NINE ENERGY SERVICE INVESTOR PRESENTATION Q1 2020
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 March 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.
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COMPANY OVERVIEW
NINE COMPANY OVERVIEW
OUR COMPANY
- Focused on building afull-cycle ROIC business
- Asset-lightbusiness model with strong barriers to entry and 100% completions focused
- Leveraged to increasing completion intensity includingmega-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 withforward-leaning technology
- Diversified completion portfolio and geography
FINANCIAL OVERVIEW ($MM) | PRO FORMA REVENUE BY SERVICE LINE3 | ||||||||
$827 | $833 | Completion Tools | |||||||
22% | |||||||||
Cementing | |||||||||
Adj. | Adj. | 33% | |||||||
EBITDA | EBITDA | ||||||||
Margin | Margin | ||||||||
17% | 14% | ||||||||
$141 | $113 | ||||||||
Wireline | Coiled Tubing | ||||||||
31% | |||||||||
2018A1 | 2019A2 | ||||||||
14% | |||||||||
Revenue | Adj. EBITDA | ||||||||
1Revenue and Adjusted EBITDA include Magnum contribution as of 10/25/18 closing date. 2Financials based on actuals YTD through 12/31/19; 3Financials based on YTD through 3/31/20 Actuals | 4 |
See appendix for Adjusted EBITDA reconciliation |
NINE'S STRATEGIC POSITIONING
STRATEGIC POSITIONING
Asset Light | Barriers | Service & |
to Entry | Technology | |
DIFFERENTIATION
Cash Flow Generation | Defensibility | Legitimacy |
Returns (ROIC) | Sustainability | Mitigation of Financial Risk |
Capital Structure Flexibility | Higher Margins | Service/R&D Excellence |
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DRIVING VALUE FOR CONSTITUENTS
CUSTOMERS | |||
Ability to decrease | |||
cost to complete | |||
and increase EUR | |||
VALUE | |||
EMPLOYEES | INVESTORS | ||
Socioeconomic | Financial | ||
movement & career | Sustainability | ||
progression | & Returns |
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TECHNOLOGY-DRIVEN COMPLETIONS OFFERING
Nine is capable of addressing 100% of the onshore wells drilled in North America, regardless of completion type
PRE & POST STIMULATION | HORIZONTAL LATERAL | TOE OF THE WELL | ||
Large Diameter Coil + Memory Tools |
Long-string
Cementing
Offering includes tools & equipment capable of | Extremely reliable in super | ||
Proprietary | completing super laterals (10,000 ft.+) | laterals (10,000 ft.+) | |
Liner | |||
Hanger | |||
Tools | |||
Scorpion Composite Plug- | MVPTMDissolvable Plug - | SmartStart - Strategic alliance | |
Owned IP | Owned IP |
MagnumDiskTM | StingerTMDissolvable Plug - | Scorpion Extended Range Plugs | FlowGun - Owned IP |
- Owned IP | Owned IP | - Owned IP | |
BreakthruTMCasing Flotation Device | MorphPackers StormTMRe-frac Packer | |
- Owned IP | - Strategic Alliance | |
2020E New NA HZ Wells Drilled: 11,8391 | 2020E NA Stage Count: 420,6211 | 2020E New NA HZ Wells Drilled: 11,8391 |
1Spears & Associates, Q1 2020. | 7 |
MULTI-WELL PADS CONCENTRATE RISK
BARRIERS TO ENTRY AND OPERATIONAL EFFICIENCIES CONTINUE TO INCREASE
SINGLE-WELL PAD COMPLETIONS
MULTI-WELL PAD COMPLETIONS
LONGER LATERALS •TIGHTER SPACING •PAD DRILLING
Concentration of dollars / pad + exponential impact of Non-Productive Time = highly selective customers
- Total well cost:$5-$7mm
- ~8,000 feet of lateral length completed
- 40 stages
- 12mm pounds of sand
- 1,000 boe/d oil produced
E&P Revenue/Day = ~$50,0001
- 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 = ~$300,0001
- Dissolvable plugs can save operators ~24 days per6-well pad in reduced drill-out time & ~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
6 single wells required 6 wireline units 2014: Stages/Employee = 5.5
Increased capital efficiency → ↑ROIC
6 wells on a pad requires 1 wireline unit
Q1 2020: Stages/Employee = 14
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Source: Company Estimates. 1Assumes IP rates of 1,000 boe/d at $50 WTI and $300,000 per day/6-well pad
BROAD NAM FOOTPRINT
FOOTPRINT IN EVERY MAJOR NAM BASIN
EXCELLENT NAM REACH CAPABILITY
LOCALIZED TEAMS WITH REGIONAL KNOWLEDGE
Canada 2%
Bakken 4%
Rockies 2%
Marcellus / Utica 17%
MidCon 6%
Permian 49% | Barnett 1% |
Haynesville 9% | |
~3% of overall revenue comes from outside NAM | |
Eagle Ford 7%
Service Coverage Area and Revenue by Region1
Major Unconventional Basins
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1YTD as of 12/31/2019 and pro forma for Production Solutions divestiture.
ASSET LIGHT BUSINESS MODEL
PRESSURE PUMPING |
E-LINE |
BARRIERS TO ENTRY THROUGH TECHNOLOGY AND SERVICE
HOW DOES NINE BUILD MOATS AROUND THE BUSINESS?
Service + technology / equipment + people to service the longest laterals today and tomorrow
COMPLETION SOLUTIONS | PERFORMANCE BARRIERS |
Cementing Services | •~20,700 cementing jobs with on- |
time rate of ~91%1 | |
Completion Tools | • | ~212,300 isolation, stage 1 and |
casing flotation tools and ~22,500 | ||
frac sleeves deployed2 | ||
Wireline Services | • | ~162,200 stages with a success rate |
of ~99%1 | ||
Coiled Tubing Services | •~9,400 jobs and ~206 million |
running feet of coiled tubing with a | |
success rate greater than 99%3 | |
(Average lateral length/job | |
+22,000 feet) |
EQUIPMENT BARRIERS →FIT FOR "DEEP REACH"
- High-qualitydedicated 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
- 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
- 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 trackingreal-time data
1Management estimates for time period from January 2014 to March 31, 2020. 2Management estimates for time period from March 2011 to March 31, 2020. 3Management estimates for
time period from April 2014 to March 31, 2020. | 11 |
ADVANCEMENTS IN CEMENTING SOLUTIONS
SLURRY | HIGHLIGHTS |
Light-density slurry engineered to build strength | |
60% faster and deliver 40% higher compressive | |
Blend 27 | 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 | |
Low density slurry that eliminates costly beads | |
while maintaining compressive strength and | |
lighter density significantly lowering cost for | |
CPT Trident | 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. | |
Advanced formulation that delivers the lightness | |
needed to cement mature geologies, along with | |
the density required to hold form in the | |
Nine Lite | formation |
Can be mixed down to 10 pounds per gallon, | |
speeding pump times and reducing NPT by as | |
much as 48 hours per well | |
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CONSISTENT PROFITABLE MARKET SHARE GAINS
Demonstrated Market Share Gains Throughout Cycles
+200% | 17% | 18% | |
16% | |||
11% |
8%
6%6%
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Q1 2020 |
Nine US Wireline & Completion Tools % of stages completed1
Nine Holds a Competitive Advantage in US Cementing
Nine % rigs followed - South Texas2 | Nine % rigs followed - West Texas2 | ||||||||||
60% | 16% | ||||||||||
10% | |||||||||||
17% | 16% | ||||||||||
YE 2014 | 3/31/2020 | YE 2014 | 3/31/2020 |
Source: 1Management estimates of Nine frac stages relative to industry frac stages based on Spears & Associates, Q1 2020. Includes Magnum starting October 25, 2018. 2Management | 13 |
estimates and includes legacy Nine business only. |
CUSTOMERS WHO TRUST US
Diverse, blue-chip customer base with minimal concentration
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CONTINUED EXCELLENCE IN SAFETY
NINE TRIR
2.47 | |||||
1.5 | 1.26 | 1.44 | |||
0.88 | 0.77 | ||||
2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
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RETURNS-FOCUSED GROWTH PHILOSOPHY
Balance of Organic Growth and Strategic M&A:
Augment technology portfolio + Enhance NAM footprint
ORGANIC GROWTH | DISCIPLINED M&A | |
- 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
- Target onlybest-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
NINE PRESENCE
Permian | Midcon | Northeast | Bakken | Rockies | Canada | Eagle Ford Haynesville International |
Wireline
Cementing
Completion Tools
Coiled Tubing
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DISSOLVABLE PLUG THESIS & OVERVIEW
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DISSOLVABLE PLUG THESIS INTACT
MARKET OUTLOOK
DISSOLVABLE THESIS
Time Savings
Can save operators ~24 days per 6-well pad in reduced drill-out time & ~12-18 days saved with clean-out run
2018
10-15% OF STAGES COMPLETED
Risk Mitigation
Eliminates time and risk of drilling out plugs, as well as associated service costs and HSE risks associated with human footprint
3-5 Years
35-50%+
OF STAGES COMPLETED
Reduced Footprint
Reduces carbon emissions and employee count at wellsite
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NINE DISSOLVABLE PLUG BENEFITS
NEUTRAL OR REDUCE
AFE
INCREASED
IRR
REDUCED
EMISSIONS
INCREASED
SAFETYWITH FEWER HUMANS AT SURFACE
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DISSOLVABLES REDUCE LIFECYCLE OF WELL
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 |
START
PRODUCTION
7-14 DAYS | 7-14 DAYS | 4-10 DAYS |
DISSOLVABLE PLUG COMPLETION CAN BE ~14-31 DAYS PER WELLBORE: A REDUCTION OF ~20%
DRILLING & CEMENTING | WIRELINE & FRAC COMPLETE | ELIMINATIONOF |
OF WELLBORE | MULTISTAGE STIMULATION | DRILL-OUT |
STINGER |
START
PRODUCTION
7-14 DAYS | 7-14 DAYS | 0-3 DAYS1 |
Source: Management Estimates. Estimated days including rig-up and rig-down time when applicable. 1Assumes 1-3 days for potential clean-out | 20 |
NEW GENERATION OF DISSOLVABLE PLUGS
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 plugdrill-out
MARKET & FINANCIAL OVERVIEW
- High-volumeproduct 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 = $1 Cash) and requires minimal capex to generate significant growth
- Margin accretive to Nine
- Strong patents and exclusive arrangements in place to protect IP design and material science
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NAM DISSOLVABLE PLUG MARKET
Mixed Area (High-temp/low-temp)
High-temp Coverage Area > 150ºF
Low-temp Coverage Area ≤ 150ºF
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INTERNATIONAL MARKET
ARGENTINA | SAUDI ARABIA |
High-temp Coverage Area > 150ºF
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SIGNIFICANT AND SCALABLE EMISSION REDUCTIONS
STINGER™Dissolvable Frac Plug
DISSOLVABLE FRAC PLUGS ON A 6-WELL PAD
TAKE 84 CARS OFF THE ROAD:
~404 METRIC TONS OF CO2E
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source: ERM
ENVIRONMENTAL RESULTS(ELIMINATION OF COILED TUBING)
DISSOLVABLE WITH NO CLEAN-OUT VS. CONVENTIONAL DRILL-OUT PER WELLBORE
Conventional | Dissolvable | CARBON FOOTPRINT OF 70-PLUG |
DEPLOYMENT IN METRIC TON CO2EQUIVALENTS |
74,146 | 6,873 kg |
kg CO2eq | CO2eq |
The life-cycle carbon footprint of the dissolvable plug would be 91% smaller per wellborethan the conventional composite plug.
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source: ERM
ENVIRONMENTAL RESULTS(DISSOLVABLE WITH CLEAN-OUT)
DISSOLVABLE CLEAN-OUT VS. CONVENTIONAL DRILL-OUT PER WELLBORE
Conventional | Dissolvable | CARBON FOOTPRINT OF 70-PLUG |
DEPLOYMENT IN METRIC TON CO2EQUIVALENTS |
74,146 kg | 60,843 kg |
CO2eq | CO2eq |
The life-cycle carbon footprint of the dissolvable plug is 18% smaller per wellborethan the conventional composite plug.
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source: ERM
FINANCIAL OVERVIEW
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Q1 2020 FINANCIAL SNAPSHOT
REVENUE
ADJ. EBITDA
CASH BALANCE
Q1 2020 ($MM)
$147
Q1 2020
7%
$10
Q1 2020
Adj. EBITDA margin
$90
Q1 2020
FINANCIAL & OPERATIONAL PERFORMANCE
- Q1 2020 Adjusted EBITDA results within Management's original guidance
- Maintained sizeable cash balance with current cash position as of 3/31/20 of $90.1 million, as well as $92.6 million of accounts receivable
- Significant activity declines across NAM in the last month of the quarter in conjunction with deteriorating oil prices
- Newlow-temp dissolvable plug successfully commercialized during Q1 and timeline for new high-temp and composite plug remain on-track for Q2 and Q3 respectfully
- Service line revenue declines ranging from~7-20% q/q
- Cementing, which followsdrill-bit and typically lags completions, saw relatively flat activity q/q
- Total stages for completion tools increased ~26% q/q
- Excluding completion tools, pricing down~5-9% across service lines
- Coiled tubing continues to be hardest hit service line with both a challenging macro backdrop coupled with new units coming to market
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3/31/20 CAPITALIZATION
PRO FORMA CAPITALIZATION
As of March 31, 2020 | |
($MM) | |
Cash | $90.1 |
Debt | |
ABL Credit Facility | 0.0 |
Senior Unsecured Notes | 379.0 |
Total debt | $379.0 |
Net Debt | $288.9 |
Total cash | $90.1 |
ABL availability | $93.5 |
Total liquidity | $183.6 |
COMMENTARY
- ABL credit facility undrawn
- Total liquidity of $183.6 million as of March 31, 2019
- During Q1, repurchased ~$13.8 million of the Senior Notes for a repurchase price of ~$3.5 million in cash, excluding accrued interest
- Subsequent to 3/31/20, repurchased an additional $15.9 million of the Senior Notes for a repurchase price of ~$3.9 million in cash, excluding accrued interest
- Company continues to be focused on generatingthrough-cycle returns and generating free cash flow with target leverage of 1x net debt/Adjusted EBITDA
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UNIQUE VALUE PROPOSITION
Completions focused
Technology and service differentiation
Ability to service the most technically demanding wells Returns-focused business philosophy
Access to entire addressable market
Leading market position across broad geographic footprint
Entrepreneurial, highly incentivized and aligned management team
Strategy works in every basin for every well
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CLOSE TO PERFECTION. FAR FROM ORDINARY. DRIVEN TO SUCCEED.
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APPENDIX
OUR LEGACY
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NINE ADJ. EBITDA RECONCILIATION
Year ended December 31 | |||
($ mm unless otherwise noted) | 31-Mar-20 | 2019 | 2018 |
EBITDA Reconciliation | |||
Net income (loss) | $(300.9) | ($217.8) | ($53.0) |
Interest expense | 9.8 | 39.8 | 22.3 |
Interest Income | (.4) | (.9) | |
Depreciation | 8.5 | 50.5 | 54.3 |
Amortization | 4.2 | 18.4 | 9.6 |
Provision (benefit) from income taxes | (2.1) | (3.9) | 2.4 |
EBITDA | ($280.9) | ($113.8) | $35.5 |
Adjusted EBITDA Reconciliation | |||
EBITDA | ($280.9) | ($113.8) | $35.5 |
Impairment of property and equipment | - | 66.2 | 45.7 |
Impairment of goodwill and other intangible assets | 296.2 | 135.7 | 32.1 |
Transaction and integration costs | .1 | 13.0 | 10.3 |
Loss on sale of subsidiary | - | 15.9 | - |
Loss or gains from the revaluation of contingent liabilities | (.4) | (21.2) | 3.3 |
Gain on extinguishment of debt | (10.1) | - | - |
Loss on equity investment | - | - | 0.3 |
Non-cashstock-based compensation expense | 3.6 | 14.1 | 13.2 |
Gain (loss) on sale of property and equipment | (.6) | (.5) | (1.7) |
Legal fees and settlements | .04 | .3 | 2.4 |
Inventory writedown | - | - | - |
Restructuring charges | 2.3 | 4.0 | - |
Adjusted EBITDA | 10.3 | 113.0 | $141.1 |
Revenue | 146.6 | 832.9 | 827.2 |
% Adj. EBITDA margin | 7% | 14% | 17% |
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ROIC RECONCILIATION
($ MM UNLESS OTHERWISE NOTED) | Year ended December 31 | |
31-Mar-20 | 2019 | |
After-tax net operating profit reconciliation: | ||
Net Income (loss) | (300.9) | ($217.8) |
Add back: | ||
Impairment of property and equipment | - | 66.2 |
Impairment of goodwill | 296.2 | 20.3 |
Impairment of intangibles | - | 114.8 |
Interest expense | 9.8 | 39.8 |
Interest Income | (.4) | (.9) |
Transaction and integration costs | .1 | 13.0 |
Restructuring charges | 2.3 | 4.0 |
Gain on extinguishment of debt | (10.1) | |
Loss on sale of subsidiaries | - | 15.9 |
Benefit of deferred income taxes | (1.6) | (4.3) |
After-tax net operating profit | ($4.5) | $51.0 |
Total capital as of prior year-end /period-end: | ||
Total stockholders' equity | 389.9 | 594.8 |
Total debt | 400.0 | 435.0 |
Less: Cash and cash equivalents | (93.0) | (63.6) |
Total capital as of prior period-end | $696.9 | 966.2 |
Total capital as of period-end /year-end: | ||
Total stockholders' equity | 91.9 | 389.9 |
Total debt | 386.2 | 400.0 |
Less: Cash and cash equivalents | (90.1) | (93.0) |
Total capital as of period-end | $387.9 | 696.9 |
Average total capital | $542.4 | 831.5 |
ROIC | -3% | 6% |
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Nine Energy Service Inc. published this content on 06 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 May 2020 15:03:06 UTC