NCS Multistage Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2024 NCS multi-stage 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 11 on your telephone. You will 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 like now to turn the conference over to Mike Morrison, Chief Financial Officer. Please go ahead.

Thank you, Michelle, and thank you for joining the NCS Multistage Second 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 Part 10-K and our latest FCC filings for risk factors and cautions regarding forward-looking statements. Our comments today, as well as the results of operations, including in our earnings release, contain the following non-GAAP financial measures. Adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin, adjusted net loss, free cash flow, less distributions, non-controlling interest, and net working capital. The underlying details and reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are provided in our second 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 second quarter 2024 earnings conference call. NCS has continued its strong start to 2024. Our second quarter revenue of $29.7 million increased 17% compared to the prior year and was near the high end of our guided range provided on our last earnings call. This was led by our performance in the US and in international markets. Our revenue for the first half of 2024 of $73.5 million represents a 7% increase over last year. Our adjusted gross margin, which excludes depreciation and amortization expense, was 40% and exceeded our guided range for the quarter, supported by margin accretive international revenues. Our SG&A expense of $14.8 million for the quarter was $0.3 million higher than the second quarter of 2023, reflecting higher incentive bonus accruals based on our favorable operating results, substantially offset by cost-saving measures implemented last year and other reduced expenditures. We benefited from an increase in other income as compared to the second quarter of last year, primarily due to royalty income from licensing of our intellectual property, with a new licensee added during the second quarter. Our adjusted EBITDA of $0.9 million exceeded our guided range for the quarter of negative $2 million to break even and represents a year-over-year improvement of over $3 million. Our adjusted EBITDA for the first half of 2024 of $7 million improved by $4.4 million as compared to the first half of 2023. This improvement includes year-over-year contributions from increased revenue, a higher adjusted gross margin percentage, and increased other income, as well as lower SG&A expenses, as each part of our business has contributed to our more favorable results. Our balance sheet remains strong, with our cash balance increasing to $18.6 million at June 30th, supported by our free cash flow, less distributions to non-controlling interest of $3.2 million during the first six months of 2024. In prior earnings calls, I've referenced NCS's core strategies for creating value for our stakeholders. Slide 13 in our investor presentation helps to illustrate our strategy and provide examples of our progress. The first core strategy is to build upon our leading market positions. I'll start with fracturing systems, where we continue to differentiate ourselves both onshore and offshore. During the second quarter, we completed a well for a customer in the Montney Formation in Canada that had 275 sliding sleeves installed. The next pad in this area with the customer will feature four wells with NCS sliding sleeves, with one of those wells currently planned to include over 300 sliding sleeves, which would set yet another record for us. This demanding work demonstrates our differentiated suite of technology, the quality of our robust service tools and multi-cycle sleeves, and perhaps more importantly, the expertise that our people bring to our customers' well sites to support highly efficient, repeatable completions. We've also demonstrated the benefits of our strategy to build on our leading market positions in our tracer diagnostics product line. We believe we have a top two market position in North America and Tracer Diagnostics and are leveraging that position to achieve profitable growth outside of North America. Revenue for our Tracer Diagnostics product line was up 23% for the first six months of 2024 as compared to the same period in 2023. And thus far in 2024, we have provided our Tracer Diagnostics services to customers in seven countries, including five outside of North America. This success ties directly to our second core strategy, which is to capitalize on international and offshore market opportunities. The strategic investments we've made and initiatives implemented over the last several years to expand the scope of our opportunities outside of North America are delivering strong results for NCS in 2024 and have set the stage for further international growth in the coming years. Our international revenue for the first half of 2024 of $8 million has already exceeded our full year 2023 international revenue and has supported the resilience in our adjusted gross margin during the second quarter. For 2024, we are on track to approach or exceed NCS's record level of annual revenue from international markets, established in 2019 at more than $15 million. In addition to the growth in international markets attributable to our tracer diagnostic services in the Middle East, We've expanded our customer base for fracturing systems in the North Sea and have seen a market recovery in Argentina following last year's elections. We're very optimistic in particular about the North Sea over the next several years, as our largest customers in the region intend to proceed with multi-year development plans, complementing the work that we've done to grow our customer base. 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 for successfully entering new markets and regions. I'll briefly highlight a few of these exciting projects. We had a very successful completion of our first well with a new customer in the Norwegian North Sea during the second quarter. For this well, our service tool was deployed on drill pipe, which is technically demanding. We are expanding our market opportunity by providing our customers with fit-for-purpose solutions with various sleeve technologies and the flexibility on how the sleeves can be shifted into the open, closed, or screened positions as desired. We followed up on our successful deployment of tracer diagnostics in the Middle East with sales of our casing buoyancy systems. Our technology was selected for this work due to our extensive efforts to expand the operational envelope for these systems. particularly by increasing pressure ratings to meet the customer's well requirements. Repeat Precision is advancing several new products this year. We currently expect field trials for our new dissolvable frac plug during the third quarter. Successful deployment of this new product will allow us to capture additional revenue from existing customers initially and to grow the customer base at Repeat Precision over time. Earlier this year, we mentioned our successful entry into the SAGD market in Canada for our fracturing systems technology. The operational success of this application has led to additional order from the initial customer, has generated interest from other customers in this large market, including an opportunity to deploy our technology in another more technically demanding application later this year. We have several other technology developments underway across our various product lines, which we'll speak to in future calls. Mike will now review our results for the second quarter and our guidance for the third quarter.