NCS Multistage Holdings, Inc.

Good day, and thank you for standing by, and welcome to the Q1 2024 NCS Multi-Stage Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Morrison, CFO. Please go ahead.

Thank you, Justin, and thank you for joining the MCS Multistage First Quarter 2024 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 our financial guidance and comments regarding our future expectations for financial results in business operations. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. 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, as well as the results of operations including our earnings release, contain the following non-GAAP financial measures. adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin, free cash flow, less distributions to non-controlling interest, and networking capital. The underlying details and reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are provided in our first 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 first quarter 2024 earnings conference call. NCS is off to a strong start in 2024. Our first quarter revenue of $43.9 million exceeded the high end of our guided range by nearly $4 million. The strength was broad-based as we achieved or exceeded the high end of our guided revenue range for each of our US, Canadian, and international markets with the largest relative outperformance coming from Canada. Our adjusted gross margin of 40%, which excludes depreciation and amortization expense, was within our guided range for the quarter. Our SG&A expense of $13.8 million for the quarter was $2.3 million lower than in the first quarter of 2023, resulting from cost savings measures that demonstrate our commitment to control expenses and a year-over-year reduction in litigation-related professional fees. We also benefited from an increase in other income as compared to the first quarter of last year. primarily royalty income related to licensing our intellectual property and the benefits from a technical services agreement with a local partner in Oman. Our adjusted EBITDA for the first quarter of $6.1 million exceeded our estimate of $3 to $4 million and represents a year-over-year improvement of $1.2 million and a sequential improvement of $3.5 million. In prior earnings calls, I've referenced NCS's core strategies for creating value for our stakeholders. We've included a new slide in our investor presentation, which is available on our website, slide 13, that helps to illustrate our strategy and provide examples of our progress. The first core strategy is to build upon our leading market positions. We've demonstrated our commitment to this strategy in Canada thus far in 2024. Our Q1 revenue in Canada of $32 million increased by 3% as compared to the first quarter of 2023, despite a reduction in the average rig count in Canada of 6% for the same period. This performance reflects the initiatives to leverage the strength of our market position and customer relationships developed over time in our fracturing systems business and to pull through additional revenue opportunities across our other product lines. In particular, we continue to capture additional well construction opportunities with our fracturing systems customers and to grow the customer base for our purple seal frac plugs and fracture express systems and plug and perf completions in Canada. Our second core strategy is to capitalize on international and offshore opportunities. We've previously discussed our efforts to grow our customer base in the North Sea and to position the company for long-term growth opportunities in the Middle East in particular. We are now benefiting from these strategic investments. We're off to a good start so far this year, having sold sliding sleeves to a new North Sea customer in the first quarter. As we move to the second quarter, we expect activity in the North Sea to improve on a seasonal basis, with installation and completion activity increasing, including the expected delivery of sliding sleeves to yet another new North Sea customer. In addition, we are experiencing a meaningful increase in tracer diagnostics activity in the Middle East. In April, we completed tracing the first of multiple paths for a leading national oil company in the Middle East, supporting development plans for their unconventional resource base. We expect to participate in at least two similar projects over the remainder of 2024. In addition, NCS has been awarded the opportunity to trace additional conventional wells for the same customer, supporting activity between the unconventional well pads. This is only possible because of the tireless effort of individuals across our organization to educate our customer on the value that our tracer diagnostic services can bring to tackle the procurement and logistical challenges of the work and to provide outstanding customer service throughout the jobs and for the reporting process. Including the expected midpoint for our international revenue guidance for the second quarter, our international revenues would approximate $7.2 million for the first half of 2024. This compares to $3.3 million in the first half of 2023 and would exceed our full year 2023 international revenue of $6.5 million. As a reminder, full year international revenue for NCS exceeded $10 million for each of 2018 through 2021, reaching a high of over $15 million during that period, highlighting our opportunity outside of North America. The third core strategy for NCS is to commercialize innovative solutions to complex customer challenges. We have internal objectives this year tied to obtaining field trials for new products and successfully entering new markets and regions. I spoke to this extensively on our prior call, so we'll just briefly highlight some of these exciting projects. We had a successful onshore trial during the first quarter for a completion system designed for deepwater operations. This was developed in conjunction with an international oil company with potential applications in the Gulf of Mexico and other deepwater regions. We've completed initial field trials for our pinpoint-oriented perforating gun system at repeat precision. and we continue to advance further testing and validation aligned with an influential customer's requirements. In the second quarter, we expect to install a well that will represent our highest ever sleeve count in the U.S. at over 200 sleeves. The well will be utilizing fiber optic technology to help the customer optimize a horizontal water flood program. We had a successful entry into the SAGD market in Canada for our fracturing systems technology earlier this year. This is a first for NCS, and we expect to utilize our technology for additional applications and customers in this market over time. In addition to these projects, we have several other technology developments underway across our various product lines, which I'm looking forward to discussing as they roll out. Mike will now review our results for the first quarter and our guidance for the second quarter.