Nine Energy Service, Inc.NINE
Nine Energy Service, Inc. Commitments Disclosure
Commitments and Contingencies
Litigation
The Company records accruals related to litigation and other legal proceedings when they are either known or considered probable and can be reasonably estimated. Legal proceedings are inherently unpredictable and subject to significant uncertainties, and significant judgment is required to determine both probability and the estimated amount. Some of these uncertainties include the stage of litigation, available facts, uncertainty as to the outcome of any legal proceedings or settlement discussions, and any novel legal issues presented. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending litigation. As of December 31, 2025 and 2024, the Company recorded a $0.4 million and a $0.3 million accrual, respectively, for liabilities related to legal matters, which is included under the caption “Accrued expenses” in its Consolidated Balance Sheets.
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 April 18, 2020, the Company was named as a defendant in a patent infringement lawsuit regarding its Breakthru Casing Flotation Device. On January 18, 2022, the Company received an adverse judgment in this matter. The Company has posted a $2.4 million letter of credit representing the judgment amount and accrued royalties from the judgment date through December 31, 2025. While the Company believes it is probable that it will prevail on appeal resulting in no liability, in the event the Company does not prevail on appeal, the Company will be liable for the aggregate letter of credit posted through the date of appeal plus any future royalties awarded.
However, due to the inherent uncertainties of litigation, the Company is unable to determine the exact amount of any potential loss at this time, and thus, no accrual has been made for this matter in the Company’s consolidated financial statements. The Company will continue to monitor the progress of this litigation and will adjust its accrual as necessary if and when additional information becomes available.
Self-insurance
The Company uses a combination of third-party insurance and self-insurance for health insurance claims. 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 $2.0 million and $1.5 million at December 31, 2025 and 2024, respectively, and is included under the caption “Accrued expenses” on the Company’s 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
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. The Frac Tech Purchase Agreement, as amended, includes, among other things, the potential for additional future payments, based on certain Frac Tech revenue metrics through December 31, 2025 (the “Frac Tech Earnout”).
The Company’s contingent liability (Level 3) associated with the Frac Tech Earnout (in thousands) for the years ended December 31, 2025 and 2024 was as follows:
| Frac Tech | |||||
| (in thousands) | |||||
| Balance at December 31, 2023 | $ | 1,219 | |||
| Payments | (604) | ||||
| Revaluation adjustments | 104 | ||||
| Balance at December 31, 2024 | $ | 719 | |||
| Payments | (748) | ||||
| Revaluation adjustments | 217 | ||||
| Balance at December 31, 2025 | $ | 188 | |||
All contingent liabilities that relate to contingent consideration are reported at fair value, based on a Monte Carlo simulation model. Significant inputs used in the fair value measurement include forecasted sales of the plugs, terms of the agreement, a risk-adjusted discount factor (ranging from 3.9% to 4.0%), and a credit-adjusted rate (ranging from 11.7% to 11.8%). Contingent liabilities include $0.2 million and $0.6 million reported in “Accrued expenses” at December 31, 2025 and 2024, respectively, and $0.0 million and $0.1 million reported in “Other long-term liabilities” at December 31, 2025 and 2024, respectively, in the Company’s Consolidated Balance Sheets. The impact of the revaluation adjustments is included in “Income (loss) from operations” in the Company’s Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 8, 2023 | |
| 2021 | Mar 8, 2022 | |
| 2020 | Mar 8, 2021 | |
| 2019 | Mar 10, 2020 | |
| 2018 | Mar 7, 2019 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.