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 JUNE 30, 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)

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

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

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at August 8, 2019 was 30,680,434.

TABLE OF CONTENTS

PART I		FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Income and Comprehensive Income (Loss)	2
		Condensed Consolidated Statements of Stockholders’ Equity	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to the Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	35
PART II		OTHER INFORMATION	36
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3.	Defaults Upon Senior Securities	36
	Item 4.	Mine Safety Disclosures	36
	Item 5.	Other Information	36
	Item 6.	Exhibits	37
		Signatures	38

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 composite and 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)

	June 30, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	16,886		$	63,615
Accounts receivable, net	169,450			154,783
Inventories, net	87,935			91,435
Prepaid expenses and other current assets	16,482			15,717
Notes receivable from shareholders (Note 9)	—			7,626
Total current assets	290,753			333,176
Property and equipment, net	220,575			211,644
Definite-lived intangible assets, net	164,135			173,451
Goodwill	307,804			307,804
Indefinite-lived intangible assets	108,711			108,711
Other long-term assets	5,723			6,386
Total assets	$	1,097,701		$	1,141,172
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	38,993		$	46,132
Accrued expenses	30,820			61,434
Current portion of capital lease obligations	1,012			665
Income taxes payable	97			57
Total current liabilities	70,922			108,288
Long-term liabilities
Long-term debt	391,018			424,978
Deferred income taxes	2,896			5,915
Long-term capital lease obligations	2,864			2,330
Other long-term liabilities	5,692			4,838
Total liabilities	473,392			546,349
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 30,683,009 and 30,163,408 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)	307			302
Additional paid-in capital	752,072			746,428
Accumulated other comprehensive loss	(4,403		)	(4,843		)
Accumulated deficit	(123,667		)	(147,064		)
Total stockholders’ equity	624,309			594,823
Total liabilities and stockholders’ equity	$	1,097,701		$	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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	237,517		$	205,492		$	467,222		$	379,299
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	184,555			163,591			363,145			301,818
General and administrative expenses	21,818			15,463			41,757			29,828
(Gain) loss on revaluation of contingent liabilities	(975		)	607			(14,930		)	1,670
Depreciation	13,846			13,212			27,376			26,321
Amortization of intangibles	4,628			1,896			9,316			3,796
Loss on equity method investment	—			118			—			193
Gain on sale of property and equipment	(310		)	(881		)	(333		)	(511		)
Income from operations	13,955			11,486			40,891			16,184
Interest expense	10,603			1,815			19,769			4,745
Income before income taxes	3,352			9,671			21,122			11,439
Provision (benefit) for income taxes	(2,735		)	652			(2,275		)	745
Net income	$	6,087		$	9,019		$	23,397		$	10,694
Earnings per share
Basic	$	0.21		$	0.38		$	0.80		$	0.47
Diluted	$	0.21		$	0.37		$	0.80		$	0.46
Weighted average shares outstanding
Basic	29,349,396			23,895,858			29,250,744			22,904,743
Diluted	29,473,037			24,351,000			29,423,163			23,198,077
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$	192		$	(250	)	$	440		$	(644	)
Total other comprehensive income (loss), net of tax	192			(250		)	440			(644		)
Total comprehensive income	$	6,279		$	8,769		$	23,837		$	10,050

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
Balance, March 31, 2019	30,782,600		$	308		$	749,508		$	(4,595	)	$	(129,754	)	$	615,467
Issuance of common stock under stock compensation plan	(33,538	)	—			—			—			—			—
Stock-based compensation expense	—		—			4,114			—			—			4,114
Exercise of stock options	—		—			—			—			—			—
Vesting of restricted stock	(66,053	)	(1		)	(1,550		)	—			—			(1,551		)
Other comprehensive income	—		—			—			192			—			192
Net income	—		—			—			—			6,087			6,087
Balance, June 30, 2019	30,683,009		$	307		$	752,072		$	(4,403	)	$	(123,667	)	$	624,309

	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares	Amounts
Balance, March 31, 2018	24,278,857	$	243	$	555,681		$	(4,078	)	$	(92,406	)	$	459,440
Issuance of common stock under stock compensation plan	752,006	7		(7		)	—			—			—
Stock-based compensation expense	—	—		3,971			—			—			3,971
Exercise of stock options	—	—		—			—			—			—
Vesting of restricted stock	—	—		—			—			—			—
Other comprehensive loss	—	—		—			(250		)	—			(250		)
Net income	—	—		—			—			9,019			9,019
Balance, June 30, 2018	25,030,863	$	250	$	559,645		$	(4,328	)	$	(83,387	)	$	472,180

	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares		Amounts
Balance, December 31, 2018	30,163,408		$	302		$	746,428		$	(4,843	)	$	(147,064	)	$	594,823
Issuance of common stock under stock compensation plan	588,483		6			(6		)	—			—			—
Stock-based compensation expense	—		—			7,267			—			—			7,267
Exercise of stock options	674		—			15			—			—			15
Vesting of restricted stock	(69,556	)	(1		)	(1,632		)	—			—			(1,633		)
Other comprehensive income	—		—			—			440			—			440
Net income	—		—			—			—			23,397			23,397
Balance, June 30, 2019	30,683,009		$	307		$	752,072		$	(4,403	)	$	(123,667	)	$	624,309

	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares	Amounts
Balance, 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
Issuance of common stock under stock compensation plan	1,157,280	11		(11		)	—			—			—
Stock-based compensation expense	—	—		6,211			—			—			6,211
Other issuances of common stock	13,043	—		300			—			—			300
Other comprehensive loss	—	—		—			(644		)	—			(644		)
Net income	—	—		—			—			10,694			10,694
Balance, June 30, 2018	25,030,863	$	250	$	559,645		$	(4,328	)	$	(83,387	)	$	472,180

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)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities
Net income	$	23,397		$	10,694
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	27,376			26,321
Amortization of intangibles	9,316			3,796
Amortization of deferred financing costs	1,492			1,022
Provision for (recovery of) doubtful accounts	48			(300		)
(Benefit) provision for deferred income taxes	(3,019		)	375
Provision for inventory obsolescence	2,080			228
Stock-based compensation expense	7,267			6,211
Gain on sale of property and equipment	(333		)	(511		)
(Gain) loss on revaluation of contingent liabilities	(14,930		)	1,670
Loss on equity method investment	—			193
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable, net	(14,560		)	(41,368		)
Inventories, net	1,566			(1,216		)
Prepaid expenses and other current assets	(1,952		)	186
Accounts payable and accrued expenses	(20,061		)	18,584
Income taxes receivable/payable	40			(691		)
Other assets and liabilities	(319		)	6
Net cash provided by operating activities	17,408			25,200
Cash flows from investing activities
Proceeds from sales of property and equipment	1,187			1,294
Proceeds from property and equipment casualty losses	1,480			1,743
Proceeds from notes receivable payments	7,626			—
Purchases of property and equipment	(37,363		)	(18,065		)
Net cash used in investing activities	(27,070		)	(15,028		)
Cash flows from financing activities
Proceeds from revolving credit facilities	10,000			—
Payments on revolving credit facilities	(45,000		)	(96,182		)
Proceeds from term loan	—			125,000
Payments on term loans	—			(155,701		)
Payments on capital leases	(429		)	—
Payments of contingent liability	(138		)	—
Proceeds from issuance of common stock in IPO, net of offering costs	—			171,450
Proceeds from other issuances of common stock	—			300
Proceeds from exercise of stock options	15			—
Vesting of restricted stock	(1,633		)	—
Cost of debt issuance	—			(1,385		)
Net cash provided by (used in) financing activities	(37,185		)	43,482
Impact of foreign currency exchange on cash	118			(307		)
Net increase (decrease) in cash and cash equivalents	(46,729		)	53,347
Cash and cash equivalents
Cash and cash equivalents beginning of year	63,615			17,513
Cash and cash equivalents end of period	$	16,886		$	70,860
Supplemental disclosures of cash flow information:
Cash paid for interest	$	19,386		$	2,688
Cash paid for income taxes	$	694		$	1,042
Capital expenditures in accounts payable and accrued expenses	$	3,079		$	2,410
Property and equipment obtained by capital lease	$	1,310		$	—

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 is also in the process of 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 is holding 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.

6

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.

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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 (as amended on June 7, 2019, 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 2026 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 the Closing Date, which management believed were 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.  

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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 and six months ended June 30, 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 $3.2 million and $1.9 million at June 30, 2019 and December 31, 2018, respectively.

Inventories, net as of June 30, 2019 and December 31, 2018 were comprised of the following: 

	June 30, 2019			December 31, 2018
	(in thousands)
Raw materials	$	51,219		$	38,890
Work in progress	457			130
Finished goods	39,495			54,301
Inventories	91,171			93,321
Reserve for obsolescence	(3,236		)	(1,886		)
Inventories, net	$	87,935		$	91,435

6. Goodwill and Intangible Assets

Goodwill

The changes in the net carrying amount of the components of goodwill for the six months ended June 30, 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 June 30, 2019	$	400,067	$	(92,263	)	$	307,804

At June 30, 2019, all remaining goodwill is attributable to Completion Solutions.

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Intangible Assets

The changes in the net carrying value of the components of intangible assets for the six months ended June 30, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Indefinite-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	(4,174		)	(783		)	(4,359		)	(9,316		)	—		—		—
Balance as of June 30, 2019	$	43,790		$	2,067		$	118,278		$	164,135		$	107,700	$	1,011	$	108,711
Weighted average amortization period	6.9			3.7			14.1						Indefinite		Indefinite

Amortization of intangibles expense was $4.6 million and $9.3 million for the three and six months ended June 30, 2019, respectively. Amortization of intangibles expense was $1.9 million and $3.8 million for the three and six months ended June 30, 2018, respectively.

7. Accrued Expenses

Accrued expenses as of June 30, 2019 and December 31, 2018 consisted of the following:

	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	12,133	$	11,930
Accrued bonus	1,039		13,250
Sales tax payable	1,216		1,185
Contingent liabilities	4,985		20,922
Interest payable	6,067		7,031
Other accrued expenses	5,380		7,116
Accrued expenses	$	30,820	$	61,434

8. Debt Obligations

The Company’s debt obligations as of June 30, 2019 and December 31, 2018 were as follows: 

	June 30, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	—			35,000
Total debt before deferred financing costs	$	400,000		$	435,000
Deferred financing costs	(8,982		)	(10,022		)
Total debt	$	391,018		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	391,018		$	424,978

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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 June 30, 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 $9.0 million and $10.0 million at June 30, 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. The weighted average interest rate was 4.70% during the first six months 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 June 30, 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.

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Concurrent with the effectiveness of the 2018 ABL Credit Facility, the Company borrowed approximately $35.0 million to fund a portion of the upfront cash purchase of the Magnum Acquisition. 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. During the first six months of 2019, the Company repaid its outstanding revolver borrowings in full.

At June 30, 2019, the Company’s availability under the 2018 ABL Credit Facility was approximately $161.1 million, net of 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 unamortized deferred 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 six months ended June 30, 2018.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of June 30, 2019 and December 31, 2018 was as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	389,000	$	376,000
2018 ABL Credit Facility	$	—	$	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 was due on June 30, 2019. The interest rate was 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 was due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At December 31, 2018, the outstanding principal balance of the notes of the remaining individuals totaled $7.6 million, and unpaid interest, included in “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheets, totaled $10,000. During the second quarter of 2019, the Company received the full principal balance of the notes outstanding as well as any unpaid interest.

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 associated with these entities was $0.2 million and $0.4 million for the three and six months ended June 30, 2019 and $0.2 million and $0.4 million for the three and six months ended June 30, 2018, respectively. The Company also purchased $0.5 million and $0.6 million of equipment during the three and six months ended June 30, 2019, respectively, from an entity in which Mr. Crombie is a limited partner. The Company did not purchase any equipment from this entity during the three and six months ended June 30, 2018. There were outstanding payables due to this entity relating to equipment purchases of $0.3 million at June 30, 2019.

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 $0.3 million and $0.7 million for the three and six months ended June 30, 2019, respectively. There were no outstanding payables due to the entity at June 30, 2019 and December 31, 2018.

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 and six months ended June 30, 2019, respectively, and billed $0.3 million and $0.5 million for the three and six months ended June 30, 2018, respectively. There was an outstanding receivable due from this entity of $0.1 million at both June 30, 2019 and December 31, 2018.

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 $11.9 million and $19.7 million for the three and six months ended June 30, 2018, respectively. There was an outstanding receivable due from this entity of $7.0 million at December 31, 2018.

On June 5, 2019, Ann G. Fox, President and Chief Executive Officer and a director of the Company, was elected as a director of Devon Energy Corporation (“Devon”). The Company generated revenue from Devon of $4.9 million and $10.4 million for the three and six months ended June 30, 2019, respectively. There was an outstanding receivable due from Devon of $3.6 million at June 30, 2019.

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.

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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 alleged, 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. In May 2019, the parties entered into settlement agreements, which have been approved by the court, and the plaintiffs and intervenors have moved to dismiss the case. The Company has tendered this matter to its insurance company for defense and indemnification of Big Lake Services and the other defendants, and this settlement has been fully funded by its insurance company.

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 June 30, 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 June 30, 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 2026 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 six months ended June 30, 2019:

	Magnum			Frac Tech			Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008		$	25,529
Payments	—			(138		)	(138		)
Revaluation adjustments	(15,451		)	521			(14,930		)
Balance at June 30, 2019	$	9,070		$	1,391		$	10,461

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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 $5.0 million and $20.9 million reported in “Accrued expenses” at June 30, 2019 and December 31, 2018, respectively, and $5.5 million and $4.6 million reported in “Other long-term liabilities” at June 30, 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 and six months ended June 30, 2019 was (81.6)% and (10.8)%, respectively, compared to 6.7% and 6.5% for the three and six months ended June 30, 2018, respectively. The change in effective tax rate for the six months ended June 30, 2019 was primarily attributable to the current year impact of the Company's valuation allowance positions as well as state and non-U.S. income taxes.

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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 June 30, 2019					Three Months Ended June 30, 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	$	6,087	29,349,396	$	0.21	$	9,019	23,895,858	$	0.38
Assumed exercise of stock options	—		12	—		—		85,681	—
Unvested restricted stock and stock units	—		123,629	—		—		369,461	—
Diluted	$	6,087	29,473,037	$	0.21	$	9,019	24,351,000	$	0.37

	Six Months Ended June 30, 2019					Six Months Ended June 30, 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	$	23,397	29,250,744	$	0.80	$	10,694	22,904,743	$	0.47
Assumed exercise of stock options	—		71	—		—		58,914	—
Unvested restricted stock and stock units	—		172,348	—		—		234,420	—
Diluted	$	23,397	29,423,163	$	0.80	$	10,694	23,198,077	$	0.46

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.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
Revenues
Completion Solutions	$	215,871		$	185,111		$	425,003		$	339,755
Production Solutions	21,646			20,381			42,219			39,544
	$	237,517		$	205,492		$	467,222		$	379,299
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	166,022		$	146,002		$	327,461		$	267,428
Production Solutions	18,533			17,589			35,684			34,390
	$	184,555		$	163,591		$	363,145		$	301,818
Adjusted gross profit
Completion Solutions	$	49,849		$	39,109		$	97,542		$	72,327
Production Solutions	3,113			2,792			6,535			5,154
	$	52,962		$	41,901		$	104,077		$	77,481
General and administrative expenses	21,818			15,463			41,757			29,828
(Gain) loss on revaluation of contingent liabilities	(975		)	607			(14,930		)	1,670
Depreciation	13,846			13,212			27,376			26,321
Amortization of intangibles	4,628			1,896			9,316			3,796
Loss on equity method investment	—			118			—			193
Gain on sale of property and equipment	(310		)	(881		)	(333		)	(511		)
Income from operations	$	13,955		$	11,486		$	40,891		$	16,184
Interest expense	10,603			1,815			19,769			4,745
Income before income taxes	3,352			9,671			21,122			11,439
Provision (benefit) for income taxes	(2,735		)	652			(2,275		)	745
Net income	$	6,087		$	9,019		$	23,397		$	10,694

Capital expenditures by segment for the three and six months ended June 30, 2019 and 2018, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Completion Solutions	$	12,719	$	10,630	$	35,197	$	15,913
Production Solutions	1,072		955		1,986		1,647
Corporate	38		12		93		505
	$	13,829	$	11,597	$	37,276	$	18,065

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Total assets by segment as of June 30, 2019 and December 31, 2018 were as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,032,759	$	1,045,643
Production Solutions	36,616		35,086
Corporate	28,326		60,443
	$	1,097,701	$	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 and six months ended June 30, 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 (as amended on June 7, 2019, 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 2026 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.

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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. During the first six months of 2019, we fully repaid the outstanding revolver balance. 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.

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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 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.

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The historical results of operations for the three and six months ended June 30, 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 and six months ended June 30, 2018 do not include activity related to the Magnum Acquisition. As a result, the historical results of operations for the three and six months ended June 30, 2018 may not give 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.

• 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, at the beginning of 2019, OPEC members and some nonmembers, including Russia, 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 provided support for an increase in oil prices during the first several months of 2019. Since then, due to, among other things, global geopolitical tensions, oil prices have slightly decreased, despite renewed pledges by OPEC members and some non-members, including Russia, to extend production cuts into 2020. 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 further 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.

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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.

Results of Operations

Results for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

	Three Months Ended June 30,
	2019			2018			Change
	(in thousands)
Revenues
Completion Solutions	$	215,871		$	185,111		$	30,760
Production Solutions	21,646			20,381			1,265
	$	237,517		$	205,492		$	32,025
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	166,022		$	146,002		$	20,020
Production Solutions	18,533			17,589			944
	$	184,555		$	163,591		$	20,964
Adjusted gross profit
Completion Solutions	$	49,849		$	39,109		$	10,740
Production Solutions	3,113			2,792			321
	$	52,962		$	41,901		$	11,061
General and administrative expenses	21,818			15,463			6,355
(Gain) loss on revaluation of contingent liabilities	(975		)	607			(1,582		)
Depreciation	13,846			13,212			634
Amortization of intangibles	4,628			1,896			2,732
Loss on equity method investment	—			118			(118		)
Gain on sale of property and equipment	(310		)	(881		)	571
Income from operations	$	13,955		$	11,486		$	2,469
Interest expense	10,603			1,815			8,788
Income before income taxes	3,352			9,671			(6,319		)
Provision (benefit) for income taxes	(2,735		)	652			(3,387		)
Net income	$	6,087		$	9,019		$	(2,932	)

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Revenues

Revenues increased$32.0 million, or 16%, to $237.5 million for the second 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 certain 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 second quarter of 2019, the closing price of oil reached a high of $66.24 per barrel, and the closing price of natural gas reached a high of $2.76 per MMBtu. During the second quarter of 2018, the closing price per barrel of oil reached a high of $77.41, and the closing price of natural gas reached a high of $3.08 per MMBtu.

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

Completion Solutions: Revenues increased$30.8 million, or 17%, to $215.9 million for the second quarter of 2019.The increase is primarily related to an increase in completion tools revenue of 118% in comparison to the second quarter of 2018, with a corresponding increase of 94% in completion tool stages, and an increase of 12% 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 4% for the second quarter of 2019, and total wireline stages completed increased 13% due to an increase in activity in comparison to the first quarter of 2018. Cementing revenues (including pump downs) increased by 12%, primarily due to a 11% increase in cement job count quarter-over-quarter. Coiled tubing services revenues decreased 18% in comparison to the second quarter of 2018 as total job count decreased by 32%.

Production Solutions: Revenues increased$1.3 million, or 6%, to $21.6 million for the second quarter of 2019. Rig activity, measured in hours worked, decreased 2%, but was more than offset by an overall increase in ancillary rig work and non-rig work between periods coupled with price increases that became effective in the second half of 2018.

Cost of Revenues (Exclusive of Depreciation and Amortization)

Cost of revenues increased$21.0 million, or 13%, to $184.6 million for the second 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 $18.3 million, and employee costs increased $3.3 million. This increase in costs was partially offset by a decrease in other costs, mainly those related to travel and repairs and maintenance, by $0.7 million in comparison to the second quarter of 2018.

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

Completion Solutions: Cost of revenues increased$20.0 million, or 14%, to $166.0 million for the second quarter of 2019. Costs related to materials installed in wells and consumed while performing services increased $18.5 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 certain other service lines within the segment. Employee costs increased $2.4 million in comparison to the second quarter of 2018, as headcount increased primarily due to the Magnum Acquisition. Other costs, such as freight, facilities and vehicle expense, decreased $0.9 million mainly due to improved cost management.

Production Solutions: Cost of revenues increased$0.9 million, or 5%, to $18.5 million for the second quarter of 2019.Employee costs increased by $0.9 million, due in part to increased compensation in the second quarter of 2019 while othercosts, 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 $0.2 million.

Adjusted Gross Profit

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased$10.7 million to $49.8 million for the second 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$0.3 million to $3.1 million for the second quarter of 2019 as a result of the factors described above under “Revenues” and “Cost of Revenues.”

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General and Administrative Expenses

General and administrative expenses increased$6.4 million to $21.8 million for the second quarter of 2019. The increase in comparison to the second 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 9.2% for the second quarter of 2019, compared to 7.5% for the second quarter of 2018.

(Gain) Loss on Revaluation of Contingent Liabilities

(Gain) loss on the revaluation of contingent liabilities changed $1.6 million from a loss to a gain of $1.0 million for the second quarter of 2019. The change 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$0.6 million to $13.8 million for the second quarter of 2019, primarily due to anincrease in capital expenditures in the second quarter of 2019 within the Completion Solutions segment mainly due to increased activity in comparison to the second 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.

Amortization of Intangibles

Amortization of intangibles increased$2.7 million to $4.6 million for the second 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 the acquisition of Frac Technology AS, a Norwegian private limited company (the “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$8.8 million to $10.6 million for the second quarter of 2019. The increase in comparison to the second 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 second quarter of 2019 was (81.6)%, compared to 6.7% for the second quarter of 2018. The change in effective tax rate between periods was primarily attributable to the current year impact of our valuation allowance positions as well as state and non-U.S. income taxes.

Adjusted EBITDA

Adjusted EBITDA increased$7.4 million to $38.0 million for the second 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.

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Results for the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

	Six Months Ended June 30,
	2019			2018			Change
	(in thousands)
Revenues
Completion Solutions	$	425,003		$	339,755		$	85,248
Production Solutions	42,219			39,544			2,675
	$	467,222		$	379,299		$	87,923
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	327,461		$	267,428		$	60,033
Production Solutions	35,684			34,390			1,294
	$	363,145		$	301,818		$	61,327
Adjusted gross profit
Completion Solutions	$	97,542		$	72,327		$	25,215
Production Solutions	6,535			5,154			1,381
	$	104,077		$	77,481		$	26,596
General and administrative expenses	41,757			29,828			11,929
(Gain) loss on revaluation of contingent liabilities	(14,930		)	1,670			(16,600		)
Depreciation	27,376			26,321			1,055
Amortization of intangibles	9,316			3,796			5,520
Loss on equity method investment	—			193			(193		)
Gain on sale of property and equipment	(333		)	(511		)	178
Income from operations	$	40,891		$	16,184		24,707
Interest expense	19,769			4,745			15,024
Income before income taxes	21,122			11,439			9,683
Provision (benefit) for income taxes	(2,275		)	745			(3,020		)
Net income	$	23,397		$	10,694		$	12,703

Revenues

Revenues increased$87.9 million, or 23%, to $467.2 million for the first six months 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 certain 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 six months of 2019, the closing price of oil reached a high of $66.24 per barrel, and the closing price of natural gas reached a high of $4.25 per MMBtu. During the first six months of 2018, the closing price per barrel of oil reached a high of $77.41, 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$85.2 million, or 25%, to $425.0 million for the first six months of 2019.The increase is primarily related to an increase in completion tools revenue of 147% in comparison to the first six months of 2018, with a corresponding increase of 101% in completion tool stages, and an increase of 23% 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 15% for the first six months of 2019, and total wireline stages completed increased 24% due to an increase in activity in comparison to the first six months of 2018. Cementing revenues (including pump downs) increased by 17%, primarily due to a 16% increase in cement job count during the first six months of 2019. Coiled tubing services revenues decreased 14% in comparison to the first six months of 2018 as total job count decreased by 31%.

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Production Solutions: Revenues increased$2.7 million, or 7%, to $42.2 million for the first six months of 2019. Rig activity, measured in hours worked, decreased 3%, but was more than offset by an overall increase in ancillary rig work and non-rig work between periods coupled with price increases that became effective in the second half of 2018.

Cost of Revenues (Exclusive of Depreciation and Amortization)

Cost of revenues increased$61.3 million, or 20%, to $363.1 million for the first six months of 2019. The increase was a result of additional revenue-generating activity in comparison to the first six months of 2018, driven in large part by the Magnum Acquisition in the fourth quarter of 2018. Materials installed in wells and consumed while performing servicesincreased $43.6 million. Employee costs increased $12.4 million, and other costs increased $5.3 million in comparison to the first six months of 2018.

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

Completion Solutions: Cost of revenues increased$60.0 million, or 22%, to $327.5 million for the first six months of 2019. Costs related to materials installed in wells and consumed while performing services increased $44.1 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 certain other service lines within the segment. Employee costs increased $11.0 million in comparison to the first six months of 2018, as headcount increased primarily due to the Magnum Acquisition. Other costs, such as integration costs, freight, facilities and vehicle expense, increased $4.9 million mainly due to increased activity and the Magnum Acquisition.

Production Solutions: Cost of revenues increased$1.3 million, or 4%, to $35.7 million for the first six months of 2019. Employee costs increased by $1.4 million, due in part to increased compensation and related benefits in the first six months of 2019 while other costs, such as vehicle and facilities expense, increased by $0.4 million. The overall increase in cost of revenues was partially offset by a decrease in costs related to materials consumed while performing services of $0.5 million.

Adjusted Gross Profit

Completion Solutions: Adjusted gross profit (excluding depreciation and amortization) increased$25.2 million to $97.5 million for the first six months of 2019 due to the factors described above under “Revenues” and “Cost of Revenues.”

Production Solutions: Adjusted gross profit (excluding depreciation and amortization) increased$1.4 million to $6.5 million for the first six months 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$11.9 million to $41.8 million for the first six months of 2019. The increase in comparison to the first six months 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 8.9% for the first six months of 2019, compared to 7.9% for the first six months of 2018.

(Gain) Loss on Revaluation of Contingent Liabilities

(Gain) loss on the revaluation of contingent liabilities changed $16.6 million from a loss to againof $14.9 million for the first six months of 2019. The change 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$1.1 million to $27.4 million for the first six months of 2019, primarily due to an increase in capital expenditures in the first six months of 2019 within the Completion Solutions segment mainly due to increased activity in comparison to the first six months 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$5.5 million to $9.3 million for the first six months of 2019, primarily due to a $6.2 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 $0.5 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$15.0 million to $19.8 million for the first six months of 2019. The increase in comparison to the first six months 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 six months of 2019 was (10.8)%, compared to 6.5% for the first six months of 2018. The change in effective tax rate between periods was primarily attributable to the current year impact of our valuation allowance positions as well as state and non-U.S. income taxes.

Adjusted EBITDA

Adjusted EBITDA increased$22.5 million to $77.2 million for the first six months 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 and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
EBITDA reconciliation:
Net income	$	6,087		$	9,019		$	23,397		$	10,694
Interest expense	10,603			1,815			19,769			4,745
Depreciation	13,846			13,212			27,376			26,321
Amortization of intangibles	4,628			1,896			9,316			3,796
Provision (benefit) for income taxes	(2,735		)	652			(2,275		)	745
EBITDA	$	32,429		$	26,594		$	77,583		$	46,301
Adjusted EBITDA reconciliation:
EBITDA	$	32,429		$	26,594		$	77,583		$	46,301
Transaction and integration costs	2,684			—			7,446			377
(Gain) loss on revaluation of contingent liabilities (1)	(975		)	607			(14,930		)	1,670
Loss on equity method investment	—			118			—			193
Stock-based compensation expense	4,114			3,971			7,267			6,211
Gain on sale of property and equipment	(310		)	(881		)	(333		)	(511		)
Legal fees and settlements (2)	75			177			143			482
Adjusted EBITDA	$	38,017		$	30,586		$	77,176		$	54,723

(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 and six months ended June 30, 2019:

	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	(in thousands)
Net income	$	6,087		$	23,397
Add back:
Interest expense	10,603			19,769
Transaction and integration costs	2,684			7,446
Benefit for deferred income taxes	(2,541		)	(3,019		)
After-tax net operating profit	$	16,833		$	47,593
Total capital as of prior period-end/year-end:
Total stockholders’ equity	$	615,467		$	594,823
Total debt	415,000			435,000
Less cash and cash equivalents	(31,157		)	(63,615		)
Total capital as of prior period-end/year-end	$	999,310		$	966,208
Total capital as of period-end:
Total stockholders’ equity	$	624,309		$	624,309
Total debt	400,000			400,000
Less cash and cash equivalents	(16,886		)	(16,886		)
Total capital as of period-end	$	1,007,423		$	1,007,423
Average total capital	$	1,003,367		$	986,816
ROIC	6.7%			9.6%

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 and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Calculation of gross profit
Revenues	$	237,517	$	205,492	$	467,222	$	379,299
Cost of revenues (exclusive of depreciation and amortization shown separately below)	184,555		163,591		363,145		301,818
Depreciation (related to cost of revenues)	13,616		12,993		26,922		25,885
Amortization of intangibles	4,628		1,896		9,316		3,796
Gross profit	$	34,718	$	27,012	$	67,839	$	47,800
Adjusted gross profit (excluding depreciation and amortization) reconciliation:
Gross profit	$	34,718	$	27,012	$	67,839	$	47,800
Depreciation (related to cost of revenues)	13,616		12,993		26,922		25,885
Amortization of intangibles	4,628		1,896		9,316		3,796
Adjusted gross profit (excluding depreciation and amortization)	$	52,962	$	41,901	$	104,077	$	77,481

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 June 30, 2019, we had $16.9 million of cash and cash equivalents and $161.1 million of availability under the 2018 ABL Credit Facility, which resulted in a total liquidity position of $178.0 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.

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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 ratio. In addition, a commitment fee of 0.50% per annum will be charged on the average daily unused portion of the revolving commitments. The weighted average interest rate was 4.70% during the first six months 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 June 30, 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.

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. During the first six months of 2019, we repaid our outstanding revolver borrowings in full.

At June 30, 2019, our availability under the 2018 ABL Credit Facility was approximately $161.1 million, net of an outstanding letter of credit of $0.5 million.

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Cash Flows

Cash flows provided by (used in) operations by type of activity were as follows for the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
	2019			2018
	(in thousands)
Operating activities	$	17,408		$	25,200
Investing activities	(27,070		)	(15,028		)
Financing activities	(37,185		)	43,482
Impact of foreign exchange rate on cash	118			(307		)
Net change in cash and cash equivalents	$	(46,729	)	$	53,347

Operating Activities

Net cash provided by operating activities was $17.4 million for the first six months of 2019 compared to $25.2 million in net cash provided by operating activities for the first six months of 2018. The $7.8 milliondecrease in net cash provided by operating activities was primarily a result of a $10.8 million increase in net cash used to support our working capital needs. The overall decrease in net cash provided by operating activities was partially offset by a $3.0 million increase in cash flow provided by continuing operations, adjusted for any non-cash items, primarily due to revenue growth for the first six months of 2019 in comparison to the first six months of 2018.

Investing Activities

Net cash used in investing activities was $27.1 million for the first six months of 2019 compared to $15.0 million in net cash used in investing activities for the first six months of 2018. The $12.0 millionincrease in net cash used in investing activities was primarily attributed to an increase of $19.3 million in cash purchases of property and equipment coupled with a decrease of $0.4 million in proceeds received from the sale of property and equipment (including casualty losses) for the first six months of 2019. The overall increase in net cash used in investing activities was partially offset by $7.6 million in proceeds received from notes receivable payments in the first six months of 2019 that did not occur in the first six months of 2018.

Financing Activities

Net cash used in financing activities was $37.2 million for the first six months of 2019 compared to $43.5 million in net cash flow provided by financing activities for the first six months of 2018. The $80.7 milliondecrease in net cash provided by financing activities was primarily attributed to $171.8 million in proceeds received from the IPO and issuances of common stock and $125.0 million in proceeds received from our term loan entered into in conjunction with the IPO in the first six months of 2018 that did not recur in the first six months 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 six months of 2018 that did not recur in the first six months of 2019 as well as a reduction in net payments of $61.2 million on our revolving credit facilities in the first six months of 2019 compared to the first six months of 2018.

Contractual Obligations

Our contractual obligations at June 30, 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 June 30, 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 June 30, 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.

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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 June 30, 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 June 30, 2019.

Changes in Internal Control over Financial Reporting.There was no change in our internal control over financial reporting during the quarter ended June 30, 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 alleged, 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. In May 2019, the parties entered into settlement agreements, which have been approved by the court, and the plaintiffs and intervenors have moved to dismiss the case. We have tendered this matter to our insurance company for defense and indemnification of Big Lake Services and the other defendants, and this settlement has been fully funded by our insurance company.

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).
2.2*	First Amendment to Securities Purchase Agreement, dated June 7, 2019, by and among Warren Lynn Frazier, Garrett Lynn Frazier 2018 DG Trust, Derrick Chase Frazier 2018 DG Trust, and Frazier Family Foundation, Inc., as sellers, MOTI Holdco, LLC and Nine Energy Canada Inc., as buyers, and Nine Energy Service, Inc.
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).
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:	August 12, 2019	By:	/s/ Ann G. Fox
			Ann G. Fox
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
Date:	August 12, 2019	By:	/s/ Clinton Roeder
			Clinton Roeder
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)

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EX-2.2

EXHIBIT  2.2

FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT

This FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT, dated as of June 7, 2019 (this “Amendment”), is entered into by and among (i) Warren Lynn Frazier, an individual and resident of the State of Texas (“Warren Frazier”), Garrett Lynn Frazier 2018 DG Trust, an irrevocable trust (“Garrett Trust”), Derrick Chase Frazier 2018 DG Trust, an irrevocable trust (“Derrick Trust”), and Frazier Family Foundation, Inc., a Texas corporation (and together with Warren Frazier, Garrett Trust and Derrick Trust, collectively, the “Sellers”), (ii) MOTI Holdco, LLC, a Delaware limited liability company (“US Buyer”), and Nine Energy Canada Inc., an Alberta (Canada) corporation (and together with US Buyer, collectively, the “Buyers”), and (iii) Nine Energy Service, Inc., a Delaware corporation (“Buyer Parent”). The Sellers, the Buyers and Buyer Parent are sometimes referred to herein individually as “Party” and collectively as the “Parties”. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement (as defined below).

WHEREAS, the Parties, and solely for the purposes of Section 5.6.2, Section 5.20 and Section 5.23, Garrett Lynn Frazier, an individual and resident of the State of Texas, and Derrick Chase Frazier, an individual and resident of the State of Texas, have entered into that certain Securities Purchase Agreement, made and entered into effective as of October 15, 2018 (the “Purchase Agreement”); and

WHEREAS, Section 9.7 of the Purchase Agreement provides that the Purchase Agreement may be amended, modified or supplemented by an agreement in writing executed by each of the Parties and the Parties each desire and find it in their best interests to amend the Purchase Agreement as hereinafter set forth.

NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.     Amendment to Section 1.3.1 of the Purchase Agreement. Section 1.3.1 of the Purchase Agreement is hereby amended to extend the Earnout Term from December 31, 2025 to December 31, 2026.

2.    Amendment to Section 1.3.9(a) of the Purchase Agreement. Section 1.3.9(a) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

(a)    cause to be expended or incurred at least $10,000,000 of capital expenditures, as calculated in accordance with GAAP (and, for clarity, none of which may be captured in the definition of Net Working Capital or Indebtedness for purposes of any adjustment to the Purchase Price pursuant to Section 1.2), for the purchase of tools to be used in the E-Set Business (including tools manufactured by third parties utilizing the Companies’ Intellectual

1

Property Assets related to the E-Set Business) during the period from the Closing Date to June 30, 2020, inclusive of such dates;

3. Amendment to Section 1.3.9(b) of the Purchase Agreement. Section 1.3.9(b) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

(b)    prior to December 31, 2020, take commercially reasonable steps to allocate no less than ten (10) employees who will devote all or substantially all of their business time and attention to the development and operation of the E-Set Business, including employees to serve in the following positions/roles (or functional equivalents): Design Engineer, Project/Product Sales Manager, Technical Advisors, eSet Product Technicians, eSet Field Advisors, Product Developer, Buyer and Project/Product Cost Accountant;

3. Purchase Agreement, as amended, in full force and effect. The Purchase Agreement, as amended hereby, shall remain in full force and effect.

4. Governing Law. This Amendment, and all claims or causes of action (whether in contract, in tort or by statute) that may be based upon, arise out of, or relate to this Amendment, or the negotiation, execution, or performance of this Amendment (including any claim or cause of action based upon, arising out of, or related to any representation or warranty made in or in connection with this Amendment or as an inducement to enter into this Amendment), shall be governed by, enforced in accordance with, and be subject to the remedies available under the internal laws of the State of Texas, including its statutes of limitation and burdens of proof and available remedies.

5. VENUE. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AMENDMENT SHALL BE INSTITUTED SOLELY IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF TEXAS IN EACH CASE LOCATED IN THE CITY OF HOUSTON AND COUNTY OF HARRIS; PROVIDED, HOWEVER, (A) NOT TO BRING OR PERMIT ANY OF THEIR AFFILIATES TO BRING OR SUPPORT ANYONE ELSE IN BRINGING ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OTHER COURT AND (B) THAT A FINAL JUDGMENT RENDERED IN ANY SUCH SUIT, ACTION OR CLAIM SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY APPLICABLE LEGAL REQUIREMENTS. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT.

6. WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AMENDMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH PARTY

2

HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING, DIRECTLY OR INDIRECTLY, OUT OF OR RELATING TO THIS AMENDMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.

7. Severability. If any term or provision of this Amendment is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Amendment or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Amendment so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

8. Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Amendment delivered by e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Amendment.

[SIGNATURE PAGES FOLLOW]

3

IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as of the date first written above by their respective officers thereunder duly authorized.

SELLERS:

WARREN LYNN FRAZIER

By: /s/ Warren Lynn Frazier

GARRETT LYNN FRAZIER 2018 DG TRUST

By: /s/ Leah Schexnayder-Delaune

Name: Leah Schexnayder-Delaune

Title: Trustee

DERRICK CHASE FRAZIER 2018 DG TRUST

By: /s/ Leah Schexnayder-Delaune

Name: Leah Schexnayder-Delaune

Title: Trustee

FRAZIER FAMILY FOUNDATION, INC.

By: /s/ Warren Lynn Frazier

Name: Warren Lynn Frazier

Title: President

[Signature Page to First Amendment to Securities Purchase Agreement]

BUYERS:

MOTI HOLDCO, LLC

By: /s/ Ann G. Fox

Name: Ann G. Fox

Title: President, Chief Executive Officer,Secretary and Director

NINE ENERGY CANADA INC.

By: /s/ Ann G. Fox

Name: Ann G. Fox

Title: President and Chief Executive Officer

BUYER PARENT:

NINE ENERGY SERVICE, INC.

By: /s/ Ann G. Fox

Name: Ann G. Fox

Title: President and Chief Executive Officer

[Signature Page to First Amendment to Securities Purchase Agreement]

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:	August 12, 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:	August 12, 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 June 30, 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:

(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:	August 12, 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 June 30, 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:

(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:	August 12, 2019

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 08, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
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 Shell Company	false
Entity Current Reporting Status	Yes
Entity Common Stock, Shares Outstanding		30,680,434

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 16,886	$ 63,615
Accounts receivable, net	169,450	154,783
Inventories, net	87,935	91,435
Prepaid expenses and other current assets	16,482	15,717
Notes receivable from shareholders	0	7,626
Total current assets	290,753	333,176
Property and equipment, net	220,575	211,644
Definite-lived intangible assets, net	164,135	173,451
Goodwill	307,804	307,804
Indefinite-lived intangible assets	108,711	108,711
Other long-term assets	5,723	6,386
Total assets	1,097,701	1,141,172
Current liabilities
Accounts payable	38,993	46,132
Accrued expenses	30,820	61,434
Current portion of capital lease obligations	1,012	665
Income taxes payable	97	57
Total current liabilities	70,922	108,288
Long-term liabilities
Long-term debt	391,018	424,978
Deferred income taxes	2,896	5,915
Long-term capital lease obligations	2,864	2,330
Other long-term liabilities	5,692	4,838
Total liabilities	473,392	546,349
Commitments and contingencies
Stockholders’ equity
Common stock (120,000,000 shares authorized at $.01 par value; 30,683,009 and 30,163,408 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)	307	302
Additional paid-in capital	752,072	746,428
Accumulated other comprehensive loss	(4,403)	(4,843)
Accumulated deficit	(123,667)	(147,064)
Total stockholders’ equity	624,309	594,823
Total liabilities and stockholders’ equity	$ 1,097,701	$ 1,141,172

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 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)	30,683,009	30,163,408
Common stock, shares outstanding (in shares)	30,683,009	30,163,408

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Revenues	$ 237,517	$ 205,492	$ 467,222	$ 379,299
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	184,555	163,591	363,145	301,818
General and administrative expenses	21,818	15,463	41,757	29,828
(Gain) loss on revaluation of contingent liabilities	(975)	607	(14,930)	1,670
Depreciation	13,846	13,212	27,376	26,321
Amortization of intangibles	4,628	1,896	9,316	3,796
Loss on equity method investment	0	118	0	193
Gain on sale of property and equipment	(310)	(881)	(333)	(511)
Income from operations	13,955	11,486	40,891	16,184
Interest expense	10,603	1,815	19,769	4,745
Income before income taxes	3,352	9,671	21,122	11,439
Provision (benefit) for income taxes	(2,735)	652	(2,275)	745
Net income	$ 6,087	$ 9,019	$ 23,397	$ 10,694
Earnings per share
Basic (in usd per share)	$ 0.21	$ 0.38	$ 0.80	$ 0.47
Diluted (in usd per share)	$ 0.21	$ 0.37	$ 0.80	$ 0.46
Weighted average shares outstanding
Basic (in shares)	29,349,396	23,895,858	29,250,744	22,904,743
Diluted (in shares)	29,473,037	24,351,000	29,423,163	23,198,077
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$ 192	$ (250)	$ 440	$ (644)
Total other comprehensive income (loss), net of tax	192	(250)	440	(644)
Total comprehensive income	$ 6,279	$ 8,769	$ 23,837	$ 10,050

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Foreign currency translation adjustments, tax	$ 0	$ 0	$ 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
Issuance of common stock under stock compensation plan (in shares)		1,157,280
Issuance of common stock under stock compensation plan	0	$ 11	(11)
Stock-based compensation expense	6,211		6,211
Other issuances of common stock (in shares)		13,043
Other issuances of common stock	300		300
Other comprehensive income	(644)			(644)
Net income	10,694				10,694
Stockholders’ equity (in shares) at Jun. 30, 2018		25,030,863
Stockholders’ equity at Jun. 30, 2018	472,180	$ 250	559,645	(4,328)	(83,387)
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)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under stock compensation plan (in shares)		752,006
Issuance of common stock under stock compensation plan	0	$ 7	(7)
Stock-based compensation expense	3,971		3,971
Exercise of stock options (in shares)		0
Exercise of stock options	0	$ 0	0
Vesting of restricted stock (in shares)		0
Vesting of restricted stock	0		0
Other comprehensive income	(250)			(250)
Net income	9,019				9,019
Stockholders’ equity (in shares) at Jun. 30, 2018		25,030,863
Stockholders’ equity at Jun. 30, 2018	472,180	$ 250	559,645	(4,328)	(83,387)
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 compensation plan (in shares)		588,483
Issuance of common stock under stock compensation plan	0	$ 6	(6)
Stock-based compensation expense	7,267		7,267
Exercise of stock options (in shares)		674
Exercise of stock options	15	$ 0	15
Vesting of restricted stock (in shares)		(69,556)
Vesting of restricted stock	(1,633)	$ (1)	(1,632)
Other comprehensive income	440			440
Net income	23,397				23,397
Stockholders’ equity (in shares) at Jun. 30, 2019		30,683,009
Stockholders’ equity at Jun. 30, 2019	624,309	$ 307	752,072	(4,403)	(123,667)
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)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under stock compensation plan (in shares)		(33,538)
Issuance of common stock under stock compensation plan	0	$ 0	0
Stock-based compensation expense	4,114		4,114
Exercise of stock options (in shares)		0
Exercise of stock options	0	$ 0	0
Vesting of restricted stock (in shares)		(66,053)
Vesting of restricted stock	(1,551)	$ (1)	(1,550)
Other comprehensive income	192			192
Net income	6,087				6,087
Stockholders’ equity (in shares) at Jun. 30, 2019		30,683,009
Stockholders’ equity at Jun. 30, 2019	$ 624,309	$ 307	$ 752,072	$ (4,403)	$ (123,667)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net income	$ 23,397	$ 10,694
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	27,376	26,321
Amortization of intangibles	9,316	3,796
Amortization of deferred financing costs	1,492	1,022
Provision for (recovery of) doubtful accounts	(48)	(300)
(Benefit) provision for deferred income taxes	(3,019)	375
Provision for inventory obsolescence	2,080	228
Stock-based compensation expense	7,267	6,211
Gain on sale of property and equipment	(333)	(511)
(Gain) loss on revaluation of contingent liabilities	(14,930)	1,670
Loss on equity method investment	0	193
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable, net	(14,560)	(41,368)
Inventories, net	1,566	(1,216)
Prepaid expenses and other current assets	(1,952)	186
Accounts payable and accrued expenses	(20,061)	18,584
Income taxes receivable/payable	40	(691)
Other assets and liabilities	(319)	6
Net cash provided by operating activities	17,408	25,200
Cash flows from investing activities
Proceeds from sales of property and equipment	1,187	1,294
Proceeds from property and equipment casualty losses	1,480	1,743
Proceeds from notes receivable payments	7,626	0
Purchases of property and equipment	(37,363)	(18,065)
Net cash used in investing activities	(27,070)	(15,028)
Cash flows from financing activities
Proceeds from revolving credit facilities	10,000	0
Payments on revolving credit facilities	(45,000)	(96,182)
Proceeds from term loan	0	125,000
Payments on term loans	0	(155,701)
Payments on capital leases	(429)	0
Payments of contingent liability	(138)	0
Proceeds from issuance of common stock in IPO, net of offering costs	0	171,450
Proceeds from other issuances of common stock	0	300
Proceeds from exercise of stock options	15	0
Vesting of restricted stock	(1,633)	0
Cost of debt issuance	0	(1,385)
Net cash provided by (used in) financing activities	(37,185)	43,482
Impact of foreign currency exchange on cash	118	(307)
Net increase (decrease) in cash and cash equivalents	(46,729)	53,347
Cash and cash equivalents
Cash and cash equivalents beginning of year	63,615	17,513
Cash and cash equivalents end of period	16,886	70,860
Supplemental disclosures of cash flow information:
Cash paid for interest	19,386	2,688
Cash paid for income taxes	694	1,042
Capital expenditures in accounts payable and accrued expenses	3,079	2,410
Property and equipment obtained by capital lease	$ 1,310	$ 0

XML

Company and Organization

6 Months Ended

Jun. 30, 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

6 Months Ended

Jun. 30, 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

6 Months Ended

Jun. 30, 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 is also in the process of 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 is holding 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

6 Months Ended

Jun. 30, 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 (as amended on June 7, 2019, 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 2026 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 the Closing Date, which management believed were 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 and six months ended June 30, 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

6 Months Ended

Jun. 30, 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 $3.2 million and $1.9 million at June 30, 2019 and December 31, 2018, respectively.

Inventories, net as of June 30, 2019 and December 31, 2018 were comprised of the following: 

	June 30, 2019			December 31, 2018
	(in thousands)
Raw materials	$	51,219		$	38,890
Work in progress	457			130
Finished goods	39,495			54,301
Inventories	91,171			93,321
Reserve for obsolescence	(3,236		)	(1,886		)
Inventories, net	$	87,935		$	91,435

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 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 six months ended June 30, 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 June 30, 2019	$	400,067	$	(92,263	)	$	307,804

At June 30, 2019, all remaining goodwill is attributable to Completion Solutions.

Intangible Assets

The changes in the net carrying value of the components of intangible assets for the six months ended June 30, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Indefinite-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	(4,174		)	(783		)	(4,359		)	(9,316		)	—		—		—
Balance as of June 30, 2019	$	43,790		$	2,067		$	118,278		$	164,135		$	107,700	$	1,011	$	108,711
Weighted average amortization period	6.9			3.7			14.1						Indefinite		Indefinite

Amortization of intangibles expense was $4.6 million and $9.3 million for the three and six months ended June 30, 2019, respectively. Amortization of intangibles expense was $1.9 million and $3.8 million for the three and six months ended June 30, 2018, respectively.

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Accrued Expenses Accrued Expenses

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

Accrued expenses as of June 30, 2019 and December 31, 2018 consisted of the following:

	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	12,133	$	11,930
Accrued bonus	1,039		13,250
Sales tax payable	1,216		1,185
Contingent liabilities	4,985		20,922
Interest payable	6,067		7,031
Other accrued expenses	5,380		7,116
Accrued expenses	$	30,820	$	61,434

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Debt Obligations

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Debt Obligations

Debt Obligations

The Company’s debt obligations as of June 30, 2019 and December 31, 2018 were as follows: 

	June 30, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	—			35,000
Total debt before deferred financing costs	$	400,000		$	435,000
Deferred financing costs	(8,982		)	(10,022		)
Total debt	$	391,018		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	391,018		$	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 June 30, 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 $9.0 million and $10.0 million at June 30, 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. The weighted average interest rate was 4.70% during the first six months 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 June 30, 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.

Concurrent with the effectiveness of the 2018 ABL Credit Facility, the Company borrowed approximately $35.0 million to fund a portion of the upfront cash purchase of the Magnum Acquisition. 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. During the first six months of 2019, the Company repaid its outstanding revolver borrowings in full.

At June 30, 2019, the Company’s availability under the 2018 ABL Credit Facility was approximately $161.1 million, net of 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 unamortized deferred 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 six months ended June 30, 2018.

Fair Value of Debt Instruments

The estimated fair value of the Company’s debt obligations as of June 30, 2019 and December 31, 2018 was as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	389,000	$	376,000
2018 ABL Credit Facility	$	—	$	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

6 Months Ended

Jun. 30, 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 was due on June 30, 2019. The interest rate was 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 was due quarterly. Mr. Crombie paid $1.8 million during 2016 to pay his promissory note in full. At December 31, 2018, the outstanding principal balance of the notes of the remaining individuals totaled $7.6 million, and unpaid interest, included in “Prepaid expenses and other current assets” in the Company’s Condensed Consolidated Balance Sheets, totaled $10,000. During the second quarter of 2019, the Company received the full principal balance of the notes outstanding as well as any unpaid interest.

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 associated with these entities was $0.2 million and $0.4 million for the three and six months ended June 30, 2019 and $0.2 million and $0.4 million for the three and six months ended June 30, 2018, respectively. The Company also purchased $0.5 million and $0.6 million of equipment during the three and six months ended June 30, 2019, respectively, from an entity in which Mr. Crombie is a limited partner. The Company did not purchase any equipment from this entity during the three and six months ended June 30, 2018. There were outstanding payables due to this entity relating to equipment purchases of $0.3 million at June 30, 2019.

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 $0.3 million and $0.7 million for the three and six months ended June 30, 2019, respectively. There were no outstanding payables due to the entity at June 30, 2019 and December 31, 2018.

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 and six months ended June 30, 2019, respectively, and billed $0.3 million and $0.5 million for the three and six months ended June 30, 2018, respectively. There was an outstanding receivable due from this entity of $0.1 million at both June 30, 2019 and December 31, 2018.

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 $11.9 million and $19.7 million for the three and six months ended June 30, 2018, respectively. There was an outstanding receivable due from this entity of $7.0 million at December 31, 2018.

On June 5, 2019, Ann G. Fox, President and Chief Executive Officer and a director of the Company, was elected as a director of Devon Energy Corporation (“Devon”). The Company generated revenue from Devon of $4.9 million and $10.4 million for the three and six months ended June 30, 2019, respectively. There was an outstanding receivable due from Devon of $3.6 million at June 30, 2019.

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Commitment and Contingencies

6 Months Ended

Jun. 30, 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 alleged, 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. In May 2019, the parties entered into settlement agreements, which have been approved by the court, and the plaintiffs and intervenors have moved to dismiss the case. The Company has tendered this matter to its insurance company for defense and indemnification of Big Lake Services and the other defendants, and this settlement has been fully funded by its insurance company.

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 June 30, 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 June 30, 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 2026 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 six months ended June 30, 2019:

	Magnum			Frac Tech			Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008		$	25,529
Payments	—			(138		)	(138		)
Revaluation adjustments	(15,451		)	521			(14,930		)
Balance at June 30, 2019	$	9,070		$	1,391		$	10,461

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 $5.0 million and $20.9 million reported in “Accrued expenses” at June 30, 2019 and December 31, 2018, respectively, and $5.5 million and $4.6 million reported in “Other long-term liabilities” at June 30, 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

6 Months Ended

Jun. 30, 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 and six months ended June 30, 2019 was (81.6)% and (10.8)%, respectively, compared to 6.7% and 6.5% for the three and six months ended June 30, 2018, respectively. The change in effective tax rate for the six months ended June 30, 2019 was primarily attributable to the current year impact of the Company's valuation allowance positions as well as state and non-U.S. income taxes.

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Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 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 June 30, 2019					Three Months Ended June 30, 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	$	6,087	29,349,396	$	0.21	$	9,019	23,895,858	$	0.38
Assumed exercise of stock options	—		12	—		—		85,681	—
Unvested restricted stock and stock units	—		123,629	—		—		369,461	—
Diluted	$	6,087	29,473,037	$	0.21	$	9,019	24,351,000	$	0.37

	Six Months Ended June 30, 2019					Six Months Ended June 30, 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	$	23,397	29,250,744	$	0.80	$	10,694	22,904,743	$	0.47
Assumed exercise of stock options	—		71	—		—		58,914	—
Unvested restricted stock and stock units	—		172,348	—		—		234,420	—
Diluted	$	23,397	29,423,163	$	0.80	$	10,694	23,198,077	$	0.46

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Segment Information

6 Months Ended

Jun. 30, 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
Revenues
Completion Solutions	$	215,871		$	185,111		$	425,003		$	339,755
Production Solutions	21,646			20,381			42,219			39,544
	$	237,517		$	205,492		$	467,222		$	379,299
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	166,022		$	146,002		$	327,461		$	267,428
Production Solutions	18,533			17,589			35,684			34,390
	$	184,555		$	163,591		$	363,145		$	301,818
Adjusted gross profit
Completion Solutions	$	49,849		$	39,109		$	97,542		$	72,327
Production Solutions	3,113			2,792			6,535			5,154
	$	52,962		$	41,901		$	104,077		$	77,481
General and administrative expenses	21,818			15,463			41,757			29,828
(Gain) loss on revaluation of contingent liabilities	(975		)	607			(14,930		)	1,670
Depreciation	13,846			13,212			27,376			26,321
Amortization of intangibles	4,628			1,896			9,316			3,796
Loss on equity method investment	—			118			—			193
Gain on sale of property and equipment	(310		)	(881		)	(333		)	(511		)
Income from operations	$	13,955		$	11,486		$	40,891		$	16,184
Interest expense	10,603			1,815			19,769			4,745
Income before income taxes	3,352			9,671			21,122			11,439
Provision (benefit) for income taxes	(2,735		)	652			(2,275		)	745
Net income	$	6,087		$	9,019		$	23,397		$	10,694

Capital expenditures by segment for the three and six months ended June 30, 2019 and 2018, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Completion Solutions	$	12,719	$	10,630	$	35,197	$	15,913
Production Solutions	1,072		955		1,986		1,647
Corporate	38		12		93		505
	$	13,829	$	11,597	$	37,276	$	18,065

Total assets by segment as of June 30, 2019 and December 31, 2018 were as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,032,759	$	1,045,643
Production Solutions	36,616		35,086
Corporate	28,326		60,443
	$	1,097,701	$	1,141,172

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 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 is also in the process of 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 is holding 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)

6 Months Ended

Jun. 30, 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 the Closing Date, which management believed were 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)

6 Months Ended

Jun. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories, Net

Inventories, net as of June 30, 2019 and December 31, 2018 were comprised of the following: 

	June 30, 2019			December 31, 2018
	(in thousands)
Raw materials	$	51,219		$	38,890
Work in progress	457			130
Finished goods	39,495			54,301
Inventories	91,171			93,321
Reserve for obsolescence	(3,236		)	(1,886		)
Inventories, net	$	87,935		$	91,435

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 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 six months ended June 30, 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 June 30, 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 six months ended June 30, 2019 were as follows: 

	Intangible Assets
	Customer Relationships			Non- Compete Agreements			Technology			Definite-Lived Intangible Asset Total			Trade Names		Other Intangible Assets		Indefinite-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	(4,174		)	(783		)	(4,359		)	(9,316		)	—		—		—
Balance as of June 30, 2019	$	43,790		$	2,067		$	118,278		$	164,135		$	107,700	$	1,011	$	108,711
Weighted average amortization period	6.9			3.7			14.1						Indefinite		Indefinite

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2019

Other Income and Expenses [Abstract]

Schedule of Accrued Expenses

Accrued expenses as of June 30, 2019 and December 31, 2018 consisted of the following:

	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	12,133	$	11,930
Accrued bonus	1,039		13,250
Sales tax payable	1,216		1,185
Contingent liabilities	4,985		20,922
Interest payable	6,067		7,031
Other accrued expenses	5,380		7,116
Accrued expenses	$	30,820	$	61,434

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Debt Obligations (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Summary of Debt Obligations

The Company’s debt obligations as of June 30, 2019 and December 31, 2018 were as follows: 

	June 30, 2019			December 31, 2018
	(in thousands)
Senior Notes	$	400,000		$	400,000
2018 ABL Credit Facility	—			35,000
Total debt before deferred financing costs	$	400,000		$	435,000
Deferred financing costs	(8,982		)	(10,022		)
Total debt	$	391,018		$	424,978
Less: Current portion of long-term debt	—			—
Long-term debt	$	391,018		$	424,978

Summary of Fair Value of Debt Obligations

The estimated fair value of the Company’s debt obligations as of June 30, 2019 and December 31, 2018 was as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Senior Notes	$	389,000	$	376,000
2018 ABL Credit Facility	$	—	$	35,000

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Commitment and Contingencies (Tables)

6 Months Ended

Jun. 30, 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 six months ended June 30, 2019:

	Magnum			Frac Tech			Total
	(in thousands)
Balance at December 31, 2018	$	24,521		$	1,008		$	25,529
Payments	—			(138		)	(138		)
Revaluation adjustments	(15,451		)	521			(14,930		)
Balance at June 30, 2019	$	9,070		$	1,391		$	10,461

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Earnings (Loss) Per Share (Table)

6 Months Ended

Jun. 30, 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 June 30, 2019					Three Months Ended June 30, 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	$	6,087	29,349,396	$	0.21	$	9,019	23,895,858	$	0.38
Assumed exercise of stock options	—		12	—		—		85,681	—
Unvested restricted stock and stock units	—		123,629	—		—		369,461	—
Diluted	$	6,087	29,473,037	$	0.21	$	9,019	24,351,000	$	0.37

	Six Months Ended June 30, 2019					Six Months Ended June 30, 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	$	23,397	29,250,744	$	0.80	$	10,694	22,904,743	$	0.47
Assumed exercise of stock options	—		71	—		—		58,914	—
Unvested restricted stock and stock units	—		172,348	—		—		234,420	—
Diluted	$	23,397	29,423,163	$	0.80	$	10,694	23,198,077	$	0.46

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Segment Information (Tables)

6 Months Ended

Jun. 30, 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
Revenues
Completion Solutions	$	215,871		$	185,111		$	425,003		$	339,755
Production Solutions	21,646			20,381			42,219			39,544
	$	237,517		$	205,492		$	467,222		$	379,299
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Completion Solutions	$	166,022		$	146,002		$	327,461		$	267,428
Production Solutions	18,533			17,589			35,684			34,390
	$	184,555		$	163,591		$	363,145		$	301,818
Adjusted gross profit
Completion Solutions	$	49,849		$	39,109		$	97,542		$	72,327
Production Solutions	3,113			2,792			6,535			5,154
	$	52,962		$	41,901		$	104,077		$	77,481
General and administrative expenses	21,818			15,463			41,757			29,828
(Gain) loss on revaluation of contingent liabilities	(975		)	607			(14,930		)	1,670
Depreciation	13,846			13,212			27,376			26,321
Amortization of intangibles	4,628			1,896			9,316			3,796
Loss on equity method investment	—			118			—			193
Gain on sale of property and equipment	(310		)	(881		)	(333		)	(511		)
Income from operations	$	13,955		$	11,486		$	40,891		$	16,184
Interest expense	10,603			1,815			19,769			4,745
Income before income taxes	3,352			9,671			21,122			11,439
Provision (benefit) for income taxes	(2,735		)	652			(2,275		)	745
Net income	$	6,087		$	9,019		$	23,397		$	10,694

Capital expenditures by segment for the three and six months ended June 30, 2019 and 2018, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Completion Solutions	$	12,719	$	10,630	$	35,197	$	15,913
Production Solutions	1,072		955		1,986		1,647
Corporate	38		12		93		505
	$	13,829	$	11,597	$	37,276	$	18,065

Total assets by segment as of June 30, 2019 and December 31, 2018 were as follows:

	June 30, 2019		December 31, 2018
	(in thousands)
Completion Solutions	$	1,032,759	$	1,045,643
Production Solutions	36,616		35,086
Corporate	28,326		60,443
	$	1,097,701	$	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	Jun. 30, 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	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 51,219	$ 38,890
Work in progress	457	130
Finished goods	39,495	54,301
Inventories	91,171	93,321
Reserve for obsolescence	(3,236)	(1,886)
Inventories, net	$ 87,935	$ 91,435

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Goodwill and Intangible Assets - Components of Goodwill (Details) $ in Thousands	6 Months Ended
	Jun. 30, 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		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 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	$ (4,628)	$ (1,896)	(9,316)	$ (3,796)
Finite-lived intangible assets, Ending balance	164,135		164,135
Indefinite-lived intangible assets, Ending balance	108,711		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		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		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			(4,174)
Finite-lived intangible assets, Ending balance	43,790		$ 43,790
Finite-lived intangible assets, weighted average amortization period			6 years 10 months 25 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			(783)
Finite-lived intangible assets, Ending balance	2,067		$ 2,067
Finite-lived intangible assets, weighted average amortization period			3 years 8 months 12 days
Technology
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, Beginning balance			$ 122,637
Finite-lived intangible assets, Additions			0
Amortization of intangibles			(4,359)
Finite-lived intangible assets, Ending balance	$ 118,278		$ 118,278
Finite-lived intangible assets, weighted average amortization period			14 years 1 month 7 days

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Goodwill and Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangibles	$ 4,628	$ 1,896	$ 9,316	$ 3,796

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Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Other Income and Expenses [Abstract]
Accrued compensation and benefits	$ 12,133	$ 11,930
Accrued bonus	1,039	13,250
Sales tax payable	1,216	1,185
Contingent liabilities	4,985	20,922
Interest payable	6,067	7,031
Other accrued expenses	5,380	7,116
Accrued expenses	$ 30,820	$ 61,434

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Debt Obligations - Summary of Debt Obligations (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Total debt before deferred financing costs	$ 400,000	$ 435,000
Deferred financing costs	(8,982)	(10,022)
Total debt	391,018	424,978
Less: Current portion of long-term debt	0	0
Long-term debt	391,018	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	$ 0	$ 35,000

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Debt Obligations - Additional Information (Details) - USD ($)			6 Months Ended		12 Months Ended
	Oct. 25, 2018	Sep. 14, 2017	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Jan. 31, 2018
Debt Instrument [Line Items]
Deferred financing costs			$ 8,982,000		$ 10,022,000
Proceeds from secured lines of credit	$ 35,000,000		10,000,000	$ 0
Proceeds from issuance of common stock, net			0	171,450,000
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			4.70%
Current borrowing capacity			$ 161,100,000
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	Jun. 30, 2019	Dec. 31, 2018
Senior Notes
Debt Instrument [Line Items]
Debt instrument, fair value disclosure	$ 389,000	$ 376,000
Line of Credit | 2018 ABL Credit Facility
Debt Instrument [Line Items]
Debt instrument, fair value disclosure	$ 0	$ 35,000

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Related Party Transactions (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2016	Dec. 31, 2018
Lynn Frazier
Related Party Transaction [Line Items]
Payables due to entities		$ 0		$ 0			$ 0
Beneficial owners of entity stock, percentage owned				5.00%
Rent expense		300,000		$ 700,000
Curtis F. Harrell
Related Party Transaction [Line Items]
Cost of services		100,000	$ 300,000	200,000	$ 500,000
Receivable due from entity		100,000		100,000			100,000
EOG Resources, Inc.
Related Party Transaction [Line Items]
Receivable due from entity							7,000,000
Revenue from related parties			11,900,000		$ 19,700,000
Affiliated Entity
Related Party Transaction [Line Items]
Receivable due from entity		3,600,000		3,600,000
Revenue from related parties			4,900,000	10,400,000
Prepaid Expenses and Other
Related Party Transaction [Line Items]
Unpaid interest of notes payable							10,000
Mr. Crombie
Related Party Transaction [Line Items]
Outstanding notes							$ 7,600,000
Lease and building maintenance expense		200,000		400,000
Payments to acquire equipment		500,000	$ 0	600,000
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
Equipment | Mr. Crombie
Related Party Transaction [Line Items]
Payables due to entities		$ 300,000		$ 300,000

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Commitment and Contingencies - Contingent Consideration (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Loss Contingencies [Line Items]
Beginning balance	$ 25,529
Payments	(138)	$ 0
Revaluation adjustments	(14,930)
Ending balance	10,461
Magnum
Loss Contingencies [Line Items]
Beginning balance	24,521
Payments	0
Revaluation adjustments	(15,451)
Ending balance	9,070
Frac Tech
Loss Contingencies [Line Items]
Beginning balance	1,008
Payments	(138)
Revaluation adjustments	521
Ending balance	$ 1,391

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Commitment and Contingencies - Additional Information (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018	Oct. 25, 2018
Loss Contingencies [Line Items]
Contingent liabilities	$ 10,461,000	$ 25,529,000
Accrued Expenses
Loss Contingencies [Line Items]
Contingent liabilities	5,000,000	20,900,000
Other Noncurrent Liabilities
Loss Contingencies [Line Items]
Contingent liabilities	5,500,000	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	$ 9,070,000	$ 24,521,000

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Taxes (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Effective tax rate	(81.60%)	6.70%	(10.80%)	6.50%

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Earnings (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Net Income	$ 6,087	$ 9,019	$ 23,397	$ 10,694
Average Shares Outstanding, Basic (in shares)	29,349,396	23,895,858	29,250,744	22,904,743
Earnings Per Share, Basic (in usd per share)	$ 0.21	$ 0.38	$ 0.80	$ 0.47
Assumed exercise of stock options (in shares)	12	85,681	71	58,914
Unvested restricted stock (in shares)	123,629	369,461	172,348	234,420
Average Shares Outstanding, Diluted (in shares)	29,473,037	24,351,000	29,423,163	23,198,077
Earnings Per Share, Diluted (in usd per share)	$ 0.21	$ 0.37	$ 0.80	$ 0.46

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Segment Information (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) segment	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Segment Reporting [Abstract]
Number of reportable segments (in segments) | segment			2
Segment Reporting Information [Line Items]
Revenues	$ 237,517	$ 205,492	$ 467,222	$ 379,299
Cost of revenue	184,555	163,591	363,145	301,818
Adjusted gross profit	52,962	41,901	104,077	77,481
General and administrative expenses	21,818	15,463	41,757	29,828
(Gain) loss on revaluation of contingent liabilities	(975)	607	(14,930)	1,670
Depreciation	13,846	13,212	27,376	26,321
Amortization of intangibles	4,628	1,896	9,316	3,796
Loss on equity method investment	0	118	0	193
Gain on sale of property and equipment	(310)	(881)	(333)	(511)
Income from operations	13,955	11,486	40,891	16,184
Interest expense	10,603	1,815	19,769	4,745
Income before income taxes	3,352	9,671	21,122	11,439
Provision (benefit) for income taxes	(2,735)	652	(2,275)	745
Net income	6,087	9,019	23,397	10,694
Capital expenditures			37,363	18,065
Payments to Acquire Other Productive Assets	13,829	11,597	37,276	18,065
Total Assets	1,097,701		1,097,701		$ 1,141,172
Corporate
Segment Reporting Information [Line Items]
Capital expenditures	38	12	93	505
Total Assets	28,326		28,326		60,443
Completion Solutions
Segment Reporting Information [Line Items]
Revenues	215,871	185,111	425,003	339,755
Cost of revenue	166,022	146,002	327,461	267,428
Adjusted gross profit	49,849	39,109	97,542	72,327
Completion Solutions | Operating Segments
Segment Reporting Information [Line Items]
Capital expenditures	12,719	10,630	35,197	15,913
Total Assets	1,032,759		1,032,759		1,045,643
Production Solutions
Segment Reporting Information [Line Items]
Revenues	21,646	20,381	42,219	39,544
Cost of revenue	18,533	17,589	35,684	34,390
Adjusted gross profit	3,113	2,792	6,535	5,154
Production Solutions | Operating Segments
Segment Reporting Information [Line Items]
Capital expenditures	1,072	$ 955	1,986	$ 1,647
Total Assets	$ 36,616		$ 36,616		$ 35,086