NCS Multistage Holdings, Inc.

Good day and thank you for standing by. Welcome to the fourth quarter 2021 NCS Multistage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would like to hand the conference over to your speaker today, Ryan Hummer, Chief Financial Officer. Please go ahead.

Thank you, Victor. And thank you for joining the NCS Multistage fourth quarter and full year 2021 conference call. Our call today will be led by our CEO, Robert Knipper, and I will also provide comments. I want to remind listeners that some of today's comments include forward-looking statements, such as comments regarding our future expectation for financial results and business operations. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from from any expectation expressed herein, including the impact of the COVID-19 pandemic on the global economy, oil demand, and our company. Please refer to our latest Securities and Exchange Commission filings for our risk factors and cautions regarding forward-looking statements. Our comments today also include non-GAAP financial measures, including adjusted EBITDA, free cash flow, and net working capital. The underlying details and reconciliations of non-GAAP to the most comparable GAAP financial measures are included in our fourth quarter and full year earnings release, which can be found on our website, ncsmultistage.com. I'll now turn the call over to Robert.

Thanks, Ryan, and hello to everyone joining our call this morning. I'll review our performance and accomplishments in 2021, how our actions during 2021 have positioned us to capitalize on the growth opportunities we have ahead of us, and our strategic objectives for 2022. Ryan will follow and cover details of our quarterly performance. 2021 was marked by an increase in underlying industry activity from the trough levels experienced in 2020. Completions activity in the U.S. outpaced drilling activity, especially early in the year as the inventory of drilled but uncompleted wells was drawn down. The growth in drilling activity began to outpace completions activity late in 2021, and we expect that to continue through 2022. The Canadian market recovered nicely in 2021 as well, with strong activity levels in the second half of the year that eclipsed activity during the first quarter, which is a bit unusual based on the typical seasonal conditions in that market. Activity in the second half of 2021 outpaced 2019 levels during the same period, indicating that Canadian activity has already recovered to pre-pandemic levels, which we see continuing through 2022. Activity in international markets was a bit more challenged in 2021, primarily due to the continued impacts of COVID, which hampered our ability to effectively and efficiently mobilize our personnel and limited the ability to meet with customers in person. These restrictions began to ease in late 2021, and market and customer access continues to improve in 2022. Against this backdrop, we were able to increase our revenue to $118.5 million in 2021, an increase of 11% as compared to 2020, primarily driven by the strength of our performance in Canada, where our revenue increased by over 50%. I'm pleased with the way we were able to pivot from the defensive posture of 2020 as we navigated through the sharp industry downturn to participate in industry growth, advanced our product and service portfolio, and continue to bolster our balance sheet and liquidity profile. We made significant progress in each of our key product and service lines in 2021, adding to our portfolio of technologies that support our customers and expanding our addressable market in the process. Beginning with fracturing systems, late last year we qualified our Raytech sleeves used in the North Sea with a V0 rating, which means that the sleeves were qualified through testing to be gas-tight when run into the wellbore, with testing performed under high-load and thorough temperature cycles. We expect that our Raytech sleeves will help us to grow our customer base in the North Sea and other offshore markets over time, and have signed a contract with a large international oil company to provide completions equipment in the North Sea, which we expect to result in at least one well in 2022, with the potential for a larger program in the coming years. In addition, we've made meaningful progress and the development of a completion system to be run in a deepwater subsea application for a large IOC. As with our work in the North Sea, we expect that the use of our technology would enable a reduction in completion time, providing our customer with a significant reduction in their completion costs. We've also continued to add to our technology portfolio in well construction. Most significantly, we commercialized the portfolio extension within our airlock case and buoyancy product line which provides customers with additional options while retaining unmatched reliability history that we've established as the innovator of cost-effective casing buoyancy solutions. Our team in Canada has been very successful in executing on our cross-selling strategy to leverage our strength and fracturing systems in Canada to pull through additional opportunities. We had meaningful increases in our sales of airlock systems, tow sleeves, and liner hangers in 2021, with the increase the increases well surpassing underlying industry activity levels. We expect this to continue in 2022 with a particular focus on growing the customer base for our liner hanger product line. Finally, as it relates to well construction, we are pleased that a jury in a recent trial affirmed the validity of our patent utilized in our airlock case and buoyancy system and concluded that the patent had been infringed upon. We make meaningful investments in research and development and in securing and maintaining our intellectual property and will continue to defend our IP if we believe others are infringing. Within Tracer Diagnostics, we have primarily been focused on geographic expansion in the near term as we advance longer-duration R&D efforts. We successfully provided Tracer Diagnostics services for a trial well in Saudi Arabia in 2021 and are working through the qualification process for additional work going forward. We have also begun providing tracer diagnostic services for a customer in Indonesia, our first work in the Asian Pacific region for that product line. We believe that the current oil prices and activity levels are supportive of growth in tracer diagnostics opportunities in North America, and we have recently realigned our tracer operations to be able to execute on these opportunities more efficiently and to drive continued advances of technology within the product line. At Repeat Precision, the existing portfolio of frac plugs and setting tools continues to perform well. REPEAT is supported by the efforts of the NCS team in Canada, where we have been able to successfully introduce the Purple Seal to additional customers in the Deep Basin, providing an additional growth opportunity. The most significant news at REPEAT is the introduction of our Purple Fire factory-assembled modular perforating gun system, which provides us with the opportunity to participate in a larger addressable market. This new product for repeat is still in the field trial stage, but did achieve first revenue in late 2021 and is also contributing in 2022. We are pleased with the performance of the Purple Fire system in the field trials and continue to incorporate knowledge gained from the field trials into the product as we move toward commercialization. The Purple Fire perforating gun system is compatible with our factory-assembled Purple Seal Express system, which combines a disposable setting tool and a composite frack plug. With the addition of Purplifier, repeat can provide all of the downhole components required for plug and perf operations. I want to touch briefly on our margin performance in 2021, the impacts of supply chain and labor cost increases on our business that began in 2021 and continues in 2022, and how we're responding to those inflationary pressures. For the full year in 2021, we delivered a gross margin percentage of 41%, which was in line with 2020. we were able to leverage our increased volumes to offset continued pricing pressure in a competitive marketplace. We were not immune from the impacts of cost inflation and supply chain stresses in 2021. We experienced increases in employee wages, steel, fuel, and fiberglass costs, as well as extended lead times for purchases and higher third-party service charges, and those pressures have become more acute in early 2022. We have selectively implemented price increases and surcharges and expect to initiate future price increases as our input costs continue to rise. In addition, we are working with our largest customers to secure volume commitments that will allow us to better plan purchases strategically to mitigate these cost increases. From a timing standpoint, we believe some cost increases in early 2022 will be incurred before we receive the benefit from our pricing actions. leading to pressure on gross margins until the full impact of the price increases is evident in the second half of the year. While we remain very focused on managing our costs and have maintained discipline on SG&A, we do expect our SG&A to rise in 2022 from the 2021 levels, reflecting the full-year impact of wage restorations that occurred in the second half of 2021 and early 2022, cost of living increases for 2022, the restoration of the company match for retirement plans and other items. We are also actively investing in our people to support the growth that we believe that we can achieve. In addition, our spend on IP related litigation matters is expected to remain at elevated levels in 2022. Trials related to our airlock case and buoyancy system in the US and related to fracturing systems in Canada were concluded during the first quarter with other trials scheduled for later this year. As a result, we believe that our total SG&A could increase by 15% to 20% in 2022 relative to 2021 levels. One of our key company goals for 2021 was to be free cash flow positive and continue to strengthen our balance sheet. We were very successful in this regard with free cash flow of over $11 million in 2021. Our people pulled together to achieve this objective, and we ended 2021 with over $22 million in cash and cash equivalents, no credit facility borrowings, and a borrowing base of just over $15 million. We are well positioned to capitalize on the growth opportunities ahead of us. Over the past five years, from 2017 through 2021, we've generated $68 million in free cash flow on a consolidated basis, or over $39 million after deducting distributions to our joint venture partner. Finally, I'd like to touch briefly on industry consolidation. We've been consistent in expressing our belief that our industry needs to consolidate now. Our customer base is consolidating, and while industry activity is recovering, it's likely that the peak of this cycle will be less robust than the prior cycles. There are simply too many services companies chasing after a smaller pie. Over the last year and a half or so, it seemed like the bid-ask spread on potential consolidation opportunities was too great to overcome, but that appears to be improving in recent decades. in the recent few months. We see significant value in our organic growth strategy and opportunities, but we are also very well positioned to participate in industry consolidation with our presence in multiple product lines and multiple geographies, our strong balance sheet, and the infrastructure that we have in place as a public company. Now I'll ask Ryan to discuss our financial results in more detail. Ryan?