10-Q: NCS Multistage Holdings Reports Q1 2024 Results, Sees Improved Profitability

NCS Multistage Holdings reported a net income of $2.1 million for Q1 2024, a significant improvement compared to a net loss of $15 million in the same period last year.

Summary

• NCS Multistage Holdings reported a net income attributable to the company of $2.1 million for the first quarter of 2024, a substantial turnaround from the $15 million net loss in Q1 2023.
• Total revenue for Q1 2024 was $43.9 million, slightly up from $43.6 million in Q1 2023.
• Product sales were $31.8 million, and service revenues were $12.1 million, both remaining relatively stable year-over-year.
• The company experienced a significant decrease in selling, general, and administrative expenses, dropping from $16.2 million in Q1 2023 to $13.8 million in Q1 2024.
• A provision for litigation of $17.5 million impacted the Q1 2023 results, which was not present in Q1 2024.
• The company's effective tax rate was 16% for Q1 2024, compared to a benefit of 6.8% in Q1 2023.
• Basic earnings per common share were $0.83, and diluted earnings per common share were $0.82 for Q1 2024, compared to a loss of $6.10 per share in Q1 2023.
• Cash and cash equivalents decreased to $14 million at the end of Q1 2024, down from $16.7 million at the end of 2023.
• The company's available borrowing base under its ABL facility was $20.4 million as of March 31, 2024, with no outstanding borrowings.

Sentiment

Score: 7

Explanation: The document shows a significant improvement in profitability and a positive outlook for international markets, but there are still concerns about competitive pressures and potential declines in US activity. The sentiment is cautiously optimistic.

Positives

• The company's net income improved significantly year-over-year.
• Selling, general, and administrative expenses decreased, indicating improved cost management.
• The company has access to a $20.4 million borrowing base under its ABL facility.

Negatives

• Gross margin decreased from 41.4% to 38.7% year-over-year.
• Cash and cash equivalents decreased by $2.7 million during the quarter.
• The company experienced a foreign currency exchange loss of $0.5 million in Q1 2024.

Risks

• The company faces intense competitive pressure across all product and service offerings.
• The company is subject to volatility in oil and natural gas prices.
• The company's business is subject to seasonality, which results in quarterly variability.
• The company's business is impacted by a reduction in customer activity during the winter holidays.
• The company's business is impacted by the potential for fresh water rationing in certain regions in Canada due to recent drought conditions.

Future Outlook

The company expects activity in the United States to decline on average by 5% to 10% compared to 2023, while international industry activity is expected to improve on average between 5% to 10% in 2024 as compared to 2023. The company believes that annual average industry drilling and completion activity in Canada will be flat to slightly lower compared to 2023.

Management Comments

• Based on E&P company activity to date and expected capital budgets for the remainder of 2024, as well as industry reports, we believe that annual average industry drilling and completion activity in Canada will be flat to slightly lower compared to 2023 and may be impacted by fresh water rationing in certain regions in Canada due to recent drought conditions, thereby potentially reducing completions activity in those regions.
• We expect activity in the United States to decline on average by 5% to 10% compared to 2023, although such activity may increase modestly throughout the remainder of 2024 from recent levels.
• We continue to expect international industry activity to improve on average between 5% to 10% in 2024 as compared to 2023.

Industry Context

The report reflects the ongoing volatility in the oil and gas industry, with fluctuating prices and varying activity levels in different regions. The company's performance is closely tied to drilling and completion activity, which is influenced by commodity prices and E&P company spending.

Comparison to Industry Standards

• The company's performance is compared to industry averages for rig counts in the US and Canada, as provided by Baker Hughes Company.
• The company's revenue is compared to the previous year's results, and the company's performance is compared to industry reports and expectations.
• The company's performance is compared to the average WTI crude oil pricing and Henry Hub natural gas pricing trends, as provided by the Energy Information Administration (EIA) of the U.S. Department of Energy.

Legal Proceedings

• The company was a defendant in a lawsuit in the District Court of Winkler County, Texas (the Texas Matter) that was settled in December 2023, where the insurance carrier agreed to pay the mutually-agreed settlement amounts to the plaintiff in settlement of all liabilities, resulting in no cash payments by NCS.
• The company is involved in patent infringement litigation against Kobold Corporation in the Federal Court of Canada.
• The company is seeking an award of ongoing royalties for TCO ASs continued post-judgment infringement, supplemental damages, interest, and cost which should be heard by the Waco District Court in May 2024.

Stakeholder Impact

• Shareholders will benefit from the improved profitability and earnings per share.
• Employees may benefit from the company's cost reduction initiatives and improved financial stability.
• Customers may experience continued service and product offerings.
• Suppliers may see continued business with the company.
• Creditors may have increased confidence in the company's ability to meet its obligations.

Next Steps

• The company plans to incur approximately $1.5 million to $2.5 million in capital expenditures during 2024, which includes upgrades to tracer diagnostics deployment, sampling and laboratory equipment, upgrades to manufacturing and field service equipment, new computers and engineering workstations and software development and implementation.

Key Dates

Keywords

oil and gas, multistage, fracturing systems, well completions, tracer diagnostics, energy, drilling, North America, financial results