NCSM - Earnings call transcript Q4 2021 | NCS Multistage Holdings, Inc.

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Operator

Good day and thank you for standing by. Welcome to the fourth quarter 2021 NCS Multistage earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, one on your telephone.

further press any zero. require you assistance, star, please If conference to your Financial I like the Officer. over Chief would now Hummer, hand to Ryan speaker today, Please go ahead.

Ryan Hummer

fourth for Thank call. the thank Victor, full you you NCS XXXX and Multistage quarter conference and year joining

uncertainties financial such today future led today’s by and subject results comments impact Commission refer provide latest results I also Securities any of risk from Robert for cause and our of expectation regarding and will be global that call that I some want the pandemic to CEO, expectation our forward-looking our statements. COVID-XX and These as demand, include comments. could Please will the on our operations. to our statements to many differ Our filings factors to comments for statements company. Exchange regarding the Nipper, forward-looking including business remind and and listeners economy, are risks actual expressed cautions herein, oil materially our

Our details our also Robert. and year The are GAAP in free measures capital. EBITDA, and net call quarter can non-GAAP working measures, website, cash to underlying financial comments over financial including I’ll earnings our include now reconciliations the most release, ncsmultistage.com. flow, of included to comparable found today full which be fourth and adjusted non-GAAP on turn the

Robert Nipper

to increase XXXX recovered activity of XXXX. the through which strong activity XXXX details and the continue year based significant qualified half experienced North objectives to began which the made ability in improve support in effectively XXXX. and levels of XXXX to Ryan last uncompleted posture second year way our balance in market. we an to in continuing our second first joining means we expanding strength sleeves we during in Beginning during that and everyone XXXX the drawn on follow to how marked conditions to and our in Against service to from technologies half underlying with our capitalize XXXX, to under to indicating for backdrop, strategic Sea our see this by which the accomplishments wells Raytech the with opportunities addressable but increase the was activity of used to to as hampered was drilling year XX%. and a levels, I’m The that advanced in in that industry revenue profile. in and XXXX, typical where compared of participate customer was as impacts the unusual as activity, portfolio mobilize in XXXX VX The in fracturing testing sleeves seasonal through progress morning. in late our XX% over and customers our activity call of XXXX with our XXXX in market industry trough rating, were our be more cover driven that and thorough nicely from positioned will the able in markets activity in able inventory XXXX. XXXX, personnel the key growth of period, our hello in through outpace in drilling eclipsed the have with and the COVID our our drilled Activity and is early challenged Ryan, a tight already our a in our Canada, when Canadian Thanks portfolio, continued completions performance increase XXXX. through limited increased outpaced These we meet we us, the as to primarily and this sheet adding with U.S. ease in continues each that began and sharp in well during process. XXXX, performance. $XXX.X navigated the the of down. defensive international outpaced in restrictions with especially on to primarily continued to of downturn in qualified were Canadian bit bolster load an growth, the by levels bore, by to XXXX the the activity [ph] our and were and activity us cycles. ability Completions gas we our of in of well industry high review pivot that recovered market pleased service which to run due access performance expect efficiently ahead systems, levels revenue XXXX We into XXXX. we customers bit same and late actions person. have I’ll testing product product pre-pandemic the growth liquidity has to Activity quarter, the of lines quarterly the million market to late performed our temperature

time provide in over offshore We well international with the contract larger will years. a grow coming result completions Raytech to which expect in have program Sea, with the help equipment our markets potential North a XXXX North that expect to us other our in oil for sleeves we least the Sea and base larger signed company to a at the customer and in in one

to a be a IOC. a In addition, in large application we’ve made the of for meaningful progress run subsea deepwater system in development completion

retaining expect reduction continued work we our our to enable providing will costs. our portfolio the solutions. buoyancy reduction the buoyancy innovator established completion North while in significant portfolio cost-effective options technology unmatched within extension product We’ve we to completion we’ve with a time, the line the Airlock technology Sea, of with history a Most construction. our significantly, also customers provides add that reliability and with that their casing well use customer additional a As our in which of commercialized as in casing

to executing fracturing pull successful systems additional our in leverage in Canada through to strategy in cross-selling Our has on opportunities. Canada in strength very been our team

We our sleeves XXXX systems, of well and sales the hangers levels. toe underlying increases Airlock increases in activity industry surpassing have with in liner meaningful

expect We XXXX this particular base focus on to continue in product our customer hanger with the growing liner a for line.

defend and in a upon. property, been We of expansion additional maintaining casing diagnostics, trial others Finally concluded will and pleased are construction, going and patent securing as in in validity buoyancy to as our been the it Saudi infringing. make primarily on jury for forward. are longer the and Airlock to and IP research process diagnostic through geographic and work Arabia well meaningful our investments Within recent affirmed the if advance are we services tracer duration we trial term focused tracer efforts. relates in in infringed patent working our well near utilized in our our XXXX have had We R&D intellectual provided system we that the believe continue for that successfully a development in we qualification

be NCS in system stage to providing Repeat more our supported tools oil in we the able that supportive America Fire North our and first tracer to The gun work and additional in a is factory product at to trial is product assembled field the did and the market. successfully deep in in the providing the begun but first basin, the current achieve for growth prices realigned are still also to to Purple larger tracer where customer with and revenue in in for contributing Asia activity introduction that our an perform Indonesia, is the have within opportunity late efficiently these a us growth region in efforts Pacific existing by line. continued also technology in At advances been continues to execute operations participate the opportunity. for recently well. modular customers product team levels to the plugs XXXX. new we diagnostics in We opportunities significant on Repeat of of of believe able is provides opportunities portfolio services setting Canada, of diagnostic PurpleSeal additional We drive line. frac which the Precision, most have of and This introduce news the Repeat have tracer addressable Repeat XXXX perforating

commercialization. We frac incorporate with to PurpleSeal disposable the tool system the Fire with are knowledge gained Fire pleased is towards and trials compatible our gun Purple into composite continue of assembled perforating field which The in plug. performance setting Purple combines a as a system, the factory move Express and we trials the the product system from field

plug and cost briefly on business are pressures. margin operations. XXXX, of in Fire, and and of to Purple those With continues the the hole we all responding want down to chain components in increases for can Repeat began on the provide XXXX, required labor inflationary XXXX that and how of in supply touch I our performance impacts our addition perf

have in line leverage pricing party we times become able experienced marketplace. and higher of a to percentage wages, inflation stresses for as service to competitive well were We gross XXXX. We fiberglass year and delivered fuel chain the pressure We full employee the supply was in which costs, cost continued more impacts margin immune XXXX, acute in and a with and lead in For XX%, those volumes XXXX. steel, in extended charges, XXXX. of third offset pressures in our increases as were not from early increased purchases

implemented costs initiate rise. to and input We price as selectively continue price increases to expect surcharges increases have our and future

pricing we largest better strategically addition, will half before secure commitments believe standpoint, us early to our mitigate impact margins cost gross full benefit timing be are the incurred these to year. volume a the the our In the from increases we we evident in some pressure of of From to will until that purchases cost allow increases. working is with leading to actions, the in second receive on plan increases XXXX customers price

wage XXXX plans the occurred restorations restoration and early focused SG&A cost do the reflecting the While XXXX XXXX, year on SG&A, other maintained retirement and from on we levels, company to in of items. rise for impact of XXXX, living our and our have managing second the full that XXXX match of half discipline the of in we increases for very cost remain expect

the We people support investing are to believe achieve. actively we in that that we can also growth our

addition, spend casing were at Airlock matters U.S. In with XXXX. related IP-related to in fracturing Canada trials elevated expected to levels related the later year. during quarter, in on concluded litigation to Trials first the remain buoyancy scheduled for systems other this in system our our is and

XX% result, by could to XX% believe in As levels. increase to XXXX a we total relative that SG&A our XXXX

continue and sheet. positive goals of our company million flow to successful regard very free this in be for XXXX. were free flow strengthen in key our with $XX was to balance One over XXXX cash cash of We

cash this borrowing together XXXX objective ended borrowings, Our $XX people in and pulled just of over over million. with million cash equivalents, achieve and $XX no we a credit to facility and base

are ahead opportunities positioned capitalize of growth well the on us. We to

past our joint venture the $XX we’ve Over over free XXXX, cash a from or in deducting five flow million partner. XXXX basis million $XX to generated years after consolidated through on distributions

touch Finally, needs to I’d to belief consistent our We’ve consolidate briefly on been that now. industry industry in consolidation. like our expressing

activity after simply of will pie. robust There Our services and chasing industry that base less a recovering, customer the is peak cycles. too consolidating, companies be likely are many it’s prior while smaller than cycle this is

are year like We opportunities organic was last our spread the half recent few a appears too but see opportunities, industry our we in to place very significant we geographies, in strong potential that as improving consolidation to on months. public and sheet, in seemed the that the lines to and so, in multiple in value bid-ask our multiple overcome, also with well Over company. strategy consolidation growth great product and but be or a the participate and it balance infrastructure presence have positioned

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

Ryan Hummer

Thank you Robert.

U.S. basis, was in cost decrease fourth profit, the quarter. total excluding season. reflecting XX% $XX.X XX% prior than earnings expense, was million, with quarter in a higher a as markets of million the our revenue of XX% in yesterday’s million or amortization the of defined quarter. slowdown year’s holiday a the less during of depreciation respectively, revenues quarter X% in international offset sequential prior by XX% and in activity higher compared release, revenue in the fourth in fourth XX% total revenue sales increases in and quarter the revenue the On reported Gross year’s than to of of $XX.X were revenue fourth Canada third in and As quarter XX% fourth $XX.X

the comparison, that a of or net quarter gross $XX.X XXXX, was approximately retention although to benefit For $X.X XX% credit profit of in revenue of million third ERC. million employee sequential the a included related or

Our part to the XXXX of XX the gross over margin XX% in leverage increase, during reductions last quarter in demonstrates due months. made fourth as the business our continued structural of operational revenues cost

However mentioned, gross in chain are are we increases our margins as cost which Robert across meaningful on early pressure supply our seeing putting XXXX.

or general selling, Our for XXXX, SG&A compensation litigation-related fourth expenses, other to was increased of the quarter, $X.X the items. administrative reflecting and higher in among higher the as $XX.X which quarter costs, were million fourth million $XX.X million compared and

expense R&D the $X.X costs, million in to net higher third quarter benefits was higher as in the third ERC. from the Our quarter--our third reflecting compared expense expense expense, higher SG&A the compensation quarter, offset fourth quarter XXXX million also as partially by litigation-related and in expense the was SG&A $X.X

and sequential million in the million, as $X a tracer and Our income expenses, other million the both of million to XXXX the fourth a as to increase quarter was year’s costs. from the includes certain and compared certain $X of fourth in non-cash royalty and to $X.X compared fourth reported quarter Adjusted recognized Oman. of for totaled $X.X EBITDA the share-based totaled diagnostics income million. income quarter support agreement interest expense $X.X In during non-controlling technical expense in Depreciation to Net Repeat a and prior million improvement share-based expenses quarter XXXX. services million amortization $X.X Precision reflecting fourth SG&A compensation of benefit compensation the quarter was non-recurring including the $X.X in and We activity quarter. million, third was the expense $X.X litigation million. the attributable related of non-recurring $X XXXX, litigation for quarter

million sheet, the respectively. Turning cash million were now to fourth balance operations from items and and the in quarter our cash $X.X for cash free flow flow flow $X.X

free full cash flow year million. in for Our the was XXXX $XX.X

cash of facility XXXX, As December million, with and in total providing only XX, December borrowing of we the under additional our base million XX, credit On was liquidity. us $XX.X had $X.X $XX.X million. debt

capacity XXXX access as to from which has facility had $X our from well. Precision Repeat working $XX addition, million In of revolver. borrowing a December of corporate is over We million in XX, as net separate capital

for we few our now Turning a to first expect $XX.X be quarter between the revenue XXXX, to points and total guidance of million. quarter million currently of first $XX.X

We to $XX revenue and $X.X expect $XX our between to and million our $XX U.S. million, international and revenue be and $X.X be million, Canadian our million between million. between $X million be revenue to

XXXX. margin increases international quarter the quarter, of between a XX% fourth reflecting compared is quarter expect the first of the We be fourth quarter chain during to supply gross from our which cost XXXX in that of our the the and XX% a impacting reduction from contribution as XXXX, will lower and activity

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

quarter. of the includes for quarter will which $X of from cash awards, the February our in term approximately fluctuates to the share at changes SG&A of of the price, related also has XXXX end million value long the Our be the and incremental of date expense to with vesting end which at again increased of end which first compensation settled re-measured XXXX the

I’ll it approximately XXXX that our fees provide unused that hand and $X.X depreciation issuance be interest We primarily amortization amortization Robert and to of will closing expense million, our first debt $X.X and guidance will and to our over be full costs. quarter the remarks. facility year expect for reflecting expense approximately net million

Robert Nipper

Thanks Ryan.

earnings of Our full in as $XX $XXX million release. XXXX our of calculations million $XXX currently revenue and year to is expect adjusted the We fully guidance consistent follows. million, for EBITDA with million full year $XX to

We million. $X XXXX $X expenditures to expect for gross to total million capital

given of be to to industry we capital is in positive flow be expectations free XXXX. will growth we expectations our net use XXXX, working revenue activity a XX% to anticipated that as strive Underpinning anticipate While XX% our be growth in in cash Canada. cash growth of difficult

We by in least by completed to increase drilled increase expect and U.S. as U.S. at at least in to XX% wells compared wells the in to XXXX the XX% XXXX.

Finally, we grow by expect in XXXX. international industry to least activity at XX%

through service selected We growth market expect share product technologies adoption gun our industry the revenue system. activity through underlying Fire and newly like exceed growth growth and perforating in lines, our international in continued of markets, introduced and Purple the increases to

we full half our second offset the of cost inflation a more also have year. that expect the the We that in will impact that with customers impact will increases price achieved of meaningful

will sales Given increased personnel price the guidance second our that costs, increases our impact ability the annual and be half that the our achieve will our range and weighted the of costs to adjusted of EBITDA of fact achievement of lag cost year. to we the expect within

meaningful the based Our further sector pressures escalation in further oil and by stresses on changes sanctions conditions to and impact global guidance gas conditions, and market Russia Russia’s or is to by inflationary governments increasing global supply that of chain. adding to a cause various including current changes hostilities the certain could against Russia components Ukraine of market implemented

brief successfully growth. I’ll strong Before began we had call open performance we a pivot XXXX We our couple close back the in of to up with for comments. as Q&A,

support the providing leverage revenue future grow our to We of markets, growth earnings. place geographic to infrastructure have in each in

our expanding addressable We to introduce needs market. portfolio technologies our of meet successfully new the that continue and our to adding customers,

chain others our are challenges in we are industry facing. the and We supply diligently that through managing

proud zero to to at tremendous recordable of we’ve I’m continues job this operationally, XXXX incidents year. in and recordable that no so NCS say a had XXXX, and team each and incidents far do Our

generated and million XXXX enter in providing us we very liquidity having sheet balance $XX free with a over with cash flexibility. position, As XXXX, strategic in that-- With strong flow

Operator

reminder-- a As

Robert Nipper

apparently don’t Well any have we questions--sorry.

Operator

ahead. go Sorry,

Robert Nipper

Precision. management of don’t the appreciate and research today, shareholders questions the tremendous our by apparently employees. analysts, on at any NCS I so Repeat behalf board, especially like here in our our dedication the team have demonstrated call we’d on including and Well, everyone thank truly we team and our and queue, work to our and

I only We’re and the our team good the industry. people, as in as best have that believe we

provide is commercializing our will to excellent new to services customers customers continues and more to be products our service and team that enable Our successful.

We challenging look in the shareholders forward are and a that, taking our With NCS is call. be and to growth interest again stakeholders. by Multistage for and participate NCS to deliver delivering to multi-year that prospects work appreciate employees, our growth excited customers, on all our and technically to we’ll for results improved and We earnings cycle talking demanding Operator, see of call. industry, our the quarterly positioned for our customers. next able and on how of I’m benefits everyone’s other potential We in conclude

Operator

for today’s This conference call. participating. Thank concludes you

now disconnect. may You

NCS Multistage (NCSM) 8 Mar 222021 Q4 Earnings call transcript