NCS Multistage(US:NCSM)2023-10-31 20:09Market Conditions - The average WTI crude oil price was $82.25 per barrel in Q3 2023, compared to approximately $83 per barrel in Q4 2022, reflecting a decrease in the first half of 2023[87]. - Natural gas prices averaged $2.59 per MMBtu in Q3 2023, down from $5.55 per MMBtu in Q4 2022, due to warm winter conditions and reduced demand[88]. - The average U.S. land rig count declined by 17% to 630 in Q3 2023 compared to Q4 2022, and by 15% compared to the same period in 2022[92]. - The average rig counts in Canada and the United States decreased by 6% and 15%, respectively, in Q3 2023 compared to Q3 2022, impacting sales[105]. - International industry activity is expected to improve by over 10% in 2023 compared to the prior year[81]. Revenue and Sales Performance - Total revenues for the three months ended September 30, 2023, were $38.3 million, a decrease of 21.7% compared to $48.9 million for the same period in 2022[105]. - Product sales accounted for 71% of revenues for the three months ended September 30, 2023, compared to 70% for the same period in 2022[95]. - Product sales decreased by 19.7% to $27.3 million, while services revenues fell by 26.2% to $11.0 million for the three months ended September 30, 2023[104]. - For the nine months ended September 30, 2023, total revenues were $107.2 million, a decrease of 7.1% from $115.4 million in the same period of 2022[114]. - Revenues for the nine months ended September 30, 2023, were $107.2 million, a decrease from $115.4 million in the same period of 2022, primarily due to lower U.S. product sales and decreased Canadian and international services activity[115]. - Product sales decreased to $76.1 million for the nine months ended September 30, 2023, compared to $79.5 million for the same period in 2022, while services revenues totaled $31.1 million, down from $35.9 million[115]. Cost and Expenses - Cost of sales was $22.6 million, representing 59.0% of revenues, compared to $28.4 million or 58.1% of revenues in the prior year[106]. - Cost of sales was $64.5 million, or 60.2% of revenues, for the nine months ended September 30, 2023, down from $71.1 million, or 61.6% of revenues, in the same period of 2022[116]. - Selling, general and administrative expenses decreased to $12.7 million, down 17.6% from $15.4 million in the same quarter of 2022[108]. - Selling, general and administrative expenses decreased to $43.3 million for the nine months ended September 30, 2023, compared to $45.1 million in 2022, reflecting lower professional fees and incentive bonus accruals[118]. Income and Financial Position - Net income for the three months ended September 30, 2023, was $4.1 million, a slight increase of 3.7% from $4.0 million in the prior year[104]. - Other income, net for the three months ended September 30, 2023, was $2.0 million, significantly up from $0.6 million in the same period of 2022[110]. - Other income, net increased to $3.8 million for the nine months ended September 30, 2023, compared to $1.6 million in the same period of 2022, driven by recovery of unpaid invoices and increased royalty income[120]. - Cash and cash equivalents as of September 30, 2023, were $11.4 million, with total outstanding indebtedness of $8.3 million related to finance lease obligations[123]. - Net cash used in operating activities improved to $1.4 million for the nine months ended September 30, 2023, from $9.0 million in the same period of 2022[131]. Litigation and Legal Matters - The provision for litigation resulted in a net expense of $42.5 million for the nine months ended September 30, 2023, compared to no expense in the same period of 2022[114]. - The provision for litigation, net of recoveries, totaled $42.5 million for the nine months ended September 30, 2023, primarily related to a judgment in the Texas Matter[119]. - The company intends to appeal the judgment related to the Texas Matter and believes it has strong arguments for a potential reversal of damages awarded[126]. Operational Challenges and Risks - The company has experienced supply chain disruptions and higher raw material costs, impacting both cost of sales and SG&A expenses[85]. - Competitive pressures have intensified, potentially impacting market share and operating margins for certain product lines[83]. - The company faces significant competition for its products and services, leading to pricing pressures and potential loss of market share[141]. - There is a risk of not successfully developing new technologies and products that meet customer needs, particularly in non-traditional energy markets[141]. - The company aims to increase sales in U.S. and international markets but may encounter challenges in implementation[141]. - Potential losses could arise from the inability to protect intellectual property and adverse outcomes in related disputes[141]. - The company is exposed to risks from uninsured business activities and litigation, which could impact financial stability[141]. - There are concerns regarding the ability to achieve price increases to counteract cost inflation[141]. - The company may face difficulties in attracting and retaining qualified employees, which could affect operational efficiency[141]. - Currency exchange rate fluctuations pose a risk to financial performance[141]. - The company must navigate regulatory changes in the oil and natural gas industry, including emissions restrictions[141]. - There is a risk of not accurately predicting customer demand, potentially leading to excess or obsolete inventory[141].