A dimmer outlook in Q2: In Q1 2023, Nine Energy’s (NINE) management appeared conservative, led by global recessionary fears and volatile energy prices. It recognized that the fracturing activity was down in early Q2, leading to pricing pressure from natural gas-heavy Basins like Northeast and Haynesville. So, the company’s revenues can decline in Q2 compared to Q1. Read more about this in our recent article here.
Fundamentals metrics retracted in Q1: Quarter-over-quarter, NINE’s revenues decreased by 2% in Q1, while its adjusted EBITDA margin contracted by 270 basis points. The decline in natural gas price-led activity and lower pricing resulted in performance deterioration in Q1. Stiff competition in the wireline and coiled tubing markets also affected its results adversely. However, its sales of Stinger dissolvable plugs increased remarkably in international markets, mitigating some losses.
NINE’s cash flows and negative equity: NINE’s cash flow from operations decreased by 53% in Q1 2023 compared to a quarter ago. As a result, free cash flow stayed negative but improved in Q1 due to a fall in capex. Due to negative shareholders’ equity, its debt-to-equity remained negative as of March 31, 2023. So, a reasonably high net debt ($311 million) and negative equity render the stock financially risky.
Thanks for reading the NINE take three, designed to give you three critical takeaways from NINE’s earnings report. Soon we will present a second update on NINE earnings highlighting its current strategy, news, and notes we extracted from our deeper dive.
