Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to the Q2 2023 NCS Multistage Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Morrison, CFO. Please go ahead.

Mike Morrison

thank conference joining call. and second NCS Didi XXXX quarter you you the for Multistage Thank

actual comments. subject remind Our Bank’s These business our our comments our Canadian expectation and at our and guidance cause provide future CEO, financial and today to combat include statements, Ryan want could differ to the call will in as expectations any that financial uncertainties and banks, wildfires Hummer, company. and distress including from results expressed invasion I be forward-looking oil ongoing natural statements impacts expectations will our Ukraine comments of for that materially risks gas operations. some the listeners inflation, Russia’s led regional U.S. many of such actions on by I are demand including and today’s economy, herein, the to regarding inflation, also Central and to results global

Please SEC on refer forward-looking to our and cautions for statements. factors filings our regarding report and XX-K Form risk most recent annual latest

are most second free on GAAP also can our of Our EBITDA, including non-GAAP adjusted and working flow to found underlying and financial quarter net measures earnings the measures, release, today include capital. measures reconciliations our non-GAAP financial The comments included be cash in details comparable which website, ncsmultistage.com.

now will over the turn Ryan. I to call

Ryan Hummer

conference our welcome to second and earnings employees XXXX analysts and investors, Mike, you, Thank call. our quarter joining

our Canadian EBITDA each the second higher and provided for markets. of below of of the end near XXXX in the to international we revenue adjusted briefly outlook our range. in range, I’ll end performance Our with guidance mixed the but U.S., discuss the the quarter May, and results of was relative early the low

with Starting U.S. the

of and the XXXX. first Our our which Precision, end impact and decline a reflected of of affected $X.X to in XX% product in below Repeat by revenue fell activity, low million which The the quarter the improved decline NCS guidance revenue U.S. falling of all for $XX $XX represented completion drilling revenues quarter industry for sequential million the the sequentially. and sequential million second except of from lines,

We expect record sequential fracturing X-mile lines. third in XXX ours by tracer the that out our diagnostics systems A and particularly a the return in quarter, in to customer a drilling product set in that had discussed run single Northeast growth new a of to plugs in operates they lateral. recently

to technology have have part believe and success well that proud speaks down been performance the during of efficiently, time the our which plugs, in performance. a that wash of the and of use consistent drill treatment that out hold and We’re fracturing robust our to customers’ and pressure securely fast pumped

West sliding a capacity to store in also I’ll reservoir. engaged the quarter. Texas an project interesting sleeves undergrad one highlight by a We permanently using to COX to project customer provide for our were for assess the in

first use perforating sleeve downhole the technology project, this channel used reservoir we completion ideal cabling the for of our damage modify a could permanently and is a to our instrumentation will for cabling to were performance. sliding This assess be be to to sliding COX that instrumentation downhole For our otherwise with provide that able prevent is to this storage sleeve caused installed project, may as and technology by run guns.

Moving to Canada.

top quarter $XX activity outpacing the as from the by an of of in a as technical concerted sales, increase Canada direct second guidance precision in from second plugs, increase effort million of fracturing June. was above composite result range product as million a for which was support was services our with higher and $XX.X to operations systems repeat driven by of Canada higher in the of line, spanning compared especially sales service to XXXX, in The represented $XX million team of our activity periods. quarter growth the industry XX% slightly revenue the and respective well Our

In operations and activity Red at support addition, volume allows in to integrate with we This to of strategic facility, wildfires line liner the Canada. in partner at nicely systems have is could cause hanger customer counts resulting industry first also emerged returning company-specific to tracer the accommodate in is during ours of facility operations. from us quarter moved in this Deer though a year a impact future our quarter, of as and additions. to new improved we’ve this the spring fracturing A co-located sized Activity future impacted diagnostics highs cash which Alberta These on has delay product flows, breakup, the rig XXXX. to impacts earlier impacts during activity. the growth reached

our be us bottom below in the continued $X.X million. to slow Internationally, operations guided the revenue in quarter of range with for million $X to coming million $X second of our of

region in which sliding to to the delivered we new with lead made scheduled quarter, other an may customers customer North also of well second regional We’ve Norway add increase in the and in completion expect region month. that later our progress to XXXX. with this potential for to a the for Sea, in continue the sleeves significant in activity During to new customer this base

company tracer national in oil July, completed Middle diagnostics first for we project East. revenue-generating a During leading the our

hurdles tracer opportunity diagnostics to to make a this our project there and success. logistical significant want the as international I team members that to supported overcome were thank have

profitably projects this bidding this regional over are to for national with time. We several oil assets to expect on company and grow different able now business be

to a continuously for as assess half realized performance allowed of a XX% increases last the margin us improve half of to percentage generate and margin to for price gross gross over We of spot first benefit the year our profitability. company the us. bright The has a to XXXX, which compares first be of opportunities XXXX. streamline XX% continues operations for to Our

consolidated footprint in consolidate operations to a single diagnostics line into certain XXXX facility. and Repeat facilities June and manufacturing tracer our in efforts initiated Precision’s for Mexico We also product

with expect June benefit expected maintain an $X the with these sheet strong of start over We net benefit million XXXX. this our We balance to of million undrawn the an a revolver as of annualized cash efforts basis. of recognizing in on of year fourth full consolidated consolidation XX, and $X.X quarter

addition, exceeds our approximately In excluding million. $XX capitalization XXXX, consolidated net by and June current at capital, XX, and was million market $X short-term debt working cash over our

both expenditures capital the $X.X quarter million, business net nature financial Our our capital-light discipline. the continued highlighting and our of for were

Mike us by provide to total discuss XXXX ask judgment June This provision. XX. during to May second I’ll our in detail, update more quarter as on of million primarily a I $XX.X XXXX. an Before Texas million the We rendered litigation financial in our of XX, to this provision the against $XX.X results of reflects increased

of We of intend to all Texas some lead or may a and awarded this to believe appeal we judgment reversal that damages. arguments that strong the have

the a Texas expect continue Mike. to operations. mediation you, to will significant end matter for covered this have to portion parties currently be We that would matter agreed impact August. by Over of damages have our and to once Both up all expect resolved, nonbinding large the liquidity therefore our of insurance on scheduled remaining any or to not on a

Mike Morrison

Ryan. Thank you,

last earnings revenues compared quarter. our year’s second million, yesterday’s reported X% As in quarter second of $XX.X release, to an decrease

the was commodity gas. in international for decrease our increased was declining The breakup our Canada more completion than While On the Canada and lower XX% driven the XX%. by activity by and and respectively. decline due U.S. was declines second especially of XX%, basis rig XX% declining to by this decline offset XX%, in the a U.S. U.S. a XX%, by related revenue primarily natural in in quarter Canada due decreased revenues by sequential by normal in decrease the in revenues seasonal and pricing, to spring and to with

were XXXX the half the revenues product first compared due sales XXXX, up Canada. X% to Our of first for higher $XX.X million, half to primarily in of

percentage countered and XX%, excluding same period defined decline gross Despite million volumes of similar we cost second total of the sales, expense $X.X profit less of profit and percentage for in our decline was to the cost a Our gross of XXXX, in amortization XXXX. the to our in which representing of increased margin due in our operations. our as effect quarter percentage maintained pricing depreciation the gross gross profit, of products services, the and the revenues, improved revenues

was our by compared and to of the due first in margin and of our half percentage resulting the from a and fees merit quarter Selling, up were Our to expenses primarily year. million the in $XXX,XXX headcount quarter, last XXXX. in XX% year by from The wage-related X second $XX.X to gross ago. second XXXX, professional improved increases raises partially of offset increase our reduction salary XX%, first in administrative costs up to compared general half

loss For of share a quarter, of net per $XX.XX. reported a loss the second we million $XX.X or

moments As accrual is to were ago, in legal took XXXX. primarily judgment $XX.X first second million, the charge us related results of Ryan mentioned charge for in June we by our against impacted Including an $XX.X rendered XX, the quarter our of the May. quarter, long-term incremental million contingencies as

by contingent we paid the an to asset recoveries have liability. from benefit the offset this from Aside plaintiff, insurance yet the carrier legal insurance expected the to previously not amounts as recorded

they become accounting recoveries quarters GAAP to We as insurance expect would record in future realizable purposes. for

net adjusted adjusted loss per of adjusted charge, adjusted loss loss of quarter an our to share per loss $X.XX litigation in or net an share million million XXXX. the second net of was Excluding this $X.X compared or an net $X.X $X.XX

decline the for XXXX negative our second quarter guided slight for Our within for quarter. the a period million, adjusted the same to negative range $X compared and a $X.X EBITDA million was in the

an of a adjusted the adjusted first the EBITDA half positive of to improvement XXXX. XXXX, EBITDA in $X.X compared the For half first million, of $XXX,XXX our was

to items sheet. cash now balance the Turning flow in

the million cash total had from During $XXX,XXX, free in $X cash flow we positive to anticipate the On for our free in respectively, and resulting million. XXXX. which of and position cash approximately cash cash flow of debt operations June and positive being of quarter, net full continue year $XX.X $X.X XX, a were second $XXX,XXX flow million,

the borrowing XX, June base was undrawn of $XX.X under million. facility available our ABL As

a the million to total Turning $XX We $XX expect quarter revenues points few for now to of of third third currently guidance million. quarter.

and million we XXXX. $XX.X U.S. of the expect Canadian of We international revenue second $XX.X expect from revenue $X.X revenue sequential representing $XX increases to million, to million, quarter to $X.X million each $XX million of of million,

our our XX% with and the We be XXXX. of percentage in between XX%, margin gross expect consistent gross margin percentage to quarter third

million expect to $XX adjusted We between be million. our and $X EBITDA

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

XXXX to I’ll guidance full hand remarks. year to closing Ryan it discuss for over our and

Ryan Hummer

Mike. you, Thank

million is $XXX expected full adjusting midpoint this $X.X expect international are North in $XX full $XX the reflect EBITDA for $XXX range The million and midpoint XXXX and between follows. guidance earnings industry as year markets the America million. year adjusted new below between by in XXXX. EBITDA adjusted we revenue of been in million, year certain be deferral our levels and range currently reduced be full the calculations the of range million consistent expected and our and to prior primarily So work to adjustments $XX million release. has These We activity revenue lower of into the with

by We to $X expect the the capital range million million. of for midpoint $X.X expenditures million, $X XXXX gross of reducing

retain model growth. capital low requirements discipline we We capital very our maintenance our to spending exercise expect and with continue asset-light support to business capital our will

after cash free net accounting investments be to positive again, our flow expect XXXX to for growth. both support capital, to and in capital in continue working spending We

second our XXXX, to the cash severance some year restructuring in will moderate expect and related so we our costs of the and of the half half operational litigation relocation in incur matters spending We corporate efforts. on to second

industry revenue would year-over-year these forward. in XX% expect an average our to costs going of anticipated free is to in EBITDA a average X%. industry annual an the abate, percentage year-over-year X% our in and activity convert cash annual Canada higher of increase expectations As we activity adjusted flow of decline up to in to U.S. Underpinning

to activity in grow We at XXXX. least continue XX% to by industry international expect

service underlying price our growth and through of adoption We that newly expect international in lines. to our the of revenue product industry the technologies growth introduced exceed across markets increases, and our

quarters the or the award matter, impact judgment is Due the guidance adjusted negotiation. operations. against could potentially the several which not matter our a insurance and Also our to year. with of time get significant appeal earlier, of second Texas annual reduced take we years as range or of if covered prior the through discussed with seasonality that the to through settled mediation achievement does in believe resolution our We have be final the the consistent business by the will will believe EBITDA half of or weighted not years, liquidity us recent on

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

continue to for to XX% despite approximately industry X% expect levels. we in activity revenue to XXXX, reduced First, grow expectations

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

efficiently we our efforts also rationalize in to and the proactively activity through operations more and demonstrated are as operate However, consolidation assessing this opportunities tracer at Repeat Precision. infrastructure we the manufacturing diagnostics

We maintained sheet million the cash at a of a end second position and $XX quarter. strong liquidity of balance with the over balance

by of providing We the in us by to add generating strategic further free and expect XXXX, the with end financial year positive flow to cash that balance flexibility.

that of technologies so we the of our needs portfolio the enhance further addressable are our our customers, market NCS meet innovation that and our to time. steps We over efforts at adding new to expanding continue to introduce taking effectiveness

any on With that, the call. we will welcome questions

Operator

Thank our John question you. comes [Operator from of Partners. Instructions] go Daniel Daniel ahead. first Please And Energy

John Daniel

Ryan. good Hi, Thanks me, for morning. including

Ryan Hummer

Yes, morning. good

John Daniel

You season, XXX earnings I I XXX number. drill this can’t one the with, the of or of D&C the exact most plus, remember was cited impressive efficiencies what sort think, out

benefiting likely didn’t do well that the you project for playing and get have more what area. it’s some what As see where you. And know, as it? up sort do When commercial who operators operators in operators in how you on for next guys? that to copy tends like one that? And other the phone quick see area to stuff try would just you the you other for over this going all knowing respected time, longer for of of that customer, call well is I’m all as you the how that doing like industry replicate out expect worked laterals that that to be curious the to you well but more

Ryan Hummer

a John. of Yes, Thanks, Sure. there. points couple

I two DUCs in up built one, year. they operating, believe, heading operator, that had think, is particular, I continuously crews completion into the some

port, So activity activity taking activity to you and continued And with that program know, chance there, broader the second. bit program the sight they than that little There got configuration the utilizing remainder activity was half there the first expanded with may scope is that line a operations a down them we’ve coming and heavy is into There size a to plug to they But continue of plugs are most a are a different there, one unique their in things uses pretty continuous our is as M&A slow are of a throughout completion the bit U.S. a the operations. about that of in provide program. of couple their that’s of consolidation place.

customer they very for utilize particular. this in X.X-inch casing be These methodology most specialized, and to but that’s proven So a using operators are somewhat X-inch for efficient are completions. casing,

this The XXX X-mile just you the plugs. other do a thing lateral if that’s with project, somewhat math, it’s unique about

of of would which be tighter spacing stage lot doing. other is XX feet, operators a So than about

how a well. operators kind and is see there effective the learnings spacing you bit region, completion a you stage and that So other efficient chance by mimic was to as as tighter others get move that the operations in of this could see

John Daniel

you? How you want in to if give assume project more know. well, don’t a margins but want other margin you of you to do states? you I you I with a generate the I get I the – uplift like Okay. on that would would don’t Like that business numbers, don’t think to will. compare the that,

Ryan Hummer

with that up the that number be private to bit of selling once with, well, call the on benefit be good where in and side it’s the as the supplying less well program supply that running stages working that are we into a we’re completion us, of sure. may operators it’s and a operational quantity, to with John, and from that But crew to business size is half like complete can I and to in efficient they efficient gets to really So opposed a able of known day. for in biggest handful going, think them. going a that It’s it, very a

John Daniel

all me. I That’s for Thanks got. Okay. including

Ryan Hummer

it, John. I appreciate

Operator

[Operator Please from our Storms Instructions] Stonegate. And go of comes Dave next question ahead.

Dave Storms

Good morning.

Ryan Hummer

Good morning Dave.

Dave Storms

Good morning.

any Just little additionally, sounds in section a you got I in hoping that like to of America. was forward? that could hear a well? growth what on Sea maybe Middle it means diagnostics plans traction get little little you about Black in a tracer wondering the maybe just the have North the And as some to believe additional East. additional But color Great expansion you it if talk going more beyond

Ryan Hummer

Yes. Sure.

or we So, years concentrated efforts have growth on two last our year regions particular. international over the really in X

largest well in can is ongoing gone the and the line portfolio. activity taken with – getting of products we bit region. are trials NOC That couple have of going products a we of and and our within I as good first go would in qualified forward. that us say Middle our as well tracer available through cataloged a sales for the and through little other multiple The successful the process which diagnostics a now product with revenue-generating there, the some to while in Middle construction East, would for have we of field what it’s And include – East, are in Oman, is we have the NOCs some

across also good, service some conventional a diagnostics for good here work some for activity, including first concluded see tracer And activity. deploy them, but that’s high-volume July, scope regions good us. unconventional we the tracer different number in So, a performance that diagnostic with in the that job to of

that where out chemical worked worked now got the continuous them We can we end to serve the year support the region out basis. have got where logistics we in have have of jobs the multiple enough and through a on process

we us product the East. to set grow expect that of see uptake really into Middle with So, year the to there and the the through half for good back line in the stage diagnostics XXXX on tracer

been for several Sea. growth working We area ago. years The the has international primary started there us other focus North

BP of course the years, in years Over to X Aker our last primary the been the customer X region. has

years. recently who few on customer second there our expanded UK Late North we year year, side Sea. the last operates supplying have and this base a of started customer We over into the last the

them several have with are wells installed We now that producing.

expect have customer able two be the second of a wells the supplied activity. customers months. in with with region the North next other continuous other earlier, had six the operations or a And quarter about three say to who got positive from We operates later pretty install side more Norwegian over few sleeves nine month have the for months to course the Underneath and mentioned to the this discussions third then Sea. with we scheduled as region. And I them of during completion of have future several that, operators would in indications out we we

multiple the area Sea anchor Denmark and we and and has that done the the even team UK in the time. doing up some we region support really others a having customers the operating over Norwegian North maybe single good So, building very job both customer of are from across could – activity operating to think a

And that looking in ways as other our are optimistic also has deploy to find we lines us, some region product for about opportunity. of fracturing looking well. the very to So, a traditionally for been ways market we that systems are

Dave Storms

I I That’s Sea, it Black Sea. think the very but called I clearly, helpful. North meant the Thank you. And

a either will appeals helpful. payments some Anything there may place some don’t ask more quick, August. mediation other I know when The or know the that be insurance around that logistical very you would wanted probably take non-binding to real is just there process? Is the I of answers at lot around end the question be I guesses you around mentioned litigation. of any solidified have there

Ryan Hummer

our – we But or plan the certainly in not with would case. are the in we there agreement be the coming appeal would year is with there we mean associated once insurance settlement, if we coming gets that That down any – that the timeframe appeals that it carrier that direct that, be reaching we assuming indicate an and successful process, I to would be months, would until appeal scheduled. are to filed, through up Yes. would within when go mediation and the a could the months. appeal

are could to up So, take, mediation, matter successful the timeline the few uncertainty through not again, – a if unfortunately, we years. several for quarters

timeline give So, really can standpoint we that’s are – you from now. right best I a the

we So liability. have charge the that balance and unfortunately, we have the taken sheet

will continue any will of will that be proceeds. it, we to upon resolution be and However, if reduced appeal, to continue have covered all will that believe judgment we be final most, insurance to the up through not covered

charge liquidity, we GAAP move to So, of carrier as that that’s settlement just sure can, we But or believe it’s to our are a be benefit everything that look material to will make take when insurance on our we position matter, something recognize our that we will it the to don’t a and impact will in a and hanging can. business, to now, there we out have it’s with really able together that on time. insurance a do towards right but

Dave Storms

you taking Thank my very much Understood. for questions.

Ryan Hummer

Thank you, Dave.

Operator

Water next ahead. comes you. Tower of from [Operator Please Research. question Our Thank Jeff Robertson Instructions] go

Jeff Robertson

Thanks – just applications on for Northeast that the lengths? will have in basins does applications other continue lateral about you the a questions. where asked, in taking other Ryan, operators to question the push John my use follow-up that

Ryan Hummer

plugs, think And with completely and one was it’s composite that plug. right, that composite lateral right. project that’s X-mile precision of is does, certainly the about a it things repeat Yes. interesting Absolutely, I completed

that lengths think today. the to dissolvables technology. notion pushing a that this is get composites you leading-edge can operators prove to there that or there to you wells utilize are to some So, lateral might lateral depths, as I need out But use out helps extended other you

is thing no while the X-inch The other casing, that the used all is base than across that plug a is of U.S. our plug would gets well I in say that regions different plug – the in X.X-inch design

mean for operators basin. got I yes, any it’s applications So, in

in In Eagle experiment start addition, it size utilize as certain and we Ford casing the to the with seen have operators in that larger Permian well.

think I the the answer I short performance So, the of would plug And to geography. is yes. extend any think

Jeff Robertson

you. Thank Great.

Operator

you. Thank CEO, like the conference to back now I remarks. Ryan would closing Hummer, for to turn

Ryan Hummer

Alright. Didi. you, Thank

So, forward the on people the of behalf of to our Repeat our our expertise management accomplishments and great team efforts today, and that breadth our and people our work. look call and at especially Board, appreciate our depth this made we employees. by I passion possible continued bring would team. NCS like of their including I truly to thank Precision the the everyone on to and analysts and shareholders,

on execute solutions We Multistage, complex our earnings our leading upon you we core reduction to forward focused employees, We strategies other We next how U.S. capitalizing our to to quarterly in by industry we growth and interest on delivering and year. despite commercializing again our challenges. that the international customer and offshore are on believe plans. multiyear this excited innovative to updating deliver that count continue I prospects and in the shareholders for call. on our positioned globally to positions, and NCS growth and of benefits in as building in NCS customers, rig our appreciate cycle earnings on everyone’s stakeholders a is we am remain market strategic participate opportunities of improved look

Operator

now Thank concludes call. This disconnect. conference for today’s participating and you you may

NCS Multistage (NCSM) 1 Aug 232023 Q2 Earnings call transcript