NCS Multistage Holdings Inc (NCSM) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to Quarter 1 2021 NCS Multistage Earnings Conference Call. (Operator Instructions) Please be advised that today’s conference is being recorded. (Operator Instructions)

I would now like to transfer the conference over to your speaker, Mr. Ryan Hummer. Please go ahead.

Thank you, and thank you for joining the NCS Multistage First Quarter 2021 Conference Call. Our call today will be led by our CEO, Robert Nipper, and I will also provide comments.

We would like to caution listeners that some of the statements made on this call could be forward-looking and to the extent that our remarks today contain information, other than historical information, please note that we are relying on federal safe harbor protections. Such forward-looking statements may include comments regarding our future expectations for financial results and business operations and are subject to known and unknown risks and uncertainties, including with respect to the COVID-19 pandemic and its impact on the global economy, oil demand and our company. I would like to refer you to our press release issued last night along with other public filings made from time to time with the SEC that outline those risks.

In today's call, we refer to adjusted EBITDA, free cash flow and net working capital, which are non-GAAP financial measures. We use these measures because they allow us to compare financial performance consistently over various periods, without regard to costs associated with our current capital structure and in a manner that we believe better reflects our operating performance. Our press release and the updated investor presentation posted yesterday, both of which are available on our website at www.ncsmultistage.com provide reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure.

I will now turn the call over to Robert.

Thanks, Ryan. Welcome to our investors, analysts and employees joining our first quarter 2021 earnings conference call. Our performance in the first quarter was largely in line with the guidance we provided in early March. I'll briefly discuss our results and outlook for each of the U.S., Canada and international markets.

Starting with the U.S., our revenue of $7.8 million in the first quarter, slightly outperformed our guidance of $6.5 to $7.5 million as March revenues exceeded our expectations for both Repeat Precision and our Fracturing Systems product line. Volumes at Repeat Precision have increased from the lower levels seen early in the first quarter and the upgrades that we made to our plug design have provided the reliability that we and our customers have come to expect.

With WTI pricing stabilizing at or above $60 a barrel, we've seen an increase in Fracturing Systems work in the U.S., as private operators have increased activity in the basins where pinpoint completions using sliding sleeve have demonstrated our operational benefits for our customers. As a result, we expect that we will return to sequential revenue growth in the U.S. in the second quarter.

Our Canadian revenue of $20.2 million in the first quarter was near the high end of our guidance of $19 million to $20.5 million despite weather-driven activity reductions from spring break-up starting about a week earlier than normal. I'm very pleased with the initial adoption of our Terrus sleeves for waterflood applications in Canada, as post-completion activity presents an exciting opportunity for NCS. We expect that our Canadian business will exhibit typical seasonality with a period of low activity through May before recovering in June through the winter drilling season. This stands in stark contrast to last year when rig counts reached multi-decade lows and activity didn't rebound until August or September.

We're encouraged by discussions with our customers about both the timing and scope of their expected activity after spring break-up, weather permitting. This is also reflected in the most recent survey by the Petroleum Services Association of Canada, which recently increased their expectation for the number of wells to be drilled in Canada in 2021 by 11% as compared to their initial expectation in January.

International operations were very slow for us in the first quarter, as recovery has lagged North America, which is reflected in our international revenue of only $0.5 million during the quarter. International activity has started to recover for us in the second quarter, and we believe that it will continue to increase as we move into the second half of the year.

We continue to remain focused on managing our costs and have maintained discipline on SG&A and capital spending. Our SG&A for the first quarter of 2021 decreased by 39% as compared to the first quarter of 2020. Our net capital expenditures for the quarter were only $0.1 million, highlighting both capital-light nature of our business and our financial discipline.

We have also retained our strong balance sheet with approximately $6 million in net cash and an undrawn revolver as of March 31. The borrowing base of our revolver at the end of March exceeded $14 million. Our entire team at NCS has done a tremendous job, and I'm proud to say that we've continued our track record of zero recordable incidents from 2020 into 2021 with no reportable incidents thus far this year.

Now, I ask Ryan to discuss our financial results in more detail.

Thank you, Robert. As reported in yesterday's earnings release, our first quarter revenues were $28.5 million, 48% lower than the prior year's first quarter. On a sequential basis, however, revenue in the first quarter was 4% higher than revenue in the fourth quarter of last year with a seasonally driven 45% increase in Canada offset by reductions of 31% and 79% in the U.S. and international markets, respectively.

Gross profit defined as total revenue, less total cost of sales, excluding depreciation and amortization expense was $10.2 million in the first quarter or 36% of revenue compared to $23.9 million or 44% of revenue in the prior year's first quarter. For a sequential comparison, gross profit was $11.7 million or 43% of revenue in the fourth quarter of last year. Our gross margin percentage decreased primarily due to the product design changes implemented at Repeat Precision during the first quarter as well as mix impacts related to our geographic revenue contributions.

Selling, general and administrative costs were $12.8 million in the first quarter, which was $8.1 million or 39% lower as compared to the $20.8 million we had in the first quarter of last year. Our reported SG&A includes share-based compensation and certain nonrecurring expenses, including certain litigation costs. In the first quarter, nonrecurring litigation expenses totaled $0.9 million and noncash share-based compensation expense totaled $1.2 million.

Our adjusted EBITDA for the first quarter was $0.1 million as compared to $9.2 million in the prior year's first quarter and represented a decrease of $2.9 million as compared to the fourth quarter of 2020. Our depreciation and amortization expense in the quarter was $1.1 million and our net income attributable to our noncontrolling interest in Repeat Precision was a loss of $0.1 million for the quarter.

Turning now to cash flow items and the balance sheet. Our cash flow from operations for the first quarter was negative $1.8 million and our net capital expenditures for the first quarter was $0.1 million, resulting in free cash flow for the quarter of negative $1.9 million. On March 31, 2021, we had $12 million in cash and total debt of $5.7 million with our credit facility undrawn. Our borrowing base under the credit facility was $14.4 million at March 31, and Repeat Precision currently has access to over $4 million in borrowing capacity that is separate from our revolver. In addition, NCS had net working capital of $55.5 million on March 31, 2021.

Turning now to a few points of guidance for the second quarter. We currently expect our second quarter total revenue to be between $17.5 million and $20.5 million. Within this, we expect our U.S. revenue to be between $11 million and $12 million, the midpoint of which would be higher than we had in the fourth quarter of 2020. We expect our international revenue to be between $1.5 million and $2.5 million, recovering from the low levels in the first quarter. And we expect our Canadian revenue to be between $5 million and $6 million, reflecting the seasonal impact of spring break-up.

We expect our gross margin to be roughly in line with the first quarter between 35% and 38% with the impact of sequential growth in the U.S. and international markets offset by fixed cost under absorption in Canada during the quarter. We expect our reported SG&A inclusive of share-based compensation and nonrecurring items to be between $12.5 million and $13 million in the second quarter. This includes approximately $1.1 million in noncash share-based compensation and approximately $0.9 million in litigation expenses. We expect our second quarter depreciation and amortization expense to be approximately $1.1 million and our net interest expense to be $0.2 million, primarily reflecting unused facility fees and the amortization of debt issuance costs.

We are also introducing some high-level full year guidance for 2021. We currently expect our full year revenue to be between $110 million and $125 million and our full year adjusted EBITDA to be between $5 million and $10 million consistent with the presentation in our earnings release. We continue to expect our gross capital expenditures for 2021 to be between $1 million and $2 million.

Within this guidance, we expect a continued improvement in U.S. revenue in the second half of the year, both in Fracturing Systems and at Repeat Precision. We also expect a more normal seasonal pattern for our Canadian business in 2021 than we saw during 2020. We anticipate that activity in the international markets will improve in the summer and early fall, especially in our North Sea operations, with activity in the Middle East also increasing through the year as field access improves.

Visibility remains limited however and this guidance assumes a continuation of oil demand normalization throughout 2021 as economies recover and vaccination progress enables more travel as well as continued OPEC+ support of the oil market among other things.

I'll now hand it over to Robert for closing remarks.

Thanks, Ryan. Before we open up the call for Q&A, I'll close with a couple of brief comments. We believe that we're well positioned to return our U.S. operations to sequential growth in the second quarter and our Fracturing Systems activity in the U.S. is levered to smaller operators that have been increasing activity thus far in 2021.

We maintain a strong position in the Canadian market, which has exhibited much higher trough activity levels this year as compared to 2020 and is likely to return to normal seasonal activity patterns as we progress through the year. We have the infrastructure in place to support revenue growth in each of our markets without the need to incur additional material SG&A expense.

We continue to invest in technology to continually enhance our current products and services to bring new innovations to our customers and to secure and protect our intellectual property. And our strong balance sheet, working capital position and borrowing base are strategic assets for NCS and support working capital requirements associated with the organic growth.

And with that, we'll welcome any questions.

(Operator Instructions) Your first question comes from the line of John Daniel.

The annual guidance is helpful. Just one question this morning. You alluded to a product tied to post-completion activity. Could you elaborate on that and just what the opportunity is for that type of market?

Could you say that again, John, you kind of broke up a bit.

I'm sorry. You alluded to a product tied to post-completion activity. I was just wondering if you could elaborate on that and the opportunity set.

Yes. So that's our Terrus product line. So it's a sliding sleeve that we have the ability to have multi-positions when we open the sleeve. And one of the things that we can do with it versus just having a sleeve that's open is there a -- just think about it as a metering valve and so what customers do with this is they can run multiple sleeves in their well of Terrus and when they put them into the injection mode, so injecting into a horizontal well, instead of the fluid going wherever the soft spot in the rock is or wherever the breakthrough in the rock is, we control the amount of fluid that goes into the well and to each of the compartments. So our customers are actually having a lot of success in their fields using this type of product and so that's what we're talking about.

Okay. When did you guys introduce that?

We actually introduced the Terrus type system probably close to a year ago, but it's fully commercial now.

Got it. And do you see -- I'm assuming that product has opportunities globally not just in core markets, is that fair?

Yes. It's -- anywhere that there is a secondary recovery going on where -- with horizontal wells.

(Operator Instructions) We don't have any question at this time. I would now like to hand the conference over to our CEO, Mr. Robert Nipper, for closing remarks.

Thank you, Rivi. On behalf of our management team and the Board, we'd like to thank everyone on the call today, including our shareholders and the research analysts who cover NCS, but especially our employees. I truly appreciate the enormous effort that our people are putting in and the sacrifices that have been made by everyone at NCS to support the company and each other through this very difficult last couple of years.

We continue to operate safely with zero recordable incidents this year. Our team continues to provide excellent service to our customers and is developing new products and services that will enable our customers to be more successful.

Our people have done a tremendous job in managing the many challenges that have come with the continued impacts of COVID-19. We are only as good as our people, and I believe we have the best team in the industry. We appreciate everyone's interest in NCS Multistage, and we look forward to talking again on our next quarterly earnings call. Thanks to everyone.

This conclude today's conference call. Thank you for participating. You may now disconnect.