8-K: NCS Multistage Holdings Reports Improved Second Quarter 2024 Results Driven by International Growth

NCS Multistage Holdings saw a 17% year-over-year revenue increase in Q2 2024, driven by strong international performance and improved profitability.

Summary

• NCS Multistage Holdings reported total revenues of $29.7 million for the second quarter of 2024, a 17% increase compared to $25.4 million in the same period of 2023.
• The company experienced a net loss of $(3.1) million, or $(1.21) per share, which is a significant improvement from the $(32.2) million loss in Q2 2023.
• Adjusted EBITDA for the quarter was $0.9 million, a $3.2 million improvement year-over-year.
• Cash flow from operating activities for the first half of 2024 was $4.1 million, and free cash flow less distributions to non-controlling interest was $3.2 million, compared to $(2.0) million in the first half of 2023.
• The company's cash balance stood at $18.6 million with $8.9 million in total debt as of June 30, 2024.
• International revenues saw a substantial increase, particularly in the North Sea and Middle East, while U.S. revenues also increased, though Canada revenues declined due to customer deferrals and seasonal factors.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth, improved profitability, and a healthy cash position. The company's focus on international markets and innovation is also encouraging. However, the net loss and some challenges in the Canadian market temper the overall sentiment slightly.

Positives

• The company experienced a significant increase in international revenues, particularly in the North Sea and Middle East.
• Gross margin improved due to higher-margin international work and operational restructurings.
• The company's cash position has strengthened, with $18.6 million in cash and only $8.9 million in debt.
• The company's adjusted gross profit for the second quarter of 2024 of 40%, significantly higher than 33% for the same period last year, exceeded the high end of its second quarter adjusted gross margin guidance.
• The company expects revenues to improve year-over-year and sequentially in the third quarter.

Negatives

• The company reported a net loss of $(3.1) million for the quarter.
• Canada revenues decreased due to customer deferrals and seasonal factors.
• Customer activity in the U.S. continues to be negatively impacted by lower natural gas prices.
• Selling, general and administrative expenses increased by $0.3 million compared to the same period in 2023.

Risks

• The company faces risks related to fluctuations in oil and natural gas prices.
• There is significant competition for the company's products and services.
• The company's performance is subject to regional, national, and global economic conditions.
• The company's inability to successfully implement its strategy of increasing sales of products and services into the U.S. and international markets is a risk.
• The company is exposed to risks related to the financial health of its customers.
• The company is exposed to risks related to its supply chain.
• The company is exposed to risks related to its ability to attract and retain qualified employees and key personnel.
• The company is exposed to risks related to currency exchange rate fluctuations.
• The company is exposed to risks related to severe weather conditions.
• The company is exposed to risks related to its ability to accurately predict customer demand.
• The company is exposed to risks related to its ability to protect and maintain critical intellectual property assets.
• The company is exposed to risks related to system interruptions or failures, including cybersecurity breaches.
• The company is exposed to risks related to its ability to meet regulatory requirements for use of certain chemicals by its tracer diagnostics business.
• The company is exposed to risks related to the reduction in its ABL Facility borrowing base or its inability to comply with the covenants in its debt agreements.
• The company is exposed to risks related to its inability to obtain sufficient liquidity on reasonable terms, or at all.

Future Outlook

The company expects revenues to improve year-over-year and sequentially in the third quarter, driven by international revenues and increased sales at Repeat Precision in the U.S. They anticipate that average 2024 industry drilling and completion activity in Canada will be flat to slightly higher compared to 2023, activity in the United States will decline on average by 5% to 10% compared to 2023, and international industry activity to improve on average by approximately 5% in 2024 compared to 2023. The company believes it is positioned to outperform these anticipated changes in industry activity and grow revenue in 2024.

Management Comments

• NCS continued its strong start to 2024, with our total revenue in the second quarter near the high end of our expectations and our Adjusted EBITDA exceeding the expectations we provided in our last earnings call.
• This was led by revenue outperformance in the U.S. and international markets, gross margin benefits from higher international activity and increased royalty income.
• We believe that average 2024 industry drilling and completion activity in Canada will be flat to slightly higher compared to 2023 and activity in the United States will decline on average by 5% to 10% compared to 2023.
• We expect international industry activity to improve on average by approximately 5% in 2024 compared to 2023.
• We believe the value that we bring to our customers across our product and service portfolio, our continued product and service innovation, and our targeted efforts to penetrate international markets positions us to outperform the anticipated changes in industry drilling and completion activity, and to grow our revenue in 2024 as compared to 2023.

Industry Context

The results reflect a positive trend for NCS, particularly in its international operations, which is a key area of focus for many oil and gas service companies. The company's ability to grow revenue despite a challenging environment in North America suggests a successful strategy in diversifying its geographic footprint. The company's focus on innovation and customer value is also in line with industry trends.

Comparison to Industry Standards

• NCS's 17% year-over-year revenue growth in Q2 2024 is a strong performance compared to some of its peers in the oilfield services sector, many of whom are experiencing slower growth or declines due to lower natural gas prices and reduced drilling activity in North America.
• Companies like Halliburton and Schlumberger, while much larger, have also emphasized international growth, but NCS's smaller size allows it to be more nimble in targeting specific markets like the North Sea and Middle East.
• The improvement in adjusted EBITDA and free cash flow is also a positive sign, as many companies in the sector are focused on improving profitability and cash generation in the current environment.
• The company's gross margin of 38% is competitive, and the adjusted gross margin of 40% indicates effective cost management and pricing strategies.
• Compared to smaller, more specialized service providers, NCS's diversified product and service portfolio gives it a competitive advantage.

Stakeholder Impact

• Shareholders will likely view the improved financial results and positive outlook favorably.
• Employees may benefit from the company's growth and improved performance.
• Customers will benefit from the company's continued product and service innovation.
• Suppliers may see increased business opportunities with the company's growth.
• Creditors will likely view the company's improved financial health positively.

Next Steps

• The company will host a conference call on August 1, 2024, to discuss the results and updated guidance.
• The company will continue to focus on growing its international revenues and penetrating new markets.
• The company will continue to focus on product and service innovation.

Key Dates

Keywords

oil and gas, frac systems, tracer diagnostics, international markets, North Sea, Middle East, revenue growth, EBITDA, free cash flow, financial results