10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM  TO 

Commission File Number: 001-38347

__________________________________________________________________

Nine Energy Service, Inc.

(Exact name of registrant as specified in its charter)

__________________________________________________________________

Delaware	80-0759121
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2001 Kirby Drive, Suite 200

Houston, TX 77019

(Address of principal executive offices) (zip code)

(281) 730-5100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	x	Smaller reporting company	☐
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  x

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NINE	New York Stock Exchange

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at May 6, 2019 was 30,707,380.

TABLE OF CONTENTS

PART I		FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	1
		Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018	2
		Condensed Consolidated Statements of Stockholders’ Equity for the period from December 31, 2018 to March 31, 2019 and for the period from December 31, 2017 to March 31, 2018	3
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	4
		Notes to the Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
	Item 4.	Controls and Procedures	29
PART II		OTHER INFORMATION	30
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 3.	Defaults Upon Senior Securities	30
	Item 4.	Mine Safety Disclosures	30
	Item 5.	Other Information	30
	Item 6.	Exhibits	31
		Signatures	32

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains 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, 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 Quarterly Report on Form 10-Q, 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.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by law, and we caution you not to place undue reliance on them. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2018. These factors, some of which are beyond our control, include the following:

• the level of capital spending and well completions by the onshore oil and natural gas industry;

• oil and natural gas commodity prices;

• general economic conditions;

• our ability to employ, or maintain the employment of, a sufficient number of key employees, technical personnel, and other skilled and qualified workers;

• our ability to implement price increases or maintain existing prices on our products and services;

• pricing pressures, reduced sales, or reduced market share as a result of intense competition in the markets for our dissolvable plug products;

• our ability to accurately predict customer demand;

• conditions inherent in the oilfield services industry, such as equipment defects, liabilities arising from accidents or damage involving our fleet of trucks or other equipment, explosions and uncontrollable flows of gas or well fluids, and loss of well control;

• our ability to implement new technologies and services;

• seasonal and adverse weather conditions;

• changes in laws or regulations regarding issues of health, safety, and protection of the environment, including those relating to hydraulic fracturing, greenhouse gases, and climate change; and

• our ability to successfully integrate the assets and operations that we acquired with our acquisition of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. and realize anticipated revenues, cost savings, or other benefits of such acquisition.

Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	March 31, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	31,157		$	63,615
Accounts receivable, net	159,245			154,783
Inventories, net	98,053			91,435
Prepaid expenses and other current assets	20,608			15,717
Notes receivable from shareholders (Note 9)	7,094			7,626
Total current assets	316,157			333,176
Property and equipment, net	221,134			211,644
Definite-lived intangible assets, net	168,763			173,451
Goodwill	307,804			307,804
Indefinite-lived intangible assets	108,711			108,711
Other long-term assets	6,052			6,386
Total assets	$	1,128,621		$	1,141,172
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	47,688		$	46,132
Accrued expenses	44,033			61,434
Current portion of capital lease obligations	992			665
Income taxes payable	853			57
Total current liabilities	93,566			108,288
Long-term liabilities
Long-term debt	405,498			424,978
Deferred income taxes	5,437			5,915
Long-term capital lease obligations	3,101			2,330
Other long-term liabilities	5,552			4,838
Total liabilities	513,154			546,349
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 30,782,600 and 30,163,408 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively)	308			302
Additional paid-in capital	749,508			746,428
Accumulated other comprehensive loss	(4,595		)	(4,843		)
Accumulated deficit	(129,754		)	(147,064		)
Total stockholders’ equity	615,467			594,823
Total liabilities and stockholders’ equity	$	1,128,621		$	1,141,172

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2019			2018
Revenues	$	229,705		$	173,807
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	178,590			138,227
General and administrative expenses	19,939			14,365
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Loss on equity method investment	—			75
(Gain) loss on sale of property and equipment	(23		)	370
Income from operations	26,936			4,698
Other expense
Interest expense	9,166			2,930
Total other expense	9,166			2,930
Income before income taxes	17,770			1,768
Provision for income taxes	460			93
Net income	$	17,310		$	1,675
Earnings per share
Basic	$	0.59		$	0.08
Diluted	$	0.59		$	0.08
Weighted average shares outstanding
Basic	29,150,996			21,902,519
Diluted	29,471,753			22,069,353
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$	248		$	(394	)
Total other comprehensive income (loss), net of tax	248			(394		)
Total comprehensive income	$	17,558		$	1,281

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares		Amounts
Stockholders’ equity as of December 31, 2018	30,163,408		$	302	$	746,428		$	(4,843	)	$	(147,064	)	$	594,823
Issuance of common stock under stock compensation plan	622,021		6		(6		)	—			—			—
Stock-based compensation expense	—		—		3,153			—			—			3,153
Exercise of stock options	674		—		15			—			—			15
Vesting of restricted stock	(3,503	)	—		(82		)	—			—			(82		)
Other comprehensive income	—		—		—			248			—			248
Net income	—		—		—			—			17,310			17,310
Stockholders’ equity as of March 31, 2019	30,782,600		$	308	$	749,508		$	(4,595	)	$	(129,754	)	$	615,467
Stockholders’ equity as of December 31, 2017	15,810,540		$	158	$	384,965		$	(3,684	)	$	(94,081	)	$	287,358
Issuance of common stock in IPO, net of offering costs	8,050,000		81		168,180			—			—			168,261
Other issuances of common stock	418,317		4		296			—			—			300
Stock-based compensation expense	—		—		2,240			—			—			2,240
Other comprehensive loss	—		—		—			(394		)	—			(394		)
Net income	—		—		—			—			1,675			1,675
Stockholders’ equity as of March 31, 2018	24,278,857		$	243	$	555,681		$	(4,078	)	$	(92,406	)	$	459,440

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	17,310		$	1,675
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Amortization of deferred financing costs	746			853
Provision for (recovery of) doubtful accounts	47			(270		)
Benefit for deferred income taxes	(478		)	(47		)
Provision for inventory obsolescence	1,338			—
Stock-based compensation expense	3,153			2,240
(Gain) loss on sale of property and equipment	(23		)	370
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063
Loss on equity method investment	—			75
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable, net	(4,402		)	(16,387		)
Inventories, net	(7,879		)	406
Prepaid expenses and other current assets	(6,060		)	757
Accounts payable and accrued expenses	(3,703		)	11,357
Income taxes receivable/payable	796			140
Other assets and liabilities	780			66
Net cash provided by operating activities	5,888			17,307
Cash flows from investing activities
Proceeds from sales of property and equipment	477			1,096
Proceeds from property and equipment casualty losses	1,238			—
Proceeds from notes receivable payments	532			—
Purchases of property and equipment	(20,386		)	(6,468		)
Net cash used in investing activities	(18,139		)	(5,372		)
Cash flows from financing activities
Payments on revolving credit facilities	(20,000		)	(96,182		)
Proceeds from term loan	—			125,000
Payments on term loans	—			(155,701		)
Payments on capital leases	(212		)	—
Proceeds from issuance of common stock in IPO, net of offering costs	—			171,616
Proceeds from other issuances of common stock	—			300
Proceeds from exercise of stock options	15			—
Vesting of restricted stock	(82		)	—
Cost of debt issuance	—			(1,385		)
Net cash provided by (used in) financing activities	(20,279		)	43,648
Impact of foreign currency exchange on cash	72			(196		)
Net increase (decrease) in cash and cash equivalents	(32,458		)	55,387
Cash and cash equivalents
Cash and cash equivalents beginning of year	63,615			17,513
Cash and cash equivalents end of period	$	31,157		$	72,900
Supplemental disclosures of cash flow information:
Cash paid for interest	$	750		$	2,105
Cash paid for income taxes	$	132		$	—
Capital expenditures in accounts payable and accrued expenses	$	6,227		$	2,264
Property and equipment obtained by capital lease	$	1,310		$	—
Receivable from property and equipment insurance	$	24		$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

NINE ENERGY SERVICE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Company and Organization

Nine Energy Service, Inc. (the “Company” or “Nine”), a Delaware corporation, is an oilfield services business that provides services integral to the completion of unconventional wells through a full range of tools and methodologies and provides a range of production enhancement and well workover services. The Company is headquartered in Houston, Texas.

2. Basis of Presentation

Condensed Consolidated Financial Information

The accompanying Condensed Consolidated Financial Statements have not been audited by the Company’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2018 and the Condensed Consolidated Statements of Stockholders’ Equity as of December 31, 2018 and 2017 are derived from audited Consolidated Financial Statements. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for the fair statement of the Company’s financial position have been included. These Condensed Consolidated Financial Statements include all accounts of the Company.

These Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Nine and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Such estimates include fair value assumptions used in purchase accounting and in analyzing goodwill, definite and indefinite-lived intangible assets, and property and equipment for possible impairment, useful lives used in depreciation and amortization expense, stock-based compensation fair value, estimated realizable value on excess and obsolete inventories, deferred taxes and income tax contingencies, and losses on accounts receivable. It is at least reasonably possible that the estimates used will change within the next year.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications relate to the presentation of “(Gain) loss on revaluation of contingent liabilities” as a separate line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

5

3. New Accounting Standards

Accounting Standards Update 2014-09

Background

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the current revenue recognition guidance. The standard is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and asset recognized from costs incurred to obtain or fulfill a contract. The FASB subsequently issued ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12 which provide additional guidance around Topic 606. These amendments are encompassed in the Company’s reference to ASU No. 2014-09 below.

As an emerging growth company, the Company is permitted to, and will, apply ASU No. 2014-09 to annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. In the fourth quarter of 2019, the Company, as an emerging growth company, expects to adopt ASU No. 2014-09 for the annual period ending December 31, 2019 (effective January 1, 2019) utilizing the modified retrospective approach. The Company will continue to report revenues under current accounting standards until it formally adopts ASU No. 2014-09.

Status of Management’s Implementation Efforts of ASU No. 2014-09

During 2018, in preparation for the adoption of ASU No. 2014-09, the Company reviewed the various types of customer contract arrangements for each of its businesses. These reviews included the following:

• accumulating all customer contractual arrangements;

• identifying the individual performance obligations pursuant to each arrangement;

• quantifying the considerations under each arrangement;

• allocating the consideration under each arrangement to the identified performance obligation; and

• determining the timing of revenue recognition pursuant to each arrangement.

The Company has completed these contract reviews and has determined there will be no material adjustment to retained earnings upon adoption of ASU No. 2014-09, effective January 1, 2019. The Company is currently updating and implementing revised accounting system processes in order to capture information required to be disclosed under ASU No. 2014-09.

The Company has also begun updating its current accounting policies to align with revenue recognition practices under ASU No. 2014-09. In 2019, as part of its ongoing evaluation of contracts with customers, the Company will hold regular meetings with key stakeholders across the organization to determine any impact ASU No. 2014-09 may have on its current or new business processes. Additionally, the Company continues to evaluate its internal processes to address risks associated with incorporating ASU No. 2014-09. Upon adoption, the Company will also implement new internal controls associated with incorporating ASU No. 2014-09, which is not expected to result in a material change in its existing control environment.

Disclosure Requirements for ASU No. 2014-09

The Company’s disclosures related to revenue recognition will be significantly expanded under ASU No. 2014-09, specifically around the quantitative and qualitative information associated with performance obligations, changes in contract assets and liabilities, and the disaggregation of revenue. The Company is currently in the process of evaluating the impact of these disclosure requirements.

6

Other Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard, which requires the use of a modified retrospective transition approach, includes a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. Based on initial evaluation, the Company expects to include operating leases with durations greater than twelve months on its Condensed Consolidated Balance Sheets. The Company is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company will provide additional information about the expected financial impact as it progresses through the evaluation and implementation of the standard. Although the standard is effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2019 and the interim periods within the fiscal years beginning after December 15, 2020.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the fiscal years beginning after December 15, 2018 and the interim periods within fiscal years beginning after December 15, 2019. The Company will apply the guidance retrospectively and is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements. Although the standard is generally effective for fiscal years beginning after December 15, 2017, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2018 and the interim periods within annual periods beginning after December 15, 2019. Entities are required to apply the guidance prospectively when adopted.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The ASU is required to be applied retrospectively, except the new Level 3 disclosure requirements are applied prospectively. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

7

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) –Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in ASU No. 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. ASU 2018-15 is effective for public businesses for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the annual reporting periods beginning after December 15, 2020 and the interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

4. Business Acquisitions

Magnum Acquisition

On October 25, 2018 (the “Closing Date”), pursuant to the terms of a Securities Purchase Agreement, dated October 15, 2018 (the “Magnum Purchase Agreement”), the Company acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum”) for approximately $334.5 million in upfront cash consideration, subject to customary adjustments, and 5.0 million shares of the Company’s common stock, which were issued to the sellers of Magnum in a private placement. The Magnum Purchase Agreement also includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019 (the “Magnum Earnout”).

The Magnum Acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date, with the remaining unallocated amount recorded as goodwill.

The following table summarizes the fair value of purchase consideration transferred on the Closing Date:

	Fair Value
	(in thousands)
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility(1)	$	296,622
Cash provided from operations	58,760
Total upfront cash consideration	$	355,382
Issuance of the Company’s common shares	$	177,350
Contingent consideration(2)	23,029
Total purchase consideration	$	555,761

(1) Senior Notes and 2018 ABL Credit Facility are defined in Note 8 – Debt Obligations.

(2) The estimated fair value of the Magnum Earnout was based on a Monte Carlo simulation model with estimated outcomes ranging from $0 to $25.0 million. The estimated fair value of the Magnum Earnout is based upon available information and certain assumptions, known at the time of this Quarterly Report on Form 10-Q, which management believes are reasonable. Any difference in the actual Magnum Earnout from the estimated fair value of the Magnum Earnout will be recorded in operating income (loss) in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

The final determination of the fair value of assets acquired and liabilities assumed at the Closing Date will be completed as soon as possible, but no later than one year from the Closing Date (the “Measurement Period”). The Company’s preliminary purchase price allocation is subject to revision as additional information about the fair value of assets and liabilities becomes available. Additional information that existed as of the Closing Date, but at the time was unknown to the Company, may become known to the Company during the remainder of the Measurement Period. The final determination of fair value may differ materially from these preliminary estimates.  

8

The following table summarizes the preliminary allocation of the purchase price of the Magnum Acquisition to the assets acquired and liabilities assumed based on the fair value as of the Closing Date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill:

	Purchase Price Allocation
	(in thousands)
Cash and cash equivalents	$	8,509
Accounts receivable, net	30,441
Income taxes receivable	272
Inventories, net	55,169
Prepaid expenses and other current assets	1,147
Property and equipment, net	3,729
Goodwill	225,839
Definite-lived intangible assets, net	148,000
Indefinite-lived intangible assets	96,000
Other long-term assets	1,055
Accounts payable	(3,626		)
Accrued expenses	(10,759		)
Other long-term liabilities	(15		)
Total net assets acquired	$	555,761

All goodwill acquired is attributable to expected synergies gained through the Magnum Acquisition as well as the assembled workforce. In addition, all goodwill acquired is included in the Completion Solutions segment and is deductible for tax purposes. For additional information on goodwill, see Note 6 – Goodwill and Intangible Assets.

Magnum’s results of operations are included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss), as part of its Completion Solutions segment, for the three months ended March 31, 2019. It is impractical to quantify the contribution of Magnum since the Closing Date, as the business was fully integrated into the Company’s existing operations in 2018.  

Frac Tech Acquisition

On October 1, 2018, pursuant to the terms and conditions of a Securities Purchase Agreement (the “Frac Tech Purchase Agreement”), the Company acquired Frac Technology AS, a Norwegian private limited company (“Frac Tech”) focused on the development of downhole technology, including a casing flotation tool and a number of patented downhole completion tools. This acquisition was not material to the Company’s Condensed Consolidated Financial Statements.

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5. Inventories

Inventories, consisting primarily of finished goods and raw materials, are stated at the lower of cost or net realizable value. Cost is determined on an average cost basis. The Company reviews its inventory balances and writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The reserve for obsolescence was $2.9 million and $1.9 million at March 31, 2019 and December 31, 2018, respectively.

Inventories, net as of March 31, 2019 and December 31, 2018 were comprised of the following: 

	March 31, 2019			December 31, 2018
	(in thousands)
Raw materials	$	41,986		$	38,890
Work in progress	2,739			130
Finished goods	56,262			54,301
Inventories	100,987			93,321
Reserve for obsolescence	(2,934		)	(1,886		)
Inventories, net	$	98,053		$	91,435

6. Goodwill and Intangible Assets

Goodwill

The changes in the net carrying amount of the components of goodwill for the three months ended March 31, 2019 were as follows: 

	Goodwill
	Gross Value		Accumulated Impairment Loss			Net
	(in thousands)
Balance as of December 31, 2018	$	400,067	$	(92,263	)	$	307,804
Impairment	—		—			—
Balance as of March 31, 2019	$	400,067	$	(92,263	)	$	307,804

Intangible Assets

The changes in the net carrying value of the components of intangible assets for the three months ended March 31, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Infinite-Lived Intangible Asset Total
	(in thousands, except weighted average amortization period information)
Balance as of December 31, 2018	$	47,964		$	2,850		$	122,637		$	173,451		$	107,700	$	1,011	$	108,711
Additions	—			—			—			—			—		—		—
Amortization expense	(2,094		)	(415		)	(2,179		)	(4,688		)	—		—		—
Balance as of March 31, 2019	$	45,870		$	2,435		$	120,458		$	168,763		$	107,700	$	1,011	$	108,711
Weighted average amortization period	7.1			3.5			14.3						Indefinite		Indefinite

Amortization of intangibles was $4.7 million and $1.9 million for the three months ended March 31, 2019 and 2018, respectively.

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7. Accrued Expenses

Accrued expenses as of March 31, 2019 and December 31, 2018 consisted of the following:

	March 31, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	16,383	$	11,930
Accrued bonus	1,088		13,250
Sales tax payable	1,389		1,185
Magnum contingent liability	6,245		20,922
Accrued interest	14,770		7,031
Other accrued expenses	4,158		7,116
Accrued expenses	$	44,033	$	61,434

8. Debt Obligations

The Company’s debt obligations as of March 31, 2019 and December 31, 2018 were as follows: 

	March 31, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	15,000			35,000
Total debt before deferred financing costs	$	415,000		$	435,000
Deferred financing costs	(9,502		)	(10,022		)
Total debt	$	405,498		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	405,498		$	424,978

Senior Notes

On October 25, 2018, the Company issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The Senior Notes were issued under an indenture, dated as of October 25, 2018 (the “Indenture”), by and among the Company, certain subsidiaries of the Company and Wells Fargo, National Association, as Trustee. The Senior Notes bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year with the first interest payment being due on May 1, 2019. The Senior Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries.

The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to engage in certain activities. The Company was in compliance with the provisions of the Indenture at March 31, 2019.

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

Unamortized deferred financing costs associated with the Senior Notes were $9.5 million and $10.0 million at March 31, 2019 and December 31, 2018, respectively. These costs are direct deductions from the carrying amount of the Senior Notes and are being amortized through interest expense through the maturity date of the Senior Notes using the effective interest method.

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2018 ABL Credit Facility

On October 25, 2018, the Company entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”), by and among the Company, Nine Energy Canada, Inc., JP Morgan Chase Bank, N.A. (“JP Morgan”) as administrative agent and as an issuing lender, and certain other financial institutions party thereto as lenders and issuing lenders. The 2018 ABL Credit Agreement permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date.

Loans to the Company and its domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018 ABL Credit Facility may be base rate loans or LIBOR loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be CDOR loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans vary from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans vary from 1.75% to 2.25%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. Interest rates averaged 4.71% during the first quarter of 2019.

The 2018 ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions), and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below a certain threshold or a default has occurred until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. The Company was in compliance with all covenants under the 2018 ABL Credit Agreement at March 31, 2019.

All of the obligations under the 2018 ABL Credit Facility are secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties, excluding certain assets. The 2018 ABL Credit Facility is guaranteed by the U.S. Credit Parties, and the Canadian tranche is further guaranteed by the Canadian Credit Parties and the U.S. Credit Parties.

In the first quarter of 2019, the Company repaid approximately $20.0 million of its outstanding revolver borrowings. The Company is permitted to repay any amounts borrowed prior to the maturity date without any premium or penalty, subject to minimum amounts of prepayments and customary LIBOR breakage costs.

At March 31, 2019, the Company’s availability under the 2018 ABL Credit Facility was approximately $129.7 million, net of outstanding revolver borrowings of $15.0 million and an outstanding letter of credit of $0.5 million.

Prior Credit Agreements

On September 14, 2017, the Company entered into a credit agreement (as amended on November 20, 2017, the “2018 IPO Credit Agreement”) with JP Morgan as administrative agent and certain other financial institutions that became effective upon the consummation of the initial public offering (“IPO”) in January 2018 (the “Effective Date”). Pursuant to the terms of the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow $125.0 million of term loans (the “2018 IPO Term Loan Credit Facility”), which the Company drew in full on the Effective Date. In January 2018, the Company also made a mandatory prepayment of $9.7 million against the 2018 IPO Term Loan Credit Facility, which approximated 50.0% of the estimated net proceeds from the IPO in excess of $150.0 million, as prescribed under the 2018 IPO Credit Agreement. In addition, under the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow up to $50.0 million (including letters of credit) as revolving credit loans under the revolving commitments. Loans to the Company and its domestic restricted subsidiaries under the 2018 IPO Credit Agreement were either base rate loans or LIBOR loans. The applicable margin for base rate loans varied from 1.50% to 2.75%, and the applicable margin for LIBOR loans varied from 2.50% to 3.75%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum was charged on the average daily unused portion of the revolving commitments. On October 25, 2018, the Company fully repaid and terminated the 2018 IPO Credit Agreement.

In 2014, the Company entered into the Amended and Restated Credit Agreement (as amended, the “Legacy Nine Credit Agreement”) with HSBC Bank USA, N.A., as U.S. administrative agent, HSBC Bank Canada, as Canadian agent, and certain other financial institutions. All loans and other obligations under the Legacy Nine Credit Agreement were scheduled to

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mature on May 31, 2018. In 2014, Beckman Production Services, Inc. entered into a credit agreement (as amended, the “Legacy Beckman Credit Agreement” and together with the Legacy Nine Credit Agreement, the “Legacy Credit Agreements”) with Wells Fargo Bank, National Association, as administrative agent, and certain other financial institutions. All loans and other obligations under the Legacy Beckman Credit Agreement were scheduled to mature on June 30, 2018. Concurrent with the effectiveness of the 2018 IPO Credit Agreement in January 2018, the Company repaid all indebtedness under the Legacy Credit Agreements, which approximated $242.2 million.

Debt Extinguishment Costs

During the first quarter of 2018, the Company recorded debt extinguishment costs of approximately $0.7 million in unamortized deferred financing costs associated with the termination of the Legacy Credit Agreements. These unamortizeddeferred financing costs were being amortized through the maturity dates of each agreement using the effective interest method.These debt extinguishment costs are included in “Interest expense” in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended March 31, 2018.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of March 31, 2019 and December 31, 2018 was as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	412,000	$	376,000
2018 ABL Credit Facility	$	15,000	$	35,000

The fair value of the Senior Notes is classified as Level 2 in the fair value hierarchy and is established based on observable inputs in less active markets. The 2018 ABL Credit Facility is also classified within Level 2 of the fair value hierarchy. The fair value of the 2018 ABL Credit Facility approximates its carrying value.

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9. Related Party Transactions

As part of the acquisition of Crest Pumping Technologies, LLC (“Crest”) in 2014, the Company issued promissory notes totaling $9.4 million to former owners of Crest, including David Crombie, who is an executive officer of the Company. The principal is due on June 30, 2019. The interest rate is based on the prime rate, the federal funds rate, or LIBOR, plus a margin to be determined in connection with the Company’s credit agreement and is due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At March 31, 2019 and December 31, 2018, the outstanding principal balance of the notes of the remaining individuals totaled $7.1 million and $7.6 million, respectively. Unpaid interest, included in “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheets, totaled $147,000 and $10,000 at March 31, 2019 and December 31, 2018, respectively.

The Company leases office space, yard facilities, and equipment and purchases building maintenance services from entities owned by Mr. Crombie. Total lease expense and building maintenance expense was $0.2 million for each of the three months ended March 31, 2019 and 2018. There were $13,000 and no payables to these entities at March 31, 2019 and December 31, 2018, respectively. The Company also purchased $0.1 million of equipment during the three months ended March 31, 2019 from an entity in which Mr. Crombie is a limited partner.

In addition, the Company leases office space in Corpus Christi and Midland, Texas from an entity affiliated with Lynn Frazier, a beneficial owner of more than 5% of the Company’s stock. Total rental expense associated with this office space was $0.4 million for the three months ended March 31, 2019.

At December 31, 2018, the Company had an open receivable due from the sellers of Magnum primarily attributed to sales commissions paid to an intercompany entity that was not included in the Magnum Acquisition. The Company received payment in full in the first quarter of 2019.

The Company provides services to Citation Oil & Gas Corp., an entity owned by Curtis F. Harrell, a director of the Company. The Company billed $0.1 million and $0.2 million for services provided to this entity during the three months ended March 31, 2019 and 2018, respectively. There was an outstanding receivable due from such entity of $0.1 million and $0.1 million as of March 31, 2019 and December 31, 2018, respectively.

The Company provides services in the ordinary course of business to EOG Resources, Inc. (“EOG”). Gary L. Thomas, a director of the Company, acted as the President of EOG until his retirement from EOG at December 31, 2018. The Company generated revenue from EOG of $7.8 million for the three months ended March 31, 2018.

10. Commitments and Contingencies

Litigation

From time to time, the Company has various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, the Company believes any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on its business, operating results, or financial condition.

On August 31, 2017, an accident occurred while a five-employee crew of Big Lake Services, LLC, a subsidiary of Nine (“Big Lake Services”), was performing workover services at an oil and gas wellsite near Midland, Texas, operated by Pioneer Natural Resources USA, Inc. (“Pioneer Natural Resources”), resulting in the death of a Big Lake Services employee, Juan De La Rosa. On December 7, 2017, a lawsuit was filed on behalf of Mr. De La Rosa’s minor children in the Midland County District Court against Pioneer Natural Resources, Big Lake Services, and Phillip Hamilton related to this accident. The petition alleges, among other things, that the defendants acted negligently, resulting in the death of Mr. De La Rosa. On March 14, 2018, a plea in intervention was filed on behalf of Mr. De La Rosa’s parents, alleging similar claims. The plaintiffs and intervenors sought money damages, including punitive damages. On December 17, 2018, a mediation was held, and the parties reached an agreement in principle to settle this matter. The Company has tendered this matter to its insurance company for defense and indemnification of Big Lake Services and the other defendants and expects this settlement will be fully funded by its insurance company. Finalization of the settlement is subject to the execution of definitive documentation and approval by the court.

Self-insurance

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The Company uses a combination of third-party insurance and self-insurance for health insurance clams. The self-insured liability represents an estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date. The estimate is based on an analysis of trailing months of incurred medical claims to project the amount of incurred but not reported claims liability. The estimated liability for self-insured medical claims was $1.8 million and $1.6 million at March 31, 2019 and December 31, 2018, respectively, and is included under the caption “Accrued expenses” on the Condensed Consolidated Balance Sheets.

Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, the self-insurance liability could be affected if future claims experience differs significantly from historical trends and actuarial assumptions.

Contingent Liabilities

The Company has recorded the following contingent liabilities at March 31, 2019:

Magnum Earnout

The Magnum Purchase Agreement includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. For additional information on the Magnum Acquisition, see Note 4 – Business Acquisitions.

Frac Tech Earnout

On October 1, 2018, pursuant to the terms and conditions of the Frac Tech Purchase Agreement, the Company acquired Frac Tech. The Frac Tech Purchase Agreement includes, among other things, the potential for additional future payments, based on certain Frac Tech sales volume metrics through December 31, 2023.

The following is a reconciliation of the beginning and ending amounts of the contingent liabilities (Level 3) for the three months ended March 31, 2019:

	Magnum			Frac Tech		Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008	$	25,529
Revaluation adjustments	(14,137		)	182		(13,955		)
Balance at March 31, 2019	$	10,384		$	1,190	$	11,574

The contingent consideration related to the contingent liabilities is reported at fair value, based on a Monte Carlo simulation model. Significant inputs used in the fair value measurement include estimated gross margin related to forecasted sales of the plugs, term of the agreement, and a risk adjusted discount factor. Contingent liabilities include $6.3 million and $20.9 million reported in “Accrued expenses” at March 31, 2019 and December 31, 2018, respectively, and $5.3 million and $4.6 million reported in “Other long-term liabilities” at March 31, 2019 and December 31, 2018, respectively, in the Company’s Condensed Consolidated Balance Sheets. The impact of the revaluation adjustments is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

11. Taxes

The Company’s effective tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pre-tax income and nondeductible items, and changes in valuation allowances.

The Company’s effective tax rate for the three months ended March 31, 2019 was 2.6%, compared to 5.3% for the three months ended March 31, 2018. The change in effective tax rate for the three months ended March 31, 2019 was primarily attributable to changes in pre-tax income and valuation allowance positions as well as tax liability in jurisdictions where income is expected to exceed available net operating losses.

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12. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is based on the weighted average number of shares outstanding during each period and the assumed exercise of potentially dilutive stock options, restricted stock, and restricted stock units.

Basic and diluted earnings per common share was computed as follows: 

	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Net Income		Average Shares Outstanding	Earnings Per Share		Net Income		Average Shares Outstanding	Earnings Per Share
	(in thousands, except share and per share amounts)
Basic	$	17,310	29,150,996	$	0.59	$	1,675	21,902,519	$	0.08
Assumed exercise of stock options			2,709					37,238
Unvested restricted stock and stock units			318,048					129,596
Diluted	$	17,310	29,471,753	$	0.59	$	1,675	22,069,353	$	0.08

13. Segment Information

The Company reports its results of operations in the following two segments: Completion Solutions and Production Solutions.

The Completion Solutions segment consists primarily of cementing, completion tools, wireline, and coiled tubing services, while the Production Solutions segment consists of rig-based well maintenance and workover services.

The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. The Company evaluates the performance of its reportable segments based on adjusted gross profit. This segmentation is representative of the manner in which the Chief Operating Decision Maker (“CODM”) and its Board of Directors view the business. The Company considers the CODM to be its Chief Executive Officer.

Summary financial data by segment is as follows. The amounts labeled “Corporate” relate to assets not allocated to the reportable segments.

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	Three Months Ended March 31,
	2019			2018
	(in thousands)
Revenues
Completion Solutions	$	209,132		$	154,644
Production Solutions	20,573			19,163
	$	229,705		$	173,807
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	161,439		$	121,426
Production Solutions	17,151			16,801
	$	178,590		$	138,227
Adjusted gross profit
Completion Solutions	$	47,693		$	33,218
Production Solutions	3,422			2,362
	$	51,115		$	35,580
General and administrative expenses	19,939			14,365
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Loss on equity method investment	—			75
(Gain) loss on sale of property and equipment	(23		)	370
Income from operations	$	26,936		$	4,698
Other expense
Interest expense	9,166			2,930
Total other expense	9,166			2,930
Income before income taxes	17,770			1,768
Provision for income taxes	460			93
Net income	$	17,310		$	1,675

Capital expenditures by segment for the three months ended March 31, 2019 and 2018, were as follows:

	March 31, 2019		March 31, 2018
	(in thousands)
Completion Solutions	$	22,478	$	5,283
Production Solutions	914		692
Corporate	55		493
	$	23,447	$	6,468

Total assets by segment as of March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,053,653	$	1,045,643
Production Solutions	34,662		35,086
Corporate	40,306		60,443
	$	1,128,621	$	1,141,172

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2019, included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2018.

This section contains forward-looking statements based on our current expectations, estimates, and projections about our operations and the industry in which we operate. Our actual results may differ materially from those discussed in any forward-looking statement because of various risks and uncertainties, including those described in the section titled “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018.

OVERVIEW

Company Description

Nine Energy Service, Inc. (either individually or together with its subsidiaries, as the context requires, the “Company,” “Nine,” “we,” “us,” and “our”) is a leading North American onshore completion and production services provider that targets unconventional oil and gas resource development. We partner with our exploration and production (“E&P”) customers across all major onshore basins in both the U.S. and Canada as well as abroad to design and deploy downhole solutions and technology to prepare horizontal, multistage wells for production. We focus on providing our customers with cost-effective and comprehensive completion solutions designed to maximize their production levels and operating efficiencies. We believe our success is a product of our culture, which is driven by our intense focus on performance and wellsite execution as well as our commitment to forward-leaning technologies that aid us in the development of smarter, customized applications that drive efficiencies.

Recent Events

Magnum Acquisition

On October 25, 2018, pursuant to the terms of a Securities Purchase Agreement dated October 15, 2018 (the “Magnum Purchase Agreement”), we acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum” and such acquisition, the “Magnum Acquisition”) for approximately $334.5 million in upfront cash consideration, subject to customary adjustments, and 5.0 million shares of our common stock, which were issued to the sellers of Magnum in a private placement. The Magnum Purchase Agreement also includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. For additional information on the Magnum Acquisition, see Note 4 – Business Acquisitions included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Senior Notes

On October 25, 2018, we issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The proceeds from the Senior Notes, together with cash on hand and borrowings under the 2018 ABL Credit Facility (as defined below), were used to (i) fund a portion of the upfront cash purchase price of the Magnum Acquisition, (ii) repay all indebtedness under the credit facility entered into in conjunction with our initial public offering (the “IPO”), and (iii) pay fees and expenses associated with the issuance of the Senior Notes, the Magnum Acquisition, and the 2018 ABL Credit Facility (as described below). For additional information on the Senior Notes, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

2018 ABL Credit Facility

On October 25, 2018, we entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”) that permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the “2018 ABL Credit Facility”). Concurrent with the effectiveness of the 2018 ABL Credit Facility, we borrowed approximately $35.0 million to fund a portion of the upfront cash purchase price of the Magnum Acquisition. In the first quarter of 2019, we repaid

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approximately $20.0 million of our outstanding revolver borrowings. For additional information on the 2018 ABL Credit Facility, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Initial Public Offering

In January 2018, we completed our IPO of 8,050,000 shares of common stock (including 1,050,000 shares pursuant to an over-allotment option) at a price to the public of $23.00 per share.

Business Segments

We operate in two segments:

• Completion Solutions: Our Completion Solutions segment provides services integral to the completion of unconventional wells through a full range of tools and methodologies. Through our Completion Solutions segment, we provide (i) cementing services, which consist of blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped between the casing and the wellbore of the well, (ii) an innovative portfolio of completion tools, including those that provide pinpoint frac sleeve system technologies as well as a portfolio of completion technologies used for completing the toe stage of a horizontal well and fully-composite, dissolvable, and extended range frac plugs to isolate stages during plug and perf operations, (iii) wireline services, the majority of which consist of plug-and-perf completions, which is a multistage well completion technique for cased-hole wells that consists of deploying perforating guns to a specified depth, and (iv) coiled tubing services, which perform wellbore intervention operations utilizing a continuous steel pipe that is transported to the wellsite wound on a large spool in lengths of up to 30,000 feet and which provides a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well.

• Production Solutions: Our Production Solutions segment provides a range of production enhancement and well workover services that are performed with a well servicing rig and ancillary equipment. Our well servicing business encompasses a full range of services performed with a mobile well servicing rig (or workover rig) and ancillary equipment throughout a well’s life cycle from completion to ultimate plug and abandonment. Our rigs and personnel install and remove downhole equipment and eliminate obstructions in the well to facilitate the flow of oil and natural gas, often immediately increasing a well’s production. We believe the production increases generated by our well services substantially enhance our customers’ returns and significantly reduce their payback periods.

How We Generate Revenue and the Costs of Conducting Our Business

We generate our revenues by providing completion and production services to E&P customers across all major onshore basins in both the U.S. and Canada as well as abroad. We primarily earn our revenues pursuant to work orders entered into with our customers on a job-by-job basis. We typically will enter into a Master Service Agreement (“MSA”) with each customer that provides a framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us. Each specific job is obtained through competitive bidding or as a result of negotiations with customers. The rate we charge is determined by location, complexity of the job, operating conditions, duration of the contract, and market conditions. In addition to MSAs, we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services, and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business. These longer-term contracts address pricing and other details concerning our services, but each job is performed on a standalone basis.

The principal expenses involved in conducting both our Completion Solutions and Production Solutions segments are labor costs, materials and freight, the costs of maintaining our equipment, and fuel costs. Our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment. Another key component of labor costs relates to the ongoing training of our field service employees, which improves safety rates and reduces employee attrition.

How We Evaluate Our Operations

We evaluate our performance based on a number of financial and non-financial measures, including the following:

• Revenue: We compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year. We monitor our revenue to analyze trends in the performance of each of our segments compared to historical revenue drivers or market metrics

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applicable to that service. We are particularly interested in identifying positive or negative trends and investigating to understand the root causes.

• Adjusted Gross Profit (Excluding Depreciation and Amortization): Adjusted gross profit (excluding depreciation and amortization) is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define segment adjusted gross profit (excluding depreciation and amortization) as segment revenues less segment direct and indirect costs of revenues (excluding depreciation and amortization). Costs of revenues include direct and indirect labor costs, costs of materials, maintenance of equipment, fuel, transportation freight costs, contract services, crew cost, and other miscellaneous expenses. For additional information, see “Non-GAAP Financial Measures” below.

• Adjusted EBITDA: We define Adjusted EBITDA as net income (loss) before interest expense, taxes, and depreciation and amortization, further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) loss or gain from discontinued operations, (iv) loss or gain on revaluation of contingent liabilities, (v) loss or gain on equity method investment, (vi) stock-based compensation expense, (vii) loss or gain on sale of property and equipment, and (viii) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs. For additional information, see “Non-GAAP Financial Measures” below.

• Return on Invested Capital (“ROIC”): We define ROIC as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) transaction and integration costs related to acquisitions and our IPO, (ii) property and equipment, goodwill, and/or intangible asset impairment charges, (iii) interest expense, and (iv) the provision or benefit for deferred income taxes. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We compute the average of the current and prior period-end total capital for use in this analysis. For additional information, see “Non-GAAP Financial Measures” below.

• Safety: We measure safety by tracking the total recordable incident rate (“TRIR”), which is reviewed on a monthly basis. TRIR is a measure of the rate of recordable workplace injuries, defined below, normalized and stated on the basis of 100 workers for an annual period. The factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 (i.e., the total hours for 100 employees working 2,000 hours per year) and dividing this value by the total hours actually worked in the year. A recordable injury includes occupational death, nonfatal occupational illness, and other occupational injuries that involve loss of consciousness, restriction of work or motion, transfer to another job, or medical treatment other than first aid.

Factors Affecting the Comparability of Our Results of Operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, and our historical results of operations among the periods presented may not be comparable to each other, primarily due to the Magnum Acquisition.

The historical results of operations for the three months ended March 31, 2019 included in this Quarterly Report on Form 10-Q include activity related to the Magnum Acquisition whereas the historical results of operations for the three months ended March 31, 2018 do not include activity related to the Magnum Acquisition. As a result, the historical results of operations for the three months ended March 31, 2018 may not give you an accurate indication of what our actual results would have been if the Magnum Acquisition had been completed at the beginning of the period presented, or of what our future results of operations are likely to be for the following reasons:

• As a result of the Magnum Acquisition and the application of purchase accounting, these identifiable net assets have been adjusted to their estimated fair value as of October 25, 2018, the closing date of the Magnum Acquisition (the “Closing Date”). These adjusted valuations increase our operating expenses in periods after the Closing Date primarily due to an increase in the amortization of intangible assets with definite lives.

• Transaction and integration costs associated with the Magnum Acquisition increase operating expenses in periods after the Closing Date.

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• Our completion tools line constitutes a larger portion of our business, due in large part to the Magnum Acquisition. We expect that the Magnum Acquisition will generate additional free cash flow, reduce overall capital intensity, and improve our margins. We also expect that the Magnum Acquisition will further diversify our basin exposure and add significant size and scale.

• We incurred significant indebtedness in connection with the consummation of the Magnum Acquisition, and our related interest expense is expected to be significantly higher than in prior periods.

For additional information on the Magnum Acquisition, see Note 4 – Business Acquisitions included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Industry Trends and Outlook

Our business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in North America. These activity and spending levels are strongly influenced by the current and expected oil and natural gas prices. During 2018, oil prices rose to their highest levels since the downturn that began in late 2014. However, during the fourth quarter of 2018, oil prices declined approximately 40%, which is generally believed to be due to concerns over a worldwide oversupply of oil as well as concerns over the possible slowing of global demand growth. In response, OPEC members and some nonmembers, including Russia, have renewed pledges to reduce planned production in an effort to draw down a global oversupply and to rebalance supply and demand. These and other events have provided support for an increase in the oil price during the first quarter of 2019. Despite the increase, we expect ongoing oil price volatility as compliance with the output reduction agreements, changes in oil inventories, GDP growth, and actual demand growth are reported. Similarly, natural gas prices are expected to continue to be volatile. Significant factors that are likely to affect 2019 commodity prices include the effect of U.S. energy, monetary, and trade policies; the pace of economic growth in the U.S. and throughout the world, including the potential for macro weakness; geopolitical and economic developments in the U.S. and globally; the extent to which members of OPEC and other oil exporting nations adhere to and agree to extend the agreed oil production cuts; and overall North American natural gas supply and demand fundamentals, including the pace at which export capacity grows.

Customer budgets for 2019 were set at the end of 2018. As discussed above, there was a sharp decline in oil price during the fourth quarter of 2018. As a result, customer budgets for 2019 are more limited than previously anticipated, and on average, customers have decreased E&P investments in 2019 as compared to 2018, which could adversely affect our business. Even if there is price improvement in oil and natural gas throughout 2019, it is expected that operator activity would not materially increase, as operators would likely remain focused on operating within their previously set capital plans.

Operators have continued to improve operational efficiencies in completions design, increasing the complexity and difficulty, making oilfield service selection more important. This increase in high-intensity, high-efficiency completions of oil and gas wells further enhances the demand for our services. We compete for the most complex and technically demanding wells in which we specialize, which are characterized by extended laterals, increased stage spacing, multi-well pads, cluster spacing, and high proppant loads. These well characteristics lead to increased operating leverage and returns for us, as we are able to complete more jobs and stages with the same number of units and crews. Service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently, rather than only price.

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Results of Operations

Results for the Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

	Three Months Ended March 31,
	2019			2018		Change
	(in thousands)
Revenues
Completion Solutions	$	209,132		$	154,644	$	54,488
Production Solutions	20,573			19,163		1,410
	$	229,705		$	173,807	$	55,898
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	161,439		$	121,426	$	40,013
Production Solutions	17,151			16,801		350
	$	178,590		$	138,227	$	40,363
Adjusted gross profit
Completion Solutions	$	47,693		$	33,218	$	14,475
Production Solutions	3,422			2,362		1,060
	$	51,115		$	35,580	$	15,535
General and administrative expenses	19,939			14,365		5,574
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063		(15,018		)
Depreciation	13,530			13,109		421
Amortization of intangibles	4,688			1,900		2,788
Loss on equity method investment	—			75		(75		)
(Gain) loss on sale of property and equipment	(23		)	370		(393		)
Income from operations	$	26,936		$	4,698	$	22,238
Other expense
Interest expense	9,166			2,930		6,236
Total other expense	9,166			2,930		6,236
Income before income taxes	17,770			1,768		16,002
Provision for income taxes	460			93		367
Net income	$	17,310		$	1,675	$	15,635

Revenues

Revenues increased$55.9 million, or 32%, to $229.7 million for the first quarter of 2019, primarily within our Completion Solutions segment, due in large part to the Magnum Acquisition in the fourth quarter of 2018 as well as increased revenues in other service lines within the segment. Both the Completion Solutions segment and the Production Solutions segment depend, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in North America. In turn, activity and capital spending are strongly influenced by current and expected oil and natural gas prices. During the first quarter of 2019, the closing price of oil reached a high of $60.19 per barrel, and the closing price of natural gas reached a high of $4.25 per MMBtu. During the first quarter of 2018, the closing price per barrel of oil reached $66.27, and the closing price of natural gas reached a high of $6.24 per MMBtu.

Additional information with respect to revenues by reportable segment is discussed below.

Completion Solutions: Revenues increased$54.5 million, or 35%, to $209.1 million for the first quarter of 2019. The increase is primarily related to an increase in completion tools revenue of 187% in comparison to the first quarter of 2018, with a corresponding increase of 109% in completion tool stages, and an increase of 37% in completion tools revenues by stage, due in large part to the Magnum Acquisition in the fourth quarter of 2018. In addition, wireline revenues increased 29% for the first quarter of 2019 and total wireline stages completed increased 36% due to an increase in activity in comparison to the first

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quarter of 2018. Cementing revenues (including pump downs) increased by 24%, primarily due to a 22% increase in cement job count quarter-over-quarter. Coiled tubing services revenues decreased 11% in comparison to the first quarter of 2018 as total job count decreased by 31%.

Production Solutions: Revenues increased$1.4 million, or 7%, to $20.6 million for the first quarter of 2019. Rig activity, measured in hours worked, decreased 4%, but was more than offset by an overall increase in non-rig work between periods coupled with price increases that took place after the first quarter of 2018.

Cost of Revenues (Exclusive of Depreciation and Amortization)

Cost of revenues increased$40.4 million, or 29%, to $178.6 million for the first quarter of 2019. The increase was a result of additional revenue-generating activity in comparison to the first quarter of 2018, driven in large part by the Magnum Acquisition in the fourth quarter of 2018. Materials installed in wells and consumed while performing services increased $25.3 million. Employee costs increased $9.1 million, and other costs increased $6.0 million in comparison to the first quarter of 2018.

Additional information with respect to cost of revenues by reportable segment is discussed below.

Completion Solutions: Cost of revenues increased$40.0 million, or 33%, to $161.4 million for the first quarter of 2019. Costs related to materials installed in wells and consumed while performing services increased $25.6 million, primarily as a result of the increase in revenue generating-activity due in large part to the Magnum Acquisition in the fourth quarter of 2018 as well as increased revenue in other service lines within the segment. Employee costs increased $8.6 million in comparison to the first quarter of 2018, as headcount increased primarily due to the Magnum Acquisition. Other costs, such as integration costs, freight, facilities and vehicle expense, increased $5.8 million mainly due to increased activity and the Magnum Acquisition.

Production Solutions: Cost of revenues increased$0.4 million, or 2%, to $17.2 million for the first quarter of 2019. Employee costs increased by $0.5 million, due in part to increased compensation in the first quarter of 2019 while other costs, such as vehicle and facilities expense, increased by $0.2 million. The overall increase in cost of revenues was partially offset by a decrease in costs related to materials consumed while performing services of $0.3 million.

Adjusted Gross Profit

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased$14.5 million to $47.7 million for the first quarter of 2019 due to the factors described above under “Revenues” and “Cost of Revenues.”

Production Solutions: Adjusted gross profit (excluding depreciation and amortization) increased$1.1 million to $3.4 million for the first quarter of 2019 as a result of the factors described above under “Revenues” and “Cost of Revenues.”

General and Administrative Expenses

General and administrative expenses increased$5.6 million to $19.9 million for the first quarter of 2019. The increase in comparison to the first quarter of 2018 was primarily attributed to additional general and administrative costs, including compensation, benefits, and integration costs, associated with the Magnum Acquisition, which was acquired in the fourth quarter of 2018. General and administrative expenses as a percentage of revenue was 8.7% for the first quarter of 2019, compared to 8.3% for the first quarter of 2018.

(Gain) Loss on Revaluation of Contingent Liabilities

(Gain) loss on the revaluation of contingent liabilities increased $15.0 million to a gain of $14.0 million for the first quarter of 2019. The increase was primarily attributed to a reduction in the estimated sales of certain dissolvable plug products in 2019 associated with the Magnum Acquisition.

Depreciation

Depreciation expense increased$0.4 million to $13.5 million for the first quarter of 2019, primarily due to an increase in capital expenditures in the first quarter of 2019 within the Completion Solutions segment mainly due to increased activity in comparison to the first quarter of 2018. The overall increase was partially offset by a reduction in depreciation expense associated with businesses in the Production Solutions segment mainly due to the property and equipment impairment charge recorded in the fourth quarter of 2018.

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Amortization of Intangibles

Amortization of intangibles increased$2.8 million to $4.7 million for the first quarter of 2019, primarily due to a $3.1 million increase in amortization attributed to the intangible assets acquired as part of the Magnum Acquisition and Frac Tech Acquisition. The overall increase was partially offset by a reduction in amortization of $0.3 million associated with intangible assets in the Production Solutions segment, which were fully impaired in the fourth quarter of 2018.

Interest Expense

Interest expense increased$6.2 million to $9.2 million for the first quarter of 2019. The increase in comparison to the first quarter of 2018 was primarily attributed to higher indebtedness and an increased interest rate in conjunction with the Senior Notes, which were entered into in the fourth quarter of 2018 in connection with the Magnum Acquisition.

Provision (Benefit) for Income Taxes

Our effective tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pre-tax income and nondeductible items, and changes in valuation allowances.

Our effective tax rate for the first quarter of 2019 was 2.6%, compared to 5.3% for the first quarter of 2018. The change in effective tax rate between periods was primarily attributable to changes in pre-tax income and valuation allowance positions, as well as tax liability in jurisdictions where income is expected to exceed available net operating losses.

Adjusted EBITDA

Adjusted EBITDA increased$15.0 million to $39.2 million for the first quarter of 2019. The Adjusted EBITDA increase is primarily due to the changes in revenues and expenses discussed above. See “Non-GAAP Financial Measures” below for further explanation.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies.

We define EBITDA as net income (loss) before interest expense, depreciation, amortization of intangibles, and provision (benefit) for income taxes.

We define Adjusted EBITDA as EBITDA further adjusted for (i) property and equipment, goodwill, and/or intangible asset impairment charges, (ii) transaction and integration costs related to acquisitions and our IPO, (iii) loss or gain from discontinued operations, (iv) loss or gain on revaluation of contingent liabilities, (v) loss or gain on equity method investment, (vi) stock-based compensation expense, (vii) loss or gain on sale of property and equipment, and (viii) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business, such as legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs.

Management believes EBITDA and Adjusted EBITDA are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at these measures because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. These measures should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”) or as an indicator of our operating performance. Certain items excluded from these measures are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of these measures. Our computations of these measures may not be comparable to other similarly titled measures of other companies. We believe that these are widely followed measures of operating performance.

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The following table presents a reconciliation of the non-GAAP financial measures of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income (loss) for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
	(in thousands)
EBITDA reconciliation:
Net income	$	17,310		$	1,675
Interest expense	9,166			2,930
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Provision for income taxes	460			93
EBITDA	$	45,154		$	19,707
Adjusted EBITDA reconciliation:
EBITDA	$	45,154		$	19,707
Transaction and integration costs	4,762			377
(Gain) loss on revaluation of contingent liabilities (1)	(13,955		)	1,063
Loss on equity method investment	—			75
Stock-based compensation expense	3,153			2,240
(Gain) loss on sale of property and equipment	(23		)	370
Legal fees and settlements (2)	68			305
Adjusted EBITDA	$	39,159		$	24,137

(1)Amounts relate to the revaluation of contingent liabilities associated with our recent acquisitions. The impact is included in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss). For additional information on contingent liabilities, see Note 10 – Commitments and Contingencies included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

(2)Amounts represent fees and legal settlements associated with legal proceedings brought pursuant to the Fair Labor Standards Act and/or similar state laws.

Return on Invested Capital

ROIC is a supplemental non-GAAP financial measure. We define ROIC as after-tax net operating profit (loss), divided by average total capital. We define after-tax net operating profit (loss) as net income (loss) plus (i) transaction and integration costs related to acquisitions and our IPO, (ii) property and equipment, goodwill, and/or intangible asset impairment charges, (iii) interest expense, and (iv) the provision or benefit for deferred income taxes. We define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents. We then take the average of the current and prior period-end total capital for use in this analysis.

Management believes ROIC is a meaningful measure because it quantifies how well we generate operating income relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. Management uses ROIC to assist them in capital resource allocation decisions and in evaluating business performance. Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC differ, and our computation of ROIC may not be comparable to other similarly titled measures of other companies.

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The following table provides an explanation of our calculation of ROIC for the three months ended March 31, 2019:

	Three Months Ended March 31, 2019
	(in thousands)
Net income	$	17,310
Add back:
Interest expense	9,166
Transaction and integration costs	4,762
Benefit for deferred income taxes	(478		)
After-tax net operating profit	$	30,760
Total capital as of prior year-end:
Total stockholders’ equity	$	594,823
Total debt	435,000
Less cash and cash equivalents	(63,615		)
Total capital	$	966,208
Total capital as of period end:
Total stockholders’ equity	$	615,467
Total debt	415,000
Less cash and cash equivalents	(31,157		)
Total capital	$	999,310
Average total capital	$	982,759
ROIC	12.5%

Adjusted Gross Profit (Excluding Depreciation and Amortization)

GAAP defines gross profit as revenues less cost of revenues and includes depreciation and amortization in costs of revenues. We define adjusted gross profit (excluding depreciation and amortization) as revenues less cost of revenues (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit because we do not include the impact of depreciation and amortization, which represent non-cash expenses.

Management uses adjusted gross profit (excluding depreciation and amortization) to evaluate operating performance and to determine resource allocation between segments. We prepare adjusted gross profit (excluding depreciation and amortization) to eliminate the impact of depreciation and amortization because we do not consider depreciation and amortization indicative of our core operating performance. Adjusted gross profit (excluding depreciation and amortization) should not be considered as an alternative to gross profit (loss), operating income (loss), or any other measure of financial performance calculated and presented in accordance with GAAP. Adjusted gross profit (excluding depreciation and amortization) may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted gross profit (excluding depreciation and amortization) or similarly titled measures in the same manner as we do.

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The following table presents a reconciliation of adjusted gross profit (excluding depreciation and amortization) to GAAP gross profit (loss) for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018
	(in thousands)
Calculation of gross profit
Revenues	$	229,705	$	173,807
Cost of revenues (exclusive of depreciation and amortization shown separately below)	178,590		138,227
Depreciation (related to cost of revenues)	13,306		12,892
Amortization of intangibles	4,688		1,900
Gross profit	$	33,121	$	20,788
Adjusted gross profit (excluding depreciation and amortization) reconciliation:
Gross profit	$	33,121	$	20,788
Depreciation (related to cost of revenues)	13,306		12,892
Amortization of intangibles	4,688		1,900
Adjusted gross profit (excluding depreciation and amortization)	$	51,115	$	35,580

Liquidity and Capital Resources

Sources and Uses of Liquidity

Historically, we have met our liquidity needs principally from cash flows from operating activities, external borrowings, proceeds from the IPO, and capital contributions (prior to the IPO). Our principal uses of cash are to fund capital expenditures and acquisitions, to service our outstanding debt, and to fund our working capital requirements. In 2018, we issued $400.0 million of Senior Notes to, together with cash on hand and borrowings under the 2018 ABL Credit Facility, fund the Magnum Acquisition as well as fully repay and terminate the term loan borrowings and the outstanding revolving credit commitments under our prior credit facility. For additional information regarding the Senior Notes, see Note 8 – Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to continue to access outside sources of capital. In addition, our ability to satisfy our liquidity requirements depends on our future operating performance, which is affected by prevailing economic conditions, the level of drilling, completion and production activity for North American onshore oil and natural gas resources, and financial and business and other factors, many of which are beyond our control.

Although we do not budget for acquisitions, pursuing growth through acquisitions is a significant part of our business strategy. Our ability to make significant additional acquisitions for cash will require us to obtain additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

At March 31, 2019, we had $31.2 million of cash and cash equivalents and $129.7 million of availability under the 2018 ABL Credit Facility, which resulted in a total liquidity position of $160.9 million.

2018 ABL Credit Facility

On October 25, 2018, we entered into the 2018 ABL Credit Agreement. The 2018 ABL Credit Agreement permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit. The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date.

Loans to us and our domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018 ABL Credit Facility may be base rate loans or LIBOR loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be CDOR loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans vary from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans vary from 1.75% to 2.25%, in each case depending on our leverage

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ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. Interest rates averaged 4.71% during the first quarter of 2019.

The 2018 ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions) and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below a certain threshold or a default has occurred until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. We were in compliance with all covenants under the 2018 ABL Credit Agreement at March 31, 2019.

All of the obligations under the 2018 ABL Credit Facility are secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties excluding certain assets. The 2018 ABL Credit Facility is guaranteed by the U.S. Credit Parties and the Canadian tranche is further guaranteed by the Canadian Credit Parties and the U.S. Credit Parties.

At March 31, 2019, our availability under the 2018 ABL Credit Facility was approximately $129.7 million, net of outstanding revolver borrowings of $15.0 million and an outstanding letter of credit of $0.5 million.

Cash Flows

Cash flows provided by (used in) operations by type of activity were as follows for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Operating activities	$	5,888		$	17,307
Investing activities	(18,139		)	(5,372		)
Financing activities	(20,279		)	43,648
Impact of foreign exchange rate on cash	72			(196		)
Net change in cash and cash equivalents	$	(32,458	)	$	55,387

Operating Activities

Net cash provided by operating activities was $5.9 million for the first quarter of 2019 compared to $17.3 million in net cash provided by operating activities for the first quarter of 2018. The $11.4 milliondecrease in net cash provided by operating activities was primarily a result of a $16.8 million increase in net cash used to support our working capital needs compared to the first quarter of 2018. The overall decrease in net cash provided by operating activities was partially offset by a $5.4 million increase in cash flow provided by continuing operations, adjusted for any non-cash items, primarily due to revenue growth compared to the first quarter of 2018.

Investing Activities

Net cash used in investing activities was $18.1 million for the first quarter of 2019 compared to $5.4 million in net cash used in investing activities for the first quarter of 2018. The $12.8 million increase in net cash used in investing activities was primarily attributed to an increase of $13.9 million in cash purchases of property and equipment in the first quarter of 2019 compared to the first quarter of 2018. The overall increase in net cash used in investing activities was partially offset by $0.5 million in proceeds received from notes receivables payments in the first quarter of 2019 that did not occur in the first quarter of 2018 as well as an increase of $0.6 million in proceeds received from the sale of property and equipment (including casualty losses) in the first quarter of 2019 compared to the first quarter of 2018.

Financing Activities

Net cash used in financing activities was $20.3 million for the first quarter of 2019 compared to $43.6 million in cash flow provided by financing activities in the first quarter of 2018. The $63.9 million decrease in net cash provided by financing activities was primarily attributed to $171.9 million in proceeds received from the IPO and issuances of common stock and

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$125.0 million in proceeds received from our credit facility entered into in conjunction with the IPO in the first quarter of 2018 that did not recur in the first quarter of 2019. The overall decrease in net cash provided by financing activities was partially offset by $155.7 million in payments made on prior term loans and $1.4 million in deferred financing costs in the first quarter of 2018 that did not recur in the first quarter of 2019 as well as a reduction of $76.2 million in payments made on revolving credit facilities in the first quarter of 2019 compared to the first quarter of 2018.

Contractual Obligations

Our contractual obligations at March 31, 2019 did not change materially, outside the normal course of business, from those disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2018. 

Off-Balance Sheet Arrangements

At March 31, 2019, we had a letter of credit of $0.5 million, which represented an off-balance sheet arrangement as defined in Item 303(a)(4)(ii) of Regulation S-K. As of March 31, 2019, no liability has been recognized in our Condensed Consolidated Balance Sheets for the letter of credit.

Recent Accounting Pronouncements

See Note 3 – New Accounting Standards included in Item 1 of Part I of this Quarterly Report on Form 10-Q for a summary of recently issued accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information previously disclosed in Item 7A of Part II included in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2019. Based upon that evaluation, and due to the material weakness in internal control over financial reporting described in Item 9A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2018, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019.

Changes in Internal Control over Financial Reporting.There was no change in our internal control over financial reporting during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we have various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, we believe any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our business, operating results, or financial condition.

On August 31, 2017, an accident occurred while a five-employee crew of Big Lake Services, LLC, a subsidiary of Nine (“Big Lake Services”), was performing workover services at an oil and gas wellsite near Midland, Texas, operated by Pioneer Natural Resources USA, Inc. (“Pioneer Natural Resources”), resulting in the death of a Big Lake Services employee, Juan De La Rosa. On December 7, 2017, a lawsuit was filed on behalf of Mr. De La Rosa’s minor children in the Midland County District Court against Pioneer Natural Resources, Big Lake Services, and Phillip Hamilton related to this accident. The petition alleges, among other things, that the defendants acted negligently, resulting in the death of Mr. De La Rosa. On March 14, 2018, a plea in intervention was filed on behalf of Mr. De La Rosa’s parents, alleging similar claims. The plaintiffs and intervenors sought money damages, including punitive damages. On December 17, 2018, a mediation was held, and the parties reached an agreement in principle to settle this matter. We have tendered this matter to our insurance company for defense and indemnification of Big Lake Services and the other defendants and expect this settlement will be fully funded by our insurance company. Finalization of the settlement is subject to the execution of definitive documentation and approval by the court.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. For a detailed discussion of known material factors which could materially affect our business, financial condition, or future results, refer to “Risk Factors” in Item 1A of Part I included in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE AND SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.

Exhibit number	Description
2.1†	Securities Purchase Agreement, dated as of October 15, 2018, by and among Warren Lynn Frazier, Garrett Lynn Frazier 2018 DG Trust, Derrick Chase Frazier 2018 DG Trust, Frazier Family Foundation, Inc., as sellers, Warren Lynn Frazier, solely and in his capacity as seller representative, MOTI Holdco, LLC and Nine Energy Canada Inc., as buyers, Nine Energy Service, Inc. and certain other parties named therein (Incorporated by reference to Exhibit 2.1 of Nine Energy Service, Inc.'s Current Report on Form 8-K filed on October 15, 2018).
3.1	Third Amended and Restated Certificate of Incorporation of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.1 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).
3.2	Fourth Amended and Restated Bylaws of Nine Energy Service, Inc., dated January 23, 2018 (Incorporated by reference to Exhibit 3.2 of Nine Energy Service, Inc.’s Current Report on Form 8-K filed on January 23, 2018).
10.1*	Form of Nine Energy Service, Inc. Performance Share Unit Grant Notice and Form of Performance Share Unit Agreement.
31.1*	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certifications by Chief Executive Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2**	Certifications by Chief Financial Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101*	Interactive Data Files

* Filed herewith

** Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K.

† Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Nine Energy Service, Inc.
Date:	May 8, 2019	By:	/s/ Ann G. Fox
			Ann G. Fox
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
Date:	May 8, 2019	By:	/s/ Clinton Roeder
			Clinton Roeder
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)

32

EX-10.1

EXHIBIT 10.1

NINE ENERGY SERVICE, INC.

2011 STOCK INCENTIVE PLAN

PERFORMANCE SHARE UNIT GRANT NOTICE

Pursuant to the terms and conditions of the Nine Energy Service, Inc. 2011 Common Stock Incentive Plan, as amended and restated effective February 28, 2017 (the “Plan”), Nine Energy Service, Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the number of performance share units (the “PSUs”) set forth below in this Performance Share Unit Grant Notice (this “Grant Notice”). This award of PSUs (this “Award”) is subject to the terms and conditions set forth herein and in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.

1

Participant:	_____________________
Date of Grant:	_____________________ (the “Date of Grant”)
Award Type and Description:	Performance Award granted pursuant to Paragraph IX of the Plan. To the extent vested, each PSU represents the right to receive, in the sole discretion of the Committee, either: (i) one share of Common Stock or (ii) a cash payment equal to the Fair Market Value of one share of Common Stock, in each case, in an amount equal to up to 200% of the Target PSUs (defined below), subject to the terms and conditions set forth herein and in the Agreement. Your right to receive settlement of this Award in an amount ranging from 0% to 200% of the Target PSUs shall vest and become earned and nonforfeitable upon (i) your satisfaction of the continued employment or service requirements described below under “Service Requirement” and (ii) the Committee’s certification of the level of achievement of the Performance Goal (defined below). The portion of the Target PSUs actually earned upon satisfaction of the foregoing requirements is referred to herein as the “Earned PSUs.”
Target Number of PSUs:	_____________________ (“Target PSUs”).
Performance Period:	_____________ (the “Performance Period Commencement Date”) through _____________ (the “Performance Period End Date”).
Service Requirement:	Except as provided in Section 2 of the Agreement, you must remain continuously employed by the Company or an Affiliate, as applicable, from the Date of Grant through the date the Committee certifies the level of achievement of the Performance Goal (the date of such certification, the “Payout Determination Date”) to be eligible to receive settlement or payment in respect of this Award.
Performance Goal:	Subject to the terms and conditions set forth in the Plan, the Agreement and herein, the percentage of Target PSUs, if any, that become Earned PSUs during the Performance Period will be determined in accordance with the following table:
	Level of Achievement < Threshold Threshold Target Maximum	Percentage of Target PSUs Earned* 0% 50% 100% 200%
	*The percentage of Target PSUs that become Earned PSUs for performance between the threshold, target and maximum achievement levels shall be calculated using linear interpolation. The “Performance Goal” for the Performance Period is [___________________], as described in Exhibit B attached hereto.
Settlement:	Settlement of the Earned PSUs shall be made in either cash or shares of Common Stock, as determined by the Committee, which shall be paid or delivered to you in accordance with Section 4 of the Agreement.

2

By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Grant Notice. You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

[Signature Page Follows]

3

IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.

NINE ENERGY SERVICE, INC.

By:

Title:

Name:

PARTICIPANT

Name:

SIGNATURE PAGE TO

PERFORMANCE SHARE UNIT GRANT NOTICE

EXHIBIT A

PERFORMANCE SHARE UNIT AGREEMENT

This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement and is attached and Exhibit B attached thereto, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Nine Energy Service, Inc., a Delaware corporation (the “Company”), and _________ (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.

1.Award. In consideration of the Participant’s past and/or continued employment with the Company or its Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant, the Company hereby grants to the Participant the number of Target PSUs set forth in the Grant Notice on the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each PSU represents the right to receive, in the sole discretion of the Committee, either (a) one share of Common Stock or (b) a cash payment equal to the Fair Market Value of one share of Common Stock, in each case, subject to the terms and conditions set forth in this Agreement and the Plan; provided, however, that, depending on the level of performance determined to be attained with respect to the Performance Goal, the portion of the Target PSUs that may vest and become Earned PSUs hereunder in respect of this Award may range from 0% to 200% of the Target PSUs. Unless and until the PSUs have vested and become Earned PSUs in the manner set forth in the Grant Notice, the Participant will have no right to receive any Common Stock or other payments in respect of the PSUs. Prior to settlement of this Award, the PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

2.Vesting of PSUs.

(a)Except as otherwise provided in any written employment agreement entered into by and between the Participant and the Company or an Affiliate, as applicable, the PSUs shall vest and become Earned PSUs in accordance with the Participant’s satisfaction of the Service Requirement based on the extent to which the Company has satisfied the Performance Goal set forth in the Grant Notice, which shall be determined by the Committee in its sole discretion following the end of the Performance Period on the Payout Determination Date (and any PSUs that do not become Earned PSUs shall be automatically forfeited). Unless and until the PSUs have vested and become Earned PSUs as described in the preceding sentence, the Participant will have no right to receive any dividends or other distribution with respect to the PSUs.

(b)Except as otherwise provided in any written employment agreement entered into by and between the Participant and the Company or an Affiliate, as applicable, and in effect at the time the Participant’s employment with the Company or an Affiliate is terminated, if the Participant has not satisfied the Service Requirement, then upon the termination of the Participant’s employment with the Company or an Affiliate for any reason, any unearned PSUs (and all rights

EXHIBIT A-1

arising from such PSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.

(c)Notwithstanding any provision in this Agreement or the Plan to the contrary, in the event of any inconsistency between this Section 2 and any written employment agreement entered into by and between the Participant and the Company or an Affiliate, as applicable, the terms of such employment agreement shall control.

3.Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding shares of Common Stock and, on the record date for such dividend, the Participant holds PSUs granted pursuant to this Agreement that have not been settled, the Company shall record the amount of such dividend in a bookkeeping account and pay to the Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record, as of such record date, of a number of shares of Common Stock equal to the number of Target PSUs held by the Participant that have not been settled as of such record date, such payment to be made on the date on which any Earned PSUs are settled in accordance with Section 4. For purposes of clarity, if the PSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited PSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.

4.Settlement of PSUs. As soon as administratively practicable following the Committee’s certification of the level of attainment of the Performance Goal on the Payout Determination Date, but in no event later than March 15 of the calendar year following the Performance Period End Date, the Company shall deliver to the Participant (or the Participant’s permitted transferee, if applicable), in the sole discretion of the Committee, either (i) a number of shares of Common Stock equal to the number of Earned PSUs, or (ii) an amount in cash equal to the Fair Market Value of a number of shares of Common Stock equal to the number of Earned PSUs. No fractional shares of Common Stock, nor the cash value of any fractional shares of Common Stock, shall be issuable or payable to the Participant pursuant to this Agreement, and any fractional PSU that becomes earned hereunder shall be rounded down at the time shares of Common Stock are issued or cash payments are made, as applicable, in settlement of such PSU. All shares of Common Stock, if any, issued hereunder shall be delivered either by delivering one or more certificates for such shares to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Common Stock shall not bear any interest owing to the passage of time. Neither this Section 4 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.

5.Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, the Company or its Affiliate may withhold and deduct from any amounts otherwise payable to the Participant in settlement of Earned PSUs hereunder any federal, state, local and/or

EXHIBIT A-2

foreign taxes as may be required pursuant to any law or governmental regulation or rules. In the event shares of Common Stock are to be issued in settlement of Earned PSUs hereunder, the Participant shall make arrangements satisfactory to the Company for the satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include the delivery of cash or cash equivalents, or, if permitted by the Committee in its sole discretion, Common Stock (including previously owned Common Stock, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate, and if the Participant fails to do so, the Company and its Affiliates are authorized to withhold, or cause to be withheld, from any cash or stock remuneration (including withholding any of the Earned PSUs distributable to the Participant under this Agreement) then or thereafter payable to the Participant an amount equal to any tax or social security required to be withheld by reason of such resulting compensation income or wages, and to take such other action as may be necessary in the opinion of the Company to satisfy such withholding obligation. If such tax obligations are satisfied through net settlement or the surrender of previously owned Common Stock, the maximum number of shares of Common Stock that may be so withheld (or surrendered) shall be the number of shares of Common Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized (and which may be limited to flat-rate withholding) without creating adverse accounting treatment, tax or other consequences for the Company or any Affiliate with respect to this Award, as determined by the Committee in its sole discretion. The Participant acknowledges and agrees that none of the Board, the Committee, the Company or any Affiliate have made any representation or warranty as to the tax consequences to the Participant as a result of the receipt, vesting or settlement of this Award pursuant to this Agreement. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or, if applicable, disposition of the underlying shares of Common Stock and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.

6.Non-Transferability. During the lifetime of the Participant, none of the PSUs, the Dividend Equivalents or nay interest or right therein may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Common Stock underlying the PSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

EXHIBIT A-3

7.Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of Common Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the requirements of any stock exchange or market system upon which the Common Stock may then be listed. No shares of Common Stock will be issued hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system upon which the Common Stock may then be listed. In addition, shares of Common Stock will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Common Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of Common Stock hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.

8.Legends. If a stock certificate is issued with respect to shares of Common Stock issued hereunder, such certificate shall bear such legend or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the terms and provisions of this Agreement, the rules, regulations and other requirements of the SEC, any applicable laws or the requirements of any stock exchange on which the Common Stock is then listed. If the shares of Common Stock issued hereunder are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.

9.Rights as a Common Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any shares of Common Stock that may become deliverable hereunder unless and until the Participant has become the holder of record of such shares of Common Stock, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares of Common Stock, except as otherwise specifically provided for in the Plan or this Agreement.

10.Execution of Receipts and Releases. Any issuance or transfer of shares of Common Stock or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to Earned PSUs.

EXHIBIT A-4

11.No Right to Continued Employment, Service or Awards. For purposes of this Agreement, the Participant shall be considered to be in the employment of the Company as long as the Participant remains an employee of any of the Company, an Affiliate, or a corporation or other entity, or a parent or subsidiary of such corporation or other entity assuming or substituting a new award for the Award. Without limiting the scope of the preceding sentence, it is specifically provided that the Participant shall be considered to have terminated employment with the Company or an Affiliate at the time such entity or other organization that employs the Participant ceases to be considered an Affiliate within the meaning of that term as provided in the Plan such that, immediately following the termination of such “Affiliate” status, the Participant is no longer employed by the Company or any of its Affiliates. Nothing in the adoption of the Plan, nor the award of the PSUs thereunder pursuant to this Agreement, shall confer upon the Participant the right to continued employment by, or a continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment or other service relationship at any time. Any question as to whether and when there has been a termination of the Participant’s employment with the Company or any such Affiliate or other entity, and the cause of such termination, shall be determined by the Committee, and its determination shall be final and binding on all parties. The grant of the PSUs is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be granted at the sole discretion of the Company.

12.Legal and Equitable Remedies. The Participant acknowledges that a violation or attempted breach of any of the Participant’s covenants and agreements in this Agreement will cause such damage as will be irreparable, the exact amount of which would be difficult to ascertain and for which there will be no adequate remedy at law, and accordingly, the parties hereto agree that the Company and its Affiliates shall be entitled as a matter of right to an injunction issued by any court of competent jurisdiction, restraining the Participant or the affiliates, partners or agents of the Participant from such breach or attempted violation of such covenants and agreements, as well as to recover from the Participant any and all costs and expenses sustained or incurred by the Company or any Affiliate in obtaining such an injunction, including, without limitation, reasonable attorneys’ fees. The parties to this Agreement agree that no bond or other security shall be required in connection with such injunction. Any exercise by either of the parties to this Agreement of its rights pursuant to this Section 12 shall be cumulative and in addition to any other remedies to which such party may be entitled.

13.Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

EXHIBIT A-5

If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):

Nine Energy Service, Inc.______________________

______________________

______________________

If to the Participant, at the Participant’s last known address on filed with the Company.

Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.

14.Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

15.Corporate Acts. The existence of the PSUs shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger, consolidation or other business combination of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.

16.Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs granted hereby; provided, however, that (a) the terms of this Agreement shall not modify and shall be subject to the terms and conditions of any employment, consulting and/or severance agreement between the Company (or an Affiliate or other entity) and the Participant in effect as of the date a determination is to be made under this Agreement and (b) if the Participant has entered into any written agreement with the Company or any Affiliate regarding the arbitration of disputes (such agreement, an

EXHIBIT A-6

“Arbitration Agreement”), then this Agreement shall be subject to the dispute resolution procedures set forth in the Arbitration Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.

17.Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

18.Clawback. Notwithstanding any provision in this Agreement or the Plan to the contrary, to the extent required by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any SEC rule or any applicable securities exchange listing standards and/or (b) any policy that may be adopted or amended by the Board from time to time, all shares of Common Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment and/or cancellation to the extent necessary to comply with such law(s) and/or policy.

19.Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.

20.Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant’s beneficiaries, executors, administrators and the Person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.

21.Headings; References; Interpretation. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits, Annexes or Attachments referred to in this Agreement, including, for the avoidance of doubt, the Grant Notice and Exhibit B attached thereto, are, by such reference, incorporated herein and made a part hereof for all purposes. Unless the context requires otherwise, all references to laws, regulations, contracts, agreements and instruments refer to such laws, regulations, contracts, agreements and instruments as they may be amended from time to time, and

EXHIBIT A-7

references to particular provisions of laws or regulations include a reference to the corresponding provisions of any succeeding law or regulation. Unless otherwise specified, all references to “dollars” or “$” in this Agreement refer to United States dollars. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement, including, for the avoidance of doubt, the Grant Notice and Exhibit B attached thereto, and not to any particular provision hereof. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely. All references to “including” shall be construed as meaning “including without limitation.” Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.

22.Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.

23.Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are intended to be exempt from the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the PSUs may not be exempt from Section 409A of the Code, then, if the Participant is deemed to be a “specified employee” within the meaning of Section 409A of the Code, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the PSUs that become Earned PSUs pursuant to this Agreement upon his or her “separation from service” within the meaning of Section 409A of the Code, then to the extent necessary to prevent any accelerated or additional tax under Section 409A of the Code, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the PSUs provided under this Agreement are exempt from or compliant with Section 409A of the Code and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code.

EXHIBIT A-8

EXHIBIT B

PERFORMANCE GOAL FOR PERFORMANCE SHARE UNITS

This Exhibit B to the Grant Notice contains the performance requirements and methodology applicable to the PSUs. Subject to the terms and conditions set forth in the Plan and the Agreement, the portion of the Target Number of PSUs, if any, that become Earned PSUs during the Performance Period will be determined in accordance with this Exhibit B. Capitalized terms used but not defined herein or in the Agreement shall have the same meaning assigned to them in the Plan.

1.Performance Goal.

[______________________]

2.Performance Ranking

[______________________]

3.Performance Peer Group.

[______________________]

4. Additional Factors or Information Regarding Methodology. Consistent with the terms of the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the terms of the Plan or the Agreement, including this Exhibit B, shall be within the sole discretion of the Committee, and shall be final, conclusive, and binding upon all persons.

EXHIBIT B-1

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Ann Fox, certify that:

1.I have reviewed this quarterly report on Form 10-Q (this “report”) of Nine Energy Service, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 8, 2019	/s/  Ann G. Fox
		Ann G. Fox
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Clinton Roeder, certify that:

1.I have reviewed this quarterly report on Form 10-Q (this “report”) of Nine Energy Service, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 8, 2019	/s/  Clinton Roeder
		Clinton Roeder
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF 

CHIEF EXECUTIVE OFFICER UNDER SECTION 906 OF THE 

SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 of Nine Energy Service, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann G. Fox, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
		/s/  Ann G. Fox
		Ann G. Fox
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
		Date:	May 8, 2019

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF 

CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF THE 

SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 of Nine Energy Service, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clinton Roeder, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
		/s/  Clinton Roeder
		Clinton Roeder
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
		Date:	May 8, 2019

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 06, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Trading Symbol	NINE
Entity Registrant Name	Nine Energy Service, Inc.
Entity Central Index Key	0001532286
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		30,707,380

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 31,157	$ 63,615
Accounts receivable, net	159,245	154,783
Inventories, net	98,053	91,435
Prepaid expenses and other current assets	20,608	15,717
Notes receivable from shareholders (Note 9)	7,094	7,626
Total current assets	316,157	333,176
Property and equipment, net	221,134	211,644
Definite-lived intangible assets, net	168,763	173,451
Goodwill	307,804	307,804
Indefinite-lived intangible assets	108,711	108,711
Other long-term assets	6,052	6,386
Total assets	1,128,621	1,141,172
Current liabilities
Accounts payable	47,688	46,132
Accrued expenses	44,033	61,434
Current portion of capital lease obligations	992	665
Income taxes payable	853	57
Total current liabilities	93,566	108,288
Long-term liabilities
Long-term debt	405,498	424,978
Deferred income taxes	5,437	5,915
Long-term capital lease obligations	3,101	2,330
Other long-term liabilities	5,552	4,838
Total liabilities	513,154	546,349
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 30,782,600 and 30,163,408 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively)	308	302
Additional paid-in capital	749,508	746,428
Accumulated other comprehensive loss	(4,595)	(4,843)
Accumulated deficit	(129,754)	(147,064)
Total stockholders’ equity	615,467	594,823
Total liabilities and stockholders’ equity	$ 1,128,621	$ 1,141,172

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, shares authorized (in shares)	120,000,000	120,000,000
Common stock, par value (in usd per share)	$ 0.01	$ 0.01
Common stock, shares issued (in shares)	30,782,600	30,163,408
Common stock, shares outstanding (in shares)	30,782,600	30,163,408

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Statement [Abstract]
Revenues	$ 229,705	$ 173,807
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	178,590	138,227
General and administrative expenses	19,939	14,365
(Gain) loss on revaluation of contingent liabilities	(13,955)	1,063
Depreciation	13,530	13,109
Amortization of intangibles	4,688	1,900
Loss on equity method investment	0	75
(Gain) loss on sale of property and equipment	(23)	370
Income from operations	26,936	4,698
Other expense
Interest expense	9,166	2,930
Total other expense	9,166	2,930
Income before income taxes	17,770	1,768
Provision for income taxes	460	93
Net income	$ 17,310	$ 1,675
Earnings per share
Basic (in usd per share)	$ 0.59	$ 0.08
Diluted (in usd per share)	$ 0.59	$ 0.08
Weighted average shares outstanding
Basic (in shares)	29,150,996	21,902,519
Diluted (in shares)	29,471,753	22,069,353
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$ 248	$ (394)
Total other comprehensive income (loss), net of tax	248	(394)
Total comprehensive income	$ 17,558	$ 1,281

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Statement [Abstract]
Foreign currency translation adjustments, tax	$ 0	$ 0

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Accumulated Deficit)
Stockholders’ equity (in shares) at Dec. 31, 2017		15,810,540
Stockholders’ equity at Dec. 31, 2017	$ 287,358	$ 158	$ 384,965	$ (3,684)	$ (94,081)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in IPO, net of offering costs (in shares)		8,050,000
Issuance of common stock in IPO, net of offering costs	168,261	$ 81	168,180
Other issuances of common stock (in shares)		418,317
Other issuances of common stock	300	$ 4	296
Stock-based compensation expense	2,240		2,240
Other comprehensive income	(394)			(394)
Net income	1,675				1,675
Stockholders’ equity (in shares) at Mar. 31, 2018		24,278,857
Stockholders’ equity at Mar. 31, 2018	459,440	$ 243	555,681	(4,078)	(92,406)
Stockholders’ equity (in shares) at Dec. 31, 2018		30,163,408
Stockholders’ equity at Dec. 31, 2018	594,823	$ 302	746,428	(4,843)	(147,064)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under stock-based compensation plan (in shares)		622,021
Issuance of common stock under stock compensation plan		$ 6	(6)
Stock-based compensation expense	3,153		3,153
Exercise of stock options (in shares)		674
Exercise of stock options	15	$ 0	15
Vesting of restricted stock (in shares)		(3,503)
Vesting of restricted stock	(82)		(82)
Other comprehensive income	248			248
Net income	17,310				17,310
Stockholders’ equity (in shares) at Mar. 31, 2019		30,782,600
Stockholders’ equity at Mar. 31, 2019	$ 615,467	$ 308	$ 749,508	$ (4,595)	$ (129,754)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities
Net income	$ 17,310	$ 1,675
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	13,530	13,109
Amortization of intangibles	4,688	1,900
Amortization of deferred financing costs	746	853
Provision for (recovery of) doubtful accounts	47	(270)
Benefit for deferred income taxes	(478)	(47)
Provision for inventory obsolescence	1,338	0
Stock-based compensation expense	3,153	2,240
(Gain) loss on sale of property and equipment	(23)	370
(Gain) loss on revaluation of contingent liabilities	(13,955)	1,063
Loss on equity method investment	0	75
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable, net	(4,402)	(16,387)
Inventories, net	(7,879)	406
Prepaid expenses and other current assets	(6,060)	757
Accounts payable and accrued expenses	(3,703)	11,357
Income taxes receivable/payable	796	140
Other assets and liabilities	780	66
Net cash provided by operating activities	5,888	17,307
Cash flows from investing activities
Proceeds from sales of property and equipment	477	1,096
Proceeds from property and equipment casualty losses	1,238	0
Proceeds from notes receivable payments	532	0
Purchases of property and equipment	(20,386)	(6,468)
Net cash used in investing activities	(18,139)	(5,372)
Cash flows from financing activities
Payments on revolving credit facilities	(20,000)	(96,182)
Proceeds from term loan	0	125,000
Payments on term loans	0	(155,701)
Payments on capital leases	(212)	0
Proceeds from issuance of common stock in IPO, net of offering costs	0	171,616
Proceeds from other issuances of common stock	0	300
Proceeds from exercise of stock options	15	0
Vesting of restricted stock	(82)	0
Cost of debt issuance	0	(1,385)
Net cash provided by (used in) financing activities	(20,279)	43,648
Impact of foreign currency exchange on cash	72	(196)
Net increase (decrease) in cash and cash equivalents	(32,458)	55,387
Cash and cash equivalents
Cash and cash equivalents beginning of year	63,615	17,513
Cash and cash equivalents end of period	31,157	72,900
Supplemental disclosures of cash flow information:
Cash paid for interest	750	2,105
Cash paid for income taxes	132	0
Capital expenditures in accounts payable and accrued expenses	6,227	2,264
Property and equipment obtained by capital lease	1,310	0
Receivable from property and equipment insurance	$ 24	$ 0

XML

Company and Organization

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Company and Organization

Company and Organization

Nine Energy Service, Inc. (the “Company” or “Nine”), a Delaware corporation, is an oilfield services business that provides services integral to the completion of unconventional wells through a full range of tools and methodologies and provides a range of production enhancement and well workover services. The Company is headquartered in Houston, Texas.

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

Condensed Consolidated Financial Information

The accompanying Condensed Consolidated Financial Statements have not been audited by the Company’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2018 and the Condensed Consolidated Statements of Stockholders’ Equity as of December 31, 2018 and 2017 are derived from audited Consolidated Financial Statements. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for the fair statement of the Company’s financial position have been included. These Condensed Consolidated Financial Statements include all accounts of the Company.

These Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Nine and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Such estimates include fair value assumptions used in purchase accounting and in analyzing goodwill, definite and indefinite-lived intangible assets, and property and equipment for possible impairment, useful lives used in depreciation and amortization expense, stock-based compensation fair value, estimated realizable value on excess and obsolete inventories, deferred taxes and income tax contingencies, and losses on accounts receivable. It is at least reasonably possible that the estimates used will change within the next year.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications relate to the presentation of “(Gain) loss on revaluation of contingent liabilities” as a separate line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

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New Accounting Standards

3 Months Ended

Mar. 31, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Standards

New Accounting Standards

Accounting Standards Update 2014-09

Background

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the current revenue recognition guidance. The standard is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and asset recognized from costs incurred to obtain or fulfill a contract. The FASB subsequently issued ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12 which provide additional guidance around Topic 606. These amendments are encompassed in the Company’s reference to ASU No. 2014-09 below.

As an emerging growth company, the Company is permitted to, and will, apply ASU No. 2014-09 to annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. In the fourth quarter of 2019, the Company, as an emerging growth company, expects to adopt ASU No. 2014-09 for the annual period ending December 31, 2019 (effective January 1, 2019) utilizing the modified retrospective approach. The Company will continue to report revenues under current accounting standards until it formally adopts ASU No. 2014-09.

Status of Management’s Implementation Efforts of ASU No. 2014-09

During 2018, in preparation for the adoption of ASU No. 2014-09, the Company reviewed the various types of customer contract arrangements for each of its businesses. These reviews included the following:

• accumulating all customer contractual arrangements;

• identifying the individual performance obligations pursuant to each arrangement;

• quantifying the considerations under each arrangement;

• allocating the consideration under each arrangement to the identified performance obligation; and

• determining the timing of revenue recognition pursuant to each arrangement.

The Company has completed these contract reviews and has determined there will be no material adjustment to retained earnings upon adoption of ASU No. 2014-09, effective January 1, 2019. The Company is currently updating and implementing revised accounting system processes in order to capture information required to be disclosed under ASU No. 2014-09.

The Company has also begun updating its current accounting policies to align with revenue recognition practices under ASU No. 2014-09. In 2019, as part of its ongoing evaluation of contracts with customers, the Company will hold regular meetings with key stakeholders across the organization to determine any impact ASU No. 2014-09 may have on its current or new business processes. Additionally, the Company continues to evaluate its internal processes to address risks associated with incorporating ASU No. 2014-09. Upon adoption, the Company will also implement new internal controls associated with incorporating ASU No. 2014-09, which is not expected to result in a material change in its existing control environment.

Disclosure Requirements for ASU No. 2014-09

The Company’s disclosures related to revenue recognition will be significantly expanded under ASU No. 2014-09, specifically around the quantitative and qualitative information associated with performance obligations, changes in contract assets and liabilities, and the disaggregation of revenue. The Company is currently in the process of evaluating the impact of these disclosure requirements.

Other Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard, which requires the use of a modified retrospective transition approach, includes a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. Based on initial evaluation, the Company expects to include operating leases with durations greater than twelve months on its Condensed Consolidated Balance Sheets. The Company is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company will provide additional information about the expected financial impact as it progresses through the evaluation and implementation of the standard. Although the standard is effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2019 and the interim periods within the fiscal years beginning after December 15, 2020.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the fiscal years beginning after December 15, 2018 and the interim periods within fiscal years beginning after December 15, 2019. The Company will apply the guidance retrospectively and is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements. Although the standard is generally effective for fiscal years beginning after December 15, 2017, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2018 and the interim periods within annual periods beginning after December 15, 2019. Entities are required to apply the guidance prospectively when adopted.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The ASU is required to be applied retrospectively, except the new Level 3 disclosure requirements are applied prospectively. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) –Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in ASU No. 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. ASU 2018-15 is effective for public businesses for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the annual reporting periods beginning after December 15, 2020 and the interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

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Business Acquisitions

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Business Acquisitions

Business Acquisitions

Magnum Acquisition

On October 25, 2018 (the “Closing Date”), pursuant to the terms of a Securities Purchase Agreement, dated October 15, 2018 (the “Magnum Purchase Agreement”), the Company acquired all of the equity interests of Magnum Oil Tools International, LTD, Magnum Oil Tools GP, LLC, and Magnum Oil Tools Canada Ltd. (such entities collectively, “Magnum”) for approximately $334.5 million in upfront cash consideration, subject to customary adjustments, and 5.0 million shares of the Company’s common stock, which were issued to the sellers of Magnum in a private placement. The Magnum Purchase Agreement also includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019 (the “Magnum Earnout”).

The Magnum Acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date, with the remaining unallocated amount recorded as goodwill.

The following table summarizes the fair value of purchase consideration transferred on the Closing Date:

	Fair Value
	(in thousands)
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility(1)	$	296,622
Cash provided from operations	58,760
Total upfront cash consideration	$	355,382
Issuance of the Company’s common shares	$	177,350
Contingent consideration(2)	23,029
Total purchase consideration	$	555,761

(1) Senior Notes and 2018 ABL Credit Facility are defined in Note 8 – Debt Obligations.

(2) The estimated fair value of the Magnum Earnout was based on a Monte Carlo simulation model with estimated outcomes ranging from $0 to $25.0 million. The estimated fair value of the Magnum Earnout is based upon available information and certain assumptions, known at the time of this Quarterly Report on Form 10-Q, which management believes are reasonable. Any difference in the actual Magnum Earnout from the estimated fair value of the Magnum Earnout will be recorded in operating income (loss) in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

The final determination of the fair value of assets acquired and liabilities assumed at the Closing Date will be completed as soon as possible, but no later than one year from the Closing Date (the “Measurement Period”). The Company’s preliminary purchase price allocation is subject to revision as additional information about the fair value of assets and liabilities becomes available. Additional information that existed as of the Closing Date, but at the time was unknown to the Company, may become known to the Company during the remainder of the Measurement Period. The final determination of fair value may differ materially from these preliminary estimates.  

The following table summarizes the preliminary allocation of the purchase price of the Magnum Acquisition to the assets acquired and liabilities assumed based on the fair value as of the Closing Date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill:

	Purchase Price Allocation
	(in thousands)
Cash and cash equivalents	$	8,509
Accounts receivable, net	30,441
Income taxes receivable	272
Inventories, net	55,169
Prepaid expenses and other current assets	1,147
Property and equipment, net	3,729
Goodwill	225,839
Definite-lived intangible assets, net	148,000
Indefinite-lived intangible assets	96,000
Other long-term assets	1,055
Accounts payable	(3,626		)
Accrued expenses	(10,759		)
Other long-term liabilities	(15		)
Total net assets acquired	$	555,761

All goodwill acquired is attributable to expected synergies gained through the Magnum Acquisition as well as the assembled workforce. In addition, all goodwill acquired is included in the Completion Solutions segment and is deductible for tax purposes. For additional information on goodwill, see Note 6 – Goodwill and Intangible Assets.

Magnum’s results of operations are included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss), as part of its Completion Solutions segment, for the three months ended March 31, 2019. It is impractical to quantify the contribution of Magnum since the Closing Date, as the business was fully integrated into the Company’s existing operations in 2018.  

Frac Tech Acquisition

On October 1, 2018, pursuant to the terms and conditions of a Securities Purchase Agreement (the “Frac Tech Purchase Agreement”), the Company acquired Frac Technology AS, a Norwegian private limited company (“Frac Tech”) focused on the development of downhole technology, including a casing flotation tool and a number of patented downhole completion tools. This acquisition was not material to the Company’s Condensed Consolidated Financial Statements.

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Inventories

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories, consisting primarily of finished goods and raw materials, are stated at the lower of cost or net realizable value. Cost is determined on an average cost basis. The Company reviews its inventory balances and writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The reserve for obsolescence was $2.9 million and $1.9 million at March 31, 2019 and December 31, 2018, respectively.

Inventories, net as of March 31, 2019 and December 31, 2018 were comprised of the following: 

	March 31, 2019			December 31, 2018
	(in thousands)
Raw materials	$	41,986		$	38,890
Work in progress	2,739			130
Finished goods	56,262			54,301
Inventories	100,987			93,321
Reserve for obsolescence	(2,934		)	(1,886		)
Inventories, net	$	98,053		$	91,435

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

The changes in the net carrying amount of the components of goodwill for the three months ended March 31, 2019 were as follows: 

	Goodwill
	Gross Value		Accumulated Impairment Loss			Net
	(in thousands)
Balance as of December 31, 2018	$	400,067	$	(92,263	)	$	307,804
Impairment	—		—			—
Balance as of March 31, 2019	$	400,067	$	(92,263	)	$	307,804

Intangible Assets

The changes in the net carrying value of the components of intangible assets for the three months ended March 31, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Infinite-Lived Intangible Asset Total
	(in thousands, except weighted average amortization period information)
Balance as of December 31, 2018	$	47,964		$	2,850		$	122,637		$	173,451		$	107,700	$	1,011	$	108,711
Additions	—			—			—			—			—		—		—
Amortization expense	(2,094		)	(415		)	(2,179		)	(4,688		)	—		—		—
Balance as of March 31, 2019	$	45,870		$	2,435		$	120,458		$	168,763		$	107,700	$	1,011	$	108,711
Weighted average amortization period	7.1			3.5			14.3						Indefinite		Indefinite

Amortization of intangibles was $4.7 million and $1.9 million for the three months ended March 31, 2019 and 2018, respectively.

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Accrued Expenses Accrued Expenses

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

Accrued expenses as of March 31, 2019 and December 31, 2018 consisted of the following:

	March 31, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	16,383	$	11,930
Accrued bonus	1,088		13,250
Sales tax payable	1,389		1,185
Magnum contingent liability	6,245		20,922
Accrued interest	14,770		7,031
Other accrued expenses	4,158		7,116
Accrued expenses	$	44,033	$	61,434

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Debt Obligations

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Debt Obligations

Debt Obligations

The Company’s debt obligations as of March 31, 2019 and December 31, 2018 were as follows: 

	March 31, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	15,000			35,000
Total debt before deferred financing costs	$	415,000		$	435,000
Deferred financing costs	(9,502		)	(10,022		)
Total debt	$	405,498		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	405,498		$	424,978

Senior Notes

On October 25, 2018, the Company issued $400.0 million principal amount of 8.750% Senior Notes due 2023 (the “Senior Notes”). The Senior Notes were issued under an indenture, dated as of October 25, 2018 (the “Indenture”), by and among the Company, certain subsidiaries of the Company and Wells Fargo, National Association, as Trustee. The Senior Notes bear interest at an annual rate of 8.750% payable on May 1 and November 1 of each year with the first interest payment being due on May 1, 2019. The Senior Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries.

The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to engage in certain activities. The Company was in compliance with the provisions of the Indenture at March 31, 2019.

Upon an event of default, the trustee or the holders of at least 25% in aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable, except that a default resulting from certain events of bankruptcy or insolvency with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

Unamortized deferred financing costs associated with the Senior Notes were $9.5 million and $10.0 million at March 31, 2019 and December 31, 2018, respectively. These costs are direct deductions from the carrying amount of the Senior Notes and are being amortized through interest expense through the maturity date of the Senior Notes using the effective interest method.

2018 ABL Credit Facility

On October 25, 2018, the Company entered into a credit agreement dated as of October 25, 2018 (the “2018 ABL Credit Agreement”), by and among the Company, Nine Energy Canada, Inc., JP Morgan Chase Bank, N.A. (“JP Morgan”) as administrative agent and as an issuing lender, and certain other financial institutions party thereto as lenders and issuing lenders. The 2018 ABL Credit Agreement permits aggregate borrowings of up to $200.0 million, subject to a borrowing base, including a Canadian tranche with a sub-limit of up to $25.0 million and a sub-limit of $50.0 million for letters of credit (the “2018 ABL Credit Facility”). The 2018 ABL Credit Facility will mature on October 25, 2023 or, if earlier, on the date that is 180 days before the scheduled maturity date of the Senior Notes if they have not been redeemed or repurchased by such date.

Loans to the Company and its domestic related subsidiaries (the “U.S. Credit Parties”) under the 2018 ABL Credit Facility may be base rate loans or LIBOR loans; and loans to Nine Energy Canada Inc., a corporation organized under the laws of Alberta, Canada, and its restricted subsidiaries (the “Canadian Credit Parties”) under the Canadian tranche may be CDOR loans or Canadian prime rate loans. The applicable margin for base rate loans and Canadian prime rate loans vary from 0.75% to 1.25%, and the applicable margin for LIBOR loans or CDOR loans vary from 1.75% to 2.25%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. Interest rates averaged 4.71% during the first quarter of 2019.

The 2018 ABL Credit Agreement contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, investments (including acquisitions), and transactions with affiliates. In addition, the 2018 ABL Credit Agreement contains a minimum fixed charge ratio covenant that is tested quarterly when the availability under the 2018 ABL Credit Facility drops below a certain threshold or a default has occurred until the availability exceeds such threshold for 30 consecutive days and such default is no longer outstanding. The Company was in compliance with all covenants under the 2018 ABL Credit Agreement at March 31, 2019.

All of the obligations under the 2018 ABL Credit Facility are secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of U.S. Credit Parties, excluding certain assets. The obligations under the Canadian tranche are further secured by first priority perfected security interests (subject to permitted liens) in substantially all of the personal property of Canadian Credit Parties, excluding certain assets. The 2018 ABL Credit Facility is guaranteed by the U.S. Credit Parties, and the Canadian tranche is further guaranteed by the Canadian Credit Parties and the U.S. Credit Parties.

In the first quarter of 2019, the Company repaid approximately $20.0 million of its outstanding revolver borrowings. The Company is permitted to repay any amounts borrowed prior to the maturity date without any premium or penalty, subject to minimum amounts of prepayments and customary LIBOR breakage costs.

At March 31, 2019, the Company’s availability under the 2018 ABL Credit Facility was approximately $129.7 million, net of outstanding revolver borrowings of $15.0 million and an outstanding letter of credit of $0.5 million.

Prior Credit Agreements

On September 14, 2017, the Company entered into a credit agreement (as amended on November 20, 2017, the “2018 IPO Credit Agreement”) with JP Morgan as administrative agent and certain other financial institutions that became effective upon the consummation of the initial public offering (“IPO”) in January 2018 (the “Effective Date”). Pursuant to the terms of the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow $125.0 million of term loans (the “2018 IPO Term Loan Credit Facility”), which the Company drew in full on the Effective Date. In January 2018, the Company also made a mandatory prepayment of $9.7 million against the 2018 IPO Term Loan Credit Facility, which approximated 50.0% of the estimated net proceeds from the IPO in excess of $150.0 million, as prescribed under the 2018 IPO Credit Agreement. In addition, under the 2018 IPO Credit Agreement, the Company and its domestic restricted subsidiaries were entitled to borrow up to $50.0 million (including letters of credit) as revolving credit loans under the revolving commitments. Loans to the Company and its domestic restricted subsidiaries under the 2018 IPO Credit Agreement were either base rate loans or LIBOR loans. The applicable margin for base rate loans varied from 1.50% to 2.75%, and the applicable margin for LIBOR loans varied from 2.50% to 3.75%, in each case depending on the Company’s leverage ratio. In addition, a commitment fee of 0.50% per annum was charged on the average daily unused portion of the revolving commitments. On October 25, 2018, the Company fully repaid and terminated the 2018 IPO Credit Agreement.

In 2014, the Company entered into the Amended and Restated Credit Agreement (as amended, the “Legacy Nine Credit Agreement”) with HSBC Bank USA, N.A., as U.S. administrative agent, HSBC Bank Canada, as Canadian agent, and certain other financial institutions. All loans and other obligations under the Legacy Nine Credit Agreement were scheduled to mature on May 31, 2018. In 2014, Beckman Production Services, Inc. entered into a credit agreement (as amended, the “Legacy Beckman Credit Agreement” and together with the Legacy Nine Credit Agreement, the “Legacy Credit Agreements”) with Wells Fargo Bank, National Association, as administrative agent, and certain other financial institutions. All loans and other obligations under the Legacy Beckman Credit Agreement were scheduled to mature on June 30, 2018. Concurrent with the effectiveness of the 2018 IPO Credit Agreement in January 2018, the Company repaid all indebtedness under the Legacy Credit Agreements, which approximated $242.2 million.

Debt Extinguishment Costs

During the first quarter of 2018, the Company recorded debt extinguishment costs of approximately $0.7 million in unamortized deferred financing costs associated with the termination of the Legacy Credit Agreements. These unamortizeddeferred financing costs were being amortized through the maturity dates of each agreement using the effective interest method.These debt extinguishment costs are included in “Interest expense” in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended March 31, 2018.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of March 31, 2019 and December 31, 2018 was as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	412,000	$	376,000
2018 ABL Credit Facility	$	15,000	$	35,000

The fair value of the Senior Notes is classified as Level 2 in the fair value hierarchy and is established based on observable inputs in less active markets. The 2018 ABL Credit Facility is also classified within Level 2 of the fair value hierarchy. The fair value of the 2018 ABL Credit Facility approximates its carrying value.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

As part of the acquisition of Crest Pumping Technologies, LLC (“Crest”) in 2014, the Company issued promissory notes totaling $9.4 million to former owners of Crest, including David Crombie, who is an executive officer of the Company. The principal is due on June 30, 2019. The interest rate is based on the prime rate, the federal funds rate, or LIBOR, plus a margin to be determined in connection with the Company’s credit agreement and is due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At March 31, 2019 and December 31, 2018, the outstanding principal balance of the notes of the remaining individuals totaled $7.1 million and $7.6 million, respectively. Unpaid interest, included in “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheets, totaled $147,000 and $10,000 at March 31, 2019 and December 31, 2018, respectively.

The Company leases office space, yard facilities, and equipment and purchases building maintenance services from entities owned by Mr. Crombie. Total lease expense and building maintenance expense was $0.2 million for each of the three months ended March 31, 2019 and 2018. There were $13,000 and no payables to these entities at March 31, 2019 and December 31, 2018, respectively. The Company also purchased $0.1 million of equipment during the three months ended March 31, 2019 from an entity in which Mr. Crombie is a limited partner.

In addition, the Company leases office space in Corpus Christi and Midland, Texas from an entity affiliated with Lynn Frazier, a beneficial owner of more than 5% of the Company’s stock. Total rental expense associated with this office space was $0.4 million for the three months ended March 31, 2019.

At December 31, 2018, the Company had an open receivable due from the sellers of Magnum primarily attributed to sales commissions paid to an intercompany entity that was not included in the Magnum Acquisition. The Company received payment in full in the first quarter of 2019.

The Company provides services to Citation Oil & Gas Corp., an entity owned by Curtis F. Harrell, a director of the Company. The Company billed $0.1 million and $0.2 million for services provided to this entity during the three months ended March 31, 2019 and 2018, respectively. There was an outstanding receivable due from such entity of $0.1 million and $0.1 million as of March 31, 2019 and December 31, 2018, respectively.

The Company provides services in the ordinary course of business to EOG Resources, Inc. (“EOG”). Gary L. Thomas, a director of the Company, acted as the President of EOG until his retirement from EOG at December 31, 2018. The Company generated revenue from EOG of $7.8 million for the three months ended March 31, 2018.

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Commitment and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitment and Contingencies

Commitments and Contingencies

Litigation

From time to time, the Company has various claims, lawsuits, and administrative proceedings that are pending or threatened with respect to personal injury, workers’ compensation, contractual matters, and other matters. Although no assurance can be given with respect to the outcome of these claims, lawsuits, or proceedings or the effect such outcomes may have, the Company believes any ultimate liability resulting from the outcome of such claims, lawsuits, or administrative proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on its business, operating results, or financial condition.

On August 31, 2017, an accident occurred while a five-employee crew of Big Lake Services, LLC, a subsidiary of Nine (“Big Lake Services”), was performing workover services at an oil and gas wellsite near Midland, Texas, operated by Pioneer Natural Resources USA, Inc. (“Pioneer Natural Resources”), resulting in the death of a Big Lake Services employee, Juan De La Rosa. On December 7, 2017, a lawsuit was filed on behalf of Mr. De La Rosa’s minor children in the Midland County District Court against Pioneer Natural Resources, Big Lake Services, and Phillip Hamilton related to this accident. The petition alleges, among other things, that the defendants acted negligently, resulting in the death of Mr. De La Rosa. On March 14, 2018, a plea in intervention was filed on behalf of Mr. De La Rosa’s parents, alleging similar claims. The plaintiffs and intervenors sought money damages, including punitive damages. On December 17, 2018, a mediation was held, and the parties reached an agreement in principle to settle this matter. The Company has tendered this matter to its insurance company for defense and indemnification of Big Lake Services and the other defendants and expects this settlement will be fully funded by its insurance company. Finalization of the settlement is subject to the execution of definitive documentation and approval by the court.

Self-insurance

The Company uses a combination of third-party insurance and self-insurance for health insurance clams. The self-insured liability represents an estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date. The estimate is based on an analysis of trailing months of incurred medical claims to project the amount of incurred but not reported claims liability. The estimated liability for self-insured medical claims was $1.8 million and $1.6 million at March 31, 2019 and December 31, 2018, respectively, and is included under the caption “Accrued expenses” on the Condensed Consolidated Balance Sheets.

Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, the self-insurance liability could be affected if future claims experience differs significantly from historical trends and actuarial assumptions.

Contingent Liabilities

The Company has recorded the following contingent liabilities at March 31, 2019:

Magnum Earnout

The Magnum Purchase Agreement includes the potential for additional future payments in cash of (i) up to 60% of net income (before interest, taxes, and certain gains or losses) for the “E-Set” tools business in 2019 through 2025 and (ii) up to $25.0 million based on sales of certain dissolvable plug products in 2019. For additional information on the Magnum Acquisition, see Note 4 – Business Acquisitions.

Frac Tech Earnout

On October 1, 2018, pursuant to the terms and conditions of the Frac Tech Purchase Agreement, the Company acquired Frac Tech. The Frac Tech Purchase Agreement includes, among other things, the potential for additional future payments, based on certain Frac Tech sales volume metrics through December 31, 2023.

The following is a reconciliation of the beginning and ending amounts of the contingent liabilities (Level 3) for the three months ended March 31, 2019:

	Magnum			Frac Tech		Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008	$	25,529
Revaluation adjustments	(14,137		)	182		(13,955		)
Balance at March 31, 2019	$	10,384		$	1,190	$	11,574

The contingent consideration related to the contingent liabilities is reported at fair value, based on a Monte Carlo simulation model. Significant inputs used in the fair value measurement include estimated gross margin related to forecasted sales of the plugs, term of the agreement, and a risk adjusted discount factor. Contingent liabilities include $6.3 million and $20.9 million reported in “Accrued expenses” at March 31, 2019 and December 31, 2018, respectively, and $5.3 million and $4.6 million reported in “Other long-term liabilities” at March 31, 2019 and December 31, 2018, respectively, in the Company’s Condensed Consolidated Balance Sheets. The impact of the revaluation adjustments is included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

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Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Taxes

Taxes

The Company’s effective tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pre-tax income and nondeductible items, and changes in valuation allowances.

The Company’s effective tax rate for the three months ended March 31, 2019 was 2.6%, compared to 5.3% for the three months ended March 31, 2018. The change in effective tax rate for the three months ended March 31, 2019 was primarily attributable to changes in pre-tax income and valuation allowance positions as well as tax liability in jurisdictions where income is expected to exceed available net operating losses.

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Earnings (Loss) Per Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is based on the weighted average number of shares outstanding during each period and the assumed exercise of potentially dilutive stock options, restricted stock, and restricted stock units.

Basic and diluted earnings per common share was computed as follows: 

	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Net Income		Average Shares Outstanding	Earnings Per Share		Net Income		Average Shares Outstanding	Earnings Per Share
	(in thousands, except share and per share amounts)
Basic	$	17,310	29,150,996	$	0.59	$	1,675	21,902,519	$	0.08
Assumed exercise of stock options			2,709					37,238
Unvested restricted stock and stock units			318,048					129,596
Diluted	$	17,310	29,471,753	$	0.59	$	1,675	22,069,353	$	0.08

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Segment Information

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company reports its results of operations in the following two segments: Completion Solutions and Production Solutions.

The Completion Solutions segment consists primarily of cementing, completion tools, wireline, and coiled tubing services, while the Production Solutions segment consists of rig-based well maintenance and workover services.

The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. The Company evaluates the performance of its reportable segments based on adjusted gross profit. This segmentation is representative of the manner in which the Chief Operating Decision Maker (“CODM”) and its Board of Directors view the business. The Company considers the CODM to be its Chief Executive Officer.

Summary financial data by segment is as follows. The amounts labeled “Corporate” relate to assets not allocated to the reportable segments.

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Revenues
Completion Solutions	$	209,132		$	154,644
Production Solutions	20,573			19,163
	$	229,705		$	173,807
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	161,439		$	121,426
Production Solutions	17,151			16,801
	$	178,590		$	138,227
Adjusted gross profit
Completion Solutions	$	47,693		$	33,218
Production Solutions	3,422			2,362
	$	51,115		$	35,580
General and administrative expenses	19,939			14,365
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Loss on equity method investment	—			75
(Gain) loss on sale of property and equipment	(23		)	370
Income from operations	$	26,936		$	4,698
Other expense
Interest expense	9,166			2,930
Total other expense	9,166			2,930
Income before income taxes	17,770			1,768
Provision for income taxes	460			93
Net income	$	17,310		$	1,675

Capital expenditures by segment for the three months ended March 31, 2019 and 2018, were as follows:

	March 31, 2019		March 31, 2018
	(in thousands)
Completion Solutions	$	22,478	$	5,283
Production Solutions	914		692
Corporate	55		493
	$	23,447	$	6,468

Total assets by segment as of March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,053,653	$	1,045,643
Production Solutions	34,662		35,086
Corporate	40,306		60,443
	$	1,128,621	$	1,141,172

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Condensed Consolidated Financial Information

Condensed Consolidated Financial Information

The accompanying Condensed Consolidated Financial Statements have not been audited by the Company’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2018 and the Condensed Consolidated Statements of Stockholders’ Equity as of December 31, 2018 and 2017 are derived from audited Consolidated Financial Statements. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for the fair statement of the Company’s financial position have been included. These Condensed Consolidated Financial Statements include all accounts of the Company.

These Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Principles of Consolidation

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Nine and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Such estimates include fair value assumptions used in purchase accounting and in analyzing goodwill, definite and indefinite-lived intangible assets, and property and equipment for possible impairment, useful lives used in depreciation and amortization expense, stock-based compensation fair value, estimated realizable value on excess and obsolete inventories, deferred taxes and income tax contingencies, and losses on accounts receivable. It is at least reasonably possible that the estimates used will change within the next year.

Reclassifications

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications relate to the presentation of “(Gain) loss on revaluation of contingent liabilities” as a separate line item in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

New Accounting Standards

New Accounting Standards

Accounting Standards Update 2014-09

Background

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the current revenue recognition guidance. The standard is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and asset recognized from costs incurred to obtain or fulfill a contract. The FASB subsequently issued ASU No. 2016-08, ASU No. 2016-10, and ASU No. 2016-12 which provide additional guidance around Topic 606. These amendments are encompassed in the Company’s reference to ASU No. 2014-09 below.

As an emerging growth company, the Company is permitted to, and will, apply ASU No. 2014-09 to annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. In the fourth quarter of 2019, the Company, as an emerging growth company, expects to adopt ASU No. 2014-09 for the annual period ending December 31, 2019 (effective January 1, 2019) utilizing the modified retrospective approach. The Company will continue to report revenues under current accounting standards until it formally adopts ASU No. 2014-09.

Status of Management’s Implementation Efforts of ASU No. 2014-09

During 2018, in preparation for the adoption of ASU No. 2014-09, the Company reviewed the various types of customer contract arrangements for each of its businesses. These reviews included the following:

• accumulating all customer contractual arrangements;

• identifying the individual performance obligations pursuant to each arrangement;

• quantifying the considerations under each arrangement;

• allocating the consideration under each arrangement to the identified performance obligation; and

• determining the timing of revenue recognition pursuant to each arrangement.

The Company has completed these contract reviews and has determined there will be no material adjustment to retained earnings upon adoption of ASU No. 2014-09, effective January 1, 2019. The Company is currently updating and implementing revised accounting system processes in order to capture information required to be disclosed under ASU No. 2014-09.

The Company has also begun updating its current accounting policies to align with revenue recognition practices under ASU No. 2014-09. In 2019, as part of its ongoing evaluation of contracts with customers, the Company will hold regular meetings with key stakeholders across the organization to determine any impact ASU No. 2014-09 may have on its current or new business processes. Additionally, the Company continues to evaluate its internal processes to address risks associated with incorporating ASU No. 2014-09. Upon adoption, the Company will also implement new internal controls associated with incorporating ASU No. 2014-09, which is not expected to result in a material change in its existing control environment.

Disclosure Requirements for ASU No. 2014-09

The Company’s disclosures related to revenue recognition will be significantly expanded under ASU No. 2014-09, specifically around the quantitative and qualitative information associated with performance obligations, changes in contract assets and liabilities, and the disaggregation of revenue. The Company is currently in the process of evaluating the impact of these disclosure requirements.

Other Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard, which requires the use of a modified retrospective transition approach, includes a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. Based on initial evaluation, the Company expects to include operating leases with durations greater than twelve months on its Condensed Consolidated Balance Sheets. The Company is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company will provide additional information about the expected financial impact as it progresses through the evaluation and implementation of the standard. Although the standard is effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2019 and the interim periods within the fiscal years beginning after December 15, 2020.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the fiscal years beginning after December 15, 2018 and the interim periods within fiscal years beginning after December 15, 2019. The Company will apply the guidance retrospectively and is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements. Although the standard is generally effective for fiscal years beginning after December 15, 2017, the Company, as an emerging growth company, is permitted, and plans, to adopt the standard for the fiscal years beginning after December 15, 2018 and the interim periods within annual periods beginning after December 15, 2019. Entities are required to apply the guidance prospectively when adopted.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The ASU is required to be applied retrospectively, except the new Level 3 disclosure requirements are applied prospectively. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) –Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU No. 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in ASU No. 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. ASU 2018-15 is effective for public businesses for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for the annual reporting periods beginning after December 15, 2020 and the interim periods within annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.

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Business Acquisitions (Tables)

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Schedule of Business Acquisition

The following table summarizes the fair value of purchase consideration transferred on the Closing Date:

	Fair Value
	(in thousands)
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility(1)	$	296,622
Cash provided from operations	58,760
Total upfront cash consideration	$	355,382
Issuance of the Company’s common shares	$	177,350
Contingent consideration(2)	23,029
Total purchase consideration	$	555,761

(1) Senior Notes and 2018 ABL Credit Facility are defined in Note 8 – Debt Obligations.

(2) The estimated fair value of the Magnum Earnout was based on a Monte Carlo simulation model with estimated outcomes ranging from $0 to $25.0 million. The estimated fair value of the Magnum Earnout is based upon available information and certain assumptions, known at the time of this Quarterly Report on Form 10-Q, which management believes are reasonable. Any difference in the actual Magnum Earnout from the estimated fair value of the Magnum Earnout will be recorded in operating income (loss) in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the preliminary allocation of the purchase price of the Magnum Acquisition to the assets acquired and liabilities assumed based on the fair value as of the Closing Date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill:

	Purchase Price Allocation
	(in thousands)
Cash and cash equivalents	$	8,509
Accounts receivable, net	30,441
Income taxes receivable	272
Inventories, net	55,169
Prepaid expenses and other current assets	1,147
Property and equipment, net	3,729
Goodwill	225,839
Definite-lived intangible assets, net	148,000
Indefinite-lived intangible assets	96,000
Other long-term assets	1,055
Accounts payable	(3,626		)
Accrued expenses	(10,759		)
Other long-term liabilities	(15		)
Total net assets acquired	$	555,761

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Inventories (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories, Net

Inventories, net as of March 31, 2019 and December 31, 2018 were comprised of the following: 

	March 31, 2019			December 31, 2018
	(in thousands)
Raw materials	$	41,986		$	38,890
Work in progress	2,739			130
Finished goods	56,262			54,301
Inventories	100,987			93,321
Reserve for obsolescence	(2,934		)	(1,886		)
Inventories, net	$	98,053		$	91,435

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Changes in Net Carrying Amount of Components of Goodwill

The changes in the net carrying amount of the components of goodwill for the three months ended March 31, 2019 were as follows: 

	Goodwill
	Gross Value		Accumulated Impairment Loss			Net
	(in thousands)
Balance as of December 31, 2018	$	400,067	$	(92,263	)	$	307,804
Impairment	—		—			—
Balance as of March 31, 2019	$	400,067	$	(92,263	)	$	307,804

Schedule of Changes in Net Carrying Amount of Components of Intangible Assets

The changes in the net carrying value of the components of intangible assets for the three months ended March 31, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Infinite-Lived Intangible Asset Total
	(in thousands, except weighted average amortization period information)
Balance as of December 31, 2018	$	47,964		$	2,850		$	122,637		$	173,451		$	107,700	$	1,011	$	108,711
Additions	—			—			—			—			—		—		—
Amortization expense	(2,094		)	(415		)	(2,179		)	(4,688		)	—		—		—
Balance as of March 31, 2019	$	45,870		$	2,435		$	120,458		$	168,763		$	107,700	$	1,011	$	108,711
Weighted average amortization period	7.1			3.5			14.3						Indefinite		Indefinite

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Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2019

Other Income and Expenses [Abstract]

Schedule of Accrued Expenses

Accrued expenses as of March 31, 2019 and December 31, 2018 consisted of the following:

	March 31, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	16,383	$	11,930
Accrued bonus	1,088		13,250
Sales tax payable	1,389		1,185
Magnum contingent liability	6,245		20,922
Accrued interest	14,770		7,031
Other accrued expenses	4,158		7,116
Accrued expenses	$	44,033	$	61,434

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Debt Obligations (Tables)

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Summary of Debt Obligations

The Company’s debt obligations as of March 31, 2019 and December 31, 2018 were as follows: 

	March 31, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	15,000			35,000
Total debt before deferred financing costs	$	415,000		$	435,000
Deferred financing costs	(9,502		)	(10,022		)
Total debt	$	405,498		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	405,498		$	424,978

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]

The estimated fair value of the Company’s debt obligations as of March 31, 2019 and December 31, 2018 was as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	412,000	$	376,000
2018 ABL Credit Facility	$	15,000	$	35,000

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Commitment and Contingencies (Tables)

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Schedule of Contingent Liabilities

The following is a reconciliation of the beginning and ending amounts of the contingent liabilities (Level 3) for the three months ended March 31, 2019:

	Magnum			Frac Tech		Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008	$	25,529
Revaluation adjustments	(14,137		)	182		(13,955		)
Balance at March 31, 2019	$	10,384		$	1,190	$	11,574

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Earnings (Loss) Per Share (Table)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Summary of Basic and Diluted Income (Loss) per Common Share

Basic and diluted earnings per common share was computed as follows: 

	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Net Income		Average Shares Outstanding	Earnings Per Share		Net Income		Average Shares Outstanding	Earnings Per Share
	(in thousands, except share and per share amounts)
Basic	$	17,310	29,150,996	$	0.59	$	1,675	21,902,519	$	0.08
Assumed exercise of stock options			2,709					37,238
Unvested restricted stock and stock units			318,048					129,596
Diluted	$	17,310	29,471,753	$	0.59	$	1,675	22,069,353	$	0.08

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Summary of Financial Data by Segment

Summary financial data by segment is as follows. The amounts labeled “Corporate” relate to assets not allocated to the reportable segments.

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Revenues
Completion Solutions	$	209,132		$	154,644
Production Solutions	20,573			19,163
	$	229,705		$	173,807
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	161,439		$	121,426
Production Solutions	17,151			16,801
	$	178,590		$	138,227
Adjusted gross profit
Completion Solutions	$	47,693		$	33,218
Production Solutions	3,422			2,362
	$	51,115		$	35,580
General and administrative expenses	19,939			14,365
(Gain) loss on revaluation of contingent liabilities	(13,955		)	1,063
Depreciation	13,530			13,109
Amortization of intangibles	4,688			1,900
Loss on equity method investment	—			75
(Gain) loss on sale of property and equipment	(23		)	370
Income from operations	$	26,936		$	4,698
Other expense
Interest expense	9,166			2,930
Total other expense	9,166			2,930
Income before income taxes	17,770			1,768
Provision for income taxes	460			93
Net income	$	17,310		$	1,675

Capital expenditures by segment for the three months ended March 31, 2019 and 2018, were as follows:

	March 31, 2019		March 31, 2018
	(in thousands)
Completion Solutions	$	22,478	$	5,283
Production Solutions	914		692
Corporate	55		493
	$	23,447	$	6,468

Total assets by segment as of March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,053,653	$	1,045,643
Production Solutions	34,662		35,086
Corporate	40,306		60,443
	$	1,128,621	$	1,141,172

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Business Acquisitions - Additional Information (Details) - Magnum shares in Millions	Oct. 25, 2018 USD ($) shares
Business Acquisition [Line Items]
Upfront cash consideration	$ 334,500,000
Equity interest issued (in shares) | shares	5.0
Percentage of net income on potential future cash payments	60.00%
Value of potential future cash payments	$ 25,000,000.0
Minimum
Business Acquisition [Line Items]
Estimated fair value of earnout	0
Maximum
Business Acquisition [Line Items]
Estimated fair value of earnout	$ 25,000,000

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Business Acquisitions - Total Purchase Consideration (Details) - Magnum $ in Thousands	Oct. 25, 2018 USD ($)
Business Acquisition [Line Items]
Proceeds from newly issued Senior Notes and 2018 ABL Credit Facility	$ 296,622
Cash provided from operations	58,760
Total upfront cash consideration	355,382
Issuance of the Company’s common shares	177,350
Contingent consideration	23,029
Total purchase consideration	$ 555,761

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Business Acquisitions - Net Assets Acquired (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Oct. 25, 2018
Business Acquisition [Line Items]
Goodwill	$ 307,804	$ 307,804
Magnum
Business Acquisition [Line Items]
Cash and cash equivalents			$ 8,509
Accounts receivable, net			30,441
Income taxes receivable			272
Inventories, net			55,169
Prepaid expenses and other current assets			1,147
Property and equipment, net			3,729
Goodwill			225,839
Definite-lived intangible assets, net			148,000
Indefinite-lived intangible assets			96,000
Other long-term assets			1,055
Accounts payable			(3,626)
Accrued expenses			(10,759)
Other long-term liabilities			(15)
Total net assets acquired			$ 555,761

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Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 41,986	$ 38,890
Work in progress	2,739	130
Finished goods	56,262	54,301
Inventories	100,987	93,321
Reserve for obsolescence	(2,934)	(1,886)
Inventories, net	$ 98,053	$ 91,435

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Goodwill and Intangible Assets - Components of Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Gross Value, beginning balance	$ 400,067
Accumulated Impairment Loss, Impairment, beginning balance	(92,263)
Net, beginning balance	307,804
Goodwill, Net, Impairment	0
Gross Value, ending balance	400,067
Accumulated Impairment Loss, Impairment, ending balance	(92,263)
Net, ending balance	$ 307,804

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Goodwill and Intangible Assets - Components of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, Beginning balance	$ 173,451
Indefinite-lived intangible assets, Beginning balance	108,711
Finite-lived intangible assets, Additions	0
Indefinite-lived intangible assets, Additions	0
Amortization of intangibles	(4,688)	$ (1,900)
Finite-lived intangible assets, Ending balance	168,763
Indefinite-lived intangible assets, Ending balance	108,711
Trade Names
Finite-Lived Intangible Assets [Line Items]
Indefinite-lived intangible assets, Beginning balance	107,700
Indefinite-lived intangible assets, Additions	0
Indefinite-lived intangible assets, Ending balance	107,700
Other Intangible Assets
Finite-Lived Intangible Assets [Line Items]
Indefinite-lived intangible assets, Beginning balance	1,011
Indefinite-lived intangible assets, Additions	0
Indefinite-lived intangible assets, Ending balance	1,011
Customer Relationships
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, Beginning balance	47,964
Finite-lived intangible assets, Additions	0
Amortization of intangibles	(2,094)
Finite-lived intangible assets, Ending balance	$ 45,870
Finite-lived intangible assets, weighted average amortization period	7 years 1 month 7 days
Non- Compete Agreements
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, Beginning balance	$ 2,850
Finite-lived intangible assets, Additions	0
Amortization of intangibles	(415)
Finite-lived intangible assets, Ending balance	$ 2,435
Finite-lived intangible assets, weighted average amortization period	3 years 6 months 1 day
Technology
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, Beginning balance	$ 122,637
Finite-lived intangible assets, Additions	0
Amortization of intangibles	(2,179)
Finite-lived intangible assets, Ending balance	$ 120,458
Finite-lived intangible assets, weighted average amortization period	14 years 3 months 20 days

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Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other Income and Expenses [Abstract]
Accrued compensation and benefits	$ 16,383	$ 11,930
Accrued bonus	1,088	13,250
Sales tax payable	1,389	1,185
Magnum contingent liability	6,245	20,922
Other accrued expenses	14,770	7,031
Accrued expenses	4,158	7,116
Accrued expenses	$ 44,033	$ 61,434

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Debt Obligations - Summary of Debt Obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Total debt before deferred financing costs	$ 415,000	$ 435,000
Deferred financing costs	(9,502)	(10,022)
Total debt	405,498	424,978
Less: Current portion of long-term debt	0	0
Long-term debt	405,498	424,978
Senior Notes
Line of Credit Facility [Line Items]
Total debt before deferred financing costs	400,000	400,000
2018 ABL Credit Facility | Line of Credit
Line of Credit Facility [Line Items]
Total debt before deferred financing costs	$ 15,000	$ 35,000

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Debt Obligations - Additional Information (Details) - USD ($)			3 Months Ended		12 Months Ended
	Oct. 25, 2018	Sep. 14, 2017	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Jun. 30, 2018	Jan. 31, 2018
Debt Instrument [Line Items]
Deferred financing costs			$ 9,502,000		$ 10,022,000
Payments on revolving credit facilities			20,000,000	$ 96,182,000
Proceeds from issuance of common stock, net			$ 0	171,616,000
Debt extinguishment cost				700,000
Senior Notes
Debt Instrument [Line Items]
Debt instrument, face amount	$ 400,000,000
Debt instrument, interest rate	8.75%
Default trigger percentage					25.00%
2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 200,000,000.0
Commitment fee percentage			0.50%
Interest rate			4.71%
Current borrowing capacity			$ 129,700,000
Proceeds from secured lines of credit			15,000,000
2018 IPO Term Loan Credit Facility | Line of Credit
Debt Instrument [Line Items]
Proceeds from issuance of common stock, net		$ 150,000,000
Legacy Term Loans And Revolving Credit Facilities
Debt Instrument [Line Items]
Repayments of debt				$ 242,200,000
Canadian Tranche | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Maximum borrowing capacity	25,000,000.0
Letter of Credit | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 50,000,000.0
2018 IPO Term Loan Credit Facility
Debt Instrument [Line Items]
Debt instrument, face amount						$ 125,000,000
Maximum borrowing capacity		$ 50,000,000
Outstanding letter of credit			$ 500,000
Mandatory prepayment							$ 9,700,000
Percentage of net proceeds from IPO							50.00%
Commitment fee percentage			0.50%
Minimum | LIBOR | Canadian Tranche | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Applicable margin for base rate loans	0.75%
Minimum | LIBOR | Letter of Credit | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Applicable margin for base rate loans	1.75%
Minimum | LIBOR | 2018 IPO Term Loan Credit Facility
Debt Instrument [Line Items]
Applicable margin for base rate loans			2.50%
Minimum | Base Rate | 2018 IPO Term Loan Credit Facility
Debt Instrument [Line Items]
Applicable margin for base rate loans			1.50%
Maximum | LIBOR | Canadian Tranche | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Applicable margin for base rate loans	1.25%
Maximum | LIBOR | Letter of Credit | 2018 ABL Credit Facility | Line of Credit
Debt Instrument [Line Items]
Applicable margin for base rate loans	2.25%
Maximum | LIBOR | 2018 IPO Term Loan Credit Facility
Debt Instrument [Line Items]
Applicable margin for base rate loans			3.75%
Maximum | Base Rate | 2018 IPO Term Loan Credit Facility
Debt Instrument [Line Items]
Applicable margin for base rate loans			2.75%

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Debt Obligations - Fair Value of Debt Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Senior Notes
Debt Instrument [Line Items]
Debt instrument, fair value disclosure	$ 412,000	$ 376,000
Line of Credit | 2018 ABL Credit Facility
Debt Instrument [Line Items]
Debt instrument, fair value disclosure	$ 15,000	$ 35,000

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Related Party Transactions (Details) - USD ($)	1 Months Ended	3 Months Ended		12 Months Ended
	Jun. 30, 2014	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2016	Dec. 31, 2018
Magnum
Related Party Transaction [Line Items]
Receivable due from entity					$ 1,800,000
Curtis F. Harrell
Related Party Transaction [Line Items]
Receivable due from entity		$ 100,000			100,000
Cost of services		100,000	$ 200,000
EOG Resources, Inc.
Related Party Transaction [Line Items]
Revenue from related parties			7,800,000
Prepaid Expenses and Other
Related Party Transaction [Line Items]
Unpaid interest of notes payable		147,000			10,000
Mr. Crombie
Related Party Transaction [Line Items]
Outstanding notes		7,100,000			7,600,000
Lease and building maintenance expense		200,000	$ 200,000
Payables due to entities		13,000			$ 0
Payments to acquire equipment		$ 100,000
Beneficial owners of entity stock, percentage owned		5.00%
Rent expense		$ 400,000
Promissory Notes | Former owners of Crest and Mr.Crombie
Related Party Transaction [Line Items]
Notes issued	$ 9,400,000
Promissory Notes | Mr. Crombie
Related Party Transaction [Line Items]
Notes paid				$ 1,800,000

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Commitment and Contingencies - Contingent Consideration (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Loss Contingencies [Line Items]
Beginning balance	$ 25,529
Revaluation adjustments	13,955
Ending balance	11,574
Magnum
Loss Contingencies [Line Items]
Beginning balance	24,521
Revaluation adjustments	14,137
Ending balance	10,384
Frac Tech
Loss Contingencies [Line Items]
Beginning balance	1,008
Revaluation adjustments	(182)
Ending balance	$ 1,190

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Commitment and Contingencies - Additional Information (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018	Oct. 25, 2018
Loss Contingencies [Line Items]
Contingent liabilities	$ 11,574,000	$ 25,529,000
Accrued Expenses
Loss Contingencies [Line Items]
Contingent liabilities	6,300,000	20,900,000
Other Noncurrent Liabilities
Loss Contingencies [Line Items]
Contingent liabilities	5,300,000	4,600,000
Scorpion | Accrued Expenses
Loss Contingencies [Line Items]
Estimated liability for self-insured medical claims	1,800,000	1,600,000
Magnum
Loss Contingencies [Line Items]
Percentage of net income on potential future cash payments			60.00%
Value of potential future cash payments			$ 25,000,000.0
Contingent liabilities	$ 10,384,000	$ 24,521,000

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Taxes (Details)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Effective tax rate	2.60%	5.30%

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Earnings (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net Income	$ 17,310	$ 1,675
Average Shares Outstanding, Basic (in shares)	29,150,996	21,902,519
Earnings Per Share, Basic (in usd per share)	$ 0.59	$ 0.08
Assumed exercise of stock options (in shares)	2,709	37,238
Unvested restricted stock (in shares)	318,048	129,596
Average Shares Outstanding, Diluted (in shares)	29,471,753	22,069,353
Earnings Per Share, Diluted (in usd per share)	$ 0.59	$ 0.08

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Segment Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) segment	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Segment Reporting [Abstract]
Number of reportable segments (in segments) | segment	2
Segment Reporting Information [Line Items]
Revenues	$ 229,705	$ 173,807
Cost of revenues	178,590	138,227
Adjusted gross profit	51,115	35,580
General and administrative expenses	19,939	14,365
(Gain) loss on revaluation of contingent liabilities	(13,955)	1,063
Depreciation	13,530	13,109
Amortization of intangibles	4,688	1,900
Loss on equity method investment	0	75
(Gain) loss on sale of property and equipment	(23)	370
Income from operations	26,936	4,698
Interest expense	9,166	2,930
Total other expense	9,166	2,930
Income before income taxes	17,770	1,768
Provision for income taxes	460	93
Net income	17,310	1,675
Capital expenditures	20,386	6,468
Total Assets	1,128,621		$ 1,141,172
Payments to Acquire Other Productive Assets	23,447	6,468
Corporate
Segment Reporting Information [Line Items]
Capital expenditures	55	493
Total Assets	40,306		60,443
Completion Solutions
Segment Reporting Information [Line Items]
Revenues	209,132	154,644
Cost of revenues	161,439	121,426
Adjusted gross profit	47,693	33,218
Completion Solutions | Operating Segments
Segment Reporting Information [Line Items]
Capital expenditures	22,478	5,283
Total Assets	1,053,653		1,045,643
Production Solutions
Segment Reporting Information [Line Items]
Revenues	20,573	19,163
Cost of revenues	17,151	16,801
Adjusted gross profit	3,422	2,362
Production Solutions | Operating Segments
Segment Reporting Information [Line Items]
Capital expenditures	914	$ 692
Total Assets	$ 34,662		$ 35,086