Q4 2020
INVESTOR PRESENTATION
DISCLAIMER
Forward-Looking Statements & Non-GAAP Financial Measures
Certain statements in this presentation are 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 included in this presentation, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this presentation, 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. Forward- looking statements may include statements about the volatility of future oil and natural gas prices; our ability to successfully manage our growth, including risks and uncertainties associated with integrating and retaining key employees of the businesses we acquire; availability of skilled and qualified labor and key management personnel; our ability to accurately predict customer demand; competition in our industry; governmental regulation and taxation of the oil and natural gas industry; environmental liabilities; our ability to implement new technologies and services; availability and terms of capital; general economic conditions; operating hazards inherent in our industry; our financial strategy, budget, projections, operating results, cash flows and liquidity; and our plans, business strategy and objectives, expectations and intentions that are not historical. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements contained herein are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.
For additional information regarding known material factors that could affect our operating results and performance, please see our final IPO prospectus, Current Reports on Form 8-K, Annual Report on Form 10-K and Quarterly Reports on Form 10-Q which are available at the SEC's website,http://www.sec.gov. Should one or more of these known material risks occur, or should the underlying assumptions change or prove incorrect, our actual results, performance, achievements or plans could differ materially from those expressed or implied in any forward-looking statement. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. All subsequent written or oral forward-looking statements concerning us are expressly qualified in their entirety by the cautionary statements above. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by law. All information in this presentation is as of December 31, 2020 as indicated unless otherwise noted.
In addition to reporting financial results in accordance with GAAP, the Company has presented Adjusted EBITDA, Adjusted EBITDA margin and return on invested capital (ROIC). These are not recognized measures under, or an alternative to, GAAP. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company. These non-GAAP measures are intended to provide additional information only and do not have any standard meaning prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. In particular, because of its limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to use to reinvest in growth of the Company's business, or as a measure of cash that will be available to meet the Company's obligations. These non-GAAP measures have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.
Industry and Market Data
This presentation includes market data and other statistical information from third party sources, including independent industry publications, government publications and other published independent sources. Although the Company believes these third party sources are reliable as of their respective dates, the Company has not independently verified the accuracy or completeness of this information.
2
COMPANY OVERVIEW
• Focused on building a full-cycle ROIC business
• Asset-light business model with
REVENUE BY SERVICE LINE2
• Leveraged to increasing 26%
strong barriers to entry and 100% 26% completions focused
completion intensity including mega-well pads, lateral lengths and stage count
Completion Tools
Cementing
Coiled Tubing
Wireline
• Super lateral, deep reach capable service offering and focus - agnostic to completion style
• Able to provide downhole conveyance services coupled with forward-leaning technology
• Diversified completion portfolio and geography
1 Revenue and Adjusted EBITDA include Magnum contribution as of 10/25/18 closing date.
2 Financials based on YTD through 12/31/20 Actuals
See appendix for Adjusted EBITDA reconciliation
FINANCIAL OVERVIEW ($MM)
$827
$833
$(26)
2018A1
2019A
Revenue
Adj. EBITDA
2020A
4
EXECUTION OF STRATEGY
• Grew top-line contribution of completion tools from ~3% in 2017 to ~26% in 2020
• Reduced capex requirements (2018: ~$53mm; 2019: ~$62mm; 2020: ~$10mm)
• Became 100% completions focused
• Lowered headcount by ~68% from YE 2018 to YE2020
• Added 100+ patents to portfolio and added robust R&D team
Nine/Beckman
Magnum & Frac Tech
Merger
AcquisitionsCommercialization of Dissolvable Stinger
Divested Well Services & Shut down Canadian Wireline
Nine IPO
6
1Includes $5.6mm of carryover from 2019 capex
7
NINE IS CAPABLE OF ADDRESSING 100% OF THE ONSHORE WELLS DRILLED IN NORTH AMERICA, REGARDLESS OF COMPLETION TYPE
Long-stringCementing
Large Diameter Coil + Memory Tools
PRE & POST STIMULATION
2021E New NA HZ
Wells Drilled: 8,9421
HORIZONTAL LATERAL
2021E NA Stage Count: 311,4151
Offering includes tools & equipment capable of completing super laterals (10,000 ft.+)
TOE OF THE WELL
2020E New NA HZ Wells Drilled: 8,9421
Extremely reliable in super laterals (10,000 ft.+)
MagnumDiskTM- Owned IPProprietary Liner Hanger ToolsBreakthruTM Casing Flotation Device - Owned IP
1 Spears & associates, Q4 2020.
ScorpionTM Composite Plug- Owned IPStingerTM Dissolvable Plug - Owned IP
MVPTM Dissolvable Plug - Owned IPScorpionTM Extended Range Plugs - Owned IP
SmartStart PLUS® - Strategic alliance
FlowGunTM - Owned IP
8
BARRIERS TO ENTRY AND OPERATIONAL EFFICIENCIES CONTINUE TO INCREASE
SINGLE-WELL PAD COMPLETIONS
6 wireline units required for 6 single wells
5.5 2014: Stages/Employee
Source: Company Estimates.
1 Assumes IP rates of 1,000 boe/d at $50 WTI and $300,000 per day/6-well pad
MULTI-WELL PAD COMPLETIONS
LONGER LATERALS | TIGHTER SPACING | PAD DRILLING
1 wireline unit on a pad of 6 wells
13 FY 2020: Stages/Employee
Increased capital efficiency →↑ROIC
• Dissolvable plugs can save operators up to ~24 days per 6-well pad in reduced drill-out time & up to ~12
days saved with clean-out run
• Increases IRR for operators by significantly reducing cycle times and bringing product to market faster
• Eliminates time and risk of drilling out plugs, as well as associated service costs
• Significant reduces carbon footprint compared to composite plugs
9
FOOTPRINT IN EVERY MAJOR NAM BASIN
EXCELLENT NAM REACH CAPABILITYLOCALIZED TEAMS WITH REGIONAL KNOWLEDGE
~4% of overall revenue comes from outside NAM
Service Coverage Area and Revenue by Region1
Major Unconventional Basins
1 YTD as of 12/31/2020
Canada 1%
Bakken 3%
Rockies 2%
Permian 49%
MidCon 2%
Barnett 2%
Eagle Ford 5%
Marcellus / Utica 20%
Haynesville 12%
PRESSURE PUMPING
E-LINE
HOW DOES NINE BUILD MOATS AROUND THE BUSINESS?
Service + technology / equipment + people to service the longest laterals today and tomorrow
COMPLETION SOLUTIONS
Cementing ServicesCompletion ToolsWireline ServicesCoiled Tubing Services
PERFORMANCE BARRIERS
• ~22,000 cementing jobs with on-time rate of ~91%1
• ~241,200 isolation, stage 1 and casing flotation tools2
• ~171,000 stages with a success rate of ~99%1
• ~9,800 jobs and ~218 million running feet of coiled tubing with a success rate greater than 99%3 (Average lateral length/job ~22,200 feet)
EQUIPMENT BARRIERS → FIT FOR "DEEP REACH"
• High-quality dedicated Midland, Delaware, Haynesville and Eagle Ford labs (to API specs) with testing capabilities to cement laterals over 10,000' long → Redundant pumps with 1,000 HP and dual-sided bulk plants
• Owned IP of one of the most critical and prolific composite and dissolvable isolation tools for laterals reaching beyond 10,000' → Highly dependable "toe" and casing flotation solutions
• Superior wellsite execution enabling company to have the NPT and efficient operations
• Longest wireline completion of 19,000+ feet in lateral
• ~ 86% of coil fleet is "Big Pipe" deep reach (≥2.375" diameter) → coupled with high HP frac pumps to push coil further downhole
• Downhole memory tool tracking real-time data
1 Management estimates for time period from January 2014 to December 31, 2020. 2 Management estimates for time period from March 2011 to December 31, 2020. 3Management estimates for time period from April 2014 to December 31, 2020.
SLURRY | HIGHLIGHTS |
Blend 27 | Light-density slurry engineered to build strength 60% faster and deliver 40% higher compressive strength than similar density slurries Provides the lightness needed for depleted formations along with the strength of heavier density slurries at a fraction of the materials costs |
CPT Trident | Low density slurry that eliminates costly beads while maintaining compressive strength and lighter density significantly lowering cost for operators. Allows for reduction in mileage and equipment and overall reducing the footprint on site as bead slurries require blenders to batch mix on site. |
Nine Lite | Advanced formulation that delivers the lightness needed to cement mature geologies, along with the density required to hold form in the formation Can be mixed down to 10 pounds per gallon, speeding pump times and reducing NPT by as much as 48 hours per well |
DEMONSTRATED MARKET SHARE GAINS THROUGHOUT CYCLES
2014
2015
2016
2017
2018
NINE HOLDS A COMPETITIVE ADVANTAGE IN US CEMENTING
2019
2020
Nine % rigs followed - South Texas 2
Nine % rigs followed - West Texas 2
YE 2014
35%
16%
23%
YE 2020
YE 2014
YE 2020
Source: 1 Management estimates of Nine frac stages relative to industry frac stages based on Spears & Associates, Q4 2020. Includes Magnum starting October 25, 2018.
2 Management estimates.
60%
Diverse, blue-chip customer base with minimal concentration
LOWEST TRIR IN COMPANY HISORY
2.47
1.5
0.77
0.30
2014
2015
2016
2017
2018
2019
2020
Balance of Organic Growth and Strategic M&A:
Augment technology portfolio + Enhance NAM footprint
ORGANIC GROWTH
• Market penetration of technology portfolio, including new dissolvable and composite plug technology
• Selective and deliberate deployment of capex for high- quality and differentiated equipment and facilities within the most active basins
• Market share gains through service and technology
• Securing and maintaining best talent in the industry
NINE PRESENCE
DISCIPLINED M&A
• Target only best-in-class technology, companies and management teams
• Competitive advantage securing and sourcing non- marketed deals
• Entrepreneurs want to partner and stay with "like- minded" and nimble management team
PermianMidconNortheastBakkenRockiesCanadaEagle FordHaynesville International | ||
Wireline | ||
Cementing | ||
Completion Tools | ||
Coiled Tubing |
DISSOLVABLE PLUG THESIS & OVERVIEW
NEUTRAL OR REDUCE
AFE
INCREASED
IRR
REDUCED
EMISSIONS
INCREASED
SAFETYWITH FEWER HUMANS AT SURFACE
TRADITIONAL COMPOSITE PLUG COMPLETION CAN BE ~18-38 DAYS PER WELLBORE
DRILLING & CEMENTING | WIRELINE & FRAC COMPLETE | COILED TUBING |
OF WELLBORE | MULTISTAGE STIMULATION | OR STICK PIPE DRILLOUT |
SCORPION | ||
7-14 DAYS | 7-14 DAYS |
4-10 DAYS
START PRODUCTION
DISSOLVABLE PLUG COMPLETION CAN BE ~14-31 DAYS PER WELLBORE: A REDUCTION OF ~20%
Source: Management Estimates. Estimated days including rig-up and rig-down time when applicable. 1Assumes 1-3 days for potential clean-out
NINE STINGER™ DISSOLVABLE PLUG
PLUG OVERVIEW
• Shorter design, decreasing plug size by over 70%
• Predictable and reliable dissolution for entire addressable isolation tool market
• Completely dissolvable, eliminating plug drill-out
MARKET & FINANCIAL OVERVIEW
• High-volume product with the ability to address entire addressable plug market in both NAM land and abroad (1 stage = 1 plug)
• Almost 100% free cash flow conversion ($1 of EBITDA = $1 Cash) and requires minimal capex to generate significant growth
• Margin accretive to Nine
• Strong patents and exclusive arrangements in place to protect IP design and material science
Mixed Area (High-temp/low-temp)
High-temp Coverage Area > 150ºF
Low-temp Coverage Area ≤ 150ºF
High-temp Coverage Area > 150ºF
CASE STUDY: FULL WELLBORE DEPLOYMENT IN PERMIAN
In efforts to reduce significant costs and risks associated with using composite plugs, a large diversified in the Permian Basin deployed Nine's Stinger Dissolvable plugs in 3, full wellbores averaging ~20,000 ft. MD.
All 123 Stinger plugs deployed achieved zonal isolation and degradation, with no downhole tags during the cleanout run.
The cleanout representative concluded that it was the best results they've experienced with dissolvable plugs.
Temperatures ranged from 100° to 150° F, with chlorides of approximately 20,000 ppm.
PROVEN DISSOLUTION AT ROOM TEMPERATURE
In the Marcellus Shale, a large independent deployed 10 Stinger Dissolvable plugs in a challenging, low-temperature (75° F) environment with chlorides ranging from 22,000 ppm - 58,000 ppm.
With maximum treating pressures reaching 8,200 psi and estimated differential pressures of 5,600 psi, all 10 plugs achieved zonal isolation.
No plugs were tagged during cleanout
and the combined return of all 10 Stingers was about the size of a dime.
Combined return of all 10 Stingers was about the size of a dime
SIGNIFICANT AND SCALABLE EMISSION REDUCTIONS
STINGER™ Dissolvable Frac Plug
DISSOLVABLE FRAC PLUGS ON A 6-WELL PAD TAKE 84 CARS OFF THE ROAD:
~404 METRIC TONS OF CO2E
source: ERM
DISSOLVABLE WITH NO CLEAN-OUT VS. CONVENTIONAL DRILL-OUT PER WELLBORE
Conventional
Dissolvable
CARBON FOOTPRINT OF 70-PLUG DEPLOYMENT IN METRIC TON CO2 EQUIVALENTS
The life-cycle carbon footprint of the dissolvable plug would be 91% smaller per wellbore than the conventional composite plug.
ENVIRONMENTAL RESULTS (ELIMINATION OF COILED TUBING)
DISSOLVABLE CLEAN-OUT VS. CONVENTIONAL DRILL-OUT PER WELLBORE
Conventional
Dissolvable
CARBON FOOTPRINT OF 70-PLUG DEPLOYMENT IN METRIC TON CO2 EQUIVALENTS
The life-cycle carbon footprint of the dissolvable plug is 18% smaller per wellbore than the conventional composite plug.
ENVIRONMENTAL RESULTS (DISSOLVABLE WITH CLEAN-OUT)
FINANCIAL OVERVIEW
REVENUE ($MM)ADJUSTED EBITDA ($MM)ADJ. EBITDA MARGIN
See appendix for Adjusted EBITDA and ROIC reconciliation.
2020 FINANCIAL AND OPERATIONAL HIGHLIGHTS
• Year-end cash balance of $68.9mm and undrawn ABL
• Grew percentage of US stages completed from ~17% in 2019 to ~23% in 2020
• Organically expanded cementing service line into the Haynesville
• From 2019 to 2020, Company's percentage of dissolvable plugs sold compared to composite plugs increased by 7% from Q1 to Q4 2020
• Lowest TRIR in company history of 0.30
• Repurchased $53.3mm par value of bonds for $14.6mm of cash, on average, representing 27% of par value
• Reduced capex by ~84% year over year to $10.2mm
• Successful in largely offsetting our capex with equipment sales. For the FY 2020, spent $9.4mm in cash capex compared to $7.6mm in proceeds from sales of PP&E and PP&E insurance proceeds
• Generated ~$66.5mm in cash from the monetization of accounts receivable and inventory
31
12/31/20 CAPITALIZATION
PRO FORMA CAPITALIZATION | |
As of December 31, 2020 ($MM) | |
Cash | $68.9 |
Debt | |
ABL Credit Facility | 0.0 |
Senior Unsecured Notes | 346.7 |
Other Debt | 1.9 |
Total debt | $348.6 |
Net Debt | $279.7 |
Total cash | $68.9 |
ABL availability | $37.9 |
Total liquidity | $106.8 |
COMMENTARY
• During 2020, Company repurchased $53.3mm par value of bonds for $14.6mm of cash, on average, representing 27% of par value and leaving $346.7mm par value of bonds outstanding
• As of December 31, 2020, Nine had $41.2mm in Accounts Receivable and $38.4mm in inventory
• In 2020, Company successful in largely offsetting capital expenditures with equipment sales. For the full year 2020, Company spent $9.4 million in cash capex compared to $7.6 million in proceeds from sales of PP&E and PP&E insurance proceeds.
• ABL remains undrawn
• Nine is focused on balancing near-term liquidity with long-term refinancing, but priority remains to be the preservation of cash
Asset-light business model
Completions focused
Technology and service differentiation
Ability to service the most technically demanding wells
Returns-focused business philosophy
Access to entire addressable market
Leading market position across broad geographic footprint
Entrepreneurial, highly incentivized and aligned management team
Strategy works in every basin for every well
UNIQUE VALUE PROPOSITION
CLOSE TO PERFECTION. FAR FROM ORDINARY. DRIVEN TO SUCCEED.
APPENDIX
Year ended December 31 | |||||||
($ mm unless otherwise noted) | 31-Dec-20 | 30-Sep-20 | 30-Jun-20 | 31-Mar-20 | 2020 | 2019 | 2018 |
EBITDA Reconciliation | |||||||
Net income (loss) | ($35.4) | ($18.5) | ($24.2) | ($300.9) | ($378.9) | ($217.8) | ($53.0) |
Interest expense | 8.6 | 9.1 | 9.2 | 9.8 | 36.8 | 39.8 | 22.3 |
Interest Income | (.02) | (.04) | (.2) | (.4) | (.6) | (.9) | |
Depreciation | 7.7 | 7.8 | 8.4 | 8.5 | 32.4 | 50.5 | 54.3 |
Amortization | 4.1 | 4.1 | 4.1 | 4.2 | 16.5 | 18.4 | 9.6 |
Provision (benefit) from income taxes | (.1) | (.04) | (.2) | (2.1) | (2.5) | (3.9) | 2.4 |
EBITDA | ($15.1) | $2.4 | ($2.8) | ($280.9) | ($296.4) | ($113.8) | $35.5 |
Adjusted EBITDA Reconciliation | |||||||
EBITDA | ($15.1) | $2.4 | ($2.8) | ($280.9) | ($296.4) | ($113.8) | $35.5 |
Impairment of property and equipment | - | - | - | - | - | 66.2 | 45.7 |
Impairment of goodwill and other intangible assets | - | - | - | 296.2 | 296.2 | 135.7 | 32.1 |
Transaction and integration costs | - | - | - | .1 | 0.1 | 13.0 | 10.3 |
Loss on sale of subsidiary | - | - | - | - | - | 15.9 | - |
Loss or gains from the revaluation of contingent liabilities | (.5) | 0.3 | .9 | (.4) | 0.3 | (21.2) | 3.3 |
Gain on extinguishment of debt | (.3) | (15.8) | (11.6) | (10.1) | (37.8) | - | - |
Loss on equity investment | - | - | - | - | - | - | 0.3 |
Non-cash stock-based compensation expense | 2.0 | 2.0 | 2.1 | 3.6 | 9.7 | 14.1 | 13.2 |
Gain (loss) on sale of property and equipment | .04 | (0.5) | (1.8) | (.6) | (2.9) | (.5) | (1.7) |
Legal fees and settlements | - | .02 | .02 | .04 | .03 | .3 | 2.4 |
Restructuring charges | .03 | 0.5 | 2.1 | 2.3 | 4.9 | 4.0 | - |
Adjusted EBITDA | ($13.9) | ($11.1) | ($11.0) | $10.3 | ($25.8) | $113.0 | $141.1 |
Revenue | 62.0 | 49.5 | 52.7 | 146.6 | 310.9 | 832.9 | 827.2 |
% Adj. EBITDA margin | -22% | -22% | -21% | 7% | -8% | 14% | 17% |
($ MM UNLESS OTHERWISE NOTED) | Year ended December 31 | |||||
31-Dec-20 | 30-Sep-20 | 30-Jun-20 | 31-Mar-20 | 2020 | 2019 | |
After-tax net operating profit reconciliation: | ||||||
Net Income (loss) | ($35.4) | ($18.5) | ($24.2) | ($300.9) | (378.9) | ($217.8) |
Add back: | ||||||
Impairment of property and equipment | - | - | - | - | - | 66.2 |
Impairment of goodwill | - | - | - | 296.2 | 296.2 | 20.3 |
Impairment of intangibles | - | - | - | - | - | 114.8 |
Interest expense | 8.6 | 9.1 | 9.2 | 9.8 | 36.8 | 39.8 |
Interest Income | (0.2) | (.04) | (.2) | (.4) | (.6) | (.9) |
Transaction and integration costs | - | - | - | .1 | .1 | 13.0 |
Restructuring charges | 0.03 | 0.5 | 2.1 | 2.3 | 4.9 | 4.0 |
Gain on extinguishment of debt | (0.3) | (15.8) | (11.6) | (10.1) | (37.8) | |
Loss on sale of subsidiaries | - | - | - | - | - | 15.9 |
Benefit of deferred income taxes | - | - | - | (1.6) | (1.6) | (4.3) |
After-tax net operating profit | ($27.1) | ($24.8) | ($24.7) | ($4.5) | ($81.0) | $51.0 |
Total capital as of prior year-end / period-end: | ||||||
Total stockholders' equity | 53.6 | 70.0 | 91.9 | 389.9 | 389.9 | 594.8 |
Total debt | 349.4 | 372.6 | 386.2 | 400.0 | 400.0 | 435.0 |
Less: Cash and cash equivalents | (80.3) | (88.7) | (90.1) | (93.0) | (93.0) | (63.6) |
Total capital as of prior period-end | 322.7 | $353.9 | $387.9 | $696.9 | 696.9 | $966.2 |
Total capital as of period-end / year-end: | ||||||
Total stockholders' equity | 20.4 | 53.6 | 70.0 | 91.9 | 20.4 | 389.9 |
Total debt | 348.6 | 349.4 | 372.6 | 386.2 | 348.6 | 400.0 |
Less: Cash and cash equivalents | (68.9) | (80.3) | (88.7) | (90.1) | (68.9) | (93.0) |
Total capital as of period-end | 300.2 | $322.7 | $353.9 | $387.9 | $300.2 | $696.9 |
Average total capital | 311.4 | $338.3 | $370.9 | $542.4 | $498.5 | $831.5 |
ROIC | -35% | -29% | -27% | -3% | -16% | 6% |
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Nine Energy Service Inc. published this content on 08 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 March 2021 16:22:08 UTC.