NCSM - Earnings call transcript Q3 2020 | NCS Multistage Holdings, Inc.

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Operator

Ladies and gentlemen thank you for standing by and welcome to the NCS Multistage Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Ryan Hummer, Chief Financial Officer, NCS Multistage. Please go ahead sir.

Ryan Hummer

thank Call. joining and Quarter Multistage's Yolanda Conference XXXX you you NCS for Third Thank

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

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

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

Robert Nipper

analysts Thank and today and I quarter you hope in earnings XXXX is third investors, conference listening resilience everyone and Ryan third team, model performance the enacted enhancement and NCS' over measures our joining our the the business safe. employees cost and technology and welcome of the call. of healthy to strength our quarter effectiveness of liquidity months. several that the our demonstrates reduction we've last

gradual During quarter the saw increase the third rig a several in last a counts trough we U.S. weeks. with over

in and Activity there seasonal rebounded meaningful was much lows, In was strong working markets. variations September. the slightly in than in in U.S. in quarter markets spreads international prior Canadian a years. addition rig The August third in of the declined but across the recovery muted count recovery with frac the number more multi-decade from

benefited recovery, to provide Tracer compared speeds, U.S. the reliable our at competitive U.S., Diagnostics we offering As growth Precision with the and share service international location continued continuing Canada sequential wellbore respectively. running revenue the and through and clearance the from XXX% second by revenue personnel seen uptake that our Tracer and from fast of cost quick that in in deliver able plug NCS of and consistent Diagnostics diagnostics. removes Precision our the XX% the gain with quarter that of driven in overall reduces excellent new value composite our value-oriented sequential as We drill-outs. to was The We've where we customers to was are of market Repeat market offerings improvement XXX%, growth XX% our plugs in isolation in quarter performance completion-oriented markets Repeat believe line. primarily and third

in optimistic fourth quarter. activity cautiously the in about the are U.S. We

that believe increase has in thus to quarter it of of we will occur as seasonal this year a quarter past has completion While end at the continued this or in fourth the slowdown years. activity end at far the

if were Canada activity seasonal third In deteriorate more all curtailed completion we further. prices year occurred later in quarter only for than the reminded and in Alberta addition count activity was the commodity the Saskatchewan in how for rebound prior second XX. in quarter much In an Southern quarter muted average be rig can oil-directed this light especially years and with of the fast

rigs activity Friday and activity in rigs this supporting continued the plays. Argentina us growing revenue bright of compared revenue a international Canadian with the Canada for as with oil our to continued the light International third to in in activity active our has be total spot and as in XX% in remained Sea. approximately increase growing with and with last as U.S. in sequentially from the customer active our time representing year. North increased we the in with last lows quarter increase to historical levels largest seen activity As recently improvement an XX XXX count of We've rig

in these manager While certain our devoted of North we and slipped in into execute and Sea the operations East. A our Middle to progress our engineering resources are to largest product who regions primarily our amount due make development the building continue have on country COVID-XX Sea of XXXX oversee and significant Europe. North and currently on-boarded service out international to we Norway, for our projects business out the will XXXX to opportunities in portfolio recently in

our the our in efficiency of to fixed quarter. efforts the base Our reduce supply cost evident were and chain improve

second nearly represented higher than Our gross the margin XX%. the quarter XX% margin in of percentage of and an incremental XX was quarter points in

by track $X over were third XXXX reduce we to year's XXXX. by million as $XX to versus compared on by to as reported in last reduce the and million $X our compared We million able SG&A second quarter. remain addition our quarter SG&A In to

reduced million forecast CapEx We million. our further to the $X for $X.X have year to

the quarters field sales the vehicles related quarter asset our quarter. will industry continue experienced trough in for though that proceeds in represented and for likely we believe cash industry we challenging in from to to be several third also followed in generated the primarily modest by activity utilized have our the rebound company, the We next The $X million second operations.

structural and completions we reductions fourth from to the and the seasonal the positioned or an to first winter activity U.S. to quarter are the of that adjusted trough our basis the operations Canada, activity believe quarterly XXXX. in SG&A, XXXX With of positive a increase cost quarter in in return EBITDA on we

inventions and us IP infringed pending strength technology. pursue the patents patent the IP to the respect steps applications. we to touch quarter and our across will flow we and our property distinct In I'd on will the to allow to improve that third of these relative investment will these cash have upon. generate economic year. flow to return like addition, a the that free cash our We expect is for quarter XX free fourth allow on property. related to the rights in commercialize significant make dedicated reduce years an to portfolio matters and of patents to more cost. efficiently to NCS not innovations our times required currently couple customers XX over competitors of Difficulty] intellectual at that [Technical We ensure the resources and significant many over we and our develop XX that our We operate them hold to meaningful position intellectual take their has and negotiate time and bring

will Industries. settling we court rights While Yesterday's with prefer earnings the agreements matters referenced pursue needed. to release our commercially, related Diamondback if we settlement in litigation several ongoing

a with Diamondback a pleased settlement over financial that reached will Precision years. that matter hope significant we resources which Industries closure consumed two has to Repeat time the are a last has We Drury, Derrek and and bring

related to our We several AirLock royalty We recently Casing agreements one Buoyancy our of also payment patents those associated noted have into to licenses. license that we received entered with first with parties System.

our continue to continue technology and in financial detail. infringement. innovation we'll As intellectual pursue to our customers Ryan of a results ask will more our company, I'll from on defend property now to discuss behalf we

Ryan Hummer

Robert. you, Thank

quarter. lower our prior As $XX.X revenue yesterday's release, XX% reported quarter in million, the earnings year's than third third was

in third historically count and activity level the in the second activity Canada a quarter XX% quarter quarter. basis in in rig seasonal on revenue in improvement and the the than sequential However, completions was in second the the reflecting recovery low the from higher U.S.

we Gross profit revenue. the delivered year's internationally. increases and of as and of revenue Robert to amortization defined million compared quarter quarter. or This sequential XX% mentioned, XX% revenue prior in As in XXX% of total XX% or Canada in cost the $X.X $XX.X expense less in XXX% excluding third total third depreciation revenue U.S., the million was sales of

second million For a or XX% of comparison was profit revenue quarter. $X.X gross in the sequential

fixed of efficiencies. million in actions in in expense costs $XX.X XX% to in to which we and field was the year's due $X million gross from Our also the as in was the quarter, service $X which increase million than better quarter. SG&A benefited SG&A lower increased $XX.X third improve primarily compared in third lower the It our million SG&A $XX.X and margin led we've to revenue, prior to the absorption manufacturing the our percentage or million to the second also taken incurred rationalize quarter. footprint were sharp costs

million. million, share-based includes were costs the certain while non-recurring severance and In including severance expenses, certain SG&A third quarter, reported expenses compensation $X.X Our totaled and $X.X expenses. non-recurring litigation expenses litigation

as non-controlling $X.X the XXXX, quarter compared million our $X.X at year's Our the $X.X however. $XX.X Repeat EBITDA quarter Depreciation the profitability as the third adjusted quarter was expense to to during to and compared This million million was third million for Precision. million in and amortization interest an the was negative quarter. prior net attributable reflecting income $X.X represented for improvement of the quarter second of

the and now to balance flow cash Turning sheet. items

in in flow months Our the undrawn. and of Free that total $X.X borrowing the our $X operations had Repeat base our $XX.X $X.X positive were available cash million, is the million. separate cash nine for capacity At borrowing negative Precision has of debt additional At $X.X XX, September facility cash flow million. million flow revolving expenditures million $X.X and quarter was of XXXX with a quarter our capital from our cash million, the XX, the negative free and net we was third revolver. million was September $X.X resulting first for from third credit year quarter for for

$XX September million capital had In at net has of XX. addition, working NCS

of at to Turning fourth With quarter. in a U.S. the fourth compared sequentially by guidance XX% least currently revenue completions the revenue quarter. our quarter in the Permian the to increase activity, expect in to we XX% quarter. fourth the X% total for increases expect points increase to Basin, few to We now as third by especially,

We expect quarter down XX% from quarter to to our international flat be fourth revenue for third the levels.

by our increase is the to in and higher impact supply With chain incremental the the improve rig Canada XXX% the to fourth the relative fourth quarter Canadian in to to margins XX% in full activity fourth count quarter. during we quarter initiatives expected will XXX% of currently in in compared in fourth margin increase gross expect as the the expected third our revenue approximately quarter quarter, with or third increase The that quarter. to be the

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

debt quarter million million, primarily of approximately expense fees facility depreciation be reflecting be unused $X.X our fourth $X.X expense the net and to issuance and our expect to amortization amortization interest costs. We and

guidance expenditures related capital quarter million, XXXX. in to guidance potential -- have million of $X.X for million below prior quarter midpoint expenditures fourth a capital the the to Our excludes our gross been at XX% expected for reduction settlement note $X.X the I'll from and Diamondback further gross XXXX all benefits the agreements. $X that for to revised any

night's will price listing. our to over split continued hand release The NASDAQ in for requirements split Robert expect effect closing December is for it Xst. minimum ensure take the Finally, reverse share we on announced last compliance stock to bid reach reverse to in remarks. primary objective we expected I'll the which with

Robert Nipper

Ryan. you, Thank

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

we trough continue While an we market can are levels believe control. and environment past face focused activity on that uncertain aspects are we the of business we we to our

drive actions service exceptional customers. taken reduce structurally cost provide value and structure our and have preserving innovation our to our We to customer for ability further while

expand make our to advance near our over to disciplined time. targeted will business for continue investments opportunities long-term market We which and and addressable

We liquidity preserve sheet. have taken strong balance our steps and to enhance our

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

industry activity. benefit made to develop weather our eventual recovery in downturn customers, and bringing innovations We are have investments positioned our In to current we from industry the the an to substantial to enforce work ensure we that, questions. and take our a to and defend be return we proper we'd property those your continue make IP investments. with on to And happy to to intellectual

Operator

And your Company. from of with first the [Operator George Instructions] line O'Leary comes TPH question &

George O'Leary

morning guys. Good

Robert Nipper

Good George. morning

Ryan Hummer

morning. Good

George O'Leary

the The margins guidance call I helpful. very were I quarter in remember the incremental you third incremental guys margins guess strong provided correctly. XX% if was

XX% to Any and back takes pull closer the puts I could color quarter what to guided that are incrementals? there be You up would super helpful. plus. guess third that

Ryan Hummer

Yes George is mix up that a Ryan. that. and And quarter. part revenue guided we plus we this quarter's to in XX% ended think of of of coming Look do the incrementals in last I the being with bit third call has in to ahead

Repeat in incremental in which The business as percentage Canadian strongly the stronger revenue bigger particularly bit quarter So, didn't Tracer pick during as and profile. the margin during third a international had U.S. we we a anticipated. Diagnostics up quarter. the also And strong of quite the third a have was in pretty were little overall

were allowed XX% in level come us those that close the drivers to So, third in that at quarter. the to

of the fourth being look Canada. parse of in you realize of able revenue while that benefit efficiencies other absorb of kind quarter strong also product as we then can and revenue worth Canada certainly amortize to the a costs there's large full to Canada and through manufacturing from aren't in incremental areas. forward better some in some As quarter's coming the margins guidance And fixed on growth in quite the to sales the is our as a percentage

comfortable moderating incremental feel what's is with some incrementals. guided. quarter for really we fourth that's we're respect there on margins upside guidance pretty about where So, plus XX% I we the think think that hope to we've but And there. good potential Certainly, I with the there

George O'Leary

in you give Thank Very Wondering improved a from frame how the years. Or if composite sit last think plug right. market the you. don't if guys remarks. All early helpful mentioned think then you want market share market you the could Robert that I you much share has you frame year-to-date And Ryan. think you few perspective? prepared the share number over just to where

would Just help be us for any you in market way plug think helpful. all share about to composite that business

Robert Nipper

Yes.

line with the quarter quarter our in XXXX. composite of first our first quarter if recall you first So, our -- of full of commercialization product plug was

our our been we've share successfully so market on what basis. because able downturn we appeared it it mix decline When to fairly saw work where those closer And the market increase and time over earlier to this quarter-by-quarter market as grow to mix to a a of back a to in share significant we came came normal decline. that operators was saw into customer year be beyond we share and customer was But downturn. before back our got

composite and continuing plugs grow market share. we for share market So, in that the in in to top five we're of the terms believe U.S.

George O'Leary

I more still to we into as have working in CapEx source The forward as revenue in some head $XX working think you guys be capital cash kind moving cash can capital, with moving and helpful. that XXXX? Very of pieces one free And Or that flow we I'll could. a even if grow? Great. should how sneak of starts about million

Ryan Hummer

Yes.

impacts offsetting some I think, have there. So we'll George,

up So a to you'd that. as our receivables expect little revenue with grows, see I our think along tick bit

continue us. to quarters $X the think, been expect source opportunity it's However, last able inventory judicious tracers what existing about million of bring and existing sleeves, into to over two to be we back within down and continue company. reduce our the as by to very operations to inventory continues a for utilize able We've are bring to I our we that be

payables. some capital little increase And working sorry expect offset which So within to up, growth. inventory a receivables then offset, the piece of well but might offset that, picks the be receivable. to would will or bit as but work offset, working fully to to not maybe business payables not help other the capital fully piece big the will would we'd offset -- accounts as And also

George O'Leary

Thanks color, for guys. the

Operator

your [Operator RBC. with of the Instructions] line Kurt question from And comes next Hallead

Kurt Hallead

Hi, good morning.

Robert Nipper

Morning, Kurt.

Kurt Hallead

commentary I always. as appreciate all the color,

come So the the patent settlement. back lawsuit to you into around just wanted reference made to

cash get reasonably General to could you you when to So upfront expect million expect a to $XX as payment. across? come sense that

Robert Nipper

Kurt. Yes

keep Just in between lawsuit Derrek Diamondback is Drury. Industries mind a Precision that, that Repeat and and

So not it Repeat an is NCS lawsuit. and

Kurt Hallead

Okay.

Robert Nipper

there's week. is currently are next we confirmation hearing where So bankruptcy a

plan then that expect get those has be within payments. company to weeks to start forward put bankruptcy court two is the the to Assuming would able by that to approved emerge we the getting four from

Kurt Hallead

Okay. Got for you that. Thank it.

quarter go quarter know your of something as talked seasonality you next Canadian occur guys of that you roll we So Ryan, as quarter. an about fourth that But there's I margins that through that's as you reasonable? that incremental could as here first you XXXX -- kind the business. second the about think go kind for as of extreme into in think through incrementals plus year XX% your on should kind

Ryan Hummer

when full are fair. you're at year XX% a is looking better incrementals think I that than something

alluded However, quarter-to-quarter seasonality which to business, significant our a variation there's as progress XXXX. we will through drive as pretty in would you

Kurt Hallead

quarter. strong curious quarter. expected third quarter going then kind accounts is the to Got By overall here very activity most front of on versus Canadian fourth just the revenue it. And the double growth not fourth in

So in revenue? where that yourselves you differential see do picking up

Robert Nipper

we out and that's the slow for Well, common start industry. a for coming breakup earlier, third mentioned the not pretty activity Yes. had of in as we've quarter

that standpoint. we in the come from increase activity the will So believe count rig

going quarter. actually the can market? around on many to of of uncertainty that Canada, it frac see is how be the in spreads be fourth little things And spreads coming are going One that amount current -- into a what frac what's availability handle the crews frac we activity of the the to has are the

So going for that a guidance that's to us is feel are be is, we wildcard the the quarter. We there very customer that we -- think there will revenue be, kind fourth for mix of frac our but spreads? about good gave enough in

Kurt Hallead

Okay. Thank you.

Robert Nipper

Thanks.

Ryan Hummer

to I Operator, remarks. would Robert we will further provide -- there questions, closing no like some are if think

Operator

Okay.

Robert Nipper

appreciate but I the by to very On that analysts our call our are especially NCS including everyone we'd support team made everyone our our behalf the and this employees. cover the today each of research and and shareholders like on NCS, Board, putting environment. management been other thank enormous truly effort company at through our to that in sacrifices have the people the challenging and market who

this continue incidents operate safely We to recordable zero year. with

team service our market customers be new the customers that successful Our provide to more enable will services to current environment. is our and in developing continues excellent and products to

believe everyone's quarterly next have life as people again with talking Multistage tremendous Our many appreciate conclude team in have that on our the a general in to we call industry on our We impacts We're that the only company. our NCS interest earnings as best in of job done forward that operator. people our and will the industry. I managing good and call as and the look year we in COVID-XX come and challenges well our next as

Operator

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

You may disconnect. now

NCS Multistage (NCSM) 8 Nov 202020 Q3 Earnings call transcript