NCS Multistage Holdings, Inc.

Good day and thank you for standing by. Welcome to the third quarter 2024 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 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 now like to hand the conference over to your speaker today, Mike Morrison, Chief Financial Officer. Please go ahead.

Thank you, DeeDee, and thank you for joining the NCS Multistage Third 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 expectations for future financial results and business operations. These statements are subject to risk and uncertainties that could cause our actual results to differ materially from any expectation expressed on this call. 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. These non-GAAP measures and reconciliations to the most comparable GAAP financial measures are presented in our third quarter's 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 the NCS third quarter 2024 earnings conference call. NCS has continued its strong performance throughout 2024. Our third quarter revenue of $44 million increased by 15% compared to the prior year and was at the high end of the guided range provided on our last earnings call, reflecting year-over-year increases in each of the U.S., Canada, and international markets. Our revenue for the first nine months of 2024 of $118 million represents a 10% increase over the same period last year. Our adjusted gross margin, which excludes depreciation and amortization expense, was 42% and represents the high end of our guided range for the quarter supported by margin accretive international revenue. SG&A expense of $14.1 million for the quarter was $1.5 million higher than the third quarter of 2023, reflecting higher incentive bonus accruals based on our favorable operating results, partially offset by the benefit realized from cost savings measures implemented last year and other expense reductions. SG&A expense for the first nine months of 2024 is lower by $0.5 million as compared to the same period in 2023. Our adjusted EBITDA of $7.1 million exceeded our guided range for the quarter of $5 to $7 million. Our adjusted EBITDA for the first nine months of 2024 of $14.1 million improved by $4.6 million as compared to the same period in 2023. This improvement includes year-by-year contributions from revenue growth, a higher adjusted gross margin percentage, incremental royalty income included in other income, as well as lower SG&A expenses, with each part of our business contributing to our more favorable results. This is also evident in our net income to NCS shareholders. During the third quarter, net income was $4.1 million, or $1.60 per diluted share. Net income for the first nine months of the year, which includes our seasonally slower second quarter, was $3.1 million, or $1.21 per diluted share. Our balance sheet remains strong. Our cash balance and total liquidity were $15.3 million and over $37 million, respectively, on September 30th. Our free cash flow, less distributions, non-controlling interest was $0.4 million for the first nine months of 2024, representing an improvement of $3.3 million compared to the same period last year. In prior earnings calls, I've referenced NCS's core strategies for creating value for our stakeholders. Slide 13 in our investor presentation illustrates our strategy and provides examples of this progress. The first core strategy is to build upon our leading market positions. I'll start with fracturing systems, where we continue to deliver unique value for our customers. During the third quarter, a customer in Canada adopted our sliding sleeve solutions to mitigate the impact of seismic events during fracturing operations. This customer is required to monitor seismic activity while they frack their wells. Previously, this customer was forced to shut down operations once seismic events exceeded established thresholds. The customer had a difficult decision to make. either wait to resume operations, decreasing efficiency, or to move uphole to a different section of the lateral, sacrificing a portion of the well. To mitigate this, the customer recently adopted NCS sliding sleeves in the region, employing our shift rack close process. When elevated seismic activity was encountered, the operator simply moved up the well bore a few hundred feet and resumed operations, maintaining efficiency. Once the remaining stages of the well were complete, the customer was able to run back to the bypassed area where the pressure had since dissipated and stimulate the zone that had previously been bypassed. This type of solution is simply not available when using alternative completion techniques and highlights our differentiated technology, the quality of our robust service tools and multi-cycle sleeves, and perhaps more importantly represents the expertise that our people bring to the customer's well sites to deliver valuable solutions to our customers' challenges. We've also demonstrated the benefits of our strategy to build on our leading market positions and our tracer diagnostics product line. During the quarter, we provided tracer diagnostic services on a high-profile geothermal well in the U.S. and also traced a customer's well in the North Sea, which was a first for NCS in this region. The latter success ties directly to another core strategy, which is to capitalize on international and offshore opportunities. The strategic initiatives we've implemented and investments we've made over the last several years to capture opportunities outside of North America are delivering strong results for NCS in 2024 and provide the foundation for further international growth in coming years. Our international revenue for the first nine months of 2024 of $12 million has already exceeded our full year 2023 international revenue, supporting our year-over-year increase in adjusted gross margin. For 2024, we expect to meet or exceed NCS's prior record level of annual revenue from international markets of more than $15 million, which was established in 2019. For the first nine months of 2024, international revenue represented 10% of total revenue for us, an increase from 5% in the same period last year. We've grown our tracer diagnostic services in the Middle East, expanded our customer base for fracturing systems in the North Sea, and are benefiting from increased activity in Argentina as activity in the Vaca Muerte accelerates. We're optimistic about the North Sea over the next several years as our key customers are proceeding with multi-well development projects that will span several years. This additional activity complements the work that we've done to grow our customer base and to commercialize our tracer diagnostics offering in this region. We also expect to benefit from new contracts signed in the Middle East for our well construction portfolio. supporting conventional and unconventional resource development in the region. 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 to successfully enter new markets and regions. I'll briefly highlight a few of these exciting projects. We've developed a larger version of our FRAC sleeve and service tool to be run with 7-inch casing. We expect to run this system for the first time either later this year or early in 2025 for a customer operating in Alaska. This development expands our addressable market, enabling us to participate in projects for which the customer is seeking greater flow rates, including certain offshore markets, water disposal wells, carbon capture and sequestration, geothermal, and SAGD applications. During the last call, I mentioned the development of a high-pressure airlock in the Middle East. I'm pleased to announce that we've expanded on this success with additional airlock runs during the quarter and early in the fourth quarter of 2024. We're in the final stages of negotiating a multi-year commercial purchasing agreement with this customer for multiple products within our well construction product line. The trials of our high performance dissolvable frac plug mentioned on our call last quarter were very successful. The customer achieved increased treating pressure as compared to previously run competing dissolvable plugs. Surface pressures indicated good sealing performance, which provides enhanced reservoir access. We expect additional trials to accelerate in the fourth quarter and will expand this offering to new sizes and to accommodate higher salinity conditions. During the third quarter and early in the fourth quarter, we provided unique completion solutions to customers' carbon capture and sequestration wells in both the US and Canada. By using our fracturing systems technology, these customers can thoroughly test the injectivity and storage capacity of multiple vertical zones in their reservoirs. In addition, we have several other technology developments underway across our various product lines, which we'll speak to in more detail in future calls. Mike will now review the results for the third quarter in more detail and provide our guidance for the fourth quarter.