NINE ENERGY SERVICE INVESTOR PRESENTATION Q3 2019/media/Files/N/... · 2019. 11. 11. · INVESTOR...
Transcript of NINE ENERGY SERVICE INVESTOR PRESENTATION Q3 2019/media/Files/N/... · 2019. 11. 11. · INVESTOR...
1
NINE ENERGY SERVICE
INVESTOR PRESENTATION
Q3 2019
Forward-Looking Statements & Non-GAAP Financial MeasuresCertain 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 September 30, 2019 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 presentationprovides 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 DataThis 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
DISCLAIMER
COMPANY OVERVIEW
4
NINE COMPANY OVERVIEW
PRO FORMA REVENUE BY SERVICE LINE3
• Focused on ROIC – 2019 projection of 5-6%
• Leveraged to increasing completion intensity including mega-well pads, lateral lengths and stage count
• 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
OUR COMPANY
FINANCIAL OVERVIEW ($MM)
1Revenue and Adjusted EBITDA include Magnum contribution as of 10/25/18 closing date. 2Financials based on actuals YTD through 9/30/19 and midpoint of Management’s Q4 2019 guidance; 3Financials
based on YTD through 9/30/19 Actuals and pro forma for Production Solutions divestiture. See appendix for Adjusted EBITDA reconciliation
$827 $825
$141 $114
2018A 2019P
Revenue Adj. EBITDA
Adj. EBITDA Margin17%
Adj. EBITDA Margin14%
1
Cementing27%
Coiled Tubing18% Wireline
31%
Completion Tools24%
2
NINE’S UNIQUE STRATEGY
5
Sustainability
Mitigation of financial risk
Capital Intensity
Wellsite Execution
Real-time information
Returns (ROIC)
Cash flow generative
Capital Light
Customer Legitimacy
R&D
DRIVING VALUE FOR CONSTITUENTS
6
INVESTORSFinancial
Sustainability & Returns
EMPLOYEESSocioeconomic
movement & career progression
CUSTOMERSAbility to decreasecost to complete
and increase EUR
VALUE
TECHNOLOGY-DRIVEN COMPLETIONS OFFERING
SmartStart – Strategic alliance
FlowGun – Owned IP
TOE OF THE WELLHORIZONTAL LATERAL
ProprietaryLiner
Hanger Tools
Offering includes tools & equipment capable of completing super laterals (10,000 ft.+)
Scorpion Extended Range Plugs – Owned IP
PRE & POST STIMULATION
Long-stringCementing
Scorpion Composite Plug–Owned IP
MorphPackers StormTM Re-frac Packer – Strategic Alliance
2019E New NA HZ Wells Drilled: 20,1351 2019E NA Stage Count: 742,5821
7
Extremely reliable in super laterals (10,000 ft.+)
2019E New NA HZ Wells Drilled: 20,1351
Large Diameter Coil + Memory Tools
BreakthruTM Casing Flotation Device- Owned IP
Nine is capable of addressing 100% of the onshore wells drilled in North America, regardless of completion type
1 Spears & Associates, Q3 2019.
MagnumDiskTM
- Owned IP
MVPTM Polymer Dissolvable Plug –Owned IP
Hollow PointTM Magnesium Plug –Owned IP
DISSOLVABLE PLUG THESIS INTACT
8
Can save operators ~24 days per 6-well pad in reduced drill-out time & ~12-18 days saved with clean-out run
10-15% OFSTAGES COMPLETED
35-50%+OF STAGES COMPLETED
Today 3-5 Years
Time Savings Risk Mitigation Reduced Footprint
Eliminates time and risk of drilling out plugs, as well as associated service costs and HSE risks associated with human footprint
Reduces carbon emissions and employee count at wellsite
MARKET OUTLOOK
DISSOLVABLE THESIS
NAM DISSOLVABLE PLUG MARKET
9
Mixed Area (High-temp/low-temp)
High-temp Coverage Area > 150ºF
Low-temp Coverage Area ≤ 150ºF
INTERNATIONAL MARKET
10
High-temp Coverage Area > 150ºF
ARGENTINA SAUDI ARABIA
LONGER LATERALS l TIGHTER SPACING l PAD DRILLING
Concentration of dollars / pad + exponential impact of Non-Productive Time = highly selective customers
SINGLE-WELL PAD COMPLETIONS MULTI-WELL PAD COMPLETIONS
Source: Company Estimates. 1Assumes IP rates of 1,000 boe/d at $50 WTI and $300,000 per day/6-well pad
• Total well cost: $5-$7mm
• ~8,000 feet of lateral length completed
• 40 stages
• 12mm pounds of sand
• 1,000 boe/d oil produced
• Total pad cost: $30-$42mm
• ~48,000 feet of lateral length completed
• 240 stages
• 72mm pounds of sand
• 6,000 boe/d oil produced
E&P Revenue/Day = ~$50,0001
BARRIERS TO ENTRY AND OPERATIONAL EFFICIENCIES CONTINUE TO INCREASE
Increased capital efficiency →↑ROIC
6 wells on a pad requires 1 wireline unit
• Dissolvable plugs can save operators
~24 days per 6-well pad in reduced
drill-out time & ~12 days saved with
clean-out run
• Generating between $7.2 - $3.6mm of
incremental revenue in this featured
well pad
• Eliminates time and risk of drilling out
plugs, as well as associated service
costs E&P Revenue/Day = ~$300,0001
11
MULTI-WELL PADS CONCENTRATE RISK
6 single wells required 6 wireline units
2014: Stages/Employee = 5.5 Q3 2019: Stages/Employee = 13
BROAD FOOTPRINT ENABLES TECHNOLOGY LEADERSHIP
Service Coverage Area and Revenue by Region1
Major Unconventional Basins
1 YTD as of 12/31/2018 and pro forma for Magnum acquisition and Production Solutions divestiture.
Permian 40%
Rockies 1%
MidCon 10%
Marcellus / Utica 19%
Haynesville 10%
Bakken 4%
Canada 4%
Barnett 1%
Eagle Ford 8%
FOOTPRINT IN EVERY MAJOR NAM BASIN
EXCELLENT NAM REACH CAPABILITY
LOCALIZED TEAMS WITH REGIONAL KNOWLEDGE
~3% of overall revenue comes from outside NAM
12
BARRIERS TO ENTRY THROUGH TECHNOLOGY AND SERVICE
COMPLETION SOLUTIONS PERFORMANCE BARRIERS EQUIPMENT BARRIERS → FIT FOR “DEEP REACH”
Cementing Services • ~18,600 cementing jobs with on-time rate of ~90%1
• High-quality dedicated Midland, Delaware, Midcon 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
Completion Tools • ~174,700 isolation and stage 1 tools and ~22,500 frac sleeves deployed2
• Owned IP of one of the most critical and prolific isolation tools for laterals reaching beyond 10,000’ →Highly dependable “toe” and casing flotation solutions
Wireline Services • ~143,600 stages with a success rate of ~99%1
• Superior wellsite execution enabling company to have the NPT and efficient operations
• Longest wireline completion of 19,000+ feet in lateral
Coiled Tubing Services • ~8,800 jobs and ~189 million running feet of coiled tubing with a success rate greater than 99%3
(Average lateral length/job +21,000 feet)
• ~ 75% of coil fleet is “Big Pipe” deep reach (≥2.375” diameter) → coupled with high HP fracpumps to push coil further downhole
• Downhole memory tool tracking real-time data
13
HOW DOES NINE BUILD MOATS AROUND THE BUSINESS?
Service + technology / equipment + people to service the longest laterals today and tomorrow
1 Management estimates for time period from January 2014 to September 30, 2019. 2 Management estimates for time period from March 2011 to September 30, 2019. 3Management
estimates for time period from April 2014 to September 30, 2019.
ADVANCEMENTS IN CEMENTING SOLUTIONS
14
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
6% 6%8%
11%
16% 17%
2014 2015 2016 2017 2018 2019 YTD
Nine Holds a Competitive Advantage in US Cementing Leading to Significant Market Share Gains
15
CONSISTENT PROFITABLE MARKET SHARE GAINS
Nine US Wireline & Completion Tools % of stages completed1
17%
21%
YE 2014 9/30/2019
Nine % rigs followed – South Texas2
10%
18%
YE 2014 9/30/2019
Nine % rigs followed – West Texas2
Source: 1Management estimates of Nine frac stages relative to industry frac stages based on Spears & Associates, Q3 2019. Includes Magnum starting October 25, 2018. 2Management estimates and includes legacy Nine business only.
24%
80%
Demonstrated Market Share Gains Throughout Cycles
+183%
ASSET LIGHT BUSINESS MODEL
E-line
Pressure
pumping
16
PRESSURE PUMPING
E-LINE
CUSTOMERS WHO TRUST US
17
Diverse, blue-chip customer base with minimal concentration
SAFETY IMPROVEMENT THROUGHOUT NINE
2.47
1.50
1.261.44
0.88
2014 2015 2016 2017 2018
NINE TRIR
64%REDUCTION
18
19
RETURNS-FOCUSED GROWTH PHILOSOPHY
Permian Midcon Northeast Bakken Rockies Canada Eagle Ford Haynesville International
Wireline
Cementing
Completion Tools
Coiled Tubing
NINE PRESENCE
Balance of Organic Growth and Strategic M&A:Augment technology portfolio + Enhance NAM footprint
ORGANIC GROWTH
• Strategic expansion of existing service lines within NAM basins
• 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
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
PRODUCTION SOLUTIONS DIVESTITURE & CANADIAN WIRELINE CLOSURE
20
• During Q3, the Company began the process of shutting down wireline operations in Canada, but will maintain a completion tool footprint
• Despite having a great team in place, this geography was not contributing to overall earnings and returns of the business and would require a significant infusion of capital to maintain current operations
• Reduced Canadian headcount from ~90 to ~10 people, with ~$1.4mm of severance costs
• None of the 14 wireline units from Canada will be generating revenue moving forward− Canada has generated ~$18mm in revenue for 2019 YTD, the majority of which has
been derived from the wireline business− Total net PP&E for Canada as of September 30, 2019 was ~$3.8mm with ~$1.7mm of
inventory the Company is in the process of selling or sending to the U.S.
• By restructuring the Canadian operations to be solely focused on completion tools, Nine has lowed fixed costs, eliminated future capital expenditures and will be more resilient in the face of continued market conditions− Company is confident new dissolvable and composite plugs will be marketable in
Canada and can take market share
21
SHUT DOWN OF CANADIAN WIRELINE OPERATIONS
• On August 30, 2019 Nine sold its Production Solutions segment, which includes only well services, to Brigade Energy Services
− Includes Nine’s 107 workover rigs, ancillary equipment and real estate associated with 13 operating facilities throughout the U.S.
− Approximately 534, or ~24% of employees will move over to the Brigade team
• Total consideration of approximately $17.4mm in cash, subject to working capital and other post-closing adjustments
− Nine will retain the legacy Beckman net operating losses totaling ~$100mm that were generated prior to the 2017 merger
• Execution of Nine’s 2019 plan to eliminate service lines and geographies that are not accretive to margins, cash flow and ROIC
− Expect this transaction to be accretive to net income, ROIC and adjusted EBITDA going forward
− Significantly reduces headcount and capex requirements going forward
• Solidifies Nine’s strategy as being a completions-focused company with an asset-light model and technology-levered business portfolio
WELL SERVICE DIVESTITURE OVERVIEW
23
PRO FORMA NINE OVERVIEW
NINE REVENUE MIX – IH’19NINE REVENUE MIX – 1H’19
PRO FORMA FOR PRODUCTION DIVESTITURE
+5%
-6%
-9%
Cementing
26%
Coiled Tubing
18% Wireline
30%
Completion Tools
26% Cementing
24%
Coiled Tubing
17%
Wireline
27%
Completion Tools
24%
Well Service
9%
$467.2mm
$104.1mm
22%
2,181
~$214,200
$37.3mm
H1 19 Revenue:
H1 Adj. Gross Profit:
H1 Adj. Gross Profit Margin:
Total Employees:
Revenue per Employee:
H1 19 Capex:
$425.0mm
$97.5mm
23%
1,647
~$258,000
$35.3mm-5%
+20%
-24%
FINANCIAL OVERVIEW
24
4%
Q3 2019
$24
Q3 2019
25
Q3 2019 FINANCIAL SNAPSHOT
Q3 2019 FINANCIAL & OPERATIONAL PERFORMANCE
REVE
NUE
ADJ.
EBI
TDA
ROIC
• Q3 2019 Adjusted EBITDA results in-line with Management’s original guidance
• Q3 results do not include any contribution in September from Production Solutions and minimal contribution from Canadian wireline
• Increased cash flow from operations by over 6x with FCF1 of ~$58.0mm
• Service lines outperformed market trends
− Cementing relatively flat q/q despite rig count declining ~11% over that same time period
− Wireline stages completed up 2% q/q despite completion activity declining
• 2019 annual CFFO/Share target of $3.25 - $3.75
• Integration of both Magnum Oil Tools and Frac Technology continues to go very well with Q1 2020 commercialization of Low-Temp Dissolvable Stinger product on-track
12%
$202
Q3 2019
Adj. EBITDA margin
1FCF defined as (CFFO – Capex). See appendix for adjusted EBITDA and ROIC reconciliation.
26
9/30/19 CAPITALIZATION
• ABL credit facility undrawn
• Total liquidity of $211.3 million as of September 30, 2019
• Company continues to be focused on generating through-cycle returns and generating free cash flow
• Remain on target to meet capex guidance of $60 - $70mm
• During Q4, Company has scheduled cash payments of ~$39mm, which includes interest payment (~$17mm), capex ($16-$17mm) and payout of Magnum’s retention bonus (~$5mm)
PRO FORMA CAPITALIZATION
As of September 30, 2019
($MM)
Cash $93.3
Debt
New ABL Credit Facility 0.0
New Senior Unsecured Notes 400.0
Total debt $400.0
Net Debt $306.7
Total cash $93.3
ABL availability $118.0
Total liquidity $211.3
COMMENTARY
UNIQUE VALUE PROPOSITION
Completions focused
Technology and service differentiation
Ability to service the most technically demanding wells
Returns-focused business philosophy
Access to entire addressable market
Leading market position across broad geographic footprint
Entrepreneurial, highly incentivized and aligned management team
Strategy works in every basin for every well
27
CLOSE TO PERFECTION.
FAR FROM ORDINARY.
DRIVEN TO SUCCEED.
28
APPENDIX
OUR LEGACY
30
NINE ADJ. EBITDA RECONCILIATION
Three Months Ended Year ended December 31
($ mm unless otherwise noted) 30-Sep-19 30-Jun-19 31-Mar-19 2018 2017
EBITDA Reconciliation
Net income (loss) ($20.6) $6.1 $17.3 ($53.0) ($67.7)
Interest expense 9.8 10.6 9.2 22.3 15.7
Interest Income (.1)
Depreciation 12.2 13.8 13.5 54.3 53.4
Amortization 4.6 4.6 4.7 9.6 8.8
Provision (benefit) from income taxes .7 (2.7) .5 2.4 -5.0
EBITDA 6.6 32.4 45.2 $35.5 $5.3
Adjusted EBITDA Reconciliation
EBITDA 6.6 $32.4 $45.2 $35.5 $5.3
Impairment of property and equipment - - - 45.7 -
Impairment of goodwill and other intangible assets - - - 32.1 35.3
Transaction and integration costs 1.4 2.7 4.8 10.3 3.6
Loss on sale of subsidiary 15.8 - - - -
Loss or gains from the revaluation of contingent liabilities (5.8) (1.0) (14.0) 3.3 0.4
Loss on equity investment - - - 0.3 0.4
Non-cash stock-based compensation expense 3.3 4.1 3.2 13.2 7.6
Loss or gains on sale of assets (.5) (.3) (.02) (1.7) 4.7
Legal fees and settlements .02 .08 .07 2.4 1.0
Inventory writedown - - - - -
Restructuring costs 3.3 - - - -
Adjusted EBITDA 24.2 38.0 39.2 $141.1 $58.2
Revenue 202.3 237.5 229.7 827.2 543.7
% Adj. EBITDA margin 12% 16% 17% 17% 11%
31
ROIC RECONCILIATION
($ MM UNLESS OTHERWISE NOTED)
Three Months Ended
30-Sep-19
Three Months Ended
30-Jun-19
Three Months Ended
31-Mar-19
After-tax net operating profit reconciliation:
Net Income (loss) (20.6) $6.1 $17.3
Add back:
Impairment of property and equipment - - -
Impairment of goodwill - - -
Impairment of intangibles - - -
Interest expense 9.8 10.6 9.2
Interest Income (.1)
Transaction and integration costs 1.4 2.7 4.8
Restructuring charges 3.3 - -
Loss on sale of subsidiaries 15.8 - -
Benefit of deferred income taxes .1 (2.5) (0.5)
After-tax net operating profit $9.8 $16.8 $30.8
Total capital as of prior year-end / period-end:
Total stockholders' equity 624.3 615.5 $594.8
Total debt 400.0 415.0 435.0
Less: Cash and cash equivalents (16.9) (31.2) (63.6)
Total capital as of prior period-end $1,007.4 $999.3 $966.2
Total capital as of period-end / year-end:
Total stockholders' equity 606.8 624.3 $615.5
Total debt 400.0 400.0 415.0
Less: Cash and cash equivalents (93.3) (16.9) (31.2)
Total capital as of period-end $913.5 $1,007.4 $999.3
Average total capital $960.4 $1,003.4 $982.8
ROIC 4% 7% 13%
32