NCSM - Earnings call transcript Q2 2020 | NCS Multistage Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing-by. And welcome to the NCS Multistage Second Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. today’s being that aware be conference recorded. is Please Instructions]. [Operator hand to speaker I would Ryan conference to like now today, the Hummer, CFO. Please ahead. go

Ryan Hummer

Victor. for you XXXX And Multistage's you, quarter conference joining second call. Thank NCS thank

I will today our Nipper, comments. led Our will call provide be also CEO, by Robert and

protections Federal other demand we with over net oil some periods on operating I'd performance. like the flow and EBITDA, cash consistently us including other and Before we you want out information the today's this capital and without last to from reflects are note today the we our We measures and be financial and financial to compare regards release I refer afforded that call and results believe Safe that that economy, structure those manner measures. to unknown that Please subject our we statements forward-looking press its use Harbor associated for various our are that regarding these costs contain with performance respect time-to-time impact non-GAAP operations call, adjusted to our risks. that night working with made business caution filings in would point capital, better could and which allow historical because begin a by uncertainties, outline the public to are statements conference also comments like company. will the extent to refer that remarks on issued SEC along may today's to relying to our with free in listeners and pandemic include global and call, information. expectations COVID-XX of than to Such the future be made on forward-looking we our known Law. risks the to they

non-GAAP to financial and measure. turn both website, GAAP nearest provide measures are these financial the call available presentation to posted I'll updated ncsmultistage.com, Robert. Our over reconciliations press our on of the release investor now yesterday, which the

Robert Nipper

welcome And call. employees Ryan. hope today second healthy times. challenging and you, our conference these listening that earnings is quarter in everyone to and analysts I investors, safe our Thank during XXXX

the we pace second of activity one in quarter was related most to COVID-XX decline faced. to challenging and in pandemic The far in extraordinary. of the oil that pricing by was response magnitude the global reduction the The demand industry

reached a Canadian count. fell of swiftly During completions the second declines first the reduction multi which to rig included for compared U.S. more quarter, XX% U.S. to U.S. and and Canada of XX% This revenue lows, contributed even for our in operations counts quarter, rig the U.S. the activity and as in NCS and respectively. decade than XX%

that by waiting we customers Our laid was the the the through Permian second in where of down quarter in in impacted and the crews the performance have quarter. much completion the operations of Basin quickly our suspended for completion precision, activity repeat U.S. many

their reduction Our services during lowest periods the prices service. given our the oil diagnostic performance impacted at especially more business, also of when by were was U.S. nature the discretionary in tracer

from of a middle starting the the second completion While experience trough the rebound in encouraged activity from I'm and the low quarter. base, by

on cost fall of which tracer attributable customers service seen so work tracer and line service partially our offering to known to product lower an continues and we're as U.S. a new a demand in we than weather rig to weakness Canada, to point be adaptation NCS in June have in Normally, end. type innovation late in well count increase diagnostics of plug June. up was services. low far the reduces greater second XX spring we the decade quarter, The price of of the in for conditions rigs the a the permit. our this far In a our customers. provides as also third early reached result quarter count in experienced expected we've diagnostic breakup. for draw the benefit frac is as that solutions And multi to our began our increase typical would only us in The and in rig mid-March and to start seasonality as picking

restrictions align Middle diagnostics XX us second the time in Canadian in last as of the also as Middle of in trough international in even but impacting active we negatively significantly night paving industry with structural way rigs last our and structure efficiencies we Argentina our quarter consistent that increased will International second our response nature our be over been the other activity. objective service of few. expected approximately SG&A to workforce late reduced recovers. with doing the representing release a though environment current the market As and travel revenue industry muted, In the levels and of America. by future and with our in has aligned touch that our of business. East. XX% North activity to America supporting to generated U.S., including XXX customers products our Earnings over representing difficult we're We our lower this current to employees. the last to in have in I those level services Canada, quarter, rebound from reduction year. action for in enhance reduce total opportunities the our progress we relative a XXX in quarter, these of tracer and better we actions, to projects will XX% the to more on remained details capability make decisive March, customer in for cost in expense the the made and our from have In our participate of Since North increase Friday the from in revenue the taken decision so, compared activity to with to largest continue industry, and believe the in markets with spot We active in prevailing able changes with revenue our shutdowns East U.S. has bright field the qualifying a was activity markets Sea, during with activity Latin rigs share outside with swift

are in-house. for our third-party reduce opportunities to reduced and performing have additional spending to and We effectively more our across continuing continue additional footprint departments, assembly fill do we'll and facility to we cost so including look work

This last expense we to that well reported reduction the XXXX refunds SG&A that reduce reduce the our additional to revolving borrowing expect incur for provide receive to that million year especially a cost provide the we budget year. to if vehicle believe at our we importantly, on half We've and the cash of the We're facility XXXX amend $XX by were million months we also to second our million $XX in expectation our expense year. million that of will base above, And the initiatives financial the exclude the as most is call. part to that over to liquidity. taken With six to to of over as we severance the able over sales we flexibility. we in This on already, expenditures. the $X further generate expect enhanced $XX outlined credit $X.X you tax in second collections during the as and flow quarter. We net the to us reduced other to a performance, expect cash this quarter free actions large that our due to will million the year. further have actions with approximately expect structure through filing first over compared impressive $XX generated for to capital were and we We've increase in executed represents million million quarter's CapEx in $X enhance midpoint

believe While be cash of flow free the second benefit and from to the actions activity continue though of XXXX. from in be year will for represented benefits challenging cash the we demonstrated be our quarters levels. we quarter second for the the continue to use this in year, will that positive will and expect taken industry likely next trough reverse industry a we've the that trough a the working we our activity several company, expect we'll that from The the that half recovers the full capital

Now more financial I ask results our Ryan to detail. in discuss

Ryan Hummer

Thank you, Robert.

were total revenue revenue. as compares the in defined the completions quarter. million, $X.X Profit the our sequential a Gross As second million than steep was expense the second prior excluding of in and quarter. revenue Canada. year’s U.S. in level basis less activity activity quarter $X.X of prior and in the This and $XX.X in count depreciation lower yesterday's cost XX% XX% rig the or amortization quarter earnings in in than XX% low lower second first total XX% quarter second second reported On revenue or of in million historically quarter was revenue the revenues to sales, reflecting decline release, year’s

million For comparison, was in $XX.X sequential profit the our XX% gross or quarter. first of revenue

to million $X.X million XX% second in the cost the it's prior actions were as second second fixed lower $XX.X or costs primarily and which we've year. costs absorption the quarter XXXX, SG&A compared and throughout percentage our in under of over level led quarter’s Our due was year’s general administrative the lower to had the $X partially this the million lower reduction of gross than $XX.X was the first sharp we million. $XX.X to of offset quarter decrease in that the by million quarter, also margin taken during of Selling, and revenue,

expenses. and costs reported SG&A includes share-based and severance Our including certain expenses, non-recurring litigation certain compensation

received expenses second D&O due the while the costs. were a of expenses for During million million certain reimbursing to non-recurring legal in our proceeds our quarter, that $X.X from litigation $X.X we us defense severance benefit insurance, million, $X.X totaled

$X.X Our million second for the EBITDA just as quarter. quarter negative second year million to in was $X negative prior compared the adjusted

interest $X.X had amortization reflecting loss at to a joint and and Repeat quarter expense net depreciation modest the $X.X venture Precision. million million for Our a our attributable loss we totaled non-controlling of

for Our diluted quarter share counts were average [XX.X the basic and shares]. million

in $XX.X our leverage amend by to XXXX, had facility, in cash from revolving $XX.X six base in to free including million and drawn quarter $XX.X Turning agreement one our $X.X existing X, for net eliminated in million August now into sheet. months Canada. June formula that's the of quarter we At entered financial and into a so, governed credit operations under U.S. first covenants, for we we of $XX In was was our million facility revolving flow was million maximum accounts On receivable. of borrowing the $XX certain cash Cash through drawn the to total based of and amendment, flow quarter resulting connection with an full which year. million XX, and coverage second credit repaid we The the interest doing was in added million and $X balance the flow also our minimum to $XX the facility $XX.X covenant. included CapEx a flow under was facility debt liquidity new In the million, million had tests. which $XX million at $XX.X that size minimum and cash for $XX million second from amendment June cash the that million XX. items our million total the reduced the outstanding the we tied

a $X facility. and we million cash approximately under credit the of amended consolidated base Following repayment approximately borrowing had million $XX the in

at Repeat is in separate the from In filed access Precision to XX to working respect net X-K borrowing also yesterday. over addition, our amendment with that million are of June NCS revolver. has million capacity $XX.X available capital the in $X had details that Further and we

quarter. increase mentioned, we total increase trough and us to sequentially at increases to completions quarter revenue the expect as second the at Basin, U.S. we revenue, quarter we compared XX% activity expect As in represented to least expect second our XX% in Permian With by for Robert especially for least in quarter. third by third a the revenue the

second an to international remainder the the low our quarter line quarter our the second The operations historically in expect third relative impact activity to excess quarter increases be with second our completed the the with margins expected and activity as initiatives Canadian levels. during be margin is the roughly incremental gross increase related revenue quarter the expected third July the We quarter cost reduction additional in increase improve in quarter. from the with XX% to revenue in third in to of of of to

expense and $XX.X and in million $X.X severance litigation items million compensation, reported $X be between $XX.X approximately We This non-recurring for $X.X expenses. the compensation, SG&A approximately in of quarter. million in share-based expect includes severance our inclusive million and to share-based million third

We amortization approximately $X.X million and expect our net expense approximately interest be to be third and expense quarter depreciation to million. our $X.X

growth guidance XXXX. in revised in for of capital to below I'll the had over midpoint to from our to million capital $X XXXX at million XX% $X full expected Our Robert our the it gross year million $X.X over reduction closing for a May hand expenditures been remarks. expenditures further and

Robert Nipper

Ryan. Thank you,

Before open Q&A, we with of the brief couple up I'll a call comments. for close

our We customer preserving to of actions structure cost control. ability and are and service our our we we provide and that on an aspects face reduce continue We've uncertain further drive value environment business for to while taken to innovation the customers. exceptional focused our structurally

near to make steps to investments and balance long-term preserve for opportunities liquidity strong enhance our to enhance our our judicious being business. continue and are targeted We with advance We've but capital, taken and our sheet. very

demonstrated is revolver flow. free we and ability undrawn cash Our generate have to our

to We and the be take positioned currently happy questions. downturn industry and that, are benefit weather from rebound With and to a current activity. we'd weather industry to the your --

Operator

O'Leary And while Please we line from compile will George question the Company. our Instructions]. Q&A come first TPH roster. & [Operator now stand-by, from

begin. may You

George O'Leary

Good morning guys.

Robert Nipper

George. morning Good

Ryan Hummer

morning. Good

George O'Leary

The magnitude quarter-on-quarter, second given of list impressive the out you gross quarter structural you the reductions pretty could on press the kind in margins wondered margin, of were costs the the reductions decline which of cost that put of you of in you some is revenue business. the I through made cost that guys, side primary very the the release, helpful. if decremental walk

more that. So structural on And operations, seems it reductions relocating driver any a of the like headwinds little quarter. muted excluding of some come the the U.S. I more that be of like usual or that SG&A part pricing may Is the adjustments be incremental color things and back super assembly margins things costs in those than costs But third part bit of assume would then is would that? helpful.

Robert Nipper

a manufacturing we made the because we've lowered about were of cost, we we've number you in done that press so manufacturing. is the specifically in had. under facility And, manufacturing Yes, we've What moves talked our release. asked that about we with absorbed

We absorbed years, that's well. manufacturing have and a for for number of components a they were assemblies under vendor been us as for

taken particular assembly employees We're a the our we've there with vendor. that. some deal so And constructed oversee with in-house of that they've to now -- on

done we were move the So our companies assembly. still the over between -- under costs is control the have that the manufacturing also because internal now, full our of absorbed absorption. of in But however, reduced what facility, fully we've both costs has

change expect XX don't to XX months. to So we that the for next

for we to start may next As we out spreads believe into may year. full look that recovery recovery XXX and the frack we count. But some something in seeing mid rig future, later XXXs be

we're going going the we've these reductions, assuming what be. environment that we're that cost we've to that's that's to And we've assumed made is where live so that done And in.

were as really coming able in And that costs are our these the margins, of sales. made, don't because moves expect costs did quarter, that a a lot of in because have We of decremental far We we will some these so come fixed cost the of control we of we the lot back, decrement. were that costs but back. as to

Ryan Hummer

where a Corpus mentioned, has additional certainly, from up also contractor for in field and been decremental soften It's but which a we've second basis. to variable. a do business addition Christi. closed I'll model have Oklahoma there, one a field a did on we quarter and We perspective. maybe the market City districts, in bit hands, in U.S. given our contractors, always the blow our been cost in Robert follow one margin utilized seasonal of have big to Yes, swings always use But in Yes, Canadian has helped take actions the the we a just the structure we couple in Canada what highly George. in-house

And also consolidating as, we're market sure aligned contractors has our as helped also working our conditions, much margins. we've as vendors make preserve the are side, U.S. with our field the been well possible. that So – on as rates we're with that good then footprint to really paying both which to

-- as cash. of our forward far there inventory a into turning I yes, us. on very by large What focused certainly there been as using there however, As the that behind around and are we're some throughout the pricing year, think a commentary I incremental, couple source say is things will has pressure that's

you the we some as balance and inventory, So source we're which that are what versus on margins goods harvest of moving source to historically of and capital some seen through really that of slightly see had sales lower our have, cash we may work we sheet.

George O'Leary

that's fairly on And that. rebound wonder point? eye That's, specific that base. a activity late revenue great. very are Okay, kick-in was activity given an particular, at phenomenon focusing this the both the fully completions off appreciate seasonal still guys low But for a Permian coming balanced we're popping basis. a the And helpful. Canada it's of Thank I sequential the then you side seeing the if the rebound I in in this to tracer rebound, more on U.S. you or plug percentage. on is is in increase

Robert Nipper

Permian in is It's fairly more terms the of activity. balanced, weighted but

hit in that for specifically, had look mix back, we in quarter. As the declines Precision, so activity hard us Repeat the forward, well, customer looking especially

their customers that -- had with. shares market in those bringing of we are large Some customers

So additional on bringing those are customers spread. of back some adding fracs activity

that. from benefit the seeing already we're So

we pretty the but towards well. the in business, the of quarter, then quarter as went seen tracer seeing in activity hard first down quarter the -- increases second end started we've the For we

drives are products those composite that areas thing for so activity. between for tracers the is and two duck Another those plugs us

we're to increases that's as well. seeing completions So activity drive And more now. duck helping

George O'Leary

then And one just more it. Got could. if I

he On free working the second like in benefits the flow will you And are cash done guidance will cash XXXX positive second guys flow hopefully has there headwind flow. How the call. year to the some tax helpful. for do that you an be be you but as is get targeting generating we think the a side, free impressive you cash half, cash half, that thus free is capital probably free alluded program. neutral Whereas far job full to on our in -- flow

So is million that half of get that there year, you a chance $XX free cash what kind for as well? the your positive the is in flow back

Ryan Hummer

we capital, quarter. Yes, you so still a approaching And in year. level third our working likely quarter as from said, the towards back working a be profitability bit in to breakeven the certainly of way as George, the part the of I is get towards the think headwind, latter little EBITDA something second we're

quarter or a quarterly quarter. a I'd breakeven getting free basis little on of fourth less negative we back QX bit a to So the approach expect cash more as in flow

than year lower be $XX little now. million a So will the full at bit that we're right

George O'Leary

Got very you it. both Thank much.

Robert Nipper

Thanks.

Operator

question [Operator of line come the from Instructions]. from Hallead RBC. the And next will Kurt

You may begin.

Kurt Hallead

everybody. Hey, good morning,

Robert Nipper

Kurt. Hey,

Ryan Hummer

Good morning Kurt.

Kurt Hallead

change related your is balance, to that debt predominantly the the initially questions the second have, can in we reduction? here cash mentioned debt the cash Hey, quarter exiting in on in at revolver, your in you given at the I given balance -- the reduction your assume XXX, least $XX million was changes

Robert Nipper

with revolver balance Yes, $XX the one-for-one to the the the associated cash with you million assume that's amendment down that question? can that. the that went If reduction with associated

Kurt Hallead

appreciate that is that. that that Yes, I

being than I'm quarter. that usually looking to lower fact we dynamics activity the number activity basis of but, rig And specifically that revenues are bit more just other on where kind really that that scratching driving third for overview what's not But, down good just the looking quarter-on-quarter here was you're The for head I'm lower second at on really be of count, driving the a and be down sitting in quarter get prospect companies the -- be going be little additional of color sequentially average third NCS, increase my entry other so average on exit a sequential rate. still with to revenue kind revenue I from frac to I activity a thing improving U.S.? given in on as gave helpful? you the relative guess activities Robert, as quarter, around average. to exit average any what's can the rates and in rate Yes,

Robert Nipper

talked just for to that Yes, haven't address yet. we -- about Canada,

weather bad that in rig there. break four really, got coming was to had in up, it count out increases rain, the we the single-digits, three three down Canada, we of activity So spring weeks weeks, about we was -- really went tough. delayed had to The

it rebounded was four but five low. low was it times four than it's Now the at to it well has higher higher times numbers, than

the we market spreads with. came so had re-frac composite in in higher with. And of that with mid-XXs in to share to the are -- our off, higher at those share dynamic from market gone coming up back both were on around the higher pressure U.S., that that have you In shares and way rigs the plugs. XXs, the we've down that the kind rigs with frac we had The in we look where if our frac market we same that customers and – on diagnostics spreads spreads the customers

customers that have our we frac spreads with. its share And back on are market so coming as

actually down. above Just back before. to the as it from activity increasing market went was now the as about composite those frac where are coming low our as example, down X% market share -- an But we plugs for went on, is share spreads teens as

and about activity mix increases. all customer it's the the So

that. disproportional of revenue going is up our at So right because

Kurt Hallead

Okay.

Ryan Hummer

really -- start saw early move April. really we the lower meaningfully completion in On the to activity we side,

it. early frac about that completion have you're we're that didn't even we're and vocal production being spreads, about about we So to weighted Texas on seen, were holiday and heavily down that talking curtailments went slope talking within people have quite you very might

Kurt Hallead

is Got Can color, covenant it. -- is Maybe one revolver? -- that. That's new follow-up on great what the appreciate Ryan, you that here. liquidity the

Ryan Hummer

to maintain base, need related the as the and of million two. portion to We on of cash controlled as is unused as of the the combination And defined liquidity. the liquidity borrowing facility, $X.X hand accounts the well

Kurt Hallead

great. Yes. Okay,

Robert Nipper

thing Kurt, I'd add. one like to more

So another dynamic we've most a we've them. expense, we've We've intellectual today year, we on expense this that are different novel it's we number have for litigation of fronts. last had the we've lot that litigation year, got property, of -- over talked and a with the of and technologies been that technologies high they've we're shares in-house, have been market using developed about

believe -- there we so And may sides all another that of on our number a be IP. are companies

So the property. the decision to we've our defend to made intellectual spend money

entered of have discussions a that we're there. So we've ongoing able in around to And with companies. lawsuit IP. of of the agreement a into a settle with one number just so number we other lawsuits license And the companies we're

over stream a royalties from So the we believe that losses we've up last market with these gains we that couple ultimately had of other share that end revenue of years from some some the companies. offset will

intend property it defend and we to our intellectual to continue defend So stringently.

Kurt Hallead

Robert. Thanks, Got it.

Robert Nipper

Thank you.

Operator

from our next come question And of Fargo. Voie from Wells you. Thank Chris line will

You may begin.

Chris Voie

morning. Good Thanks.

Robert Nipper

morning. Good

Chris Voie

percentages North forward? you the a or frac tracer, going size mix spectrum give America can First, those update of I product in we and [indiscernible] expect spread kind the maybe was ranking if their about you of what can of some think on wondering you

Robert Nipper

give given really we seasonality information and on annual that the Chris, quarter-to-quarter. to obviously out just basis. tends lot candidate an a move that's That's

Chris Voie

lot if to about which you sustainable of your sense think that maybe then the all to us And products share exposure] decent of think I a think the lines have that product Is that budget Could about little a keep There's million. [CapEx up to think enough is frac that of -- of line about enough there. new going the next down that's bit $X now? Sure how $X the CapEx toward in competitive kind and there's specifically, help is, a product and million year? time. to mix to come is innovation or a you innovation market a

Robert Nipper

Well, that Chris. that is number sustainable,

and a think when CapEx, is starting. we're of CapEx lot about CapEx product that of that new majority really when So the we're we buying we have for machines don't line that a

buying a that's in bucks be X million been thing. kind that big was were mean, of our that vehicles -- the part budget now. that's not vehicles of We're So we'd we past. -- I CapEx $X.X spending buying

In fact, or selling about that got we're XX XX we've right now.

somewhat it So is sustainable.

Ryan Hummer

we've Chris, Yes. model mean, inception I the really [capital like] of since intentionally, NCS. a business maintained

$X CapEx relationships the maintenance to think of product all obviously So you development that less continuous -- what's develop with But testing development or CapEx our as team goes as products. into R&D. the on forward respect with third-parties can we doing between honestly. a we're spending as that being for new well put to and have in-house And both far we're million distinction very quite there's a that significant effort as required development and engineering in continuing of research for certainly

you So see and expense really as development our operating capital line product engineering the in spending both sustaining for as expenditures in not new well the line?

Chris Voie

Okay, that's squeeze one in. Maybe helpful. more

potentially the issues frac of XXX maybe lot reduction mentioned that's going crew less or You a XX. in environment companies. for forward causing lower Obviously, cost

in update? that would you potentially XX like an anything you're equals Just get terms conversations seeing be you update what lower whether of type of an on guys to consolidation curious just merger a situation, open can if and

Robert Nipper

There out are is to I as think many too that it's today. companies gun a lot too things there's that company has a to there's belief believe management to going happens going head. seem happen of be a doesn't service service there's to a that that service much think lot today their are there's And and And a I my appetite unless action people inventory gun to take many out it's matter. Well, to their that But that going profitability profitability, companies. of getting too to think But there there is teams, many through that that companies, well. get that have I of on an sitting there's inventory. to I And market. again, have believe companies lot lot excess of are proverbial to of going to And they once have into inventory, burn the a as to head. people

have think don't just soon, it. believe we'll see will over I see So happen but anytime time. I it won't We it to

as anything that far consolidation, -- we're view sense. I open our As on makes to

that through of months. in to got environment XX we've internationally. We that have the to get I liquidity got mentioned able growing environment. We've next to for the we going I a got earlier that business be We've liquidity us technology, that will through to enough get thought kind be were XX

wherewithal new the And in so do pipeline little we've we muted have a bit that the paced a will to has have the still new been next that few it the working products than more over product -- we it's coming be got albeit past. out say But next months.

sense. going So but we're there's to situation the it, something to not that makes a do to open we storm, intend silly. weather if We're

Chris Voie

my questions. Great, Yes. thanks. for Thanks taking

Operator

closing call questions back I’d you. remarks. I'm to at time. Instructions]. the like not Nipper over this right, turn Robert to All for [Operator any Thank showing any

Robert Nipper

level. today Management and the Thank including our former analysts but changing like reacted the in to to you, proud research employees and Victor. our NCS which Team industry cost and current who environment. match we'd significant very thank especially adjustments our Board, to call On shareholders the structure We've NCS everyone headcount our made the to at activity on behalf market the swiftly and cover of I'm our our of the team employees. has

We our as in on-life we the forward to and of best remotely interested with operate part on year. that quarterly to in come to We're a order service people the appreciate in organization We're far everyone's innovate job has again large as in impact of zero add is COVID-XX safely team in excellent workforce believe general, Multistage to is done earnings continue you. the and responsibility as the our taking industry. on Thank team good in NCS. a whammy with on November. to providing talking industry reportable A next incidents we NCS double customers. so challenges additional of have The in value look our direct our only myriad our result reductions. and continue I call managing We the of this and well tremendous working as as

Operator

Ladies gentlemen, this you concludes Thank conference call. today's participating. for and

now may You disconnect.

NCS Multistage (NCSM) 11 Aug 202020 Q2 Earnings call transcript