Nine Energy Service Inc.

05/13/2026 | Press release | Distributed by Public on 05/13/2026 15:19

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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 included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the consolidated financial statements and the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," including "Critical Accounting Estimates," included in our Annual Report on Form 10-K for the year ended December 31, 2025.
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 anticipated in these forward-looking statements because of various risks and uncertainties, including those described in the sections titled "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q and "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 and this Quarterly Report on Form 10-Q.
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 completion 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 and reduce emissions.
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 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 and isolation tools 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, providing a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well.
Bankruptcy Proceedings and Emergence from Bankruptcy
On February 1, 2026 (the "Petition Date"), we and our domestic and Canadian subsidiaries (the "Company Parties") filed voluntary petitions (the "Chapter 11 Cases") under chapter 11 ("Chapter 11") of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court") to implement a prepackaged Chapter 11 plan of reorganization (the "Plan") to effectuate a financial restructuring of the Company Parties' existing indebtedness. Prior to filing the Chapter 11 Cases, on the Petition Date, the Company Parties entered into a restructuring support agreement (the "Restructuring Support Agreement") with an ad hoc group (collectively, the "Consenting Stakeholders") of certain holders of our 13.000% Senior Secured Notes due 2028 (the "2028 Notes") and the lenders (the "Prepetition ABL Lenders") under the Loan and Security Agreement, dated as of May 1, 2025 (the "Prepetition ABL Loan and Security Agreement"), by and among us and certain of our subsidiaries, each as a borrower or guarantor, as applicable, White Oak Commercial Finance, LLC, as agent for the lenders, and the lenders from time to time party thereto. Pursuant to the Restructuring Support Agreement, the Consenting Stakeholders agreed, subject to certain terms and conditions, to support the Plan.
On March 4, 2026, the Bankruptcy Court entered an order confirming the Plan, and on March 5, 2026, the Plan became effective in accordance with its terms and the Company Parties emerged from bankruptcy. Pursuant to the Plan, among other things:
•the Prepetition ABL Lenders provided the Company Parties with a senior secured super-priority asset-based debtor-in-possession credit facility consisting of up to $125.0 million in aggregate principal amount of revolving credit commitments (the "DIP ABL Facility"), including a roll-up or refinancing of all obligations under the Prepetition ABL
Loan and Security Agreement, which converted into an exit senior secured asset-based revolving credit facility (the "Exit ABL Facility") on the effective date of the Plan (the "Plan Effective Date");
•on the Plan Effective Date, the reorganized Company issued 100% of a single class of common equity interests to the holders of the 2028 Notes and the 2028 Notes were canceled; and
•on the Plan Effective Date, all of the Company's equity interests outstanding prior to the Plan Effective Date, including common stock, were canceled for no consideration.
See Note 1 - Company and Organization and Note 3 - Emergence from Bankruptcy in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information regarding the bankruptcy and our emergence therefrom.
Fresh Start Accounting
Upon the Plan Effective Date, we applied fresh start accounting in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 852-Reorganizations ("ASC 852"). The application of fresh start accounting resulted in a new basis of accounting and becoming a new entity for financial reporting purposes. Accordingly, our financial statements and notes after the Plan Effective Date are not comparable to our financial statements and notes on and prior to that date. For additional information, see Note 3 - Emergence from Bankruptcy in Item 1 of Part I of this Quarterly Report on Form 10-Q.
In this Quarterly Report on Form 10-Q, the "Successor" refers to the Company after our emergence from bankruptcy and the "Predecessor" refers to the Company prior to our emergence from bankruptcy, and references to the financial position and results of operations of the Successor are to the financial position and results of operations of the Company after the Plan Effective Date and references to the financial position and results of operations of the Predecessor are to the financial position and results of operations of the Company on and prior to the Plan Effective Date.
How We Generate Revenue and the Costs of Conducting Our Business
We generate our revenues by providing completion 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 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 our business include labor costs, materials and freight, the costs of maintaining our equipment, and fuel costs. Our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment. Another key component of labor costs relates to the ongoing training of our field service employees, which improves safety rates and reduces employee attrition.
How We Evaluate Our Operations
We evaluate our performance based on a number of financial and non-financial measures, including the following:
•Revenue: We compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year. We monitor our revenue to analyze trends in the performance of our operations compared to historical revenue drivers or market metrics. We are particularly interested in identifying positive or negative trends and investigating to understand the root causes.
•Adjusted Gross Profit (Loss): Adjusted gross profit (loss) is a key metric that we use to evaluate operating performance. We define adjusted gross profit (loss) as revenues less 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 and transportation freight costs, contract services, crew cost, and other miscellaneous expenses.
•Adjusted EBITDA: We define Adjusted EBITDA as EBITDA (which is net income (loss) before interest, taxes, and depreciation and amortization) further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) loss or gain on revaluation of contingent liabilities, (iv) loss or gain on extinguishment of debt, (v) loss or gain on the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation and cash award expense, (viii) loss or gain on sale of property and equipment, and (ix) 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.
•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. Recordable workplace injuries include 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.
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. Historically, these activity and spending levels have been strongly influenced by current and expected oil and natural gas prices. In recent years, commodity prices have been extremely volatile and unpredictable. Following the announcement of tariffs in April of 2025, oil prices began to decline. In the first quarter of 2025, West Texas Intermediate ("WTI") averaged $71.78 per barrel and fell to an average of $59.62 per barrel in the fourth quarter of 2025. The decline in oil prices led to a decrease in rig count and activity levels on U.S. land, which in turn led to pricing pressure across service lines, especially within the oil-levered basins, like the Permian. In the first quarter of 2025, the average rig count in the Permian Basin was 302 rigs, and by the fourth quarter of 2025, it had declined to 250 rigs. At the beginning of March 2026, WTI prices increased significantly due to the conflict with Iran. Although WTI prices rose to almost $100 per barrel in March 2026, and averaged $72.74 per barrel for the first quarter of 2026, the U.S. rig count remained flat in the first quarter of 2026 versus the fourth quarter of 2025. At the end of 2025, the U.S. rig count was 546 rigs, and at the end of the first quarter of 2026, the U.S. rig count was 543 rigs. U.S. public operators have not provided any indication that U.S. activity levels will increase in conjunction with higher oil prices.
In the first quarter of 2026, natural gas prices averaged $4.71 per million British thermal units ("MMBtu"), compared to $3.73 per MMBtu in the fourth quarter of 2025. However, prices have fallen to around $3.00 per MMBtu by the end of the first quarter of 2026. Nonetheless, natural gas prices have remained mostly supportive, which has led to slight increases in rig counts in natural gas-levered basins like the Haynesville. Since the end of the first quarter 2025, there have been 25 rigs added in the Haynesville Basin, which had a total of 55 rigs at the end of the first quarter of 2026. Due to the much smaller size of the Haynesville versus the Permian Basin, these increases have not been able to offset the activity declines and the pricing pressure in the oil-levered basins like the Permian. The long-term outlook on natural gas demand remains positive due mostly to potential increased demand coming from power generation related to artificial intelligence and data centers.
Due to the spot-market nature of our business, our revenue and profitability generally move very similarly to U.S. rig, frac, and stage counts. In the first quarter of 2026, however, although pricing and rig counts were relatively stable, our revenue and profitability were negatively impacted by severe weather in January and February, as well as inefficient operations, frac delays, and more whitespace in the calendar, especially in the Northeast region. Because of this, revenue and profitability in the first quarter of 2026 were down compared to the fourth quarter of 2025. Additionally, during the first quarter of 2026, we incurred costs related to our restructuring that negatively impacted profitability.
The macro-outlook is uncertain, especially with recent geopolitical events. With what we know today, we anticipate that U.S. activity levels will be relatively flat in the second quarter of 2026 compared to the first quarter levels. However, we anticipate more efficient operations and less whitespace in the calendar in the second quarter of 2026 and expect our second quarter revenue and earnings will increase as compared to the first quarter of 2026.
Significant factors that are likely to affect commodity prices moving forward include geopolitical and economic developments in the U.S. and globally, including conflicts, instability, acts of war or terrorism in oil-producing countries or regions, particularly Iran and elsewhere in the Middle East, Russia, South America and Africa; the pace of economic growth in the U.S. and throughout the world, including the potential for macro weakness; tariffs imposed by the U.S. and other countries or retaliatory trade measures; actions of the members of OPEC and other oil-exporting nations that relate to or impact oil production or supply; weather conditions; the effect of energy, monetary, and trade policies of the U.S.; changes to energy
regulations and policies, including those of the U.S. Environmental Protection Agency and other governmental bodies; and overall North American oil and natural gas supply and demand fundamentals, including the pace at which export capacity grows. We expect that U.S. activity levels will be impacted by commodity prices and many of the same factors expected to impact commodity prices, including the production of OPEC and other oil-exporting nations and governmental policies, such as tariffs. We cannot predict the scope or extent of such impacts. Furthermore, although as noted above, our customers' activity and spending levels, and thus demand for our services and products, are strongly influenced by current and expected oil and natural gas prices, even with price improvements in oil and natural gas, operator activity may not materially increase, as operators remain focused on operating within their capital plans and uncertainty remains around supply and demand fundamentals.
Results of Operations
Results for the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period
Successor Predecessor
Period from March 6, 2026 through March 31, 2026 Period from January 1, 2026 through March 5, 2026 Three Months Ended March 31, 2025
(in thousands) (in thousands)
Revenues $ 41,603 $ 88,392 $ 150,466
Cost of revenues (exclusive of depreciation and amortization shown separately below) 35,600 80,546 122,470
General and administrative expenses 4,623 13,052 $ 13,263
Depreciation 2,205 3,963 5,837
Amortization of intangibles 68 1,984 2,796
Loss on revaluation of contingent liability - - 25
Loss (gain) on sale of property and equipment (37) (147) 446
Income (loss) from operations (856) (11,006) 5,629
Interest expense 542 5,256 12,876
Interest income (1) (82) (139)
Reorganization items, net - (124,059) -
Other income (53) (109) (162)
Income (loss) before income taxes (1,344) 107,988 (6,946)
Provision (benefit) for income taxes (91) 109 115
Net income (loss) $ (1,253) $ 107,879 $ (7,061)
Revenues
For the period from March 6, 2026 through March 31, 2026 (the "2026 Successor Period"), revenues were $41.6 million. For the 2026 Successor Period, total cementing revenue (including pump downs) was $17.6 million, with utilization at 88%; tools revenue was $8.5 million, with completion tools stages of approximately 7,200 stages; coiled tubing revenue was $8.1 million, with total days worked of approximately 225 days; and wireline revenue was $7.4 million, with total completed wireline stages of approximately 2,300 stages.
For the period from January 1, 2026 through March 5, 2026 (the "2026 Predecessor Period"), revenues were $88.4 million. For the 2026 Predecessor Period, total cementing revenue (including pump downs) was $35.9 million, with utilization at 85%; tools revenue was $17.3 million, with completion tools stages of over 12,000 stages; coiled tubing revenue was $18.8 million, with total days worked of approximately 455 days; and wireline revenue was $16.4 million, with total completed wireline stages of approximately 4,600 stages.
For the three months ended March 31, 2025 (the "2025 Predecessor Period"), revenues were $150.5 million. For the 2025 Predecessor Period, total cementing revenue (including pump downs) was $57.2 million, with utilization at 105%; tools revenue was $33.8 million, with completion tools stages of approximately 29,000; coiled tubing revenue was $29.9 million, with total days worked of approximately 670 days; and wireline revenue was $29.6 million, with total completed wireline stages of approximately 7,700 stages.
Cost of Revenues (Exclusive of Depreciation and Amortization)
Cost of revenues for the 2026 Successor Period was $35.6 million. These costs included $19.1 million in costs related to materials installed and consumed while performing services, $11.7 million in employee-related costs, and $4.8 million in vehicle costs, repair and maintenance costs, insurance, facility costs and other costs.
Cost of revenues for the 2026 Predecessor Period was $80.5 million. These costs included $38.5 million in costs related to materials installed and consumed while performing services, $25.8 million in employee-related costs, $10.8 million in vehicle costs, repair and maintenance costs, insurance, facility costs and other costs, and $5.5 million in inventory write-downs.
Cost of revenues for the 2025 Predecessor Period was $122.5 million. These costs included $67.2 million in costs related to materials installed and consumed while performing services, $39.8 million in employee-related costs, and $15.5 million in vehicle costs, repair and maintenance costs, insurance, facility costs and other costs.
General and Administrative Expenses
General and administrative expenses for the 2026 Successor Period was $4.6 million. These expenses included $2.6 million in employee-related costs, $1.2 million in professional fees, and $0.8 million in other costs such as communication costs, vehicle expenses, and insurance expenses.
General and administrative expenses for the 2026 Predecessor Period was $13.1 million. These expenses primarily included $6.0 million in professional fees, $5.1 million in employee-related costs, and $2.0 million in other costs such as communication costs, vehicle expenses, and insurance expenses.
General and administrative expenses for the 2025 Predecessor Period was $13.3 million. These expenses primarily included $9.1 million in employee-related costs and $4.1 million in professional fees and other costs such as communication costs, vehicle expenses, and insurance expenses.
Depreciation
Depreciation expense for the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period, was $2.2 million, $4.0 million, and $5.8 million, respectively. Due to our revaluation of our property and equipment due to the application of fresh start accounting, depreciation expense increased during the 2026 Successor Period in comparison to the 2026 Predecessor Period and 2025 Predecessor Period.
Amortization of Intangibles
Amortization expense for the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period, was $0.1 million, $2.0 million, and $2.8 million, respectively. The amortizable asset base stayed the same between the 2025 Predecessor Period and the 2026 Predecessor Period. Due to our revaluation of our intangible assets due to the application of fresh start accounting, amortization expense decreased during the 2026 Successor Period in comparison to the 2026 Predecessor Period.
(Gain) Loss on Sale of Property and Equipment
For the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period, we recorded a $37 thousand gain, a $0.1 million gain, and a $0.4 million loss, respectively. The change between the 2025 Predecessor Period and the 2026 Predecessor Period occurred because of sales that occurred in the 2026 Predecessor Period that did not occur in the 2025 Predecessor Period. These sales also did not occur in the following 2026 Successor Period.
Interest Expense
For the 2026 Successor Period, we recorded approximately $0.5 million in interest expense primarily related to interest associated with the Exit ABL Facility.
For the 2026 Predecessor Period, we recorded approximately $5.3 million in interest expense, which was primarily related to $4.0 million in interest and deferred financing costs associated with the 2028 Notes. On the Petition Date, we ceased recording interest expense associated with the 2028 Notes and wrote off any unamortized deferred financing costs associated with the 2028 Notes to reorganization items, net. The remaining interest expense for the 2026 Predecessor Period was primarily related to $1.0 million in interest associated with revolving credit facilities.
For the 2025 Predecessor Period, we recorded approximately $12.9 million in interest expense, which was primarily related to $11.6 million in interest and deferred financing costs associated with the 2028 Notes and $1.0 million in interest associated with revolving credit facilities.
Reorganization Items, Net
We did not record any reorganization items, net for the 2026 Successor Period.
For the 2026 Predecessor Period, we recorded approximately $124.1 million of reorganization items, net, related to our emergence from the Chapter 11 Cases, which consisted primarily of the net gain from the consummation of the Plan, partially offset by the write-off of deferred financing costs associated with the 2028 Notes, adjustments from the application of fresh start accounting, costs incurred in connection with our DIP ABL Facility and professional fees. See Note 3 - Emergence from Bankruptcy for additional information.
We did not record any reorganization items, net for the 2025 Predecessor Period.
Provision (Benefit) for Income Taxes
For the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period, we recorded a $0.1 million benefit, $0.1 million provision, and $0.1 million provision, respectively. The income tax for all periods is related to our income tax position and state foreign tax jurisdictions.
Net Income (Loss)
For the 2026 Successor Period, the 2026 Predecessor Period, and the 2025 Predecessor Period, we recorded net loss of $1.3 million, net income of $107.9 million, and net loss of $7.1 million, respectively. These net losses and net income were primarily due to the revenues and expenses discussed above.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies. We define Adjusted EBITDA as EBITDA (which is net income (loss) before interest, taxes, depreciation, and amortization) further adjusted for (i) goodwill, intangible asset, and/or property and equipment impairment charges, (ii) transaction and integration costs related to acquisitions, (iii) loss or gain on revaluation of contingent liabilities, (iv) loss or gain on extinguishment of debt, (v) loss or gain on the sale of subsidiaries, (vi) restructuring charges, (vii) stock-based compensation and cash award expense, (viii) loss or gain on sale of property and equipment, and (ix) 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.
Management believes Adjusted EBITDA provides useful information to us and our investors regarding our financial condition and results of operations because it allows us and them 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 and helps identify underlying trends in our operations that could otherwise be distorted by the effect of impairments, acquisitions and dispositions, and costs that are not reflective of the ongoing performance of our business. We exclude the items listed above from net income (loss) in arriving at this measure 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.
Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) 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 Adjusted EBITDA 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 Adjusted EBITDA. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
The following table presents a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income (loss):
Successor Predecessor
Period from March 6, 2026 through March 31, 2026 Period from January 1, 2026 through March 5, 2026 Three Months Ended March 31, 2025
(in thousands) (in thousands)
Net income (loss) $ (1,253) $ 107,879 $ (7,061)
Interest expense 542 5,256 12,876
Interest income (1) (82) (139)
Provision (benefit) for income taxes (91) 109 115
Depreciation 2,205 3,963 5,837
Amortization of intangibles 68 1,984 2,796
EBITDA $ 1,470 $ 119,109 $ 14,424
Loss on revaluation of contingent liability (1)
- - 25
Reorganization items, net - (125,640) -
Restructuring charges and other expenses (2)
555 5,408 -
Stock-based compensation expense - 1,890 750
Cash award expense 121 250 892
Loss (gain) on sale of property and equipment (37) (147) 446
Adjusted EBITDA $ 2,109 $ 870 $ 16,537
(1)Amounts relate to the revaluation of a contingent liability associated with a 2018 acquisition. The impact is included in our Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). For additional information on contingent liabilities, see Note 11 - Commitments and Contingencies included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
(2)For the 2026 Successor Period, amounts relate to professional fees incurred after the Plan Effective Date in relation to the Chapter 11 Cases. For the 2026 Predecessor Period, amounts relate to professional fees incurred prior to the Petition Date in relation to the Chapter 11 Cases.
Adjusted Gross Profit (Loss)
GAAP defines gross profit (loss) as revenues less cost of revenues and includes depreciation and amortization in costs of revenues. We define adjusted gross profit (loss) as revenues less direct and indirect costs of revenues (excluding depreciation and amortization). This measure differs from the GAAP definition of gross profit (loss) because we do not include the impact of depreciation and amortization, which represent non-cash expenses.
Management believes adjusted gross profit (loss) provides useful information to us and our investors regarding our financial condition and results of operation and helps management evaluate our operating performance by eliminating the impact of depreciation and amortization, which we do not consider indicative of our core operating performance. Adjusted gross profit (loss) 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 (loss) may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted gross profit (loss) or similarly titled measures in the same manner as we do.
The following table presents a reconciliation of adjusted gross profit (loss) to GAAP gross profit (loss):
Successor Predecessor
Period from March 6, 2026 through March 31, 2026 Period from January 1, 2026 through March 5, 2026 Three Months Ended March 31, 2025
(in thousands) (in thousands)
Calculation of gross profit:
Revenues $ 41,603 $ 88,392 $ 150,466
Cost of revenues (exclusive of depreciation and amortization shown separately below) 35,600 80,546 122,470
Depreciation (related to cost of revenues) 2,162 3,886 5,723
Amortization of intangibles 68 1,984 2,796
Gross profit $ 3,773 $ 1,976 $ 19,477
Adjusted gross profit reconciliation:
Gross profit $ 3,773 $ 1,976 $ 19,477
Depreciation (related to cost of revenues) 2,162 3,886 5,723
Amortization of intangibles 68 1,984 2,796
Adjusted gross profit $ 6,003 $ 7,846 $ 27,996
Liquidity and Capital Resources
Sources and Uses of Liquidity
Historically, we have met our liquidity needs principally from cash on hand, cash flows from operations and, if needed, external borrowings and issuances of debt and equity securities. Our principal uses of cash are to fund capital expenditures, service our outstanding debt, and fund our working capital requirements. Due to our high level of variable costs and the asset-light make-up of our business, we have historically been able to quickly implement cost-cutting measures as the market dictates.
For 2026, our planned capital expenditure budget, excluding possible acquisitions, is currently expected to be between $20.0 million to $30.0 million. The nature of our capital expenditures is comprised of a base level of investment required to support our current operations and amounts related to growth and company initiatives. Capital expenditures for growth and company initiatives are discretionary. We continually evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including expected industry activity levels and company initiatives. Although we do not budget for acquisitions, pursuing growth through acquisitions may continue to be a part of our business strategy. Our ability to make significant additional acquisitions for cash may require us to obtain additional equity or debt refinancing, which we may not be able to obtain on terms acceptable to us or at all.
Based on our current forecasts, we believe that our cash on hand, together with cash flows from operations and borrowings under the Exit ABL Facility, should be sufficient to meet our cash requirements, including for normal operating needs, debt service obligations, and planned capital expenditures and commitments, for at least the next twelve months from the issuance date of our condensed consolidated financial statements. However, we can make no assurance regarding our ability to achieve our forecasts, which are materially dependent on our improved financial performance and the ever-changing market.
Capital Resources Prior to and During the Chapter 11 Cases
The filing of the Chapter 11 Cases constituted events of default that accelerated our obligations related to the 2028 Notes and the Prepetition ABL Facility (as defined and described in Note 9 - Debt Obligations). As a result, the principal and interest due under our outstanding 2028 Notes and Prepetition ABL Facility became immediately due and payable. However, any efforts to enforce such payment obligations were automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors' rights of enforcement were subject to the applicable provisions of the Bankruptcy Code.
On February 3, 2026, the Bankruptcy Court, on an interim basis, approved the DIP ABL Facility, and the Company Parties entered into a senior secured super-priority asset-based debtor-in-possession loan and security agreement (the "DIP Loan and Security Agreement") with White Oak Commercial Finance, LLC, as agent (the "DIP Agent"), and White Oak ABL 3, LLC and White Oak Europe ABL Limited, as lenders, which provided the Company Parties with a senior secured super-
priority asset-based debtor-in-possession credit facility consisting of up to $125.0 million in aggregate principal amount (the "DIP Maximum Revolving Facility Amount") of revolving credit commitments, including a roll-up or refinancing of all obligations under the Prepetition ABL Loan and Security Agreement (which totaled approximately $67.3 million as of February 3, 2026). A portion of the DIP ABL Facility not in excess of $5.0 million was available for the issuance of standby letters of credit. Our obligations under the DIP ABL Facility were secured by a first-priority security interest in substantially all our tangible and intangible assets and all of our current domestic and Canadian subsidiaries, subject to, among other things, customary bankruptcy-related exceptions including certain carve-outs for administrative and professional fee payments arising in connection with the Chapter 11 Cases.
Borrowings under the DIP ABL Facility were subject to a borrowing base. The outstanding balance of the borrowings under the DIP ABL Facility could not exceed in the aggregate at any time the lesser of (i) the DIP Maximum Revolving Facility Amount reduced by certain customary reserves and (ii) the borrowing base, which was calculated on the basis of eligible accounts and inventory. In particular, the borrowing base was equal to (a) 92.5% of the aggregate amount of eligible U.S. and Canadian billed accounts receivable, plus (b) the lesser of (x) 85% of the aggregate amount of eligible U.S. and Canadian unbilled accounts receivable and (y) $6.0 million, plus (c) the lesser of (x) 50% of the aggregate amount of eligible billed non-U.S. and non-Canadian accounts receivable and (y) $3.0 million, plus (d) the lower of cost or market value of eligible inventory, multiplied by the lessor of (x) 70% and (y) 85% of the appraised net orderly liquidation value divided by the book value in respect of such inventory, and, in the case of inventory consisting raw materials, not to exceed a maximum sublimit of $1.0 million, plus (e) the lesser of (x) $10.0 million and (y) an amount equal to 10% of the borrowing base, minus (f) the aggregate amount of reserves, if any, established by the DIP Agent.
Borrowings under the DIP ABL Facility bore interest at a per annum rate equal to the term-specific Secured Overnight Financing Rate ("SOFR") for an interest period of one month, subject to a 1.50% floor, plus an applicable margin of 4.00%.
The maturity date of the DIP ABL Facility was the earlier of the Plan Effective Date and 120 days after the Petition Date, subject to earlier termination upon the occurrence of certain events specified in the DIP Loan and Security Agreement. The proceeds of the DIP ABL Facility were for (i) working capital and corporate purposes of the Company Parties, (ii) bankruptcy-related costs and expenses in respect of the Chapter 11 Cases, (iii) costs and expenses related to the DIP ABL Facility, and (iv) refinancing of obligations under the Prepetition ABL Loan and Security Agreement.
The DIP Loan and Security Agreement contained certain representations and warranties, events of default, and various affirmative and negative covenants that were customary for debtor-in-possession loan agreements of this type, including limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments and investments (including acquisitions). In addition, the DIP Loan and Security Agreement contained certain financial covenants, including a minimum excess availability of not less than $5.0 million.
Capital Resources and Uses After the Chapter 11 Cases
Under the terms of the Restructuring Support Agreement and the Plan, upon successful emergence from the Chapter 11 Cases, the 2028 Notes were canceled and the holders of the 2028 Notes received shares of the reorganized Company's common stock.
On the Plan Effective Date, the DIP ABL Facility was converted into the Exit ABL Facility, a first priority senior secured asset-based revolving credit facility consisting of up to $135.0 million in aggregate principal amount (the "Exit Maximum Revolving Facility Amount") of revolving commitments. A portion of the Exit ABL Facility not in excess of $5.0 million is available for the issuance of standby letters of credit. Our obligations under the Exit ABL Facility are secured by a first-priority security interest in substantially all of our tangible and intangible assets, including all machinery and equipment, and are guaranteed by certain of our existing and future domestic and Canadian subsidiaries.
Borrowings under the Exit ABL Facility are subject to a borrowing base. The outstanding balance of the borrowings under the Exit ABL Facility may not exceed in the aggregate at any time the lesser of (i) the Exit Maximum Revolving Facility Amount reduced by certain customary reserves and (ii) the borrowing base, which is calculated on the basis of eligible accounts, inventory, machinery and equipment, and, at the Company Parties' election, certain real property assets of the Company Parties. In particular, the borrowing base is equal to (a) 92.5% of the aggregate amount of eligible U.S. and Canadian billed accounts receivable, plus (b) the lesser of (x) 85% of the aggregate amount of eligible U.S. and Canadian unbilled accounts receivable and (y) $6 million, plus (c) the lesser of ("Foreign Accounts Availability") (x) 50% of the aggregate amount of eligible billed non-U.S. and non-Canadian accounts receivable and (y) $3 million, plus (d) the lower of cost or market value of eligible inventory, multiplied by the lesser of (x) 70% and (y) 85% of the appraised net orderly liquidation value divided by the book value in respect of such inventory, and, in the case of inventory constituting raw materials, not to exceed a maximum sublimit of $1 million, plus (e) the lesser of ("SOFA Availability") (x) $10 million and (y) an amount equal
to 10% of the borrowing base, plus (f) the lesser of (x) the sum of (1) up to 75% of the net orderly liquidation value of eligible machinery and equipment ("M&E Availability") plus (2) up to 75% of the fair market value of eligible real property owned by certain of the Company Parties ("Real Property Availability") and (y) $30 million (which amount shall be permanently reduced on a yearly basis based on a 5-year straight line amortization), minus (g) the aggregate amount of reserves, if any, established by the agent under the loan and security agreement governing the Exit ABL Facility (the "Exit Loan and Security Agreement"). The Real Property Availability is subject to the Company Parties' election, at their option, to enter into mortgages from time to time in favor of the agent and lenders under the Exit Loan and Security Agreement with respect to their eligible real property assets as well as the satisfaction of other customary eligibility criteria with respect thereto.
Borrowings under the Exit ABL Facility bear interest at a per annum rate equal to the term-specific SOFR for an interest period of one month, subject to a 1.50% floor, plus an applicable margin ranging from 3.50% to 4.00%, depending on our fixed charge coverage ratio, subject to an additional margin of 0.50% with respect to any revolving loans or letters of credit utilizing any of M&E Availability, Real Property Availability, SOFA Availability, and/or Foreign Accounts Availability.
The maturity date of the Exit ABL Facility is three years after the Plan Effective Date, subject to earlier termination upon the occurrence of certain events specified in the Exit Loan and Security Agreement. The proceeds of the Exit ABL Facility have been used for (i) working capital and general corporate purposes of the Company Parties, (ii) costs and expenses related to the Exit ABL Facility, and (iii) refinancing of all obligations under the DIP ABL Facility.
The Exit Loan and Security Agreement contains certain representations and warranties, events of default, and various affirmative and negative covenants that are customary for asset-based credit facilities of this type, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, dividends and other restricted payments, and investments (including acquisitions). In addition, the Exit Loan and Security Agreement contains certain financial covenants, including a minimum excess availability of not less than $5.0 million and a minimum fixed charge coverage ratio of 1.10 to 1.00 that will be tested when the excess availability under the Exit ABL Facility is less than the lesser of (a) 7.5% of the lesser of (x) the Exit Maximum Revolving Facility Amount minus reserves and (y) the borrowing base and (b) $9.0 million, which minimum fixed charge coverage ratio would apply until the excess availability is greater than or equal to such threshold for a period of 30 consecutive days.
At March 31, 2026, we had $90.4 million of outstanding borrowings under the Exit ABL Facility. At March 31, 2026, we had $11.2 million of cash and cash equivalents and $35.7 million of availability under the Exit ABL Facility, which resulted in a total liquidity position of $46.9 million. For additional information on the Exit ABL Facility, see Note 9 - Debt Obligations included in Item 1 of Part I of this Quarterly Report on Form 10-Q. On April 28, 2026, we borrowed an additional $5.0 million under the Exit ABL Facility.
Cash Flows
Cash flows provided by (used in) operations by type of activity were as follows:
Successor Predecessor
Period from March 6, 2026 through March 31, 2026 Period from January 1, 2026 through March 5, 2026 Three Months Ended March 31, 2025
(in thousands) (in thousands)
Operating activities $ (2,416) $ (9,951) $ (5,277)
Investing activities (3,442) (2,036) (3,981)
Financing activities (787) 20,496 (1,556)
Impact of foreign exchange rate on cash 70 89 209
Net change in cash, cash equivalents, and restricted cash $ (6,575) $ 8,598 $ (10,605)
Operating Activities
Net cash used in operating activities was $2.4 million for the 2026 Successor Period, which resulted from a net loss of $1.3 million, adjusted for non-cash items of $3.4 million and net cash outflows of $4.6 million from changes in working capital. Non-cash items primarily consisted of depreciation and amortization expense of $2.3 million and amortization of operating leases of $1.0 million. The net cash outflow from changes in working capital was driven primarily by an increase in accounts receivable of $9.2 million due to the timing of customer invoices and payments. The net cash outflows were partially offset by an increase in accounts payable and accrued expenses of $5.2 million due to the timing of vendor invoices and payments.
Net cash used in operating activities was $10.0 million for the 2026 Predecessor Period, which resulted from net income of $107.9 million, adjusted for non-cash items of $123.6 million and net cash inflows of $5.8 million from changes in working capital. Non-cash items primarily consisted of non-cash income from reorganization items, net, of $139.2 million, depreciation and amortization expense of $5.9 million, amortization of operating leases of $2.9 million, non-cash inventory provisions of $2.5 million, and amortization of deferred financing costs of $2.4 million. The net cash inflow from changes in working capital was driven primarily by an increase in accounts payable and accrued expenses of $8.9 million due to the timing of vendor invoices and payments, as well as a decrease in inventories, net of $2.1 million and a decrease in prepaids and other current assets of $1.7 million due to timing of payments. The net cash inflows were partially offset by a decrease in operating lease obligations of $3.7 million and an increase in accounts receivable of $3.2 million due to timing of customer invoices and payments.
Net cash used in operating activities was $5.3 million for the 2025 Predecessor Period, which resulted from net loss of $7.1 million, adjusted for non-cash items of $16.0 million and net cash outflows of $14.2 million from changes in working capital. Non-cash items primarily consisted of depreciation and amortization expense of $8.6 million, amortization of operating leases of $3.4 million, and amortization of deferred financing costs of $2.1 million. The net cash outflow from changes in working capital was driven primarily by an increase in accounts receivable of $14.0 million due to timing of customer invoices and payments.
Investing Activities
Net cash used in investing activities was $3.4 million for the 2026 Successor Period primarily due to cash purchases of property and equipment of $3.5 million.
Net cash used in investing activities was $2.0 million for the 2026 Predecessor Period primarily due to cash purchases of property and equipment of $2.9 million, which were partially offset by cash proceeds from property and equipment casualty losses and sales of $0.9 million.
Net cash used in investing activities was $4.0 million for the 2025 Predecessor Period and consisted of cash purchases of property and equipment.
Financing Activities
Net cash used in financing activities was $0.8 million for the 2026 Successor Period and consisted of payments on other short-term debt.
Net cash provided by financing activities was $20.5 million for the 2026 Predecessor Period, reflecting proceeds from the Exit ABL Facility of $89.5 million, proceeds from the DIP ABL Facility of $79.5 million, and proceeds from the Prepetition ABL Facility of $3.0 million which were partially offset by payments on the DIP ABL Facility of $82.6 million, payments on the Prepetition ABL Facility of $67.3 million, and payments on other short-term debt of $1.6 million.
Net cash used in financing activities was $1.6 million for the 2025 Predecessor Period, reflecting $1.3 million in payments on other short-term debt and $0.2 million in payments of contingent liabilities.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our critical accounting estimates, which are estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations, are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2025 and Note 2 - Basis of Presentation and Note 3 - Emergence from Bankruptcy in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation 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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