$	328	$	774,142		$	(4,527)		$	(815,309)		$	(45,366)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income (loss)		$	6,409	$	(48,827)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Net loss						Net loss	$	(6,109)	$	(6,899)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities						Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation	Depreciation	19,608		22,148		Depreciation	7,420		6,504
Amortization of intangibles	Amortization of intangibles	10,568		12,212		Amortization of intangibles	2,896		3,904
Amortization of operating leases	Amortization of operating leases	6,268		6,001		Amortization of operating leases	2,596		1,991
Amortization of deferred financing costs	Amortization of deferred financing costs	1,919		1,960		Amortization of deferred financing costs	2,408		643
Recovery of doubtful accounts		(172)		(232)
Provision for (recovery of) doubtful accounts						Provision for (recovery of) doubtful accounts	175		(172)
Provision for inventory obsolescence	Provision for inventory obsolescence	2,566		3,670		Provision for inventory obsolescence	319		1,077
Stock-based compensation expense	Stock-based compensation expense	1,943		4,191		Stock-based compensation expense	489		927
Gain on extinguishment of debt		(2,843)		(17,618)
Loss on sale of property and equipment		795		660
Gain on sale of property and equipment						Gain on sale of property and equipment	(330)		(714)
(Gain) loss on revaluation of contingent liability	(Gain) loss on revaluation of contingent liability	237		(124)		(Gain) loss on revaluation of contingent liability	(292)		5
Changes in operating assets and liabilities	Changes in operating assets and liabilities					Changes in operating assets and liabilities
Accounts receivable, net	Accounts receivable, net	(39,751)		(17,101)		Accounts receivable, net	6,589		(15,541)
Inventories, net	Inventories, net	(13,543)		(8,284)		Inventories, net	(5,421)		(4,838)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,537		2,956		Prepaid expenses and other current assets	1,222		(2,528)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	18,825		17,759		Accounts payable and accrued expenses	(6,357)		10,951
Income taxes receivable/payable	Income taxes receivable/payable	212		187		Income taxes receivable/payable	867		285
Other assets and liabilities	Other assets and liabilities	(6,347)		(6,262)		Other assets and liabilities	(2,507)		(2,054)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	8,231		(26,704)		Net cash provided by (used in) operating activities	3,965		(6,459)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	2,939		2,997		Proceeds from sales of property and equipment	219		2,041
Proceeds from property and equipment casualty losses	Proceeds from property and equipment casualty losses	175		—		Proceeds from property and equipment casualty losses	840		175
Purchases of property and equipment	Purchases of property and equipment	(9,361)		(4,832)		Purchases of property and equipment	(6,343)		(876)
Net cash used in investing activities		(6,247)		(1,835)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	(5,284)		1,340
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from 2018 ABL Credit Facility		12,000		—
Purchases of Senior Notes		(10,081)		(8,355)
Proceeds from ABL Credit Facility						Proceeds from ABL Credit Facility	40,000		5,000
Proceeds from Units offering, net of discount						Proceeds from Units offering, net of discount	279,750		—
Redemption of 2023 Notes						Redemption of 2023 Notes	(307,339)		—
Payments of short-term debt	Payments of short-term debt	(968)		—		Payments of short-term debt	(962)		(363)
Cost of debt issuance						Cost of debt issuance	(5,915)		—
Payments on Magnum Promissory Notes	Payments on Magnum Promissory Notes	(844)		(562)		Payments on Magnum Promissory Notes	—		(562)
Payments on finance leases	Payments on finance leases	(999)		(810)		Payments on finance leases	(124)		(329)
Payments of contingent liability	Payments of contingent liability	(135)		(110)		Payments of contingent liability	(66)		(44)
Vesting of restricted stock and stock units	Vesting of restricted stock and stock units	(779)		(473)		Vesting of restricted stock and stock units	—		(135)
Net cash used in financing activities		(1,806)		(10,310)
Net cash provided by financing activities						Net cash provided by financing activities	5,344		3,567
Impact of foreign currency exchange on cash	Impact of foreign currency exchange on cash	(197)		(46)		Impact of foreign currency exchange on cash	(96)		(16)
Net decrease in cash and cash equivalents		(19)		(38,895)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	3,929		(1,568)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Cash and cash equivalents beginning of period	Cash and cash equivalents beginning of period	21,509		68,864		Cash and cash equivalents beginning of period	17,445		21,509
Cash and cash equivalents end of period	Cash and cash equivalents end of period	$	21,490	$	29,969	Cash and cash equivalents end of period	$	21,374	$	19,941

Supplemental disclosures of cash flow information:
Cash paid for interest		$	15,597	$	15,787


Cash refunded for income taxes		$	110	$	24
Supplemental disclosures of cash flow information:						Supplemental disclosures of cash flow information:
Cash paid for interest						Cash paid for interest	$	7,502	$	381
Cash paid (refunded) for income taxes						Cash paid (refunded) for income taxes	$	19	$	(173)
Cash paid for operating leases	Cash paid for operating leases	$	6,340	$	6,114	Cash paid for operating leases	$	2,555	$	1,991
Right of use assets obtained in exchange for operating lease obligations	Right of use assets obtained in exchange for operating lease obligations	$	6,002	$	2,236	Right of use assets obtained in exchange for operating lease obligations	$	5,320	$	347
Supplemental schedule of non-cash activities:
Supplemental schedule of non-cash investing and financing activities:						Supplemental schedule of non-cash investing and financing activities:
Right of use assets obtained in exchange for finance lease obligations	Right of use assets obtained in exchange for finance lease obligations	$	308	$	—	Right of use assets obtained in exchange for finance lease obligations	$	28	$	183
Capital expenditures in accounts payable and accrued expenses	Capital expenditures in accounts payable and accrued expenses	$	1,192	$	781	Capital expenditures in accounts payable and accrued expenses	$	2,073	$	1,436
Receivable from property and equipment sale (including insurance)		$	—	$	992

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Company and Organization

Background

Nine Energy Service, Inc. (the “Company” or “Nine”), a Delaware corporation, is an oilfield services business that provides services integral to the completion of unconventional wells through a full range of tools and methodologies. The Company is headquartered in Houston, Texas.

The Company’s chief operating decision maker, which is its Chief Executive Officer, and its board of directors allocate resources and assess performance based on financial information presented at a consolidated level. Accordingly, the Company determined that it operates as one reportable segment, known as Completion Solutions.

Risks and Uncertainties

The Company’s business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies. These activity and spending levels are strongly influenced by current and expected oil and natural gas prices. Following an extreme decline in activity levels and pricing in 2020, the Company has been focused on strategically implementing price increases and gaining market share. ~~Thus far in~~In 2022, oil and natural gas prices ~~have~~ improved, and activity levels ~~have~~ increased, compared to 2021, resulting in higher demand for the Company’s products and ~~services. Due to a heightened competition for qualified labor, an under-supply of equipment,~~services, and ~~other supply chain-related constraints,~~ the Company ~~has~~ implemented price increases in most service lines. ~~Finding and retaining qualified labor continues to be a challenge~~In the first quarter of 2023, commodity prices were down, especially natural gas prices, resulting in ~~wage inflation, offsetting some~~a decline in U.S. exploration and production activity compared to the fourth quarter of ~~the price increases.~~2022. Going forward, the Company’s earnings will be affected by its customers’ activity plans (which are strongly influenced by commodity prices), the Company’s ability to implement further price increases, the impact of wage and labor inflation, and labor shortage and supply chain constraints. Additionally, activity levels could be affected as oilfield service providers continue to raise prices and customers are impacted by cost inflation to drill, complete, and produce oil and natural gas wells.

Historically, the Company has met its liquidity needs principally from cash on hand, cash flow from operations and, if needed, external borrowings and issuances of debt securities. At September 30, 2022, the Company had $21.5 million of cash and cash equivalents and $66.7 million of availability under the 2018 ABL Credit Facility (as defined in Note 8 – Debt Obligations), which resulted in a total liquidity position of $88.2 million. As in the past, the Company expects its liquidity position to be impacted by the Senior Notes’ (as defined in Note 8 – Debt Obligations) semi-annual interest payments ($13.4 million based on amounts outstanding as of September 30, 2022), which recently occurred on November 1, 2022 and will again occur on May 1, 2023.

At September 30, 2022, the Company had $27.0 million of borrowings under the 2018 ABL Credit Facility. The Company has borrowed an additional $5.0 million, net to date in the fourth quarter of 2022. The 2018 ABL Credit Facility will mature on October 25, 2023, or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date. As of September 30, 2022, there were approximately $307.3 million aggregate principal amount of Senior Notes outstanding. The Senior Notes will mature on October 25, 2023, which is less than one year from the issuance date of the Company’s condensed consolidated financial statements. In the absence of management’s ability to redeem or repurchase the Senior Notes, the effective maturity date of the 2018 ABL Credit Facility would be April 28, 2023. As such, the borrowings associated with the 2018 ABL Credit Facility are classified as current in the Company’s Condensed Consolidated Balance Sheet at September 30, 2022.

Management’s plans to satisfy these obligations include refinancing or restructuring the Company’s indebtedness (both the 2018 ABL Credit Facility and the Senior Notes), seeking additional sources of capital, selling assets, or a combination thereof. Any such transactions may involve the issuance of additional equity or convertible debt securities that could result in material dilution to the Company’s stockholders, and these securities could have rights superior to holders of the Company’s common stock and could contain covenants that will restrict its operations. The Company’s ability to successfully execute these plans is dependent on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business, and other factors, many of which are beyond the Company’s control. There can be no assurance that the Company will succeed in executing these plans. If unsuccessful, the Company will not have sufficient liquidity and capital resources to repay its indebtedness when it matures, or otherwise meet its cash requirements over the next twelve months, which raises substantial doubt about its ability to continue as a going concern.

2. Basis of Presentation

Condensed Consolidated Financial Information

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of ~~September 30, 2022,~~March 31, 2023, and its results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), in a manner consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, unless otherwise disclosed herein, and should be read in conjunction therewith. The Condensed Consolidated Balance Sheet at December 31, ~~2021~~2022 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Nine and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Such estimates include fair value assumptions used in analyzing long-lived assets for possible impairment, useful lives used in depreciation and amortization expense, recognition of provisions for contingencies, and stock-based compensation fair value. It is at least reasonably possible that the estimates used will change within the next year.

3. New Accounting Standards

In ~~December 2019,~~June 2016, the Financial Accounting Standards Board ~~(the “FASB”)~~ issued Accounting Standards Update (“ASU”) ~~2019-12,~~ ~~Income Taxes: Simplifying the Accounting for Income Taxes~~, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for public businesses for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect the standard to have a material impact on its financial position, results of operations, or liquidity.

~~In June 2016, the FASB issued ASU~~ 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in ASU 2016-13 replace the current incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information. ASU 2016-13 iswas effective for SEC filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As an emerging growth company, the Company iswas permitted ~~and plans,~~ to adopt the new standard for ~~the~~ fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company ~~does~~adopted ASU 2016-13 in the first quarter of 2023, and the adoption of this standard did not ~~expect the standard to~~ have a material impact on its financial position, results of operations, or liquidity.

4. Revenues

Disaggregation of ~~Revenue~~Revenues

Disaggregated ~~revenue~~revenues for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021 was~~were as follows:


		Three Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Cement	Cement	$	63,904	$	29,541	Cement	$	62,462	$	45,238
Tools	Tools	40,798		26,952		Tools	37,788		28,713
Coiled tubing						Coiled tubing	33,528		21,581
Wireline	Wireline	29,312		19,246		Wireline	29,630		21,403
Coiled tubing		33,418		17,129
Total revenues	Total revenues	$	167,432	$	92,868	Total revenues	$	163,408	$	116,935

Nine Months Ended September 30,
2022 2021
(in thousands)
Cement $ 164,372 $ 79,757
Tools 102,638 71,394
Wireline 77,043 50,643
Coiled tubing 82,660 42,532
Total revenues $ 426,713 $ 244,326

Three Months Ended September 30,
2022 2021
(in thousands)
Service(1)
$ 126,634 $ 65,916
Product(1)
40,798 26,952
Total revenues $ 167,432 $ 92,868

Nine Months Ended September 30,
2022 2021
(in thousands)
Service(1)
$ 324,075 $ 172,932
Product(1)
102,638 71,394
Total revenues $ 426,713 $ 244,326

~~(1)~~ The Company recognizes revenues from the sales of products at a point in time and revenues from the sales of services over time.

Performance Obligations

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the amount of remaining performance obligations was not material.

Contract Balances

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the amount of contract assets and contract liabilities was not material.

5. Inventories

Inventories, consisting primarily of finished goods and raw materials, are stated at the lower of cost or net realizable value. Cost is determined on an average cost basis. The Company reviews its inventory balances and writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market

value based upon assumptions about future demand and market conditions. The reserve for obsolescence was ~~$9.5~~$6.8 million and ~~$9.0~~$6.7 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Inventories, net as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were comprised of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Raw materials	Raw materials	$	37,888	$	31,153	Raw materials	$	37,821	$	39,249
Work in progress	Work in progress	111		675		Work in progress	117		161
Finished goods	Finished goods	24,464		19,323		Finished goods	35,910		29,345
Inventories	Inventories	62,463		51,151		Inventories	73,848		68,755
Reserve for obsolescence	Reserve for obsolescence	(9,504)		(8,971)		Reserve for obsolescence	(6,818)		(6,710)
Inventories, net	Inventories, net	$	52,959	$	42,180	Inventories, net	$	67,030	$	62,045

6. Intangible Assets

The gross carrying amount and accumulated amortization of intangible assets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was as follows:


		September 30, 2022								March 31, 2023
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
		(in thousands, except weighted average amortization period information)								(in thousands, except weighted average amortization period information)
Customer relationships	Customer relationships	$	63,270	$	(49,150)	$	14,120	5.1	Customer relationships	$	63,270	$	(50,539)	$	12,731	4.6
Non-compete agreements	Non-compete agreements	6,500		(6,066)		434		1.1	Non-compete agreements	6,500		(6,266)		234		0.6
Technology	Technology	125,110		(34,824)		90,286		11.0	Technology	125,110		(39,026)		86,084		10.5
In-process research and development		1,000		—		1,000		Indefinite
Total	Total	$	195,880	$	(90,040)	$	105,840		Total	$	194,880	$	(95,831)	$	99,049


		December 31, 2021								December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
		(in thousands, except weighted average amortization period information)								(in thousands, except weighted average amortization period information)
Customer relationships	Customer relationships	$	63,270	$	(45,187)	$	18,083	5.3	Customer relationships	$	63,270	$	(49,845)	$	13,425	4.8
Non-compete agreements	Non-compete agreements	6,500		(5,766)		734		2.0	Non-compete agreements	6,500		(6,166)		334		0.8
Technology	Technology	125,110		(28,519)		96,591		11.7	Technology	125,110		(36,924)		88,186		10.7
In-process research and development		1,000		—		1,000		Indefinite
Total	Total	$	195,880	$	(79,472)	$	116,408		Total	$	194,880	$	(92,935)	$	101,945

Amortization of intangibles expense was $2.9 million and ~~$10.6~~$3.9 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, respectively. ~~Amortization of intangibles expense was $4.0 million and $12.2 million for the three and nine months ended September 30, 2021, respectively.~~

Future estimated amortization of intangibles (in thousands) is as follows:


Year Ending December 31,	Year Ending December 31,	(in thousands)		Year Ending December 31,
Remainder of 2022		$	2,895
2023		11,516
Remainder of 2023				Remainder of 2023	$	8,620
2024	2024	11,183		2024	11,183
2025	2025	11,183		2025	11,183
2026	2026	11,082		2026	11,082
2027	2027	10,315		2027	10,315
2028				2028	8,000
Thereafter	Thereafter	46,666		Thereafter	38,666
Total	Total	$	104,840	Total	$	99,049

7. Accrued Expenses

Accrued expenses as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 consisted of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Accrued interest	Accrued interest	$	11,635	$	4,980	Accrued interest	$	7,527	$	5,012
Accrued compensation and benefits	Accrued compensation and benefits	6,506		6,897		Accrued compensation and benefits	7,907		10,283
Accrued bonus	Accrued bonus	4,458		1,125		Accrued bonus	2,338		3,979
Accrued legal fees and settlements	Accrued legal fees and settlements	198		1,076		Accrued legal fees and settlements	130		145
Other accrued expenses	Other accrued expenses	6,577		4,441		Other accrued expenses	7,366		8,972
Accrued expenses	Accrued expenses	$	29,374	$	18,519	Accrued expenses	$	25,268	$	28,391

8. Debt Obligations

The Company’s debt obligations as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(in thousands)					(in thousands)
Senior Notes		$	307,339	$	320,343
2018 ABL Credit Facility		27,000		15,000
Magnum Promissory Notes		281		1,125
2028 Notes						2028 Notes	$	300,000	$	—
2023 Notes						2023 Notes	—		307,339
ABL Credit Facility						ABL Credit Facility	72,000		32,000
Other short-term debt(1)	Other short-term debt(1)	—		968		Other short-term debt(1)	1,305		2,267
Total debt before deferred financing costs	Total debt before deferred financing costs	$	334,620	$	337,436	Total debt before deferred financing costs	$	373,305	$	341,606
Deferred financing costs	Deferred financing costs	(1,708)		(3,029)		Deferred financing costs	(40,467)		(1,308)
Total debt	Total debt	$	332,912	$	334,407	Total debt	$	332,838	$	340,298
Less: Current portion of long-term debt	Less: Current portion of long-term debt	(27,281)		(2,093)		Less: Current portion of long-term debt	(1,305)		(2,267)
Long-term debt	Long-term debt	$	305,631	$	332,314	Long-term debt	$	331,533	$	338,031

~~Senior~~(1)The weighted average interest rate of short-term debt at both March 31, 2023 and December 31, 2022 was 6.0%.

Units Offering and 2028 Notes

~~Background~~Units

On January 30, 2023, the Company completed its public offering of 300,000 units with an aggregate stated amount of $300.0 million (the “Units”). Each Unit consists of $1,000 principal amount of the Company’s 13.000% Senior Secured Notes due 2028 (collectively, the “2028 Notes”) and five shares of common stock (the “Common Stock”) of the Company. The Company received proceeds of $279.8 million from the Units offering, after deducting underwriting discounts and commission, which was used to fund a portion of the redemption price of the 2023 Notes (as defined and described below). These proceeds were allocated to the 2028 Notes and the Common Stock based on their relative fair value at the time of issuance.

Each Unit will be separated into its constituent securities (the 2028 Notes and shares of the Company’s common stock) automatically on October 27, 2023, or, if earlier, on the date, if any, on which a change of control or event of default (each as defined in the indenture governing the 2028 Notes) occurs. A holder of Units may elect to separate its Units into its constituent securities, in whole but not in part, on or after March 31, 2023. Prior to such date, the Units could not be separated at the option of the holder. Once a Unit has been separated into its constituent securities at the option of a holder, it cannot be recreated.

Prior to separating the Units into its constituent securities, a holder thereof will not be able to participate in any redemption or repurchase of the 2028 Notes, and holders of the 2028 Notes must have separated their Units prior to the date of any redemption of any offer to repurchase commencement date in order to participate in such redemption or repurchase.

Holders of Units are entitled to the rights of a holder of the Company’s common stock, including, without limitation, the right to vote and consent to or receive notice as a stockholder.

During the three months ended March 31, 2023, the Company recorded approximately $41.4 million of deferred financing costs in connection with the Units offering. These costs are direct deductions from the carrying amount of the 2028 Notes and are being amortized through interest expense through the maturity date of the 2028 Notes using the effective interest method. The unamortized portion of these deferred financing costs was $40.5 million at March 31, 2023.

2028 Notes

On January 30, 2023, the Company and certain of its subsidiaries entered into an indenture, dated as of January 30, 2023 (the “2028 Notes Indenture”), with U.S. Bank Trust Company, National Association, as the trustee and as notes collateral agent, pursuant to which the 2028 Notes, which form a part of the Units, were issued. The 2028 Notes will mature on February 1, 2028 and bear interest at an annual rate of 13.000% payable in cash semi-annually in arrears on each of February 1 and August 1, commencing August 1, 2023. The 2028 Notes are senior secured obligations of the Company and are guaranteed on a senior secured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries, subject to agreed guaranty and security principles and certain exclusions.

Prior to February 1, 2026, the Company may, on any one or more occasions, redeem all or a part of the 2028 Notes at a redemption price equal to 100.0% of the principal amount of the 2028 Notes redeemed, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, prior to February 1, 2026, the Company may, from time to time, redeem up to 35.0% of the aggregate principal amount of the 2028 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 113.0% of the principal amount of the 2028 Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, provided that at least 65.0% of the aggregate principal amount of the 2028 Notes issued under the 2028 Notes Indenture remains outstanding immediately after such redemption and the redemption occurs within 180 days of the closing date of such equity offering. Also, prior to February 1, 2026, the Company may redeem during each 12-month period beginning on January 30, 2023, up to 10% of the principal amount of the 2028 Notes on a redemption price equal to 103.0% of the aggregate principal amount of the 2028 Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

On and after February 1, 2026, the Company may redeem the 2028 Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the 2028 Notes to be redeemed) set forth below, plus accrued and unpaid interest, if any, to, but excluding the date of redemption, if redeemed during the periods indicated:


	Redemption Price
February 1, 2026 to January 31, 2027	106.500	%
February 1, 2027 to October 31, 2027	103.250	%
November 1, 2027 and thereafter	100.000	%

On each May 15 and November 14, commencing November 14, 2023 (each, an “Excess Cash Flow Offer Date”), the Company is required to make an offer (an “Excess Cash Flow Offer”) to all holders of the 2028 Notes and, if required by the terms of any Pari Passu Notes Lien Indebtedness (as defined in the 2028 Notes Indenture), to any holders of any Pari Passu Notes Lien Indebtedness to purchase, prepay or redeem, together on a pro-rata basis, the maximum principal amount of the 2028 Notes and any such Pari Passu Notes Lien Indebtedness (plus all accrued interest (including additional interest, if any) on the 2028 Notes and any such Pari Passu Notes Lien Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed using an amount of cash equal to the Excess Cash Flow Amount (as defined in the 2028 Notes Indenture and which is 75.0% of Excess Cash Flow (as defined in the 2028 Notes Indenture), as determined immediately prior to the Excess Cash Flow Offer Date), if any, subject to certain exceptions set forth in the 2028 Notes Indenture. The offer price in any such offer will be equal to 100% of the principal amount of the 2028 Notes and any such Pari Passu Notes Lien Indebtedness (or, in respect of any such Pari Passu Notes Lien Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari Passu Notes Lien Indebtedness), plus accrued and unpaid interest and additional interest, if any, to, but excluding, the date of purchase, prepayment or redemption, subject to the rights of holders of the 2028 Notes or any such Pari Passu Notes Lien Indebtedness on the relevant record date to receive interest due on an interest payment date that is on or prior to the date of purchase, prepayment or redemption, and will be payable in cash.

If the Company experiences certain changes of control, each holder of 2028 Notes may require the Company to repurchase all or a portion of its 2028 Notes for cash at a price equal to 101.0% of the principal amount of such 2028 Notes, plus any accrued but unpaid interest, if any, to, but excluding, the date of repurchase.

The 2028 Notes Indenture contains covenants that, among other things and subject to certain exceptions and qualifications, limit the Company’s ability and the ability of its restricted subsidiaries to (i) incur additional indebtedness and guarantee indebtedness; (ii) pay dividends or make other distributions of capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) issue certain preferred stock or similar equity securities, (v) make loans and investments; (vi) sell assets; (vii) incur liens; (viii) enter into transactions with affiliates; (ix) enter into agreements restricting its subsidiaries’ ability to pay dividends; or (x) consolidate, merge, or sell all or substantially all of its assets. The Company was in compliance with the provision of the 2028 Notes Indenture at March 31, 2023.

Upon an event of default, the trustee of the 2028 Notes or the holders of at least 25% in aggregate principal amount of then outstanding 2028 Notes may declare the 2028 Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to the Company, any significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding 2028 Notes to become due and payable.

2023 Notes

On October 25, 2018, the Company issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the ~~“Senior~~“2023 Notes”). The ~~Senior~~2023 Notes were issued under an indenture, dated as of October 25, 2018, ~~(the “Indenture”),~~ by and among the Company, certain subsidiaries of the Company and Wells Fargo, National Association, as trustee. The ~~Senior~~2023 Notes ~~bear~~bore interest at an annual rate of 8.750% payable on May 1 and November 1 of each year, ~~and the first interest payment was due on~~commencing May 1, 2019. The ~~Senior~~2023 Notes ~~are~~were senior unsecured obligations of the Company and ~~are~~were fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries.

~~The Indenture contains covenants that limit~~On February 1, 2023, with proceeds received from its public offering of Units and borrowings under its ABL Credit Facility (as defined and described below), the ~~Company’s ability~~Company redeemed all of the outstanding 2023 Notes at a redemption price of 100.0% of outstanding principal amount thereof ($307.3 million), plus accrued and ~~the ability of its restricted subsidiaries to~~

~~engage in certain activities.~~unpaid interest ($6.7 million). The Company ~~was in compliance with the provisions of the Indenture at September 30, 2022.~~

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

~~Unamortized~~also wrote off unamortized deferred financing costs in the amount of $1.2 million associated with the ~~Senior~~2023 Notes ~~were $1.7 million and $3.0 million at September 30, 2022 and December 31, 2021, respectively. These costs are direct deductions from~~in conjunction with the ~~carrying amount of the Senior Notes and are being amortized through interest expense through the maturity date of the Senior Notes using the effective interest method.~~redemption.

~~Extinguishment of Debt~~

During the three and nine months ended September 30, 2022, the Company repurchased approximately $13.0 million of Senior Notes at a repurchase price of approximately $10.1 million in cash. Deferred financing costs associated with these transactions were $0.1 million for the three months and nine months ended September 30, 2022. As a result, the Company recorded a $2.8 million gain on the extinguishment of debt for the three months ended September 30, 2022, which was calculated as the difference between the repurchase price and the carrying amount of the Senior Notes partially offset by the deferred financing costs. The gain on extinguishment of debt is included as a separate line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022.

During the three months ended March 31, 2021, the Company repurchased approximately $26.3 million of Senior Notes at a repurchase price of approximately $8.4 million in cash. Deferred financing costs associated with these transactions were $0.3 million. As a result, the Company recorded a $17.6 million gain on the extinguishment of debt, which was calculated as the difference between the repurchase price and the carrying amount of the Senior Notes partially offset by the deferred financing costs. The gain on extinguishment of debt is included as a separate line item in the Company’s Condensed Consolidated Statement of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2021. The Company did not repurchase any Senior Notes during the three months ended June 30, 2021 or during the three months ended September 30, 2021.

~~2018~~ ABL Credit Facility

On October 25, 2018, the Company entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”), by and among the Company, Nine Energy Canada, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as an issuing lender, and certain other financial institutions party thereto as lenders and issuing lenders. The 2018 ABL Credit Agreement ~~permits~~permitted aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the ~~“2018 ABL~~“ABL Credit Facility”). ~~The~~Pursuant to the 2018 ABL Credit Agreement, the ABL Credit Facility ~~will~~was set to mature on October 25, 2023 or, if earlier, on the date that iswas 180 days before the scheduled maturity date of the ~~Senior~~2023 Notes if they ~~have~~had not been redeemed or repurchased by such date.

~~At September 30, 2022, the Company had $27.0 million outstanding borrowings under~~Pursuant to the 2018 ABL Credit Facility, and its availability under the 2018 ABL Credit Facility was approximately $66.7 million, net of outstanding letters of credit of $1.3 million. The Company has borrowed an additional $5.0 million, net to date in the fourth quarter of 2022.

~~Loans~~Agreement, loans to the Company and its domestic related subsidiaries (the “U.S. Credit Parties”) under the ~~2018~~ ABL Credit Facility ~~may be~~were base rate loans or London Interbank Offered Rate (“LIBOR”) loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be Canadian Dollar Offered Rate (“CDOR”) loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans ~~varies~~varied from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans ~~varies~~varied from 1.75% to 2.25%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum ~~will be~~was charged on the average daily unused portion of the revolving commitments.

On January 17, 2023, the Company entered into the First Amendment to Credit Agreement (the “ABL Facility Amendment”) with JP Morgan Chase Bank, N.A., as administrative agent, and the lender parties thereto, which amends certain terms of the 2018 ABL Credit Agreement (as amended the “ABL Credit Agreement”). The ~~2018~~ABL Facility Amendment became effective on January 30, 2023.

Pursuant to the ABL Facility Amendment, the maturity date of the ABL Credit Facility was extended from October 25, 2023 to January 29, 2027. In addition, the ABL Facility Amendment, among other changes, revised the terms of the ABL Credit Facility as follows: (a) decreased the size of the ABL Credit Facility from $200.0 million to $150.0 million, subject to the borrowing base (the “Loan Limit”), (b) changed the interest rate benchmark from LIBOR to Term Secured Overnight Financing Rate with a 10 basis point spread adjustment and increased pricing from the existing range of 1.75% to 2.25% to a range of 2.00% to 2.50%, in each case depending on the Company’s leverage ratio, (c) modified the financial covenant, enhanced reporting and cash dominion triggers in the ABL Credit Facility from the existing minimum availability threshold of the greater of $18.75 million and 12.5% of the Loan Limit to a minimum availability threshold of (i) $12.5 million from January 30, 2023 until May 31, 2023 and (ii) the greater of $17.5 million and 12.5% of the Loan Limit thereafter, (d) decreased the Canadian tranche sub-limit from $25.0 million to $5.0 million, (e) decreased the letter of credit sub-limit from $50.0 million to $10.0 million and (f) made satisfaction of the Payment Conditions (as defined in the ABL Facility Amendment) a condition to an Excess Cash Flow Offer in addition to a condition to voluntary payments of the 2028 Notes. The Payment Conditions in summary are (A) no default or event of default on a pro forma basis and (B) immediately after and at all times during the 30 days prior, on a pro forma basis, (1) (x) availability under the ABL Credit Facility shall not be less than the greater of 15% of the Loan Limit and $22.5 million and (y) the fixed charge coverage ratio shall be at least 1.00 to 1.00 or (2) availability under the ABL Credit Facility shall not be less than the greater of 20% of the Loan Limit and $30.0 million.

The ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions), and transactions with affiliates. In addition, the ~~2018~~

ABL Credit Agreement contains a financial covenant requiring a minimum fixed charge ratio ~~covenant~~ of 1.00 to 1.00 that is tested quarterly when (a) the availability under the ~~2018~~ ABL Credit Facility drops below ~~$18.75~~(i) at any time on or before May 31, 2023, $12.5 million and (ii) at any time thereafter, the greater of $17.5 million and 12.5% of the Loan Limit or (b) a default has ~~occurred~~occurred. This financial covenant applies until the availability

exceeds ~~such~~the applicable threshold for 30 consecutive days and ~~such~~no default is ~~no longer outstanding.~~ongoing. The Company was in compliance with all covenants under the ~~2018~~ ABL Credit Agreement at ~~September 30, 2022.~~March 31, 2023.

~~All~~Pursuant to the ABL Credit Agreement, all of the obligations under the ~~2018~~ ABL Credit Facility are secured by ~~first priority perfected~~ security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by ~~first priority perfected~~ security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties, excluding certain assets. ~~The 2018~~

Both the ABL Credit Facility ~~is guaranteed by the U.S. Credit Parties,~~ and the ~~Canadian tranche is further guaranteed by~~Units collateralization were completed within 30 days after closing in accordance with the ~~Canadian Credit Parties~~terms of the ABL Facility Amendment and the ~~U.S.~~Units offering.

At March 31, 2023, the Company had $72.0 million outstanding borrowings under the ABL Credit ~~Parties.~~Facility, and its availability under the ABL Credit Facility was approximately $26.0 million, net of outstanding letters of credit of $1.3 million.

Magnum Promissory Notes

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement, dated October 15, 2018 (as amended on June 7, 2019, the “Magnum Purchase Agreement”), the Company acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum”). The Magnum Purchase Agreement included the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2026 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019 (the “Magnum Earnout”).

On June 30, 2020, pursuant to an amendment to the Magnum Purchase Agreement to terminate the remaining Magnum Earnout and all obligations related thereto, the Company issued promissory notes with an aggregated principal amount of $2.3 million (the “Magnum Promissory Notes”) to the sellers of Magnum. The Magnum Promissory Notes ~~bear~~bore interest at a rate of 6.0% per annum. The principal amount of the Magnum Promissory Notes iswas paid in equal quarterly installments which began January 1, 2021. The ~~entire unpaid principal amount will be due and payable~~remaining outstanding balance was paid on ~~the maturity date, which is the earlier of~~ October 1, 2022 or the business day after the date on which the Company sells, transfers, or otherwise disposes of the “E-Set” tools business to an unaffiliated third party, unless such sale, transfer, or disposition is made, directly or indirectly, as part of the sale, transfer, or disposition of the Dissolvable Plugs Business or due to the occurrence of a Change of Control Event (each as defined in the Magnum Purchase Agreement).2022.

Other Short-Term Debt

In the fourth quarter of ~~2021,~~2022, the Company renewed certain insurance policies, and it financed the premium for its excess policy for ~~$1.5~~$4.1 million. At ~~September 30, 2022, there is no outstanding~~March 31, 2023, the balance on this ~~premium.~~premium was $1.3 million.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was as follows:

September 30, 2022 December 31, 2021
(in thousands)
Senior Notes $ 233,578 $ 153,765
2018 ABL Credit Facility $ 27,000 $ 15,000
Magnum Promissory Notes $ 281 $ 1,125
Other short-term debt $ — $ 968


	March 31, 2023		December 31, 2022
	(in thousands)
2028 Notes	$	273,000	$	—
2023 Notes	$	—	$	300,700
ABL Credit Facility	$	72,000	$	32,000
Other short-term debt	$	1,305	$	2,267

The fair value of the ~~Senior~~2028 Notes, ~~2018~~2023 Notes, ABL Credit Facility, ~~the Magnum Promissory Notes,~~ and other short-term debt is classified as Level 2 in the fair value hierarchy. The fair value of the ~~Senior~~2028 Notes and the 2023 Notes is established based on observable inputs in less active markets. The fair value of the ~~2018~~ ABL Credit Facility ~~the Magnum Promissory Notes,~~ and other short-term debt approximates their carrying value.

9. Related Party Transactions

The Company leases office space, yard facilities, and equipment and purchases building maintenance and repair services from entities owned by David Crombie, an executive officer of the Company. Total lease expense and building maintenance and repair expense associated with these entities was ~~$0.2 million and $0.6~~$0.4 million for both the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 and ~~$0.2 million and $0.6 million for the three and nine months ended September 30, 2021, respectively.~~2022. The Company also purchased $0.8 million and ~~$2.2~~$0.7 million of products and services during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $0.9 million and $1.7 million for the three and nine months ended September 30, 2021,~~

respectively, from an entity in which Mr. Crombie is a limited partner. There were outstanding

payables due to this entity relating to equipment purchases of $0.5 million and ~~$0.7~~$0.1 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

In addition, the Company leases office space in Corpus Christi, Texas and previously leased office space in Midland, Texas from an entity (the “Leasing Entity”) affiliated with Warren Lynn Frazier, a beneficial owner of more than 5% of the Company’s stock. InFrom the third quarter of 2020 through mid-2022, another entity affiliated with Mr. Frazier ~~began to sub-lease~~sub-leased a portion of such space in Corpus Christi, Texas from the Company. Total rental expense associated with ~~this~~these office ~~space,~~spaces, net of sub-leasing income, was ~~$0.4 million and $1.1~~$0.3 million for both the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 and $0.3 million and $1.0 million for the three and nine months ended September 30, 2021, respectively. Additionally, on June 30, 2020, the Company issued the Magnum Promissory Notes to the sellers of Magnum, including Mr.Frazier. At September 30, 2022 and December 31, 2021, the outstanding principal balance payable to Mr. Frazier was $0.3 million and $1.1 million, respectively. For additional information regarding the Magnum Promissory Notes, see Note 8 – Debt Obligations.

The Company purchases chemical additives used in cementing from Select Energy Services, Inc. (“Select”). One of the Company’s directors also serves as a director of Select. The Company was billed $0.4 million and $1.2 million for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.8 million for the three and nine months ended September 30, 2021, respectively.2022. There were net outstanding payables due to ~~Select~~the Leasing Entity of $0.1 million at ~~both September 30, 2022 and~~ December 31, ~~2021.~~2022.

The Company provides products and rentals to National Energy Reunited Corp. (“NESR”), where one of the Company’s directors serves as a director. The Company billed NESR ~~$0.4 million and $0.6~~$0.2 million for the three ~~and nine~~ months ended September 30, 2022, respectively, and $0.3 million and $1.3 million for the three and nine months ended September 30, 2021, respectively. During the fourth quarter of 2019, the Company sold coiled tubing equipment for $5.9 million to NESR with payments due in 24 equal monthly installments beginning on JanuaryMarch 31, ~~2020.~~2023. Total outstanding receivables due to the Company from NESR ~~(inclusive of the equipment sale above) were $0.5~~was $0.4 million and $0.2 million at ~~both September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022, respectively.

Ann G. Fox, President and Chief Executive Officer and a director of the Company, is a director of Devon Energy Corporation (“Devon”). The Company generated revenue from Devon of ~~$0.2~~$0.3 million and ~~$1.3~~$0.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $0.6 million and $2.2 million for the three and nine months ended September 30, 2021,~~ respectively. There were outstanding receivables due from Devon of ~~$0.1~~$0.3 million and ~~$0.4~~$0.5 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

10. Commitments and Contingencies

Litigation

From time to time, the Company has various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, the Company believes any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on its business, operating results, or financial condition.

Self-insurance

The Company uses a combination of third-party insurance and self-insurance for health insurance claims. The self-insured liability represents an estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date. The estimate is based on an analysis of trailing months of incurred medical claims to project the amount of incurred but not reported claims liability. The estimated liability for self-insured medical claims was $1.4 million and $1.2 million ~~and $1.0 million~~ at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and is included under the caption “Accrued expenses” in the Company’s Condensed Consolidated Balance Sheets.

Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, the self-insurance liability could be affected if future claims experience differs significantly from historical trends and actuarial assumptions.

Contingent Liabilities

On October 1, 2018, pursuant to the terms and conditions of a Securities Purchase Agreement (the “Frac Tech Purchase Agreement”), the Company acquired Frac Technology AS, a Norwegian private limited company (“Frac Tech”)

focused on the development of downhole technology, including a casing flotation tool and a number of patented downhole completion tools. The Frac Tech Purchase Agreement, as amended, includes, among other things, the potential for additional future payments, based on certain Frac Tech revenue metrics through December 31, 2025 (the “Frac Tech Earnout”).

The Company’s contingent liability (Level 3) associated with the Frac Tech Earnout (in thousands) at ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was as follows:



~~Frac Tech~~Balance at December 31, 2022	$	1,169
Revaluation adjustments	(292)
Payments	(66)
Balance at March 31, 2023	$	811


	~~(in thousands)~~
Balance at December 31, 2021	$	910
Revaluation adjustments	~~237~~5
Payments	~~(135)~~(44)
Balance at ~~September 30,~~March 31, 2022	$	~~1,012~~


	~~Frac Tech~~
	~~(in thousands)~~
~~Balance at December 31, 2020~~	$	~~604~~
~~Revaluation adjustments~~	~~(124)~~
~~Payments~~	~~(110)~~
~~Balance at September 30, 2021~~	$	~~370~~871

All contingent liabilities that relate to contingent consideration are reported at fair value, based on a Monte Carlo simulation model. Significant inputs used in the fair value measurement include estimated gross margin related to forecasted sales of the plugs, term of the agreement, and a risk adjusted discount factor. Contingent liabilities include ~~$0.4~~$0.3 million and ~~$0.1~~$0.4 million reported in “Accrued expenses” at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and ~~$0.6~~$0.5 million and $0.8 million reported in “Other long-term liabilities” at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, in the Company’s Condensed Consolidated Balance Sheets. The impact of the revaluation adjustments is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

11. Taxes

The Company’s provision (benefit) for income taxes included in its Condensed Consolidated Statements of Income and Comprehensive Income (Loss) was as follows:

Three Months Ended September 30,
2022 2021
(in thousands, except percentages)
Provision for income taxes $ 489 $ 41
Effective tax rate 3.3 % (0.3) %


		Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021				2023			2022
		(in thousands, except percentages)							(in thousands, except percentages)
Provision for income taxes	Provision for income taxes	$	79		$	163		Provision for income taxes	$	884		$	112
Effective tax rate	Effective tax rate	1.2		%	(0.3)		%	Effective tax rate	(16.9)		%	(1.7)		%

The Company’s provision (benefit) for income taxes for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was primarily attributed to state and non-U.S. income taxes. At ~~September 30, 2022,~~March 31, 2023, the Company continues to record a full valuation allowance against its net deferred tax asset positions in the U.S. and Canada.

12. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is based on the weighted average number of shares outstanding during each period and the exercise of potentially dilutive stock options assumed to be purchased from the proceeds using the average market price of the Company’s stock for each of the periods presented as well as the potentially dilutive restricted stock, restricted stock units, and performance stock units.

Basic and diluted earnings (loss) per common share was computed as follows:

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Net Income Average Shares Outstanding Earnings Per Share Net Loss Average Shares Outstanding Loss Per Share
(in thousands, except share and per share amounts)
Basic $ 14,286 31,100,712 $ 0.46 $ (16,051) 30,449,286 $ (0.53)
Assumed exercise of stock options — — — — — —
Unvested restricted stock and stock units — 831,901 — — — —
Diluted $ 14,286 31,932,613 $ 0.45 $ (16,051) 30,449,286 $ (0.53)


		Nine Months Ended September 30, 2022					Nine Months Ended September 30, 2021						Three Months Ended March 31, 2023					Three Months Ended March 31, 2022
		Net Income		Average Shares Outstanding	Earnings Per Share		Net Loss		Average Shares Outstanding	Loss Per Share			Net Loss		Average Shares Outstanding	Loss Per Share		Net Loss		Average Shares Outstanding	Loss Per Share
		(in thousands, except share and per share amounts)											(in thousands, except share and per share amounts)
Basic	Basic	$	6,409	30,810,648	$	0.21	$	(48,827)	30,252,670	$	(1.61)	Basic	$	(6,109)	32,304,361	$	(0.19)	$	(6,899)	30,491,976	$	(0.23)
Assumed exercise of stock options	Assumed exercise of stock options	—		—	—		—		—	—		Assumed exercise of stock options	—		—	—		—		—	—
Unvested restricted stock and stock units	Unvested restricted stock and stock units	—		934,614	—		—		—	—		Unvested restricted stock and stock units	—		—	—		—		—	—
Unvested performance stock units		—		5,163	—		—		—	—
Diluted	Diluted	$	6,409	31,750,425	$	0.20	$	(48,827)	30,252,670	$	(1.61)	Diluted	$	(6,109)	32,304,361	$	(0.19)	$	(6,899)	30,491,976	$	(0.23)

The diluted earnings (loss) per share calculation excludes all stock options, unvested restricted stock, unvested restricted stock units, and unvested performance stock units for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2023 and 2022 because their inclusion would be anti-dilutive given the Company was in a net loss position. The average number of securities that were excluded from diluted earnings (loss) per share that would potentially dilute earnings (loss) per share for the periods in which the Company experienced a net loss were as follows:

2022 2021
Three months ended September 30, — 719,381
Nine months ended September 30, — 692,689


	2023	2022
Three months ended March 31,	1,665,440	698,218

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including “Critical Accounting Estimates,” included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

This section contains forward-looking statements based on our current expectations, estimates, and projections about our operations and the industry in which we operate. Our actual results may differ materially from those discussed in any forward-looking statement because of various risks and uncertainties, including those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

OVERVIEW

Company Description

Nine Energy Service, Inc. (either individually or together with its subsidiaries, as the context requires, the “Company,” “Nine,” “we,” “us,” and “our”) is a leading completion services provider that targets unconventional oil and gas resource development within North America and abroad. We partner with our exploration and production (“E&P”) customers across all major onshore basins in the U.S., as well as within Canada and abroad, to design and deploy downhole solutions and technology to prepare horizontal, multistage wells for production. We focus on providing our customers with cost-effective and comprehensive completion solutions designed to maximize their production levels and operating efficiencies. We believe our success is a product of our culture, which is driven by our intense focus on performance and wellsite execution as well as our commitment to forward-leaning technologies that aid us in the development of smarter, customized applications that drive ~~efficiencies.~~efficiencies and reduce emissions.

We provide (i) cementing services, which consist of blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped between the casing and the wellbore of the well, (ii) an innovative portfolio of completion tools, including technologies used for completing the toe stage of a horizontal well, liner installations used in refrac operations, casing flotation devices, and fully-composite, dissolvable, and extended range frac plugs to isolate stages during plug-and-perf operations, (iii) wireline services, including electric wireline units, the majority of which consist of plug-and-perf completions, which is a multistage well completion technique for cased-hole wells that consists of deploying perforating guns and isolation tools to a specified depth, and (iv) coiled tubing services, which perform wellbore intervention operations utilizing a continuous steel pipe that is transported to the wellsite wound on a large spool, providing a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well.

Recent Events

On January 30, 2023, we completed our public offering of 300,000 units with an aggregate stated amount of $300.0 million (the “Units”). Each Unit consists of $1,000 principal amount of our 13.000% Senior Secured Notes due 2028 (collectively, the “2028 Notes”) and five shares of our common stock. We received proceeds of $279.8 million from the Units offering, after deducting underwriting discounts and commission, which was deposited with the trustee of the 8.750% Senior Notes due 2023 (the “2023 Notes”), along with $40.0 million of cash received from borrowings under the ABL Credit Facility (as defined and described below in “Liquidity and Capital Resources”). On January 30, 2023, we instructed the trustee of the 2023 Notes to apply such deposits toward the payment of the 2023 Notes on February 1, 2023, and we elected to discharge the indenture governing the 2023 Notes, thereby releasing us from our remaining obligations under such indenture as of January 30, 2023.

On February 1, 2023, all of the outstanding 2023 Notes were redeemed at a redemption price of 100.0% of the principal amount thereof ($307.3 million), plus accrued and unpaid interest ($6.7 million). We also wrote off the unamortized deferred financing costs associated with the 2023 Notes in conjunction with the redemption.

For additional information on our Units offering, the ABL Credit Facility, which was amended in connection with such offering, and the redemption of the 2023 Notes (such transactions together, the “refinancing”), see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

How We Generate Revenue and the Costs of Conducting Our Business

We generate our revenues by providing completion services to E&P customers across all major onshore basins in the U.S., as well as within Canada and abroad. We primarily earn our revenues pursuant to work orders entered into with our customers on a job-by-job basis. We typically enter into a Master Service Agreement (“MSA”) with each customer that provides a framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us. Each specific job is obtained through competitive bidding or as a result of negotiations with customers. The rate we charge is determined by location, complexity of the job, operating conditions, duration of the contract, and market conditions. In addition to MSAs, we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services, and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business. These longer-term contracts address pricing and other details concerning our services, but each job is performed on a standalone basis.

The principal expenses involved in conducting our business include labor costs, materials and freight, the costs of maintaining our equipment, and fuel costs. Our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment. Another key component of labor costs relates to the ongoing training of our field service employees, which improves safety rates and reduces employee attrition.

How We Evaluate Our Operations

We evaluate our performance based on a number of financial and non-financial measures, including the following:

•Revenue: We compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year. We monitor our revenue to analyze trends in the performance of our operations compared to historical revenue drivers or market metrics. We are particularly interested in identifying positive or negative trends and investigating to understand the root causes.

•Adjusted Gross Profit (Loss): Adjusted gross profit (loss) is a key metric that we use to evaluate operating performance. We define adjusted gross profit (loss) as revenues less direct and indirect costs of revenues (excluding depreciation and amortization). Costs of revenues include direct and indirect labor costs, costs of materials, maintenance of equipment, fuel and transportation freight costs, contract services, crew cost, and other miscellaneous expenses. For additional information, see “Non-GAAP Financial Measures” below.

•Adjusted EBITDA: We define Adjusted EBITDA as EBITDA (which is net income (loss) before interest, taxes, and depreciation and ~~amortization,~~amortization) further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) loss or gain on revaluation of contingent liabilities, ~~(iv)~~(v) loss or gain on extinguishment of debt, ~~(v)~~(vi) loss or gain on the sale of subsidiaries, ~~(vi)~~(vii) restructuring charges, ~~(vii)~~(viii) stock-based compensation and cash award expense, ~~(viii)~~(ix) loss or gain on sale of property and equipment, and ~~(ix)~~(x) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business. For additional information, see “Non-GAAP Financial Measures” below.

•Return on Invested Capital (“ROIC”): We define ROIC as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) interest expense (income), ~~(iv)~~(v) restructuring charges, ~~(v)~~(vi) loss (gain) on the sale of subsidiaries, ~~(vi)~~(vii) loss (gain) on extinguishment of debt, and ~~(vii)~~(viii) the provision (benefit) for deferred income taxes. We define total capital as book value of equity (deficit) plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior period-end total capital for use in this analysis. For additional information, see “Non-GAAP Financial Measures” below.

•Safety: We measure safety by tracking the total recordable incident rate (“TRIR”), which is reviewed on a monthly basis. TRIR is a measure of the rate of recordable workplace injuries, defined below, normalized and stated on the basis of 100 workers for an annual period. The factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 (i.e., the total hours for 100 employees working 2,000 hours per year) and dividing this value by the total hours actually worked in the year. A recordable injury includes occupational death, nonfatal occupational illness, and other occupational injuries that involve loss of

consciousness, restriction of work or motion, transfer to another job, or medical treatment other than first aid.

~~Recent Events,~~ Industry Trends and Outlook

Our business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies. These activity and spending levels are strongly influenced by current and expected oil and natural gas prices. In 2020, oil and natural gas prices as well as E&P capital spending reached historic lows. In the first quarter of 2021, oil and natural gas prices began to rebound and steadily increased throughout 2021 and ~~have~~ remained supportive into ~~the third quarter of~~ 2022, with oil prices reaching a 13-year high in March 2022, primarily as a result of the conflict between Russia and Ukraine igniting fears of shortages. ~~In July 2022,~~Due to the rise in interest rates, economic uncertainty and recessionary fears, oil prices began to decline in ~~response~~late 2022 and have continued to ~~some indications of slowing economic growth, which would reduce demand, although oil and~~be volatile into 2023. Additionally, due to the unseasonably warm winter, natural gas prices ~~continue~~declined by approximately 69% from mid-December 2022 to ~~be higher year-over-year. With supportive~~the end of the first quarter of 2023. Because of the decline in commodity prices, activity levels have ~~improved through~~declined thus far in 2023, with U.S. rig counts experiencing the ~~third~~first quarterly decline since 2020. The Baker Hughes rig count was down by 24 rigs from the end of the fourth quarter of 2022 to the end of the first quarter of 2023, andU.S. completions ~~increased approximately 26% as~~in the first quarter of 2023 were down 3% compared to the ~~first three quarters~~fourth quarter of ~~2021~~2022 according to the Energy Information ~~Administration, and activity~~Administration. Activity levels ~~are expected to~~in 2023 could continue to ~~increase into 2023, although likely not at~~decline, especially in natural gas producing regions, such as the ~~same rate as 2022.~~Haynesville, Marcellus, and Utica if commodity prices remain low.

~~With this improved environment,~~While there is uncertainty and recessionary fears in the global market affecting commodity prices, we remain optimistic ~~looking into 2023. Underinvestment in oil and gas development during~~on the ~~coronavirus pandemic and an increase in overall global demand coming out of~~long-term outlook for the ~~pandemic, the~~energy sector. OPEC, with its most recent production cut ~~announced by OPEC, international conflict, specifically between Russia and Ukraine, and~~announcement, as well as public U.S. ~~producers’~~

~~commitment~~producers remaining committed to capital discipline, rather than ~~increased~~increasing drilling, could help prevent any potential supply surplus. Additionally, the ongoing conflict between Russia and Ukraine provides additional uncertainty with global supply.

With the decline in commodity price and overall activity levels, especially in the natural gas producing regions, we are together creating supportive commodity prices. Most U.S. operators completed their premium drilled but uncompleted wells inventory in 2021 and will need to drill more wells in order to maintain or increase production levels in 2023, and North American capital spending in 2023 will likely increase in comparison to 2022, although likely not at the same rate we anticipate for 2022 over 2021. At the same time, the oilfield services industry is facing labor shortages, as well as equipment and supply chain constraints, which is limiting availability for customers. As a result, we have implementedno longer implementing price increases and have received pricing pressure from select customers across ~~many~~ service ~~lines thus far in 2022. Depending~~lines. Our revenue will be impacted by activity levels within the U.S., and depending on the rate and quantity of any further rig and frac crew ~~additions~~declines in 2023, we could potentially expect further pricing ~~increases~~pressure in 2023; however, the magnitude and timing of potential price ~~increases~~decreases will depend on a number of factors.

Labor constraints will likely remain problematic for the industry, and we expect further wage and labor inflation. If activity continues to increase, we would expect further labor and equipment shortages in the market, which could lead to additional price increases across the industry. However, some of these price increases could potentially be offset by labor and material cost inflation, as well as an inability to complete work due to labor shortages or supply chain constraints. Additionally, as oilfield services companies continue to increase costs, our customers’ activity levels could be negatively impacted due to their own cost inflation.

Furthermore, even with supportive commodity prices, the majority of public E&P companies have remained focused on capital discipline and have not added incremental activity above pre-announced budgets thus far in 2022, despite oil prices averaging over $93 per barrel through the third quarter of 2022. Because of operators’ commitment to capital discipline, activity levels remain lower than those of previous years. In 2019, the average West Texas Intermediate (“WTI”) price was $56.99, and the average U.S. rig count was 943. Through the third quarter of 2022, the average WTI price was $93.06, approximately 63% higher than 2019, with an average U.S. rig count of 761, approximately 19% lower than 2019.

Significant factors that are likely to affect commodity prices moving forward include actions of the members of OPEC and other oil exporting nations that relate to or impact oil production or supply; the effect of energy, monetary, and trade policies of the U.S.; the pace of economic growth in the U.S. and throughout the world, including the potential for macro weakness; geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war or terrorism in oil producing countries or regions, particularly Russia, the Middle East, South America and Africa; changes to energy regulations and policies, including those of the U.S. Environmental Protection Agency and other governmental bodies; and overall North American oil and natural gas supply and demand fundamentals, including the pace at which export capacity grows. AsFurthermore, although as noted above, our customers’ activity and spending levels, and thus demand for our services and products, are strongly influenced by current and expected oil and natural gas prices, even with price improvements in oil and natural gas, operator activity may not materially increase, as operators remain focused on operating within their capital plans and uncertainty remains around supply and demand fundamentals.

In addition, the coronavirus pandemic and any resurgence and efforts to mitigate its effects may have a material adverse impact on demand for oil, commodity prices, and our business generally. See “Risk Factors – Risks Related to the Coronavirus Pandemic” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.

Results of Operations

Results for the Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to the Three Months Ended ~~September 30, 2021~~March 31, 2022


		Three Months Ended September 30,							Three Months Ended March 31,
		2022		2021		Change			2023		2022		Change
		(in thousands)							(in thousands)
Revenues	Revenues	$	167,432	$	92,868	$	74,564	Revenues	$	163,408	$	116,935	$	46,473
Cost of revenues (exclusive of depreciation and amortization shown separately below)	Cost of revenues (exclusive of depreciation and amortization shown separately below)	123,418		78,879		44,539		Cost of revenues (exclusive of depreciation and amortization shown separately below)	127,118		94,318		32,800
Adjusted gross profit	Adjusted gross profit	$	44,014	$	13,989	$	30,025	Adjusted gross profit	$	36,290	$	22,617	$	13,673

General and administrative expenses	General and administrative expenses	$	13,475	$	11,114	$	2,361	General and administrative expenses	$	19,714	$	11,836	$	7,878
Depreciation	Depreciation	6,593		6,921		(328)		Depreciation	7,420		6,504		916
Amortization of intangibles	Amortization of intangibles	2,896		4,029		(1,133)		Amortization of intangibles	2,896		3,904		(1,008)
Loss on revaluation of contingent liability		46		21		25
(Gain) loss on sale of property and equipment		1,242		(17)		1,259
Income (loss) from operations		19,762		(8,079)		27,841
(Gain) loss on revaluation of contingent liability								(Gain) loss on revaluation of contingent liability	(292)		5		(297)
Gain on sale of property and equipment								Gain on sale of property and equipment	(330)		(714)		384
Income from operations								Income from operations	6,882		1,082		5,800
Non-operating expense	Non-operating expense	4,987		7,931		(2,944)		Non-operating expense	12,107		7,869		4,238
Income (loss) before income taxes		14,775		(16,010)		30,785
Loss before income taxes								Loss before income taxes	(5,225)		(6,787)		1,562
Provision for income taxes	Provision for income taxes	489		41		448		Provision for income taxes	884		112		772
Net income (loss)		$	14,286	$	(16,051)	$	30,337
Net loss								Net loss	$	(6,109)	$	(6,899)	$	790

Revenues

Revenues increased ~~$74.6~~$46.5 million, or ~~80%~~40%, to ~~$167.4~~$163.4 million for the ~~third~~first quarter of ~~2022.~~2023. The increase ~~in comparison to the third quarter of 2021~~ was prevalent across all lines of service and was due to activity and pricing ~~improvements. As compared to the third quarter of 2021,~~improvements as the average U.S. rig count increased ~~53%. Cementing~~20% in comparison to the first quarter of 2022. More specifically, cementing revenue (including pump downs) increased by ~~$34.4~~$17.2 million, or ~~116%~~38%, as total cement job count increased ~~49%~~2% in comparison to the ~~third~~first quarter of ~~2021.~~2022. In addition, coiled tubing revenue increased ~~$16.3~~$12.0 million, or ~~95%~~55%, as total days worked increased by ~~36%~~56%, tools revenue increased ~~$13.8~~$9.1 million, or ~~51%~~32%, as completion tools stages increased by ~~57%~~36%, and wireline revenue increased ~~$10.1~~$8.2 million, or ~~52%~~38%, as total completed wireline stages increased by ~~19%~~11%, each in comparison to the ~~third~~first quarter of ~~2021.~~2022.

Cost of Revenues (Exclusive of Depreciation and Amortization)

Cost of revenues increased ~~$44.5~~$32.8 million, or ~~56%~~35%, to ~~$123.4~~$127.1 million for the ~~third~~first quarter of ~~2022.~~2023. The increase in comparison to the ~~third~~first quarter of ~~2021~~2022 was prevalent across all lines of service and was related to increased activity, noted above, coupled with cost inflation associated with both labor and materials as well as headcount increases. More specifically, the increase was related to a ~~$24.3~~$14.7 million increase in materials installed and consumed while performing services, a ~~$15.5~~$12.4 million increase in employee costs, and a ~~$4.7~~$5.7 million increase in other costs such as repairs and maintenance, travel, and vehicle expenses, in comparison to the ~~third~~first quarter of ~~2021.~~2022.

Adjusted Gross Profit (Loss)

Adjusted gross profit increased ~~$30.0~~$13.7 million to ~~$44.0~~$36.3 million for the ~~third~~first quarter of ~~2022~~2023 due to the factors described above under “Revenues” and “Cost of Revenues.”

General and Administrative Expenses

General and administrative expenses increased ~~$2.4~~$7.9 million to ~~$13.5~~$19.7 million for the ~~third~~first quarter of 2023. The increase was primarily related to $6.4 million in costs associated with the Unitsoffering in the first quarter of 2023 that did not occur in the first quarter of 2022. The increase was ~~primarily related~~also partially attributed to a ~~$2.6~~$1.7 million increase in employee costs due to increases in headcount and ~~compensation.~~

~~Depreciation~~

Depreciation expense decreased $0.3 million to $6.6 million for the third quarter of 2022. The decrease in comparison to the third quarter of 2021 was primarily related to certain assets becoming fully depreciated in the last twelve months.compensation between periods.

Depreciation

Depreciation expense increased $0.9 million to $7.4 million for the first quarter of 2023. The increase in comparison to the first quarter of 2022 was primarily related to an increase in capital expenditures across certain lines of service over the last twelve months.

Amortization of Intangibles

Amortization of intangibles, which iswas primarily comprised of technology and customer relationships, decreased ~~$1.1~~$1.0 million to $2.9 million for the ~~third~~first quarter of ~~2022.~~2023. The decrease in comparison to the ~~third~~first quarter of ~~2021~~2022 was related to certain intangible assets being fully amortized in the last twelve months.

(Gain) Loss on Revaluation of Contingent Liability

We recorded a ~~less than $0.1~~$0.3 million ~~loss~~gain on revaluation of contingent liability for ~~both~~ the ~~third~~first quarter of ~~2022 and the third quarter of 2021~~2023 associated with ~~an increase~~a decrease in the fair value of the earnout associated with our acquisition of Frac Technology ~~AS.~~AS during the period.

(Gain) Loss on Sale of Property and Equipment

~~We recorded a $1.2 million loss~~Gain on sale of property and equipment decreased $0.4 million to $0.3 million for the ~~third~~first quarter of ~~2022 compared~~2023. The overall decrease was attributed to ~~a less than $0.1 million gain~~lower gains on ~~sale of property and~~ equipment for the third quarter of 2021. The $1.3 million increase was primarily associated with certain equipment damaged and fully disposed of in the third quarter of 2022 that did not occur in the third quarter of 2021.sales between periods.

Non-Operating (Income) Expenses

Non-operating expenses ~~decreased $2.9~~increased $4.2 million to ~~$5.0~~$12.1 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~decrease~~increase in comparison to the ~~third~~first quarter of ~~2021 is~~2022 was primarily related to ~~a $2.8 million gain on~~an increased interest rate in conjunction with the ~~extinguishment of debt related to the repurchase of Senior~~2028 Notes, ~~(as defined and described in “Liquidity and Capital Resources”)~~which were entered into in the ~~third~~first quarter of ~~2022 that did not occur~~2023 in connection with the ~~third quarter of 2021.~~Units offering.

Provision (Benefit) for Income Taxes

We recorded an income tax provision of ~~$0.5~~$0.9 million for the ~~third~~first quarter of ~~2022~~2023 compared to an income tax provision of ~~less than~~ $0.1 million for the ~~third~~first quarter of ~~2021.~~2022. The difference between the periods was primarily attributed to our income tax position in state and foreign tax jurisdictions.

Adjusted EBITDA

Adjusted EBITDA increased ~~$28.1~~$12.8 million to $32.6 million for the third quarter of 2022. The Adjusted EBITDA increase was primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

~~Results for the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021~~

Nine Months Ended September 30,
2022 2021 Change
(in thousands)
Revenues $ 426,713 $ 244,326 $ 182,387
Cost of revenues (exclusive of depreciation and amortization shown separately below) 330,477 217,800 112,677
Adjusted gross profit $ 96,236 $ 26,526 $ 69,710
General and administrative expenses $ 37,766 $ 33,505 $ 4,261
Depreciation 19,608 22,148 (2,540)
Amortization of intangibles 10,568 12,212 (1,644)
(Gain) loss on revaluation of contingent liability 237 (124) 361
Loss on sale of property and equipment 795 660 135
Income (loss) from operations 27,262 (41,875) 69,137
Non-operating expense 20,774 6,789 13,985
Income (loss) before income taxes 6,488 (48,664) 55,152
Provision for income taxes 79 163 (84)
Net income (loss) $ 6,409 $ (48,827) $ 55,236

~~Revenues~~

~~Revenues increased $182.4 million, or 75%, to $426.7~~$25.0 million for the first ~~nine months~~quarter of 2022. The increase in comparison to the first nine months of 2021 was prevalent across all lines of service and was due to activity and pricing improvements. As compared to the first nine months of 2021, the average U.S. rig count increased 57%. Cementing revenue (including pump downs) increased by $84.6 million, or 106%, as total cement job count increased 63% in comparison to the first nine months of 2021. In addition, coiled tubing revenue increased $40.1 million, or 94%, as total days worked increased by 39%, tools revenue increased $31.3 million, or 44%, as completion tools stages increased by 43%, and wireline revenue increased $26.4 million, or 52%, as total completed wireline stages increased by 25%, in each case, in comparison to the first nine months of 2021.

~~Cost of Revenues (Exclusive of Depreciation and Amortization)~~

Cost of revenues increased $112.7 million, or 52%, to $330.5 million for the first nine months of 2022. The increase in comparison to the first nine months of 2021 was prevalent across all lines of service and was related to increased activity, noted above, coupled with cost inflation associated with both labor and materials as well as headcount increases. More specifically, the increase was related to a $62.2 million increase in materials installed and consumed while performing services, a $39.2 million increase in employee costs, and a $11.3 million increase in other costs such as repairs and maintenance, travel, and vehicle expenses, in comparison to the first nine months of 2021.

~~Adjusted Gross Profit (Loss)~~

~~Adjusted gross profit increased $69.7 million to $96.2 million for the first nine months of 2022 due to the factors described above under “Revenues” and “Cost of Revenues.”~~

~~General and Administrative Expenses~~

General and administrative expenses increased $4.3 million to $37.8 million for the first nine months of 2022. The increase was primarily related to a $6.3 million increase in employee costs due to increases in headcount and compensation. The overall increase was partially offset by a $1.9 million decrease in professional fees in comparison to the first nine months of 2021.

~~Depreciation~~

~~Depreciation expense decreased $2.5 million to $19.6 million for the first nine months of 2022. The decrease in~~

~~comparison to the first nine months of 2021 was associated with all lines of service and was primarily due to certain assets becoming fully depreciated in the last twelve months.~~

~~Amortization of Intangibles~~

Amortization of intangibles, which is comprised primarily of technology and customer relationships, decreased $1.6 million to $10.6 million for the first nine months of 2022. The decrease in comparison to the first nine months of 2021 was related to certain intangible assets being fully amortized in the last twelve months.

~~(Gain) Loss on Revaluation of Contingent Liability~~

In the first nine months of 2022, we recorded a $0.2 million loss on revaluation of the contingent liability as compared to a $0.1 million gain on revaluation of the contingent liability in the first nine months of 2021. The change was due to an increase in fair value of the earnout associated with our acquisition of Frac Technology AS between periods.

~~(Gain) Loss on Sale of Property and Equipment~~

Loss on sale of property and equipment was relatively flat period over period, with a change of $0.1 million as we recorded an $0.8 million loss on sale of property and equipment in the first nine months of 2022 compared to a $0.7 million loss on sale of property and equipment in the first nine months of 2021.

~~Non-Operating (Income) Expenses~~

We recorded $20.8 million in non-operating expenses for the first nine months of 2022 compared to $6.8 million in non-operating expenses for the first nine months of 2021. The $14.0 million increase in non-operating expenses in comparison to the first nine months of 2022 was primarily related to a $14.8 million decrease in gains on the extinguishment of debt related to the repurchase of Senior Notes between periods. The overall increase in non-operating expenses is partially offset by a $0.6 million increase in interest and other income and a $0.2 million decrease in interest expense between periods.

~~Provision (Benefit) for Income Taxes~~

We recorded an income tax provision of less than $0.1 million for the first nine months of 2022 compared to an income tax provision of $0.2 million for the first nine months of 2021. The difference between periods was primarily attributed to our income tax position in state and foreign tax jurisdictions.

~~Adjusted EBITDA~~

~~Adjusted EBITDA increased $63.0 million to $63.7 million for the first nine months of 2022.~~2023. The Adjusted EBITDA increase was primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies.

We define Adjusted EBITDA as EBITDA (which is net income (loss) before interest, taxes, depreciation, and amortization) further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) loss or gain on revaluation of contingent liabilities, ~~(iv)~~(v) loss or gain on extinguishment of debt, ~~(v)~~(vi) loss or gain on the sale of subsidiaries, ~~(vi)~~(vii) restructuring charges, ~~(vii)~~(viii) stock-based compensation and cash award expense, ~~(viii)~~(ix) loss or gain on sale of property and equipment, and ~~(ix)~~(x) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business.

Management believes Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at ~~these measures~~this measure because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an

alternative to, or more meaningful than, net income (loss) as determined in accordance with accounting principles generally

accepted in the United States of America (“GAAP”) or as an indicator of our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of ~~these measures.~~Adjusted EBITDA. Our ~~computations~~computation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of the non-GAAP financial ~~measures~~measure of Adjusted EBITDA to the GAAP financial measure of net income (loss) for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)				(in thousands)					(in thousands)
Adjusted EBITDA reconciliation:	Adjusted EBITDA reconciliation:									Adjusted EBITDA reconciliation:
Net income (loss)		$	14,286	$	(16,051)	$	6,409	$	(48,827)
Net loss										Net loss	$	(6,109)	$	(6,899)
Interest expense	Interest expense	8,125		7,968		24,335		24,534		Interest expense	12,454		8,077
Interest income	Interest income	(134)		(3)		(171)		(24)		Interest income	(185)		(12)
Provision for income taxes	Provision for income taxes	489		41		79		163		Provision for income taxes	884		112
Depreciation	Depreciation	6,593		6,921		19,608		22,148		Depreciation	7,420		6,504
Amortization of intangibles	Amortization of intangibles	2,896		4,029		10,568		12,212		Amortization of intangibles	2,896		3,904
EBITDA	EBITDA	$	32,255	$	2,905	$	60,828	$	10,206	EBITDA	$	17,360	$	11,686
(Gain) loss on revaluation of contingent liability (1)	(Gain) loss on revaluation of contingent liability (1)	46		21		237		(124)		(Gain) loss on revaluation of contingent liability (1)	(292)		5
Gain on extinguishment of debt		(2,843)		—		(2,843)		(17,618)
Certain refinancing costs (2)										Certain refinancing costs (2)	6,396		—
Restructuring charges	Restructuring charges	729		375		1,819		1,588		Restructuring charges	406		285
Stock-based compensation and cash award expense	Stock-based compensation and cash award expense	1,113		1,153		2,798		4,191		Stock-based compensation and cash award expense	1,469		927
(Gain) loss on sale of property and equipment		1,242		(17)		795		660
Gain on sale of property and equipment										Gain on sale of property and equipment	(330)		(714)
Legal fees and settlements ~~(2)~~(3)	Legal fees and settlements ~~(2)~~(3)	10		17		55		1,764		Legal fees and settlements ~~(2)~~(3)	—		34
Adjusted EBITDA	Adjusted EBITDA	$	32,552	$	4,454	$	63,689	$	667	Adjusted EBITDA	$	25,009	$	12,223

(1)Amounts relate to the revaluation of a contingent liability associated with a 2018 acquisition. The impact is included in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss). For additional information on contingent liabilities, see Note 10 – Commitments and Contingencies included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

(2)Amounts represent Units offering and other refinancing fees and expenses, including cash incentive compensation to employees following the successful completion of the Units offering, that were not capitalized.

(3)Amounts represent fees, legal settlements, and/or accruals associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws.

Return on Invested Capital

ROIC is a supplemental non-GAAP financial measure. We define ROIC as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) Units offering and other refinancing fees and expenses, (iv) interest expense (income), ~~(iv)~~(v) restructuring charges, ~~(v)~~(vi) loss (gain) on the sale of subsidiaries, ~~(vi)~~(vii) loss (gain) on extinguishment of debt, and ~~(vii)~~(viii) the provision (benefit) for deferred income taxes. We define total capital as book value of equity (deficit) plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior period-end total capital for use in this analysis.

Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. Management uses ROIC to assist them in capital resource allocation decisions and in evaluating business performance. Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC differ, and our computation of ROIC may not be comparable to other similarly titled measures of other companies.

2321

The following table provides an explanation of our calculation of ROIC for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)				(in thousands)					(in thousands)
Net income (loss)		$	14,286	$	(16,051)	$	6,409	$	(48,827)
Net loss										Net loss	$	(6,109)	$	(6,899)
Add back:	Add back:									Add back:
Interest expense	Interest expense	8,125		7,968		24,335		24,534		Interest expense	12,454		8,077
Interest income	Interest income	(134)		(3)		(171)		(24)		Interest income	(185)		(12)
Certain refinancing costs (1)										Certain refinancing costs (1)	6,396		—
Restructuring charges	Restructuring charges	729		375		1,819		1,588		Restructuring charges	406		285
Gain on extinguishment of debt		(2,843)		—		(2,843)		(17,618)
After-tax net operating income (loss)		$	20,163	$	(7,711)	$	29,549	$	(40,347)
After-tax net operating income										After-tax net operating income	$	12,962	$	1,451
Total capital as of prior period-end:	Total capital as of prior period-end:									Total capital as of prior period-end:
Total stockholders’ equity (deficit)		$	(46,319)	$	(9,731)	$	(39,267)	$	20,409
Total stockholders’ deficit										Total stockholders’ deficit	$	(23,507)	$	(39,267)
Total debt	Total debt	348,148		322,031		337,436		348,637		Total debt	341,606		337,436
Less cash and cash equivalents	Less cash and cash equivalents	(22,408)		(33,128)		(21,509)		(68,864)		Less cash and cash equivalents	(17,445)		(21,509)
Total capital as of prior period-end	Total capital as of prior period-end	$	279,421	$	279,172	$	276,660	$	300,182	Total capital as of prior period-end	$	300,654	$	276,660
Total capital as of period-end:	Total capital as of period-end:									Total capital as of period-end:
Total stockholders’ deficit	Total stockholders’ deficit	$	(32,085)	$	(24,732)	$	(32,085)	$	(24,732)	Total stockholders’ deficit	$	(11,341)	$	(45,366)
Total debt	Total debt	334,620		321,750		334,620		321,750		Total debt	373,305		341,511
Less cash and cash equivalents	Less cash and cash equivalents	(21,490)		(29,969)		(21,490)		(29,969)		Less cash and cash equivalents	(21,374)		(19,941)
Total capital as of period-end	Total capital as of period-end	$	281,045	$	267,049	$	281,045	$	267,049	Total capital as of period-end	$	340,590	$	276,204
Average total capital	Average total capital	$	280,233	$	273,111	$	278,853	$	283,616	Average total capital	$	320,622	$	276,432
ROIC	ROIC	28.8%		(11.3)%		14.1%		(19.0)%		ROIC	16.2%		2.1%

(1) Amounts represent Units offering and other refinancing fees and expenses, including cash incentive compensation to employees following the successful completion of the Units offering, that were not capitalized.

Adjusted Gross Profit (Loss)

GAAP defines gross profit (loss) as revenues less cost of revenues and includes depreciation and amortization in costs of revenues. We define adjusted gross profit (loss) as revenues less direct and indirect costs of revenues (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit (loss) because we do not include the impact of depreciation and amortization, which represent non-cash expenses.

Management uses adjusted gross profit (loss) to evaluate operating performance. We prepare adjusted gross profit (loss) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance. Adjusted gross profit (loss) should not be considered as an alternative to gross profit (loss), operating income (loss), or any other measure of financial performance calculated and presented in accordance with GAAP. Adjusted gross profit (loss) may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted gross profit (loss) or similarly titled measures in the same manner as we do.

2422

The following table presents a reconciliation of adjusted gross profit (loss) to GAAP gross profit (loss) for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(in thousands)				(in thousands)					(in thousands)
Calculation of gross profit (loss):
Calculation of gross profit:										Calculation of gross profit:
Revenues	Revenues	$	167,432	$	92,868	$	426,713	$	244,326	Revenues	$	163,408	$	116,935
Cost of revenues (exclusive of depreciation and amortization shown separately below)	Cost of revenues (exclusive of depreciation and amortization shown separately below)	123,418		78,879		330,477		217,800		Cost of revenues (exclusive of depreciation and amortization shown separately below)	127,118		94,318
Depreciation (related to cost of revenues)	Depreciation (related to cost of revenues)	6,131		6,437		18,235		20,598		Depreciation (related to cost of revenues)	6,901		6,049
Amortization of intangibles	Amortization of intangibles	2,896		4,029		10,568		12,212		Amortization of intangibles	2,896		3,904
Gross profit (loss)		$	34,987	$	3,523	$	67,433	$	(6,284)
Gross profit										Gross profit	$	26,493	$	12,664

Adjusted gross profit reconciliation:	Adjusted gross profit reconciliation:									Adjusted gross profit reconciliation:
Gross profit (loss)		$	34,987	$	3,523	$	67,433	$	(6,284)
Gross profit										Gross profit	$	26,493	$	12,664
Depreciation (related to cost of revenues)	Depreciation (related to cost of revenues)	6,131		6,437		18,235		20,598		Depreciation (related to cost of revenues)	6,901		6,049
Amortization of intangibles	Amortization of intangibles	2,896		4,029		10,568		12,212		Amortization of intangibles	2,896		3,904
Adjusted gross profit	Adjusted gross profit	$	44,014	$	13,989	$	96,236	$	26,526	Adjusted gross profit	$	36,290	$	22,617

Liquidity and Capital Resources

Sources and Uses of Liquidity

Historically, we have met our liquidity needs principally from cash on hand, cash flow from operations and, if needed, external borrowings and issuances of debt securities. Our principal uses of cash are to fund capital expenditures, service our outstanding debt, and fund our working capital ~~requirements and, historically, fund acquisitions.~~requirements. Due to our high level of variable costs and the asset-light make-up of our business, we have historically been able to quickly implement cost-cutting measures and will continue to adapt as the market dictates. We have also used cash to make open market repurchases of our debt and may, from time to time, continue to make such repurchases ~~(including with respect to our Senior Notes)~~ when it is opportunistic to do so to manage our debt maturity profile. ~~In addition, we~~

We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outside sources of capital.

Although we do not budget for acquisitions, pursuing growth through acquisitions may continue to be a part of our business strategy. Our ability to make significant additional acquisitions for cash will require us to obtain additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

At ~~September 30, 2022,~~March 31, 2023, we had ~~$21.5~~$21.4 million of cash and cash equivalents and ~~$66.7~~$26.0 million of availability under the ~~2018~~ ABL Credit Facility, which resulted in a total liquidity position of ~~$88.2~~$47.4 million. ~~As in the past, we~~We expect our liquidity position to be impacted by the ~~Senior~~2028 Notes’ semi-annual interest payments ($~~13.4~~19.5 million based on amounts outstanding as of ~~September 30, 2022), which recently occurred~~March 31, 2023). We believe that, based on ~~November 1, 2022~~our current forecasts, our cash on hand, together with cash flow from operations and ~~will again occur on May 1, 2023.~~

~~At September 30, 2022, we had $27.0 million of~~ borrowings under the ~~2018 ABL Credit Facility. We have borrowed an additional $5.0 million, net to date in the fourth quarter of 2022. The 2018~~ ABL Credit Facility, should be sufficient to fund our capital requirements for at least the next twelve months from the issuance date of our condensed consolidated financial statements. However, we can make no assurance regarding our ability to achieve our forecasts, which are materially dependent on our financial performance and the ever-changing market.

Units Offering and 2028 Notes

On January 30, 2023, we completed our public offering of Units and issued 300,000 Units with an aggregate stated amount of $300.0 million. Each Unit consists of $1,000 principal amount of the 2028 Notes and five shares of our common stock. We received proceeds of $279.8 million from the Units offering, after deducting underwriting discounts and commission, which was used to fund a portion of the redemption price of the 2023 Notes.

Each Unit will ~~mature~~be separated into its constituent securities (the 2028 Notes and the shares of our common stock) automatically on October ~~25,~~27, 2023, or, if earlier, on the date, ~~that is 180 days before~~if any, on which a change of control or event of default (each as defined in the ~~scheduled maturity date~~indenture governing the 2028 Notes) occurs.

A holder of ~~the Senior Notes if they have~~Units may elect to separate its Units into its constituent securities, in whole but not ~~been redeemed~~in part, on or repurchased by such date. As of September 30, 2022, there were approximately $307.3 million aggregate principal amount of Senior Notes outstanding. The Senior Notes will mature on October 25, 2023. In the absence of our ability to redeem or repurchase the Senior Notes, the effective maturity date of the 2018 ABL Credit Facility would be April 28, 2023.

Our plans to satisfy these obligations include refinancing or restructuring our indebtedness, seeking additional sources of capital, selling assets, or a combination thereof. Any such transactions may involve the issuance of additional equity or convertible debt securities that could result in material dilution to our stockholders, and these securities could have rights superior to holders of our common stock and could contain covenants that will restrict our operations. Our ability to successfully execute these plans is dependent on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions, and certain financial, business, and other factors, many of which are beyond our control. There can be no assurance that we will succeed in executing these plans. If unsuccessful, we will not have sufficient liquidity and capital resources to repay our indebtedness when it matures, or otherwise meet our cash requirements over the next twelve months, which raises substantial doubt about our ability to continue as a going concern.after

2523

~~Senior~~March 31, 2023. Prior to such date, the Units could not be separated at the option of the holder.

On January 30, 2023, we, and certain of our subsidiaries entered into an indenture, dated as of January 30, 2023 (the “2028 Notes Indenture”), with U.S. Bank Trust Company, National Association, as the trustee and as notes collateral agent, pursuant to which the 2028 Notes, which form a part of the Units, were issued. The 2028 Notes will mature on February 1, 2028 and bear interest at an annual rate of 13.000% payable in cash semi-annually in arrears on each of February 1 and August 1, commencing August 1, 2023. The 2028 Notes are our senior secured obligations and are guaranteed on a senior secured basis by each of our current domestic subsidiaries and by certain future subsidiaries, subject to agreed guaranty and security principles and certain exclusions.

On each May 15 and November 14, commencing November 14, 2023 (each, an “Excess Cash Flow Offer Date”), we are required to make an offer (an “Excess Cash Flow Offer”) to all holders of the 2028 Notes and, if required by the terms of any Pari Passu Notes Lien Indebtedness (as defined in the 2028 Notes Indenture), to any holders of any Pari Passu Notes Lien Indebtedness to purchase, prepay or redeem, together on a pro-rata basis, the maximum principal amount of the 2028 Notes and any such Pari Passu Notes Lien Indebtedness (plus all accrued interest (including additional interest, if any) on the 2028 Notes and any such Pari Passu Notes Lien Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed using an amount of cash equal to the Excess Cash Flow Amount (as defined in the 2028 Notes Indenture and which is 75.0% of Excess Cash Flow (as defined in the 2028 Notes Indenture), as determined immediately prior to the Excess Cash Flow Offer Date), if any, subject to certain exceptions set forth in the 2028 Notes Indenture. The offer price in any such offer will be equal to 100% of the principal amount of the 2028 Notes and any such Pari Passu Notes Lien Indebtedness (or, in respect of any such Pari Passu Notes Lien Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari Passu Notes Lien Indebtedness), plus accrued and unpaid interest and additional interest, if any, to, but excluding, the date of purchase, prepayment or redemption, subject to the rights of holders of the 2028 Notes or any such Pari Passu Notes Lien Indebtedness on the relevant record date to receive interest due on an interest payment date that is on or prior to the date of purchase, prepayment or redemption, and will be payable in cash.

The 2028 Notes Indenture contains covenants that, among other things and subject to certain exceptions and qualifications, limit our ability and the ability of our restricted subsidiaries to engage in certain activities. We were in compliance with the provision of the 2028 Notes Indenture at March 31, 2023.

For additional information on the Units and the 2028 Notes, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

2023 Notes

On October 25, 2018, we issued $400.0 million of ~~8.750% Senior~~2023 Notes ~~due 2023 (the “Senior Notes”)~~ under an indenture, dated as of October 25, 2018 (the ~~“Indenture”~~“2023 Notes Indenture”), by and among us, including certain of our subsidiaries, and Wells Fargo, National Association, as trustee. ~~As of September 30, 2022, there were approximately $307.3 million aggregate principal amount of Senior~~The 2023 Notes ~~outstanding. The Senior Notes bear~~bore interest at an annual rate of 8.750% payable on May 1 and November 1 of each ~~year, and the first interest payment was due on May 1, 2019. Based on current amounts outstanding as of September 30, 2022, the semi-annual interest payments are $13.4 million each.~~year. The ~~Senior~~2023 Notes ~~are~~were senior unsecured obligations and ~~are~~were fully and unconditionally guaranteed on a senior unsecured basis by each of our current domestic subsidiaries and by certain future subsidiaries.

~~The Indenture contains covenants that limit our ability~~On February 1, 2023, all of the outstanding 2023 Notes were redeemed at a redemption price of 100.0% of the principal amount thereof ($307.3 million), plus accrued and unpaid interest ($6.7 million), and the ~~ability~~2023 Notes Indenture was discharged as of ~~our restricted subsidiaries to engage in certain activities. We were in compliance with the provisions of the Indenture at September~~January 30, ~~2022.~~

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to us, any of our restricted subsidiaries that are a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

During the three months ended September 30, 2022, we repurchased approximately $13.0 million of Senior Notes at a repurchase price of approximately $10.1 million in cash. During the first six months of 2022, we did not repurchase any Senior Notes.

~~During the nine months ended September 30, 2021, we repurchased approximately $26.3 million of Senior Notes at a repurchase price of approximately $8.4 million in cash.~~2023.

For additional information on the ~~Senior~~2023 Notes, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

~~2018~~ ABL Credit Facility

On October 25, 2018, we entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”) that ~~permits~~permitted aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the ~~“2018 ABL~~“ABL Credit Facility”). ~~The~~Pursuant to the 2018 ABL Credit Agreement, the ABL Credit Facility ~~will~~was set to mature on October 25, 2023 or, if earlier, on the date that iswas 180 days before the scheduled maturity date of the ~~Senior~~2023 Notes if they ~~have~~had not been redeemed or repurchased by such date.

~~At September 30, 2022,~~On January 17, 2023, we ~~had $27.0 million~~entered into the First Amendment to Credit Agreement (the “ABL Facility Amendment”) with JP Morgan Chase Bank, N.A., as administrative agent, and the lender parties thereto, which amended certain terms of ~~outstanding borrowings under~~ the 2018 ABL Credit Agreement (as amended the “ABL Credit Agreement”). The ABL Facility ~~and our availability under~~Amendment became effective on

January 30, 2023.

Pursuant to the ~~2018~~ABL Facility Amendment, the maturity date of the ABL Credit Facility was ~~approximately $66.7 million, net~~extended from October 25, 2023 to January 29, 2027. In addition, the ABL Facility Amendment, among other changes, revised the terms of ~~outstanding letters of credit of $1.3 million. We have borrowed an additional $5.0 million, net to date in~~ the ~~fourth quarter of 2022.~~

~~Loans to us and our domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018~~ ABL Credit Facility ~~may be~~as follows: (a) decreased the size of the ABL Credit Facility from $200.0 million to $150.0 million, subject to the borrowing base (the “Loan Limit”), (b) changed the interest rate ~~loans or~~benchmark from London Interbank Offered Rate ~~(“LIBOR”) loans;~~to Term Secured Overnight Financing Rate with a 10 basis point spread adjustment and ~~loans to Nine Energy Canada Inc., a corporation organized under~~increased pricing from the ~~laws~~existing range of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be Canadian Dollar Offered Rate (“CDOR”) loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans varies from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans varies from 1.75% to 2.25% to a range of 2.00% to 2.50%, in each case depending on our leverage ~~ratio. In addition, a commitment fee of 0.50% per annum will be charged on~~ratio, (c) modified the ~~average daily unused portion~~financial covenant, enhanced reporting and cash dominion triggers in the ABL Credit Facility from the existing minimum availability threshold of the ~~revolving commitments.~~greater of $18.75 million and 12.5% of the Loan Limit to a minimum availability threshold of (i) $12.5 million from January 30, 2023 until May 31, 2023 and (ii) the greater of $17.5 million and 12.5% of the Loan Limit thereafter, (d) decreased the Canadian tranche sub-limit from $25.0 million to $5.0 million, (e) decreased the letter of credit sub-limit from $50.0 million to $10.0 million and (f) made satisfaction of the Payment Conditions (as defined in the ABL Facility Amendment) a condition to an Excess Cash Flow Offer in addition to a condition to voluntary payments of the 2028 Notes. The Payment Conditions in summary are (A) no default or event of default on a pro forma basis and (B) immediately after and at all times during the 30 days prior, on a pro forma basis, (1) (x) availability under the ABL Credit Facility shall not be less than the greater of 15% of the Loan Limit and $22.5 million and (y) the fixed charge coverage ratio shall be at least 1.00 to 1.00 or (2) availability under the ABL Credit Facility shall not be less than the greater of 20% of the Loan Limit and $30.0 million.

The ~~2018~~ ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions) and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant of 1.00 to 1.00 that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below $18.75 million or a default has occurred, until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. We were in compliance with all covenants under the ~~2018~~ ABL Credit Agreement ~~at September 30, 2022.~~as of March 31, 2023.

~~All of~~Pursuant to the ABL Credit Agreement, all obligations under the ~~2018~~ ABL Credit Facility are secured by ~~first priority perfected~~ security interests (subject to permitted liens) in substantially all of the personal property of ~~U.S. Credit Parties,~~our domestic subsidiaries, excluding certain assets. The obligations under the Canadian tranche are further secured by ~~first priority perfected~~ security interests (subject to permitted

liens) in substantially all of the personal property of ~~Canadian Credit Parties~~Nine Energy Canada, Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries, excluding certain assets. ~~The 2018~~

At March 31, 2023, we had $72.0 million of borrowings under the ABL Credit ~~Parties.~~Facility, and our availability under the ABL Credit Facility was approximately $26.0 million, net of outstanding letters of credit of $1.3 million.

Cash Flows

Cash flows provided by (used in) operations by type of activity were as follows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Operating activities	Operating activities	$	8,231	$	(26,704)	Operating activities	$	3,965	$	(6,459)
Investing activities	Investing activities	(6,247)		(1,835)		Investing activities	(5,284)		1,340
Financing activities	Financing activities	(1,806)		(10,310)		Financing activities	5,344		3,567
Impact of foreign exchange rate on cash	Impact of foreign exchange rate on cash	(197)		(46)		Impact of foreign exchange rate on cash	(96)		(16)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(19)	$	(38,895)	Net change in cash and cash equivalents	$	3,929	$	(1,568)

Operating Activities

Net cash provided by operating activities was ~~$8.2~~$4.0 million in the first ~~nine~~three months of ~~2022~~2023 compared to ~~$26.7~~$6.5 million in net cash used in the first ~~nine~~three months of ~~2021.~~2022. The change was primarily attributed to a ~~result~~$8.1 million increase in cash provided by working capital, including an increase in cash collections in comparison to the first three months of 2022. The change was also partially attributed to a ~~$63.2~~$2.4 million increase in cash flow provided by operations, adjusted for any non-cash items, in comparison to the first ~~nine~~three months of 2021, which was offset by a $28.3 million decrease in cash provided by working capital, including an increase in accounts receivable from increased product and service sales, which has the effect of lagging cash collections, in comparison to the first nine months of 2021.2022.

Investing Activities

Net cash used in investing activities was ~~$6.2~~$5.3 million during the first ~~nine~~three months of ~~2022~~2023 compared to ~~$1.8~~$1.3 million cash flow provided in the first ~~nine~~three months of ~~2021.~~2022. The ~~$4.4 million increase~~change was ~~primarily due~~attributed to a ~~$4.5~~$5.4 million increase in cash purchases of property and equipment, ~~partially offset by~~coupled with a ~~$0.1~~$1.2 million ~~increase~~decrease in proceeds from the sale of property and equipment (including insurance), in each case, in comparison to the first ~~nine~~three months of ~~2021.~~2022.

Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$1.8~~$5.3 million during the first ~~nine~~three months of ~~2022~~2023 compared to ~~$10.3~~$3.6 million in the first ~~nine~~three months of ~~2021.~~2022. The $8.5 million decrease was primarily related to $12.0 million in proceeds from the 2018 ABL Credit Facility in the first nine months of 2022 that did not occur in the first nine months of 2021. The overall decrease was partially offset by a $1.7 million increase in purchases of the Senior Notes in the first nine months of 2022 as compared to the first nine months of 2021. The overall decrease was also partially offset by $1.0 million in payments on short-term debt in the first nine months of 2022 that did not occur in the first nine months of 2021, as well as a $0.3 million increase in payments on the Magnum Promissory Notes (as defined in Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q), a $0.3 million increase in the vesting of restricted stock and stock units, and a $0.2 million increase in payments on finance leases, all in comparison to the first ~~nine~~three months of ~~2021.~~2022 was primarily attributed to $279.8 million in proceeds received from the Units offering coupled with an increase of $35.0 million in proceeds received in connection with the ABL Credit Facility. The overall increase was largely offset by the $307.3 million redemption of the 2023 Notes in the first quarter of 2023, coupled with $5.9 million in debt issuance costs associated with the Units offering.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our critical accounting estimates, which are estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations, are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes to our critical accounting estimates as described therein.

Recent Accounting Pronouncements

See Note 3 – New Accounting Standards included in Item 1 of Part I of this Quarterly Report on Form 10-Q for a

summary of recently issued accounting pronouncements.

2826

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September 30, 2022.~~March 31, 2023. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2022.~~March 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarterly period ended ~~September 30, 2022~~March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).

2927

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we have various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, we believe any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our business, operating results, or financial condition.

ITEM 1A. RISK FACTORS

~~Except as set forth below, there~~There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

~~If we do not meet~~2022. For a detailed discussion of known material factors which could materially affect our business, financial condition, or future results, refer to “Risk Factors” in Item 1A of Part I in our Annual report on Form 10-K for the ~~continued listing requirements of the NYSE, the NYSE may delist our common stock.~~

Our common stock is currently listed on the NYSE. On January 5, 2022, we received written notification from the NYSE that we no longer satisfy the continued listing compliance standards set forth under Section 802.01B of the NYSE Listed Company Manual (the “NYSE Manual”). On September 9, 2022, we received notice from the NYSE that we had regained compliance with these continued listing standards.

In accordance with the NYSE Manual, we are subject to a 12-month follow-up period within which we will be reviewed to ensure that we do not once again fall below any of the NYSE’s continued listing standards. For example, our common stock could be delisted if the average closing price of our common stock falls below $1.00 per share over a period of 30 consecutive trading days (the “minimum share price condition”) or our common stock trades at an “abnormally low” price. In April 2020, we received written notification from the NYSE that we did not satisfy the minimum share price condition. In June 2020, we regained compliance with this condition; however, there is no assurance that we will be able to continue to do so.

A delisting of our common stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of our common stock and thus (i) reduce the number of investors willing to hold or acquire our common stock, which would negatively impact our ability to access equity markets and obtain financing, and (ii) impair our ability to provide equity incentives to our employees.year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~The following table sets forth our repurchases of our equity securities registered under Section 12 of the Exchange Act that have occurred during the three months ended September 30, 2022:~~

Total Number of Shares Purchased (1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2022 – July 31, 2022 — $ — — —
August 1, 2022 – August 31, 2022 122,868 2.82 — —
September 1, 2022 – September 30, 2022 — — — —
Total 122,868 $ 2.82 — —

~~(1) Reflects the number of shares we have withheld to pay taxes upon vesting of restricted stock.~~None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

3128

ITEM 6. EXHIBITS

The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.


Exhibit Number						Description
3.1						Third Amended and Restated Certificate of Incorporation of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).

3.2						Fourth Amended and Restated Bylaws of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.2 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).

4.1						Unit Agreement, dated as of January 30, 2023, by and among Nine Energy Service, Inc. and U.S. Bank Trust Company, National Association, as units trustee (including Form of Unit Certificate) (Incorporated by reference to Exhibit 4.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on February 1, 2023).

4.2						Indenture, dated as of January 30, 2023, by and among Nine Energy Service, Inc., the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee and as notes collateral agent (including Form of Note) (Incorporated by reference to Exhibit 4.2 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on February 1, 2023).

10.1						First Amendment to Credit Agreement, dated as of January 17, 2023, among Nine Energy Service, Inc., Nine Energy Canada Inc., the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 18, 2023).

31.1*						Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certifications by Chief Executive Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2**						Certifications by Chief Financial Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101*						Interactive Data Files (Formatted as inline XBRL).

104*						Cover Page Interactive Data File (Formatted as inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K.

3229

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Nine Energy Service, Inc.

Date:

~~November 7, 2022~~May 8, 2023

By:

/s/ Ann G. Fox

Ann G. Fox

President, Chief Executive Officer and Director

(Principal Executive Officer)

Date:

~~November 7, 2022~~May 8, 2023

By:

/s/ Guy Sirkes

Guy Sirkes

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

3330


	Three Months Ended September 30, 2022					Three Months Ended September 30, 2021
	Net Income		Average Shares Outstanding	Earnings Per Share		Net Loss		Average Shares Outstanding	Loss Per Share
	(in thousands, except share and per share amounts)
Basic	$	14,286	31,100,712	$	0.46	$	(16,051)	30,449,286	$	(0.53)
Assumed exercise of stock options	—		—	—		—		—	—
Unvested restricted stock and stock units	—		831,901	—		—		—	—
Diluted	$	14,286	31,932,613	$	0.45	$	(16,051)	30,449,286	$	(0.53)


	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2022 – July 31, 2022	—	$	—	—	—
August 1, 2022 – August 31, 2022	122,868	2.82		—	—
September 1, 2022 – September 30, 2022	—	—		—	—
Total	122,868	$	2.82	—	—