Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2023 OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 001-38071 NCS Multistage Holdings, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organiza ...

Financial Data and Key Metrics Changes - The company reported first-quarter revenues of $43.6 million, an 11% increase compared to the same period last year [47] - Gross profit was $18.5 million, with a gross margin of 43%, up from 38% year-over-year [7][45] - The net loss for the first quarter was $15 million, translating to a loss per share of $6.10, impacted by a $17.5 million charge related to a jury verdict [8][25] Business Line Data and Key Metrics Changes - Perforating gun sales were lower than expected, but there was increased momentum in PurpleSeal composite plug sales [3] - Canadian revenue was $30.7 million, near the midpoint of guidance, with strong increases compared to previous quarters [20] - U.S. revenue was $11.3 million, below guidance, reflecting reduced activity in natural gas production [43] Market Data and Key Metrics Changes - International operations generated $1.6 million in revenue, slightly above the midpoint of guidance [21] - The company expects industry activity growth of up to 10% in both Canada and the U.S. for 2023 [28][40] - The company anticipates a seasonal slowdown in Canadian operations due to spring breakup, with recovery expected in June [4] Company Strategy and Development Direction - The company is focused on leveraging new technologies to meet customer needs and expand its addressable market [30] - There is an emphasis on maintaining a strong balance sheet and generating positive free cash flow in 2023 [13][11] - The company plans to appeal a recent jury verdict, expecting insurance to cover most of the awarded damages [6][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of Canadian business activity in the third quarter [4] - The company expects to achieve annual adjusted EBITDA guidance weighted towards the second half of the year [12] - Management highlighted the potential for a multi-year cycle of improved growth prospects in the industry [32] Other Important Information - The company maintains a cash balance of over $13 million and a positive net cash position of $5.2 million [13][36] - Selling, general, and administrative costs were $16.2 million, slightly up from the previous year [24] - Adjusted net income for the first quarter was $1.2 million, an improvement from a net loss in the same period last year [25] Q&A Session Summary Question: What is the outlook for U.S. revenue growth? - Management expects modest sequential revenue growth in the U.S. in the second quarter despite recent reductions in activity [43] Question: How is the company addressing the recent jury verdict? - The company plans to appeal the verdict and believes that most of the damages will be covered by insurance [6][12] Question: What are the expectations for international market growth? - Management anticipates growth in international markets, particularly in the North Sea and the Middle East, as service activity increases [45][40]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number: 001-38071 NCS Multistage Holdings, Inc. (Exact name of registrant as specified in its charter) | Delawa ...

[General Information](index=3&type=section&id=General%20Information) This section provides foundational disclosures including forward-looking statement caveats, intellectual property ownership, and access to public filings [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that the Form 10-K contains forward-looking statements, which are subject to inherent uncertainties, risks, and changes in circumstances that could cause actual results to differ materially from expectations - Forward-looking statements are based on current expectations and assumptions, but actual results may differ materially due to inherent uncertainties, risks, and changes in circumstances[9](index=9&type=chunk) - Key risks include: declines in oil and natural gas E&P activity, oil and natural gas price fluctuations, significant competition, inability to develop new technologies, inability to increase sales in U.S. and international markets, loss of significant customers, supply chain disruptions, and regulatory changes[9](index=9&type=chunk) - Other risks: attracting and retaining qualified employees, currency exchange rate fluctuations, impact of severe weather, changes in legislation governing the oil and natural gas industry, and cybersecurity breaches[10](index=10&type=chunk) [Trademarks and Trade Names](index=4&type=section&id=Trademarks%20and%20Trade%20Names) NCS Multistage Holdings, Inc. owns or has rights to various trademarks, service marks, and trade names, including AirLock, MultiCycle, Innovus, and NCS - The company owns or has rights to various trademarks, service marks, and trade names, such as AirLock, MultiCycle, Innovus, Terrus, Ratek, Vecturon, Vectraset, PurpleSeal, PurpleFire, Repeat Precision, and NCS[12](index=12&type=chunk) [Available Information](index=4&type=section&id=Available%20information) The company's SEC filings, including 10-K, 10-Q, and 8-K reports, are available for download free of charge on its website and the SEC's website - SEC filings (10-K, 10-Q, 8-K) are available on the company's website (www.ncsmultistage.com) and the SEC's website (www.sec.gov)[13](index=13&type=chunk) - Investor information, presentations, and press releases are also posted on http://ir.ncsmultistage.com to comply with disclosure obligations[13](index=13&type=chunk) [PART I](index=5&type=section&id=PART%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) NCS Multistage Holdings, Inc. is a leading provider of engineered products and support services for oil and natural gas well construction, completions, and field development, primarily serving E&P companies in North America and select international markets - NCS Multistage Holdings, Inc. is a leading provider of highly engineered products and support services for oil and natural gas well construction, completions, and field development strategies[14](index=14&type=chunk) - The company serves over **245 customers**, including large independent and major oil companies, primarily in North America and international markets like Argentina, China, the Middle East, and the North Sea[14](index=14&type=chunk) Revenue and Net Loss (2021-2022) | Metric | 2022 (Millions) | 2021 (Millions) | | :----- | :-------------- | :-------------- | | Revenue | $155.6 | $118.5 | | Net Loss | $(1.1) | $(4.7) | - Business Strategy: Increase adoption of products/services, innovate technology, maintain financial strength, and pursue complementary M&A/JVs[20](index=20&type=chunk) - Revenue Diversification (2022): **65%** from fracturing systems and enhanced oil recovery, **15%** from Repeat Precision, **10%** from well construction, and **10%** from tracer diagnostics, representing a more balanced portfolio compared to 2016 (over **90%** from fracturing systems)[20](index=20&type=chunk)[21](index=21&type=chunk) [Overview](index=5&type=section&id=Overview) NCS Multistage Holdings, Inc. provides engineered products and support services for oil and natural gas well construction, completions, and field development, primarily to E&P companies in North America and selected international markets - NCS is a leading provider of highly engineered products and support services for oil and natural gas well construction, completions, and field development strategies[14](index=14&type=chunk) - Primary offering: Fracturing systems products and services for efficient pinpoint stimulation in horizontal wells, predominantly in unconventional and conventional oil and natural gas formations[14](index=14&type=chunk)[15](index=15&type=chunk) - Other offerings include enhanced recovery systems, a **50%** controlling interest in Repeat Precision (composite frac plugs, perforating guns, machining), tracer diagnostics services, and well construction products (casing buoyancy, liner hanger, toe initiation sleeves)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) [Business Strategy](index=5&type=section&id=Business%20Strategy) The company's strategy focuses on increasing market adoption of its products and services globally, continuous technological innovation, maintaining financial strength, and pursuing strategic mergers, acquisitions, and joint ventures - Increase market share through disciplined organic growth in the U.S., Canada, and select international markets[20](index=20&type=chunk) - Develop and introduce innovative technologies aligned with customer needs[20](index=20&type=chunk) - Maintain financial strength and flexibility[20](index=20&type=chunk) - Selectively pursue complementary mergers, acquisitions, and joint ventures[20](index=20&type=chunk) - Revenue diversification achieved through investments like Repeat Precision and the acquisition of Spectrum Tracer Services, LLC in 2017[21](index=21&type=chunk) Revenue Mix by Product/Service (2022 vs. 2016) | Product/Service Category | 2022 Revenue Share | 2016 Revenue Share | | :----------------------- | :----------------- | :----------------- | | Fracturing Systems & Enhanced Oil Recovery | ~65% | >90% | | Repeat Precision | ~15% | N/A | | Well Construction | ~10% | Remainder | | Tracer Diagnostics | ~10% | N/A | [Products and Services](index=6&type=section&id=Products%20and%20Services) NCS offers a range of highly engineered products and support services for oil and natural gas wells, including fracturing systems, enhanced recovery systems, Repeat Precision products, tracer diagnostics, and well construction products - **Fracturing Systems:** Enable efficient pinpoint stimulation, selective stage isolation, and re-stimulation, with products including casing-installed sliding sleeves (Innovus, Ratek) and downhole frac isolation assemblies, along with advisory services on completion designs[23](index=23&type=chunk)[24](index=24&type=chunk) - **Enhanced Recovery:** Injection control devices and valve systems (Innovus Convertible, Terrus System) extend well life by converting production wells to injection wells for waterflood or gas injection[29](index=29&type=chunk) - **Repeat Precision:** Sells Purple Seal composite frac plugs, bridge plugs, RP single-use disposable setting tools, and PurpleFire perforating guns, also providing machining services for NCS products[29](index=29&type=chunk) - **Tracer Diagnostics:** Chemical and radioactive tracer services (FFIs, WSTs, OSTs, RGTs) assess wellbore clearance, completion performance, production, and well-to-well communication[29](index=29&type=chunk) - **Well Construction:** Products like AirLock casing buoyancy systems, Vecturon and Vectraset liner hanger systems, and toe initiation sleeves facilitate safe and efficient casing installation, cementing, and initial formation access[29](index=29&type=chunk) [Business History](index=7&type=section&id=Business%20History) NCS Multistage Holdings, Inc. was incorporated in Delaware on November 28, 2012, as Pioneer Super Holdings, Inc., changing its name in December 2016 and completing its initial public offering on May 3, 2017 - Incorporated in Delaware on November 28, 2012, as Pioneer Super Holdings, Inc[26](index=26&type=chunk) - Changed name to NCS Multistage Holdings, Inc. on December 13, 2016[26](index=26&type=chunk) - Completed initial public offering of common stock on May 3, 2017[26](index=26&type=chunk) [Intellectual Property and Patent Protection](index=7&type=section&id=Intellectual%20Property%20and%20Patent%20Protection) The company invests in R&D to develop new technologies, protected by 59 U.S. utility patents and 50 international utility patents, and relies on trade secrets and licensed IP, actively enforcing its rights - Holds **59 U.S. utility patents** (expiring 2030-2040) and **50 related international utility patents** (expiring 2028-2037) across its product lines[28](index=28&type=chunk) - Also has pending U.S. and international patent applications and relies on trade secrets and licensed intellectual property[30](index=30&type=chunk)[31](index=31&type=chunk) - Actively enforces intellectual property rights and has been involved in litigation to determine enforceability, scope, and validity of patent rights[31](index=31&type=chunk) [Customers](index=8&type=section&id=Customers) NCS primarily serves oil and natural gas producers in North America and international markets, as well as oilfield service companies, with its customer base growing to over 245 in 2022 - Customer base primarily consists of oil and natural gas producers and oilfield service companies in North America and international markets[32](index=32&type=chunk) Customer Base and Concentration | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Total Customers | >245 | >225 | | Top 5 Customers Revenue Share | ~24% | ~30% | | Single Largest Customer Revenue Share | <10% | <10% | [Sales and Marketing](index=8&type=section&id=Sales%20and%20Marketing) Sales and marketing are conducted by a technically-trained sales force that educates customers on the benefits of NCS's technologies, with direct sales in North America and international sales through local entities or operating partners - Sales and marketing activities are performed by a technically-trained sales force, advising customers on pinpoint stimulation, sliding sleeves, enhanced recovery, well construction, and tracer diagnostics[33](index=33&type=chunk) - In the U.S. and Canada, sales are direct to E&P companies, with casing buoyancy systems also sold through distributors, and Repeat Precision having a separate sales force[34](index=34&type=chunk) - International sales are made through local NCS entities or operating partners in locations like China and the Middle East, who market products but do not contractually bind the company[35](index=35&type=chunk) [Seasonality](index=8&type=section&id=Seasonality) The company's business is subject to quarterly variability, particularly in Canada, where activity is higher in Q1 due to winter freeze access and declines in Q2 due to thawing and road bans - Canada experiences higher activity in Q1 due to winter freeze access to remote drilling areas[37](index=37&type=chunk) - Canadian revenue declines in Q2 due to warming weather, softer ground, and road bans[37](index=37&type=chunk) - Activity improves in Q3 and Q4 in Canada, but usually remains below Q1 levels[37](index=37&type=chunk) - Business can be impacted by reduced customer activity during winter holidays (late December/early January) and year-end capital budget exhaustion in the U.S. and Canada[37](index=37&type=chunk) [Suppliers and Raw Materials](index=9&type=section&id=Suppliers%20and%20Raw%20Materials) NCS sources components, raw materials, and parts from multiple suppliers and machine shops to avoid dependency, with prices influenced by commodity prices, tariffs, and exchange rates - Sources components, raw materials (steel, electronic components, chemicals, elastomers) from multiple suppliers and machine shops to avoid dependency[39](index=39&type=chunk)[40](index=40&type=chunk) - Prices are affected by energy, steel, other commodity prices, tariffs, and foreign currency exchange rates[39](index=39&type=chunk) - COVID-19 continues to cause supply chain disruptions (especially in China) and cost inflation (including labor), leading the company to qualify additional vendors[41](index=41&type=chunk) [Operating Risks and Insurance](index=9&type=section&id=Operating%20Risks%20and%20Insurance) The company maintains various insurance coverages for its operations, believing them to be adequate for current risks, but acknowledges the potential for uncovered or insufficient losses - Maintains various insurance coverages for operations, but acknowledges the risk that coverage may not be sufficient for all losses[42](index=42&type=chunk) [Competition](index=9&type=section&id=Competition) NCS operates in highly competitive markets, competing with large national and multinational companies, as well as smaller regional players, with key competitive factors being technology, service quality, safety record, and price - Operates in highly competitive markets, competing with large national/multi-national companies and smaller regional competitors[43](index=43&type=chunk)[45](index=45&type=chunk) - Principal competitive factors: technology, service quality, safety track record, and price[44](index=44&type=chunk) - Major competitors include Baker Hughes Company, Core Laboratories N.V., DMC Global Inc., Forum Energy Technologies, Inc., Halliburton Company, Innovex Downhole Solutions, Nine Energy Service, Inc., NOV Inc., Oil States International, Inc., Packers Plus Energy Services Inc., SLB, Schoeller-Bleckmann Oilfield Equipment AG, and Weatherford International[45](index=45&type=chunk)[46](index=46&type=chunk) - Customers select products/services based on technical attributes, technical and operational service, and extensive operational track record, in addition to competitive pricing[46](index=46&type=chunk) [Government Regulations](index=9&type=section&id=Government%20Regulations) NCS is subject to stringent federal, state, provincial, and local environmental, health, and safety laws, including those governing air emissions, water discharges, climate change, waste management, and occupational safety - Subject to stringent federal, state, provincial, and local laws and regulations governing environmental protection, worker health, and safety[47](index=47&type=chunk) - **Climate Change:** Regulations restricting GHG emissions (e.g., Paris Agreement, EPA's NSPS for methane, Inflation Reduction Act of 2022) could increase compliance costs for customers and reduce demand for oil and natural gas[51](index=51&type=chunk)[52](index=52&type=chunk) - **Hydraulic Fracturing:** State and local regulations, potential bans (e.g., New York, California), and federal oversight could increase costs, restrict operations, and decrease demand for related products/services[55](index=55&type=chunk) - **Radioactive Materials:** Use of radioactive tracers requires compliance with NRC licenses, including training, record-keeping, safety monitoring, and proper disposal[56](index=56&type=chunk) - Failure to comply with regulations can result in penalties, remedial obligations, and injunctive relief, potentially impacting business, financial condition, and results of operations[47](index=47&type=chunk)[54](index=54&type=chunk) [Employees](index=12&type=section&id=Employees) As of December 31, 2022, NCS had 262 employees (228 full-time), with 145 in the U.S., 107 in Canada, and 10 internationally, while its joint venture, Repeat Precision, had 208 employees Employee Count and Location (as of Dec 31, 2022) | Category | Count | Location | | :------- | :---- | :------- | | Total Employees (NCS) | 262 | 145 U.S., 107 Canada, 10 International | | Full-time Employees (NCS) | 228 | N/A | | Repeat Precision Employees | 208 | 23 U.S., 185 Mexico | - NCS is not a party to any collective bargaining agreements in North America and maintains good relations with its employees[59](index=59&type=chunk) [Item 1A. Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks that could adversely affect NCS Multistage Holdings, Inc.'s business, financial condition, results of operations, cash flows, liquidity, or stock value - The section outlines potential events, trends, or circumstances that could adversely affect the company's business, financial condition, results of operations, cash flows, liquidity, or market value of common stock[60](index=60&type=chunk) - **Business and Industry Risks:** Dependence on oil/natural gas E&P activity, industry cyclicality, intense competition, inability to develop new technologies, customer concentration, operational hazards (explosives, personal injury), credit risk from customers, acquisition/partnership risks, inflation, supply chain disruptions, reliance on key personnel, joint venture risks, currency fluctuations, severe weather, water availability for hydraulic fracturing, climate change legislation, and government regulations[63](index=63&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - **Indebtedness Risks:** Reliance on subsidiary distributions, impact of outstanding indebtedness on financial condition and operations, and restrictive covenants in debt agreements[63](index=63&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - **Common Stock Ownership Risks:** Stock price volatility, control by Advent International Corporation, potential for future stock sales, 'controlled company' exemption, anti-takeover protections, and 'smaller reporting company' status[63](index=63&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) [RISK FACTORS SUMMARY](index=12&type=section&id=RISK%20FACTORS%20SUMMARY) This summary provides a high-level overview of the material risks associated with investing in NCS Multistage Holdings, Inc.'s securities, categorized into risks related to the business and oil/natural gas industry, indebtedness, and common stock ownership - Summary of material risks for investors, categorized into risks related to business and the oil and natural gas industry, indebtedness, and common stock ownership[62](index=62&type=chunk)[63](index=63&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) [Risks Related to Our Business and the Oil and Natural Gas Industry](index=12&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20the%20Oil%20and%20Natural%20Gas%20Industry) The company's business is highly dependent on the volatile oil and natural gas industry, facing risks from fluctuating commodity prices, intense competition, and the need for continuous technological innovation - Business depends on oil and natural gas E&P activity, which is sensitive to commodity prices and customer capital spending[64](index=64&type=chunk) - Industry cyclicality causes operating results to fluctuate; WTI oil prices ranged from **$(36.98)/Bbl to $123.64/Bbl** (2018-2022), Henry Hub natural gas from **$1.33/MMBtu to $23.86/MMBtu** (2018-2022)[66](index=66&type=chunk) - Highly competitive market with larger competitors, leading to pricing pressures and difficulty commercializing new products[67](index=67&type=chunk) - Success relies on developing new technologies and protecting intellectual property; failure to do so or infringement by competitors could harm business[69](index=69&type=chunk) - Operations involve inherent hazards (explosions, equipment failure) leading to potential liabilities for personal injury, property damage, and environmental harm[71](index=71&type=chunk) - Exposure to credit risk from E&P customers, especially during low commodity price environments, potentially leading to nonpayment or bankruptcy[72](index=72&type=chunk) - Growth through acquisitions/partnerships carries risks like integration challenges, failure to realize benefits, and diversion of management attention[73](index=73&type=chunk) - Adverse effects from inflation (wages, materials, interest rates) and supply chain disruptions (e.g., COVID-19, tariffs on Chinese commodities)[74](index=74&type=chunk) - Dependence on key personnel and ability to attract/retain skilled employees; labor shortages or increased turnover could impact operations[75](index=75&type=chunk) - Joint venture operations (e.g., Repeat Precision) introduce risks like limited control over decisions, disputes, and potential liabilities[76](index=76&type=chunk) - Significant revenue in CAD (**65% in 2022**) exposes the company to currency fluctuations[77](index=77&type=chunk) - Operations in North America and the North Sea are vulnerable to severe weather conditions, causing disruptions and increased costs[78](index=78&type=chunk) - Hydraulic fracturing's dependence on water and potential restrictions on water use could impact customer demand[79](index=79&type=chunk) - Climate change legislation (GHG emissions, carbon taxes) and hydraulic fracturing regulations (bans, increased costs) could reduce demand for oil and natural gas and increase compliance costs[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) - Cybersecurity risks and ERP system complications could lead to information theft, operational disruption, and financial loss[103](index=103&type=chunk) - Impairment in the carrying value of long-lived assets (including goodwill) could negatively affect operating results[104](index=104&type=chunk) - International operations are subject to U.S. and non-U.S. laws like FCPA and trade sanctions, and local laws/customs, increasing compliance risks[105](index=105&type=chunk) [Risks Relating to Our Indebtedness](index=28&type=section&id=Risks%20Relating%20to%20Our%20Indebtedness) NCS, as a holding company, relies on its subsidiaries for cash flow, which can be restricted by debt agreements, and its outstanding indebtedness exposes it to financial risks - As a holding company, NCS relies on dividends and distributions from subsidiaries, which are restricted by debt agreements[150](index=150&type=chunk) - Outstanding indebtedness (**$7.9 million** as of Dec 31, 2022) could adversely affect financial condition and operations, requiring substantial cash flow for debt service[151](index=151&type=chunk) - ABL Facility (up to **$35.0 million**) borrowing base is limited by eligible accounts receivable and inventory, excluding Repeat Precision assets, with a borrowing base of **$18.6 million** and no outstanding borrowings as of Dec 31, 2022[152](index=152&type=chunk)[153](index=153&type=chunk) - Indebtedness increases vulnerability to economic downturns, limits additional financing, and exposes to variable interest rate risks (SOFR)[154](index=154&type=chunk)[155](index=155&type=chunk) - Restrictive covenants in ABL Facility and Repeat Precision Promissory Note limit actions like incurring additional debt, granting liens, making investments, or paying dividends[156](index=156&type=chunk) - Breach of covenants could lead to acceleration of debt and termination of borrowing commitments, potentially forcing asset sales or refinancing on unfavorable terms[158](index=158&type=chunk)[159](index=159&type=chunk) [Risks Relating to Ownership of Our Common Stock](index=30&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Common%20Stock) The market price of NCS's common stock can be highly volatile, and the company is controlled by Advent International Corporation, whose interests may differ from public stockholders - **Stock Price Volatility:** Market price can fluctuate significantly due to financial results, industry developments, analyst reports, investor perceptions (including ESG), sales by insiders, regulatory changes, and economic conditions[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Control by Advent Funds:** Advent International Corporation controls **61.4%** of voting power, influencing major corporate decisions and potentially pursuing interests differing from public stockholders[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Future Sales:** Additional sales of common stock or the perception of such sales could cause the market price to decline[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Controlled Company Exemption:** As a 'controlled company,' NCS is exempt from certain Nasdaq corporate governance rules (e.g., independent board majority, compensation/nominating committees), potentially making stock less attractive[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Anti-takeover Protections:** Provisions in corporate documents and debt agreements (e.g., preferred stock issuance, change of control clauses) could discourage or prevent takeovers[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Smaller Reporting Company Status:** Reduced reporting requirements may make it harder for investors to analyze financial prospects[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **Internal Control Weaknesses:** Failure to maintain effective internal controls could lead to material misstatements, reporting failures, or fraud, negatively impacting stock price[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - **ESG Sentiment:** Public and investor sentiment towards climate change, fossil fuels, and ESG matters could adversely affect cost of capital, availability of capital, and stock price[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) [Item 1B. Unresolved Staff Comments](index=34&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - No unresolved staff comments[185](index=185&type=chunk) [Item 2. Properties](index=34&type=section&id=Item%202.%20Properties) NCS Multistage Holdings, Inc.'s corporate headquarters is in Houston, Texas, and the company owns one property in Calgary, Alberta, and leases 19 other properties for various operations - Corporate headquarters located in Houston, Texas[185](index=185&type=chunk) - Owns one property in Calgary, Alberta, for engineering and R&D[185](index=185&type=chunk) - Leases **19 properties** with terms greater than 12 months for corporate headquarters, sales offices, manufacturing, engineering, district operations, laboratory, warehousing, and storage yards[185](index=185&type=chunk) - Facilities are deemed adequate for current operations, and no individual lease is considered material[185](index=185&type=chunk) [Item 3. Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10 of the consolidated financial statements - Refer to 'Note 10. Commitments and Contingencies' in the consolidated financial statements for information on legal proceedings[186](index=186&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[187](index=187&type=chunk) [PART II](index=35&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) NCS Multistage Holdings, Inc.'s common stock trades on the Nasdaq Capital Market under the symbol "NCSM," with 2,438,877 shares outstanding held by approximately 17 record holders as of March 3, 2023 - Common stock trades on the Nasdaq Capital Market under the symbol "NCSM"[190](index=190&type=chunk) Common Stock Information (as of March 3, 2023) | Metric | Value | | :----- | :---- | | Shares Outstanding | 2,438,877 | | Record Holders | ~17 | - The company does not intend to pay cash dividends on common stock in the foreseeable future, with any future decision at the Board's discretion, considering debt restrictions and financial conditions[192](index=192&type=chunk) - No unregistered sales of equity securities or issuer purchases of equity securities occurred[194](index=194&type=chunk)[195](index=195&type=chunk) [Item 6. [Reserved]](index=35&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of NCS Multistage Holdings, Inc.'s financial condition and operational results, highlighting its role as a provider of engineered products and services to the oil and natural gas E&P industry - NCS is a leading provider of highly engineered products and support services for oil and natural gas well construction, completions, and field development strategies, primarily serving E&P companies in North America and selected international markets[197](index=197&type=chunk) - The company's primary offering is fracturing systems for efficient pinpoint stimulation, along with enhanced recovery systems, Repeat Precision products (composite frac plugs, perforating guns), tracer diagnostics, and well construction products[198](index=198&type=chunk)[199](index=199&type=chunk) - Outlook for 2023: Annual average industry drilling and completion activity in the U.S. and Canada expected to be equal to or up to **10% higher** than 2022, with international activity improving by over **10%**[202](index=202&type=chunk) - Continuing challenges include intense competitive pressure, higher raw material and outsourced service costs (exacerbated by Russia-Ukraine conflict), labor cost inflation, and negative impacts from a stronger U.S. dollar on Canadian revenue[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) [Overview](index=36&type=section&id=Overview) NCS Multistage Holdings, Inc. is a key provider of engineered products and support services for optimizing oil and natural gas well construction, completions, and field development - NCS provides highly engineered products and support services for oil and natural gas well construction, completions, and field development strategies[197](index=197&type=chunk) - Primary offerings include fracturing systems for pinpoint stimulation, enhanced recovery systems, composite frac plugs and perforating guns (via Repeat Precision), tracer diagnostics, and well construction products[198](index=198&type=chunk)[199](index=199&type=chunk) - Serves over **245 E&P companies** in North America and selected international markets[197](index=197&type=chunk) [Outlook](index=36&type=section&id=Outlook) The company anticipates increased drilling and completion activity in North America and internationally in 2023, despite potential moderation in U.S. activity due to natural gas price declines - U.S. and Canadian drilling and completion activity has steadily increased since late 2020, with Q4 2022 rig counts up **39%** and **18%** YoY, respectively[201](index=201&type=chunk) - 2023 outlook: Annual average industry drilling and completion activity in the U.S. and Canada expected to be equal to 2022 levels or higher by up to **10%**[202](index=202&type=chunk) - International industry activity expected to improve by over **10%** in 2023[204](index=204&type=chunk) - Challenges: Intense competitive pressure, higher raw material (steel, chemicals) and outsourced service prices, labor cost inflation, and negative impact from a stronger U.S. dollar on Canadian revenue (over **60%** of revenue from Canada)[205](index=205&type=chunk)[206](index=206&type=chunk) - Central bank interest rate increases to combat inflation could lead to a recessionary environment, moderating or declining demand for oil and natural gas[206](index=206&type=chunk) [COVID-19 Impacts on the Oil & Natural Gas Market and NCS Multistage](index=37&type=section&id=COVID-19%20Impacts%20on%20the%20Oil%20%26%20Natural%20Gas%20Market%20and%20NCS%20Multistage) The COVID-19 pandemic caused significant declines in economic activity, energy demand, and oil/natural gas prices in 2020, leading to reduced E&P capital spending and industry consolidation - COVID-19 caused unprecedented declines in economic activity, energy demand, and oil/natural gas prices in 2020, leading to reduced E&P capital spending and industry consolidation[207](index=207&type=chunk) - Demand for crude oil has recovered but remains below 2019 levels, not expected to reach pre-COVID levels until 2023[207](index=207&type=chunk) - NCS implemented cost reduction initiatives in 2020 (reductions in force, temporary compensation cuts), substantially restoring or increasing employee compensation and benefits in early 2022[208](index=208&type=chunk) - Continuing impacts include occasional supply chain disruptions (especially from China) and persistent cost inflation (including labor), addressed by qualifying additional suppliers[209](index=209&type=chunk) [Market Conditions](index=37&type=section&id=Market%20Conditions) Oil and natural gas prices remained volatile in 2022, with WTI crude peaking over $100/BBL after Russia's invasion of Ukraine, then declining to $83/BBL by Q4 due to economic concerns Average Crude Oil and Natural Gas Prices (Q1 2020 - Q4 2022) | Quarter Ended | WTI Crude (per Bbl) | Brent Crude (per Bbl) | Henry Hub Natural Gas (per MMBtu) | | :------------ | :------------------ | :-------------------- | :-------------------------------- | | 3/31/2020 | $45.54 | $50.45 | $1.90 | | 6/30/2020 | $27.96 | $29.70 | $1.70 | | 9/30/2020 | $40.89 | $42.91 | $2.00 | | 12/31/2020 | $42.52 | $44.32 | $2.52 | | 3/31/2021 | $58.09 | $61.04 | $3.50 | | 6/30/2021 | $66.19 | $68.98 | $2.95 | | 9/30/2021 | $70.58 | $73.51 | $4.35 | | 12/31/2021 | $77.33 | $79.61 | $4.75 | | 3/31/2022 | $95.18 | $100.87 | $4.67 | | 6/30/2022 | $108.83 | $113.84 | $7.50 | | 9/30/2022 | $93.06 | $100.71 | $8.03 | | 12/31/2022 | $82.79 | $88.72 | $5.55 | Average Drilling Rig Count (Q1 2020 - Q4 2022) | Quarter Ended | U.S. Land | Canada Land | North America Land | | :------------ | :-------- | :---------- | :----------------- | | 3/31/2020 | 764 | 194 | 958 | | 6/30/2020 | 378 | 23 | 401 | | 9/30/2020 | 241 | 46 | 287 | | 12/31/2020 | 297 | 88 | 385 | | 3/31/2021 | 378 | 144 | 522 | | 6/30/2021 | 437 | 71 | 508 | | 9/30/2021 | 484 | 150 | 634 | | 12/31/2021 | 545 | 159 | 704 | | 3/31/2022 | 618 | 198 | 816 | | 6/30/2022 | 698 | 112 | 810 | | 9/30/2022 | 744 | 198 | 942 | | 12/31/2022 | 760 | 187 | 947 | - U.S. land rig count averaged **760** in Q4 2022, a **39% increase** from Q4 2021[218](index=218&type=chunk) - Canadian land rig count averaged **187** in Q4 2022, an **18% increase** from Q4 2021[218](index=218&type=chunk) - Expect Canadian rig counts and completion activity to continue to rise in 2023 compared to prior year levels[218](index=218&type=chunk) - Expect average annual drilling and completion activity in the United States to exceed prior year levels, but to be below Q4 2022 levels due to natural gas price declines[218](index=218&type=chunk) - Pinpoint stimulation adoption and increasing well complexity (longer wells, more fracturing stages) offer opportunities for increased sales and tracer diagnostics services[220](index=220&type=chunk)[222](index=222&type=chunk) - E&P companies' focus on operational efficiencies and cost reduction leads to increased competition and limits pricing power[222](index=222&type=chunk) [How We Generate Revenues](index=40&type=section&id=How%20We%20Generate%20Revenues) NCS generates revenue from product sales (fracturing systems, enhanced recovery, well construction, composite plugs, perforating guns) and services (downhole frac isolation assembly, tracer diagnostics) - Revenues are derived from sales of fracturing systems, enhanced recovery systems, well construction, composite plug and perforating gun products, and services (downhole frac isolation assembly, tracer diagnostics)[223](index=223&type=chunk) Revenue Mix (2021-2022) | Revenue Type | 2022 Share | 2021 Share | | :----------- | :--------- | :--------- | | Product Sales | 68% | 70% | | Services | 32% | 30% | - Approximately **65% of 2022 revenue** (**62% in 2021**) was generated in Canada and denominated in Canadian dollars, making revenues susceptible to foreign currency fluctuations[226](index=226&type=chunk) - International sales outside North America are expected to increase over time, made through local NCS entities or operating partners[227](index=227&type=chunk) [Costs of Conducting our Business](index=40&type=section&id=Costs%20of%20Conducting%20our%20Business) Cost of sales includes expenses for manufacturing products and support services, while SG&A expenses cover non-revenue generating employee compensation and general operating costs, both impacted by inflation - **Cost of Sales:** Includes raw materials, payments to machine shops for components/assemblies, quality control, assembly, testing, and support services (employee compensation, travel)[228](index=228&type=chunk) - Repeat Precision's manufacturing facilities in Mexico help reduce costs for certain product categories[229](index=229&type=chunk) - Raw material prices (steel, chemicals) and outsourced services have increased due to inflation and the Russia-Ukraine conflict; a **25% tariff** applies to certain Chinese chemicals for tracer diagnostics[230](index=230&type=chunk) - **SG&A Expenses:** Comprise compensation for non-revenue generating employees (including R&D), general operating costs (rent, IT, marketing, professional fees), and provisions for doubtful accounts[231](index=231&type=chunk) - Labor cost inflation (increased turnover, delays in filling positions, higher salaries/pay rates/benefits) impacts both cost of sales and SG&A expenses[232](index=232&type=chunk) - Approximately **27% of operating costs** (excluding depreciation/amortization) were denominated in Canadian dollars in 2022 (**25% in 2021**)[233](index=233&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) NCS Multistage Holdings, Inc. reported a net loss of **$(1.1) million** in 2022, a significant improvement from **$(4.7) million** in 2021, driven by a **31.3%** increase in total revenues to **$155.6 million** Consolidated Statements of Operations (2021-2022, in thousands) | Metric | 2022 | 2021 | Variance ($) | Variance (%) | | :----------------------------------------- | :-------- | :-------- | :----------- | :----------- | | Revenues | | | | | | Product sales | $105,859 | $83,223 | $22,636 | 27.2% | | Services | $49,773 | $35,279 | $14,494 | 41.1% | | **Total revenues** | **$155,632** | **$118,502** | **$37,130** | **31.3%** | | Cost of sales (exclusive of D&A) | $95,228 | $70,027 | $25,201 | 36.0% | | Selling, general and administrative expenses | $58,338 | $49,094 | $9,244 | 18.8% | | Depreciation | $3,650 | $3,832 | $(182) | (4.7)% | | Amortization | $669 | $669 | $— | —% | | **Loss from operations** | **$(2,253)** | **$(5,120)** | **$2,867** | **56.0%** | | Interest expense, net | $(1,015) | $(733) | $(282) | (38.5)% | | Other income, net | $2,950 | $2,054 | $896 | 43.6% | | Foreign currency exchange (loss) gain | $(283) | $283 | $(566) | (200.0)% | | **Total other income** | **$1,652** | **$1,604** | **$48** | **3.0%** | | Loss before income tax | $(601) | $(3,516) | $2,915 | 82.9% | | Income tax expense | $351 | $263 | $88 | 33.5% | | **Net loss** | **$(952)** | **$(3,779)** | **$2,827** | **74.8%** | | Net income attributable to non-controlling interest | $150 | $955 | $(805) | (84.3)% | | **Net loss attributable to NCS Multistage Holdings, Inc.** | **$(1,102)** | **$(4,734)** | **$3,632** | **76.7%** | - **Revenues:** Increased by **$37.1 million** (**31.3%**) to **$155.6 million** in 2022, driven by higher product sales and services volumes in Canada and the U.S., and higher international services volumes[236](index=236&type=chunk) - **Cost of Sales:** Increased to **61.2% of revenues** in 2022 (from **59.1% in 2021**) due to higher supply chain costs (raw materials, purchased materials, labor, outsourced services) and the non-recurrence of the U.S. employee retention credit (ERC) benefit from 2021[237](index=237&type=chunk) - **SG&A Expenses:** Increased by **$9.2 million** (**18.8%**) to **$58.3 million** in 2022, primarily due to higher compensation and benefits (**$6.4 million**), increased professional fees (**$1.7 million**), and higher travel/entertainment (**$0.8 million**), partially offset by lower share-based compensation[238](index=238&type=chunk)[239](index=239&type=chunk) - **Interest Expense, net:** Increased to **$1.0 million** in 2022 (from **$0.7 million in 2021**) due to a **$0.2 million** write-off of deferred loan costs[240](index=240&type=chunk) - **Other Income, net:** Increased to **$3.0 million** in 2022 (from **$2.1 million in 2021**) mainly from royalties and profit share from the technical services agreement with SOS[241](index=241&type=chunk) - **Foreign Currency Exchange (loss) gain:** Shifted from a **$0.3 million gain** in 2021 to a **$(0.3) million loss** in 2022, primarily due to Canadian dollar movement relative to the U.S. dollar[242](index=242&type=chunk) - **Income Tax Expense:** Increased to **$0.4 million** in 2022 (from **$0.3 million in 2021**), including a **$(4.1) million benefit** from changes in valuation allowance on deferred tax assets[243](index=243&type=chunk)[244](index=244&type=chunk) [How We Evaluate our Results of Operations](index=43&type=section&id=How%20We%20Evaluate%20our%20Results%20of%20Operations) Management assesses performance using revenues, Adjusted EBITDA, Adjusted EBITDA Less Share-Based Compensation, Free Cash Flow, and Free Cash Flow Less Distributions to Non-Controlling Interest - **Revenues:** Evaluated monthly, quarterly, and annually against budgets, estimates, and market metrics[246](index=246&type=chunk) - **Adjusted EBITDA:** Net (loss) income adjusted for interest, taxes, depreciation, amortization, share-based compensation, professional fees, ERC benefits, foreign currency, and other charges/credits, used to assess core business performance[247](index=247&type=chunk) - **Adjusted EBITDA Less Share-Based Compensation:** Adjusted EBITDA excluding non-cash share-based compensation expense, for comparability with peers[252](index=252&type=chunk) - **Free Cash Flow:** Net cash from operating activities less purchases of property/equipment and software development, plus proceeds from asset sales, indicating cash available beyond capital expenditures[252](index=252&type=chunk) - **Free Cash Flow Less Distributions to Non-Controlling Interest:** Free Cash Flow minus distributions to joint venture partners, showing cash available after all investment and partner distribution needs[252](index=252&type=chunk) Adjusted EBITDA and Adjusted EBITDA Less Share-Based Compensation (2021-2022, in thousands) | Metric | 2022 | 2021 | | :-------------------------------------- | :------ | :------ | | Net loss | $(952) | $(3,779) | | Income tax expense | 351 | 263 | | Interest expense, net | 1,015 | 733 | | Depreciation | 3,650 | 3,832 | | Amortization | 669 | 669 | | **EBITDA** | **4,733** | **1,718** | | Share-based compensation | 3,453 | 4,221 | | Professional fees | 5,665 | 4,885 | | Net benefit of ERC | — | (1,908) | | Foreign currency loss (gain) | 283 | (283) | | Other | 976 | 461 | | **Adjusted EBITDA** | **$15,110** | **$9,094** | | **Adjusted EBITDA Less Share-Based Compensation** | **$11,657** | **$4,873** | Free Cash Flow and Free Cash Flow Less Distributions to Non-Controlling Interest (2021-2022, in thousands) | Metric | 2022 | 2021 | | :-------------------------------------------- | :-------- | :-------- | | Net cash (used in) provided by operating activities | $(1,423) | $11,583 | | Purchases of property and equipment | (1,035) | (495) | | Purchase and development of software and technology | (96) | (338) | | Proceeds from sales of property and equipment | 433 | 389 | | **Free cash flow** | **$(2,121)** | **$11,139** | | Distributions to non-controlling interest | — | (2,750) | | **Free cash flow less distributions to non-controlling interest** | **$(2,121)** | **$8,389** | [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) NCS's liquidity primarily comes from cash, cash flows from operations, and potential borrowings under its **$35.0 million** ABL Facility and Repeat Precision's **$4.3 million** promissory note - Primary liquidity sources: existing cash and cash equivalents, cash flows from operations, and potential borrowings under ABL Facility and Repeat Precision Promissory Note[254](index=254&type=chunk) - As of December 31, 2022: **$16.2 million** cash and cash equivalents, **$7.9 million** total outstanding indebtedness (primarily capital lease obligations)[255](index=255&type=chunk) - ABL Facility: **$35.0 million** aggregate principal, borrowing base of **$18.6 million** at Dec 31, 2022, with no outstanding borrowings, and the company was in compliance with debt covenants[256](index=256&type=chunk) - Repeat Precision Promissory Note: **$4.3 million** aggregate borrowing capacity, **$56 thousand** outstanding at Dec 31, 2022[256](index=256&type=chunk) - Planned 2023 capital expenditures: **$4 million to $5 million**, for tracer diagnostics, perforating gun manufacturing (Repeat Precision), North American fracturing systems, computers, and software development[256](index=256&type=chunk) - Management believes current liquidity is sufficient for the next twelve months, but significant acquisitions may require additional debt or equity[256](index=256&type=chunk) [Cash Flows](index=45&type=section&id=Cash%20Flows) Net cash used in operating activities was **$(1.4) million** in 2022, a decrease from **$11.6 million** provided in 2021, primarily due to increased investments in inventory and accounts receivable Summary of Cash Flows (2021-2022, in thousands) | Cash Flow Activity | 2022 | 2021 | | :----------------- | :-------- | :-------- | | Operating Activities | $(1,423) | $11,583 | | Investing Activities | $(698) | $(444) | | Financing Activities | $(2,742) | $(4,265) | | Effect of exchange rate changes | $(1,071) | $(251) | | **Net change in cash and cash equivalents** | **$(5,934)** | **$6,623** | - **Operating Activities:** Decrease in cash flow from **$11.6 million** provided in 2021 to **$(1.4) million** used in 2022, reflecting investments in inventory, higher accounts receivable, and payment of 2021 annual incentive bonus (**$3.2 million**)[259](index=259&type=chunk) - **Investing Activities:** Net cash used increased to **$0.7 million** in 2022 (from **$0.4 million in 2021**) due to higher purchases of property and equipment[260](index=260&type=chunk) - **Financing Activities:** Net cash used decreased to **$2.7 million** in 2022 (from **$4.3 million in 2021**), primarily due to no distributions to non-controlling interest in 2022 compared to **$2.8 million** in 2021[261](index=261&type=chunk) [Material Cash Requirements](index=45&type=section&id=Material%20Cash%20Requirements) NCS's material cash requirements include obligations under its ABL Facility, Repeat Precision's promissory note, lease payment obligations, purchase obligations, and tax obligations - **Financing Arrangements:** ABL Facility with **$35.0 million** aggregate principal, **$18.6 million** borrowing base at Dec 31, 2022 (no outstanding debt); Repeat Precision Promissory Note with **$4.3 million** capacity, **$56 thousand** outstanding[262](index=262&type=chunk)[263](index=263&type=chunk) - **Leases:** Total lease payment obligations of **$14.6 million**, with **$3.3 million** due within 12 months (as of Dec 31, 2022)[264](index=264&type=chunk) - **Purchase Obligations:** **$12.6 million** in commitments, with **$9.8 million** expected within 12 months[267](index=267&type=chunk) - **Tax Obligations:** **$0.3 million** total, with **$0.1 million** due within 12 months, related to the 2017 Tax Act on accumulated foreign earnings[268](index=268&type=chunk)[269](index=269&type=chunk) [Critical Accounting Estimates](index=46&type=section&id=Critical%20Accounting%20Estimates) The company's financial statements rely on critical accounting estimates requiring significant management judgment, including the allowance for doubtful accounts, inventory valuation, impairment assessments, income taxes, and litigation accruals - **Allowance for Doubtful Accounts:** Estimates losses from uncollectible customer payments based on credit practices, historical experience, and customer financial condition, with a recovery of **$0.1 million** recorded in both 2022 and 2021[270](index=270&type=chunk) - **Inventories:** Valued at the lower of cost or net realizable value, periodically evaluated for obsolescence, slow-moving, or excess items, resulting in charges to cost of sales (**$2.5 million in 2022, $1.8 million in 2021**)[271](index=271&type=chunk) - **Impairments:** Evaluates property, equipment, and identifiable intangible assets for impairment when circumstances change, and performs annual goodwill impairment analysis, requiring judgments on future cash flows, revenue growth, operating margins, and market conditions[272](index=272&type=chunk) - **Income Taxes:** Uses the liability method for deferred income taxes, with a valuation allowance applied if deferred tax assets are unlikely to be realized, incurring operating losses in 2021 and 2022 leading to valuation allowances against U.S. and Canadian deferred tax assets[274](index=274&type=chunk)[275](index=275&type=chunk) - **Litigation:** Accrues for contingencies when a material loss is probable and estimable, based on judgment of factors like experience, precedents, and financial information, with outcomes being uncertain and potentially material[276](index=276&type=chunk)[277](index=277&type=chunk) [Recently Issued Accounting Pronouncements](index=47&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) NCS adopted ASU No. 2021-10 (Government Assistance disclosures) on January 1, 2022, with no material impact, and expects no material impact from adopting ASU No. 2016-13 (Credit Losses) on January 1, 2023 - Adopted ASU No. 2021-10 (Government Assistance disclosures) on January 1, 2022, with no material impact[278](index=278&type=chunk) - As a Smaller Reporting Company (SRC), will adopt ASU No. 2016-13 (Credit Losses) on January 1, 2023, with no material impact expected[279](index=279&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) [Smaller Reporting Company Status](index=47&type=section&id=Smaller%20Reporting%20Company%20Status) NCS Multistage Holdings, Inc. qualifies as a "smaller reporting company" under SEC rules, allowing it to take advantage of reduced reporting and disclosure burdens - Qualifies as a "smaller reporting company" (public float less than **$250 million**), allowing reduced reporting and disclosure burdens, including providing only two years of audited financial statements[279](index=279&type=chunk)[280](index=280&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) NCS Multistage Holdings, Inc. is exposed to commodity price risk, foreign currency exchange rate risk, interest rate risk, and credit risk - The company is exposed to commodity price risk, foreign currency exchange rate risk, interest rate risk, and credit risk[281](index=281&type=chunk) - **Commodity Price Risk:** Indirectly exposed to crude oil and natural gas price fluctuations, which impact customer drilling and completion activity, and does not currently hedge this risk[282](index=282&type=chunk) - **Foreign Currency Exchange Rate Risk:** Substantial revenue (**65% in 2022**) derived in Canada and denominated in CAD exposes the company to currency fluctuations, and it does not currently hedge exposure to CAD or other foreign currencies[283](index=283&type=chunk)[284](index=284&type=chunk) - **Interest Rate Risk:** Primarily from variable-rate borrowings under the ABL Facility (no outstanding debt at Dec 31, 2022, applicable rate **6.8%**) and Repeat Precision Promissory Note (**$56 thousand** outstanding at Dec 31, 2022, applicable rate **8.5%**)[285](index=285&type=chunk)[286](index=286&type=chunk) - **Credit Risk:** Concentration of counterparties in the oil and gas industry increases credit risk, managed by analyzing customer financial condition and monitoring collections[287](index=287&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements of NCS Multistage Holdings, Inc. for the years ended December 31, 2022 and 2021, along with comprehensive Notes to Consolidated Financial Statements - Includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Loss, Changes in Stockholders' Equity, and Cash Flows for the years ended December 31, 2022 and 2021[290](index=290&type=chunk)[293](index=293&type=chunk) - Notes to Consolidated Financial Statements provide detailed information on organization, significant accounting policies, revenue disaggregation, inventories, other current receivables, property and equipment, goodwill and identifiable intangibles, accrued expenses, debt, commitments and contingencies, stockholders' equity, share-based compensation, employee benefit plan, leases, income taxes, and segment/geographic information[290](index=290&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk)[425](index=425&type=chunk)[426](index=426&type=chunk)[427](index=427&type=chunk)[428](index=428&type=chunk)[429](index=429&type=chunk)[430](index=430&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk)[453](index=453&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=77&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and

Financial Data and Key Metrics Changes - In 2022, the company reported revenue of $155.6 million, a 31% increase compared to 2021, primarily driven by strong performance in Canada and the U.S. with year-over-year growth of 38% and 32% respectively [2] - The gross margin percentage for 2022 was 39%, slightly down from 41% in 2021, due to significant cost increases in oilfield tubulars and other materials [5] - Adjusted EBITDA for Q4 2022 was $6.4 million, consistent with Q4 2021, but a decline of $2 million sequentially [9] Business Line Data and Key Metrics Changes - The Tracer Diagnostics product line saw over 40% year-over-year revenue growth globally, with more than 30% growth in the U.S. and Canada, and over 60% growth outside North America [4] - The liner hanger business in Canada grew by more than 200% in 2022 compared to 2021, indicating strong demand in the well construction segment [19] - The Repeat Precision product line continues to perform well, supported by the growth of the customer base in Canada [20] Market Data and Key Metrics Changes - The company expects U.S. revenue for Q1 2023 to be between $12 million to $13 million, Canada between $30 million to $32 million, and international revenue between $1 million to $2 million [10] - The anticipated year-over-year average annual industry growth is up to 10% in both Canada and the U.S., with international industry activity expected to grow by at least 10% in 2023 [11] Company Strategy and Development Direction - The company aims to capitalize on international and offshore opportunities, particularly in the North Sea and the Middle East, as part of its growth strategy [7] - The vision is to be recognized as a trusted partner and innovator, focusing on technology-driven solutions and expanding market positions in fracturing systems [22] - The company plans to implement additional price increases across its business, with expectations of realizing full benefits in the second half of the year [21] Management's Comments on Operating Environment and Future Outlook - Management believes the company is in the early stages of a multi-year recovery in the oil and gas industry, with expectations for continued growth in international markets [2] - The company anticipates generating positive free cash flow in 2023, supported by operational cash flow and strategic capital investments [34] - Management expressed confidence in the company's ability to manage costs and improve EBITDA margins, despite inflationary pressures [5][21] Other Important Information - The company ended 2022 with a cash balance of over $16 million and total debt of $7.9 million, indicating a strong liquidity position [12][37] - The company expects total revenue for 2023 to be between $175 million and $190 million, with adjusted EBITDA between $20 million and $25 million [26] Q&A Session Summary Question: How does the company view working capital and its impact on free cash flow in 2023? - Management noted that while net working capital increased by over $7 million in 2022, the percentage of working capital to trailing revenue decreased from 45% to 35%, indicating improved efficiency [29] Question: What is the revenue generation outlook for the Purple Fire modular propane gun system in 2023? - Management indicated that traction is expected to increase as the customer base grows, with revenue generation anticipated to pick up in the second and third quarters of 2023 [44][45]

Investor Update March 2023 2 Forward-Looking Statements The information in this presentation includes "forward-looking statements" that are subject to risks and uncertainties. All statements, other than statements of historical fact included in this presentation, regarding NCS Multistage Holdings, Inc.'s (the "Company," "NCS", "NCSM", "we" or "us") strategy, financial guidance, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of managemen ...

Investor Update November 2022 Disclaimer 2 Leading Global Fnergy Technology Forward-Looking Statements The information in this presentation includes "forward-looking statements" that are subject to risks and uncertainties. All statements, other than statements of historical fact included in this presentation, regarding NCS Multistage Holdings, Inc.'s (the "Company," "NCS", "NCSM", "we" or "us") strategy, financial guidance, future operations, financial position, estimated revenues and losses, projected cost ...

NCS Multistage Holdings, Inc. (NASDAQ:NCSM) Q3 2022 Earnings Conference Call November 1, 2022 8:30 AM ET Company Participants Ryan Hummer - Chief Financial Officer Robert Nipper - Founder and Chief Executive Officer Mike Morrison - Incoming Chief Financial Officer Conference Call Participants John Daniel - Daniel Energy Partners Operator Good day and thank you for standing by. Welcome to the NCS Multistage Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today???s ...

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the period ended September 30, 2022, show a net income of **$4.0 million** for Q3 2022, despite negative cash from operations for the nine-month period due to increased working capital [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$137.1 million** as of September 30, 2022, from **$142.3 million** at year-end 2021, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $85,438 | $88,493 | | **Total Assets** | **$137,148** | **$142,325** | | **Total Current Liabilities** | $20,063 | $19,818 | | **Total Liabilities** | **$31,724** | **$31,658** | | **Total Equity** | **$105,424** | **$110,667** | | Cash and cash equivalents | $9,877 | $22,168 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenues increased **50.8%** to **$48.9 million** in Q3 2022, resulting in **$3.9 million** net income, while the nine-month period still recorded a **$3.1 million** net loss despite **40.1%** revenue growth Q3 2022 vs Q3 2021 Operating Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $48,870 | $32,411 | 50.8% | | Income from Operations | $4,047 | $2,640 | 53.3% | | Net Income Attributable to NCS | $3,935 | $2,796 | | | Diluted EPS | $1.58 | $1.14 | | Nine Months 2022 vs 2021 Operating Results (in thousands, except per share data) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Total Revenues | $115,446 | $82,386 | | Loss from Operations | ($4,066) | ($6,403) | | Net Loss Attributable to NCS | ($3,081) | ($6,396) | | Diluted EPS | ($1.27) | ($2.67) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income for Q3 2022 was **$0.6 million**, a decrease from Q3 2021, primarily due to a **$3.4 million** negative foreign currency translation adjustment, leading to a **$7.4 million** comprehensive loss for the nine-month period Comprehensive Income (Loss) (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | **Three Months Ended Sep 30** | | | | Net income (loss) | $3,964 | $3,226 | | Foreign currency translation adjustments | ($3,359) | ($1,007) | | Comprehensive income (loss) | $605 | $2,219 | | **Nine Months Ended Sep 30** | | | | Net income (loss) | ($3,243) | ($5,775) | | Foreign currency translation adjustments | ($4,118) | ($184) | | Comprehensive income (loss) | ($7,361) | ($5,959) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased from **$110.7 million** at year-end 2021 to **$105.4 million** as of September 30, 2022, driven by the nine-month net loss and negative foreign currency translation adjustments - The change in total equity from **$110.7 million** at the end of 2021 to **$105.4 million** at the end of Q3 2022 was primarily driven by the nine-month net loss and a cumulative negative currency translation adjustment of **$4.1 million**, which were partially offset by share-based compensation[15](index=15&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$9.0 million** for the nine months ended September 30, 2022, a reversal from the prior year, primarily due to increases in accounts receivable and inventory, leading to a **$12.3 million** decrease in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($9,036) | $6,721 | | Net cash used in investing activities | ($440) | ($297) | | Net cash used in financing activities | ($2,387) | ($3,405) | | **Net change in cash and cash equivalents** | **($12,291)** | **$2,899** | | Cash and cash equivalents end of period | $9,877 | $18,444 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes disclose accounting policies, revenue disaggregation by geography (Canada largest market), the replacement of the prior credit facility with a new **$35.0 million** ABL Facility, and specifics on share-based compensation grants - The company provides engineered products and support services for oil and natural gas well construction and completions, operating primarily in North America with facilities in the US, Canada, Argentina, and Norway[25](index=25&type=chunk) Revenue by Geographic Region (Nine Months Ended Sep 30, in thousands) | Region | 2022 | 2021 | | :--- | :--- | :--- | | United States | $32,722 | $25,090 | | Canada | $76,136 | $51,530 | | Other Countries | $6,588 | $5,766 | | **Total Revenues** | **$115,446** | **$82,386** | - On May 3, 2022, the company terminated its Prior Senior Secured Credit Facility and entered into a new **$35.0 million** asset-based revolving credit facility (ABL Facility) which matures in 2027[53](index=53&type=chunk)[54](index=54&type=chunk) - During the first nine months of 2022, the company granted **70,938** RSUs, **48,565** cash-settled ESUs, and **17,454** PSUs as part of its share-based compensation program[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **50.8%** YoY revenue increase in Q3 2022 driven by North American activity, noting significant cost pressures from raw materials and labor, while expecting continued strong industry activity despite risks from competition, a strong U.S. dollar, and potential economic slowdown [Outlook](index=18&type=section&id=Outlook) The company anticipates increased drilling and completion activity in the U.S. and Canada for 2022, driven by strong commodity prices, but faces challenges from intense competition, rising raw material and labor costs, a strengthening U.S. dollar, and potential economic recession - Management expects U.S. drilling activity to increase over **30%** and completion activity by over **10%** in 2022, with Canadian drilling and completion activity expected to increase by **20%** to **25%**[84](index=84&type=chunk) - The company is experiencing increased prices for raw materials (steel, chemicals), components, and outsourced services, as well as labor cost inflation, which may negatively impact margins[86](index=86&type=chunk)[111](index=111&type=chunk) - A strengthening U.S. dollar poses a risk, as over **60%** of revenue is generated in Canada, resulting in lower reported revenue and gross profit when converted to U.S. dollars[87](index=87&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q3 2022 revenues increased **50.8%** to **$48.9 million**, with income from operations growing **53.3%** to **$4.0 million**, though cost of sales as a percentage of revenue increased due to supply chain costs and the absence of the ERC benefit Q3 2022 vs Q3 2021 Results Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $48,870 | $32,411 | 50.8% | | Total Cost of Sales | $28,394 | $17,636 | 61.0% | | SG&A | $15,379 | $10,982 | 40.0% | | Income from Operations | $4,047 | $2,640 | 53.3% | - Q3 2022 revenue growth was driven by higher product sales and services volumes in Canada and the U.S. due to increased industry activity[115](index=115&type=chunk) - Cost of sales as a percentage of revenue increased in Q3 2022 to **58.1%** from **54.4%** in Q3 2021, due to supply chain cost increases and the non-recurrence of the U.S. employee retention credit (ERC)[116](index=116&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, the company had **$9.9 million** in cash and access to a **$35.0 million** ABL facility, with net cash used in operations for the first nine months totaling **$9.0 million**, primarily due to increased accounts receivable and inventory - Primary liquidity sources are cash (**$9.9M**), cash from operations, and a new **$35.0M** ABL Facility, with the ABL borrowing base at **$23.8M** and no outstanding borrowings as of Sep 30, 2022[126](index=126&type=chunk) - Net cash used in operating activities was **($9.0) million** for the nine months ended Sep 30, 2022, compared to **$6.7 million** provided in the same period of 2021, primarily driven by increases in accounts receivable and inventory[24](index=24&type=chunk)[131](index=131&type=chunk) - Planned capital expenditures for 2022 are approximately **$1.0 million** to **$1.5 million**[128](index=128&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure, primarily interest rate and foreign currency risk, remains largely unchanged since year-end 2021, with the new ABL Facility exposing it to variable interest rates, though no outstanding borrowings minimize immediate risk - The company's primary market risk exposure is to interest rates through its new ABL Facility, which has variable rates based on SOFR and CDOR, but as of September 30, 2022, there was no outstanding indebtedness under the facility[146](index=146&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective[147](index=147&type=chunk) - No changes occurred during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[148](index=148&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various ordinary course legal proceedings, which management does not expect to have a material adverse effect on its financial position, results of operations, or cash flows - The company is subject to various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect on its financial position, results of operations, or cash flows[65](index=65&type=chunk)[151](index=151&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors primarily focus on the new ABL Facility, including potential adverse effects of indebtedness on financial condition, restrictive covenants limiting business strategies, and the impact of volatile credit markets on future financing - The company's new ABL Facility, secured by substantially all assets, has a borrowing base that excludes assets of Repeat Precision and could be insufficient to meet liquidity needs[153](index=153&type=chunk) - The ABL Facility contains restrictive covenants that limit the company's ability to incur debt, grant liens, make investments, pay dividends, and make acquisitions[157](index=157&type=chunk) - A breach of covenants, such as the fixed charge coverage ratio (tested when liquidity is low), could lead to an event of default and acceleration of debt[158](index=158&type=chunk)[159](index=159&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) Exhibits filed with the Form 10-Q include amended employment agreements for executives and required CEO and CFO certifications under the Sarbanes-Oxley Act - Exhibits filed include amended employment agreements for the CEO and another executive, as well as Sarbanes-Oxley certifications[162](index=162&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for the period ended June 30, 2022, indicate revenue growth, a net loss, and a decline in total assets primarily due to reduced cash and negative operating cash flow [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets decreased to **$132.7 million** from **$142.3 million** at year-end 2021, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $79,740 | $88,493 | | Cash and cash equivalents | $14,930 | $22,168 | | **Total assets** | **$132,697** | **$142,325** | | **Total current liabilities** | $17,064 | $19,818 | | **Total liabilities** | **$28,730** | **$31,658** | | **Total equity** | **$103,967** | **$110,667** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2022, revenues increased **33%** to **$66.6 million**, yet the company reported a net loss of **$7.2 million**, a slight improvement over the prior year Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | **$27,464** | **$21,461** | **$66,576** | **$49,975** | | Loss from operations | $(5,910) | $(5,391) | $(8,113) | $(9,043) | | **Net loss** | **$(5,478)** | **$(5,544)** | **$(7,207)** | **$(9,001)** | | Net loss attributable to NCS | $(5,481) | $(5,795) | $(7,016) | $(9,192) | | Diluted loss per share | $(2.25) | $(2.41) | $(2.89) | $(3.85) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash used in operating activities was **$(5.2) million**, a significant decrease from the prior year, leading to a **$7.2 million** net decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(5,198) | $1,090 | | Net cash used in investing activities | $(301) | $(316) | | Net cash used in financing activities | $(1,525) | $(2,580) | | **Net change in cash and cash equivalents** | **$(7,238)** | **$(1,646)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, geographic revenue breakdown showing strong growth in Canada and the U.S., the new **$35.0 million** ABL Facility, and share-based compensation awards Revenue by Geographic Region (in thousands) | Region | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $12,133 | $9,228 | $21,211 | $17,051 | | Canada | $12,848 | $9,194 | $41,377 | $29,429 | | Other Countries | $2,483 | $3,039 | $3,988 | $3,495 | | **Total revenues** | **$27,464** | **$21,461** | **$66,576** | **$49,975** | - On May 3, 2022, the company entered into a new **$35.0 million** secured asset-based revolving credit facility (ABL Facility), which replaced and terminated its Prior Senior Secured Credit Facility[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - During the first six months of 2022, the company granted **66,793** restricted stock units (RSUs), **48,565** cash-settled equivalent stock units (ESUs), and **17,454** performance stock units (PSUs)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **28%** Q2 2022 revenue growth driven by North American activity, offset by competitive pressures, rising costs, and supply chain disruptions, while maintaining liquidity through cash and a new ABL facility [Outlook](index=18&type=section&id=Outlook) The company anticipates increased drilling and completion activity in North America for 2022, but faces challenges from intense competition, inflationary pressures on costs, and potential economic slowdowns - Management expects U.S. drilling and completion activity to increase by over **20%** and over **10%** respectively in 2022, while Canadian activity is expected to increase by **15%** to **25%**[85](index=85&type=chunk) - The company is experiencing increased prices for raw materials (steel, chemicals), purchased components, and outsourced services, which began in H2 2021 and continued into 2022[87](index=87&type=chunk) - Tight labor conditions have led to increased employee turnover, delays in hiring, and labor cost inflation, impacting both cost of sales and SG&A expenses[87](index=87&type=chunk)[112](index=112&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) For Q2 2022, revenues increased **28.0%** to **$27.5 million**, but cost of sales grew faster at **33.0%** due to inflation, leading to a widened operating loss of **$(5.9) million** Results of Operations Comparison (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $27,464 | $21,461 | 28.0% | | Total cost of sales | $18,523 | $13,927 | 33.0% | | SG&A expenses | $13,745 | $11,823 | 16.3% | | Loss from operations | $(5,910) | $(5,391) | (9.6)% | - The increase in cost of sales as a percentage of revenue was driven by lower pricing for certain products, a less favorable revenue mix, and increased costs for raw materials, labor, and outsourced services[117](index=117&type=chunk) - The rise in SG&A expenses was primarily due to **$1.1 million** in higher compensation and benefit costs following the reinstatement of salaries and benefits that were temporarily reduced in prior periods[118](index=118&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, liquidity was supported by **$14.9 million** in cash and a new **$35.0 million** ABL facility, despite negative operating cash flow of **$(5.2) million** for the first six months Liquidity Position as of June 30, 2022 (in millions) | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $14.9 | | ABL Facility Size | $35.0 | | ABL Borrowing Base | $12.8 | | ABL Outstanding Borrowings | $0.0 | - The decrease in operating cash flow for the first six months of 2022 was primarily driven by the payment of a **$3.2 million** annual incentive bonus and increases in accounts receivable and inventories[135](index=135&type=chunk) - Capital expenditures for 2022 are planned to be between **$1.0 million** and **$2.0 million**[132](index=132&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk profile remains largely unchanged, with primary exposure to interest rate risk from the new ABL Facility, which had no outstanding borrowings as of June 30, 2022 - The company's primary market risk is interest rate risk, now tied to its new ABL Facility entered into on May 3, 2022, with borrowings bearing variable interest rates based on benchmarks including SOFR, CDOR, and prime rates[148](index=148&type=chunk)[149](index=149&type=chunk) - As of June 30, 2022, the company had no outstanding indebtedness under the ABL Facility[149](index=149&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[150](index=150&type=chunk) - There were no changes to internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[151](index=151&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, which management does not expect to have a material adverse effect on its financial condition or operations - The company is involved in various legal proceedings in the ordinary course of business but does not expect the results to have a material adverse effect on its financial condition[66](index=66&type=chunk)[153](index=153&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company highlights new and updated risk factors primarily related to its new ABL Facility, including potential adverse effects on financial condition, restrictive covenants, and limitations on borrowing ability under certain liquidity conditions - The new ABL Facility is secured by substantially all company assets and availability is limited by a borrowing base calculation, which could be constrained by adverse market developments[155](index=155&type=chunk) - The ABL Facility contains restrictive covenants that limit the company's ability to, among other things, incur additional debt, grant liens, make certain investments, and pay dividends[159](index=159&type=chunk) - A financial covenant requires maintaining a fixed charge coverage ratio of at least **1.0 to 1.0** whenever liquidity is less than **20%** of revolving commitments, which could impact the ability to borrow under the facility[160](index=160&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Credit Agreement for the new ABL Facility, an amended CFO employment agreement, and required CEO and CFO certifications - Key exhibits filed include the Credit Agreement for the new ABL Facility, an amended employment agreement for Ryan Hummer (CFO), and Sarbanes-Oxley Act certifications[164](index=164&type=chunk)