10-Q: NCS Multistage Reports Strong 9-Month Growth, Acquires ResMetrics

NCS Multistage Holdings, Inc. reported significant revenue and net income growth for the nine months ended September 30, 2025, driven by increased activity and the acquisition of Reservoir Metrics, LLC.

Summary

• Total revenues for the nine months ended September 30, 2025, increased by 13.1% to $133.0 million, compared to $117.6 million in the prior year.
• Net income attributable to NCS Multistage Holdings, Inc. for the nine months surged by 181.5% to $8.788 million, up from $3.122 million in the same period last year.
• Basic earnings per common share for the nine months rose to $3.40, a substantial increase from $1.23 in the prior year.
• For the three months ended September 30, 2025, total revenues increased by 5.8% to $46.5 million, compared to $44.0 million in the prior year.
• Net income attributable to NCS Multistage Holdings, Inc. for the three months decreased by 8.2% to $3.808 million, down from $4.147 million in the prior year, partly due to foreign currency exchange loss.
• The company acquired 100% of Reservoir Metrics, LLC (ResMetrics), a tracer diagnostics services provider, on July 31, 2025, for $7.1 million, including $5.8 million in cash and $1.1 million in contingent consideration.
• ResMetrics contributed $2.2 million in revenue and $0.6 million in income before tax to consolidated results for the quarter and nine months ended September 30, 2025.
• Net cash provided by operating activities for the nine months significantly increased to $9.0 million, compared to $2.1 million in the prior year.
• The company reversed a $1.8 million valuation allowance against deferred tax assets of its Canadian operating subsidiary due to sustained improvements in operating results and future taxable income forecasts.
• US land rig count declined by 7% in Q3 2025 compared to Q3 2024, and Canadian land rig count declined by 15% over the same period.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance for the nine-month period, with significant increases in revenue, net income, and operating cash flow. The acquisition of ResMetrics is a positive strategic move. While the three-month results show a slight dip in net income and Canadian activity, the overall trajectory and management's confidence in liquidity are positive. Ongoing legal proceedings and market volatility present some headwinds, but the underlying business appears robust.

Positives

• Nine-month revenues increased by 13.1% to $133.0 million, indicating strong overall business growth.
• Nine-month net income attributable to NCS Multistage Holdings, Inc. grew by 181.5% to $8.788 million, demonstrating improved profitability.
• Nine-month basic EPS increased significantly to $3.40 from $1.23, reflecting enhanced shareholder value.
• Operating cash flow for the nine months increased substantially to $9.0 million, providing strong liquidity.
• The acquisition of Reservoir Metrics, LLC expands and complements existing tracer diagnostics offerings, contributing $2.2 million in revenue and $0.6 million in income before tax in a partial quarter.
• A $1.8 million valuation allowance reversal on Canadian deferred tax assets indicates improved financial health and future profitability expectations in Canada.
• Income from operations for the nine months increased by 283.4% to $5.322 million, showing strong operational leverage.

Negatives

• Net income attributable to NCS Multistage Holdings, Inc. for the three months ended September 30, 2025, decreased by 8.2% compared to the same period in 2024.
• Basic earnings per common share for the three months ended September 30, 2025, decreased to $1.47 from $1.63 in the prior year.
• Product sales revenue for the three months ended September 30, 2025, was relatively flat overall, with a 1.4% decline.
• Canadian revenues for the three months ended September 30, 2025, declined by 17.8% due to lower rig counts.
• Foreign currency exchange resulted in a net loss of $0.4 million for the three months ended September 30, 2025, compared to a gain of $0.2 million in the prior year.
• Other income, net, decreased by 22.8% for the three months and 25.5% for the nine months, partly due to a non-recurring benefit from an agreement in Oman in the prior year.

Risks

• Declines in oil and natural gas exploration and production (E&P) activity in Canada, the United States, and internationally.
• Volatility in oil and natural gas prices, influenced by geopolitical incidents, trade tensions, and OPEC+ production decisions.
• Significant competitive pressures leading to pricing pressures, reduced sales, or decreased market share.
• Inability to successfully implement the strategy of increasing sales in U.S. and international markets.
• Loss of significant customers; the largest customer constituted 17% of trade receivables as of September 30, 2025.
• Losses and liabilities from uninsured or underinsured business activities and litigation.
• Changes in trade policy, including the impact of tariffs (e.g., steel, aluminum, China, and potential retaliatory tariffs from Canada), which could increase costs and reduce demand.
• Inability to integrate or realize the expected benefits from acquisitions, such as the recent ResMetrics acquisition.
• Inability to achieve suitable price increases to offset the impacts of cost inflation.
• Loss of key suppliers or significant disruptions negatively impacting the supply chain.
• Currency exchange rate fluctuations, particularly between the U.S. dollar and Canadian dollar, affecting reported revenues and costs.
• Inability to protect and maintain critical intellectual property assets, including potential losses from adverse decisions in ongoing patent disputes.

Future Outlook

Management anticipates a decline in Canadian E&P activity by 3% to 5% compared to 2024, with a significant drop in the second half of 2025. The U.S. market is expected to see a 6% to 8% decline in activity, driven by conservative oil production targets and E&P consolidation, though natural gas activity may increase. International activity in regions like the North Sea, Middle East, and Argentina is projected to increase modestly. The company is monitoring potential cost increases from new tariffs, especially on steel, aluminum, and chemicals from China, and the impact of reciprocal trade actions. The U.S. Federal Reserve has implemented rate cuts in response to slowing job growth and elevated unemployment, with further reductions possible depending on economic data.

Management Comments

• Canadian activity will decline by 3% to 5% compared to 2024, with an expected 10% to 15% decline in the second half of the year relative to the same period in 2024, offsetting first-half increases.
• The U.S. market will continue to experience a decline in activity of 6% to 8% compared to 2024, driven by conservative oil production growth targets and ongoing consolidation within the E&P sector, partially offset by potential increases in activity targeting natural gas.
• International activity and spending in the regions where NCS participates, including the North Sea, the Middle East, and Argentina, will increase modestly despite relatively flat to modestly down overall international spending levels.
• We believe our supply chain in Mexico, where Repeat Precision manufactures products and certain components used in our fracturing systems, is currently compliant with the USMCA.
• We believe that products we ship from the United States to Canada are also compliant with the USMCA.
• We believe that our cash on hand, cash flows from operations and potential borrowings under our ABL Facility will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months and after.

Industry Context

The oil and natural gas industry continues to face volatility in commodity prices due to geopolitical tensions, supply disruptions, and OPEC+ production adjustments. While WTI crude prices saw a slight increase in Q3 2025, natural gas prices decreased due to strong production and high storage levels. North American drilling activity is declining, with U.S. land rig counts down 7% and Canadian land rig counts down 15% year-over-year for Q3 2025. Central banks, including the U.S. Federal Reserve, have begun lowering interest rates to counter economic slowdowns, but tariff-related inflationary pressures remain a concern. The company's performance is directly tied to these macro and regional E&P activity levels, with Canadian seasonality and international project timing also playing significant roles.

Legal Proceedings

• In Canada, a patent infringement lawsuit against Kobold Corporation, Kobold Completions Inc., and 2039974 Alberta Ltd. saw the Federal Court of Appeal set aside previous findings of infringement, a permanent injunction, and a costs award (reduced from $1.8 million to $0.9 million). The case has been remitted to the trial court to reconsider whether Kobold's patent is invalid for double patenting. A loss is reasonably possible but not probable, and any potential loss is not reasonably estimable.
• A separate patent infringement lawsuit filed by Kobold in April 2020, alleging infringement of their Canadian patents, is expected to go to trial in the fourth quarter of 2026.
• In U.S. patent infringement claims against Nine Energy Services, Inc. and TCO AS, NCS received favorable jury verdicts and subsequent awards totaling over $6.5 million, including ongoing royalties. Both Nine and TCO have appealed these decisions, with a resolution expected in 2026. No potential gain contingencies have been recorded due to the appeals.

Related Party Transactions

• NCS Multistage Holdings, Inc. consolidates Repeat Precision, LLC, an entity in which it owns a 50% interest and has a controlling voting interest. The other party's 50% ownership interest is presented as a non-controlling interest.
• Cash distributions to non-controlling interest totaled $1.9 million for the nine months ended September 30, 2025, compared to $1.0 million in the prior year.

Stakeholder Impact

• Shareholders: Benefited from a significant increase in nine-month net income and EPS, but experienced a quarterly dip in net income and EPS. The acquisition of ResMetrics adds to growth potential, while ongoing legal proceedings introduce uncertainty.
• Employees: Share-based compensation expense increased, and payroll and employee benefits remain a significant component of SG&A.
• Customers: Continue to receive engineered products and support services for oil and natural gas well construction and completions. Potential for increased costs due to tariffs could impact pricing.
• Suppliers: Face potential impacts from tariffs on raw materials like steel, aluminum, and chemicals, which could affect supply chain costs.
• Creditors: The company maintains compliance with debt covenants and has no outstanding borrowings under its ABL Facility, indicating a healthy credit position.

Next Steps

• Settle the contingent liability related to the Reservoir Metrics acquisition during the first quarter of 2026.
• Continue to integrate Reservoir Metrics, LLC into the existing internal control framework and evaluate its impact on control processes.
• Prepare for the trial of the separate patent infringement lawsuit filed by Kobold in the Canada Court, expected in the fourth quarter of 2026.
• Await resolution of the appeals filed by Nine Energy Services, Inc. and TCO AS regarding patent infringement decisions, expected in 2026.
• Monitor the U.S. Supreme Court's arguments in November 2025 regarding the legality of specific tariffs and their potential impact on costs and supply chain.

Key Dates

Recommendation

The company demonstrated strong nine-month financial performance with significant growth in revenue, net income, and operating cash flow, bolstered by a strategic acquisition. This indicates a healthy underlying business and effective management. However, the quarterly results show a decline in net income and EPS, coupled with a decrease in Canadian activity and a negative foreign currency impact. Ongoing legal proceedings, particularly the remitted Kobold patent case, introduce uncertainty regarding future liabilities or gains. The broader industry faces volatility in commodity prices and rig counts, along with potential cost pressures from tariffs. Given the mixed short-term performance against strong long-term trends, and the presence of both growth drivers and significant risks, a 'hold' recommendation is appropriate. Investors should monitor the resolution of legal matters, the integration of ResMetrics, and the impact of market conditions and tariffs on future profitability.

Keywords

Oil and Gas Services, SEC Filing, 10-Q, NCS Multistage, E&P, Fracturing Systems, Tracer Diagnostics, Reservoir Metrics, Oilfield Services, North America Energy, Patent Litigation, Financial Results