NINE Energy’s Perspective in Q1: KEY Takeaways

Nine Energy is optimistic about its prospects of fielding perforating guns in the Haynesville shale. In the Permian shale, however, activity declined. It has gained market share in completion tool sales, while its revenues from coiled tubing and wireline operations improved in Q1. The recent closure of a credit facility has improved its liquidity. The stock is relatively overvalued compared to its peers.

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Industry Outlook

We discussed our initial thoughts about Nine Energy Service's (NINE) Q1 2025 performance in our short article a few days ago. This article will dive deeper into the industry and its current outlook. Natural gas prices have tentatively supported steady natural gas production, and the company’s management is “optimistic on the long-term outlook.”

In a key development in recent times, the increase in tariffs may have an adverse effect on the wireline division, particularly for its perforating guns and coiled tubing operations. NINE also considers the frac plugs as a critical component of the completion jobs. These plugs isolate each stage, dissolve quickly, and lend to efficient operations. Because these products dissolve at high temperatures, the Haynesville shale appears appropriate for using them.

Q2 Outlook

To mitigate the effect of high tariffs, NINE can increase prices. On the other hand, the company has witnessed declines in activity and pricing pressure in the Permian in recent weeks. Based on this trend, the company expects revenue (by 5%) and adjusted EBITDA to decline in Q2 compared to Q1.

Current Drivers: Positives and Negatives:

The US rig count remained flat in Q1, NINE managed to gain market share in cementing. It also observed efficient operations and less white space in coiled tubing, resulting in an increase in adjusted EBITDA margin. Pricing for the majority of service lines was stable in Q1. However, pricing in wireline operations in the Northeast weakened following lower stage pricing in the bidding process.

NINE’s revenues in the cementing business increased by 4% while jobs completed increased by 11%. Completion tool revenue also increased as the company gained market share. U.S. Wireline division increased revenue by approximately 7% quarter-over-quarter following efficient operations in the Northeast. Coiled tubing revenue increased by ~16% in Q1 as utilization improved.

Some negatives affected the growth in Q1. These include a flat rig count environment, sustained low activity levels in Haynesville, and stage price reductions in the Northeast. NINE's cash flows turned negative in Q1. Due to negative shareholders' equity, its debt-to-equity ratio remained negative as of March 31, 2025. The company has closed its $125 million revolving credit facility, which will improve its liquidity. The new ABL also extends the previous maturity by approximately 9 months to November 2027.

Relative Valuation

NINE is currently trading at an EV/EBITDA multiple of 8.3x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is lower.

NINE's forward EV/EBITDA multiple compared to the current EV/EBITDA is expected to decline slightly less sharply than its peers. This implies that its EBITDA is expected to increase less sharply than its peers in the next year. This typically results in a lower EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is much higher than peers' (NBR, PUMP, and OIS) average. So, the stock is relatively overvalued compared to its peers.

Final Commentary

During Q1, NINE gained market share in cementing, improved operational efficiencies in coiled tubing, and wireline. Coiled tubing utilization improved, too. On the other hand, pricing in wireline operations in the Northeast weakened. Activity declines and pricing pressure in the Permian in recent weeks can become a concern. Outside business activities, external pressure, such as the tariff hike, pose a challenge.

The company has high expectations for the perforating guns and frac plugs due to their potential long-term uses. NINE's FCF turned negative in Q1. It has increased the maturity tenure of the credit facility and enhanced the revolving credit facility. Improved liquidity can help sustain any potential financial losses. The stock is relatively overvalued compared to its peers.

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