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NINE ENERGY SERVICE
INVESTOR PRESENTATION
Q2 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 June 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.
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DISCLAIMER
COMPANY OVERVIEW
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NINE COMPANY OVERVIEW
REVENUE BY SERVICE LINE2
• Focused on ROIC – 2019 annual target of 7%
• 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 H1 19 Actuals. See appendix for Adjusted EBITDA reconciliation
Cementing24%
Coiled Tubing17%
Wireline27%
Well Service9%
Completion Tools24%
$827
$934
$141 $154
2018A H1 Annualized
Revenue Adj. EBITDA
Adj. EBITDA Margin17%
Adj. EBITDA Margin17%
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NINE’S UNIQUE STRATEGY
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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
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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: 22,1251 2019E NA Stage Count: 728,7431
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Extremely reliable in super laterals (10,000 ft.+)
2019E New NA HZ Wells Drilled: 22,1251
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, Q2 2019.
MagnumDiskTM
- Owned IP
MVPTM Polymer Dissolvable Plug –Owned IP
Hollow PointTM Magnesium Plug –Owned IP
DISSOLVABLE PLUG THESIS INTACT
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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
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Mixed Area (High-temp/low-temp)
High-temp Coverage Area > 200ºF
Low-temp Coverage Area ≤ 200ºF
INTERNATIONAL MARKET
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High-temp Coverage Area > 200ºF
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: Spears & Associates, Q4 2018; 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
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MULTI-WELL PADS CONCENTRATE RISK
6 single wells required 6 wireline units
2014: Stages/Employee = 5.5 Q2 2019: Stages/Employee = 14
SUSTAINABLE VALUE PROPOSITION OF SERVICE & TECHNOLOGY
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Service and technology drives efficiencies and lowers total cost of ownership for operators
SERVICE/TECHNOLOGY PERFORMANCE DAYS SAVED REVENUE GENERATION FOR OPERATORS1
BreakthruTM Casing Flotation Device99% success rate in floating
casing to bottom
~1.5-3 days
per 6 well pad
6 well pad = ~$675k
21 well pad = ~$2.3mm
Stage 1 Prep Prep and stimulate stage 1 in
under 5 hours
~6 days per
6 well pad
6 well pad = $1.8mm
21 well pad = $6.0mm
MVPTM & Hollow PointTM Dissolvable Plugs Dissolvable plugs eliminate
drill-out times and reduce
overall NPT & operational risks
~24 days per
6 well pad2
6 well pad = $7.2mm
21 well pad = $24mm
ScorpionTM Composite Plug144 plugs drilled out with 1
drill-bit. Eliminated a bit trip
~15 days per
6 well pad
6 well pad = $4.5mm
21 well pad = $15mm
Nine Wireline10+ stages per day with 99%
success rate
~10.5 days3
per 6 well pad
6 well pad = $3.2mm
21 well pad = $10.5mm
Illustrative Days Saved and Revenue
Generated
~57.75 days
per 6 well pad
6 well pad = $17.3mm
21 well pad = $57.8mm
1 Assumes IP rates of 1,000 boe/d at $50 WTI and $300,000 per day/6-well pad and $1mm/21-well pad. 2 Assumes 7,000-10,000 ft. lateral. 3Assumes 70 stages per well with competitive comparison at 8 stages per day
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.
Permian 39%
Rockies 3%
MidCon 10%
Marcellus / Utica 19%
Haynesville 9%
Bakken 6%
Canada 4%
Barnett 1%
Eagle Ford 7%
FOOTPRINT IN EVERY MAJOR NAM BASIN
EXCELLENT NAM REACH CAPABILITY
LOCALIZED TEAMS WITH REGIONAL KNOWLEDGE
~3% of overall revenue comes from outside NAM
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BARRIERS TO ENTRY THROUGH TECHNOLOGY AND SERVICE
COMPLETION SOLUTIONS PERFORMANCE BARRIERS EQUIPMENT BARRIERS → FIT FOR “DEEP REACH”
Cementing Services • ~17,500 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 • ~161,350 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 • ~131,800 stages with a success rate of ~99%1
• Conveying greaseless wireline with less friction in super laterals
• Longest wireline completion of 19,000+ feet in lateral
Coiled Tubing Services • ~8,400 jobs and ~179 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 frac pumps to push coil further downhole
• Downhole memory tool tracking real-time data
PRODUCTION SOLUTIONS PERFORMANCE BARRIERS EQUIPMENT BARRIERS → FIT FOR “DEEP REACH”
Well Services • 66% utilization1 rate compared to 46% industry average4
• Fit for purpose fleet• ~40% of fleet capable of performing completion-
oriented work
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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 June 30, 2019. 2 Management estimates for time period from March 2011 to June 30, 2019. 3Management estimates for time
period from April 2014 to June 30, 2019. 4Industry average based on Association of Energy Service Companies; period from January 2014 to June 30, 2019.
ADVANCEMENTS IN CEMENTING SOLUTIONS
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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%
20%22%
2014 2015 2016 2017 2018 Q1 2019 Q2 2019
Nine Holds a Competitive Advantage in US Cementing Leading to Significant Market Share Gains
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CONSISTENT PROFITABLE MARKET SHARE GAINS
Nine US Wireline & Completion Tools % of stages completed1
17%
24%
YE 2014 6/30/2019
Nine % rigs followed – South Texas2
10%
17%
YE 2014 6/30/2019
Nine % rigs followed – West Texas2
Source: 1Management estimates of legacy Nine frac stages relative to industry frac stages based on Spears & Associates, Q1 2019. Includes Magnum for closing time period of October 25, 2018. 2Management estimates and includes legacy Nine business only.
41%70%
Demonstrated Market Share Gains Throughout Cycles
+267%
ASSET LIGHT BUSINESS MODEL
E-line
Pressure
pumping
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PRESSURE PUMPING
E-LINE
CUSTOMERS WHO TRUST US
COMPLETION PRODUCTION
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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
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RETURNS-FOCUSED GROWTH PHILOSOPHY
Permian Midcon Northeast Bakken Rockies Canada Eagle Ford Haynesville International
Wireline
Cementing
Completion Tools
Coiled Tubing
Well Service
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
• Continue to consolidate highly fragmented industry
• Target only best-in-class 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
FINANCIAL OVERVIEW
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7%
Q2 2019
$38
Q2 2019
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Q2 2019 FINANCIAL SNAPSHOT
Q2 2019 FINANCIAL & OPERATIONAL PERFORMANCE
REVE
NUE
ADJ.
EBI
TDA
ROIC
• Q2 2019 results in-line with Management’s Guidance
• Adjusted Net Income of $8.8mm, or $0.30 per adjusted basic earnings per share
• Increased cash flow from operations by ~95%
• Increased market share of stages completed by approximately 200 basis points quarter over quarter
• Service lines outperformed market trends
− Cementing increased activity by ~1% and average revenue per job by ~5% despite US new wells drilled declining by ~-4%
− Total company stages completed up by ~19%, despite US completions increasing by ~6%
− Coil tubing days worked up by ~2%
• Integration of both Magnum Oil Tools and FracTechnology continues to go very well with Q1 2020 commercialization of Stinger product line on-track
16%
$238
Q2 2019
Adj. EBITDA margin
See appendix for adjusted EBITDA and ROIC reconciliation.
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6/30/19 CAPITALIZATION
• During Q2, Nine paid down approximately $15 million of the outstanding ABL credit facility borrowings
• Total liquidity of $178.0 million as of June 30, 2019
• Current cash position of ~$59mm as of August 9, 2019
• Company continues to be focused on generating through-cycle returns and generating free cash flow
PRO FORMA CAPITALIZATION
As of June 30, 2019
($MM)
Cash $16.9
Debt
New ABL Credit Facility 0.0
New Senior Unsecured Notes 400.0
Total debt $400.0
Net Debt $383.1
Total cash $16.9
ABL availability $161.1
Total liquidity $178.0
COMMENTARY
UNIQUE VALUE PROPOSITION
Completions focused
Technology and service differentiation
Ability to service the most technically demanding wells
Returns-focused business philosophy
Access to entire addressable market
Leading market position across broad geographic footprint
Entrepreneurial, highly incentivized and aligned management team
Strategy works in every basin for every well
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CLOSE TO PERFECTION.
FAR FROM ORDINARY.
DRIVEN TO SUCCEED.
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APPENDIX
OUR LEGACY
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NINE ADJ. EBITDA RECONCILIATION
Three Months Ended Year ended December 31
($ mm unless otherwise noted) 30-Jun-19 31-Mar-19 2018 2017
EBITDA Reconciliation
Net income (loss) $6.1 $17.3 ($53.0) ($67.7)
Interest expense 10.6 9.2 22.3 15.7
Depreciation 13.8 13.5 54.3 53.4
Amortization 4.6 4.7 9.6 8.8
Provision (benefit) from income taxes (2.7) .5 2.4 -5.0
EBITDA 32.4 45.2 $35.5 $5.3
Adjusted EBITDA Reconciliation
EBITDA $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 expenses 2.7 4.8 10.3 3.6
Loss from discontinued operations - - - -
Loss or gains from the revaluation of contingent liabilities (1.0) (14.0) 3.3 0.4
Loss on equity investment - - 0.3 0.4
Non-cash stock-based compensation expense 4.1 3.2 13.2 7.6
Loss or gains on sale of assets (.3) (.02) (1.7) 4.7
Legal fees and settlements .08 .07 2.4 1.0
Inventory writedown - - - -
Restructuring costs - - - -
Adjusted EBITDA 38.0 39.2 $141.1 $58.2
Revenue 237.5 229.7 827.2 543.7
% Adj. EBITDA margin 16% 17% 17% 11%
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ROIC RECONCILIATION
($ MM UNLESS OTHERWISE NOTED)
Three Months Ended
30-Jun-19
Three Months Ended
31-Mar-19
After-tax net operating profit reconciliation:
Net Income (loss) $6.1 $17.3
Add back:
Impairment of property and equipment - -
Impairment of goodwill - -
Impairment of intangibles - -
Interest expense 10.6 9.2
Transaction and integration costs 2.7 4.8
Benefit of deferred income taxes (2.5) (0.5)
After-tax net operating profit $16.8 $30.8
Total capital as of prior year-end / period-end:
Total stockholders' equity 615.5 $594.8
Total debt 415.0 435.0
Less: Cash and cash equivalents (31.2) (63.6)
Total capital as of prior year-end / period-end $999.3 $966.2
Total capital as of period-end / year-end:
Total stockholders' equity 624.3 $615.5
Total debt 400.0 415.0
Less: Cash and cash equivalents (16.9) (31.2)
Total capital as of period-end / year-end: $1,007.4 $999.3
Average total capital $1,003.4 $982.8
ROIC 7% 13%
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