Nine Energy Service Announces Fourth Quarter and Full Year 2017 Results

March 28, 2018

Full year 2017 Revenue and Adjusted EBITDAA increased
approximately 93% and 506%, respectively year-over-year
Revenue, Net Loss and Adjusted EBITDA of $154.3, $(29.8) million and
$18.7 million, respectively for fourth quarter of 2017

HOUSTON–(BUSINESS WIRE)–Nine Energy Service, Inc. ("Nine" or the "Company") (NYSE: NINE)
reported fourth quarter 2017 revenues of $154.3 million, net loss of
$(29.8) million and adjusted EBITDA of $18.7 million. Fourth quarter
2017 revenues increased approximately 93% as compared to the fourth
quarter 2016 revenues of $80.0 million. Fourth quarter net loss was
$(29.8) million as compared to a net loss of $(25.8) million in the
fourth quarter of 2016, primarily as a result of the goodwill impairment
described below. Fourth quarter 2017 adjusted EBITDA increased from
fourth quarter 2016 adjusted EBITDA of $5.2 million by approximately
258% and represented the fourth sequential quarterly increase. The
Company had projected fourth quarter 2017 revenue between $150.0 and
$152.0 million and adjusted EBITDA between $15.3 and $16.2 million, with
actual results outperforming the midpoint of fourth quarter 2017 revenue
projections by approximately 2% and the midpoint of fourth quarter
adjusted EBITDA projections by approximately 19%.

For the year ended December 31, 2017, the Company reported revenues of
$543.7 million compared to year ended December 31, 2016 revenues of
$282.4 million, representing an approximate 93% increase. The net loss
for full year 2017 totaled $(67.7) million, or $(4.55) loss per diluted
shareB, compared to year ended December 31, 2016 net loss of
$(70.9) million, or $(5.34) loss per diluted share. The Company reported
year ended December 31, 2017 adjusted EBITDA of $59.6 million, compared
to year ended December 31, 2016 adjusted EBITDA of $9.8 million,
representing an approximate 506% increase.

During the fourth quarter of 2017, the Company reported a net loss of
$(29.8) million, or $(1.89) loss per diluted share, which includes
goodwill and intangible impairments of $35.3 million associated with the
Bakken open hole sleeve business. The impairment is a result of a
sustained completion methodology shift in the Bakken Shale from open
hole to cemented plug n’ perf applications. This compares to reported
net loss in the fourth quarter of 2016 of $(25.8) million, or $(1.94)
loss per diluted share.

During the fourth quarter of 2017, the Company generated an ROICC
of (5)%, compared to an ROIC of (4)% in the fourth quarter of 2016.
Exclusive of the goodwill and intangibles impairment, ROIC for the
fourth quarter 2017 was 2%. For the year ended December 31, 2017, the
Company generated an ROIC of (11)%.

Nine’s President and Chief Executive Officer, Ann Fox, commented, "We
realized tremendous growth in 2017 by remaining focused on providing our
customers with excellent service execution and cutting-edge technology.
Despite a decrease in U.S. rig count quarter-over-quarter, we were able
to grow revenue and adjusted EBITDA for the fourth sequential quarter in
a row, beating the midpoint of our adjusted EBITDA expectations by
approximately 19%. Working for the most efficient customers and
completing the most complex and technical wells enables us to
differentiate ourselves in the market from a technology and tool
conveyance perspective. We benefit directly from the secular trends in
the completions space and we anticipate the high-level of completion
intensity to continue as lateral lengths extend helping to drive
top-line growth and margin, while also creating unique operating
efficiencies within Nine. These efficiencies will provide a competitive
advantage as labor and equipment remains extremely tight.”

“We are continuing to supplement our technology portfolio with both
internal R&D and strategic alliances. Most recently, we signed an
exclusive distribution agreement with a technology company for casing
flotation tools with field trials starting in the first quarter of 2018
in the Northeast. Additionally, we are in the middle of trialing our EON
XLR frac sleeve system. Both of these tools fit nicely into our
‘deep-reach’ technology portfolio and we will remain focused on sourcing
and developing technology throughout 2018.”

“I am extremely proud of our team and what we have accomplished this
year after a very difficult downturn for the industry. We exceeded both
our financial and operational expectations in 2017 and have positioned
the company for continued success this year. The macro outlook remains
positive and we believe supply-demand fundamentals support additional
activity in 2018 as capital continues to flow into North American shale.
Our first quarter of 2018 is progressing as we anticipated, and we are
optimistic about 2018. We will continue to follow our returns-based
growth strategy into the remainder of 2018 and expect to improve ROIC
through disciplined capital deployment and controlled growth to ensure
our standard of excellence at the wellsite.”

Initial Public Offering

In January 2018, Nine completed its IPO of 8,050,000 shares of common
stock, including 1,050,000 shares pursuant to an over-allotment option,
at a price of $23.00 per share. The aggregate gross proceeds of the IPO
were $185.2 million with net proceeds to the Company of approximately
$169.5 million. Concurrently, with the consummation of the IPO, Nine’s
new credit facility became effective, consisting of $125 million of term
loan commitments and $50 million of revolving credit commitments. The
Company used a portion of the net proceeds, together with $125.0 million
of term loan borrowings under its new credit facility to fully repay the
outstanding debt. Nine’s credit agreement required that the Company use
a portion of the proceeds from the over-allotment option to make a
repayment of the term loan borrowings of $9.7 million.

Business Segment Results

Completion Solutions

During the fourth quarter of 2017, the Company’s Completion Solutions
segment, which includes the Company’s cementing, completion tools,
wireline and coiled tubing services reported revenues of $134.7 million
compared to fourth quarter 2016 revenues of $64.7 million, representing
an approximate 108% increase. For the fourth quarter 2017, Completion
Solutions reported adjusted gross profitD of $25.8 million
compared to fourth quarter 2016 adjusted gross profit of $10.2 million,
representing an approximate 153% increase.

For the year ended December 31, 2017, Completion Solutions reported
revenues of $465.8 million compared to year ended December 31, 2016
revenues of $221.5 million, representing an approximate 110% increase.
Completion Solutions reported year ended December 31, 2017 adjusted
gross profit of $81.1 million, compared to year ended December 31, 2016
adjusted gross profit of $27.0 million, representing an approximate 200%
increase.

Production Solutions

During the fourth quarter of 2017, the Company’s Production Solutions
segment, which includes well services generated revenues of
$19.6 million compared to fourth quarter 2016 revenues of $15.3 million,
representing an approximate 28% increase. For the fourth quarter 2017,
Production Solutions reported adjusted gross profit of $2.9 million
compared to fourth quarter 2016 adjusted gross profit of $2.4 million,
representing an approximate 23% increase.

For the year ended December 31, 2017, Production Solutions reported
revenues of $77.9 million compared to year ended December 31, 2016
revenues of $60.9 million, representing an approximate 28% increase.
Production Solutions reported year ended December 31, 2017 adjusted
gross profit of $14.1 million, compared to year ended December 31, 2016
adjusted gross profit of $9.2 million, representing an approximate 53%
increase.

Other Financial Information

During the fourth quarter of 2017, the Company reported selling, general
and administrative expense of $11.9 million, compared to $13.2 million
for the fourth quarter of 2016. For the year ended December 31, 2017,
the Company reported selling, general and administrative expense of
$49.6 million, compared to the year ended December 31, 2016 selling,
general and administrative expense of $39.4. This increase was due in
part to the additional costs associated with the Company’s merger with
Beckman Production Services, Inc. (the “Combination”), the Company’s
preparation for its IPO and increase in stock-based compensation and
bonus expense.

Depreciation and amortization expense ("D&A") in the fourth quarter of
2017 was $15.3 million, compared to $15.8 million for the fourth quarter
of 2016. For the year ended December 31, 2017, the Company reported D&A
expense of $62.2 million, compared to year ended December 31, 2016 D&A
expense of $64.3 million.

The Company recognized an income tax benefit of approximately $8.0
million in the fourth quarter of 2017 and an overall income tax benefit
for the year of approximately $5.0 million, resulting in an effective
tax rate of 6.9% for 2017. The fourth quarter tax benefit was primarily
attributable to a change in the Company’s deferred taxes due to goodwill
impairment associated with the Bakken open hole sleeve business,
discussed above. The Company also accounted for the recently enacted
U.S. tax reform legislation, which resulted in an additional net
non-cash income tax benefit in the fourth quarter of 2017 as a result of
revaluing its U.S. deferred tax assets and liabilities from 35% to the
reduced rate of 21%.

Liquidity

For the year ended December 31, 2017, the Company reported net cash
provided by operating activities of $5.7 million compared to the year
ended December 31, 2016 net cash used by operations of $(3.3) million.

During the fourth quarter of 2017, total capital expenditures were $15.2
million compared to total capital expenditures of $2.0 million for the
fourth quarter of 2016. For the year ended December 31, 2017, the
Company reported total capital expenditures of $45.2 million of which
approximately 21% related to maintenance capital expenditures, compared
to the year ended December 31, 2016 total capital expenditures of $9.1
million of which approximately 42% related to maintenance capital
expenditures.

With the proceeds from the IPO, on an “as adjusted” basis, Nine’s cash
and cash equivalents increased by $43.3 million to $60.9 million. In
addition, concurrently with the consummation of the IPO, Nine’s new
credit facility became effective, which includes $50.0 million of
revolver capacity, $49.4 million of which is currently available;
resulting in a total liquidity position of $110.3 million as of December
31, 2017 on an as adjusted basis.

Conference Call Information

The call is scheduled for Thursday, March 29, 2018 at 10:00 am Central
Time. Participants may join the live conference call by dialing U.S.
(Toll Free): (877) 524-8416 or International: (412) 902-1028 and asking
for the “Nine Energy Service Earnings Call”. Participants are encouraged
to dial into the conference call ten to fifteen minutes before the
scheduled start time to avoid any delays entering the earnings call.

For those who cannot listen to the live call, a telephonic replay of the
call will be available through April 12, 2018 and may be accessed by
dialing U.S. (Toll Free): (877) 660-6853 or International: (201)
612-7415 and entering the passcode of 13677563.

About Nine Energy Service

Nine Energy Service is an oilfield services company that offers
completion and production solutions throughout North America. The
Company brings years of experience with a deep commitment to serving
clients with smarter, customized solutions and world-class resources
that drive efficiencies. Strategically located throughout the U.S. and
Canada, Nine continues to differentiate itself through superior service
quality, wellsite execution and cutting-edge technology. Nine is
headquartered in Houston, Texas with operating facilities in the
Permian, Eagle Ford, SCOOP/STACK, Niobrara, Barnett, Bakken, Marcellus,
Utica and throughout Canada.

For more information on the Company, please visit Nine’s website at nineenergyservice.com.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are those
that do not state historical facts and are, therefore, inherently
subject to risks and uncertainties. The forward-looking statements
included herein are based on current expectations and entail various
risks and uncertainties that could cause actual results to differ
materially from those forward-looking statements. Such risks and
uncertainties include, among other things, the general nature of the
energy service industry risks related to economic conditions; volatility
of crude oil and natural gas commodity prices; a decline in demand for
our services, including due to declining commodity prices; our ability
to implement price increases or maintain pricing of our core
services; the loss of, or interruption or delay in operations by, one or
more significant customers; the loss of or interruption in operations of
one or more key suppliers; the adequacy of our capital resources and
liquidity; the incurrence of significant costs and liabilities resulting
from litigation; the loss of, or inability to attract, key personnel;
and other factors to be discussed in the “Business” and “Risk Factors”
sections of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017 and the subsequently filed Quarterly Reports on Form
10-Q and Periodic Reports on Form 8-K. Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as
of the date hereof, and, except as required by law, the Company
undertakes no obligation to update those statements or to publicly
announce the results of any revisions to any of those statements to
reflect future events or developments.

NINE ENERGY SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts) (Unaudited)
Three Months Ended December 31,	Year Ended December 31,
2017	2016	2017	2016
Revenues	$	154,280	$	79,986	$	543,660	$	282,354
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	125,566	67,433	448,467	246,109
General and administrative expenses	11,924	13,193	49,552	39,387
Depreciation	13,096	13,481	53,422	55,260
Amortization of intangibles	2,198	2,289	8,799	9,083
Impairment of intangibles	3,800	–	3,800	–
Impairment of goodwill	31,530	12,207	31,530	12,207
Loss on equity method investment	113	–	368	–
Loss on sale of property and equipment	(105	)	900	4,688	3,320
Loss from operations	(33,842	)	(29,517	)	(56,966	)	(83,012	)
Other expense
Interest expense	3,923	3,504	15,703	14,185
Total other expense	3,923	3,504	15,703	14,185
Loss before income taxes	(37,765	)	(33,021	)	(72,669	)	(97,197	)
Benefit for income taxes	(7,954	)	(7,269	)	(4,987	)	(26,286	)
Net loss	$	(29,811	)	$	(25,752	)	$	(67,682	)	$	(70,911	)
Loss per share – basic and diluted	$	(1.89	)	$	(1.94	)	$	(4.55	)	$	(5.34	)
Weighted average shares outstanding	15,773,015	13,274,227	14,887,006	13,268,540
Other comprehensive income, net of tax
Foreign currency translation adjustments	$	(6	)	$	7	$	(198	)	$	210
Total other comprehensive income (loss)	(6	)	7	(198	)	210
Total comprehensive loss	$	(29,817	)	$	(25,745	)	$	(67,880	)	$	(70,701	)

NINE ENERGY SERVICE, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands) (Unaudited)
2017	2016
Assets
Current assets
Cash and cash equivalents	$	17,513	$	4,074
Accounts receivable, net	99,565	47,366
Inventories	22,230	15,169
Income taxes receivable	–	14,620
Prepaid expenses and other	7,929	9,485
Total current assets	147,237	90,714
Property and equipment, net	259,039	273,210
Goodwill	93,756	125,286
Intangible assets, net	63,545	76,144
Other long-term assets	4,806	364
Notes receivable from shareholders	10,476	10,376
Total assets	$	578,859	$	576,094
Liabilities and Stockholders’ Equity
Current liabilities
Long-term debt, current portion	$	241,509	$	17,975
Accounts payable	29,643	18,823
Accrued expenses	14,687	12,417
Income taxes payable	581	–
Notes payable—insurance premium financing	–	272
Total current liabilities	286,420	49,487
Long-term liabilities
Long-term debt	–	226,287
Deferred taxes	5,017	10,637
Other long term liabilities	64	1,497
Total liabilities	291,501	287,908
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 15,810,540 and 13,386,986 shares issued and outstanding at December 31, 2017 and 2016, respectively)	158	134
Additional paid-in capital	384,965	317,937
Accumulated other comprehensive income (loss)	(3,684	)	(3,486	)
Retained earnings (accumulated deficit)	(94,081	)	(26,399	)
Total stockholders’ equity	287,358	288,186
Total liabilities and stockholders’ equity	$	578,859	$	576,094

NINE ENERGY SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Unaudited)
Year Ended December 31,
2017	2016
Cash flows from operating activities
Net loss	$	(67,682	)	$	(70,911	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation	53,422	55,260
Amortization of intangibles	8,799	9,083
Amortization of deferred financing costs	1,615	2,355
Provision for doubtful accounts	176	–
Deferred tax benefit	(5,815	)	(12,159	)
Impairment of goodwill	31,530	12,207
Impairment of intangibles	3,800	–
Provision for inventory obsolescence	1,359	287
Stock-based and deferred compensation expense	7,568	5,711
Loss on sales of assets	4,688	3,320
Loss (gain) on revaluation of contingent consideration	415	1,735
Loss on equity method investment	368	–
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable	(52,180	)	2,073
Inventories	(8,212	)	(558	)
Prepaid expenses and other current assets	1,472	(3,172	)
Accounts payable and accrued expenses	12,530	(2,396	)
Income taxes receivable/payable	15,158	(5,848	)
Other assets and liabilities	(3,340	)	(277	)
Net cash (used in) provided by operating activities	5,671	(3,290	)
Cash flows from investing activities
Proceeds from sales of assets	1,452	2,918
Proceeds from property and equipment casualty losses	300	262
Proceeds from notes receivable payments	–	1,774
Purchases of property and equipment	(45,216	)	(9,130	)
Equity method investment in DIT	(1,000	)	–
Net cash used in investing activities	(44,464	)	(4,176	)
Cash flows from financing activities
Borrowings on revolving credit facilities	56,481	75,136
Payments on revolving credit facilities	(38,287	)	(61,956	)
Payments on term loans	(22,475	)	(19,725	)
Proceeds from notes payable—insurance premium financing	–	1,127
Payments on notes payable—insurance premium financing	(272	)	(855	)
Payment of contingent liability on Scorpion purchase	(1,325	)	(297	)
Proceeds from share issuances	61,374	500
Distribution to shareholders	(2,438	)	–
Deferred financing costs	(716	)	(1,245	)
Net cash (used in) provided by financing activities	52,342	(7,315	)
Net increase (decrease) in cash and cash equivalents	13,549	(14,781	)
Impact of foreign currency exchange on cash	(110	)	(22	)
Cash and cash equivalents
Beginning of year	4,074	18,877
End of year	$	17,513	$	4,074

NINE ENERGY SERVICE, INC.
SEGMENT DATA
(In Thousands) (Unaudited)
Three Months Ended December 31,	Year Ended December 31,
2017	2016	2017	2016
Revenues
Completion Solutions	$	134,723	$	64,700	$	465,773	$	221,468
Production Solutions	19,557	15,286	77,887	60,886
$	154,280	$	79,986	$	543,660	$	282,354
Adjusted Gross profit(1)
Completion Solutions	$	25,793	$	10,184	$	81,132	$	27,032
Production Solutions	2,921	2,369	14,061	9,213
$	28,714	$	12,553	$	95,193	$	36,245
General and administrative expenses	11,924	13,193	49,552	39,387
Depreciation	13,096	13,481	53,422	55,260
Amortization of intangibles	2,198	2,289	8,799	9,083
Impairment of intangibles	3,800	–	3,800	–
Impairment of goodwill	31,530	12,207	31,530	12,207
Loss on equity method investment	113	–	368	–
Loss on sale of assets	(105	)	900	4,688	3,320
Loss from operations	$	(33,842	)	$	(29,517	)	$	(56,966	)	$	(83,012	)
Capital expenditures
Completion Solutions	$	14,647	$	1,104	$	40,626	$	7,358
Production Solutions	578	890	4,590	1,772
$	15,225	$	1,994	$	45,216	$	9,130
Assets
Completion Solutions	$	428,702	$	433,721	$	428,702	$	433,721
Production Solutions	119,607	131,046	119,607	131,046
Corporate	30,550	11,327	30,550	11,327
$	578,859	$	576,094	$	578,859	$	576,094
(1) Excludes depreciation and amortization, shown below.
GEOGRAPHICAL SPLIT
(In Thousands) (Unaudited)
Three Months Ended December 31,	Year Ended December 31,
2017	2016	2017	2016
Revenues
United States	$	148,294	$	76,519	$	521,914	$	269,893
Canada	5,986	3,467	21,746	12,461
$	154,280	$	79,986	$	543,660	$	282,354
2017	2016
Long-lived assets:
United States	$	426,858	$	479,691
Canada	4,764	5,689
$	431,622	$	485,380

NINE ENERGY SERVICE, INC.
RECONCILIATION OF ADJUSTED GROSS PROFIT
(In Thousands)
(Unaudited)
Three Months Ended December 31,	Year Ended December 31,
2017	2016	2017	2016
Calculation of gross profit (loss)
Revenues	$	154,280	$	79,986	$	543,660	$	282,354
Cost of revenues (exclusive of depreciation and amortization)	125,566	67,433	448,467	246,109
Depreciation (related to cost of revenues)	12,860	13,252	52,536	54,344
Amortization	2,198	2,289	8,799	9,083
Gross profit (loss)	$	13,656	$	(2,988	)	$	33,858	$	(27,182	)
Adjusted gross profit (excluding depreciation and amortization) reconciliation
Gross profit (loss)	$	13,656	$	(2,988	)	$	33,858	$	(27,182	)
Depreciation (related to cost of revenues)	12,860	13,252	52,536	54,344
Amortization	2,198	2,289	8,799	9,083
Adjusted gross profit	$	28,714	$	12,553	$	95,193	$	36,245

NINE ENERGY SERVICE, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(In Thousands)
(Unaudited)
Three Months Ended December 31,	Year Ended December 31,
2017	2016	2017	2016
EBITDA reconciliation:
Net loss	$	(29,811	)	$	(25,752	)	$	(67,682	)	$	(70,911	)
Interest expense	3,923	3,504	15,703	14,185
Depreciation	13,096	13,481	53,422	55,260
Amortization	2,198	2,289	8,799	9,083
Provision (benefit) from income taxes	(7,954	)	(7,269	)	(4,987	)	(26,286	)
EBITDA	$	(18,548	)	$	(13,747	)	$	5,255	$	(18,669	)
Adjusted EBITDA reconciliation:
EBITDA	$	(18,548	)	$	(13,747	)	$	5,255	$	(18,669	)
Impairment of goodwill and other intangible assets	35,330	12,207	35,330	12,207
Transaction expenses	207	–	3,622	–
Loss or gains from the revaluation of contingent liabilities (1)	(6	)	1,735	415	1,735
Loss on equity investment	113	–	368	–
Non-cash stock-based compensation expense	1,188	1,397	7,568	5,711
Loss or gains on sale of assets	(105	)	900	4,688	3,320
Legal fees and settlements (2)	196	2,624	974	4,145
Inventory write-down	335	–	1,359	287
Restructuring costs	–	104	–	1,088
Adjusted EBITDA	$	18,710	$	5,220	$	59,579	$	9,824
(1) Loss or gain related to the revaluation of liability for contingent consideration relating to our acquisition of Scorpion to be paid in shares of Company common stock and in cash, contingent upon quantities of Scorpion Composite Plugs sold during 2016 and gross margin related to the product sales for three years following the acquisition.
(2) Amount represents fees and legal settlements associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws.