NCS Multistage Holdings Inc (NCSM) 2023 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Q2 2023 NCS Multistage Earnings Conference Call. (Operator Instructions). 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.

美好的一天，感謝您的支持。歡迎參加 2023 年第二季度 NCS 多階段收益電話會議。 （操作員說明）。請注意，今天的會議正在錄製中。現在，我想將會議交給今天的發言人、首席財務官邁克·莫里森 (Mike Morrison)。請繼續。

Thank you, Didi, and thank you for joining the NCS Multistage Second 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 expectation expressed herein, including the impacts of inflation, Central Bank's actions to combat inflation, distress at U.S. regional banks, the Canadian wildfires and Russia's ongoing invasion in Ukraine on the global economy, oil and natural gas demand and our company.

謝謝滴滴，也感謝您參加 NCS 2023 年第二季度多階段電話會議。今天的電話會議將由我們的首席執行官 Ryan Hummer 主持，我也將發表評論。我想提醒聽眾，今天的一些評論包含前瞻性陳述，例如有關我們對財務業績和業務運營的未來預期的評論。這些聲明，包括我們的財務指導和預期，受到許多風險和不確定性的影響，可能導致我們的實際結果與本文中表達的任何預期存在重大差異，包括通貨膨脹的影響、央行對抗通貨膨脹的行動、美國地區銀行的困境、加拿大山火和俄羅斯持續入侵烏克蘭對全球經濟、石油和天然氣需求以及我們公司的影響。

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 also include non-GAAP financial measures, including adjusted EBITDA, free cash flow and net working capital. The underlying details and reconciliations of non-GAAP measures to the most comparable GAAP financial measures are included in our second quarter earnings release, which can be found on our website, ncsmultistage.com. I'll now turn the call over to Ryan.

請參閱我們最新的 10-K 表格年度報告以及我們最新向 SEC 提交的文件，了解有關前瞻性陳述的風險因素和注意事項。我們今天的評論還包括非公認會計準則財務指標，包括調整後的 EBITDA、自由現金流和淨營運資本。非 GAAP 指標與最具可比性 GAAP 財務指標的基本細節和調節表包含在我們的第二季度收益報告中，您可以在我們的網站 ncsmultistage.com 上找到該報告。我現在將電話轉給瑞安。

Thank you, Mike, and welcome to our investors, analysts and employees joining our second quarter 2023 earnings conference call. Our performance in the second quarter of 2023 was mixed relative to the guidance we provided in early May, with revenue below the low end of the range, but adjusted EBITDA near the higher end of the range. I'll briefly discuss our results and the outlook for each of our U.S., Canadian and international markets. Starting with the U.S. Our revenue of $9.4 million in the second quarter fell below the low end of our guidance of $12 million to $13 million and represented a sequential decline from the first quarter of 2023. The sequential revenue decline in the U.S. reflected the impact of falling industry and drilling and completion activity, which affected all NCS product lines, except for Repeat Precision, for which revenues improved by 13% sequentially.

謝謝邁克，並歡迎我們的投資者、分析師和員工參加我們的 2023 年第二季度收益電話會議。與 5 月初提供的指導相比，我們 2023 年第二季度的業績好壞參半，收入低於該範圍的低端，但調整後的 EBITDA 接近該範圍的高端。我將簡要討論我們的業績以及美國、加拿大和國際市場的前景。從美國開始，我們第二季度的收入為 940 萬美元，低於我們指導的 1200 萬美元至 1300 萬美元的下限，較 2023 年第一季度連續下降。美國的收入連續下降反映了行業以及鑽井和完井活動的下降，影響了所有NCS 產品線，但Repeat Precision 除外，該公司的收入比上一季度增長了13%。

We expect to return to sequential growth in the third quarter, particularly in our fracturing systems and tracer diagnostics product lines. A customer of ours that operates in the Northeast recently discussed that they had set a new record by drilling out 262 plugs in a single run in a 3-mile lateral. We're proud to have been a part of that success and believe that the customers' use of our technology in that well speaks to the robust performance of our plugs, which pumped down efficiently, securely hold pressure during the fracturing treatment and have fast and consistent drill out and wash time performance.

我們預計第三季度將恢復連續增長，特別是在我們的壓裂系統和示踪診斷產品線方面。我們在東北部開展業務的一位客戶最近表示，他們在 3 英里的橫向鑽孔中單次鑽出 262 個插頭，創下了新紀錄。我們很自豪能夠成為這一成功的一部分，並相信客戶在該井中使用我們的技術證明了我們的塞子的強大性能，這些塞子可以有效地抽氣，在壓裂處理過程中安全地保持壓力，並具有快速和可靠的性能。一致的鑽孔和清洗時間性能。

I'll also highlight one interesting project for the quarter. We were engaged by a customer in West Texas to provide our sliding sleeves for using a project to assess the capacity to permanently store CO2 in an undergrad reservoir. For this project, we were able to modify our sliding sleeve to provide a channel for cabling and downhole instrumentation that will be used to assess reservoir performance. This is the first use of our technology for a CO2 storage project, and our sliding sleeve completion technology is ideal to run with permanently installed downhole instrumentation as this may prevent damage to the cabling that could otherwise be caused by perforating guns.

我還將重點介紹本季度的一個有趣項目。我們受西德克薩斯州客戶的委託，為一個項目提供滑動套筒，以評估在地下水庫中永久儲存二氧化碳的能力。對於這個項目，我們能夠修改我們的滑動套筒，為電纜和井下儀器提供通道，用於評估油藏性能。這是我們的技術首次用於二氧化碳封存項目，我們的滑套完井技術非常適合與永久安裝的井下儀器一起運行，因為這可以防止射孔槍可能造成的電纜損壞。

Moving to Canada. Our revenue in Canada of $14.3 million in the second quarter was slightly above the top of our guidance range of $13 million to $14 million and represented an increase of 11% as compared to the second quarter 2022, outpacing industry activity growth for the respective periods. The increase was driven by higher sales of composite plugs, which was the result of a concerted effort by a team spanning sales, operations and technical services in Canada with direct support from repeat precision as well as higher service activity from our fracturing systems product line, especially in June.

搬到加拿大。第二季度我們在加拿大的收入為1,430 萬美元，略高於我們指導範圍1,300 萬美元至1,400 萬美元的上限，與2022 年第二季度相比增長了11%，超過了相應時期的行業活動增長。這一增長是由複合塞銷量增加推動的，這是加拿大銷售、運營和技術服務團隊共同努力的結果，並得到了重複精度的直接支持以及我們壓裂系統產品線更高的服務活動，尤其是六月。

In addition, during the quarter, we moved to a new operations facility at Red Deer in Canada. This allows us to integrate liner hanger activity with our fracturing systems and tracer diagnostics operations. A strategic partner of ours is also co-located at this facility, which is sized to accommodate future volume growth and to support future product line additions. Activity has improved nicely as we've emerged from spring breakup, though the impact of the wildfires in Alberta earlier this year have impacted customer cash flows, resulting in company-specific impacts on activity. These impacts could cause a delay in industry rig counts returning to the highs reached during the first quarter of 2023.

此外，在本季度，我們搬到了位於加拿大紅鹿市的新運營設施。這使我們能夠將尾管懸掛器活動與我們的壓裂系統和示踪劑診斷操作相集成。我們的戰略合作夥伴也位於該工廠，其規模可適應未來產量增長並支持未來產品線的增加。儘管今年早些時候阿爾伯塔省野火的影響已經影響了客戶的現金流，從而對公司的活動產生了特定的影響，但隨著我們從春季分手中走出來，活動得到了很好的改善。這些影響可能會導致行業鑽機數量延遲回到 2023 年第一季度達到的高位。

Internationally, our operations continued to be slow for us in the second quarter with revenue of $1.7 million coming in below the bottom of our guided range of $2 million to $3 million. During the second quarter, we delivered sliding sleeves to a new customer in Norway with the completion of that well scheduled for later this month. We've also made significant progress with other potential new customers in the region and expect to continue to add to our regional customer base in the North Sea, which may lead to an increase in activity for this region in 2024. During July, we completed our first revenue-generating tracer diagnostics project for a leading national oil company in the Middle East.

在國際方面，我們第二季度的運營繼續緩慢，收入為 170 萬美元，低於我們 200 萬至 300 萬美元指導範圍的底部。在第二季度，我們向挪威的一位新客戶交付了滑動套筒，該井計劃於本月晚些時候完成。我們還在該地區其他潛在新客戶方面取得了重大進展，並預計將繼續增加我們在北海的區域客戶群，這可能會導致 2024 年該地區的活動增加。7 月期間，我們完成了我們為中東一家領先的國家石油公司提供第一個創收示踪診斷項目。

I want to thank our tracer diagnostics and international team members that have supported this opportunity as there were significant logistical hurdles to overcome to make the project a success. We are now bidding on projects for several different regional assets with this national oil company and expect to be able to grow this business profitably over time. Our gross margin performance as a company continues to be a bright spot for us. The benefit of price increases realized over the last year has allowed us to generate a gross margin percentage of 39% for the first half of 2023, which compares to 36% for the first half of 2022. We continuously assess opportunities to streamline our operations and to improve profitability.

我要感謝我們的示踪診斷和國際團隊成員對這一機會的支持，因為要使該項目取得成功，需要克服重大的後勤障礙。我們現在正在與這家國家石油公司競標多個不同區域資產的項目，並期望能夠隨著時間的推移實現這項業務的盈利增長。作為一家公司，我們的毛利率表現仍然是我們的亮點。去年實現的價格上漲使我們在 2023 年上半年實現了 39% 的毛利率，而 2022 年上半年為 36%。我們不斷評估精簡運營的機會，並以提高盈利能力。

We initiated efforts in June 2023 to consolidate certain operations and facilities for our tracer diagnostics product line and also consolidated Repeat Precision's manufacturing footprint in Mexico into a single facility. We expect to start recognizing the full benefit of these consolidation efforts in the fourth quarter of this year with an expected annualized benefit of over $1.5 million on a consolidated basis. We maintain our strong balance sheet with $5 million of net cash and an undrawn revolver as of June 30, 2023.

我們於 2023 年 6 月開始努力整合我們的示踪診斷產品線的某些運營和設施，並將 Repeat Precision 在墨西哥的製造足跡整合為一個工廠。我們預計將在今年第四季度開始認識到這些整合工作的全部效益，預計合併後的年化效益將超過 150 萬美元。截至 2023 年 6 月 30 日，我們保持著強勁的資產負債表，擁有 500 萬美元的淨現金和未提取的左輪手槍。

In addition, our consolidated net working capital, excluding cash and short-term debt at June 30, 2023, was over $55 million and exceeds our current market capitalization by approximately $7 million. Our net capital expenditures for the quarter were $0.5 million, highlighting both the capital-light nature of our business and our continued financial discipline. Before I ask Mike to discuss our financial results in more detail, I'll provide an update to our litigation provision. We increased this provision by $24.9 million during the second quarter of 2023 to a total of $42.4 million as of June 30. This primarily reflects the judgment rendered against us in Texas on May 15, 2023.

此外，截至 2023 年 6 月 30 日，我們的合併淨營運資本（不包括現金和短期債務）超過 5500 萬美元，比我們當前的市值高出約 700 萬美元。本季度我們的淨資本支出為 50 萬美元，凸顯了我們業務的輕資本性質和我們持續的財務紀律。在我請邁克更詳細地討論我們的財務業績之前，我將提供我們訴訟條款的最新信息。截至6 月30 日，我們在2023 年第二季度將這項準備金增加了2490 萬美元，總額達到4240 萬美元。這主要反映了2023 年5 月15 日在德克薩斯州對我們做出的判決。

We intend to appeal this Texas judgment and believe that we have strong arguments that may lead to a reversal of some or all of the awarded damages. We continue to expect a large portion up to all of any remaining damages to be covered by insurance and would therefore expect that this matter once resolved, will not have a significant impact on our liquidity or our operations. Both parties have agreed to nonbinding mediation on the Texas matter currently scheduled for the end of August. Over to you, Mike.

我們打算對德克薩斯州的這一判決提出上訴，並相信我們有強有力的論據，可能會導致部分或全部損害賠償金被撤銷。我們仍然預計大部分甚至全部剩餘損失將由保險承保，因此預計此事一旦解決，不會對我們的流動性或運營產生重大影響。雙方已同意就目前定於 8 月底進行的德克薩斯州事務進行不具約束力的調解。交給你了，邁克。

Thank you, Ryan. As reported in yesterday's earnings release, our second quarter revenues of $25.4 million, an 8% decrease compared to last year's second quarter. While our revenues in Canada increased by 11%, this was more than offset by declines in our U.S. and international revenues of 23% and 32%, respectively. On a sequential basis, revenue in the second quarter decreased by 42%, with Canada declining by 53% and the U.S. declining by 17%. The decrease in Canada was primarily related to the normal seasonal decline due to spring breakup and the decrease in the U.S. was due to a decline in rig and completion activity driven by lower commodity pricing, especially for natural gas.

謝謝你，瑞安。根據昨天的財報，我們第二季度的收入為 2540 萬美元，比去年第二季度下降 8%。雖然我們在加拿大的收入增長了 11%，但這被我們美國和國際收入分別下降 23% 和 32% 的下降所抵消。環比來看，第二季度收入下降了 42%，其中加拿大下降了 53%，美國下降了 17%。加拿大的下降主要與春季解體導致的正常季節性下降有關，而美國的下降是由於大宗商品價格下降（尤其是天然氣價格）導致鑽機和完井活動下降。

Our revenues for the first half of 2023 were $68.9 million, up 4% compared to the first half of 2022, primarily due to higher product sales in Canada. Our gross profit, defined as total revenues less cost of sales, excluding depreciation and amortization expense was $8.5 million in the second quarter of 2023, representing a gross profit percentage of 33%, similar to our gross profit percentage for the same period in 2022. Despite the decline in revenues, we maintained our gross margin percentage due to improved pricing of our products and services, which countered the effect of the decline in volumes and the increased cost of our operations.

我們 2023 年上半年的收入為 6890 萬美元，比 2022 年上半年增長 4%，主要是由於加拿大的產品銷量增加。 2023 年第二季度，我們的毛利潤（定義為總收入減去銷售成本，不包括折舊和攤銷費用）為 850 萬美元，毛利率為 33%，與 2022 年同期的毛利率相似。儘管收入下降，但由於產品和服務定價的提高，我們維持了毛利率，這抵消了銷量下降和運營成本增加的影響。

Our first half of 2023, our gross margin percentage improved to 39%, up from 36% in the first half of 2022. Selling, general and administrative costs were $14.5 million in the second quarter, up by $700,000 compared to the second quarter of last year. The increase was primarily due to salary and wage-related expenses resulting from increases in our headcount and merit raises partially offset by a reduction in our professional fees compared to 1 year ago.

2023 年上半年，我們的毛利率從 2022 年上半年的 36% 提高到 39%。第二季度的銷售、一般和管理成本為 1,450 萬美元，比去年第二季度增加了 70 萬美元年。增加的主要原因是我們的員工人數增加和績效加薪所導致的工資和工資相關費用，部分被我們的專業費用相比一年前的減少所抵消。

For the second quarter, we reported a net loss of $32.2 million or a loss per share of $13.02. As Ryan mentioned moments ago, our second quarter results were impacted by an incremental charge of $24.9 million, primarily related to the judgment rendered against us in May. Including the charge we took in the first quarter, our long-term accrual for legal contingencies is $42.4 million as of June 30, 2023. Aside from the amounts previously paid by the insurance carrier to the plaintiff, we have not yet recorded the expected benefit from insurance recoveries as an asset to offset this legal contingent liability.

第二季度，我們報告淨虧損 3220 萬美元，每股虧損 13.02 美元。正如 Ryan 剛才提到的，我們第二季度的業績受到了 2490 萬美元增量費用的影響，這主要與 5 月份對我們做出的判決有關。包括我們在第一季度收取的費用，截至 2023 年 6 月 30 日，我們的法律意外費用的長期應計費用為 4,240 萬美元。除了保險公司之前向原告支付的金額外，我們尚未記錄預期收益將保險賠付作為資產來抵消該法律或有負債。

We would expect to record insurance recoveries in future quarters as they become realizable for GAAP accounting purposes. Excluding this litigation charge, our adjusted net loss was $6.2 million or an adjusted net loss per share of $2.50 compared to an adjusted net loss $5.1 million or an adjusted net loss per share of $2.09 in the second quarter of 2022. Our adjusted EBITDA for the second quarter was a negative $2.2 million, a slight decline compared to the negative $2 million for the same period in 2022 and within our guided range for the quarter. For the first half of 2023, our adjusted EBITDA was a positive $2.6 million, an improvement compared to the $300,000 of adjusted EBITDA in the first half of 2022.

我們預計將在未來幾個季度記錄保險追償，因為這些追償可以根據公認會計準則會計目的實現。不包括此項訴訟費用，我們的調整後淨虧損為620 萬美元，或調整後每股淨虧損為2.50 美元，而2022 年第二季度調整後淨虧損為510 萬美元，或調整後每股淨虧損為2.09 美元。第二季度負 220 萬美元，與 2022 年同期負 200 萬美元相比略有下降，並且在我們本季度的指導範圍內。 2023 年上半年，我們的調整後 EBITDA 為正 260 萬美元，比 2022 年上半年調整後 EBITDA 的 30 萬美元有所改善。

Turning now to cash flow items in the balance sheet. During the second quarter, our cash flow from operations and free cash flow were approximately $500,000 and $100,000, respectively, which continue to anticipate being free cash flow positive for the full year of 2023. On June 30, we had $13.7 million in cash and total debt of $8.8 million, resulting in a positive net cash position of $5 million. As of June 30, the borrowing base available under our undrawn ABL facility was $12.6 million.

現在轉向資產負債表中的現金流量項目。第二季度，我們的運營現金流和自由現金流分別約為50 萬美元和10 萬美元，預計2023 年全年自由現金流將繼續為正。截至6 月30 日，我們的現金和總額為1,370萬美元債務 880 萬美元，淨現金頭寸為 500 萬美元。截至 6 月 30 日，我們未提取的 ABL 額度下的可用借款基礎為 1,260 萬美元。

Turning now to a few points of guidance for the third quarter. We currently expect third quarter total revenues of $47 million to $52 million. We expect U.S. revenue of $10.5 million to $12 million, international revenue of $1.5 million to $2.5 million, and we expect Canadian revenue of $35 million to $37.5 million, each representing sequential increases from the second quarter of 2023. We expect our gross margin percentage to be between 41% and 43%, consistent with our gross margin percentage in the third quarter of 2022. We expect our adjusted EBITDA to be between $8 million and $10 million. We expect our third quarter depreciation and amortization expense to be approximately $1.1 million. I'll hand it over to Ryan to discuss our 2023 full year guidance and for closing remarks.

現在轉向第三季度的幾點指導。我們目前預計第三季度總收入為 4700 萬美元至 5200 萬美元。我們預計美國收入為1050 萬美元至1200 萬美元，國際收入為150 萬美元至250 萬美元，加拿大收入預計為3500 萬美元至3750 萬美元，均較2023 年第二季度連續增長。我們預計毛利率為介於 41% 至 43% 之間，與我們 2022 年第三季度的毛利率百分比一致。我們預計調整後的 EBITDA 介於 800 萬美元至 1000 萬美元之間。我們預計第三季度的折舊和攤銷費用約為 110 萬美元。我將把它交給 Ryan，討論我們的 2023 年全年指導並發表結束語。

Thank you, Mike. So we are adjusting our full year guidance for 2023 as follows. We currently expect full year revenue to be between $160 million and $175 million and full year adjusted EBITDA to be between $18 million and $22 million, consistent with the calculations in our earnings release. The midpoint of this new revenue range is $10 million below the prior range and the midpoint of the adjusted EBITDA range has been reduced by $2.5 million. These adjustments primarily reflect lower expected industry activity levels in North America and the deferral of certain expected work in international markets into 2024.

謝謝你，邁克。因此，我們對 2023 年全年指引進行如下調整。目前，我們預計全年收入將在 1.6 億美元至 1.75 億美元之間，全年調整後 EBITDA 將在 1800 萬美元至 2200 萬美元之間，這與我們財報中的計算結果一致。新收入範圍的中點比之前的範圍低了 1000 萬美元，調整後的 EBITDA 範圍的中點減少了 250 萬美元。這些調整主要反映了北美預期行業活動水平較低以及國際市場某些預期工作推遲至 2024 年。

We expect gross capital expenditures for 2023 of $2 million to $3 million, reducing the midpoint of the range by $1.5 million. We will continue to exercise capital discipline and retain our asset-light business model with very low maintenance capital requirements, we expect our capital spending to support our growth. We continue to expect to be free cash flow positive in 2023 after accounting for both capital spending and investments in net working capital, again, to support our growth. We expect our spending on litigation matters to moderate in the second half of 2023, so we will incur some cash severance and relocation costs in the second half of the year related to our operational and corporate restructuring efforts.

我們預計 2023 年的總資本支出為 200 萬至 300 萬美元，使該範圍的中點減少 150 萬美元。我們將繼續實行資本紀律，並保留我們的輕資產業務模式，維持資本要求極低，我們預計我們的資本支出將支持我們的增長。在考慮了資本支出和淨營運資本投資後，我們仍然預計 2023 年自由現金流將為正，以支持我們的增長。我們預計 2023 年下半年我們在訴訟事務上的支出將有所放緩，因此我們將在下半年承擔一些與運營和企業重組工作相關的現金遣散費和搬遷成本。

As these costs abate, we would expect to convert a higher percentage of our adjusted EBITDA to free cash flow going forward. Underpinning our revenue expectations is an anticipated year-over-year decline in average annual industry activity of 5% to 10% in the U.S. and an increase in year-over-year average annual industry activity in Canada of up to 5%. We continue to expect international industry activity to grow by at least 10% in 2023. We expect our revenue growth to exceed that of the underlying industry through our price increases, growth in international markets and the adoption of newly introduced technologies across our product and service lines.

隨著這些成本的降低，我們預計未來將更高比例的調整後 EBITDA 轉換為自由現金流。支撐我們收入預期的是，美國的年均行業活動預計將同比下降 5% 至 10%，而加拿大的年均行業活動將同比增長高達 5%。我們仍然預計 2023 年國際行業活動將增長至少 10%。我們預計，通過提價、國際市場增長以及在產品和服務中採用新引入的技術，我們的收入增長將超過基礎行業的增長線。

Due to the seasonality of our business and consistent with prior years, the achievement of our annual adjusted EBITDA guidance range is weighted to the second half of the year. Also as discussed earlier, we believe that the recent Texas judgment against us will be covered by insurance with the award potentially reduced through appeal in time if the matter does not get settled through mediation or negotiation. We believe the final resolution of the matter, which could take several quarters or years will not have a significant impact on our liquidity or operations.

由於我們業務的季節性且與往年一致，我們的年度調整後 EBITDA 指導範圍的實現權重為下半年。同樣如前所述，我們認為最近德克薩斯州針對我們的判決將由保險承保，如果問題未能通過調解或談判解決，裁決可能會通過及時上訴而減少。我們相信，該問題的最終解決可能需要幾個季度或幾年的時間，不會對我們的流動性或運營產生重大影響。

Before we open the call up to Q&A, I'll close with a couple of brief comments. First, we expect to continue to grow revenue approximately 5% to 10% in 2023, despite reduced expectations for industry activity levels. We have the infrastructure in place to support revenue growth in each of our geographic markets, which provides leverage to grow future earnings. However, we are also proactively assessing opportunities to rationalize this infrastructure and operate more efficiently as we demonstrated through the consolidation efforts in our tracer diagnostics operations and the manufacturing activity at Repeat Precision.

在我們開始問答環節之前，我將以一些簡短的評論作為結束。首先，儘管降低了對行業活動水平的預期，但我們預計 2023 年收入將繼續增長約 5% 至 10%。我們擁有適當的基礎設施來支持每個地理市場的收入增長，這為增加未來收益提供了槓桿。然而，我們也在積極評估合理化該基礎設施並提高運營效率的機會，正如我們通過跟踪診斷業務和 Repeat Precision 製造活動的整合工作所證明的那樣。

We maintained a strong balance sheet and liquidity position with a cash balance of over $13 million at the end of the second quarter. We expect to add to that balance by the end of the year by generating positive free cash flow in 2023, providing us with further financial and strategic flexibility. We are taking steps to further enhance the effectiveness of our innovation efforts at NCS so that we continue to introduce new technologies that meet the needs of our customers, adding to our portfolio and expanding our addressable market over time. With that, we'll welcome any questions on the call.

我們保持了強勁的資產負債表和流動性狀況，第二季度末現金餘額超過 1300 萬美元。我們預計到 2023 年將產生正的自由現金流，從而在年底前增加這一平衡，從而為我們提供進一步的財務和戰略靈活性。我們正在採取措施進一步提高 NCS 創新工作的有效性，以便我們不斷推出滿足客戶需求的新技術，不斷豐富我們的產品組合併擴大我們的目標市場。這樣，我們將歡迎您在電話中提出任何問題。

(Operator Instructions) And our first question comes from John Daniel of Daniel Energy Partners.

（操作員說明）我們的第一個問題來自 Daniel Energy Partners 的 John Daniel。

You cited what was one of the most impressive sort of D&C efficiencies this earnings season, the drill out with, I think, 262 or 266 plus, I can't remember the exact number. As you all know, you didn't have the customer, but it's one of the more respected operators up in that area who is likely going to be doing more longer laterals as well as all the other operators in that area. I'm just curious sort of what that quick commercial for you. When do you get the phone call for the next well like that? And knowing how this industry tends to copy some stuff over time, like where would you expect other operators to see what worked well on that for that project and try to replicate it? And how do you see that playing out for benefiting you guys?

您提到了本財報季最令人印象深刻的 D&C 效率之一，我認為是 262 或 266 加上，我不記得確切的數字了。眾所周知，您沒有客戶，但該客戶是該地區最受尊敬的運營商之一，他可能會像該地區的所有其他運營商一樣提供更長的支線服務。我只是好奇你的那個快速廣告是什麼。你什麼時候接到下一口這樣的井的電話？隨著時間的推移，了解這個行業如何傾向於復制一些東西，比如你希望其他運營商在哪裡看到對該項目有效的東西並嘗試複製它？您認為這對你們有什麼好處？

Sure. Thanks, John. Yes, a couple of points there. I think, one, that operator, in particular, is continuously operating, I believe, 2 completion crews they had built up some DUCs heading into the year. So activity was pretty heavy coming into the first half and may slow down a bit in the second. But with continuous activity there, we've got a line of sight to continue to provide them with plugs throughout the remainder of their program. And as you know, there's continued M&A activity and consolidation activity taking place.

當然。謝謝，約翰。是的，有幾點。我認為，特別是該運營商正在持續運營，我相信，他們已經在今年建立了一些 DUC。因此，上半年的活動相當活躍，下半年可能會有所放緩。但隨著那裡的持續活動，我們有能力在他們的計劃的其餘部分繼續為他們提供插頭。如您所知，併購活動和整合活動仍在持續進行。

There's a chance that their completion program that they're utilizing our plug port, is expanded to a broader scope of operations. There are a couple of things that are unique about the program there, one that they uses a size configuration that's a little bit different than most of the operations in the U.S. So most operators are using 5.5-inch casing for completions. These are somewhat specialized, and they utilize 6-inch casing, but that's proven to be a very efficient methodology for this customer in particular.

他們利用我們的插頭端口的完成計劃有可能擴展到更廣泛的操作範圍。該項目有一些獨特之處，其中之一是他們使用的尺寸配置與美國大多數作業略有不同，因此大多數操作員都使用 5.5 英寸套管進行完井。它們有些專業化，並且使用 6 英寸外殼，但事實證明，這對於該客戶來說是一種非常有效的方法。

The other thing that's somewhat unique about this project, if you just do the math, it's a 3-mile lateral with 262 plugs. So stage spacing of about 60 feet, which is tighter than a lot of other operators would be doing. So there's a chance that as you get learnings and other operators see how efficient and effective this completion was that you could see stage spacing by others in the region, move a bit tighter to kind of mimic the operations as well.

這個項目的另一件事有點獨特，如果你算一下，它是一條 3 英里長的支線，有 262 個插頭。因此，舞台間距約為 60 英尺，比許多其他運營商的間距要窄。因此，當您獲得經驗和其他操作員看到完成的效率和效果時，您可能會看到該地區其他人的舞台間距，移動得更緊一點以模仿操作。

Okay. I don't want to -- well, I do want you to give the numbers, but I don't think you will. How would you compare the margins on a project like that with other business that you would generate in the states? Like if you get more of that, assume a margin uplift to you? I don't know.

好的。我不想——好吧，我確實希望你提供數字，但我認為你不會。您如何將此類項目的利潤與您在各州產生的其他業務進行比較？就像如果你得到更多，假設你的利潤會增加？我不知道。

So I think the biggest benefit to us, John, is with the size of that program and with the number of stages that they're able to complete in a day. It's really that we're selling into a known quantity, and we can be very efficient in supplying that as opposed to working with, call it, a handful of operators on the private side that may be running half a completion crew and going from well to well, where it's a bit less efficient to supply them. But once in operational like that gets up and going, it's good business for sure.

所以我認為，約翰，對我們來說最大的好處是該計劃的規模以及他們一天內能夠完成的階段數量。事實上，我們正在以已知的數量進行銷售，並且我們可以非常有效地供應這些產品，而不是與私人方面的少數運營商合作，這些運營商可能運行著半個完井人員，並且從良好的狀態開始。好吧，供應它們的效率有點低。但一旦像這樣開始運作，這肯定是一筆好生意。

(Operator Instructions) And our next question comes from Dave Storms of Stonegate.

（操作員說明）我們的下一個問題來自 Stonegate 的 Dave Storms。

Just hoping to get maybe a little additional color on some of the expansion plans you have beyond North America. Great to hear that it sounds like you got a little traction in the tracer diagnostics section in the Middle East. But just wondering if you could talk a little more about maybe what that means going forward? And additionally, any additional growth in I believe it was Black Sea as well?

只是希望能夠為您在北美以外的一些擴張計劃提供一些額外的信息。很高興聽到您在中東的示踪診斷領域獲得了一些關注。但只是想知道您是否可以多談談這對未來意味著什麼？此外，我相信黑海也有任何額外的增長嗎？

Sure. Yes. So we've really concentrated our international growth efforts over the last year or 2 on 2 regions in particular. The first is the Middle East, and in there, we have some good ongoing activity in Oman, and it's taken a little bit of a while for us to go through the process of getting qualified with some of the other NOCs in the region. And with -- what I'd say is the largest NOC in the Middle East, we now have multiple products that are cataloged and which we can -- we've gone through successful field trials and are available for revenue-generating sales going forward. That would include our tracer diagnostics product line as well as a couple of products within our well construction portfolio.

當然。是的。因此，我們在過去一年中確實集中了國際增長努力，特別是在 2 對 2 地區。第一個是中東，在那裡，我們在阿曼正在進行一些良好的活動，我們花了一點時間才完成獲得該地區其他一些國家石油公司資格的過程。我想說的是，中東最大的國家石油公司（NOC），我們現在擁有多種已編目的產品，並且我們可以——我們已經成功進行了現場試驗，並且可以用於未來創收的銷售。這將包括我們的示踪診斷產品線以及我們的建井產品組合中的一些產品。

So with the good performance in the first tracer diagnostics job here that concluded in July, we see a good scope to deploy that tracer diagnostic service across a number of different regions for them, including some conventional activity but also some unconventional activity. And that's good, high-volume work for us. We've got the logistics worked out now where we've got enough chemical in the region to support multiple jobs through the end of the year and have that process worked out where we can serve them on a continuous basis. So we expect to see good uptake on that through the back half of the year and really set the stage for us to grow into 2024 with the tracer diagnostics product line there in the Middle East.

因此，憑藉 7 月份結束的第一項跟踪診斷工作的良好表現，我們看到了在許多不同區域為他們部署跟踪診斷服務的良好範圍，包括一些常規活動，但也包括一些非常規活動。這對我們來說是很好的大批量工作。我們現在已經解決了物流問題，我們在該地區有足夠的化學品來支持年底前的多項工作，並且已經解決了我們可以持續為他們提供服務的流程。因此，我們預計今年下半年將獲得良好的應用，並為我們在中東的示踪診斷產品線在 2024 年的發展奠定基礎。

The other primary international growth focus area for us has been the North Sea. We started working there several years ago. Over the course of the last 4 to 5 years, Aker BP has been our primary customer in the region. We've expanded our customer base there recently over the last few years, late last year and into this year, we started supplying a second customer who operates on the U.K. side of the North Sea. We have several wells installed with them now that are producing. We expect to be able to install a few more wells with them over the course of the next 6 to 9 months.

我們的另一個主要國際增長重點領域是北海。幾年前我們開始在那里工作。在過去 4 到 5 年裡，Aker BP 一直是我們在該地區的主要客戶。最近幾年，我們擴大了那裡的客戶群，從去年年底到今年，我們開始向在北海英國一側運營的第二個客戶供貨。我們已經安裝了幾口井，現在正在生產。我們預計在接下來的 6 到 9 個月內能夠用它們安裝更多的井。

And then as mentioned earlier, we supplied sleeves during the second quarter and have completion operations scheduled for later this month with a third customer in the region who operates out of the Norwegian side of the North Sea. Underneath that, we've had continuous discussions with several other operators in the region. I'd say we've got pretty positive indications from 2 or 3 other customers about future activity. So we think we're doing -- the team has done a very good job of building up from really a single anchor customer to having multiple customers operating in the region that could support activity across both the U.K. and the Norwegian North Sea and maybe even the Denmark operating area and some others over time.

正如前面提到的，我們在第二季度供應了套管，併計劃於本月晚些時候與該地區的第三個客戶完成作業，該客戶在北海的挪威一側運營。在此基礎上，我們與該地區的其他幾家運營商進行了持續的討論。我想說，我們已經從 2 到 3 個其他客戶那裡得到了關於未來活動的非常積極的跡象。因此，我們認為我們正在做的事情 - 該團隊做得非常好，從真正的單一錨定客戶發展到在該地區運營多個客戶，可以支持英國和挪威北海甚至可能的活動丹麥運營區域和其他一些區域隨著時間的推移。

So we're very optimistic about that opportunity. And we're also looking to find ways that has traditionally been a fracturing systems market for us, looking for ways to deploy some of our other product lines in the region as well.

所以我們對這個機會非常樂觀。我們還在尋找傳統上壓裂系統市場的方法，尋找在該地區部署我們的其他一些產品線的方法。

That's very helpful. And I think I called it the Black Sea, but clearly, I meant the North Sea. The other question I just wanted to ask real quick. I know you don't have a lot solidified around some of the litigation. I know you mentioned that there's some nonbinding mediation that will probably take place at the end of August. Is there any guesses around when there may be more answers around either insurance payments or the appeals process? Anything logistical would be very helpful.

這非常有幫助。我想我稱之為黑海，但顯然，我指的是北海。另一個問題我只是想快速問一下。我知道您對某些訴訟還沒有太多的了解。我知道你提到過一些不具約束力的調解可能會在八月底進行。是否有任何關於保險付款或上訴程序何時可能有更多答案的猜測？任何後勤方面的事情都會非常有幫助。

Yes. I mean there are certainly -- there's a time frame associated with when we and our insurance carrier would indicate that we would plan to appeal the case. That would be in the coming months, assuming that we -- if we're not successful in reaching an agreement through the mediation or direct settlement, we go down the appeals process, and that would be within the coming months. But with that, any appeal once filed, it could be up to a year until that appeal gets scheduled. So uncertainty -- unfortunately, if we're not successful through mediation, the timeline for the matter could take, again, several quarters up to a few years. So we're -- that's really the best I can give you from a timeline standpoint right now.

是的。我的意思是，我們和我們的保險公司何時表明我們計劃對此案提出上訴，是有一個時間框架的。那將是在未來幾個月內，假設我們 - 如果我們不能通過調解或直接和解成功達成協議，我們將進入上訴程序，這將在未來幾個月內完成。但這樣一來，任何上訴一旦提出，可能需要長達一年的時間才能安排上訴。因此，不確定性 - 不幸的是，如果我們不能通過調解取得成功，那麼解決該問題的時間可能會再次需要幾個季度甚至幾年。所以我們——從時間線的角度來看，這確實是我現在能給你的最好的信息。

So unfortunately, we have the charge that we've taken and the balance sheet liability. However, we continue to believe that the judgment will be reduced upon appeal, and that we'll continue to have any final resolution will be covered up to most, if not all of it, will be covered through insurance proceeds. So we don't believe that it'll have a material impact on our liquidity or in our business, but it's just hanging out there as a charge right now, and we'll look to do everything we can, together with our insurance carrier to move that towards settlement or to make sure that we're in a position to be able to recognize the benefit of insurance when we can. But that's really a GAAP matter, and it's something that will take time.

不幸的是，我們承擔了我們所承擔的費用和資產負債表上的責任。然而，我們仍然相信，上訴後判決將會減輕，並且我們將繼續通過保險賠償金來支付任何最終解決方案，直至大部分（如果不是全部）。因此，我們認為這不會對我們的流動性或業務產生重大影響，但它現在只是作為一項費用掛在那裡，我們將與我們的保險公司一起盡我們所能推動解決方案或確保我們能夠在可能的情況下認識到保險的好處。但這確實是一個公認會計準則問題，而且需要時間。

Our next question comes from Jeff Robertson of Water Tower Research.

我們的下一個問題來自 Water Tower Research 的 Jeff Robertson。

Ryan, just a follow-up on the question about -- that John asked, does the applications that you will use in the Northeast have other applications in other basins where operators continue to push lateral lengths?

Ryan，只是約翰問的問題的後續，您將在東北部使用的應用程序是否在運營商繼續推動橫向長度的其他盆地中也有其他應用程序？

Yes. Absolutely, it does, right? And I think one of the things that's certainly interesting about that project is it's a 3-mile lateral that was completed completely with composite plugs, right, and repeat precision composite plug. So there's a notion out there that as you get to extended lateral depths, you might need to utilize dissolvables or some other technology. But I think this helps to prove that you can use composites out to the lateral lengths that leading-edge operators are pushing wells today.

是的。絕對是這樣，對吧？我認為該項目最有趣的事情之一是，它是一個 3 英里長的支線，完全使用複合材料插頭（右側）和重複精密複合材料插頭完成。因此，有一種觀點認為，當您達到擴展的橫向深度時，您可能需要利用可溶解物或其他一些技術。但我認為這有助於證明您可以使用複合材料達到當今領先運營商推井的橫向長度。

The other thing I'd say is that while that plug is in a 6-inch casing, the base design of the plug is no different than our 5.5-inch plug that gets used in regions all across the U.S. So yes, I mean, it's got applications for operators in any basin. In addition, we have seen certain operators utilize that larger casing size in the Eagle Ford and start to experiment with it in the Permian as well. So I think the short answer is yes. I think the performance of the plug would extend to any geography.

我要說的另一件事是，雖然該插頭採用 6 英寸外殼，但該插頭的底座設計與我們在美國各地使用的 5.5 英寸插頭沒有什麼不同。所以是的，我的意思是，它為任何流域的操作員提供了應用程序。此外，我們還看到某些運營商在 Eagle Ford 中使用了更大的套管尺寸，並開始在二疊紀進行試驗。所以我認為簡短的答案是肯定的。我認為該插頭的性能可以擴展到任何地理區域。

Thank you. I would now like to turn the conference back to Ryan Hummer, CEO, for closing remarks.

謝謝。現在我想請首席執行官 Ryan Hummer 致閉幕詞。

All right. Thank you, Didi. So on behalf of our management team and our Board, we'd like to thank everyone on our call today, including shareholders, analysts and especially our employees. I truly appreciate the depth and breadth of the expertise of our people at NCS and Repeat Precision and the passion and efforts that our people bring to their work. I look forward to the continued accomplishments made possible by this great team. We continue to believe that we're in a multiyear cycle of improved growth and earnings prospects for our industry globally despite the reduction in the U.S. rig count this year.

好的。謝謝你，迪迪。因此，我們謹代表我們的管理團隊和董事會，感謝今天參加電話會議的所有人，包括股東、分析師，尤其是我們的員工。我衷心感謝 NCS 和 Repeat Precision 員工的專業知識的深度和廣度，以及他們為工作所付出的熱情和努力。我期待著這個偉大的團隊繼續取得成就。我們仍然相信，儘管今年美國的鑽機數量有所減少，但我們行業仍處於全球增長和盈利前景改善的多年周期中。

I'm excited by how NCS is positioned to participate in that growth and deliver benefits to our employees, customers, shareholders and other stakeholders as we execute on our strategic plans. We remain focused on delivering on our core strategies of building upon our leading market positions, capitalizing on international and offshore opportunities and commercializing innovative solutions to complex customer challenges. We appreciate everyone's interest in NCS Multistage, and we look forward to updating you again on our next quarterly earnings call.

我對 NCS 在執行戰略計劃時參與這一增長並為我們的員工、客戶、股東和其他利益相關者帶來利益感到興奮。我們仍然專注於實現我們的核心戰略，即鞏固我們領先的市場地位，利用國際和離岸機會，並將創新解決方案商業化，以應對複雜的客戶挑戰。我們感謝大家對 NCS Multistage 的興趣，我們期待在下一次季度財報電話會議上再次向您通報最新情況。

This concludes today's conference call. Thank you for participating, and you may now disconnect.

今天的電話會議到此結束。感謝您的參與，您現在可以斷開連接。