10-Q: NCS Multistage Reports Strong Profit Turnaround and Revenue Growth in Q2 2025

NCS Multistage Holdings, Inc. achieved significant net income and revenue growth in the second quarter of 2025, driven by increased product sales and strategic expansion, despite a challenging North American market.

Summary

• Total revenues for the three months ended June 30, 2025, increased by 22.8% to $36.5 million, up from $29.7 million in the prior year period.
• Product sales surged by 46.0% to $27.8 million in Q2 2025, while services revenue decreased by 18.7% to $8.7 million.
• Net income attributable to NCS Multistage Holdings, Inc. was $0.9 million for Q2 2025, a significant improvement from a net loss of $3.1 million in Q2 2024.
• Basic earnings per common share turned positive at $0.36 in Q2 2025, compared to a loss of $1.21 in Q2 2024.
• For the six months ended June 30, 2025, total revenues grew by 17.6% to $86.5 million, with product sales up 23.8% and services revenue up 3.7%.
• Net income attributable to NCS Multistage Holdings, Inc. for the six months ended June 30, 2025, was $5.0 million, a substantial improvement from a net loss of $1.0 million in the same period last year.
• Operating income for the six months ended June 30, 2025, was $2.3 million, compared to an operating loss of $1.6 million in the prior year period.
• Gross margin percentage decreased to 33.7% in Q2 2025 from 38.1% in Q2 2024, primarily due to product and service mix.
• Selling, general and administrative expenses decreased by 8.1% to $13.6 million in Q2 2025, reflecting lower professional fees and payroll expenses.
• Cash and cash equivalents stood at $25.4 million as of June 30, 2025, with no outstanding borrowings under the $35.0 million ABL Facility.
• The company reversed a $1.4 million valuation allowance against deferred tax assets of its Canadian operating subsidiary due to sustained profitability improvements.
• Acquired 100% of Reservoir Metrics, LLC (ResMetrics), a tracer diagnostics services provider, for $5.9 million on July 31, 2025, with a potential earn-out of up to $1.3 million.

Sentiment

Score: 8

Explanation: The company demonstrated a strong financial turnaround, moving from significant losses to profitability with substantial revenue growth, particularly in product sales. Effective cost management is evident in reduced SG&A. While operating cash flow decreased and external market conditions (commodity prices, rig counts, tariffs) present headwinds, the company's balance sheet remains strong with no outstanding ABL debt. The strategic acquisition of ResMetrics is a positive step for future growth. The legal proceedings, while ongoing, have seen favorable verdicts for the company, securing significant amounts.

Positives

• Achieved significant net income of $0.9 million in Q2 2025, a substantial turnaround from a $3.1 million loss in Q2 2024.
• Reported positive basic earnings per share of $0.36 in Q2 2025, reversing a loss of $1.21 in the prior year.
• Total revenues increased by 22.8% in Q2 2025, driven by strong product sales growth of 46.0%.
• Canadian revenue saw robust growth, with total sales up 49.0% to $18.0 million in Q2 2025.
• Selling, general and administrative expenses decreased by 8.1% in Q2 2025, indicating effective cost management.
• Maintained a strong liquidity position with $25.4 million in cash and no outstanding debt under the ABL Facility or Repeat Precision Promissory Note.
• Reversed a $1.4 million valuation allowance on Canadian deferred tax assets due to sustained profitability, indicating improved financial health in the region.
• Secured over $6.0 million in total from favorable jury verdicts against Nine Energy Services, Inc. and TCO AS in patent infringement cases, with ongoing royalties awarded.
• Completed the strategic acquisition of Reservoir Metrics, LLC, expanding tracer diagnostics offerings.

Negatives

• Services revenue declined by 18.7% in Q2 2025, primarily due to timing of tracer diagnostics projects.
• Gross margin percentage decreased to 33.7% in Q2 2025 from 38.1% in Q2 2024, reflecting changes in product and service mix.
• Net cash provided by operating activities decreased to $1.9 million for the six months ended June 30, 2025, from $4.1 million in the prior year period, due to higher cash payments for incentive bonuses and cash-settled share-based awards.
• Average WTI crude oil prices declined in Q2 2025 compared to Q1 2025, and natural gas prices also decreased, indicating commodity price volatility.
• U.S. land rig count declined by 4% in Q2 2025 compared to Q2 2024, and Canadian land rig count was lower by 5% in the same period.
• Ongoing competitive pressures are constraining the ability to raise prices to offset rising costs, particularly with tariff uncertainties.
• The technical services and assistance agreement with the Omani partner ended in November 2024, reducing other income.

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, which directly influences drilling and completion activity.
• Significant competition 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, including the impact of consolidation among major customers (two largest customers now constitute 17% of trade receivables).
• Losses and liabilities from uninsured or underinsured business activities and ongoing litigation, including patent infringement appeals in Canada and the U.S.
• Changes in trade policy, including the impact of tariffs on raw materials (steel, aluminum) and chemicals, and potential retaliatory tariffs from other countries.
• 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.
• Risks in attracting and retaining qualified employees and key personnel.
• Risks resulting from the operations of the joint venture arrangement (Repeat Precision).
• Currency exchange rate fluctuations, particularly between the U.S. dollar and Canadian dollar.
• Impact of severe weather conditions, such as the spring break-up in Canada and wildfires.
• Inability to accurately predict customer demand, potentially leading to excess or obsolete inventory.
• Failure to comply with or changes to federal, state, local, and non-U.S. laws and regulations, including tax policies, anti-corruption, and environmental regulations.
• Impairment in the carrying value of long-lived assets, including goodwill.
• System interruptions or failures, cybersecurity breaches, identity theft, or other disruptions compromising information.
• Inability to successfully develop and implement new technologies, products, and services, including addressing the shift to non-traditional energy markets and adoption of AI/ML.
• Inability to protect and maintain critical intellectual property assets, protect current royalty income, or losses from adverse decisions in intellectual property disputes.
• Restrictions on the availability of water essential to drilling and hydraulic fracturing processes.
• Changes in legislation or regulation governing the oil and natural gas industry, including restrictions on greenhouse gas emissions.
• Inability to meet regulatory requirements for the use of certain chemicals by the tracer diagnostics business.
• Reduction in the ABL Facility borrowing base or inability to comply with debt covenants.
• Inability to obtain sufficient liquidity on reasonable terms, or at all.

Future Outlook

The company anticipates stable to slightly decreasing activity in Canada and a continued decline in the U.S. market for the remainder of 2025, influenced by conservative oil production targets and E&P sector consolidation, though partially offset by potential increases in natural gas activity. International market activity and spending are expected to increase in regions where the company operates, such as the North Sea, Middle East, and Argentina. However, these trends could be impacted by escalating global trade tensions and tariffs, which may lead to additional costs that cannot be recovered through price increases. The U.S. Federal Reserve's future interest rate changes may be postponed due to tariff evaluations.

Management Comments

• Management believes the purchase of ResMetrics will further expand and complement existing tracer diagnostics offerings.
• Management believes that applicable law supports strong grounds to appeal the decision by the Canada Court regarding patent infringement.
• Management expects any damages awarded in the Canada patent matter to be more modest because of the relative ease and minimal cost incurred to implement changes to the product to comply with the injunction, with such changes resulting in no significant commercial impact to date.
• Management believes there are strong arguments of invalidity and non-infringement in the separate patent infringement lawsuit filed by Kobold.
• Management believes that cash on hand, cash flows from operations, and potential borrowings under the ABL Facility will be sufficient to fund capital expenditure and liquidity requirements for the next twelve months and beyond.

Industry Context

The oil and natural gas industry continues to face volatility in commodity prices, influenced by geopolitical incidents, global economic slowdown concerns, and OPEC+ production decisions. WTI crude oil prices declined in Q2 2025, and natural gas prices also decreased due to surplus storage levels. North American drilling and completion activity, as indicated by rig counts, has seen declines in both the U.S. and Canada. The industry is also grappling with inflationary cost pressures and uncertainties related to global trade tensions and tariffs, which could impact supply chain costs and demand. E&P companies are focusing on cost structures and efficiency, utilizing technologies like those offered by NCS Multistage. Customer consolidation, as evidenced by the business combination of two of the company's largest customers, is a notable trend.

Comparison to Industry Standards

• The average U.S. land rig count of 559 in Q2 2025 represents a 4% decline compared to Q2 2024, aligning with broader industry trends of conservative oil production growth targets and E&P consolidation.
• The average Canadian land rig count of 127 in Q2 2025 was 5% lower than the same period in 2024, reflecting the typical seasonality of spring break-up and overall market conditions.
• The company's product sales growth of 46.0% in Q2 2025, particularly in Canada and the U.S. for fracturing systems, indicates strong performance relative to the declining rig counts, suggesting market share gains or increased intensity of activity per rig.
• The decline in services revenue, particularly tracer diagnostics, contrasts with the overall positive revenue trend, possibly indicating project timing differences or competitive pressures in specific service lines compared to broader industry service demand.

Corporate Governance

Legal Proceedings

• In Canada, a patent infringement lawsuit against Kobold Corporation resulted in a decision against NCS in October 2023, holding NCS's patents invalid and finding infringement of Kobold's patent. NCS was ordered to pay $1.8 million in costs (paid November 2023). An appeal was heard in April 2025, with a decision expected late 2025 or early 2026. A loss is reasonably possible but not estimable. Kobold filed a motion in July 2024 regarding injunction compliance, potentially leading to a fine or other remedy.
• A separate patent infringement lawsuit filed by Kobold against NCS in Canada in April 2020 is ongoing, with a trial expected in Q4 2026. NCS believes it has strong arguments of invalidity and non-infringement.
• In the U.S., NCS received favorable jury verdicts against Nine Energy Services, Inc. and TCO AS regarding patent infringement of the '445 Patent. NCS was awarded approximately $0.5 million from Nine (January 2022) and $1.9 million from TCO (August 2022). Supplemental damages, interest, and ongoing royalties were awarded, with over $6.0 million secured in total. Both Nine and TCO have appealed, with resolution expected in 2026. NCS has not recorded potential gain contingencies due to the appeals.

Stakeholder Impact

• Shareholders: Experienced a significant turnaround from net loss to net income and positive EPS, potentially increasing shareholder value. The acquisition of ResMetrics could enhance long-term growth prospects. However, ongoing legal appeals and market volatility introduce uncertainty.
• Employees: Share-based compensation expense increased, indicating continued incentive programs. Payroll and employee benefits expenses decreased in Q2 2025, but increased for the six-month period, reflecting variable compensation accruals.
• Customers: The company's ability to generate revenue depends on E&P activity, which is declining in North America. Competitive pressures may lead to lower prices for products and services. Customer consolidation (two largest customers now 17% of receivables) could impact future negotiations and demand.
• Suppliers: Tariffs on raw materials (steel, aluminum) and chemicals from China are increasing costs, which the company may not be able to fully recover through price increases. The company relies on vendors for raw materials and outsourced services.
• Creditors: The company maintains a strong liquidity position with no outstanding borrowings under its ABL Facility or promissory note, indicating low immediate credit risk. Compliance with debt covenants was maintained.

Next Steps

• Decision expected by late 2025 or early 2026 for the appeal in the Canada patent matters.
• Damages portion of the Canada patent matter would be decided by the Canada Court if the appeal is unsuccessful, likely extending for one or more years after the appeals decision.
• Trial for the separate patent infringement lawsuit filed by Kobold is expected to be heard in the fourth quarter of 2026.
• Resolution expected in 2026 for the patent infringement matters against Nine Energy Services, Inc. and TCO AS.
• Evaluation of the impact of the 'One Big Beautiful Bill Act' on effective tax rate, cash tax, and financial statements.
• Potential earn-out payment of up to $1.3 million for the ResMetrics acquisition to be paid in early 2026, depending on international trade tariff rates for certain chemical imports during 2025.
• Preliminary purchase price allocation for the ResMetrics acquisition to be completed.
• Incur approximately $1.4 million to $1.6 million in capital expenditures in total during 2025 for upgrades to manufacturing, field service, tracer diagnostics, and Repeat Precision facilities.

Key Dates

Recommendation

NCS Multistage Holdings, Inc. demonstrated a strong financial turnaround, moving from significant losses to substantial net income and positive EPS in Q2 2025 and for the first half of the year. Revenue growth, particularly in product sales and the Canadian market, was robust despite challenging industry conditions like declining rig counts. The company maintains a healthy balance sheet with ample liquidity and no outstanding ABL debt. The strategic acquisition of Reservoir Metrics is expected to expand its service offerings and contribute to future growth. While external factors such as commodity price volatility, tariff uncertainties, and ongoing legal appeals present risks, the company's improved profitability, cost management, and strategic initiatives suggest a positive trajectory for investors willing to navigate the cyclical nature of the oilfield services sector.

Keywords

Oil and Gas, E&P, Fracturing Systems, Well Completions, Tracer Diagnostics, Oilfield Services, North America, Canada, United States, SEC Filing, 10-Q, Energy Sector, Drilling Activity, Tariffs, Patent Litigation, Acquisition, Financial Results