NCS Multistage(US:NCSM)2021-11-02 20:42Market Activity and Trends - NCS Multistage Holdings, Inc. expects U.S. drilling and completions activity to be modestly higher in 2021 compared to 2020, with Canadian activity expected to exceed 2020 levels by a greater margin [91]. - The Canadian rig count was 228% higher in Q3 2021 compared to Q3 2020, indicating a stronger recovery than in the U.S. [92]. - The demand for crude oil contracted by 8.6 MMBBL/D in 2020 compared to 2019, with a projected increase of 5.5 MMBBL/D in 2021 [99]. - OPEC+ plans to gradually increase production capacity by approximately 0.4 MMBBL/D each month from August 2021 to September 2022 [100]. - The average WTI crude oil price was $70.58/BBL in Q3 2021, recovering from a low of $27.96/BBL in Q2 2020 [100]. - WTI crude oil pricing increased from approximately $48 per barrel at the end of December 2020 to approximately $71 per barrel in Q3 2021 [113]. - Natural gas pricing rose from an average of $2.03 per MMBtu in 2020 to $4.35 per MMBtu in Q3 2021, reflecting increased demand and supply disruptions [114]. Financial Performance - Total revenues for the three months ended September 30, 2021, were $32.4 million, an increase of 98.7% compared to $16.3 million for the same period in 2020 [132]. - Product sales reached $21.2 million, up 82.1% from $11.7 million in the prior year, while services revenue increased by 140.4% to $11.2 million from $4.7 million [132][134]. - Net income for the three months ended September 30, 2021, was $3.2 million, compared to a net loss of $5.1 million in the same period of 2020, marking a 162.8% improvement [132]. - For the nine months ended September 30, 2021, total revenues were $82.4 million, a 3.5% increase from $79.6 million in the same period of 2020 [141]. - Selling, general and administrative expenses decreased by 27.0% to $35.6 million for the nine months ended September 30, 2021, down from $48.8 million in 2020 [144]. - The company reported a loss from operations of $6.4 million for the nine months ended September 30, 2021, significantly improved from a loss of $71.4 million in the same period of 2020 [140]. Cost Management - NCS implemented cost-saving measures resulting in over $19 million in savings during 2020, primarily from reductions in selling, general and administrative expenses [107]. - Cost of sales was $17.6 million, representing 54.4% of revenues, a decrease from 62.6% of revenues in the same quarter of 2020 [135]. - Cost of sales for the nine months ended September 30, 2021, was $49.8 million, or 60.5% of revenues, compared to $47.2 million, or 59.3% of revenues, in the same period of 2020 [142]. - NCS has begun to experience labor cost inflation, impacting both cost of sales and SG&A expenses due to increased salaries and turnover [130]. Asset Management and Impairments - NCS recorded a provision for doubtful accounts of $0.8 million in 2020, with a recovery of $0.1 million during the nine months ended September 30, 2021 [103]. - Impairment charges of $9.7 million in property and equipment and $40.5 million related to identifiable intangible assets were recorded in Q1 2020 due to decreased crude oil pricing and market conditions [111]. - Amortization decreased to $0.5 million for the nine months ended September 30, 2021, from $1.3 million in the same period of 2020, due to non-cash impairment charges of $40.5 million in Q1 2020 [146]. - Impairment charges recorded were $9.7 million for property and equipment and $40.5 million for finite-lived intangible assets due to adverse industry conditions related to COVID-19 [147]. Cash Flow and Financing - Cash and cash equivalents as of September 30, 2021, were $18.4 million, with total outstanding indebtedness of $8.2 million [152]. - Net cash provided by operating activities was $6.7 million for the nine months ended September 30, 2021, down from $14.5 million in the same period of 2020 [156]. - Capital expenditures for the nine months ended September 30, 2021, were $0.7 million, down from $1.9 million in the same period of 2020 [153]. - Net cash used in financing activities decreased to $3.4 million for the nine months ended September 30, 2021, from $15.7 million in the same period of 2020 [158]. - The Senior Secured Credit Facility has an aggregate principal amount of $25.0 million, with no amounts currently outstanding as of September 30, 2021 [161]. Risks and Challenges - The company cautions against reliance on forward-looking statements due to inherent uncertainties and risks, including the impact of the COVID-19 pandemic [175]. - Key risks include fluctuations in oil and natural gas prices, competition, and the ability to implement new technologies and products [175]. - The company faces challenges in increasing sales in the United States and potential losses from uninsured business activities [175]. - There are risks related to regulatory compliance, including changes in legislation governing the oil and natural gas industry [175]. - The company has not experienced material changes in its exposure to market risk since December 31, 2020 [177]. Company Structure and Classification - The company owns a 50% interest in Repeat Precision, LLC, which sells composite frac plugs and related products [89]. - NCS's fracturing systems products enable efficient pinpoint stimulation, utilized in cemented wellbores for controlled treatment placement [88]. - The company expects international sales to increase over time, with current sales made through local entities or operating partners in regions like China and the Middle East [127]. - The company is classified as an "emerging growth company" and a "smaller reporting company," allowing it to benefit from reduced reporting requirements [172]. - The company will maintain its emerging growth status until it reaches total annual gross revenue of at least $1.07 billion or a market value exceeding $700 million [172].