8-K: NCS Multistage Holdings Reports Strong Q1 2024 Results, Exceeding Expectations

NCS Multistage Holdings announced a profitable first quarter of 2024, with revenue and adjusted EBITDA exceeding expectations, driven by strong performance in Canada and international markets.

Summary

• NCS Multistage Holdings reported total revenues of $43.9 million for the first quarter of 2024, a 1% increase year-over-year and a 24% increase compared to the fourth quarter of 2023.
• The company achieved a net income of $2.1 million, or $0.82 per diluted share, a significant improvement from a net loss of $(15.0) million, or $(6.10) per share, in the same quarter of 2023.
• Adjusted net income was $2.5 million, or $0.99 per diluted share, compared to $1.2 million, or $0.50 per diluted share, in the first quarter of 2023.
• Adjusted EBITDA reached $6.1 million, a $1.2 million increase from the first quarter of 2023, with an adjusted EBITDA margin of 14%, up from 11% in the same period last year.
• The company's cash balance was $14.0 million with total debt of $8.9 million as of March 31, 2024.
• Revenue growth was driven by higher Canadian and international product sales and services, which offset a decrease in U.S. product sales and services revenues.
• The average rig count in the United States decreased by 19% year-over-year, while the average rig count in Canada decreased by only 6%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company's strong financial performance, exceeding expectations, and positive outlook for the future. The company's management expresses confidence in their strategies and market position. However, there are some risks and challenges mentioned, which temper the overall sentiment.

Positives

• The company exceeded expectations for total revenues and Adjusted EBITDA in the first quarter of 2024.
• NCS Multistage Holdings experienced a significant improvement in net income, moving from a loss to a profit year-over-year.
• Adjusted EBITDA and adjusted EBITDA margin both increased compared to the first quarter of 2023.
• The company's cost-saving measures implemented in 2023 led to a decrease in selling, general and administrative expenses.
• The company saw strong revenue growth in Canada and international markets.
• The company has a solid cash position of $14.0 million and a manageable debt of $8.9 million.
• The company's revenues outperformed industry benchmarks in both the United States and Canada.

Negatives

• U.S. product sales and services revenues decreased year-over-year, impacted by lower natural gas prices.
• Gross profit decreased to $17.0 million, with a gross margin of 39%, compared to $18.0 million and 41% in the first quarter of 2023, due to increased product costs and labor wage inflation.
• Cash flow from operating activities was a use of $(1.9) million, a $0.3 million change compared to cash used for the same period in 2023.
• Free cash flow was a use of cash of $(2.5) million compared to a use of cash of $(2.0) million for the same period in 2023, largely due to a distribution to non-controlling interest and an increase in net working capital.

Risks

• The company faces risks related to declines in oil and natural gas exploration and production activity, particularly in the United States.
• Fluctuations in oil and natural gas prices could negatively impact customer activity levels and sales.
• The company faces significant competition, which could lead to pricing pressures and reduced market share.
• The company's inability to successfully implement its strategy of increasing sales in the U.S. and international markets poses a risk.
• The company is exposed to risks related to potential losses and liabilities from uninsured or underinsured business activities and litigation.
• The company's inability to achieve suitable price increases to offset the impacts of cost inflation is a risk.
• The company faces risks related to supply chain disruptions and the loss of key suppliers.
• The company's inability to accurately predict customer demand could result in excess or obsolete inventory.
• The company is subject to various regulatory risks, including environmental regulations and restrictions on emissions of greenhouse gases.
• The company's inability to protect and maintain critical intellectual property assets is a risk.

Future Outlook

The company expects revenues to improve sequentially in the U.S. and international operations in the second quarter, but decline in Canadian operations due to normal seasonal patterns. They anticipate that their value proposition and innovation will allow them to outperform industry activity changes and increase revenue and Adjusted EBITDA in 2024 compared to 2023. They expect international industry activity to improve on average between 5% to 10% in 2024 compared to 2023.

Management Comments

• NCS has had a strong start to 2024, with total revenues and Adjusted EBITDA for the first quarter exceeding our expectations.
• Our revenues outperformed industry benchmarks in each of the United States and Canada.
• We continue to believe that average 2024 industry drilling and completion activity in Canada will be flat to slightly lower compared to 2023 and activity in the United States will decline on average by 5% to 10% compared to 2023.
• We continue to believe the value that we bring to our customers across our product and service portfolio, together with continued product and service innovation, positions us to outperform the anticipated changes in industry drilling and completion activity.
• I am excited about our business and the opportunities for NCS in 2024 and beyond as we deliver on our core strategies to build upon our leading market positions, capitalize on opportunities in international and offshore markets and as we bring new and innovative solutions to our customers around the world.

Industry Context

The results reflect a mixed environment in the oil and gas industry, with a decline in U.S. activity offset by growth in Canada and international markets. The company's performance is notable given the overall industry trends, particularly the decrease in U.S. rig counts and the impact of lower natural gas prices on customer activity.

Comparison to Industry Standards

• NCS's revenue performance in the U.S. and Canada outperformed industry benchmarks, with U.S. revenue declining by 12% year-over-year compared to a 15% decline in U.S. well completions per the EIA Drilling Productivity Report.
• Canadian revenue increased by 3% year-over-year, while the Canadian land rig count decreased by 6%.
• The company's adjusted EBITDA margin of 14% is a positive indicator of operational efficiency compared to the industry average, although specific competitor data is not provided in the document.
• The company's performance in the international market, with an 86% sequential increase in revenue, suggests a strong competitive position in those regions, particularly in the North Sea.

Legal Proceedings

• The company settled a litigation matter in December 2023, with the insurance carrier agreeing to pay the settlement amounts in January 2024, resulting in no cash impact to NCS.

Stakeholder Impact

• Shareholders will likely view the results positively due to the improved financial performance and positive outlook.
• Employees may be positively impacted by the company's success and future growth prospects.
• Customers may benefit from the company's continued product and service innovation.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors may view the company's improved financial position favorably.

Next Steps

• The company will host a conference call on May 2, 2024, to discuss the first quarter 2024 results and updated guidance.
• The company will continue to focus on its core strategies to build upon its leading market positions, capitalize on opportunities in international and offshore markets, and bring new and innovative solutions to its customers.

Key Dates

Keywords

oil and gas, energy, frac services, well completions, drilling, EBITDA, revenue, North Sea, Canada, United States