nine-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

(Mark One)


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

FOR THE QUARTERLY PERIOD ENDED March 31, 2021


☐			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

☒

Smaller reporting company

☒

Emerging growth company

☒

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 May 3, 2021 was 31,358,497.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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, 2020. These factors, some of which are beyond our control, include the following:

•Our business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry, and the level of such activity is volatile and strongly influenced by current and expected oil and natural gas prices. If the prices of oil and natural gas continue to decline or remain depressed for a lengthy period, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected.

•The recent coronavirus pandemic and related economic repercussions have had, and are expected to continue to have, a significant adverse impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, results of operations, and financial condition.

•Our substantial debt obligations could have significant adverse consequences on our business and future prospects, and restrictions in our debt agreements could limit our growth and our ability to engage in certain activities.

•We may be unable to maintain existing prices or implement price increases on our products and services, and intense competition in the markets for our dissolvable plug products may lead to pricing pressures, reduced sales, or reduced market share.

•Our current and potential competitors may have longer operating histories, significantly greater financial or technical resources, and greater name recognition than we do.

•Our operations are subject to 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.

•If we are unable to accurately predict customer demand or if customers cancel their orders on short notice, we may hold excess or obsolete inventory, which would reduce gross margins. Conversely, insufficient inventory would result in lost revenue opportunities and potentially in loss of market share and damaged customer relationships.

•We are dependent on customers in a single industry. The loss of one or more significant customers could adversely affect our financial condition, prospects, and results of operations.

•We may be subject to claims for personal injury and property damage or other litigation, which could materially adversely affect our financial condition, prospects, and results of operations.

•We are subject to federal, state, and local laws and regulations regarding issues of health, safety, and protection of the environment. Under these laws and regulations, we may become liable for penalties, damages, or costs of remediation or other corrective measures. Any changes in laws or government regulations could increase our costs of doing business.

•Our success may be affected by the use and protection of our proprietary technology as well as our ability to enter into license agreements.

•Our success may be affected by our ability to implement new technologies and services.

•Our future financial condition and results of operations could be adversely impacted by asset impairment charges.

•Increased attention to climate change and conservation measures may reduce oil and natural gas demand, and we face various risks associated with increased activism against oil and natural gas exploration and development activities.

•Seasonal and adverse weather conditions adversely affect demand for our products and services.

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

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	March 31, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	52,982	$	68,864
Accounts receivable, net	48,139		41,235
Income taxes receivable	1,142		1,392
Inventories, net	38,759		38,402
Prepaid expenses and other current assets	13,115		16,270
Total current assets	154,137		166,163
Property and equipment, net	96,530		102,429
Operating lease right of use assets, net	35,186		36,360
Finance lease right of use assets, net	1,716		1,816
Intangible assets, net	128,432		132,524
Other long-term assets	3,048		3,308
Total assets	$	419,049	$	442,600
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	21,385	$	18,140
Accrued expenses	24,547		17,139
Current portion of long-term debt	844		844
Current portion of operating lease obligations	5,897		6,200
Current portion of finance lease obligations	1,118		1,092
Total current liabilities	53,791		43,415
Long-term liabilities
Long-term debt	316,910		342,714
Long-term operating lease obligations	30,948		32,295
Long-term finance lease obligations	819		1,109
Other long-term liabilities	2,498		2,658
Total liabilities	404,966		422,191
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock (120,000,000 shares authorized at $0.01 par value; 31,517,982 and 31,557,809 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively)	315		316
Additional paid-in capital	770,309		768,429
Accumulated other comprehensive loss	(4,460)		(4,501)
Accumulated deficit	(752,081)		(743,835)
Total stockholders’ equity	14,083		20,409
Total liabilities and stockholders’ equity	$	419,049	$	442,600

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Revenues
Service	$	46,617	$	114,401
Product	20,009		32,223
	66,626		146,624
Cost and expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Service	45,229		99,198
Product	17,054		26,810
General and administrative expenses	10,224		16,395
Depreciation	7,789		8,541
Amortization of intangibles	4,092		4,169
Impairment of goodwill	—		296,196
Gain on revaluation of contingent liabilities	(190)		(426)
Gain on sale of property and equipment	(273)		(575)
Loss from operations	(17,299)		(303,684)
Interest expense	8,585		9,828
Interest income	(13)		(371)
Gain on extinguishment of debt	(17,618)		(10,116)
Other income	(34)		—
Loss before income taxes	(8,219)		(303,025)
Provision (benefit) for income taxes	27		(2,125)
Net loss	$	(8,246)	$	(300,900)
Loss per share
Basic	$	(0.28)	$	(10.22)
Diluted	$	(0.28)	$	(10.22)
Weighted average shares outstanding
Basic	29,878,426		29,430,475
Diluted	29,878,426		29,430,475
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of $0 tax in each period	$	41	$	(603)
Total other comprehensive income (loss), net of tax	41		(603)
Total comprehensive loss	$	(8,205)	$	(301,503)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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, December 31, 2020	31,557,809	$	316	$	768,429	$	(4,501)	$	(743,835)	$	20,409
Issuance of common stock under stock compensation plan, net of forfeitures	(2,488)	—		—		—		—		—
Stock-based compensation expense	—	—		2,010		—		—		2,010
Vesting of restricted stock	(37,339)	(1)		(130)		—		—		(131)
Other comprehensive income	—	—		—		41		—		41
Net loss	—	—		—		—		(8,246)		(8,246)
Balance, March 31, 2021	31,517,982	$	315	$	770,309	$	(4,460)	$	(752,081)	$	14,083


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity
	Shares	Amounts
Balance, December 31, 2019	30,555,677	$	306	$	758,853	$	(4,467)	$	(364,815)	$	389,877
Issuance of common stock under stock compensation plan, net of forfeitures	(49,009)	(1)		1		—		—		—
Stock-based compensation expense	—	—		3,592		—		—		3,592
Vesting of restricted stock	(99,674)	(1)		(114)		—		—		(115)
Other comprehensive loss	—	—		—		(603)		—		(603)
Net loss	—	—		—		—		(300,900)		(300,900)
Balance, March 31, 2020	30,406,994	$	304	$	762,332	$	(5,070)	$	(665,715)	$	91,851

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(8,246)	$	(300,900)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation	7,789		8,541
Amortization of intangibles	4,092		4,169
Amortization of operating leases	2,041		—
Amortization of deferred financing costs	676		745
Provision (benefit) for doubtful accounts	34		(288)
Benefit for deferred income taxes	—		(1,588)
Provision for inventory obsolescence	906		271
Stock-based compensation expense	2,010		3,592
Impairment of goodwill	—		296,196
Gain on extinguishment of debt	(17,618)		(10,116)
Gain on sale of property and equipment	(273)		(575)
Gain on revaluation of contingent liabilities	(190)		(426)
Changes in operating assets and liabilities
Accounts receivable, net	(6,921)		4,458
Inventories, net	(1,247)		(2,651)
Prepaid expenses and other current assets	2,412		2,409
Accounts payable and accrued expenses	11,136		(3,213)
Income taxes receivable/payable	250		(150)
Other assets and liabilities	(2,094)		271
Net cash provided by (used in) operating activities	(5,243)		745
Cash flows from investing activities
Proceeds from sales of property and equipment	843		892
Proceeds from property and equipment casualty losses	—		428
Purchases of property and equipment	(2,428)		(785)
Net cash provided by (used in) investing activities	(1,585)		535
Cash flows from financing activities
Purchases of Senior Notes	(8,355)		(3,455)
Payments on Magnum Promissory Notes	(281)		—
Payments on finance leases	(264)		(240)
Payments of contingent liability	(30)		(98)
Vesting of restricted stock	(131)		(115)
Net cash used in financing activities	(9,061)		(3,908)
Impact of foreign currency exchange on cash	7		(245)
Net decrease in cash and cash equivalents	(15,882)		(2,873)
Cash and cash equivalents
Cash and cash equivalents beginning of period	68,864		92,989
Cash and cash equivalents end of period	$	52,982	$	90,116


Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,240	$	748
Cash refunded for income taxes	$	224	$	577
Cash paid for operating leases	$	2,099	$	—
Right of use assets obtained in exchange for operating lease obligations	$	410	$	—
Non-cash investing and financing activities:
Capital expenditures in accounts payable and accrued expenses	$	198	$	648
Receivable from property and equipment sale (including insurance)	$	2,479	$	5,454

The accompanying notes are an integral part of these condensed consolidated financial statements.

NINE ENERGY SERVICE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Company and Organization

Background

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. The Company is headquartered in Houston, Texas.

The Company’s chief operating decision maker, which is its Chief Executive Officer, and its board of directors allocate resources and assess performance based on financial information presented at a consolidated level. Accordingly, the Company determined that it operates as one reportable segment.

Risks and Uncertainties

The Company’s business depends, to a significant extent, on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies. These activity and spending levels are strongly influenced by the current and expected oil and natural gas prices. The worldwide coronavirus outbreak in early 2020, which was declared a pandemic by the World Health Organization in March 2020, the uncertainty regarding its impact, and various governmental actions taken to mitigate its impact have resulted in an unprecedented decline in demand for oil. In the midst of the ongoing pandemic, the Organization of the Petroleum Exporting Countries and other oil producing nations, including Russia, were initially unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. The convergence of these events created the unprecedented dual impact of a massive decline in the demand for oil, coupled with the risk of a substantial increase in supply, which has directly affected the Company. While the Company cannot predict the length of time that market disruptions resulting from the coronavirus pandemic and efforts to mitigate its effects will continue, the ultimate impact on its business, or the pace or extent of any subsequent recovery, the Company expects the coronavirus pandemic and related effects to continue to have a material adverse impact on commodity prices and its business generally.

Historically, the Company has met its liquidity needs principally from cash on hand, cash flow from operations and, if needed, external borrowings. In response to the above events, the Company has implemented certain cost-cutting measures across the organization to continue to maintain its current liquidity position. Based on its current forecasts, the Company believes that cash on hand, together with cash flow from operations, and borrowings under the 2018 ABL Credit Facility (as defined in Note 8 – Debt Obligations), should be sufficient to fund its capital requirements for at least the next twelve months from the issuance date of its condensed consolidated financial statements.

2. Basis of Presentation

Condensed Consolidated Financial Information

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2021, and its results of operations for the three months ended March 31, 2021, and 2020, and cash flows for the three months ended March 31, 2021, and 2020. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), in a manner consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, unless otherwise disclosed herein, and should be read in conjunction therewith. The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Operating results for interim periods are not necessarily indicative of the results that may be expected 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 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.

3. New Accounting Standards

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The adoption of this standard does not have a material impact on the Company’s condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for public businesses for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. As an emerging growth company, the Company is permitted, and plans, to adopt the new standard for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect the standard to have a material impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 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 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 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 fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of the standard on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments in ASU 2016-13 replace the current incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information. ASU 2016-13 is effective for SEC filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, including 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, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the standard on its condensed consolidated financial statements.

4. Revenues

Disaggregation of Revenue

Disaggregated revenue for the three months ended March 31, 2021 and 2020, respectively, was as follows:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
	(in thousands)		(in thousands)
Cement	$	22,922	$	48,637
Tools	20,009		32,223
Wireline	12,752		45,033
Coiled tubing	10,943		20,731
Total revenues	$	66,626	$	146,624


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
	(in thousands)		(in thousands)
Service(1)	$	46,617	$	114,401
Product(1)	20,009		32,223
Total revenues	$	66,626	$	146,624

(1) The Company recognizes revenues from the sales of products at a point in time and revenues from the sales of services over time.

Performance Obligations

At March 31, 2021 and December 31, 2020, the amount of remaining performance obligations was not material.

Contract Balances

At March 31, 2021 and December 31, 2020, contract assets and contract liabilities were not material.

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 $12.6 million and $13.3 million at March 31, 2021 and December 31, 2020, respectively.

Inventories, net as of March 31, 2021 and December 31, 2020 were comprised of the following:


	March 31, 2021		December 31, 2020
	(in thousands)
Raw materials	$	31,178	$	33,361
Work in progress	219		367
Finished goods	19,932		17,952
Inventories	51,329		51,680
Reserve for obsolescence	(12,570)		(13,278)
Inventories, net	$	38,759	$	38,402

6. Intangible Assets and Goodwill

Intangible Assets

The gross carrying amount and accumulated amortization of intangible assets as of March 31, 2021 and December 31, 2020 was as follows:


	March 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
	(in thousands, except weighted average amortization period information)
Customer relationships	$	63,270	$	(39,896)	$	23,374	5.4
Non-compete agreements	6,500		(5,466)		1,034		2.6
Technology	125,110		(22,086)		103,024		12.4
In-process research and development	1,000		—		1,000		Indefinite
Total	$	195,880	$	(67,448)	$	128,432


	December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
	(in thousands, except weighted average amortization period information)
Customer relationships	$	63,270	$	(38,084)	$	25,186	5.5
Non-compete agreements	6,500		(5,366)		1,134		2.8
Technology	125,110		(19,906)		105,204		12.7
In-process research and development	1,000		—		1,000		Indefinite
Total	$	195,880	$	(63,356)	$	132,524

Amortization of intangibles expense was $4.1 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively.

Future estimated amortization of intangibles is as follows:


Year Ending December 31,	(in thousands)
2021	$	12,024
2022	13,463
2023	11,516
2024	11,183
2025	11,183
2026	11,082
Thereafter	56,981
Total	$	127,432

Q1 2020 Goodwill Impairment

With a significant reduction in exploration and production capital budgets and activity, primarily driven by sharp declines in global crude oil demand and an economic recession associated with the coronavirus pandemic, as well as sharp declines in oil and natural gas prices, the outlook for expected future cash flows associated with the Company’s reporting units decreased dramatically in the first quarter of 2020.

Based on these events, an indication of impairment associated with the Company’s reporting units occurred, triggering an interim goodwill impairment test of the Level 3 fair value of each reporting unit under Accounting Standards Codification 350, Intangibles - Goodwill and Other (“ASC 350”) at March 31, 2020.

As such, based on its Level 3 fair value determination in connection with the interim goodwill impairment test under ASC 350, the Company recorded goodwill impairment charges of $296.2 million in the first quarter of 2020 associated with its

tools, cementing, and wireline reporting units. These charges represented a full write-off of goodwill and were due to the events described above, coupled with an increased weighted average cost of capital driven by a reduction in the Company’s stock price and the Level 2 fair value of its Senior Notes (as defined in Note 8 – Debt Obligations). These charges are included in the line item “Impairment of goodwill” in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended March 31, 2020.

7. Accrued Expenses

Accrued expenses as of March 31, 2021 and December 31, 2020 consisted of the following:


	March 31, 2021		December 31, 2020
	(in thousands)
Accrued interest	$	11,931	$	5,313
Accrued compensation and benefits	6,798		5,430
Other accrued expenses	5,818		6,396
Accrued expenses	$	24,547	$	17,139

8. Debt Obligations

The Company’s debt obligations as of March 31, 2021 and December 31, 2020 were as follows:


	March 31, 2021		December 31, 2020
	(in thousands)
Senior Notes	$	320,343	$	346,668
Magnum Promissory Notes	1,688		1,969
Total debt before deferred financing costs	$	322,031	$	348,637
Deferred financing costs	(4,277)		(5,079)
Total debt	$	317,754	$	343,558
Less: Current portion of long-term debt	(844)		(844)
Long-term debt	$	316,910	$	342,714

Senior Notes

Background

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, and the first interest payment was due on May 1, 2019. The Senior Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s current domestic subsidiaries and by certain future subsidiaries.

The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to engage in certain activities. The Company was in compliance with the provisions of the Indenture at March 31, 2021.

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 $4.3 million and $

SEC Form 10-Q filed by Nine Energy Service, Inc.