NCS Multistage Holdings, Inc.

Good day, and thank you for standing by, and welcome to the Q3 2023 NCS Multistage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Mike Morrison, CFO. Please go ahead.

Thank you. Thank you, Justin. And thank you for joining the NCS multi-stage third quarter 2023 conference call. Our call today will be led by our CEO, Ryan Hummer, 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 expectations for financial results and business operations. These statements, including our financial guidance and expectations, are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations expressed herein, including our ongoing litigation matters, inflation, central bank actions to combat inflation, distress at U.S. regional banks, the Canadian wildfires, as well as the impact of the conflicts in Ukraine and the Middle East on the global economy, oil and natural gas demand, and our companies. Please refer to our most recent annual report on Form 10-K and our latest SEC filings for risk factors and cautions regarding forward-looking statements. Our comments today and in our earnings release also include non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, free cash flow, and networking capital. The underlying details and reconciliations in non-GAAP measures to the most comparable GAAP financial measures are included in our third quarter earnings release, which can be found on our website, ncsmultistage.com. I'll now turn the call over to Ryan.

Thank you, Mike, and welcome to our investors, analysts, and employees joining our third quarter 2023 earnings conference call. Today's call will be structured a bit differently. I'll be framing my initial comments in alignment with the core strategies and guiding principles that embody our long-term corporate strategy, and then Mike will review our financial performance later in the call. This was a very productive quarter for us in terms of advancing our strategy and positioning NCS to deliver value to our stakeholders, including our shareholders. As a reminder, the vision for NCS is to be globally recognized as a trusted partner and bold innovator, enabling our customers' resource development strategies through technology-driven solutions and reliable expertise. We have three core strategies that are supported by two guiding principles. I'll walk through each and discuss how certain accomplishments during the quarter will enable long-term value creation. The first core strategy is to build upon our leading market positions. Examples of this include the strength of the NCS business across our product lines in Canada and the track record that we've established for our fracturing systems product line worldwide. In Canada, early in the third quarter, we installed over 1,000 sliding sleeves on a four-well motney pad with one of our customers. These wells were successfully completed in a highly efficient manner and have exhibited strong initial production rates according to third-party data. At the beginning of the fourth quarter, we had another significant achievement with the same customer, placing over 23 million pounds of sand across a lateral that extends more than two miles. This well had 262 NCS sleeves installed and was completed in a single trip, further highlighting our operational efficiencies. This is only possible due to the quality of our sliding sleeves, the design of our robust service tools, and the expert support provided by our field service technicians. In addition, a customer who has helped us to expand the limits of our fracturing systems technology in wells in the Montney is now applying learnings from those operations to reimagine their well completions in the Ellerslie Formation in the Manville area. Drilling and completing two mile laterals with approximately 150 sliding sleeves in an area that's historically been completed with 50 or fewer stages. We continue to have success in securing trials and supporting customers that are using plug-and-perf completions in Canada as well. We leverage the testing capabilities of our global technology center in Calgary to confirm the reliability of our purple seal plugs to perform encasing with an internal coating designed to reduce downhole friction. Through product performance, local field and technical support, and local testing capabilities, We believe we are now a top two frac plug provider in Canada. We have an internal goal to secure the leading market share in frac plugs in Canada, just as we have in sliding sleeves and tracer diagnostics. Further emphasizing our strategy to build upon our leading market position in fracturing systems, I have an update on a multi-year project we have underway with a leading international oil company to develop a version of our technology for use in deepwater offshore applications. During August, we participated in a test spanning nearly two weeks. whereby our prototype sleeves, and more importantly, our service tool components, were able to successfully survive the placement of over 6 million pounds of ceramic profit, mimicking the conditions that we would expect to see during deepwater operations. Both we and our sponsor were pleased with the results of the testing. In addition to this test, the sponsor has also ordered sleeves from us for use in an onshore trial well in the US for the fourth quarter of 2023. is a precursor to a future trial well offshore which could be drilled in 2024. we're very excited about the prospect of taking our fracturing systems technology which has been proven in onshore and shallow water offshore environments into the deep water offshore environment where we would operate from a floating rate the second core strategy that i'll speak to is capitalizing on international and offshore opportunities I'll start in the North Sea, where in September we successfully installed and began completion operations on a well for a leading E&P customer in Norway. The well had 10 stages and included two separate sleeve designs. We're very optimistic about the opportunity we have with this customer going forward. In addition, we expect to be awarded fracturing systems work with three additional customers in the North Sea beginning in 2024, each of which has the potential to be a multi-well program. We're actively working to bring additional product lines into the North Sea to capitalize on the opportunities generated from success with our fracturing systems business. In the Middle East, we completed our first revenue generating tracer diagnostics project for a leading national oil company in the region. The well was completed in July and reports were provided to the customer in August. With the success on this first well, we are in discussions for two additional projects, and we believe that this could become our largest market for tracer diagnostics outside of North America. Our final core strategy is to commercialize innovative solutions to complex customer challenges. This is a very successful and exciting quarter for us in that regard as well. Following extensive testing, we have qualified a new version of our airlock casing buoyancy system that can be used in customer applications applying high torque to the casing strings. enabled by semi-premium threads. This product is currently being run in the field. We've also worked to expand the performance envelope of our Airlock G casing buoyancy system to accommodate higher pressures than competing systems, targeting up to 14,000 PSI, and higher temperatures, targeting up to 400 degrees Fahrenheit, which would give us what we believe to be the highest performance casing buoyancy system utilizing a glass barrier available on the market today. At Repeat Precision, we have several new products available for field trial. We've introduced a version of our purple seal frac plug with a feature known as a misrun contingency device. This feature, integral to the plug, can save a customer time and money in the event the perforating gun's downhole did not fire and a new gun string needs to be deployed. Repeat also has a dissolvable plug that we expect to be available for field trials during the fourth quarter. The design is optimized for downhole performance and has been pressure tested to 10,000 PSI. The introduction of a high performance dissolvable plug complements our composite plug offering at repeat, providing consistent performance and a single provider for wells for customers that want to run dissolvable plugs in the tow of extended reach laterals. Finally, Repeat Precision has developed an internally oriented perforating gun system that was recently released for field trials. This new system allows for precise phasing of the perforating charges. We believe this system will be unique in the market by offering customers the plug-and-play system benefits of our modular purple fire perforating guns, which require minimal onsite assembly, unlike many of the other oriented systems in the market, with precise internal orientation and the ability for the customer to specify the shape charge that they want to run. I'll now speak to the two guiding principles that underpin our long-term strategy. The first is to maximize financial flexibility. Our financial model continues to be validated as we've maintained a net cash position with an undrawn revolver and generated higher adjusted EBITDA and adjusted EBITDA margin for the first nine months of 2023 than during the same period in 2022. During the quarter, NCS and our insurance carrier successfully settled one outstanding legal matter and we've made significant progress towards concluding another. We continue to expect that both matters will be settled within our insurance coverage limits with the settlements paid in full by our insurance carrier. As part of the one finalized settlement, NCS collected $600,000 in unpaid invoices associated with unrelated wells that had been previously withheld by the plaintiffs. Our second guiding principle is to uphold the promise. The promise at NCS represents the commitments that we make as a company to our employees, customers, technology, vendors, quality, health, safety, the environment, and other stakeholders. Our company values are also embedded in the promise. In further support of upholding the promise, we released our inaugural ESG report in September, titled The Promise in Action. The report is available on our website, and I encourage you to read it. We're very pleased with how it came together, and the Board and I appreciate the significant and broad-based contributions made by our employees, as well as the valuable conversations that we had with our customers, suppliers, consultants, and other stakeholders throughout the process. You may have seen in our earnings release that we received an unfavorable ruling in the Federal Court of Canada in a patent infringement action. The decision resulted in certain of our patents being considered invalid and with NCS found to have infringed another company's patent. First, I want to be clear that we disagree with the decision and we were shocked by the result. We intend to appeal the decision and believe that applicable law supports strong grounds that may lead to a reversal of substantial portions of the decision. But more importantly is it relates to our people and upholding the promise. I couldn't be more pleased with the way that the team at NCS responded to the news. With a tremendous collective effort from our engineering, product line, manufacturing and supply chain, sales, technical services, and operations teams, we were able to quickly develop, test, and deploy a solution that complies with the decision in a manner that supported our customers' needs during the current time of high field activity levels. This is a testament to our outstanding people, the problem solving spirit rooted in innovation, and the collective character of the team that supported one another to rise and face this unexpected adversity. I'm proud to have the opportunity to lead this exceptional team. In summary, I believe we've made very important and meaningful progress on our long-term strategic objectives over the past few months, which has positioned us for success, not just in the upcoming quarter or two, but for the years ahead. I'll now pass the call back to Mike to discuss our results for the third quarter and guidance for the fourth quarter.